UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
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)
 
(I.R.S. Employer
Identification No.)
One Lagoon Drive, Redwood City, California 94065
(Address of principal executive offices, including ZIP code)
(650) 598-6000
(Registrant’s telephone number, including area code)
  
 
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)    Yes  ý    No  ¨ and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    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  ý    No  ¨
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
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The number of shares outstanding of the registrant’s Common Stock as of November 3, 2016 was 71,379,297.
 

1
Table of Contents

EQUINIX, INC.
INDEX
 
Page
No.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

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PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
EQUINIX, INC.
Condensed Consolidated Balance Sheets
(in thousands)
 
September 30,
2016
 
December 31,
2015
 
(Unaudited)
Assets
Current assets:
 
 
 
Cash and cash equivalents
$
987,915

 
$
2,228,838

Short-term investments
443

 
12,875

Accounts receivable, net
377,528

 
291,964

Current portion of restricted cash
25,305

 
479,417

Other current assets
172,370

 
212,929

Assets held for sale
96,923

 
33,257

Total current assets
1,660,484

 
3,259,280

Long-term investments
15,036

 
4,584

Property, plant and equipment, net
7,251,399

 
5,606,436

Goodwill
3,118,686

 
1,063,200

Intangible assets, net
803,260

 
224,565

Other assets
248,692

 
198,630

Total assets
$
13,097,557

 
$
10,356,695

Liabilities and Stockholders’ Equity
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
534,602

 
$
400,948

Accrued property, plant and equipment
185,683

 
103,107

Current portion of capital lease and other financing obligations
92,120

 
40,121

Current portion of mortgage and loans payable
518,985

 
770,236

Convertible debt
—

 
146,121

Other current liabilities
149,516

 
192,286

Liabilities held for sale
14,660

 
3,535

Total current liabilities
1,495,566

 
1,656,354

Capital lease and other financing obligations, less current portion
1,446,455

 
1,287,139

Mortgage and loans payable, less current portion
1,058,418

 
472,769

Senior notes
3,809,332

 
3,804,634

Other liabilities
664,076

 
390,413

Total liabilities
8,473,847

 
7,611,309

Commitments and contingencies (Note 11)

 

Stockholders’ equity:
 
 
 
Common stock
72

 
62

Additional paid-in capital
7,371,024

 
4,838,444

Treasury stock
(147,617
)
 
(7,373
)
Accumulated dividends
(1,842,834
)
 
(1,468,472
)
Accumulated other comprehensive loss
(713,769
)
 
(509,059
)
Accumulated deficit
(43,166
)
 
(108,216
)
Total stockholders’ equity
4,623,710

 
2,745,386

Total liabilities and stockholders’ equity
$
13,097,557

 
$
10,356,695

See accompanying notes to condensed consolidated financial statements

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Table of Contents

EQUINIX, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
(Unaudited)
Revenues
$
924,676

 
$
686,649

 
$
2,669,342

 
$
1,995,405

Costs and operating expenses:
 
 
 
 
 
 
 
Cost of revenues
470,302

 
325,468

 
1,354,949

 
939,538

Sales and marketing
110,936

 
83,709

 
325,358

 
243,573

General and administrative
181,239

 
123,237

 
515,605

 
356,455

Acquisition costs
12,505

 
13,352

 
64,635

 
24,374

Impairment charges
7,698

 
—

 
7,698

 
—

Gains on asset sales
(27,945
)
 
—

 
(33,187
)
 
—

Total costs and operating expenses
754,735

 
545,766

 
2,235,058

 
1,563,940

Income from continuing operations
169,941

 
140,883

 
434,284

 
431,465

Interest income
762

 
934

 
2,528

 
2,375

Interest expense
(92,200
)
 
(76,269
)
 
(293,395
)
 
(219,556
)
Other income (expense)
2,938

 
(12,836
)
 
(56,217
)
 
(11,964
)
Loss on debt extinguishment
(9,894
)
 
—

 
(10,499
)
 
—

Income from continuing operations before income taxes
71,547

 
52,712

 
76,701

 
202,320

Income tax expense
(22,778
)
 
(11,580
)
 
(25,957
)
 
(25,277
)
Net income from continuing operations
48,769

 
41,132

 
50,744

 
177,043

Net income from discontinued operations, net of tax
2,681

 
—

 
14,306

 
—

Net income
$
51,450

 
$
41,132

 
$
65,050

 
$
177,043

Earnings per share (“EPS”):
 
 
 
 
 
 
 
Basic EPS from continuing operations
$
0.69

 
$
0.72

 
$
0.73

 
$
3.11

Basic EPS from discontinued operations
0.04

 
—

 
0.21

 
—

Basic EPS
$
0.73

 
$
0.72

 
$
0.94

 
$
3.11

Weighted-average shares
71,190

 
57,082

 
69,689

 
56,894

Diluted EPS from continuing operations
$
0.68

 
$
0.71

 
$
0.72

 
$
3.08

Diluted EPS from discontinued operations
0.04

 
—

 
0.20

 
—

Diluted EPS
$
0.72

 
$
0.71

 
$
0.92

 
$
3.08

Weighted-average shares for diluted EPS
71,908

 
57,708

 
70,389

 
57,521

See accompanying notes to condensed consolidated financial statements

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EQUINIX, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
 
(Unaudited)
Net income
$
51,450

 
$
41,132

 
$
65,050

 
$
177,043

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment (“CTA”) loss
(32,603
)
 
(72,677
)
 
(215,065
)
 
(149,546
)
Unrealized gain (loss) on available-for-sale securities
1,487

 
(21
)
 
2,382

 
99

Unrealized gain (loss) on cash flow hedges
(4,153
)
 
3,309

 
3,789

 
(425
)
Net investment hedge CTA gain (loss)
(34,721
)
 
4,426

 
4,163

 
(5,963
)
Net actuarial gain on defined benefit plans
7

 
124

 
21

 
266

Total other comprehensive loss, net of tax
(69,983
)
 
(64,839
)
 
(204,710
)
 
(155,569
)
Comprehensive income (loss), net of tax
$
(18,533
)
 
$
(23,707
)
 
$
(139,660
)
 
$
21,474

See accompanying notes to condensed consolidated financial statements

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EQUINIX, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
Nine months ended
September 30,
 
2016
 
2015
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net income
$
65,050

 
$
177,043

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
534,026

 
362,069

Stock-based compensation
115,730

 
98,575

Amortization of intangible assets
93,384

 
19,346

Amortization of debt issuance costs and debt discounts
13,709

 
11,557

Provision for allowance for doubtful accounts
6,541

 
4,187

Gains on asset sales
(33,187
)
 
—

Gains on sale of discontinued operations
(4,242
)
 
—

Impairment charges
7,698

 
—

Loss on debt extinguishment
10,499

 
—

Other items
13,378

 
11,162

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(72,807
)
 
(42,002
)
Income taxes, net
1,021

 
(84,523
)
Accounts payable and accrued expenses
(11,526
)
 
75,219

Other assets and liabilities
(22,004
)
 
27,042

Net cash provided by operating activities
717,270

 
659,675

Cash flows from investing activities:
 
 
 
Purchases of investments
(31,736
)
 
(338,440
)
Sales of investments
41,796

 
826,486

Maturities of investments
—

 
35,431

Business acquisitions, net of cash acquired
(1,767,528
)
 
(10,247
)
Purchases of real estate
(28,118
)
 
(38,282
)
Purchases of other property, plant and equipment
(727,044
)
 
(587,508
)
Proceeds from sale of assets, net of cash transferred
828,197

 
—

Changes in restricted cash
444,736

 
(493,371
)
Net cash used in investing activities
(1,239,697
)
 
(605,931
)
Cash flows from financing activities:
 
 
 
Proceeds from employee equity awards
34,143

 
29,855

Payment of dividends
(374,151
)
 
(291,009
)
Proceeds from loans payable
710,404

 
490,000

Repayment of capital lease and other financing obligations
(100,863
)
 
(20,213
)
Repayment of mortgage and loans payable
(986,465
)
 
(529,447
)
Debt extinguishment costs
(10,181
)
 
—

Debt issuance costs
(11,751
)
 
(617
)
Excess tax benefits from stock-based compensation
1,465

 
1,663

Net cash used in financing activities
(737,399
)
 
(319,768
)
Effect of foreign currency exchange rates on cash and cash equivalents
22,658

 
(9,424
)
Change in cash balances included in assets held for sale
(3,755
)
 
—

Net decrease in cash and cash equivalents
(1,240,923
)
 
(275,448
)
Cash and cash equivalents at beginning of period
2,228,838

 
610,917

Cash and cash equivalents at end of period
$
987,915

 
$
335,469

See accompanying notes to condensed consolidated financial statements

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by Equinix, Inc. (“Equinix” or the “Company”) and reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to fairly state the financial position and the results of operations for the interim periods presented. The condensed consolidated balance sheet data as of December 31, 2015 has been derived from audited consolidated financial statements as of that date. The consolidated financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission (“SEC”), but omit certain information and footnote disclosure necessary to present the statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”). For further information, refer to the Consolidated Financial Statements and Notes thereto included in Equinix’s Form 10-K as filed with the SEC on February 26, 2016. Results for the interim periods are not necessarily indicative of results for the entire fiscal year.
Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Equinix and its subsidiaries, including the acquisitions of the Paris IBX Data Center from August 1, 2016, Telecity Group plc (“TelecityGroup”) from January 15, 2016, Bit-isle Inc. (“Bit-isle”) from November 2, 2015 and Nimbo Technologies Inc. (“Nimbo”) from January 14, 2015. All significant intercompany accounts and transactions have been eliminated in consolidation.
Income Taxes
The Company began operating as a real estate investment trust for federal income tax purposes ("REIT") effective January 1, 2015. In May 2015, the Company received a favorable private letter ruling from the U.S. Internal Revenue Service 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 stockholders from taxable income generated by the Company and its qualified REIT subsidiaries (“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 Company's taxable REIT subsidiaries (“TRSs”) have been and 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.
The Company provides for income taxes during interim periods based on the estimated effective tax rate for the year. The effective tax rate is subject to change in the future due to various factors such as the operating performance of the Company, tax law changes and future business acquisitions.
The Company’s effective tax rates were 33.8% and 12.5% for the nine months ended September 30, 2016 and 2015, respectively. The increase in the effective tax rate for the nine months in 2016 as compared to the same period in 2015 is primarily due to a much lower profit before tax for the period, attributable to the non-tax deductible costs related to the TelecityGroup acquisition and an increase in valuation allowance.
Assets Held for Sale and Discontinued Operations
Assets and liabilities to be disposed of that meet all of the criteria to be classified as held for sale as set forth in the accounting standard for impairment or disposal of long-lived assets are reported at the lower of their carrying amounts or fair values less costs to sell. Assets are not depreciated or amortized while they are classified as held for sale. A component of a reporting entity or a group of components of a reporting entity that are disposed or meet the criteria to be classified as held for sale should be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The accounting guidance requires a business activity that, on acquisition, meets the criteria to be classified as held for sale be reported as a discontinued operation. For further information on the Company’s assets held for sale and discontinued operations, see Notes 4 and 5.
Recent Accounting Pronouncements
Accounting Standards Not Yet Adopted
In October, 2016, Financial Accounting Standards Board ("FASB") has issued Accounting Standards Update ("ASU") No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. This ASU alters

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Table of Contents
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

how a decision maker needs to consider indirect interests in a variable interest entity (VIE) held through an entity under common control. Under this ASU, if a decision maker is required to evaluate whether it is the primary beneficiary of a VIE, it will need to consider only its proportionate indirect interest in the VIE held through a common control party. This ASU is effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In October 2016, FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU requires the recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This ASU is effective for fiscal years and interim period within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU provides guidance on the classification of eight cash flow issues to reduce the existing diversification in practice, including (a) debt prepayment or debt extinguishment costs; (b) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (c) contingent consideration payments made after a business combination; (d) proceeds from settlement of insurance claims; (e) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (f) distributions received from equity method investees; (g) beneficial interests in securitization transactions; and (h) separately identifiable cash flows and application of the predominance principle. The ASU is effective for fiscal years and interim period within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). This ASU simplifies several areas of the accounting for share-based payment award transactions, including (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815), Contingent Put and Call Options in Debt Instruments ("ASU 2016-06"). This ASU clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this ASU is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. This guidance should be applied on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year in which the amendments are effective, and is effective for fiscal years beginning after December 15, 2016, 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.
In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815), Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships ("ASU 2016-05"). This ASU clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This ASU may be applied prospectively

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

or using a modified retrospective approach, and is effective for fiscal years beginning after December 15, 2016, 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.
In February 2016, the FASB issued 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 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.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) Topic 606 and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016 and May 2016 within ASU 2015-04, ASU 2016-08, ASU 2016-10 and ASU 2016-12, respectively (ASU 2014-09, ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-11 and ASU 2016-12 collectively, Topic 606). Topic 606 will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of Topic 606 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. Topic 606 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. Topic 606, as amended, is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e., January 1, 2018, for a calendar year entity). Early application for public entities is permitted 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 this standard will have on its consolidated financial statements.
Accounting Standards Adopted
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 adopted ASU 2015-16 in the three months ended March 31, 2016. The adoption of ASU 2015-16 did not have a significant impact on the Company's consolidated financial statements.

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

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 adopted ASU 2015-07 in the three months ended March 31, 2016. The adoption of ASU 2015-07 did not have a significant impact on the Company's consolidated financial statements.
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 a limited partnership; (3) the ASU affects the consolidation analysis of reporting entities 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 adopted ASU 2015-02 in the three months ended March 31, 2016. The adoption of ASU 2015-02 did not have a significant impact on the Company's 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 adopted ASU 2015-01 in the three months ended March 31, 2016. The adoption of ASU 2015-01 did not have a significant impact on the Company's consolidated financial statements.

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

2.Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the periods presented (in thousands, except per share amounts):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Net income:
 
 
 
 
 
 
 
Net income from continuing operations
$
48,769

 
$
41,132

 
$
50,744

 
$
177,043

Net income from discontinued operations
2,681

 
—

 
14,306

 
—

Net income
$
51,450

 
$
41,132

 
$
65,050

 
$
177,043

 
 
 
 
 
 
 
 
Weighted-average shares used to calculate basic EPS
71,190

 
57,082

 
69,689

 
56,894

Effect of dilutive securities:
 
 
 
 
 
 
 
Employee equity awards
718

 
626

 
700

 
627

Weighted-average shares used to calculate diluted EPS
71,908

 
57,708

 
70,389

 
57,521

Basic EPS:
 
 
 
 
 
 
 
Continuing operations
$
0.69

 
$
0.72

 
$
0.73

 
$
3.11

Discontinued operations
0.04

 
—

 
0.21

 
—

Basic EPS
$
0.73

 
$
0.72

 
$
0.94

 
$
3.11

Diluted EPS:
 
 
 
 
 
 
 
Continuing operations
$
0.68

 
$
0.71

 
$
0.72

 
$
3.08

Discontinued operations
0.04

 
—

 
0.20

 
—

Diluted EPS
$
0.72

 
$
0.71

 
$
0.92

 
$
3.08

The following table sets forth weighted-average outstanding potential shares of common stock that are not included in the diluted earnings per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Shares reserved for conversion of 4.75% convertible subordinated notes
—

 
1,970

 
1,193

 
1,956

Common stock related to employee equity awards
22

 
201

 
17

 
117

 
22

 
2,171

 
1,210

 
2,073

3.
Acquisitions
Paris IBX Data Center Acquisition
On August 1, 2016, the Company completed the purchase of Digital Realty Trust, Inc.'s ("Digital Realty") operating business, including its real estate and facility, located in St. Denis, Paris for cash consideration of approximately €193,292,000 or $215,869,000 at the exchange rate in effect on August 1, 2016 (the "Paris IBX Data Center Acquisition"). A portion of the building was leased to the Company and was being used by the Company as its Paris 2 and Paris 3 data centers. The Paris 2 lease was accounted for as an operating lease and the Paris 3 lease was accounted for as a financing lease. Upon acquisition, the Company in effect terminated both leases. The Company settled the financing lease obligation of Paris 3 for €46,726,000 or approximately $52,219,000 and recognized a loss on debt extinguishment of €8,828,000 or approximately $9,894,000. The remainder of the building was leased to other tenants, which became the Company's tenants upon closing. The Paris IBX Data Center Acquisition constitutes a business

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

under the accounting standard for business combinations and as a result, the Paris IBX Data Center Acquisition was accounted for as a business combination using the acquisition method of accounting.
The Company included the incremental Paris IBX Data Center's results of operations from August 1, 2016 and the estimated fair value of assets acquired and liabilities assumed in its consolidated balance sheets beginning August 1, 2016. The Company incurred acquisition costs of approximately $10,962,000 during the three and nine months ended September 30, 2016 related to the Paris IBX Data Center Acquisition.
Purchase Price Allocation
Under the acquisition method of accounting, the total purchase price is allocated to the assets acquired and liabilities assumed measured at fair value on the date of acquisition. As of the date of this quarterly report, the Company has not completed the detailed valuation analysis to derive the fair value of the following items including, but not limited to property, plant and equipment, intangible assets and leasehold interests. Therefore, the allocation of the purchase price to acquired assets and liabilities is based on provisional estimates and is subject to continuing management analysis, with assistance of third party valuation advisers. The preliminary purchase price allocation, which excludes settlement of the Paris 3 financing obligations, was as follows (in thousands):
Cash and cash equivalent
$
4,073

Accounts receivable
1,507

Other current assets
794

Property, plant, and equipment
138,568

Intangible assets
11,758

Goodwill
45,187

Other assets
82

Total assets acquired
201,969

Accounts payable and accrued liabilities
(2,044
)
Other current liabilities
(2,798
)
Deferred tax liabilities
(32,687
)
Other liabilities
(790
)
Net assets acquired
$
163,650

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)
In-place leases
 
$
7,485

 
0.9 - 9.4
 
4.3
Favorable leasehold interests
 
4,273

 
1.9 - 6.7
 
5.3
The fair value of in-place lease value may consist of a variety of components including, but not necessarily limited to: the value associated with avoiding the cost of originating the acquired in-place leases; the value associated with lost revenue related to tenant reimbursable operating costs estimated to be incurred during the assumed re-leasing period (i.e. real estate taxes, insurance and other operating expenses), the value associated with lost rental revenue from existing leases during the assumed re-leasing period; the value associated with avoided tenant improvement and leasing commission costs or other inducements to secure a tenant lease and the avoided costs for rent abatements or rent free periods. The fair value of favorable leases was estimated based on the income approach. The favorable leasehold interests were determined on a lease-by-lease basis by computing the net present value of the difference between the contractual amounts to be paid pursuant to the lease agreements and estimates of the fair market lease rates for the corresponding in place leases measured over remaining non-cancellable terms of the leases. 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The fair value of the property, plant and equipment was estimated by applying the income approach or cost approach. The income approach is used to estimate fair value based on the income stream, such as cash flows or earnings that an asset can be expected to generate over its useful life. There are two primary methods of applying the income approach to determine the fair value of assets: the discounted cash flow method and the direct capitalization method. The key assumptions include the estimated earnings, discount rate and direct capitalization rate. The cost approach is to use the replacement or reproduction cost as an indicator of fair value. The premise of the cost approach is that a market participant would pay no more for an asset than the amount that the asset could be replaced or reproduced. The key assumptions of the cost approach include replacement cost, physical deterioration, functional and economic obsolescence, economic useful life, remaining useful life, age and effective age.
The incremental results of operations from Paris IBX Data Center Acquisition are not significant; therefore the Company does not present pro forma combined results of operations. For the three months ended September 30, 2016, the incremental revenues and net income recorded from the Paris IBX Data Center Acquisition were not significant to the Company’s consolidated statement of operations.
TelecityGroup Acquisition
On January 15, 2016, the Company completed the acquisition of the entire issued and to be issued share capital of TelecityGroup. TelecityGroup operates data center facilities in cities across Europe. The acquisition of TelecityGroup enhances the Company's existing data center portfolio by adding new IBX metro markets in Europe including Dublin, Helsinki, Istanbul, Manchester, Milan, Sofia, Stockholm and Warsaw. As a result of the transaction, TelecityGroup has become a wholly-owned subsidiary of Equinix.
Under the terms of the acquisition, the Company acquired all outstanding shares of TelecityGroup and all vested equity awards of TelecityGroup at 572.5 pence in cash and 0.0336 new shares of Equinix common stock for a total purchase consideration of approximately £2,624,500,000 or approximately $3,743,587,000. In addition, the Company assumed $1,299,000 of vested TelecityGroup's employee equity awards as part of consideration transferred. The Company incurred acquisition costs of approximately $50,484,000 during the nine months ended September 30, 2016 related to the TelecityGroup acquisition.
In connection with the TelecityGroup acquisition, 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 condensed consolidated balance sheet as of December 31, 2015. The cash was released upon completion of the acquisition.
Also, in connection with TelecityGroup acquisition, the Company entered into a bridge credit agreement with J.P. Morgan Chase Bank, N.A. as the initial lender and as administrative agent for 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 Company did not make any borrowings under the Bridge Loan and the Bridge Loan was terminated on January 8, 2016.
The Company initially designated the legal entities acquired in the TelecityGroup acquisition as TRSs. As of September 30, 2016, the Company has integrated TelecityGroup Netherlands into the REIT structure through its merger with Equinix Netherlands.

