10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 000-31293
______________________
EQUINIX, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
77-0487526
(State of incorporation)
 
(IRS Employer Identification No.)
One Lagoon Drive, Fourth Floor, Redwood City, California 94065
(Address of principal executive offices, including ZIP code)
(650) 598-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.001
 
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Act. Yes  x    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes   ¨   No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ¨   No  x
The aggregate market value of the voting and non-voting common stock held by non-affiliates computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $14.5 billion. As of January 29, 2016, a total of 69,025,412 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III – Portions of the registrant’s definitive proxy statement to be issued in conjunction with the registrant’s 2016 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the registrant’s fiscal year ended December 31, 2015. Except as expressly incorporated by reference, the registrant’s proxy statement shall not be deemed to be a part of this report on Form 10-K.
 




EQUINIX, INC.
FORM 10-K
DECEMBER 31, 2015
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PART I
ITEM 1.
BUSINESS
The words “Equinix”, “we”, “our”, “ours”, “us” and the “Company” refer to Equinix, Inc. All statements in this discussion that are not historical are forward‑looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding Equinix’s “expectations”, “beliefs”, “intentions”, “strategies”, “forecasts”, “predictions”, “plans” or the like. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward‑looking statements. Equinix cautions investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward‑looking statements as a result of various factors, including, but not limited to, the risk factors discussed in this Annual Report on Form 10-K. Equinix expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward‑looking statements contained herein to reflect any change in Equinix’s expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based.
Overview
Equinix, Inc. connects more than 6,300(1) companies directly to their customers and partners inside the world’s most interconnected data centers. Today, businesses leverage the Equinix interconnection platform in 33 strategic markets across the Americas, Asia-Pacific, and Europe, Middle East and Africa (EMEA).
In September 2012, we announced that our Board of Directors approved a plan for Equinix to pursue conversion to a real estate investment trust (a “REIT”). On December 23, 2014, our Board of Directors formally approved our conversion to a REIT effective on January 1, 2015. We completed the implementation of the REIT conversion in 2014 and as a result, we began operating as a REIT for federal income tax purposes effective January 1, 2015. In May 2015, we received a favorable response to the private letter ruling (“PLR”) we had requested from the U.S. Internal Revenue Service (“IRS”) in connection with our conversion to a REIT for federal income tax purposes. The REIT conversion includes almost all of our data center operations in the U.S., Europe and Japan held through qualified REIT subsidiaries (“QRSs”); our data center operations in other jurisdictions have initially been designated as taxable REIT subsidiaries (“TRSs”).
In May 2015 we announced an offer for the entire issued and to be issued share capital of Telecity Group plc (“TelecityGroup”), valued at approximately £2.4 billion, or $3.8 billion in U.S. dollars. The transaction closed in January 2016. The total consideration consisted of $1.7 billion in cash and 6.9 million shares of our common stock, valued at $2.1 billion.
Platform Equinix® combines a global footprint of state-of-the-art International Business Exchange™ (IBX®) data centers, a variety of interconnection opportunities and unique ecosystems. Together, these components accelerate business growth and opportunity for Equinix’s customers by securing their infrastructure and applications closer to users. This enables customers to improve performance with cost-effective and scalable interconnections, work with vendors to deploy new technologies, such as cloud computing, and collaborate with the widest variety of partners and customers to achieve their ambitions.
Equinix’s platform offers these unique value propositions to customers:
Global Data Centers
A broad footprint of 112 IBX data centers in 15 countries on 5 continents.
More than $8.7 billion of capital invested in capacity, new markets and acquisitions since 1998.
Equinix delivered uptime of 99.9999% across its footprint in 2015.
Interconnection
More than 1,100 networks and approximately 170,000+ cross connects in Equinix sites
Equinix provides less than 10 milliseconds latency to over 90% of the population of North America and Europe, as well as to key population centers throughout Latin America and Asia-Pacific.
Partners, Customers and Prospects
Equinix sites house a blue-chip customer base of 6,300+ global businesses.
These customers represent a who’s who of network, digital media, financial services, cloud/IT and enterprise leaders.

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(1) All metrics in this Annual Report on Form 10-K are as of December 31, 2015 and do not include Telecity Group plc.

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Opportunity
Equinix data centers contain a dynamic marketplace for communications services, interconnecting businesses, networks, carriers and content providers to potential suppliers, customers and partners.
More than 6,300+ potential partners to deploy world-class solutions.
Equinix has established a critical mass of customers that continues to drive new and existing customer growth and bookings. Our network- and cloud-neutral business model also contributes to our success in the market. Rather than selling a particular network, we offer customers direct interconnection to an aggregation of bandwidth providers. The providers in our sites include the world’s top carriers, mobile providers, Internet service providers (ISPs), broadband access networks (DSL / cable) and international carriers. Our neutrality also means our customers can choose to buy from, or partner with, leading companies across our five targeted verticals. These include:
Network and Mobile Providers (AT&T, British Telecom, China Mobile, Comcast, Level 3 Communications, Lycamobile, NTT Communications, SingTel Ltd., Syniverse Technologies, T-Mobile, TATA Communications, Verizon)
Cloud and IT Services (Amazon Web Services, Box Inc., Carpathia Hosting Inc., NetApp, Microsoft Azure, Salesforce.com, SoftLayer, Cisco Systems Inc., Oracle, Datapipe, CloudSigma, Workday, Inc.)
Content Providers (Brightroll, eBay, DIRECTV, Hulu, LinkedIn, Netflix, Priceline.com)
Enterprise (Anheuser-Busch, InBev, Bechtel, Burger King Corporation, Caterpillar, Inc., CDM Smith, Chevron, GE, Harper Collins Publishers, Ingram Micro)
Financial Companies (ACTIV Financial, Bloomberg, Chicago Board Options Exchange, DirectEdge, Quantlab Financial, NASDAQ, OMX Group Inc., NYSE Technologies, Thomson Reuters)
Equinix generates revenue by providing colocation and related interconnection and managed IT infrastructure offerings on a global platform of 112 IBX data centers.
Colocation offerings include operations space, storage space, cabinets and power for customers’ colocation needs.
Interconnection offerings include Equinix Cloud Exchange™, which enables simultaneous, direct and secure connections to multiple clouds from a single port, and Performance Hub™, which takes enterprise IT inside any one of our global data centers, bringing our customers closer to their end users for improved network reliability, performance and security. Equinix also offers cross connects, as well as switch ports on the Equinix Internet Exchange. These offerings provide scalable and reliable connectivity that allows customers to exchange traffic directly and securely with the service provider of their choice or with each other, creating a performance optimized business ecosystem for the exchange of data between strategic partners.
Managed IT infrastructure services are offered in limited regional markets to allow customers to leverage Equinix’s significant telecommunications expertise, maximize the benefits of our IBX data centers and optimize their infrastructure and resources.
Equinix professional services guide customers though complex IT infrastructure changes and hybrid and multi-cloud deployments quickly and securely, while delivering continuous and reliable technical support. Equinix cloud consulting services, led by recently acquired professional service company Nimbo, optimize cloud migrations, matching service providers and architectures to individual business needs. Solution Validation Centers™ (SVCs™) allow customers to test and fine-tune cloud, network and IT infrastructure rollouts in a real-world setting prior to deployment. Global Solution Architects™ run our SVCs and are experts in emerging trends and the range of solutions and services available from providers inside our data centers. They can design, build and implement solutions that best match enterprise aims and budgets. The Equinix Customer Portal delivers full-time access to support, instant reporting and requests for Equinix Smart Hands™ technicians. These highly trained data center experts are on call for everything from routine cable installations to technical assistance and troubleshooting.
The market for Equinix’s offerings has previously been served by large telecommunications carriers that have bundled their telecommunications and managed services with their colocation offerings. In addition, some Equinix customers, such as Microsoft, build and operate their own data centers for their large infrastructure deployments, called server farms. However, these customers

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rely upon Equinix IBX data centers for many of their critical interconnection relationships. The need for sizable, wholesale, outsourced data centers is also being addressed by providers that build large data centers to meet customers’ needs for standalone data centers, a different customer segment than Equinix serves.
Due to the increasing cost and complexity of the power and cooling requirements of today’s data center equipment, Equinix has gained many customers that have outgrown their existing data centers or have realized the benefits of a network-neutral model and the ability to create their own optimized business ecosystems for the exchange of data. Strategically, we will continue to look at attractive opportunities to grow market share and selectively expand our footprint and offerings. We continue to leverage our global reach and depth to differentiate Equinix based upon our ability to support truly global customer requirements in all our markets.
Equinix is benefiting from a growth in demand for data center offerings. Several factors contribute to this growth in demand, including:
The growth of “proximity communities” that rely on immediate physical colocation and interconnection with their strategic partners and customers, such as financial exchange ecosystems for electronic trading and settlement and ecosystems for real-time bidding and fulfillment of Internet advertising.
The adoption of cloud computing technology services, including the growth of hybrid/multi-clouds, enterprise cloud service offerings such as Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) and disaster recovery services.
The continuing growth of consumer Internet traffic from new bandwidth-intensive services, such as video, voice over IP (VoIP), social media, mobile data, gaming, data-rich media, Ethernet and wireless services. The financial services market is experiencing tremendous growth due to electronic trading and the increased volume of peak messages (transactions per second), requiring optimized data exchange through business ecosystems.
The increasing requirements for anytime, anywhere and any device interconnection out at the edge of the corporate network to improve the performance, security, scalability and reliability of interconnecting people, locations, clouds and data.
Significant increases in power and cooling requirements for today’s data center equipment. New generations of servers continue to concentrate processing capability, with associated power consumption and cooling load, into smaller footprints, and many legacy-built data centers are unable to accommodate these new power and cooling demands. The high capital costs associated with building and maintaining “in-sourced” data centers creates an opportunity for capital savings by leveraging an outsourced colocation model.
Industry Background
The Internet is a collection of numerous independent networks interconnected to form a network of networks. Users on different networks are able to communicate with each other through interconnection between these networks. For example, when a person sends an email to someone who uses a different provider for his or her connectivity (e.g., Comcast versus Verizon), the email must pass from one network to the other to get to its final destination. Equinix provides a physical point at which that interconnection can occur. 
To accommodate the rapid growth of Internet traffic, an organized approach for network interconnection was needed. This was the start of the network era, when networks gained mutual advantage by exchanging data traffic on interoperable platforms. The exchange of traffic between these networks became known as peering. Peering is when networks trade traffic at relatively equal amounts and set up agreements to trade traffic, often at no charge to the other party. At first, government and nonprofit organizations established places where these networks could exchange traffic, or peer, with each other-these points were known as network access points, or NAPs. Over time, many NAPs became a natural extension of carrier services and were run by such companies as MFS (now a part of Verizon Business), Sprint, Ameritech and Pacific Bell (the latter two are now part of AT&T). 
Ultimately, these NAPs were unable to scale with the growth of the Internet, and the lack of “neutrality” by the carrier owners of these NAPs created a conflict of interest with the participants. This created a market need for network-neutral interconnection points that could accommodate the rapidly growing need to increase performance for enterprise and consumer users of the Internet, especially with the rise of important content providers such as AOL, Microsoft, Yahoo! and others. In addition, the providers, as well as a growing number of enterprises, required a more secure and reliable solution for direct connection to a variety of

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telecommunications networks, as the importance of their Internet operations continued to grow. These were the seeds of the connected era, when peering expanded exponentially, and between new players, and access to information anytime and anywhere became the norm.  
To accommodate Internet traffic growth, the largest networks left the NAPs and began connecting and trading traffic by placing private circuits between each other. Peering, which once occurred at the NAP locations, was moved to these private circuits. Over the years, these circuits became expensive to expand and could not be built quickly enough to accommodate traffic growth. This led to a need by the large carriers to find a more efficient way to peer. Today, many customers satisfy their requirements for peering through data center providers like Equinix because this strategy permits them to peer with the networks they require within one location, using simple, direct and secure connections. Their ability to peer within a data center or across a data center campus, instead of across a metro area, has increased the scalability of their operations while decreasing network costs.
The interconnection model has further evolved over the years to include new offerings, as the collaborative landscape of the interconnected era imposes new demands on connectivity. As enterprises become increasingly interdependent and cloud-enabled, they need real-time data exchange and reliable, instant connections between the various corners of any given digital ecosystem to compete. Starting with the peering and network communities, interconnection has been used for new network services, including carrier Ethernet, multiprotocol label switching (MPLS), virtual private networks (VPNs) and mobile services, in addition to traditional international private line and voice services. The industry continues to evolve with a set of new offerings where interconnection is often used to solve the network-to-network and the cloud-to-cloud interconnection challenges in order to keep up with the rapid digital transformation of today’s businesses.
In addition, the enterprise customer segment is also evolving. In the past, most enterprises opted to keep their data center requirements in house. However, current trends are leading more and more enterprise chief information officers (CIOs) to either outsource their data center requirements, and/or extend their corporate wide area networks (WANs) into carrier-neutral colocation facilities. The combination of globalization, the proliferation of bandwidth intensive Internet-facing applications and rich media content, the need to provide access to cloud computing environments and business continuity and disaster recovery options, plus tight corporate IT budgets, mean that enterprise CIOs must do more with less. Industry analysts forecast growth in the colocation market to be approximately 10% per year over the next four years.
Equinix Value Proposition
More than 6,300 companies, including a diversified mix of cloud and IT service providers, content providers, enterprises, financial companies, and network and mobile service providers, currently operate within Equinix IBX data centers. These companies derive specific value from the following elements of the Equinix service offering:
Interconnection leadership: The digital economy’s demands for fast, secure business collaboration puts the interconnection inside Equinix at a premium. The 6,300 companies inside Equinix represent a range of global businesses, from cloud, to networks, to finance. Inside Equinix, customers can interconnect across industries with the speed, security, reliability and scalability needed to compete and grow.
Unrivaled cloud access: Equinix is home to 1,300 cloud service providers and a variety of secure routes to the efficiencies, performance and cost-savings of the cloud. Equinix Cloud Exchange offers on-demand access to multiple cloud providers from multiple networks, enabling customers to design scalable cloud services tailored to their needs at a given moment.
Comprehensive global solution: With 112 IBX data centers in 33 markets in the Americas, EMEA and Asia-Pacific, Equinix offers a consistent global solution.
Premium data centers: Equinix IBX data centers feature advanced design, security, power and cooling elements to provide customers with industry-leading reliability, including average uptime of 99.9999% globally in 2015. While others in the market have business models that include additional offerings, Equinix is focused on colocation and interconnection as our core competencies.
Dynamic business ecosystems: Equinix’s network- and cloud-neutral model has enabled us to attract a critical mass of networks and cloud and IT services providers, and that, in turn, attracts other businesses seeking to interconnect within a single location. This ecosystem model, versus connecting to multiple partners in disparate locations, reduces costs and optimizes the performance of data exchange. As Equinix grows and attracts an even more diversified base of customers, the value of Equinix’s IBX data center offering increases.

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Improved economics: Customers seeking to outsource their data center operations rather than build their own capital-intensive data centers enjoy significant capital cost savings. Customers also benefit from improved economics because of the broad access to networks that Equinix provides. Rather than purchasing costly local loops from multiple transit providers, customers can connect directly to more than 1,100 networks inside Equinix’s IBX data centers.
Leading insight: With more than 17 years of industry experience, Equinix has a specialized staff of industry experts and solutions architects who helped build and shape the interconnection infrastructure of the Internet. This specialization and industry knowledge base offer customers a unique consultative value and a competitive advantage.
Our Strategy
Our objective is to expand our global leadership position as the premier network- and cloud-neutral data center platform for cloud and IT services providers, content providers, financial companies, enterprises and network and mobile services providers. Key components of our strategy include the following: 
Improve customer performance through interconnection.  To succeed in today’s digital economy, enterprises around the globe must adopt interconnected, on-demand IT architectures. To help companies understand, deploy and benefit from interconnection, Equinix created a blueprint for becoming an interconnected enterprise - the Interconnection Oriented Architecture™ (IOA™). Based on work with more than 100 Fortune 500 customers, and 400+ Equinix Performance Hub™ deployments, Equinix developed IOA as a proven and repeatable engagement model that both enterprises and solution providers can leverage to directly and securely connect people, locations, clouds and data. IOA shifts the fundamental IT delivery architecture from siloed and centralized to interconnected and distributed. When combined with Equinix's longstanding critical mass of premier network and cloud providers and content companies, this IOA strategy is enabling Equinix to extend its leadership as one of the core interconnection hubs of the information-driven world. Equinix's critical mass is a key selling point for companies that want to connect with a diverse set of networks to provide the best connectivity to their end customers and network companies that want to sell bandwidth to companies and interconnect with other networks in the most efficient manner available. Currently, we house more than 1,100 unique networks, including all of the top tier networks, allowing our customers to directly interconnect with providers that best meet their unique global and regional price and performance needs. We have a growing mass of key players in cloud and IT services, such as Accenture, Amazon Web Services, AT&T, Microsoft Azure and Salesforce.com, and in the enterprise and financial sectors, such as Bechtel, Bloomberg, Chicago Board of Trade, The GAP, McGraw-Hill and others. We expect these segments will continue to grow as they seek to leverage our critical mass of network providers and interconnect directly with each other to improve performance.
Streamline ease of doing business globally. Data center reliability, power availability and network choice are the most important attributes considered by our customers when they choose a data center provider in a particular location. We have long been recognized as a leader in these areas and our performance continues to improve against these criteria. Our power infrastructure delivered 99.9999% uptime globally in 2015.
In 2015, more than half of our revenue came from customers with deployments in all three of our global regions, and as globalization continues, seamless global solutions will become increasingly important data center selection criteria. We continue to focus on strategic acquisitions to expand our market coverage and on global product standardization, pricing and contracts harmonization initiatives to meet these global demands.
  Deepen existing and grow new ecosystems. As networks, cloud and IT services providers, content providers, financial services providers and enterprises locate in our IBX data centers, it benefits their suppliers and business partners to do so as well, to gain the full economic and performance benefits of direct interconnection for their business ecosystems. These partners, in turn, pull in their business partners, creating a “network effect” of customer adoption. Our interconnection offerings enable scalable, reliable and cost-effective interconnectivity and optimized traffic exchange, thus lowering overall cost and increasing flexibility. The ability to directly interconnect with a wide variety of companies is a key differentiator for us in the market and enables companies to create new opportunities within unique ecosystems by working together. We have efficient and innovative Internet and Cloud Exchange platforms to accelerate commercial growth within the ecosystems in our IBX sites via this network effect.
 Expand vertical go-to-market plan. We plan to continue to focus our go-to-market efforts on customer segments and business applications that appreciate the Equinix value proposition of interconnection, reliability, global reach and ecosystem collaboration opportunities. Today, we have identified these segments as cloud services, content and digital media, financial services, enterprises, IT services, and network and mobile service providers. As digital business evolves, we will continue to identify and focus our go-to-market efforts on industry segments that need our value proposition.

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Accelerate global reach and scale. We continue to evaluate expansion opportunities in select markets based on customer demand. In 2014, we completed the acquisition of ALOG Data Centers of Brazil S.A. and took the remaining ownership interest in the four data centers at ALOG, obtaining the remaining ownership interest in four data centers, two in São Paulo and two in Rio de Janeiro. In 2015, we acquired professional services company Nimbo in the U.S. and Bit-isle in Japan. In January 2016, we also closed the TelecityGroup acquisition in Europe. The TelecityGroup acquisition significantly expands Equinix's global interconnection platform from 112 data centers in 33 metros to 145 data centers in 40 metros. The new metros we entered with our TelecityGroup acquisition in 2016 were Dublin, Helsinki, Istanbul, Milan, Sofia, Stockholm and Warsaw. We also added capacity across our global footprint in 2015 by opening our ninth data center in New York, our second in Toronto, our first in Melbourne, our third in Singapore and our sixth in London.
Our strategy is to continue to grow in select existing markets and possibly expand to additional markets where warranted by demand and financial return potential. We expect to execute this expansion strategy in a cost-effective and disciplined manner through a combination of acquiring existing data centers through lease or purchase, acquiring or investing in local data center operators and building new IBX data centers based on key criteria, such as demand and potential financial return, in each market.
Our Customers
Our customers include carriers, mobile and other bandwidth providers, cloud and IT services providers, content providers, financial companies and global enterprises. We provide each customer access to a choice of business partners and solutions based on their colocation, interconnection and managed IT service needs. As of December 31, 2015, we had more than 6,300 customers worldwide. 
Customers in our five key customer categories include the following:
Cloud and IT Services
Content Providers
Enterprise
Financial Companies
Network and Mobile Services
Amazon Web Services
Box Inc.
Carpathia Hosting Inc.
Cisco Systems Inc. CloudSigma
Datapipe
Microsoft Azure NetApp
Oracle
Salesforce.com
SoftLayer
Workday, Inc.
Brightroll
DIRECTV
eBay
Hulu
LinkedIn
Netflix
Priceline.com
Anheuser-Busch InBev
Bechtel
Burger King Corporation
Caterpillar, Inc.
CDM Smith
Chevron
GE
Harper Collins Publishers
Ingram Micro
ACTIV Financial Bloomberg
Chicago Board Options Exchange DirectEdge
Quantlab Financial NASDAQ
OMX Group Inc. NYSE Technologies Thomson Reuters
AT&T
British Telecom
China Mobile Comcast
Level 3 Communications Lycamobile
NTT Communications SingTel Ltd.
Syniverse Technologies
T-Mobile
TATA Communications Verizon
Customers typically sign renewable contracts of one or more years in length. Our largest customer accounted for approximately 3% of our recurring revenues for the period ended December 31, 2015 and 2% of our recurring revenues for the periods ended December 31, 2014 and 2013. Our 50 largest customers accounted for approximately 34%, 36% and 35% of our recurring revenues for the years ended December 31, 2015, 2014 and 2013, respectively.
Our Offerings 
Equinix provides a choice of data center offerings primarily comprised of colocation, interconnection solutions and managed IT infrastructure and professional services. 
Colocation and Related Offerings
Our IBX data centers provide our customers with secure, reliable and robust environments that are necessary for optimum Internet commerce interconnection. Many of our IBX data centers include multiple layers of physical security, scalable cabinet space availability, on-site trained staff (24x7x365), dedicated areas for customer care and equipment staging, redundant AC/DC power systems and other redundant and fault-tolerant infrastructure systems. Some specifications of offerings provided by individual IBX data centers may differ based on original facility design or market.  

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Within our IBX data centers, customers can deploy their equipment and interconnect with a choice of networks, cloud providers or other business partners. We also provide customized solutions for customers looking to package our IBX offerings as part of their complex solutions. Our colocation offerings include: 
Cabinets. Our customers have several choices for colocating their networking, server and storage equipment. They can place the equipment in one of our shared or private cages or customize their space. In certain select markets, customers can purchase their own private “suite” which is walled off from the rest of the data center. As customers’ colocation requirements increase, they can expand within their original cage (or suite) or upgrade into a cage that meets their expanded requirements. Customers buy the hardware they place in our IBX data centers directly from their chosen vendors. Cabinets (or suites) are priced with an initial installation fee and an ongoing recurring monthly charge. 
Power. Power is an element of increasing importance in customers’ colocation decisions. We offer both AC and DC power circuits at various amperages and phases customized to a customer’s individual power requirements. We also offer metered power in certain markets. Power is priced with an initial installation fee and an ongoing recurring monthly charge. 
IBXflex. IBXflex allows customers to deploy mission-critical operations personnel and equipment on-site at our IBX data centers. Because of the close proximity to their infrastructure within our IBX data centers, IBXflex customers can offer a faster response and quicker troubleshooting solution than those available in traditional colocation facilities. This space can also be used as a secure disaster recovery point for customers’ business and operations personnel. This service is priced with an initial installation fee and an ongoing recurring monthly charge. 
Interconnection Solutions 
Our interconnection solutions enable high-performance, secure, scalable, reliable and cost-effective interconnection and traffic exchange between Equinix customers. These interconnection solutions are either on a one-to-one basis with direct cross connects or one-to-many through one of our Equinix Exchange solutions. In the peering community, we play an important industry leadership role by acting as the relationship broker between parties who would like to interconnect within our IBX data centers. Our staff holds or has held significant positions in many leading industry groups, such as the North American Network Operators’ Group, or NANOG, and the Internet Engineering Task Force, or IETF. Members of our staff have published industry-recognized white papers and strategy documents in the areas of peering and interconnection, many of which are used by other institutions worldwide in furthering the education and promotion of this important set of solutions. We expect to continue to develop additional solutions in the area of traffic exchange that will allow our customers to leverage the critical mass of networks, cloud services providers, and many important financial services and e-commerce industry leaders now available in our IBX data centers. Our current exchange solutions are comprised of the following: 
Physical Cross Connect/Direct Interconnections. Customers needing to directly and privately connect to another IBX data center customer can do so through single or multi-mode fiber. These cross connections are the physical link between customers and can be implemented within 24 hours of request. Cross-connect offerings are priced with an initial installation fee and an ongoing monthly recurring charge.
Equinix Internet Exchange™. Customers may choose to connect to and peer through the central switching fabric of our Equinix Internet Exchange, rather than purchase a direct physical cross connection. With a connection to this switch, a customer can aggregate multiple interconnects over one physical connection with multiple, linked 10 gigabit ports of capacity, instead of purchasing individual physical cross connects. The offering is priced per IBX data center with an initial installation fee and an ongoing monthly recurring charge. Individual IBX data center prices increase as the number of participants on the exchange service grows.  
Equinix Metro Connect. Customers who are located in one IBX data center may need to interconnect with networks or other customers located in an adjacent or nearby IBX data center in the same metro area. Metro Connect allows customers to seamlessly interconnect between IBX data centers at capacities up to an OC-192, or 10 gigabits per second level. Metro Connect offerings are priced with an initial installation fee and an ongoing monthly recurring charge dependent on the capacity purchased by the customer. 
Internet Connectivity Services. Customers who are installing equipment in our IBX data centers generally require IP connectivity or bandwidth services. Although many large customers prefer to contract directly with carriers, we offer customers the ability to contract for these services through us from any of the major bandwidth providers in that data center. This service, which is provided in our Asia-Pacific and EMEA regions, is targeted to customers who require a single bill and a single point of

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support for their entire contract through Equinix for their bandwidth needs. Internet connectivity services are priced with an initial installation fee and an ongoing monthly recurring charge based on the amount of bandwidth committed.
Equinix Cloud Exchange™. The Equinix Cloud Exchange is an advanced interconnection solution that enables seamless, on-demand, direct access to multiple clouds from multiple networks around the world. Cloud Exchange provides virtualized, private direct connections that bypass the Internet to provide better security and performance with a range of bandwidth options. It enables businesses to connect to many participants (clouds, networks, enterprise customers) over a single physical port, enabling dynamic bandwidth allocation among various parties. The Equinix Cloud Exchange Portal and APIs simplify the process of provisioning and managing connections to multiple cloud services and networks. Equinix Cloud Exchange offerings are priced with an initial installation fee and an ongoing monthly recurring charge dependent on the capacity purchased by the customer.
Equinix Performance Hub. The Equinix Performance Hub enables companies to securely and directly connect to leading public clouds, easily deploy a private cloud, and lay the foundation of a hybrid cloud. Performance Hub solutions are extensions of companies’ IT network that reside within Equinix data centers. An Equinix Performance Hub places corporate IT resources near large user populations in IBX data centers connected to many networks and clouds. Performance Hub solutions can be implemented gradually, without closing or moving out of existing data centers. This distributed, connectivity-driven approach to data center computing has been proven by Gartner, 451 Group, and many enterprise customers to provide dramatic benefits in application and network performance, as well as in business and IT agility. The Performance Hub offering is priced per IBX data center with an initial installation fee and an ongoing recurring monthly charge.
Equinix Professional Services  
Exponential increases in data traffic and growing demand for interconnection means pressure on companies to stay competitive. They need a partner with deep knowledge of the global terrain and trends so they can maximize new technology and information and meet the needs of dispersed and demanding end users. Equinix professional services are uniquely positioned to be that partner. Equinix experts help companies tap the resources and opportunities for innovation available on a global platform of 6,300 companies in 33 markets, including more than 1,100 network service providers and 1,300 cloud services providers. Our technicians have the know-how and experience to help customers introduce new service offerings, optimize IT architectures, simplify hybrid and multi-cloud migrations and stay up-and-running. Equinix professional services include: 
Cloud Consulting Services. Migration to a hybrid or multi-cloud environment comes with uncertainty, but it’s also become essential: The cloud’s cost advantages and flexibility are too critical to forego in an era of rising electronic collaboration and user expectations. Equinix’s cloud consulting services, led by the recently acquired professional services company Nimbo, are designed to take the mystery out of cloud migration with a detailed assessment, design and implementation process that gives customers a faster, smoother path to the cloud. The 1,300 cloud providers and 1,100 network services providers inside Equinix help our experts tailor cloud deployments to individual business needs and maximize their cloud performance, savings and security while ensuring future resilience and agility.  
Global Solutions Architects™. Equinix Global Solutions Architects (GSAs) are industry experts, innovators and thought leaders, committed to helping companies deploy their IT infrastructures in ways that best serve their business needs and fully exploit the advantages offered by Equinix’s global interconnection platform. Equinix’s GSAs have decades of combined experience in cloud deployments, facility operations, business analytics and network design and operations. They work as extensions of our customers’ IT and technology teams, helping efficiently deploy high-performance solutions, advising them on service provider choices, and designing IT architectures that help them reach today’s goals and anticipate tomorrow’s requirements.
Solution Validation Centers. Equinix Solution Validation Centers (SVCs) are state-of-the-art facilities that allow customers to test and fine-tune their IT infrastructure, network, cloud and data center rollouts in a real-world environment before full build-out and deployment. Customers can measure how their applications perform when moved off legacy systems, spot and address unforeseen technical barriers, and optimize various infrastructure components, network connections and applications. Our SVCs operate in eight strategic markets globally, helping companies reduce risk and maximize their IT investments.
Smart Hands Services™. The Equinix Smart Hands service enables customers to use our highly trained IBX data center personnel to act as their hands (or eyes and ears) when their own staff can’t be on-site. Smart Hands technicians offer a range of services, from routine equipment inventory and labeling to more complex installations and configuring. Smart Hands technicians also provide technical assistance and troubleshooting services.
Equinix Customer Portal. The Equinix Customer Portal offers all-day, every day access to our customer care personnel, so customers can report problems, schedule shipments or order Smart Hands services at any time of the day or night.

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Business Continuity Trading Rooms. Trading infrastructure is mission-critical for financial firms worldwide, and our Business Continuity Trading Rooms (BCTRs) ensure that trading doesn’t stop, even if primary operations are knocked off-line or disabled. A BCTR backs up our customers’ trading operations in one of our secure data center facilities, right down to telephone services and multiple desktop monitors. BCTR offerings are protected with back-up generators and uninterruptible power supply to guarantee reliability and deliver peace of mind.
Sales and Marketing
Sales. We use a direct sales force and channel marketing program to market our offerings to global enterprises, content providers, financial companies, and mobile and network service providers. We organize our sales force by customer type, as well as by establishing a sales presence in diverse geographic regions, which enables efficient servicing of the customer base from a network of regional offices. In addition to our worldwide headquarters located in Silicon Valley, we have established an Asia-Pacific regional headquarters in Hong Kong and a European regional headquarters in Amsterdam. Our Americas sales offices are located in Boston, Chicago, Los Angeles, New York, Reston, Silicon Valley and Toronto and sales offices in Brazil operate out of data centers in Sao Paulo and Rio de Janeiro. Our EMEA sales offices are located in Amsterdam, Dubai, Dusseldorf, Enschede, Frankfurt, Geneva, London, Munich, Paris, Zurich and Zwolle. Our Asia-Pacific sales offices are located in Beijing, Hong Kong, Jakarta, Osaka, Seoul, Shanghai, Singapore, Sydney, Melbourne and Tokyo.  
Our sales team works closely with each customer to foster the natural network effect of our IBX model, resulting in access to a wider potential customer base via our existing customers. As a result of the IBX interconnection model, IBX data center participants often encourage their customers, suppliers and business partners to also locate in our IBX data centers. These customers, suppliers and business partners, in turn, encourage their business partners to locate in our IBX data centers, resulting in additional customer growth. This network effect significantly reduces our new customer acquisition costs. In addition, large network providers, cloud providers or managed service providers may refer customers to Equinix as a part of their total customer solution. Equinix also focuses selling by our vertical sales specialists on supporting specific industry requirements for network, mobile and content providers, financial services, cloud computing, systems integrators and enterprise customer segments. 
Marketing. To support our sales efforts and to actively promote our brand in the Americas, Asia-Pacific and EMEA, we conduct comprehensive marketing programs. Our marketing strategies include active public relations and ongoing customer communications programs. Our marketing efforts are focused on major business and trade publications, online media outlets, industry events and sponsored activities. Our staff holds leadership positions in key networking organizations, and we participate in a variety of Internet, enterprise IT, computer and financial industry conferences, placing our officers and employees in keynote speaking engagements at these conferences. We also regularly measure customer satisfaction levels and host key customer forums to ensure customer needs are understood and incorporated in product and service planning efforts. From a brand perspective, we build recognition through our website, sponsoring or leading industry technical forums, participating in Internet industry standard-setting bodies and through advertising and online campaigns. We continue to develop and host industry educational forums focused on peering technologies and practices for ISPs and content providers.
Our Competition 
While a large number of enterprises own their own data centers, many others outsource some or all of their requirements to multi-tenant Internet data center facilities, such as those operated by Equinix. We believe that the outsourcing trend is likely to not only continue but also to grow in the coming years. It is estimated that Equinix is one of more than 650 companies that provide Internet data center offerings around the world, ranging in size from firms with a single data center in a single market to firms in over 20 markets. Equinix competes with these firms, which vary in terms of their data center offerings, including:
Colocation Providers
Colocation data centers are a type of Internet data center that can also be referred to as “retail” data center space. Typically, colocation data center space is offered on the basis of individual racks/cabinets or cages ranging from 500 to 10,000 square feet in size. Typical customers of colocation providers include:
Large enterprises with significant IT expertise and requirements.
Small and medium businesses looking to outsource data center requirements.
Internet application providers.
Major Internet content, entertainment and social networking providers.
Shared, dedicated and managed hosting providers.
Mobile and network service providers.

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Content delivery networks.
Full facility maintenance and systems, including fire suppression, security, power backup and HVAC, are routinely included in managed colocation offerings. A variety of additional services are typically available, including remote hands technician services and network monitoring services.
In addition to Equinix, providers that offer colocation both globally and locally include firms such as AT&T, CenturyLink, COLT, CyrusOne, Level 3 Communications, NTT and Verizon Business.
Carrier-Neutral Colocation Providers
In addition to data center space and power, colocation providers also offer interconnection. Certain of these providers, known as network or carrier-neutral colocation providers, can offer customers the choice of hundreds of network service providers or ISPs to choose from. Typically, customers use interconnection to buy Internet connectivity, connect to VoIP telephone networks, perform financial exchange and settlement functions or perform business-to-business e-commerce. Carrier-neutral data centers are often located in key network hubs around the world, such as New York, Ashburn, London, Amsterdam, Singapore and Hong Kong. Two types of data center facilities offering carrier-neutral colocation are used for many network-to-network interconnections:
A Meet Me Room (MMR) is typically a smaller space, generally 5,000 square feet or less, located in a major carrier hotel and often found in a wholesale data center facility.
A carrier-neutral data center is generally larger than an MMR and may be a stand-alone building separate from existing carrier hotels.
In addition to Equinix, other providers that we believe could be defined as offering carrier-neutral colocation include CoreSite, Digital Reality, Global Switch, Interxion and Telehouse.
Wholesale Data Center Providers
Wholesale data center providers lease data center space that is typically offered in cells or pods (i.e., individual white-space rooms) ranging in size from 10,000 to 20,000 square feet, or larger. Wholesale data center offerings are targeted to both enterprises and colocation providers. These data centers primarily provide space and power without additional services like technicians, remote hands services or network monitoring (although other tenants might offer such services).
Sample wholesale data center providers include Digital Realty Trust, DuPont Fabros Technology, e-Shelter and Global Switch.
Managed Hosters
Managed hosting services are provided by several firms that also provide data center colocation services. Typically, managed hosting providers can manage server hardware that is owned by either the hosting provider or the customer. They can also provide a combination of comprehensive systems administration, database administration and sometimes application management services. Frequently, this results in managed hosting providers “running” the customer’s servers, although such administration is frequently shared. The provider may manage such functions as operating systems, databases, security and patch management, while the customer will maintain management of the applications riding on top of those systems.
The full list of potential services that can be offered as part of managed hosting is substantial and includes services such as remote management, custom applications, helpdesk, messaging, databases, disaster recovery, managed storage, managed virtualization, managed security, managed networks and systems monitoring. Managed hosting services are typically used for:
Application hosting by organizations of any size, including large enterprises.
Hosted or managed messaging, including Microsoft Exchange and other complex messaging applications.
Complex or highly scalable Web hosting or e-commerce websites.
Managed storage solutions (including large drive arrays or backup robots).
Server disaster recovery and business continuity, including clustering and global server load balancing.
Database servers, applications and services.
Examples of managed hosters include AT&T, CenturyLink, NaviSite, Rackspace, SunGard and Verizon Business.

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Unlike other providers whose core businesses are bandwidth or managed services, we focus on neutral interconnection hubs for cloud and IT service providers, content providers, financial companies, enterprises and network service providers. As a result, we do not have the limited choices found commonly at other hosting/colocation companies. We compete based on the quality of our IBX data centers, our ability to provide a one-stop global solution in our Americas, EMEA and Asia-Pacific locations, the performance and diversity of our network- and cloud-neutral strategy, and the economic benefits of the aggregation of top network, cloud and business ecosystems under one roof. We expect to continue to benefit from several industry trends, including the need for contracting with multiple networks due to the uncertainty in the telecommunications market; customers’ increasing power requirements; enterprise customers’ increased use of virtualization and outsourcing; the continued growth of broadband and significant growth in Ethernet as a network alternative; and the growth in mobile applications.
Our Business Segment Financial Information
We currently operate in three reportable segments comprised of our Americas, EMEA and Asia-Pacific geographic regions. Information attributable to each of our reportable segments is set forth in Note 16 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Employees
We had 5,042 employees as of December 31, 2015. We had 2,329 employees based in the Americas, 1,188 employees based in EMEA and 1,525 employees based in Asia-Pacific. Excluding Bit-isle, 1,963 employees were in engineering and operations, 907 employees were in sales and marketing and 1,486 employees were in management, finance and administration.
Available Information
We were incorporated in Delaware in June 1998. We are required to file reports under the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission. You may read and copy our materials on file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information regarding the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website at http://www.sec.gov that contains reports, proxy and information statements and other information.
You may also obtain copies of our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, and any amendments to such reports, free of charge by visiting the Investor Relations page on our website, www.equinix.com. These reports are available as soon as reasonably practical after we file them with the SEC. Information contained on our website is not part of this Annual Report on Form 10-K.

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ITEM 1A.
RISK FACTORS
In addition to the other information contained in this report, the following risk factors should be considered carefully in evaluating our business and us:
Risks Related to the Acquisition and Integration of TelecityGroup
We have incurred and will continue to incur significant transaction, acquisition-related integration and asset divestment costs in connection with the consummation of the TelecityGroup acquisition.
We have incurred and will continue to incur significant costs in connection with consummating the TelecityGroup acquisition and integrating our and TelecityGroup’s operations into a combined company. We will also incur costs in connection with the divestment of certain of the assets of the combined company. The actual costs incurred may exceed those estimated and there may be further unanticipated costs and the assumption of known and unknown liabilities. While we have assumed that we will incur transaction, integration and divestment expenses, there are factors beyond our control that could affect the total amount or the timing of such expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time.
As a result, the transaction, integration and divestment expenses associated with the TelecityGroup acquisition could, particularly in the near term, exceed the cost savings that we expect to achieve from the streamlining of operations following the completion of the TelecityGroup acquisition.
The anticipated benefits of the TelecityGroup acquisition may not be realized fully and may take longer to realize than expected and there will be numerous challenges associated with integration.
The success of the TelecityGroup acquisition will depend, in part, on the combined company’s ability to successfully integrate our and TelecityGroup’s businesses and realize the anticipated benefits, including synergies and cost savings, from the combination. If we are unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected and the value of the combined company’s common stock may be adversely affected. We also must successfully divest certain assets of the combined company agreed upon with the European Commission in order to obtain clearance of the transaction, which could reduce certain of the benefits we expect to receive from the TelecityGroup acquisition.
We have incurred and will continue to incur significant transaction-related costs in connection with the TelecityGroup acquisition and the integration and divestment processes. We may encounter material challenges in connection with this integration process, including, without limitation:
the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the TelecityGroup integration;
managing a larger combined company;
integrating two unique corporate cultures, which may prove to be challenging;
retaining key employees, customers and suppliers, each of whom may experience uncertainty associated with the TelecityGroup acquisition or who may attempt to negotiate changes in their current or future business relationships with us;
consolidating corporate and administrative infrastructures and eliminating duplicative operations; and
unforeseen expenses or delays associated with the TelecityGroup acquisition.
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact our business, financial condition and results of operations.

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The market price of our common stock may decline as a result of the TelecityGroup acquisition.
The market price of our common stock may decline as a result of the TelecityGroup acquisition if we do not achieve the perceived benefits of the TelecityGroup acquisition as rapidly or to the extent anticipated by financial or industry analysts or if the effect of the TelecityGroup acquisition on our financial results is not consistent with the expectations of financial or industry analysts. In addition, TelecityGroup shareholders now own approximately 10% of the common stock outstanding, and they may decide to sell their common stock which may result in additional pressure on the price of our common stock.
We would incur adverse tax consequences if the combined company following the TelecityGroup acquisition fails to qualify as a REIT for U.S. federal income tax purposes.
We believe that we will continue to integrate TelecityGroup’s assets and operations in a manner that will allow us to timely satisfy the REIT income, asset, and distribution tests applicable to us. However, the TelecityGroup integration will be complicated due to the size of TelecityGroup and if we fail to timely satisfy such tests, we could jeopardize or lose our qualification for taxation as a REIT, particularly if we were ineligible to utilize relief provisions set forth in the Internal Revenue Code (the "Code"). For any taxable year that we fail to qualify for taxation as a REIT, we would not be allowed a deduction for distributions to our stockholders in computing our taxable income, and would thus be subject to U.S. federal and state income tax at the regular corporate rates on all of our U.S. federal and state taxable income in the manner of a regular corporation. Those corporate level taxes would reduce the amount of cash available for distribution to our stockholders or for reinvestment or other purposes, and would adversely affect our earnings. As a result, our failure to qualify for taxation as a REIT during any taxable year could have a material adverse effect upon us and our stockholders. Furthermore, unless prescribed relief provisions apply, we would not be eligible to elect REIT status again until the fifth taxable year that begins after the first year for which we failed to qualify as a REIT. Finally, even if we are able to utilize relief provisions and thereby avoid disqualification for taxation as a REIT, relief provisions typically involve paying a penalty tax in proportion to the severity and duration of the noncompliance with REIT requirements, and thus these penalty taxes could be significant in the context of noncompliance stemming from a transaction as large as the TelecityGroup acquisition.
Risks Related to Our Taxation as a REIT
We may not remain qualified for taxation as a REIT.
We began operating as a REIT for federal income tax purposes, effective for our taxable year that began January 1, 2015. We believe we are operating so as to qualify for taxation as a REIT under the Code and believe that our organization and method of operation complies with the rules and regulations promulgated under the Code and will enable us to continue to qualify for taxation as a REIT. However, we cannot assure you that we will qualify for taxation as a REIT or that we will remain qualified for taxation as a REIT. Qualification for taxation as a REIT requires us to satisfy numerous requirements (some on an annual and others on a quarterly basis) established under highly technical and complex sections of the Code which may change from time to time; and for which there are only limited judicial and administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify for taxation as a REIT, we must derive at least 95% of our gross income in any year from qualifying sources. In addition, we must satisfy specified asset tests on a quarterly basis.
If, in any taxable year, we fail to remain qualified for taxation as a REIT and are not entitled to relief under the Code:
we will not be allowed a deduction for distributions to stockholders in computing our taxable income;
we will be subject to federal and state income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates; and
we would not be eligible to elect REIT status again until the fifth taxable year that begins after the first year for which we failed to qualify as a REIT.
Any such corporate tax liability could be substantial and would reduce the amount of cash available for other purposes.
As a REIT, failure to make required distributions would subject us to federal corporate income tax.
We paid quarterly distributions in 2015. We also paid the 2015 Special Distribution (as defined below) in the fourth quarter of 2015. The amount, timing and form of any future distributions will be determined, and will be subject to adjustment, by our

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Board of Directors. To remain qualified for taxation as a REIT, we are generally required to distribute at least 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding net capital gain) each year to our stockholders. Generally, we expect to distribute all or substantially all of our REIT taxable income. If our cash available for distribution falls short of our estimates, we may be unable to maintain distributions that approximate our REIT taxable income and may fail to remain qualified for taxation as a REIT. In addition, our cash flows from operations may be insufficient to fund required distributions as a result of differences in timing between the actual receipt of income and the payment of expenses and the recognition of income and expenses for federal income tax purposes, or the effect of nondeductible expenditures, such as capital expenditures, payments of compensation for which Section 162(m) of the Code denies a deduction, the creation of reserves or required debt service or amortization payments.
To the extent that we satisfy the 90% distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax on our undistributed taxable income if the actual amount that we distribute to our stockholders for a calendar year is less than the minimum amount specified under the Code.
We may be required to borrow funds or raise equity to satisfy our REIT distribution requirements.
Due to the size and timing of future regular or special distributions, including any distributions made to satisfy REIT distribution requirements and maintain our qualification and taxation as a REIT, we may need to borrow funds or raise equity, even if the then-prevailing market conditions are not favorable for these borrowings or offerings.
Any insufficiency of our cash flows to cover our REIT distribution requirements could adversely impact our ability to raise short- and long-term debt or to offer equity securities in order to fund distributions required to maintain our qualification and taxation as a REIT. Furthermore, the REIT distribution requirements may increase the financing we need to fund capital expenditures, future growth and expansion initiatives. This would increase our indebtedness. A significant increase in our outstanding debt could lead to a downgrade of our credit rating. A downgrade of our credit rating could negatively impact our ability to access credit markets. Further, certain of our current debt instruments limit the amount of indebtedness we and our subsidiaries may incur. Significantly more financing, therefore, may be unavailable, more expensive or restricted by the terms of our outstanding indebtedness. For a discussion of risks related to our substantial level of indebtedness, see “Other Risks”.
Whether we issue equity, at what price and the amount and other terms of any such issuances will depend on many factors, including alternative sources of capital, our then-existing leverage, our need for additional capital, market conditions and other factors beyond our control. If we raise additional funds through the issuance of equity securities or debt convertible into equity securities, the percentage of stock ownership by our existing stockholders may be reduced. In addition, new equity securities or convertible debt securities could have rights, preferences and privileges senior to those of our current stockholders, which could substantially decrease the value of our securities owned by them. Depending on the share price we are able to obtain, we may have to sell a significant number of shares in order to raise the capital we deem necessary to execute our long-term strategy, and our stockholders may experience dilution in the value of their shares as a result.
Legislative or other actions affecting REITs could have a negative effect on us or our stockholders.
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Federal and state tax laws are constantly under review by persons involved in the legislative process, the IRS, the U.S. Department of the Treasury and state taxing authorities. Changes to the tax laws, regulations and administrative interpretations, which may have retroactive application, could adversely affect us. In addition, some of these changes could have a more significant impact on us as compared to other REITs due to the nature of our business and our substantial use of TRSs. We cannot predict with certainty whether, when, in what forms, or with what effective dates, the tax laws, regulations and administrative interpretations applicable to us may be changed.
Complying with REIT requirements may limit our flexibility or cause us to forego otherwise attractive opportunities.
As a REIT for U.S. federal income tax purposes, we must satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets and the amounts we distribute to our stockholders. For example, under the Code, no more than 25% (20% from and after our 2018 taxable year) of the value of the assets of a REIT may be represented by securities of one or more TRSs. Similar rules apply to other nonqualifying assets. These limitations may affect our ability to make large investments in other non-REIT qualifying operations or assets. In addition, in order to maintain qualification for taxation as a REIT, we must annually distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid

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deduction and excluding any net capital gains. Even if we maintain our qualification for taxation as a REIT, we will be subject to U.S. federal income tax at regular corporate rates for our undistributed REIT taxable income, as well as U.S. federal income tax at regular corporate rates for income recognized by our TRSs. Because of these distribution requirements, we will likely not be able to fund future capital needs and investments from operating cash flow. As such, compliance with REIT tests may hinder our ability to make certain attractive investments, including the purchase of significant nonqualifying assets and the material expansion of non-real estate activities.
As a REIT, we are limited in our ability to fund distribution payments using cash generated through our TRSs.
Our ability to receive distributions from our TRSs is limited by the rules with which we must comply to maintain our qualification for taxation as a REIT. In particular, at least 75% of our gross income for each taxable year as a REIT must be derived from real estate. Consequently, no more than 25% of our gross income may consist of dividend income from our TRSs and other nonqualifying types of income. Thus, our ability to receive distributions from our TRSs may be limited, and may impact our ability to fund distributions to our stockholders using cash flows from our TRSs. Specifically, if our TRSs become highly profitable, we might become limited in our ability to receive net income from our TRSs in an amount required to fund distributions to our stockholders commensurate with that profitability.
In addition, a significant amount of our income and cash flows from our TRSs is generated from our international operations. In many cases, there are local withholding taxes and currency controls that may impact our ability or willingness to repatriate funds to the United States to help satisfy REIT distribution requirements.
Our extensive use of TRSs, including for certain of our international operations, may cause us to fail to remain qualified for taxation as a REIT.
The net income of our TRSs is not required to be distributed to us, and income that is not distributed to us generally is not subject to the REIT income distribution requirement. However, there may be limitations on our ability to accumulate earnings in our TRSs and the accumulation or reinvestment of significant earnings in our TRSs could result in adverse tax treatment. In particular, if the accumulation of cash in our TRSs causes the fair market value of our securities in our TRSs and other nonqualifying assets to exceed 25% or from and after our 2018 taxable year, causes (1) the fair market value of our securities in our TRSs to exceed 20% of the fair market value of our assets or (2) the fair market value of our securities in our TRSs and other nonqualifying assets to exceed 25% of the fair market value of our assets, then we will fail to remain qualified for taxation as a REIT.
Our cash distributions are not guaranteed and may fluctuate.
A REIT generally is required to distribute at least 90% of its REIT taxable income to its stockholders.
Our Board of Directors, in its sole discretion, will determine on a quarterly basis the amount of cash to be distributed to our stockholders based on a number of factors including, but not limited to, our results of operations, cash flow and capital requirements, economic conditions, tax considerations, borrowing capacity and other factors, including debt covenant restrictions that may impose limitations on cash payments, future acquisitions and divestitures and any stock repurchase program. Consequently, our distribution levels may fluctuate.
Even if we remain qualified for taxation as a REIT, some of our business activities are subject to corporate level income tax and foreign taxes, which will continue to reduce our cash flows, and we will have potential deferred and contingent tax liabilities.
Even if we remain qualified for taxation as a REIT, we may be subject to some federal, state, local and foreign taxes on our income and assets, including alternative minimum taxes, taxes on any undistributed income, and state, local or foreign income, franchise, property and transfer taxes. In addition, we could in certain circumstances be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Code to maintain qualification for taxation as a REIT.
A portion of our business is conducted through wholly owned TRSs because certain of our business activities could generate nonqualifying REIT income as currently structured and operated. The income of our U.S. TRSs will continue to be subject to federal and state corporate income taxes. In addition, our international assets and operations will continue to be subject to taxation

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in the foreign jurisdictions where those assets are held or those operations are conducted. Any of these taxes would decrease our earnings and our available cash.
We will also be subject to a federal corporate level tax at the highest regular corporate rate (currently 35%) on gain recognized from a sale of a REIT asset where our basis in the asset is determined by reference to the basis of the asset in the hands of a present or former C corporation (such as (i) an asset that we held as of the effective date of our REIT election, that is, January 1, 2015, or (ii) an asset that we hold in a QRS following the liquidation or other conversion of a former TRS). This 35% tax is generally applicable to any disposition of such an asset during the five-year period after the date we first owned the asset as a REIT asset (e.g. January 1, 2015 in the case of REIT assets we held at the time of our REIT conversion), to the extent of the built-in-gain based on the fair market value of such asset on the date we first held the asset as a REIT asset.
In addition, the IRS and any state or local tax authority may successfully assert liabilities against us for corporate income taxes for our pre-REIT period, in which case we will owe these taxes plus applicable interest and penalties, if any. Moreover, any increase in taxable income for these pre-REIT periods will likely result in an increase in pre-REIT accumulated earnings and profits, which could cause us to pay an additional taxable distribution to our stockholders after the relevant determination.
Restrictive loan covenants could prevent us from satisfying REIT distribution requirements.
Restrictions in our credit facility and our indentures may prevent us from satisfying our REIT distribution requirements, and we could fail to remain qualified for taxation as a REIT. If these limits do not jeopardize our qualification for taxation as a REIT but nevertheless prevent us from distributing 100% of our REIT taxable income, we would be subject to federal corporate income tax, and potentially a nondeductible excise tax, on the retained amounts. See “Other Risks” for further information on our restrictive loan covenants.
Complying with REIT requirements may limit our ability to hedge effectively and increase the cost of our hedging and may cause us to incur tax liabilities.
The REIT provisions of the Code limit our ability to hedge assets, liabilities, revenues and expenses. Generally, income from hedging transactions that we enter into to manage risk of interest rate changes or fluctuations with respect to borrowings made or to be made by us to acquire or carry real estate assets and income from certain currency hedging transactions related to our non-U.S. operations, as well as income from qualifying contracting hedges do not constitute “gross income” for purposes of the REIT gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as nonqualifying income for purposes of the REIT gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through our TRSs, which we presently do. This increases the cost of our hedging activities because our TRSs are subject to tax on income or gains resulting from hedges entered into by them and may expose us to greater risks associated with changes in interest rates or exchange rates than we would otherwise want to bear. In addition, hedging losses in any of our TRSs may not provide any tax benefit, except for being carried forward for possible use against future capital gain in the TRSs.
We have limited experience operating as a REIT, which may adversely affect our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to forecast dividends.
We began operating as a REIT on January 1, 2015 and, as such, have limited operating history as a REIT. In addition, prior to January 1, 2015 our senior management team had no prior experience operating a REIT. We can provide no assurance that our past experience has sufficiently prepared us to operate successfully as a REIT. Our inability to operate successfully as a REIT, including the failure to remain qualified for taxation as a REIT, could adversely affect our business, financial condition and results of operations.
Distributions payable by REITs generally do not qualify for preferential tax rates.
Qualifying distributions payable by corporations to individuals, trusts and estates that are U.S. stockholders are currently eligible for federal income tax at preferential rates. Distributions payable by REITs, in contrast, generally are not eligible for the preferential rates. The preferential rates applicable to regular corporate distributions could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay distributions, which could adversely affect the value of the stock of REITs, including our common stock.

