Document
false--12-31Q22019000110123915950000162750002.282.282.462.460.0010.001300000000300000000811191178521395280722258848191580.058750.05750.053750.053750.053750.028750.028750.0287501637000010000P7Y6MP7Y6MP3Y7M6DP3Y7M6D31730000040600000650000209100011758000103980005985000598500058500059500040001000020001000396859394794
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
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)
  
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common Stock, $0.001
 
EQIX
 
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes      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      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
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  
The number of shares outstanding of the registrant's Common Stock as of August 1, 2019 was 84,819,213.
 


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.
 
 
 
 

3

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)
 
June 30,
2019
 
December 31,
2018
 
(Unaudited)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,613,529

 
$
606,166

Short-term investments
17,219

 
4,540

Accounts receivable, net of allowance for doubtful accounts of $16,275 and $15,950
752,680

 
630,119

Other current assets
251,451

 
274,857

Assets held for sale
353,622

 

Total current assets
2,988,501

 
1,515,682

Property, plant and equipment, net
10,992,740

 
11,026,020

Operating lease right-of-use assets
1,468,378

 

Goodwill
4,768,880

 
4,836,388

Intangible assets, net
2,204,405

 
2,333,296

Other assets
463,601

 
533,252

Total assets
$
22,886,505

 
$
20,244,638

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
768,670

 
$
756,692

Accrued property, plant and equipment
344,693

 
179,412

Current portion of operating lease liabilities
140,733

 

Current portion of finance lease liabilities
61,094

 
77,844

Current portion of mortgage and loans payable
72,795

 
73,129

Current portion of senior notes
300,929

 
300,999

Other current liabilities
142,461

 
126,995

Liabilities held for sale
53,030

 

Total current liabilities
1,884,405

 
1,515,071

Operating lease liabilities, less current portion
1,324,527

 

Finance lease liabilities, less current portion
1,140,676

 
1,441,077

Mortgage and loans payable, less current portion
1,267,551

 
1,310,663

Senior notes, less current portion
7,959,467

 
8,128,785

Other liabilities
560,650

 
629,763

Total liabilities
14,137,276

 
13,025,359

Commitments and contingencies (Note 10)

 

Equinix stockholders' equity
 
 
 
Common stock, $0.001 par value per share: 300,000,000 shares authorized; 85,213,952 issued and 84,819,158 outstanding in 2019 and 81,119,117 issued and 80,722,258 outstanding in 2018
85

 
81

Additional paid-in capital
12,450,614

 
10,751,313

Treasury stock, at cost; 394,794 shares in 2019 and 396,859 shares in 2018
(144,725
)
 
(145,161
)
Accumulated dividends
(3,743,869
)
 
(3,331,200
)
Accumulated other comprehensive loss
(958,443
)
 
(945,702
)
Retained earnings
1,145,580

 
889,948

Total Equinix stockholders' equity
8,749,242

 
7,219,279

Non-controlling interests
(13
)
 

Total stockholders' equity
8,749,229

 
7,219,279

Total liabilities and stockholders' equity
$
22,886,505

 
$
20,244,638

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(Unaudited)
Revenues
$
1,384,977

 
$
1,261,943

 
$
2,748,195

 
$
2,477,820

Costs and operating expenses:
 
 
 
 
 
 
 
Cost of revenues
698,179

 
651,801

 
1,380,209

 
1,274,231

Sales and marketing
159,201

 
154,202

 
328,916

 
313,978

General and administrative
232,656

 
210,489

 
447,702

 
413,646

Acquisition costs
2,774

 
30,413

 
5,245

 
35,052

Impairment charges
386

 

 
14,834

 

Total costs and operating expenses
1,093,196

 
1,046,905

 
2,176,906

 
2,036,907

Income from operations
291,781

 
215,038

 
571,289

 
440,913

Interest income
7,762

 
3,958

 
11,964

 
8,568

Interest expense
(120,547
)
 
(134,673
)
 
(243,393
)
 
(260,950
)
Other income
12,180

 
8,866

 
12,014

 
5,802

Loss on debt extinguishment

 
(19,215
)
 
(382
)
 
(40,706
)
Income before income taxes
191,176


73,974

 
351,492

 
153,627

Income tax expense
(47,324
)
 
(6,356
)
 
(89,893
)
 
(23,115
)
Net income
143,852

 
67,618

 
261,599

 
130,512

Net (income) loss attributable to non-controlling interests
(325
)
 

 
6

 

Net income attributable to Equinix
$
143,527

 
$
67,618

 
$
261,605

 
$
130,512

Earnings per share ("EPS") attributable to Equinix:
 
 
 
 
 
 
 
Basic EPS
$
1.70

 
$
0.85

 
$
3.15

 
$
1.64

Weighted-average shares for basic EPS
84,399

 
79,479

 
83,114

 
79,361

Diluted EPS
$
1.69

 
$
0.85

 
$
3.13

 
$
1.64

Weighted-average shares for diluted EPS
84,767

 
79,752

 
83,471

 
79,746

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(Unaudited)
Net income
$
143,852

 
$
67,618

 
$
261,599

 
$
130,512

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment ("CTA") gain (loss), net of tax effects of $(585), $5,985, $(595) and $5,985
25,127

 
(421,233
)
 
(56,592
)
 
(275,382
)
Net investment hedge CTA gain (loss), net of tax effect of $0, $0, $10 and $1,637
(37,857
)
 
226,115

 
38,993

 
153,480

Unrealized gain (loss) on cash flow hedges, net of tax effects of $650, $(11,758), $(2,091) and $(10,398)
(3,355
)
 
35,280

 
4,869

 
31,200

Net actuarial gain (loss) on defined benefit plans, net of tax effects of $2, $(4), $1 and $(10)
(7
)
 
13

 
(18
)
 
21

Total other comprehensive loss, net of tax
(16,092
)
 
(159,825
)
 
(12,748
)
 
(90,681
)
Comprehensive income (loss), net of tax
127,760

 
(92,207
)
 
248,851

 
39,831

Net (income) loss attributable to non-controlling interests
(325
)
 

 
6

 

Other comprehensive loss attributable to non-controlling interests
14

 

 
7

 

Comprehensive income (loss) attributable to Equinix
$
127,449

 
$
(92,207
)
 
$
248,864

 
$
39,831


See accompanying notes to condensed consolidated financial statements.