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Purchase Price Allocation
Under the acquisition method of accounting, the assets acquired and liabilities assumed in a business combination shall be measured at fair value at the date of the acquisition. As of the date of this quarterly report, the Company has not completed the detailed valuation analysis to derive the fair value of the following items including, but not limited to, intangible assets, accounting for lease contracts; asset retirement obligations; favorable leasehold interests; assets and liabilities held for sale, deferred revenue; property, plant and equipment; accruals and taxes. Therefore, the allocation of the purchase price to acquired assets and liabilities is based on provisional estimates and is subject to continuing management analysis, with assistance of third party valuation advisers. During the three months ended September 30, 2016, the Company updated the preliminary allocation of purchase price for TelecityGroup based on valuation analysis, which resulted in increases to intangible assets of $46,529,000 and capital lease and other financing obligations $37,449,000 and decreases in goodwill of $21,906,000, assets held for sale of $46,598,000and deferred tax liabilities of $21,048,000. The changes did not have a significant impact on the Company’s results from operations for the three and nine months ended September 30, 2016. The Company may adjust these amounts further as valuations are finalized and the Company obtains information necessary to complete the analyses, but no later than one year from the acquisition date.
As of the acquisition date, the preliminary allocation of the purchase price is as follows (in thousands):
Cash and cash equivalents
$
73,368

Accounts receivable
24,042

Other current assets
41,079

Assets held for sale
867,917

Property, plant and equipment
1,058,583

Goodwill
2,216,173

Intangible assets
704,014

Deferred tax assets
1,198

Other assets
4,124

Total assets acquired
4,990,498

Accounts payable and accrued expenses
(90,589
)
Accrued property, plant and equipment
(3,634
)
Other current liabilities
(27,259
)
Liabilities held for sale
(156,171
)
Capital lease and other financing obligations
(162,359
)
Mortgage and loans payable
(592,304
)
Deferred tax liabilities
(177,715
)
Other liabilities
(35,581
)
Net assets acquired
$
3,744,886

The preliminary purchase price allocation above, as of the acquisition date, includes acquired assets and liabilities that were classified by the Company as held for sale (Note 4).
The following table presents certain information on the acquired intangible assets (dollars in thousands):
Intangible assets
 
Fair value
 
Estimated useful lives (years)
 
Weighted-average estimated useful lives (years)
Customer relationships
 
$
591,956

 
13.5
 
13.5
Trade names
 
72,033

 
1.5
 
1.5
Favorable leases
 
40,025

 
2.0 - 25.4
 
19.2

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

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 8.5%, 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 TelecityGroup 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 9.0%. The other acquired identifiable intangible assets were estimated by applying a relief of royalty 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 fair value of the property, plant and equipment was estimated by applying the income approach or cost approach. The income approach is used to estimate fair value based on the income stream, such as cash flows or earnings that an asset can be expected to generate over its useful life. There are two primary methods of applying the income approach to determine the fair value of assets: the discounted cash flow method and the direct capitalization method. The key assumptions include the estimated earnings, discount rate and direct capitalization rate. The cost approach is to use the replacement or reproduction cost as an indicator of fair value. The premise of the cost approach is that a market participant would pay no more for an asset than the amount for which the asset could be replaced or reproduced. The key assumptions of the cost approach include replacement cost, physical deterioration, functional and economic obsolescence, economic useful life, remaining useful life, age and effective age.
The Company determined the fair value of the loans payable assumed in the TelecityGroup acquisition by estimating TelecityGroup’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. On January 15, 2016, the Company prepaid and terminated 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 condensed consolidated statement of operations.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the acquisition. 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 TelecityGroup acquisition, except for the goodwill associated with asset held for sale, is attributable to the Company’s EMEA region. For the three months ended September 30, 2016, the Company's results of continuing operations include TelecityGroup revenues of $107,316,000 and net loss from continuing operations of $15,747,000. The Company's results of continuing operations include TelecityGroup revenues of $299,001,000 and net loss from continuing operations of $54,426,000 for the period January 15, 2016 through September 30, 2016.
Bit-isle Acquisition
On November 2, 2015, the Company 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 ¥922 per share, in an all cash transaction totaling approximately $275,367,000. The Company acquired Bit-isle to expand additional data centers in Japan for customers' future expansion needs.
On September 30, 2015, the Company 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 committed to provide a senior bridge loan facility (the “Bridge Term Loan”) in the amount of up to ¥47,500,000,000, or approximately $468,350,000 in U.S. dollars at the exchange rate in effect on September 30, 2016. Proceeds from the Bridge Term Loan were 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.
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 has designated the legal entities acquired in the Bit-isle acquisition as TRSs.

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

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. Under the accounting guidance, the Company can adjust the fair value of acquired assets and liabilities assumed in the measurement period, as it obtains new information regarding the facts and circumstances that existed at the 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 equivalents
$
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
Trade name
 
3,455

 
2
 
2
Favorable solar contracts
 
2,410

 
18
 
18
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 fair value of the property, plant and equipment was estimated by applying the income approach or cost approach. The income approach is used to estimate fair value based on the income stream, such as cash flows or earnings that an asset can be expected to generate over its useful live. There are two primary methods of applying the income approach to determine the fair

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

value assets: the discounted cash flow method and the direct capitalization method. The key assumptions include the estimated earnings, discount rate and direct capitalization rate. The cost approach is to use the replacement or reproduction cost as an indicator of fair value. The premise of the cost approach is that a market participant would pay no more for an asset than the amount that the asset could be replaced or reproduced. The key assumptions of the cost approach include replacement cost new, physical deterioration, functional and economic obsolescence, economic useful life, remaining useful life, age and effective age.
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 for the year ended December 31, 2015.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the acquisition. 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 region. For the three and nine months ended September 30, 2016, the Company's results of continuing operations include Bit-isle revenues of $39,745,000 and $111,243,000, respectively, and Bit-isle net losses of $9,714,000 and $16,091,000, respectively.
Nimbo Acquisition
On January 14, 2015, the Company acquired all of the issued and outstanding share capital of 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”). Subsequent to the acquisition, Nimbo adopted the name Equinix Professional Services for Cloud. 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.
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 TelecityGroup and Bit-isle acquisitions as though the acquisitions occurred on January 1, 2015. The Company completed the TelecityGroup acquisition on January 15, 2016. The operating results of TelecityGroup are included in the condensed consolidated statement of operations for the three months ended September 30, 2016. TelecityGroup's operating results for the period January 15, 2016 through September 30, 2016 are included in the condensed consolidated statement of operations for the nine months ended September 30, 2016. The pro forma effect for the period January 1 through January 14, 2016 was insignificant. The unaudited pro forma combined consolidated financial information reflects 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.     

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The following table sets forth the unaudited pro forma consolidated combined results of operations for the three and nine months ended September 30, 2015 (in thousands):
 
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2015
Revenues
$
819,423

 
$
2,387,117

Net income from continuing operations
61,243

 
153,488

Basic EPS
0.96

 
2.41

Diluted EPS
0.95

 
2.38

4. Assets Held for Sale
During the fourth quarter of 2015, the Company entered into an agreement to sell a parcel of land in San Jose, California and reported the San Jose land parcel as an asset held for sale in the accompanying consolidated balance sheet as of December 31, 2015. The sale was completed in February 2016.
In order to obtain the approval of the European Commission for the acquisition of TelecityGroup, the Company and TelecityGroup agreed to divest certain data centers, including the Company’s LD2 data center and certain data centers of TelecityGroup in the United Kingdom, Netherlands and Germany. The assets and liabilities of LD2, which were 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 divestiture was not presented as discontinued operations in the consolidated statements of operations, because it did not represent a strategic shift in the Company's business, as the Company continued operating similar businesses after the divestiture. The divestiture was completed on July 5, 2016 and the Company recognized a gain of $27,945,000 on the sale of the LD2 data center, which is included in gains on asset sales in the condensed consolidated statement of operations for the three and nine months ended September 30, 2016. The revenue and net income generated by LD2 during the three months ended September 30, 2016 were insignificant. During the three months ended September 30, 2015, LD2 generated revenue of $4,654,000 and net income of $2,040,000. During the nine months ended September 30, 2016, LD2 generated revenue of $6,116,000 and net income of $2,327,000. During the nine months ended September 30, 2015, LD2 generated revenue of $14,082,000 and net income of $5,920,000.
The acquisition of TelecityGroup closed on January 15, 2016. Accordingly, the assets and liabilities of the TelecityGroup data centers that were divested were included in assets and liabilities held for sale in the condensed consolidated balance sheet through July 5, 2016, the date the divestiture closed. The results of operations for the TelecityGroup data centers that were divested, as well as the gain on divestiture, were classified as discontinued operations from January 15, 2016, the date the acquisition closed, through July 5, 2016 (see Note 5).
In June 2016, the Company approved the divestiture of the solar power assets of Bit-isle. The assets and liabilities of the solar power assets that will be divested were included in assets and liabilities held for sale in the condensed consolidated balance sheet as of September 30, 2016. The revenue and net income generated by the solar power assets of Bit-isle during the three and nine months ended September 30, 2016 were insignificant.
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. The determination of fair value for assets is dependent upon, among other factors, the potential sales transaction, composition of assets in the disposal group, the comparability of the disposal group to market transactions and negotiations with third party purchasers, etc. Such factors impact the range of potential fair values and the selection of the best estimates.
During the three months ended September 30, 2016, the Company evaluated the recoverability of the carrying value of its assets held for sale. Based on the analysis, it was determined that due to the sales agreement signed in October 2016 (see Note 14), the Company would not recover the carrying value of certain assets. Accordingly, the Company recorded an impairment charge on other current assets of $7,698,000 at September 30, 2016, reducing the carrying value of such assets from $79,459,000 to the estimated fair value of $71,761,000.

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The following table summarizes assets and liabilities that were classified in assets and liabilities held for sale as of September 30, 2016 and December 31, 2015 (in thousands):
 
September 30,
2016
 
December 31,
2015
Cash
$
3,755

 
$
—

Accounts receivable
784

 
2,222

Other current assets
71,761

 
408

Property, plant and equipment
17,819

 
23,533

Goodwill
—

 
5,000

Intangible assets
2,772

 
784

Other assets
32

 
1,310

Total assets held for sale
$
96,923

 
$
33,257

 
 
 
 
Accounts payable and accrued expenses
$
(11,567
)
 
$
(654
)
Accrued property, plant and equipment
—

 
(816
)
Current portion of capital lease and other financing obligation
—

 
—

Other current liabilities
(42
)
 
(435
)
Capital lease and other financing obligations, less current portion
—

 
—

Other liabilities
(3,051
)
 
(1,630
)
Total liabilities held for sale
$
(14,660
)
 
$
(3,535
)
5.
Discontinued Operations
In order to obtain the approval of the European Commission for the acquisition of TelecityGroup, the Company and TelecityGroup agreed to divest certain data centers of TelecityGroup in the United Kingdom, Netherlands and Germany. Accounting guidance requires a business activity that, on acquisition, meets the criteria to be classified as held for sale be reported as a discontinued operation. On July 5, 2016, the Company completed the sale of these data centers and related assets to Digital Realty for approximately €304,564,000 and £376,171,000, or approximately $827,314,000 at the exchange rates in effect on July 5, 2016. The Company recognized a gain on sale of the TelecityGroup data centers in discontinued operations of $4,242,000. The results of operations for these data centers that were divested have been reported as net income from discontinued operations, net of tax, from January 15, 2016, the date of the acquisition, through July 5, 2016 in the Company's condensed consolidated statement of operations. The results of operations for these data centers during the three months ended September 30, 2016 were insignificant.

19
Table of Contents
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The following table presents the financial results of the Company's discontinued operations for the nine months ended September 30, 2016:
 
Nine months ended
September 30,
Revenues
$
48,782

Costs and operating expenses:
 
Cost of revenues
24,795

Sales and marketing
1,030

General and administrative
7,026

Total costs and operating expense
32,851

Income from operations of discontinued operations
15,931

Interest and other, net
(1,286
)
Income from discontinued operations before income taxes
14,645

Income tax expense
(4,581
)
Gain on sale of discontinued operations, net of income taxes
4,242

Income from discontinued operations, net of income taxes
$
14,306

Net cash used in operating activities for discontinued operations was $5,259,000 and net cash provided by investing activities for discontinued operations was $730,603,000 for the nine-months ended September 30, 2016, including proceeds from the sale of TelecityGroup data centers.
6.
Derivatives and Hedging Activities
Derivatives Designated as Hedging Instruments
Net Investment Hedges. The Company is exposed to the impact of foreign exchange rate fluctuations on its investments in foreign subsidiaries whose functional currencies are other than the U.S. dollar. In order to mitigate the impact of foreign currency exchange rates, the Company has entered into various foreign currency loans which are designated as hedges against the Company's net investment in foreign subsidiaries. As of September 30, 2016 and December 31, 2015, the total principal amount of foreign currency loans, which were designated as net investment hedges, was $674,873,000 and $411,881,000, respectively. In March 2016, the Company began using foreign exchange forward contracts to hedge against the effect of foreign exchange rate fluctuations on a portion of its net investment in the foreign subsidiaries. For a net investment hedge, changes in the fair value of the hedging instrument designated as a net investment hedge, except the ineffective portion and forward points, are recorded as a component of other comprehensive income in the condensed consolidated balance sheet.
The Company recorded net foreign exchange gains of $5,542,000 and $44,426,000 in other comprehensive income (loss) for the three and nine months ended September 30, 2016, respectively. The Company recorded net foreign exchange gains of $4,426,000 and net foreign exchange losses of $5,963,000 in other comprehensive income (loss) for the three and nine months ended September 30, 2015, respectively. The Company recorded no ineffectiveness from its net investment hedges for the three and nine months ended September 30, 2016 and 2015.
Cash Flow Hedges. The Company hedges 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. The Company also uses purchased collar options to manage a portion of its exposure to foreign currency exchange rate fluctuations, where the Company writes a foreign currency call option and purchases a foreign currency put option. When two or more derivative instruments in combination are jointly designated as a cash flow hedging instrument, they are treated as a single instrument.

20
Table of Contents
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

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 September 30, 2016, the Company’s cash flow hedges had maturity dates ranging from October 2016 to September 2018 as follows (in thousands):
 
Notional
Amount
 
Fair Value (1)
 
Accumulated other
comprehensive
income (loss) (2) (3)
Derivative assets
$
388,269

 
$
25,353

 
$
53,713

Derivative liabilities
167,706

 
(3,750
)
 
(33,791
)
 
$
555,975

 
$
21,603

 
$
19,922

 
(1) 
All derivative assets related to cash flow hedges are included in the condensed consolidated balance sheets within other current assets, other assets, other current liabilities and other liabilities.
(2) 
Included in the condensed consolidated balance sheets within accumulated other comprehensive income (loss).
(3) 
The Company recorded a net gain of $13,994 within accumulated other comprehensive income (loss) relating to cash flow hedges that will be reclassified to revenue and expenses as they mature in the next 12 months.
As of December 31, 2015, the Company’s cash flow hedges had maturities 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 condensed consolidated balance sheets within other current assets, other assets, other current liabilities and other liabilities.
(2) 
Included in the condensed 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 expense as they mature over the next 12 months.
During the three months ended September 30, 2016 and 2015, the ineffective and excluded portions of cash flow hedges recognized in other income (expense) were not significant. During the three months ended September 30, 2016, the amount of net gains reclassified from accumulated other comprehensive income (loss) to revenue was $10,063,000 and the amount of net losses reclassified from accumulated other comprehensive income (loss) to operating expenses was $4,987,000. During the three months ended September 30, 2015, the amount of net gains reclassified from accumulated other comprehensive income (loss) to revenue was $5,590,000 and the amount of net losses reclassified from accumulated other comprehensive income (loss) to operating expenses were not significant.
During the nine months ended September 30, 2016 and 2015, the ineffective portions of cash flow hedges recognized in other income (expense) were not significant. During the nine months ended September 30, 2016, the amount of net gains reclassified from accumulated other comprehensive income (loss) to revenue was $22,671,000 and the amount of net losses reclassified from accumulated other comprehensive income (loss) to operating expenses was $11,664,000. During the nine months ended September 30, 2015, the amount of net gains reclassified from accumulated other comprehensive income (loss) to revenue was $21,096,000 and the amount of net losses reclassified from accumulated other comprehensive income (loss) to operating expenses was $4,167,000.
Derivatives Not Designated as Hedging Instruments

21
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

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 condensed consolidated statements of operations. During the three months ended September 30, 2016 and 2015, gains (losses) associated with these embedded derivatives were not significant. During the nine months ended September 30, 2016, the losses associated with these embedded derivatives were $7,287,000. During the nine months ended September 30, 2015, gains (losses) associated with these embedded derivatives were not significant.
Economic Hedges of Embedded Derivatives. The Company uses foreign currency forward contracts to 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 three and nine months ended September 30, 2016 and 2015. During the three months ended September 30, 2016 and 2015, the gains (losses) associated with these contracts were not significant. During the nine months ended September 30, 2016, the gains associated with these contracts were $5,266,000. During the nine months ended September 30, 2015, the net losses from these contracts were $2,019,000.
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 monetary 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 foreign currency gains and losses of the related foreign currency-denominated assets and liabilities associated with these foreign currency forward and option contracts. The Company entered into various foreign currency forward and option contracts during the three and nine months ended September 30, 2016 and 2015. During the three and nine months ended September 30, 2016, the Company recognized net gains of $3,169,000 and $44,649,000, respectively, associated with these contracts. During the three and nine months ended September 30, 2015, the Company recognized net gain of $12,776,000 and $10,315,000, respectively, associated with these contracts.

