Akamai

2013 Annual Report
on Form 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Mark One)
Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013
or
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Commission file number: 0-27275

Akamai Technologies, Inc.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

04-3432319
(I.R.S. Employer
Identification No.)

8 Cambridge Center Cambridge, Massachusetts
(Address of principle executive offices)

02142
(Zip Code)
Registrant’s telephone number, including area code: (617) 444-3000
Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Common Stock, $.01 par value

Name of each exchange on which registered

NASDAQ Global Select Market

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes Í No ‘

Indicate by check mark if the registrant

is not required to file reports pursuant

to Section 13 or 15(d) of the

Act. Yes ‘ No Í

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 Í No ‘

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such
files). Yes Í No ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Í

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.

Large accelerated filer Í
Non-accelerated filer ‘ (Do not check if smaller reporting company) Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No Í
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was
approximately $7,338.4 million based on the last reported sale price of the Common Stock on the NASDAQ Global Select
Market on June 28, 2013.

Accelerated filer ‘

The number of shares outstanding of the registrant’s Common Stock, par value $0.01 per share, as of February 25, 2014:

178,535,932 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission relative to
the registrant’s 2014 Annual Meeting of Stockholders to be held on May 14, 2014 are incorporated by reference into Items 10, 11,
12, 13 and 14 of Part III of this annual report on Form 10-K.

AKAMAI TECHNOLOGIES, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013

TABLE OF CONTENTS

PART I

Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . .
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

PART IV

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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10
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46
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Item 15.

Exhibits, Financial Statement Schedules

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Forward-Looking Statements

PART I

This annual report on Form 10-K contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties
and are based on the beliefs and assumptions of our management based on information currently available to
them. Use of words such as “believes,” “continues,” “expects,” “anticipates,” “intends,” “plans,” “estimates,”
“forecasts,” “should,” “may,” “could,” “likely” or similar expressions indicates a forward-looking statement.
Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and
assumptions. Important factors that could cause actual results to differ materially from the forward-looking
statements include, but are not limited to, those set forth under the heading “Risk Factors.” We disclaim any
obligation to update any forward-looking statements as a result of new information, future events or otherwise.

Item 1.

Business

Overview

Akamai provides cloud services for delivering, optimizing and securing online content and business
applications. Our solutions range from delivery of conventional content on websites, to tools that support the
delivery and operation of cloud-based applications, to live and on-demand streaming video capabilities — all
designed to help our customers interact with people accessing the Internet from myriad devices and locations
around the world. We believe that our solutions offer unmatched reliability, sophistication and security and help
customers save money by enabling them to reduce expenses associated with internal infrastructure build-outs. In
short, our core solutions are designed to help organizations efficiently offer websites that improve visitor
experiences and increase the effectiveness of their Internet-focused operations.

We were incorporated in Delaware in 1998 and have our corporate headquarters at 8 Cambridge Center,
Cambridge, Massachusetts. We have been offering content delivery services and streaming media services since
1999. In subsequent years, we introduced private content delivery networks, Internet-based delivery of
applications such as store/dealer locators and user registration, large-scale software distribution capabilities,
front-end optimization functionalities and enhanced security offerings.

Our Internet website address is www.akamai.com. We make available, free of charge, on or through our
Internet website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments thereto that we have filed or furnished with the Securities and Exchange Commission, or the
Commission, as soon as reasonably practicable after we electronically file them with the Commission. We are
not, however, including the information contained on our website, or information that may be accessed through
links on our website, as part of, or incorporating such information by reference into, this annual report on
Form 10-K.

Making the Cloud Work for our Customers

The Internet plays a crucial role in the way companies, government agencies and other enterprises conduct
business and reach the public. Enterprises want to offer a dynamic, consistent, secure experience for millions of
end users and to take advantage of the potential cost savings of cloud computing — using third party server
facilities to enable Internet operations. The Internet, however, is a complex system of networks that was not
originally created to accommodate the volume or sophistication of today’s communication demands or the
dramatic expansion in the number and types of devices individuals use to access it. The ad hoc architecture
presents potential problems for its widespread usage today, such as:

•

•

traffic congestion at data centers and between networks;

Internet traffic exceeding the capacity of routing equipment;

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•

•

absence of a coordinated security system to protect against hackers, bots and other malefactors that
want to steal assets and disrupt the functioning of the Web; and

“last mile” issues — Internet bandwidth constraints between an end user and the Internet access
provider.

These potential problems intersect with the features of what we call the hyperconnected world, including:

•

•

•

•

increasingly dynamic and personalized websites;

growth in the transmission of rich content, including high definition, or HD, video, music and games;

rapid expansion in the use of mobile devices leveraging different technologies and delivery systems;
and

the desire of millions of consumers worldwide to be able to enjoy the same high-quality experience
across all of the devices they use.

Achieving an enterprise’s goals in the face of these challenges is made more difficult by internal technology
issues. Driven by competition, globalization and expense-containment strategies, companies need an agile cloud-
based infrastructure that cost-effectively meets real-time strategic and business objectives. The dramatic increase
in Internet usage places extensive demands on infrastructure; however, expanding internal systems to meet
routine demand can be cost-prohibitive. Keeping pace with new developments can also be a difficult challenge.
Special marketing or promotional initiatives or unanticipated one-time events, such as important unanticipated
news, may draw millions of additional visitors to a company’s website over a brief period of time. Putting in
place incremental internal infrastructure to deal with such spikes is usually impractical and expensive. Network
operators themselves are challenged to profitably manage consumer access to the Internet over their networks;
recouping the costs of the infrastructure build-outs they need to make is generally not supported by their
traditional business models.

Akamai offers solutions to assist enterprises and network operators in meeting their goals in spite of the
challenges at the intersection of the Internet and the hyperconnected world. In particular, our services are
designed to help companies, government agencies and other enterprises improve the performance, reliability and
security of their Internet-facing operations. For network operators, we have developed solutions designed to
enable them to leverage Akamai’s technology — and its potential benefits — within their own networks to sell
content delivery solutions to enterprises and federate with Akamai’s network.

With all of our solutions, we seek to make using the cloud a viable approach for customers by addressing

the following market needs in a way that is affordable:

Superior Performance. Commercial enterprises invest in websites to attract customers, transact business and
provide information about themselves. Our solutions are designed to help customers improve the performance of
their websites without the need for them to make the significant investment required to develop their own
Internet-related infrastructure. Instead, we have more than 140,000 servers deployed in more than 1,200 networks
around the world so that content and applications can be delivered from Akamai servers located closer to website
visitors from what we call the “edge” of the Internet. We are thus able to reduce the impact of traffic congestion,
bandwidth constraints and capacity limitations for our customers.

Scalability. With the proliferation of HD video and other types of rich content and the emergence of the
Internet as a crucial sales channel, enterprises of all types must be able to handle rapidly increasing numbers of
requests for bandwidth-intensive digital media assets. Websites must also be able to process millions of
transactions, particularly during busy seasons. In all of these instances, it can be difficult and expensive to
manage such peaks. With our vast distributed network and proprietary software technology, we believe we are
uniquely able to handle today’s traffic volumes as well as planned and unplanned traffic peaks. We have

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deployed servers with network providers of many different sizes and footprints and have over 1,000 peering
relationships. Leveraging this distributed network, our platform is architected with the robustness and flexibility
to enable us to provide an on-demand solution to address our customers’ capacity needs, helping them avoid
expensive investment in a centralized infrastructure.

Security. Internet-based security threats, such as viruses, worms, hactivists, information theft and other
intrusions, can impact every measure of performance, including information security, speed, reliability and
customer confidence. Security is a key component of our technology platform; we deploy flexible, intelligent
cloud-based defense capabilities to help organizations guard the perimeter of their networks and bolster security
without sacrificing performance. We also offer specific security-focused solutions designed to provide protection
for our customers’ operations in the cloud.

Functionality. Websites have become increasingly dynamic, complex and sophisticated. To meet these
challenges, we offer an array of advanced features designed to help our customers accelerate dynamic content
and applications, more effectively manage their online media assets, optimize how pages load on individual
browsers and adapt content for access through mobile devices.