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Our certificate of incorporation contains restrictions on the ownership and transfer of our stock, though they may not be successful in preserving our qualification for taxation as a REIT.
In order for us to remain qualified for taxation as a REIT, no more than 50% of the value of outstanding shares of our stock may be owned, beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable year other than the first year for which we elect to be taxed as a REIT. In addition, rents from “affiliated tenants” will not qualify as qualifying REIT income if we own 10% or more by vote or value of the customer, whether directly or after application of attribution rules under the Code. Subject to certain exceptions, our certificate of incorporation prohibits any stockholder from owning beneficially or constructively more than (i) 9.8% in value of the outstanding shares of all classes or series of our capital stock or (ii) 9.8% in value or number, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock. We refer to these restrictions collectively as the “ownership limits” and we included them in our certificate of incorporation to facilitate our compliance with REIT tax rules. The constructive ownership rules under the Code are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of our outstanding common stock (or the outstanding shares of any class or series of our stock) by an individual or entity could cause that individual or entity or another individual or entity to own constructively in excess of the relevant ownership limits. Any attempt to own or transfer shares of our common stock or of any of our other capital stock in violation of these restrictions may result in the shares being automatically transferred to a charitable trust or may be void. Even though our certificate of incorporation contains the ownership limits, there can be no assurance that these provisions will be effective to prevent our qualification for taxation as a REIT from being jeopardized, including under the affiliated tenant rule. Furthermore, there can be no assurance that we will be able to enforce the ownership limits. If the restrictions in our certificate of incorporation are not effective and as a result we fail to satisfy the REIT tax rules described above, then absent an applicable relief provision, we will fail to remain qualified for taxation as a REIT.
Other Risks
Acquisitions present many risks, and we may not realize the financial or strategic goals that were contemplated at the time of any transaction.
Over the last several years, we have completed numerous acquisitions, including most recently that of Nimbo and Bit-isle in 2015 and TelecityGroup in January of 2016. We may make additional acquisitions in the future, which may include (i) acquisitions of businesses, products, services or technologies that we believe to be complementary, (ii) acquisitions of new IBX data centers or real estate for development of new IBX data centers or (iii) acquisitions through investments in local data center operators. We may pay for future acquisitions by using our existing cash resources (which may limit other potential uses of our cash), incurring additional debt (which may increase our interest expense, leverage and debt service requirements) and/or issuing shares (which may dilute our existing stockholders and have a negative effect on our earnings per share). Acquisitions expose us to potential risks, including:
the possible disruption of our ongoing business and diversion of management’s attention by acquisition, transition and integration activities, particularly when multiple acquisitions and integrations are occurring at the same time;
our potential inability to successfully pursue or realize some or all of the anticipated revenue opportunities associated with an acquisition or investment;
the possibility that we may not be able to successfully integrate acquired businesses, or businesses in which we invest, or achieve anticipated operating efficiencies or cost savings;
the possibility that announced acquisitions may not be completed, due to failure to satisfy the conditions to closing or for other reasons;
the dilution of our existing stockholders as a result of our issuing stock in transactions, such as in connection with our acquisitions of Switch & Data Facilities Company, Inc. in 2010 ("Switch and Data") and TelecityGroup;
the possibility of customer dissatisfaction if we are unable to achieve levels of quality and stability on par with past practices;
the potential deterioration to our ability to access credit markets due to increased leverage;
the possibility that our customers may not accept either the existing equipment infrastructure or the “look-and-feel” of a new or different IBX data center;

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the possibility that additional capital expenditures may be required or that transaction expenses associated with acquisitions may be higher than anticipated;
the possibility that required financing to fund an acquisition may not be available on acceptable terms or at all;
the possibility that we may be unable to obtain required approvals from governmental authorities under antitrust and competition laws on a timely basis or at all, which could, among other things, delay or prevent us from completing an acquisition, limit our ability to realize the expected financial or strategic benefits of an acquisition or have other adverse effects on our current business and operations;
the possible loss or reduction in value of acquired businesses;
the possibility that future acquisitions may present new complexities in deal structure, related complex accounting and coordination with new partners, particularly in light of our desire to maintain our taxation as a REIT;
the possibility that future acquisitions may be in geographies and regulatory environments to which we are unaccustomed;
the possibility that carriers may find it cost-prohibitive or impractical to bring fiber and networks into a new IBX data center;
the possibility of litigation or other claims in connection with, or as a result of, an acquisition, including claims from terminated employees, customers, former stockholders or other third parties;
the possibility that asset divestments may be required in order to obtain regulatory clearance for a transaction; and
the possibility of pre-existing undisclosed liabilities, including, but not limited to, lease or landlord related liability, environmental liability or asbestos liability, for which insurance coverage may be insufficient or unavailable, or other issues not discovered in the diligence process.
The occurrence of any of these risks could have a material adverse effect on our business, results of operations, financial condition or cash flows.
We cannot assure that the price of any future acquisitions of IBX data centers will be similar to prior IBX data center acquisitions. In fact, we expect costs required to build or render new IBX data centers operational to increase in the future. If our revenue does not keep pace with these potential acquisition and expansion costs, we may not be able to maintain our current or expected margins as we absorb these additional expenses. There is no assurance we would successfully overcome these risks or any other problems encountered with these acquisitions.
Our substantial debt could adversely affect our cash flows and limit our flexibility to raise additional capital.
We have a significant amount of debt and may need to incur additional debt to support our growth. Additional debt may also be incurred to fund future acquisitions, any future special distributions, regular distributions or the other cash outlays associated with maintaining qualification for taxation as a REIT. As of December 31, 2015, our total indebtedness was approximately $6.5 billion, our stockholders’ equity was $2.7 billion and our cash and investments totaled $2.2 billion. In addition, as of December 31, 2015, we had approximately $1.1 billion of additional liquidity available to us from our $1.5 billion revolving credit facility and approximately $700 million of additional liquidity available to us from our undrawn Term Loan B (as defined below) commitments as part of an approximately $2.7 billion senior credit facility agreement entered into with a group of lenders, and approximately $8.7 million undrawn from the Bridge Term Loan Agreement (as defined below) entered into to fund the Bit-isle acquisition. Some of our debt contains covenants which may limit our operating flexibility. In addition to our substantial debt, we lease a majority of our IBX data centers and certain equipment under non-cancellable lease agreements, the majority of which are accounted for as operating leases. As of December 31, 2015, our total minimum operating lease commitments under those lease agreements, excluding potential lease renewals, was approximately $1.2 billion, which represents off-balance sheet commitments.
Our substantial amount of debt and related covenants, and our off-balance sheet commitments, could have important consequences. For example, they could:
require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt and in respect of other off-balance sheet arrangements, reducing the availability of our cash flow to fund future capital expenditures, working capital, execution of our expansion strategy and other general corporate requirements;
increase the likelihood of negative outlook from our rating agencies;
make it more difficult for us to satisfy our obligations under our various debt instruments;

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increase our cost of borrowing and even limit our ability to access additional debt to fund future growth;
increase our vulnerability to general adverse economic and industry conditions and adverse changes in governmental regulations;
limit our flexibility in planning for, or reacting to, changes in our business and industry, which may place us at a competitive disadvantage compared with our competitors;
limit our operating flexibility through covenants with which we must comply, such as limiting our ability to repurchase shares of our common stock;
limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity, which would also limit our ability to further expand our business; and
make us more vulnerable to increases in interest rates because of the variable interest rates on some of our borrowings to the extent we have not entirely hedged such variable rate debt.
The occurrence of any of the foregoing factors could have a material adverse effect on our business, results of operations and financial condition. In addition, the performance of our stock price may trigger events that would require the write-off of a significant portion of our debt issuance costs related to our convertible debt, which may have a material adverse effect on our results of operations.
We may also need to refinance a portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing may not be as favorable as the terms of our existing debt. Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. These risks could materially adversely affect our financial condition, cash flows and results of operations.
Adverse global economic conditions and credit market uncertainty could adversely impact our business and financial condition.
Adverse global economic conditions continue and uncertain conditions in the credit markets have created, and in the future may create, uncertainty and unpredictability and add risk to our future outlook. An uncertain global economy could also result in churn in our customer base, reductions in revenues from our offerings, longer sales cycles, slower adoption of new technologies and increased price competition, adversely affecting our liquidity. The uncertain economic environment could also have an impact on our foreign exchange forward contracts if our counterparties’ credit deteriorates or they are otherwise unable to perform their obligations. Finally, our ability to access the capital markets may be severely restricted at a time when we would like, or need, to do so which could have an impact on our flexibility to pursue additional expansion opportunities and maintain our desired level of revenue growth in the future.
The market price of our stock may continue to be highly volatile, and the value of an investment in our common stock may decline.
The market price of the shares of our common stock has been and may continue to be highly volatile. General economic and market conditions, and market conditions for telecommunications stocks in general, may affect the market price of our common stock.
Announcements by us or others, or speculations about our future plans, may also have a significant impact on the market price of our common stock. These may relate to:
our operating results or forecasts;
new issuances of equity, debt or convertible debt by us;
changes to our capital allocation, tax planning or business strategy;
our qualification for taxation as a REIT and our declaration of distributions to our stockholders;
a stock repurchase program;
developments in our relationships with corporate customers;
announcements by our customers or competitors;

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changes in regulatory policy or interpretation;
governmental investigations;
changes in the ratings of our debt or stock by rating agencies or securities analysts;
our purchase or development of real estate and/or additional IBX data centers;
our acquisitions of complementary businesses; or
the operational performance of our IBX data centers.
The stock market has from time to time experienced extreme price and volume fluctuations, which have particularly affected the market prices for telecommunications companies, and which have often been unrelated to their operating performance. These broad market fluctuations may adversely affect the market price of our common stock. Furthermore, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and/or damages, and divert management’s attention from other business concerns, which could seriously harm our business.
If we are not able to generate sufficient operating cash flows or obtain external financing, our ability to fund incremental expansion plans may be limited.
Our capital expenditures, together with ongoing operating expenses, obligations to service our debt and the cash outlays associated with our REIT distribution requirements, are and will continue to be a substantial burden on our cash flow and may decrease our cash balances. Additional debt or equity financing may not be available when needed or, if available, may not be available on satisfactory terms. Our inability to obtain additional debt and/or equity financing or to generate sufficient cash from operations may require us to prioritize projects or curtail capital expenditures which could adversely affect our results of operations.
Fluctuations in foreign currency exchange rates in the markets in which we operate internationally could harm our results of operations.
We may experience gains and losses resulting from fluctuations in foreign currency exchange rates. To date, the majority of our revenues and costs are denominated in U.S. dollars; however, the majority of revenues and costs in our international operations are denominated in foreign currencies. Where our prices are denominated in U.S. dollars, our sales and revenues could be adversely affected by declines in foreign currencies relative to the U.S. dollar, thereby making our offerings more expensive in local currencies. We are also exposed to risks resulting from fluctuations in foreign currency exchange rates in connection with our international operations. To the extent we are paying contractors in foreign currencies, our operations could cost more than anticipated as a result of declines in the U.S. dollar relative to foreign currencies. In addition, fluctuating foreign currency exchange rates have a direct impact on how our international results of operations translate into U.S. dollars.
Although we currently undertake, and may decide in the future to further undertake, foreign exchange hedging transactions to reduce foreign currency transaction exposure, we do not currently intend to eliminate all foreign currency transaction exposure. In addition, REIT compliance rules may restrict our ability to enter into hedging transactions. Therefore, any weakness of the U.S. dollar may have a positive impact on our consolidated results of operations because the currencies in the foreign countries in which we operate may translate into more U.S. dollars. However, if the U.S. dollar strengthens relative to the currencies of the foreign countries in which we operate, our consolidated financial position and results of operations may be negatively impacted as amounts in foreign currencies will generally translate into fewer U.S. dollars. For additional information on foreign currency risk, refer to our discussion of foreign currency risk in “Quantitative and Qualitative Disclosures About Market Risk” included in Item 7A of this Annual Report on Form 10-K.
Changes in U.S. or foreign tax laws, regulations, or interpretations thereof, including changes to tax rates, may adversely affect our financial statements and cash taxes.
We are a U.S. company with global subsidiaries and are subject to income taxes in the U.S. (although currently limited due to our taxation as a REIT) and many foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. Although we believe that we have adequately assessed and accounted for our potential tax liabilities, and that our tax estimates are reasonable, there can be no certainty that additional taxes will not be due upon audit of our tax returns or as a result of changes to the tax laws and interpretations thereof. The U.S. Congress as well as the governments of many of the countries in which we operate are actively discussing changes to the corporate recognition and taxation of worldwide income. The

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nature and timing of any changes to each jurisdiction’s tax laws and the impact on our future tax liabilities cannot be predicted with any accuracy but could materially and adversely impact our results of operations and financial position or cash flows.
We are continuing to invest in our expansion efforts but may not have sufficient customer demand in the future to realize expected returns on these investments.
We are considering the acquisition or lease of additional properties and the construction of new IBX data centers beyond those expansion projects already announced. We will be required to commit substantial operational and financial resources to these IBX data centers, generally 12 to 18 months in advance of securing customer contracts, and we may not have sufficient customer demand in those markets to support these centers once they are built. In addition, unanticipated technological changes could affect customer requirements for data centers, and we may not have built such requirements into our new IBX data centers. Either of these contingencies, if they were to occur, could make it difficult for us to realize expected or reasonable returns on these investments.
Our offerings have a long sales cycle that may harm our revenues and operating results.
A customer’s decision to purchase our offerings typically involves a significant commitment of resources. In addition, some customers will be reluctant to commit to locating in our IBX data centers until they are confident that the IBX data center has adequate carrier connections. As a result, we have a long sales cycle. Furthermore, we may devote significant time and resources in pursuing a particular sale or customer that does not result in revenue. We have also significantly expanded our sales force in recent years, and it will take time for these new hires to become fully productive.
Delays due to the length of our sales cycle may materially and adversely affect our revenues and operating results, which could harm our ability to meet our forecasts and cause volatility in our stock price.
Any failure of our physical infrastructure or offerings could lead to significant costs and disruptions that could reduce our revenue and harm our business reputation and financial results.
Our business depends on providing customers with highly reliable solutions. We must safehouse our customers’ infrastructure and equipment located in our IBX data centers. We own certain of our IBX data centers, but others are leased by us, and we rely on the landlord for basic maintenance of our leased IBX data centers. If such landlord has not maintained a leased property sufficiently, we may be forced into an early exit from the center which could be disruptive to our business. Furthermore, we continue to acquire IBX data centers not built by us. If we discover that these IBX data centers and their infrastructure assets are not in the condition we expected when they were acquired, we may be required to incur substantial additional costs to repair or upgrade the centers.
The offerings we provide in each of our IBX data centers are subject to failure resulting from numerous factors, including:
human error;
equipment failure;
physical, electronic and cybersecurity breaches;
fire, earthquake, hurricane, flood, tornado and other natural disasters;
extreme temperatures;
water damage;
fiber cuts;
power loss;
terrorist acts;
sabotage and vandalism; and
failure of business partners who provide our resale products.
Problems at one or more of our IBX data centers, whether or not within our control, could result in service interruptions or significant equipment damage. We have service level commitment obligations to certain of our customers. As a result, service interruptions or significant equipment damage in our IBX data centers could result in difficulty maintaining service level

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commitments to these customers and potential claims related to such failures. Because our IBX data centers are critical to many of our customers’ businesses, service interruptions or significant equipment damage in our IBX data centers could also result in lost profits or other indirect or consequential damages to our customers. We cannot guarantee that a court would enforce any contractual limitations on our liability in the event that one of our customers brings a lawsuit against us as a result of a problem at one of our IBX data centers and we may decide to reach settlements with affected customers irrespective of any such contractual limitations. In addition, any loss of service, equipment damage or inability to meet our service level commitment obligations could reduce the confidence of our customers and could consequently impair our ability to obtain and retain customers, which would adversely affect both our ability to generate revenues and our operating results.
Furthermore, we are dependent upon Internet service providers, telecommunications carriers and other website operators in the Americas, Asia-Pacific and EMEA regions and elsewhere, some of which have experienced significant system failures and electrical outages in the past. Our customers may in the future experience difficulties due to system failures unrelated to our systems and offerings. If, for any reason, these providers fail to provide the required services, our business, financial condition and results of operations could be materially and adversely impacted.
We are currently making significant investments in our back office information technology systems, including those surrounding the customer experience from initial quote to customer billing, and upgrading our worldwide financial application suite. Difficulties, distractions or disruptions to these efforts may interrupt our normal operations and adversely affect our business and operating results.
Commencing in 2012, we began a significant project to overhaul our back office systems that support the customer experience from initial quote to customer billing and our revenue recognition process. Additionally, commencing in 2013, we began to devote significant resources to the upgrade of our worldwide financial application suite from Oracle’s version 11i to R12. While significant milestones have been achieved on both projects, both projects have continued into 2016. Oracle has already begun to discontinue its support for our current business application suite. While the Oracle financial application suite implementation was largely completed in July 2014 and the initial implementation of the systems to support our billing and revenue process was completed in August 2014, work continues on our back office systems and their global implementation, including upgrades and developing new functionality. As a result of that discontinued support and our continued work on these projects, we may experience difficulties with our systems, management distraction and significant business disruptions. Difficulties with our systems may interrupt our ability to accept and deliver customer orders and may adversely impact our overall financial operations, including our accounts payable, accounts receivables, general ledger, close processes, internal financial controls and our ability to otherwise run and track our business. We may need to expend significant attention, time and resources to correct problems or find alternative sources for performing these functions. All of these changes to our financial systems create an increased risk of deficiencies in our internal controls over financial reporting until such systems are stabilized. Such significant investments in our back office systems may take longer to complete and cost more than originally planned. In addition, we may not realize the full benefits we hoped to achieve and there is a risk of an impairment charge if we decide that portions of these projects will not ultimately benefit the company or are de-scoped. Any such difficulty or disruption may adversely affect our business and operating results.
The insurance coverage that we purchase may prove to be inadequate.
We carry liability, property, business interruption and other insurance policies to cover insurable risks to our company. We select the types of insurance, the limits and the deductibles based on our specific risk profile, the cost of the insurance coverage versus its perceived benefit and general industry standards. Our insurance policies contain industry standard exclusions for events such as war and nuclear reaction. We purchase minimal levels of earthquake insurance for certain of our IBX data centers, but for most of our data centers, including many in California, we have elected to self-insure. The earthquake and flood insurance that we do purchase would be subject to high deductibles. Any of the limits of insurance that we purchase, including those for cyber risks, could prove to be inadequate, which could materially and adversely impact our business, financial condition and results of operations.
Our construction of additional new IBX data centers or IBX data center expansions could involve significant risks to our business.
In order to sustain our growth in certain of our existing and new markets, we must expand an existing data center, lease a new facility or acquire suitable land, with or without structures, to build new IBX data centers from the ground up. Expansions or new builds are currently underway, or being contemplated, in many of our markets. Any related construction requires us to carefully select and rely on the experience of one or more designers, general contractors, and associated subcontractors during the design and construction process. Should a designer, general contractor or significant subcontractor experience financial or other problems

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during the design or construction process, we could experience significant delays, increased costs to complete the project and/or other negative impacts to our expected returns.
Site selection is also a critical factor in our expansion plans. There may not be suitable properties available in our markets with the necessary combination of high power capacity and fiber connectivity, or selection may be limited. Thus, while we may prefer to locate new IBX data centers adjacent to our existing locations it may not always be possible. In the event we decide to build new IBX data centers separate from our existing IBX data centers, we may provide interconnection solutions to connect these two centers. Should these solutions not provide the necessary reliability to sustain connection, this could result in lower interconnection revenue and lower margins and could have a negative impact on customer retention over time.
Environmental regulations may impose upon us new or unexpected costs.
We are subject to various federal, state, local and international environmental and health and safety laws and regulations, including those relating to the generation, storage, handling and disposal of hazardous substances and wastes. Certain of these laws and regulations also impose joint and several liability, without regard to fault, for investigation and cleanup costs on current and former owners and operators of real property and persons who have disposed of or released hazardous substances into the environment. Our operations involve the use of hazardous substances and materials such as petroleum fuel for emergency generators, as well as batteries, cleaning solutions and other materials. In addition, we lease, own or operate real property at which hazardous substances and regulated materials have been used in the past. At some of our locations, hazardous substances or regulated materials are known to be present in soil or groundwater, and there may be additional unknown hazardous substances or regulated materials present at sites we own, operate or lease. At some of our locations, there are land use restrictions in place relating to earlier environmental cleanups that do not materially limit our use of the sites. To the extent any hazardous substances or any other substance or material must be cleaned up or removed from our property, we may be responsible under applicable laws, regulations or leases for the removal or cleanup of such substances or materials, the cost of which could be substantial.
In addition, we are subject to environmental, health and safety laws regulating air emissions, storm water management and other issues arising in our business. While these obligations do not normally impose material costs upon our operations, unexpected events, equipment malfunctions and human error, among other factors, can lead to violations of environmental laws, regulations or permits.
Regulation of greenhouse gas (“GHG”) emissions could increase the cost of electricity by reducing amounts of electricity generated from fossil fuels, by requiring the use of more expensive generating methods or by imposing taxes or fees upon electricity generation or use. Electricity is a material cost in connection with our business, and an increase in the cost of electricity, whether from regulation of GHGs or otherwise, could adversely affect us. GHG reduction legislation exists in Europe, and in several of the states in the U.S., and there is a potential for new or additional legislation in the U.S. and other countries in which we operate. Certain states, like California, already regulate GHG emissions from new and existing state-regulated facilities by imposing regulatory caps on allowances and by selling or auctioning the rights to such emissions. These programs have not had a material adverse effect on our electricity costs to date, but due to the market-driven nature of some of the programs, could do so in the future. Such laws and regulations are also subject to change at any time.
The U.S. EPA published regulations in October 2015, called the “Clean Power Plan,” that is intended to reduce GHG emissions from existing fossil fuel-fired power plants by 32 percent from 2005 levels by 2030. Under the rule, each state is required to develop a plan to reduce state-wide carbon dioxide emissions to meet a specified emissions target set by EPA for that state. If implemented, the Clean Power Plan could impose new emissions trading or credit programs, or other requirements, that could indirectly increase the average cost of electricity in states in which we operate.
New laws in the U.S. and other countries may arise as a result of international agreements. In November 2014, the United States and China announced a climate change agreement that established goals for reducing GHG emissions from both countries, including the prevention of increases in GHG emissions from China after 2030. In order for China to meet this commitment, China may impose limitations on fossil fuel generation or costs upon electricity, similar to those imposed in the U.S. and elsewhere.
On December 12, 2015, the Obama Administration reached agreement in Paris with a majority of 194 attending nations concerning a voluntary program for limiting GHGs. This agreement, known as the Paris Climate Accord (the “Accord”) would, if it becomes effective, require signatory countries to establish GHG reduction goals and report on their implementation of programs to achieve such goals. The Accord would be open for signature for one year commencing in April 2016, and would become effective commencing in 2020 if at least 55 countries representing at least 55% of aggregate, global GHG emissions sign. The U.S. has announced a commitment in support of the Accord to achieve reductions of GHG emissions to levels that are 26-28 percent below 2005 levels by 2025.

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Compliance with international agreements, such as the agreement with China and the Accord, could require new national legislation to be adopted in the U.S. or other signatory countries. In this case, in the U.S., if the Clean Power Plan is implemented in the form prescribed by EPA as a final regulation, it may substantially achieve international GHG emissions reduction commitments by the U.S. government. Accordingly, there may be no new legislation or regulation would be required to implement the Accord, assuming that the Clean Power Plan is implemented as set forth in the regulation. Nevertheless, laws or regulations may change over time. To the extent any environmental laws enacted or regulations impose new or unexpected costs, our business, results of operations or financial condition may be adversely affected.
If we are unable to recruit or retain qualified personnel, our business could be harmed.
We must continue to identify, hire, train and retain IT professionals, technical engineers, operations employees, and sales, marketing, finance and senior management personnel who maintain relationships with our customers and who can provide the technical, strategic and marketing skills required for our company to grow. There is a shortage of qualified personnel in these fields, and we compete with other companies for the limited pool of talent. The failure to recruit and retain necessary personnel, including, but not limited to, members of our executive team, could harm our business and our ability to grow our company.
We may not be able to compete successfully against current and future competitors.
We must be able to differentiate our IBX data centers and product offerings from those of our competitors. In addition to competing with other neutral colocation providers, we compete with traditional colocation providers, including telecommunications companies, carriers, internet service providers, managed services providers and large REITs who also operate in our market and may enjoy a cost advantage in providing offerings similar to those provided by our IBX data centers. We may experience competition from our landlords which could also reduce the amount of space available to us for expansion in the future. Rather than leasing available space in our buildings to large single tenants, they may decide to convert the space instead to smaller square foot units designed for multi-tenant colocation use, blurring the line between retail and wholesale space. We may also face competition from existing competitors or new entrants to the market seeking to replicate our global IBX data center concept by building or acquiring data centers, offering colocation on neutral terms or by replicating our strategy and messaging. Finally, customers may also decide it is cost-effective for them to build out their own data centers. Once customers have an established data center footprint, either through a relationship with one of our competitors or through in-sourcing, it may be extremely difficult to convince them to relocate to our IBX data centers.
Some of our competitors may adopt aggressive pricing policies, especially if they are not highly leveraged or have lower return thresholds than we do. As a result, we may suffer from pricing pressure that would adversely affect our ability to generate revenues. Some of these competitors may also provide our target customers with additional benefits, including bundled communication services or cloud services, and may do so in a manner that is more attractive to our potential customers than obtaining space in our IBX data centers. Similarly, with growing acceptance of cloud-based technologies, Equinix is at risk losing customers that may decide to fully leverage cloud infrastructure offerings instead of managing their own. Competitors could also operate more successfully or form alliances to acquire significant market share.
Failure to compete successfully may materially adversely affect our financial condition, cash flows and results of operations.
Our business could be harmed by prolonged power outages or shortages, increased costs of energy or general lack of availability of electrical resources.
Our IBX data centers are susceptible to regional costs of power, power shortages, planned or unplanned power outages and limitations, especially internationally, on the availability of adequate power resources.
Power outages, such as those relating to large storms, earthquakes and tsunamis, could harm our customers and our business. We attempt to limit our exposure to system downtime by using backup generators and power supplies; however, we may not be able to limit our exposure entirely even with these protections in place. Some of our IBXs are located in leased buildings where, depending upon the lease requirements and number of tenants involved, we may or may not control some or all of the infrastructure including generators and fuel tanks. As a result, in the event of a power outage, we may be dependent upon the landlord, as well as the utility company, to restore the power.
In addition, global fluctuations in the price of power can increase the cost of energy, and although contractual price increase clauses exist in the majority of our customer agreements, we may not always choose to pass these increased costs on to our customers.

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In each of our markets, we rely on third parties to provide a sufficient amount of power for current and future customers. At the same time, power and cooling requirements are growing on a per unit basis. As a result, some customers are consuming an increasing amount of power per cabinet. We generally do not control the amount of power our customers draw from their installed circuits. This means that we could face power limitations in our IBX data centers. This could have a negative impact on the effective available capacity of a given center and limit our ability to grow our business, which could have a negative impact on our financial performance, operating results and cash flows.
We may also have difficulty obtaining sufficient power capacity for potential expansion sites in new or existing markets. We may experience significant delays and substantial increased costs demanded by the utilities to provide the level of electrical service required by our current IBX data center designs.
If our internal controls are found to be ineffective, our financial results or our stock price may be adversely affected.
Our most recent evaluation of our controls resulted in our conclusion that, as of December 31, 2015, in compliance with Section 404 of the Sarbanes-Oxley Act of 2002, our internal controls over financial reporting were effective. Our ability to manage our operations and growth, through, for example, our upgrade of our worldwide financial application suite from Oracle's version 11i to R12 and our overhaul of our back office systems that support customer experience from initial quote to customer billing and our revenue recognition process, will require us to further develop our controls and reporting systems and implement or amend new or existing controls and reporting systems in those areas where the implementation is still ongoing. All of these changes to our financial systems create an increased risk of deficiencies in our internal controls over financial reporting until such systems are stabilized. If, in the future, our internal control over financial reporting is found to be ineffective, or if a material weakness is identified in our controls over financial reporting, our financial results may be adversely affected. Investors may also lose confidence in the reliability of our financial statements which could adversely affect our stock price.
If we cannot effectively manage our international operations, and successfully implement our international expansion plans, our revenues may not increase and our business and results of operations would be harmed.
For the years ended December 31, 2015, 2014 and 2013, we recognized approximately 49%, 49% and 46%, respectively, of our revenues outside the U.S. We currently operate outside of the U.S. in Canada, Brazil, EMEA and Asia-Pacific.
To date, the network neutrality of our IBX data centers and the variety of networks available to our customers has often been a competitive advantage for us. In certain of our acquired IBX data centers in the Asia-Pacific region the limited number of carriers available reduces that advantage. As a result, we may need to adapt our key revenue-generating offerings and pricing to be competitive in those markets. In addition, we are currently undergoing expansions or evaluating expansion opportunities outside of the U.S. Undertaking and managing expansions in foreign jurisdictions may present unanticipated challenges to us.
Our international operations are generally subject to a number of additional risks, including:
the costs of customizing IBX data centers for foreign countries;
protectionist laws and business practices favoring local competition;
greater difficulty or delay in accounts receivable collection;
difficulties in staffing and managing foreign operations, including negotiating with foreign labor unions or workers’ councils;
difficulties in managing across cultures and in foreign languages;
political and economic instability;
fluctuations in currency exchange rates;
difficulties in repatriating funds from certain countries;
our ability to obtain, transfer, or maintain licenses required by governmental entities with respect to our business;
unexpected changes in regulatory, tax and political environments;
our ability to secure and maintain the necessary physical and telecommunications infrastructure;
compliance with anti-bribery and corruption laws;

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compliance with economic and trade sanctions enforced by the Office of Foreign Assets Control of the U.S. Department of Treasury; and
compliance with evolving governmental regulation with which we have little experience.
In addition, compliance with international and U.S. laws and regulations that apply to our international operations increases our cost of doing business in foreign jurisdictions. These laws and regulations include data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import and trade restrictions, export requirements, economic and trade sanctions, U.S. laws such as the Foreign Corrupt Practices Act and local laws which also prohibit corrupt payments to governmental officials. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our offerings in one or more countries, could delay or prevent potential acquisitions, and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Our success depends, in part, on our ability to anticipate and address these risks and manage these difficulties.
Economic uncertainty in developing markets could adversely affect our revenue and earnings.
We conduct business and are contemplating expansion, in developing markets with economies that tend to be more volatile than those in the U.S. and Western Europe. The risk of doing business in developing markets such as Brazil, China, India, Indonesia, Russia, the United Arab Emirates and other economically volatile areas could adversely affect our operations and earnings. Such risks include the financial instability among customers in these regions, political instability, fraud or corruption and other non-economic factors such as irregular trade flows that need to be managed successfully with the help of the local governments. In addition, commercial laws in some developing countries can be vague, inconsistently administered and retroactively applied. If we are deemed not to be in compliance with applicable laws in developing countries where we conduct business, our prospects and business in those countries could be harmed, which could then have a material adverse impact on our results of operations and financial position. Our failure to successfully manage economic, political and other risks relating to doing business in developing countries and economically and politically volatile areas could adversely affect our business.
The use of high power density equipment may limit our ability to fully utilize our older IBX data centers.
Some customers have increased their use of high power density equipment, such as blade servers, in our IBX data centers which has increased the demand for power on a per cabinet basis. Because many of our IBX data centers were built a number of years ago, the current demand for power may exceed the designed electrical capacity in these centers. As power, not space, is a limiting factor in many of our IBX data centers, our ability to fully utilize those IBX data centers may be limited. The ability to increase the power capacity of an IBX data center, should we decide to, is dependent on several factors including, but not limited to, the local utility’s ability to provide additional power; the length of time required to provide such power; and/or whether it is feasible to upgrade the electrical infrastructure of an IBX data center to deliver additional power to customers. Although we are currently designing and building to a higher power specification than that of many of our older IBX data centers, there is a risk that demand will continue to increase and our IBX data centers could become underutilized sooner than expected.
Our operating results may fluctuate.
We have experienced fluctuations in our results of operations on a quarterly and annual basis. The fluctuations in our operating results may cause the market price of our common stock to be volatile. We may experience significant fluctuations in our operating results in the foreseeable future due to a variety of factors, including, but not limited to:
fluctuations of foreign currencies in the markets in which we operate;
the timing and magnitude of depreciation and interest expense or other expenses related to the acquisition, purchase or construction of additional IBX data centers or the upgrade of existing IBX data centers;
demand for space, power and services at our IBX data centers;
changes in general economic conditions, such as an economic downturn, or specific market conditions in the telecommunications and Internet industries, both of which may have an impact on our customer base;
charges to earnings resulting from past acquisitions due to, among other things, impairment of goodwill or intangible assets, reduction in the useful lives of intangible assets acquired, identification of additional assumed contingent liabilities or revised estimates to restructure an acquired company’s operations;

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the duration of the sales cycle for our offerings and our ability to ramp our newly-hired sales persons to full productivity within the time period we have forecasted;
restructuring charges or reversals of restructuring charges, which may be necessary due to revised sublease assumptions, changes in strategy or otherwise;
acquisitions or dispositions we may make;
the financial condition and credit risk of our customers;
the provision of customer discounts and credits;
the mix of current and proposed products and offerings and the gross margins associated with our products and offerings;
the timing required for new and future IBX data centers to open or become fully utilized;
competition in the markets in which we operate;
conditions related to international operations;
increasing repair and maintenance expenses in connection with aging IBX data centers;
lack of available capacity in our existing IBX data centers to generate new revenue or delays in opening new or acquired IBX data centers that delay our ability to generate new revenue in markets which have otherwise reached capacity;
changes in rent expense as we amend our IBX data center leases in connection with extending their lease terms when their initial lease term expiration dates approach or changes in shared operating costs in connection with our leases, which are commonly referred to as common area maintenance expenses;
the timing and magnitude of other operating expenses, including taxes, expenses related to the expansion of sales, marketing, operations and acquisitions, if any, of complementary businesses and assets;
the cost and availability of adequate public utilities, including power;
changes in employee stock-based compensation;
overall inflation;
increasing interest expense due to any increases in interest rates and/or potential additional debt financings;
changes in our tax planning strategies or failure to realize anticipated benefits from such strategies;
changes in income tax benefit or expense; and
changes in or new generally accepted accounting principles (“GAAP”) in the U.S. as periodically released by the Financial Accounting Standards Board (“FASB”).
Any of the foregoing factors, or other factors discussed elsewhere in this report, could have a material adverse effect on our business, results of operations and financial condition. Although we have experienced growth in revenues in recent quarters, this growth rate is not necessarily indicative of future operating results. Prior to 2008, we had generated net losses every fiscal year since inception. It is possible that we may not be able to generate net income on a quarterly or annual basis in the future. In addition, a relatively large portion of our expenses are fixed in the short-term, particularly with respect to lease and personnel expenses, depreciation and amortization and interest expenses. Therefore, our results of operations are particularly sensitive to fluctuations in revenues. As such, comparisons to prior reporting periods should not be relied upon as indications of our future performance. In addition, our operating results in one or more future quarters may fail to meet the expectations of securities analysts or investors.
Our days sales outstanding (DSO) of our accounts receivables have been increasing.
Although we have historically experienced a record of strong collection of our accounts receivables as evidenced by our prior DSO metrics, our DSO has increased over the past year. Our DSO was affected by the implementation of a new billing system that was introduced during the second half of 2014. While this new system is now operational in all three regions, it is not operational in all countries within each region and further enhancements to the overall system are still ongoing. While our DSO began to improve during the second half of 2015, our DSO may continue to be adversely impacted by ongoing changes in the billing system, which would continue to have a negative impact on our operating cash flows, liquidity and financial performance.

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We may incur goodwill and other intangible asset impairment charges, or impairment charges to our property, plant and equipment, which could result in a significant reduction to our earnings.
In accordance with GAAP, we are required to assess our goodwill and other intangible assets annually, or more frequently whenever events or changes in circumstances indicate potential impairment, such as changing market conditions or any changes in key assumptions. If the testing performed indicates that an asset may not be recoverable, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill or other intangible assets and the implied fair value of the goodwill or other intangible assets in the period the determination is made.
We also monitor the remaining net book values of our property, plant and equipment periodically, including at the individual IBX data center level. Although each individual IBX data center is currently performing in line with our expectations, the possibility that one or more IBX data centers could begin to under-perform relative to our expectations is possible and may also result in non-cash impairment charges.
These charges could be significant, which could have a material adverse effect on our business, results of operations or financial condition.
We have incurred substantial losses in the past and may incur additional losses in the future.
As of December 31, 2015, our accumulated deficit was $108.2 million. Although we have generated net income for each fiscal year since 2008, except for the year ended December 31, 2014, we are also currently investing heavily in our future growth through the build out of multiple additional IBX data centers and IBX data center expansions as well as acquisitions of complementary businesses. As a result, we will incur higher depreciation and other operating expenses, as well as acquisition costs and interest expense, that may negatively impact our ability to sustain profitability in future periods unless and until these new IBX data centers generate enough revenue to exceed their operating costs and cover our additional overhead needed to scale our business for this anticipated growth. The current global financial uncertainty may also impact our ability to sustain profitability if we cannot generate sufficient revenue to offset the increased costs of our recently-opened IBX data centers or IBX data centers currently under construction. In addition, costs associated with the acquisition and integration of any acquired companies, as well as the additional interest expense associated with debt financing we have undertaken to fund our growth initiatives, may also negatively impact our ability to sustain profitability. Finally, given the competitive and evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability on a quarterly or annual basis.
The failure to obtain favorable terms when we renew our IBX data center leases, or the failure to renew such leases, could harm our business and results of operations.
While we own certain of our IBX data centers, others are leased under long-term arrangements with lease terms expiring at various dates through 2065. These leased centers have all been subject to significant development by us in order to convert them from, in most cases, vacant buildings or warehouses into IBX data centers. Most of our IBX data center leases have renewal options available to us. However, many of these renewal options provide for the rent to be set at then-prevailing market rates. To the extent that then-prevailing market rates or negotiated rates are higher than present rates, these higher costs may adversely impact our business and results of operations, or we may decide against renewing the lease. In the event that an IBX data center lease does not have a renewal option, or we fail to exercise a renewal option in a timely fashion and lose our right to renew the lease, we may not be successful in negotiating a renewal of the lease with the landlord. A failure to renew a lease could force us to exit a building prematurely, which could be disruptive to our business, harm our customer relationships, expose us to liability under our customer contracts, cause us to take impairment charges and negatively affect our operating results.
We depend on a number of third parties to provide Internet connectivity to our IBX data centers; if connectivity is interrupted or terminated, our operating results and cash flow could be materially and adversely affected.
The presence of diverse telecommunications carriers’ fiber networks in our IBX data centers is critical to our ability to retain and attract new customers. We are not a telecommunications carrier, and as such, we rely on third parties to provide our customers with carrier services. We believe that the availability of carrier capacity will directly affect our ability to achieve our projected results. We rely primarily on revenue opportunities from the telecommunications carriers’ customers to encourage them to invest the capital and operating resources required to connect from their centers to our IBX data centers. Carriers will likely evaluate the revenue opportunity of an IBX data center based on the assumption that the environment will be highly competitive. We cannot provide assurance that each and every carrier will elect to offer its services within our IBX data centers or that once a carrier has decided to provide Internet connectivity to our IBX data centers that it will continue to do so for any period of time.

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Our new IBX data centers require construction and operation of a sophisticated redundant fiber network. The construction required to connect multiple carrier facilities to our IBX data centers is complex and involves factors outside of our control, including regulatory processes and the availability of construction resources. Any hardware or fiber failures on this network may result in significant loss of connectivity to our new IBX data center expansions. This could affect our ability to attract new customers to these IBX data centers or retain existing customers.
If the establishment of highly diverse Internet connectivity to our IBX data centers does not occur, is materially delayed or is discontinued, or is subject to failure, our operating results and cash flow will be adversely affected.
We may be vulnerable to security breaches which could disrupt our operations and have a material adverse effect on our financial performance and operating results.
We face risks associated with unauthorized access to our computer systems, loss or destruction of data, computer viruses, malware, distributed denial-of-service attacks, or other malicious activities. These threats may result from human error, equipment failure, or fraud or malice on the part of employees or third parties. A party who is able to compromise the security measures on our networks or the security of our infrastructure could misappropriate either our proprietary information or the personal information of our customers or our employees, or cause interruptions or malfunctions in our operations or our customers’ operations. As we provide assurances to our customers that we provide a high level of security, such a compromise could be particularly harmful to our brand and reputation. We may be required to expend significant capital and resources to protect against such threats or to alleviate problems caused by breaches in security. As techniques used to breach security change frequently, and are generally not recognized until launched against a target, we may not be able to promptly detect that a cyber breach has occurred, or implement security measures in a timely manner or, if and when implemented, we may not be able to determine the extent to which these measures could be circumvented. Any breaches that may occur could expose us to increased risk of lawsuits, regulatory penalties, loss of existing or potential customers, damage relating to loss of proprietary information, harm to our reputation and increases in our security costs, which could have a material adverse effect on our financial performance and operating results. We maintain insurance coverage for cyber risks but such coverage may be unavailable or insufficient to cover our losses.    
We offer professional services to our customers where we consult on data center solutions and assist with implementations. We also offer managed services in certain of our foreign jurisdictions outside of the U.S. where we manage the data center infrastructure for our customers. The access gained from these services to our clients’ networks and data creates some risk that our clients' networks or data will be improperly accessed. We may also design our clients’ cloud storage systems in such a way that exposes our clients to increased risk of data breach.  If Equinix were held to be responsible for any such a breach, it could result in a significant loss to Equinix, including damage to Equinix’s client relationships, harm to our brand and reputation, and legal liability.
We have government customers, which subjects us to risks including early termination, audits, investigations, sanctions and penalties.
We derive some revenues from contracts with the U.S. government, state and local governments and foreign governments. Some of these customers may terminate all or part of their contracts at any time, without cause.
There is increased pressure for governments and their agencies, both domestically and internationally, to reduce spending. Some of our federal government contracts are subject to the approval of appropriations being made by the U.S. Congress to fund the expenditures under these contracts. Similarly, some of our contracts at the state and local levels are subject to government funding authorizations.
Additionally, government contracts are generally subject to audits and investigations which could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.
Because we depend on the development and growth of a balanced customer base, including key magnet customers, failure to attract, grow and retain this base of customers could harm our business and operating results.
Our ability to maximize revenues depends on our ability to develop and grow a balanced customer base, consisting of a variety of companies, including enterprises, cloud, digital content and financial companies, and network service providers. We consider certain of these customers to be key magnets in that they draw in other customers. The more balanced the customer base within

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each IBX data center, the better we will be able to generate significant interconnection revenues, which in turn increases our overall revenues. Our ability to attract customers to our IBX data centers will depend on a variety of factors, including the presence of multiple carriers, the mix of our offerings, the overall mix of customers, the presence of key customers attracting business through vertical market ecosystems, the IBX data center’s operating reliability and security and our ability to effectively market our offerings. However, some of our customers may face competitive pressures and may ultimately not be successful or may be consolidated through merger or acquisition. If these customers do not continue to use our IBX data centers it may be disruptive to our business. Finally, the uncertain economic climate may harm our ability to attract and retain customers if customers slow spending, or delay decision-making, on our offerings, or if customers begin to have difficulty paying us and we experience increased churn in our customer base. Any of these factors may hinder the development, growth and retention of a balanced customer base and adversely affect our business, financial condition and results of operations.
We may be subject to securities class action and other litigation, which may harm our business and results of operations.
We may be subject to securities class action or other litigation. For example, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. Litigation can be lengthy, expensive, and divert management’s attention and resources. Results cannot be predicted with certainty and an adverse outcome in litigation could result in monetary damages or injunctive relief that could seriously harm our business, results of operations, financial condition or cash flows.
We may not be able to protect our intellectual property rights.
We cannot make assurances that the steps taken by us to protect our intellectual property rights will be adequate to deter misappropriation of proprietary information or that we will be able to detect unauthorized use and take appropriate steps to enforce our intellectual property rights. We also are subject to the risk of litigation alleging infringement of third-party intellectual property rights. Any such claims could require us to spend significant sums in litigation, pay damages, develop non-infringing intellectual property, or acquire licenses to the intellectual property that is the subject of the alleged infringement.
Government regulation may adversely affect our business.
Various laws and governmental regulations, both in the U.S. and abroad, governing Internet related services, related communications services and information technologies remain largely unsettled, even in areas where there has been some legislative action. For example, the Federal Communications Commission recently adopted new network neutrality rules that may result in material changes in the regulations and contribution regime affecting us and our customers. Likewise, as part of a review of the current equity market structure, the Securities and Exchange Commission and the Commodity Futures Trading Commission (“CFTC”) have both sought comments regarding the regulation of independent data centers, such as us, which provide colocation for financial markets and exchanges. The CFTC is also considering regulation of companies that use automated and high-frequency trading systems. Any such regulation may ultimately affect our provision of offerings.
It also may take years to determine whether and how existing laws, such as those governing intellectual property, privacy, libel, telecommunications services and taxation, apply to the Internet and to related offerings such as ours, and substantial resources may be required to comply with regulations or bring any non-compliant business practices into compliance with such regulations. In addition, the development of the market for online commerce and the displacement of traditional telephony service by the Internet and related communications services may prompt an increased call for more stringent consumer protection laws or other regulation both in the U.S. and abroad that may impose additional burdens on companies conducting business online and their service providers.
The adoption, or modification of laws or regulations relating to the Internet and our business, or interpretations of existing laws, could have a material adverse effect on our business, financial condition and results of operations.

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Industry consolidation may have a negative impact on our business model.
If customers combine businesses, they may require less colocation space, which could lead to churn in our customer base. Regional competitors may also consolidate to become a global competitor. Consolidation of our customers and/or our competitors may present a risk to our business model and have a negative impact on our revenues.
Terrorist activity throughout the world and military action to counter terrorism could adversely impact our business.
The continued threat of terrorist activity and other acts of war or hostility contribute to a climate of political and economic uncertainty. Due to existing or developing circumstances, we may need to incur additional costs in the future to provide enhanced security, including cyber security, which would have a material adverse effect on our business and results of operations. These circumstances may also adversely affect our ability to attract and retain customers, our ability to raise capital and the operation and maintenance of our IBX data centers.
We have various mechanisms in place that may discourage takeover attempts.
Certain provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a third party from acquiring control of us in a merger, acquisition or similar transaction that a stockholder may consider favorable. Such provisions include:
ownership limitations and transfer restrictions relating to our stock that are intended to facilitate our compliance with certain REIT rules relating to share ownership;
authorization for the issuance of “blank check” preferred stock;
the prohibition of cumulative voting in the election of directors;
limits on the persons who may call special meetings of stockholders;
limits on stockholder action by written consent; and
advance notice requirements for nominations to the Board of Directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law, which restricts certain business combinations with interested stockholders in certain situations, may also discourage, delay or prevent someone from acquiring or merging with us.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
There is no disclosure to report pursuant to Item 1B.
ITEM 2.
PROPERTIES
Our executive offices are located in Redwood City, California, and we also have sales offices in several cities throughout the U.S. Our Asia-Pacific headquarters office is located in Hong Kong and we also have office space in Shanghai, China; Singapore; Tokyo, Japan; and Sydney, Australia. Our EMEA headquarters office is located in Amsterdam, the Netherlands and our regional sales offices in EMEA are based in our IBX data centers in EMEA. We have entered into leases for certain of our IBX data centers in Atlanta, Georgia; New York, New York; Dallas, Texas; Chicago, Illinois; Englewood, Colorado; Los Angeles, Palo Alto, San Jose, Santa Clara and Sunnyvale, California; Miami, Florida; Newark, North Bergen and Secaucus, New Jersey; Philadelphia, Pennsylvania; Reston and Vienna, Virginia; Seattle, Washington; Toronto, Canada; Waltham, Massachusetts and Rio De Janeiro and Sao Paolo, Brazil in the Americas region; Shanghai, China; Hong Kong; Singapore; Sydney, Australia and Osaka and Tokyo, Japan in the Asia-Pacific region; Dubai, U.A.E.; London, United Kingdom; Paris, France; Frankfurt, Munich and Dusseldorf, Germany; Zurich and Geneva, Switzerland and Enschede and Zwolle, the Netherlands in the EMEA region. We own certain of our IBX data centers in Ashburn, Virginia; Chicago, Illinois; Los Angeles and San Jose, California; Melbourne, Australia; Secaucus, New Jersey; New York, New York; Paris, France; Frankfurt, Germany and Amsterdam, the Netherlands. We own campuses in Ashburn, Virginia, Silicon Valley and Frankfurt, Germany that house some of our IBX data centers mentioned in the preceding sentence.

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The following table presents an overview of our portfolio of IBX data centers as of December 31, 2015 (in thousands):
 
# of IBXs
 
Total cabinet capacity (2)
 
Cabinets billed
 
Cabinet utilization % (3)
 
MRR per cabinet (4)
Americas
55

 
62,600

 
50,600

 
81
%
 
$
2,448

EMEA
30

 
49,500

 
40,500

 
82
%
 
1,439

Asia-Pacific (1)
27

 
27,800

 
22,600

 
81
%
 
1,903

Total
112

 
139,900

 
113,700

 
 
 
 
_________________________
(1)
Other than the number of IBX data centers, these amounts exclude the Bit-isle's operations. We acquired Bit-isle on November 2, 2015 and Bit-isle's related operating metrics are not yet available.
(2)
Cabinets represent a specific amount of space within an IBX data center. Customers can combine and use multiple adjacent cabinets within an IBX data center, depending on their space requirements.
(3)
The cabinet utilization rate represents the percentage of cabinet space billing versus net sellable cabinet space available, taking into consideration power limitations.
(4)
MRR per cabinet represents recurring revenue recognized during the year divided by the average number of cabinets invoiced to customers during the year.

The following table presents a summary of our significant IBX data center expansion projects under construction as of December 31, 2015:
Property
Property location
Target open date
Sellable cabinets
Construction progress (in thousands)
Americas:
 
 
 
 
AT1 Phase IV
Atlanta
Q3 2016
365

$
31,000

DC7 Phase III
Ashburn
Q4 2016
230

6,000

SP 3 Phase I
Sao Paolo
Q1 2017
725

76,000

DC11 Phase III
Ashburn
Q1 2017
1,745

57,000

 
 
 
3,065

170,000

EMEA:
 
 
 
 
FR4 Phase V
Frankfurt
Q1 2016
600

21,000

AM1 Phase III
Amsterdam
Q2 2016
725

32,000

LD6 Phase II
London
Q3 2016
1,385

42,000

FR5 Phase III
Frankfurt
Q4 2016
500

8,000

AM4 Phase I
Amsterdam
Q2 2017
1,555

113,000

 
 
 
4,765

216,000

Asia-Pacific:
 
 
 
 
TY5 Phase VII
Tokyo
Q1 2016
725

43,000

SY4 Phase I
Sydney
Q2 2016
1,500

97,000

HK2 Phase IV
Hong Kong
Q1 2017
900

39,000

 
 
 
3,125

179,000

Total
 
 
10,955

$
565,000

ITEM 3.    LEGAL PROCEEDINGS
None


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ITEM 4.    MINE SAFETY DISCLOSURE
Not applicable.

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PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is quoted on the NASDAQ Global Select Market under the symbol of “EQIX.” Our common stock began trading in August 2000. The following table sets forth on a per share basis the low and high closing prices of our common stock as reported by the NASDAQ Global Select Market during the last two years.
 
Low
 
High
Fiscal 2015
 
 
 
Fourth Fiscal Quarter
$
265.41

 
$
304.98

Third Fiscal Quarter
251.11

 
292.02

Second Fiscal Quarter
233.59

 
270.15

First Fiscal Quarter
216.86

 
238.95

 
Low
 
High
Fiscal 2014
 
 
 
Fourth Fiscal Quarter
$
191.96

 
$
234.10

Third Fiscal Quarter
206.26

 
223.58

Second Fiscal Quarter
170.48

 
210.11

First Fiscal Quarter
173.42

 
194.02

As of January 31, 2016, we had 69,025,412 shares of our common stock outstanding held by approximately 274 registered holders.
In October 2014, our Board of Directors declared a special distribution of $416.0 million, or approximately $7.57 per share (the “2014 Special Distribution”), to our common stockholders in connection with our plan to convert to a REIT. The 2014 Special Distribution was paid on November 25, 2014 to our common stockholders of record as of the close of business on October 27, 2014. Common stockholders had the option to elect to receive payment of the 2014 Special Distribution in the form of stock or cash, with the total cash payment to all stockholders limited to no more than 20% of the total distribution. The number of shares distributed was determined based upon common stockholder elections and the average closing price of our common stock on the three trading days commencing on November 18, 2014 or $224.45 per share. As such, we issued 1.5 million shares of our common stock and paid $83.3 million in connection with the 2014 Special Distribution.
In connection with our conversion to a REIT effective January 1, 2015, we began paying quarterly dividends in 2015. On each of February 19, 2015, May 7, 2015, July 29, 2015 and October 28, 2015, our Board of Directors declared a quarterly cash dividend of $1.69 per share. For additional information, see “Dividends” in Note 11 of our Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
In September 2015, our Board of Directors declared a special distribution of $627.0 million, or approximately $10.95 per share (the “2015 Special Distribution”), to our common stockholders. The 2015 Special Distribution represented an amount that included the sum of: (1) foreign earnings and profits repatriated as dividend income in 2015; (2) taxable income in 2015 from depreciation recapture in respect of accounting method changes commenced in our pre-REIT period; and (3) certain other items of taxable income.
The 2015 Special Distribution was paid on November 10, 2015 to our common stockholders of record as of the close of business on October 8, 2015. Common stockholders had the option to elect to receive payment of the 2015 Special Distribution in the form of stock or cash, with the total cash payment to all stockholders limited to no more than 20% of the total distribution. The number of shares distributed was determined based upon common stockholder elections and the average closing price of our common stock on the three trading days commencing on November 3, 2015 or $297.03 per share. As such, we issued 1.7 million shares of our common stock and paid $125.5 million in connection with the 2015 Special Distribution.
During the year ended December 31, 2015, we did not issue or sell any securities on an unregistered basis.

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Stock Performance Graph
The graph set forth below compares the cumulative total stockholder return on Equinix’s common stock between December 31, 2010 and December 31, 2015 with the cumulative total return of (i) the S&P 500 Index, (ii) the NASDAQ Composite Index, (iii) the NASDAQ Telecommunications Index and (iv) the FTSE NAREIT All REITs Index. The graph assumes the investment of $100.00 on December 31, 2010 in Equinix’s common stock and in each index, and assumes the reinvestment of dividends, if any. Equinix converted to a REIT effective January 1, 2015 and thus intends to compare the total stockholder return on Equinix’s common stock to the cumulative total return of the FTSE NAREIT All REITs Index instead of that of the NASDAQ Telecommunications index in future filings.
Equinix cautions that the stock price performance shown in the graph below is not indicative of, nor intended to forecast, the potential future performance of Equinix’s common stock.
Notwithstanding anything to the contrary set forth in any of Equinix’s previous or future filings under the Securities Act of 1933, as amended, or Securities Exchange Act of 1934, as amended, that might incorporate this Annual Report on Form 10-K or future filings made by Equinix under those statutes, the stock performance graph shall not be deemed filed with the Securities and Exchange Commission and shall not be deemed incorporated by reference into any of those prior filings or into any future filings made by Equinix under those statutes.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
*$100 invested on 12/31/10 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.

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ITEM 6.    SELECTED FINANCIAL DATA
The following consolidated statement of operations data for the five years ended December 31, 2015 and the consolidated balance sheet data as of December 31, 2015, 2014, 2013, 2012 and 2011 have been derived from our audited consolidated financial statements and the related notes. Our historical results are not necessarily indicative of the results to be expected for future periods. The following selected consolidated financial data for the three years ended December 31, 2015 and as of December 31, 2015 and 2014, should be read in conjunction with our audited consolidated financial statements and the related notes in Item 8 of this Annual Report on Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K. In addition, we completed an acquisition of Nimbo Technologies Inc. in January 2015 and Bit-isle, Inc. in November 2015, an acquisition of an approximate 53% controlling equity interest in ALOG Data Centers do Brasil S.A. (“ALOG”) in April 2011 and the remaining outstanding shares of ALOG in July 2014, acquisitions of the Frankfurt Kleyer 90 carrier hotel in October 2013, a Dubai IBX data center in November 2012, and acquisitions of Asia Tone Limited and ancotel GmbH in July 2012. We also sold 16 of our IBX data centers located throughout the U.S. in November 2012. For further information on our acquisitions during the three years ended December 31, 2015, refer to Note 2 of our Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
 
Years ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
(dollars in thousands, except per share data)
Revenues
$
2,725,867

 
$
2,443,776

 
$
2,152,766

 
$
1,887,376

 
$
1,565,625

Costs and operating expenses:
 
 
 
 
 
 
 
 
 
Cost of revenues
1,291,506

 
1,197,885

 
1,064,403

 
944,617

 
829,024

Sales and marketing
332,012

 
296,103

 
246,623

 
202,914

 
158,347

General and administrative
493,284

 
438,016

 
374,790

 
328,266

 
265,554

Restructuring charges (reversals)

 

 
(4,837
)
 

 
3,481

Impairment charges

 

 

 
9,861

 

Acquisition costs
41,723

 
2,506

 
10,855

 
8,822

 
3,297

Total costs and operating expenses
2,158,525

 
1,934,510

 
1,691,834

 
1,494,480

 
1,259,703

Income from operations
567,342

 
509,266

 
460,932

 
392,896

 
305,922

Interest income
3,581

 
2,891

 
3,387

 
3,466

 
2,280

Interest expense
(299,055
)
 
(270,553
)
 
(248,792
)
 
(200,328
)
 
(181,303
)
Other income (expense)
(60,581
)
 
119

 
5,253

 
(2,208
)
 
2,821

Loss on debt extinguishment
(289
)
 
(156,990
)
 
(108,501
)
 
(5,204
)
 

Income from operations before income taxes
210,998

 
84,733

 
112,279

 
188,622

 
129,720

Income tax expense (1)
(23,224
)
 
(345,459
)
 
(16,156
)
 
(58,564
)
 
(37,347
)
Net income (loss) from continuing operations
187,774

 
(260,726
)
 
96,123

 
130,058

 
92,373

Net income from discontinued operations, net of tax

 

 

 
13,086

 
1,009

Net income (loss)
187,774

 
(260,726
)
 
96,123

 
143,144

 
93,382

Net (income) loss attributable to redeemable non-controlling interests

 
1,179

 
(1,438
)
 
(3,116
)
 
1,394

Net income attributable to Equinix
$
187,774

 
$
(259,547
)
 
$
94,685

 
$
140,028

 
$
94,776

 
 
 
 
 
 
 
 
 
 
Earnings per share ("EPS") attributable to Equinix:
 
 
 
 
 
 
 
 
 
Basic EPS from continuing operations
$
3.25

 
$
(4.96
)
 
$
1.92

 
$
2.65

 
$
1.75

Basic EPS from discontinued operations

 

 

 
0.27

 
0.02

Basic EPS
$
3.25

 
$
(4.96
)
 
$
1.92

 
$
2.92

 
$
1.77

Weighted-average shares
57,790

 
52,359

 
49,438

 
48,004

 
46,956

Diluted EPS from continuing operations
$
3.21

 
$
(4.96
)
 
$
1.89

 
$
2.58

 
$
1.72

Diluted EPS from discontinued operations

 

 

 
$
0.25

 
$
0.02

Diluted EPS
$
3.21

 
$
(4.96
)
 
$
1.89

 
$
2.83

 
$
1.74

Weighted-average shares
58,483

 
52,359

 
50,116

 
51,816

 
47,898

_________________________

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(1)
The increase in income tax expense from the year ended December 31, 2013 to the year ended December 31, 2014 was primarily attributed to the de-recognition of $324.1 million of deferred tax assets and deferred tax liabilities in December 2014, when our Board of Directors formally approved our conversion to a REIT and we reassessed the deferred tax assets and deferred tax liabilities of our U.S. operations included in the REIT structure.