6

Table of Contents

EQUINIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Six Months Ended
June 30,
 
2019
 
2018
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net income
$
261,599

 
$
130,512

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
533,650

 
513,248

Stock-based compensation
110,542

 
92,261

Amortization of intangible assets
98,752

 
101,651

Amortization of debt issuance costs and debt discounts and premiums
6,233

 
7,461

Provision for allowance for doubtful accounts
7,097

 
3,606

Impairment charges
14,834

 

Loss on debt extinguishment
382

 
40,706

Other items
8,725

 
7,998

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(126,720
)
 
(38,441
)
Income taxes, net
30,662

 
(22,866
)
Other assets
(5,724
)
 
3,536

Operating lease right-of-use assets
78,483

 

Operating lease liabilities
(73,805
)
 

Accounts payable and accrued expenses
(3,987
)
 
(24,325
)
Other liabilities
23,341

 
24,288

Net cash provided by operating activities
964,064

 
839,635

Cash flows from investing activities:
 
 
 
Purchases of investments
(20,787
)
 
(54,421
)
Sales of investments
8,945

 
67,164

Business acquisitions, net of cash and restricted cash acquired
(34,143
)
 
(830,993
)
Purchases of real estate
(47,436
)
 
(41,782
)
Purchases of other property, plant and equipment
(808,138
)
 
(869,968
)
Net cash used in investing activities
(901,559
)
 
(1,730,000
)
Cash flows from financing activities:
 
 
 
Proceeds from employee equity awards
27,593

 
25,860

Payment of dividends and special distribution
(413,052
)
 
(368,759
)
Proceeds from public offering of common stock, net of issuance costs
1,561,555

 
7,622

Proceeds from senior notes

 
929,850

Repayments of finance lease liabilities
(43,112
)
 
(69,856
)
Repayments of mortgage and loans payable
(36,212
)
 
(25,415
)
Repayment of senior notes
(150,000
)
 

Debt extinguishment costs

 
(20,556
)
Debt issuance costs

 
(11,583
)
Other financing activities

 
580

Net cash provided by financing activities
946,772

 
467,743

Effect of foreign currency exchange rates on cash, cash equivalents and restricted cash 
411

 
(25,840
)
Net increase (decrease) in cash, cash equivalents and restricted cash
1,009,688

 
(448,462
)
Cash, cash equivalents and restricted cash at beginning of period
627,604

 
1,450,701

Cash, cash equivalents and restricted cash at end of period
$
1,637,292

 
$
1,002,239

 
 
 
 
Cash and cash equivalents
$
1,613,529

 
$
966,308

Current portion of restricted cash included in other current assets
13,673

 
25,277

Non-current portion of restricted cash included in other assets
10,090

 
10,654

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows
$
1,637,292

 
$
1,002,239

See accompanying notes to condensed consolidated financial statements.

7

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, 2018 has been derived from audited consolidated financial statements as of that date. The condensed 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 ("U.S. 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 22, 2019. 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 Switch Datacenters' AMS1 data center business in Amsterdam, Netherlands from April 18, 2019, Metronode from April 18, 2018 and Infomart Dallas from April 2, 2018. All intercompany accounts and transactions have been eliminated in consolidation.
Derivatives and Hedging Activities
The Company uses derivative instruments, including foreign currency forwards and options and cross-currency interest rate swaps, to manage certain foreign currency exposures. Derivative instruments are viewed as risk management tools by the Company and are not used for speculative purposes. The Company recognizes all derivatives on the Company's condensed consolidated balance sheets at fair value. The accounting for changes in the value of a derivative depends on whether the contract qualifies and has been designated for hedge accounting. In order to qualify for hedge accounting, a derivative must be considered highly effective at reducing the risk associated with the exposure being hedged and there must be documentation of the risk management objective and strategy, including identification of the hedging instrument, the hedged item and the risk exposure, and the effectiveness assessment methodology. For cash flow hedges, the Company uses regression analysis at the time they are designated to assess their effectiveness. Hedge designations are reviewed on a quarterly basis to assess whether circumstances have changed that would disrupt the hedge instrument’s relationship to the forecasted transactions or net investment.
The Company uses the forward method to assess effectiveness of qualifying foreign currency forwards that are designated as cash flow hedges, whereby, the change in the fair value of the derivative is recorded in other comprehensive income (loss) and reclassified to the same line item in the condensed consolidated statement of operations that is used to present the earnings effect of the hedged item when the hedged item affects earnings. The Company uses the spot method to assess effectiveness of qualifying foreign currency exchange options that are designated as cash flow hedges, whereby, the change in fair value due to foreign currency exchange spot rates is recorded in other comprehensive income (loss) and reclassified to the same line item in the condensed consolidated statement of operations that is used to present the earnings effect of the hedged item when the hedged item affects earnings, and the change in fair value of the excluded component is recorded in other comprehensive income (loss) and amortized on a straight-line basis to the same line item in the condensed consolidated statement of operations that is used to present the earnings effect of the hedged item. When two or more derivative instruments in combination are jointly designated as a cash flow hedging instrument, as with foreign currency exchange option collars, they are treated as a single instrument. If the hedge relationship is terminated for any derivatives designated as cash flow hedges, then the change in fair value of the derivative recorded in other comprehensive income (loss) is recognized in earnings when the previously hedged item affects earnings, consistent with the original hedge strategy. For hedge relationships discontinued because the forecasted transaction is not expected to occur according to the original strategy, any related derivative amounts recorded in other comprehensive income (loss) are immediately recognized in earnings.
The Company uses the spot method to assess effectiveness of cross-currency interest rate swaps that are designated as net investment hedges, whereby, the change in fair value due to foreign currency exchange spot rates is recorded in other comprehensive income (loss) and the change in fair value of the excluded component is recorded in other comprehensive income (loss) and amortized to interest expense on a straight-line basis.

