Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial statements of Equinix, Inc. (“Equinix” or the “Company”) are presented to illustrate the estimated effects of (i) the pending acquisition of Telecity Group plc (“TelecityGroup”) (the “Telecity Acquisition”); (ii) the incurrence of $1,700,000,000 aggregate principal amount of additional indebtedness, consisting of a term loan facility in the aggregate principal amount of $700,000,000 and one or more series of unsecured senior notes in the aggregate principal amount of $1,000,000,000; and (iii) the issuance of $750,000,000 of the Company’s shares in a public offering (clauses (ii) and (iii) referred to as the “Financings”). The pro forma financial information is based in part on certain assumptions regarding the foregoing transactions that we believe are factually supportable and are expected to have a continuing impact on our consolidated results. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2014, and for the nine months ended September 30, 2015, combine the historical consolidated statements of operations of the Company and TelecityGroup, giving effect to the Telecity Acquisition and Financings as if they had been completed on January 1, 2014. The unaudited pro forma condensed combined balance sheet as of September 30, 2015, combines the historical consolidated balance sheets of Equinix and TelecityGroup, giving effect to the Telecity Acquisition and Financings as if they had occurred on September 30, 2015. The historical consolidated financial information for TelecityGroup has been adjusted to comply with generally accepted accounting principles in the United States (“U.S. GAAP”). Certain statements of operations and certain balance sheet reclassifications have also been reflected in order to conform TelecityGroup’s statements of operations and balance sheet to the Company’s statements of operations and balance sheet. The unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements. In addition, the unaudited pro forma condensed combined financial information was based on, and should be read in conjunction with, the following historical consolidated financial statements and accompanying notes:

 

    Equinix’s Current Report on Form 8-K filed on May 29, 2015, including exhibits thereto, which describes the proposed acquisition of TelecityGroup;

 

    Audited consolidated financial statements of Equinix as of and for the year ended December 31, 2014, which are included in Equinix’s Annual Report on Form 10-K for the year ended December 31, 2014;

 

    The section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Equinix’s Annual Report on Form 10-K for the year ended December 31, 2014;

 

    Unaudited consolidated financial statements of Equinix as of and for the nine months ended September 30, 2015, which are included in Equinix’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015;

 

    The section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Equinix’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2015;

 

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    Audited consolidated financial statements of TelecityGroup as of and for the year ended December 31, 2014, which are included elsewhere in this Current Report on Form 8-K/A; and

 

    Unaudited consolidated financial statements of TelecityGroup as of and for the six months ended June 30, 2015, which are included elsewhere in this Current Report on Form 8-K/A.

The unaudited pro forma condensed combined financial statements have been prepared by Equinix, as the acquirer, using the acquisition method of accounting in accordance with U.S. GAAP. The acquisition method of accounting is dependent upon certain valuation and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Before the Telecity Acquisition is completed, there are limitations regarding what Equinix can learn about TelecityGroup. The assets and liabilities of TelecityGroup have been measured based on various preliminary estimates using assumptions that Equinix believes are reasonable based on information that is currently available. The preliminary purchase price allocation for TelecityGroup is subject to revision as a more detailed analysis is completed and additional information on the fair value of TelecityGroup’s assets and liabilities becomes available. The final allocation of the purchase price, which will be based upon actual tangible and intangible assets acquired as well as liabilities assumed, will be determined after the completion of the Telecity Acquisition, and could differ materially from the unaudited pro forma condensed combined financial statements presented here. Any change in the fair value of the net assets of TelecityGroup will change the amount of the purchase price allocable to goodwill. Additionally, changes in TelecityGroup’s working capital, including the results of operations from September 30, 2015 through the date the Telecity Acquisition is completed, will change the amount of goodwill recorded. The pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial statements prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”).

The unaudited pro forma condensed combined financial statements make certain assumptions regarding the amount and terms, including assumed pricing of common stock and interest rates for debt, of the financing to be put into place in connection with the Telecity Acquisition. None of such financing has been put into place or obtained as of the date of this current report on Form 8-K/A, and therefore the actual amounts and terms of such financings may differ from that reflected herein.

The unaudited pro forma condensed combined financial information has been presented for information purposes only. The unaudited pro forma condensed combined financial information does not purport to represent the actual results of operations that Equinix and TelecityGroup would have achieved had the companies been combined during the periods presented in the unaudited pro forma condensed combined financial statements and is not intended to project the future results of operations that the combined company may achieve after the Telecity Acquisition. The unaudited pro forma condensed combined financial information does not reflect any potential cost savings that may be realized as a result of the Telecity Acquisition and also

 

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does not reflect any restructuring or integration-related costs to achieve those potential cost savings. No historical transactions between Equinix and TelecityGroup during the periods presented in the unaudited pro forma condensed combined financial statements have been identified at this time.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED

BALANCE SHEET

AS OF SEPTEMBER 30, 2015

(In thousands)

 

     Historical      Pro Forma  
     Equinix      TelecityGroup      Pro Forma
Adjustments
   Combined  
            (Note 2)      (Note 6)       

ASSETS

             

Current assets:

             

Cash and cash equivalents

   $ 335,469       $ 34,514       $ 465,867     (a)    $ 835,850   

Accounts receivable, net

     293,125         41,203         (11,775   (b)      322,553   

Current portion of restricted cash

     493,425         —           (490,379   (c)      3,046   

Other current assets

     120,004         25,074         (15,889   (d)      129,189   

Assets held for sale

     —           —           982,021      (e)      982,021   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total current assets

     1,242,023         100,791         929,845           2,272,659   

Long-term investments

     4,077         —           —             4,077   

Property, plant and equipment, net

     5,218,595         1,257,429         (133,101   (f)      6,342,923   

Goodwill

     983,530         163,880         2,047,638      (g)      3,195,048   

Intangible assets, net

     123,454         59,760         566,559      (h)      749,773   

Restricted cash, less current portion

     10,464         —           —             10,464   

Other assets

     123,523         28,792         (7,533   (i)      144,782   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total assets

   $ 7,705,666       $ 1,610,652       $ 3,403,408         $ 12,719,726   
  

 

 

    

 

 

    

 

 

      

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

             

Current liabilities:

             

Accounts payable and accrued expenses

   $ 340,366       $ 98,229       $ (10,568   (j)    $ 428,027   

Accrued property, plant and equipment

     131,607         18,370         (4,163   (k)      145,814   

Current portion of capital lease and other financing obligations

     26,775         9,082         (837   (l)      35,020   

Current portion of mortgage and loans payable

     55,024         —           —             55,024   

Current portion of convertible debt

     151,535         —           —             151,535   

Dividends payable

     640,063         —           —             640,063   

Other current liabilities

     118,744         94,638         (43,355   (m)      170,027   

Liabilities held for sale

     —           —           119,869      (n)      119,869   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total current liabilities

     1,464,114         220,319         60,946           1,745,379   

Capital lease and other financing obligations, less current portion

     1,198,581         246,637         (32,950   (o)      1,412,268   

Mortgage and loans payable, less current portion

     484,049         497,916         191,651      (p)      1,173,616   

Senior notes

     2,720,448         —           984,870      (q)      3,705,318   

Other liabilities

     349,821         106,577         108,692      (r)      565,090   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total liabilities