22
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Offsetting Derivative Assets and Liabilities
The following table presents the fair value of derivative instruments recognized in the Company’s condensed consolidated balance sheets as of September 30, 2016 (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:
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
Foreign currency forward and option contracts
$
25,353

 
$
—

 
$
25,353

 
$
(3,385
)
 
$
21,968

Net Investment Hedges
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
60

 
—

 
60

 
—

 
60

 
25,413

 
—

 
25,413

 
(3,385
)
 
22,028

Not designated as hedging instruments:

 

 

 

 

Embedded derivatives
3,587

 
—

 
3,587

 
—

 
3,587

Economic hedges of embedded derivatives
234

 
—

 
234

 
(17
)
 
217

Foreign currency forward contracts
70

 
—

 
70

 
—

 
70

 
3,891

 
—

 
3,891

 
(17
)
 
3,874

Additional netting benefit
—

 
—

 
—

 
(2,621
)
 
(2,621
)
 
$
29,304

 
$
—

 
$
29,304

 
$
(6,023
)
 
$
23,281

Liabilities:
 
 
 
 
 
 
 
 
 
Designated as hedging instruments
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
$
3,750

 
$
—

 
$
3,750

 
$
(3,385
)
 
$
365

Net Investment Hedges
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
—

 
—

 
—

 
—

 
—

 
3,750

 
—

 
3,750

 
(3,385
)
 
365

Not designated as hedging instruments:

 

 

 

 

Embedded derivatives
3,245

 
—

 
3,245

 
—

 
3,245

Economic hedges of embedded derivatives
75

 
—

 
75

 
(17
)
 
58

Foreign currency forward contracts
3,210

 
—

 
3,210

 
—

 
3,210

 
6,530

 
—

 
6,530

 
(17
)
 
6,513

Additional netting benefit
—

 
—

 
—

 
(2,621
)
 
(2,621
)
 
$
10,280

 
$
—

 
$
10,280

 
$
(6,023
)
 
$
4,257

 
(1) 
As presented in the Company’s condensed 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.

23
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

The following table presents the fair value of derivative instruments recognized in the Company’s condensed 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 condensed 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.

24
Table of Contents
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

7.
Fair Value Measurements
The Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 were as follows (in thousands):
 
Fair value at
September 30,
2016
 
Fair value
measurement using
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Cash
$
451,258

 
$
451,258

 
$
—

Money market and deposit accounts
533,496

 
533,496

 
—

Publicly traded equity securities
8,254

 
8,254

 
—

Certificates of deposit
10,386

 
—

 
10,386

Derivative instruments (1)
29,304

 
—

 
29,304

 
$
1,032,698

 
$
993,008

 
$
39,690

Liabilities:
 
 
 
 
 
Derivative instruments (1)
$
10,280

 
$
—

 
$
10,280

 
(1) 
Includes both foreign currency embedded derivatives and foreign currency forward and option contracts. Amounts are included within other current assets, other assets, others current liabilities and other liabilities in the Company’s accompanying condensed consolidated balance sheet.
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,
2015
 
Fair value
measurement using
 
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 condensed consolidated balance sheet.
The Company did not have any significant Level 3 financial assets or financial liabilities as of September 30, 2016 and December 31, 2015.

25
Table of Contents
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

8. 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):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Revenues
3,514

 
2,240

 
9,249

 
6,419

Costs and services
2,732

 
1,246

 
9,012

 
2,319

 
September 30,
 
2016
 
2015
Accounts Receivable
1,437

 
873

Accounts Payable
1,108

 
—

On February 10, 2016, the Company entered into a purchase and sale agreement to acquire land and a building ("CH5") from Prologis, L.P., with which it shares a common board member, for approximately $6.3 million. The purchase was completed on July 18, 2016. The transaction was accounted for as a business combination using the acquisition method of accounting. This transaction is considered a related party transaction but is not reflected in the related party data presented above.
9.
Leases
Capital Lease and Other Financing Obligations
Tokyo 5 ("TY5") Equipment Leases
In February 2016, the Company entered into a lease agreement for certain equipment in TY5 data center in Tokyo metro area. The lease was accounted for as a capital lease. Monthly payments under the equipment lease will be made through February 2032 at an effective interest rate of 6.33%. The total outstanding obligation under the equipment lease was approximately ¥3,074,947,000, or $30,319,000 in U.S. dollars at the exchange rate in effect as of September 30, 2016.

26
Table of Contents
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Maturities of Capital Lease and Other Financing Obligations
The Company’s capital lease and other financing obligations are summarized as follows (in thousands):
 
Capital lease
obligations
 
Other
financing
obligations (1)
 
Total
2016 (3 months remaining)
$
20,611

 
$
20,229

 
$
40,840

2017
82,812

 
80,150

 
162,962

2018
82,957

 
76,065

 
159,022

2019
83,700

 
70,625

 
154,325

2020
83,710

 
69,529

 
153,239

Thereafter
918,792

 
764,347

 
1,683,139

Total minimum lease payments
1,272,582

 
1,080,945

 
2,353,527

Plus amount representing residual property value
—

 
517,957

 
517,957

Less amount representing interest
(566,825
)
 
(766,084
)
 
(1,332,909
)
Present value of net minimum lease payments
705,757

 
832,818

 
1,538,575

Less current portion
(26,643
)
 
(65,477
)
 
(92,120
)
 
$
679,114

 
$
767,341

 
$
1,446,455

 
(1)     Other financing obligations are primarily build-to-suit lease obligations. 
10.
Debt Facilities
Mortgage and Loans Payable
The Company’s mortgage and loans payable consisted of the following (in thousands):
 
September 30,
2016
 
December 31, 2015
Term loans
$
1,069,965

 
$
456,740

Bridge term loan
468,350

 
386,547

Revolving credit facility borrowings
—

 
325,622

Brazil financings
1,585

 
27,113

Mortgage payable and other loans payable
49,514

 
47,677

 
1,589,414

 
1,243,699

Less amount representing debt discount and debt issuance cost
(14,015
)
 
(2,681
)
Plus amount representing mortgage premium
2,004

 
1,987

 
1,577,403

 
1,243,005

Less current portion
(518,985
)
 
(770,236
)
 
$
1,058,418

 
$
472,769

On September 30, 2016, the Company entered into a five year term loan agreement ("Term Loan Commitment") with the BTMU for ¥47,500,000,000 or approximately $468,350,000 at the exchange rate in effect on September 30, 2016. Loans made under the term loan commitment must be repaid in equal quarterly installments of ¥625,000,000, with the remaining ¥35,625,000,000 to be repaid in full on October 29, 2021. Borrowings under the Term Loan Commitment bear interest at the Tokyo Interbank Offered Rate for Japanese Yen, plus a margin of 1.5% per annum. As of September 30, 2016, the Company had no borrowings outstanding under Term Loan Commitment.
In June 2016, the Company prepaid and terminated its 2012 and 2013 Brazil financings. In connection with this prepayment, the Company paid 90,652,000 Brazilian Reals including principal, accrued interest and termination fees, or approximately

27
Table of Contents
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

$28,298,000 at the exchange rate in effect as of June 30, 2016. The loss on debt extinguishment recognized in the condensed consolidated statements of operations was insignificant.
During the three months ended March 31, 2016, the Company repaid $325,622,000 of borrowings under its revolving credit facility. No borrowings were outstanding under the revolving credit facility as of September 30, 2016.
In February 2016, the Company borrowed the remaining ¥1,040,000,000, or approximately $10,254,000 at the exchange rate in effect on September 30, 2016, available under its Bridge Term Loan Agreement.
On January 15, 2016, the Company prepaid and terminated loans payable of TelecityGroup. 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 condensed consolidated statement of operations. See Note 3 for additional information.
On January 8, 2016, the Company borrowed the full amount of the $250,000,000 and £300,000,000 seven year term loan commitments made available to it under the second amendment to the Company's Senior Credit Facility. The $250,000,000 seven year term loan bears interest at 4.00% per annum and will be repaid in quarterly installments of $625,000 commencing on June 30, 2016 with the remaining $233,125,000 due on January 8, 2023. The £300,000,000 seven year term loan bears interest at 4.50% per annum and will be repaid in quarterly installments of £750,000 commencing on June 30, 2016 with the remaining £279,750,000 due on January 8, 2023. As of September 30, 2016, the Company had $248,750,000 and £298,500,000 outstanding term loan balances or a total of approximately $635,964,000 at the exchange rate in effect on September 30, 2016.
Convertible Debt
The Company’s convertible debt consisted of the following (in thousands):
 
 
September 30, 2016
 
December 31, 2015
4.75% convertible subordinated notes
 
$
—

 
$
150,082

Less amount representing debt discount and debt issuance cost
 
—

 
(3,961
)
 
 
$
—

 
$
146,121

4.75% Convertible Subordinated Notes
In April and June 2016, holders of the 4.75% convertible subordinated notes converted or redeemed a total of $150,082,000 of the principal amount of the notes for 1,981,662 shares of the Company’s common stock and $3,619,000 in cash, comprised of accrued interest, cash paid in lieu of fractional shares and principal redemption. In the Company’s consolidated statement of cash flows for the nine months ended September 30, 2016, the principal redemption and cash paid in lieu of issuing fractional shares to settle a portion of the principal amount were included within net cash provided by (used in) financing activities and the accrued interest paid was included within net cash provided by operating activities.
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. Upon maturity of the 4.75% convertible subordinated notes on June 15, 2016, the Company settled the capped call transaction and received 380,779 shares of common stock, which were placed in treasury and resulted in a credit of $141,688,000 to additional paid in capital at the market price of $372.10 on June 15, 2016.

28
Table of Contents
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Senior Notes
The Company’s senior notes consisted of the following as of (in thousands):
 
September 30,
2016
 
December 31, 2015
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

 
1,100,000

 
3,850,000

 
3,850,000

Less amount representing debt issuance cost
(40,668
)
 
(45,366
)
 
$
3,809,332

 
$
3,804,634

Maturities of Debt Facilities
The following table sets forth maturities of the Company’s debt, including mortgage and loans payable and senior notes and excluding debt discounts as of September 30, 2016 (in thousands):
Year ending:
 
2016 (3 months remaining)
$
481,048

2017
50,851

2018
50,945

2019
353,211

2020
510,024

Thereafter
3,995,339

 
$
5,441,418

Fair Value of Debt Facilities
The following table sets forth the estimated fair values of the Company’s mortgage and loans payable, senior notes and convertible debt, including current maturities, as of (in thousands):
 
September 30,
2016
 
December 31, 2015
Mortgage and loans payable
$
1,589,087

 
$
916,602

Convertible debt
—

 
151,997

Senior notes
4,088,117

 
3,954,000

Revolving credit line
—

 
325,617

 The Company has determined that the inputs used to value its debt facilities fall within Level 2 of the fair value hierarchy.

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Interest Charges
The following table sets forth total interest costs incurred and total interest costs capitalized for the periods presented (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Interest expense
$
92,200

 
$
76,269

 
$
293,395

 
$
219,556

Interest capitalized
3,234

 
1,831

 
9,479

 
8,677

Interest charges incurred
$
95,434

 
$
78,100

 
$
302,874

 
$
228,233

11.
Commitments and Contingencies
Primarily as a result of the Company’s various IBX expansion projects, as of September 30, 2016, the Company was contractually committed for $474,579,000 of unaccrued capital expenditures, primarily for IBX infrastructure 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 September 30, 2016, such as commitments to purchase power in select locations through the remainder of 2016 and thereafter, and other open purchase orders for goods or services to be delivered or provided during the remainder of 2016 and thereafter. Such other miscellaneous purchase commitments totaled $343,981,000 as of September 30, 2016.
The Company's tax filings in various jurisdictions are subject to examination by local tax authorities. The outcome of any examinations cannot be predicted with certainty. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations that would affect the adequacy of its tax accruals for each of the reporting periods. If any issues arising from the tax examinations are resolved in a manner inconsistent with the Company’s expectations, the revision of the estimates of the potential or actual liabilities could materially impact the financial position, results of operations, or cash flows of the Company.
12.
Stockholders' Equity
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):
 
Balance as of
December 31,
2015
 
Net
Change
 
Balance as of
September 30,
2016
Foreign currency translation adjustment (“CTA”) loss
$
(523,709
)
 
$
(215,065
)
 
$
(738,774
)
Unrealized gain on cash flow hedges
11,153

 
3,789

 
14,942

Unrealized gain (loss) on available-for-sale securities
(139
)
 
2,382

 
2,243

Net investment hedge CTA gain
4,484

 
4,163

 
8,647

Net actuarial gain (loss) on defined benefit plans
(848
)
 
21

 
(827
)
 
$
(509,059
)
 
$
(204,710
)
 
$
(713,769
)
 
Changes in foreign currency exchange rates 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 generally translate into more U.S. dollars when the U.S. dollar weakens or fewer U.S. dollars when the U.S. dollar strengthens. As of September 30, 2016, the U.S. dollar was generally stronger relative to certain of the currencies of the foreign countries in which the Company operates. This overall strengthening of the U.S. dollar had an overall unfavorable impact on the Company’s consolidated financial position because the foreign denominations translated into fewer U.S. dollars as evidenced by an increase in foreign currency translation loss for the nine months ended September 30, 2016 as reflected in the

30
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

above table. In future periods, the volatility of the U.S. dollar as compared to the other currencies in which the Company operates 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.
Dividends
On February 18, 2016, the Company declared a quarterly cash dividend of $1.75 per share, with a record date of March 9, 2016 and a payment date of March 23, 2016. The Company paid a total of $121,494,000 on March 23, 2016 for the first quarter cash dividend. In addition, the Company accrued an additional $1,366,000 in dividends payable for the restricted stock units that have not yet vested.
On May 4, 2016, the Company declared a quarterly cash dividend of $1.75 per share, with a record date of May 25, 2016 and a payment date of June 15, 2016. The Company paid a total of $121,530,000 on June 15, 2016 for the second quarter cash dividend. In addition, the Company accrued an additional $2,053,000 in dividends payable for restricted stock units that have not yet vested.
On August 3, 2016, the Company declared a quarterly cash dividend of $1.75 per share, with a record date of August 24, 2016 and a payment date of September 14, 2016. The Company paid a total of $124,465,000 on September 14, 2016 for the third quarter cash dividend. In addition, the Company accrued an additional $2,498,000 in dividends payable for restricted stock units that have not yet vested.
Stock-Based Compensation
In the first half of 2016, the Compensation Committee and the Stock Award Committee of the Company’s Board of Directors approved the issuance of an aggregate of 530,068 shares of restricted stock units to certain employees, including executive officers, pursuant to the 2000 Equity Incentive Plan, as part of the Company’s annual refresh program. These equity awards are subject to vesting provisions and have a weighted-average grant date fair value of $290.89 and a weighted-average requisite service period of 3.47 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 used revenue and adjusted funds from operations (“AFFO”) as the performance measurements in the restricted stock units with both service and performance conditions that were granted in February 2016 and 2015, whereby revenue and adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) were used as the performance measurements in prior years’ grants.
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. There were no significant changes in the assumptions used to determine the fair value of restricted stock units with a service and market condition that were granted in 2016 compared to the prior year.
The following table presents, by operating expense category, the Company’s stock-based compensation expense recognized in the Company’s condensed consolidated statement of operations (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Cost of revenues
$
3,316

 
$
2,514

 
$
9,754

 
$
7,371

Sales and marketing
11,702

 
9,173

 
32,187

 
27,806

General and administrative
27,455

 
22,282

 
74,370

 
63,398

 
$
42,473

 
$
33,969

 
$
116,311

 
$
98,575

13.
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 from operations plus depreciation, amortization, accretion, stock-

31
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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

based compensation expense, restructuring charges, impairment charges, acquisition costs and gains on asset sales as presented below (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Adjusted EBITDA:
 
 
 
 
 
 
 
Americas
$
202,131

 
$
174,170

 
$
581,619

 
$
517,790

EMEA
121,468

 
81,403

 
366,412

 
236,967

Asia-Pacific
96,443

 
65,899

 
272,952

 
183,725

Total adjusted EBITDA
420,042

 
321,472

 
1,220,983

 
938,482

Depreciation, amortization and accretion expense
(215,370
)
 
(133,268
)
 
(631,242
)
 
(384,068
)
Stock-based compensation expense
(42,473
)
 
(33,969
)
 
(116,311
)
 
(98,575
)
Acquisition costs
(12,505
)
 
(13,352
)
 
(64,635
)
 
(24,374
)
Impairment charges
(7,698
)
 
—

 
(7,698
)
 
—

Gains on asset sales
27,945

 
—

 
33,187

 
—

Income from continuing operations
$
169,941

 
$
140,883

 
$
434,284

 
$
431,465

 
The Company also provides the following additional segment disclosures (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Total revenues:
 
 
 
 
 
 
 
Americas
$
425,142

 
$
382,630

 
$
1,243,007

  
$
1,118,046

EMEA
301,250

 
177,563

 
869,715

  
516,153

Asia-Pacific
198,284

 
126,456

 
556,620

  
361,206

 
$
924,676

 
$
686,649

 
$
2,669,342

  
$
1,995,405

Total depreciation and amortization:
 
 
 
 
 
 
 
Americas
$
81,724

 
$
69,721

 
$
236,385

  
$
205,674

EMEA
79,292

 
32,851

 
237,846

  
86,991

Asia-Pacific
53,809

 
29,831

 
153,179

  
88,750

 
$
214,825

 
$
132,403

 
$
627,410

  
$
381,415

Capital expenditures:
 
 
 
 
 
 
 
Americas
$
147,328

 
$
105,250

 
$
346,817

 
$
292,376

EMEA
79,585

 
39,816

 
223,440

  
124,299

Asia-Pacific
52,564

 
70,980

 
156,787

  
170,833

 
$
279,477

 
$
216,046

 
$
727,044

  
$
587,508

The Company’s long-lived assets are located in the following geographic areas as of (in thousands):
 
September 30,
2016
 
December 31,
2015
Americas
$
3,273,748

 
$
3,025,450

EMEA
2,400,057

 
1,157,304

Asia-Pacific
1,577,594

 
1,423,682

 
$
7,251,399

 
$
5,606,436

 

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EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

Revenue information on a services basis is as follows (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Colocation
$
680,541

 
$
511,652

 
$
1,963,103

 
$
1,489,807

Interconnection
135,489

 
110,568

 
391,683

 
316,887

Managed infrastructure
52,986

 
22,327

 
149,697

 
69,648

Other
8,478

 
2,174

 
21,876

 
6,727

Recurring revenues
877,494

 
646,721

 
2,526,359

 
1,883,069

Non-recurring revenues
47,182

 
39,928

 
142,983

 
112,336

 
$
924,676

 
$
686,649

 
$
2,669,342

 
$
1,995,405

The following table presents the retrospective adjustments to the Company's revenue information on a services basis:
 
Three months ended
 
March 31, 2016
 
June 30, 2016
Colocation
$
619,893

 
$
662,669

Interconnection
123,954

 
132,240

Managed infrastructure
47,987

 
48,724

Other
5,260

 
8,138

Recurring revenues
797,094

 
851,771

Non-recurring revenues
47,062

 
48,739

 
$
844,156

 
$
900,510

No single customer accounted for 10% or greater of the Company’s revenues for the three and nine months ended September 30, 2016 and 2015. No single customer accounted for 10% or greater of the Company’s gross accounts receivable as of September 30, 2016 and December 31, 2015.
14.
Subsequent Events
In October 2016, the Company drew down the full amount of the Term Loan Commitment of ¥47,500,000,000 or approximately $453,150,000 at the exchange rate in effect on October 31, 2016 and used it to repay its Bridge Term Loan that the Company entered into with BTMU in September 2015, in connection with the Bit-isle acquisition.
In October 2016, the Company entered into a Share Transfer Agreement for the transfer of common stock of Terra Power Co., Ltd., relating to the divestiture of the solar power assets of Bit-isle. The Company received ¥400,000,000 upon the closing of the transaction, or approximately $3,816,000 at the exchange rate in effect on October 31, 2016. In addition, the Company expects to receive remaining payments of ¥2,500,000,000 in November 2016 and ¥5,313,384,000 in March 2017, for a total of ¥7,813,384,000, or approximately $74,540,000 at the exchange rate in effect on October 31, 2016.
On November 2, 2016, the Company declared a quarterly cash dividend of $1.75 per share, which is payable on December 14, 2016 to the Company’s common stockholders of record as of the close of business on November 16, 2016.