Our Core Solutions

Media Delivery Solutions

Akamai’s Media Delivery Solutions are designed to enable enterprises to execute digital media and software
distribution strategies by improving the end-user experience, boosting reliability and scalability and reducing the
cost of Internet-related infrastructure. Customers of these services typically consist of media and software
companies.

Media Experience

As the demand for Internet access to music, movies, games, streaming news, sporting events and social
networking communities grows, there are many challenges to profitably offering media assets online, particularly
with respect to user-generated content and HD video. By relying on our technology and solutions, customers can
bypass internal constraints such as traditional server and bandwidth limitations to better handle peak traffic
conditions and provide their site visitors with access to larger file sizes. Customers of our Media Experience
offerings can also take advantage of complementary features such as digital rights management protections,
storage, media management tools and reporting functionalities.

Our Media Experience suite is made up of three key elements designed to provide superior quality viewing
experiences: Delivery and Storage, Media Workflow, and Media Analytics. Each element may be used
individually to address specific online media needs or together as a complete, simplified one-stop platform for
online content distribution.

•

Delivery and Storage — Our HTTP delivery network supports progressive media downloading and
iOS/Quicktime®,
adaptive bitrate streaming to a variety of player platforms,
Silverlight®, and HTML5. Our platform’s global reach, reliability and rapid scalability are designed to
address the toughest media delivery challenges. In addition, our NetStorage solution provides globally-
distributed, cloud-based storage that may be used for content origin, workflow staging and advanced
feature enablement, such as DVR-enabled live streaming.

including Flash®,

• Media Workflow — We offer cloud-based media streaming and distribution solutions that serve content
across video devices, while delivering turn-key solutions in a secure, efficient and open media work
flow. These solutions include transcoding and stream packaging services; an Akamai media player that
incorporates advanced heuristics and network server mapping designed to support high-quality video
delivery; content protection and conditional access technologies; identity services; and digital locker
services.

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• Media Analytics — Our analytics solution is designed to provide our customers with quality of service
and other measurement capabilities for post event analysis, real-time quality awareness and the ability
to troubleshoot issues to the individual viewer level.

Software Distribution

Due to the expanding prevalence of broadband access, distribution of computer software has moved
primarily to the Internet where traffic conditions and high loads can dramatically diminish software download
speed and reliability. Furthermore, surges in traffic from product launches or periodic distributions of anti-virus
security updates can overwhelm traditional centralized software delivery infrastructure, adversely affecting
website performance and causing users to be unable to download software. Our Software Distribution solution
handles the distribution of software for our customers. Our network is designed to withstand large surges in
traffic related to software launches and other distributions with a goal of improved customer experiences,
increased use of electronic delivery and successful online product launches. We also offer a number of tools to
enhance the effectiveness of this distribution model including electronic download receipts, storage, a download
manager that provides end users with control over the handling of files received and reporting. This solution is
appropriate for software companies of all types including consumer, enterprise, anti-virus and gaming software
companies.

Performance and Security Solutions

Our Performance and Security Solutions are designed to take advantage of our core content and application

delivery and security technologies to make the Internet work better for our customers.

Consumer Web Experience

Akamai’s content delivery acceleration solutions are designed to accelerate business-to-consumer websites
that
integrate rich, collaborative content and applications into their online architecture. Leveraging our
worldwide network of servers and sophisticated mapping and routing technologies, we provide whole-site and
object delivery for our customers’ websites. As a result, our customers have access to a more efficient way to
implement and maintain a global Internet presence. These services are appropriate for enterprises of all types as
well as government agencies. Key offerings include:

•

•

Ion — Our Ion solution consists of an integrated suite of delivery, acceleration and optimization
technologies that make real-time web experience optimization decisions based on the requirements of
the given situation. In particular, we use front-end optimization techniques based on sophisticated
analysis of the end user’s web application as well as real-time conditions specific to the end-user’s
environment such as browser, device, network speed and usage of third party service. Applying this
analysis and our proprietary technology enables our customers to reduce HTTP requests, which allows
Web pages to load more quickly.

Dynamic Site Accelerator — Dynamic Site Accelerator provides global delivery, load balancing and
storage of content and applications, enabling businesses to focus valuable resources on strategic
matters, rather than on technical infrastructure issues. Our Dynamic Site Accelerator solution includes
advanced site delivery service features such as secure content distribution, site failover, content
targeting, cache optimization and capacity on-demand.

Enterprise Web Experience

Akamai’s application and cloud performance solutions are designed to improve the operation of highly-
dynamic applications used by enterprises to connect with their employees, suppliers, partners and customers.
Traditionally, this market has been addressed by hardware and embedded software products. We believe our

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managed-service approach offers a more cost-effective and comprehensive solution in this area and enables
customers to avoid making significant infrastructure investments. Our enterprise web offerings are centered on:

•

Alta — Alta is an application management service and web accelerator that extends managed
application delivery optimizations from the edge of the data center to the edge of the Internet. It is
intended to spur application adoption for business applications. Alta is built for the cloud; it is designed
to instantly configure and provide improvements in application acceleration and application
performance management in both private and public cloud computing environments. This service is
appropriate for companies involved in technology, business services, travel and leisure, manufacturing
and other fields where there is a focus on Internet-based communication with remote customers,
suppliers and franchisees.

Web Security Solutions

Our Kona Web Security Solutions are designed to help customers avoid data theft and downtime, as well as
protect Internet-facing infrastructure, by extending the security perimeter to protect against the increasing
frequency, scale and sophistication of web attacks. We offer a variety of services that address the Internet
security needs of our customers including the following:

•

•

Site Defender — Site Defender is a cloud computing security solution that defends against network and
application layer distributed denial of service, or DDoS, attacks, Web application attacks and direct-to-
origin attacks. By leveraging our distributed network and proprietary technology, Akamai can absorb
traffic targeted at the application layer, deflect DDoS traffic targeted at the network layer, such as SYN
Floods or UDP Floods, and authenticate valid traffic at the network edge.

DDoS Attack Prevent and Mitigation by Prolexic — With our acquisition of Prolexic Technologies,
Inc., or Prolexic, in February 2014, we now offer additional solutions focused on monitoring, detecting,
preventing and mitigating DDoS attacks on Internet traffic.

• Web Application Firewall — Akamai’s Web Application Firewall service is designed to detect and
mitigate potential attacks in HTTP and SSL traffic as it passes through our network, before they reach
the customer’s origin data centers.

Network Operator Solutions

With the growth in consumer adoption of Internet video and other media, networks around the world have
experienced significant traffic increases, resulting in congestion across an operator’s network from aggregation,
to backbone, to interconnection. Our network operator solutions are designed to help carriers operate a cost-
efficient network that capitalizes on traffic growth and new subscriber services by reducing the complexity of
building a content delivery network, or CDN, and interconnecting access providers. These offerings include:

• Managed CDN — Our managed CDN offering provides a network operator with dedicated CDN
capacity that is available for its own content applications or third party CDN services. Akamai servers
are deployed inside the operator network and are managed by Akamai on behalf of the network
operator. The operator can utilize our customer portal to self-provision and control its content and
generate usage reports and advanced analytics. Because this CDN capacity is dedicated to the network
operator’s usage, the operator can make the decisions on where the servers are placed, how much
capacity is needed and for what services they will be used.

•

Licensed CDN — Our licensed CDN offering provides a network operator with software it can deploy
into its network to improve content delivery capabilities. In particular, we license software that offers a
unified caching technology to support a variety of workloads, ranging from HTML to HD video
streaming.

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Service and Support Solutions

Akamai offers an array of professional services and solutions that are designed to assist our customers with
integrating, configuring and optimizing our core offerings. Special features available to enterprises that purchase
our premium support solution include a dedicated technical account team, proactive service monitoring, custom
technical support handling procedures and customized training.

Our Technology and Network

Our expansive network infrastructure and sophisticated technology are the foundation of our services. We
believe Akamai has deployed the world’s largest globally-distributed computing platform. Applying our
proprietary technology, we deliver our customers’ content and computing applications across a system of widely
distributed networks of servers in the cloud; the content and applications are then processed at the most efficient
places within the network. Servers are deployed in networks ranging from large, backbone network providers to
medium and small Internet service providers, or ISPs, to cable modem and satellite providers to universities and
other networks. By deploying servers within a wide variety of networks, we are better able to manage and control
routing and delivery quality to geographically diverse users. We also have more than 1,000 peering relationships
that provide us with direct paths to end user networks, which reduce data loss, while also potentially giving us
more options for delivery at reduced cost.