     6,217,013         1,071,449         1,313,209           8,601,671   
  

 

 

    

 

 

    

 

 

      

 

 

 

Stockholders’ equity:

             

Total stockholders’ equity

     1,488,653         539,203         2,090,199      (s)      4,118,055   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total liabilities and stockholders’ equity

   $ 7,705,666       $ 1,610,652       $ 3,403,408         $ 12,719,726   
  

 

 

    

 

 

    

 

 

      

 

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2014

(In thousands, except for per share data)

 

     Historical     Pro Forma  
     Equinix     TelecityGroup     Pro Forma
Adjustments
   Combined  
           (Note 3)     (Note 6)       

Revenues

   $ 2,443,776      $ 574,642      $ (160,580   (t)    $ 2,857,838   

Costs and operating expenses:

           

Cost of revenues

     1,197,885        313,861        (81,127   (u)      1,430,619   

Sales and marketing

     296,103        30,817        38,367      (v)      365,287   

General and administrative

     438,016        46,662        9,818      (w)      494,496   

Acquisition costs

     2,506        —          —             2,506   

Restructuring charges

     —          5,129        —             5,129   

Impairment charges

     —          19,710        —             19,710   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total costs and operating expenses

     1,934,510        416,179        (32,942        2,317,747   
  

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) from operations

     509,266        158,463        (127,638        540,091   

Interest income

     2,891        142        —             3,033   

Interest expense

     (270,553     (31,258     (74,796   (y)      (376,607

Other income (expense)

     119        (194     —             (75

Loss on debt extinguishment

     (156,990     —          —             (156,990

Income tax (expense) benefit

     (345,459     (35,443     58,417      (aa)      (322,485
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss)

     (260,726     91,710        (144,017        (313,033

Net loss attributable to redeemable non-controlling interests

     1,179        —          —             1,179   
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) attributable to Equinix

   $ (259,547   $ 91,710      $ (144,017      $ (311,854
  

 

 

   

 

 

   

 

 

      

 

 

 

Earnings per share (“EPS”) attributable to Equinix:

           

Basic EPS

   $ (4.96          $ (5.05
  

 

 

          

 

 

 

Weighted-average shares -basic

     52,359          9,450      (bb)      61,809   
  

 

 

     

 

 

      

 

 

 

Diluted EPS

   $ (4.96          $ (5.05
  

 

 

          

 

 

 

Weighted-average shares -diluted

     52,359          9,450      (bb)      61,809   
  

 

 

     

 

 

      

 

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015

(In thousands, except for per share data)

 

     Historical     Pro Forma  
     Equinix     TelecityGroup     Pro Forma
Adjustments
   Combined  
           (Note 3)     (Note 6)       

Revenues

   $ 1,995,405      $ 398,257      $ (104,288   (t)    $ 2,289,374   

Costs and operating expenses:

           

Cost of revenues

     939,538        220,853        (57,474   (u)      1,102,917   

Sales and marketing

     243,573        23,630        26,902      (v)      294,105   

General and administrative

     356,455        28,841        6,900      (w)      392,196   

Acquisition costs

     24,374        52,588        (52,761   (x)      24,201   

Restructuring reversal

     —          (1,641     —             (1,641
  

 

 

   

 

 

   

 

 

      

 

 

 

Total costs and operating expenses

     1,563,940        324,271        (76,433        1,811,778   
  

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) from operations

     431,465        73,986        (27,855        477,596   

Interest income

     2,375        94        —             2,469   

Interest expense

     (219,556     (21,591     (52,117   (y)      (293,264

Other income (expense)

     (11,964     (2,956     11,636      (z)      (3,284

Loss on debt extinguishment

     —          (3,128     —             (3,128

Income tax expense (benefit)

     (25,277     (21,979     14,557      (aa)      (32,699
  

 

 

   

 

 

   

 

 

      

 

 

 
           

Net income (loss)

   $ 177,043      $ 24,426      $ (53,779      $ 147,690   
  

 

 

   

 

 

   

 

 

      

 

 

 

Earnings per share (“EPS”)

           

Basic EPS

   $ 3.11             $ 2.23   
  

 

 

          

 

 

 

Weighted-average shares -basic

     56,894          9,450      (bb)      66,344   
  

 

 

     

 

 

      

 

 

 

Diluted EPS

   $ 3.08             $ 2.21   
  

 

 

          

 

 

 

Weighted-average shares -diluted

     57,521          9,450      (bb)      66,971   
  

 

 

     

 

 

      

 

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1. Description of the transaction and basis of pro forma presentation

In May 2015, the Company announced an offer to purchase all of the issued and to be issued share capital of TelecityGroup (“the TelecityGroup Acquisition”). Under the original terms of the TelecityGroup Acquisition, TelecityGroup shareholders will receive 572.5 British pence in cash for each TelecityGroup share and 0.0327 new shares of Equinix common stock. At the time of the acquisition, the TelecityGroup Acquisition valued each TelecityGroup share at approximately 1,145.0 pence per TelecityGroup share. In September 2015, the Company’s Board of Directors declared a special distribution to its common stockholders in the form of common stock and cash. As a result of the special distribution, the common stock conversion ratio was adjusted from 0.0327 to 0.0336 new shares of Equinix common stock. The TelecityGroup Acquisition is equal to a total value of approximately £2,515,998,000 or approximately $3,821,549,000 for TelecityGroup’s entire issued and to be issued capital based on the share price of $294.74 per Equinix share on November 12, 2015 and an exchange rate of 1.5189 as of September 30, 2015. Based on these assumptions, $1,786,179,000 will be paid in cash to TelecityGroup shareholders and 6,905,645 new shares will be issued to TelecityGroup shareholders on the acquisition date.

TelecityGroup operates data centers in Bulgaria, Finland, France, Germany, Ireland, Italy, the Netherlands, Poland, Sweden, Turkey and the United Kingdom. The Company anticipates completing the TelecityGroup Acquisition in the first half of 2016, subject to satisfaction of closing conditions.

The unaudited pro forma condensed combined balance sheet as of September 30, 2015, was prepared by combining the historical unaudited condensed consolidated balance sheet data as of September 30, 2015 for Equinix and TelecityGroup, as adjusted to comply with U.S. GAAP, as if the TelecityGroup Acquisition and the Financings (see Note 5) had been consummated on that date. In addition to certain U.S. GAAP adjustments, certain balance sheet reclassifications have also been reflected in order to conform TelecityGroup’s balance sheet to the Company’s balance sheet presentation. Refer to Note 2 for a discussion of these U.S. GAAP and reclassification adjustments.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014 and for the nine months ended September 30, 2015 combines the results of operations of Equinix and TelecityGroup, as adjusted to comply with U.S. GAAP, as if the TelecityGroup Acquisition and the Financings (see Note 5) had been consummated on January 1, 2014. In addition to certain U.S. GAAP adjustments, certain statements of operations reclassifications have also been reflected in order to conform to the Company’s statements of operations presentation. Refer to Note 3 for a discussion of these U.S. GAAP and reclassification adjustments.