 
Years ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
Other financial data: (1)
(dollars in thousands)
Net cash provided by operating activities
$
894,793

 
$
689,420

 
$
604,608

 
$
632,026

 
$
587,320

Net cash used in investing activities
(1,134,927
)
 
(435,839
)
 
(1,169,313
)
 
(442,873
)
 
(1,499,155
)
Net cash provided by (used in) financing activities
1,873,182

 
107,401

 
574,907

 
(222,721
)
 
748,728

_________________________
(1)
For a discussion of our primary non-GAAP financial metrics, see our non-GAAP financial measures discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K.

 
As of December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
 
(dollars in thousands)
 
 
Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and short-term and long-term investments
$
2,246,297

 
$
1,140,751

 
$
1,030,092

 
$
546,524

 
$
1,076,345

Accounts receivable, net
291,964

 
262,570

 
184,840

 
163,840

 
139,057

Property, plant and equipment, net
5,606,436

 
4,998,270

 
4,591,650

 
3,915,738

 
3,223,841

Total assets (1)
10,356,695

 
7,781,978

 
7,457,039

 
6,105,507

 
5,753,328

Capital lease and other financing obligations, excluding current portion
1,287,139

 
1,168,042

 
914,032

 
545,853

 
390,269

Mortgage and loans payable, excluding current portion (1)
472,769

 
532,809

 
197,172

 
186,287

 
168,795

Senior notes (1)
3,804,634

 
2,717,046

 
2,220,911

 
1,478,482

 
1,475,220

Convertible debt, excluding current portion (1)

 
145,229

 
720,499

 
702,469

 
685,593

Redeemable non-controlling interests

 

 
123,902

 
84,178

 
67,601

Total stockholders' equity
2,745,386

 
2,270,131

 
2,459,064

 
2,313,441

 
1,936,151

_________________________
(1)
The company adopted ASU 2015-03 during the year ended December 31, 2015. As a result, debt issuance costs of $35,455, $35,320, $30,290, and $33,956 were reclassified from other assets to debt as of December 31, 2014, 2013, 2012, and 2011, respectively.

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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following commentary should be read in conjunction with the financial statements and related notes contained elsewhere in this Annual Report on Form 10-K. The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in “Liquidity and Capital Resources” and “Risk Factors” elsewhere in this Annual Report on Form 10-K. All forward-looking statements in this document are based on information available to us as of the date hereof and we assume no obligation to update any such forward-looking statements.
Our management’s discussion and analysis of financial condition and results of operations is intended to assist readers in understanding our financial information from our management’s perspective and is presented as follows:
Overview
Results of Operations
Non-GAAP Financial Measures
Liquidity and Capital Resources
Contractual Obligations and Off-Balance-Sheet Arrangements
Critical Accounting Policies and Estimates
Recent Accounting Pronouncements
In December 2015, as more fully described in Note 9 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, we issued $1.1 billion aggregate principal amount of 5.875% senior notes due January 15, 2026 (the “2026 Senior Notes”).
In December 2015, as more fully described in Note 9 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, we entered into the second amendment (the “Second Amendment”) to our Senior Credit Facility. Pursuant to the Second Amendment, our revolving credit facility was increased by $500.0 million to $1.5 billion and we received commitments for an additional $250.0 million seven-year term loan facility and for an additional £300.0 million, or approximately $442.0 million in U.S. dollars at the exchange rate in effect on December 31, 2015, seven-year term loan (collectively, the “Term Loan B Commitments”). We borrowed the full amount of the Term Loan B Commitments in January 2016.
In November 2015, as more fully described in Note 11 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, we issued and sold 2,994,792 shares of our common stock in a public offering. We received net proceeds of approximately $829.5 million, after deducting underwriting discounts, commissions and offering expenses.
We intend to use the net proceeds we received from the sale of our 2026 Senior Notes and from the sale of our common stock, as well as the net proceeds we received in January 2016 from our Term Loan B Commitments, for both merger and acquisition activities and general corporate purposes.
In November 2015, as more fully described in Note 2 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, we completed our acquisition of Tokyo-based Bit-isle Inc. (“Bit-isle”) valued at ¥33.2 billion or approximately $275.4 million U.S. dollars.
In connection with our acquisition of Bit-isle, as more fully described in Note 9 of Notes to Consolidated Financial Statements, in September 2015 we entered into a term loan agreement (the “Bridge Term Loan Agreement”) with the Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”). BTMU has committed to provide a senior bridge loan facility (the “Bridge Term Loan”) in the amount of up to ¥47.5 billion, or approximately $395.2 million at the exchange rate in effect on December 31, 2015. Proceeds from the Bridge Term Loan are to be used exclusively for the acquisition of Bit-isle, the repayment of Bit-isle’s existing debt and transaction costs incurred in connection with the closing of the Bridge Term Loan and the acquisition of Bit-isle. We borrowed ¥46.5 billion, or approximately $386.5 million in U.S. dollars at the exchange rate in effect on December 31, 2015, under the Bridge Term Loan in the fourth quarter of 2015. We intend to obtain permanent financing to replace and terminate the Bridge Term Loan in 2016.

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In May 2015, as more fully described in Note 2 and Note 9 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, we announced an offer for the entire issued and to be issued share capital of TelecityGroup, valued at approximately £2.4 billion, or $3.8 billion in U.S. dollars. The transaction closed in January 2016. The total consideration consisted of $1.7 billion in cash and 6.9 million shares of our common stock, valued at $2.1 billion. In connection with the transaction, we also entered into a bridge credit agreement (the "Bridge Loan") with J.P. Morgan Chase Bank, N.A. (“JPMCB”) as the initial lender and as administrative agent for the lenders (the “Lenders”), for a principal amount of £875.0 million; or approximately $1.3 billion. The Bridge Loan was dedicated solely for the acquisition of TelecityGroup and to satisfy funds certain requirements under UK takeover code. We terminated the Bridge Loan in January 2016.
In May 2015, we received a favorable response to the PLR request we had submitted to the IRS in connection with our conversion to a REIT for federal income tax purposes effective for the taxable year commencing January 1, 2015.
In April 2015, as more fully described in Note 9 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, we entered into the first amendment (the “First Amendment”) of our credit agreement dated December 17, 2014 (the “Senior Credit Facility”). The amendment allowed for the conversion of the outstanding U.S. dollar-denominated principal amount of the term loan facility to an approximately equivalent amount denominated in four foreign currencies.  In connection with the execution of the amendment, on April 30, 2015, we repaid the U.S. dollar-denominated $490.0 million remaining principal balance of the term loan facility and immediately re-borrowed under the term loan facility the aggregate principal amount of CHF 47.8 million, €184.9 million, £92.6 million and ¥11.9 million, or approximately $490.0 million in U.S dollars in total.
Overview
Equinix provides global data center offerings that protect and connect the world’s most valued information assets. Global enterprises, financial services companies and content and network service providers rely upon Equinix’s leading insight and data centers in 33 markets around the world for the safekeeping of their critical IT equipment and the ability to directly connect to the networks that enable today’s information-driven economy. Equinix offers the following solutions: (i) premium data center colocation, (ii) interconnection and (iii) exchange and outsourced IT infrastructure services. As of December 31, 2015, we operated or had partner International Business Exchange (“IBX”) data centers in the Atlanta, Boston, Chicago, Dallas, Denver, Los Angeles, Miami, New York, Philadelphia, Rio de Janeiro, Sao Paulo, Seattle, Silicon Valley, Toronto and Washington, D.C. metro areas in the Americas region; France, Germany, Italy, the Netherlands, Switzerland, the United Arab Emirates and the United Kingdom in the Europe, Middle East and Africa (“EMEA”) region; and Australia, China, Hong Kong, Indonesia, Japan and Singapore in the Asia-Pacific region.

 Our data centers in 33 markets around the world are a global platform, which allows our customers to increase information and application delivery performance while significantly reducing costs. This global platform and the quality of our IBX data centers have enabled us to establish a critical mass of customers. As more customers choose our IBX data centers, it benefits their suppliers and business partners to colocate with us as well, in order to gain the full economic and performance benefits of our offerings. These partners, in turn, pull in their business partners, creating a “marketplace” for their services. Our global platform enables scalable, reliable and cost-effective colocation, interconnection and traffic exchange that lowers overall cost and increases flexibility. Our focused business model is built on our critical mass of customers and the resulting “marketplace” effect. This global platform, combined with our strong financial position, continues to drive new customer growth and bookings.
 
Historically, our market has been served by large telecommunications carriers who have bundled telecommunications products and services with their colocation offerings. The data center market landscape has evolved to include cloud computing/utility providers, application hosting providers and systems integrators, managed infrastructure hosting providers and colocation providers. More than 350 companies provide data center solutions in the U.S. alone. Each of these data center solutions providers can bundle various colocation, interconnection and network offerings, and outsourced IT infrastructure services. We are able to offer our customers a global platform that reaches 21 countries with proven operational reliability, improved application performance and network choice, and a highly scalable set of offerings.

Our utilization rate represents the percentage of our cabinet space billing versus net sellable cabinet space available, taking into account power limitations. Our utilization rate was approximately 81% and 78% as of December 31, 2015 and December 31, 2014, respectively. However, excluding the impact of IBX data center expansion projects that have opened during the last 12 months, our utilization rate would be approximately 85% as of December 31, 2015. Our utilization rate varies from market to market among our IBX data centers across the Americas, EMEA and Asia-Pacific regions. We continue to monitor the available capacity in each of our selected markets. To the extent we have limited capacity available in a given market, it may limit our ability for growth in that market. We perform demand studies on an ongoing basis to determine if future expansion is warranted in a market. In addition, power and cooling requirements for most customers are growing on a per unit basis. As a result, customers

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are consuming an increasing amount of power per cabinet. Although we generally do not control the amount of power our customers draw from installed circuits, we have negotiated power consumption limitations with certain high power-demand customers. This increased power consumption has driven us to build out our new IBX data centers to support power and cooling needs twice that of previous IBX data centers. We could face power limitations in our IBX data centers, even though we may have additional physical cabinet capacity available within a specific IBX data center. This could have a negative impact on the available utilization capacity of a given IBX data center, which could have a negative impact on our ability to grow revenues, affecting our financial performance, operating results and cash flows.

Strategically, we will continue to look at attractive opportunities to grow our market share and selectively improve our footprint and offerings. As was the case with our recent expansions and acquisitions, our expansion criteria will be dependent on a number of factors, such as demand from new and existing customers, quality of the design, power capacity, access to networks, capacity availability in the current market location, amount of incremental investment required by us in the targeted property, lead-time to break even on a free cash flow basis, and in-place customers. Like our recent expansions and acquisitions, the right combination of these factors may be attractive to us. Depending on the circumstances, these transactions may require additional capital expenditures funded by upfront cash payments or through long-term financing arrangements in order to bring these properties up to Equinix standards. Property expansion may be in the form of purchases of real property, long-term leasing arrangements or acquisitions. Future purchases, construction or acquisitions may be completed by us or with partners or potential customers to minimize the outlay of cash, which can be significant.

Our business is based on a recurring revenue model comprised of colocation and related interconnection and managed infrastructure offerings. We consider these offerings recurring because our customers are generally billed on a fixed and recurring basis each month for the duration of their contract, which is generally one to three years in length. Our recurring revenues have comprised more than 90% of our total revenues during the past three years. In addition, during any given quarter of the past three years, more than half of our monthly recurring revenue bookings came from existing customers, contributing to our revenue growth. Our largest customer accounted for approximately 3% of our recurring revenues for the period ended December 31, 2015 and 2% of our recurring revenues for the periods ended December 31, 2014 and 2013. Our 50 largest customers accounted for approximately 34%, 36% and 35% of our recurring revenues for the years ended December 31, 2015, 2014 and 2013.

Our non-recurring revenues are primarily comprised of installation services related to a customer’s initial deployment and professional services that we perform. These services are considered to be non-recurring because they are billed typically once, upon completion of the installation or the professional services work performed. The majority of these non-recurring revenues are typically billed on the first invoice distributed to the customer in connection with their initial installation. However, revenues from installation services are deferred and recognized ratably over the expected life of the customer installation. Additionally, revenue from contract settlements, when a customer wishes to terminate their contract early, is recognized when no remaining performance obligations exist and collectability is reasonably assured, to the extent that the revenue has not previously been recognized. As a percentage of total revenues, we expect non-recurring revenues to represent less than 10% of total revenues for the foreseeable future.

Our Americas revenues are derived primarily from colocation and related interconnection offerings, and our EMEA and Asia-Pacific revenues are derived primarily from colocation and managed infrastructure offerings.

The largest components of our cost of revenues are depreciation, rental payments related to our leased IBX data centers, utility costs, including electricity and bandwidth, IBX data center employees’ salaries and benefits, including stock-based compensation, repairs and maintenance, supplies and equipment and security services. A substantial majority of our cost of revenues is fixed in nature and should not vary significantly from period to period, unless we expand our existing IBX data centers or open or acquire new IBX data centers. However, there are certain costs that are considered more variable in nature, including utilities and supplies that are directly related to growth in our existing and new customer base. We expect the cost of our utilities, specifically electricity, will generally increase in the future on a per-unit or fixed basis, in addition to the variable increase related to the growth in consumption by our customers. In addition, the cost of electricity is generally higher in the summer months, as compared to other times of the year. To the extent we incur increased utility costs, such increased costs could materially impact our financial condition, results of operations and cash flows. Furthermore, to the extent we incur increased electricity costs as a result of either climate change policies or the physical effects of climate change, such increased costs could materially impact our financial condition, results of operations and cash flows.
 
Sales and marketing expenses consist primarily of compensation and related costs for sales and marketing personnel, including stock-based compensation, sales commissions, marketing programs, public relations, promotional materials and travel, as well as bad debt expense and amortization of customer contract intangible assets.


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General and administrative expenses consist primarily of salaries and related expenses, including stock-based compensation, accounting, legal and other professional service fees, and other general corporate expenses, such as our corporate regional headquarters office leases and some depreciation expense.

Due to our recurring revenue model, and a cost structure which has a large base that is fixed in nature and generally does not grow in proportion to revenue growth, we expect our cost of revenues, sales and marketing expenses and general and administrative expenses to decline as a percentage of revenues over time, although we expect each of them to grow in absolute dollars in connection with our growth. However, for cost of revenues, this trend may periodically be impacted when a large expansion project opens or is acquired, and before it starts generating any meaningful revenue. Furthermore, in relation to cost of revenues, we note that the Americas region has a lower cost of revenues as a percentage of revenue than either EMEA or Asia-Pacific. This is due to both the increased scale and maturity of the Americas region, compared to either the EMEA or Asia-Pacific region, as well as a higher cost structure outside of the Americas, particularly in EMEA. While we expect all three regions to continue to see lower cost of revenues as a percentage of revenues in future periods, we expect the trend that sees the Americas having the lowest cost of revenues as a percentage of revenues to continue. As a result, to the extent that revenue growth outside the Americas grows in greater proportion than revenue growth in the Americas, our overall cost of revenues as a percentage of revenues may increase in future periods. Sales and marketing expenses may periodically increase as a percentage of revenues as we continue to scale our operations to invest in sales and marketing initiatives to further increase our revenue, including the hiring of additional headcount and new product innovations. General and administrative expenses may also periodically increase as a percentage of revenues as we continue to scale our operations to support our growth.
Real Estate Investment Trust Conversion
We began operating as a REIT for federal income tax purposes effective January 1, 2015. In May 2015, we received a favorable PLR from the IRS in connection with our conversion to a REIT. As of December 31, 2015, our REIT structure includes all of our data center operations in the U.S., Canada, Europe and the historical data center operations in Japan. Our data center operations in other jurisdictions, as well as the data center operations acquired in the Bit-isle Acquisition, have initially been designated as TRSs.
As a REIT, we generally are permitted to deduct from federal taxable income the dividends we pay to our stockholders (including, for this purpose, the value of any deemed distribution on account of adjustments to the conversion rate relating to our outstanding debt securities that are convertible into our common stock). The income represented by such dividends is not subject to federal taxation at the entity level but is taxed, if at all, at the stockholder level. Nevertheless, the income of our TRSs which hold our U.S. operations that may not be REIT-compliant, are subject, as applicable, to federal and state corporate income tax. Likewise, our foreign subsidiaries continue to be subject to foreign income taxes in jurisdictions in which they hold assets or conduct operations, regardless of whether held or conducted through TRSs or through QRSs. We are also subject to a separate corporate income tax on gain recognized from a sale of a REIT asset where our basis in the asset is determined by reference to the basis of the asset in the hands of a present or former C corporation (such as (i) an asset that we held as of the effective date of our REIT election, that is, January 1, 2015 or (ii) an asset that we hold in a QRS following the liquidation or other conversion of a former TRS). This built-in-gains tax is generally applicable to any disposition of such an asset during the five-year period after the date we first owned the asset as a REIT asset (e.g., January 1, 2015 in the case of REIT assets we held at the time of our REIT conversion), to the extent of the built-in-gain based on the fair market value of such asset on the date we first held the asset as a REIT asset. If we fail to qualify for taxation as a REIT, we will be subject to federal income tax at regular corporate rates. Even if we remain qualified for taxation as a REIT, we may be subject to some federal, state, local and foreign taxes on our income and property in addition to taxes owed with respect to our TRSs' operations. In particular, while state income tax regimes often parallel the federal income tax regime for REITs, many states do not completely follow federal rules and some may not follow them at all.
We incurred a total of approximately $364.0 million in tax liabilities associated with a change in our methods of depreciating and amortizing various data center assets for tax purposes from our prior methods to methods that are more consistent with the characterization of such assets as real property for REIT purposes. These liabilities were generally payable over a four-year period starting in 2012.

On September 28, 2015, we announced the declaration by our Board of Directors of a special distribution (the “2015 Special Distribution”) of $627.0 million on our shares of common stock, payable in either common stock or cash to, and at the election of, our stockholders of record as of October 8, 2015 (the “Record Date”). The 2015 Special Distribution included: (1) foreign earnings and profits repatriated as dividend income recognized in 2015; (2) taxable income in 2015 from depreciation recapture in respect of accounting method changes commenced in our pre-REIT period; and (3) certain other items of taxable income. The 2015 Special Distribution was paid on November 10, 2015 to our common stockholders of record as of the close of business on October 8, 2015 in the form of an aggregate of approximately $125.5 million in cash and 1.69 million shares of our common stock.

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The 2015 Special Distribution followed an initial special distribution of $416.0 million paid in cash and common stock to stockholders in November 2014.
In connection with our conversion to a REIT effective January 1, 2015, we also paid quarterly cash dividends of $1.69 per share on each of March 25, 2015, June 17, 2015, September 16, 2015, and December 16, 2015. The amount of the 2015 Special Distribution, plus the amount of all of our other distributions during 2015 and the value of the deemed distributions on account of the adjustments to the conversion rate relating to our outstanding 4.75% convertible subordinated notes that were made as a result of all our 2015 distributions, equaled or exceeded the taxable income that we recognized in 2015.
We have initially designated all the legal entities acquired in the Bit-isle acquisition as taxable REIT subsidiaries (“TRSs”), which we believe will not impact our qualification for taxation as a REIT. We plan to integrate the data center business of Bit-isle into our REIT structure by the end of 2016.
We will initially designate all the legal entities acquired in the TelecityGroup acquisition as taxable REIT subsidiaries (“TRSs”), which we believe will not impact our qualification for taxation as a REIT. We plan to integrate a significant portion of the TelecityGroup businesses into our REIT structure by the end of 2016 and to complete almost all remaining REIT integration efforts in the first half of 2017.
We continue to monitor our REIT compliance to maintain our qualification for taxation as a REIT. For this, and other reasons, as necessary, we may convert certain of our data center operations in additional countries into the REIT in future periods.
Results of Operations
Our results of operations for the year ended December 31, 2015 include the results of operations of the Nimbo and Bit-isle acquisitions from January 15, 2015 and November 2, 2015 respectively. Our results of operations for the year ended December 31, 2013 include the operations of Frankfurt Kleyer 90 carrier hotel acquisition from October 1, 2013.
Years Ended December 31, 2015 and 2014
Revenues.    Our revenues for the years ended December 31, 2015 and 2014 were generated from the following revenue classifications and geographic regions (dollars in thousands):
 
Years ended December 31,
 
% change
 
2015
 
%
 
2014
 
%
 
Actual
 
Constant currency
Americas:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
$
1,432,084

 
52%
 
$
1,311,518

 
54%
 
9%
 
12%
Non-recurring revenues
80,451

 
3%
 
64,585

 
3%
 
25%
 
25%
 
1,512,535

 
55%
 
1,376,103

 
57%
 
10%
 
13%
EMEA:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
651,778

 
24%
 
598,953

 
24%
 
9%
 
23%
Non-recurring revenues
47,029

 
2%
 
38,312

 
1%
 
23%
 
41%
 
698,807

 
26%
 
637,265

 
25%
 
10%
 
24%
Asia-Pacific:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
485,279

 
18%
 
407,319

 
17%
 
19%
 
31%
Non-recurring revenues
29,246

 
1%
 
23,089

 
1%
 
27%
 
39%
 
514,525

 
19%
 
430,408

 
18%
 
20%
 
31%
Total:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
2,569,141

 
94%
 
2,317,790

 
95%
 
11%
 
18%
Non-recurring revenues
156,726

 
6%
 
125,986

 
5%
 
24%
 
32%
 
$
2,725,867

 
100%
 
$
2,443,776

 
100%
 
12%
 
19%

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Americas Revenues. During the years ended December 31, 2015 and 2014, our revenues from the United States, the largest revenue contributor in the Americas region for the periods, represented approximately 93% and 91%, respectively, of the regional revenues. Growth in Americas revenues was primarily due to (i) $44.5 million of revenue generated from our recently-opened IBX data centers and IBX data center expansions in the Dallas, New York, Rio de Janeiro, Silicon Valley, Toronto and Washington DC metro areas and (ii) an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our utilization rate, as discussed above, in both our new and existing IBX data centers.. During the year ended December 31, 2015, currency fluctuations resulted in approximately $37.7 million of unfavorable foreign currency impact on our Americas revenues primarily due to the generally stronger U.S. dollar relative to the Brazilian real and Canadian dollar during the year ended December 31, 2015 compared to the year ended December 31, 2014. We expect that our Americas revenues will continue to grow in future periods as a result of continued growth in the recently-opened IBX data centers and additional IBX data center expansions currently taking place in the Atlanta, Sao Paulo and Washington, D.C. metro areas, which are expected to open during 2016 and 2017. Our estimates of future revenue growth also take into account expected changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts.
EMEA Revenues.  During the years ended December 31, 2015 and 2014, our revenues from the United Kingdom, the largest revenue contributor in the EMEA region for the periods, represented approximately 37% and 36%, respectively, of the regional revenues. Our EMEA revenue growth was due to (i) $23.6 million of revenue generated from our recently-opened IBX data centers and IBX data center expansions in the Amsterdam, Frankfurt, London, and Paris metro areas and (ii) an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our utilization rate, as discussed above, in both our new and existing IBX data centers. During the year ended December 31, 2015, currency fluctuations resulted in approximately $94.1 million of net unfavorable foreign currency impact on our EMEA revenues primarily due to the generally stronger U.S. dollar relative to the British pound and Euro during the year ended December 31, 2015 compared to the year ended December 31, 2014. We expect that our EMEA revenues will continue to grow in future periods as a result of continued growth in recently-opened IBX data centers and additional IBX data center expansions currently taking place in the Amsterdam, Frankfurt and London metro areas, which are expected to open during 2016 and 2017, and as a result of our acquisition of TelecityGroup, which closed in January 2016. Our estimates of future revenue growth also take into account expected changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers' contracts.
Asia-Pacific Revenues.  Our revenues from Singapore, the largest revenue contributor in the Asia-Pacific region, represented approximately 37% and 38% of the regional revenues for the years ended December 31, 2015 and 2014. Our Asia-Pacific revenue growth was due to (i) $58.8 million of revenue generated from our recently-opened IBX data centers and IBX data center expansions in the Hong Kong, Melbourne, Shanghai, Singapore and Tokyo metro areas and (ii) an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our utilization rate, as discussed above, in both our new and existing IBX data centers. In addition, our Asia-Pacific revenues for the year ended December 31, 2015 included $21.6 million of revenue attributable to our acquisition of Bit-isle, which closed on November 2, 2015. During the year ended December 31, 2015, currency fluctuations resulted in approximately $46.4 million of net unfavorable foreign currency impact on our Asia-Pacific revenues primarily due to the generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the year ended December 31, 2015 compared to the year ended December 31, 2014. We expect that our Asia-Pacific revenues will continue to grow in future periods as a result of continued growth in these recently-opened IBX data center expansions and additional expansions currently taking place in the Hong Kong, Sydney, and Tokyo metro areas, which are expected to open during 2016 and 2017, and as a result of our acquisition of Bit-isle. Our estimates of future revenue growth also take into account expected changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts.

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Cost of Revenues.  Our cost of revenues for the years ended December 31, 2015 and 2014 were split among the following geographic regions (dollars in thousands):
 
Years ended December 31,
 
% change
 
2015
 
%
 
2014
 
%
 
Actual
 
Constant currency
Americas
$
637,604

 
49%
 
$
605,184

 
51%
 
5%
 
10%
EMEA
350,270

 
27%
 
337,095

 
28%
 
4%
 
19%
Asia-Pacific
303,632

 
24%
 
255,606

 
21%
 
19%
 
30%
Total
$
1,291,506

 
100%
 
$
1,197,885

 
100%
 
8%
 
17%
 
Years ended
 
December 31,
 
2015
 
2014
Cost of revenues as a percentage of revenues:
 
 
 
Americas
42%
 
44%
EMEA
50%
 
53%
Asia-Pacific
59%
 
59%
Total
47%
 
49%
Americas Cost of Revenues. Our Americas cost of revenues for the years ended December 31, 2015 and 2014 included $219.1 million and $218.4 million, respectively, of depreciation expense. The increase in our Americas cost of revenues was primarily due to (i) $17.4 million of higher office expense, utilities, and repair and maintenance costs in support of our business growth, (ii) $7.3 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (1,032 employees included in Americas cost of revenues as of December 31, 2015 versus 941 as of December 31, 2014), (iii) $3.9 million of higher costs associated with equipment resales to support the growth of non-recurring revenues and (iv) $3.5 million of higher property and real property tax expenses primarily due to our newly-opened IBX data centers during the year ended December 31, 2015, partially offset by $2.6 million of lower rent and facility costs primarily as a result of certain leases being accounted for as capital leases rather than as operating leases. During the year ended December 31, 2015, currency fluctuations resulted in approximately $29.6 million of net favorable foreign currency impact on our Americas cost of revenues primarily due to the generally stronger U.S. dollar relative to the Brazilian real and Canadian dollar during the year ended December 31, 2015 compared to the year ended December 31, 2014. We expect Americas cost of revenues to increase as we continue to grow our business.
EMEA Cost of Revenues. EMEA cost of revenues included $97.8 million of depreciation expense for the years ended December 31, 2015 and 2014. The increase in our EMEA cost of revenues was primarily due to $3.4 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (541 employees included in EMEA cost of revenues as of December 31, 2015 versus 473 as of December 31, 2014), and $13.2 million of higher costs associated with equipment resales, bandwidth and other customer services in support of our non-recurring revenues growth as well as an increase in net losses related to cash flow derivatives. These increases were partially offset by $5.0 million of lower rent, facilities and utilities expenses and $2.7 million of lower consulting costs. During the year ended December 31, 2015, the impact of foreign currency fluctuations resulted in approximately $50.8 million of net favorable foreign currency impact on our EMEA cost of revenues primarily due to the generally stronger U.S. dollar relative to the British pound and Euro during the year ended December 31, 2015 compared to the year ended December 31, 2014. We expect EMEA cost of revenues to increase as we continue to grow our business and as a result of our acquisition of TelecityGroup, which closed in January 2016.
Asia-Pacific Cost of Revenues. Asia-Pacific cost of revenues for the year ended December 31, 2015 included $17.4 million of cost of revenues attributable to our acquisition of Bit-isle, which closed in November 2015. Excluding cost of revenues attributable to Bit-isle, Asia-Pacific cost of revenues for the year ended December 31, 2015 was $286.2 million compared to $255.6 for the year ended December 31, 2014. Depreciation expense, excluding Bit-isle, was $116.9 million and $101.4 million for the years ended December 31, 2015 and 2014, respectively. Growth in depreciation expense was primarily due to our IBX data center expansion activity. In addition to the increase in depreciation expense, the increase in Asia-Pacific cost of revenues, excluding cost of revenues attributable to Bit-isle, was primarily due to $9.9 million in higher consulting costs, utility costs, repairs and maintenance costs and rent and facility costs in support of our revenue growth as well as $2.8 million of higher compensation

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costs, including general salaries, bonuses, stock-based compensation and headcount growth (390 employees included in Asia-Pacific cost of revenues, excluding Bit-isle employees, as of December 31, 2015 versus 342 as of December 31, 2014). During the year ended December 31, 2015, currency fluctuations resulted in approximately $24.7 million of net favorable foreign currency impact on our Asia-Pacific cost of revenues primarily due to the generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the year ended December 31, 2015 compared to the year ended December 31, 2014. We expect Asia-Pacific cost of revenues to increase as we continue to grow our business and as a result of our acquisition of Bit-isle.
Sales and Marketing Expenses. Our sales and marketing expenses for the years ended December 31, 2015 and 2014 were split among the following geographic regions (dollars in thousands):
 
Years ended December 31,
 
% change
 
2015
 
%
 
2014
 
%
 
Actual
 
Constant currency
Americas
$
208,310

 
63%
 
$
172,264

 
58%
 
21%
 
24%
EMEA
71,871

 
22%
 
79,890

 
27%
 
(10)%
 
0%
Asia-Pacific
51,831

 
15%
 
43,949

 
15%
 
18%
 
27%
Total
$
332,012

 
100%
 
$
296,103

 
100%
 
12%
 
18%
 
Years ended
 
December 31,
 
2015
 
2014
Sales and marketing expenses as a percentage of revenues:
 
 
 
Americas
14%
 
13%
EMEA
10%
 
13%
Asia-Pacific
10%
 
10%
Total
12%
 
12%
Americas Sales and Marketing Expenses. The increase in our Americas sales and marketing expenses was primarily due to (i) $26.5 million of higher compensation costs, including sales compensation, general salaries, bonuses, commission and stock-based compensation as a result of business and headcount growth (497 Americas sales and marketing employees as of December 31, 2015 versus 450 as of December 31, 2014) and (ii) $8.6 million of higher travel, consulting and advertising and promotion costs in support of our business growth. During the year ended December 31, 2015, currency fluctuations resulted in approximately $4.7 million of net favorable foreign currency impact on our Americas sales and marketing expenses primarily due to the generally stronger U.S. dollar relative to the Brazilian real and Canadian dollar during the year ended December 31, 2015 compared to the year ended December 31, 2014. Over the past several years, we have been investing in our Americas sales and marketing initiatives to further increase our revenue. These investments have included the hiring of additional headcount and new product innovation efforts. Although we anticipate that we will continue to invest in Americas sales and marketing initiatives, we believe our Americas sales and marketing expenses as a percentage of revenues will remain at approximately current levels over the next year or two but should ultimately decrease as we continue to grow our business.
EMEA Sales and Marketing Expenses. The decrease in our EMEA sales and marketing expenses was primarily due to $4.5 million of lower professional fees primarily due to the termination of certain contracts during 2014. During the year ended December 31, 2015, the impact of foreign currency fluctuations resulted in approximately $8.3 million of net favorable foreign currency impact on our EMEA sales and marketing expenses primarily due to the generally stronger U.S. dollar relative to the British pound and Euro compared to the year ended December 31, 2014. Over the past several years, we have been investing in our EMEA sales and marketing initiatives to further increase our revenue. These investments have included the hiring of additional headcount and new product innovation efforts and, as a result, our EMEA sales and marketing expenses as a percentage of revenues have increased. We expect our EMEA sales and marketing expenses to further increase as a result of the TelecityGroup acquisition. Although we anticipate that we will continue to invest in EMEA sales and marketing initiatives, including the integration of TelecityGroup, we believe our EMEA sales and marketing expenses as a percentage of revenues will ultimately decrease as we continue to grow our business beyond 2016.

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Asia-Pacific Sales and Marketing Expenses. Asia-Pacific sales and marketing expenses for the year ended December 31, 2015 included $2.2 million of sales and marketing expenses attributable to our acquisition of Bit-isle, which closed in November 2015. Excluding Bit-isle, Asia-Pacific sales and marketing expenses were $49.6 million for the year ended December 31, 2015 compared to $43.9 million for the year ended December 31, 2014. The increase in our Asia-Pacific sales and marketing expenses, excluding Bit-isle, was primarily due to $3.6 million of higher compensation costs, including sales compensation, general salaries, bonuses, commission and stock-based compensation as a result of business and headcount growth (183 Asia-Pacific sales and marketing employees, excluding Bit-isle employees, versus 155 as of December 31, 2014). During the year ended December 31, 2015, the impact of foreign currency fluctuations resulted in approximately $3.6 million of net favorable impact on our Asia-Pacific sales and marketing expenses primarily due to a generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the year ended December 31, 2015 compared to the year ended December 31, 2014. Over the past several years, we have been investing in our Asia-Pacific sales and marketing initiatives to further increase our revenue. These investments have included the hiring of additional headcount and new product innovation efforts and, as a result, our Asia-Pacific sales and marketing expenses have increased. We expect our APAC sales and marketing expenses to further increase as a result of the Bit-Isle acquisition. Although we anticipate that we will continue to invest in Asia-Pacific sales and marketing initiatives, including the integration of Bit-isle, we believe our Asia-Pacific sales and marketing expenses as a percentage of revenues will ultimately decrease as we continue to grow our business.
General and Administrative Expenses. Our general and administrative expenses for the years ended December 31, 2015 and 2014 were split among the following geographic regions (dollars in thousands):
 
Years ended December 31,
 
% change
 
2015
 
%
 
2014
 
%
 
Actual
 
Constant currency
Americas
$
347,421

 
70%
 
$
315,533

 
72%
 
10%
 
11%
EMEA
92,803

 
19%
 
79,942

 
18%
 
16%
 
26%
Asia-Pacific
53,060

 
11%
 
42,541

 
10%
 
25%
 
35%
Total
$
493,284

 
100%
 
$
438,016

 
100%
 
13%
 
16%
 
Years ended
 
December 31,
 
2015
 
2014
General and Administrative expenses as a percentage of revenues:
 
 
 
Americas
23%
 
23%
EMEA
13%
 
13%
Asia-Pacific
10%
 
10%
Total
18%
 
18%

Americas General and Administrative Expenses. The increase in our Americas general and administrative expenses was primarily due to (i) $15.0 million of higher compensation costs, including general salaries, bonuses and stock-based compensation as a result of headcount growth (800 Americas general and administrative employees as of December 31, 2015 versus 731 as of December 31, 2014), (ii) $17.0 million of higher depreciation expenses primarily associated with the implementation of the Oracle R12 ERP system and certain systems to support the REIT conversion and (iii) $10.9 million of higher office expenses, travel, entertainment, and rent and facility costs, in support of our business growth, partially offset by an $11.3 million reduction in professional fees related to our REIT conversion as compared to those incurred during the year ended December 31, 2014. During the year ended December 31, 2015, currency fluctuations resulted in approximately $3.2 million of net favorable foreign currency impact on our Americas general and administrative expenses primarily due to the generally stronger U.S. dollar relative to the Brazilian real and Canadian dollar during the year ended December 31, 2015 compared to the year ended December 31, 2014. Over the course of the past year, we have been investing in our Americas general and administrative functions to scale this region effectively for growth, which has included additional investments into improving our back office systems. We expect our current efforts to improve our back office systems will continue over the next several years. Going forward, although we are carefully monitoring our spending, we expect Americas general and administrative expenses to increase as we continue to further scale our operations to support our growth, including these investments in our back office systems and maintaining our REIT qualification.
EMEA General and Administrative Expenses. The increase in our EMEA general and administrative expenses was primarily due to (i) approximately $4.2 million of higher compensation costs, including general salaries, bonuses and stock-based

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compensation as a result of headcount growth (420 EMEA general and administrative employees as of December 31, 2015 versus 353 as of December 31, 2014), (ii) $4.3 million of higher depreciation expenses due to implementation of the Oracle R12 ERP system and certain systems to support the REIT conversion and (iii) $2.8 million of higher consulting costs primarily due to integration efforts in connection with our acquisition of TelecityGroup as well as an increase in net losses related to cash flow hedging derivatives. During the year ended December 31, 2015, the impact of foreign currency fluctuations resulted in approximately $7.8 million of net favorable foreign currency impact on our EMEA general and administrative expenses primarily due to the generally stronger U.S. dollar relative to the British pound and Euro during the year ended December 31, 2015 compared to the year ended December 31, 2014. Going forward, although we are carefully monitoring our spending, we expect our EMEA general and administrative expenses to increase in future periods as a result of our acquisition of TelecityGroup and as we continue to scale our operations to support our growth; however, as a percentage of revenues, we generally expect them to decrease.
Asia-Pacific General and Administrative Expenses. Asia-Pacific general and administrative expenses for the year ended December 31, 2015 included $5.8 million of general and administrative expenses attributable to our acquisition of Bit-isle, which closed on November 2, 2015. Excluding general and administrative expenses attributable to Bit-isle, Asia-Pacific general and administrative expenses for the year ended December 31, 2015 were $47.3 million compared to $42.5 million for the year ended December 31, 2014. Excluding general and administrative expenses attributable to Bit-isle, the increase in our Asia-Pacific general and administrative expenses was primarily due to a $2.2 million increase in consulting costs, legal fees and other costs for tax-related matters as well as higher compensation costs, including general salaries, bonuses and stock-based compensation as a result of headcount growth (266 Asia-Pacific general and administrative employees, excluding Bit-isle employees, as of December 31, 2015 versus 224 as of December 31, 2014). During the year ended December 31, 2015, the impact of foreign currency fluctuations resulted in approximately $3.4 million of net favorable impact on our Asia-Pacific general and administrative expenses primarily due to a generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar compared to the year ended December 31, 2014. Going forward, although we are carefully monitoring our spending, we expect Asia-Pacific general and administrative expenses to increase as a result of our acquisition of Bit-isle and as we continue to scale our operations to support our growth; however, as a percentage of revenues, we generally expect them to decrease.
Acquisition Costs.  During the year ended December 31, 2015, we recorded acquisition costs totaling $41.7 million primarily attributed to the EMEA region, and to a lesser degree, to the Asia-Pacific region. During the year ended December 31, 2014, we recorded acquisition costs totaling $2.5 million primarily attributed to the EMEA region.
Income from Operations. Our income from operations for the years ended December 31, 2015 and 2014 were split among the following geographic regions (dollars in thousands):
 
Years ended December 31,
 
% change
 
2015
 
%
 
2014
 
%
 
Actual
 
Constant currency
Americas
$
324,458

 
57%
 
$
282,219

 
56%
 
15%
 
15%
EMEA
145,527

 
26%
 
138,685

 
27%
 
5%
 
23%
Asia-Pacific
97,357

 
17%
 
88,362

 
17%
 
10%
 
24%
Total
$
567,342

 
100%
 
$
509,266

 
100%
 
11%
 
19%
Americas Income from Operations. The increase in our Americas income from operations was due to higher revenues as result of our IBX data center expansion activity and organic growth as described above, partially offset by higher operating expenses as a percentage of revenues primarily attributable to higher compensation and other headcount related expenses to support our growth.
EMEA Income from Operations. The increase in our EMEA income from operations was primarily due to higher revenues as a result of our IBX data center expansion activity and organic growth as described above. During the year ended December 31, 2015, currency fluctuations resulted in approximately $25.6 million of net unfavorable foreign currency impact on our EMEA income from operations primarily due to the generally stronger U.S. dollar relative to the British pounds and Euro during the year ended December 31, 2015 compared to the year ended December 31, 2014.
Asia-Pacific Income from Operations. The increase in our Asia-Pacific income from operations was primarily due to higher revenues as a result of our IBX data center expansion activity and organic growth as described above, partially offset by higher operating expenses as a percentage of revenues primarily attributable to higher compensation and other headcount related expenses and higher professional fees to support our growth. During the year ended December 31, 2015, currency fluctuations resulted in approximately $17.5 million of net unfavorable foreign currency impact on our Asia-Pacific income from operations primarily

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due to the generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the year ended December 31, 2015 compared to the year ended December 31, 2014.
Interest Income. Interest income was $3.6 million and $2.9 million for the years ended December 31, 2015 and 2014, respectively. The average yield for the year ended December 31, 2015 was 0.38% versus 0.33% for the year ended December 31, 2014. We expect our interest income to remain at these low levels for the foreseeable future due to the impact of a continued low interest rate environment and a portfolio more weighted towards short-term securities and U.S. government securities in order to satisfy REIT compliance requirements.
Interest Expense.  Interest expense increased to $299.1 million for the year ended December 31, 2015 from $270.6 million for the year ended December 31, 2014. This increase in interest expense was primarily due to the full impact recognized for the year ended December 31, 2015 of our $1.25 billion of senior notes issued in November 2014, the $0.5 billion Term loan A we borrowed in December 2014 under our senior credit facility and $18 million of higher interest expense from various capital lease and other financing obligations to support our expansion projects, which was partially offset by the redemption of our 7.00% senior notes in December 2014, the settlement of the 3.00% convertible notes and the partial redemption of the 4.75% convertible notes in June 2014. During the years ended December 31, 2015 and 2014, we capitalized $10.9 million and $19.0 million, respectively, of interest expense to construction in progress. Going forward, we expect to incur higher interest expense as we recognize the full impact of our $1.1 billion of senior notes issued in December 2015 and the full impact of financing our acquisition of Bit-isle as well as the impact of approximately $0.7 billion of borrowings under our Term loan B commitments under our senior credit facility that we completed in January 2016. We may also incur additional indebtedness to support our growth, resulting in higher interest expense.
Other Income (Expense). We recorded net expense of $60.6 million and net income of $0.1 million for the years December 31, 2015 and 2014, respectively, primarily due to foreign currency exchange gains and losses during the periods. The expense recorded in 2015 is primarily attributed to foreign currency losses to fund the TelecityGroup acquisition purchase price.
Loss on Debt Extinguishment. During the year ended December 31, 2015, we recorded a $0.3 million loss on debt extinguishment which was attributable to partial conversions of our 4.75% convertible subordinated notes in December 2015. During the year ended December 31, 2014, we recorded a $157.0 million loss on debt extinguishment, of which $51.2 million was attributable to the exchanges of the 3.00% convertible subordinated notes and 4.75% convertible subordinated notes, $103.3 million was attributable to the redemption of our $750.0 million 7.00% senior notes and $2.5 million was attributable to the prepayment and termination of our $750.0 million multicurrency credit facility. For additional information, see “Loss on Debt Extinguishment” in Note 9 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Income Taxes. Effective January 1, 2015, we have operated as a REIT for federal income tax purposes. As a REIT, we are generally not subject to U.S. income taxes on taxable income distributed to our stockholders. We distributed the entire taxable income generated by the operations of our REIT and its QRSs for the tax year ending December 31, 2015. As such, no provision for U.S. federal income taxes for the REIT and its QRSs has been included in the accompanying consolidated financial statements for the year ended December 31, 2015.
We have made TRS elections for some of our subsidiaries in and outside the U.S. In general, a TRS may provide services that would otherwise be considered impermissible for REITs to provide and may hold assets that REITs cannot hold directly. U.S. income taxes for the TRS entities located in the U.S. and foreign income taxes for our foreign operations regardless of whether the foreign operations are operated as a QRS or TRS were accrued, as necessary, for the year ended December 31, 2015.
For the years ended December 31, 2015 and 2014, we recorded $23.2 million and $345.5 million of income tax expenses, respectively. We recognized a significantly lower income tax provision in 2015 as compared to the income tax provision in 2014 primarily due to the de-recognition, in 2014, of the deferred tax assets and liabilities of our U.S. operations upon conversion to a REIT. As a REIT, we are entitled to a deduction for dividends paid, resulting in a substantial reduction of U.S. income tax expense. Substantially all of our income tax expense for 2015 is for foreign income taxes incurred by our foreign subsidiaries and U.S. income tax incurred by our U.S. TRSs.
The $345.5 million of income tax expense recorded during the year ended December 31, 2014 was primarily attributable to the statutory tax rate change due to our REIT conversion, which resulted in a $324.1 million domestic deferred tax assets write-off. In connection with the formal approval of our conversion to a REIT by our Board of Directors in December 2014, we reassessed, in the fourth quarter of 2014, the deferred tax assets and liabilities of our U.S. operations to be included in the REIT structure. The reevaluation resulted in de-recognizing the deferred tax assets and liabilities of our REIT’s U.S. operations, excluding the deferred tax liabilities associated with the depreciation and amortization recapture expected in 2015. The de-recognition of the deferred tax

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assets and liabilities of our REIT’s U.S. operations occurred because the expected recovery or settlement of the related assets and liabilities will not result in deductible or taxable amounts in any post-REIT conversion periods. The deferred tax assets and liabilities associated with our foreign operations, regardless of whether such foreign operations were part of the REIT conversion, are not subject to the de-recognition assessment. We generally do not expect our occasional sale of assets to result in a material tax liability.
Our effective tax rates were 11.0% and 407.7%, respectively, for the years ended December 31, 2015 and 2014. Our effective tax rate for the year ended December 31, 2014 was primarily due to tax expense attributable to the $324.1 million domestic deferred tax assets write-off as a result of our REIT conversion. Excluding this tax expense, our effective tax rate would have been 25.2% for the year ended December 31, 2014. Due to our REIT conversion, we are entitled to a deduction for dividends paid, which results in a substantial reduction of U.S income tax expense. As a REIT, substantially all of our income tax expense is the foreign income tax incurred by our foreign subsidiaries and the U.S. income tax expense incurred by our U.S. TRSs. Assuming no material changes to tax rules and regulations, as a REIT we expect our effective long-term world-wide cash tax rate to remain in the range of 10% to 15%.
We recorded excess income tax benefits of $30,000 and $18.6 million during the years ended December 31, 2015 and 2014, respectively, in our consolidated balance sheets.
Adjusted EBITDA. Adjusted EBITDA is a key factor in how we assess the performance of our segments, measure the operational cash generating abilities of our segments and develop regional growth strategies such as IBX data center expansion decisions. We define adjusted EBITDA as income or loss from operations plus depreciation expense, amortization expense, accretion expense, stock-based compensation expense, restructuring charges, impairment charges and acquisition costs. See "Non-GAAP Financial Measures" below for more information about adjusted EBITDA and a reconciliation of adjusted EBITDA to income or loss from operations. Periodically, we enter into new lease agreements or amend existing lease agreements. To the extent we conclude that a lease is an operating lease, the rent expense may decrease our adjusted EBITDA whereas to the extent we conclude that a lease is a capital or financing lease, and this lease was previously reported as an operating lease, this outcome may increase our adjusted EBITDA. Our adjusted EBITDA for the years ended December 31, 2015 and 2014 was split among the following geographic regions (dollars in thousands):
 
Years ended December 31,
 
% change
 
2015
 
%
 
2014
 
%
 
Actual
 
Constant currency
Americas
$
698,604

 
55
%
 
$
635,007

 
57
%
 
10
%
 
12
%
EMEA
318,561

 
25
%
 
269,222

 
24
%
 
18
%
 
35
%
Asia-Pacific
254,462

 
20
%
 
209,662

 
19
%
 
21
%
 
34
%
Total
$
1,271,627

 
100
%
 
$
1,113,891

 
100
%
 
14
%
 
22
%
Americas Adjusted EBITDA. The increase in our Americas adjusted EBITDA was due to higher revenues as result of our IBX data center expansion activity and organic growth as described above, partially offset by higher adjusted operating expenses as a percentage of revenues primarily attributable to higher compensation and other headcount related expenses to support our growth. During the year ended December 31, 2015, currency fluctuations resulted in approximately $12.2 million of net unfavorable foreign currency impact on our Americas adjusted EBITDA primarily due to the generally stronger U.S. dollar relative to the Brazilian real and Canadian dollar during the year ended December 31, 2015 compared to the year ended December 31, 2014.
EMEA Adjusted EBITDA. The increase in our EMEA adjusted EBITDA was primarily due to higher revenues as a result of our IBX data center expansion activity and organic growth as described above. During the year ended December 31, 2015, currency fluctuations resulted in approximately $45.4 million of net unfavorable foreign currency impact on our EMEA adjusted EBITDA primarily due to the generally stronger U.S. dollar relative to the British pounds and Euro during the year ended December 31, 2015 compared to the year ended December 31, 2014.
Asia-Pacific Adjusted EBITDA. The increase in our Asia-Pacific adjusted EBITDA was primarily due to higher revenues as a result of our IBX data center expansion activity and organic growth as described above, partially offset by higher adjusted operating expenses as percentages of revenues primarily attributable to higher compensation and other headcount related expenses and higher professional fees to support our growth. During the year ended December 31, 2015, currency fluctuations resulted in approximately $26.1 million of net unfavorable foreign currency impact on our Asia-Pacific adjusted EBITDA primarily due to the generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the year ended December 31, 2015 compared to the year ended December 31, 2014.