8

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

From time to time, the Company also uses 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. The Company uses the spot method to assess effectiveness of qualifying foreign currency forwards that are designated as net investment hedges, whereby, the change in fair value due to foreign currency exchange spot rates is recorded in other comprehensive income (loss) and the change in fair value of the excluded component is recorded in other comprehensive income (loss) and amortized to interest expense on a straight-line basis.
Foreign currency gains or losses associated with derivatives that are not designated as hedging instruments for accounting purposes are recorded within other income (expense) in the Company’s condensed consolidated statements of operations, with the exception of (i) foreign currency embedded derivatives contained in certain of the Company’s customer contracts and (ii) foreign exchange forward contracts that are entered into to hedge the accounting impact of the foreign currency embedded derivatives, which are recorded within revenues in the Company’s condensed consolidated statements of operations.
For further information on derivatives and hedging activities, see Note 6 below.
Income Taxes
The Company elected to be taxed as a real estate investment trust for federal income tax purposes ("REIT") beginning with its 2015 taxable year. 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") 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 QRSs or TRSs.
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 25.6% and 15.0% for the six months ended June 30, 2019 and 2018, respectively. The increase in the effective tax rate for the six months ended June 30, 2019 as compared to the same period in 2018 is primarily due to a one-time tax benefit recognized as a result of a legal entity reorganization in the Company's Americas region during the six months ended June 30, 2018.
Assets Held for Sale
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.
For further information on assets held for sale, see Note 5 below.
Recent Accounting Pronouncements
Accounting Standards Not Yet Adopted
In June 2016, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization's portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company will adopt this new ASU on January 1, 2020. The Company expects this ASU to impact its accounting for allowances for doubtful

9

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

accounts and is currently evaluating the extent of the impact that the adoption of this standard will have on its condensed consolidated financial statements.
Accounting Standards Adopted
In August 2017, FASB issued ASU 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU was issued to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to simplify the application of the hedge accounting guidance in current GAAP. This ASU permits hedge accounting for risk components involving nonfinancial risk and interest rate risk, requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the hedged item is reported, no longer requires separate measurement and reporting of hedge ineffectiveness, eases the requirement for hedge effectiveness assessment, and requires a tabular disclosure related to the effect on the income statement of fair value and cash flow hedges. This ASU is effective for annual or any interim reporting periods beginning after December 15, 2018 with early adoption permitted.
The Company adopted ASU 2017-12 on January 1, 2019 using the modified retrospective approach. For cash flow hedges existing on the date of adoption, the Company recognized the cumulative effect of the change on the opening balance of accumulated other comprehensive income (loss) with a corresponding adjustment to the opening balance of retained earnings for amounts previously recognized in earnings related to ineffectiveness. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.
In February 2016, FASB issued ASU 2016-02, Leases and issued subsequent amendments to the initial guidance, collectively referred to as "Topic 842." Topic 842 replaces the guidance in former ASC Topic 840, Leases. The new lease guidance increases transparency and comparability among organizations by requiring the recognition of 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 future obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use ("ROU") 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. Topic 842 allows entities to adopt with one of two methods: the modified retrospective transition method or the alternative transition method.
On January 1, 2019, the Company adopted Topic 842 using the alternative transition method. Therefore, results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The Company recognized the cumulative effects of initially applying the standard as an adjustment to the opening balance of retained earnings in the period of adoption.
In adopting the new guidance, the Company elected to apply the package of practical expedients permitted under the transition guidance which allows the Company not to reassess (1) whether any expired or existing contracts contain leases under the new definition of a lease; (2) lease classification for any expired or existing leases; and (3) whether previously capitalized initial direct costs would qualify for capitalization under Topic 842. The Company also elected to apply the land easements practical expedient which permits the Company not to assess at transition whether any expired or existing land easements are, or contain, leases if they were not previously accounted for as leases under Topic 840.
Upon adoption of Topic 842, the Company also elected to adopt the practical expedient which allows the Company to combine qualified non-lease and lease components by underlying class of asset based, on predominance, as a lessor.  Occasionally, the Company enters into revenue contracts with customers for data center and office spaces, which contain both lease and non-lease components. In general, lease and non-lease components related to the use of space and solutions provided in a data center, which share the same pattern of transfer, will be combined and accounted for under ASC 606, Revenue from Contracts with Customers.  Lease and non-lease components related to the use of office space, which share the same pattern of transfer, will be combined and accounted for under Topic 842. Lease components which are not classified as operating leases do not qualify for the practical expedient. Non-lease components, which do not have similar patterns of transfers, such as professional services and goods for resale, are also excluded from combination.
Adoption of the standard had a significant impact on the Company's financial results, including the (1) recognition of new ROU assets and liabilities on its balance sheet for all operating leases; and (2) de-recognition of existing build-to-suit assets and liabilities with cumulative effects of initially applying the standard as an adjustment to the retained earnings. The cumulative effect of the changes made to its consolidated January 1, 2019 balance sheet from the adoption of Topic 842 was as follows (in thousands):