To make this wide-reaching deployment effective, we use specialized technologies, such as advanced routing,
load balancing, data collection and monitoring. Our intelligent routing software is designed to ensure that website
visitors experience fast page loading, access to applications and content assembly wherever they are on the Internet,
regardless of global or local traffic conditions. Dedicated professionals staff our network operations command
center, or NOCC, on a 24 hours a day, seven days a week basis to monitor and react to Internet traffic patterns and
trends. We frequently deploy enhancements to our software globally to strengthen and improve the effectiveness of
our network. Customers are also able to control the extent of their use of Akamai services to scale on demand, using
as much or as little capacity of the global platform as they require, to support widely varying traffic and rapid
growth without the need for expensive and complex internal infrastructure.

We also offer our Accelerated Network Partner Program. Under this program, a network operator installs
Akamai caching servers inside its network data centers. The servers and CDN capacity are fully managed by
Akamai and are part of the Akamai Intelligent Platform. The servers are monitored and managed from our
NOCC. The program is designed to enable network operators to offer subscribers a better end user experience for
popular content and services.

Business Segments and Geographic Information

We operate in one industry segment: providing services for accelerating and improving the delivery of
content and applications over the Internet. For the years ended December 31, 2013, 2012 and 2011, 29%, 28%
and 29%, respectively, of our total revenue was derived from our operations outside the U.S. No single country
outside of the U.S accounted for 10% or more of our revenue in any such year.

Our long-lived assets include servers, which are deployed into networks worldwide. As of December 31,
2013, we had approximately $210.9 million and $124.9 million of net property and equipment, excluding
internal-use software, located in the U.S and foreign locations, respectively. As of December 31, 2012, we had
approximately $159.0 million and $99.0 million of net property and equipment, excluding internal-use software,
located in the U.S. and foreign locations, respectively.

Customers

As of December 31, 2013, our customers included many of the world’s leading corporations, including
Apple, Autodesk, BMW, Bombay Stock Exchange, eBay, EMC, FedEx, Home Depot, HubSpot, IBM, Investec,

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Panasonic, Qantas, Qualcomm, Ralph Lauren, Red Hat, Salesforce.com, Standard Chartered Bank, Turner
Sports, Unilever, USAA and Virgin America. We also actively sell to government agencies. As of December 31,
2013, our public sector customers included the Federal Aviation Administration,
the Federal Emergency
Management Agency, the U.S. Air Force, the U.S. Census Bureau, the U.S. Department of Defense, the
U.S. Postal Service and the U.S. Department of Labor.

No customer accounted for 10 percent or more of total revenue for any of the years ended December 31,
2013, 2012 and 2011. Less than 10 percent of our total revenue in each of the years ended December 31, 2013,
2012 and 2011 was derived from contracts or subcontracts terminable at the election of the federal government,
and we do not expect such contracts to account for more than 10 percent of our total revenue in 2014.

Sales, Service and Marketing

Our sales, service and marketing professionals are located in approximately 50 offices in the United States,
Europe, the Middle East and Asia. We market and sell our solutions globally through our direct sales and service
organization and through more than 100 active channel partners including AT&T, IBM Corporation and
Telefonica Group. In addition to entering into agreements with resellers, we have several other types of sales and
marketing focused alliances with entities such as system integrators, application service providers, sales agents
and referral partners. By aligning with these companies, we believe we are better able to market our services and
encourage increased adoption of our technology throughout the industry.

Our sales, service and marketing organization includes employees in direct and channel sales, sales
operations, professional services, account management and technical consulting. As of December 31, 2013, we
had 1,819 employees in this organization, including 310 direct sales representatives whose performance is
measured on the achievement of quota objectives. Additionally, we have 745 technical and professional service
employees who support our service revenue obligations and ongoing customer relationships.

To support our sales efforts and promote the Akamai brand, we conduct comprehensive marketing programs.
Our marketing strategies include an active public relations campaign, print advertisements, online advertisements,
participation at trade shows, strategic alliances, ongoing customer communication programs, training and sales
support. As of December 31, 2013, we had 190 employees in our global marketing organization.

Research and Development

Our research and development personnel are continuously undertaking efforts to enhance and improve our
existing services, strengthen our network and create new services in response to our customers’ needs and market
demand. As of December 31, 2013, we had 1,017 research and development employees. Our research and
development expenses were $93.9 million, $74.7 million and $52.3 million for the years ended December 31,
2013, 2012 and 2011, respectively. In addition, for the years ended December 31, 2013, 2012 and 2011, we
capitalized $67.9 million, $50.6 million and $40.4 million, respectively, of payroll, payroll-related costs and
external consulting related to the development of internal-use software to deliver our services and operate our
network. Additionally, for the years ended December 31, 2013, 2012 and 2011, we capitalized $11.5 million,
$8.9 million and $7.1 million, respectively, of stock-based compensation attributable to our research and
development personnel.

Competition

The market for our services is intensely competitive and characterized by rapidly changing technology,
evolving industry standards and frequent new product and service innovations. We expect competition for our
services to increase both from existing competitors and new market entrants. We compete primarily on the basis of:

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•

the performance and reliability of our services;

return on investment in terms of cost savings and new revenue opportunities for our customers;

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reduced infrastructure complexity;

sophistication and functionality of our offerings;

scalability;

security;

ease of implementation and use of service;

customer support; and

price.

We compete with companies offering products and services that address Internet performance problems,
including companies that provide Internet content delivery and hosting services, security solutions, technologies
used by network operators to improve the efficiency of their systems, streaming content delivery services and
equipment-based solutions for Internet performance problems, such as load balancers and server switches. Other
companies offer online distribution of digital media assets through advertising-based billing or revenue-sharing
models that may represent an alternative method for charging for the delivery of content and applications over
the Internet. In addition, potential customers may decide to purchase or develop their own hardware, software or
other technology solutions rather than rely on a provider of externally-managed services like Akamai.

We believe that we compete favorably with other companies in our industry by providing alternative
approaches to content and application delivery over the Internet, on the basis of the quality of our offerings, our
customer service and value.

Proprietary Rights and Licensing

Our success and ability to compete are dependent on our ability to develop and maintain the proprietary
aspects of our technology and operate without infringing on the proprietary rights of others. We rely on a
combination of patent, trademark, trade secret and copyright laws and contractual restrictions to protect the
proprietary aspects of our technology. As of December 31, 2013, we owned, or had exclusive rights to,
208 issued U.S. patents covering our technology as well as patents issued by other countries. We also have
numerous additional U.S. and foreign country patent applications pending. Our U.S.-issued patents extend to
various dates between approximately 2015 and 2032. In October 1998, we entered into a license agreement with
the Massachusetts Institute of Technology, or MIT, under which we were granted a royalty-free, worldwide right
to use and sublicense the intellectual property rights of MIT under various patent applications and copyrights
relating to Internet content delivery technology. We seek to limit disclosure of our intellectual property by
requiring employees and consultants with access to our proprietary information to execute confidentiality
agreements with us and by restricting access to our source code.

Employees

As of December 31, 2013, we had 3,908 full-time and part-time employees. Our future success will depend
in part on our ability to attract, retain and motivate highly qualified technical, managerial and other personnel for
whom competition is intense. Our employees are not represented by any collective bargaining unit. We believe
our relations with our employees are good.

9

Item 1A. Risk Factors

The following are certain of the important factors that could cause our actual operating results to differ
materially from those indicated or suggested by forward-looking statements made in this annual report on Form
10-K or presented elsewhere by management from time to time.

We face intense competition, the consequences of which could adversely affect our business.

We compete in markets that are intensely competitive and rapidly changing. Our current and potential
competitors vary by size, service offerings and geographic region and range from start ups that offer solutions
competing with a discrete part of our business to large technology or telecommunications companies that offer,
or may be planning to introduce, products and services that are broadly competitive with what we do. The
primary competitive factors in our market are: excellence of technology, global presence, customer service,
technical expertise, security, ease-of-use, breadth of services offered, price and financial strength.

