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 March 31, 2017
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, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨
Smaller reporting company
¨
 
 
 
 
 
 
Emerging growth company
¨  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨  
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 May 4, 2017 was 77,911,885.
 


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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Table of Contents

PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
EQUINIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
March 31,
2017
 
December 31,
2016
 
(Unaudited)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
4,923,259

 
$
748,476

Short-term investments
14,742

 
3,409

Accounts receivable, net
429,990

 
396,245

Other current assets
206,026

 
319,396

Total current assets
5,574,017

 
1,467,526

Long-term investments
6,461

 
10,042

Property, plant and equipment, net
7,605,829

 
7,199,210

Goodwill
3,053,026

 
2,986,064

Intangible assets, net
710,706

 
719,231

Other assets
234,645

 
226,298

Total assets
$
17,184,684

 
$
12,608,371

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
515,959

 
$
581,739

Accrued property, plant and equipment
190,176

 
144,842

Current portion of capital lease and other financing obligations
99,202

 
101,046

Current portion of mortgage and loans payable
80,799

 
67,928

Other current liabilities
133,932

 
133,140

Total current liabilities
1,020,068

 
1,028,695

Capital lease and other financing obligations, less current portion
1,523,309

 
1,410,742

Mortgage and loans payable, less current portion
2,432,610

 
1,369,087

Senior notes
5,045,449

 
3,810,770

Other liabilities
645,409

 
623,248

Total liabilities
10,666,845

 
8,242,542

Commitments and contingencies (Note 10)

 

Stockholders' equity:
 
 
 
Common stock, $0.001 par value per share: 300,000,000 shares authorized; 77,911,859 and 71,409,015 shares outstanding
78

 
72

Additional paid-in capital
9,601,627

 
7,413,519

Treasury stock, at cost; 405,469 and 408,415 shares
(146,936
)
 
(147,559
)
Accumulated dividends
(2,115,963
)
 
(1,969,645
)
Accumulated other comprehensive loss
(882,736
)
 
(949,142
)
Retained earnings
61,769

 
18,584

Total stockholders' equity
6,517,839

 
4,365,829

Total liabilities and stockholders' equity
$
17,184,684

 
$
12,608,371

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
March 31,
 
2017
 
2016
 
(Unaudited)
Revenues
$
949,525

 
$
844,156

Costs and operating expenses:
 
 
 
Cost of revenues
468,961

 
427,680

Sales and marketing
128,927

 
106,590

General and administrative
181,399

 
165,904

Acquisition costs
3,025

 
36,536

Gains on asset sales

 
(5,242
)
Total costs and operating expenses
782,312

 
731,468

Income from continuing operations
167,213

 
112,688

Interest income
3,092

 
925

Interest expense
(111,684
)
 
(100,863
)
Other income (expense)
337

 
(60,710
)
Loss on debt extinguishment
(3,503
)
 

Income (loss) from continuing operations before income taxes
55,455


(47,960
)
Income tax benefit (expense)
(13,393
)
 
10,633

Net income (loss) from continuing operations
42,062

 
(37,327
)
Net income from discontinued operations, net of tax

 
6,216

Net income (loss)
$
42,062

 
$
(31,111
)
Earnings (loss) per share ("EPS"):
 
 
 
Basic EPS from continuing operations
$
0.58

 
$
(0.55
)
Basic EPS from discontinued operations

 
0.09

Basic EPS
$
0.58

 
$
(0.46
)
Weighted-average shares
72,773

 
68,132

Diluted EPS from continuing operations
$
0.57

 
$
(0.55
)
Diluted EPS from discontinued operations

 
0.09

Diluted EPS
$
0.57

 
$
(0.46
)
Weighted-average shares for diluted EPS
73,367

 
68,132

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
March 31,
 
2017
 
2016
 
(Unaudited)
Net income (loss)
$
42,062

 
$
(31,111
)
Other comprehensive income (loss), net of tax:
 
 
 
Foreign currency translation adjustment ("CTA") gain
106,938

 
115,899

Unrealized loss on available-for-sale securities, net of tax effects of $(99) and $138
(265
)
 
(304
)
Unrealized loss on cash flow hedges, net of tax effects of $4,051 and $2,261
(11,727
)
 
(6,784
)
Net investment hedge CTA loss
(28,551
)
 
(16,312
)
Net actuarial gain on defined benefit plans, net of tax effects of $(6) and $(4)
11

 
6

Total other comprehensive income, net of tax
66,406

 
92,505

Comprehensive income, net of tax
$
108,468

 
$
61,394

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Three Months Ended
March 31,
 
2017
 
2016
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net income (loss)
$
42,062

 
$
(31,111
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation
187,989

 
172,382

Stock-based compensation
38,323

 
34,061

Amortization of intangible assets
29,017

 
28,152

Amortization of debt issuance costs and debt discounts
11,580

 
5,508

Provision for allowance for doubtful accounts
6,710

 
1,885

Gain on asset sales

 
(5,242
)
Loss on debt extinguishment
3,503

 

Other items
3,677

 
5,169

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(39,664
)
 
(11,312
)
Income taxes, net
(20,637
)
 
(28,656
)
Accounts payable and accrued expenses
(65,414
)
 
(40,217
)
Other assets and liabilities
50,225

 
(25,785
)
Net cash provided by operating activities
247,371

 
104,834

Cash flows from investing activities:
 
 
 
Purchases of investments
(26,256
)
 
(10,875
)
Sales and maturities of investments
19,152

 
14,294

Business acquisitions, net of cash and restricted cash acquired
(36,041
)
 
(1,601,326
)
Purchases of real estate
(41,739
)
 
(16,408
)
Purchases of other property, plant and equipment
(277,242
)
 
(197,700
)
Proceeds from sale of assets
47,767

 
22,825

Net cash used in investing activities
(314,359
)
 
(1,789,190
)
Cash flows from financing activities:
 
 
 
Proceeds from employee equity awards
20,074

 
16,304

Payment of dividends
(148,083
)
 
(124,836
)
Proceeds from public offering of common stock, net of offering costs
2,126,258

 

Proceeds from senior notes
1,250,000

 

Proceeds from loans payable
1,059,800

 
701,250

Repayment of capital lease and other financing obligations
(16,596
)
 
(33,232
)
Repayment of mortgage and loans payable
(21,510
)
 
(936,353
)
Debt extinguishment costs
(3,132
)
 

Debt issuance costs
(40,665
)
 
(65
)
Other financing activities
(900
)
 

Net cash provided by (used) in financing activities
4,225,246

 
(376,932
)
Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash 
11,541

 
(9,501
)
Net increase (decrease) in cash, cash equivalents and restricted cash
4,169,799

 
(2,070,789
)
Cash, cash equivalents and restricted cash at beginning of period
773,247

 
2,718,427

Cash, cash equivalents and restricted cash at end of period
$
4,943,046

 
$
647,638

 
 
 
 
 
 
 
 
Cash and cash equivalents
$
4,923,259

 
$
633,758

Current portion of restricted cash included in other current assets
9,927

 
3,420

Non-current portion of restricted cash included in other assets
9,860

 
10,460

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows
$
4,943,046

 
$
647,638

 
 
 
 
See accompanying notes to condensed consolidated financial statements.

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Table of Contents

EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2016 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 27, 2017. 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 IO UK data center operating business from February 3, 2017, Paris IBX data center from August 1, 2016 and Telecity Group plc ("TelecityGroup") from January 15, 2016. 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, and thereafter received a favorable private letter ruling ("PLR") from the U.S. Internal Revenue Service ("IRS") that validated the Company's position with respect to specified REIT compliance matters. 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 U.S. taxable income of the Company and its QRSs, resulting in no U.S. income tax due. However, the Company's taxable REIT subsidiaries ("TRSs") will continue to be subject to income taxes on any taxable income generated by them. In addition, the foreign operations of the Company will continue to be subject to local income taxes regardless of whether the foreign operations are operated as a QRS or TRS.
The Company 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 24.2% and 22.2% for the three months ended March 31, 2017 and 2016, respectively.
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.
Reclassifications
Certain amounts in prior periods have been reclassified to conform with current period presentation.