10

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

Balance Sheet
 
Balances at December 31, 2018
 
Adjustments due to adoption of Topic 842
 
Balances at January 1, 2019
Assets
 
 
 
 
 
 
Other current assets
 
$
274,857

 
$
(15,949
)
 
$
258,908

Property, plant and equipment, net
 
11,026,020

 
(293,111
)
 
10,732,909

Operating lease right-of-use assets
 

 
1,468,762

 
1,468,762

Intangible assets, net
 
2,333,296

 
(23,205
)
 
2,310,091

Other assets
 
533,252

 
(63,468
)
 
469,784

Liabilities
 
 
 
 
 
 
Current portion of operating lease liabilities
 

 
144,405

 
144,405

Current portion of finance lease liabilities
 

 
70,795

 
70,795

Current portion of capital lease and other financing obligations
 
77,844

 
(77,844
)
 

Other current liabilities
 
126,995

 
(6,455
)
 
120,540

Operating lease liabilities, less current portion
 

 
1,312,262

 
1,312,262

Finance lease liabilities, less current portion
 

 
1,165,188

 
1,165,188

Capital lease and other financing obligations, less current portion
 
1,441,077

 
(1,441,077
)
 

Other liabilities
 
629,763

 
(88,272
)
 
541,491

Equity
 
 
 
 
 
 
Retained Earnings
 
889,948

 
(5,973
)
 
883,975


2.
Revenue
Contract Balances
The following table summarizes the opening and closing balances of the Company's accounts receivable, net; contract asset, current; contract asset, non-current; deferred revenue, current; and deferred revenue, non-current (in thousands):
 
Accounts receivable, net
 
Contract asset, current
 
Contract asset, non-current
 
Deferred revenue, current
 
Deferred revenue, non-current
Beginning balances as of January 1, 2019
$
630,119

 
$
9,778

 
$
16,396

 
$
73,142

 
$
46,641

Closing balances as of June 30, 2019
752,680

 
9,346

 
18,883

 
77,026

 
46,517

Increase/(decrease)
$
122,561

 
$
(432
)
 
$
2,487

 
$
3,884

 
$
(124
)
The difference between the opening and closing balances of the Company's accounts receivable, net, contract assets and deferred revenues primarily results from revenue growth and the timing difference between the satisfaction of the Company's performance obligation and the customer's payment. The amounts of revenue recognized during the six months ended June 30, 2019 from the opening deferred revenue balance as of January 1, 2019 was $62.6 million.
Remaining performance obligations
As of June 30, 2019, approximately $7.6 billion of total revenues and deferred installation revenues are expected to be recognized in future periods, the majority of which will be recognized over the next 24 months. While initial contract terms vary in length, substantially all contracts thereafter automatically renew in one-year increments. Included in the remaining performance obligations is either 1) remaining performance obligations under the initial contract terms or 2) remaining performance obligations related to contracts in the renewal period once the initial terms have lapsed. The remaining performance obligations do not include variable consideration related to unsatisfied performance obligations such as the usage of metered power or any contracts that could be terminated without any significant penalties such as the majority of interconnection revenues. The remaining performance obligations above include revenues to be recognized in the future related to arrangements where the Company is considered the lessor.

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

3.
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
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
143,852

 
$
67,618

 
$
261,599

 
$
130,512

Net (income) loss attributable to non-controlling interests
(325
)
 

 
6

 

Net income attributable to Equinix
$
143,527

 
$
67,618

 
$
261,605

 
$
130,512

 
 
 
 
 
 
 
 
Weighted-average shares used to calculate basic EPS
84,399

 
79,479

 
83,114

 
79,361

Effect of dilutive securities:
 
 
 
 
 
 
 
Employee equity awards
368

 
273

 
357

 
385

Weighted-average shares used to calculate diluted EPS
84,767

 
79,752

 
83,471

 
79,746

 
 
 
 
 
 
 
 
EPS attributable to Equinix:
 
 
 
 
 
 
 
Basic EPS
$
1.70

 
$
0.85

 
$
3.15

 
$
1.64

Diluted EPS
$
1.69

 
$
0.85

 
$
3.13

 
$
1.64


The Company has excluded common stock related to employee equity awards in the diluted EPS calculation above of approximately 4,000 shares and 220,000 shares for the three months ended June 30, 2019 and 2018, respectively, and approximately 54,000 and 247,000 shares for the six months ended June 30, 2019 and 2018, respectively, because their effect would be anti-dilutive.
4.
Acquisitions
2019 Acquisition
On April 18, 2019, the Company completed the acquisition of Switch Datacenters' AMS1 data center business in Amsterdam, Netherlands, for a cash purchase price of approximately 30.6 million or approximately $34.3 million, at the exchange rate in effect on April 18, 2019. The valuation of assets acquired and liabilities assumed are still being appraised by a third-party and the purchase price allocation is not yet complete. The operating results of the acquisition are reported in the EMEA region following the date of acquisition, and are not significant to the Company's total operations for the three months ended June 30, 2019.
2018 Acquisitions
On April 18, 2018, the Company acquired all of the equity interests in Metronode from the Ontario Teachers' Pension Plan Board for a cash purchase price of A$1.034 billion or approximately $804.6 million at the exchange rate in effect on April 18, 2018 (the "Metronode Acquisition"). Metronode operated 10 data centers in six metro areas in Australia. The acquisition supports the Company's ongoing global expansion to meet customer demand in the Asia-Pacific region.
On April 2, 2018, the Company completed the acquisition of Infomart Dallas, including its operations and tenants, from ASB Real Estate Investments (the "Infomart Dallas Acquisition"), for total consideration of approximately $804.0 million. The consideration was comprised of approximately $45.8 million in cash, subject to customary adjustments, and $758.2 million aggregate fair value of 5.000% senior unsecured notes (see Note 9). Prior to the acquisition, a portion of the building was leased to the Company and was being used as its Dallas 1, 2, 3 and 6 data centers, which were all accounted for as build-to-suit leases. Upon acquisition, the Company effectively terminated the leases and settled the related financing obligations and other liabilities related to the leases for approximately $170.3 million and $1.9 million, respectively, and recognized a loss on debt extinguishment of $19.5 million. The acquisition of this highly interconnected facility and tenants adds to the Company's global platform and secures the ability to further expand in the Americas market in the future.