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Years Ended December 31, 2014 and 2013
Revenues.    Our revenues for the years ended December 31, 2014 and 2013 were generated from the following revenue classifications and geographic regions (dollars in thousands):
 
Years ended December 31,
 
% change
 
2014
 
%
 
2013
 
%
 
Actual
 
Constant currency
Americas:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
$
1,311,518

 
54%
 
$
1,214,301

 
56%
 
8%
 
10%
Non-recurring revenues
64,585

 
3%
 
50,473

 
3%
 
28%
 
28%
 
1,376,103

 
57%
 
1,264,774

 
59%
 
9%
 
11%
EMEA:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
598,953

 
24%
 
492,361

 
23%
 
22%
 
19%
Non-recurring revenues
38,312

 
1%
 
32,657

 
1%
 
17%
 
19%
 
637,265

 
25%
 
525,018

 
24%
 
21%
 
19%
Asia-Pacific:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
407,319

 
17%
 
343,300

 
16%
 
19%
 
22%
Non-recurring revenues
23,089

 
1%
 
19,674

 
1%
 
17%
 
26%
 
430,408

 
18%
 
362,974

 
17%
 
19%
 
22%
Total:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
2,317,790

 
95%
 
2,049,962

 
95%
 
13%
 
14%
Non-recurring revenues
125,986

 
5%
 
102,804

 
5%
 
23%
 
25%
 
$
2,443,776

 
100%
 
$
2,152,766

 
100%
 
14%
 
15%
Americas Revenues. During the years ended December 31, 2014 and 2013, our revenues from the United States, the largest revenue contributor in the Americas region for the periods, represented approximately 91% of the regional revenues. Growth in Americas revenues was primarily due to (i) $38.3 million of revenue generated from our recently-opened IBX data centers and IBX data center expansions in the Atlanta, Chicago, Dallas, Miami, New York and Sao Paolo metro areas and (ii) an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our utilization rate, as discussed above. During the year ended December 31, 2014, currency fluctuations resulted in approximately $22.1 million of unfavorable foreign currency impact on our Americas revenues primarily due to the generally stronger U.S. dollar relative to the Brazilian real and Canadian dollar during the year ended December 31, 2014 compared to the year ended December 31, 2013. We expect that our Americas revenues will continue to grow in future periods as a result of continued growth in the recently-opened IBX data centers and additional IBX data center expansions currently taking place in the Dallas, New York, Philadelphia, Rio de Janeiro, Seattle, Silicon Valley, Toronto and Washington, D.C. metro areas, which opened during 2015.
EMEA Revenues.  During the years ended December 31, 2014 and 2013, our revenues from the United Kingdom, the largest revenue contributor in the EMEA region for the periods, represented approximately 36% of the regional revenues. Our EMEA revenue growth was due to (i) $20.0 million of revenue generated from our recently-opened IBX data centers and IBX data center expansions in the Amsterdam and Frankfurt metro areas and (ii) an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our utilization rate, as discussed above, in both our new and existing IBX data centers. During the year ended December 31, 2014, currency fluctuations resulted in approximately $11.1 million of favorable foreign currency impact on our EMEA revenues primarily due to the generally weaker U.S. dollar relative to the British pound, Euro and Swiss franc during the year ended December 31, 2014 compared to the year ended December 31, 2013. We expect that our EMEA revenues will continue to grow in future periods as a result of continued growth in recently-opened IBX data centers and an additional IBX data center expansion currently taking place in the Amsterdam, Frankfurt, London and Paris metro areas, which opened during 2015.
Asia-Pacific Revenues.  Our revenues from Singapore, the largest revenue contributor in the Asia-Pacific region, represented approximately 38% and 36%, respectively, of the regional revenues for the years ended December 31, 2014 and 2013. Our Asia-Pacific revenue growth was due to (i) $53.4 million of revenue generated from our recently-opened IBX data centers and IBX data center expansions in the Hong Kong, Melbourne, Osaka, Singapore, Sydney and Tokyo metro areas and (ii) an increase in

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orders from both our existing customers and new customers during the period as reflected in the growth in our utilization rate, as discussed above, in both our new and existing IBX data centers. During the year ended December 31, 2014, currency fluctuations resulted in approximately $13.7 million of net unfavorable foreign currency impact on our Asia-Pacific revenues primarily due to the generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the year ended December 31, 2014 compared to the year ended December 31, 2013. We expect that our Asia-Pacific revenues will continue to grow in future periods as a result of continued growth in these recently-opened IBX data center expansions and additional expansions currently taking place in the Hong Kong, Singapore and Tokyo metro areas, which opened during 2015 or are expected to open during 2016.
Cost of Revenues.  Our cost of revenues for the years ended December 31, 2014 and 2013 were split among the following geographic regions (dollars in thousands):
 
Years ended December 31,
 
% change
 
2014
 
%
 
2013
 
%
 
Actual
 
Constant currency
Americas
$
605,184

 
51%
 
$
576,869

 
54%
 
5%
 
8%
EMEA
337,095

 
28%
 
271,965

 
26%
 
24%
 
22%
Asia-Pacific
255,606

 
21%
 
215,569

 
20%
 
19%
 
22%
Total
$
1,197,885

 
100%
 
$
1,064,403

 
100%
 
13%
 
14%
 
Years ended
 
December 31,
 
2014
 
2013
Cost of revenues as a percentage of revenues:
 
 
 
Americas
44%
 
46%
EMEA
53%
 
52%
Asia-Pacific
59%
 
59%
Total
49%
 
49%
Americas Cost of Revenues.  Our Americas cost of revenues for the years ended December 31, 2014 and 2013 included $218.4 million and $216.6 million, respectively, of depreciation expense. Excluding depreciation expense, the increase in our Americas cost of revenues was primarily due to (i) $17.7 million of higher utilities and repair and maintenance expense in support of our business growth, (ii) $8.7 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (941 employees included in Americas cost of revenues as of December 31, 2014 versus 894 as of December 31, 2013), (iii) $8.1 million of higher costs associated with equipment resales to support the growth of non-recurring revenues and (iv) $3.9 million of higher accretion expenses as a result of the reversal of asset retirement obligations during the year ended December 31, 2013 associated with the execution of certain lease amendments, partially offset by $12.9 million of lower rent and facility costs primarily as a result of either certain leases no longer being subject to operating lease treatment or the purchase of previously-leased sites. During the year ended December 31, 2014, currency fluctuations resulted in approximately $16.3 million of favorable foreign currency impact on our Americas cost of revenues primarily due to the generally stronger U.S. dollar relative to the Brazilian real and Canadian dollar during the year ended December 31, 2014 compared to the year ended December 31, 2013.
EMEA Cost of Revenues. EMEA cost of revenues for the years ended December 31, 2014 and 2013 included $97.8 million and $77.9 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our IBX data center expansion activity. Excluding depreciation expense, the increase in our EMEA cost of revenues was primarily due to (i) $29.9 million of higher utility costs, repair and maintenance, professional fees and rent and facility costs in support of our revenue growth, (ii) $7.4 million of higher compensation, including general salaries, bonuses, stock-based compensation and headcount growth (473 employees included in EMEA cost of revenues as of December 31, 2014 versus 396 as of December 31, 2013) and (iii) $5.8 million of higher costs associated with equipment resales, bandwidth and other customer services in support of our non-recurring revenues growth. During the year ended December 31, 2014, the impact of foreign currency fluctuations resulted in approximately $4.4 million of unfavorable foreign currency impact on our EMEA cost of revenues primarily due to the generally

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weaker U.S. dollar relative to the British pound, Euro and Swiss franc during the year ended December 31, 2014 compared to the year ended December 31, 2013.
Asia-Pacific Cost of Revenues.  Asia-Pacific cost of revenues for the years ended December 31, 2014 and 2013 included $101.4 million and $82.6 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our IBX data center expansion activity. Excluding depreciation expense, the increase in Asia-Pacific cost of revenues was primarily due to (i) $13.7 million in higher utility costs, repairs and maintenance costs, as well as rent and facility costs in support of our revenue growth; (ii) $2.7 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (342 employees included in Asia-Pacific cost of revenues as of December 31, 2014 versus 289 as of December 31, 2013) and (iii) $3.3 million of higher costs associated with equipment resales in support of our non-recurring revenues growth. During the year ended December 31, 2014, currency fluctuations resulted in approximately $8.4 million of net favorable foreign currency impact on our Asia-Pacific cost of revenues primarily due to the generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the year ended December 31, 2014 compared to the year ended December 31, 2013.
Sales and Marketing Expenses. Our sales and marketing expenses for the years ended December 31, 2014 and 2013 were split among the following geographic regions (dollars in thousands):
 
Years ended December 31,
 
% change
 
2014
 
%
 
2013
 
%
 
Actual
 
Constant currency
Americas
$
172,264

 
58%
 
$
144,178

 
58%
 
19%
 
21%
EMEA
79,890

 
27%
 
68,925

 
28%
 
16%
 
12%
Asia-Pacific
43,949

 
15%
 
33,520

 
14%
 
31%
 
35%
Total
$
296,103

 
100%
 
$
246,623

 
100%
 
20%
 
21%
 
Years ended
 
December 31,
 
2014
 
2013
Sales and marketing expenses as a percentage of revenues:
 
 
 
Americas
13%
 
11%
EMEA
13%
 
13%
Asia-Pacific
10%
 
9%
Total
12%
 
11%
Americas Sales and Marketing Expenses. The increase in our Americas sales and marketing expenses was primarily due to (i) $21.6 million of higher compensation costs, including sales compensation, general salaries, bonuses, commission, stock-based compensation as a result of headcount growth (450 Americas sales and marketing employees as of December 31, 2014 versus 395 as of December 31, 2013) and (ii) $5.3 million of higher travel, advertising and promotion costs in support of our business growth. During the year ended December 31, 2014, currency fluctuations resulted in approximately $2.5 million of favorable foreign currency impact on our Americas sales and marketing expenses primarily due to the generally stronger U.S. dollar relative to the Brazilian real and Canadian dollar during the year ended December 31, 2014 compared to the year ended December 31, 2013.
EMEA Sales and Marketing Expenses. The increase in our EMEA sales and marketing expenses was primarily due to $8.2 million of higher compensation costs, including sales compensation, general salaries, bonuses and stock-based compensation expense as a result of business growth, which incorporates a change in our sales commission practices whereby our sales commission accrual will occur when sales orders are booked versus when the sales orders are billed. For the year ended December 31, 2014, the impact of foreign currency fluctuations on our EMEA sales and marketing expenses was not significant when compared to average exchange rates of the year ended December 31, 2013.
Asia-Pacific Sales and Marketing Expenses. The increase in our Asia-Pacific sales and marketing expenses was primarily due to $9.5 million of higher compensation costs, including sales compensation, general salaries, bonuses, commission, stock-based compensation as a result of business and headcount growth (155 Asia-Pacific sales and marketing employees as of December 31,

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2014 versus 120 as of December 31, 2013), which incorporates a change in our sales commission practices whereby our sales commission accrual will occur when sales orders are booked versus when the sales orders are billed. For the year ended December 31, 2014, the impact of foreign currency fluctuations to our Asia-Pacific sales and marketing expenses was not significant when compared to average exchange rates of the year ended December 31, 2013.
General and Administrative Expenses. Our general and administrative expenses for the years ended December 31, 2014 and 2013 were split among the following geographic regions (dollars in thousands):
 
Years ended December 31,
 
% change
 
2014
 
%
 
2013
 
%
 
Actual
 
Constant currency
Americas
$
315,533

 
72%
 
$
263,145

 
70%
 
20%
 
21%
EMEA
79,942

 
18%
 
72,867

 
19%
 
10%
 
7%
Asia-Pacific
42,541

 
10%
 
38,778

 
11%
 
10%
 
12%
Total
$
438,016

 
100%
 
$
374,790

 
100%
 
17%
 
17%
 
Years ended
 
December 31,
 
2014
 
2013
General and Administrative expenses as a percentage of revenues:
 
 
 
Americas
23%
 
21%
EMEA
13%
 
14%
Asia-Pacific
10%
 
11%
Total
18%
 
17%
Americas General and Administrative Expenses.  The increase in our Americas general and administrative expenses was primarily due to (i) $24.9 million of higher compensation costs, including general salaries, bonuses, stock-based compensation, as a result of headcount growth (731 Americas general and administrative employees as of December 31, 2014 versus 695 as of December 31, 2013) and the exercise of the ALOG stock options, (ii) $15.2 million of higher professional fees, recruiting, training and travel expenses to support the REIT conversion, (iii) $5.4 million of higher depreciation expenses primarily due to implementation of our Oracle R12 ERP system and certain systems to support the REIT conversion and (iv) $4.0 million higher of office expenses in support of our business growth. During the year ended December 31, 2014, currency fluctuations resulted in approximately $2.4 million of favorable foreign currency impact on our Americas general and administrative expenses primarily due to the generally stronger U.S. dollar relative to the Brazilian real and Canadian dollar during the year ended December 31, 2014 compared to the year ended December 31, 2013.
EMEA General and Administrative Expenses. The increase in our EMEA general and administrative expenses was primarily due to (i) approximately $3.7 million of higher compensation costs, including general salaries, bonuses and headcount growth (353 EMEA general and administrative employees as of December 31, 2014 versus 301 as of December 31, 2013) and (ii) $2.5 million of higher depreciation expenses due to implementation of the Oracle R12 ERP system and certain systems to support the REIT conversion. During the year ended December 31, 2014, the impact of foreign currency fluctuations resulted in approximately $2.0 million of unfavorable foreign currency impact on our EMEA general and administrative expenses primarily due to the generally weaker U.S. dollar relative to the British pound, Euro and Swiss franc during the year ended December 31, 2014 compared to the year ended December 31, 2013.
Asia-Pacific General and Administrative Expenses. The increase in our Asia-Pacific general and administrative expenses was primarily due to $4.2 million of higher compensation costs, including general salaries, bonuses and headcount growth (224 Asia-Pacific general and administrative employees as of December 31, 2014 versus 208 as of December 31, 2013). For the year ended December 31, 2014, the impact of foreign currency fluctuations on our Asia-Pacific general and administrative expenses was not significant when compared to average exchange rates of the year ended December 31, 2013.
Restructuring Charges.  During the year ended December 31, 2014, we did not record any restructuring charges. During the year ended December 31, 2013, we recorded a $4.8 million reversal of the restructuring charge accrual for our excess space in the

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New York 2 IBX data center as a result of our decision to purchase this property and utilize the space. See “Restructuring Charges” in Note 17 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Acquisition Costs.  During the year ended December 31, 2014, we recorded acquisition costs totaling $2.5 million primarily attributed to the EMEA region. During the year ended December 31, 2013, we recorded acquisition costs totaling $10.9 million primarily attributed to our Americas and EMEA regions.
Income from Operations. Our income from operations for the years ended December 31, 2014 and 2013 were split among the following geographic regions (dollars in thousands):
 
Years ended December 31,
 
% change
 
2014
 
%
 
2013
 
%
 
Actual
 
Constant currency
Americas
$
282,219

 
56%
 
$
279,785

 
61%
 
1%
 
1%
EMEA
138,685

 
27%
 
106,221

 
23%
 
31%
 
28%
Asia-Pacific
88,362

 
17%
 
74,926

 
16%
 
18%
 
22%
Total
$
509,266

 
100%
 
$
460,932

 
100%
 
10%
 
11%
Americas Income from Operations. The increase in our Americas income from operations was due to higher revenues as result of our IBX data center expansion activity and organic growth as described above, partially offset by higher operating expenses as a percentage of revenues primarily attributable to higher compensation expense and higher professional fees to support our growth.
EMEA Income from Operations. The increase in our EMEA income from operations was primarily due to higher revenues as a result of our IBX data center expansion activity and organic growth as described above, partially offset by higher operating expenses as a percentage of revenues primarily attributable to higher compensation expense and higher professional fees to support our growth. During the year ended December 31, 2014, currency fluctuations resulted in approximately $3.3 million of net favorable foreign currency impact on our EMEA income from operations primarily due to the generally weaker U.S. dollar relative to the Euro and Swiss franc during the year ended December 31, 2014 compared to the year ended December 31, 2013.
Asia-Pacific Income from Operations. The increase in our Asia-Pacific income from operations was primarily due to higher revenues as a result of our IBX data center expansion activity and organic growth as described above, partially offset by higher operating expenses as a percentage of revenues primarily attributable to higher compensation expense and higher professional fees to support our growth. During the year ended December 31, 2014, currency fluctuations resulted in approximately $3.2 million of net unfavorable foreign currency impact on our Asia-Pacific income from operations primarily due to the generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the year ended December 31, 2014 compared to the year ended December 31, 2013.
Interest Income. Interest income was $2.9 million and $3.4 million for the years ended December 31, 2014 and 2013, respectively. The average yield for the year ended December 31, 2014 was 0.33% versus 0.32% for the year ended December 31, 2013.
Interest Expense.  Interest expense increased to $270.6 million for the year ended December 31, 2014 from $248.8 million for the year ended December 31, 2013. This increase in interest expense was primarily due to the impact of our $1.25 billion senior notes offering in November 2014 and $29.8 million of higher interest expense from various capital lease and other financing obligations to support our expansion projects, which was offset by the redemption of our 7.00% senior notes in December 2014, the settlement of the 3.00% convertible notes, the partial redemption of the 4.75% convertible notes in June 2014 and more capitalized interest expense. During the years ended December 31, 2014 and 2013, we capitalized $19.0 million and $10.6 million, respectively, of interest expense to construction in progress.
Other Income (Expense). We recorded $0.1 million and $5.3 million, respectively, of other income for the years ended December 31, 2014 and 2013, primarily due to foreign currency exchange gains (losses) during the periods.
Loss on Debt Extinguishment. During the year ended December 31, 2014, we recorded a $157.0 million loss on debt extinguishment, of which $51.2 million was attributable to the exchanges of the 3.00% convertible subordinated notes and 4.75% convertible subordinated notes, $103.3 million was attributable to the redemption of our $750.0 million 7.00% senior notes and $2.5 million was attributable to the prepayment and termination of our $750.0 million multicurrency credit facility. During the year ended December 31, 2013, we recorded a $108.5 million loss on debt extinguishment, of which $93.6 million was attributable

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to the redemption of our $750 million 8.125% senior notes, $13.2 million was attributable to the extinguishment of the financing liabilities for our London 4 and 5 IBX data centers and $1.7 million was attributable to an amendment of our New York 5 and 6 IBX lease. For additional information, see “Loss on Debt Extinguishment” in Note 9 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Income Taxes. During the year ended December 31, 2014, we recorded $345.5 million of income tax expense. The income tax expense recorded during the year ended December 31, 2014 was primarily attributable to the statutory tax rate change due to our anticipated REIT conversion, which resulted in a $324.1 million domestic deferred tax assets write-off. In connection with the formal approval of our conversion to a REIT by our Board of Directors in December 2014, we reassessed, in the fourth quarter of 2014, the deferred tax assets and liabilities of our U.S. operations to be included in the REIT structure. The reevaluation resulted in de-recognizing the deferred tax assets and liabilities of our REIT’s U.S. operations, excluding the deferred tax liabilities associated with the depreciation and amortization recapture expected in 2015. The de-recognition of the deferred tax assets and liabilities of our REIT’s U.S. operations occurred because the expected recovery or settlement of the related assets and liabilities will not result in deductible or taxable amounts in any post-REIT conversion periods. The deferred tax assets and liabilities associated with our foreign operations, regardless of whether such foreign operations are part of the REIT conversion, are not subject to the de-recognition assessment. In addition, we generally do not expect our occasional sale of assets to result in a material tax liability. As of December 31, 2014, we had a net deferred tax liability of approximately $52.2 million for our domestic operations, which included approximately $82.5 million of deferred tax liabilities associated with the depreciation and amortization recapture.
During the year ended December 31, 2013, we recorded $16.2 million of income tax expense. The income tax expense recorded during the year ended December 31, 2013 was primarily attributable to our foreign operations, as we incurred losses in our domestic operations during the period. Our effective tax rates were 407.7% and 14.4%, respectively, for the years ended December 31, 2014 and 2013. The increase in our effective tax rate was primarily due to tax expense attributable to the domestic deferred tax assets write-off as a result of our REIT conversion. Excluding this tax expense, our effective tax rate would have been 25.2% for the year ended December 31, 2014.
During the year ended December 31, 2013, we utilized all of our federal net operating losses free of Section 382 limitations in the U.S. for which a deferred tax asset had been previously recognized and all of our windfall tax losses in the U.S. for which a deferred tax asset had not been previously recognized. We recorded excess income tax benefits of $18.6 million and $25.6 million during the year ended December 31, 2014 and 2013, respectively, in our consolidated balance sheet.
To better align our EMEA corporate structure and intercompany relationship with the nature of our business activities and regional centralization, we commenced certain reorganization activities during the fourth quarter of 2012 in the EMEA region. The new organizational structure centralized the majority of our EMEA business management activities in the Netherlands effective July 1, 2013. In December 2013, our Dutch subsidiaries that were created to carry-out EMEA’s centralized management activities received favorable rulings from the Dutch Tax Authorities effective July 1, 2013. The rulings acknowledge the reorganization and agree to a lower level of earnings by our Dutch subsidiaries subject to tax in the Netherlands. The rulings also require both the Dutch Tax Authorities and our Dutch subsidiaries to revisit and renew the agreement in five years from the effective date. As a result, we expect our overall effective tax rate will be lower in subsequent periods as the new structure takes full effect.
Adjusted EBITDA. Adjusted EBITDA is a key factor in how we assess the performance of our segments, measure the operational cash generating abilities of our segments and develop regional growth strategies such as IBX data center expansion decisions. We define adjusted EBITDA as income or loss from operations plus depreciation expense, amortization expense, accretion expense, stock-based compensation, restructuring charges, impairment charges and acquisition costs. See "Non-GAAP Financial Measures" below for more information about adjusted EBITDA and a reconciliation of adjusted EBITDA to income or loss from operations. Periodically, we enter into new lease agreements or amend existing lease agreements. To the extent we conclude that a lease is an operating lease, the rent expense may decrease our adjusted EBITDA whereas to the extent we conclude that a lease is a capital or financing lease, and this lease was previously reported as an operating lease, this outcome may increase our adjusted EBITDA. Our adjusted EBITDA for the years ended December 31, 2014 and 2013 was split among the following geographic regions (dollars in thousands):

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Years ended December 31,
 
% change
 
2014
 
%
 
2013
 
%
 
Actual
 
Constant currency
Americas
$
635,007

 
57%
 
$
608,718

 
61%
 
4%
 
6%
EMEA
269,222

 
24%
 
216,186

 
22%
 
25%
 
22%
Asia-Pacific
209,662

 
19%
 
175,994

 
17%
 
19%
 
23%
Total
$
1,113,891

 
100%
 
$
1,000,898

 
100%
 
11%
 
12%
Americas Adjusted EBITDA. The increase in our Americas adjusted EBITDA was due to higher revenues as result of our IBX data center expansion activity and organic growth as described above, partially offset by higher adjusted operating expenses as a percentage of revenues primarily attributable to higher compensation expense and higher professional fees to support our growth. During the year ended December 31, 2014, currency fluctuations resulted in approximately $8.1 million of unfavorable foreign currency impact on our Americas adjusted EBITDA primarily due to the generally stronger U.S. dollar relative to the Brazilian real and Canadian dollar during the year ended December 31, 2014 compared to the year ended December 31, 2013.
EMEA Adjusted EBITDA. The increase in our EMEA adjusted EBITDA was primarily due to higher revenues as a result of our IBX data center expansion activity and organic growth as described above, partially offset by higher adjusted operating expenses as a percentage of revenues primarily attributable to higher compensation expense and higher professional fees to support our growth. During the year ended December 31, 2014, currency fluctuations resulted in approximately $4.9 million of net favorable foreign currency impact on our EMEA adjusted EBITDA primarily due to the generally weaker U.S. dollar relative to the Euro and Swiss franc during the year ended December 31, 2014 compared to the year ended December 31, 2013.
Asia-Pacific Adjusted EBITDA. The increase in our Asia-Pacific adjusted EBITDA was primarily due to higher revenues as a result of our IBX data center expansion activity and organic growth as described above, partially offset by higher adjusted operating expenses as a percentage of revenues primarily attributable to higher compensation expense and higher professional fees to support our growth. During the year ended December 31, 2014, currency fluctuations resulted in approximately $7.0 million of net unfavorable foreign currency impact on our Asia-Pacific adjusted EBITDA primarily due to the generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the year ended December 31, 2014 compared to the year ended December 31, 2013.
Non-GAAP Financial Measures
We provide all information required in accordance with generally accepted accounting principles (“GAAP”), but we believe that evaluating our ongoing operating results may be difficult if limited to reviewing only GAAP financial measures. Accordingly, we use non-GAAP financial measures to evaluate our operations.
Non-GAAP financial measures are not a substitute for financial information prepared in accordance with GAAP. Non-GAAP financial measures should not be considered in isolation, but should be considered together with the most directly comparable GAAP financial measures and the reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures. We have presented such non-GAAP financial measures to provide investors with an additional tool to evaluate our operating results in a manner that focuses on what management believes to be our core, ongoing business operations. We believe that the inclusion of these non-GAAP financial measures provides consistency and comparability with past reports and provides a better understanding of the overall performance of the business and ability to perform in subsequent periods. We believe that if we did not provide such non-GAAP financial information, investors would not have all the necessary data to analyze Equinix effectively.
Investors should note that the non-GAAP financial measures used by us may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as those of other companies. Investors should therefore exercise caution when comparing non-GAAP financial measures used by us to similarly titled non-GAAP financial measures of other companies.
Our primary non-GAAP financial measures, adjusted funds from operations (“AFFO”) and adjusted EBITDA, exclude depreciation expense as these charges primarily relate to the initial construction costs of our IBX data centers and do not reflect our current or future cash spending levels to support our business. Our IBX data centers are long-lived assets and have an economic life greater than 10 years. The construction costs of an IBX data center do not recur with respect to such data center, although we may incur initial construction costs in future periods with respect to additional IBX data centers, and future capital expenditures remain minor relative to our initial investment. This is a trend we expect to continue. In addition, depreciation is also based on the

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estimated useful lives of our IBX data centers. These estimates could vary from actual performance of the asset, are based on historical costs incurred to build out our IBX data centers and are not indicative of current or expected future capital expenditures. Therefore, we exclude depreciation from our operating results when evaluating our operations.
In addition, in presenting AFFO and adjusted EBITDA, we exclude amortization expense related to certain intangible assets, as it represents the amortization of a cost that may not recur and is not meaningful in the evaluation of our current or future operating performance. We exclude accretion expense, both as it relates to asset retirement obligations as well as accrued restructuring charge liabilities, as these expenses represent costs which we believe are not meaningful in evaluating our current operations. We exclude stock-based compensation expense as it represents expense attributed to equity awards that have no current or future cash obligations. As such, we, and many investors and analysts, exclude this stock-based compensation expense when assessing the cash generating performance of our operations. We also exclude restructuring charges. The restructuring charges relate to our decisions to exit leases for excess space adjacent to several of our IBX data centers, which we did not intend to build out, or our decision to reverse such restructuring charges. We also exclude impairment charges related to certain long-lived assets. The impairment charges are related to expense recognized whenever events or changes in circumstances indicate that the carrying amount of long-lived assets are not recoverable. Finally, we exclude acquisition costs from AFFO and adjusted EBITDA. The acquisition costs relate to costs we incur in connection with business combinations. Management believes items such as restructuring charges, impairment charges and acquisition costs are non-core transactions; however, these types of costs may occur in future periods.
Adjusted EBITDA
We define adjusted EBITDA as income or loss from operations plus depreciation, amortization, accretion, stock-based compensation expense, restructuring charges, impairment charges and acquisition costs as presented below (in thousands):
 
Years ended December 31,
 
2015
 
2014
 
2013
Income from operations
$
567,342

 
$
509,266

 
$
460,932

Depreciation, amortization, and accretion expense
528,929

 
484,129

 
431,008

Stock-based compensation expense
133,633

 
117,990

 
102,940

Restructuring charges

 

 
(4,837
)
Acquisition costs
41,723

 
2,506

 
10,855

Adjusted EBITDA
$
1,271,627

 
$
1,113,891

 
$
1,000,898

Our adjusted EBITDA results have improved each year and in each region in total dollars due to the improved operating results discussed earlier in “Results of Operations”, as well as the nature of our business model consisting of a recurring revenue stream and a cost structure which has a large base that is fixed in nature also discussed earlier in “Overview”.
Funds from Operations (“FFO”) and AFFO
We use FFO and AFFO, which are non-GAAP financial measures commonly used in the REIT industry. FFO is calculated in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO represents net income (loss), excluding gains (losses) from the disposition of real estate assets, depreciation and amortization on real estate assets and adjustments for unconsolidated joint ventures’ and non-controlling interests’ share of these items.
We use AFFO to evaluate our performance on a consolidated basis and as a metric in the determination of employees’ annual bonuses beginning in 2015 and vesting of restricted stock units that were granted in 2015 that have both service and performance conditions. In presenting AFFO, we exclude certain items that we believe are not good indicators of our current or future operating performance. AFFO represents FFO excluding depreciation and amortization expense on non-real estate assets, accretion, stock-based compensation, restructuring charges, impairment charges, acquisition costs, an installation revenue adjustment, a straight-line rent expense adjustment, amortization of deferred financing costs, gains (losses) on debt extinguishment, an income tax expense adjustment, recurring capital expenditures and adjustments for unconsolidated joint ventures’ and non-controlling interests’ share of these items. We include an adjustment for revenue from installation fees, since installation fees are deferred and recognized ratably over the expected life of the installation, although the fees are generally paid in a lump sum upon installation. We include an adjustment for straight-line rent expense on its operating leases, since the total minimum lease payments are recognized ratably over the lease term, although the lease payments generally increase over the lease term. The adjustments for both installation revenue and straight-line rent expense are intended to isolate the cash activity included within the straight-lined or amortized results in the consolidated statement of operations. We exclude the amortization of deferred financing costs as these expenses relate to the initial costs incurred in connection with debt financings that have no current or future cash obligations. We exclude gains (losses) on debt extinguishment since it represents a cost that may not recur and is not a good indicator of our current or future

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operating performance. We include an income tax expense adjustment, which represents changes in its income tax reserves and valuation allowances that may not recur or may not relate to the current year’s operations. We also excludes recurring capital expenditures, which represent expenditures to extend the useful life of its IBX centers or other assets that are required to support current revenues.
Our FFO and AFFO for were as follows (in thousands):
 
Years ended December 31,
 
2015
 
2014
 
2013
Net income (loss)
$
187,774

 
$
(260,726
)
 
$
96,123

Net (income) loss attributable to redeemable non-controlling interests

 
1,179

 
(1,438
)
Net (income) loss attributable to Equinix
187,774

 
(259,547
)
 
94,685

Adjustments:
 
 
 
 
 
Real estate depreciation and amortization
439,969

 
417,703

 
377,049

Gain/loss on disposition of real estate property
1,382

 
301

 
825

Adjustments for FFO from unconsolidated joint ventures
113

 
112

 
112

Non-controlling interests' share of above adjustments

 
(5,303
)
 
(6,711
)
NAREIT FFO attributable to common shareholders
$
629,238

 
$
153,266

 
$
465,960

 
Years ended December 31,
 
2015
 
2014
 
2013
NAREIT FFO attributable to common shareholders
$
629,238

 
$
153,266

 
$
465,960

Adjustments:
 
 
 
 
 
Installation revenue adjustment
35,498

 
25,720

 
25,017

Straight-line rent expense adjustment
7,931

 
13,048

 
8,612

Amortization of deferred financing costs
16,135

 
19,020

 
24,429

Stock-based compensation expense
133,633

 
117,990

 
102,940

Non-real estate depreciation expense
58,165

 
36,232

 
28,395

Amortization expense
27,446

 
27,756

 
27,287

Accretion expense
3,349

 
2,438

 
(1,723
)
Recurring capital expenditures
(120,281
)
 
(105,366
)
 
(93,504
)
Loss on debt extinguishment
289

 
156,990

 
108,501

Restructuring charge reversal

 

 
(4,837
)
Acquisition costs
41,723

 
2,506

 
10,855

Income tax expense adjustment (1)
(1,270
)
 
315,289

 
(16,421
)
Adjustments for AFFO from unconsolidated joint ventures
(58
)
 
(76
)
 
(185
)
Non-controlling interests' share of above adjustments

 
(3,134
)
 
(5,824
)
Adjusted Funds from Operations (AFFO) attributable to common shareholders
$
831,798

 
$
761,679

 
$
679,502

_____________
(1)
Represents changes in its income tax reserves and valuation allowances that may not relate to the current year’s operations.
Our AFFO results have improved due to the improved operating results discussed earlier in “Results of Operations,” as well as due to the nature of our business model which consists of a recurring revenue stream and a cost structure which has a large base that is fixed in nature as discussed earlier in “Overview.”
Constant Currency Presentation
Our revenues and certain operating expenses (cost of revenues, sales and marketing and general and administrative expenses) from our international operations have represented and will continue to represent a significant portion of our total revenues and

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certain operating expenses. As a result, our revenues and certain operating expenses have been and will continue to be affected by changes in the U.S. dollar against major international currencies such as the Brazilian reals, British pound, Canadian dollar, Euro, Swiss franc, Australian dollar, Chinese Yuan, Hong Kong dollar, Japanese yen and Singapore dollar. In order to provide a framework for assessing how each of our business segments performed excluding the impact of foreign currency fluctuations, we present period-over-period percentage changes in our revenues and certain operating expenses on a constant currency basis in addition to the historical amounts as reported. Presenting constant currency results of operations is a non-GAAP financial measure and is not meant to be considered in isolation or as an alternative to GAAP results of operations. However, we have presented this non-GAAP financial measure to provide investors with an additional tool to evaluate our operating results. To present this information, our current and comparative prior period revenues and certain operating expenses from entities reporting in currencies other than the U.S. dollar are converted into U.S. dollars at constant exchange rates rather than the actual exchange rates in effect during the respective periods (i.e. average rates in effect for the year ended December 31, 2014 are used as exchange rates for the year ended December 31, 2015 when comparing the year ended December 31, 2015 with the year ended December 31, 2014, and average rates in effect for the year ended December 31, 2013 are used as exchange rates for the year ended December 31, 2014 when comparing the year ended December 31, 2014 with the year ended December 31, 2013).
Liquidity and Capital Resources
As of December 31, 2015, our total indebtedness was comprised of (i) convertible debt principal totaling $150.1 million from our 4.75% convertible subordinated notes (gross of discount) and (ii) non-convertible debt and financing obligations totaling approximately $6.4 billion consisting of (a) approximately $3.9 billion of principal from our senior notes, (b) approximately $1.3 billion from our capital lease and other financing obligations, (c) $325.6 million from our revolving credit facility, and (c) $920.1 million of principal from our mortgage and other loans payable (gross of discount and premium).
We believe we have sufficient cash, coupled with anticipated cash generated from operating activities, to meet our operating requirements, including repayment of the current portion of our debt as it becomes due, payment of regular dividend and special distributions due to our REIT conversion (see below) and completion of our publicly-announced expansion projects. As of December 31, 2015, we had $2.2 billion of cash, cash equivalents and short-term and long-term investments, of which approximately $2.0 billion was held in the U.S. In January 2016, we used £1.2 billion, or approximately $1.7 billion in U.S. dollars at exchange rates in effect on January 15, 2016, to fund the cash portion of the TelecityGroup purchase price. We believe that our current expansion activities in the U.S. can be funded with our cash and cash equivalents and investments.
As of December 31, 2015, we had 30 irrevocable letters of credit totaling $55.3 million issued and outstanding under the revolving credit facility; as a result of these letters of credit plus $325.6 million of outstanding borrowings under our revolving credit facility, we had a total of approximately $1.1 of additional liquidity available to us under the revolving credit facility. Besides any further financing activities we may pursue, customer collections are our primary source of cash. While we believe we have a strong customer base, and have continued to experience relatively strong collections, if the current market conditions were to deteriorate, some of our customers may have difficulty paying us and we may experience increased churn in our customer base, including reductions in their commitments to us, all of which could have a material adverse effect on our liquidity. Additionally, we may pursue additional expansion opportunities, primarily the build out of new IBX data centers, in certain of our existing markets which are at or near capacity within the next year, as well as potential acquisitions. We are also now operating as a REIT (see below). While we expect to fund these plans with our existing resources, additional financing, either debt or equity, may be required if current market conditions were to deteriorate, we may be unable to secure additional financing or any such additional financing may only be available to us on unfavorable terms. An inability to pursue additional expansion opportunities will have a material adverse effect on our ability to maintain our desired level of revenue growth in future periods.
Impact of REIT Conversion
We completed our conversion to a REIT in 2014 and began operating as a REIT effective January 1, 2015. As a result of our conversion to a REIT, we made special distributions to our stockholders in 2015 and 2014. The distributions were payable in common stock or cash at the election of our stockholders, with the cash portion of the distributions subject to certain maximum amounts. As a result of the special distributions, we paid a total of $125.5 million in 2015 and $83.3 million in 2014 and distributed 1.7 million and 1.5 million shares of common stock in 2015 and 2014, respectively. Also as a result of our conversion to a REIT, we began paying quarterly dividends in 2015. We paid an aggregate of $396.0 million of cash dividends during 2015, which consisted of $393.6 million of cash dividends paid to shareholders and $2.4 million of cash paid in lieu of stock for fractional shares upon the vesting of restricted stock units.

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We have incurred $78.3 million in costs to support our conversion to a REIT since 2012, including $4.5 million and $49.4 million in 2015 and 2014, respectively. We expect to incur approximately $10.0 million annually in REIT compliance costs.
Sources and Uses of Cash
 
Years ended December 31,
 
2015
 
2014
 
2013
 
(dollars in thousands)
Net cash provided by operating activities
$
894,793

 
$
689,420

 
$
604,608

Net cash used in investing activities
(1,134,927
)
 
(435,839
)
 
(1,169,313
)
Net cash provided by (used in) financing activities
1,873,182

 
107,401

 
574,907

Operating Activities
The increase in net cash provided by operating activities during 2015 compared to 2014 was primarily due to improved operating results. The increase in net cash provided by operating activities during 2014 compared to 2013 was primarily due to improved operating results, offset by unfavorable working capital activities such as decreased collections of customer receivables and a $51.4 million increase in interest payments. We expect we will continue to generate cash from our operating activities during 2016.
Investing Activities
The increase in net cash used in investing activities during 2015 compared to 2014 was primarily due to a $513.9 million increase in restricted cash, primarily in connection with our cash and share offer for TelecityGroup, $245.6 million, net of cash for our acquisition of Bit-isle and Nimbo, $207.9 million of higher capital expenditures primarily as a result of expansion activity and $21.5 million of higher purchase of real estate, partially offset by $187.0 million of lower purchase of investments and $87.6 million of higher sales and maturities of investment. The decrease in net cash used in investing activities during 2014 compared to 2013 was primarily due to $423.0 million of lower purchases of investments, $295.7 million of higher sales and maturities of investments, $57.5 million of lower real estate purchases and $49.3 million of lower business acquisition spending, partially offset by $87.8 million of higher capital expenditures as a result of more IBX expansion activity.
In May 2015, we announced a cash and share offer valued at £2.4 billion or $3.8 billion U.S dollars for the entire issued and outstanding share capital of TelecityGroup. The acquisition closed on January 15, 2016.
During 2016, we expect that our IBX expansion construction activity will be greater than our 2015 levels. However, if the opportunity to expand is greater than planned and we have sufficient funding to pursue such expansion opportunities, we may further increase the level of capital expenditures to support this growth as well as pursue additional business acquisitions, property acquisitions or joint ventures.
Financing Activities
Net cash provided by financing activities during 2015 was primarily due to (i) $1.1 billion of gross proceeds from the senior notes offering in December 2015, (ii) $829.5 million of net proceeds from our public offering of common stock in November 2015, (iii) $1.2 billion of proceeds from loans payable including proceeds from our term loan modification, our bridge term loan and our revolving credit facility, partially offset by (iv) $715.3 million repayment of mortgage and loans payable including repayment of $171.2 million of loans assumed in the Bit-isle acquisition and repayment of $544.1 million of U.S. dollar-denominated term loan and other mortgage and loan payments, (v) $396.0 million of quarterly dividend distributions and (vi) $125.5 million of special distributions. The net cash provided by financing activities for 2014 was primarily due to $1.25 billion of proceeds from the senior notes offering in November 2014, $500.0 million of proceeds from the term loan facility, partially offset by (i) $1.1 billion for repayment of debt including $750.0 million for the redemption of the 7.00% senior notes, prepayment of the remaining principal balance of the U.S. term loan of $110.0 million, $43.5 million for repayments of mortgage and other loan payable, and $29.5 million for the exchanges of the 3.00% convertible subordinated notes and 4.75% convertible subordinated notes, (ii) $298.0 million for the purchases of treasury stock, (iii) $226.3 million for the purchase of Riverwood’s interest in ALOG and the approximate 10% of ALOG owned by ALOG management and (iv) $83.3 million for the cash portion of the special distribution. The net cash provided by financing activities for 2013 was primarily due to $1.5 billion of proceeds from the senior notes offering in March 2013, partially offset by $834.7 million for the redemption of the $750.0 million 8.125% senior notes, repayments of various debt

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and purchases of treasury stock. Going forward, we expect that our financing activities will consist primarily of repayment of our debt and additional financings needed to support expansion opportunities, additional acquisitions or joint ventures and the payment of our regular cash dividends.
Debt Obligations
Debt Facilities
We have various debt obligations with maturity dates ranging from 2016 to 2026 under which a total principal balance of $5.2 billion remained outstanding as of December 31, 2015. For further information on debt obligations, see “Debt Facilities” in Note 9 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Capital Lease and Other Financing Obligations
We have numerous capital lease and other financing obligations with maturity dates ranging from 2016 to 2065 under which a total principal balance of $1.3 billion remained outstanding as of December 31, 2015 with a weighted average effective interest rate of 8.17%. For further information on our capital leases and other financing obligations, see “Capital Leases and Other Financing Obligations” in Note 8 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Contractual Obligations and Off-Balance-Sheet Arrangements
We lease a majority of our IBX data centers and certain equipment under non-cancelable lease agreements expiring through 2065. The following represents our debt maturities, financings, leases and other contractual commitments as of December 31, 2015 (in thousands):
 
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
Convertible debt (1)
$
150,082

 
$

 
$

 
$

 
$

 
$

 
$
150,082

Senior notes (2)

 

 

 

 
500,000

 
3,350,000

 
3,850,000

Term loan A (2)
41,565

 
39,541

 
39,540

 
336,094

 

 

 
456,740

Bridge term loan (2)
386,547

 

 

 

 

 

 
386,547

Brazil financings (2)
11,540

 
7,936

 
4,419

 

 

 

 
23,895

Mortgage payable (2)
1,049

 
1,094

 
1,141

 
1,191

 
1,242

 
26,626

 
32,343

Other loans payable (2)
3,720

 
2,477

 
2,515

 
2,044

 
1,982

 
7,801

 
20,539

Revolving credit facility (2)
325,622

 

 

 

 

 

 
325,622

Interest (3)
203,872

 
220,234

 
218,821

 
217,806

 
201,034

 
682,032

 
1,743,799

Capital lease and other financing obligations (4)
140,632

 
139,653

 
140,981

 
138,847

 
136,587

 
1,346,341

 
2,043,041

Operating leases (5)
115,091

 
113,624

 
108,810

 
100,462

 
89,227

 
632,677

 
1,159,891

Other contractual commitments (6)
476,217

 
79,750

 
18,898

 
4,252

 
4,302

 
25,540

 
608,959

Asset retirement obligations (7)
491

 
9,982

 
4,150

 
11,297

 
3,651

 
48,911

 
78,482

 
$
1,856,428

 
$
614,291

 
$
539,275

 
$
811,993

 
$
938,025

 
$
6,119,928

 
$
10,879,940

_________________________
(1)
Represents principal only. As of December 31, 2015, had the holders of the 4.75% convertible subordinated notes due 2016 converted their notes, the 4.75% convertible subordinated notes would have been convertible into approximately 2.0 million shares of our common stock, which would have a total value of $593.0 million based on the closing price of our common stock on December 31, 2015.
(2)
Represents principal only.
(3)
Represents interest on Brazil financings, convertible debt, mortgage payable, senior notes and term loan facility based on their approximate interest rates as of December 31, 2015.
(4)
Represents principal and interest.
(5)
Represents minimum operating lease payments, excluding potential lease renewals.
(6)
Represents unaccrued contractual commitments. Other contractual commitments are described below.
(7)
Represents liability, net of future accretion expense.


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In connection with certain of our leases and other contracts requiring deposits, we entered into 30 irrevocable letters of credit totaling $55.3 million under the revolving credit facility. These letters of credit were provided in lieu of cash deposits under the revolving credit facility. If the landlords for these IBX leases decide to draw down on these letters of credit triggered by an event of default under the lease, we will be required to fund these letters of credit either through cash collateral or borrowing under the revolving credit facility. These contingent commitments are not reflected in the table above.
We had accrued liabilities related to uncertain tax positions totaling approximately $26.8 million as of December 31, 2015. These liabilities, which are reflected on our balance sheet, are not reflected in the table above since it is unclear when these liabilities will be paid.
Primarily as a result of our various IBX data center expansion projects, as of December 31, 2015, we were contractually committed for $256.8 million of unaccrued capital expenditures, primarily for IBX equipment not yet delivered and labor not yet provided in connection with the work necessary to complete construction and open these IBX data centers prior to making them available to customers for installation. This amount, which is expected to be paid during 2016 and thereafter, is reflected in the table above as “other contractual commitments.”
We had other non-capital purchase commitments in place as of December 31, 2015, such as commitments to purchase power in select locations and other open purchase orders, which contractually bind us for goods or services to be delivered or provided during 2016 and beyond. Such other purchase commitments as of December 31, 2015, which total $352.2 million, are also reflected in the table above as “other contractual commitments.”
In addition, although we are not contractually obligated to do so, we expect to incur additional capital expenditures of approximately $359.6 million to $459.6 million, in addition to the $609.0 million in contractual commitments discussed above as of December 31, 2015, in our various IBX data center expansion projects during 2016 and thereafter in order to complete the work needed to open these IBX data centers. These non-contractual capital expenditures are not reflected in the table above. If we so choose, whether due to economic factors or other considerations, we could delay these non-contractual capital expenditure commitments to preserve liquidity.
Other Off-Balance-Sheet Arrangements
We have various guarantor arrangements with both our directors and officers and third parties, including customers, vendors and business partners. As of December 31, 2015, there were no significant liabilities recorded for these arrangements. For additional information, see “Guarantor Arrangements” in Note 14 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of our financial statements requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. Management bases its assumptions, estimates and judgments on historical experience, current trends and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. However, because future events and their effects cannot be determined with certainty, actual results may differ from these assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 1 to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. Management believes that the following critical accounting policies and estimates are the most critical to aid in fully understanding and evaluating our consolidated financial statements, and they require significant judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain:
Accounting for income taxes;
Accounting for business combinations;
Accounting for impairment of goodwill; and
Accounting for property, plant and equipment.

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Description

Judgments and Uncertainties
Effect if Actual Results Differ From Assumptions
Accounting for Income Taxes.

Deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards on a taxing jurisdiction basis. We measure deferred tax assets and liabilities using enacted tax rates that will apply in the years in which we expect the temporary differences to be recovered or settled.
 
The accounting standard for income taxes requires a reduction of the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not (defined by the accounting standard as a likelihood of more than 50%) that such assets will not be realized.

A tax benefit from an uncertain income tax position may be recognized in the financial statements only if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authority’s widely understood administrative practices and precedents.


The valuation of deferred tax assets requires judgment in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns. Our accounting for deferred tax consequences represents our best estimate of those future events.

In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of that available evidence, it is more likely than not the deferred tax assets will not be realized, we record a valuation allowance. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified.

This assessment, which is completed on a taxing jurisdiction basis, takes into account a number of types of evidence, including the following: 1) the nature, frequency and severity of current and cumulative financial reporting losses, 2) sources of future taxable income and 3) tax planning strategies.

In assessing the tax benefit from an uncertain income tax position, the tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.


As of December 31, 2015 and 2014, we recorded a total of net deferred tax liabilities of $39.5 million and $100.8 million, respectively. As of December 31, 2015 and 2014, we had a total valuation allowance of $29.9 million and $27.2 million, respectively. During the year ended December 31, 2015 and 2014, we decided to provide a partial release of valuation allowance against the net deferred tax assets associated with certain foreign operating entities, which resulted in an insignificant income tax benefit in our results of operations.

Our decisions to release our valuation allowances were based on our belief that the operations of these jurisdictions had achieved a sufficient level of profitability and will sustain a sufficient level of profitability in the future to support the release of these valuation allowances based on relevant facts and circumstances. However, if our assumptions on the future performance of these jurisdictions prove not to be correct and these jurisdictions are not able to sustain a sufficient level of profitability to support the associated deferred tax assets on our consolidated balance sheet, we will have to impair our deferred tax assets through an additional valuation allowance, which would impact our financial position and results of operations in the period such a determination is made.

Our remaining valuation allowance as of December 31, 2015 was $29.9 million and primarily relates to certain of our subsidiaries outside of the U.S. If and when we release our remaining valuation allowances, it will have a favorable impact to our financial position and results of operations in the periods such determinations are made. We will continue to assess the need for our valuation allowances, by country or location, in the future.

As of December 31, 2015 and 2014, we had unrecognized tax benefits of $30.8 million and $36.1 million, respectively, exclusive of interest and penalties. During the year ended December 31, 2015, the unrecognized tax benefits decreased by $5.3 million primarily due to an agreement with Dutch Tax Authorities on the availability of historical loss carry-forwards to offset future profits generated by the Dutch fiscal unity. During the year ended December 31, 2014, the unrecognized tax benefits decreased by an insignificant amount primarily due to the settlement of a tax audit and the lapse of statute of limitations in our foreign operations. The unrecognized tax benefits of $30.8 million as of December 31, 2015, if subsequently recognized, will affect our effective tax rate favorably at the time when such benefits are recognized.


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Description

Judgments and Uncertainties
Effect if Actual Results Differ From Assumptions
Accounting for Business Combinations

In accordance with the accounting standard for business combinations, we allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed, if any, is recorded as goodwill.
 
We use all available information to estimate fair values. We typically engage outside appraisal firms to assist in the fair value determination of identifiable intangible assets such as customer contracts, leases and any other significant assets or liabilities and contingent consideration. We adjust the preliminary purchase price allocation, as necessary, up to one year after the acquisition closing date if we obtain more information regarding asset valuations and liabilities assumed.


Our purchase price allocation methodology contains uncertainties because it requires assumptions and management’s judgment to estimate the fair value of assets acquired and liabilities assumed at the acquisition date. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Our estimates are inherently uncertain and subject to refinement. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including assumptions regarding industry economic factors and business strategies.


During the last three years, we have completed three business combinations, including the Bit-isle acquisition in November 2015, the Nimbo acquisition in January 2015 and the Frankfurt Kleyer 90 Carrier Hotel acquisition in October 2013. The purchase price allocation for the Bit-isle and Frankfurt Kleyer 90 Carrier Hotel acquisitions were completed in the fourth quarters of 2015 and 2013, respectively.
 
We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we used to complete the purchase price allocations and the fair value of assets acquired and liabilities assumed. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material, which would be recorded in our statements of operations in 2016 or beyond.

Accounting for Impairment of Goodwill

In accordance with the accounting standard for goodwill and other intangible assets, we perform goodwill impairment reviews annually, or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

During the year ended December 31, 2014, we changed our annual goodwill impairment testing date from November 30th to October 31st of each year, commencing on October 31, 2014.
 
During the year ended December 31, 2015, we elected to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit in which goodwill resides is less than its carrying value.

During the year ended December 31, 2015, we completed annual goodwill impairment assessment of the Americas reporting unit, the EMEA reporting unit and the Asia-Pacific reporting unit and concluded that it is more likely than not that the fair value of these reporting units exceeded their carrying value, goodwill is not considered impaired and we are not required to perform the two-step goodwill impairment test.



During the year ended December 31, 2015, we elected to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value requires assumptions and estimates before performing the two-step goodwill impairment test, the assessment requires assumptions and estimates derived from a review of our actual and forecasted operating results, approved business plans, future economic conditions and other market data.

Prior to 2015, when we elected to perform the first step of the two-step goodwill impairment test, we used both the income and market approach. Under the income approach, we develop a five-year cash flow forecast and use our weighted-average cost of capital applicable to our reporting units as discount rates. This requires assumptions and estimates derived from a review of our actual and forecasted operating results, approved business plans, future economic conditions and other market data. The market approach requires judgment in determining the appropriate market comparables.

These assumptions require significant management judgment and are inherently subject to uncertainties.


As of December 31, 2015, goodwill attributable to the Americas reporting unit, the EMEA reporting unit and the Asia-Pacific reporting unit was $460.2 million, $374.1 million and $228.9 million, respectively.

Future events, changing market conditions and any changes in key assumptions may result in an impairment charge. While we have not recorded an impairment charge against our goodwill to date, the development of adverse business conditions in our Americas, EMEA or Asia-Pacific reporting units, such as higher than anticipated customer churn or significantly increased operating costs, or significant deterioration of our market comparables that we use in the market approach, could result in an impairment charge in future periods. 

Any potential impairment charge against our goodwill would not exceed the amounts recorded on our consolidated balance sheets.

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Description

Judgments and Uncertainties
Effect if Actual Results Differ From Assumptions
Accounting for Property, Plant and Equipment

We have a substantial amount of property, plant and equipment recorded on our consolidated balance sheet. The vast majority of our property, plant and equipment represent the costs incurred to build out or acquire our IBX data centers. Our IBX data centers are long-lived assets. The majority of our IBX data centers are in properties that are leased. We depreciate our property, plant and equipment using the straight-line method over the estimated useful lives of the respective assets (subject to the term of the lease in the case of leased assets or leasehold improvements and integral equipment located in leased properties).

Accounting for property, plant and equipment includes determining the appropriate period in which to depreciate such assets, making assessments for leased properties to determine whether they are capital or operating leases, determining if construction projects performed at leased properties trigger build-to-suit lease accounting, assessing such assets for potential impairment, capitalizing interest during periods of construction and assessing the asset retirement obligations required for certain leased properties that require us to return the leased properties back to their original condition at the time we decide to exit a leased property.


While there are numerous judgments and uncertainties involved in accounting for property, plant and equipment that are significant, arriving at the estimated useful life of an asset requires the most critical judgment for us and changes to these estimates would have the most significant impact on our financial position and results of operations. When we lease a property for our IBX data centers, we generally enter into long-term arrangements with initial lease terms of at least 8-10 years and with renewal options generally available to us. During the next several years, a number of leases for our IBX data centers will come up for renewal. As we start approaching the end of these initial lease terms, we will need to reassess the estimated useful lives of our property, plant and equipment. In addition, we may find that our estimates for the useful lives of non-leased assets may also need to be revised periodically. We periodically review the estimated useful lives of certain of our property, plant and equipment and changes in these estimates in the future are possible.

Another area of judgment for us in connection with our property, plant and equipment is related to lease accounting. Most of our IBX data centers are leased. Each time we enter into a new lease or lease amendment for one of our IBX data centers, we analyze each lease or lease amendment for the proper accounting. This requires certain judgments on our part such as establishing the lease term to include in a lease test, establishing the remaining estimated useful life of the underlying property or equipment and estimating the fair value of the underlying property or equipment and establishing the incremental borrowing rate to calculate the present value of the minimum lease payment for the lease test. All of these judgments are inherently uncertain. Different assumptions or estimates could result in a different accounting treatment for a lease.

The assessment of long-lived assets for impairment requires assumptions and estimates of undiscounted and discounted future cash flows. These assumptions and estimates require significant judgment and are inherently uncertain.




We did not revise the estimated useful lives of our property, plant and equipment during the years ended December 31, 2015 and 2013. During the quarter ended December 31, 2014, we revised the estimated useful lives of certain of our property, plant and equipment. As a result, we recorded an insignificant amount of higher depreciation expense for the quarter ended December 31, 2014 due to the reduction of the estimated useful lives of certain of our property, plant and equipment. We undertook this review due to our determination that we were generally using certain of our existing assets over a shorter period than originally anticipated and, therefore, the estimated useful lives of certain of our property, plant and equipment has been shortened. This change was accounted for as a change in accounting estimate on a prospective basis effective October 1, 2014 under the accounting standard for change in accounting estimates.

As of December 31, 2015, 2014 and 2013, we had property, plant and equipment of $5.6 billion, $5.0 billion, and $4.6 billion, respectively. During the years ended December 31, 2015, 2014 and 2013, we recorded depreciation expense of $498.1 million, $453.9 million, and $405.5 million, respectively. Further changes in our estimated useful lives of our property, plant and equipment could have a significant impact on our results of operations.

As of December 31, 2015 and 2014, we had property, plant and equipment under capital leases and other financing obligations of $1.5 billion, $1.1 billion and $949.0 million, respectively. During the years ended December 31, 2015, 2014 and 2013, we recorded depreciation expense of $52.9 million, $43.2 million, and $32.5 million respectively, related to property, plant and equipment under capital leases and other financing obligations. During the year ended December 31, 2015, 2014, 2013, we recorded interest expense of $104.4 million, $86.4 million, $56.6 million, respectively related to property, plant, equipment, under capital leases and other financing obligations.

Additionally, during the years ended December 31, 2015, 2014 and 2013, we recorded rent expense of $200.0 million $105.4 million, and $112.7 million under operating leases.
  

Recent Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 1 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

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ITEM 7A    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The following discussion about market risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We may be exposed to market risks related to changes in interest rates and foreign currency exchange rates and fluctuations in the prices of certain commodities, primarily electricity.
We employ foreign currency forward exchange contracts for the purpose of hedging certain specifically-identified exposures. The use of these financial instruments is intended to mitigate some of the risks associated with fluctuations in currency exchange rates, but does not eliminate such risks. We do not use financial instruments for trading or speculative purposes.
Investment Portfolio Risk
We maintain an investment portfolio of various holdings, types, and maturities that is prioritized on meeting REIT asset requirements. All of our marketable securities are designated as available-for-sale and, therefore, are recorded on our consolidated balance sheets at fair value with unrealized gains or losses reported as a component of other comprehensive income, net of tax. We consider various factors in determining whether we should recognize an impairment charge for our securities, including the length of time and extent to which the fair value has been less than our cost basis and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery. We anticipate that we will recover the entire cost basis of these securities and have determined that no other-than-temporary impairments associated with credit losses were required to be recognized during the year ended December 31, 2015.
As of December 31, 2015, our investment portfolio of cash equivalents and marketable securities consisted of money market fund investments, U.S. government securities, certificates of deposits and publicly traded equity securities and publicly traded fixed income securities. The amount in our investment portfolio that could be susceptible to market risk totaled $1.1 billion.
Interest Rate Risk 
Our primary objective for holding fixed income securities is to achieve an appropriate investment return consistent with preserving principal and managing risk which meets asset measurement requirements for REIT qualification. At any time, a sharp rise in interest rates or credit spreads could have a material adverse impact on the fair value of our fixed income investment portfolio. Securities with longer maturities are subject to a greater interest rate risk than those with shorter maturities. As of December 31, 2015, the average duration of our portfolio was less than one year. An immediate hypothetical shift in the yield curves of plus or minus 50 basis points from their position as of December 31, 2015 would not have a material impact on the fair value of our investment portfolio. This sensitivity analysis assumes a parallel shift of all interest rates, however, interest rates do not always move in such a manner and actual results may differ materially. We monitor our interest rate and credit risk, including our credit exposures to specific rating categories and to individual issuers. There were no impairment charges on our cash equivalents and fixed income securities during the year ended December 31, 2015.
An immediate 10% increase or decrease in current interest rates from their position as of December 31, 2015 would not have a material impact on our debt obligations due to the fixed nature of the majority of our debt obligations. However, the interest expense associated with our senior credit facility, the Brazil financings and bridge term loan, which bear interest at variable rates, could be affected. For every 100 basis point change in interest rates, our annual interest expense could increase or decrease by a total of approximately $6.9 million based on the total balance of our primary borrowings under the term loan A facility, revolving credit facility, bridge term loan and the Brazil financings as of December 31, 2015. As of December 31, 2015, we had not employed any interest rate derivative products against our debt obligations. However, we may enter into interest rate hedging agreements in the future to mitigate our exposure to interest rate risk.
The fair value of our long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. These interest rate changes may affect the fair value of the fixed interest rate debt but do not impact our earnings or cash flows. The fair value of our convertible debt, which is traded in the market, is based on quoted market prices. The fair value of our loans payable, which are not traded in the market, is estimated by considering our credit rating, current rates available to us for debt of the same remaining maturities and the terms of the debt. The following table represents the carrying value and estimated fair value of our loans payable, senior notes and convertible debt as of (in thousands):

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December 31, 2015
 
December 31, 2014
 
Carrying Value (1)
 
Fair Value
 
Carrying Value (1)
 
Fair Value
Mortgage and loans payable
$
920,064

 
$
916,602

 
$
595,752

 
$
553,045

Convertible debt
150,082

 
151,997

 
157,885

 
162,159

Senior notes
3,850,000

 
3,954,000

 
2,750,000

 
2,790,023

Revolving credit facility
325,622

 
325,617

 

 

___________________
(1)
The carrying value is gross of debt discount.

Foreign Currency Risk
A significant portion of our revenue is denominated in U.S. dollars, however, approximately 48.5% of our revenues and 48.6% of our operating costs are attributable to Brazil, Canada and the EMEA and Asia-Pacific regions and a large portion of those revenues and costs are denominated in a currency other than the U.S. dollar, primarily the Brazilian Reals, Canadian dollar, British pound, Euro, Swiss franc, United Arab Emirates dirham, Australian dollar, Chinese Yuan, Hong Kong dollar, Japanese yen and Singapore dollar. As a result, our operating results and cash flows are impacted by currency fluctuations relative to the U.S. dollar. To protect against certain reductions in value caused by changes in currency exchange rates, we have established a risk management program to offset some of the risk of carrying assets and liabilities denominated in foreign currencies. As a result, we have entered into foreign currency forward contracts to manage the risk associated with certain foreign currency-denominated assets and liabilities. We entered into foreign currency forward contracts to help manage our exposure to foreign currency exchange rate fluctuations for forecasted revenues and expenses in our EMEA region. Our risk management program reduces, but does not entirely eliminate, the impact of currency exchange rate movements and its impact on the consolidated statements of operations. As of December 31, 2015, the outstanding foreign currency forward contracts had maturities of less than two years.
For the foreseeable future, we anticipate that more than 50% of our revenues and operating costs will continue to be generated and incurred outside of the U.S. in currencies other than the U.S. dollar. During fiscal 2015, the U.S. dollar was generally strong relative to certain of the currencies of the foreign countries in which we operate. This overall strength of the U.S. dollar had a negative impact on our consolidated results of operations because the foreign denominations translated into less U.S. dollars. In future periods, the volatility of the U.S. dollar as compared to the other currencies in which we do business could have a significant impact on our consolidated financial position and results of operations including the amount of revenue that we report in future periods.
Excluding consideration from hedging contracts, an immediate 10% appreciation in current foreign exchange rates as of December 31, 2015 would have resulted in an increase of $130.8 million and $23.1 million in revenue and net income before taxes. Excluding consideration from hedging contracts, an immediate 10% depreciation in current foreign exchange rates as of December 31, 2015 would have resulted in a decrease of $128.4 million and $25.2 million in revenue and net income before taxes.
We may enter into additional hedging activities in the future to mitigate our exposure to foreign currency risk as our exposure to foreign currency risk continues to increase due to our growing foreign operations; however, we do not currently intend to eliminate all foreign currency transaction exposure.
Commodity Price Risk
Certain operating costs incurred by us are subject to price fluctuations caused by the volatility of underlying commodity prices. The commodities most likely to have an impact on our results of operations in the event of price changes are electricity, supplies and equipment used in our IBX data centers. We closely monitor the cost of electricity at all of our locations. We have entered into several power contracts to purchase power at fixed prices during 2014 and beyond in certain locations in the U.S., Australia, Brazil, France, Germany, Japan, the Netherlands, Singapore and the United Kingdom.
In addition, as we are building new, or expanding existing, IBX data centers, we are subject to commodity price risk for building materials related to the construction of these IBX data centers, such as steel and copper. In addition, the lead-time to procure certain pieces of equipment, such as generators, is substantial. Any delays in procuring the necessary pieces of equipment for the construction of our IBX data centers could delay the anticipated openings of these new IBX data centers and, as a result, increase the cost of these projects.