 

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The historical consolidated financial information has been adjusted in the accompanying unaudited pro forma condensed combined financial information to give effect to pro forma events that are (i) directly attributable to the acquisition, (ii) factually supportable, and (iii) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the consolidated results.

The acquisition method of accounting, based on ASC 805, uses the fair value concepts defined in ASC 820, “Fair Value Measurement” (ASC 820). Fair value is defined in ASC 820 as the “price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. This is an exit price concept for the valuation of an asset or liability. Market participants are assumed to be buyers or sellers in the most advantageous market for the asset or liability. Fair value measurement for an asset assumes the highest and best use by these market participants, and as a result, assets may be required to be recorded which are not intended to be used or sold and/or to value assets at a fair value measurement that do not reflect management’s intended use for those assets. Fair value measurements can be highly subjective and it is possible the application of reasonable judgment could develop different assumptions resulting in a range of alternative estimates using the same facts and circumstances.

ASC 820 requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at fair value as of the acquisition date. As of the date of this filing the accompanying unaudited pro forma purchase price allocation is preliminary and is subject to further adjustments as additional information becomes available and as additional analyses are performed.

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 (the “Disposal Group”). 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 unaudited pro forma condensed combined financial statements reflect the Disposal Group as held for sale in the accompanying unaudited pro forma condensed combined balance sheet as of September 30, 2015 and the results of operations related to revenue, costs of revenues and selling, marketing and administrative costs from the Disposal Group are removed from the accompanying unaudited pro forma condensed combined statements of operations for the year ended December 31, 2014 and the nine months ended September 30, 2015. There can be no assurance as to the timing or amount of proceeds to be received in connection with the sale of all or any part of the Disposal Group. No gain or loss on the disposition of Disposal Group assets and liabilities has been recognized in the pro forma financial statements.

2. TelecityGroup Balance Sheet

TelecityGroup’s condensed combined consolidated financial statements were prepared in accordance with international financial reporting standards as issued by the International Accounting Standards Board (“IASB”) and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations, collectively “IFRS”, which differ in certain material

 

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respects from U.S. GAAP. TelecityGroup also classified certain amounts differently than Equinix in its condensed consolidated balance sheet. The following schedule summarizes the necessary material adjustments to conform the TelecityGroup’s condensed consolidated balance sheet as of September 30, 2015 to U.S. GAAP and to reclassify certain amounts to conform to Equinix’s basis of presentation (in thousands):

 

     Local Currency - GBP      USD  
     IFRS
TelecityGroup
     Reclassification
Adjustments
   U.S. GAAP
Adjustments
   U.S. GAAP
TelecityGroup
     U.S. GAAP
TelecityGroup
 

ASSETS

                  

Current assets:

                  

Cash and cash equivalents

   £ 22,723       £ —           £ —           £ 22,723       $ 34,514   

Accounts receivable, net

     43,635         (16,508   (i)(a)      —             27,127         41,203   

Other current assets

     —           16,508      (i)(a)      —             16,508         25,074   
  

 

 

    

 

 

      

 

 

      

 

 

    

 

 

 

Total current assets

     66,358         —             —             66,358         100,791   

Property, plant and equipment, net

     720,042         —             107,813      (ii)      827,855         1,257,429   

Goodwill

     —           107,894      (i)(b)      —             107,894         163,880   

Intangible assets, net

     147,238         (107,894   (i)(b)      —             39,344         59,760   

Deferred income taxes

     484         (484   (i)(c)      —             —           —     

Trade and other receivables

     376         (376   (i)(c)      —             —           —     

Other assets

     —           860      (i)(c)      18,096      (iii)      18,956         28,792   
  

 

 

    

 

 

      

 

 

      

 

 

    

 

 

 

Total assets

   £ 934,498       £ —           £ 125,909         £ 1,060,407       $ 1,610,652   
  

 

 

    

 

 

      

 

 

      

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

  

  

Current liabilities:

                  

Accounts payable and accrued expenses

   £ 76,765       £ (12,094   (i)(d)    £ —           £ 64,671       $ 98,229   

Accrued property, plant and equipment

     —           12,094      (i)(d)      —             12,094         18,370   

Current portion of capital lease and other financing obligations

     5,137         —             842      (iv)      5,979         9,082   

Deferred income

     44,402         (44,402   (i)(e)      —             —           —     

Current income taxes payable

     11,439         (11,439   (i)(e)      —             —           —     

Derivative financial instruments

     2,264         (2,264   (i)(e)      —             —           —     

Other current liabilities

     463         58,105      (i)(e)      3,739      (v)      62,307         94,638   
  

 

 

    

 

 

      

 

 

      

 

 

    

 

 

 

Total current liabilities

     140,470         —             4,581           145,051         220,319   

Capital lease and other financing obligations, less current portion

     —           9,475      (i)(f)      152,904      (vi)      162,379         246,637   

Mortgage and loans payable, less current portion

     337,289         (9,475   (i)(f)      —             327,814         497,916   

Deferred income

     18,307         (18,307   (i)(g)      —             —           —     

Derivative financial instruments

     285         (285   (i)(g)      —             —           —     

Deferred income taxes

     32,799         (32,799   (i)(g)      —             —           —     

Other liabilities

     —           51,391      (i)(g)      18,776      (vii)      70,167         106,577   
  

 

 

    

 

 

      

 

 

      

 

 

    

 

 

 

Total liabilities

     529,150         —             176,261           705,411         1,071,449   
  

 

 

    

 

 

      

 

 

      

 

 

    

 

 

 

Stockholders’ equity:

                  

Total stockholders’ equity

     405,348         —             (50,352   (viii)      354,996         539,203   
  

 

 

    

 

 

      

 

 

      

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   £ 934,498       £ —           £ 125,909         £ 1,060,407       $ 1,610,652   
  

 

 

    

 

 

      

 

 

      

 

 

    

 

 

 

TelecityGroup’s balance sheet has been translated into U.S. dollars at the September 30, 2015 exchange rate of GBP 1.00=USD 1.5189.

The adjustments presented above to TelecityGroup’s balance sheet are as follows:

 

(i) Reflects certain reclassifications to conform to the Company’s financial statement presentation.

 

  (a) Other receivables and prepaid expenses of £16,508,000 were reclassified to other current assets to conform to the Company’s financial statement presentation.

 

  (b) Goodwill of £107,894,000 was reclassified from intangible assets to goodwill to conform to the Company’s financial statement presentation.

 

9


  (c) Deferred income taxes of £484,000 and trade and other receivables of £376,000 were reclassified to other assets to conform to the Company’s financial statement presentation.

 

  (d) Accrued property, plant and equipment of £12,094,000 was reclassified from trade and other payables to accrued property, plant and equipment to conform to the Company’s financial statement presentation.

 

  (e) Deferred income of £44,402,000, current income tax liabilities of £11,439,000 and derivative financial instruments of £2,264,000 were reclassified to other current liabilities to conform to the Company’s financial statement presentation.