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

Both acquisitions constitute a business under the accounting standard for business combinations and, therefore, were accounted for as business combinations using the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price is allocated to the assets acquired and liabilities assumed measured at fair value on the date of acquisition. During the three months ended March 31, 2019, the Company completed the detailed valuation analysis of Metronode and Infomart Dallas to derive the fair value of assets acquired and liabilities assumed and finalized the allocation of purchase price for Metronode and Infomart Dallas. For the Metronode Acquisition, the adjustments made during the three months ended March 31, 2019 primarily resulted in a decrease in deferred tax liability and goodwill of $4.2 million and $3.7 million, respectively. No purchase price allocation adjustments were made during the three months ended March 31, 2019 for the Infomart Dallas Acquisition.
For the Metronode Acquisition, the adjustments made from the provisional amounts reported as of June 30, 2018 primarily resulted in a decrease in property, plant and equipment, other assets, other liabilities and deferred tax assets of $10.1 million, $10.0 million, $9.7 million and $4.1 million, respectively, and an increase in goodwill, intangible assets and deferred tax liabilities of $41.6 million, $4.8 million and $31.3 million, respectively. The adjustments for the Infomart Dallas Acquisition made from the provisional amounts reported as of June 30, 2018 primarily resulted in a decrease in goodwill of $6.2 million and an increase in intangible assets of $4.6 million. The changes in fair value of acquired assets and liabilities assumed did not have a significant impact on the Company's results of operations for any reporting periods prior to March 31, 2019.
A summary of the final allocation of total purchase consideration is presented as follows (in thousands):
 
Metronode
 
Infomart Dallas
Cash and cash equivalents
$
3,206

 
$
17,432

Accounts receivable
8,318

 
637

Other current assets
9,421

 
395

Property, plant, and equipment
297,092

 
362,023

Intangible assets
128,229

 
65,847

Goodwill
410,188

 
197,378

Other assets (1)
44,373

 

Total assets acquired
900,827

 
643,712

Accounts payable and accrued liabilities
(17,104
)
 
(5,056
)
Other current liabilities
(2,038
)
 
(2,141
)
Deferred tax liabilities
(31,281
)
 

Other liabilities (1)
(45,851
)
 
(4,723
)
Net assets acquired
$
804,553

 
$
631,792

 
(1) 
In connection with the Metronode Acquisition, the Company recorded indemnification assets of $44.4 million, which represented the seller's obligation under the purchase agreement to reimburse pre-acquisition tax liabilities settled after the acquisition.
The following table presents certain information on the acquired intangible assets (in thousands):
Intangible Assets
 
Fair Value
 
Estimated Useful Lives (Years)
 
Weighted-average Estimated Useful Lives (Years)
Customer relationships (Metronode)
 
$
128,229

 
20.0
 
20.0
Customer relationships (Infomart Dallas)
 
35,860

 
20.0
 
20.0
In-place leases (Infomart Dallas)
 
19,960

 
3.6 - 7.5
 
6.8
Trade names (Infomart Dallas)
 
9,552

 
20.0
 
20.0
Favorable leases (Infomart Dallas)
 
475

 
3.6 - 7.5
 
7.0

The fair value of customer relationships was estimated by applying an income approach, by calculating the present value of estimated future operating cash flows generated from existing customers less costs to realize the revenue. The Company applied

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

discount rates of 7.3% for Metronode and 8.2% for Infomart Dallas, which reflected the nature of the assets as they relate to the risk and uncertainty of the estimated future operating cash flows. Other assumptions used to estimate the fair value of customer relationships included projected revenue growth, probability of renewal, customer attrition rates and operating margins. The fair value of Infomart Dallas' trade name was estimated using the relief from royalty approach. The Company applied a relief from royalty rate of 1.5% and a discount rate of 8.2%. The fair value of in-place leases was estimated by projecting the avoided costs, such as the cost of originating the acquired in-place leases, during a typical lease up period. 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 property, plant and equipment was estimated by applying the cost approach, with the exception of land which was estimated by applying the market approach, for the Metronode Acquisition. For the Infomart Dallas Acquisition, the fair values of land, building and personal property were estimated by applying the market approach, residual income method and cost approach, respectively. The cost approach uses 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 residual income method estimates the fair value of the Infomart Dallas building using an income approach less the fair values attributed to land, personal property, in-place leases and favorable and unfavorable leases.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. Goodwill is attributable to the workforce of the acquired business and the projected revenue increase expected to arise from future customers after the Metronode and Infomart Dallas acquisitions. Goodwill from the acquisition of Metronode is not amortizable for local tax purposes and is attributable to the Company's Asia-Pacific region. Goodwill from the acquisition of Infomart Dallas is deductible for local tax purposes and is attributable to the Company's Americas region. Operating results of Metronode and Infomart Dallas have been reported in the Asia-Pacific and Americas regions, respectively.
For the three months ended June 30, 2019, the Company's results of operations included $27.4 million of revenues and insignificant net income from operations from the combined operations of Metronode and Infomart Dallas. For the six months ended June 30, 2019, the Company's results of operations included $54.6 million of revenues and $3.3 million of net income from operations from the combined operations of Metronode and Infomart Dallas.
5.
Assets Held for Sale
In June 2019, the Company entered into an agreement to form a joint venture in the form of a limited liability partnership with GIC, Singapore’s sovereign wealth fund (the "Joint Venture"), to develop and operate xScale™ data centers in Europe. Under the terms of the agreement, the Company will own a 20% interest and GIC will own an 80% interest in the Joint Venture. The Company has agreed to sell both its London 10 and Paris 8 data centers, certain construction development and leases in London, Amsterdam and Frankfurt to the Joint Venture. The assets and liabilities of these data centers and facilities, which are currently included within the Company's EMEA operating segment, were classified as held for sale as of June 30, 2019. The transaction is expected to close in the third quarter of 2019, pending regulatory approval and other closing conditions.
In January 2019, the Company entered into an agreement to sell its New York 12 ("NY12") data center. The assets of the NY12 data center to be divested were classified as held for sale. During the six months ended June 30, 2019, the Company recorded an impairment charge of $14.7 million, reducing the carrying value of NY12 assets to the estimated fair value less cost to sell.