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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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’’ below and ‘‘Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q. All forward-looking statements in this document are based on information available to us as of the date of this Report 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
Overview
In October 2016, as more fully described in Note 14 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we entered into a Share Transfer Agreement for the transfer of common stock of Terra Power Co., Ltd., relating to the divestiture of the solar power assets of Bit-isle. We received ¥400.0 million upon the closing of the transaction, or approximately $3.8 million at the exchange rate in effect on October 31, 2016. In addition, we will expect to receive remaining payments of ¥2.5 billion in November 2016 and ¥5.3 billion in March 2017, for a total of ¥7.8 billion, or approximately $74.5 million at the exchange rate in effect on October 31, 2016.
In September 2016, as more fully described in Note 10 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we entered into a five year term loan agreement with the Bank of Tokyo-Mitsubishi UFJ, LTd. ("BTMU") for ¥47.5 billion or approximately $468.4 million in U.S. dollars at the exchange rate in effect as of September 30, 2016. In September 2015, in connection with our acquisition of Bit-isle, we entered into a term loan agreement (the "Bridge Term Loan Agreement") with BTMU. BTMU was committed to provide a senior bridge loan facility (the "Bridge Term Loan") in the amount of up to ¥47.5 billion or $468.4 million in U.S. dollars at the exchange rate in effect as of September 30, 2016. In October 2016, we borrowed the full amount of the ¥47.5 billion made available to us from the term loan and repaid the Bridge Term Loan for a principal amount of ¥47.5 billion or approximately $453.2 million at the exchange rate in effect on October 31, 2016.
In April and June 2016, as more fully described in Note 10 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, holders of our 4.75% convertible subordinated notes converted or redeemed a total of $150.1 million of the principal amount of the notes for 1,981,662 shares of our common stock and $3.6 million in cash, comprised of accrued interest, cash paid in lieu of fractional shares and principal redemption. Upon maturity of our 4.75% convertible subordinated notes on June 15, 2016, we settled the related capped call transaction and received 380,779 shares of common stock, which was placed in treasury and resulted in a credit of $141.7 million to additional paid in capital based on the market price of $372.10 on June 15, 2016.
In January 2016, as more fully described in Note 3 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we completed our acquisition of Telecity Group plc ("TelecityGroup") for a total purchase

34
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price of approximately $1.7 billion in cash and 6.9 million shares of our common stock valued at approximately $2.1 billion, for a total of $3.8 billion. In January 2016, we terminated our bridge credit agreement for £875.0 million, or approximately $1.3 billion, related to the TelecityGroup acquisition.
In January 2016, as more fully described in Notes 4 and 5 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we agreed to divest eight data centers and related assets, including our London 2 data center ("LD2") in London, United Kingdom and seven data centers of TelecityGroup in order to obtain the approval of the European Commission for the acquisition of TelecityGroup. The results of operations for the seven TelecityGroup data centers were classified as net income from discontinued operations, net of tax, from January 15, 2016, the date of the acquisition, through July 5, 2016 in our condensed consolidated statement of operations. In July 2016, as more fully described in Note 4 and 5 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we completed the sale of these data centers and related assets to Digital Realty Trust, Inc. ("Digital Realty") for approximately $827.3 million at the exchange rate in effect on July 5, 2016. On August 1, 2016, we purchased Digital Realty’s operating business, including its real estate and facility, in St. Denis, Paris, where we already had an established presence with two International Business Exchange® ("IBX") data centers, for total cash consideration of approximately €193.3 million or $215.9 million at the exchange rate in effect on August 1, 2016 (the "Paris IBX Data Center Acquisition").
In January 2016, as more fully described in Note 10 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we borrowed the full amount of the $250.0 million and £300.0 million, or $431.3 million, made available to us under the second amendment to our Senior Credit Facility to fund the TelecityGroup acquisition.
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 providers rely upon Equinix’s leading insight and data centers in 40 markets around the world for the safehousing 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 September 30, 2016, we operated or had partner IBX data centers in Brazil, Canada and the United States in the Americas region; Bulgaria, Finland, France, Germany, Ireland, Italy, the Netherlands, Poland, Sweden, Switzerland, Turkey, 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 40 markets around the world are a global platform, which allows our customers to increase information and application delivery performance while significantly reducing costs. Based on our global platform and the quality of our IBX data centers, we believe we have established a critical mass of customers. As more customers locate in our IBX data centers, it benefits their suppliers and business partners to colocate 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 was approximately 81% as of September 30, 2016 and 2015; however, excluding the impact of our IBX data center expansion projects that have opened during the last 12 months, our utilization rate would have increased to approximately 83% as of September 30, 2016. 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 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 of our high power demand customers. This increased power consumption has driven the requirement 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

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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. During the three months ended September 30, 2016 and 2015, our largest customer accounted for approximately 3% of our recurring revenues. Our 50 largest customers accounted for approximately 36% and 37% of our recurring revenues for the three months ended September 30, 2016 and 2015, respectively. During the nine months ended September 30, 2016 and 2015, our largest customer accounted for approximately 3% of our recurring revenues. Our 50 largest customers accounted for approximately 36% of our recurring revenues for the nine months ended September 30, 2016 and 2015, respectively.
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 and EMEA revenues are derived primarily from colocation and related interconnection offerings, and our Asia-Pacific revenues are derived primarily from colocation, interconnection 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 which 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.
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

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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. 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.
Taxation as a Real Estate Investment Trust (“REIT”)
We began operating as a REIT for federal income tax purposes effective January 1, 2015. In May 2015, we received a favorable private letter ruling (“PLR”) from the U.S. Internal Revenue Service (“IRS”) in connection with our conversion to a REIT. As of September 30, 2016, our REIT structure includes all of our data center operations in the U.S., Canada, our historical data center operations in Europe and Japan, as well as the Dutch operations we acquired in the TelecityGroup acquisition. Our data center operations in other jurisdictions have initially been designated as taxable REIT subsidiaries (“TRSs”).
We have designated the legal entities acquired in the Bit-isle acquisition as TRSs, which we believe will not impact our qualification for taxation as a REIT. We plan to integrate the data center assets of the Bit-isle business into our REIT structure by the end of 2016.
We initially designated the legal entities acquired in the TelecityGroup acquisition as TRSs, which we believe will not impact our qualification for taxation as a REIT. As of September 30, 2016, we have integrated TelecityGroup Netherlands into our REIT structure through its merger with Equinix Netherlands. Additionally, we integrated the TelecityGroup business in Ireland, Sweden, and United Kingdom ("U.K."). into our REIT structure in October 2016. We plan to complete the REIT integration for the TelecityGroup business in France by the end of this year, and the majority of the remaining TelecityGroup business during the first half of 2017.
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 debt securities that were 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 qualified REIT subsidiaries (“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 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 (or ten-year period for liquidation or other carryover transaction on or after August 8, 2016,) 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 began paying quarterly cash dividends in 2015 in connection with our conversion to a REIT. On March 23, 2016, June 15, 2016 and September 14, 2016, we paid quarterly cash dividends of $1.75 per share and on November 2, 2016, we declared a quarterly cash dividend of $1.75 per share, payable on December 14, 2016 to stockholders of record on November 16, 2016. We expect the amount of all 2016 quarterly distributions and the value of the deemed distributions on account of all the adjustments to the conversion rate relating to our matured 4.75% convertible subordinated notes that were made as a result of our first half 2016 distributions will equal or exceed the taxable income we will recognize in 2016.
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 structure in future periods.

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Results of Operations
Our results of operations for the three months ended September 30, 2016 include the results of operations of Bit-isle and TelecityGroup from July 1, 2016, and the Paris IBX Data Center Acquisition from August 1, 2016. Our results of operations for the nine months ended September 30, 2016 include the results of operations of Bit-isle from January 1, 2016, the results of operations of TelecityGroup from January 15, 2016, and the results of the Paris IBX Data Center Acquisition from August 1, 2016.
Discontinued Operations
We present the results of operations associated with the TelecityGroup data centers that were divested in July 2016 as discontinued operations in our condensed consolidated statement of operations for the three and nine months ended September 30, 2016. We did not have any discontinued operations activity during 2015.
Three Months Ended September 30, 2016 and 2015
Revenues. Our revenues for the three months ended September 30, 2016 and 2015 were generated from the following revenue classifications and geographic regions (dollars in thousands):
 
Three months ended September 30,
 
% change
 
2016
 
%
 
2015
 
%
 
Actual
 
Constant
currency
Americas:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
$
404,462

 
44
%
 
$
360,687

 
53
%
 
12
 %
 
12
 %
Non-recurring revenues
20,680

 
2
%
 
21,943

 
3
%
 
(6
)%
 
(6
)%
 
425,142

 
46
%
 
382,630

 
56
%
 
11
 %
 
11
 %
EMEA:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
286,190

 
31
%
 
166,156

 
24
%
 
72
 %
 
78
 %
Non-recurring revenues
15,060

 
2
%
 
11,407

 
2
%
 
32
 %
 
37
 %
 
301,250

 
33
%
 
177,563

 
26
%
 
70
 %
 
75
 %
Asia-Pacific:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
186,842

 
20
%
 
119,878

 
17
%
 
56
 %
 
50
 %
Non-recurring revenues
11,442

 
1
%
 
6,578

 
1
%
 
74
 %
 
65
 %
 
198,284

 
21
%
 
126,456

 
18
%
 
57
 %
 
51
 %
Total:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
877,494

 
95
%
 
646,721

 
94
%
 
36
 %
 
36
 %
Non-recurring revenues
47,182

 
5
%
 
39,928

 
6
%
 
18
 %
 
18
 %
 
$
924,676

 
100
%
 
$
686,649

 
100
%
 
35
 %
 
35
 %
Americas Revenues. Our revenues from the U.S., the largest revenue contributor in the Americas region for the period, represented approximately 92% and 93%, respectively, of the regional revenues during the three months ended September 30, 2016 and 2015. Growth in Americas revenues was primarily due to (i) approximately $7.3 million of revenue generated from our recently-opened IBX data centers or IBX data center expansions in the Atlanta, Chicago, Dallas, Silicon Valley and Washington, D.C. metro areas and (ii) an increase in orders from both our existing customers and new customers during the period. During the three months ended September 30, 2016, the U.S. dollar was generally weaker relative to the Canadian dollar and Brazilian real than during the three months ended September 30, 2015, resulting in approximately $2.2 million of net favorable foreign currency impact to our Americas revenues during the three months ended September 30, 2016 compared to average exchange rates of the three months ended September 30, 2015. 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 or IBX data center expansions and additional expansions currently taking place in the Dallas, New York, São Paulo, Silicon Valley and Washington D.C. metro areas, which are expected to open during the remainder of 2016 and 2017. Our estimates of future revenue growth take account of expected changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts.
EMEA Revenues. Revenues for our EMEA region for the three months ended September 30, 2016 include $108.8 million of revenues attributable to TelecityGroup, which closed in January 2016, and the Paris IBX Data Center Acquisition, which closed

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in August 2016. After our acquisition of TelecityGroup, the U.K. continues to be our largest revenue contributor in the EMEA region, providing 31% of regional revenues for the three months ended September 30, 2016 compared to 38% of regional revenues for the three months ended September 30, 2015 without TelecityGroup. Our EMEA revenue growth was primarily due to (i) $108.8 million of revenues attributable to TelecityGroup and the Paris IBX Data Center Acquisition, (ii) approximately $25.1 million of revenue from our recently-opened IBX data centers or IBX data center expansions in the Amsterdam, Frankfurt, Paris and Zurich metro areas and (iii) an increase in orders from both our existing customers and new customers during the period. During the three months ended September 30, 2016, the impact of foreign currency fluctuations resulted in approximately $10.3 million of net unfavorable foreign currency impact to our EMEA revenues primarily due to a generally stronger U.S. dollar relative to the British pound during the three months ended September 30, 2016 compared to the three months ended September 30, 2015. 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 or IBX data center expansions and additional expansions currently taking place in the Amsterdam, Dublin, Frankfurt, Helsinki, Paris and Zurich metro areas, which are expected to open during the remainder of 2016 and 2017, our acquisition of TelecityGroup and the Paris IBX Data Center Acquisition, as well as our continued hedging efforts to help manage our exposure to foreign currency exchange rate fluctuations. Our estimates of future revenue growth take account of expected changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts as well as our acquisition of TelecityGroup and the Paris IBX Data Center Acquisition.
Asia-Pacific Revenues. Revenues for our Asia-Pacific region for the three months ended September 30, 2016 include $39.7 million of revenues attributable to Bit-isle, which closed in November 2015. After our acquisition of Bit-isle, Japan is our largest revenue contributor in the Asia-Pacific region, providing 36% of regional revenues, including Bit-isle, for the three months ended September 30, 2016 compared to 17% for the three months ended September 30, 2015 without Bit-isle. Excluding revenues attributable to Bit-isle, our revenues from Singapore, which was our largest revenue contributor in the Asia-Pacific region before we acquired Bit-isle, represented approximately 38% and 39%, respectively, of the regional revenues for the three months ended September 30, 2016 and 2015. Our Asia-Pacific revenue growth was primarily due to (i) $39.7 million of revenues attributable to Bit-isle, (ii) approximately $20.3 million of revenue generated from our recently-opened IBX data center expansions in the Hong Kong, Melbourne, Shanghai, Singapore, Sydney and Tokyo metro areas and (iii) an increase in orders from both our existing customers and new customers during the period. During the three months ended September 30, 2016, the U.S. dollar was generally weaker relative to the Australian dollar and Singapore dollar than during the three months ended September 30, 2015, resulting in approximately $7.2 million of net favorable foreign currency impact to our Asia-Pacific revenues during the three months ended September 30, 2016 compared to average exchange rates of the three months ended September 30, 2015. 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 centers and additional expansions currently taking place in the Hong Kong and Singapore metro areas, which are expected to open in 2017. Our estimates of future revenue growth take into account expected changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts as well as the impact of our acquisition of Bit-isle.
Cost of Revenues. Our cost of revenues for the three months ended September 30, 2016 and 2015 were split among the following geographic regions (dollars in thousands):
 
Three months ended September 30,
 
% change
 
2016
 
%
 
2015
 
%
 
Actual
 
Constant
currency
Americas
$
178,983

 
38
%
 
$
161,998

 
50
%
 
10
%
 
10
%
EMEA
167,189

 
36
%
 
92,893

 
28
%
 
80
%
 
84
%
Asia-Pacific
124,130

 
26
%
 
70,577

 
22
%
 
76
%
 
70
%
Total
$
470,302

 
100
%
 
$
325,468

 
100
%
 
45
%
 
44
%
 
 
Three months ended
September 30,
 
2016
 
2015
Cost of revenues as a percentage of revenues:
 
 
 
Americas
42
%
 
42
%
EMEA
55
%
 
52
%
Asia-Pacific
63
%
 
56
%
Total
51
%
 
47
%

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Americas Cost of Revenues. Depreciation expense was $61.3 million and $53.9 million for the three months ended September 30, 2016 and 2015, respectively. The growth in depreciation expense was primarily due to our IBX expansion activity. In addition to the increase in depreciation expense, the increase in our Americas cost of revenues for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 was primarily due to (i) $5.5 million of higher office expense, utilities, repairs and maintenance, rent and facilities costs in support of our business growth and (ii) $2.2 million of higher costs associated with equipment resale and other services to support customer demand. During the three months ended September 30, 2016, the impact of foreign currency fluctuations to our Americas cost of revenues was not significant when compared to average exchange rates for the three months ended September 30, 2015. We expect Americas cost of revenues to increase as we continue to grow our business.
EMEA Cost of Revenues. Cost of revenues for our EMEA region for the three months ended September 30, 2016 includes $73.0 million of cost of revenues attributable to TelecityGroup, which closed in January 2016, and the Paris IBX Data Center Acquisition, which closed in August 2016. Excluding cost of revenues attributable to TelecityGroup and the Paris IBX Data Center Acquisition, EMEA cost of revenues was $94.2 million for the three months ended September 30, 2016 compared to $92.9 million for the three months ended September 30, 2015. Depreciation expense, excluding TelecityGroup and the Paris IBX Data Center Acquisition, was $25.0 million and $27.4 million for the three months ended September 30, 2016 and 2015, respectively. During the three months ended September 30, 2016, the impact of foreign currency fluctuations resulted in approximately $4.0 million of net favorable foreign currency impact to our EMEA cost of revenues primarily due to a generally stronger U.S. dollar relative to the British pound during the three months ended September 30, 2016 compared to the three months ended September 30, 2015. We expect EMEA cost of revenues to increase as we continue to grow our business and as a result of our acquisitions of TelecityGroup and the Paris IBX data centers.
Asia-Pacific Cost of Revenues. Cost of revenues for our Asia-Pacific region for the three months ended September 30, 2016 includes $31.6 million of cost of revenues attributable to Bit-isle, which closed in November 2015. Excluding cost of revenues attributable to Bit-isle, Asia-Pacific cost of revenues was $92.5 million for the three months ended September 30, 2016 compared to $70.6 million for the three months ended September 30, 2015, primarily due to an increase in depreciation expense. Depreciation expense, excluding Bit-isle, was $38.8 million and $28.6 million for the three months ended September 30, 2016 and 2015, respectively. The growth in depreciation expense was primarily due to our IBX data center expansion activity. Excluding the impact of our acquisition of Bit-isle, the remaining increase in our Asia-Pacific cost of revenue was primarily due to (i) $9.3 million of higher utilities, repair and maintenance, rent and facility costs and (ii) $1.6 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (436 Asia-Pacific cost of revenues employees as of September 30, 2016 versus 374 as of September 30, 2015). During the three months ended September 30, 2016, the U.S. dollar was generally weaker relative to the Australian dollar and Singapore dollar than during the three months ended September 30, 2015, resulting in approximately $4.4 million of net unfavorable foreign currency impact to our Asia-Pacific cost of revenues during the three months ended September 30, 2016 compared to average exchange rates of the three months ended September 30, 2015. We expect Asia-Pacific cost of revenues to increase as we continue to grow our business, including from the impact of our acquisition of Bit-isle.
Sales and Marketing Expenses. Our sales and marketing expenses for the three months ended September 30, 2016 and 2015 were split among the following geographic regions (dollars in thousands):
 