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

Recent Accounting Pronouncements
Accounting Standards Not Yet Adopted
In March 2017, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-07 Compensation–Retirement Benefits (Topic 715). This ASU was issued primarily to improve the presentation of net periodic pension cost and net periodic post-retirement benefit cost. This ASU requires that an employer reports the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. It also requires the other components of net periodic pension cost and net periodic post-retirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, only the service cost component is eligible for capitalization, when applicable. This ASU is effective for public business entities for its annual or any interim reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements, but does not expect to early adopt this ASU.
In February 2017, FASB issued ASU No. 2017-05 Other Income—Gains and Losses from the Derecognition of Non-financial Assets (Subtopic 610-20). This ASU is to clarify the scope of the non-financial asset guidance in Subtopic 610-20 and to add guidance for partial sales of non-financial assets. This ASU defines the term in substance non-financial asset and clarifies that non-financial assets within the scope of Subtopic 610-20 may include non-financial assets transferred within a legal entity to a counterparty. The ASU also provides guidance on the accounting for what often are referred to as partial sales of non-financial assets within the scope of Subtopic 610-20 and contributions of non-financial assets to a joint venture or other non-controlled investee. This ASU is effective for public business entities for its annual or any interim reporting periods beginning after December 15, 2017. Early adoption is permitted for interim or annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements, but does not expect to early adopt this ASU.
In January 2017, FASB issued ASU No. 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU is to simplify the subsequent measurement of goodwill. The ASU eliminates step 2 from the goodwill impairment test and the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU should be applied on a prospective basis. This ASU is effective for public business entities for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.
In January 2017, FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, clarifying the definition of a business. The ASU affects all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods with early adoption being permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements, but does not expect to early adopt this ASU.
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, but does not expect to early adopt this ASU.
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

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

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 expects this ASU to impact its accounts receivable and is currently evaluating the extent of the impact that the adoption of this ASU 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 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 currently holds publicly traded equity securities that are classified as “available-for-sale” and are carried at fair value with unrealized gains and losses reported in stockholders’ equity as a component of accumulated other comprehensive income (loss). Upon the adoption of this ASU, the unrealized gains and losses will be recognized through net income. The Company has not elected to measure its financial liabilities at fair value therefore, does not expect to have an impact on the accounting for its financial liabilities.
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 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, respectively (ASU 2014-09, ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12 and ASU 2016-20 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 allows entities to adopt with one of these two methods: full retrospective, which applies retrospectively to each prior reporting period presented or modified retrospective, which recognizes the cumulative effect of initially applying the revenue standard as an adjustment to the opening balance of retained earnings in the period of initial application. The Company currently anticipates adopting the standard using the modified retrospective method.
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 expects to adopt the standard on January 1, 2018.
While the Company is continuing to evaluate all potential impacts of the standard, the Company believes the most significant impact relates to its accounting for installation revenue and the cost to obtain contracts. Under the new standard, the Company

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

expects to recognize installation revenue over the contract period rather than over the estimated installation life. Under the new standard, the Company is also required to capitalize and amortize certain costs to obtain contracts. Therefore, these costs to obtain contracts will not be immediately expensed, but will be capitalized and amortized over the estimated contract term plus estimated renewal term.
Accounting Standards Adopted
In December 2016, FASB issued ASU No. 2016-19, Technical Corrections and Improvements. This ASU covers a wide range of Topics in the Accounting Standards Codification. Certain aspects of this ASU were effective immediately, while a few of the corrections are effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted ASU 2016-19 in the three months ended March 31, 2017. The adoption of ASU 2016-19 did not impact the Company's condensed consolidated financial statements.
In November 2016, FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU applies to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows. The ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This ASU is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years with early adoption being permitted. This ASU should be applied using a retrospective transition method to each period presented. The Company adopted ASU 2016-18 in the three months ended March 31, 2017 and applied this ASU retrospectively to the periods presented in the Company's condensed consolidated statements of cash flows. As a result, net cash used in investing activities for the three months ended March 31, 2016 was adjusted to exclude the change in restricted cash and increased the previously reported amount by $466.4 million.
Restricted cash amounts are primarily time deposits or cash set side as a pledge for our mortgage loan in Germany and collateral for the Company's various bank guarantees for the periods ended March 31, 2017 and 2016.
In October 2016, FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. This ASU alters 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 adopted ASU 2016-17 in the three months ended March 31, 2017. The adoption of this standard did not impact the Company's condensed consolidated financial statements as it does not hold any interests in a VIE through related parties that are under common control.
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 adopted ASU 2016-15 in the three months ended March 31, 2017 and applied this ASU using a retrospective transition method to each period presented in the Company's condensed consolidated statements of cash flows. The adoption of ASU 2016-15 did not impact the Company's condensed consolidated statements of cash flows.
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 annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. The Company adopted ASU 2016-09 in the three months ended March 31, 2017. Beginning on January 1, 2017, the Company began to record the excess tax benefits from stock-based compensation as income tax expense through the statement of operations instead of additional paid-in capital as required

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)

under the previous guidance. There was no adjustment to excess tax benefits from stock-based compensation recorded as additional paid-in capital in prior years. Excess tax benefits that were not previously recognized, as well as a valuation allowance recognized for deferred tax assets as a result of the adoption of this ASU, were recorded on a modified retrospective basis through a cumulative-effect adjustments to retained earnings as of the beginning of 2017 totaling $1.1 million. As a part of the adoption of this ASU, stock compensation awards will have more dilutive effect on the Company's earnings per share prospectively.
Under this guidance, cash flows related to excess tax benefits will no longer be separately classified as financing activities apart from other income tax cash flow. The Company elected to apply this part of the guidance retrospectively, which resulted in a change of $0.6 million in both net cash provided by operating activities and net cash used in financing activities in the Company's condensed consolidated statement of cash flows for the three months ended March 31, 2016 to conform with the current period presentation. Additionally, this guidance permits entities to make an accounting policy to estimate forfeitures each period or to account for forfeitures as they occur. The Company elected to continue to estimate forfeitures.
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 is to 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 adopted ASU 2016-06 in the three months ended March 31, 2017. The adoption of this standard did not have a significant impact on the Company's condensed 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 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 adopted ASU 2016-05 in the three months ended March 31, 2017. The adoption of ASU 2016-05 did not have a significant impact on the Company's condensed consolidated financial statements.

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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
March 31,
 
2017
 
2016
Net income (loss):
 
 
 
Net income (loss) from continuing operations
$
42,062

 
$
(37,327
)
Net income from discontinued operations

 
6,216

Net income (loss)
$
42,062

 
$
(31,111
)
Weighted-average shares used to calculate basic EPS
72,773

 
68,132

Effect of dilutive securities:
 
 
 
Employee equity awards
594

 

Weighted-average shares used to calculate diluted EPS
73,367

 
68,132

Basic EPS:
 
 
 
Continuing operations
$
0.58

 
$
(0.55
)
Discontinued operations

 
0.09

Basic EPS
$
0.58

 
$
(0.46
)
Diluted EPS:
 
 
 
Continuing operations
$
0.57

 
$
(0.55
)
Discontinued operations

 
0.09

Diluted EPS
$
0.57

 
$
(0.46
)
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
March 31,
 
2017
 
2016
Shares reserved for conversion of 4.75% convertible subordinated notes

 
1,969

Common stock related to employee equity awards
93

 
1,583

Total
93

 
3,552

3.
Acquisitions
IO Acquisition
On February 3, 2017, the Company acquired IO UK's data center operating business in Slough, United Kingdom, for a cash payment of approximately $37.4 million ("IO Acquisition"). The acquired facility will be renamed LD10. The IO Acquisition constitutes a business under the accounting standard for business combinations and as a result, was accounted for as a business combination using the acquisition method of accounting. Under the acquisition method, 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, including determination of the purchase price, which is subject to continuing management analysis with the assistance of third party valuation advisors. Therefore, the purchase price has been provisionally allocated primarily to property, plant and equipment of $40.3 million, goodwill of $17.9 million, intangible assets of $6.3 million, deferred tax assets of $6.3 million and financing obligations of $33.1 million. The nature of the intangible assets acquired is customer relationships with an estimated useful life of 10 years. Goodwill is not expected to be deductible for local tax purposes and is attributable to the Company's EMEA region.