Many of our current and potential competitors have substantially greater financial, technical and marketing
resources; larger customer bases; longer operating histories; greater brand recognition; and more established
relationships in the industry than we do. As a result, some of these competitors may be able to:

•

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•

•

develop superior products or services, gain greater market acceptance, and expand their service
offerings more efficiently or more rapidly;

adapt to new or emerging technologies and changes in customer requirements more quickly;

take advantage of acquisition and other opportunities more readily;

adopt more aggressive pricing policies and devote greater resources to the promotion, marketing, and
sales of their services, which could cause us to have to lower prices for certain services; and

devote greater resources to the research and development of their products and services.

Smaller and more nimble competitors may be able to:

•

•

attract customers by offering less-sophisticated versions of services than we provide at lower prices
than those we charge; and

respond more quickly than we can to new or emerging technologies and changes in customer
requirements, resulting in superior offerings.

Existing significant customers have in the past, and others may in the future, reduce or eliminate their

purchases of our services because they:

•

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•

pursue a “do-it-yourself” approach by putting in place software and other technology solutions for
content and application delivery within their internal systems;

enter into relationships directly with network providers instead of relying on an overlay network like
ours; or

implement dual vendor policies to reduce reliance on external providers like Akamai.

These approaches, which may also be pursued by potential customers, also mean that our competitors
include hardware manufacturers, software companies and other entities that offer Internet-related solutions that
are not service-based.

Ultimately, increased competition of all types could result in price and revenue reductions, loss of customers
and loss of market share, each of which could materially impact our business, profitability, financial condition,
results of operations and cash flows.

If we experience significant fluctuations in our rate of anticipated growth and fail to balance our expenses
with our revenue forecasts, our results could be harmed.

Due to the pace of change and innovation in our business and the unpredictability of future general
economic and financial market conditions, we may not be able to accurately forecast our rate of growth. We plan

10

our expense levels and investment on estimates of future revenue and future anticipated rate of growth. We may
not be able to adjust our spending appropriately if revenue from new customers or renewals by existing
customers falls short of our expectations. Many of our expenses are also fixed cost in nature for some minimum
amount of time, such as with co-location and bandwidth providers, so it may not be possible to reduce costs in a
timely manner or without the payment of fees to exit certain obligations early. As a result, we expect that our
revenues, operating results and cash flows may fluctuate significantly on a quarterly basis. Our recent revenue
growth rates may not be sustainable and may decline in the future. We believe that period-to-period comparisons
of our revenues, operating results and cash flows may not be meaningful and should not be relied upon as an
indication of future performance.

The development of new services and enhancements to existing services are key to our revenue growth. If we
fail to innovate effectively and adequately respond to emerging technological trends and customers’ changing
needs, our operating results and market share may suffer.

The market for our services is characterized by rapidly changing technology, evolving industry standards
and new product and service introductions. We believe that developing innovative solutions is key to our revenue
growth. We must do so in an environment where other competitors may develop products and services that are,
or may be viewed as, better than ours. Failure to adequately develop new solutions that are attractive to
customers may significantly impair our revenue growth.

The process of developing new technologies is complex and uncertain; we must commit significant
resources to developing new services or enhancements to our existing services before knowing whether our
investments will result in services the market will accept. Furthermore, we may not successfully execute our
technology initiatives because of errors in planning or timing, technical or operational hurdles that we fail to
overcome in a timely fashion, misunderstandings about market demand or a lack of appropriate resources. In that
case, we could see significant growth in expenses without any corresponding revenue increases.

Numerous factors could cause our revenue growth rate and profitability to decline.

Our revenue growth rate may decline in future periods as a result of a number of factors, including
increasing competition, pricing pressure, the decline in growth rate percentages as our revenues increase to
higher levels and macroeconomic factors affecting certain aspects of our business. We also believe our
profitability may decrease because we have large fixed expenses and expect to continue to incur significant
bandwidth, co-location and other expenses, including increased depreciation on network equipment purchased in
recent years. As a result, we may not be able to continue to maintain our current level of profitability in 2014 or
on a quarterly or annual basis thereafter.

There are numerous factors that could, alone or in combination with other factors, impede our ability to

increase revenues and/or moderate expenses, including:

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continuing market pressure to decrease our prices, particularly in our media business;

the impact of lower pricing and other terms in renewal agreements we enter into with existing
customers;

inability to attract new customers to our solutions;

failure to adequately enhance our services and develop attractive new ones;

failure to experience traffic growth and increase sales of our core services and advanced features;

inability to limit our co-location and bandwidth costs

increased head count or other operating expenses;

changes in our customers’ business models that we do not fully anticipate and the fail to address;

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•

customers, particularly larger media customers, implementing their own data centers and approaches to
delivery to limit their reliance on third party providers like us;

macroeconomic pressures;

inability to develop effective new sales channels; and

failure of a significant number of customers to pay our fees on a timely basis or at all or failure to
continue to purchase our services in accordance with their contractual commitments.

We may be unable to replace lost revenues due to customer cancellations or renewals at lower rates.

Our customers have no obligation to renew their agreements for our services after the expiration of their
existing terms, which are typically 12 to 24 months. We cannot predict our renewal rates. Some may elect not to
renew and others may renew at lower prices, lower committed traffic levels, or for shorter contract lengths.
Historically, a significant percentage of our renewals, particularly with larger customers, have involved unit price
declines as competition has increased and the market for certain parts of our business has matured. If that trend
continues in the future, we will need to sell more services or attract new customers to increase our revenues and
improve or maintain profitability. Our renewal rates may decline as a result of a number of factors, including
competitive pressures, customer dissatisfaction with our services, customers’ inability to continue their operations
and spending levels, the impact of dual vendor policies, customers implementing or increasing their use of in-house
technology solutions and general economic conditions. It is key to our profitability that we offset lost committed
recurring revenue due to customer cancellations, terminations, price reductions or other less favorable terms by
adding new customers and increasing the number of high-margin services, features and functionalities that our
existing customers purchase. If we are unable to do so, our revenue will decline and our business will suffer.

We may be unsuccessful at developing strategic relationships with third parties that expand our distribution
channels and increase revenues, which could significantly limit our long-term growth.

Our future success will likely require us to maintain and increase the number and depth of our relationships
with resellers, systems integrators, product makers and other strategic partners and to leverage those relationships
to expand our distribution channels and increase revenues. The need to develop such relationships can be
particularly acute in areas outside of the United States. We have not always been successful at developing these
relationships due to the complexity of our services, our historical reliance on an internal sales force, a past lack of
strategic focus on such arrangements and other factors. Recruiting and retaining qualified channel partners and
training them in the use of our technology and services requires significant time and resources. In order to
develop and expand our distribution channel, we must continue to expand and improve our portfolio of solutions
as well as the systems, processes and procedures that support our channels. Those systems, processes and
procedures may become increasingly complex and difficult to manage. The time and expense required for the
sales and marketing organizations of our channel partners to become familiar with our offerings, including our
new services developments, may make it more difficult to introduce those products to enterprises. Our failure to
maintain and increase the number and quality of relationships with channel partners, and any inability to
successfully execute on the partnerships we initiate, could significantly impede our revenue growth prospects in
the short and long term.

As part of our business strategy, we have entered, and may seek to enter, into business combinations,
acquisitions, and other strategic relationships that may be difficult to integrate, disrupt our business, dilute
stockholder value and divert management attention.

We have completed numerous acquisitions in recent years. If attractive acquisition opportunities arise in the
future, we may seek to enter into additional business combinations or purchases. We may also enter into other
types of strategic relationships that involve technology sharing or close cooperation with other companies.
Acquisitions and other complex transactions are accompanied by a number of risks, including the following:

•

•

the difficulty of integrating the operations and personnel of acquired companies;

the potential disruption of our ongoing business;

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the potential distraction of management;

expenses related to the transactions;

increased accounting charges such as impairment of goodwill or intangible assets, amortization of
intangible assets acquired and a reduction in the useful lives of intangible assets acquired; and

potential unknown liabilities associated with acquired businesses.