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

The following table summarizes the assets and liabilities that were classified as assets and liabilities held for sale in the condensed consolidated balance sheet as of June 30, 2019 (in thousands):
Property, plant and equipment
$
264,807

Operating lease right-of-use assets
9,557

Goodwill
68,499

Intangible assets
2,669

Deferred tax assets
1,557

Other assets
6,533

Total assets held for sale
$
353,622

 
 
Current portion of operating lease liabilities
$
667

Current portion of finance lease liabilities
112

Operating lease liabilities, less current portion
9,224

Finance lease liabilities, less current portion
41,709

Deferred tax liabilities
335

Other liabilities
983

Total liabilities held for sale
$
53,030



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 whose functional currencies are other than the U.S. Dollar. In order to mitigate the impact of foreign currency exchange rates, the Company has entered into various foreign currency debt obligations, which are designated as hedges against the Company's net investments in foreign subsidiaries. As of June 30, 2019 and December 31, 2018, the total principal amounts of foreign currency debt obligations designated as net investment hedges were $4,130.2 million and $4,139.8 million, respectively.
The Company also uses cross-currency interest rate swaps to hedge a portion of its net investment in its European operations. As of June 30, 2019, U.S. Dollar to Euro cross-currency interest rate swap contracts with a total notional amount of $750.0 million were outstanding, with maturity dates in April 2022, January 2024 and January 2025. At maturity of each outstanding contract, the Company will receive U.S. Dollars from and pay Euros to the contract counterparty. During the term of each contract, the Company receives interest payments in U.S. Dollars and makes interest payments in Euros based on a notional amount and fixed interest rates determined at contract inception. The Company did not have any cross-currency interest rate swaps outstanding as of December 31, 2018.

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

The effect of net investment hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 was as follows (in thousands):
Amount of gain or (loss) recognized in accumulated other comprehensive income:
 
 
 
 
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
 
2019
 
2018
 
2019
 
2018
Foreign currency debt
 
$
(34,309
)
 
$
226,115

 
$
29,606

 
$
151,843

Cross-currency interest rate swaps (included component) (1)
 
(9,689
)
 

 
5,826

 

Cross-currency interest rate swaps (excluded component) (2)
 
6,141

 

 
3,551

 

Total
 
$
(37,857
)
 
$
226,115

 
$
38,983

 
$
151,843

 
 
 
 
 
 
 
 
 
 
Amount of gain or (loss) recognized in earnings:
 
 
 
 
 
Location of gain or (loss)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Cross-currency interest rate swaps (excluded component) (2)
Interest expense
 
$
4,928

 
$

 
$
9,091

 
$

Total
 
 
$
4,928

 
$

 
$
9,091

 
$


(1) 
Included component represents foreign exchange spot rates.
(2) 
Excluded component represents cross-currency basis spread and interest rates.
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. As of June 30, 2019 and December 31, 2018, the total notional amounts of these foreign exchange contracts were $853.2 million and $760.9 million, respectively.
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.

16

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

The effect of cash flow hedges on accumulated other comprehensive income and the condensed consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 was as follows (in thousands):
Amount of gain or (loss) recognized in accumulated other comprehensive income:
 
 
 
 
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
 
2019
 
2018
 
2019
 
2018
Foreign currency forward and option contracts (included component) (1)
 
$
(2,599
)
 
$
47,031

 
$
8,366

 
$
41,590

Foreign currency option contracts (excluded component) (2)
 
(1,405
)
 

 
(1,405
)
 

Total
 
$
(4,004
)
 
$
47,031

 
$
6,961

 
$
41,590

 
Amount of gain or (loss) reclassified from accumulated other comprehensive income to income:
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Location of gain or (loss)
 
2019
 
2018
 
2019
 
2018
Foreign currency forward contracts
Revenues
 
$
18,684

 
$
(12,904
)
 
$
28,545

 
$
(31,319
)
Foreign currency forward contracts
Cost of revenues
 
(9,745
)
 
6,778

 
(15,074
)
 
16,101

Total
 
 
$
8,939

 
$
(6,126
)
 
$
13,471

 
$
(15,218
)
 
 
 
 
 
 
 
 
 
 
Amount of gain or (loss) excluded from effectiveness testing included in income:
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Location of gain or (loss)
 
2019
 
2018
 
2019
 
2018
Foreign currency forward contracts
Other income (expense)
 
$

 
$
4,777

 
$
88

 
$
6,430

Foreign currency option contracts (excluded component) (2)
Revenues
 
(17
)
 

 
(17
)
 

Total
 
 
$
(17
)
 
$
4,777

 
$
71

 
$
6,430



(1) 
Included component represents foreign exchange spot rates.
(2) 
Excluded component represents option's time value.
As of June 30, 2019, the Company's cash flow hedge instruments had maturity dates ranging from July 2019 to June 2021 and the Company recorded a net gain of $28.2 million within accumulated other comprehensive income (loss) relating to cash flow hedges that will be reclassified to revenues and expenses as they mature in the next 12 months. As of December 31, 2018, the Company's cash flow hedge instruments had maturity dates ranging from January 2019 to December 2020 and the Company recorded a net gain of $21.4 million within accumulated other comprehensive income (loss) relating to cash flow hedges that will be reclassified to revenues and expenses as they mature in the next 12 months.
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 U.S. Dollar.
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.