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

The Company included IO UK's data center operating results from February 3, 2017 and the estimated fair value of assets acquired and liabilities assumed in its condensed consolidated balance sheets beginning February 3, 2017. For the three months ended March 31, 2017, the incremental revenues and net loss recorded from the IO Acquisition were not significant to the Company's condensed consolidated statement of operations. The acquisition costs incurred during the three months ended March 31, 2017 related to the IO Acquisition were not significant.
Offer for Certain Verizon Data Center Assets
On December 6, 2016, the Company entered into a transaction agreement with Verizon Communications Inc. ("Verizon") to acquire Verizon's colocation services business consisting of 29 data center buildings, located in the United States, Brazil and Colombia, for a cash purchase price of approximately $3.6 billion (the "Acquisition" or the "Selected Verizon Data Center Business Acquisition"). The Acquisition closed on May 1, 2017 and will be accounted as a business combination using the acquisition method of accounting. The Company funded the Acquisition with proceeds of debt and equity financings, which closed in January and March 2017 (See further discussions on the term B-2 loan borrowing and senior notes issuance in Note 9 and common stock issuance in Note 11).
In connection with the Acquisition, the Company entered into a commitment letter (the "Commitment Letter"), dated December 6, 2016, with JPMorgan Chase Bank, N.A., Bank of America, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Commitment Parties"), pursuant to which the Commitment Parties committed to provide a senior unsecured bridge facility in an aggregate principal amount of $2.0 billion for the purposes of funding (i) a portion of the cash consideration for the Acquisition and (ii) the fees and expenses incurred in connection with the Acquisition. Commitment fees associated with the Commitment Letter were equal to (i) 0.50% of the commitment plus (ii) an additional 0.25% of the commitment that is four months after the date in which the Commitment Letter was entered into. In March 2017, the Company terminated the Commitment Letter as the debt and equity financings associated with the Acquisition were completed in March 2017. See further discussions on the senior notes issuance in Note 9 and common stock issuance in Note 11. During the first quarter of 2017, the Company paid $10.0 million of commitment fees associated with the Commitment Letter and recorded $7.8 million to interest expense in the condensed consolidated statement of operations for the three months ended March 31, 2017.
Paris IBX Data Center Acquisition
On August 1, 2016, the Company completed the purchase of Digital Realty Trust, Inc.'s ("Digital Realty's") operating business including its real estate and facility, located in St. Denis, Paris for cash consideration of approximately €193.8 million or $216.4 million 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 €47.8 million or approximately $53.4 million and recognized a loss on debt extinguishment of €8.8 million or approximately $9.9 million in the third quarter of 2016. The Paris IBX Data Center Acquisition constitutes a business 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 condensed consolidated balance sheets beginning August 1, 2016. The Company incurred acquisition costs of approximately $12.0 million for the year ended December 31, 2016 related to the Paris IBX Data Center Acquisition.
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 and the Company has completed the valuation analysis. The purchase price allocation, which excludes settlement of the Paris 3 financing obligations, was as follows (in thousands):

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

Cash and cash equivalents
$
4,073

Accounts receivable
1,507

Other current assets
794

Property, plant and equipment
143,972

Intangible assets
11,758

Goodwill
48,835

Other assets
81

Total assets acquired
211,020

Accounts payable and accrued liabilities
(2,044
)
Other current liabilities
(2,798
)
Deferred tax liabilities
(42,395
)
Other liabilities
(755
)
Net assets acquired
$
163,028

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. 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 is attributable to the Company's EMEA region.
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 leases 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 fair value of favorable leases was estimated based on the income approach, 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 the 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.
The fair value of the property, plant and equipment was estimated by applying the income approach or cost approach, such
as cash flows or earnings that an asset can be expected to generate over its useful life or the replacement or reproduction cost.
For the three months ended March 31, 2017, the incremental revenues from the Paris IBX Data Center Acquisition were $3.9 million and the incremental net income was not significant to the Company's condensed consolidated statement of operations. The incremental results of operations from the Paris IBX Data Center Acquisition are not significant; therefore the Company does not present pro forma combined results 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 has enhanced 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 became a wholly-owned subsidiary of the Company.
Under the terms of the acquisition, the Company acquired all outstanding shares 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 £2,624.5 million or approximately $3,743.6 million. In addition, the Company assumed $1.3 million of TelecityGroup's vested

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

employee equity awards as part of consideration transferred. The Company incurred acquisition costs of approximately $42.5 million during the year ended December 31, 2016 related to the TelecityGroup acquisition.
In connection with the TelecityGroup acquisition, the Company placed £322.9 million or approximately $475.7 million into a restricted cash account. 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. ("JPMCB") as the initial lender and as administrative agent for the lenders for a principal amount of £875.0 million or approximately $1,289.0 million 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.
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 and the Company has completed the valuation analysis. As of December 31, 2016, the Company updated the final allocation of purchase price for TelecityGroup from the provisional amounts reported as of March 31, 2016, which primarily resulted in increases to intangible assets of $36.8 million and deferred tax liabilities of $19.5 million and decreases in capital lease and other financing obligations of $34.4 million, goodwill of $22.5 million and assets held for sale of $36.9 million. The changes did not have a significant impact on the Company’s results from operations for the year ended December 31, 2016.
The final 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
877,650

Property, plant and equipment
1,058,583

Goodwill
2,215,567

Intangible assets
694,243

Deferred tax assets
994

Other assets
4,102

Total assets acquired
4,989,628

Accounts payable and accrued expenses
(84,367
)
Accrued property, plant and equipment
(3,634
)
Other current liabilities
(27,333
)
Liabilities held for sale
(155,650
)
Capital lease and other financing obligations
(165,365
)
Mortgage and loans payable
(592,304
)
Deferred tax liabilities
(176,168
)
Other liabilities
(40,021
)
Net assets acquired
$
3,744,786


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

The 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
 
30,254

 
2.0 - 25.4
 
19.7
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 they relate 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 fair value of the other acquired identifiable intangible assets was 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 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 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. 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 TelecityGroup acquisition, except for the goodwill associated with assets held for sale, is attributable to the Company's EMEA region. For the three months ended March 31, 2016, the Company's results of continuing operations include TelecityGroup revenues of $84.4 million and net loss from continuing operations of $2.8 million for the period January 15, 2016 through March 31, 2016.
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. The sale was completed in February 2016 and the Company recognized a gain on sale of $5.2 million.
In June 2016, the Company approved the divestiture of the solar power assets of Bit-isle. 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 ¥400.0 million upon the closing of the transaction, or approximately $3.8 million at the exchange rate in effect on October 31, 2016. By November 30, 2016, the Company had received an additional

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

¥2,500.0 million, or approximately $22.1 million at the exchange rate in effect at the time of cash receipt. The Company received the remaining payment of ¥5,313.4 million in the first quarter of 2017, or approximately $47.8 million at the exchange rate in effect on March 31, 2017. The Company did not have any assets and liabilities held for sale as of March 31, 2017 and December 31, 2016.
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, including the Company's London 2 data center and certain data centers of TelecityGroup. The data centers, on acquisition, met the criteria to be classified as held for sale and were therefore reported as a discontinued operation. As of the date of acquisition, depreciation and amortization of discontinued operations were ceased. Capital expenditures from the date of acquisition through March 31, 2016 were $17.0 million.
The Company did not record income from discontinued operations, net of taxes for the three months ended March 31, 2017. The following table presents the financial results of the Company's discontinued operations for the three months ended March 31, 2016.
 