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We do not currently employ forward contracts or other financial instruments to address commodity price risk other than the power contracts discussed above.
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item 8 are listed in Item 15(a)(1) and begin at page F-1 of this Annual Report on Form 10-K.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There is no disclosure to report pursuant to Item 9.

ITEM 9A.    CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2015.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation under the framework in Internal Control – Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2015.
The evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2015 did not include the internal controls of Bit-isle Inc. We excluded Bit-isle Inc. from our assessment of internal control over financial reporting as of December 31, 2015 as it was acquired in November 2015. Bit-isle Inc. is our wholly-owned subsidiary whose total assets represented 4% and total revenues represented 1% of the related consolidated financial statements amounts as of and for the year ended December 31, 2015.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein on page F-1 of this Annual Report on Form 10-K.
Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed and operated to be effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must

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reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control Over Financial Reporting
There was no change in our internal controls over financial reporting during the fourth quarter of fiscal 2015 that has materially affected, or is reasonable likely to affect, our internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION
There is no disclosure to report pursuant to Item 9B.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 
Information required by this item is incorporated by reference to the Equinix proxy statement for the 2016 Annual Meeting of Stockholders.
We have adopted a Code of Ethics applicable for the Chief Executive Officer and Senior Financial Officers and a Code of Business Conduct. This information is incorporated by reference to the Equinix proxy statement for the 2016 Annual Meeting of Stockholders and is also available on our website, www.equinix.com.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the Equinix proxy statement for the 2016 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this item is incorporated by reference to the Equinix proxy statement for the 2016 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this item is incorporated by reference to the Equinix proxy statement for the 2016 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this item is incorporated by reference to the Equinix proxy statement for the 2016 Annual Meeting of Stockholders.

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PART IV
ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements:
(a)(2) All schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(a)(3) Exhibits:
 
 
 
 
Incorporated by Reference
 
 
Exhibit Number
 
Exhibit Description
 
Form
 
Filing Date/
Period End Date
 
Exhibit
 
Filed
Herewith
2.1
 
Rule 2.7 Announcement, dated as May 29, 2015. Recommended Cash and Share Offer for Telecity Group plc by Equinix, Inc.
 
8-K
 
5/29/15
 
2.1
 
 
2.2
 
Cooperation Agreement, dated as of May 29, 2015, by and between Equinix, Inc. and Telecity Group plc.
 
8-K
 
5/29/15
 
2.2
 
 
2.3
 
Amendment to Cooperation Agreement, dated as of November 24, 2015, by and between Equinix, Inc. and Telecity Group plc.
 
 
 
 
 
 
 
X
3.1
 
Amended and Restated Certificate of Incorporation of the Registrant, as amended to date.
 
10-K/A
 
12/31/02
 
3.1
 
 
3.2
 
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant
 
8-K
 
6/14/11
 
3.1
 
 
3.3
 
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant
 
8-K
 
6/11/13
 
3.1
 
 
3.4
 
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant
 
10-Q
 
6/30/2014
 
3.4
 
 
3.5
 
Certificate of Designation of Series A and Series A-1 Convertible Preferred Stock.
 
10-K/A
 
12/31/02
 
3.3
 
 
3.6
 
Amended and Restated Bylaws of the Registrant.
 
8-K
 
01/19/16
 
3.1
 
 
4.1
 
Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6.
 
 
 
 
 
 
 
 
4.2
 
Indenture dated June 12, 2009 by and between Equinix, Inc. and U.S. Bank National Association, as trustee.
 
8-K
 
6/12/09
 
4.1
 
 
4.3
 
Form of 4.75% Convertible Subordinated Note Due 2016 (see Exhibit 4.2).
 
 
 
 
 
 
 
 
4.4
 
Indenture for the 2020 Notes dated March 5, 2013 by and between Equinix, Inc. and U.S. Bank National Association as trustee
 
8-K
 
3/5/13
 
4.1
 
 

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Incorporated by Reference
 
 
Exhibit Number
 
Exhibit Description
 
Form
 
Filing Date/
Period End Date
 
Exhibit
 
Filed
Herewith
4.5
 
Form of 4.875% Senior Note due 2020 (see Exhibit 4.4)
 
 
 
 
 
 
 
 
4.6
 
Indenture for the 2023 Notes dated March 5, 2013 by and between Equinix, Inc. and U.S. Bank National Association as trustee
 
8-K
 
3/5/13
 
4.3
 
 
4.7
 
Form of 5.375% Senior Note due 2023 (see Exhibit 4.6)
 
 
 
 
 
 
 
 
4.8
 
Indenture, dated as of November 20, 2014, between Equinix, Inc. and U.S. Bank National Association, as trustee
 
8-K
 
11/20/14
 
4.1
 
 
4.9
 
First Supplemental Indenture, dated as of November 20, 2014, between Equinix, Inc. and U.S. Bank National Association, as trustee
 
8-K
 
11/20/14
 
4.2
 
 
4.10
 
Form of 5.375% Senior Note due 2022 (see Exhibit 4.9)
 
 
 
 
 
 
 
 
4.11
 
Second Supplemental Indenture, dated as of November 20, 2014, between Equinix, Inc. and U.S. Bank National Association, as trustee
 
8-K
 
11/20/14
 
4.4
 
 
4.12
 
Form of 5.750% Senior Note due 2025 (see Exhibit 4.11)
 
 
 
 
 
 
 
 
4.13
 
Third Supplemental Indenture, dated as of December 4, 2015, between Equinix, Inc. and U.S. Bank National Association, as trustee
 
8-K
 
12/04/15
 
4.2
 
 
4.14
 
Form of 5.875% Senior Note due 2026 (see Exhibit 4.13)
 
 
 
 
 
 
 
 
4.15
 
Form of Registrant’s Common Stock Certificate
 
10-K
 
12/31/14
 
4.13
 
 
10.1**
 
Form of Indemnification Agreement between the Registrant and each of its officers and directors.
 
S-4 (File No. 333-93749)
 
12/29/1999
 
10.5
 
 
10.2**
 
2000 Equity Incentive Plan, as amended.
 
10-Q
 
3/31/12
 
10.2
 
 
10.3**
 
2000 Director Option Plan, as amended.
 
10-K
 
12/31/07
 
10.4
 
 
10.4**
 
2001 Supplemental Stock Plan, as amended.
 
10-K
 
12/31/07
 
10.5
 
 
10.5**
 
Equinix, Inc. 2004 Employee Stock Purchase Plan, as amended.
 
10-Q
 
6/30/14
 
10.5
 
 
10.6**
 
Severance Agreement by and between Stephen Smith and Equinix, Inc. dated December 18, 2008.
 
10-K
 
12/31/08
 
10.31
 
 
10.7**
 
Severance Agreement by and between Peter Van Camp and Equinix, Inc. dated December 10, 2008.
 
10-K
 
12/31/08
 
10.32
 
 
10.8**
 
Severance Agreement by and between Keith Taylor and Equinix, Inc. dated December 19, 2008.
 
10-K
 
12/31/08
 
10.33
 
 
10.9**
 
Change in Control Severance Agreement by and between Eric Schwartz and Equinix, Inc. dated December 19, 2008.
 
10-K
 
12/31/08
 
10.35
 
 
10.10
 
Confirmation for Base Capped Call Transaction dated as of June 9, 2009 between Equinix, Inc. and Deutsche Bank AG, London Branch.
 
8-K
 
6/12/09
 
10.1
 
 
10.11
 
Confirmation for Additional Capped Call Transaction dated as of June 9, 2009 between Equinix, Inc. and Deutsche Bank AG, London Branch.
 
8-K
 
6/12/09
 
10.2
 
 

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Incorporated by Reference
 
 
Exhibit Number
 
Exhibit Description
 
Form
 
Filing Date/
Period End Date
 
Exhibit
 
Filed
Herewith
10.12
 
Confirmation for Base Capped Call Transaction dated as of June 9, 2009 between Equinix, Inc. and JPMorgan Chase Bank, National Association, London Branch.
 
8-K
 
6/12/09
 
10.4
 
 
10.13
 
Confirmation for Additional Capped Call Transaction dated as of June 9, 2009 between Equinix, Inc. and JPMorgan Chase Bank, National Association, London Branch.
 
8-K
 
6/12/09
 
10.5
 
 
10.14
 
Confirmation for Base Capped Call Transaction dated as of June 9, 2009 between Equinix, Inc. and Goldman, Sachs & Co.
 
8-K
 
6/12/09
 
10.7
 
 
10.15
 
Confirmation for Additional Capped Call Transaction dated as of June 9, 2009 between Equinix, Inc. and Goldman, Sachs & Co.
 
8-K
 
6/12/09
 
10.8
 
 
10.16**
 
Switch & Data 2007 Stock Incentive Plan.
 
S-1/A (File No. 333-137607) filed by Switch & Data Facilities Company, Inc.
 
2/5/07
 
10.9
 
 
10.17**
 
Change in Control Severance Agreement by and between Charles Meyers and Equinix, Inc. dated September 30, 2010.
 
10-Q
 
9/30/10
 
10.42
 
 
10.18**
 
Form of amendment to existing severance agreement between the Registrant and each of Messrs. Meyers, Smith, Taylor and Van Camp.
 
10-K
 
12/31/10
 
10.33
 
 
10.19**
 
Letter amendment, dated December 14, 2010, to Change in Control Severance Agreement, dated December 18, 2008, and letter agreement relating to expatriate benefits, dated April 22, 2008, as amended, by and between the Registrant and Eric Schwartz.
 
10-K
 
12/31/10
 
10.34
 
 
10.20**
 
Offer Letter from Equinix, Inc. to Sara Baack dated July 31, 2012.
 
10-Q
 
3/31/13
 
10.42
 
 
10.21**
 
Change in Control Severance Agreement by and between Sara Baack and Equinix, Inc. dated July 31, 2012.
 
10-Q
 
3/31/13
 
10.44
 
 
10.22**
 
Form of Revenue/Adjusted EBITDA Restricted Stock Unit Agreement for CEO and CFO.
 
10-Q
 
3/31/13
 
10.46
 
 
10.23**
 
Form of Revenue/Adjusted EBITDA Restricted Stock Unit Agreement for all other Section 16 officers.
 
10-Q
 
3/31/13
 
10.47
 
 
10.24**
 
International Long-Term Assignment Letter by and between Equinix, Inc. and Eric Schwartz, dated May 21, 2013.
 
10-Q
 
6/30/13
 
10.51
 
 
10.25**
 
Employment Agreement by and between Equinix (EMEA) B.V. and Eric Schwartz, dated as of August 7, 2013.
 
10-Q
 
9/30/13
 
10.54
 
 
10.26**
 
Restricted Stock Unit Agreement dated August 14, 2013 for Charles Meyers under the Equinix, Inc. 2000 Equity Incentive Plan.
 
10-Q
 
9/30/13
 
10.55
 
 
10.27**
 
Offer Letter from Equinix, Inc. to Karl Strohmeyer dated October 28, 2013.
 
10-Q
 
3/31/14
 
10.49
 
 

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Table of Contents

 
 
 
 
Incorporated by Reference
 
 
Exhibit Number
 
Exhibit Description
 
Form
 
Filing Date/
Period End Date
 
Exhibit
 
Filed
Herewith
10.28**
 
Restricted Stock Unit Agreement for Karl Strohmeyer under the Equinix, Inc. 2000 Equity Incentive Plan.
 
10-Q
 
3/31/14
 
10.50
 
 
10.29**
 
Change in Control Severance Agreement by and between Karl Strohmeyer and Equinix, Inc. dated December 2, 2013.
 
10-Q
 
3/31/14
 
10.51
 
 
10.30**
 
2014 Form of Revenue/Adjusted EBITDA Restricted Stock Unit Agreement for CEO and CFO.
 
10-Q
 
3/31/14
 
10.52
 
 
10.31**
 
2014 Form of Revenue/Adjusted EBITDA Restricted Stock Unit Agreement for all other Section 16 officers.
 
10-Q
 
3/31/14
 
10.53
 
 
10.32**
 
2014 Form of TSR Restricted Stock Unit Agreement for CEO and CFO.
 
10-Q
 
3/31/14
 
10.54
 
 
10.33**
 
2014 Form of TSR Restricted Stock Unit Agreement for all other Section 16 officers.
 
10-Q
 
3/31/14
 
10.55
 
 
10.34
 
Lease between Digital 1350 Duane, LLC and Equinix LLC, dated March 27, 2014.
 
10-Q
 
3/31/14
 
10.56
 
 
10.35
 
Amendment Agreement dated as of May 2, 2014, between Equinix, Inc. and Goldman, Sachs & Co., amending and restating the Master Terms and Conditions for Capped Call Transactions between Equinix, Inc. and Goldman, Sachs & Co. and amending the Confirmation for Base Capped Call Transaction.
 
10-Q
 
6/30/14
 
10.54
 
 
10.36
 
Amendment Agreement dated as of May 2, 2014, between Equinix, Inc. and Deutsche Bank AG, London Branch, amending and restating the Master Terms and Conditions for Capped Call Transactions between Equinix, Inc. and Deutsche Bank AG, London Branch and amending the Confirmation for Base Capped Call Transaction.
 
10-Q
 
6/30/14
 
10.55
 
 
10.37
 
Amendment Agreement dated as of May 2, 2014, between Equinix, Inc. and JPMorgan Chase Bank, National Association, London Branch, amending and restating the Master Terms and Conditions for Capped Call Transactions between Equinix, Inc. and JPMorgan Chase Bank, National Association, London Branch and amending the Confirmation for Base Capped Call Transaction.
 
10-Q
 
6/30/14
 
10.56
 
 
10.38
 
Amendment Agreement, dated as of May 13, 2014, between Equinix, Inc. and Goldman, Sachs & Co., amending the Confirmation for Base Capped Call Transaction.
 
10-Q
 
6/30/14
 
10.57
 
 
10.39
 
Amendment Agreement dated as of May 13, 2014, between Equinix, Inc. and Deutsche Bank AG, London Branch, amending the Confirmation for Base Capped Call Transaction.
 
10-Q
 
6/30/14
 
10.58
 
 
10.40
 
Amendment Agreement dated as of May 13, 2014, between Equinix, Inc. and JPMorgan Chase Bank, National Association, London Branch, amending the Confirmation for Base Capped Call Transaction.
 
10-Q
 
6/30/14
 
10.59
 
 
10.41
 
Amendment Agreement, dated as of June 6, 2014, between Equinix, Inc. and Goldman, Sachs & Co., amending the Confirmation for Base Capped Call Transaction.
 
10-Q
 
6/30/14
 
10.60
 
 

75

Table of Contents

 
 
 
 
Incorporated by Reference
 
 
Exhibit Number
 
Exhibit Description
 
Form
 
Filing Date/
Period End Date
 
Exhibit
 
Filed
Herewith
10.42
 
Amendment Agreement dated as of June 6, 2014, between Equinix, Inc. and Deutsche Bank AG, London Branch, amending the Confirmation for Base Capped Call Transaction.
 
10-Q
 
6/30/14
 
10.61
 
 
10.43
 
Amendment Agreement dated as of June 6, 2014, between Equinix, Inc. and JPMorgan Chase Bank, National Association, London Branch, amending the Confirmation for Base Capped Call Transaction.
 
10-Q
 
6/30/14
 
10.62
 
 
10.44
 
Agreement for Purchase and Sale of Shares Among RW Brasil Fundo de Investimentos em Participação, Antônio Eduardo Zago De Carvalho and Sidney Victor da Costa Breyer, as Sellers, and Equinix Brasil Participaçãoes Ltda., as Purchaser, and Equinix South America Holdings LLC., as a Party for Limited Purposes and ALOG Soluções de Tecnologia em Informática S.A. as Intervening Consenting Party dated July 18, 2014
 
10-Q
 
9/30/14
 
10.67
 
 
10.45
 
Credit Agreement, by and among Equinix, Inc., as borrower, Equinix LLC and Switch & Data LLC as guarantors, the Lenders (defined therein), Bank of America, N.A., as administrative agent, a Lender and L/C issuer, JPMorgan Chase Bank, N.A., and TD Securities (USA) LLC, as co-syndication agents, Barclays Bank PLC, Citibank, N.A., Royal Bank of Canada and ING Bank N.V., Singapore Branch, as Co-Documentation Agents and Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC, and TD Securities (USA) LLC, as joint lead arrangers and book runners, dated December 17, 2014.
 
10-K
 
12/31/14
 
10.48
 
 
10.46**
 
Equinix, Inc. 2015 Incentive Plan.
 
10-Q
 
3/31/15
 
10.49
 
 
10.47**
 
2015 Form of Revenue/ AFFO Restricted Stock Unit Agreement for executives.
 
10-Q
 
3/31/15
 
10.50
 
 
10.48**
 
2015 Form of TSR Restricted Stock Unit Agreement for executives.
 
10-Q
 
3/31/15
 
10.51
 
 
10.49**
 
2015 Form of Time-Based Restricted Stock Unit Agreement for executives.
 
10-Q
 
3/31/15
 
10.52
 
 
10.50
 
First Amendment to Credit Agreement and first Amendment to Pledge and Security Agreement by and among Equinix, Inc., as borrower, the Guarantors (defined therein), the Lenders (defined therein) and Bank of America, N.A., as administrative agent, dated April 30, 2015.
 
10-Q
 
9/30/2015
 
10.52
 
 
10.51
 
Bridge Credit Agreement dated as of May 28, 2015 among Equinix, Inc. as Borrower, Various Financial Institutions as Lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent. JPMorgan Securities LLC as sole Arranger and Bookrunner.
 
10-Q
 
6/30/15
 
10.53
 
 

76

Table of Contents

 
 
 
 
Incorporated by Reference
 
 
Exhibit Number
 
Exhibit Description
 
Form
 
Filing Date/
Period End Date
 
Exhibit
 
Filed
Herewith
10.52
 
First Amendment to the Bridge Credit Agreement Dated as of May 28, 2015 as Amended on June 19, 2015 among Equinix, Inc., as Borrower, Various Financial Institutions as Lenders, and JP Morgan Chase Bank, N.A. as Administrative Agent. JPMorgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, CityGroup Global Markets Inc. and RBC Capital Markets, LLC as Lead Arrangers and Bookrunners and TD Securities (USA) LLC, ING Bank N.V., HSBC Securities (USA) Inc. and The Bank of Tokyo-Mitsubishi UFJ, LTD as Co-Managers
 
10-Q
 
6/30/15
 
10.54
 
 
10.53
 
Term Loan Agreement dated as of September 30, 2015 among QAON G.K. and certain other direct and indirect subsidiaries of Equinix, Inc., as Borrowers, and The Bank of Tokyo-Mitsubishi UFJ, Ltd. as Arranger and Lender.
 
10-Q
 
9/30/15
 
10.55
 
 
10.54
 
First Amendment to Term Loan Agreement, dated as of October 26, 2015, among QAON G.K. and certain other direct and indirect subsidiaries of Equinix, Inc., as Borrowers, and The Bank of Tokyo-Mitsubishi UFJ, Ltd. as Arranger and Lender.
 
10-Q
 
9/30/15
 
10.56
 
 
10.55
 
Second Amendment to Credit Agreement by and among Equinix, Inc., as borrower, the Guarantors (defined therein), the Lenders (defined therein) and Bank of America, N.A., as administrative agent, dated December 8, 2015.
 
 
 
 
 
 
 
X
21.1
 
Subsidiaries of Equinix, Inc.
 
 
 
 
 
 
 
X
31.1
 
Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
X
31.2
 
Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
X
32.1
 
Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
X
32.2
 
Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
 
 
 
X
101.INS
 
XBRL Instance Document.
 
 
 
 
 
 
 
X
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
 
 
 
 
 
X
101.CAL
 
XBRL Taxonomy Extension Calculation Document.
 
 
 
 
 
 
 
X
101.DEF
 
XBRL Taxonomy Extension Definition Document.
 
 
 
 
 
 
 
X
101.LAB
 
XBRL Taxonomy Extension Labels Document.
 
 
 
 
 
 
 
X
101.PRE
 
XBRL Taxonomy Extension Presentation Document.
 
 
 
 
 
 
 
X
** Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
(b)
Exhibits.
See (a) (3) above.
(c)
Financial Statement Schedule.
See (a) (2) above.


77

Table of Contents

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
EQUINIX, INC.
(Registrant)
 
 
 
February 26, 2016
By
/s/ STEPHEN M. SMITH
 
 
Stephen M. Smith
 
 
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stephen M. Smith or Keith D. Taylor, or either of them, each with the power of substitution, their attorney‑in‑fact, to sign any amendments to this Annual Report on Form 10‑K (including post‑effective amendments), and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys‑in‑fact, or their substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

78

Table of Contents

Signature
Title
Date

/s/ STEPHEN M. SMITH
President and Chief Executive Officer (Principal Executive Officer)


February 26, 2016
Stephen M. Smith

/s/ KEITH D. TAYLOR
Chief Financial Officer (Principal Financial and Accounting Officer)


February 26, 2016
Keith D. Taylor

/s/ PETER F. VAN CAMP
Executive Chairman
February 26, 2016
Peter F. Van Camp
/s/ THOMAS A. BARTLETT
Director
February 26, 2016
Thomas A. Bartlett
/s/ NANCI CALDWELL
Director

February 26, 2016
Nanci Caldwell
/s/ GARY F. HROMADKO
Director

February 26, 2016
Gary F. Hromadko

/s/ JOHN HUGHES
Director
February 26, 2016
John Hughes
/s/ SCOTT G. KRIENS
Director

February 26, 2016
Scott G. Kriens

/s/ WILLIAM K. LUBY
Director

February 26, 2016
William K. Luby

/s/ IRVING F. LYONS, III
Director

February 26, 2016
Irving F. Lyons, III

/s/ CHRISTOPHER B. PAISLEY
Director

February 26, 2016
Christopher B. Paisley



79

Table of Contents

INDEX TO EXHIBITS
Exhibit
Number
 
Description of Document
2.3
 
Amendment to Cooperation Agreement, dated as of November 24, 2015, by and between Equinix, Inc. and Telecity Group plc.
10.55
 
Second Amendment to Credit Agreement by and among Equinix, Inc., as borrower, the Guarantors (defined therein), the Lenders (defined therein) and Bank of America, N.A., as administrative agent, dated December 8, 2015.
21.1
 
Subsidiaries of Equinix, Inc.
31.1
 
Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
 
Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 
Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
 
XBRL Instance Document.
101.SCH
 
XBRL Taxonomy Extension Schema Document.
101.CAL
 
XBRL Taxonomy Extension Calculation Document.
101.DEF
 
XBRL Taxonomy Extension Definition Document.
101.LAB
 
XBRL Taxonomy Extension Labels Document.
101. PRE
 
XBRL Taxonomy Extension Presentation Document.


80

Table of Contents

Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of Equinix, Inc.:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Equinix, Inc. and its subsidiaries at December 31, 2015 and December 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it classifies deferred tax assets and liabilities and debt issuance costs on the consolidated balance sheet in 2015.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Bit-isle, Inc. from its assessment of internal control over financial reporting as of December 31, 2015 because it was acquired by the Company in a purchase business combination during 2015. We have also excluded Bit-isle Inc. from our assessment of internal control over financial reporting. Bit-isle, Inc. is a wholly-owned subsidiary with total assets and total revenue representing approximately 4% and 1%, respectively of the consolidated financial statement amounts as of and for the year ended December 31, 2015.


/s/ PricewaterhouseCoopers LLP
San Jose, CA
February 26, 2016


F-1

Table of Contents

EQUINIX, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)

 
December 31,
 
2015
 
2014
Assets
Current assets:
 
 
 
Cash and cash equivalents
$
2,228,838

 
$
610,917

Short-term investments
12,875

 
529,395

Accounts receivable, net of allowance for doubtful accounts of $10,352 and $9,466
291,964

 
262,570

Current portion of restricted cash
479,417

 
3,057

Other current assets
212,929

 
85,004

Assets held for sale
33,257

 

Total current assets
3,259,280

 
1,490,943

Long-term investments
4,584

 
439

Property, plant and equipment, net
5,606,436

 
4,998,270

Goodwill
1,063,200

 
1,002,129

Intangible assets, net
224,565

 
147,527

Restricted cash, less current portion
10,172

 
14,060

Other assets
188,458

 
128,610

Total assets
$
10,356,695

 
$
7,781,978

Liabilities and Stockholders' Equity
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
400,948

 
$
285,796

Accrued property, plant and equipment
103,107

 
114,469

Current portion of capital lease and other financing obligations
40,121

 
21,362

Current portion of mortgage and loans payable
770,236

 
59,466

Current portion of convertible debt
146,121

 

Other current liabilities
192,286

 
162,664

Liabilities held for sale
3,535

 

Total current liabilities
1,656,354

 
643,757

Capital lease and other financing obligations, less current portion
1,287,139

 
1,168,042

Mortgage and loans payable, less current portion
472,769

 
532,809

Convertible debt, less current portion

 
145,229

Senior notes
3,804,634

 
2,717,046

Other liabilities
390,413

 
304,964

Total liabilities
7,611,309

 
5,511,847

Commitments and contingencies (Note 14)

 

Stockholders' equity:
 
 
 
Preferred stock, $0.001 par value per share: 100,000,000 shares authorized in 2015 and 2014; zero shares issued and outstanding

 

Common stock, $0.001 par value per share: 300,000,000 shares authorized in 2015 and 2014; 62,134,894 issued and 62,100,159 outstanding in 2015 and 56,505,122 issued and 56,451,255 outstanding in 2014
62

 
57

Additional paid-in capital
4,838,444

 
3,334,305

Treasury stock, at cost; 34,735 shares in 2015 and 53,867 shares in 2014
(7,373
)
 
(11,411
)
Accumulated dividends
(1,468,472
)
 
(424,387
)
Accumulated other comprehensive loss
(509,059
)
 
(332,443
)
Accumulated deficit
(108,216
)
 
(295,990
)
Total stockholders' equity
2,745,386

 
2,270,131

Total liabilities and stockholders' equity
$
10,356,695

 
$
7,781,978


See accompanying notes to consolidated financial statements.

F-2

Table of Contents

EQUINIX, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
 
Years ended December 31,
 
2015
 
2014
 
2013
Revenues
$
2,725,867

 
$
2,443,776

 
$
2,152,766

Costs and operating expenses:
 
 
 
 
 
Cost of revenues
1,291,506

 
1,197,885

 
1,064,403

Sales and marketing
332,012

 
296,103

 
246,623

General and administrative
493,284

 
438,016

 
374,790

Restructuring reversals

 

 
(4,837
)
Acquisition costs
41,723

 
2,506

 
10,855

Total costs and operating expenses
2,158,525

 
1,934,510

 
1,691,834

Income from operations
567,342

 
509,266

 
460,932

Interest income
3,581

 
2,891

 
3,387

Interest expense
(299,055
)
 
(270,553
)
 
(248,792
)
Other income (expense)
(60,581
)
 
119

 
5,253

Loss on debt extinguishment
(289
)
 
(156,990
)
 
(108,501
)
Income from operations before income taxes
210,998

 
84,733

 
112,279

Income tax expense
(23,224
)
 
(345,459
)
 
(16,156
)
Net income (loss)
187,774

 
(260,726
)
 
96,123

Net (income) loss attributable to redeemable non-controlling interests

 
1,179

 
(1,438
)
Net income (loss) attributable to Equinix
$
187,774

 
$
(259,547
)
 
$
94,685

 
 
 
 
 
 
Earnings per share ("EPS") attributable to Equinix:
 
 
 
 
 
Basic EPS
$
3.25

 
$
(4.96
)
 
$
1.92

Weighted-average shares
57,790

 
52,359

 
49,438

Diluted EPS
$
3.21

 
$
(4.96
)
 
$
1.89

Weighted-average shares
58,483

 
52,359

 
50,116

See accompanying notes to consolidated financial statements.

F-3

Table of Contents

EQUINIX, INC.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
 
Years ended December 31,
 
2015
 
2014
 
2013
Net income (loss)
$
187,774

 
$
(260,726
)
 
$
96,123

Other comprehensive income (loss), net of tax:
 
 
 
 
 
Foreign currency translation adjustment ("CTA") loss
(186,763
)
 
(204,065
)
 
(18,203
)
Net investment hedge CTA gain
4,484

 

 

Unrealized loss on available-for-sale securities
(40
)
 
(279
)
 
(298
)
Unrealized gain (loss) on cash flow hedges
4,550

 
8,790

 
(1,750
)
Net actuarial gain (loss) on defined benefit plans
1,153

 
(2,001
)
 

Total other comprehensive loss, net of tax
(176,616
)
 
(197,555
)
 
(20,251
)
Comprehensive income (loss), net of tax
11,158

 
(458,281
)
 
75,872

Net (income) loss attributable to redeemable non-controlling interests

 
1,179

 
(1,438
)
Other comprehensive (income) loss attributable to redeemable non-controlling interest

 
(1,810
)
 
7,526

Comprehensive income (loss) attributable to Equinix
$
11,158

 
$
(458,912
)
 
$
81,960

See accompanying notes to consolidated financial statements.


F-4

Table of Contents

EQUINIX, INC.
Consolidated Statements of Stockholders’ Equity and Other Comprehensive Income (Loss)
For the Three Years Ended December 31, 2015
(in thousands, except share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
other
 
 
 
Total
 
Common stock
 
Treasury stock
 
Additional
 
Accumulated
 
comprehensive
 
Accumulated
 
stockholder's
 
Shares
 
Amount
 
Shares
 
Amount
 
paid-in capital
 
dividends
 
income (loss)
 
deficit
 
 equity
Balance as of December 31, 2012
49,139,851

 
$
49

 
(363,743
)
 
$
(36,676
)
 
$
2,582,238

 
$

 
$
(101,042
)
 
$
(131,128
)
 
$
2,313,441

Net income

 

 

 

 

 

 

 
96,123

 
96,123

Net income attributable to non-controlling interests

 

 

 

 

 

 

 
(1,438
)
 
(1,438
)
Other comprehensive loss

 

 

 

 

 

 
(20,251
)
 

 
(20,251
)
Other comprehensive loss attributable to redeemable non-controlling interests

 

 

 

 

 

 
7,526

 

 
7,526

Issuance of common stock and release of treasury stock for employee equity awards
1,093,373

 
1

 
8,198

 
805

 
31,087

 

 

 

 
31,893

Release of treasury stock upon conversions of convertible debt

 

 
68

 
7

 
(1
)
 

 

 

 
6

Common shares repurchased

 

 
(288,739
)
 
(48,799
)
 

 

 

 

 
(48,799
)
Change in redemption value of redeemable non-controlling interests

 

 

 

 
(47,940
)
 

 

 

 
(47,940
)
Tax benefit from employee stock plans

 

 

 

 
25,638

 

 

 

 
25,638

Stock-based compensation, net of estimated forfeitures

 

 

 

 
102,865

 

 

 

 
102,865

Balance as of December 31, 2013
50,233,224

 
50

 
(644,216
)
 
(84,663
)
 
2,693,887

 

 
(113,767
)
 
(36,443
)
 
2,459,064

Net loss

 

 

 

 

 

 

 
(260,726
)
 
(260,726
)
Net loss attributable to non-controlling interests

 

 

 

 

 

 

 
1,179

 
1,179

Other comprehensive loss

 

 

 

 

 

 
(197,555
)
 

 
(197,555
)
Other comprehensive income attributable to redeemable non-controlling interests

 

 

 

 

 

 
(1,810
)
 

 
(1,810
)
Issuance of common stock and release of treasury stock for employee equity awards
933,554

 
1

 
7,846

 
1,185

 
28,134

 

 

 

 
29,320

Common shares repurchased

 

 
(1,517,743
)
 
(297,958
)
 

 

 

 

 
(297,958
)
Issuance of common stock and release of treasury stock for the exchanges and conversions of 4.75% convertible debt
1,411,851

 
2

 
1,000,102

 
147,706

 
43,024

 

 

 

 
190,732

Issuance of common stock and release of treasury stock for the exchange of 3.00% convertible debt
1,248,578

 
1

 
700,000

 
139,004

 
77,953

 

 

 

 
216,958

Issuance of common stock and release of treasury stock for conversions of 3.00% convertible debt
1,195,496

 
1

 
400,144

 
83,315

 
95,428

 

 

 

 
178,744

Issuance of common stock for special distribution
1,482,419

 
2

 

 

 
332,732

 
(414,856
)
 

 

 
(82,122
)
Accrued dividends on unvested equity awards

 

 

 

 

 
(9,531
)
 

 

 
(9,531
)
Change in redemption value of redeemable non-controlling interests

 

 

 

 
(90,913
)
 

 

 

 
(90,913
)
Purchase of redeemable non-controlling interests

 

 

 

 
17,977

 

 
(19,311
)
 

 
(1,334
)
Tax benefit from employee stock plans

 

 

 

 
18,561

 

 

 

 
18,561

Stock-based compensation, net of estimated forfeitures

 

 

 

 
117,522

 

 

 

 
117,522


F-5

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
other
 
 
 
Total
 
Common stock
 
Treasury stock
 
Additional
 
Accumulated
 
comprehensive
 
Accumulated
 
stockholder's
 
Shares
 
Amount
 
Shares
 
Amount
 
paid-in capital
 
dividends
 
income (loss)
 
deficit
 
 equity
Balance as of December 31, 2014
56,505,122

 
57

 
(53,867
)
 
(11,411
)
 
3,334,305

 
(424,387
)
 
(332,443
)
 
(295,990
)
 
2,270,131

Net income

 

 

 

 

 

 

 
187,774

 
187,774

Other comprehensive loss

 

 

 

 

 

 
(176,616
)
 

 
(176,616
)
Issuance of common stock in public offering of common stock
2,994,792

 
3

 

 

 
829,493

 

 

 

 
829,496

Issuance of common stock and release of treasury stock for employee equity awards
856,406

 
1

 
7,348

 
1,546

 
28,493

 

 

 

 
30,040

Issuance of common stock and release of treasury stock for the exchanges and conversions of 4.75% convertible debt
90,163

 

 
11,784

 
2,492

 
5,392

 

 

 

 
7,884

Dividend distributions

 

 

 

 

 
(393,584
)
 

 

 
(393,584
)
Settlement of accrued dividends on vested equity awards

 

 

 

 
3,775

 

 

 

 
3,775

Issuance of common stock and cash payment for special distribution
1,688,411

 
1

 

 

 
501,513

 
(627,221
)
 

 

 
(125,707
)
Accrued dividends on unvested equity awards

 

 

 

 

 
(23,280
)
 

 

 
(23,280
)
Tax benefit from employee stock plans

 

 

 

 
30

 
 
 

 

 
30

Stock-based compensation, net of estimated forfeitures

 

 

 

 
135,443

 

 

 

 
135,443

Balance as of December 31, 2015
62,134,894

 
$
62

 
(34,735
)
 
$
(7,373
)
 
$
4,838,444

 
$
(1,468,472
)
 
$
(509,059
)
 
$
(108,216
)
 
$
2,745,386

See accompanying notes to consolidated financial statements.

F-6

Table of Contents

EQUINIX, INC.
Consolidated Statements of Cash Flows
(in thousands)
 
Years ended December 31,
 
2015
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
 
Net income (loss)
$
187,774

 
$
(260,726
)
 
$
96,123

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
Depreciation
498,134

 
453,935

 
405,444

Stock-based compensation
132,443

 
117,990

 
102,940

Excess tax benefits from stock-based compensation
(30
)
 
(19,582
)
 
(27,330
)
Amortization of intangible assets
27,446

 
27,756

 
27,027

Amortization of debt issuance costs and debt discounts
16,050

 
18,667

 
23,868

Provision for allowance for doubtful accounts
5,037

 
7,093

 
5,819

Restructuring charges (reversals)

 

 
(4,837
)
Loss on debt extinguishment
289

 
156,990

 
108,501

Foreign currency transactions and other, net
16,490

 
19,912

 
11,543

Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
(44,583
)
 
(101,966
)
 
(27,956
)
Income taxes, net
(109,579
)
 
226,774

 
(108,189
)
Other assets
(70,371
)
 
(6,496
)
 
(36,853
)
Accounts payable and accrued expenses
109,125

 
10,681

 
7,242

Other liabilities
126,568

 
38,392

 
21,266

Net cash provided by operating activities
894,793

 
689,420

 
604,608

Cash flows from investing activities:
 
 
 
 
 
Purchases of investments
(359,031
)
 
(545,997
)
 
(968,971
)
Sales of investments
837,708

 
573,582

 
276,351

Maturities of investments
35,431

 
211,966

 
213,484

Business acquisitions, net of cash acquired
(245,553
)
 

 
(49,337
)
Purchases of real estate
(38,282
)
 
(16,791
)
 
(74,332
)
Purchases of other property, plant and equipment
(868,120
)
 
(660,203
)
 
(572,406
)
Increase in restricted cash
(512,319
)
 
(968
)
 
(837,190
)
Release of restricted cash
15,239

 
2,572

 
843,088

Net cash used in investing activities
(1,134,927
)
 
(435,839
)
 
(1,169,313
)
Cash flows from financing activities:
 
 
 
 
 
Purchases of treasury stock

 
(297,958
)
 
(48,799
)
Proceeds from employee equity awards
30,040

 
29,320

 
31,892

Excess tax benefits from stock-based compensation
30

 
19,582

 
27,330

Payment of dividends and special distribution
(521,461
)
 
(83,266
)
 

Purchase of non-controlling interests

 
(226,276
)
 

Proceeds from public offering of common stock, net of issuance costs
829,496

 

 

Proceeds from senior notes
1,100,000

 
1,250,000

 
1,500,000

Proceeds from loans payable
1,197,108

 
508,826

 
28,038

Repayment of senior notes

 
(750,000
)
 
(750,000
)
Repayment of convertible debt

 
(29,513
)
 

Repayment of capital lease and other financing obligations
(28,663
)
 
(18,030
)
 
(40,133
)
Repayment of mortgage and loans payable
(715,270
)
 
(153,473
)
 
(52,500
)
Debt extinguishment costs

 
(116,517
)
 
(97,864
)
Debt issuance costs
(18,098
)
 
(25,294
)
 
(23,057
)
Net cash provided by financing activities
1,873,182

 
107,401

 
574,907

Effect of foreign currency exchange rates on cash and cash equivalents
(15,127
)
 
(11,959
)
 
(521
)
Net increase in cash and cash equivalents
1,617,921

 
349,023

 
9,681

Cash and cash equivalents at beginning of period
610,917

 
261,894

 
252,213

Cash and cash equivalents at end of period
$
2,228,838

 
$
610,917

 
$
261,894

Supplemental cash flow information
 
 
 
 
 
Cash paid for taxes
$
132,302

 
$
117,197

 
$
123,690

Cash paid for interest
$
237,410

 
$
262,018

 
$
210,629

See accompanying notes to consolidated financial statements.

F-7

Table of Contents

EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.    Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Equinix, Inc. (“Equinix” or the “Company”) was incorporated in Delaware on June 22, 1998. Equinix provides colocation space and related services. Global enterprises, content providers, financial companies and network service providers rely upon Equinix’s insight and expertise to safehouse and connect their most valued information assets. The Company operates International Business ExchangeTM (“IBX®”) data centers, or IBX data centers across Americas; Europe, Middle East and Africa (“EMEA”) and Asia-Pacific geographic regions where customers directly interconnect with a network ecosystem of partners and customers. More than 1,000 network service providers offer access to the world’s Internet routes inside the Company’s IBX data centers. This access to Internet routes provides Equinix customers improved reliability and streamlined connectivity while significantly reducing costs by reaching a critical mass of networks within a centralized physical location.
The Company began operating as a Real Estate Investment Trust ("REIT") for federal income tax purposes effective January 1, 2015. See “Income Taxes” in Note 1 below for additional information.
On November 2, 2015, the Company acquired Bit-isle, Inc. ("Bit-isle), a Tokyo-based company which primarily provides data center services in Japan. On January 15, 2016, the Company completed its acquisition of Telecity Group plc ("TelecityGroup") which provides data center services in Europe. As a result of these acquisitions, the Company operates 145 IBX data centers in 40 markets across five continents.
Basis of Presentation, Consolidation and Foreign Currency
The accompanying consolidated financial statements include the accounts of Equinix and its subsidiaries, including the acquisitions of Bit-isle Inc. ("Bit-isle) from November 2, 2015, Nimbo Technologies Inc. ("Nimbo") from January 14, 2015 and Frankfurt Kleyer 90 Carrier Hotel from October 1, 2013. All intercompany accounts and transactions have been eliminated in consolidation. Foreign exchange gains or losses resulting from foreign currency transactions, including intercompany foreign currency transactions, that are anticipated to be repaid within the foreseeable future, are reported within other income (expense) on the Company’s accompanying consolidated statements of operations. For additional information on the impact of foreign currencies to the Company’s consolidated financial statements, see “Accumulated Other Comprehensive Loss” in Note 11.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States ("U.S.") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to the allowance for doubtful accounts, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property, plant and equipment, assets acquired and liabilities assumed from acquisitions, asset retirement obligations, restructuring charges, redemption value of redeemable non-controlling interests and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable.
Cash, Cash Equivalents and Short-Term and Long-Term Investments
The Company considers all highly liquid instruments with an original maturity from the date of purchase of three months or less to be cash equivalents. Cash equivalents consist of money market mutual funds and highly liquid debt securities of corporations and certificates of deposit with original maturities up to 90 days. Short-term investments generally consist of debt securities with original maturities of between 90 days and one year. Long-term investments consist of debt securities with original maturities greater than 365 days and publicly traded equity securities. The Company’s fixed income securities and publicly traded equity securities are classified as “available-for-sale” and are carried at fair value with unrealized gains and losses reported in stockholders’ equity as a component of other comprehensive income (loss). The cost of securities sold is based on the specific identification method. The Company reviews its investment portfolio quarterly to determine if any securities may be other-than-temporarily impaired due to increased credit risk, changes in industry or sector of a certain instrument or ratings downgrades.

F-8

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Equity method and cost method investments
The Company's non-marketable securities are accounted under cost method accounting. The Company records the dividends declared by the investees in other income and expense in the consolidated statement of operations and records any dividends in excess of earnings as a reduction of cost of investment. The Company's other equity investments include private equity investments which are accounted under equity method accounting. The Company adjusts the carrying amount of an investment for its share of the earnings and losses of the investees and recognizes its share of income or loss in other income and expense in the consolidated statement of operations. The Company records cost method and equity method investments in other assets in the consolidated balance sheet. The Company reviews these investments periodically to determine if any investments may be other-than-temporarily impaired primarily based on the financial condition and near-term prospects of these companies and funds.
Financial Instruments and Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, short-term investments, long-term investments and accounts receivable. Risks associated with cash, cash equivalents, short-term investments and long-term investments are mitigated by the Company’s investment policy, which limits the Company’s investing to only those marketable securities rated at least A-1/P-1 Short Term Rating and A-/A3 Long Term Rating, as determined by independent credit rating agencies. Risk to the Company’s investment portfolio is further mitigated by its significant weighting in U.S. government securities in order to achieve REIT asset measure requirements. 
A significant portion of the Company’s customer base is comprised of businesses throughout the Americas. However, a portion of the Company’s revenues are derived from the Company’s EMEA and Asia-Pacific operations. The following table sets forth percentages of the Company’s revenues by geographic region for the years ended December 31:
 
2015
 
2014
 
2013
Americas
55
%
 
56
%
 
59
%
EMEA
26
%
 
26
%
 
24
%
Asia-Pacific
19
%
 
18
%
 
17
%
No single customer accounted for greater than 10% of accounts receivable or revenues as of or for the years ended December 31, 2015, 2014 and 2013.
Property, Plant and Equipment
Property, plant and equipment are stated at the Company’s original cost or fair value for acquired property, plant and equipment. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements and assets acquired under capital leases are amortized over the shorter of the lease term or the estimated useful life of the asset or improvement, unless they are considered integral equipment, in which case they are amortized over the lease term. Leasehold improvements acquired in a business combination are amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of acquisition. Leasehold improvements that are placed into service significantly after and not contemplated at or near the beginning of the lease term are amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date the leasehold improvements are purchased.
The Company’s estimated useful lives of its property, plant and equipment are as follows:
Core systems
3-25 years
Buildings
12-50 years
Leasehold improvements
12-40 years
Construction in progress
N/A
Personal Property
3-10 years
During the three months ended December 31, 2014, the Company revised the estimated useful lives of certain of its property, plant and equipment as part of a review of the related assumptions. As a result, the Company recorded an insignificant amount of higher depreciation expense for the quarter ended December 31, 2014 due to the reduction of the estimated useful lives of certain

F-9

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

of its property, plant and equipment. This change was accounted for as a change in accounting estimate on a prospective basis effective October 1, 2014 under the accounting standard for change in accounting estimates. The Company did not revise the estimated useful lives of the property, plant and equipment during the years ended December 31, 2015 and 2013.
The Company’s construction in progress includes direct and indirect expenditures for the construction and expansion of IBX data centers and is stated at original cost. The Company has contracted out substantially all of the construction and expansion efforts of its IBX data centers to independent contractors under construction contracts. Construction in progress includes costs incurred under construction contracts including project management services, engineering and schematic design services, design development, construction services and other construction-related fees and services. In addition, the Company has capitalized interest costs during the construction phase. Once an IBX data center or expansion project becomes operational, these capitalized costs are allocated to certain property, plant and equipment categories and are depreciated over the estimated useful life of the underlying assets.
Asset Retirement Costs
The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred. The associated retirement costs are capitalized and included as part of the carrying value of the long-lived asset and amortized over the useful life of the asset. Subsequent to the initial measurement, the Company accretes the liability in relation to the asset retirement obligations over time and the accretion expense is recorded as a cost of revenue. The Company’s asset retirement obligations are primarily related to its IBX data centers, of which the majority are leased under long-term arrangements, and, in certain cases, are required to be returned to the landlords in their original condition. The majority of the Company’s IBX data center leases have been subject to significant development by the Company in order to convert them from, in most cases, vacant buildings or warehouses into IBX data centers. The majority of the Company’s IBX data centers’ initial lease terms expire at various dates ranging from 2017 to 2065 and most of them enable the Company to extend the lease terms.
Goodwill and Other Intangible Assets
The Company has three reportable segments comprised of the 1) Americas, 2) EMEA and 3) Asia-Pacific geographic regions, which the Company also determined are its reporting units. As of December 31, 2015, the Company had goodwill attributable to its Americas, EMEA and Asia-Pacific reporting units. In 2014, the Company changed its annual goodwill impairment testing date from November 30th to October 31st of each year, commencing on October 31, 2014, to better align its annual goodwill impairment test with the timing of the Company’s budgeting and forecasting process.
The Company has the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the qualitative factors, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test is unnecessary. However, if the Company concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. The first step, identifying a potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step would need to be conducted; otherwise, no further steps are necessary as no potential impairment exists. The second step, measuring the impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. Any excess of the reporting unit goodwill carrying value over the respective implied fair value is recognized as an impairment loss.
The Company assessed qualitative and quantitative factors during the fourth quarter of 2015 to determine whether it was more likely than not that the fair value of its Americas reporting unit, EMEA reporting unit and Asia-Pacific reporting unit was less than its carrying value. Qualitative factors considered in the assessment include industry and market conditions, overall financial performance, and other relevant events and factors affecting the reporting unit. Additionally, as part of this analysis, the Company may perform a quantitative analysis to support the qualitative factors by evaluating sensitivities to assumptions and inputs used in measuring a reporting unit's fair value. Prior to 2015, the Company performed the first step of the two-step goodwill impairment test for its Americas, EMEA and Asia-Pacific reporting units during the quarter ended December 31, 2014 and 2013. In order to determine the fair value of each reporting unit, the Company utilizes the discounted cash flow and market methods. The Company had used both methods in its goodwill impairment tests as it believes both methods, in conjunction with each other, provide a reasonable estimate of the determination of fair value of each reporting unit – the discounted cash flow method being specific to anticipated future results of the reporting unit and the market method, which is based on the Company’s market sector including its competitors. The assumptions supporting the discounted cash flow method was determined using the Company’s best estimates as of the date of the impairment review. As of October 31, 2015, the Company concluded that it was more likely than not that goodwill attributed to the Company’s Americas, EMEA and Asia-Pacific reporting units was not impaired as the fair value of each

F-10

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

reporting unit exceeded the carrying value of its respective reporting unit, including goodwill. In addition, the Company concluded that no events occurred or circumstances changed subsequent to October 31, 2015 through December 31, 2015 that would more likely than not reduce the fair value of the Americas, EMEA and Asia-Pacific reporting units below its carrying value. The Company has performed various sensitivity analyses on certain of the assumptions used in the discounted cash flow method, such as forecasted revenues and discount rate, and notes that no reasonably possible changes would reduce the fair value of the reporting unit to such a level that would cause an impairment charge.
Impairment assessments inherently involve judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact the Company’s assumptions as to prices, costs, growth rates or other factors that may result in changes in the Company’s estimates of future cash flows. Although the Company believes the assumptions it used in testing for impairment are reasonable, significant changes in any one of the Company’s assumptions could produce a significantly different result. Indicators of potential impairment that might lead the Company to perform interim goodwill impairment assessments include significant and unforeseen customer losses, a significant adverse change in legal factors or in the business climate, a significant adverse action or assessment by a regulator, a significant stock price decline or unanticipated competition.
For further information on goodwill and other intangible assets, see Note 5 below.
Debt Issuance Costs
Loan fees and costs are capitalized and are amortized over the life of the related loans based on the effective interest method. Such amortization is included as a component of interest expense.
The Company adopted Accounting Standards Update 2015-03, Interest - Imputation of Interest (“ASU 2015-03”), and Accounting Standards Update 2015-15, Interest - Imputation of Interest Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”), during the year ended December 31, 2015. In accordance with ASU 2015-03, loan fees and costs associated with outstanding debt have been classified as a reduction of debt in the accompanying consolidated balance sheets. In accordance with ASU 2015-15, loans fees and costs associated with the line-of-credit arrangements have been classified as other assets in the accompanying consolidated balance sheets. As a result of the adoption of ASU 2015-03, the Company reclassified debt issuance costs of $35,455,000 at December 31, 2014 from other assets to debt. As of December 31, 2015, debt issuance costs of $47,028,000 were classified as a reduction of debt.
Derivatives and Hedging Activities
The Company recognizes all derivatives on the consolidated balance sheet at fair value. The accounting for changes in the value of a derivative depends on whether the contract is for trading purposes or has been designated and qualifies for hedge accounting. In order to qualify for hedge accounting, a derivative must be considered highly effective at reducing the risk associated with the exposure being hedged. In order for a derivative to be designated as a hedge, there must be documentation of the risk management objective and strategy, including identification of the hedging instrument, the hedged item and the risk exposure, and how effectiveness is to be assessed prospectively and retrospectively. Foreign currency gains or losses associated with derivatives that do not qualify for hedge accounting are recorded within other income (expense), net in the Company’s consolidated statements of operations, with the exception of foreign currency embedded derivatives contained in certain of the Company’s customer contracts (see “Revenue Recognition” below), which are recorded within revenues in the Company’s consolidated statements of operations.
To assess effectiveness of derivatives that qualify for hedge accounting, the Company uses a regression analysis. The extent to which a hedging instrument has been and is expected to continue to be effective at achieving offsetting changes in cash flows is assessed and documented at least quarterly. Any ineffectiveness is reported in current-period earnings. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued. For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive income (loss) and recognized in the consolidated statements of operations when the hedged cash flows affect earnings. The ineffective portion of cash flow hedges is immediately recognized in earnings. If the hedge relationship is terminated, then the change in fair value of the derivative recorded in other comprehensive income (loss) is recognized in earnings when the cash flows that were hedged occur, consistent with the original hedge strategy. For hedge relationships discontinued because the forecasted transaction is not expected to occur according to the original strategy, any related derivative amounts recorded in other comprehensive income (loss) are immediately recognized in earnings. The Company does not use derivatives for speculative or trading purposes.