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

Foreign Currency Forward Contracts. The Company also uses foreign currency forward contracts to manage the foreign exchange risk associated with certain foreign currency-denominated monetary assets and liabilities. As a result of foreign currency fluctuations, the U.S. Dollar equivalent values of its foreign currency-denominated monetary assets and liabilities change. Gains and losses on these contracts are included in other income (expense), on a net basis, along with the foreign currency gains and losses of the related foreign currency-denominated monetary assets and liabilities associated with these foreign currency forward contracts. As of June 30, 2019 and December 31, 2018, the total notional amounts of these foreign currency contracts were $1,817.2 million and $1,500.4 million, respectively.
The following table presents the effect of derivatives not designated as hedging instruments in the Company's condensed consolidated statements of operations (in thousands):
Amount of gain or (loss) recognized in earnings:
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Location of gain or (loss)
 
2019
 
2018
 
2019
 
2018
Embedded derivatives
Revenues
 
$
(185
)
 
$
3,909

 
$
722

 
$
1,464

Economic hedge of embedded derivatives
Revenues
 
598

 
(1,468
)
 
541

 
(938
)
Foreign currency forward contracts
Other income (expense)
 
10,148

 
47,796

 
18,499

 
43,676

    Total
 
 
$
10,561

 
$
50,237

 
$
19,762

 
$
44,202


Fair Value of Derivative Instruments
The following table presents the fair value of derivative instruments recognized in the Company's condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018 (in thousands):
 
June 30, 2019
 
December 31, 2018
 
Assets (1)
 
Liabilities (2)
 
Assets (1)
 
Liabilities (2)
Designated as hedging instruments:
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
Foreign currency forward and option contracts
$
42,781

 
$
187

 
$
38,606

 
$
865

Net investment hedges
 
 
 
 
 
 
 
Cross-currency interest rate swaps
9,377

 

 

 

Total designated as hedging
52,158

 
187

 
38,606

 
865

 
 
 
 
 
 
 
 
Not designated as hedging instruments:
 
 
 
 
 
 
 
Embedded derivatives
4,947

 
1,943

 
4,656

 
2,426

Economic hedges of embedded derivatives
1,873

 
19

 
525

 
180

Foreign currency forward contracts
4,021

 
23,979

 
29,287

 
6,269

Total not designated as hedging
10,841

 
25,941

 
34,468

 
8,875

Total Derivatives
$
62,999

 
$
26,128

 
$
73,074

 
$
9,740


(1) 
As presented in the Company's condensed consolidated balance sheets within other current assets and other assets.
(2) 
As presented in the Company's condensed consolidated balance sheets within other current liabilities and other liabilities.

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

Offsetting Derivative Assets and Liabilities
The Company presents its derivative instruments and the accrued interest related to cross-currency interest rate swaps at gross fair values in the condensed consolidated balance sheets. 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. For presentation on the condensed consolidated balance sheets, the Company does not offset fair value amounts recognized for derivative instruments or the accrued interest related to cross-currency interest rate swaps under master netting arrangements. The following table presents information related to these offsetting arrangements as of June 30, 2019 and December 31, 2018 (in thousands):
 
Gross Amounts Offset in
Consolidated Balance Sheet
 
 
 
 
 
Gross Amounts
 
Gross Amounts Offset in the Balance Sheet
 
Net Amounts
 
Gross Amounts not Offset in the Balance Sheet
 
Net
June 30, 2019
 
 
 
 
 
 
 
 
 
Derivative assets
$
80,919

 
$

 
$
80,919

 
$
(32,248
)
 
$
48,671

Derivative liabilities
35,931

 

 
35,931

 
(32,248
)
 
3,683

 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
Derivative assets
$
73,074

 
$

 
$
73,074

 
$
(6,517
)
 
$
66,557

Derivative liabilities
9,740

 

 
9,740

 
(6,517
)
 
3,223



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

7.
Fair Value Measurements
Fair value estimates are made as of a specific point in time based on methods using the market approach valuation method which uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities or other valuation techniques. These techniques involve uncertainties and are affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors.
Cash, Cash Equivalents and Investments. The fair value of the Company's investments in money market funds approximates their face value. Such instruments are included in cash equivalents. The Company's 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, including certificates of deposit, approximates their face value. 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.
The Company uses the specific identification method in computing realized gains and losses. Realized gains and losses on the investments are included within other income (expense) in the Company's condensed consolidated statements of operations. Publicly traded equity securities are measured at fair value with changes in the fair values recognized within other income (expense) in the Company's condensed consolidated statements of operations.
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 did not have any nonfinancial assets or liabilities measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018.
The Company's financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2019 were as follows (in thousands):
 
Fair Value at
June 30,
2019
 
Fair Value
Measurement Using
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Cash
$
1,039,871

 
$
1,039,871

 
$

Money market and deposit accounts
573,658

 
573,658

 

Publicly traded equity securities
2,215

 
2,215

 

Certificates of deposit
15,004

 