Three Months Ended
March 31, 2016
Revenues
$
20,581

Costs and operating expenses:
 
Cost of revenues
11,610

Sales and marketing
217

General and administrative
383

Total costs and operating expenses
12,210

Income from discontinued operations
8,371

Interest and other, net
(469
)
Income from discontinued operations before income taxes
7,902

Income tax expense
(1,686
)
Net income from discontinued operations, net of tax
$
6,216

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 the value of investments in its foreign subsidiaries. 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 March 31, 2017 and December 31, 2016, the total principal amounts of foreign currency loans, which were designated as net investment hedges, were $1,712.0 million and $646.2 million, 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 losses of $28.6 million and $16.3 million in other comprehensive income (loss) for the three months ended March 31, 2017 and 2016, respectively. The Company recorded no ineffectiveness from its net investment hedges for the three months ended March 31, 2017 and 2016.
Cash Flow Hedges. The Company hedges its foreign currency translation exposure for forecasted revenues and expenses in its EMEA region between the U.S. dollar and the British Pound, Euro, Swedish Krona 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

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

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.
The Company enters into intercompany hedging instruments ("intercompany derivatives") with wholly-owned subsidiaries of the Company in order to hedge certain forecasted revenues and expenses denominated in currencies other than the U.S. dollar. Simultaneously, the Company enters into derivative contracts with unrelated third parties to externally hedge the net exposure created by such intercompany derivatives.
The following disclosure is prepared on a consolidated basis. Assets and liabilities resulting from intercompany derivatives have been eliminated in consolidation. As of March 31, 2017, the Company's cash flow hedge instruments had maturity dates ranging from April 2017 to February 2019 as follows (in thousands):
 
Notional
Amount
 
Fair Value (1)
 
Accumulated Other
Comprehensive
Income (Loss) (2) (3)
Derivative assets
$
483,110

 
$
30,350

 
$
27,744

Derivative liabilities
176,432

 
(2,315
)
 
(2,340
)
Total
$
659,542

 
$
28,035

 
$
25,404

 
(1) 
All derivatives 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 $23.0 million 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, 2016, the Company's cash flow hedge instruments had maturity dates ranging from January 2017 to November 2018 as follows (in thousands):
 
Notional
Amount
 
Fair Value (1)
 
Accumulated Other
Comprehensive
Income (Loss) (2) (3)
Derivative assets
$
545,638

 
$
44,570

 
$
42,634

Derivative liabilities
42,207

 
(1,815
)
 
(1,453
)
Total
$
587,845

 
$
42,755

 
$
41,181

 
(1) 
All derivatives 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 $31.9 million 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 March 31, 2017 and 2016, the ineffective and excluded portions of cash flow hedges recognized in other income (expense) were not significant. During the three months ended March 31, 2017, the amount of net gains reclassified from accumulated other comprehensive income (loss) to revenue was $17.7 million and the amount of net losses reclassified from accumulated other comprehensive income (loss) to operating expenses was $9.0 million. During the three months ended March 31, 2016, the amount of net gains reclassified from accumulated other comprehensive income (loss) to revenue was $6.4 million and the amount of net losses reclassified from accumulated other comprehensive income (loss) to operating expenses was $3.8 million.

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

Derivatives Not Designated as Hedging Instruments
Embedded Derivatives. The Company is deemed to have foreign currency forward contracts embedded in certain of the Company's customer agreements that are priced in currencies different from the functional or local currencies of the parties involved. These embedded derivatives are separated from their host contracts and carried on the Company's balance sheet at their fair value. The majority of these embedded derivatives arise as a result of the Company's foreign subsidiaries pricing their customer contracts in the U.S. dollar. Gains and losses on these embedded derivatives are included within revenues in the Company's condensed consolidated statements of operations. During the three months ended March 31, 2017, the loss associated with these embedded derivatives was $5.0 million and during the three months ended March 31, 2016, the loss associated with these embedded derivatives was $6.6 million.
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 within revenues in the Company's condensed consolidated statements of operations along with gains and losses of the related embedded derivatives. The Company entered into various economic hedges of embedded derivatives during the three months ended March 31, 2017 and 2016. During the three months ended March 31, 2017, the gains associated with these contracts were not significant and during the three months ended March 31, 2016, the gains associated with these contracts were $3.7 million.
Foreign Currency Forward and Option Contracts. The Company also uses foreign currency forward and option contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. As a result of foreign currency fluctuations, the U.S. dollar equivalent values of its foreign currency-denominated assets and liabilities change. Gains and losses on these contracts are included in other income (expense), net in the Company's condensed consolidated statements of operations, 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 months ended March 31, 2017 and 2016. During the three months ended March 31, 2017 and 2016, the Company recognized net losses of $14.7 million and $7.6 million, respectively, associated with these contracts.
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 March 31, 2017 (in thousands):

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

 
Gross
Amounts
 
Gross
Amounts
Offset in the
Balance
Sheet
 
Net Amounts (1)
 
Gross
Amounts not
Offset in the
Balance
Sheet (2)
 
Net
Assets:
 
 
 
 
 
 
 
 
 
Designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forward and option contracts designated as cash flow hedges
$
30,350

 
$

 
$
30,350

 
$
(2,315
)
 
$
28,035

Not designated as hedging instruments:

 

 

 

 

Embedded derivatives
6,196

 

 
6,196

 

 
6,196

Economic hedges of embedded derivatives
257

 

 
257

 
(16
)
 
241

Foreign currency forward contracts
5,175

 

 
5,175

 
(156
)
 
5,019

 
11,628

 

 
11,628

 
(172
)
 
11,456

Additional netting benefit

 

 

 
(113
)
 
(113
)
 
$
41,978

 
$

 
$
41,978

 
$
(2,600
)
 
$
39,378

Liabilities:
 
 
 
 
 
 
 
 
 
Designated as hedging instruments
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts designated as cash flow hedges
$
2,315

 
$

 
$
2,315

 
$
(2,315
)
 
$

Not designated as hedging instruments:

 

 

 

 

Embedded derivatives
2,755

 

 
2,755

 

 
2,755

Economic hedges of embedded derivatives
16

 

 
16

 
(16
)
 

Foreign currency forward contracts
269

 

 
269

 
(156
)
 
113

 
3,040

 

 
3,040

 
(172
)
 
2,868

Additional netting benefit

 

 

 
(113
)
 
(113
)
 
$
5,355

 
$

 
$
5,355

 
$
(2,600
)
 
$
2,755

 
(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.

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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, 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
$
44,570

 
$

 
$
44,570

 
$
(1,815
)
 
$
42,755

Net investment hedges
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
6,930

 

 
6,930

 
(3,310
)
 
3,620

 
51,500

 

 
51,500

 
(5,125
)
 
46,375

 
 
 
 
 
 
 
 
 
 
Not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Embedded derivatives
9,745

 

 
9,745

 

 
9,745

Foreign currency forward contracts
8,734

 

 
8,734

 
(1,873
)
 
6,861

 
18,479

 

 
18,479

 
(1,873
)
 
16,606

Additional netting benefit

 

 

 
(2,436
)
 
(2,436
)
 
$
69,979

 
$

 
$
69,979

 
$
(9,434
)
 
$
60,545

Liabilities:
 
 
 
 
 
 
 
 
 
Designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
Foreign currency forward and option contracts
$
1,815

 
$

 
$
1,815

 
$
(1,815
)
 
$

Net investment hedges
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
3,525

 

 
3,525

 
(3,310
)
 
215

 
5,340

 

 
5,340

 
(5,125
)
 
215

Not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Embedded derivatives
1,525

 

 
1,525

 

 
1,525

Economic hedges of embedded derivatives
866

 

 
866

 

 
866

Foreign currency forward contracts
3,228

 

 
3,228

 
(1,873
)
 
1,355

 
5,619

 

 
5,619

 
(1,873
)
 
3,746

Additional netting benefit

 

 

 
(2,436
)
 
(2,436
)
 
$
10,959

 
$

 
$
10,959

 
$
(9,434
)
 
$
1,525

 
(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.