F-11

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

For further information on derivatives and hedging activities, see Note 6 below.
Fair Value of Financial Instruments
The carrying value of the Company’s cash and cash equivalents, short-term and long-term investments represent their fair value, while the Company’s accounts receivable, accounts payable and accrued expenses and accrued property, plant and equipment approximate their fair value due primarily to the short-term maturity of the related instruments. The fair value of the Company’s debt, which is traded in the public debt market, is based on quoted market prices. The fair value of the Company’s debt, which is not publicly traded, is estimated by considering the Company’s credit rating, current rates available to the Company for debt of the same remaining maturities and terms of the debt.
Fair Value Measurements
The Company measures and reports certain financial assets and liabilities at fair value on a recurring basis, including its investments in money market funds and available-for-sale debt investments in other public companies, governmental units and other agencies, publicly traded equity securities and derivatives.
The Company also follows the accounting standard for the measurement of fair value for non-financial assets and liabilities on a nonrecurring basis. These include:
Non-financial assets and non-financial liabilities initially measured at fair value in a business combination or other new basis event, but not measured at fair value in subsequent reporting periods;
Reporting units and non-financial assets and non-financial liabilities measured at fair value for goodwill impairment tests;
Indefinite-lived intangible assets measured at fair value for impairment assessments;
Non-financial long-lived assets or asset groups measured at fair value for impairment assessments or disposal; 
Asset retirement obligations initially measured at fair value but not subsequently measured at fair value; and
Non-financial liabilities associated with exit or disposal activities initially measured at fair value but not subsequently measured at fair value.
For further information on fair value measurements, see Note 7 below.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable such as a significant decrease in market price of a long-lived asset, a significant adverse change in legal factors or business climate that could affect the value of a long-lived asset or a continuous deterioration of the Company’s financial condition. Recoverability of assets to be held and used is assessed by comparing the carrying amount of an asset to estimated undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated discounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
The Company did not record any impairment charges related to its long-lived assets during the years ended December 31, 2015, 2014 and 2013.
Revenue Recognition
Equinix derives more than 90% of its revenues from recurring revenue streams, consisting primarily of (1) colocation, which includes the licensing of cabinet space and power; (2) interconnection offerings, such as cross connects and Equinix Exchange ports; (3) managed infrastructure services and (4) other revenues consisting of rental income from tenants or subtenants. The remainder of the Company’s revenues are from non-recurring revenue streams, such as installation revenues, professional services, contract settlements and equipment sales. Revenues from recurring revenue streams are generally billed monthly and recognized ratably over the term of the contract, generally one to three years for IBX data center colocation customers. Non-recurring installation fees, although generally paid in a lump sum upon installation, are deferred and recognized ratably over the period the customer is expected to benefit from the installation. Professional service fees are recognized in the period in which the services were provided and represent the culmination of a separate earnings process as long as they meet the criteria for separate recognition under the accounting standard related to revenue arrangements with multiple deliverables. Revenue from bandwidth and equipment sales is

F-12

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

recognized on a gross basis in accordance with the accounting standard related to reporting revenue gross as a principal versus net as an agent, primarily because the Company acts as the principal in the transaction, takes title to products and services and bears inventory and credit risk. To the extent the Company does not meet the criteria for recognizing bandwidth and equipment services as gross revenue, the Company records the revenue on a net basis. Revenue from contract settlements, when a customer wishes to terminate their contract early, is generally recognized on a cash basis, when no remaining performance obligations exist, to the extent that the revenue has not previously been recognized.
The Company guarantees certain service levels, such as uptime, as outlined in individual customer contracts. To the extent that these service levels are not achieved, the Company reduces revenue for any credits given to the customer as a result. The Company generally has the ability to determine such service level credits prior to the associated revenue being recognized, and historically, these credits have generally not been significant. There were no significant service level credits issued during the years ended December 31, 2015, 2014 and 2013.
Revenue is recognized only when the service has been provided and when there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the receivable is reasonably assured. It is the Company’s customary business practice to obtain a signed master sales agreement and sales order prior to recognizing revenue in an arrangement. Taxes collected from customers and remitted to governmental authorities are reported on a net basis and are excluded from revenue.
As a result of certain customer agreements being priced in currencies different from the functional currencies of the parties involved, under applicable accounting rules, the Company is deemed to have foreign currency forward contracts embedded in these contracts. The Company refers to these as foreign currency embedded derivatives (see Note 6). These instruments are separated from their host contracts and held on the Company’s consolidated balance sheet at their fair value. The majority of these foreign currency embedded derivatives arise in certain of the Company’s subsidiaries where the local currency is the subsidiary’s functional currency and the customer contract is denominated in the U.S. dollar. Changes in their fair values are recognized within revenues in the Company’s consolidated statements of operations.
The Company assesses collectability based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. The Company generally does not request collateral from its customers although in certain cases the Company obtains a security interest in a customer’s equipment placed in its IBX data centers or obtains a deposit. If the Company determines that collection of a fee is not reasonably assured, the fee is deferred and revenue is recognized at the time collection becomes reasonably assured, which is generally upon receipt of cash. In addition, the Company also maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments for which the Company had expected to collect the revenues. If the financial condition of the Company’s customers were to deteriorate or if they became insolvent, resulting in an impairment of their ability to make payments, greater allowances for doubtful accounts may be required. Management specifically analyzes accounts receivable and current economic news and trends, historical bad debts, customer concentrations, customer credit-worthiness and changes in customer payment terms when evaluating revenue recognition and the adequacy of the Company’s reserves. Any amounts that were previously recognized as revenue and subsequently determined to be uncollectible are charged to bad debt expense included in general and administrative expense in the consolidated statements of operations. A specific bad debt reserve of up to the full amount of a particular invoice value is provided for certain problematic customer balances. An additional reserve is established for all other accounts based on the age of the invoices and an analysis of historical credits issued. Delinquent account balances are written-off after management has determined that the likelihood of collection is not probable.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are expected more likely than not to be realized in the future. A tax benefit from an uncertain income tax position may be recognized in the financial statements only if it is more likely than not that the position is sustainable, based solely on its technical merits and consideration of the relevant taxing authority’s widely understood administrative practices and precedents.
The Company began operating as a REIT for federal income tax purposes effective January 1, 2015. In May 2015, the Company received a favorable private letter ruling (“PLR”) from the U.S. Internal Revenue Service (“IRS”). As a result, the Company may

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

deduct the distributions made to its shareholders from taxable income generated by the Company's Qualified REIT Subsidiaries (“QRSs”). The Company’s dividends paid deduction generally eliminates the U.S. taxable income of the Company's QRSs, resulting in no U.S. income tax due. However, the Taxable REIT Subsidiaries (“TRSs”) will continue to be subject to income taxes on any taxable income generated by them. In addition, the foreign operations of the Company will continue to be subject to local income taxes regardless of whether the foreign operations are operated as a QRS or TRS.
The Company recognizes interest and penalties related to unrecognized tax benefits within income tax benefit (expense) in the consolidated statements of operations.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date for all stock-based awards made to employees and directors based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period.
The Company grants restricted stock units to its employees and these equity awards generally have only a service condition. The Company grants restricted stock units to its executives and these awards generally have a service and performance condition or a service and market condition. To date, any performance conditions contained in an equity award are tied to the financial performance of the Company or a specific region of the Company. The Company assesses the probability of meeting these performance conditions on a quarterly basis. The majority of the Company’s equity awards vest over four years, although certain of the equity awards for executives vest over a range of two to four years. The valuation of restricted stock units with only a service condition or a service and performance condition requires no significant assumptions as the fair value for these types of equity awards is based solely on the fair value of the Company’s stock price on the date of grant. The Company uses a Monte Carlo simulation option-pricing model to determine the fair value of restricted stock units with a service and market condition.
The Company uses the Black-Scholes option-pricing model to determine the fair value of its employee stock purchase plan. The determination of the fair value of shares purchased under the employee stock purchase plan is affected by assumptions regarding a number of complex and subjective variables including the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock purchase behaviors. The Company estimated the expected volatility by using the average historical volatility of its common stock that it believed was best representative of future volatility. The risk-free interest rate used was based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term of the equity awards. The expected dividend rate used in 2015 was based on average dividend yields and the expected dividend rate used prior to 2015 was zero as the Company did not anticipate paying dividends. The expected term used was equal to the term of each purchase window.
The accounting standard for stock-based compensation does not allow the recognition of unrealized tax benefits associated with the tax deductions in excess of the compensation recorded (excess tax benefit) until the excess tax benefit is realized (i.e., reduces taxes payable). The Company recognizes the benefit from stock-based compensation in equity when the excess tax benefit is realized by following the “with-and-without” approach.
For further information on stock-based compensation, see Note 12 below.
Foreign Currency Translation
The financial position of foreign subsidiaries is translated using the exchange rates in effect at the end of the period, while income and expense items are translated at average rates of exchange during the period. Gains or losses from translation of foreign operations where the local currency is the functional currency are included as other comprehensive income (loss). The net gains and losses resulting from foreign currency transactions are recorded in net income (loss) in the period incurred and reported within other income and expense. Certain inter-company balances are designated as long-term. Accordingly, exchange gains and losses associated with these long-term inter-company balances are recorded as a component of other comprehensive income (loss), along with translation adjustments. How the U.S. dollar performs against certain of the currencies of the foreign countries in which the Company operates can have a significant impact to the Company. Strengthening and weakening of the U.S. dollar against theses currencies has significantly impacted the Company’s consolidated balance sheets (as evidenced in the Company’s foreign currency translation loss), as well as its consolidated statements of operations as amounts denominated in foreign currencies can increase or decrease the Company’s revenues and expenses. To the extent that the U.S. dollar strengthens or weakens further, this will continue to impact the Company’s consolidated balance sheets and consolidated statements of operations including the amount of revenue that the Company reports in future periods.

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Earnings Per Share
The Company computes basic and diluted EPS for net income (loss) attributable to the Company. Basic EPS is computed using net income (loss) attributable to the Company and the weighted-average number of common shares outstanding. Diluted EPS is computed using net income attributable to the Company, adjusted for interest expense as a result of the assumed conversion of the Company’s 3.00% Convertible Subordinated Notes and 4.75% Convertible Subordinated Notes, if dilutive, and the weighted-average number of common shares outstanding plus any dilutive potential common shares outstanding. Dilutive potential common shares include the assumed exercise, vesting and issuance activity of employee equity awards using the treasury stock method, as well as shares issuable upon the assumed conversion of the 3.00% Convertible Subordinated Notes and 4.75% Convertible Subordinated Notes.
Redeemable Non-Controlling Interests
Non-controlling interests in subsidiaries that are redeemable for cash or other assets outside of the Company’s control are classified as mezzanine equity, outside of equity and liabilities, and are adjusted to fair value on each balance sheet date. The resulting changes in fair value of the estimated redemption amount, increases or decreases, are recorded with corresponding adjustments against retained earnings or, in the absence of retained earnings, additional paid-in-capital
For further information on redeemable non-controlling interests, see Note 10 below.
Treasury Stock
The Company accounts for treasury stock under the cost method. When treasury stock is re-issued at a higher price than its cost, the difference is recorded as a component of additional paid-in capital to the extent that there are gains to offset the losses. If there are no treasury stock gains in additional paid-in capital, the losses are recorded as a component of accumulated deficit.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) ("ASU 2016-02"). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. ASU 2016-02 is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. While the Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements, the Company believes this standard will have a significant impact on its consolidated financial statements due, in part, to the substantial amount of operating leases it has.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments- Overall (Subtopic 825-10) ("ASU 2016-01"), which requires all equity investments to be measured at fair value with changes in the fair value recognized through net income other than those accounted for under equity method of accounting or those that result in consolidation of the investees). The ASU also requires that an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition the ASU eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. ASU 2016-01 is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes ("ASU 2015-17"), to simplify the presentation of deferred income taxes by eliminating the requirement to separate deferred tax assets and liabilities into current and noncurrent amounts. ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent and is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Earlier application is permitted as of the beginning of an interim or annual reporting period. The Company adopted ASU 2015-17 as of December 31, 2015 and applied the guidance prospectively.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (“ASU 2015-16”), to simplify accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years with early adoption permitted. The amendments in this ASU require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization or other income effects as a result of changes to provisional amounts, calculated as if the accounting had been completed at the acquisition date. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (“ASU 2015-07”), which permits a reporting entity, as a practical expedient, to measure the fair value of certain investments using the net asset value per share of the investment. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years with early adoption permitted. A reporting entity should apply the amendment retrospectively to all periods presented. The retrospective approach requires that an investment for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy in all periods presented in an entity’s financial statements. The Company does not believe the adoption of ASU 2015-07 will have a significant impact on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (“ASU 2015-03”), to simplify the presentation of debt issuance costs. The ASU requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs is not affected by this ASU. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016, with early adoption permitted. In August 2015, the FASB issued ASU 2015-15, Interest – Imputation of Interest Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”), which amends ASU 2015-03 and provides guidance for the presentation of debt issuance costs associated with line-of-credit arrangements. ASU 2015-15 provides that debt issuance costs associated with line-of-credit arrangements may be presented in the balance sheet as assets. The Company adopted ASU 2015-03 and ASU 2015-15 in the three months ended September 30, 2015. As a result of the adoption of ASU 2015-03, the Company reclassified debt issuance costs of $35,455,000 at December 31, 2014 from other assets to debt. As of December 31, 2015, debt issuance costs of $47,028,000 were classified as a reduction of debt.
In February 2015, the FASB issued ASU 2015-02, Consolidations (“ASU 2015-02”). This ASU requires companies to adopt a new consolidation model, specifically: (1) the ASU modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) the ASU eliminates the presumption that a general partner should consolidate limited partnership; (3) the ASU affects the consolidation analysis of reporting entities that involved with VIEs and (4) the ASU provides a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The Company does not believe the adoption of ASU 2015-02 will have a significant impact on its consolidated financial statements.
In January 2015, the FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items (“ASU 2015-01”), to simplify the income statement presentation requirements by eliminating the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not believe the adoption of ASU 2015-01 will have a significant impact on its consolidated financial statements.
In August 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

annual periods beginning after December 15, 2016, with early adoption permitted. The Company does not believe the adoption of ASU 2014-15 will have a significant impact on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). This ASU requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which companies expect to be entitled in exchange for those goods or services. This ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. This ASU was originally effective for fiscal years and interim periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (“ASU 2015-14”), which amends ASU 2014-09 and defers its effective date to fiscal years and interim reporting periods beginning after December 15, 2017. ASU 2015-14 permits earlier application only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact that the adoption of these standards will have on its consolidated financial statements.
2.     Acquisitions
Bit-isle Acquisition
On November 2, 2015, the Company, acting through its Japanese subsidiary, completed a cash tender offer for approximately 97% of the equity instruments, including stock options, of Tokyo-based Bit-isle. The Company acquired the remaining outstanding equity instruments of Bit-isle in December 2015. The offer price was JPY 922 per share, in an all cash transaction totaling ¥33,196,000,000 or approximately $275,367,000.
On September 30, 2015, the Company, acting through its Japanese subsidiaries as borrowers, entered into a term loan agreement (the “Bridge Term Loan Agreement”) with the Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”). Pursuant to the Bridge Term Loan Agreement, BTMU has committed to provide a senior bridge loan facility (the “Bridge Term Loan”) in the amount of up to ¥47,500,000,000, or approximately $395,339,000 at the exchange rate in effect on December 31, 2015. Proceeds from the Bridge Term Loan are to be used exclusively for the acquisition of Bit-isle, the repayment of Bit-isle’s existing debt and transaction costs incurred in connection with the closing of the Bridge Term Loan and the acquisition of Bit-isle. For further information on the Bridge Term Loan, see Note 9 below.
The Company included Bit-isle’s results of operations from November 2, 2015 and the estimated fair value of assets acquired and liabilities assumed in its consolidated balance sheets beginning November 2, 2015. The Company incurred acquisition costs of approximately $8,645,000 for the year ended December 31, 2015 related to the Bit-isle Acquisition.
The Company has initially designated all the legal entities acquired in the Bit-isle Acquisition as taxable REIT subsidiaries (“TRSs”).

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Purchase Price Allocation
Under the acquisition method of accounting, the total purchase price was allocated to Bit-isle’s net tangible and intangible assets based upon their fair value as of the Bit-isle acquisition date. Based upon the purchase price and the valuation of Bit-isle, the purchase price allocation was as follows (in thousands):
Cash and cash equivalent
$
33,198

Accounts receivable
7,359

Other current assets
51,038

Long-term investments
3,806

Property, plant and equipment
308,985

Goodwill
95,444

Intangible assets
111,374

Other assets
22,981

Total assets acquired
634,185

Accounts payable and accrued expenses
(15,028
)
Accrued property, plant and equipment
(465
)
Capital lease and other financing obligations
(108,833
)
Mortgage and loans payable
(190,227
)
Other current liabilities
(8,689
)
Deferred tax liabilities
(32,192
)
Other liabilities
(3,384
)
Net assets acquired
$
275,367

The following table presents certain information on the acquired identifiable intangible assets (dollars in thousands):




Intangible assets




Fair value
 


Estimated useful lives (years)
 
Weighted-average estimated useful lives (years)
Customer relationships
$
105,434

 
13
 
13.0
Trade name
3,455

 
2
 
2.0
Favorable solar contracts
2,410

 
18
 
18.0
Other intangible assets
75

 
0.25
 
0.25
The fair value of customer relationships was estimated by applying an income approach. The fair value was determined by calculating the present value of estimated future operating cash flows generated from existing customers less costs to realize the revenue. The Company applied a weighted-average discount rate of approximately 11.0%, which reflected the nature of the assets as it relates to the estimated future operating cash flows. Other significant assumptions used to estimate the fair value of the customer relationships include projected revenue growth, customer attrition rates, sales and marketing expenses and operating margins. The fair value of the Bit-isle trade name was estimated using the relief of royalty approach. The Company applied a relief of royalty rate of 2.0% and a weighted-average discount rate of approximately 12.0%. The other acquired identifiable intangible assets were estimated by applying an income or cost approach as appropriate. The fair value measurements were based on significant inputs that are not observable in the market and thus represent Level 3 measurements as defined in the accounting standard for fair value measurements.
The Company determined the fair value of the loans payable assumed in the Bit-isle Acquisition by estimating Bit-isle’s debt rating and reviewed market data with a similar debt rating and other characteristics of the debt, including the maturity date and security type. During the year ended December 31, 2015, the Company prepaid and terminated the majority of these loans payable. In conjunction with the repayment of the loans payable, the company incurred an insignificant amount of pre-payment penalties and interest rate swap termination costs, which were recorded as interest expense in the consolidated statement of operations.

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The goodwill is not expected to be deductible for local tax purposes. Goodwill will not be amortized and will be tested for impairment at least annually. Goodwill recorded as a result of the Bit-isle acquisition is attributable to the Company’s Asia-Pacific reportable segment (see Note 16) and reporting unit (see Note 5). For the quarter and year ended December 31, 2015, Bit-isle recognized revenues of $21,588,000 and had a net loss of $3,233,000, which were included in the Company’s consolidated statements of operations.
Unaudited Pro Forma Combined Consolidated Financial Information
The following unaudited pro forma combined consolidated financial information has been prepared by the Company using the acquisition method of accounting to give effect to the Bit-isle Acquisition as though the acquisition occurred on January 1, 2014. The unaudited pro forma combined consolidated financial information reflect certain adjustments, such as additional depreciation, amortization and interest expense on assets and liabilities acquired.
The unaudited pro forma combined consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have actually been reported had the acquisitions occurred on the above dates, nor is it necessarily indicative of the future results of operations of the combined company.     
The following table sets forth the unaudited pro forma consolidated combined results of operations for the years ended December 31 (in thousands):
 
2015
 
2014
Revenues
$
2,847,411

 
$
2,614,127

Net income
195,501

 
(251,067
)
Nimbo Acquisition
On January 14, 2015, the Company acquired all of the issued and outstanding share capital of Nimbo Technologies Inc. (“Nimbo”), a company which specializes in migrating business applications to the cloud with extensive experience moving legacy applications into a hybrid cloud architecture, and connecting legacy data centers to the cloud, for a cash payment of $10,000,000 and a contingent earn-out arrangement to be paid over two years (the “Nimbo Acquisition”). Nimbo continues to operate under the Nimbo name. The Nimbo Acquisition was accounted for using the acquisition method. As a result of the Nimbo Acquisition, the Company recorded goodwill of $17,192,000, which represents the excess of the total purchase price over the fair value of the assets acquired and liabilities assumed. The Company recorded the contingent earn-out arrangement at its estimated fair value. The results of operations for Nimbo are not significant to the Company; therefore, the Company does not present its purchase price allocation or pro forma combined results of operations. In addition, any prospective changes in the Company’s earn-out estimates are not expected to have a material effect on the Company’s consolidated statement of operations.
Offer for TelecityGroup
On May 29, 2015, the Company announced a cash and share offer for the entire issued and to be issued share capital of Telecity Group plc (“TelecityGroup”). TelecityGroup operates data center facilities in strategic internet hub cities across Europe. The acquisition of TelecityGroup enhances the Company’s existing data center portfolio by adding seven new markets in Europe including Bulgaria, Finland, Ireland, Italy, Poland, Sweden and Turkey. The transaction closed in January 2016. See Note 18 for additional information.
As the offer to TelecityGroup included an element of cash, the Company was required to include a confirmation that the Company had sufficient cash available to fulfill the offer, according to the UK Takeover Code. As a result, the Company placed £322,851,000 or approximately $475,689,000 into a restricted cash account, which was included in the current portion of restricted cash in the consolidated balance sheet as of December 31, 2015.
In connection with TelecityGroup acquisition, the Company entered into a bridge credit agreement with J.P. Morgan Chase Bank, N.A. (“JPMCB”) as the initial lender and as administrative agent for the lenders (the “Lenders”) for a principal amount of £875,000,000 or approximately $1,289,000,000 at the exchange rate in effect on December 31, 2015 (the “Bridge Loan”). The Bridge Loan had an initial maturity of 12 months from the date of the first drawdown and, at the initial maturity date (if not repaid prior to that time), would have been converted into seven-year extended term loan. Commitment fees associated with the Bridge

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Loan were approximately £4,375,000 or $6,446,000 at the exchange rate in effect on December 31, 2015. As of December 31, 2015, the Company had accrued the commitment fees associated with the Bridge Loan and the fees were included in interest expense in the consolidated statement of operations. The Bridge Loan was unsecured and was guaranteed by certain of the Company’s domestic subsidiaries. As of December 31, 2015, the Company had not made any advances on the Bridge Loan. The Bridge Loan was terminated on January 8, 2016.
The Company will initially designate all the legal entities acquired as taxable REIT subsidiaries (“TRSs”).
Frankfurt Kleyer 90 Carrier Hotel Acquisition
On October 1, 2013, the Company completed the purchase of a property located in Frankfurt, Germany for cash consideration of approximately $50,092,000 (the “Frankfurt Kleyer 90 Carrier Hotel Acquisition”).  A portion of the building was leased to the Company and was being used by the Company as its Frankfurt 5 IBX data center.  The remainder of the building was leased by other parties, who became the Company’s tenants upon closing. The Frankfurt Kleyer 90 Carrier Hotel constitutes a business under the accounting standard for business combinations and as a result, the Frankfurt Kleyer 90 Carrier Hotel Acquisition was accounted for as a business acquisition using the acquisition method of accounting.
The Company included Frankfurt Kleyer 90 Carrier Hotel’s results of operations from October 1, 2013 and the estimated fair value of assets acquired and liabilities assumed in its consolidated balance sheets beginning October 1, 2013. The Company incurred acquisition costs of approximately $4,794,000 for the year ended December 31, 2013 related to the Frankfurt Kleyer 90 Carrier Hotel Acquisition.
Purchase Price Allocation
Under the acquisition method of accounting, the total purchase price was allocated to Frankfurt Kleyer 90 Carrier Hotel’s net tangible and intangible assets based upon their fair value as of the Frankfurt Kleyer 90 Carrier Hotel acquisition date. Based upon the purchase price and the valuation of Frankfurt Kleyer 90 Carrier Hotel, the purchase price allocation was as follows (in thousands):
Property, plant and equipment
$
85,969

Intangible assets
10,011

Total assets acquired
95,980

Mortgage payable
(42,906)

Intangible - unfavorable leases
(2,982)

Net assets acquired
$
50,092

The following table presents certain information on the acquired identifiable intangible assets (dollars in thousands):




Intangible assets




Fair value
 


Estimated useful lives (years)
 
Weighted-average estimated useful lives (years)
Customer contracts
$
9,363

 
0.3 - 8
 
4.9
Unfavorable leases
(2,982)

 
1 - 6
 
4.8
Favorable leases
648

 
1 - 8
 
7.5
The fair value of customer contracts was estimated by applying an income approach. The fair value was determined by calculating the present value of estimated future operating cash flows generated by existing customer relationships less costs to realize the revenue. The Company applied a discount rate of approximately 9.0%, which reflects the nature of the assets as it relates to the estimated future operating cash flows. Other significant assumptions used to estimate the fair value of the customer contracts include projected revenue growth, customer attrition rates, sales and marketing expenses and operating margins. The fair value of leases was estimated using the market approach. The fair value measurements were based on significant inputs that are not observable in the market and thus represent Level 3 measurements as defined in the accounting standard for fair value measurements.

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company determined the fair value of the mortgage payable assumed in the Frankfurt Kleyer 90 Hotel Acquisition by estimating Frankfurt Kleyer 90 Hotel’s debt rating and reviewing market data with a similar debt rating and other characteristics of the debt, including the maturity date and security type.
For the year ended December 31, 2013, revenues and net income recorded from Frankfurt Kleyer 90 Hotel were not material and were included in the Company’s consolidated statements of operations.
ALOG Acquisition
On April 25, 2011 (the “ALOG Acquisition Date”), the Company and RW Brasil Fundo de Investimento em Participações, a subsidiary of Riverwood Capital L.P. (“Riverwood”), completed the acquisition of approximately 90% of the outstanding capital stock of ALOG Data Centers do Brasil S.A. (“ALOG”). As a result, the Company acquired an approximate 53% controlling equity interest in ALOG (the “ALOG Acquisition”).
In July 2014, the Company and Riverwood entered into a purchase and sale agreement in which the Company acquired Riverwood’s interest in ALOG and the approximate 10% of ALOG owned by ALOG management, which resulted in the Company owning 100% of ALOG. The net purchase price of $225,629,000 consisted of: (i) $216,484,000 of cash paid to Riverwood and ALOG management to acquire their interests in ALOG, (ii) $8,459,000 of cash paid for the common shares of ALOG related to vested and outstanding stock options to purchase common shares of ALOG that were held by ALOG employees and (iii) $686,000 for the assumption of Riverwood’s portion of the contingent consideration in connection with the acquisition of ALOG in 2011. The cash portion of the purchase price was paid on the closing date in July 2014. The net increase in the redemption value of the redeemable non-controlling interests of $90,966,000 and transaction costs of $1,333,000 were recorded in additional paid-in capital during the year ended December 31, 2014.
3.    Earnings Per Share
The following table sets forth the computation of basic and diluted EPS for the years ended December 31 (in thousands, except per share amounts):
 
2015
 
2014
 
2013
Net income (loss)
$
187,774

 
$
(260,726
)
 
$
96,123

Net (income) loss attributable to redeemable non-controlling interests

 
1,179

 
(1,438
)
Net income (loss) attributable to Equinix, basic and diluted
$
187,774

 
$
(259,547
)
 
$
94,685

 
 
 
 
 
 
Weighted-average shares used to calculate basic EPS
57,790

 
52,359

 
49,438

Effect of dilutive securities:
 
 
 
 
 
Employee equity awards
693

 

 
678

Total dilutive potential shares
693

 

 
678

Weighted-average shares used to calculate diluted EPS
58,483

 
52,359

 
50,116

 
 
 
 
 
 
EPS attributable to Equinix:
 
 
 
 
 
Basic EPS
$
3.25

 
$
(4.96
)
 
$
1.92

Diluted EPS
$
3.21

 
$
(4.96
)
 
$
1.89


F-21

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table sets forth potential shares of common stock that are not included in the diluted EPS calculation above because to do so would be anti-dilutive for the years ended December 31 (in thousands):
 
2015
 
2014
 
2013
Shares related to the potential conversion of 3.00% convertible subordinated notes

 
861

 
3,613

Shares related to the potential conversion of 4.75% convertible subordinated notes
1,977

 
2,824

 
4,432

Common stock related to employee equity awards
88

 
1,820

 
254

 
2,065

 
5,505

 
8,299

4.    Assets Held for Sale
In order to obtain the approval of the European Commission for the acquisition of TelecityGroup, the Company and TelecityGroup have agreed to divest certain data centers, including the Company’s London 2 data center in London, UK ("LD2"). There is no definitive agreement to date with any buyer or buyers and any such agreement will be subject to the approval of the European Commission. The assets and liabilities of this data center, which are included within the EMEA operating segment, were classified as held for sale in the fourth quarter of 2015 and, therefore, the corresponding depreciation and amortization expense was ceased at that time. This anticipated divestiture is not presented as discontinued operations in our consolidated statements of operations, because it does not represent a strategic shift in our business, as the Company will continue operating similar businesses after the acquisition. During the fourth quarter of 2015, the Company entered into an agreement to sell a parcel of land in San Jose, California, whose sale was completed in February 2016. The consolidated financial statements reflect the LD2 data center assets and liabilities and San Jose land parcel as held for sale in the accompanying consolidated balance sheet as of December 31, 2015. During the years ended December 31, 2015 and 2014, the Company recognized revenue of $17,579,000 and $21,772,000, respectively, and net income of $7,166,000 and $9,218,000, respectively from LD2.
When an asset is classified as held for sale, the asset’s book value is evaluated and adjusted to the lower of its carrying amount or fair value less cost to sell. As of December 31, 2015, the Company determined that assets held for sale had not been impaired.
The following table summarizes the assets and liabilities of the LD2 data center and San Jose land parcel classified as held for sale in the consolidated balance sheet as of December 31, 2015 (in thousands):
Accounts Receivable
$
2,222

Other current assets
408

Property, plant and equipment
23,533

Goodwill
5,000

Intangible assets
784

Other assets
1,310

Total assets held for sale
$
33,257

Accounts payable and accrued expenses
$
(654
)
Accrued property, plant and equipment
(816
)
Other current liabilities
(435
)
Other liabilities
(1,630
)
Total liabilities held for sale
$
(3,535
)


F-22

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5.    Balance Sheet Components
Cash, Cash Equivalents and Short-Term and Long-Term Investments
Cash, cash equivalents and short-term and long-term investments consisted of the following as of December 31 (in thousands):
 
2015
 
2014
Cash and cash equivalents:
 
 
 
Cash (1)
$
1,139,554

 
$
207,953

Cash equivalents:
 
 
 
Money market funds
1,089,284

 
402,964

Total cash and cash equivalents
2,228,838

 
610,917

Marketable securities:
 
 
 
U.S. government securities

 
336,440

U.S. government agency securities

 
192,955

Certificates of deposit
14,106

 
439

Publicly traded equity securities
3,353

 

Total marketable securities
17,459

 
529,834

Total cash, cash equivalents and short-term and long-term investments
$
2,246,297

 
$
1,140,751

_________________________
(1)Excludes restricted cash.
As of December 31, 2015 and 2014, cash and cash equivalents included investments which were readily convertible to cash and had original maturity dates of 90 days or less. The maturities of debt instruments classified as short-term investments were one year or less as of December 31, 2015 and 2014. The maturities of debt instruments classified as long-term investments were greater than one year and less than three years as of December 31, 2015 and 2014. Through the acquisition of Bit-isle, the Company acquired certain publicly-traded equity securities which were included in long-term investment in the consolidated balance sheet as of December 31, 2015.
The following table summarizes the cost and estimated fair value of marketable debt securities based on stated effective maturities as of December 31 (in thousands):
 
2015
 
2014
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Due within one year
$
12,875

 
$
12,875

 
$
529,567

 
$
529,395

Due after one year through three years
1,231

 
1,231

 
439

 
439

Total
$
14,106

 
$
14,106

 
$
530,006

 
$
529,834

As of December 31, 2015, the Company’s net unrealized gains (losses) on its available-for-sale securities were comprised of the following (in thousands):
 
Amortized Cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair Value
Certificates of deposit
$
14,106

 
$

 
$

 
$
14,106

Publicly traded equity securities
3,561

 

 
(208
)
 
3,353

Total
$
17,667

 
$

 
$
(208
)
 
$
17,459

None of the securities held at December 31, 2015 were other-than-temporarily impaired.

F-23

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

While certain marketable securities carry unrealized losses, the Company expects that it will receive both principal and interest according to the stated terms of each of the securities and that the increase or decline in market value is primarily due to changes in the interest rate environment from the time the securities were purchased as compared to interest rates at December 31, 2015.
As of December 31, 2014, the Company’s net unrealized gains (losses) on its available-for-sale securities were comprised of the following (in thousands):
 
Amortized Cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair Value
U.S. government securities
$
336,561

 
$
45

 
$
(166
)
 
$
336,440

U.S. government agency securities
193,006

 
30

 
(81
)
 
192,955

Certificates of deposit
439

 

 

 
439

Total
$
530,006

 
$
75

 
$
(247
)
 
$
529,834

None of the securities held at December 31, 2014 were other-than-temporarily impaired.
Accounts Receivable
Accounts receivable, net, consisted of the following as of December 31 (in thousands):
 
2015
 
2014
Accounts receivable
$
302,316

 
$
272,036

Allowance for doubtful accounts
(10,352
)
 
(9,466
)
 
$
291,964

 
$
262,570

Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest.
The following table summarizes the activity of the Company’s allowance for doubtful accounts (in thousands):
Balance as of December 31, 2012
$
3,716

Provision for allowance for doubtful accounts
5,819

Net write-offs
(2,833
)
Impact of foreign currency exchange
(62
)
Balance as of December 31, 2013
6,640

Provision for allowance for doubtful accounts
7,093

Net write-offs
(3,825
)
Impact of foreign currency exchange
(442
)
Balance as of December 31, 2014
9,466

Provision for allowance for doubtful accounts
5,037

Net write-offs
(3,438
)
Impact of foreign currency exchange
(713
)
Balance as of December 31, 2015
$
10,352






F-24

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Other Current Assets
Other current assets consisted of the following as of December 31 (in thousands):
 
2015
 
2014
Prepaid expenses
$
48,322

 
$
29,501

Taxes receivable
33,979

 
17,071

Deferred tax assets, net

 
6,579

Other receivables
1,925

 
2,324

Derivative instruments
60,165

 
17,732

Other current assets
68,538

 
11,797

 
$
212,929

 
$
85,004

Property, Plant and Equipment
Property, plant and equipment consisted of the following as of December 31 (in thousands):
 
2015
 
2014
Core systems
$
3,820,772

 
$
3,252,569

Buildings
2,383,387

 
2,074,382

Leasehold improvements
1,204,900

 
1,053,451

Construction in progress
351,697

 
460,259

Personal Property
450,914

 
387,909

Land
183,946

 
160,035

 
8,395,616

 
7,388,605

Less accumulated depreciation
(2,789,180
)
 
(2,390,335
)
 
$
5,606,436

 
$
4,998,270


Core systems, buildings, leasehold improvements, personal property and construction in progress recorded under capital leases aggregated $725,337,000 and $585,288,000 as of December 31, 2015 and 2014, respectively. Amortization of the assets recorded under capital leases is included in depreciation expense and accumulated depreciation on such assets totaled $117,338,000 and $83,291,000 as of December 31, 2015 and 2014, respectively.

F-25

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Goodwill and Other Intangibles
Goodwill and other intangible assets, net, consisted of the following as of December 31 (in thousands):
 
2015
 
2014
Goodwill:
 
 
 
Americas
$
460,203

 
$
463,902

EMEA
374,070

 
404,093

Asia-Pacific
228,927

 
134,134

 
$
1,063,200

 
$
1,002,129

 
 
 
 
Intangible assets:
 
 
 
Intangible assets - customer contracts
$
311,581

 
$
220,674

Intangible assets - favorable leases
22,783

 
24,300

Intangible assets - licenses
9,697

 
9,697

Intangible assets - others
13,491

 
8,132

 
357,552

 
262,803

Accumulated amortization - customer contracts
(117,167
)
 
(102,074
)
Accumulated amortization - favorable leases
(8,909
)
 
(7,656
)
Accumulated amortization - licenses
(1,942
)
 
(1,294
)
Accumulated amortization - others
(4,969
)
 
(4,252
)
 
(132,987
)
 
(115,276
)
 
$
224,565

 
$
147,527

Changes in the carrying amount of goodwill by geographic regions are as follows (in thousands):
 
Americas
 
EMEA
 
Asia-Pacific
 
Total
Balance as of December 31, 2013
$
471,845

 
$
435,041

 
$
135,267

 
$
1,042,153

Impact of foreign currency exchange
(7,943
)
 
(30,948
)
 
(1,133
)
 
(40,024
)
Balance as of December 31, 2014
463,902

 
404,093

 
134,134

 
1,002,129

Purchase accounting adjustments
17,192

 

 
95,437

 
112,629

Asset held for sale adjustments

 
(5,000
)
 

 
(5,000
)
Impact of foreign currency exchange
(20,891
)
 
(25,023
)
 
(644
)
 
(46,558
)
Balance as of December 31, 2015
$
460,203

 
$
374,070

 
$
228,927

 
$
1,063,200


F-26

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Changes in the net book value of intangible assets by geographic regions are as follows (in thousands):
 
Americas
 
EMEA
 
Asia-Pacific
 
Total
Balance as of December 31, 2012
$
89,467

 
$
84,186

 
$
27,909

 
$
201,562

Frankfurt Kleyer 90 Carrier Hotel acquisition (see Note 2)

 
10,010

 

 
10,010

New York IBX Center purchase
1,100

 

 

 
1,100

Adjustments

 
(2,070
)
 

 
(2,070
)
Amortization of intangibles
(12,604
)
 
(11,613
)
 
(2,810
)
 
(27,027
)
Impact of foreign currency exchange
(1,739
)
 
2,196

 
150

 
607

Balance as of December 31, 2013
76,224

 
82,709

 
25,249

 
184,182

Amortization of intangibles
(12,257
)
 
(12,795
)
 
(2,704
)
 
(27,756
)
Impact of foreign currency exchange
(1,013
)
 
(7,729
)
 
(157
)
 
(8,899
)
Balance as of December 31, 2014
62,954

 
62,185

 
22,388

 
147,527

Nimbo acquisition
1,089

 

 

 
1,089

Bit-Isle acquisition

 

 
111,374

 
111,374

Asset held for sale adjustments

 
(784
)
 

 
(784
)
Write-off of intangible asset

 
(357
)
 

 
(357
)
Amortization of intangibles
(11,432
)
 
(11,675
)
 
(4,339
)
 
(27,446
)
Impact of foreign currency exchange
(1,968
)
 
(5,014
)
 
144

 
(6,838
)
Balance as of December 31, 2015
$
50,643

 
$
44,355

 
$
129,567

 
$
224,565

The Company’s goodwill and intangible assets in EMEA, denominated in the United Arab Emirates dirham, British pounds and Euros, goodwill and intangible assets in Asia-Pacific, denominated in Singapore dollars, Hong Kong dollars, Japanese yen and Chinese yuan and certain goodwill and intangibles in Americas, denominated in Canadian dollars and Brazilian reals, are subject to foreign currency fluctuations. The Company’s foreign currency translation gains and losses, including goodwill and intangibles, are a component of other comprehensive income and loss.
Estimated future amortization expense related to these intangibles is as follows (in thousands):
Year ending:
 
2016
$
35,298

2017
33,644

2018
29,690

2019
24,978

2020
19,217

Thereafter
81,738

Total
$
224,565


F-27

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Other Assets
Other assets consisted of the following as of December 31 (in thousands):
 
2015
 
2014
Deferred tax assets, net
$
61,152

 
$
45,134

Prepaid expenses, non-current
54,372

 
37,006

Debt issuance costs, net
19,709

 
9,022

Deposits
33,132

 
26,068

Derivative instruments
8,735

 
5,007

Other assets, non-current
11,358

 
6,373

 
$
188,458

 
$
128,610

Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following as of December 31 (in thousands):
 
2015
 
2014
Accounts payable
$
49,892

 
$
30,221

Accrued compensation and benefits
131,204

 
115,184

Accrued interest
67,077

 
29,116

Accrued taxes(1)
37,004

 
41,295

Accrued utilities and security
31,789

 
31,531

Accrued professional fees
18,380

 
8,148

Accrued repairs and maintenance
3,618

 
4,086

Accrued other
61,984

 
26,215

 
$
400,948

 
$
285,796

__________________________
(1)Includes income taxes payable of $14,527,000 and $21,941,000, respectively, as of December 31, 2015 and 2014.
Other Current Liabilities
Other current liabilities consisted of the following as of December 31 (in thousands):
 
2015
 
2014
Deferred tax liabilities, net
$

 
$
83,264

Deferred installation revenue
56,055

 
48,707

Customer deposits
23,676

 
13,492

Derivative instruments
79,256

 
810

Deferred recurring revenue
12,515

 
6,879

Deferred rent
3,572

 
2,675

Dividends payable
13,674

 
4,559

Asset retirement obligations

 
945

Other current liabilities
3,538

 
1,333

 
$
192,286

 
$
162,664


F-28

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Other Liabilities
Other liabilities consisted of the following as of December 31 (in thousands):
 
2015
 
2014
Asset retirement obligations, non-current
$
78,482

 
$
63,913

Deferred tax liabilities, net
100,624

 
69,212

Deferred installation revenue, non-current
86,660

 
76,744

Deferred rent, non-current
68,787

 
52,968

Accrued taxes, non-current
26,763

 
24,726

Dividends payable, non-current
13,394

 
4,972

Customer deposits, non-current
4,701

 
4,618

Deferred recurring revenue, non-current
3,645

 
445

Derivative instruments
669

 

Other liabilities
6,688

 
7,366

 
$
390,413

 
$
304,964

The following table summarizes the activity of the Company’s asset retirement obligation liability (in thousands):
Asset retirement obligations as of December 31, 2012
$
63,150

Additions
8,713

Adjustments (1)
(14,874
)
Accretion expense
2,932

Impact of foreign currency exchange
(373
)
Asset retirement obligations as of December 31, 2013
59,548

Additions
5,774

Adjustments (1)
(871
)
Accretion expense
2,438

Impact of foreign currency exchange
(2,031
)
Asset retirement obligations as of December 31, 2014
64,858

Additions
17,337

Adjustments (1)
(4,676
)
Accretion expense
3,349

Impact of foreign currency exchange
(2,386
)
Asset retirement obligations as of December 31, 2015
$
78,482

__________________________
(1)Reversal of asset retirement obligations associated with leases that were amended.

6.     Derivatives and Hedging Instruments
Derivatives Designated as Hedging Instruments
Net Investment Hedges. The Company is exposed to the impact of foreign exchange rate fluctuations in the investments in its wholly-owned foreign subsidiaries that are denominated in currencies other than the U.S. dollar. In order to mitigate the volatility in foreign exchange rates, the Company entered into a foreign currency term loan in April 2015, as discussed in Note 9, and designated 100% of the term loan to hedge its net investment in its wholly-owned foreign subsidiaries that are denominated in the same currencies as the term loan. All changes in the fair value of the hedging instrument designated as a net investment hedge, except the ineffective portion, are recorded as a component of other comprehensive income (loss) in the consolidated balance sheet. Effective December 15, 2015, the Company terminated hedging its net investment in subsidiaries that are denominated in

F-29

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Swiss Francs. As of December 31, 2015, the Company recorded foreign exchange gain of $4,484,000 in other comprehensive income for the year ended December 31, 2015. The Company recorded no ineffectiveness from its net investment hedges for the year ended December 31, 2015.
Cash Flow Hedges. During the fourth quarter of 2013, the Company initiated a program to hedge its exposure to foreign currency exchange rate fluctuations for forecasted revenues and expenses in its EMEA region in order to help manage the Company’s exposure to foreign currency exchange rate fluctuations between the U.S. Dollar and the British Pound, Euro and Swiss Franc. The foreign currency forward and option contracts that the Company uses to hedge this exposure are designated as cash flow hedges under the accounting standard for derivatives and hedging.
Effective January 1, 2015, the Company entered into intercompany hedging instruments (“intercompany derivatives”) with a wholly-owned subsidiary of the Company and simultaneously entered into derivative contracts with unrelated parties to hedge certain forecasted revenues and expenses denominated in currencies other than the U.S. dollar.
The following disclosure is prepared on a consolidated basis. Assets and liabilities resulting from intercompany derivatives have been eliminated in consolidation.
As of December 31, 2015, the Company's cash flow hedge instruments had maturity dates ranging from January 2016 to December 2017 as follows (in thousands):
 
Notional Amount
 
Fair Value (1)
 
Accumulated other comprehensive income (loss) (2)(3)
Derivative assets
$
367,330

 
$
16,027

 
$
34,578

Derivative liabilities
47,447

 
(813
)
 
(19,709
)
 
$
414,777

 
$
15,214

 
$
14,869

__________________________
(1)
All derivative assets related to cash flow hedges are included in the consolidated balance sheets within other current assets, other assets, other current liabilities and other liabilities.
(2)
Included in the consolidated balance sheets within accumulated other comprehensive income (loss).
(3)
The Company recorded a net gain of $12,940 within accumulated other comprehensive income (loss) relating to cash flow hedges that will be reclassified to revenue and expenses as they mature over the next 12 months.
As of December 31, 2014, the Company's cash flow hedge instruments had maturity dates ranging from January 2015 to January 2016 as follows (in thousands):
 
Notional Amount
 
Fair Value (1)
 
Accumulated other comprehensive income (loss)(2)
Derivative assets
$
281,055

 
$
8,404

 
$
8,480

Derivative liabilities

 

 

 
$
281,055

 
$
8,404

 
$
8,480

__________________________
(1)All derivative assets related to cash flow hedges are included in the consolidated balance sheets within other current assets.
(2)Included in the consolidated balance sheets within accumulated other comprehensive income (loss).
During the years ended December 31, 2015 and 2014, the ineffective and excluded portions of cash flow hedges recognized in other income (expense) were not significant. During the year ended December 31, 2015, the amount of net gains reclassified from accumulated other comprehensive income (loss) to revenue were $27,973,000 and the amount of net losses reclassified from accumulated other comprehensive income (loss) to operating expenses were $6,256,000. During the year ended December 31, 2014, the amount of net gains reclassified from accumulated other comprehensive income (loss) to revenue were $4,332,000 and the amount of net losses reclassified from accumulated other comprehensive income (loss) to operating expenses were not significant. During the year ended December 31, 2013, the amount of gains (losses) reclassified from accumulated other comprehensive income (loss) to revenue and operating expenses were not significant.

F-30

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Derivatives Not Designated as Hedging Instruments
Embedded Derivatives. The Company is deemed to have foreign currency forward contracts embedded in certain of the Company’s customer agreements that are priced in currencies different from the functional or local currencies of the parties involved. These embedded derivatives are separated from their host contracts and carried on the Company’s balance sheet at their fair value. The majority of these embedded derivatives arise as a result of the Company’s foreign subsidiaries pricing their customer contracts in the U.S. dollar. Gains and losses on these embedded derivatives are included within revenues in the Company’s consolidated statements of operations. During the year ended December 31, 2015, the gain or loss associated with these embedded derivatives was insignificant. During the years ended December 31, 2014 and 2013, the Company recognized a net gain of $3,807,000 and $4,836,000 associated with these embedded derivatives, respectively.
Economic Hedges of Embedded Derivatives. The Company uses foreign currency forward contracts to help manage the foreign exchange risk associated with the Company’s customer agreements that are priced in currencies different from the functional or local currencies of the parties involved (“economic hedges of embedded derivatives”). Foreign currency forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Gains and losses on these contracts are included in revenues along with gains and losses of the related embedded derivatives. The Company entered into various economic hedges of embedded derivatives during the years ended December 31, 2015, 2014 and 2013 and recognized a net loss of $2,287,000, $2,602,000 and $4,497,000, respectively.
Foreign Currency Forward and Option Contracts. The Company also uses foreign currency forward and option contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. As a result of foreign currency fluctuations, the U.S. dollar equivalent values of its foreign currency-denominated assets and liabilities change. Gains and losses on these contracts are included in other income (expense), net, along with the foreign currency gains and losses of the related foreign currency-denominated assets and liabilities associated with these foreign currency forward contracts. The Company entered into various foreign currency forward and option contracts during the years ended December 31, 2015, 2014 and 2013. The Company recognized a net loss of $24,319,000 during the year ended December 31, 2015 and a net gain of $12,657,000 during the year ended December 31, 2014. Gains (losses) from these foreign currency forward contracts were not significant during the year ended December 31, 2013.

F-31

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Offsetting Derivative Assets and Liabilities
The following table presents the fair value of derivative instruments recognized in the Company’s consolidated balance sheets as of December 31, 2015 (in thousands):
 
Gross Amounts
 
Gross amounts offset in the balance sheet
 
Net balance sheet amounts(1)
 
Gross amounts not offset in the balance sheet (2)
 
Net
Assets:
 
 
 
 
 
 
 
 
 
Designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forward and option contracts
$
16,027

 
$

 
$
16,027

 
$
(813
)
 
$
15,214

 
 
 
 
 
 
 
 
 
 
Not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Embedded derivatives
8,926

 

 
8,926

 

 
8,926

Economic hedges of embedded derivatives
744

 

 
744

 

 
744

Foreign currency forward contracts
43,203

 

 
43,203

 
(34,577
)
 
8,626

 
52,873

 

 
52,873

 
(34,577
)
 
18,296

Additional netting benefit

 

 

 
(9,512
)
 
(9,512
)
 
$
68,900

 
$

 
$
68,900

 
$
(44,902
)
 
$
23,998

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forward and option contracts
$
813

 
$

 
$
813

 
$
(813
)
 
$

 
 
 
 
 
 
 
 
 
 
Not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Embedded derivatives
1,772

 

 
1,772

 

 
1,772

Economic hedges of embedded derivatives
417

 

 
417

 

 
417

Foreign currency forward contracts
76,923

 

 
76,923

 
(34,577
)
 
42,346

 
79,112

 

 
79,112

 
(34,577
)
 
44,535

Additional netting benefit

 

 

 
(9,512
)
 
(9,512
)
 
$
79,925

 
$

 
$
79,925

 
$
(44,902
)
 
$
35,023

_______________________
(1)
As presented in the Company’s consolidated balance sheets within other current assets, other assets, other current liabilities and other liabilities.
(2)
The Company enters into master netting agreements with its counterparties for transactions other than embedded derivatives to mitigate credit risk exposure to any single counterparty. Master netting agreements allow for individual derivative contracts with a single counterparty to offset in the event of default.

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following table presents the fair value of derivative instruments recognized in the Company’s consolidated balance sheets as of December 31, 2014 (in thousands):
 
Gross Amounts
 
Gross amounts offset in the balance sheet
 
Net amounts (1)
 
Gross amounts not offset in the balance sheet (2)
 
Net
Assets:
 
 
 
 
 
 
 
 
 
Designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
$
8,404

 
$

 
$
8,404

 
$

 
$
8,404

 
 
 
 
 
 
 
 
 
 
Not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Embedded derivatives
9,182

 

 
9,182

 

 
9,182

Foreign currency forward and option contracts
5,153

 

 
5,153

 
(138
)
 
5,015

 
14,335

 

 
14,335

 
(138
)
 
14,197

Additional netting benefit

 

 

 
(508
)
 
(508
)
 
$
22,739

 
$

 
$
22,739

 
$
(646
)
 
$
22,093

 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
$

 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
Not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Embedded derivatives
4

 

 
4

 

 
4

Economic hedges of embedded derivatives
390

 

 
390

 

 
390

Foreign currency forward and option contracts
416

 

 
416

 
(138
)
 
278

 
810

 

 
810

 
(138
)
 
672

Additional netting benefit

 

 

 
(508
)
 
(508
)
 
$
810

 
$

 
$
810

 
$
(646
)
 
$
164

_________________________
(1)
As presented in the Company’s consolidated balance sheets within other current assets, other assets, other current liabilities and other liabilities.
(2)
The Company enters into master netting agreements with its counterparties for transactions other than embedded derivatives to mitigate credit risk exposure to any single counterparty. Master netting agreements allow for individual derivative contracts with a single counterparty to offset in the event of default.

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Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

7.     Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 were as follows (in thousands):
 
Fair value at
December 31,
 
Fair value
measurement using
 
2015
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Cash
$
1,139,554

 
$
1,139,554

 
$

Money market and deposit accounts
1,089,284

 
1,089,284

 

Publicly traded equity securities
3,353

 
3,353

 

Certificates of deposit
14,106

 

 
14,106

Derivative instruments (1)
68,900

 

 
68,900

 
$
2,315,197

 
$
2,232,191

 
$
83,006

Liabilities:
 
 
 
 
 
Derivative instruments (1)
$
79,925

 
$

 
$
79,925

_________________________
(1)
Includes both foreign currency embedded derivatives and foreign currency forward and option contracts. Amounts are included within other current assets, other assets, other current liabilities and other liabilities in the Company’s accompanying consolidated balance sheet.
The Company’s financial assets and liabilities measured at fair value on a recurring basis at December 31, 2014 were as follows (in thousands):
 
Fair value at
December 31,
 
Fair value
measurement using
 
2014
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Cash
$
207,953

 
$
207,953

 
$

Money market and deposit accounts
402,964

 
402,964

 

U.S. government securities
336,440

 
336,440

 

U.S. government agency securities
192,955

 

 
192,955

Certificates of deposit
439

 

 
439

Derivative instruments (1)
22,739

 

 
22,739

 
$
1,163,490

 
$
947,357

 
$
216,133

Liabilities:
 
 
 
 
 
Derivative instruments (1)
$
810

 
$

 
$
810

_________________________
(1)
Includes embedded derivatives, foreign currency embedded derivatives and foreign currency forward contracts. Amounts are included within other current assets, other current liabilities and other liabilities in the Company’s accompanying consolidated balance sheet.
The Company did not have any Level 3 financial assets or financial liabilities during the years ended December 31, 2015 and 2014.
Valuation Methods
Fair value estimates are made as of a specific point in time based on methods using the market approach valuation method which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities or other valuation techniques. These techniques involve uncertainties and are affected by the assumptions used and the judgments

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors.
Cash, Cash Equivalents and Investments. The fair value of the Company's investments in money market funds approximates their face value. Such instruments are included in cash equivalents. The Company’s U.S. government securities, money market funds and publicly traded equity securities are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices for identical instruments in active markets. The fair value of the Company's other investments approximate their face value, including certificates of deposit and available-for-sale debt investments related to the Company's investments in the securities of other public companies, governmental units and other agencies. The fair value of these investments is priced based on the quoted market price for similar instruments or nonbinding market prices that are corroborated by observable market data. Such instruments are classified within Level 2 of the fair value hierarchy. The Company determines the fair values of its Level 2 investments by using inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, custody bank, third-party pricing vendors, or other sources. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs. The Company is responsible for its consolidated financial statements and underlying estimates.
The Company uses the specific identification method in computing realized gains and losses. Realized gains and losses on the investments are included within other income (expense) in the Company’s consolidated statements of operations. Short-term and long-term investments are classified as available-for-sale and are carried at fair value with unrealized gains and losses reported in stockholders’ equity as a component of other comprehensive income or loss, net of any related tax effect. The Company reviews its investment portfolio quarterly to determine if any securities may be other-than-temporarily impaired due to increased credit risk, changes in industry or sector of a certain instrument or ratings downgrades over an extended period of time.
Derivative Assets and Liabilities. For derivatives, the Company uses forward contract and option models employing market observable inputs, such as spot currency rates and forward points with adjustments made to these values utilizing published credit default swap rates of its foreign exchange trading counterparties and other comparable companies. The Company has determined that the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, therefore the derivatives are categorized as Level 2.
During the years ended December 31, 2015 and 2014, the Company did not have any nonfinancial assets or liabilities measured at fair value on a recurring basis.

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Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

8.     Leases
Capital Lease and Other Financing Obligations
The Company’s capital lease and other financing obligations expire at various dates ranging from 2015 to 2053. The weighted average effective interest rate of the Company’s capital lease and other financing obligations was 8.17% as of December 31, 2015.
The Company’s capital lease and other financing obligations are summarized as follows as of December 31, 2015 (dollars in thousands):
 
Capital lease obligations
 
Other financing obligations
 
Total
2016
$
74,457

 
$
66,175

 
$
140,632

2017
73,537

 
66,116

 
139,653

2018
74,053

 
66,928

 
140,981

2019
74,857

 
63,990

 
138,847

2020
74,868

 
61,719

 
136,587

Thereafter
827,789

 
518,552

 
1,346,341

Total minimum lease payments
1,199,561

 
843,480

 
2,043,041

Plus amount representing residual property value

 
467,616

 
467,616

Less estimated building costs

 
(247
)
 
(247
)
Less amount representing interest
(557,433
)
 
(625,717
)
 
(1,183,150
)
Present value of net minimum lease payments
642,128

 
685,132

 
1,327,260

Less current portion
(23,435
)
 
(16,686
)
 
(40,121
)
 
$
618,693

 
$
668,446

 
$
1,287,139

Atlanta 1 Capital Lease
In May 2015, the Company entered into a lease amendment to extend the lease term of the Company’s Atlanta 1 IBX (the “AT1 Lease”). The lease was originally accounted for as an operating lease. Pursuant to the accounting standard for leases, the Company reassessed the lease classification of the AT1 Lease as a result of the lease amendment and determined that upon the amendment the lease should be accounted for as a capital lease. The Company recorded a capital lease asset and liability totaling approximately $21,274,000 during the three months ended June 30, 2015. The lease term was extended to September 2035.
Atlanta 2 Capital Lease
In January 2015, the Company entered into a lease amendment to extend the lease term of the Company’s Atlanta 2 IBX (the “AT2 Lease”). The lease was originally accounted for as an operating lease. Pursuant to the accounting standard for leases, the Company reassessed the lease classification of the AT2 Lease as a result of the lease amendment and determined that upon the amendment the lease should be accounted for as a capital lease. The Company recorded a capital lease asset totaling approximately $25,960,000 and a capital lease liability totaling approximately $26,230,000 during the three months ended March 31, 2015. The lease term, including a renewal option, was extended to December 2024.
Operating Leases
The Company also leases its IBX data centers and certain equipment under noncancelable operating lease agreements. The majority of the Company’s operating leases for its land and IBX data centers expire at various dates through 2053 with renewal options available to the Company. The lease agreements typically provide for base rental rates that increase at defined intervals during the term of the lease. In addition, the Company has negotiated some rent expense abatement periods for certain leases to better match the phased build out of its IBX data centers. The Company accounts for such abatements and increasing base rentals using the straight-line method over the life of the lease. The difference between the straight-line expense and the cash payment is recorded as deferred rent (see Note 5, “Other Current Liabilities” and “Other Liabilities”).