Three months ended September 30,
 
% change
 
2016
 
%
 
2015
 
%
 
Actual
 
Constant
currency
Americas
$
56,119

 
51
%
 
$
53,575

 
64
%
 
5
%
 
4
%
EMEA
36,703

 
33
%
 
17,923

 
21
%
 
105
%
 
111
%
Asia-Pacific
18,114

 
16
%
 
12,211

 
15
%
 
48
%
 
44
%
Total
$
110,936

 
100
%
 
$
83,709

 
100
%
 
33
%
 
33
%
 

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Three months ended
September 30,
 
2016
 
2015
Sales and marketing expenses as a percentage of revenues:
 
 
 
Americas
13
%
 
14
%
EMEA
12
%
 
10
%
Asia-Pacific
9
%
 
10
%
Total
12
%
 
12
%
Americas Sales and Marketing Expenses. The increase in our Americas sales and marketing expenses was primarily due to $2.8 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (545 Americas sales and marketing employees as of September 30, 2016 versus 480 as of September 30, 2015). During the three months ended September 30, 2016, the impact of foreign currency fluctuations to our Americas sales and marketing expenses was not significant when compared to average exchange rates during the three months ended September 30, 2015. 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. We anticipate that we will continue to invest in Americas sales and marketing initiatives. As such, we expect our Americas sales and marketing expenses as a percentage of revenues to grow over the next year.
EMEA Sales and Marketing Expenses. Sales and marketing expenses for our EMEA region for the three months ended September 30, 2016 included $15.1 million attributable to TelecityGroup, which closed in January 2016. Excluding the impact of TelecityGroup, our EMEA sales and marketing expenses were $21.6 million for the three months ended September 30, 2016 compared to $17.9 million for the three months ended September 30, 2015. The increase was primarily due to $2.3 million of higher outside services consulting and compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (263 EMEA sales and marketing employees, excluding TelecityGroup employees, as of September 30, 2016 versus 219 as of September 30, 2015). For the three months ended September 30, 2016, the impact of foreign currency fluctuations to EMEA sales and marketing expenses was not significant when compared to the average exchange rates for the three months ended September 30, 2015. 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. We expect our EMEA sales and marketing expenses to 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.
Asia-Pacific Sales and Marketing Expenses. Sales and marketing expenses for our Asia-Pacific region for the three months ended September 30, 2016 included $4.2 million attributable to Bit-isle, which closed in November 2015. Excluding the impact of Bit-isle, our Asia-Pacific sales and marketing expenses did not materially change during the three months ended September 30, 2016 compared to the three months ended September 30, 2015. For the three months ended September 30, 2016, 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 three months ended September 30, 2015. 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. We expect our Asia-Pacific sales and marketing expenses to 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 three months ended September 30, 2016 and 2015 were split among the following geographic regions (dollars in thousands):
 
Three months ended September 30,
 
% change
 
2016
 
%
 
2015
 
%
 
Actual
 
Constant
currency
Americas
$
99,422

 
54
%
 
$
88,815

 
72
%
 
12
%
 
12
%
EMEA
62,583

 
35
%
 
22,737

 
18
%
 
175
%
 
188
%
Asia-Pacific
19,234

 
11
%
 
11,685

 
10
%
 
65
%
 
61
%
Total
$
181,239

 
100
%
 
$
123,237

 
100
%
 
47
%
 
49
%
 

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Three months ended
September 30,
 
2016
 
2015
General and administrative expenses as a percentage of revenues:
 
 
 
Americas
23
%
 
23
%
EMEA
21
%
 
13
%
Asia-Pacific
10
%
 
9
%
Total
20
%
 
18
%
Americas General and Administrative Expenses. The increase in our Americas general and administrative expenses was primarily due to (i) $4.0 million of higher depreciation expense associated with certain systems to improve our quote to order and billing processes and other systems to support the integration and growth of our business, (ii) $3.4 million of higher compensation costs, including general salaries, bonuses, stock-based compensation, and headcount growth (919 Americas general and administrative employees as of September 30, 2016 versus 787 as of September 30, 2015) and (iii) $2.5 million of higher office expense, rent and facilities, and outside services consulting costs also in line with our overall growth. During the three months ended September 30, 2016, the impact of foreign currency fluctuations to our Americas general and administrative expenses was not significant when compared to average exchange rates for the three months ended September 30, 2015. Over the last several years, 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; however, as a percentage of revenues, we generally expect them to decrease.
EMEA General and Administrative Expenses. General and administrative expenses for our EMEA region for the three months ended September 30, 2016 included $30.8 million attributable to TelecityGroup, which closed in January 2016, and the Paris IBX Data Center Acquisition, which closed in August 2016. Excluding the impact of TelecityGroup and the Paris IBX Data Center Acquisition, our EMEA general and administrative expenses were $31.8 million for the three months ended September 30, 2016 compared to $22.7 million for the three months ended September 30, 2015. Excluding the impact of TelecityGroup, the increase was primarily due to (i) $6.3 million of higher consulting and other professional services costs to support the integration of TelecityGroup and (ii) $3.7 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (527 EMEA general and administrative employees, excluding TelecityGroup employees, as of September 30, 2016 versus 405 as of September 30, 2015). During the three months ended September 30, 2016, the impact of foreign currency fluctuations resulted in approximately $2.9 million of net favorable foreign currency impact to our EMEA general and administrative expenses primarily due to a generally stronger U.S. dollar relative to the British pound during the three months ended September 30, 2016 compared to the three months ended September 30, 2015. Over the last several years, we have been investing in our EMEA general and administrative functions as a result of our ongoing efforts to scale this region effectively for growth. Going forward, although we are carefully monitoring our spending given the current economic environment, we expect our EMEA general and administrative expenses to increase in future periods as we continue to scale our operations to support our growth, as well as the integration of TelecityGroup; however, as a percentage of revenues, we generally expect them to decrease.
Asia-Pacific General and Administrative Expenses. General and administrative expenses for our Asia-Pacific region for the three months ended September 30, 2016 included $4.8 million attributable to Bit-isle, which closed in November 2015. Excluding the impact of Bit-isle, our Asia-Pacific general and administrative expenses were $14.4 million for the three months ended September 30, 2016 compared to $11.7 million for the three months ended September 30, 2015. Excluding the impact of Bit-isle, the increase was primarily due to $2.2 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (303 Asia-Pacific general and administrative employees, excluding Bit-isle employees, as of September 30, 2016 versus 257 as of September 30, 2015). For the three months ended September 30, 2016, the impact of foreign currency fluctuations to our Asia-Pacific general and administrative expenses was not significant when compared to average exchange rates of the three months ended September 30, 2015. 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 and integration 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 three months ended September 30, 2016, we recorded acquisition costs totaling $12.5 million primarily in the EMEA region due to the Paris IBX Data Center Acquisition. During the three months ended September 30, 2015,

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we recorded acquisition costs totaling $13.4 million primarily in the EMEA region, which included $8.6 million as a result of a court ruling in connection with a historical acquisition.
Impairment Charges. During the three months ended September 30, 2016, we recorded impairment charges totaling $7.7 million in the Asia-Pacific region relating to assets held for sale. We did not have impairment charges during the three months ended September 30, 2015.
Gains on Asset Sales. During the three months ended September 30, 2016, we recorded a gain of $27.9 million on the sale of the LD2 data center in the EMEA region. We did not have any gains on asset sales during the three months ended September 30, 2015.
Income from Continuing Operations. Our income from continuing operations for the three months ended September 30, 2016 and 2015 were split among the following geographic regions (dollars in thousands):
 
Three months ended September 30,
 
% change
 
2016
 
%
 
2015
 
%
 
Actual
 
Constant
currency
Americas
$
89,004

 
53
%
 
$
81,914

 
58
%
 
9
%
 
8
 %
EMEA
51,829

 
30
%
 
29,865

 
21
%
 
74
%
 
81
 %
Asia-Pacific
29,108

 
17
%
 
29,104

 
21
%
 
—
%
 
(6
)%
Total
$
169,941

 
100
%
 
$
140,883

 
100
%
 
21
%
 
21
 %
Americas Income from Continuing Operations. The increase in our Americas income from continuing 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 cost of revenues and operating expenses as a percentage of revenues primarily attributable to higher compensation and other headcount related expenses to support our growth. The impact of foreign currency fluctuations on our Americas income from continuing operations for the three months ended September 30, 2016 was not significant when compared to average exchange rates of the three months ended September 30, 2015.
EMEA Income from Continuing Operations. The increase in our EMEA income from continuing operations was primarily due to higher revenue as a result of our acquisition of TelecityGroup, which closed in January 2016, our gains from asset sales, as well as our IBX data center expansion activity and organic growth as described above, partially offset by higher cost of revenues and operating expenses as a percentage of revenue primarily attributable to our acquisition of TelecityGroup as well as the increased depreciation and amortization created from the purchase accounting for TelecityGroup and the Paris IBX Data Center Acquisition. During the three months ended September 30, 2016, the impact of foreign currency fluctuations resulted in approximately $2.2 million of net unfavorable foreign currency impact to our EMEA income from continuing operations primarily due to a generally stronger U.S. dollar relative to the British pound during the three months ended September 30, 2016 compared to the three months ended September 30, 2015.
Asia-Pacific Income from Continuing Operations. The increase in our Asia-Pacific income from continuing operations was primarily due to higher revenues as a result of our acquisition of Bit-isle, which closed in November 2015, as well as our IBX data center expansion activity and organic growth as described above, partially offset by the impairment charges, higher cost of revenues and operating expenses as a percentage of revenues primarily attributable to our acquisition of Bit-isle as well as higher compensation and other headcount related expenses and higher professional fees to support our growth. The impact of foreign currency fluctuations on our Asia-Pacific income from continuing operations for the three months ended September 30, 2016 was not significant when compared to average exchange rates of the three months ended September 30, 2015.
Interest Income. Interest income was $762,000 and $934,000, respectively, for the three months ended September 30, 2016 and 2015. The average annualized yield for the three months ended September 30, 2016 was 0.41% versus 0.59% for the three months ended September 30, 2015. We expect our interest income to remain at these low levels for the foreseeable future due to lower invested balances and a portfolio more weighted towards short-term U.S. government securities.
Interest Expense. Interest expense increased to $92.2 million for the three months ended September 30, 2016 from $76.3 million for the three months ended September 30, 2015. This increase in interest expense was primarily due to the impact of our $1.1 billion of senior notes issued in December 2015, $636.0 million outstanding in seven-year term loans we borrowed in January 2016 and $468.4 million of an outstanding bridge term loan we borrowed to finance our acquisition of Bit-isle, which closed in November 2015, as well as additional financings such as various capital lease and other financing obligations to support our expansion projects. During the three months ended September 30, 2016 and 2015, we capitalized $3.2 million and $1.8 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 senior notes offering in December 2015 and $636.0 million outstanding in seven-year

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term loans we borrowed in January 2016. We expect to incur additional indebtedness to support our growth and acquisition opportunities, such as the Bit-isle and TelecityGroup acquisitions, resulting in higher interest expense going forward.
Other Income (Expense). We recorded net income of $2.9 million and net expense of $12.8 million, respectively, of other income (expense), for the three months ended September 30, 2016 and 2015, primarily due to foreign currency exchange gains and losses during the periods.
Loss on debt extinguishment. During the three months ended September 30, 2016, we recorded a $9.9 million loss on debt extinguishment as a result of the settlement of the financing obligations for our Paris 3 IBX data center. We did not have loss on debt extinguishment during the three months ended September 30, 2015.
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 federal income taxes on our taxable income distributed to our stockholders. We intend to distribute and have distributed the entire taxable income generated by the operations of our REIT and its QRSs for the tax years ended December 31, 2016 and December 31, 2015, respectively. As such, no provision for U.S. income taxes for the REIT and its QRSs has been included in the accompanying condensed consolidated financial statements for the three months ended September 30, 2016 and 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 three months ended September 30, 2016 and 2015.
For the three months ended September 30, 2016 and 2015, we recorded $22.8 million and $11.6 million of income tax expense, respectively. Our effective tax rates were 31.8% and 22.0%, respectively, for the three months ended September 30, 2016 and 2015. The increase in the effective tax rate for the three months ended September 30, 2016 as compared to the same period in 2015 is primarily due to the non-tax deductible cost related to the TelecityGroup acquisition and an increase in valuation allowance.
Income from Discontinued Operations. Our net income from discontinued operations was $2.7 million for the three months ended September 30, 2016. We did not have discontinued operations during the three months ended September 30, 2015.
Adjusted EBITDA. Adjusted EBITDA is a key factor in how we assess the operating performance 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, amortization, accretion, stock-based compensation expense, restructuring charges, impairment charges, acquisition costs and gains on asset sales. See "Non-GAAP Financial Measures" below for more information about adjusted EBITDA and a reconciliation of adjusted EBITDA to the most directly comparable generally accepted accounting principles in the United States of America ("GAAP") measure. Our adjusted EBITDA for the three months ended September 30, 2016 and 2015 was split among the following geographic regions (dollars in thousands):
 
Three months ended September 30,
 
% change
 
2016
 
%
 
2015
 
%
 
Actual
 
Constant
currency
Americas
$
202,131

 
48
%
 
$
174,170

 
54
%
 
16
%
 
16
%
EMEA
121,468

 
29
%
 
81,403

 
25
%
 
49
%
 
57
%
Asia-Pacific
96,443

 
23
%
 
65,899

 
21
%
 
46
%
 
41
%
Total
$
420,042

 
100
%
 
$
321,472

 
100
%
 
31
%
 
31
%
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. The impact of foreign currency fluctuations on our Americas adjusted EBITDA for the three months ended September 30, 2016 was not significant when compared to average exchange rates of the three months ended September 30, 2015.
EMEA Adjusted EBITDA. Adjusted EBITDA for our EMEA region includes $44.7 million of adjusted EBITDA attributable to our acquisition of TelecityGroup, which closed in January 2016, and the Paris IBX Data Center Acquisition, which closed in August 2016. Excluding adjusted EBITDA attributable to TelecityGroup and the Paris IBX Data Center Acquisition, the decrease in our EMEA adjusted EBITDA was primarily due to higher operating costs as result of our IBX data center expansion activity and organic growth as described above. During the three months ended September 30, 2016, the impact of foreign currency fluctuations resulted in approximately $6.4 million of net unfavorable foreign currency impact to our EMEA adjusted EBITDA

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primarily due to a generally stronger U.S. dollar relative to the British pound during the three months ended September 30, 2016 compared to the three months ended September 30, 2015.
Asia-Pacific Adjusted EBITDA. Adjusted EBITDA for our Asia-Pacific region includes $13.1 million of adjusted EBITDA attributable to our acquisition of Bit-isle, which closed in November 2015. Excluding adjusted EBITDA attributable to Bit-isle, the increase in our Asia-Pacific adjusted EBITDA was primarily due to higher revenues as result of our IBX data center expansion activity and organic growth as described above. During the three months ended September 30, 2016, the U.S. dollar was generally weaker relative to the Australian dollar and Singapore dollar than during the three months ended September 30, 2015, resulting in approximately $3.8 million of net favorable foreign currency impact to our Asia-Pacific adjusted EBITDA during the three months ended September 30, 2016 compared to average exchange rates of the three months ended September 30, 2015.
Nine Months Ended September 30, 2016 and 2015
Revenues. Our revenues for the nine months ended September 30, 2016 and 2015 were generated from the following revenue classifications and geographic regions (dollars in thousands):
 
Nine months ended September 30,
 
% change
 
2016
 
%
 
2015
 
%
 
Actual
 
Constant
currency
Americas:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
$
1,178,097

 
44
%
 
$
1,061,346

 
53
%
 
11
%
 
12
%
Non-recurring revenues
64,910

 
2
%
 
56,700

 
3
%
 
14
%
 
15
%
 
1,243,007

 
46
%
 
1,118,046

 
56
%
 
11
%
 
12
%
EMEA:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
821,381

 
31
%
 
479,643

 
24
%
 
71
%
 
75
%
Non-recurring revenues
48,334

 
2
%
 
36,510

 
2
%
 
32
%
 
35
%
 
869,715

 
33
%
 
516,153

 
26
%
 
68
%
 
72
%
Asia-Pacific:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
526,881

 
20
%
 
342,080

 
17
%
 
54
%
 
53
%
Non-recurring revenues
29,739

 
1
%
 
19,126

 
1
%
 
55
%
 
53
%
 
556,620

 
21
%
 
361,206

 
18
%
 
54
%
 
53
%
Total:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
2,526,359

 
95
%
 
1,883,069

 
94
%
 
34
%
 
35
%
Non-recurring revenues
142,983

 
5
%
 
112,336

 
6
%
 
27
%
 
28
%
 
$
2,669,342

 
100
%
 
$
1,995,405

 
100
%
 
34
%
 
35
%
Americas Revenues. Our revenues from the U.S., the largest revenue contributor in the Americas region for the period, represented approximately 93% of the regional revenues during the nine months ended September 30, 2016 and 2015. Growth in Americas revenues was primarily due to (i) approximately $19.5 million of revenue generated from our recently-opened IBX data centers or IBX data center expansions in the Dallas, Chicago, Silicon Valley and Washington, D.C. metro areas and (ii) an increase in orders from both our existing customers and new customers during the period. During the nine months ended September 30, 2016, the U.S. dollar was generally stronger relative to the Canadian dollar and Brazilian real than during the nine months ended September 30, 2015, resulting in approximately $10.2 million of net unfavorable foreign currency impact to our Americas revenues during the nine months ended September 30, 2016 compared to average exchange rates during the nine months ended September 30, 2015. 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 or IBX data center expansions and additional expansions currently taking place in the Dallas, New York, São Paulo, Silicon Valley and Washington D.C. metro areas, which are expected to open during the remainder of 2016 and 2017. Our estimates of future revenue growth take account of expected changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts.
EMEA Revenues. Revenues for our EMEA region for the nine months ended September 30, 2016 include $300.4 million of revenues attributable to TelecityGroup, which closed in January 2016, and the Paris IBX Data Center Acquisition, which closed in August 2016. After our acquisition of TelecityGroup, the U.K. continues to be our largest revenue contributor in the EMEA region, providing 33% of regional revenues for the nine months ended September 30, 2016 compared to 38% of regional revenues for the nine months ended September 30, 2015 without TelecityGroup. Our EMEA revenue growth was primarily due to (i) $300.4