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

7.
Fair Value Measurements
Cash, Cash Equivalents and Investments. The fair value of the Company's investments in money market funds approximates their face value. Such instruments are included in cash equivalents. The Company's money market funds and publicly traded equity securities are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices for identical instruments in active markets. The fair value of the Company's other investments approximate their face value and include certificates of deposit. The fair value of these investments is priced based on the quoted market price for similar instruments or nonbinding market prices that are corroborated by observable market data. Such instruments are classified within Level 2 of the fair value hierarchy. The Company determines the fair values of its Level 2 investments by using inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, custody bank, third-party pricing vendors, or other sources. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs. The Company is responsible for its condensed consolidated financial statements and underlying estimates.
Derivative Assets and Liabilities. For derivatives, the Company uses forward contract and option models employing market observable inputs, such as spot currency rates and forward points with adjustments made to these values utilizing published credit default swap rates of its foreign exchange trading counterparties and other comparable companies. The Company has determined that the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, therefore the derivatives are categorized as Level 2.
The Company's financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2017 were as follows (in thousands):
 
Fair Value at
March 31,
2017
 
Fair Value
Measurement Using
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Cash
$
2,005,012

 
$
2,005,012

 
$

Money market and deposit accounts
2,915,170

 
2,915,170

 

Publicly traded equity securities
6,461

 
6,461

 

Certificates of deposit
17,819

 

 
17,819

Derivative instruments (1)
41,978

 

 
41,978

Total
$
4,986,440

 
$
4,926,643

 
$
59,797

Liabilities:
 
 
 
 
 
Derivative instruments (1)
$
5,355

 
$

 
$
5,355

Total
$
5,355

 
$

 
$
5,355

 
(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.

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

The Company's financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 were as follows (in thousands):
 
Fair Value at
December 31,
2016
 
Fair Value
Measurement Using
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Cash
$
345,119

 
$
345,119

 
$

Money market and deposit accounts
400,388

 
400,388

 

Publicly traded equity securities
6,463

 
6,463

 

Certificates of deposit
9,957

 

 
9,957

Derivative instruments (1)
69,979

 

 
69,979

Total
$
831,906

 
$
751,970

 
$
79,936

Liabilities:
 
 
 
 
 
Derivative instruments (1)
$
10,959

 
$

 
$
10,959

Total
$
10,959

 
$

 
$
10,959


(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 Level 3 financial assets or financial liabilities as of March 31, 2017 and December 31, 2016.
8.
Leases
Capital Lease and Other Financing Obligations
Hong Kong 5 ("HK5")
In January 2017, the Company entered into an agreement for certain elements of the construction of the Company's fifth data center in Hong Kong ("HK5"). The terms of the construction agreement triggered the Company to be, in substance, the owner of the asset during the construction phase. Additionally, the Company believes that it will likely fail the sales lease back test due to its continued involvement and therefore has accounted for the construction and related agreements as a build to suit arrangement. As of March 31, 2017, the Company recorded a financing liability totaling approximately 516.4 million in Hong Kong dollars, or $66.4 million at the exchange rate in effect as of March 31, 2017.

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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
2017 (9 months remaining)
$
62,824

 
$
63,110

 
$
125,934

2018
83,910

 
86,813

 
170,723

2019
84,686

 
81,333

 
166,019

2020
84,714

 
80,524

 
165,238

2021
84,950

 
81,871

 
166,821

Thereafter
836,023

 
939,125

 
1,775,148

Total minimum lease payments
1,237,107

 
1,332,776

 
2,569,883

Plus amount representing residual property value

 
561,089

 
561,089

Less amount representing interest
(540,729
)
 
(967,732
)
 
(1,508,461
)
Present value of net minimum lease payments
696,378

 
926,133

 
1,622,511

Less current portion
(28,031
)
 
(71,171
)
 
(99,202
)
Total
$
668,347

 
$
854,962

 
$
1,523,309

 
(1)     Other financing obligations are primarily build-to-suit lease obligations. 
9.
Debt Facilities
Mortgage and Loans Payable
As of March 31, 2017 and December 31, 2016, the Company's mortgage and loans payable consisted of the following (in thousands):
 
March 31,
2017
 
December 31, 2016
Term loans
$
2,502,063

 
$
1,413,582

Mortgage payable and loans payable
44,871

 
44,382

 
2,546,934

 
1,457,964

Less amount representing debt discount and debt issuance cost
(35,399
)
 
(22,811
)
Add the amount representing mortgage premium
1,874

 
1,862

 
2,513,409

 
1,437,015

Less current portion
(80,799
)
 
(67,928
)
Total
$
2,432,610

 
$
1,369,087


On December 22, 2016, the Company, as borrower, and certain subsidiaries as guarantors, entered into a third amendment (the "Third Amendment") to the Senior Credit Facility. Pursuant to the Third Amendment, (i) the Company may borrow up to €1,000.0 million in additional term B loan (the "Term B-2 Loan"), (ii) the interest rate margin applicable to the existing Term Loan B (the "Term Loan B-1 Facility") in U.S. Dollars was reduced from 3.25% to 2.50% and the LIBOR floor applicable to such loans was reduced from 0.75% to zero and (iii) the interest rate margin applicable to the loans borrowed under the Term Loan B-1 Facility in Pounds Sterling was reduced from 3.75% to 3.00%, with no change to the existing LIBOR floor of 0.75% applicable to such loans.
On January 6, 2017, the Company borrowed the full amount of the Term B-2 Loan of €1,000.0 million, or approximately $1,059.8 million and recorded debt issuance cost of €13.0 million, or approximately $13.8 million at the exchange rate in effect on January 6, 2017. The Term B-2 Loan will bear interest at an index rate based on EURIBOR plus a margin of 3.25%. No original

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

issue discount is applicable to the Term B-2 Loan. The Term B-2 Loan must be repaid in equal quarterly installments of 0.25% of the original principal amount of the Term B-2 Loan starting in the second quarter of 2017, with the remaining amount outstanding to be repaid in full on the seventh anniversary of the funding date of the Term B-2 Loan. As of March 31, 2017, the Company had a €1,000.0 million outstanding term loan balance, or a total of approximately $1,068.6 million at the exchange rate in effect on March 31, 2017, under the Term B-2 Loan commitment. Debt issuance costs related to the Term B-2 Loan, net of amortization, were €12.5 million or $13.3 million.

Senior Notes
As of March 31, 2017 and December 31, 2016, the Company's senior notes consisted of the following (in thousands):
 
March 31,
2017
 
December 31, 2016
4.875% Senior Notes due 2020
$
500,000

 
$
500,000

5.375% Senior Notes due 2022
750,000

 
750,000

5.375% Senior Notes due 2023
1,000,000

 
1,000,000

5.750% Senior Notes due 2025
500,000

 
500,000

5.875% Senior Notes due 2026
1,100,000

 
1,100,000

5.375% Senior Notes due 2027
1,250,000

 

 
5,100,000

 
3,850,000

Less amount representing debt issuance cost
(54,551
)
 
(39,230
)
Total
$
5,045,449

 
$
3,810,770

2027 Senior Notes
In March 2017, the Company issued $1,250.0 million aggregate principal amount of 5.375% senior notes due May 15, 2027, which are referred to as the "2027 Senior Notes." Interest on the notes is payable semi-annually in arrears on May 15 and November 15 of each year, commencing on May 15, 2017. Debt issuance costs related to the 2027 Senior Notes were $16.9 million.
The 2027 Senior Notes are unsecured and rank equal in right of payment to the Company's existing or future senior indebtedness and senior in right of payment to the Company's existing and future subordinated indebtedness. The senior notes are effectively subordinated to all of the existing and future secured debt, including debt outstanding under any bank facility or secured by any mortgage, to the extent of the assets securing such debt. They are also structurally subordinated to any existing and future indebtedness and other liabilities (including trade payables) of any of the Company's subsidiaries.

The 2027 Senior Notes are governed by a supplemental indenture to the indenture between the Company and U.S. Bank National Association, as trustee, that also governs the Company's 5.875% Senior Notes due 2026, 5.375% Senior Notes due 2022, and 5.750% Senior Notes due 2025. The supplemental indenture contains covenants that limit the Company's ability and the ability of its subsidiaries to, among other things:
incur additional debt;
pay dividends or make other restricted payments;
purchase, redeem or retire capital stock or subordinated debt;
make asset sales;
enter into transactions with affiliates;
incur liens;
enter into sale-leaseback transactions;
provide subsidiary guarantees;
make investments; and
merge or consolidate with any other person.