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Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Minimum future operating lease payments as of December 31, 2015 are summarized as follows (in thousands):
Year ending:
 
2016
$
115,091

2017
113,624

2018
108,810

2019
100,462

2020
89,227

Thereafter
632,677

Total
$
1,159,891

Total rent expense was approximately $199,975,000, $105,391,000 and $112,704,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
9.    Debt Facilities
Mortgage and Loans Payable
The Company’s mortgage and loans payable consisted of the following as of December 31 (in thousands):
 
2015
 
2014
Term loan A
$
456,740

 
$
500,000

Bridge term loan
386,547

 

Revolving credit facility borrowings
325,622

 

Brazil financings
27,113

 
56,863

Mortgage payable and other loans payable
47,677

 
36,608

 
1,243,699

 
593,471

Less the amount representing debt discount and debt issuance cost
(2,681
)
 
(3,477
)
Add the amount representing mortgage premium
1,987

 
2,281

 
1,243,005

 
592,275

Less current portion
(770,236
)
 
(59,466
)
 
$
472,769

 
$
532,809

Senior Credit Facility
On December 17, 2014, the Company entered into a credit agreement with a group of lenders for a $1,500,000,000 credit facility (“Senior Credit Facility”), comprised of a $1,000,000,000 multicurrency revolving credit facility (“Revolving Credit Facility”) and a $500,000,000 multicurrency term loan facility (“Term Loan A Facility”). The Senior Credit Facility contains two financial covenants with which the Company must comply on a quarterly basis, including a maximum consolidated net lease adjusted leverage ratio and a minimum consolidated fixed charge coverage ratio. The Senior Credit Facility is guaranteed by certain of the Company’s domestic subsidiaries and is secured by its domestic accounts receivable as well as pledges of the equity interest of certain of the Company’s direct and indirect subsidiaries. The Revolving Credit Facility and the Term Loan A Facility both have a five-year term, maturing on December 17, 2019, subject to the satisfaction of certain conditions with respect to the Company’s outstanding convertible subordinated notes. The Company may use the remaining Senior Credit Facility for working capital, capital expenditures and other corporate purposes.
The Term Loan A Facility bears interest at a rate based on LIBOR or, at the Company’s option, the base rate, which is defined as the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the Bank of America prime rate and (c) one-month LIBOR plus, in either case, a margin that varies as a function of the Company’s consolidated net lease adjusted leverage ratio that ranges between

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Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

1.25% and 1.75% per annum if the Company elects to use the LIBOR index and in the range of 0.25% to 0.75% per annum if the Company elects to use the base rate index. In December 2014, the Company utilized $110,740,000 of the Term Loan A Facility to repay the remaining principal of the U.S. term loan as well as fees and interest.
The Revolving Credit Facility allows the Company to borrow, repay and reborrow over the term. The Revolving Credit Facility provides a sublimit for the issuance of letters of credit of up to $150,000,000 at any one time.  Borrowings under the Revolving Credit Facility bear interest at a rate based on LIBOR or, at the Company’s option, the base rate, as defined above, plus, in either case, a margin that varies as a function of its consolidated net lease adjusted leverage ratio that ranges between 1.00% and 1.40% per annum if the Company elects to use the LIBOR index and in the range of 0.25% to 0.75% per annum if the Company elects to use the base rate index. The Company is required to pay a quarterly letter of credit fee on the face amount of each letter of credit, which fee is based on the same margin that applies from time to time to LIBOR-indexed borrowings under the revolving credit line. The Company is also required to pay a quarterly facility fee ranging from 0.25% to 0.35% per annum of the revolving credit facility, regardless of the amount utilized, which fee also varies as a function of our consolidated net lease adjusted leverage ratio. In December 2014, the outstanding letters of credit issued under the U.S. revolving credit line (see below) were assumed under the Revolving Credit Facility and the U.S. revolving credit line was terminated.
As of December 31, 2014, the Company had $500,000,000 outstanding under the Term Loan A Facility. Borrowings under the Term Loan A Facility were denominated in U.S dollars as of December 31, 2014. The Company was required to repay the U.S. dollar denominated borrowings under the term loan facility in quarterly installments in the amount of $10,000,000 per quarter, commencing on March 31, 2015, with a balloon payment of $300,000,000 at the end of the term.
First Amendment
On April 30, 2015, the Company, as borrower, and certain subsidiaries as guarantors entered into the first amendment (the “First Amendment”) to the Senior Credit Facility. The First Amendment provided for the conversion of the outstanding U.S. dollar-denominated borrowings under the Term Loan A Facility into an approximately equivalent amount denominated in four foreign currencies. In connection with the execution of the First Amendment, on April 30, 2015 the Company repaid the U.S. dollar-denominated $490,000,000 remaining principal balance of the Term Loan A Facility and immediately reborrowed under the Term Loan A Facility in the aggregate principal amounts of CHF 47,780,000, €184,945,000, £92,586,000 and ¥11,924,000,000, or approximately $490,000,000 in U.S. dollars at exchange rates in effect on April 30, 2015. The Company accounted for this transaction as a debt modification. Fees paid to third parties were expensed.
The Company is required to repay the foreign-currency denominated borrowings under the Term Loan A Facility in equal quarterly installments on the last business day of each March, June, September and December, commencing on June 30, 2015, equal to the amount of 2.00% of the result of the respective Term Loan A Facility on April 30, 2015 divided by 0.98. The remaining principal amount will be paid on the maturity date of the Term Loan A Facility.
Second Amendment
On December 8, 2015, the Company, as borrower, and certain subsidiaries as guarantors entered into the second amendment (the “Second Amendment”) to the Senior Credit Facility. Pursuant to the Second Amendment, the Revolving Credit Facility was increased by $500,000,000 to $1,500,000,000 and the Company received commitments from the lenders for a $250,000,000 seven years term loan (the “USD Term Loan B Commitment”) and for a £300,000,000, or approximately $442,020,000 in U.S. dollars at the exchange rate in effect on December 31, 2015, seven years term loan (the “Sterling Term Loan B Commitment”, and collectively, the “Term Loan B Commitments”). The Company may borrow the full amount of the Term Loan B Commitments in a single borrowing on or before June 30, 2016.
An original issue discount applies to borrowings under the Term Loan B Commitments. The original issue discount for borrowings under the USD Term Loan B Commitment is 0.25% of the principal. The original issue discount for borrowings under the Sterling Term Loan B Commitment is 0.50% of the principal. Funding of the Term Loan B will be net of the applicable original issue discount.
Loans made under the Term Loan B Commitments (the “Term Loan B”) must be repaid in equal quarterly installments of 0.25% of the original principal, with the remaining amount outstanding to be repaid in full on the seventh anniversary of the funding date of the Term Loan B. Once repaid, amounts borrowed under the Term Loan B Commitments may not be reborrowed.

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Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Term Loan B made under the USD Term Loan B Commitment bear interest at a rate based on LIBOR or, at the Company’s option, the base rate, which is defined as the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the Bank of America prime rate and (c) one-month LIBOR, or 0.75% if LIBOR is less than 0.75%, plus a margin of 3.25%. Term Loan B made under the Sterling Term Loan B Commitment bear interest at a rate based on LIBOR, or 0.75% if LIBOR is less than 0.75%, plus a margin of 3.75%.
Outstanding Borrowings
As of December 31, 2015, the Company had CHF 44,855,000, €173,622,000, £86,918,000 and ¥11,437,306,000, or approximately $456,740,000 in U.S dollars at exchange rates in effect as of December 31, 2015, outstanding under the Term Loan A Facility with a weighted average effective interest rate of 1.68% per annum. Debt issuance costs related to the Term Loan A, net of amortization, were $1,031,000 as of December 31, 2015. As of December 31, 2015, the Company had no borrowings outstanding under the Term Loan B Commitments.
The Company commenced borrowing under the Revolving Credit Facility in late 2015. During 2015, the Company borrowed $245,000,000, of which $20,000,000 had been repaid as of December 31, 2015 and ¥12,094,000,000, or approximately $100,622,000 in U.S dollars at the exchange rate in effect on December 31, 2015. As of December 31, 2015, a total of $325,622,000 was outstanding under the Revolving Credit Facility with interest rates ranging from 1.25% to 1.60%. In addition, the Company had 30 irrevocable letters of credit totaling $55,331,000 issued and outstanding under the Revolving Credit Facility as of December 31, 2015. As a result, the amount available to the Company to borrow under the Revolving Credit Facility was $1,119,047,000 as of December 31, 2015.
As of December 31, 2015, the Company was in compliance with all covenants of the Senior Credit Facility.
Bridge Term Loan
In connection with its acquisition of Bit-isle, on September 30, 2015, the Company, acting through its Japanese subsidiaries as borrowers, entered into a term loan agreement (the “Bridge Term Loan Agreement”) with the Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”). Pursuant to the Bridge Term Loan Agreement, BTMU has committed to provide a senior bridge loan facility (the “Bridge Term Loan”) in the amount of up to ¥47,500,000,000, or approximately $395,200,000 in U.S dollars at the exchange rate in effect on December 31, 2015. Proceeds from the Bridge Term Loan were used exclusively for the acquisition of Bit-isle, the repayment of Bit-isle’s existing debt and transaction costs incurred in connection with the closing of the Bridge Term Loan and the acquisition of Bit-isle.
In October 2015, the Company completed its first draw down under the Bridge Term Loan of ¥27,260,000,000 or approximately $226,803,000 at the exchange rate in effect on December 31, 2015. In December 2015, the Company completed an additional draw down of ¥19,200,000,000, or approximately $159,744,000 at the exchange rate in effect on December 31, 2015. Total outstanding borrowings under the Bridge Term Loan were ¥46,460,000,000 or $386,547,000 in U.S dollars at the exchange rate in effect as of December 31, 2015.
The Bridge Term Loan is due one year after borrowing the first tranche. Borrowings under the Bridge Term Loan bear interest at the Tokyo Interbank Offered Rate for Japanese Yen, plus a margin of 0.4% per annum for the first ten months following the first draw down. Thereafter, the margin increases to 1.75% per annum.
U.S. Financing
In June 2012, the Company entered into a credit agreement with a group of lenders for a $750,000,000 credit facility (the “U.S. Financing”), comprised of a $200,000,000 term loan facility (the “U.S. Term Loan”) and a $550,000,000 multicurrency revolving credit facility (the “U.S. Revolving Credit Line”). The U.S. Term Loan bore interest at a rate based on LIBOR or, at the option of the Company, the Base Rate (defined as the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the Bank of America prime rate and (c) one-month LIBOR plus 1.00%) plus, in either case, a margin that varies as a function of the Company’s senior leverage ratio in the range of 1.25%-2.00% per annum if the Company elects to use the LIBOR index and in the range of 0.25%-1.00% per annum if the Company elected to use the Base Rate index. In July 2012, the Company fully utilized the U.S. Term Loan and used the funds to prepay the outstanding balance of and terminate a multi-currency credit facility in the Company’s Asia-Pacific region. Borrowings under the U.S. Revolving Credit Line bore interest at a rate based on LIBOR or, at the option of the Company, the Base Rate (defined above) plus, in either case, a margin that varies as a function of the Company’s senior leverage ratio in the range of 0.95%-1.60% per annum if the Company elected to use the LIBOR index and in the range of 0.00%-0.60%

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Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

per annum if the Company elected to use the Base Rate index. The Company was required to pay a quarterly letter of credit fee on the face amount of each letter of credit, which fee was based on the same margin that applies from time to time to LIBOR-indexed borrowings under the U.S. Revolving Credit Line. The Company was also required to pay a quarterly facility fee ranging from 0.30%-0.40% per annum of the U.S. Revolving Credit Line (regardless of the amount utilized), which fee also varied as a function of the Company’s senior leverage ratio.  In June 2012, the outstanding letters of credit issued under an existing revolving credit facility were replaced by the U.S. Revolving Credit Line and the existing revolving credit facility was terminated.
In December 2014, the Company paid down the remaining principal of U.S. Term Loan of $110,000,000 and replaced the U.S. Revolving Credit Line with the revolving credit facility (see above). As a result, Company recorded a loss on debt extinguishment of $2,534,000.
Brazil Financings
In November 2013, the Company completed a 60,318,000 Brazilian real borrowing agreement, or approximately $25,536,000 (the “2013 Brazil Financing”).  The 2013 Brazil Financing has a five-year term with semi-annual principal payments beginning in the third year of its term and semi-annual interest payments during the entire term.  The 2013 Brazil Financing bears an interest rate of 2.25% above the local borrowing rate. The 2013 Brazil Financing contains financial covenants, which Brazil must comply with annually, consisting of a leverage ratio and a fixed charge coverage ratio. As of December 31, 2015, the Company was in compliance with all financial covenants under the 2013 Brazil Financing. The 2013 Brazil Financing is not guaranteed by the Company. The 2013 Brazil Financing is not secured by the Company’s assets.  The 2013 Brazil Financing has a final maturity date of November 2018. During the three months ended December 31, 2013, the Company fully utilized the 2013 Brazil Financing. As of December 31, 2015, the effective interest rate under the 2013 Brazil Financing was 16.39% per annum.
In June 2012, the Company completed a 100,000,000 Brazilian real borrowing agreement, or approximately $48,807,000 (the “2012 Brazil Financing”). The 2012 Brazil Financing has a five-year term with semi-annual principal payments beginning in the third year of its term and quarterly interest payments during the entire term. The 2012 Brazil Financing bears an interest rate of 2.75% above the local borrowing rate. The 2012 Brazil Financing contains financial covenants, which the Company must comply with annually, consisting of a leverage ratio and a fixed charge coverage ratio. As of December 31, 2015, the Company was in compliance with all financial covenants under the 2012Brazil Financing. The 2012 Brazil Financing is not guaranteed by the Company. The 2012 Brazil Financing is not secured by the Company’s assets. The 2012 Brazil Financing has a final maturity date of June 2017. During the three months ended September 30, 2012, the Company fully utilized the 2012 Brazil Financing and used a portion of the funds to prepay and terminate Brazil loans payable outstanding. As of December 31, 2015, the effective interest rate under the 2012 Brazil Financing was 16.89% per annum.
Mortgage Payable
In October 2013, as a result of the Frankfurt Kleyer 90 Carrier Hotel Acquisition, the Company assumed a mortgage payable of $42,906,000 (see Note 2) with an effective interest rate of 4.25%. The mortgage payable has monthly principal and interest payments and has an expiration date of August 2022.
Convertible Debt
The Company’s convertible debt consisted of the following as of December 31 (in thousands):
 
2015
 
2014
4.75% Convertible Subordinated Notes
$
150,082

 
$
157,885

Less amount representing debt discount and debt issuance cost
(3,961
)
 
(12,656
)
 
$
146,121

 
$
145,229


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Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

3.00% Convertible Subordinated Notes
In September 2007, the Company issued $395,986,000 aggregate principal amount of 3.00% Convertible Subordinated Notes due October 15, 2014 (the “3.00% Convertible Subordinated Notes”). Interest is payable semi-annually on April 15 and October 15 of each year and commenced April 15, 2008.
In June 2014, the Company entered into an agreement with a note holder to exchange an aggregate of $217,199,000 of the principal amount of the 3.00% Convertible Subordinated Notes for 1,948,578 shares of the Company’s common stock and $5,387,000 in cash, comprised of accrued interest and a premium. As a result, the Company recognized a loss on debt extinguishment of $4,210,000 during the three months ended June 30, 2014 in its consolidated statement of operations. In the Company’s consolidated statement of cash flows for the year ended December 31, 2014, the premium paid was included within net cash provided by financing activities and the accrued interest paid was included within net cash provided by operating activities.
In October 2014, upon maturity the Company settled with the remaining holders of 3.00% Convertible Subordinated Notes. The conversion rate was adjusted to 8.9264 per $1,000 principal amount of 3.00% convertible notes. Approximately $178,741,000 in aggregate principal amount of the 3.00% Convertible Subordinated Notes was converted into 1,595,496 shares of common stock. The remaining 3.00% Convertible Subordinated Notes, plus accrued interest, were settled in cash.
4.75% Convertible Subordinated Notes
In June 2009, the Company issued $373,750,000 aggregate principal amount of 4.75% Convertible Subordinated Notes due June 15, 2016 (the “4.75% Convertible Subordinated Notes”). Interest is payable semi-annually on June 15 and December 15 of each year and commenced on December 15, 2009.
The 4.75% Convertible Subordinated Notes are governed by an Indenture dated as of June 12, 2009, between the Company, as issuer, and U.S. Bank National Association, as trustee (the “4.75% Convertible Subordinated Notes Indenture”). The 4.75% Convertible Subordinated Notes Indenture does not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by the Company. The 4.75% Convertible Subordinated Notes are unsecured and rank junior in right of payment to the Company’s existing or future senior debt and equal in right of payment to the Company’s existing and future subordinated debt.
Upon conversion, holders will receive, at the Company’s election, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock. However, the Company may at any time irrevocably elect for the remaining term of the 4.75% Convertible Subordinated Notes to satisfy its obligation in cash up to 100% of the principal amount of the 4.75% Convertible Subordinated Notes, with any remaining amount to be satisfied, at the Company’s election, in shares of its common stock or a combination of cash and shares of its common stock.
The initial conversion rate was 11.8599 shares of common stock per $1,000 principal amount of the 4.75% Convertible Subordinated Notes, subject to adjustment. This represented an initial conversion price of approximately $84.32 per share of common stock. In November 2014, the Company adjusted the conversion rate of the 4.75% Convertible Subordinated Notes from 11.8599 shares of its common stock per $1,000 principal amount of the notes to 12.2736 shares per $1,000 principal amount of the notes, which was effective as of October 24, 2014. The adjustment was the result of the declaration of the 2014 Special Distribution. This represented an adjusted conversion price of approximately $81.48 per share of common stock as of December 31, 2014.
During 2015, the Company adjusted the conversion rate as a result of the declaration of each quarterly dividend and the 2015 Special Distribution. As of December 31, 2015, the conversion rate of the 4.75% Convertible Subordinated Notes was 13.0655 shares of the Company’s common stock per $1,000 principal amount of the notes. This represented an adjusted conversion price of $76.54 per share of common stock as of December 31, 2015. Holders of the 4.75% Convertible Subordinated Notes may convert their notes at any time prior to the close of business on the business day immediately preceding the maturity date under the following circumstances:
during any fiscal quarter (and only during that fiscal quarter) ending after December 31, 2009, if the sale price of the Company’s common stock, for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the previous fiscal quarter, is greater than 130% of the adjusted conversion price per share of common stock on such last trading day, which was approximately $104.14 per share after the adjustment from the 2015 special distribution and quarterly dividend (the “Stock Price Condition Conversion Clause”);

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

subject to certain exceptions, during the five business day period following any 10 consecutive trading day period in which the trading price of the 4.75% Convertible Subordinated Notes for each day of such period was less than 98% of the product of the sale price of the Company’s common stock and the conversion rate (the “4.75% Convertible Subordinated Notes Parity Provision Clause”);
upon the occurrence of specified corporate transactions described in the 4.75% Convertible Subordinated Notes Indenture, such as a consolidation, merger or binding share exchange in which the Company’s common stock would be converted into cash or property other than securities (the “Corporate Action Provision Clause”); or
at any time on or after March 15, 2016.
Upon conversion, if the Company elected to pay a sufficiently large portion of the conversion obligation in cash, additional consideration beyond the gross proceeds received would be required.
Holders of the 4.75% Convertible Subordinated Notes were eligible to convert their notes during the year ended December 31, 2015 and are eligible to convert their notes during the three months ending March 31, 2016, since the Stock Price Condition Conversion Clause was met during the applicable periods. As of December 31, 2015, had the holders of the remaining outstanding 4.75% Convertible Subordinated Notes converted their notes, the 4.75% Convertible Subordinated Notes would have been convertible into a maximum of 1,960,896 shares of the Company’s common stock.
The conversion rates may be adjusted upon the occurrence of certain events, including for any cash dividend, but they will not be adjusted for accrued and unpaid interest. Holders of the 4.75% Convertible Subordinated Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than canceled, extinguished or forfeited.
The Company does not have the right to redeem the 4.75% Convertible Subordinated Notes at its option. Holders of the 4.75% Convertible Subordinated Notes have the right to require the Company to purchase with cash all or a portion of the 4.75% Convertible Subordinated Notes upon the occurrence of a fundamental change, such as a change of control at a purchase price equal to 100% of the principal amount of the 4.75% Convertible Subordinated Notes plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase. Following certain corporate transactions that constitute a change of control, the Company will increase the conversion rate for a holder who elects to convert the 4.75% Convertible Subordinated Notes in connection with such change of control in certain circumstances.
Under an accounting standard for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement), the Company separated the 4.75% Convertible Subordinated Notes into a liability component and an equity component. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability (including any embedded features other than the conversion option) that does not have an associated equity component. The carrying amount of the equity component representing the embedded conversion option was determined by deducting the fair value of the liability component from the initial proceeds ascribed to the 4.75% Convertible Subordinated Notes as a whole. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the expected life of a similar liability that does not have an associated equity component using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification as prescribed in the accounting standard for derivative financial instruments indexed to, and potentially settled in, an entity’s own common stock and the accounting standard for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock.
In May and June 2014, certain holders of the 4.75% Convertible Subordinated Notes elected to convert a total of $215,830,000 of the principal amount of the notes for 2,411,851 shares of the Company’s common stock and $51,671,000 in cash, comprised of accrued interest, premium and cash paid in lieu of issuing shares for certain note holders’ principal amount. As a result, the Company recognized a loss on debt extinguishment of $46,973,000 for the year ended December 31, 2014 in its consolidated statement of operations. The loss on debt extinguishment included the premium paid and the excess of the fair value of liability component of the 4.75% Convertible Subordinated Notes over its carrying amount, including debt discount and unamortized debt issuance costs, in accordance with the accounting standard for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). In the Company’s consolidated statement of cash flows for the year ended December 31, 2014, the premium and cash paid in lieu of issuing shares to settle a portion of the principal amount were included within net cash provided by financing activities and the accrued interest paid was included within net cash provided by operating activities.

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

In December 2015, certain holders of the 4.75% Convertible Subordinated Notes elected to convert a total of $7,803,000 of the principal amount of the notes at a conversion rate of 13.0655 shares of the Company’s common stock per $1,000 principal amount of the notes. The Company issued a total 101,947 shares of its common stock and paid approximately $1,000 in cash for residual shares in connection with the conversions. The Company recorded a $289,000 loss on debt extinguishment as a result of the conversions.
Issuance and transaction costs incurred at the time of the issuance of the 4.75% Convertible Subordinated Notes with third parties are allocated to the liability and equity components and accounted for as debt issuance costs and equity issuance costs, respectively. The 4.75% Convertible Subordinated Notes consisted of the following as of December 31 (in thousands):
 
2015
 
2014
Equity component (1)
$
42,091

 
$
44,278

Liability component:
 
 
 
Principal
$
150,082

 
$
157,885

Less debt discount and debt issuance costs, net (2)
(3,961
)
 
(12,656
)
Net carrying amount
$
146,121

 
$
145,229

__________________________
(1)Included in the consolidated balance sheets within additional paid-in capital.
(2)Included in the consolidated balance sheets within convertible debt and is amortized over the remaining life of the 4.75% Convertible Subordinated Notes.
As of December 31, 2015, the remaining life of the 4.75% Convertible Subordinated Notes was 0.46 years.
The following table sets forth total interest expense recognized related to the 4.75% Convertible Subordinated Notes for the years ended December 31 (in thousands):
 
2015
 
2014
Contractual interest expense
$
7,501

 
$
10,976

Amortization of debt issuance costs
428

 
629

Amortization of debt discount
8,060

 
10,448

 
$
15,989

 
$
22,053

Effective interest rate of the liability component
10.65
%
 
10.88
%
To minimize the impact of potential dilution upon conversion of the 4.75% Convertible Subordinated Notes, the Company entered into capped call transactions ("the Capped Call") separate from the issuance of the 4.75% Convertible Subordinated Notes and paid a premium of $49,664,000 for the Capped Call in 2009. The Capped Call covers a total of approximately 4,432,638 shares of the Company’s common stock, subject to adjustment. Under the Capped Call, the Company effectively raised the conversion price of the 4.75% Convertible Subordinated Notes from $84.32 to $114.82. In May and June 2014, the Company amended the Capped Call to provide that early exchanges of the 4.75% Convertible Subordinated Notes would not result in the termination of a relative amount of the Capped Call if the Company did not exercise the Capped Call at the time the 4.75% Convertible Subordinated Notes were exchanged. Instead, the Capped Call will remain outstanding in its entirety. The amendment to the Capped Call had no impact to the Company’s consolidated financial statements for the years ended December 31, 2015 and 2014, pursuant to the accounting standard for derivative financial instruments indexed to, and potentially settled in, an entity’s own common stock and the accounting standard for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock.
Pursuant to the declaration of the special distribution in October 2014, the Company further amended the Capped Call agreement to adjust the effective conversion price of the 4.75% Convertible Subordinated Notes from $81.48 to $110.85 per share of common stock as of December 31, 2014. Pursuant to the declaration of each quarterly dividend during 2015 and the declaration of the special distribution in September 2015, the Company further amended the Capped Call agreement to adjust the effective conversion price of the 4.75% Convertible Subordinated Notes from $76.54 to $104.14 per share of common stock as of December 31, 2015. Depending upon the Company’s stock price at the time the 4.75% Convertible Subordinated Notes are redeemed, the Capped Call will return up to 1,294,192 shares of the Company’s common stock to the Company; however, the Company will receive no benefit

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

from the Capped Call if the Company’s stock price is $76.54 or lower at the time of conversion and will receive less shares than the 1,294,192 share maximum as described above for share prices in excess of $104.14 at the time of conversion than it would have received at a share price of $104.14 (the Company’s benefit from the Capped Call is capped at $104.14 and the benefit received begins to decrease above this price).
Senior Notes
The Company’s senior notes consisted of the following as of December 31 (in thousands):
 
2015
 
2014
5.375% Senior Notes due 2023
$
1,000,000

 
$
1,000,000

5.375% Senior Notes due 2022
750,000

 
750,000

4.875% Senior Notes due 2020
500,000

 
500,000

5.75% Senior Notes due 2025
500,000

 
500,000

5.875% Senior Notes due 2026
1,100,000

 

 
3,850,000

 
2,750,000

Less amount representing debt issuance cost
(45,366
)
 
(32,954
)
 
$
3,804,634

 
$
2,717,046

2022 Senior Notes and 2025 Senior Notes
In November 2014, the Company issued $750,000,000 million aggregate principal amount of 5.375% senior notes due January 1, 2022, and $500,000,000 million aggregate principal amount of 5.750% senior notes due January 1, 2025, which are referred to as the “2022 Senior Notes” and “2025 Senior Notes”, respectively, and collectively, as the “2022 and 2025 Senior Notes”. Interest on each series of the notes is payable semi-annually in arrears on January 1 and July 1 of each year, commencing on July 1, 2015.
The 2022 and 2025 Senior Notes are unsecured and rank equal in right of payment to the Company’s existing or future senior indebtedness and senior in right of payment to the Company’s existing and future subordinated indebtedness. The 2022 and 2025 Senior Notes are effectively subordinated to all of the existing and future secured debt, including debt outstanding under any bank facility or secured by any mortgage, to the extent of the assets securing such debt. They are also structurally subordinated to any existing and future indebtedness and other liabilities (including trade payables) of any of the Company’s subsidiaries.
The 2022 and 2025 Senior Notes are governed by an indenture between the Company and U.S. Bank National Association, as trustee. The indenture contains covenants that limit the Company’s ability and the ability of its subsidiaries to, among other things:
incur additional debt;
pay dividends or make other restricted payments;
purchase, redeem or retire capital stock or subordinated debt;
make asset sales;
enter into transactions with affiliates;
incur liens;
enter into sale-leaseback transactions;
provide subsidiary guarantees;
make investments; and
merge or consolidate with any other person.
Subject to compliance with the limitations described above, the Company may issue an unlimited principal amount of additional notes at later dates under the same indenture as the 2022 and 2025 Senior Notes. Any additional notes the Company issues under the indenture will be identical in all respects to the 2022 and 2025 Senior Notes except that the additional notes will have different issuance dates and may have different issuance prices.

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company is not required to make any mandatory redemption with respect to the 2022 and 2025 Senior Notes, however under certain circumstances as specified in the restrictions described above, the Company may be required to offer to purchase the 2022 and 2025 Senior Notes.
At any time prior to January 1, 2018, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2022 Senior Notes (calculated giving effect to any issuance of additional notes of such series) outstanding under the 2022 Senior Notes indenture, at a redemption price equal to 105.375% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings, provided that (i) at least 65% of the aggregate principal amount of the 2022 Senior Notes issued under the 2022 indenture remains outstanding immediately after the occurrence of such redemption (excluding 2022 Senior Notes held by the Company and its subsidiaries) and (ii) the redemption must occur within 90 days of the date of the closing of such equity offerings.
On or after January 1, 2018, the Company may redeem all or a part of the 2022 Senior Notes, on any one or more occasions, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to, but not including, the applicable redemption date, if redeemed during the twelve-month period beginning January 1 of the years indicated below:
 
Redemption Price of the 2022 Notes
2018
104.031
%
2019
102.688
%
2020
101.344
%
2021 and thereafter
100.000
%
In addition, at any time prior to January 1, 2018, the Company may redeem all or a part of the 2022 Senior Notes at a redemption price equal to 100% of the principal amount of 2022 Senior Notes redeemed plus the applicable premium (the “2022 Senior Notes Applicable Premium”) as of, and accrued and unpaid interest, if any, to, but not including, the date of the redemption, subject to the rights of the holders of record of 2022 Senior Notes on the relevant record date to receive interest due on the relevant interest payment date. The 2022 Senior Notes Applicable Premium means the greater of:
1.0% of the principal amount of the 2022 Senior Notes;
the excess of: (a) the present value at such redemption date of (i) the redemption price of the 2022 Senior Notes at January 1, 2018 (such redemption price being set forth in the table as shown in the above table ), plus (ii) all required interest payments due on the 2022 Senior Notes through January 1, 2018 (excluding accrued but unpaid interest, if any, to, but not including the, the redemption date,) computed using a discount rate equal to the treasury rate as of such redemption date plus 0.5 basis points; and
the principal amount of the 2022 Senior Notes.
At any time prior to January 1, 2018, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2025 Senior Notes (calculated giving effect to any issuance of additional notes of such series) outstanding under the 2025 Senior Notes indenture, at a redemption price equal to 105.750% of the principal amount of the 2025 Senior Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings; provided that (1) at least 65% of the aggregate principal amount of the 2025 Senior Notes issued under the 2025 Senior Notes indenture remains outstanding immediately after the occurrence of such redemption (excluding 2025 Senior Notes held by the Company and its subsidiaries); and (2) the redemption must occur within 90 days of the date of the closing of such equity offering.

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

On or after January 1, 2020, the Company may redeem all or a part of the 2025 Senior Notes, on any one or more occasions, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to, but not including, the applicable redemption date, if redeemed during the twelve-month period beginning January 1 of the years indicated below:
 
Redemption Price
 of the 2025 Notes
2020
102.875
%
2021
101.917
%
2022
100.958
%
2023 and thereafter
100.000
%
In addition, at any time prior to January 1, 2020, the Company may also redeem all or a part of the 2025 Senior Notes at a redemption price equal to 100% of the principal amount of 2025 Senior Notes redeemed plus the applicable premium (the “2025 Senior Notes Applicable Premium”) as of, and accrued and unpaid interest, if any, to, but not including, the redemption date, subject to the rights of holders of record of 2025 Senior Notes on the relevant record date to receive interest due on the relevant interest payment date. The 2025 Senior Notes Applicable Premium means the greater of:
1.0% of the principal amount of the 2025 Senior Notes;
the excess of: (a) the present value at such redemption date of (i) the redemption price of the 2025 Senior Notes at January 1, 2020 (such redemption price being set forth in the table as shown in the above table ), plus (ii) all required interest payments due on the 2025 Senior Notes through January 1, 2020 (excluding accrued but unpaid interest, if any, to, but not including the, the redemption date,) computed using a discount rate equal to the treasury rate as of such redemption date plus 0.5 basis points; and
the principal amount of the 2025 Senior Notes.
As of December 31, 2015, debt issuance costs related to the 2022 and 2025 Senior Notes, net of amortization, were $14,622,000.
2026 Senior Notes
In December 2015, the Company issued $1,100,000,000 million aggregate principal amount of 5.875% of additional senior notes due January 15, 2026, which are referred to as the “2026 Senior Notes”. Interest on the notes is payable semi-annually in arrears on January 15 and July 15 of each year, commencing on July 15, 2016.
The 2026 Senior Notes are unsecured and rank equal in right of payment to the Company’s existing or future senior indebtedness and senior in right of payment to the Company’s existing and future subordinated indebtedness. The senior notes are effectively subordinated to all of the existing and future secured debt, including debt outstanding under any bank facility or secured by any mortgage, to the extent of the assets securing such debt. They are also structurally subordinated to any existing and future indebtedness and other liabilities (including trade payables) of any of the Company’s subsidiaries.
The 2026 Senior Notes are governed by a supplemental indenture to the indenture between the Company and U.S. Bank National Association, as trustee, that governs the Company’s 2022 and 2025 Senior Notes. The supplemental indenture contains covenants that limit the Company’s ability and the ability of its subsidiaries to, among other things:
incur additional debt;
pay dividends or make other restricted payments;
purchase, redeem or retire capital stock or subordinated debt;
make asset sales;
enter into transactions with affiliates;
incur liens;
enter into sale-leaseback transactions;
provide subsidiary guarantees;
make investments; and

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

merge or consolidate with any other person.
The 2026 Senior Notes provided for a special mandatory redemption if the TelecityGroup acquisition was not completed on or prior to November 29, 2016, or if, prior to such date, the TelecityGroup offer had lapsed or been withdrawn for the purposes of the UK City Code on Takeovers and Mergers. In either case, the Company would have been required to redeem all of the 2026 Senior Notes at a redemption price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest to, but excluding, the redemption date. The acquisition of TelecityGroup closed on January 15, 2016. As a result, the Company is no longer subject to a mandatory redemption of the 2026 Senior Notes.
The 2026 Senior Notes also provide for optional redemption. At any time prior to January 15, 2019, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2026 Senior Notes (calculated giving effect to any issuance of additional notes of such series) outstanding under the 2026 Senior Notes indenture, at a redemption price equal to 105.875% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings, provided that (i) at least 65% of the aggregate principal amount of the 2026 Senior Notes (calculated giving effect to any issuance of additional notes) issued under the 2026 indenture remains outstanding immediately after the occurrence of such redemption and (ii) the redemption must occur within 90 days of the date of the closing of such equity offerings.
On or after January 15, 2021, the Company may redeem all or a part of the 2026 Senior Notes, on any one or more occasions, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to, but not including, the applicable redemption date, if redeemed during the twelve-month period beginning January 15 of the years indicated below:
 
Redemption Price of the 2026 Notes
2021
102.938
%
2022
101.958
%
2023
100.979
%
2024 and thereafter
100.000
%
In addition, at any time prior to January 15, 2021, the Company may redeem all or a part of the 2026 Senior Notes at a redemption price equal to 100% of the principal amount of 2026 Senior Notes redeemed plus the applicable premium (the “2026 Senior Notes Applicable Premium”) as of, and accrued and unpaid interest, if any, to, but not including, the date of the redemption, subject to the rights of the holders of record of 2026 Senior Notes on the relevant record date to receive interest due on the relevant interest payment date. The 2026 Senior Notes Applicable Premium means the greater of:
1.0% of the principal amount of the 2022 Senior Notes;
the excess of: (a) the present value at such redemption date of (i) the redemption price of the 2022 Senior Notes at January 15, 2021 (such redemption price being set forth in the table as shown in the above table ), plus (ii) all required interest payments due on the 2026 Senior Notes through January 15, 2021 (excluding accrued but unpaid interest, if any, to, but not including the, the redemption date,) computed using a discount rate equal to the treasury rate as of such redemption date plus 0.5 basis points; over (b) the principal amount of the 2026 Senior Notes, if greater.
As of December 31, 2015, debt issuance costs related to the 2026 Senior Notes, net of amortization, were $16,904,000.
2020 Senior Notes and 2023 Senior Notes
In March 2013, the Company issued $1,500,000,000 aggregate principal amount of senior notes, which consist of $500,000,000 aggregate principal amount of 4.875% senior notes due April 1, 2020 (the “2020 Senior Notes”) and $1,000,000,000 aggregate principal amount of 5.375% senior notes due April 1, 2023 (the “2023 Senior Notes”). Interest on both the 2020 Senior Notes and the 2023 Senior Notes is payable semi-annually on April 1 and October 1 of each year and commenced on October 1, 2013.

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The 2020 Senior Notes and the 2023 Senior Notes are governed by separate indentures dated March 5, 2013, between the Company, as issuer, and U.S. Bank National Association, as trustee (the “Senior Notes Indentures”). The Senior Notes Indentures contain covenants that limit the Company’s ability and the ability of its subsidiaries to, among other things:
incur additional debt;
pay dividends or make other restricted payments;
purchase, redeem or retire capital stock or subordinated debt;
make asset sales;
enter into transactions with affiliates;
incur liens;
enter into sale-leaseback transactions;
provide subsidiary guarantees;
make investments; and
merge or consolidate with any other person.
Each of these restrictions has a number of important qualifications and exceptions. The 2020 Senior Notes and the 2023 Senior Notes are unsecured and rank equal in right of payment with the Company’s existing or future senior unsecured debt and senior in right of payment with the Company’s existing and future subordinated debt. The 2020 Senior Notes and the 2023 Senior Notes are junior to the Company’s secured indebtedness and guaranteed indebtedness of its subsidiaries.
At any time prior to April 1, 2016, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2020 Senior Notes outstanding at a redemption price equal to 104.875% of the principal amount of the 2020 Senior Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings; provided that (i) at least 65% of the aggregate principal amount of the 2020 Senior Notes issued under the 2020 Senior Notes indenture remains outstanding immediately after the occurrence of such redemption (excluding the 2020 Senior Notes held by the Company and its subsidiaries); and (ii) the redemption must occur within 90 days of the date of the closing of such equity offering.
On or after April 1, 2017, the Company may redeem all or a part of the 2020 Senior Notes, on any one or more occasions, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to, but not including, the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:
 
Redemption Price of
 the 2020 Senior Notes
2017
102.438
%
2018
101.219
%
2019 and thereafter
100.000
%
At any time prior to April 1, 2017, the Company may also redeem all or a part of the 2020 Senior Notes at a redemption price equal to 100% of the principal amount of the 2020 Senior Notes redeemed plus an applicable premium (the “2020 Senior Notes Applicable Premium”), and accrued and unpaid interest, if any, to, but not including, the date of redemption (the “2020 Senior Notes Redemption Date”). The 2020 Senior Notes Applicable Premium means the greater of:
1.0% of the principal amount of the 2020 Senior Notes; and
the excess of: (a) the present value at such redemption date of (i) the redemption price of the 2020 Senior Notes at April 1, 2017 as shown in the above table, plus (ii) all required interest payments due on the 2020 Senior Notes through April 1, 2017 (excluding accrued but unpaid interest, if any, to, but not including the 2020 Senior Notes Redemption Date), computed using a discount rate equal to the yield to maturity of the U.S. Treasury securities with a constant maturity most nearly equal to the period from the 2020 Senior Notes Redemption Date to April 1, 2017, plus 0.50%; over (b) the principal amount of the 2020 Senior Notes.
At any time prior to April 1, 2016, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2023 Senior Notes outstanding at a redemption price equal to 105.375% of the principal amount of the

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2023 Senior Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings; provided that (i) at least 65% of the aggregate principal amount of the 2023 Senior Notes issued under the 2023 Senior Notes indenture remains outstanding immediately after the occurrence of such redemption (excluding the 2023 Senior Notes held by the Company and its subsidiaries); and (ii) the redemption must occur within 90 days of the date of the closing of such equity offering.
On or after April 1, 2018, the Company may redeem all or a part of the 2023 Senior Notes, on any one or more occasions, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to, but not including, the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:
 
Redemption Price of the 2023 Senior Notes
2018
102.688
%
2019
101.792
%
2020 and thereafter
100.896
%
2021 and thereafter
100.000
%
At any time prior to April 1, 2018, the Company may also redeem all or a part of the 2023 Senior Notes at a redemption price equal to 100% of the principal amount of the 2023 Senior Notes redeemed plus an applicable premium (the “2023 Senior Notes Applicable Premium”), and accrued and unpaid interest, if any, to, but not including, the date of redemption (the “2023 Senior Notes Redemption Date”). The 2023 Senior Notes Applicable Premium means the greater of:
1.0% of the principal amount of the 2023 Senior Notes; and
the excess of: (a) the present value at such redemption date of (i) the redemption price of the 2023 Senior Notes at April 1, 2018 as shown in the above table, plus (ii) all required interest payments due on the 2023 Senior Notes through April 1, 2018 (excluding accrued but unpaid interest, if any, to, but not including the 2023 Senior Notes Redemption Date), computed using a discount rate equal to the yield to maturity of the U.S. Treasury securities with a constant maturity most nearly equal to the period from the 2023 Senior Notes Redemption Date to April 1, 2018, plus 0.50%; over (b) the principal amount of the 2023 Senior Notes.
Debt issuance costs related to the 2020 Senior Notes and 2023 Senior Notes, net of amortization, were $13,865,000 as of December 31, 2015.
7.00% Senior Notes
In July 2011, the Company issued $750,000,000 aggregate principal amount of 7.00% Senior Notes due July 15, 2021 (the “7.00% Senior Notes”). Interest was payable semi-annually in arrears on January 15 and July 15 of each year and commenced on January 15, 2012. The indenture governing the 7.00% senior notes permitted the Company to redeem the 7.00% senior notes at the redemption prices set forth in the 7.00% senior notes indenture plus accrued and unpaid interest to, but not including the redemption price.
In December 2014, the Company redeemed the 7.00% Senior Notes and paid $866,861,000 in cash including the principal amount of $750,000,000 plus a premium of $93,965,000 and accrued and unpaid interest of $22,896,000. During the three months of December 31, 2014, the Company recognized a loss on debt extinguishment of $103,273,000, including the unamortized debt issuance costs and the redemption premium.
Loss on Debt Extinguishment
During the year ended December 31, 2015, the Company recorded $289,000 of loss on debt extinguishment as a result of the conversions of the 4.75% Convertible Subordinated Notes.

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

During the year ended December 31, 2014, the Company recorded $156,990,000 of loss on debt extinguishment comprised of (i) $103,273,000 of loss on debt extinguishment from the redemption of the 7.00% Senior Notes, which included the $93,965,000 redemption premium that was paid in cash and $9,307,000 related to the write-off of unamortized debt issuance costs, (ii) $51,183,000 related to the exchanges of the 3.00% Convertible Subordinated Notes and 4.75% Convertible Subordinated Notes and (iii) $2,534,000 as a result of the prepayment and termination of the U.S. Term Loan and the U.S. Revolving Credit Line.
During the year ended December 31, 2013, the Company recorded $108,501,000 of loss on debt extinguishment comprised of (i) $93,602,000 loss on debt extinguishment from the redemption of the 8.125% Senior Notes, which included the $80,925,000 applicable premium that was paid in cash, $8,927,000 related to the write-off of unamortized debt issuance costs and $3,750,000 of other transaction-related fees, (ii) $13,189,000 from the new leases for the London 4 and 5 IBX data centers that replaced the existing leases and (iii) $1,710,000 from an amendment of the New York 5 and 6 IBX data center lease.
Maturities of Debt Facilities
The following table sets forth maturities of the Company’s debt, including loans payable, convertible debt and senior notes, gross of debt issuance costs and discounts, as of December 31, 2015 (in thousands):
Year ending:
 
2016
$
920,125

2017
51,048

2018
47,615

2019
339,329

2020
503,224

Thereafter
3,384,427

 
$
5,245,768

Fair Value of Debt Facilities
The following table sets forth the estimated fair values of the Company’s mortgage, loans payable, convertible debt, senior notes and revolving credit line, including current maturities, as of December 31 (in thousands):
 
2015
 
2014
Mortgage and loans payable
$
916,602

 
$
553,045

Convertible debt
151,997

 
162,159

Senior notes
3,954,000

 
2,790,023

Revolving credit line
325,617

 

The fair value of the mortgage, loans payable and convertible debt, which were not publicly traded, was estimated by considering the Company’s credit rating, current rates available to the Company for debt of the same remaining maturities and terms of the debt (level 2). The fair value of the senior notes, which were traded in the public debt market, was based on quoted market prices (level 1).

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Interest Charges
The following table sets forth total interest costs incurred and total interest costs capitalized for the years ended December 31 (in thousands):
 
2015
 
2014
 
2013
Interest expense
$
299,055

 
$
270,553

 
$
248,792

Interest capitalized
10,943

 
19,004

 
10,608

Interest charges incurred
$
309,998

 
$
289,557

 
$
259,400

10.    Redeemable Non-Controlling Interests
The following table provides a summary of the activities of the Company’s redeemable non-controlling interests (in thousands):
Balance as of December 31, 2013
$
123,902

Net loss attributable to redeemable non-controlling interest
(1,179
)
Other comprehensive income attributable to redeemable non-controlling interests
1,810

Increase in redemption value of non-controlling interests
90,913

Impact of foreign currency translation
1,724

Exercise of vested and outstanding ALOG stock options
8,459

Purchase price of redeemable non-controlling interests
(225,629
)
Balances as of December 31, 2014
$

11.     Stockholders’ Equity
The Company’s authorized share capital is 300,000,000 shares of common stock and 100,000,000 shares of preferred stock, of which 25,000,000 is designated Series A, 25,000,000 is designated as Series A-1 and 50,000,000 is undesignated. As of December 31, 2015 and 2014, the Company had no preferred stock issued and outstanding.
Common Stock
In November 2015, the Company issued and sold 2,994,792 shares of its common stock in a public offering pursuant to a registration statement and a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission. The shares issued and sold included the full exercise of the underwriters’ option to purchase 390,625 additional shares. The Company received net proceeds of approximately $829,496,000, after deducting underwriting discounts and commissions of $32,344,000 and estimated offering expenses of $660,000.
In December 2015, certain holders of the Company's 4.75% Convertible Subordinated Notes elected to convert a portion of the notes into 101,947 shares of the Company's common stock. See convertible debt in Note 9 for additional information.
As of December 31, 2015, the Company had reserved the following shares of authorized but unissued shares of common stock for future issuances:
Conversion of 4.75% Convertible Subordinated Notes
1,960,896

Common stock options and restricted stock units
5,848,288

Common stock employee purchase plans
3,577,911

 
11,387,095


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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Accumulated Other Comprehensive Loss
The components of the Company’s accumulated other comprehensive loss consisted of the following as of December 31, 2015 (in thousands):
 
Balance as of
December 31, 2014
 
Net
Change
 
Balance as of
December 31, 2015
Foreign currency translation adjustment ("CTA") loss
$
(336,946
)
 
$
(186,763
)
 
$
(523,709
)
Unrealized gain (loss) on cash flow hedges(1)
6,603

 
4,550

 
11,153

Net investment hedge CTA gain(1)

 
4,484

 
4,484

Unrealized gain (loss) on available for sale securities(2)
(99
)
 
(40
)
 
(139
)
Net actuarial gain (loss) on defined benefit plans(3)
(2,001
)
 
1,153

 
(848
)
 
$
(332,443
)
 
$
(176,616
)
 
$
(509,059
)
__________________________
(1)
Refer to Note 6 for a discussion of the amounts reclassified from accumulated other comprehensive loss to net income (loss).
(2)
The realized gains and losses reclassified from accumulated other comprehensive loss to net income (loss) were insignificant for the year ended December 31, 2015.
(3)
The Company has a defined benefit pension plan covering all employees in one country where such plans are mandated by law. The Company does not have any defined benefit plans in any other countries. The unamortized gain (loss) on defined benefit plans includes gains or losses resulting from a change in the value of either the projected benefit obligation or the plan assets resulting from a change in an actuarial assumption, net of amortization.
Changes in foreign currencies can have a significant impact to the Company’s consolidated balance sheets (as evidenced above in the Company’s foreign currency translation gain or loss), as well as its consolidated results of operations, as amounts in foreign currencies are generally translating into more U.S. dollars when the U.S. dollar weakens or less U.S. dollars when the U.S. dollar strengthens. At December 31, 2015, the U.S. dollar was generally stronger relative to certain of the currencies of the foreign countries in which the Company operates. This overall strength of the U.S. dollar had an overall negative impact on the Company’s consolidated financial position because the foreign denominations translated into less U.S. dollars as evidenced by an increase in foreign currency translation loss for the year ended December 31, 2015 compared to the year ended December 31, 2014 as reflected in the above table. In future periods, the volatility of the U.S. dollar as compared to the other currencies in which the Company does business could have a significant impact on its consolidated financial position and results of operations including the amount of revenue that the Company reports in future periods.
Share Repurchase Program
2013 Share Repurchase Program
In December 2013, the Company’s Board of Directors (the “Board”) approved a share repurchase program (the “2013 Share Repurchase Program”) to repurchase up to $500,000,000 in value of the Company’s common stock in the open market or private transactions through December 31, 2014. The 2013 Share Repurchase Program was designed to return value to the Company’s shareholders and minimize dilution from stock issuances.
During the year ended December 31, 2014, the Company repurchased a total of 1,517,743 shares of its common stock in the open market at an average price of $196.32 per share for total consideration of $297,958,000 under the 2013 Share Repurchase Program. During the year ended December 31, 2013, the Company repurchased a total of 288,739 shares of its common stock in the open market at an average price of $169.01 per share for total consideration of $48,799,000 under the 2013 Share Repurchase Program. The 2013 Share Repurchase Program expired on December 31, 2014.
During the year ended December 31, 2015, the Company re-issued 7,348 shares of its treasury stock with a total value of $1,807,000 related to the settlement of restricted stock units and 11,784 shares of its treasury stock with a total value of $3,546,000 related to the exchange and conversion of the 4.75% Convertible Subordinated Notes (see Note 9). During the year ended December 31, 2014, the Company re-issued a total of 1,752,615 shares of its treasury stock with a total value of $345,858,000 primarily related to the exchange and conversions of the 4.75% Convertible Subordinated Notes and the exchanges and settlement of the 3.00% Convertible Subordinated Notes (see Note 9).

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2011 Share Repurchase Program
In November 2011, the Board approved a share repurchase program (the “2011 Share Repurchase Program”) to repurchase up to $250,000,000 in value of the Company’s common stock in the open market or private transactions through December 31, 2012. The 2011 Share Repurchase Program was designed to return value to the Company’s shareholders and minimize dilution from stock issuances.
During the years ended December 31, 2012 and 2011, the Company repurchased a total of 131,489 shares and 870,421 shares, respectively, of its common stock in the open market at an average price of $101.64 and $99.57 per share for total consideration of $100,030,000 under the 2011 Share Repurchase Program. The 2011 Share Repurchase Program expired on December 31, 2012.
During the year ended December 31, 2014, the Company re-issued a total of 355,477 shares of its treasury stock with a total value of $66,424,000, primarily related to the exchange and conversions of the 4.75% Convertible Subordinated Notes (see Note 9). During the year ended December 31, 2013, the Company re-issued a total of 8,266 shares of its treasury stock with a total value of $811,000, primarily related to the settlement of restricted stock units. During the year ended December 31, 2012, the Company re-issued a total of 638,167 shares of its treasury stock with a total value of $63,354,000, primarily related to the settlement of the 2.50% Convertible Subordinated Notes (see Note 9).
Special Distributions
In September 2015, the Company’s Board of Directors declared a special distribution of $627,000,000, or approximately $10.95 per share (the “2015 Special Distribution”), to its common stockholders. The 2015 Special Distribution represents an amount that includes the sum of: (1) foreign earnings and profits repatriated as dividend income in 2015; (2) taxable income in 2015 from depreciation recapture in respect of accounting method changes commenced in the Company’s pre-REIT period; and (3) certain other items of taxable income.
The 2015 Special Distribution was paid on November 10, 2015 to the Company’s common stockholders of record as of the close of business on October 8, 2015. Common stockholders had the option to elect to receive payment of the 2015 Special Distribution in the form of stock or cash. The number of shares distributed was determined based upon common stockholder elections and the average closing price of the Company’s common stock on the three trading days commencing on November 3, 2015 or $297.03 per share. As such, the Company issued 1,688,411 shares of its common stock and paid $125,486,000 in connection with the 2015 Special Distribution.
In October 2014, the Company’s Board of Directors declared a special distribution of $416,000,000, or approximately $7.57 per share (the “2014 Special Distribution”), to its common stockholders in connection with the Company’s planned conversion to a REIT. The 2014 Special Distribution was paid on November 25, 2014 to the Company’s common stockholders of record as of the close of business on October 27, 2014. Common stockholders had the option to elect to receive payment of the 2014 Special Distribution in the form of stock or cash, with the total cash payment to all stockholders limited to no more than 20% of the total distribution. The number of shares distributed was determined based upon common stockholder elections and the average closing price of the Company’s common stock on the three trading days commencing on November 18, 2014 or $224.45 per share. As such, the Company issued 1,482,419 shares of its common stock and paid $83,266,000 in connection with the 2014 Special Distribution.
Shares issued in connection with the 2015 Special Distribution and the 2014 Special Distribution impact weighted average shares outstanding from the date of issuance, thus impacting the Company’s earnings per share data prospectively from the distribution date.
Dividends
During the year ended December 31, 2015, the Company's Board of Directors declared quarterly cash dividends of $1.69 per share on October 28, July 29, May 7 and February 19, 2015, with record dates of December 9, August 26, May 27 and March 11, 2015, respectively, and payment dates of December 16, September 16, June 17 and March 25, 2015, respectively. The Company paid a total of $393,584,000 in cash dividends during the year ended December 31, 2015.
In addition, as of December 31, 2015, for dividends and special distributions attributed to the RSU awards, the Company recorded a short term dividend payable of $13,674,000 and a long term dividend payable of $13,394,000 for the restricted stock units that have not yet vested (See Note 12).