 
15,004

Derivative instruments (1)
62,999

 

 
62,999

Total
$
1,693,747

 
$
1,615,744

 
$
78,003

Liabilities:
 
 
 
 
 
Derivative instruments (1)
$
26,128

 
$

 
$
26,128

 
(1) 
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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Table of Contents
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, 2018 were as follows (in thousands):
 
Fair Value at
December 31,
2018
 
Fair Value
Measurement Using
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Cash
$
486,648

 
$
486,648

 
$

Money market and deposit accounts
119,518

 
119,518

 

Publicly traded equity securities
1,717

 
1,717

 

Certificates of deposit
2,823

 

 
2,823

Derivative instruments (1)
73,074

 

 
73,074

Total
$
683,780

 
$
607,883

 
$
75,897

Liabilities:
 
 
 
 
 
Derivative instruments (1)
$
9,740

 
$

 
$
9,740


(1) 
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 June 30, 2019 and December 31, 2018.
8.
Leases
The Company determines if an arrangement is or contains a lease at inception. The Company enters into lease arrangements primarily for data center spaces, office spaces and equipment. The Company recognizes a ROU asset and lease liability on the condensed consolidated balance sheet for all leases with a term longer than 12 months. As of June 30, 2019, the Company recorded finance lease assets of $968.2 million, net of accumulated amortization of $449.4 million, within the property, plant and equipment, net.
ROU assets represent the Company's right to use an underlying asset for the lease term. Lease liabilities represent the Company's obligation to make lease payments arising from the lease. ROU assets and liabilities are classified and recognized at the commencement date. ROU liabilities are measured based on the present value of fixed lease payments over the lease term. ROU assets consist of (i) initial measurement of the lease liability; (ii) lease payments made to the lessor at or before the commencement date less any lease incentives received; and (iii) initial direct costs incurred by the Company. Lease payments may vary because of changes in facts or circumstances occurring after the commencement, including changes in inflation indices. Variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate) are included in the measurement of ROU assets and lease liabilities using the index or rate at the commencement date. Variable lease payments that do not depend on an index or a rate are excluded from the measurement of ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Since most of the Company's leases do not provide an implicit rate, the Company uses its own incremental borrowing rate ("IBR") on a collateralized basis in determining the present value of lease payments. The Company utilizes a market-based approach to estimate the IBR. The approach requires significant judgment. Therefore, the Company utilizes different data sets to estimate IBRs via an analysis of (i) yields on our outstanding public debt; (ii) yields on comparable credit rating composite curves; (iii) sovereign rates; and (iv) historical difference in yields on the curves of our secured and unsecured rated debt. The Company also applies adjustments to account for considerations related to (i) tenor and (ii) country credit rating that may not be fully incorporated by the aforementioned data sets.
The majority of the Company's lease arrangements include options to extend the lease. If the Company is reasonably certain to exercise such options, the periods covered by the options are included in the lease term. The depreciable lives of certain fixed assets and leasehold improvements are limited by the expected lease term. The Company has certain leases with an initial term of 12 months or less. For such leases, the Company elects not to recognize any ROU asset or lease liability on the condensed consolidated balance sheet. The Company has lease agreements with lease and non-lease components. The Company elects to account for the lease and non-lease components as a single lease component for all classes of underlying assets for which the Company has identified lease arrangements.

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

Significant Lease Transaction
Hong Kong 4 ("HK4") Data Center
In August 2018, the Company entered into a lease agreement with the landlord to lease the remaining floors of the HK4 data center. The lease did not commence until May 2019. Pursuant to the accounting standard for leases, the Company assessed the lease classification of the HK4 lease at commencement date and determined that the lease should be accounted for as an operating lease. During the three months ended June 30, 2019, the Company recorded operating lease ROU asset and liability of 317.3 million Hong Kong dollars, or $40.6 million at the exchange rate in effect on June 30, 2019.
Lease Expenses
The components of lease expenses are as follows (in thousands):
 
Three Months Ended June 30, 2019
 
Six Months Ended
June 30, 2019
Finance lease cost
 
 
 
Amortization of right-of-use assets (1)
$
19,811

 
$
39,897

Interest on lease liabilities
27,111

 
54,634

Total finance lease cost
46,922

 
94,531

 
 
 
 
Operating lease cost
54,920

 
106,559

Total lease cost
$
101,842

 
$
201,090

 
 
(1) Amortization of right-of-use assets is included with depreciation expense, and is recorded within cost of revenues, sales and marketing and general and administrative expenses in the condensed consolidated statements of operations.
Other Information
Other information related to leases is as follows (in thousands):
 
Six Months Ended
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:


Operating cash flows from finance leases
$
52,701

Operating cash flows from operating leases
101,875

Financing cash flows from finance leases
43,112

 
 
Right-of-use assets obtained in exchange for lease obligations: (1)

Finance leases
$
2,597

Operating leases
77,905

 
 
 
As of June 30, 2019
Weighted-average remaining lease term - finance leases (2)
14 years

Weighted-average remaining lease term - operating leases (2)
13 years

Weighted-average discount rate - finance leases
10
%
Weighted-average discount rate - operating leases
4
%
 
(1) Represents all non-cash changes in ROU assets, including the impact of reclassifying finance lease and operating lease ROU assets of $36.9 million and $9.6 million, respectively, to assets held for sale. Refer to Note 5.
(2) Includes lease renewal options that are reasonably certain to be exercised.

22

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

Maturities of Lease Liabilities
Maturities of lease liabilities under Topic 842 as of June 30, 2019 are as follows (in thousands):
 
Operating Leases
 
Finance Leases
 
Total
2019 (6 months remaining)
$
93,232

 
$
76,153

 
$
169,385

2020
198,629

 
157,7