The 2027 Senior Notes also provide for optional redemption. At any time prior to May 15, 2020, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 2027 Senior Notes (calculated giving effect to any issuance of additional notes of such series) outstanding under the 2027 Senior Notes indenture, at a redemption price equal to 105.375% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but not including, the

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

redemption date, with the net cash proceeds of one or more equity offerings, provided that (i) at least 65% of the aggregate principal amount of the 2027 Senior Notes (calculated giving effect to any issuance of additional notes) issued under the 2027 indenture remains outstanding immediately after the occurrence of such redemption and (ii) the redemption must occur within 90 days of the date of the closing of such equity offering.
On or after May 15, 2022, the Company may redeem all or a part of the 2027 Senior Notes, on any one or more occasions, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to, but not including, the applicable redemption date, if redeemed during the twelve-month period beginning May 15 of the years indicated below:
 
Redemption Price of the 2027 Notes
2022
102.688
%
2023
101.792
%
2024
100.896
%
2025 and thereafter
100.000
%
In addition, at any time prior to May 15, 2022, the Company may also redeem all or a part of the 2027 Senior Notes at a redemption price equal to 100% of the principal amount of 2027 Senior Notes redeemed plus the applicable premium (the "2027 Senior Notes Applicable Premium") as of, and accrued and unpaid interest, if any, to, but not including, the date of the redemption, subject to the rights of the holders of record of 2027 Senior Notes on the relevant record date to receive interest due on the relevant interest payment date. The 2027 Senior Notes Applicable Premium is defined as the greater of:
1.0% of the principal amount of the 2027 Senior Notes; and
the excess of: (a) the present value at such redemption date of (i) the redemption price of the 2027 Senior Notes at May 15, 2022 (such redemption price as shown in the table above), plus (ii) all required interest payments due on the 2027 Senior Notes through May 15, 2022 (excluding accrued but unpaid interest, if any, to, but not including, the redemption date) computed using a discount rate equal to the treasury rate as of such redemption date plus 50 basis points; over (b) the principal amount of the 2027 Senior Notes, if greater.
As of March 31, 2017, debt issuance costs related to the 2027 Senior Notes, net of amortization, were $16.8 million.

Maturities of Debt Facilities
The following table sets forth maturities of the Company's debt, including mortgage and loans payable, and senior notes, gross of debt issuance costs and debt discounts, as of March 31, 2017 (in thousands):
Years ending:
 
2017 (9 months remaining)
$
60,587

2018
80,859

2019
367,888

2020
542,785

2021
357,532

Thereafter
6,239,157

Total
$
7,648,808


26

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

Fair Value of Debt Facilities
The following table sets forth the estimated fair values of the Company's mortgage and loans payable, and senior notes, including current maturities, as of (in thousands):
 
March 31,
2017
 
December 31, 2016
Mortgage and loans payable
$
2,561,314

 
$
1,461,954

Senior notes
5,341,782

 
4,033,985

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

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
March 31,
 
2017
 
2016
Interest expense
$
111,684

 
$
100,863

Interest capitalized
6,400

 
2,286

Interest charges incurred
$
118,084

 
$
103,149

Total interest paid, net of capitalized interest, during the three months ended March 31, 2017 and 2016 was $109.0 million and $71.8 million, respectively.

10.
Commitments and Contingencies
Purchase Commitments
Primarily as a result of the Company's various IBX expansion projects, as of March 31, 2017, the Company was contractually committed for $415.4 million 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 March 31, 2017, such as commitments to purchase power in select locations through the remainder of 2017 and thereafter, and other open purchase orders for goods or services to be delivered or provided during the remainder of 2017 and thereafter. Such other miscellaneous purchase commitments totaled $648.6 million as of March 31, 2017.
Contingent Liabilities

The Company estimates exposure on certain liabilities, such as indirect and property taxes, based on the best information available at the time of determination. With respect to real and personal property taxes, the Company records what it can reasonably estimate based on prior payment history, current landlord estimates or estimates based on current or changing fixed asset values in each specific municipality, as applicable. However, there are circumstances beyond the Company’s control whereby the underlying value of the property or basis for which the tax is calculated on the property may change, such as a landlord selling the underlying property of one of the Company’s IBX data center leases or a municipality changing the assessment value in a jurisdiction and, as a result, the Company’s property tax obligations may vary from period to period. Based upon the most current facts and circumstances, the Company makes the necessary property tax accruals for each of its reporting periods. However, revisions in the Company’s estimates of the potential or actual liability could materially impact its financial position, results of operations or cash flows.

27

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

The Company's indirect and property 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 its financial position, results of operations, or cash flows.
11.
Stockholders' Equity
Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss, net of tax, by components are as follows (in thousands):
 
Balance as of
December 31,
2016
 
Net
Change
 
Balance as of
March 31,
2017
Foreign currency translation adjustment ("CTA") gain (loss)
$
(1,031,129
)
 
$
106,938

 
$
(924,191
)
Unrealized gain (loss) on cash flow hedges (1)
30,704

 
(11,727
)
 
18,977

Unrealized gain (loss) on available-for-sale securities (2)
2,110

 
(265
)
 
1,845

Net investment hedge CTA gain (loss)
49,989

 
(28,551
)
 
21,438

Net actuarial gain (loss) on defined benefit plans (3)
(816
)
 
11

 
(805
)
Total
$
(949,142
)
 
$
66,406

 
$
(882,736
)
 
 
(1) 
Refer to Note 6 for a discussion of the amounts reclassified from accumulated other comprehensive income (loss) to net income (loss).
(2) 
There weren't any realized gains and losses that were reclassified from accumulated other comprehensive income (loss) to net income (loss) for the three months ended March 31, 2017.
(3) 
The Company has a defined benefit pension plan covering all employees in one country where such plans are mandated by law. The Company does not have any defined benefit plans in any other countries. The unamortized gain (loss) on defined benefit plans includes gains or losses resulting from a change in the value of either the projected benefit obligation or the plan assets resulting from a change in an actuarial assumption, net of amortization.
Changes in foreign currency exchange rates can have a significant impact to the Company's condensed consolidated balance sheets (as evidenced above in the Company's foreign currency translation gain or loss), as well as its condensed consolidated results of operations, as amounts in foreign currencies generally translate into more U.S. dollars when the U.S. dollar weakens or less U.S. dollars when the U.S. dollar strengthens. As of March 31, 2017, the U.S. dollar was generally weaker relative to certain of the currencies of the foreign countries in which the Company operates. This overall weakening of the U.S. dollar had an overall favorable impact on the Company's condensed consolidated financial position because the foreign denominations translated into more U.S. dollars as evidenced by an increase in foreign currency translation gain for the three months ended March 31, 2017 as reflected in the above table. In future periods, the volatility of the U.S. dollar as compared to the other currencies in which the Company operates could have a significant impact on its condensed consolidated financial position and results of operations including the amount of revenue that the Company reports in future periods.
Common Stock
In March 2017, the Company issued and sold 6,069,444 shares of its common stock in a public offering pursuant to a registration statement and a related prospectus and prospectus supplement, in each case filed with the SEC. The shares issued and sold included the full exercise of the underwriters' option to purchase 791,666 additional shares. The Company received net proceeds of approximately $2,126.3 million, after deducting underwriting discounts and commissions of $57.9 million and estimated offering expenses of $0.8 million.


28

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

Dividends
On February 15, 2017, the Company declared a quarterly cash dividend of $2.00 per share, with a record date of February 27, 2017 and a payment date of March 22, 2017. During the three months ended March 31, 2017, the Company paid a total of $148.1 million. In addition, the Company accrued an additional $2.6 million in dividends payable for restricted stock units that have not yet vested.
Stock-Based Compensation
In the first quarter of 2017, the Compensation Committee and the Stock Award Committee of the Company's Board of Directors approved the issuance of an aggregate of 511,508 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 $367.22 and a weighted-average requisite service period of 3.48 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 2017.
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 2017 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
March 31,
 
2017
 
2016
Cost of revenues
$
2,911

 
$
2,997

Sales and marketing
10,972

 
9,771

General and administrative
24,440

 
21,747

Total
$
38,323

 
$
34,515


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

12.
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-based compensation expense, restructuring charges, impairment charges, acquisition costs and gains on asset sales as presented below (in thousands):
 
Three Months Ended
March 31,
 
2017
 
2016
Adjusted EBITDA:
 
 
 
Americas
$
198,619

 
$
184,460

EMEA
129,554

 
111,489

Asia-Pacific
99,401

 
84,701

Total adjusted EBITDA
427,574

 
380,650

Depreciation, amortization and accretion expense
(219,013
)
 