 

  (f) Capital lease obligations of £9,475,000 were reclassified from mortgages and loans payable to capital lease and other financing obligations to conform to the Company’s financial statement presentation.

 

  (g) Deferred income of £18,307,000, derivative financial instruments of £285,000 and deferred income taxes of £32,799,000 were reclassified to other liabilities to conform to the Company’s financial statement presentation.

 

(ii) Reflects the following U.S. GAAP adjustments in property, plant and equipment, net (in thousands):

 

Asset retirement cost adjustments

   £ 14,111      (a)

Lease accounting adjustments

     102,014      (b)

Construction in progress adjustments

     10,806      (c)

Capitalized rent adjustment

     (19,118   (d)
  

 

 

   

Total property, plant and equipment adjustments

   £ 107,813     
  

 

 

   

 

  (a) Reflects asset retirement cost of £14,111,000 to conform to U.S. GAAP and the Company’s accounting policy.

 

  (b) Reflects the adjustment to account for certain build-to-suit and capital leases. Build-to-suit leases are treated as financing transactions under U.S. GAAP, as a result of the involvement of TelecityGroup during the construction of such real estate assets. TelecityGroup had significant continuing involvement in relation to such buildings upon completion of their construction activities and, accordingly, these leased buildings failed the sale and leaseback test. Under U.S. GAAP these leases are treated as financing of owned assets. Under IFRS, these leases were treated as operating leases. This results in the recognition of the real estate assets at their net book value amounting to £102,014,000 with a corresponding short-term finance liability of £842,000, long-term finance liability of £142,098,000, a decrease in short-term deferred rent incentive of £239,000, a decrease in long-term deferred rent incentive of £5,963,000 and a corresponding equity adjustment of £34,724,000 under U.S. GAAP, which represents the net impact of additional depreciation and interest expense relating to the build-to-suit leases and a reversal of deferred rent incentive and rent expenses.

 

10


  (c) Reflects an adjustment of £10,806,000 relating to certain build-to-suit lease assets that are under construction.

 

  (d) Reflects an adjustment of £19,118,000 of rent that was capitalized during the construction period under IFRS, net of subsequent depreciation, which is expensed under U.S. GAAP.

 

(iii) Reflects the income tax impact of £18,096,000 related to IFRS to U.S. GAAP adjustments as well as U.S. GAAP adjustments to deferred tax balances.

 

(iv) Reflects the short-term financing obligations of £842,000 resulting from certain build-to suit leases referenced in item (ii)(b) above.

 

(v) Reflects the following U.S. GAAP and reclassification adjustments (in thousands):

 

Deferred installation revenue adjustment

   £ 3,978      (a)

Deferred rent adjustment

     (239   (b)
  

 

 

   

Other current liabilities adjustments

   £ 3,739     
  

 

 

   

 

  (a) Reflects an adjustment of £3,978,000 related to methodology changes to account for deferred installation revenue in accordance with U.S. GAAP and the Company’s accounting policy.

 

  (b) Reflects a reduction of short-term deferred rent incentive of £239,000 resulting from certain build-to-suit and capital leases referenced in item (ii)(b) above.

 

(vi) Reflects the following U.S. GAAP and reclassification adjustments (in thousands):

 

Lease accounting adjustments

   £ 142,098      (a)

Construction in progress adjustment

     10,806      (b)
  

 

 

   

Capital lease and other financing obligations, less current portion adjustments

   £ 152,904     
  

 

 

   

 

  (a) Reflects the long-term financing obligations totaling £142,098,000 resulting from certain build-to-suit and capital leases referenced in item (ii)(b) above.

 

  (b) Reflects an adjustment of £10,806,000 relating to certain build-to-suit lease assets that are under construction.

 

(vii) Reflects the following U.S. GAAP and reclassification adjustments that are discussed above (in thousands):

 

Asset retirement obligation adjustments

   £ 19,490      (a)

Deferred installation revenue adjustment

     5,249      (b)

Deferred rent adjustment

     (5,963   (c)
  

 

 

   

Other liabilities adjustments

   £ 18,776     
  

 

 

   

 

  (a) Reflects an asset retirement obligation of £19,490,000 to conform to U.S. GAAP and the Company’s accounting policy.

 

11


  (b) Reflects adjustments of £5,249,000 in other liabilities related to methodology changes to account for deferred installation revenue in accordance with U.S. GAAP and the Company’s accounting policy.

 

  (c) Reflects a reduction of long-term deferred rent incentive of £5,963,000 resulting from certain build-to-suit and capital leases referenced in item (ii)(b) above.

 

(viii) Reflects the following U.S. GAAP adjustments in total stockholders’ equity (in thousands):

 

Lease accounting adjustments

   £ (34,724   (a)

Deferred installation revenues adjustment

     (9,227   (b)

Asset retirement obligations adjustment

     (5,379   (c)

Deferred tax expense adjustment

     18,096      (d)

Capitalized rent adjustment

     (19,118   (e)
  

 

 

   
   £ (50,352  
  

 

 

   

 

  (a) Reflects adjustments related to lease accounting described in items (ii)(b), (iv), (v)(b), (vi)(a) and (vii)(c) above.

 

  (b) Reflects adjustments related to deferred installation revenues described in items (v)(a) and (vii)(b) above.

 

  (c) Reflects adjustments related to asset retirement obligations described in items (ii)(a) and (vii)(a) above.

 

  (d) Reflects adjustments related to deferred tax expense described in item (iii) above.

 

  (e) Reflects adjustments related to capitalized rent described in item (ii)(d) above.

 

12


3. TelecityGroup Statements of Operations

TelecityGroup’s condensed consolidated financial statements were prepared in accordance with IFRS, which differs in certain material respects from U.S. GAAP. TelecityGroup also classified certain amounts differently than Equinix in its condensed consolidated statements of operations. The following schedule summarizes the necessary material adjustments to the TelecityGroup condensed consolidated statements of operations for the year ended December 31, 2014 and the nine months ended September 30, 2015 to conform to U.S. GAAP and to reclassify certain amounts to conform to Equinix’s basis of presentation (in thousands):

 

     Local Currency - GBP     USD  

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED

DECEMBER 31, 2014

   IFRS
TelecityGroup
    Reclassification
Adjustments
   Total GAAP
Adjustments
   US GAAP
TelecityGroup
    US GAAP
TelecityGroup
 

Revenues

   £ 348,695      £ —           £ 80      (ii)    £ 348,775      $ 574,642   

Costs and operating expenses:

                

Cost of revenues

     (146,604     (49,976   (i)(a)      6,084      (iii)      (190,496     (313,861

Sales and marketing

     (13,470     (5,234   (i)(b)      —             (18,704     (30,817

General and administrative

     (24,895     (3,426   (i)(c)      —             (28,321     (46,662

Depreciation charges

     (49,976     49,976      (i)(a)      —             —          —     

Amortisation charges

     (5,234     5,234      (i)(b)      —             —          —     

Other exceptional items

     (18,502     18,502      (i)(c)      —             —          —     

Restructuring charges

     —          (3,113   (i)(c)      —             (3,113     (5,129

Impairment charges

     —          (11,963   (i)(c)      —             (11,963     (19,710
  

 