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million of revenues attributable to TelecityGroup and the Paris IBX Data Center Acquisition, (ii) approximately $55.7 million of revenue from our recently-opened IBX data centers or IBX data center expansions in the Amsterdam, Frankfurt, Paris and Zurich metro areas and (iii) an increase in orders from both our existing customers and new customers during the period. During the nine months ended September 30, 2016, the impact of foreign currency fluctuations resulted in approximately $19.0 million of net unfavorable foreign currency impact to our EMEA revenues primarily due to a generally stronger U.S. dollar relative to the British pound during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. 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 or IBX data center expansions and additional expansions currently taking place in the Amsterdam, Dublin, Frankfurt, Helsinki, Paris and Zurich metro areas, which are expected to open during the remainder of 2016 and 2017, our acquisition of TelecityGroup, Paris IBX Data Center as well as our continued hedging efforts to help manage our exposure to foreign currency exchange rate fluctuations. Our estimates of future revenue growth take account of expected changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts as well as our acquisition of TelecityGroup and the Paris IBX Data Center Acquisition.
Asia-Pacific Revenues. Revenues for our Asia-Pacific region for the nine months ended September 30, 2016 include $111.2 million of revenues attributable to Bit-isle, which closed in November 2015. After our acquisition of Bit-isle, Japan is our largest revenue contributor in the Asia-Pacific region, providing 34% of regional revenues including Bit-isle for the nine months ended September 30, 2016 compared to 16% for the nine months ended September 30, 2015 without Bit-isle. Excluding revenues attributable to Bit-isle, our revenues from Singapore, which was our largest revenue contributor in the Asia-Pacific region before we acquired Bit-isle, represented approximately 38% and 39%, respectively, of the regional revenues for the nine months ended September 30, 2016 and 2015. Our Asia-Pacific revenue growth was primarily due to (i) $111.2 million of revenues attributable to Bit-isle, (ii) approximately $53.7 million of revenue generated from our recently-opened IBX data center expansions in the Hong Kong, Melbourne, Shanghai, Singapore, Sydney and Tokyo metro areas and (iii) an increase in orders from both our existing customers and new customers during the period. During the nine months ended September 30, 2016, the U.S. dollar was generally weaker relative to the Japanese Yen than during the nine months ended September 30, 2015, resulting in approximately $3.4 million of net favorable foreign currency impact to our Asia-Pacific revenues during the nine months ended September 30, 2016 when compared to average exchange rates during the nine months ended September 30, 2015. 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 centers and additional expansions currently taking place in the Hong Kong and Singapore metro areas, which are expected to open in 2017. Our estimates of future revenue growth take into account expected changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts as well as the impact of our acquisition of Bit-isle.
Cost of Revenues. Our cost of revenues for the nine months ended September 30, 2016 and 2015 were split among the following geographic regions (dollars in thousands):
 
Nine months ended September 30,
 
% change
 
2016
 
%
 
2015
 
%
 
Actual
 
Constant
currency
Americas
$
520,123

 
38
%
 
$
470,257

 
50
%
 
11
%
 
12
%
EMEA
488,920

 
36
%
 
260,908

 
28
%
 
87
%
 
90
%
Asia-Pacific
345,906

 
26
%
 
208,373

 
22
%
 
66
%
 
64
%
Total
$
1,354,949

 
100
%
 
$
939,538

 
100
%
 
44
%
 
45
%
 
 
Nine months ended
September 30,
 
2016
 
2015
Cost of revenues as a percentage of revenues:
 
 
 
Americas
42
%
 
42
%
EMEA
56
%
 
51
%
Asia-Pacific
62
%
 
58
%
Total
51
%
 
47
%
Americas Cost of Revenues. Depreciation expense was $179.5 million and $161.7 million for the nine months ended September 30, 2016 and 2015, respectively. The growth in depreciation expense was primarily due to our IBX expansion activity. In addition to the increase in depreciation expense, the increase in our Americas cost of revenues for the nine months ended September 30,

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2016 compared to the nine months ended September 30, 2015 was primarily due to (i) $17.2 million of higher utilities, rent and facilities costs, office expense, consulting, and repairs and maintenance in support of our business growth, (ii) $9.7 million of higher costs associated with equipment resales to support growth of our non-recurring revenues and (iii) $2.7 million of higher compensation costs, including sales compensation, general salaries, bonuses and stock-based compensation. During the nine months ended September 30, 2016, the impact of foreign currency fluctuations resulted in approximately $7.7 million of net favorable foreign currency impact to our Americas cost of revenues primarily due to a generally stronger U.S. dollar relative to the Brazilian real and Canadian dollar during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. We expect Americas cost of revenues to increase as we continue to grow our business.
EMEA Cost of Revenues. Cost of revenues for our EMEA region for the nine months ended September 30, 2016 includes $206.3 million of cost of revenues attributable to TelecityGroup, which closed in January 2016, and the Paris IBX Data Center Acquisition, which closed in August 2016. Excluding cost of revenues attributable to TelecityGroup and the Paris IBX Data Center Acquisition, EMEA cost of revenues was $282.6 million for the nine months ended September 30, 2016 compared to $260.9 million for the nine months ended September 30, 2015. Depreciation expense, excluding TelecityGroup and the Paris IBX Data Center Acquisition, was $77.1 million and $73.1 million for the nine months ended September 30, 2016 and 2015, respectively. The growth in depreciation expense was primarily due to our IBX data center expansion activity. Excluding the impact of TelecityGroup and the Paris IBX Data Center Acquisition, the remaining increase in our EMEA cost of revenues was primarily due to (i) $13.7 million of higher utilities, consulting, and repairs and maintenance costs in support of our business growth and (ii) $3.4 million of higher compensation costs, including sales compensation, general salaries, bonuses and stock-based compensation and headcount growth (625 EMEA cost of revenues employees as of September 30, 2016 versus 523 as of September 30, 2015). During the nine months ended September 30, 2016, the impact of foreign currency fluctuations resulted in approximately $7.5 million of net favorable foreign currency impact to our EMEA cost of revenues, primarily due to a generally stronger U.S. dollar relative to the British pound during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. We expect EMEA cost of revenues to increase as we continue to grow our business and as a result of our acquisitions of TelecityGroup and the Paris IBX data centers.
Asia-Pacific Cost of Revenues. Cost of revenues for our Asia-Pacific region for the nine months ended September 30, 2016 includes $88.9 million of cost of revenues attributable to Bit-isle, which closed in November 2015. Excluding cost of revenues attributable to Bit-isle, Asia-Pacific cost of revenues was $257.0 million for the nine months ended September 30, 2016 compared to $208.4 million for the nine months ended September 30, 2015. Depreciation expense, excluding Bit-isle, was $110.6 million and $85.0 million for the nine months ended September 30, 2016 and 2015, respectively. The growth in depreciation expense was primarily due to our IBX data center expansion activity. Excluding the impact of our acquisition of Bit-isle, the remaining increase in our Asia-Pacific cost of revenues was primarily due to (i) $19.0 million of higher utilities, rent, facility costs, consulting, and repairs and maintenance costs in support of our business growth and (ii) $3.4 million of higher compensation costs, including sales compensation, general salaries, bonuses and stock-based compensation and headcount growth (436 Asia-Pacific cost of revenues employees as of September 30, 2016 versus 374 as of September 30, 2015). During the nine months ended September 30, 2016, the U.S. dollar was generally weaker relative to the Japanese Yen than during the nine months ended September 30, 2015, resulting in approximately $3.5 million of net unfavorable foreign currency impact to our Asia-Pacific cost of revenues during the nine months ended September 30, 2016 when compared to average exchange rates during the nine months ended September 30, 2015. We expect Asia-Pacific cost of revenues to increase as we continue to grow our business, including from the impact of our acquisition of Bit-isle.
Sales and Marketing Expenses. Our sales and marketing expenses for the nine months ended September 30, 2016 and 2015 were split among the following geographic regions (dollars in thousands):
 
Nine months ended September 30,
 
% change
 
2016
 
%
 
2015
 
%
 
Actual
 
Constant
currency
Americas
$
171,128

 
52
%
 
$
153,035

 
63
%
 
12
%
 
13
%
EMEA
102,757

 
32
%
 
53,003

 
22
%
 
94
%
 
98
%
Asia-Pacific
51,473

 
16
%
 
37,535

 
15
%
 
37
%
 
36
%
Total
$
325,358

 
100
%
 
$
243,573

 
100
%
 
34
%
 
35
%
 

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Nine months ended
September 30,
 
2016
 
2015
Sales and marketing expenses as a percentage of revenues:
 
 
 
Americas
14
%
 
14
%
EMEA
12
%
 
10
%
Asia-Pacific
9
%
 
10
%
Total
12
%
 
12
%
Americas Sales and Marketing Expenses. The increase in our Americas sales and marketing expenses was primarily due to $12.6 million of higher compensation costs, including sales compensation, general salaries, bonuses and stock-based compensation and headcount growth (545 Americas sales and marketing employees as of September 30, 2016 versus 480 as of September 30, 2015) and $5.1 million of higher advertising, promotion, consulting and travel and entertainment expenses to support our growth. During the nine months ended September 30, 2016, the impact of foreign currency fluctuations to our Americas sales and marketing expenses was not significant when compared to average exchange rates during the nine months ended September 30, 2015. 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. We anticipate that we will continue to invest in Americas sales and marketing initiatives. As such, we expect our Americas sales and marketing expenses as a percentage of revenues to grow over the next year.
EMEA Sales and Marketing Expenses. Sales and marketing expenses for our EMEA region for the nine months ended September 30, 2016 included $39.8 million attributable to TelecityGroup, which closed in January 2016. Excluding the impact of TelecityGroup, our EMEA sales and marketing expenses were $63.0 million for the nine months ended September 30, 2016 compared to $53.0 million for the nine months ended September 30, 2015. The increase was primarily due to (i) $5.3 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (263 EMEA sales and marketing employees, excluding TelecityGroup employees, as of September 30, 2016 versus 219 as of September 30, 2015) and (ii) $3.0 million of higher advertising, promotion, consulting, travel, recruiting and training expenses to support our growth. During the nine months ended September 30, 2016 the impact of foreign currency fluctuations resulted in approximately $2.2 million of net favorable foreign currency impact to our EMEA sales and marketing expenses primarily due to a generally stronger U.S. dollar relative to the British pound during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. 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. We expect our EMEA sales and marketing expenses to increase as a result of the TelecityGroup acquisition. Although we anticipate 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.
Asia-Pacific Sales and Marketing Expenses. Sales and marketing expenses for our Asia-Pacific region for the nine months ended September 30, 2016 included $11.8 million attributable to Bit-isle, which closed in November 2015. Excluding the impact of Bit-isle, our Asia-Pacific sales and marketing expenses were $39.7 million for nine months ended September 30, 2016 compared to $37.5 million for the nine months ended September 30, 2015. The increase was primarily due to $3.0 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (202 Asia-Pacific sales and marketing employees, excluding Bit-isle employees, as of September 30, 2016 versus 173 as of September 30, 2015). For the nine months ended September 30, 2016, the impact of foreign currency fluctuations to our Asia-Pacific sales and marketing expenses was not significant when compared to average exchange rates for the nine months ended September 30, 2015. 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. We expect our Asia-Pacific sales and marketing expenses to 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 nine months ended September 30, 2016 and 2015 were split among the following geographic regions (dollars in thousands):

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Nine months ended September 30,
 
% change
 
2016
 
%
 
2015
 
%
 
Actual
 
Constant
currency
Americas
$
289,363

 
56
%
 
$
257,769

 
72
%
 
12
%
 
13
%
EMEA
171,031

 
33
%
 
65,191

 
18
%
 
162
%
 
169
%
Asia-Pacific
55,211

 
11
%
 
33,495

 
10
%
 
65
%
 
65
%
Total
$
515,605

 
100
%
 
$
356,455

 
100
%
 
45
%
 
46
%
 
 
Nine months ended
September 30,
 
2016
 
2015
General and administrative expenses as a percentage of revenues:
 
 
 
Americas
23
%
 
23
%
EMEA
20
%
 
13
%
Asia-Pacific
10
%
 
9
%
Total
19
%
 
18
%
Americas General and Administrative Expenses. The increase in our Americas general and administrative expenses was primarily due to (i) $12.5 million of higher compensation costs, including general salaries, bonuses, stock-based compensation, and headcount growth (919 Americas general and administrative employees as of September 30, 2016 versus 787 as of September 30, 2015), (ii) $12.1 million of higher depreciation expense associated with certain systems to improve our quote to order and billing processes and other systems to support the integration and growth of our business and (iii) $5.4 million of higher office expense and outside services consulting costs also in line with our overall growth. During the nine months ended September 30, 2016, the impact of foreign currency fluctuations to our Americas general and administrative expenses was not significant when compared to average exchange rates for the nine months ended September 30, 2015. Over the last several years, 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; however, as a percentage of revenues, we generally expect them to decrease.
EMEA General and Administrative Expenses. General and administrative expenses for our EMEA region for the nine months ended September 30, 2016 included $71.5 million attributable to TelecityGroup, which closed in January 2016, and the Paris IBX Data Center Acquisition, which closed in August 2016. Excluding the impact of TelecityGroup, our EMEA general and administrative expenses were $99.5 million for the nine months ended September 30, 2016 compared to $65.2 million for the nine months ended September 30, 2015. Excluding the impact of TelecityGroup, the increase was primarily due to (i) $17.6 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (527 EMEA general and administrative employees, excluding TelecityGroup employees, as of September 30, 2016 versus 405 as of September 30, 2015) and (ii) $15.1 million of higher consulting services to support the integration of TelecityGroup. During the nine months ended September 30, 2016 the impact of foreign currency fluctuations resulted in approximately $4.6 million of net favorable foreign currency impact to our EMEA general and administrative expenses primarily due to a generally stronger U.S. dollar relative to the British pound during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. Over the last several years, we have been investing in our EMEA general and administrative functions as a result of our ongoing efforts to scale this region effectively for growth. Going forward, although we are carefully monitoring our spending given the current economic environment, we expect our EMEA general and administrative expenses to increase in future periods as we continue to scale our operations to support our growth, as well as integration of TelecityGroup; however, as a percentage of revenues, we generally expect them to decrease.
Asia-Pacific General and Administrative Expenses. General and administrative expenses for our Asia-Pacific region for the nine months ended September 30, 2016 included $13.0 million attributable to Bit-isle, which closed in November 2015. Excluding the impact of Bit-isle, our Asia-Pacific general and administrative expenses were $42.2 million for the nine months ended September 30, 2016 compared to $33.5 million for the nine months ended September 30, 2015. Excluding the impact of Bit-isle, the increase was primarily due to $7.0 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (303 Asia-Pacific general and administrative employees, excluding Bit-isle employees, as of September 30, 2016 versus 257 as of September 30, 2015). For the nine months ended September 30, 2016, the impact of

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foreign currency fluctuations to our Asia-Pacific general and administrative expenses was not significant when compared to average exchange rates of the nine months ended September 30, 2015. 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 and integration 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 nine months ended September 30, 2016, we recorded acquisition costs totaling $64.6 million primarily in the EMEA region due to the acquisitions of Telecity and the Paris IBX Data Center. During the nine months ended September 30, 2015, we recorded acquisition costs totaling $24.4 million primarily in the EMEA region, which included $8.6 million as a result of a court ruling in connection with a historical acquisition.
Impairment Charges. During the nine months ended September 30, 2016, we recorded impairment charges totaling $7.7 million in the Asia-Pacific region relating to assets held for sale. We did not have impairment charges during the nine months ended September 30, 2015.
Gains on Asset Sales. During the nine months ended September 30, 2016, we recorded a gain of asset sales of $33.2 million relating to the sales of the LD2 data center in the EMEA region and the San Jose land parcel in the Americas region. We did not have any gains on asset sales during the nine months ended September 30, 2015.
Income from Continuing Operations. Our income from continuing operations for the nine months ended September 30, 2016 and 2015 was split among the following geographic regions (dollars in thousands):
 
Nine months ended September 30,
 
% change
 
2016
 
%
 
2015
 
%
 
Actual
 
Constant
currency
Americas
$
264,643

 
61
%
 
$
241,033

 
56
%
 
10
 %
 
10
 %
EMEA
73,506

 
17
%
 
111,516

 
26
%
 
(34
)%
 
(30
)%
Asia-Pacific
96,135

 
22
%
 
78,916

 
18
%
 
22
 %
 
23
 %
Total
$
434,284

 
100
%
 
$
431,465

 
100
%
 
1
 %
 
2
 %
Americas Income from Continuing Operations. The increase in our Americas income from continuing operations was due to higher revenues as result of our IBX data center expansion activity and organic growth as described above as well as the gains recognized on the sale of the San Jose land parcel, partially offset by higher cost of revenues and operating expenses as a percentage of revenues primarily attributable to higher compensation and other headcount related expenses to support our growth. The impact of foreign currency fluctuations on our Americas income from continuing operations for the nine months ended September 30, 2016 was not significant when compared to average exchange rates of the nine months ended September 30, 2015.
EMEA Income from Continuing Operations. The decrease in our EMEA income from continuing operations was primarily due to acquisition and integration costs incurred in connection with our acquisition of TelecityGroup, which closed in January 2016, as well as the increased depreciation and amortization created from the purchase accounting for TelecityGroup and the Paris IBX Data Center Acquisition, partially offset by the gains recognized on the sale of the LD2 data center. During the nine months ended September 30, 2016, the impact of foreign currency fluctuations resulted in approximately $4.6 million of net unfavorable foreign currency impact to our EMEA income from continuing operations primarily due to a generally stronger U.S. dollar relative to the British pound during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.
Asia-Pacific Income from Continuing Operations. The increase in our Asia-Pacific income from continuing operations was primarily due to higher revenues as a result of our acquisition of Bit-isle, which closed in November 2015, as well as our IBX data center expansion activity and organic growth as described above, partially offset by the impairment charges, higher cost of revenues and operating expenses as a percentage of revenues primarily attributable to our acquisition of Bit-isle as well as higher compensation and other headcount related expenses and higher professional fees to support our growth. The impact of foreign currency fluctuations on our Asia-Pacific income from continuing operations for the nine months ended September 30, 2016 was not significant when compared to average exchange rates of the nine months ended September 30, 2015.
Interest Income. Interest income was $2.5 million and $2.4 million, respectively, for the nine months ended September 30, 2016 and 2015. The average annualized yield for the nine months ended September 30, 2016 was 0.36% versus 0.38% for the nine months ended September 30, 2015. We expect our interest income to remain at these low levels for the foreseeable future due to lower invested balances and a portfolio more weighted towards short-term U.S. government securities.
Interest Expense. Interest expense increased to $293.4 million for the nine months ended September 30, 2016 from $219.6 million for the nine months ended September 30, 2015. This increase in interest expense was primarily due to the impact of our