Any inability to integrate completed acquisitions or combinations in an efficient and timely manner could
have an adverse impact on our results of operations. In addition, we may not be able to recognize any expected
synergies or benefits in connection with a future acquisition or combination. If we are not successful in
completing acquisitions or other strategic transactions that we may pursue in the future, we may incur substantial
expenses and devote significant management time and resources without a successful result. Future acquisitions
could require use of substantial portions of our available cash or result in dilutive issuances of securities.
Technology sharing or other strategic relationships we enter into may give rise to disputes over intellectual
property ownership, operational responsibilities and other significant matters. Such disputes may be expensive
and time-consuming to resolve.

If we fail to manage effectively our operations, expected growth, diversification and changes to our business
could harm us.

Our future operating results will depend on our ability to manage our operations. As a result of the
diversification of our business, personnel growth, acquisitions and international expansion in recent years, many
of our employees are now based outside of our Cambridge, Massachusetts headquarters; however, most
management decisions are made by a relatively small group of individuals based primarily at our headquarters. If
we are unable to appropriately increase management depth, enhance succession planning and decentralize our
decision-making at a pace commensurate with our actual or desired growth rates, we may not be able to achieve
our financial or operational goals.

We have greatly increased our employee base in recent years and have brought in hundreds of new employees
through acquisitions. It is important to our continued success that we hire qualified employees, properly train them
and manage out poorly-performing personnel, all while maintaining our corporate culture and spirit of innovation. If
we are not successful at these efforts, our growth and operations could be adversely affected.

As our business evolves, we must also expand and adapt our operational infrastructure. Our business relies
on our data systems, billing systems and other operational and financial reporting and control systems. All of
these systems have become increasingly complex in the recent past due to the diversification and complexity of
our business, acquisitions of new businesses with different systems and increased regulation over controls and
procedures. To manage our technical support infrastructure effectively and improve our sales efficiency, we will
need to continue to upgrade and improve our data systems, billing systems, ordering processes and other
operational and financial systems, procedures and controls. These upgrades and improvements will require a
dedication of resources and in some cases are likely to be complex. If we are unable to adapt our systems and
organization in a timely, efficient and cost-effective manner to accommodate changing circumstances, our
business may be adversely affected.

We face risks associated with international operations that could harm our business.

We have operations in numerous foreign countries and may continue to expand our sales and support
operations internationally. Such expansion could require us to make significant expenditures, which could harm our
profitability. We are increasingly subject to a number of risks associated with international business activities that
may increase our costs, lengthen our sales cycle and require significant management attention. These risks include:

•

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currency exchange rate fluctuations and limitations on the repatriation and investment of funds;

difficulties in transferring funds from or converting currencies in certain countries;

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unexpected changes in regulatory requirements resulting in unanticipated costs and delays;

interpretations of laws or regulations that would subject us to regulatory supervision or, in the
alternative, require us to exit a country, which could have a negative impact on the quality of our
services or our results of operations;

uncertainty regarding liability for content or services;

adjusting to different employee/employer relationships and different regulations governing such
relationships;

corporate and personal liability for alleged or actual violations of laws and regulations;

difficulty in staffing, developing and managing foreign operations as a result of distance, language and
cultural differences; and

potentially adverse tax consequences.

In addition, compliance with complex foreign and U.S. laws and regulations that apply to our international
operations increases our cost of doing business. These numerous, rapidly-changing and sometimes conflicting
laws and regulations include internal control and disclosure rules, data privacy and filtering requirements, anti-
corruption laws, such as the Foreign Corrupt Practices Act, the UK Bribery Act and local laws prohibiting
corrupt payments to governmental officials, and antitrust and competition regulations, among others. Violations
of these laws and regulations could result in fines and penalties, criminal sanctions against us, our officers, or our
employees, prohibitions on the conduct of our business and on our ability to offer our products and services in
one or more countries, and could also materially affect our brand, our international expansion efforts, our ability
to attract and retain employees, our business, and our operating results. Although we have implemented policies
and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our
employees, contractors or agents will not violate our policies.

Our corporate culture has contributed to our success, and if we cannot maintain this culture, we could lose
the innovation, creativity, and teamwork fostered by our culture, and our operating results may be harmed.

We believe that a critical contributor to our success has been our corporate culture, which we believe fosters
innovation, creativity, and teamwork. If we implement more complex organizational management structures
because of growth or other structural changes or create disparities in personal wealth among our employees
through our compensation philosophy and benefit plan utilization, we may find it increasingly difficult to
maintain the beneficial aspects of our corporate culture. If we cannot maintain a favorable corporate culture, then
we can lose employee engagement, which can cause employees to lose the desire to innovate, foster teamwork
and provide extraordinary assistance to our customers which could negatively impact our future operating results.

Defects or disruptions in our services could diminish demand for our solutions and subject us to substantial
liability.

Our services are highly complex and are designed to be deployed in and across numerous large and complex
networks that we do not control. From time to time, we have needed to correct errors and defects in the software
that underlies our services and platform. We have also experienced customer dissatisfaction with the quality of
some of our media delivery services which has led to loss of business and could lead to loss of customers in the
future. There may be additional errors and defects in our software that may adversely affect our operations. We
may not have in place adequate quality assurance procedures to ensure that we detect errors in our software in a
timely manner, and we may have insufficient resources to efficiently cope with multiple service incidents
happening simultaneously or in rapid succession. As we acquire companies, we may encounter difficulty in
incorporating the acquired technologies into our service and maintaining the quality standards that are consistent
with our brand and reputation. If we are unable to efficiently and cost-effectively fix errors or other problems that
may be identified and improve the quality of our services, or if there are unidentified errors that allow persons to

14

improperly access our services, we could experience loss of revenues and market share, damage to our
reputation, increased expenses, delayed payments and legal actions by our customers. If we elect to move into
new areas that involve legal and regulatory complexities, the potential risks we face and magnitude of losses
could increase.

Any unplanned interruption in the functioning of our network or services or attacks on our internal
information technology systems could lead to significant costs and disruptions that could reduce our revenues
and harm our business, financial results and reputation.

Our business is dependent on providing our customers with fast, efficient and reliable distribution of
applications and content over the Internet. For our core services, we currently provide a standard guarantee that
our networks will deliver Internet content 24 hours a day, 7 days a week, 365 days a year. If we do not meet this
standard, affected customers may be entitled to credits. Our network or services could be disrupted by numerous
events, including natural disasters, unauthorized access to our servers, failure or refusal of our third party
network providers to provide the necessary capacity, power losses, human error and intentional disruptions of our
services, such as disruptions caused by software viruses or attacks by unauthorized users.

Our increased focus on selling security-related solutions could increase the number and intensity of attacks
against our systems.

As we expand our emphasis on selling security-related solutions, we may become a more attractive target
for attacks on our infrastructure the risks associated with which are described in more details below. The
acquisition of Prolexic, in particular, is expected to increase our visibility as a security-focused company.
Security risks for us will also increase as we continue to grow our cloud-based offerings and services, especially
in customer sectors involving particularly sensitive data such as health sciences, financial services and the
government.

Cybersecurity attacks and other security breaches could expose us to liability and our reputation and business
could suffer.

We are in the information technology business, and our services and network transmit and store our
customers’ information and data as well as our own. We have a reputation for a secure and reliable platform and
services and have invested a great deal of time and resources in protecting the integrity and security of our
services and internal and external data that we manage. Nevertheless, there have been, and in the future are likely
to be, attempts to gain unauthorized access to our information technology systems in order to steal information
about our technology, financial data or other information or take other actions that would be damaging to our
customers and us. Such attacks may be pursued through viruses, worms and other malicious software programs
that attack our platform, exploit potential security vulnerabilities of our services, create system disruptions and
cause shutdowns or denials of service. Data may also be accessed or modified improperly as a result of employee
or supplier error or malfeasance, and third parties may attempt to fraudulently induce employees or customers
into disclosing sensitive information such as user names, passwords or other information in order to gain access
to our data, our customers’ data or our IT systems. We have acquired a number of companies over the years and
may continue to do so in the future. While we make significant efforts to address any IT security issues with
respect to our acquisitions, we may still inherit such risks when we integrate these acquisitions within Akamai.