 

   

 

 

      

 

 

      

 

 

   

 

 

 

Total costs and operating expenses

     (258,681     —             6,084           (252,597     (416,179
  

 

 

   

 

 

      

 

 

      

 

 

   

 

 

 

Income from operations

     90,014        —             6,164           96,178        158,463   

Interest income

     86        —             —             86        142   

Interest expense

     (8,960     —             (10,012   (iv)      (18,972     (31,258

Other expense

     (118     —             —             (118     (194
  

 

 

   

 

 

      

 

 

      

 

 

   

 

 

 

Income before income taxes

     81,022        —             (3,848        77,174        127,153   

Income tax expense

     (21,292     —             (220   (vi)      (21,512     (35,443
  

 

 

   

 

 

      

 

 

      

 

 

   

 

 

 

Net income

   £ 59,730      £ —           £ (4,068      £ 55,662      $ 91,710   
  

 

 

   

 

 

      

 

 

      

 

 

   

 

 

 
     Local Currency - GBP     USD  

STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2015

   IFRS
TelecityGroup
    Reclassification
Adjustments
   Total
GAAP

Adjustments
   US GAAP
Telecity
    US GAAP
TelecityGroup
 

Revenues

   £ 261,586      £ —           £ (2,220   (ii)    £ 259,366      $ 398,257   

Costs and operating expenses:

                

Cost of revenues

     (107,215     (40,309 )   (i)(a)      3,693      (iii)      (143,831     (220,853

Sales and marketing

     (11,657     (3,732 )   (i)(b)      —             (15,389     (23,630

General and administrative

     (20,098     1,315     (i)(c)      —             (18,783     (28,841

Depreciation charges

     (40,309     40,309     (i)(a)      —             —          —     

Amortisation charges

     (3,732     3,732     (i)(b)      —             —          —     

Other exceptional items

     (31,864     31,864     (i)(c)      —             —          —     

Acquisition costs

     —          (34,248 )   (i)(c)      —             (34,248     (52,588

Restructuring reversals

     —          1,069      (i)(c)      —             1,069        1,641   
  

 

 

   

 

 

      

 

 

      

 

 

   

 

 

 

Total costs and operating expenses

     (214,875     —             3,693           (211,182     (324,271
  

 

 

   

 

 

      

 

 

      

 

 

   

 

 

 

Income from operations

     46,711        —             1,473           48,184        73,986   

Interest income

     61        —             —             61        94   

Interest expense

     (6,312     —             (7,749   (iv)      (14,061     (21,591

Other expense

     (1,925     —             —             (1,925     (2,956

Loss on debt extinguishment

     —          —             (2,037   (v)      (2,037     (3,128
  

 

 

   

 

 

      

 

 

      

 

 

   

 

 

 

Income before income taxes

     38,535        —             (8,313        30,222        46,405   

Income tax expense

     (17,279     —             2,965      (vi)      (14,314     (21,979
  

 

 

   

 

 

      

 

 

      

 

 

   

 

 

 

Net income

   £ 21,256      £ —           £ (5,348      £ 15,908      $ 24,426   
  

 

 

   

 

 

      

 

 

      

 

 

   

 

 

 

TelecityGroup’s condensed consolidated statement of operations for the year ended December 31, 2014 has been translated into U.S. dollars at a rate of GBP 1.00= USD 1.6476, the average exchange rate for the year ended December 31, 2014.

TelecityGroup’s condensed consolidated statement of operations for the nine months ended September 30, 2015 has been translated into U.S. dollars at a rate of GBP 1.00= USD 1.5355, the average exchange rate for the nine months ended September 30, 2015.

 

13


The adjustments presented above to TelecityGroup’s condensed consolidated statements of operations are as follows:

 

  (i) Reclassification adjustments to reclassify operating expenses to conform to the Company’s presentation:

 

  (a) To reclassify TelecityGroup’s depreciation expense of £49,976,000 for the year ended December 31, 2014 and £40,309,000 for the nine months ended September 31, 2015 to the Company’s cost of revenues.

 

  (b) To reclassify TelecityGroup’s amortization charges of £5,234,000 for the year ended December 31, 2014 and £3,732,000 for the nine months ended September 30, 2015 to the Company’s selling and marketing expenses.

 

  (c) To reclassify TelecityGroup’s other exceptional items of £18,502,000 for the year ended December 31, 2014 to impairment charges of £11,963,000, restructuring charges of £3,113,000 and general and administrative of £3,426,000 and to reclassify other exceptional items of £31,864,000 for the nine months ended September 30, 2015 to acquisition costs of £34,248,000, a credit to restructuring charges of £1,069,000 and a credit to general and administrative of £1,315,000.

 

  (ii) Reflects installation revenue adjustments of £80,000 reflecting an increase in revenues for the year ended December 31, 2014 and £2,220,000 decrease in revenues for the nine months ended September 30, 2015 due to methodology changes to account for deferred installation revenue in accordance with U.S. GAAP and the Company’s accounting policy.

 

  (iii) Reflects the following U.S. GAAP adjustments in cost of revenues (in thousands):

 

     Year ended      Nine months ended  
     December 31, 2014      September 30, 2015  

Rent and depreciation expense relating to lease accounting adjustments

   £ 5,788       £ 4,044   (a) 

Capitalized rent adjustment

     (2,341      (2,276 ) (b) 

Accretion expense relating to asset retirement costs

     (319      (292 ) (c) 

Depreciation expense relating to componentization and alignment of useful lives

     2,956         2,217   (d) 
  

 

 

    

 

 

 
   £ 6,084       £ 3,693   
  

 

 

    

 

 

 

 

  (a) Reflects the net impact of lease accounting adjustments including decreased rent expense as a result of fewer operating leases, partially offset by increased depreciation expense associated with build-to-suit leases.

 

  (b) Reflects an adjustment of rent that was capitalized during the construction period under IFRS which is expensed under U.S. GAAP.

 

  (c) Reflects depreciation expense and accretion expense associated with asset retirement obligations.

 

14


  (d) Reflects the adjustment of depreciation expense to conform to U.S. GAAP and the Company’s accounting policy.

 

  (iv) Reflects an interest expense adjustment of £10,012,000 for the year ended December 31, 2014 and £7,749,000 for the nine months ended September 30, 2015 to account for capital leases and build-to-suit leases, which should be accounted as financing transactions under U.S. GAAP as a result of the involvement of TelecityGroup during the construction of such real estate assets and its significant continuing involvement in relation to such real estate assets upon completion of their construction activities. These leases were accounted as operating leases under IFRS.

 

  (v) Reflects the amendment of a build-to-suit lease during the nine months ended September 30, 2015, resulting in a loss on debt extinguishment of £2,037,000.

 

  (vi) Represents the income tax effects of the various U.S. GAAP adjustments of £220,000 expense for the year ended December 31, 2014 and £2,965,000 benefit for the nine months ended September 31, 2015.