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$1.1 billion of senior notes issued in December 2015, $636.0 million outstanding in seven-year term loans we borrowed in January 2016 and $468.4 million of an outstanding bridge term loan we borrowed to finance our acquisition of Bit-isle, which closed in November 2015, as well as additional financings such as various capital lease and other financing obligations to support our expansion projects. During the nine months ended September 30, 2016 and 2015, we capitalized $9.5 million and $8.7 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 senior notes offering in December 2015, $636.0 million outstanding in seven year term loans we borrowed in January 2016. We expect to incur additional indebtedness to support our growth and acquisition opportunities, such as the Bit-isle and TelecityGroup acquisitions, resulting in higher interest expense going forward.
Other Income (Expense). We recorded net expense of $56.2 million and $12.0 million, respectively, of other income (expense), for the nine months ended September 30, 2016 and 2015, primarily due to foreign currency exchange gains and losses during the periods, including $63.5 million in foreign currency losses recognized in the first quarter of 2016 as a result of completing the acquisition of TelecityGroup.
Loss on debt extinguishment. During the nine months ended September 30, 2016, we recorded a $10.5 million of loss on debt extinguishment as a result of the settlement of the financing obligations for our Paris 3 IBX data center as well as the prepayment and termination of our 2012 and 2013 Brazil financings. We did not have a loss on debt extinguishment during the nine months ended September 30, 2015.
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 federal income taxes on our taxable income distributed to our stockholders. We intend to distribute and have distributed the entire taxable income generated by the operations of our REIT and its QRSs for the tax years ended December 31, 2016 and December 31, 2015, respectively. As such, no provision for U.S. income taxes for the REIT and its QRSs has been included in the accompanying condensed consolidated financial statements for the nine months ended September 30, 2016 and 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 nine months ended September 30, 2016 and 2015.
For the nine months ended September 30, 2016 and 2015, we recorded $26.0 million and $25.3 million of income tax expense, respectively. Our effective tax rates were 33.8% and 12.5%, respectively, for the nine months ended September 30, 2016 and 2015. The increase in the effective tax rate for the nine months in 2016 as compared to the same period in 2015 is primarily due to a much lower profit before tax for the period attributable to the non-tax deductible costs related to the TelecityGroup acquisition and an increase in valuation allowance.
Income from Discontinued Operations. Our net income from discontinued operations was $14.3 million for the nine months ended September 30, 2016. We did not have discontinued operations during the nine months ended September 30, 2015.
Adjusted EBITDA. Adjusted EBITDA is a key factor in how we assess the operating performance 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, amortization, accretion, stock-based compensation expense, restructuring charges, impairment charges, acquisition costs and gains on asset sales. See "Non-GAAP Financial Measures" below for more information about adjusted EBITDA and a reconciliation of adjusted EBITDA to net income. Our adjusted EBITDA for the nine months ended September 30, 2016 and 2015 was split among the following geographic regions (dollars in thousands):
 
Nine months ended September 30,
 
% change
 
2016
 
%
 
2015
 
%
 
Actual
 
Constant
currency
Americas
$
581,619

 
48
%
 
$
517,790

 
55
%
 
12
%
 
13
%
EMEA
366,412

 
30
%
 
236,967

 
25
%
 
55
%
 
59
%
Asia-Pacific
272,952

 
22
%
 
183,725

 
20
%
 
49
%
 
48
%
Total
$
1,220,983

 
100
%
 
$
938,482

 
100
%
 
30
%
 
31
%
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. During the nine months ended September 30, 2016, currency fluctuations resulted in approximately $3.4 million of net unfavorable foreign currency impact on our Americas adjusted EBITDA

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primarily due to the generally stronger U.S. dollar relative to the Brazilian real and Canadian dollar during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.
EMEA Adjusted EBITDA. Adjusted EBITDA for our EMEA region includes $137.3 million of adjusted EBITDA attributable to our acquisition of TelecityGroup, which closed in January 2016, and the Paris IBX Data Center Acquisition, which closed in August 2016. Excluding adjusted EBITDA attributable to TelecityGroup and the Paris IBX Data Center Acquisition, the decrease in our EMEA adjusted EBITDA was primarily due to higher operating costs as result of our IBX data center expansion activity and organic growth as described above. During the nine months ended September 30, 2016, currency fluctuations resulted in approximately $10.1 million of net unfavorable foreign currency impact to our EMEA adjusted EBITDA primarily due to a generally stronger U.S. dollar relative to the British pound during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.
Asia-Pacific Adjusted EBITDA. Adjusted EBITDA for our Asia-Pacific region includes $36.8 million of adjusted EBITDA attributable to our acquisition of Bit-isle, which closed in November 2015. Excluding adjusted EBITDA attributable to Bit-isle, the increase in our Asia-Pacific adjusted EBITDA was primarily due to higher revenues as result of our IBX data center expansion activity and organic growth as described above. The impact of foreign currency fluctuations on our Asia-Pacific EBITDA for the nine months ended September 30, 2016 was not significant when compared to average exchange rates of the nine months ended September 30, 2015.
Non-GAAP Financial Measures
We provide all information required in accordance with 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 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 intangible assets, as it represents the amortization of the cost of an intangible asset acquired in an acquisition 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

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the carrying amount of long-lived assets are not recoverable. We also exclude gains on asset sales as they do not represent an ongoing activity and are not meaningful in evaluating our current or future operating performance. 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, acquisition costs and gains on asset sales 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, acquisition costs and gains on asset sales as presented below (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Income from continuing operations
$
169,941

 
$
140,883

 
$
434,284

 
$
431,465

Depreciation, amortization, and accretion expense
215,370

 
133,268

 
631,242

 
384,068

Stock-based compensation expense
42,473

 
33,969

 
116,311

 
98,575

Acquisition costs
12,505

 
13,352

 
64,635

 
24,374

Impairment charge
7,698

 
—

 
7,698

 
—

Gains on asset sales
(27,945
)
 
—

 
(33,187
)
 
—

Adjusted EBITDA
$
420,042

 
$
321,472

 
$
1,220,983

 
$
938,482

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 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”.
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 beginning in 2015 and 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, gains on asset sales and net income (loss) from discontinued operations, net of tax. 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 generally represents the write-off of initial costs incurred in connection with debt financings or a cost that is incurred to reduce future interest costs and is not a good indicator of our current or future operating performance. We include an income tax expense adjustment, which represents the non-cash tax impact due to changes in valuation allowances and uncertain tax positions that do not relate to current period’s operations. We deduct 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. We also exclude net income (loss) from discontinued operations, net of tax, which represents results that may not recur and are not a good indicator of our current future operating performance.

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Our FFO and AFFO for the three and nine months ended September 30, 2016 and 2015 were as follows (in thousands):
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
51,450

 
$
41,132

 
$
65,050

 
$
177,043

Adjustments:
 
 
 
 
 
 
 
Real estate depreciation and amortization
159,788

 
109,856

 
469,510

 
319,825

(Gain) loss on disposition of real estate property
(23,436
)
 
182

 
(29,424
)
 
803

Adjustments for FFO from unconsolidated joint ventures
29

 
27

 
85

 
84

NAREIT FFO attributable to common shareholders
$
187,831

 
$
151,197

 
$
505,221

 
$
497,755

 
 
 
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2016
 
2015
 
2016
 
2015
NAREIT FFO attributable to common shareholders
$
187,831

 
$
151,197

 
$
505,221

 
$
497,755

Adjustments:
 
 
 
 
 
 
 
Installation revenue adjustment
4,612

 
8,527

 
15,373

 
29,655

Straight-line rent expense adjustment
2,686

 
1,251

 
5,714

 
6,469

Amortization of deferred financing costs
2,687

 
3,934

 
13,438

 
11,640

Stock-based compensation expense
42,474

 
33,969

 
116,312

 
98,575

Non-real estate depreciation expense
22,108

 
15,946

 
64,516

 
42,244

Amortization expense
32,929

 
6,601

 
93,384

 
19,346

Accretion expense
545

 
865

 
3,832

 
2,653

Recurring capital expenditures
(41,600
)
 
(25,910
)
 
(105,343
)
 
(75,613
)
Loss on debt extinguishment
9,894

 
—

 
10,499

 
—

Acquisition costs
12,505

 
13,352

 
64,635

 
24,374

Impairment charges
7,698

 
—

 
7,698

 
—

Income tax expense adjustment
2,501

 
643

 
3,612

 
(3,549
)
Adjustments for AFFO from unconsolidated joint ventures
(10
)
 
(14
)
 
(31
)
 
(44
)
Net income from discontinued operations, net of tax
(2,681
)
 
—

 
(14,306
)
 
—

Adjusted Funds from Operations (AFFO) attributable to common shareholders
$
284,179

 
$
210,361

 
$
784,554

 
$
653,505


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.”

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Constant Currency Presentation
Our revenues and certain operating expenses (cost of revenues, sales and marketing expenses and general and administrative expenses) from our international operations have represented and will continue to represent a significant portion of our total revenues and 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 real, British pound, Canadian dollar, Euro, Swiss franc, Australian dollar, Hong Kong dollar, Japanese yen, Singapore dollar and United Arab Emirates dirham. 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 with functional currencies other than the U.S. dollar are converted into U.S. dollars at the exchange rates in effect for the comparable prior period rather than the actual exchange rates in effect during the respective periods (i.e. average rates in effect for the three months ended September 30, 2015 are used as exchange rates for the three months ended September 30, 2016 when comparing the three months ended September 30, 2016 with the three months ended September 30, 2015 and average rates in effect for the nine months ended September 30, 2015 are used as exchange rates for the nine months ended September 30, 2016 when comparing the nine months ended September 30, 2016 with the nine months ended September 30, 2015).
Liquidity and Capital Resources
As of September 30, 2016, our total indebtedness was comprised of debt and financing obligations totaling $7.0 billion consisting of (a) $3.9 billion of principal from our senior notes, (b) approximately $1.5 billion from our capital lease and other financing obligations, and (c) $1.6 billion of principal from our mortgage and loans payable (gross of discount and premium).
We believe we have sufficient cash and access to liquidity, 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 dividends and completion of our publicly-announced expansion projects. As of September 30, 2016, we had $1,003.4 million of cash, cash equivalents and short-term and long-term investments, of which approximately $534.9 million was held in the U.S. We believe that our current expansion activities can be funded with our cash and cash equivalents and investments. Besides our cash and investment portfolio, we have additional liquidity available to us from the $1.5 billion multi-currency revolving credit line.
As of September 30, 2016, we had 29 irrevocable letters of credit totaling $39.7 million issued and outstanding under the multi-currency revolving credit line; as a result, we had a total of approximately $1.5 billion of additional liquidity available to us under the multi-currency revolving credit line. 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 and paying regular, recurring cash dividends. While we expect to fund these plans with our existing resources, additional financing, either debt or equity, may be required and 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.
Sources and Uses of Cash
 
Nine Months Ended September 30,
 
2016
 
2015
 
(dollars in thousands)
 
Net cash provided by operating activities
$
717,270

 
$
659,675

Net cash used in investing activities
(1,239,697
)
 
(605,931
)
Net cash used in financing activities
(737,399
)
 
(319,768
)

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Operating Activities. The increase in net cash provided by operating activities was primarily due to improved operating results and favorable working capital activities such as decreased payments of certain accounts payable and accrued expenses, increased collections of customer receivables, and decreased income tax payments.
Investing Activities. The net cash used in investing activities for the nine months ended September 30, 2016 was primarily due to payment of $1,767.5 million for the acquisition of TelecityGroup and the Paris IBX Data Center and the remaining amounts due for Bit-isle shares. These payments were partially offset by $805.4 million net proceeds received from Digital Realty from the divestiture of certain data centers (see Notes 4 and 5 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q) and the net release of $444.7 million of restricted cash that had been set aside primarily for the TelecityGroup acquisition. Other investing cash flows for the nine months ended September 30, 2016 included $727.0 million of capital expenditures primarily related to our expansion activity, purchase of real estate for $28.1 million and purchase of investments for $31.7 million, partially offset by proceeds from the sale of assets of $22.8 million and sales and maturities of investments for $41.8 million. The net cash used in investing activities for the nine months ended September 30, 2015 was primarily due to a $493.8 million increase in restricted cash in connection with our cash and share offer for TelecityGroup, $587.5 million of capital expenditures primarily as a result of expansion activity, $38.3 million for the purchases of land in San Jose, California and $338.4 million for purchases of investments, offset by sales and maturities of investments for $861.9 million.
Financing Activities. The net cash used in financing activities for the nine months ended September 30, 2016 was primarily due to repayments of loans of $986.5 million relating to loans assumed from TelecityGroup acquisition, our revolving credit facility and our Brazil financings facility; dividend distributions of $374.2 million and repayments of $100.9 million of capital lease and other financing obligations, partially offset by borrowings of $710.4 million under our U.S. dollar and Sterling Term loan B drawings and bridge term loan, and proceeds from employee equity awards of $34.1 million. The net cash used in financing activities for the nine months ended September 30, 2015 was primarily due to $529.4 million of repayments of U.S. dollar-denominated term loan and other mortgage and loan payments and $291.0 million of dividend distributions, partially offset by $490.0 million of proceeds from our term loan modification and $29.9 million of proceeds from employee equity awards. 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.
Contractual Obligations and Off-Balance-Sheet Arrangements
We lease a majority of our IBX data centers and certain equipment under non-cancellable lease agreements expiring through 2065. The following represents our debt maturities, financings, leases and other contractual commitments as of September 30, 2016 (in thousands):
 
2016
(3 months)
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
Term loans (1)
$
11,691

 
$
46,764

 
$
46,764

 
$
349,555

 
$
6,392

 
$
608,800

 
$
1,069,966

Interest (2)
64,373

 
117,280

 
116,297

 
115,327

 
98,233

 
23,771

 
535,281

Capital lease and other financing obligations (3)
40,840

 
162,962

 
159,022

 
154,325

 
153,239

 
1,683,139

 
2,353,527

Operating leases (4)
38,052

 
143,393

 
136,565

 
130,585

 
117,996

 
1,078,157

 
1,644,748

Other contractual commitments (5)
507,100

 
229,007

 
33,772

 
5,218

 
4,037

 
39,426

 
818,560

Asset retirement obligations (6)
—

 
10,881

 
5,652

 
13,396

 
3,675

 
69,438

 
103,042

 
$
662,056

 
$
710,287

 
$
498,072

 
$
768,406

 
$
383,572

 
$
3,502,731

 
$
6,525,124

 
 
(1)
Represents principal only.
(2)
Represents interest on mortgage payable, senior notes, term loans, Brazil financing and other loans payable based on their approximate interest rates as of September 30, 2016.
(3)
Represents principal and interest.
(4)
Represents minimum operating lease payments, excluding potential lease renewals.
(5)
Represents off-balance sheet arrangements. Other contractual commitments are described below.
(6)
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 29 irrevocable letters of credit totaling $39.7 million, which reduces the availability under our multi-currency revolving credit line. These letters of credit were provided in lieu of cash deposits. 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 senior revolving credit line. These contingent commitments are not reflected in the table above.
We had accrued liabilities related to uncertain tax positions totaling approximately $46.0 million as of September 30, 2016. 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 September 30, 2016, we were contractually committed for $474.6 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 the remainder of 2016 and thereafter, is reflected in the table above as “other contractual commitments.”
We had other non-capital purchase commitments in place as of September 30, 2016, 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 September 30, 2016, which total $344.0 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 $516.7 million to $616.7 million, in addition to the $818.6 million in contractual commitments discussed above as of September 30, 2016, 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.
Critical Accounting Policies and Estimates
Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Critical accounting policies for Equinix that affect our more significant judgment and estimates used in the preparation of our condensed consolidated financial statements include accounting for income taxes, accounting for business combinations, accounting for impairment of goodwill and accounting for property, plant and equipment, which are discussed in more detail under the caption “Critical Accounting Policies and Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2015.
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 September 30, 2016, our REIT structure includes all of our data center operations in the U.S., Canada, historical data center operations in Europe and Japan and our integrated TelecityGroup operations in the Netherlands. Additionally, we integrated the TelecityGroup operations in Ireland, Sweden, and U.K. into our REIT structure in October 2016. Our data center operations in other jurisdictions, as well as the non-integrated data center operations acquired in the TelecityGroup and Bit-isle acquisitions are 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 income taxation at the entity level but is taxed, if at all, at the stockholder level.
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.

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income taxes for the TRS entities located in the country and foreign income taxes for our foreign operations were accrued, as necessary, for the three and nine months ended September 30, 2016.
Recent Accounting Pronouncements
See Note 1 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk

Market Risk
While there have been no significant changes in our market risk, investment portfolio risk, interest rate risk, foreign currency risk and commodity price risk exposures and procedures during the nine months ended September 30, 2016 as compared to the respective risk exposures and procedures disclosed in Quantitative and Qualitative Disclosures About Market Risk, set forth in Part II Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2015, fluctuations in foreign currency exchange rates have a direct impact on our consolidated financial position and results of operations during the nine months ended September 30, 2016. Continued strengthening or weakening of the U.S. dollar will continue to have a significant impact to us in future periods.
Excluding consideration from hedging contracts, an immediate 10% appreciation in current foreign exchange rates as of September 30, 2016 would have resulted in an increase of $150.4 million and $18.7 million in revenue and income from continuing operations before taxes for the nine months ended September 30, 2016. Excluding consideration from hedging contracts, an immediate 10% depreciation in current foreign exchange rates as of September 30, 2016 would have resulted in a decrease of $149.9 million and $21.6 million in revenue and income from continuing operations before taxes for the nine months ended September 30, 2016.
Interest Rate Risk
An immediate 10% increase or decrease in current interest rates from their position as of September 30, 2016 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, term loans, 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 $5.0 million based on the total balance of our primary borrowings under the term loan A and B facilities and bridge term loan as of September 30, 2016. As of September 30, 2016, 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.
Item 4.
Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation, pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the effectiveness of our “disclosure controls and procedures” as of the end of the period covered by this quarterly report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
(b) Changes in Internal Control over Financial Reporting. We completed the acquisition of TelecityGroup in the first quarter of 2016. We are evaluating changes to processes and other components of internal controls over financial reporting of TelecityGroup as part of the ongoing integration activities. There have not been any other changes in our internal control reporting that occurred during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  
(c) 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

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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 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 also is 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.
PART II - OTHER INFORMATION 
Item 1.
Legal Proceedings
None

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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 Integration of TelecityGroup
We have incurred and will continue to incur significant transaction, acquisition-related integration and asset divestment costs in connection with the TelecityGroup acquisition.
We have incurred and will continue to incur significant costs in connection with the TelecityGroup acquisition and integrating our and TelecityGroup’s operations into a combined company. We also incurred 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 would 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 additional 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 our common stock may be adversely affected.
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;
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managing a larger combined company;
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integrating two unique corporate cultures, which may prove to be challenging;
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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;
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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.
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.
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

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satisfy the REIT income, asset, and distribution tests applicable to us. However, the TelecityGroup integration is 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 are ineligible to utilize relief provisions set forth in the Internal Revenue Code (the "Code").
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;
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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 March, June, and September of 2016 and have declared a fourth quarterly distribution to be paid in December of 2016. The amount, timing and form of any future distributions will be determined, and will be subject to adjustment, by our 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”.