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

12.     Stock-Based Compensation
ALOG Equity Awards
In July 2011, ALOG, in which the Company had an indirect controlling interest (see Note 2), granted 885,840 stock options to purchase common shares of ALOG to certain of ALOG’s employees with a weighted-average exercise price of approximately $6.35 and a weighted-average fair value of approximately $1.53 (the “2011 ALOG Stock Options”). The 2011 ALOG Stock Options were canceled in December 2012 and replaced with a new grant of stock options for 18,421,648 shares of which stock options for 4,711,808 shares were immediately vested (the “2012 ALOG Stock Options”). The 2012 ALOG Stock Options were accounted for as liability-classified awards under the accounting standard for share-based payments and were be re-measured each reporting period prospectively until the underlying shares were settled. Under certain circumstances, the 2012 ALOG Stock Options were eligible for net cash settlement by the stock option holders.
In July 2014, the Company paid $8,459,000 in cash to settle all vested and outstanding stock options to purchase common shares of ALOG that were held by ALOG employees.
Equinix Equity Awards
Equity Compensation Plans
In May 2000, the Company’s stockholders approved the adoption of the 2000 Equity Incentive Plan as the successor plan to the 1998 Stock Plan. Beginning in August 2000, the Company no longer issued additional grants under the 1998 Stock Plan, and unexercised options under the 1998 Stock Plan that are canceled due to an optionee’s termination may be reissued under the successor 2000 Equity Incentive Plan. Under the 2000 Equity Incentive Plan, nonstatutory stock options, restricted shares, restricted stock units, and stock appreciation rights may be granted to employees, outside directors and consultants at not less than 85% of the fair value on the date of grant, and incentive stock options may be granted to employees at not less than 100% of the fair value on the date of grant. Options granted prior to October 1, 2005 generally expire 10 years from the grant date, and equity awards granted to employees and consultants on or after October 1, 2005 will generally expire 7 years from the grant date, subject to continuous service of the optionee. Equity awards granted under the 2000 Equity Incentive Plan generally vest over 4 years. As of December 31, 2015, the Company had reserved a total of 16,636,172 shares for issuance under the 2000 Equity Incentive Plan of which 3,628,457 were still available for grant. The 2000 Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors (the “Compensation Committee”), and the Compensation Committee may terminate or amend the plan, with approval of the stockholders as may be required by applicable law, at any time.
In May 2000, the Company’s stockholders approved the adoption of the 2000 Director Option Plan, which was amended and restated effective January 1, 2003. Under the 2000 Director Option Plan, each non-employee board member who was not previously an employee of the Company will receive an automatic initial nonstatutory stock option grant, which vests in four annual installments. In addition, each non-employee board member will receive an annual non-statutory stock option grant on the date of the Company’s regular Annual Meeting of Stockholders, provided the board member will continue to serve as a director thereafter. Such annual option grants shall vest in full on the earlier of a) the first anniversary of the grant, or b) the date of the regular Annual Meeting of Stockholders held in the year following the grant date. A new director who receives an initial option will not receive an annual option in the same calendar year. Options granted under the 2000 Director Option Plan will have an option price not less than 100% of the fair value on the date of grant and will have a 10-year contractual term, subject to continuous service of the board member. On December 18, 2008, the Company’s Board of Directors passed resolutions eliminating all automatic stock option grant mechanisms under the 2000 Director Option Plan, and replaced them with an automatic restricted stock unit grant mechanism under the 2000 Equity Incentive Plan. As of December 31, 2015, the Company had reserved 594,403 shares for issuance under the 2000 Director Option Plan of which 505,646 were still available for grant. The 2000 Director Option Plan is administered by the Compensation Committee and the Compensation Committee may terminate or amend the plan, with approval of the stockholders as may be required by applicable law, at any time.
In September 2001, the Company adopted the 2001 Supplemental Stock Plan, under which non-statutory stock options and restricted shares/restricted stock units may be granted to consultants and employees who are not executive officers or board members, at not less than 85% of the fair value on the date of grant. Options granted prior to October 1, 2005 generally expire 10 years from the grant date, and options granted on or after October 1, 2005 will generally expire seven years from the grant date, subject to continuous service of the optionee. Current stock options granted under the 2001 Supplemental Stock Plan generally vest over four years. As of December 31, 2015, the Company had reserved a total of 1,494,275 shares for issuance under the 2001 Supplemental Stock Plan, of which 260,498 were still available for grant. The 2001 Supplemental Stock Plan is administered by

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

the Compensation Committee, and the plan will continue in effect indefinitely unless the Compensation Committee decides to terminate it earlier.
The 1998 Stock Plan, 2000 Equity Incentive Plan, 2000 Director Option Plan and 2001 Supplemental Stock Plan are collectively referred to as the “Equity Compensation Plans.”
Stock Options
Stock option activity under the Equity Compensation Plans is summarized as follows:
 
Number of shares outstanding
 
Weighted average exercise price per share
 
Weighted average remaining contractual life (years)
 
Aggregate
intrinsic
value (1) 
(dollars in thousands)
Stock options outstanding at December 31, 2012
296,529

 
$
68.68

 
 
 
 
Stock options exercised
(147,819
)
 
63.66

 
 
 
 
Stock options canceled
(655
)
 
3.06

 
 
 
 
Stock options outstanding at December 31, 2013
148,055

 
73.99

 
 
 
 
Stock options exercised
(71,780
)
 
72.44

 
 
 
 
Additional shares granted due to special distribution
1,659

 

 
 
 
 
Stock options outstanding at December 31, 2014
77,934

 
73.84

 
 
 
 
Stock options exercised
(41,889
)
 
64.18

 
 
 
 
Additional shares granted due to special distribution
1,454

 

 
 
 
 
Stock options expired
(250
)
 
41.12

 
 
 
 
Stock options outstanding at December 31, 2015
37,249

 
82.06

 
1.72
 
$
8,208

Stock options vested and exercisable at December 31, 2015
37,249

 
82.06

 
1.72
 
8,208

__________________________
(1)
The aggregate intrinsic value is calculated as the difference between the market value of the stock as of December 31, 2015 and the exercise price of the option.
The following table summarizes information about outstanding stock options as of December 31, 2015:
 
Outstanding
 
Exercisable
Range of exercise prices
Number of shares
 
Weighted average remaining contractual life (years)
 
Weighted-average exercise price
 
Number of shares
 
Weighted-average exercise price
$28.56 to $54.22
1,631

 
2.88
 
$
35.83

 
1,631

 
$
35.83

$80.84 to $81.23
21,183

 
1.21
 
81.13

 
21,183

 
81.13

$88.56 to $89.23
14,435

 
2.35
 
88.63

 
14,435

 
88.63

 
37,249

 
1.72
 
82.06

 
37,249

 
82.06

The Company provides the following additional disclosures for stock options as of December 31 (dollars in thousands):
 
2015
 
2014
 
2013
Total fair value of stock options vested
$

 
$
45

 
$
485

Total aggregate intrinsic value of stock options exercised (1)
7,198

 
9,227

 
19,385


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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

_________________________
(1)
The intrinsic value is calculated as the difference between the market value of the stock on the date of exercise and the exercise price of the option.

Restricted Stock Units
Since 2008, the Company primarily grants restricted stock units to its employees, including executives and non-employee directors, in lieu of stock options. The Company generally grants restricted stock units that have a service condition only or have both a service and performance condition. Each restricted stock unit is not considered issued and outstanding and does not have voting rights until it is converted into one share of the Company’s common stock upon vesting. Restricted stock unit activity is summarized as follows:
 
Number of shares outstanding
 
Weighted-average grant date fair value per share
 
Weighted-average remaining contractual life (years)
 
Aggregate intrinsic value (1) (dollars in thousands)
Restricted stock units outstanding, December 31, 2012
1,583,840

 
$
115.22

 
 
 
 
Restricted stock units granted
775,029

 
204.20

 
 
 
 
Restricted stock units released, vested
(738,767
)
 
199.14

 
 
 
 
Restricted stock units canceled
(110,720
)
 
138.27

 
 
 
 
Restricted shares outstanding, December 31, 2013
1,509,382

 
122.05

 
 
 
 
Restricted stock units granted
803,692

 
190.90

 
 
 
 
Additional shares granted due to special distribution
48,171

 
224.45

 
 
 
 
Restricted stock units released, vested
(703,393
)
 
201.85

 
 
 
 
Restricted stock units canceled
(253,878
)
 
179.71

 
 
 
 
Restricted shares outstanding, December 31, 2014
1,403,974

 
114.56

 
 
 
 
Restricted stock units granted
711,990

 
236.89

 
 
 
 
Additional shares granted due to special distribution
51,432

 
297.03

 
 
 
 
Restricted stock units released, vested
(623,554
)
 
173.79

 
 
 
 
Special distribution shares released
(19,966
)
 
227.99

 
 
 
 
Restricted stock units canceled
(103,922
)
 
198.67

 
 
 
 
Special distribution shares canceled
(3,516
)
 
235.43

 
 
 
 
Restricted shares outstanding, December 31, 2015
1,416,438

 
148.53

 
1.21
 
$
428,331

__________________________
(1)The intrinsic value is calculated based on the market value of the stock as of December 31, 2015.
The total fair value of restricted stock units vested and released during the years ended December 31, 2015, 2014 and 2013 was $157,605,000, $141,980,000 and $147,119,000.
Employee Stock Purchase Plan
In June 2004, the Company’s stockholders approved the adoption of the 2004 Employee Stock Purchase Plan (the “2004 Purchase Plan”) as a successor plan to a previous plan that ceased activity in 2005. A total of 500,000 shares have been reserved for issuance under the 2004 Purchase Plan, and the number of shares available for issuance under the 2004 Purchase Plan automatically increased on January 1 each year, beginning in 2005 and ending in 2014 by the lesser of 2% of the shares of common stock then outstanding or 500,000 shares. Effective November 25, 2014, 3,197 shares were added to the 2004 Purchase Plan, representing an anti-dilutive adjustment pursuant to the 2014 Special Distribution. Effective November 10, 2015, 9,020 shares were added to the 2004 Purchase Plan, representing an anti-dilutive adjustment pursuant to the 2015 Special Distribution. As of December 31, 2015, a total of 3,577,911 shares remained available for purchase under the 2004 Purchase Plan. The 2004 Purchase

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Plan permits eligible employees to purchase common stock on favorable terms via payroll deductions of up to 15% of the employee’s cash compensation, subject to certain share and statutory dollar limits. Two overlapping offering periods commence during each calendar year, on each February 15 and August 15 or such other periods or dates as determined by the Compensation Committee from time to time, and the offering periods last up to 24 months with a purchase date every six months. The price of each share purchased is 85% of the lower of a) the fair value per share of common stock on the last trading day before the commencement of the applicable offering period or b) the fair value per share of common stock on the purchase date. The 2004 Purchase Plan is administered by the Compensation Committee of the Board of Directors, and such plan will terminate automatically in June 2024 unless a) the 2004 Purchase Plan is extended by the Board of Directors and b) the extension is approved within 12 months by the Company’s stockholders.
The Company provides the following disclosures for the 2004 Purchase Plan as of December 31 (dollars, except shares):
 
2015
 
2014
 
2013
Weighted-average purchase price per share
$
150.13

 
$
144.95

 
$
108.97

Weighted average grant-date fair value per share of shares purchased
57.63

 
53.37

 
41.30

Number of shares purchased
182,175

 
166,384

 
214,985

The Company uses the Black-Scholes option-pricing model to determine the fair value of shares purchased under the 2004 Purchase Plan with the following weighted average assumptions for the years ended December 31:
 
2015
 
2014
 
2013
Dividend yield
2.65 - 2.81%

 
0
%
 
0
%
Expected volatility
31
%
 
34
%
 
41
%
Risk-free interest rate
0.26
%
 
0.19
%
 
0.37
%
Expected life (in years)
1.25

 
1.25

 
1.25

Stock-Based Compensation Recognized in the Consolidated Statement of Operations
The Company generally recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the awards. However, for awards with market conditions or performance conditions, stock-based compensation expense is recognized on a straight-line basis over the requisite service period for each vesting tranche of the award.
In October 2014, the Compensation Committee approved amendments to the terms of all outstanding restricted stock units (“RSUs”) granted prior to January 1, 2014 to provide for dividend equivalent rights (“DERs”) in the event of future dividends paid on the Company’s common stock.  The Compensation Committee also approved an adjustment to outstanding stock options, including those under the Company’s Employee Stock Purchase Plan (“ESPP”), to ensure that the cash portion of the 2014 Special Distribution would not negatively impact the intrinsic value of the options. Pursuant to the accounting standard for stock compensation, these actions affecting the terms of the awards are considered modifications for accounting purposes that resulted in incremental stock-based compensation expenses and will be recognized over the requisite service period for each vesting tranche of the award. The total charges associated with this modification are insignificant to the financial statements.
As of December 31, 2015, the total stock-based compensation cost related to unvested equity awards not yet recognized, net of estimated forfeitures, totaled $201,206,000 which is expected to be recognized over a weighted-average period of 2.08 years.
The following table presents, by operating expense, the Company’s stock-based compensation expense recognized in the Company’s consolidated statement of operations for the years ended December 31 (in thousands):

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 
2015
 
2014
 
2013
Cost of revenues
$
9,878

 
$
8,511

 
$
7,855

Sales and marketing
36,847

 
30,084

 
26,538

General and administrative
86,908

 
79,395

 
68,547

 
$
133,633

 
$
117,990

 
$
102,940

The Company’s stock-based compensation recognized in the consolidated statement of operations was comprised of the following types of equity awards for the years ended December 31 (in thousands):
 
2015
 
2014
 
2013
Stock options
$
1,679

 
$
4,917

 
$
3,456

Restricted shares and restricted stock units
124,512

 
104,235

 
88,411

Employee stock purchase plan
7,442

 
8,838

 
11,073

 
$
133,633

 
$
117,990

 
$
102,940

Stock-based compensation for stock options for the year ended December 31, 2015 included $1,191,000 in as a result of the Company's acquisition of Bit-isle in November 2015. During the years ended December 31, 2015, 2014 and 2013, the Company capitalized $2,987,000, $3,958,000 and $3,305,000, respectively, of stock-based compensation expense as construction in progress in property, plant and equipment.
13.     Income Taxes
In September 2012, the Company announced that its Board of Directors approved a plan for Equinix to pursue conversion to a REIT. On December 23, 2014, its Board of Directors formally approved its conversion to a REIT effective on January 1, 2015. The Company completed the implementation of the REIT conversion in 2014, and, as a result, the Company elected to be treated as a REIT for federal income tax purposes effective January 1, 2015.
In May 2015, the Company received a favorable PLR from the IRS in connection with the Company’s conversion to a REIT for federal income tax purposes. As a result, the Company may deduct the distributions made to its shareholders from taxable income generated by the Company and its QRSs. The Company’s dividends paid deduction generally eliminates the taxable income of the Company and its QRSs, resulting in no U.S. income tax due. However, the TRSs will continue to be subject to income taxes on any taxable income generated by them. In addition, the foreign operations of the Company will continue to be subject to local income taxes regardless of whether the foreign operations are operated as a QRS or a TRS.
Income (loss) before income taxes is attributable to the following geographic locations for the years ended December 31, (in thousands):
 
2015
 
2014
 
2013
Domestic
$
123,153

 
$
(46,876
)
 
$
(28,362
)
Foreign
87,845

 
131,609

 
140,641

Income before income taxes and income (loss) attributable to redeemable non-controlling interests
$
210,998

 
$
84,733

 
$
112,279


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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The tax benefit (expenses) for income taxes consisted of the following components for the years ended December 31, (in thousands):
 
2015
 
2014
 
2013
Current:
 
 
 
 
 
Federal
$
(85,352
)
 
$
(98,445
)
 
$
(100,035
)
State and local
(3,984
)
 
(16,243
)
 
(15,260
)
Foreign
(27,090
)
 
(31,844
)
 
(29,377
)
Subtotal
(116,426
)
 
(146,532
)
 
(144,672
)
Deferred:
 
 
 
 
 
Federal
87,801

 
(177,877
)
 
111,721

State and local
4,600

 
(21,539
)
 
17,044

Foreign
801

 
489

 
(249
)
Subtotal
93,202

 
(198,927
)
 
128,516

Provision for income taxes
$
(23,224
)
 
$
(345,459
)
 
$
(16,156
)
State and foreign taxes not based on income are included in general and administrative expenses and the aggregate amounts were insignificant for the years ended December 31, 2015, 2014 and 2013.
The Company is entitled to a deduction for federal and state tax purposes with respect to employee equity award activity. The reduction in income tax payable related to windfall tax benefits for stock-based compensation awards has been reflected as an adjustment to additional paid-in capital. For the years ended December 31, 2015, 2014 and 2013, the benefits arising from employee equity award activity that resulted in an adjustment to additional paid-in capital were approximately $30,000, $18,561,000 and $25,638,000, respectively. The amount of benefits for 2015 is significantly lower than the prior years due to the zero effective U.S. tax rate that applies to the REIT as the Company distributed 100% of its U.S. taxable income for 2015.
The fiscal 2015, 2014 and 2013 income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 35% to pre-tax income as a result of the following for the years ended December 31 (in thousands):
 
2015
 
2014
 
2013
Federal tax at statutory rate
$
(73,849
)
 
$
(29,657
)
 
$
(39,298
)
State and local taxes
945

 
1,370

 
7,435

Deferred tax assets generated in current year not benefited
(4,916
)
 
(3,311
)
 
(4,777
)
Foreign income tax rate differential
30,387

 
20,002

 
21,392

Non-deductible expenses
(14,252
)
 
(1,274
)
 
(2,525
)
Stock-based compensation expense
(3,922
)
 
(4,496
)
 
(3,273
)
Change in valuation allowance
710

 
1,655

 
1,362

Foreign financing benefits
2,592

 
2,981

 
4,303

Uncertain tax positions reserve
(3,191
)
 
(463
)
 
2,952

Statutory rate change due to REIT conversion
45,823

 
(324,142
)
 

Other, net
(3,551
)
 
(8,124
)
 
(3,727
)
Total income tax expense
$
(23,224
)
 
$
(345,459
)
 
$
(16,156
)
The Company had not previously provided for deferred taxes on the excess of the financial reporting over the tax basis in its investments in foreign subsidiaries that are essentially permanent in duration because the Company intended to reinvest the earnings outside the U.S. for an indefinite period of time.  As a result of the Company’s conversion to a REIT effective January 1, 2015, it is no longer the Company’s intent to indefinitely reinvest undistributed foreign earnings from its operations in Europe and Canada.  However, no deferred tax liability has been recognized to account for this change because the expected recovery of the basis difference will not result in taxes in the post-REIT conversion periods. As it continues to qualify as a REIT, the Company will not incur U.S. tax liability on the future repatriation of the foreign earnings and profits of the above noted jurisdictions due to the zero

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

tax rate that will apply provided the Company distributes 100% of its taxable income. The Company will continue to reinvest its undistributed foreign earnings in jurisdictions other than Europe indefinitely. The foreign withholding taxes are expected to be immaterial if these undistributed foreign earnings are distributed.
The types of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities are set out below as of December 31 (in thousands):
 
2015
 
2014
Deferred tax assets:
 
 
 
Reserves and accruals
$
13,013

 
$
11,952

Stock-based compensation expense
1,459

 
1,185

Unrealized currency gains/losses
10,656

 

Others, net
18

 

Operating loss carryforwards
34,457

 
27,687

Gross deferred tax assets
59,603

 
40,824

Valuation allowance
(29,894
)
 
(27,181
)
Total deferred tax assets, net
29,709

 
13,643

Deferred tax liabilities:
 
 
 
Property, plant and equipment
(3,365
)
 
(78,261
)
Unrealized currency gains/losses

 
(502
)
Fixed assets fair value step-up
(5,683
)
 
(7,210
)
Intangible assets
(60,133
)
 
(28,433
)
Total deferred tax liabilities
(69,181
)
 
(114,406
)
Net deferred tax liabilities
$
(39,472
)
 
$
(100,763
)
The tax basis of REIT assets, excluding investments in TRSs, is greater than the amounts reported for such assets in the accompanying consolidated balance sheet by approximately $984,400,000 at December 31, 2015.
    
The Company's accounting for deferred taxes involves weighing positive and negative evidence concerning the realizability of the Company's deferred tax assets in each tax jurisdiction. After considering such evidence as the nature, frequency and severity of current and cumulative financial reporting losses, and the sources of future taxable income and tax planning strategies, management concluded that valuation allowances were required in certain foreign jurisdictions. A valuation allowance continues to be provided for the deferred tax assets, net of deferred tax liabilities, associated with the Company's operations in certain jurisdictions located in the Company’s EMEA and Asia-Pacific regions, as well as two entities in Brazil. The operations in these jurisdictions have a history of significant losses as of December 31, 2015. As such, management does not believe these operations have established a sustained history of profitability and that a valuation allowance is, therefore, necessary.
Changes in the valuation allowance for deferred tax assets for the years ended December 31, 2015, 2014 and 2013 are as follows (in thousands):
 
2015
 
2014
 
2013
Beginning balance
$
27,181

 
$
31,058

 
$
44,868

Recognized into income
(710
)
 
(1,655
)
 
(1,362
)
Current Increase (Decrease)
4,513

 
721

 
(10,156
)
NOL and tax credit expiration

 
238

 
11

Translation adjustment
(1,090
)
 
(3,181
)
 
(2,303
)
Ending balance
$
29,894

 
$
27,181

 
$
31,058

Federal and state tax laws, including California tax laws, impose substantial restrictions on the utilization of net operating loss and credit carryforwards in the event of an "ownership change" for tax purposes, as defined in Section 382 of the Internal

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Revenue Code. In 2003, the Company conducted an analysis to determine whether an ownership change had occurred due to significant stock transactions in each of the reporting years disclosed at that time. The analysis indicated that an ownership change occurred during fiscal year 2002, which resulted in an annual limitation of approximately $819,000 for net operating loss carryforwards generated prior to 2003. Therefore, the Company substantially reduced its federal and state net operating loss carryforwards for the periods prior to 2003 to approximately $16,400,000. In addition, an ownership change under Section 382 of the Internal Revenue Code was triggered in September 2007 by the issuance of 4,211,939 shares of the Company's common stock. However, the annual limitation associated with this ownership change is not meaningful due to the substantial market capitalization of the Company at the time of the ownership change. The Company determined that no Section 382 ownership change occurred during the year ended December 31, 2015. In addition, the net operating loss acquired in the Switch and Data acquisition in 2010 is subject to the Section 382 limitation; however, the Company has determined that none of the acquired net operating losses will expire unused as a result of the limitation.
The Company utilized all of its net operating loss carryforwards that were not subject to the limitation under Section 382 as discussed above for federal income tax purposes during the year ended December 31, 2013. The Company’s U.S. operations generated significant taxable income (versus book income) for the years ended December 31, 2015 and 2014 primarily due to the change in the tax method for depreciation of the Company’s property, plant and equipment. As the result of announcing its plan to pursue a REIT conversion, the Company changed its methods of depreciating and amortizing various data center assets to methods that are more consistent with the characterization of such assets as real property for REIT purposes. The change in the depreciation method resulted in the recapture of depreciation expense deducted in prior years and a much smaller amount of depreciation expense for the years ended December 31, 2015 and 2014.
The Company’s net operating loss carryforwards for federal, state and foreign tax purposes which expire, if not utilized, at various intervals from 2015, are outlined below (in thousands):
Expiration Date
 
Federal (1)
 
State (1)
 
Foreign
 
Total
2016
 
$

 
$
12,793

 
$
1,464

 
$
14,257

2017 to 2019
 

 
190

 
32,464

 
32,654

2020 to 2022
 
213,390

 

 
11,798

 
225,188

2023 to 2025
 
26,838

 
4,005

 
9,611

 
40,454

2026 to 2028
 
12,186

 

 

 
12,186

2029 to 2031
 

 
3,330

 

 
3,330

Thereafter
 

 

 
152,073

 
152,073

 
 
$
252,414

 
$
20,318

 
$
207,410

 
$
480,142

(1)
The total amount of net operating loss carryforwards that will not be available to offset the Company’s future taxable income after dividend paid deduction due to Section 382 limitations was $258,339, comprising $241,766 of federal and $16,573 of state.
Approximately $4,443,000 of the total net operating loss carryforwards is attributable to excess tax deductions related to employee stock awards, the benefit from which will be credited to additional paid-in capital when subsequently utilized in future years.
The beginning and ending balances of the Company's unrecognized tax benefits are reconciled below for the years ended December 31 (in thousands):
 
2015
 
2014
 
2013
Beginning balance
$
36,138

 
$
36,552

 
$
25,050

Gross increases related to prior year tax positions

 
1,200

 
14,596

Gross decreases related to prior year tax positions
(8,645
)
 
(984
)
 
(3,028
)
Gross increases related to current year tax positions
4,802

 
1,538

 
1,498

Decreases resulting from expiration of statute of limitation
(1,450
)
 
(1,112
)
 
(1,564
)
Decreases resulting from settlements

 
(1,056
)
 

Ending balance
$
30,845

 
$
36,138

 
$
36,552


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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company recognizes interest and penalties related to unrecognized tax benefits within income tax benefit (expense) in the consolidated statement of operations. During the years ended December 31, 2015, 2014 and 2013, the accrued interest and penalties related to the unrecognized tax benefits were decreased by $1,701,000, $3,126,000 and $1,612,000, respectively, primarily resulting from the settlement of tax audits and the lapse of statutes of limitations in its foreign operations. The Company has accrued $3,736,000 and $5,437,000 for interest and penalties accrued at December 31, 2015 and 2014, respectively.
The unrecognized tax benefits of $30,845,000 as of December 31, 2015, if subsequently recognized, will affect the Company's effective tax rate favorably at the time when such a benefit is recognized.
Due to various tax years open for examination, it is reasonably possible that the balance of unrecognized tax benefits could significantly increase or decrease over the next 12 months as the Company may be subject to either examination by tax authorities or a lapse in statute of limitations. The Company is currently unable to estimate the range of possible adjustments to the balance of unrecognized tax benefits.
The Company's income tax returns for all tax years remain open to examination by federal and state taxing authorities due to the Company's net operating loss carryforwards. In addition, the Company's tax years of 2005 through 2014 remain open and subject to examination by local tax authorities in certain foreign jurisdictions in which the Company has major operations.
14.     Commitments and Contingencies
Purchase Commitments
Primarily as a result of the Company’s various IBX expansion projects, as of December 31, 2015, the Company was contractually committed for $256,757,000 of unaccrued capital expenditures, primarily for IBX equipment not yet delivered and labor not yet provided, in connection with the work necessary to open these IBX data centers and make them available to customers for installation. In addition, the Company had numerous other, non-capital purchase commitments in place as of December 31, 2015, such as commitments to purchase power in select locations, primarily in select locations through 2016 and thereafter, and other open purchase orders for goods or services to be delivered or provided during 2016 and thereafter. Such other miscellaneous purchase commitments totaled $352,202,000 as of December 31, 2015.
Contingent Liabilities
The Company estimates exposure on certain liabilities, such as income and property taxes, based on the best information available at the time of determination. With respect to real and personal property taxes, the Company records what it can reasonably estimate based on prior payment history, current landlord estimates or estimates based on current or changing fixed asset values in each specific municipality, as applicable. However, there are circumstances beyond the Company’s control whereby the underlying value of the property or basis for which the tax is calculated on the property may change, such as a landlord selling the underlying property of one of the Company’s IBX data center leases or a municipality changing the assessment value in a jurisdiction and, as a result, the Company’s property tax obligations may vary from period to period. Based upon the most current facts and circumstances, the Company makes the necessary property tax accruals for each of its reporting periods. However, revisions in the Company’s estimates of the potential or actual liability could materially impact the financial position, results of operations or cash flows of the Company.
From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. In the opinion of management, there are no pending claims for which the outcome is expected to result in a material adverse effect in the financial position, results of operations or cash flows of the Company.
Employment Agreements
The Company has entered into a severance agreement with each of its executive officers that provides for a severance payment equal to the executive officer’s annual base salary and maximum bonus in the event his or her employment is terminated for any reason other than cause or he or she voluntarily resigns under certain circumstances as described in the agreement. In addition, under the agreement, the executive officer is entitled to the payment of his or her monthly health care premiums under the Consolidated Omnibus Budget Reconciliation Act for up to 12 months. For certain executive officers, these benefits are only triggered after a change-in-control of the Company.

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Guarantor Arrangements
As permitted under Delaware law, the Company has agreements whereby the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The term of the indemnification period is for the officer's or director's lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits the Company’s exposure and enables the Company to recover a portion of any future amounts paid. As a result of the Company’s insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company has no liabilities recorded for these agreements as of December 31, 2015.
The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with any U.S. patent, or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s offerings. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. The Company has no liabilities recorded for these agreements as of December 31, 2015.
The Company enters into arrangements with its business partners, whereby the business partner agrees to provide services as a subcontractor for the Company’s implementations. Accordingly, the Company enters into standard indemnification agreements with its customers, whereby the Company indemnifies them for other acts, such as personal property damage, of its subcontractors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has general and umbrella insurance policies that enable the Company to recover a portion of any amounts paid. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. The Company has no liabilities recorded for these agreements as of December 31, 2015.
The Company has service level commitment obligations to certain of its customers. As a result, service interruptions or significant equipment damage in the Company’s IBX data centers, whether or not within the Company’s control, could result in service level commitments to these customers. The Company’s liability insurance may not be adequate to cover those expenses. In addition, any loss of services, equipment damage or inability to meet the Company’s service level commitment obligations could reduce the confidence of the Company’s customers and could consequently impair the Company’s ability to obtain and retain customers, which would adversely affect both the Company’s ability to generate revenues and the Company’s operating results. The Company generally has the ability to determine such service level credits prior to the associated revenue being recognized. The Company has no significant liabilities in connection with service level credits as of December 31, 2015.
15.     Related Party Transactions
The Company has several significant stockholders and other related parties that are also customers and/or vendors. The Company’s activity of related party transactions was as follows (in thousands):
 
Years ended December 31,
 
2015
 
2014
 
2013
Revenues
$
10,745

 
$
8,392

 
$
20,140

Costs and services
10,808

 
8,351

 
4,819

 
As of December 31,
 
2015
 
2014
Accounts receivable
$
797

 
$
1,022

Accounts payable
254

 


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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

16.     Segment Information
While the Company has a single line of business, which is the design, build-out and operation of IBX data centers, it has determined that it has three reportable segments comprised of its Americas, EMEA and Asia-Pacific geographic regions. The Company’s chief operating decision-maker evaluates performance, makes operating decisions and allocates resources based on the Company’s revenue and adjusted EBITDA performance both on a consolidated basis and based on these three reportable segments. The Company defines adjusted EBITDA as income or loss from operations plus depreciation, amortization, accretion, stock-based compensation expense, restructuring charges, impairment charges and acquisition costs as presented below for the years ended December 31 (in thousands):
 
2015
 
2014
 
2013
Adjusted EBITDA:
 
 
 
 
 
Americas
$
698,604

 
$
635,007

 
$
608,718

EMEA
318,561

 
269,222

 
216,186

Asia-Pacific
254,462

 
209,662

 
175,994

Total adjusted EBITDA
1,271,627

 
1,113,891

 
1,000,898

Depreciation, amortization and accretion expense
(528,929
)
 
(484,129
)
 
(431,008
)
Stock-based compensation expense
(133,633
)
 
(117,990
)
 
(102,940
)
Restructuring charges

 

 
4,837

Acquisitions costs
(41,723
)
 
(2,506
)
 
(10,855
)
Income from operations
$
567,342

 
$
509,266

 
$
460,932

The Company provides the following segment disclosures related to its continuing operations as follows for the years ended December 31 (in thousands):
 
2015
 
2014
 
2013
 
Total revenues:
 
 
 
 
 
 
Americas(1)
$
1,512,535

 
$
1,376,103

 
$
1,264,774

 
EMEA
698,807

 
637,265

 
525,018

(2) 
Asia-Pacific
514,525

 
430,408

 
362,974

 
 
2,725,867

 
$
2,443,776

 
$
2,152,766

 
 
 
 
 
 
 
 
Total depreciation and amortization:
 
 
 
 
 
 
Americas
$
278,216

 
$
261,018

 
$
254,365

 
EMEA
117,655

 
114,511

 
90,891

(2) 
Asia-Pacific
129,709

 
106,162

 
87,475

 
 
$
525,580

 
$
481,691

 
$
432,731

 
 
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
Americas
$
401,685

 
$
333,315

 
$
261,936

 
EMEA
202,322

 
151,634

 
170,365

 
Asia-Pacific
264,113

 
175,254

 
140,105

 
 
$
868,120

 
$
660,203

 
$
572,406

 
__________________________
(1)
Includes revenues of $1,404,648, $1,257,661 and $1,157,790, respectively, attributed to the U.S. for the years ended December 31, 2015, 2014 and 2013.
(2)
Includes the operations of Frankfurt Kleyer 90 Carrier Hotel from October 1, 2013 to December 31, 2013.

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Company’s long-lived assets are located in the following geographic areas as of December 31 (in thousands):
 
2015
 
2014
Americas (1)
$
3,025,450

 
$
2,874,562

EMEA
1,157,304

 
1,135,319

Asia-Pacific
1,423,682

 
988,389

 
$
5,606,436

 
$
4,998,270

_________________________
(1)
Includes $2,781,924 and $2,609,268, respectively, of long-lived assets attributed to the U.S. as of December 31, 2015 and 2014.
Revenue information by category is as follows for the years ended December 31 (in thousands):
 
2015
 
2014
 
2013
Colocation
$
2,024,963

 
$
1,829,812

 
$
1,628,179

Interconnection
435,809

 
372,350

 
319,863

Managed infrastructure
97,688

 
105,292

 
97,400

Rental
10,681

 
10,336

 
4,520

Recurring revenues
2,569,141

 
2,317,790

 
2,049,962

Non-recurring revenues
156,726

 
125,986

 
102,804

 
$
2,725,867

 
2,443,776

 
2,152,766

17.     Restructuring Charges
During the years ended December 31, 2015 and 2014, the Company did not record any restructuring charges.
2004 Restructuring Charge
In December 2004, in light of the availability of fully built-out data centers in select markets at costs significantly below those costs the Company would incur in building out new space, the Company made the decision to exit leases for excess space adjacent to one of the Company’s New York metro area IBXs, as well as space on the floor above its original Los Angeles IBX. As a result of the Company’s decision to exit these spaces, the Company recorded restructuring charges totaling $17,685,000, which represents the present value of the Company’s estimated future cash payments, net of estimated sublease income and expense, through the remainder of these lease terms, as well as the write-off of all remaining property, plant and equipment attributed to the partial build out of the excess space on the floor above its Los Angeles IBX.
In May 2013, the Company entered into a binding commitment to purchase the New York 2 IBX data center for leased space in respect of which the Company had previously recorded a restructuring reserve. As a result, the Company recorded a reversal to its outstanding accrued restructuring charge during the year ended December 31, 2013.
A summary of the movement in the 2004 accrued restructuring charges during the year ended December 31, 2013 is outlined as follows (in thousands):
Accrued restructuring charge as of December 31, 2012
$
5,679

Accretion expense
137

Restructuring charge adjustments
(4,837
)
Cash payments
(979
)
Accrued restructuring charge as of December 31, 2013
$

18.     Subsequent Events

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EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

TelecityGroup Acquisition
On January 15, 2016, the Company completed the previously announced acquisition of the entire issued share capital of Telecity Group plc (“TelecityGroup”) (the “Transaction”). As a result of the Transaction, TelecityGroup has become a wholly-owned subsidiary of Equinix. Under the transaction, the Company acquired all outstanding common shares of TelecityGroup for 572.5 pence in cash and 0.0336 new shares of the Company’s common stock for each TelecityGroup’s share for a total purchase price of approximately $1,683,000,000 in cash and 6,853,500 shares of Equinix common stock valued at approximately $2,078,000,000 based on the Company’s share price on January 15, 2016. This amount excludes any value attributed to the Telecity employee equity awards assumed. TelecityGroup’s operating results will be reported in the EMEA region following the date of acquisition. The purchase price allocation for the acquisition is not yet complete. As a result, the fair value of assets acquired and liabilities assumed are still being appraised by a third-party and have not yet been finalized.
Dividends
On February 18, 2016, the Company's Board of Directors declared a quarterly cash dividend of $1.75 per share, which is payable on March 23, 2016 to the Company’s common stockholders of record as of the close of business on March 9, 2016.
Debt
In January 2016, the Company terminated its bridge credit agreement for a principal amount of £875,000,000 or approximately $1,289,000,000 related to the TelecityGroup acquisition. In January 2016, the Company borrowed $250,000,000 from its USD Term Loan B Commitment and £300,000,000, or approximately $442,020,000 at the exchange rate in effect on December 31, 2015 from its Sterling Term Loan B Commitment to fund the TelecityGroup acquisition.
Real estate
In February 2016, the Company sold a parcel of land in San Jose, California, with a sales price of approximately $23,557,000.
19.     Quarterly Financial Information (Unaudited)
The Company believes that period-to-period comparisons of its financial results should not be relied upon as an indication of future performance. The Company’s revenues and results of operations have been subject to significant fluctuations, particularly on a quarterly basis, and the Company’s revenues and results of operations could fluctuate significantly quarter-to-quarter and year-to-year. Significant quarterly fluctuations in revenues will cause fluctuations in the Company’s cash flows and the cash and cash equivalents and accounts receivable accounts on the Company’s consolidated balance sheet. Causes of such fluctuations may include the volume and timing of new orders and renewals, the timing of the opening of new IBX data centers, the sales cycle for the Company’s offerings, the introduction of new offerings, changes in prices and pricing models, trends in the Internet infrastructure industry, general economic conditions, extraordinary events such as acquisitions or litigation and the occurrence of unexpected events.
The unaudited quarterly financial information presented below has been prepared by the Company and reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to present fairly the financial position and results of operations for the interim periods presented.

F-66

Table of Contents
EQUINIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following tables present selected quarterly information (in thousands, except per share data):
 
2015
 
Quarter Ended
 
March 31
 
June 30
 
September 30
 
December 31
Revenues
$
643,174

 
$
665,582

 
$
686,649

 
$
730,462

Gross profit
344,861

 
349,825

 
361,181

 
378,494

Net income (loss) attributable to Equinix
76,452

 
59,459

 
41,132

 
10,731

Comprehensive income (loss) attributable to Equinix
(59,141
)
 
104,323

 
(23,707
)
 
(10,317
)
EPS attributable to Equinix
 
 
 
 
 
 
 
Basic EPS
1.35

 
1.04

 
0.72

 
0.18

Diluted EPS
1.34

 
1.03

 
0.71

 
0.18

 
2014
 
Quarter Ended
 
March 31
 
June 30
 
September 30
 
December 31
Revenues
$
580,053

 
$
605,161

 
$
620,441

 
$
638,121

Gross profit
292,528

 
312,302

 
316,389

 
324,672

Net income (loss) attributable to Equinix
41,387

 
11,328

 
42,841

 
(355,103
)
Comprehensive income (loss) attributable to Equinix
55,329

 
33,640

 
(97,814
)
 
(450,067
)
EPS attributable to Equinix
 
 
 
 
 
 
 
Basic EPS
0.83

 
0.22

 
0.81

 
(6.42
)
Diluted EPS
0.81

 
0.22

 
0.79

 
(6.42
)

F-67

Table of Contents

EQUINIX INC.
SCHEDULE III- SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2015
(Dollars in thousands)
 
Initial Costs to Company (1)
 
           Costs Capitalized Subsequent to Acquisition or Lease
 
Total Costs
 
 
 
Encumbrances
 
Land
 
Buildings and Improvements (2)
 
Land
 
Buildings and Improvements (2)
 
Land
 
Buildings and Improvements (2)
 
Accumulated Depreciation
 
Date of Construction
 
Date of Acquisition or Lease (3)
Americas:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AT1 ATLANTA
 
 
 
 
95,053
 
 
95,053
 
(26,396)
 
N/A
 
2010
AT2 ATLANTA
 
 
 
 
41,648
 
 
41,648
 
(13,454)
 
N/A
 
2010
AT3 ATLANTA
 
 
 
 
3,538
 
 
3,538
 
(875)
 
N/A
 
2010
BO1 BOSTON (METRO)
 
 
 
 
11,261
 
 
11,261
 
(5,264)
 
N/A
 
2010
CH1 CHICAGO (METRO)
 
 
 
 
153,239
 
 
153,239
 
(94,134)
 
2001
 
1999
CH2 CHICAGO (METRO)
 
 
 
 
96,664
 
 
96,664
 
(43,580)
 
2005
 
2005
CH3 CHICAGO (METRO)
 
9,759
 
 
352
 
222,935
 
10,111
 
222,935
 
(78,240)
 
2007
 
2006
CH4 CHICAGO (METRO)
 
 
 
 
21,025
 
 
21,025
 
(6,520)
 
2010
 
2009
DA1 DALLAS
 
 
 
 
72,470
 
 
72,470
 
(44,727)
 
2000
 
2000
DA2 DALLAS
 
 
 
 
77,185
 
 
77,185
 
(13,327)
 
2011
 
2010
DA3 DALLAS
 
 
 
 
84,048
 
 
84,048
 
(21,349)
 
N/A
 
2010
DA4 DALLAS
 
 
 
 
16,674
 
 
16,674
 
(6,672)
 
N/A
 
2010
DA6 DALLAS
 
 
20,522
 
 
78,386
 
 
98,908
 
(6,942)
 
2013
 
2012
DA7 DALLAS
 
 
 
 
24,525
 
 
24,525
 
(177)
 
2015
 
2015
DC1 WASHINGTON, DC (METRO)
 
 
 
 
1,520
 
 
1,520
 
(197)
 
2007
 
1999
DC2 WASHINGTON, DC (METRO)
 
 
 
5,047
 
150,144
 
5,047
 
150,144
 
(123,646)
 
1999
 
1999
DC3 WASHINGTON, DC (METRO)
 
 
37,451
 
 
51,589
 
 
89,040
 
(42,295)
 
2004
 
2004
DC4 WASHINGTON, DC (METRO)
 
1,906
 
7,272
 
 
70,087
 
1,906
 
77,359
 
(42,918)
 
2007
 
2005
DC5 WASHINGTON, DC (METRO)
 
1,429
 
4,983
 
 
86,875
 
1,429
 
91,858
 
(47,548)
 
2008
 
2005
DC6 WASHINGTON, DC (METRO)
 
1,429
 
5,082
 
 
85,311
 
1,429
 
90,393
 
(30,425)
 
2010
 
2005
DC7 WASHINGTON, DC (METRO)
 
 
 
 
15,348
 
 
15,348
 
(9,135)
 
N/A
 
2010
DC8 WASHINGTON, DC (METRO)
 
 
 
 
4,684
 
 
4,684
 
(4,532)
 
N/A
 
2010
DC10 WASHINGTON, DC (METRO)
 
 
44,601
 
 
67,402
 
 
112,003
 
(20,225)
 
2012
 
2011
DC11 WASHINGTON, DC (METRO)
 
1,429
 
5,082
 
 
114,865
 
1,429
 
119,947
 
(13,880)
 
2013
 
2005
DE1 DENVER (METRO)
 
 
 
 
8,322
 
 
8,322
 
(4,966)
 
N/A
 
2010

F-68

Table of Contents

 
Initial Costs to Company (1)
 
           Costs Capitalized Subsequent to Acquisition or Lease
 
Total Costs
 
 
 
Encumbrances
 
Land
 
Buildings and Improvements (2)
 
Land
 
Buildings and Improvements (2)
 
Land
 
Buildings and Improvements (2)
 
Accumulated Depreciation
 
Date of Construction
 
Date of Acquisition or Lease (3)
LA1 LOS ANGELES
 
 
 
 
107,511
 
 
107,511
 
(55,793)
 
2000
 
1999
LA2 LOS ANGELES
 
 
 
 
11,367
 
 
11,367
 
(9,566)
 
2001
 
2000
LA3 EL SEGUNDO
 
 
34,727
 
3,959
 
18,950
 
3,959
 
53,677
 
(39,778)
 
2005
 
2005
LA4 EL SEGUNDO
 
19,333
 
137,630
 
 
27,997
 
19,333
 
165,627
 
(51,666)
 
2009
 
2009
MI2 MIAMI (METRO)
 
 
 
 
21,510
 
 
21,510
 
(9,439)
 
N/A
 
2010
MI3 MIAMI (METRO)
 
 
 
 
28,869
 
 
28,869
 
(5,750)
 
2012
 
2012
NY1 NEWARK
 
 
 
 
79,447
 
 
79,447
 
(39,430)
 
1999
 
1999
NY2 NEW YORK CITY (METRO)
 
 
 
17,859
 
187,115
 
17,859
 
187,115
 
(115,457)
 
2002
 
2000
NY4 NEW YORK CITY (METRO)
 
 
 
 
322,863
 
 
322,863
 
(140,124)
 
2007
 
2006
NY5 NEW YORK CITY (METRO)
 
 
 
 
182,025
 
 
182,025
 
(30,405)
 
2012
 
2010
NY6 NEW YORK CITY (METRO)
 
 
 
 
72,901
 
 
72,901
 
(2,517)
 
2015
 
2010
NY7 NEW YORK CITY (METRO)
 
 
24,660
 
 
137,080
 
 
161,740
 
(75,835)
 
N/A
 
2010
NY8 NEW YORK CITY (METRO)
 
 
 
 
11,515
 
 
11,515
 
(4,979)
 
N/A
 
2010
NY9 NEW YORK CITY (METRO)
 
 
 
 
51,727
 
 
51,727
 
(22,897)
 
N/A
 
2010
PH1 PHILADELPHIA
 
 
 
 
47,463
 
 
47,463
 
(7,790)
 
N/A
 
2010
SE2 SEATTLE
 
 
 
 
27,359
 
 
27,359
 
(16,368)
 
N/A
 
2010
SE3 SEATTLE
 
 
1,760
 
 
93,457
 
 
95,217
 
(16,852)
 
2013
 
2011
SV1 SILICON VALLEY (METRO)
 
 
 
15,545
 
156,304
 
15,545
 
156,304
 
(100,156)
 
1999
 
1999
SV2 SILICON VALLEY (METRO)
 
 
 
 
145,920
 
 
145,920
 
(60,670)
 
2003
 
2003
SV3 SILICON VALLEY (METRO)
 
 
 
 
42,971
 
 
42,971
 
(36,280)
 
2004
 
1999
SV4 SILICON VALLEY (METRO)
 
 
 
 
24,231
 
 
24,231
 
(17,247)
 
2005
 
2005
SV5 SILICON VALLEY (METRO)
 
6,238
 
98,991
 
 
86,932
 
6,238
 
185,923
 
(32,645)
 
2010
 
2010
SV6 SILICON VALLEY (METRO)
 
 
15,585
 
 
21,380
 
 
36,965
 
(18,663)
 
N/A
 
2010
SV8 SILICON VALLEY (METRO)
 
 
 
 
44,240
 
 
44,240
 
(17,178)
 
N/A
 
2010
SV12 SILICON VALLEY (METRO)
 
20,535
 
 
 
1,892
 
20,535
 
1,892
 
 
2015
 
2015
TR1 TORONTO, CANADA
 
 
 
 
86,705
 
 
86,705
 
(15,450)
 
N/A
 
2010
TR2 TORONTO, CANADA
 
 
20,499
 
 
70,383
 
 
90,882
 
(3,007)
 
2015
 
2015
RJ1 RIO DE JANEIRO, BRAZIL
 
 
 
 
20,845
 
 
20,845
 
(12,042)
 
2011
 
2011
RJ2 RIO DE JANEIRO, BRAZIL
 
 
1,654
 
 
27,347
 
 
29,001
 
(4,268)
 
2013
 
2012
SP1 SÃO PAULO, BRAZIL
 
 
8,373
 
 
17,846
 
 
26,219
 
(12,865)
 
2011
 
2011
SP2 SÃO PAULO, BRAZIL
 
 
 
 
53,783
 
 
53,783
 
(17,990)
 
2011
 
2011

F-69

Table of Contents

 
Initial Costs to Company (1)
 
           Costs Capitalized Subsequent to Acquisition or Lease
 
Total Costs
 
 
 
Encumbrances
 
Land
 
Buildings and Improvements (2)
 
Land
 
Buildings and Improvements (2)
 
Land
 
Buildings and Improvements (2)
 
Accumulated Depreciation
 
Date of Construction
 
Date of Acquisition or Lease (3)
DC12 AND other future IBX (4)
 
24,870
 
4,608
 
 
13,666
 
24,870
 
18,274
 
(1,897)
 
Various
 
Various
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EMEA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AM1 AMSTERDAM, THE NETHERLANDS
 
 
 
 
45,887
 
 
45,887
 
(20,343)
 
2008
 
2008
AM2 AMSTERDAM, THE NETHERLANDS
 
 
 
 
54,298
 
 
54,298
 
(15,143)
 
2010
 
2008
AM3 AMSTERDAM, THE NETHERLANDS
 
 
27,977
 
 
90,043
 
 
118,020
 
(15,734)
 
2012
 
2011
DU1 DÜSSELDORF, GERMANY
 
 
 
 
21,062
 
 
21,062
 
(17,219)
 
2001
 
2000
DU2 DÜSSELDORF, GERMANY
 
 
 
 
204
 
 
204
 
(157)
 
2010
 
2010
DX1 DUBAI, UNITED ARAB EMIRATES
 
 
 
 
22,478
 
 
22,478
 
(3,897)
 
2012
 
2008
EN1 ENSCHEDE, THE NETHERLANDS
 
 
 
 
20,135
 
 
20,135
 
(12,188)
 
2008
 
2008
FR1 FRANKFURT (METRO), GERMANY
 
 
 
 
6,751
 
 
6,751
 
(6,401)
 
N/A
 
2007
FR2 FRANKFURT (METRO), GERMANY
 
 
 
11,547
 
183,112
 
11,547
 
183,112
 
(61,215)
 
N/A
 
2007
FR3 FRANKFURT (METRO), GERMANY
 
 
 
2,031
 
4,666
 
2,031
 
4,666
 
(1,000)
 
N/A
 
2007
FR4 FRANKFURT (METRO), GERMANY
 
11,953
 
9,609
 
 
19,431
 
11,953
 
29,040
 
(11,340)
 
2009
 
2009
FR5 FRANKFURT (METRO), GERMANY
32,255
 
 
 
3,836
 
106,889
 
3,836
 
106,889
 
(16,122)
 
2012
 
2012
GV1 GENEVA (METRO), SWITZERLAND
 
 
 
 
5,497
 
 
5,497
 
(4,206)
 
2004
 
2004
GV2 GENEVA (METRO), SWITZERLAND
 
 
 
 
20,757
 
 
20,757
 
(11,210)
 
2010
 
2009
LD1 LONDON (METRO), UNITED KINGDOM
 
 
 
 
2,736
 
 
2,736
 
(2,389)
 
2000
 
2000
LD3 LONDON (METRO), UNITED KINGDOM
 
 
 
 
17,350
 
 
17,350
 
(10,448)
 
2005
 
2000
LD4 LONDON (METRO), UNITED KINGDOM
 
 
27,575
 
 
64,854
 
 
92,429
 
(32,697)
 
2007
 
2007
LD5 LONDON (METRO), UNITED KINGDOM
 
 
19,639
 
 
185,242
 
 
204,881
 
(48,798)
 
2010
 
2010
LD6 LONDON (METRO), UNITED KINGDOM
 
 
 
 
91,946
 
 
91,946
 
(2,729)
 
2015
 
2013
ML1 MILAN (METRO), ITALY
 
 
 
 
832
 
 
832
 
(549)
 
2011
 
2011
MU1 MUNICH, GERMANY
 
 
 
 
11,334
 
 
11,334
 
(7,679)
 
N/A
 
2007
MU2 MUNICH, GERMANY
 
 
 
 
69
 
 
69
 
(44)
 
N/A
 
2006
MU3 MUNICH, GERMANY
 
 
 
 
4,493
 
 
4,493
 
(3,811)
 
2010
 
2010
PA1 PARIS (METRO), FRANCE
 
 
 
 
21,338
 
 
21,338
 
(16,664)
 
N/A
 
2007
PA2 PARIS (METRO), FRANCE
 
 
 
 
39,162
 
 
39,162
 
(22,006)
 
N/A
 
2007
PA3 PARIS (METRO), FRANCE
 
 
30,574
 
 
85,720
 
 
116,294
 
(42,232)
 
2010
 
2008
PA4 PARIS (METRO), FRANCE
 
1,756
 
9,811
 
 
123,424
 
1,756
 
133,235
 
(20,488)
 
2012
 
2011
ZH1 ZURICH (METRO), SWITZERLAND
 
 
 
 
5,573
 
 
5,573
 
(4,330)
 
N/A
 
2007

F-70

Table of Contents

 
Initial Costs to Company (1)
 
           Costs Capitalized Subsequent to Acquisition or Lease
 
Total Costs
 
 
 
Encumbrances
 
Land
 
Buildings and Improvements (2)
 
Land
 
Buildings and Improvements (2)
 
Land
 
Buildings and Improvements (2)
 
Accumulated Depreciation
 
Date of Construction
 
Date of Acquisition or Lease (3)
ZH2 ZURICH (METRO), SWITZERLAND
 
 
 
 
4,893
 
 
4,893
 
(2,490)
 
2003
 
2002
ZH4 ZURICH (METRO), SWITZERLAND
 
 
11,501
 
 
23,062
 
 
34,563
 
(13,034)
 
2010
 
2009
ZH5 ZURICH (METRO), SWITZERLAND
 
 
 
 
39,006
 
 
39,006
 
(8,011)
 
2013
 
2009
ZW1 ZWOLLE, THE NETHERLANDS
 
 
 
 
7,103
 
 
7,103
 
(3,633)
 
2008
 
2008
OTHERS
 
 
 
 
2,112
 
 
2,112
 
(1,776)
 
Various
 
Various
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asia-Pacific:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HK1 HONG KONG, CHINA
 
 
 
 
97,905
 
 
97,905
 
(53,083)
 
N/A
 
2003
HK2 HONG KONG, CHINA
 
 
 
 
181,827
 
 
181,827
 
(34,847)
 
2011
 
2010
HK3 HONG KONG, CHINA
 
 
 
 
132,765
 
 
132,765
 
(33,892)
 
N/A
 
2012
HK4 HONG KONG, CHINA
 
 
 
 
6,698
 
 
6,698
 
(3,149)
 
N/A
 
2012
ME1 MELBOURNE, AUSTRALIA
 
15,502
 
 
 
61,216
 
15,502
 
61,216
 
(2,291)
 
2013
 
2013
OS1 OSAKA, JAPAN
 
 
14,459
 
 
21,861
 
 
36,320
 
(4,711)
 
2013
 
2013
OS2 OSAKA, JAPAN
 
 
100
 
 
 
 
100
 
(7)
 
N/A
 
2015
SG1 SINGAPORE
 
 
 
 
158,755
 
 
158,755
 
(83,970)
 
N/A
 
2003
SG2 SINGAPORE
 
 
 
 
251,089
 
 
251,089
 
(78,714)
 
2008
 
2008
SG3 SINGAPORE
 
 
35,614
 
 
90,929
 
 
126,543
 
(3,293)
 
2013
 
2013
SH2 SHANGHAI, CHINA
 
 
 
 
3,315
 
 
3,315
 
(743)
 
2012
 
2012
SH3 SHANGHAI, CHINA
 
 
7,557
 
 
5,440
 
 
12,997
 
(3,064)
 
2012
 
2012
SH4 SHANGHAI, CHINA
 
 
 
 
1,718
 
 
1,718
 
(1,164)
 
2012
 
2012
SH5 SHANGHAI, CHINA
 
 
12,068
 
 
19,571
 
 
31,639
 
(4,292)
 
2012
 
2012
SY1 SYDNEY, AUSTRALIA
 
 
 
 
23,894
 
 
23,894
 
(12,181)
 
N/A
 
2003
SY2 SYDNEY, AUSTRALIA
 
 
3,113
 
 
32,205
 
 
35,318
 
(16,660)
 
2008
 
2008
SY3 SYDNEY, AUSTRALIA
 
 
8,804
 
 
130,183
 
 
138,987
 
(34,199)
 
2010
 
2010
SY4 SYDNEY, AUSTRALIA
 
 
 
 
39,113
 
 
39,113
 
 
2015
 
2014
TY1 TOKYO, JAPAN
 
 
 
 
16,651
 
 
16,651
 
(8,795)
 
2000
 
2000
TY2 TOKYO, JAPAN
 
 
 
 
61,024
 
 
61,024
 
(47,119)
 
2007
 
2006
TY3 TOKYO, JAPAN
 
 
 
 
65,673
 
 
65,673
 
(18,224)
 
2010
 
2010
TY4 TOKYO, JAPAN
 
 
 
 
41,256
 
 
41,256
 
(6,375)
 
2012
 
2012
TY5 TOKYO, JAPAN
 
 
99
 
 
14,366
 
 
14,465
 
 
2014
 
2014
TY6 TOKYO, JAPAN
 
 
36,877
 
 
4,652
 
 
41,529
 
(853)
 
N/A
 
2015

F-71

Table of Contents

 
Initial Costs to Company (1)
 
           Costs Capitalized Subsequent to Acquisition or Lease
 
Total Costs
 
 
 
Encumbrances
 
Land
 
Buildings and Improvements (2)
 
Land
 
Buildings and Improvements (2)
 
Land
 
Buildings and Improvements (2)
 
Accumulated Depreciation
 
Date of Construction
 
Date of Acquisition or Lease (3)
TY7 TOKYO, JAPAN
 
 
12,806
 
 
1,321
 
 
14,127
 
(464)
 
N/A
 
2015
TY8 TOKYO, JAPAN
 
 
52,338
 
 
6,593
 
 
58,931
 
(1,672)
 
N/A
 
2015
TY9 TOKYO, JAPAN
 
 
103,718
 
 
893
 
 
104,611
 
(2,169)
 
N/A
 
2015
TY10 TOKYO, JAPAN
 
 
67,922
 
 
329
 
 
68,251
 
(791)
 
N/A
 
2015
OTHERS
 
7,631
 
 
 
21,203
 
7,631
 
21,203
 
(2,515)
 
Various
 
Various
TOTAL LOCATIONS
$32,255
 
$123,770
 
$965,641
 
$60,176
 
$6,722,303
 
$183,946
 
$7,687,944
 
$(2,595,648)
 
 
 
 
(1) The initial cost was $0 if the lease of the respective IBX was classified as an operating lease.
(2) Building and improvements include all fixed assets except for land.
(3) Date of lease or acquisition represents the date the Company leased the facility or acquired the facility through purchase or acquisition.
(4) Includes IBX DC12 and various other IBXs that are under initial development.

The aggregate gross cost of the Company's properties for federal income tax purpose approximated $7,512,627,000 (unaudited) as of December 31, 2015.
The following table reconciles the historical cost of the Company’s properties for financial reporting purposes for each of the years in the three-year period ended December 31, 2015.
Gross Fixed Assets:
 
2015
 
2014
 
2013
Balance, beginning of period
$
7,006,695

 
$
6,308,992

 
$
5,220,450

Additions (acquisitions and improvements)
1,172,855

 
997,534

 
1,146,126

Disposals
(9,295
)
 
(16,444
)
 
(14,864
)
Foreign currency transaction adjustments and others
(298,365
)
 
(283,387
)
 
(42,720
)
Balance, end of year
$
7,871,890

 
$
7,006,695

 
$
6,308,992

Accumulated Depreciation:

 
2015
 
2014
 
2013
Balance, beginning of period
$
(2,242,345
)
 
$
(1,904,311
)
 
$
(1,538,329
)
Additions (depreciation expense)
(440,002
)
 
(418,407
)
 
(377,577
)
Disposals
7,396

 
16,038

 
12,804

Foreign currency transaction adjustments and others
79,303

 
64,335

 
(1,209
)
Balance, end of year
$
(2,595,648
)
 
$
(2,242,345
)
 
$
(1,904,311
)

F-72