4. Purchase Price - TelecityGroup

The transaction represents a total value of approximately £2,515,998,000 or approximately $3,821,549,000 for TelecityGroup’s entire issued and to be issued share capital based on the Equinix’ closing share price of $294.74 on November 12, 2015 and an exchange rate of 1.5189 at September 30, 2015. Approximately 50% of this estimated purchase price will be paid in cash to the TelecityGroup shareholders and approximately 50% will be paid through the issuance to them of shares of the Company’s common stock.

The preliminary estimate of cash consideration expected to be transferred to effect the acquisition of the TelecityGroup is approximately £1,175,969,000 or approximately $1,786,179,000. Estimated cash consideration is based on the preliminary estimate of the number of shares outstanding on the acquisition date. These estimated amounts do not purport to represent what the actual cash consideration transferred will be when the acquisition closes (in thousands, except for share price):

Acquisition Consideration:

 

Estimated number of Equinix shares issued

     6,906   

Equinix share price as of November 12, 2015

   $ 294.74   

Estimated fair value of Equinix shares issued to TelecityGroup shareholders

   $ 2,035,370   

Cash distribution to TelecityGroup shareholders

     1,786,179   
  

 

 

 

Total preliminary estimated acquisition consideration

   $ 3,821,549   
  

 

 

 

 

15


The sensitivity table below shows a range of acquisition consideration amounts based on hypothetical Equinix share prices on the acquisition date.

 

                  Estimated      Estimated  

(Unaudited, in thousands, except for the

estimated share price)

   % increase     Estimated      Purchase      Purchase  
   /decrease     Share Price      Consideration      Consideration  

As presented in the pro forma combined results

     $ 294.74       £ 2,515,998       $ 3,821,549   

20% decrease in the estimated share price

     -20     235.79         2,247,992         3,414,475   

10% decrease in the estimated share price

     -10     265.27         2,381,995         3,618,012   

10% increase in the estimated share price

     10     324.21         2,650,001         4,025,086   

20% increase in the estimated share price

     20     353.69         2,784,004         4,228,623   

Under the acquisition method of accounting, the total estimated purchase price is allocated to TelecityGroup’s assets and liabilities based upon their estimated fair value as of the date of completion of the acquisition. Based upon the estimated purchase price and the preliminary valuation, the preliminary purchase price allocation, which is subject to change based on Equinix’s final analysis, is as follows (in thousands):

TelecityGroup purchase price allocation (in thousands):

 

Cash and cash equivalents

   $ 34,514     

Accounts receivable

     41,203     

Other current assets

     25,074     

Property, plant and equipment

     1,334,050     

Goodwill

     2,665,039     

Intangible assets:

    

Customer relationships

     653,127      (a)

Trade names

     91,893      (b)

Favorable leasehold interests

     11,392      (c)

Acquired technology

     608      (d)

Other assets

     28,792     
  

 

 

   

Total assets acquired

     4,885,692     

Accounts payable and accrued expenses

     (98,229  

Accrued property and equipment

     (18,370  

Current portion of capital lease and other financing obligations

     (9,443  

Other current liabilities

     (84,006  

Capital lease and other financing obligations, less current portion

     (244,742  

Mortgage and loans payable, less current portion

     (497,916  

Other liabilities

     (111,437  
  

 

 

   

Net assets acquired

   $ 3,821,549     
  

 

 

   

 

  (a) A preliminary estimate of $653,127,000 has been allocated to customer relationships, an intangible asset with a weighted average estimated useful life of 14 years.

 

  (b) A preliminary estimate of $91,893,000 has been allocated to several acquired trade names, intangible assets with a weighted average estimated useful life of 10 years.

 

16


  (c) A preliminary estimate of $11,392,000 has been allocated to favorable leasehold interests, intangible assets with a weighted average estimated useful life of 7 years.

 

  (d) A preliminary estimate of $608,000 has been allocated to acquired technology, an intangible asset with a weighted average estimated useful life of 5 years.

A preliminary estimate of $2,665,039,000 has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. It is attributable to planned growth in the existing and new markets and synergies expected to be achieved from the combined operations of Equinix and TelecityGroup. The preliminary purchase price allocation for TelecityGroup is subject to revision as more detailed analysis is completed and additional information on the fair values of TelecityGroup’s assets and liabilities becomes available. Any changes in the fair value of the net assets of TelecityGroup will change the amount of the purchase price allocable to goodwill. Additionally, changes in TelecityGroup’s working capital, including the results of operations from September 30, 2015 through the date the transaction is completed, will also change the amount of goodwill recorded. Final purchase accounting adjustments may, therefore, differ materially from the pro forma adjustments presented here.

5. TelecityGroup Acquisition Financings

Concurrently, and in connection with entering into the acquisition agreement with TelecityGroup, Equinix entered into a Bridge Credit Agreement with J.P. Morgan Chase Bank, N.A. as administrative agent and lender, for a principal amount of $1.3 billion (the “Bridge Loan”). The Company intends to obtain permanent financing prior to the closing of the TelecityGroup acquisition to replace and terminate the Bridge Loan. Notwithstanding its entry into the Bridge Credit Agreement, for purposes of the pro forma financial statements, Equinix has assumed the permanent TelecityGroup Acquisition Financings will consist of:

 

    An assumed $500,000,000 aggregate principal amount of 8-year fixed rate senior notes with an assumed interest rate of 5.50% and $500,000,000 aggregate principal amount of 10-year fixed rate senior notes with an assumed interest rate of 6.00%. For the purpose of these unaudited pro forma condensed combined financial statements, the debt issuance costs related to the senior notes are assumed to be approximately $15,130,000 and will be amortized to interest expense using the effective interest method over the 8- and 10-year terms of the notes.

 

   

An assumed $700,000,000 aggregate principal amount of 7-year floating rate term loan, with an assumed interest rate of LIBOR plus 325 basis points. For the purpose of these unaudited pro forma condensed combined financial statements, the interest rate under the term loan is assumed to be 4.00% for the nine months ended September 30, 2015 and for the year ended December 31, 2014. For the purpose of these unaudited pro forma

 

17


 

condensed combined financial statements, the debt issuance costs related to the term loan are assumed to be approximately $10,433,000 and will be amortized to interest expense using the effective interest method over the 7 years.

 

    The sale of 2,544,616 shares of Equinix common stock at a price of $294.74 per share resulting in estimated proceeds of $750,000,000 before deducting estimated discounts and commissions, and excluding any shares that may be issued if the underwriters exercise their option to purchase additional shares of common stock. For the purpose of these unaudited pro forma condensed combined financial statements, transaction costs are assumed to be $28,785,000. If the underwriters exercise their option to purchase an additional 15% of the equity offering in full, the Company would issue an additional 381,692 shares of Equinix common stock at a price of $294.74 and receive additional estimated proceeds of $112,500,000 before transaction costs of approximately $4,219,000. If the common stock offering increases by 25%, the Company would issue an additional 636,154 shares of Equinix common stock at a price of $294.74 and receive additional estimated proceeds of $187,500,000 before transaction costs of approximately $7,031,000. If the equity offering increases by 35%, the Company would issue an additional 890,615 shares of Equinix common stock at a price of $294.74 and receive additional estimated proceeds of $262,500,000 before transaction costs of approximately $9,844,000. These additional proceeds and equity issuance would impact the cash and cash equivalents and stockholders’ equity in the unaudited pro forma condensed combined Balance Sheet.