There can be no assurance that attacks by unauthorized users will not be attempted in the future, that our
security measures will be effective, that we will quickly detect an attack, or that a successful attack would not be
damaging. Any widespread interruption of the functioning of our network or services would reduce our revenues
and could harm our business, financial results and reputation. Any insurance coverage we carry may not be
sufficient to cover all or a significant portion of the losses we could suffer from an attack. Any breach of the
security of our information systems could lead to the unauthorized release of valuable confidential information,
including trade secrets, material nonpublic information about our customers, personally identifiable information

15

about individuals, financial information and sensitive data that others could use to compete against us. Such
events could likely harm our business and reputation. If the security solutions we offer to address the Internet
security needs of our customers fail to operate effectively or to provide benefits promised by us, we could suffer
from reduced revenues and harm to our business and reputation.

We may have insufficient transmission and co-location space, which could result in disruptions to our services
and loss of revenues.

are dependent

Our operations

in part upon transmission capacity provided by third party
telecommunications network providers and access to co-location facilities to house our servers. There can be no
assurance that we are adequately prepared for unexpected increases in bandwidth demands by our customers. The
bandwidth we have contracted to purchase may become unavailable for a variety of reasons, including payment
disputes, network providers going out of business, networks imposing traffic limits or governments adopting
regulations that impact network operations. In some regions, network providers may choose to compete with us
and become unwilling to sell us adequate transmission capacity at fair market prices. Any failure of network
providers on which we rely to provide the capacity we require, due to financial or other reasons, may result in a
reduction in, or disruption to, service to our customers and ultimately loss of those customers. In recent years, it
has become increasingly expensive to house our servers at network facilities. We expect this trend to continue.
These increased expenses have made, and will make, it more costly for us to expand our operations and more
difficult for us to maintain or improve our profitability.

The potential exhaustion of the supply of unallocated IPv4 addresses and the inability of Akamai and other
Internet users to successfully transition to IPv6 could harm our operations and the functioning of the Internet
as a whole.

An Internet Protocol address, or IP address, is a numerical label that is assigned to any device connecting to
the Internet. Today, the functioning of the Internet is dependent on the use of Internet Protocol version 4, or IPv4,
the fourth version of the Internet Protocol, which uses 32-bit addresses. We currently rely on the acquisition of IP
addresses for the functioning and expansion of our network and expect such reliance to continue in the
future. There are, however, only a finite number of IPv4 addresses. The supply of unallocated IPv4 addresses is
likely to be exhausted in the near future. Internet Protocol version 6, or IPv6, uses 128-bit addresses and has been
designed to succeed IPv4 and alleviate the expected exhaustion of unallocated addresses under
that
version. While IPv4 and IPv6 will co-exist for some period of time, eventually all Internet users and companies
will need to transition to IPv6. There can be no guarantee that the plans we have been developing for the
transition to IPv6 will be effective. If we are unable to obtain the IPv4 addresses we need, on financial terms
acceptable to us or at all, before we or other entities that rely on the Internet can transition to IPv6, our current
and future operations could be materially harmed. If there is not a timely and successful transition to IPv6 by
Internet users generally, the Internet could function less effectively, which could damage numerous businesses,
the economy generally and the prospects for future growth of the Internet as a medium for transacting business.
This could, in turn, be harmful to our financial condition, results of operations and cash flows.

Our stock price has been, and may continue to be, volatile, and your investment could lose value.

The market price of our common stock has been volatile. Trading prices may continue to fluctuate in

response to a number of events and factors, including the following:

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quarterly variations in operating results;

introduction of new products, services and strategic developments by us or our competitors;

market speculation about whether we are a takeover target;

changes in financial estimates and recommendations by securities analysts;

failure to meet the expectations of securities analysts;

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purchases or sales of our stock by our officers and directors;

macro-economic factors;

repurchases of shares of our common stock;

performance by other companies in our industry; and

geopolitical conditions such as acts of terrorism or military conflicts.

Furthermore, our revenues, particularly those attributable to usage of our services beyond customer
commitments, can be difficult
to forecast, and, as a result, our quarterly operating results can fluctuate
substantially. This concern is particularly acute with respect to our media customers and commerce customers for
which holiday sales are a key but unpredictable driver of usage of our services. As we introduce new services and
potentially increase software licensing, we expect to face additional challenges with our forecasting processes.
Also, because a significant portion of our cost structure is largely fixed in the short-term, revenue shortfalls tend
to have a disproportionately negative impact on our profitability. If we announce revenue or profitability results
that do not meet or exceed our guidance or make changes in our guidance with respect to future operating results,
our stock price may decrease significantly in reaction.

Any of these events, as well as other circumstances discussed in these Risk Factors, may cause the price of
our common stock to fall. In addition, the stock market in general, and the market prices for technology
companies in particular, have experienced significant volatility that often has been unrelated to the operating
performance of such companies. These broad market and industry fluctuations may adversely affect the market
price of our common stock, regardless of our operating performance.

Any failure to meet our debt obligations would damage our business.

As of March 3, 2014, we had total long-term debt of $690.0 million of convertible senior notes. Our ability
to refinance the notes, make cash payments in connection with conversions of the notes or repurchase those notes
in the event of a fundamental change will depend on market conditions and our future performance, which is
subject to economic, financial, competitive and other factors beyond our control. We also may not use the cash
we have raised through the issuance of the convertible senior notes in an optimally productive and profitable
manner. If we are unable to remain profitable or if we use more cash than we generate in the future, our level of
indebtedness could adversely affect our future operations by increasing our vulnerability to adverse changes in
general economic and industry conditions and by limiting or prohibiting our ability to obtain additional financing
for future capital expenditures, acquisitions and general corporate and other purposes. In addition, if we are
unable to make cash payments upon conversion of the notes we would be required to issue significant amounts of
our common stock, which would be dilutive to existing stockholders. If we do not have sufficient cash to
repurchase notes following a fundamental change we would be in default under the terms of the notes, which
could seriously harm our business. In addition, the terms of the notes do not limit the amount of future
indebtedness we may incur. If we incur significantly more debt, this could intensify the risks described above.

We may issue additional shares of our common stock or instruments convertible into shares of our common
stock and thereby materially and adversely affect the market price of our common stock.

We are not restricted from issuing additional shares of our common stock or other instruments convertible
into, or exchangeable or exercisable for, shares of our common stock. If we issue additional shares of our
common stock or instruments convertible into shares of our common stock, it may materially and adversely
affect the market price of our common stock.

17

If we are unable to retain our key employees and hire qualified sales and technical personnel, our ability to
compete could be harmed.

Our future success depends upon the continued services of our executive officers and other key technology,
sales, marketing and support personnel who have critical
industry experience and relationships. There is
significant competition for talented individuals in the regions in which our primary offices are located, which
affects both our ability to retain key employees and hire new ones. None of our officers or key employees is
bound by an employment agreement for any specific term. Members of our senior management team have left
Akamai over the years for a variety of reasons, and we cannot be certain that there will not be additional
departures, which may be disruptive to our operations. The loss of the services of any of our key employees
could hinder or delay the implementation of our business model and the development and introduction of, and
negatively impact our ability to sell, our services.

We may need to defend against patent or copyright infringement claims, which would cause us to incur
substantial costs.

Other companies or individuals, including our competitors, may hold or obtain patents or other proprietary
rights that would prevent, limit or interfere with our ability to make, use or sell our services or develop new
services, which could make it more difficult for us to increase revenues and improve or maintain profitability.
Entities holding Internet-related patents or other intellectual property rights are increasingly bringing suits
alleging infringement of such rights against both technology providers and customers that use such technology.
Any such action naming Akamai could be costly to defend or lead to an expensive settlement or judgment against
us.

We have agreed to indemnify our customers if our services infringe specified intellectual property rights;
therefore, we could become involved in litigation brought against customers if it is alleged that our services and
technology are implicated. Any litigation or claims, whether or not valid, brought against us or pursuant to which
we indemnify our customers could result in substantial costs and diversion of resources and require us to do one
or more of the following:

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cease selling, incorporating or using products or services that incorporate the challenged intellectual
property;

pay substantial damages and incur significant litigation expenses;

obtain a license from the holder of the infringed intellectual property right, which license may not be
available on reasonable terms or at all; or

redesign products or services.

If we are forced to take any of these actions, our business may be seriously harmed.

Our business will be adversely affected if we are unable to protect our intellectual property rights from
unauthorized use or infringement by third parties.