(202,153
)
Stock-based compensation expense
(38,323
)
 
(34,515
)
Acquisition costs
(3,025
)
 
(36,536
)
Gains on asset sales

 
5,242

Income from operations
$
167,213

 
$
112,688

 
The Company also provides the following additional segment disclosures (in thousands):
 
Three Months Ended
March 31,
 
2017
 
2016
Revenues:
 
 
 
Americas
$
436,447

 
$
404,394

EMEA
314,847

 
267,856

Asia-Pacific
198,231

 
171,906

Total
$
949,525

 
$
844,156

Depreciation and amortization:
 
 
 
Americas
$
87,927

 
$
76,259

EMEA
76,168

 
76,050

Asia-Pacific
52,911

 
48,225

Total
$
217,006

 
$
200,534

Capital expenditures:
 
 
 
Americas
$
153,435

 
$
83,499

EMEA
83,584

 
57,273

Asia-Pacific
40,223

 
56,928

Total
$
277,242

 
$
197,700


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

The Company's long-lived assets are located in the following geographic areas and total assets by segments are as follows (in thousands):
 
March 31,
2017
 
December 31,
2016
Americas
$
3,452,704

 
$
3,339,518

EMEA
2,521,418

 
2,355,943

Asia-Pacific
1,631,707

 
1,503,749

Total long-lived assets
$
7,605,829

 
$
7,199,210

 
Revenue information on a services basis is as follows (in thousands):
 
Three Months Ended
March 31,
 
2017
 
2016
Colocation
$
691,522

 
$
618,395

Interconnection
148,060

 
125,587

Managed infrastructure
54,609

 
50,310

Other
4,249

 
2,328

Recurring revenues
898,440

 
796,620

Non-recurring revenues
51,085

 
47,536

Total
$
949,525

 
$
844,156

No single customer accounted for 10% or greater of the Company's revenues for the three months ended March 31, 2017 and 2016. No single customer accounted for 10% or greater of the Company's gross accounts receivable as of March 31, 2017 and December 31, 2016.
13.
Subsequent Events
On April 26, 2017, the Company declared a quarterly cash dividend of $2.00 per share, which is payable on June 21, 2017 to the Company's common stockholders of record as of the close of business on May 24, 2017.
On May 1, 2017, the Company completed the previously announced acquisition of Verizon's colocation service business consisting of 29 data center buildings, for a cash purchase price of approximately $3.6 billion. The operating results of the Selected Verizon Data Center Business Acquisition will be reported in the Americas region following the date of acquisition. The purchase price allocation for the acquisition is not yet complete. As a result, the fair value of assets acquired and liabilities assumed are still being appraised by a third-party and have not yet been finalized.


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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 March 2017, as more fully described in Note 11 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we issued and sold 6,069,444 shares of our common stock in a public offering. We received net proceeds of approximately $2.13 billion, after deducting underwriting discounts, commissions and offering expenses.
In March 2017, as more fully described in Note 9 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we issued $1.25 billion aggregate principal amount of 5.375% senior notes due May 15, 2027 (the "2027 Senior Notes") and recorded debt issuance cost of $16.9 million.
In February 2017, 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 acquired IO UK's data center operating business in Slough, United Kingdom, for a cash payment of approximately $37.4 million (the "IO Acquisition"). The acquired facility will be renamed LD10. The IO Acquisition was accounted for using the acquisition method. The fair value of the assets acquired and liabilities assumed are currently being appraised by a third-party. The valuation and purchase accounting of this acquisition have not yet been finalized as of March 31, 2017.
In January 2017, as more fully described in Note 9 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 Term B-2 Loan of €1.0 billion or approximately $1.1 billion in U.S. dollars at the exchange rate in effect on January 6, 2017.
In December 2016, as more fully described in Note 3 and Note 13 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we entered into a transaction agreement with Verizon Communications Inc. ("Verizon") to acquire Verizon's colocation services business consisting of 29 data center buildings, located in the United States, Brazil and Colombia, for a cash purchase price of approximately $3.6 billion (the "Selected Verizon Data Center Business Acquisition" or the "Acquisition"). This acquisition closed in May 2017 and we funded this acquisition with proceeds of debt and equity financings in January and March 2017 as discussed above. The fair value of the assets acquired and liabilities assumed are currently being appraised by a third-party. The valuation and purchase accounting of this acquisition have not yet been completed and finalized as of March 31, 2017.

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Equinix provides global data center offerings that protect and connect the world's most valued information assets. Global enterprises, financial services companies and content and network service providers rely upon Equinix's leading insight and data centers 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. The Selected Verizon Data Center Business Acquisition expanded the Company's total global footprint to 179 IBX data centers across 44 markets around the world. Equinix offers the following solutions: (i) premium data center colocation, (ii) interconnection and (iii) exchange and outsourced IT infrastructure services. As of March 31, 2017, we operated or had partner International Business Exchange® ("IBX") data centers in the Atlanta, Boston, Chicago, Dallas, Denver, Los Angeles, Miami, New York, Philadelphia, Rio De Janeiro, Sao Paulo, Seattle, Silicon Valley, Toronto and Washington, D.C. metro areas in the Americas region; 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 44 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 22 countries with proven operational reliability, improved application performance and network choice, and a highly scalable set of offerings.
Our utilization rate was approximately 79% as of March 31, 2017 and 80% as of March 31, 2016; however, excluding the impact of our IBX data center expansion projects that have opened during the last 12 months, our utilization rate, excluding the acquisitions, would have increased to approximately 84% as of March 31, 2017. 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 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.

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During the three months ended March 31, 2017 and 2016, 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 three months ended March 31, 2017 and 2016.
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.
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.
We expect our cost of revenues, sales and marketing expenses and general and administrative expenses to grow in absolute
dollars in connection with our business growth. We may periodically see a higher cost of revenues as a percentage of revenue, 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 REIT
We elected to be taxed as a real estate investment trust for federal income tax purposes ("REIT") beginning with our 2015 taxable year. As of March 31, 2017, our REIT structure includes all of our data center operations in the U.S., Canada, and Japan, our historical data center operations in Europe and the majority of the data center operations acquired in the acquisition of Telecity Group plc (the "TelecityGroup Acquisition"). We plan to complete the REIT integration of the remaining TelecityGroup business during the second half of 2017 with an exception of the businesses in Turkey and Bulgaria. Our data center operations in other jurisdictions are operated as taxable REIT subsidiaries ("TRSs").
As a REIT, we generally are permitted to deduct from our U.S. federal taxable income the dividends we pay to our stockholders. The income represented by such dividends payment is not subject to U.S. federal income tax 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 is subject, as applicable, to federal and state corporate income tax. Likewise, our foreign subsidiaries continue to be subject to

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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 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 built-in-gains tax is generally applicable to any disposition of such an asset during the five-year period after the date we first owned the asset as a REIT asset (e.g. January 1, 2015 in the case of REIT assets we held at the time of our REIT conversion), to the extent of the built-in-gain based on the fair market value of such asset on the date we first held the asset as a REIT asset. If we fail to remain qualified for U.S. federal income taxation as a REIT, we will be subject to federal income tax at regular corporate tax rates. Even if we remain qualified for U.S. federal income 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.
On March 22, 2017 we paid a quarterly cash dividend of $2.00 per share and on April 26, 2017 we declared a quarterly cash dividend of $2.00, payable on June 21, 2017 to stockholders of record on May 24, 2017. We expect the amount of all 2017 quarterly distributions and other applicable distributions to equal or exceed the taxable income to be recognized in 2017.
We continue to monitor our REIT compliance in order to maintain our qualification for U.S. federal income 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 March 31, 2017 include the results of operations of the Paris IBX data center acquisition (the "Paris IBX Data Center Acquisition") from January 1, 2017 and the IO UK data center operating business from February 3, 2017. Our results of operations for the three months ended March 31, 2016 include the results of operations of TelecityGroup from January 16, 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 months ended March 31, 2016. We did not have any discontinued operations activity during the three months ended March 31, 2017.
Three Months Ended March 31, 2017 and 2016
Revenues. Our revenues for the three months ended March 31, 2017 and 2016 were generated from the following revenue classifications and geographic regions (dollars in thousands):
 