The final structure and terms of the Financings will be subject to market conditions and may change materially from the assumptions described above. Changes in the assumptions described above would result in changes to various components of the unaudited pro forma condensed combined balance sheet, including cash and cash equivalents, long-term debt and additional paid-in capital, and various components of the unaudited pro forma condensed combined statements of income, including interest expense, earnings per share and weighted-average shares outstanding. Depending upon the nature of the changes, the impact on the pro forma condensed combined financial statements could be material.

6. Pro Forma Adjustments

The accompanying unaudited pro forma condensed combined financial statements have been prepared as if the transactions described above were completed on September 30, 2015 for balance sheet purposes and as of January 1, 2014 for statement of operations purposes.

 

18


The unaudited pro forma condensed combined balance sheet gives effect to the following pro forma adjustments:

 

  (a) Represents the following adjustments to cash and cash equivalents (in thousands):

 

Purchase price for TelecityGroup to be paid in cash

   $  (1,786,179

Proceeds from senior notes, net of offering costs

     984,870   

Proceeds from term loan, net of offering costs

     689,567   

Repayment of TelecityGroup existing debt and accrued interest

     (504,757

Transfer restricted cash pledged for TelecityGroup acquisition to cash

     490,379   

Proceeds from equity offering, net of offering costs

     721,215   

Estimated transaction costs

     (125,356

Settlement of TelecityGroup’s interest rate swap derivative liabilities

     (3,872
  

 

 

 

Total cash and cash equivalent adjustments

   $ 465,867   
  

 

 

 

 

  (b) Represents the reclassification of $11,775,000 of accounts receivable of the Disposal Group as assets held for sale.

 

  (c) Represents the transfer of restricted cash of $490,379,000 pledged for the TelecityGroup Acquisition to cash.

 

  (d) Represents the settlement of Equinix acquisition price foreign currency derivatives instruments of $15,889,000.

 

  (e) Represents the following adjustments to assets held for sale related to the Disposal Group (in thousands):

 

Accounts receivable

   $ 11,775   

Property, plant and equipment

     209,722   

Goodwill

     628,789   

Intangible assets

     130,701   

Other assets

     1,034   
  

 

 

 

Total assets held for sale

   $ 982,021   
  

 

 

 

 

  (f) Represents the following adjustments to property, plant and equipment, net (in thousands):

 

Fair value adjustment to TelecityGroup’s property, plant and equipment

   $ 76,621   

Reclassification of disposal group property, plant and equipment as assets held for sale

     (209,722
  

 

 

 

Total property, plant and equipment, net adjustments

   $ (133,101
  

 

 

 

 

  (g) Represents the following adjustments to goodwill (in thousands):

 

Goodwill from the acquisition of TelecityGroup

   $  2,665,039   

Write-off of TelecityGroup goodwill

     (163,880

Deferred tax liability adjustments

     175,268   

Reclassification of disposal group goodwill to assets held for sale

     (628,789
  

 

 

 

Total goodwill adjustments

   $ 2,047,638   
  

 

 

 

 

19


  (h) Represents a fair value of $757,020,000 of TelecityGroup’s intangible assets, less write-off of TelecityGroup’s intangible assets carrying value of $59,760,000 and reclassification of $130,701,000 of intangible assets related to the Disposal Group to assets held for sale, comprised of the following (in thousands, except years):

 

     Fair Value      Write-off of
TelecityGroup
Intangible Assets
    Disposal
Group
    Net
Adjustment
     Estimated
Useful Lives
(Years)

Customer relationships

   $ 653,127       $ (59,760   $ (110,486   $ 482,881       14

Trade names

     91,893         —          (17,743     74,150       10

Favorable leasehold interests

     11,392         —          (2,370     9,022       7

Acquired technology

     608         —          (102     506       5
  

 

 

    

 

 

   

 

 

   

 

 

    
   $ 757,020       $ (59,760   $ (130,701   $ 566,559      
  

 

 

    

 

 

   

 

 

   

 

 

    

 

  (i) Represents the following adjustments to other assets (in thousands):

 

Reclassification of noncurrent deferred tax assets

   $ (6,499

Reclassification of disposal group other assets to assets held for sale

     (1,034
  

 

 

 

Total other assets adjustments

   $ (7,533
  

 

 

 

 

  (j) Represents the following adjustments to accounts payable and accrued expenses (in thousands):

 

Prepayment of accrued interest on TelecityGroup’s existing debts

   $ (1,075

Reversal of bridge loan commitment fees

     (4,970

Reclassification of disposal group accounts payable and accrued expenses to liabilities held for sale

     (4,523
  

 

 

 

Total accounts payable and accrued expenses adjustments

   $ (10,568
  

 

 

 

 

  (k) Represents the reclassification of accrued property, plant and equipment related to the Disposal Group of $4,163,000 to liabilities held for sale.

 

  (l) Represents the following adjustments to capital lease and other financing obligations, current portion (in thousands):

 

Fair value adjustment relating to capital lease and other financing obligations, current

   $ 361   

Reclassification of disposal group capital lease and other financing obligations, current to liabilities held for sale

     (1,198
  

 

 

 

Total current portion of capital lease and other financing obligations adjustments

   $ (837
  

 

 

 

 

20


  (m) Represents the following adjustments to other current liabilities (in thousands):

 

Fair value adjustment relating to other current liabilities

   $ (10,632

Reclassification of deferred tax liabilities

     2,556   

Settlement of TelecityGroup’s interest rate swap derivative liabilities

     (3,439

Settlement of Equinix acquisition price derivative instruments

     (14,858

Reclassification of disposal group other current liabilities to liabilities held for sale

     (16,982
  

 

 

 

Total other current liability adjustments

   $ (43,355
  

 

 

 

The fair value adjustment relating to other current liabilities is primarily driven by write-off of deferred installation revenues.

 

  (n) Represents the following adjustments to liabilities held for sale related to the Disposal Group (in thousands):

 

Accounts payable and accrued expenses

   $ 4,523   

Accrued property, plant and equipment

     4,163   

Capital lease and other financing obligations

     32,253   

Deferred tax liabilities

     36,668   

Other liabilities

     42,262   
  

 

 

 

Total liabilities held for sale adjustments

   $ 119,869   
  

 

 

 

 

  (o) Represents the following adjustments to capital lease and other financing obligations (in thousands):

 

Fair value adjustment relating to capital lease and other financing obligations

   $ (1,895

Reclassification of disposal group capital lease and other financing obligations to liabilities held for sale

     (31,055
  

 

 

 

Total capital lease and other financing obligations adjustments

   $ (32,950
  

 

 

 

 

  (p) Represents the following adjustments to mortgage and loans payable, less current portion (in thousands): See Note 5.