We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on
disclosure to protect our intellectual property rights. These legal protections afford only limited protection. We
have previously brought lawsuits against entities that we believed were infringing our intellectual property rights
but have not always prevailed. Such lawsuits can be expensive and require a significant amount of attention from
our management and technical personnel, and the outcomes are unpredictable. Developments and changes in
patent law, such as changes in interpretations of the joint infringement standard, could also restrict how we
enforce certain patents we hold. Monitoring unauthorized use of our services is difficult, and we cannot be
certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in the United States. Furthermore, we

18

cannot be certain that any pending or future patent applications will be granted, that any future patent will not be
challenged, invalidated or circumvented, or that rights granted under any patent that may be issued will provide
competitive advantages to us. If we are unable to protect our proprietary rights from unauthorized use, the value
of our intellectual property assets may be reduced. Although we have licensed from other parties proprietary
technology covered by patents, we cannot be certain that any such patents will not be challenged, invalidated or
circumvented. Such licenses may also be non-exclusive, meaning our competition may also be able to access
such technology.

If our license agreement with MIT terminates, our business could be adversely affected.

We have licensed from MIT, technology that is covered by various patents and copyrights relating to
Internet content delivery technology. Some of our core technology is based in part on the technology covered by
these patents, patent applications and copyrights. Our license is effective for the life of the patents and patent
applications; however, under limited circumstances, such as a cessation of our operations due to our insolvency
or our material breach of the terms of the license agreement, MIT has the right to terminate our license. A
termination of our license agreement with MIT could have a material adverse effect on our business. These
patents are scheduled to expire over the next five years.

We rely on certain “open-source” software the use of which could result in our having to distribute our
proprietary software, including our source code, to third parties on unfavorable terms, which could materially
affect our business.

Certain of our service offerings use software that is subject to open-source licenses. Open-source code is
software that is freely accessible, usable and modifiable. Certain open-source code is governed by license
agreements, the terms of which could require users of such software to make any derivative works of the
software available to others on unfavorable terms or at no cost. Because we use open-source code, we may be
required to take remedial action in order to protect our proprietary software. Such action could include replacing
certain source code used in our software, discontinuing certain of our products or taking other actions that could
divert resources away from our development efforts. In addition, the terms relating to disclosure of derivative
works in many open-source licenses are unclear. We periodically review our compliance with the open-source
licenses we use and do not believe we will be required to make our proprietary software freely available.
However, if a court interprets one or more such open-source licenses in a manner that is unfavorable to us, we
could be required to make certain of our key software available at no cost.

If our ability to deliver media files in popular proprietary content formats were to become restricted or cost-
prohibitive, demand for our content delivery services could decline, we could lose customers and our financial
results could suffer.

Significant portions of our business depend on our ability to deliver media content in all major formats. If
our legal right or technical ability to store and deliver content in one or more popular proprietary content formats,
such as Adobe® Flash® or Windows® Media, were to become limited, our ability to serve our customers in these
formats would be impaired and the demand for our content delivery services would decline by customers using
these formats. Owners of proprietary content formats may be able to block, restrict or impose fees or other costs
on our use of such formats, which could lead to additional expenses for us and for our customers, or which could
prevent our delivery of this type of content altogether. Such interference could result in a loss of existing
customers, increased costs and impairment of our ability to attract new customers, which would harm our
revenue, operating results and growth.

If the accounting estimates we make, and the assumptions on which we rely, in preparing our financial
statements prove inaccurate, our actual results may be adversely affected.

Our financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America. The preparation of these financial statements requires us to make estimates and

19

judgments about, among other things, taxes, revenue recognition, stock-based compensation costs, capitalization
of internal-use software, investments, contingent obligations, allowance for doubtful accounts, intangible assets
and restructuring charges. These estimates and judgments affect the reported amounts of our assets, liabilities,
revenues and expenses, the amounts of charges accrued by us, and related disclosure of contingent assets and
liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances and at the time they are made. If our estimates or the assumptions underlying
them are not correct, actual results may differ materially from our estimates and we may need to, among other
things, accrue additional charges that could adversely affect our results of operations, which in turn could
adversely affect our stock price. In addition, new accounting pronouncements and interpretations of accounting
pronouncements have occurred and may occur in the future that could adversely affect our reported financial
results.

We may have exposure to greater-than-anticipated tax liabilities.

Our future income taxes could be adversely affected by earnings being lower than anticipated in
jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher
statutory tax rates, or changes in tax laws, regulations, or accounting principles, as well as certain discrete items
such as equity-related compensation. We have recorded certain tax reserves to address potential exposures
involving our income, sales and use and franchise tax positions. These potential tax liabilities result from the
varying application of statutes, rules, regulations and interpretations by different jurisdictions. Our reserves,
however, may not be adequate to cover our total actual liability. Although we believe our estimates and reserves
are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and
may materially affect our financial results in the period or periods for which such determination is made.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our
financial results or prevent fraud. As a result, our stockholders could lose confidence in our financial
reporting, which could harm our business and the trading price of our common stock.

We have complied with Section 404 of the Sarbanes-Oxley Act of 2002 by assessing, strengthening and
testing our system of internal controls. Even though we concluded our internal controls over financial reporting
were effective as of the end of the period covered by this report, we need to continue to maintain our processes
and systems and adapt them to changes as our business evolves and we rearrange management responsibilities
and reorganize our business accordingly. This continuous process of maintaining and adapting our internal
controls and complying with Section 404 is expensive and time-consuming and requires significant management
attention. We cannot be certain that our internal control measures will continue to provide adequate control over
our financial processes and reporting and ensure compliance with Section 404. Furthermore, as our business
changes and if we expand through acquisitions of other companies, our internal controls may become more
complex and we will require significantly more resources to ensure our internal controls remain effective. Failure
to implement required new or improved controls, or difficulties encountered in their implementation, could harm
our operating results or cause us to fail to meet our reporting obligations. If we or our independent registered
public accounting firm identify material weaknesses, the disclosure of that fact, even if quickly remediated, could
reduce the market’s confidence in our financial statements and harm our stock price.

Fluctuations in foreign currency exchange rates affect our operating results in U.S. dollar terms.

A portion of our revenues is derived from international operations. Revenues generated and expenses
incurred by our international subsidiaries are often denominated in the currencies of the local countries. As a
result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange
rates as the financial results of our international subsidiaries are translated from local currencies into U.S.
dollars. In addition, our financial results are subject to changes in exchange rates that impact the settlement of
transactions in non-functional currencies. While we have implemented a foreign currency hedging program to
mitigate transactional exposures, there is no guarantee that such program will be fully effective.

20

Internet-related and other laws could adversely affect our business.

Laws and regulations that apply to communications and commerce over the Internet are becoming more
prevalent. In particular, the growth and development of the market for online commerce has prompted calls for
more stringent copyright protection, tax, consumer protection, cybersecurity, content, anti-discrimination and
privacy laws, both in the United States and abroad, that may impose additional burdens on companies conducting
business online or providing Internet-related services such as ours. Other potential regulatory proposals could
seek to mandate changes to the economic relationships among participants in the Internet ecosystem. The
adoption of any of these measures could negatively affect both our business directly as well as the businesses of
our customers, which could reduce their demand for our services. In addition, domestic and foreign government
attempts to regulate the operation of the Internet through legislation, treaties or regulations could negatively
impact our business.

Changes in regulations or user concerns regarding privacy and protection of user data could adversely affect
our business.

Federal, state, foreign and international laws and regulations may govern the collection, use, retention,
sharing and security of data that we receive from our customers, visitors to their websites and others. In addition,
we have a publicly-available privacy policy concerning collection, use and disclosure of user data. Any failure, or
perceived failure, by us to comply with our posted privacy policies or with any privacy-related laws, government
regulations or directives, or industry self-regulatory principles could result in damage to our reputation or
proceedings or actions against us by governmental entities or others, which could potentially have an adverse
effect on our business.

A large number of legislative proposals pending before the U.S. Congress, various state legislative bodies
and foreign governments concern data privacy and retention issues related to our business. It is not possible to
predict whether, when, or the extent to which such legislation may be adopted. In addition, the interpretation and
application of user data protection laws are currently unsettled. These laws may be interpreted and applied
inconsistently from jurisdiction to jurisdiction and inconsistently with our current data protection policies and
practices. Complying with potentially varying international requirements could cause us to incur substantial costs
or require us to change our business practices in a manner adverse to our business.