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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 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% of the fair market value of our assets 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.

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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 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 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 or a QRS hold 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 (for liquidations or other carryover transactions on or after August 8, 2016, the ten 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 and an interest penalty to the IRS 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 counteracting 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

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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.
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. 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;
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our potential inability to successfully pursue or realize some or all of the anticipated revenue opportunities associated with an acquisition or investment;

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•
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;
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the possibility that announced acquisitions may not be completed, due to failure to satisfy the conditions to closing or for other reasons;
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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 and TelecityGroup;
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the possibility of customer dissatisfaction if we are unable to achieve levels of quality and stability on par with past practices;
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the potential deterioration to our ability to access credit markets due to increased leverage;
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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;
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the possibility that required financing to fund an acquisition may not be available on acceptable terms or at all;
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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;
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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;
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the possibility that future acquisitions may be in geographies and regulatory environments to which we are unaccustomed;
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the possibility that carriers may find it cost-prohibitive or impractical to bring fiber and networks into a new IBX data center;
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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;
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the possibility that asset divestments may be required in order to obtain regulatory clearance for a transaction; and
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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 September 30, 2016, our total indebtedness was approximately $7.0 billion, our stockholders’ equity was $4.6 billion and our cash and investments totaled $1.0 billion. In addition, as of September 30, 2016, we had approximately $1.5 billion of additional liquidity available to us from our $1.5 billion revolving credit facility. 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 September 30, 2016, our total minimum operating lease commitments under those lease agreements, excluding potential lease renewals, was approximately $1.6 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:
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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;
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increase the likelihood of negative outlook from our rating agencies;

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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;
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increase our vulnerability to general adverse economic and industry conditions and adverse changes in governmental regulations;
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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;
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limit our operating flexibility through covenants with which we must comply, such as limiting our ability to repurchase shares of our common stock;
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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
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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.
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 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.
Exposure to EMEA political developments could adversely impact our business. 
We currently have IBX data centers and employees located in the UK and other European jurisdictions.  A referendum was held on June 23, 2016 in the UK to determine whether it should remain in or leave the European Union (the “EU”), the outcome of which was a vote in favor of leaving the EU (the “Brexit”). The Brexit has resulted in political and economic instability throughout Europe. There is considerable uncertainty surrounding the exit process, the extent of the UK’s future relationship with the EU, and the longer term impact of the Brexit on economic conditions in the UK and in the EU.   The ongoing instability and uncertainty surrounding the Brexit in the near term, and the final terms reached regarding the Brexit, could have an adverse impact on our business and employees in EMEA and could adversely affect our financial condition and results of operations.
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:
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the costs of customizing IBX data centers for foreign countries;
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protectionist laws and business practices favoring local competition;
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greater difficulty or delay in accounts receivable collection;

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difficulties in staffing and managing foreign operations, including negotiating with foreign labor unions or workers’ councils;
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difficulties in managing across cultures and in foreign languages;
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political and economic instability;
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fluctuations in currency exchange rates;
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difficulties in repatriating funds from certain countries;
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our ability to obtain, transfer, or maintain licenses required by governmental entities with respect to our business;
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unexpected changes in regulatory, tax and political environments;
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our ability to secure and maintain the necessary physical and telecommunications infrastructure;
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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
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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 and political uncertainty in developing markets could adversely affect our revenue and earnings.
We conduct business and are contemplating expansion, in developing markets with economies and governments 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, Turkey, 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, such as the recent governmental unrest in Turkey, 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.
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.
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:
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our operating results or forecasts;
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new issuances of equity, debt or convertible debt by us;
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changes to our capital allocation, tax planning or business strategy;
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our qualification for taxation as a REIT and our declaration of distributions to our stockholders;

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a stock repurchase program;
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developments in our relationships with corporate customers;
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announcements by our customers or competitors;
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changes in regulatory policy or interpretation;
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governmental investigations;
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changes in the ratings of our debt or stock by rating agencies or securities analysts;
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our purchase or development of real estate and/or additional IBX data centers;
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our acquisitions of complementary businesses; or
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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 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 3 of this Quarterly Report on Form 10-Q.
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 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.

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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:
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human error;
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equipment failure;
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physical, electronic and cyber security breaches;
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fire, earthquake, hurricane, flood, tornado and other natural disasters;
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extreme temperatures;
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water damage;
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fiber cuts;
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power loss;
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terrorist acts;
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sabotage and vandalism; and
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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 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

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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, developing new functionality and integrations into recently acquired operations such as Bit-isle and TelecityGroup. 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, fixed assets, revenue recognition, 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 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

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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.
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.

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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, we are at risk of 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 IBX data centers 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.
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, the acquisition and integration of TelecityGroup and Bit-isle 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 and integration is still ongoing. All of these changes to our financial

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systems and the implementation and integration of acquisitions create an increased risk of deficiencies in our internal controls over financial reporting. 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.
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;
•
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 GAAP in the U.S. as periodically released by the Financial Accounting Standards Board (“FASB”).

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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) may be negatively impacted by acquisitions.
Historically, while our DSO results have fluctuated from time to time, we have generally experienced strong collections of our accounts receivables as evidenced by our prior DSO metrics. However, our DSO may be negatively impacted in integrating recent acquisitions into our processes and systems which may have a negative impact on our operating cash flows, liquidity and financial performance.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the U.S. 
We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016 and May 2016 within ASU 2015-04, ASU 2016-08, ASU 2016-10 and ASU 2016-12, respectively (ASU 2014-09, ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-11 and ASU 2016-12 collectively, "Topic 606"). Topic 606, as amended, is effective for annual reporting periods beginning after December 15, 2017. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). 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. Both Topic 606 and ASU 2016-02 will replace the existing revenue and lease accounting standards, respectively. Although we are currently in the process of evaluating the impact of Topic 606 and ASU 2016-02 on our consolidated financial statements, these new standards could have could have a significant effect on our reported financial results, cause unexpected financial reporting fluctuations and require us to make costly changes to our operational processes and accounting systems. Thus, adoption of the standards could have a significant impact on our financial statements.
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 September 30, 2016, our accumulated deficit was $43.2 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

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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.
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

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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 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

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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.
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.
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 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosure
Not applicable.
Item 5.
Other Information
None.

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Item 6.
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 of May 29, 2015. Recommended Cash and Share Offer for Telecity Group plc by Equinix, Inc.
8-K
 
5/29/2015
 
2.1
 
 
 
 
 
 
 
 
 
 
 
2.2
Cooperation Agreement, dated as of May 29, 2015, by and between Equinix, Inc. and Telecity Group plc.
8-K
 
5/29/2015
 
2.2
 
 
 
 
 
 
 
 
 
 
 
2.3
Amendment to Cooperation Agreement, dated as of November 24, 2015, by and between Equinix, Inc. and Telecity Group plc.
10-K
 
12/31/2015
 
2.3
 
 
 
 
 
 
 
 
 
 
 
3.1
Amended and Restated Certificate of Incorporation of the Registrant, as amended to date.
10-K/A
 
12/31/2002
 
3.1
 
 
 
 
 
 
 
 
 
 
 
3.2
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant
8-K
 
6/14/2011
 
3.1
 
 
 
 
 
 
 
 
 
 
 
3.3
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Registrant
8-K
 
6/11/2013
 
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
 
12/31/2002
 
3.3
 
 
 
 
 
 
 
 
 
 
 
3.6
Amended and Restated Bylaws of the Registrant.
8-K
 
3/29/2016
 
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 for the 2020 Notes dated March 5, 2013 by and between Equinix, Inc. and U.S. Bank National Association as trustee
8-K
 
3/5/2013
 
4.1
 
 
 
 
 
 
 
 
 
 
 
4.3
Form of 4.875% Senior Note due 2020 (see Exhibit 4.4)
8-K
 
3/5/2013
 
4.2
 
 
 
 
 
 
 
 
 
 
 
4.4
Indenture for the 2023 Notes dated March 5, 2013 by and between Equinix, Inc. and U.S. Bank National Association as trustee
8-K
 
3/5/2013
 
4.3
 
 
 
 
 
 
 
 
 
 
 
4.5
Form of 5.375% Senior Note due 2023 (see Exhibit 4.6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.6
Indenture, dated as of November 20, 2014, between Equinix, Inc. and U.S. Bank National Association, as trustee
8-K
 
11/20/2014
 
4.1
 
 
 
 
 
 
 
 
 
 
 
4.7
First Supplemental Indenture, dated as of November 20, 2014, between Equinix, Inc. and U.S. Bank National Association, as trustee
8-K
 
11/20/2014
 
4.2
 
 
 
 
 
 
 
 
 
 
 
4.8
Form of 5.375% Senior Note due 2022 (see Exhibit 4.9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.9
Second Supplemental Indenture, dated as of November 20, 2014, between Equinix, Inc. and U.S. Bank National Association, as trustee
8-K
 
11/20/2014
 
4.4
 
 
 
 
 
 
 
 
 
 
 
4.10
Form of 5.750% Senior Note due 2025 (see Exhibit 4.11)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.11
Third Supplemental Indenture, dated as of December 4, 2015, between Equinix Inc. and U.S. Bank National Association, as trustee
8-K
 
12/4/2015
 
4.2
 
 
 
 
 
 
 
 
 
 
 
4.12
Form of 5.875% Senior Note due 2026 (See Exhibit 4.13)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.13
Form of Registrant's Common Stock Certificate
10-K
 
12/31/2014
 
4.13
 
 
 
 
 
 
 
 
 
 
 

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Incorporated by Reference
 
 
Exhibit
Number
Exhibit Description
Form
 
Filing Date/
Period End
Date
 
Exhibit
 
Filed
Herewith
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
 
3/31/2012
 
10.2
 
 
 
 
 
 
 
 
 
 
 
10.3**
2000 Director Option Plan, as amended.
10-K
 
12/31/2007
 
10.4
 
 
 
 
 
 
 
 
 
 
 
10.4**
2001 Supplemental Stock Plan, as amended.
10-K
 
12/31/2007
 
10.5
 
 
 
 
 
 
 
 
 
 
 
10.5**
Equinix, Inc. 2004 Employee Stock Purchase Plan, as amended.
10-Q
 
6/30/2014
 
10.5
 
 
 
 
 
 
 
 
 
 
 
10.6**
Severance Agreement by and between Stephen Smith and Equinix, Inc. dated December 18, 2008.
10-K
 
12/31/2008
 
10.31
 
 
 
 
 
 
 
 
 
 
 
10.7**
Severance Agreement by and between Peter Van Camp and Equinix, Inc. dated December 10, 2008.
10-K
 
12/31/2008
 
10.32
 
 
 
 
 
 
 
 
 
 
 
10.8**
Severance Agreement by and between Keith Taylor and Equinix, Inc. dated December 19, 2008.
10-K
 
12/31/2008
 
10.33
 
 
 
 
 
 
 
 
 
 
 
10.9**
Change in Control Severance Agreement by and between Eric Schwartz and Equinix, Inc. dated December 19, 2008.
10-K
 
12/31/2008
 
10.35
 
 
 
 
 
 
 
 
 
 
 
10.10**
Switch & Data 2007 Stock Incentive Plan.
S-1/A (File No. 333-137607) filed by Switch & Data Facilities Company, Inc.
 
2/5/2007
 
10.9
 
 
 
 
 
 
 
 
 
 
 
10.11**
Change in Control Severance Agreement by and between Charles Meyers and Equinix, Inc. dated September 30, 2010.
10-Q
 
9/30/2010
 
10.42
 
 
 
 
 
 
 
 
 
 
 
10.12**
Form of amendment to existing severance agreement between the Registrant and each of Messrs. Meyers, Smith, Taylor and Van Camp.
10-K
 
12/31/2010
 
10.33
 
 
 
 
 
 
 
 
 
 
 
10.13**
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
 
12/31/2010
 
10.34
 
 
 
 
 
 
 
 
 
 
 
10.14**
Offer Letter from Equinix, Inc. to Sara Baack dated July 31, 2012.
10-Q
 
3/31/2013
 
10.42
 
 
 
 
 
 
 
 
 
 
 
10.15**
Change in Control Severance Agreement by and between Sara Baack and Equinix, Inc. dated July 31, 2012.
10-Q
 
3/31/2013
 
10.44
 
 
 
 
 
 
 
 
 
 
 
10.16**
International Long-Term Assignment Letter by and between Equinix, Inc. and Eric Schwartz, dated May 21, 2013.
10-Q
 
6/30/2013
 
10.51
 
 
 
 
 
 
 
 
 
 
 
10.17**
Employment Agreement by and between Equinix (EMEA) B.V. and Eric Schwartz, dated as of August 7, 2013.
10-Q
 
9/30/2013
 
10.54
 
 
 
 
 
 
 
 
 
 
 
10.18**
Restricted Stock Unit Agreement dated August 14, 2013 for Charles Meyers under the Equinix, Inc. 2000 Equity Incentive Plan.
10-Q
 
9/30/2013
 
10.55
 
 
 
 
 
 
 
 
 
 
 
10.19**
Offer Letter from Equinix, Inc. to Karl Strohmeyer dated October 28, 2013.
10-Q
 
3/31/2014
 
10.49
 
 
 
 
 
 
 
 
 
 
 

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Incorporated by Reference
 
 
Exhibit
Number
Exhibit Description
Form
 
Filing Date/
Period End
Date
 
Exhibit
 
Filed
Herewith
10.20**
Restricted Stock Unit Agreement for Karl Strohmeyer under the Equinix, Inc. 2000 Equity Incentive Plan.
10-Q
 
3/31/2014
 
10.50
 
 
 
 
 
 
 
 
 
 
 
10.21**
Change in Control Severance Agreement by and between Karl Strohmeyer and Equinix, Inc. dated December 2, 2013.
10-Q
 
3/31/2014
 
10.51
 
 
 
 
 
 
 
 
 
 
 
10.22**
2014 Form of Revenue/Adjusted EBITDA Restricted Stock Unit Agreement for CEO and CFO.
10-Q
 
3/31/2014
 
10.52
 
 
 
 
 
 
 
 
 
 
 
10.23**
2014 Form of Revenue/Adjusted EBITDA Restricted Stock Unit Agreement for all other Section 16 officers.
10-Q
 
3/31/2014
 
10.53
 
 
 
 
 
 
 
 
 
 
 
10.24
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
 
9/30/2014
 
10.67
 
 
 
 
 
 
 
 
 
 
 
10.25
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
 
12/31/2014
 
10.48
 
 
 
 
 
 
 
 
 
 
 
10.26**
2015 Form of Revenue/AFFO Restricted Stock Unit Agreement for executives.
10-Q
 
3/31/2015
 
10.50
 
 
 
 
 
 
 
 
 
 
 
10.27**
2015 Form of TSR Restricted Stock Unit Agreement for executives.
10-Q
 
3/31/2015
 
10.51
 
 
 
 
 
 
 
 
 
 
 
10.28**
2015 Form of Time-Based Restricted Stock Unit Agreement for executives.
10-Q
 
3/31/2015
 
10.52
 
 
 
 
 
 
 
 
 
 
 
10.29
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
 
 
 
 
 
 
 
 
 
 
 
10.30
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
 
6/30/2015
 
10.53
 
 
 
 
 
 
 
 
 
 
 
10.31
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
 
6/30/2015
 
10.54
 
 
 
 
 
 
 
 
 
 
 

80
Table of Contents

 
 
Incorporated by Reference
 
 
Exhibit
Number
Exhibit Description
Form
 
Filing Date/
Period End
Date
 
Exhibit
 
Filed
Herewith
10.32
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
  
9/30/2015
  
10.55
  
 
 
 
 
 
 
 
 
 
 
10.33
First Amendment to Term Loan Agreement dated September 30, 2015 as amended October 26, 2015 and executed by and between 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 Lender.
10-Q
  
9/30/2015
  
10.56
  
 
 
 
 
 
 
 
 
 
 
10.34
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.
10-K
 
12/31/2015
 
10.55
 
 
 
 
 
 
 
 
 
 
 
10.35**
Equinix, Inc. 2016 Incentive Plan
10-Q
  
3/31/2016
 
10.56
 
 
 
 
 
 
 
 
 
 
 
10.36**
2016 Form of Revenue/AFFO Restricted Stock Unit Agreement for executives.
10-Q
  
3/31/2016
 
10.57
 
 
 
 
 
 
 
 
 
 
 
10.37**
2016 Form of TSR Restricted Stock Unit Agreement for executives.
10-Q
  
3/31/2016
 
10.58
 
 
 
 
 
 
 
 
 
 
 
10.38**
2016 Form of Time-Based Restricted Stock Unit Agreement for executives.
10-Q
  
3/31/2016
 
10.59
 
 
 
 
 
 
 
 
 
 
 
10.39**
Restricted Stock Unit Award granted to John Hughes on February 25, 2016
10-Q
  
3/31/2016
 
10.60
 
 
 
 
 
 
 
 
 
 
 
10.40
Share Purchase Agreement with Digital Realty Trust, L.P., relating to the sale and purchase of shares in TelecityGroup UK LON Limited, Telecity Netherlands AMS01 AMS04 BV, Equinix Real Estate (TCY AMS04) B.V. and TelecityGroup Germany Fra2 GmbH, dated May 14, 2016.

10-Q
  
6/30/2016
 
10.55
 
 
 
 
 
 
 
 
 
 
 
10.41**
Letter Agreement dated June 9, 2016, by and between Equinix, Inc. and Eric Schwartz, amending his International Long Term Assignment letter dated May 21, 2013 and Employment Agreement with Equinix (EMEA) B.V. dated August 7, 2013.

10-Q
  
6/30/2016
 
10.56
 
 
 
 
 
 
 
 
 
 
 
10.42
Term Loan Agreement dated as of September 30, 2016 among Equinix Japan K.K. as Borrower, the Lenders (defined therein) and Bank of Tokyo-Mitsubishi UFJ, Ltd., as Arranger and Agent.
 
 
 
 
 
 
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
 
 
 
 
 
 
 
 
 

81
Table of Contents

 
 
Incorporated by Reference
 
 
Exhibit
Number
Exhibit Description
Form
 
Filing Date/
Period End
Date
 
Exhibit
 
Filed
Herewith
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.

82
Table of Contents

EQUINIX, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
EQUINIX, INC.
Date: November 4, 2016
 
 
 
By:
/s/    KEITH D. TAYLOR        
 
 
Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)


83
Table of Contents

INDEX TO EXHIBITS
 
Exhibit
Number
Description of Document
 
 
10.42
Term Loan Agreement dated as of September 30, 2016 among Equinix Japan K.K. as Borrower, the Lenders (defined therein) and Bank of Tokyo-Mitsubishi UFJ, Ltd., as Arranger and Agent.
 
 
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.

84