 

Proceeds from term loan, net of issuance costs

   $ 689,567   

Repayment of TelecityGroup’s existing debt

     (503,682

Write-off of TelecityGroup debt issuance costs

     5,766   
  

 

 

 
   $ 191,651   
  

 

 

 

 

  (q) Represents the net proceeds from the senior notes of $984,870,000. See Note 5.

 

21


  (r) Represents the following adjustments in TelecityGroup’s other liabilities (in thousands).

 

Fair value adjustments relating to other liabilities

   $ 4,860   

Settlement of Telecity Group’s interest rate swap derivative liabilities

     (433

Deferred tax liabilities as a result of purchase price allocation

     175,268   

Reclassification of deferred tax liabilities

     (45,723

Reclassification of disposal group asset retirement obligations

     (5,426

Reclassification of disposal group other liabilities

     (19,854
  

 

 

 

Total other liabilities adjustments

   $ 108,692   
  

 

 

 

 

  (s) Represents the following adjustments in shareholders’ equity (in thousands).

 

Estimated fair value of Equinix shares issued

   $ 2,035,370   

Elimination of old TelecityGroup’s stockholders’ equity

     (539,203

Proceeds from equity offering, net of offering costs

     721,215   

Acquisition transaction costs

     (125,356

Write-off of TelecityGroup’s existing debt issuance costs

     (5,766

Reversal of acquisition purchase price derivative instruments

     (1,031

Reversal of bridge loan commitment fees

     4,970   
  

 

 

 

Total shareholders’ equity adjustments

   $ 2,090,199   
  

 

 

 

The unaudited pro forma condensed combined statements of operations give effect to the following pro forma adjustments:

 

  (t) Represents revenues related to the Disposal Group (in thousands).

 

     Year ended      Nine months ended  
     December 31, 2014      September 30, 2015  

Revenues of disposal group

   $ (160,580    $ (104,288
  

 

 

    

 

 

 

 

  (u) Represents the following adjustments to cost of revenues (in thousands):

 

     Year ended      Nine months ended  
     December 31, 2014      September 30, 2015  

Depreciation adjustment in connection with the fair value of property, plant and equipment

   $ (2,095    $ (5,805

Amortization adjustment in connection with the fair value of intangible assets

     132         92   

Cost of revenues of disposal group

     (79,164      (51,761
  

 

 

    

 

 

 

Total cost of revenues adjustments

   $ (81,127    $ (57,474
  

 

 

    

 

 

 

The net adjustment of depreciation and amortization expense in connection with the fair value adjustment to TelecityGroup’s property, plant and equipment and intangible assets. The property, plant and equipment are depreciated based on an estimated weighted average useful life of 15 years. Intangible assets are amortized based on estimated useful lives of 5 to 14 years.

 

22


  (v) The following adjustments to sales and marketing (in thousands):

 

    Year ended
December 31, 2014
    Nine months ended
September 30, 2015
 

Amortization adjustment in connection with the fair value of intangible assets

  $ 41,981      $ 29,641   

Sales and marketing of disposal group

    (3,614     (2,739
 

 

 

   

 

 

 

Total sales and marketing adjustments

  $ 38,367      $ 26,902   
 

 

 

   

 

 

 

 

  (w) The following adjustments to general and administrative (in thousands):

 

     Year ended
December 31, 2014
     Nine months ended
September 30, 2015
 

Amortization adjustment in connection with the fair value of intangible assets

   $ 9,968       $ 6,967   

General and administrative of disposal group

     (150      (67
  

 

 

    

 

 

 

Total general and administrative adjustments

   $ 9,818       $ 6,900   
  

 

 

    

 

 

 

 

  (x) Reflects the elimination of non-recurring transaction costs incurred during the nine months ended September 30, 2015 of $52,761,000 that are directly related to the TelecityGroup Acquisition.

 

  (y) Represents the additional interest expense associated with the senior notes and term loan offering, the commitment fees relating to the bridge loan, offset by the reversal of interest expense associated with TelecityGroup’s existing debts to be repaid and interest expense adjustments relating to capital lease and financing obligations (in thousands). See Note 5.

 

    Year ended     Nine months ended  
    December 31, 2014     September 30, 2015  

Interest expense and amortization of debt issuance costs associated with senior notes and the term loan, as if they were issued on January 1, 2014

  $ (88,036   $ (65,921

Reversal of interest expense associated with TelecityGroup’s existing debts

    13,189        8,806   

Commitment fees relating to the bridge loan

    —          4,970   

Interest expense of disposal group

    51        28   
 

 

 

   

 

 

 

Total interest expense adjustments

  $ (74,796   $ (52,117
 

 

 

   

 

 

 

A 1/8% increase or decrease in interest rates would result in a change in interest expense of approximately $1,578,000 for the nine months ended September 30, 2015 and approximately $2,110,000 for the year ended December 31, 2014.

 

  (z) Represents the reversal of a foreign currency loss of $11,636,000 recognized due to hedging TelecityGroup acquisition purchase price.

 

  (aa)

The Company assumed a blended income tax rate of 22.9% for the year ended December 31, 2014 and 22.4% for the nine months ended September 30, 2015 when estimating the tax impact of the acquisition, representing the federal, state

 

23


  and foreign statutory rates. The effective tax rate of the combined company could be significantly different depending upon post-acquisition activities of the combined company.

The following adjustments to income taxes (in thousands):

 

     Year ended      Nine months ended  
     December 31, 2014      September 30, 2015  

Tax impact of pro forma adjustments

   $ 43,828       $ 4,161   

Income taxes of disposal group

     14,589         10,396   
  

 

 

    

 

 

 

Total income taxes adjustments

   $ 58,417       $ 14,557   
  

 

 

    

 

 

 

 

  (bb) Reflects adjustment to the weighted-average shares outstanding for purposes of calculating basic and diluted earnings per share (EPS). Reflects the issuance of 6,905,645 shares of common stock as partial consideration for the acquisition of TelecityGroup (see Note 4) and the issuance of 2,544,616 shares of Equinix common stock at a price of $294.74 per share in connection with the TelecityGroup Acquisition Financings (see Note 5). If the common stock offering discussed in Note 5 increases by 15%, 25% or 35%, the Company would issue an additional 381,692 shares, 636,154 shares or 890,615 shares, respectively, and the Company’s pro forma basic and diluted earnings per share would be adjusted as follows:

 

(shares in thousands)                    
     % Increase     Year ended
December 31, 2014
     Nine months ended
September 30, 2015
 
           Basic      Diluted      Basic      Diluted  

Weighted-average shares

     As presented        61,809         61,809         66,344         66,971   

Earnings per share

     As presented      $ (5.05    $ (5.05    $ 2.23       $ 2.21   

Weighted-average shares

     15     62,191         62,191         66,726         67,353   

Earnings per share

     15   $ (5.01    $ (5.01    $ 2.21       $ 2.19   

Weighted-average shares

     25     62,445         62,445         66,980         67,607   

Earnings per share

     25   $ (4.99    $ (4.99    $ 2.20       $ 2.18   

Weighted-average shares

     35     62,700         62,700         67,235         67,862   

Earnings per share

     35   $ (4.97    $ (4.97    $ 2.20       $ 2.18   

 

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