Three Months Ended March 31,
 
% Change
 
2017
 
%
 
2016
 
%
 
Actual
 
Constant
Currency
Americas:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
$
416,103

 
44%
 
$
380,156

 
45%
 
9
 %
 
8
 %
Non-recurring revenues
20,344

 
2%
 
24,238

 
3%
 
(16
)%
 
(17
)%
 
436,447

 
46%
 
404,394

 
48%
 
8
 %
 
6
 %
EMEA:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
296,607

 
31%
 
253,381

 
30%
 
17
 %
 
25
 %
Non-recurring revenues
18,240

 
2%
 
14,475

 
2%
 
26
 %
 
34
 %
 
314,847

 
33%
 
267,856

 
32%
 
18
 %
 
25
 %
Asia-Pacific:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
185,730

 
20%
 
163,083

 
19%
 
14
 %
 
13
 %
Non-recurring revenues
12,501

 
1%
 
8,823

 
1%
 
42
 %
 
40
 %
 
198,231

 
21%
 
171,906

 
20%
 
15
 %
 
15
 %
Total:
 
 
 
 
 
 
 
 
 
 
 
Recurring revenues
898,440

 
95%
 
796,620

 
94%
 
13
 %
 
14
 %
Non-recurring revenues
51,085

 
5%
 
47,536

 
6%
 
7
 %
 
10
 %
 
$
949,525

 
100%
 
$
844,156

 
100%
 
12
 %
 
14
 %
Americas Revenues. Our revenues from the U.S., the largest revenue contributor in the Americas region for the period, represented approximately 91% and 93%, respectively, of the regional revenues during the three months ended March 31, 2017 and 2016. Growth in Americas revenues was primarily due to (i) approximately $6.2 million of revenue generated from our recently-opened IBX data centers or IBX data center expansions in the Chicago, New York, Sao Paulo, 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 March 31, 2017, the U.S. dollar was generally weaker relative to the Canadian dollar and Brazilian real than during the three months ended March 31, 2016, resulting in approximately $6.3 million of favorable foreign currency impact on our Americas revenues during the three months ended March 31, 2017 compared to average exchange rates during the three months ended March 31, 2016. We expect our Americas revenue will continue to grow as a result of the Selected Verizon Data Center Business Acquisition which closed on May 1, 2017.

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EMEA Revenues. Revenues for our EMEA region for the three months ended March 31, 2017 included approximately $21.8 million of revenues attributable to the first 15 days of 2017 resulting from the TelecityGroup Acquisition that closed on January 15, 2016, the Paris IBX Data Center Acquisition, which closed in August 2016, and the IO Acquisition, which closed on February 3, 2017. Our revenues from UK, the largest revenue contributor in the EMEA region for the period, represented approximately 29% and 34%, respectively, of the regional revenues during the three months ended March 31, 2017 and 2016. Excluding revenues attributable to the Paris IBX Data Center Acquisition, the IO Acquisition and the first 15 days of 2017 resulting from the TelecityGroup Acquisition, our EMEA revenue growth was primarily due to (i) approximately $21.7 million of revenue from our recently-opened IBX data centers or IBX data center expansions in the Amsterdam, Dublin, Frankfurt, Helsinki, and London metro areas and (ii) an increase in orders from both our existing customers and new customers during the period. During the three months ended March 31, 2017, the impact of foreign currency fluctuations resulted in approximately $21.3 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 March 31, 2017 compared to the three months ended March 31, 2016.
Asia-Pacific Revenues. Our revenues from Japan, the largest revenue contributor in the Asia-Pacific region for the period, represented approximately 34% of the regional revenues during both the three months ended March 31, 2017 and 2016. Our Asia-Pacific revenue growth was primarily due to (i) approximately $14.8 million of revenue generated from our recently-opened IBX data center expansions in the Hong Kong, Melbourne, Shanghai, Osaka, Sydney and Tokyo metro areas and (ii) an increase in orders from both our existing customers and new customers during the period. The impact of foreign currency fluctuations on our Asia-Pacific revenues from continuing operations for the three months ended March 31, 2017 was not significant when compared to average exchange rates of the three months ended March 31, 2016.
Cost of Revenues. Our cost of revenues for the three months ended March 31, 2017 and 2016 were split among the following geographic regions (dollars in thousands):
 
Three Months Ended March 31,
 
% Change
 
2017
 
%
 
2016
 
%
 
Actual
 
Constant
Currency
Americas
$
179,047

 
38
%
 
$
170,126

 
40
%
 
5
%
 
3
%
EMEA
173,160

 
37
%
 
151,762

 
35
%
 
14
%
 
22
%
Asia-Pacific
116,754

 
25
%
 
105,792

 
25
%
 
10
%
 
10
%
Total
$
468,961

 
100
%
 
$
427,680

 
100
%
 
10
%
 
11
%
 
 
Three Months Ended
March 31,
 
2017
 
2016
Cost of revenues as a percentage of revenues:
 
 
 
Americas
41
%
 
42
%
EMEA
55
%
 
57
%
Asia-Pacific
59
%
 
62
%
Total
49
%
 
51
%
Americas Cost of Revenues. Our Americas cost of revenues for the three months ended March 31, 2017 and 2016 included $63.7 million and $58.8 million, respectively, of depreciation expense. The growth in depreciation expense was primarily due to our IBX data center expansion activity. In addition to the increase in depreciation expense, the increase in our Americas cost of revenues for the three months ended March 31, 2017 compared to the three months ended March 31, 2016 was primarily due to $2.6 million of higher compensation costs, including general salaries, bonuses and stock-based compensation. During the three months ended March 31, 2017, the impact of foreign currency fluctuations resulted in approximately $4.3 million of net unfavorable foreign currency impact to our Americas cost of revenues primarily due to a generally weaker U.S. dollar relative to the Brazilian real and Canadian dollar during the three months ended March 31, 2017 compared to the three months ended March 31, 2016. We expect Americas cost of revenues to increase as we continue to grow our business, including results from the newly acquired business from our Selected Verizon Data Center Business Acquisition that closed on May 1, 2017.
EMEA Cost of Revenues. Cost of revenues for our EMEA region for the three months ended March 31, 2017 included approximately $15.6 million of costs of revenues attributable to the Paris IBX Data Center Acquisition, the IO Acquisition and the first 15 days of 2017 operating results from the TelecityGroup Acquisition. Excluding the impacts from these acquisitions, the increase in our EMEA cost of revenues was primarily due to (i) $1.9 million of higher utilities, rent, consulting, and repairs and

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maintenance costs in support of our business growth and (ii) $10.8 million of higher other costs of sales, including $7.1 million for third party and managed services and $3.7 million related to the impact from cash flow hedges, partially offset by $5.2 million of lower depreciation expense. During the three months ended March 31, 2017, the impact of foreign currency fluctuations to our EMEA cost of revenues resulted in approximately $11.8 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 March 31, 2017 compared to the three months ended March 31, 2016. We expect EMEA cost of revenues to increase as we continue to grow our business.
Asia-Pacific Cost of Revenues. Our Asia-Pacific cost of revenues for the three months ended March 31, 2017 and 2016 included $47.0 million and $43.9 million, respectively, of depreciation expense. The growth in depreciation expense was primarily due to our IBX data center expansion activity. In addition to the increase in depreciation expense, the increase in our Asia-Pacific cost of revenues for the three months ended March 31, 2017 compared to three months ended March 31, 2016, was primarily due to $6.8 million of higher rent, facility costs, consulting and other costs in support of our business growth. For the three months ended March 31, 2017, the impact of foreign currency fluctuations on our Asia-Pacific cost of revenues was not significant when compared to average exchange rates of the three months ended March 31, 2016. We expect Asia-Pacific cost of revenues to increase as we continue to grow our business.
Sales and Marketing Expenses. Our sales and marketing expenses for the three months ended March 31, 2017 and 2016 were split among the following geographic regions (dollars in thousands):
 
Three Months Ended March 31,
 
% Change
 
2017
 
%
 
2016
 
%
 
Actual
 
Constant
Currency
Americas
$
66,649

 
52
%
 
$
57,753

 
54
%
 
15
%
 
14
%
EMEA
41,671

 
32