Our sales to government clients subject us to risks including early termination, audits, investigations,
sanctions and penalties.

We derive revenues from contracts with the U.S. government, as well as foreign, state and local
governments and their respective agencies. Such government entities often have the right to terminate these
contracts at any time, without cause. There is increased pressure for governments and their agencies, both
domestically and internationally, to reduce spending. Most of our government contracts are subject to legislative
approval of appropriations to fund the expenditures under these contracts. These factors may join to limit the
revenues we derive from government contracts in the future. Additionally, government contracts generally have
requirements that are more complex that those found in commercial enterprise agreements and therefore more
costly to comply with. Such contracts are also subject to audits and investigations that could result in civil and
criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees
received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future
government business.

General global market and economic conditions may have an adverse impact on our operating performance,
results of operations and cash flows.

Our business has been and could continue to be affected by general global economic and market conditions.
Weakness in the United States and/or in economies outside the U.S. and could continue to have a negative effect
on our operating results, including decreases in revenues and operating cash flows. To the extent economic

21

conditions impair our customers’ ability to profitably monetize the content we deliver on their behalf, they may
reduce or eliminate the traffic we deliver for them. Such reductions in traffic would lead to a reduction in our
revenues. Additionally, in a down-cycle economic environment, we may experience the negative effects of
increased competitive pricing pressure, customer loss, a slow down in commerce over the Internet and
corresponding decrease in traffic delivered over our network and failures by customers to pay amounts owed to
us on a timely basis or at all. Suppliers on which we rely for servers, bandwidth, co-location and other services
could also be negatively impacted by economic conditions that, in turn, could have a negative impact on our
operations or expenses. There can be no assurance, therefore, that current economic conditions or worsening
economic conditions or a prolonged or recurring recession will not have a significant adverse impact on our
operating results.

Global climate change regulations could adversely impact our business.

Recent scientific studies and other news reports suggest the possibility of global climate change. In
response, governments may adopt new regulations affecting the use of fossil fuels or requiring the use of
alternative fuel sources. In addition, our customers may require us to take steps to demonstrate that we are taking
ecologically responsible measures in operating our business. Our deployed network of more than 140,000 servers
consumes significant energy resources, including those generated by the burning of fossil fuels. It is possible that
future regulatory or legislative initiatives or customer demands could affect the costs of operating our network of
servers and our other operations. Such costs and any expenses we incur to make our network more energy
efficient could make us less profitable in future periods. Failure to comply with applicable laws and regulations
or other requirements imposed on us could lead to fines, lost revenues and damage to our reputation.

Provisions of our charter, by-laws and Delaware law may have anti-takeover effects that could prevent a
change in control even if the change in control would be beneficial to our stockholders.

Provisions of our charter, by-laws and Delaware law could make it more difficult for a third party to acquire

us, even if doing so would be beneficial to our stockholders. These provisions include:

•

•

•

•

a classified board structure so that only approximately one-third of our board of directors is up for re-
election in any one year;

our board of directors has the right to elect directors to fill a vacancy created by the expansion of the
board of directors or the resignation, death or removal of a director, which prevents stockholders from
being able to fill vacancies on our board of directors;

stockholders must provide advance notice to nominate individuals for election to the board of directors
or to propose matters that can be acted upon at a stockholders’ meeting; such provisions may
discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s
own slate of directors or otherwise attempting to obtain control of our company; and

our board of directors may issue, without stockholder approval, shares of undesignated preferred stock;
the ability to issue undesignated preferred stock makes it possible for our board of directors to issue
preferred stock with voting or other rights or preferences that could impede the success of any attempt
to acquire us.

Further, as a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under
Delaware law, a corporation may not engage in a business combination with any holder of 15% or more of its
capital stock unless the holder has held the stock for three years or, among other things, the board of directors has
approved the transaction. Our board of directors could rely on Delaware law to prevent or delay an acquisition of
us.

22

Item 1B. Unresolved Staff Comments

None.

Item 2.

Properties

We lease approximately 318,000 square feet of property for our headquarters in Cambridge, Massachusetts;
the leases for such space are scheduled to expire in December 2019. Of this space, we have subleased
approximately 34,000 square feet to other companies. We maintain offices in several other locations in the
United States, including in or near each of Los Angeles, San Francisco, San Mateo and San Diego, California;
Atlanta, Georgia; Chicago, Illinois; New York, New York; Dallas, Texas; Reston, Virginia and Seattle,
Washington. We also maintain offices in or near the following cities outside the United States: Bangalore, Delhi
and Mumbai, India; Beijing and Hong Kong, China; Dusseldorf, Hamburg, Frankfurt and Munich, Germany;
Paris, France; Brussels, Belgium; London, England; Tokyo, Fukuoka and Osaka, Japan; Singapore; Madrid,
Spain; Sydney, Melbourne and Canberra, Australia; Netanya, Israel; Ottawa, Canada; San Jose, Costa Rica;
Milan, Italy; Stockholm, Sweden; Seoul, South Korea; Zurich, Switzerland; Kuala Lumpur, Malaysia; Taipei,
Taiwan; Amsterdam, the Netherlands; Prague, Czech Republic; and Krakow, Poland.

All of our facilities are leased. The square footage amounts above are as of March 3, 2014. We believe our
facilities are sufficient to meet our needs for the foreseeable future and, if needed, additional space will be
available at a reasonable cost.

Item 3.

Legal Proceedings

We are party to litigation that we consider routine and incidental to our business. We do not currently expect
the results of any of these litigation matters to have a material effect on our business, results of operations,
financial condition or cash flows.

Item 4. Mine Safety Disclosures

Not applicable.

23

PART II

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities

Our common stock, par value $0.01 per share, trades under the symbol “AKAM” on the NASDAQ Global
Select Market. The following table sets forth, for the periods indicated, the high and low sales price per share of
the common stock on the NASDAQ Global Select Market:

2013

2012

High

Low

High

Low

First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$42.53
$48.47
$53.20
$53.61

$33.55
$32.64
$42.17
$43.74

$39.14
$39.09
$39.67
$41.88

$31.01
$25.90
$27.86
$34.09

As of February 25, 2014, there were 467 holders of record of our common stock.

We have never paid or declared any cash dividends on shares of our common stock or other securities and
do not anticipate paying or declaring any cash dividends in the foreseeable future. We currently intend to retain
all future earnings, if any, for use in the operation of our business.

Issuer Purchases of Equity Securities

The following is a summary of our repurchases of our common stock in the fourth quarter of 2013 (in

thousands, except share and per share data):

Period(1)

October 1, 2013 – October 31, 2013 . . .
November 1, 2013 – November 30,

Total Number of
Shares Purchased(2)

Average Price
Paid per Share(3)

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(4)

Approximate
Dollar Value of
Shares that May
Yet be Purchased
Under Plans or
Programs(5)

48,440

$46.15

48,440

$748,055

2013 . . . . . . . . . . . . . . . . . . . . . . . . . .

512,355

December 1, 2013 – December 31,

2013 . . . . . . . . . . . . . . . . . . . . . . . . . .

501,691

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,062,486

45.22

45.06

$45.19

512,355

724,884

501,691

1,062,486

702,279

$702,279

Information is based on settlement dates of repurchase transactions.

(1)
(2) Consists of shares of our common stock, par value $0.01 per share. All repurchases were made pursuant to

(3)
(4)

previously-announced programs. All repurchases were made in open market transactions.
Includes commissions paid.
In January 2013, the Board of Directors authorized a $150.0 million share repurchase program covering a
twelve-month period commencing February 1, 2013. Repurchases made from October 1, 2013 through
October 15, 2013 were made pursuant to the January 2013 repurchase program. In October 2013, the Board
of Directors authorized a $750.0 million share repurchase program effective October 16, 2013 through
December 31, 2016. Repurchases made from October 16, 2013 through December 31, 2013 were made
pursuant to the newly authorized program.

(5) Dollar amounts reflect $750.0 million from the October 2013 repurchase program minus the total aggregate
amount purchased thereunder to date, commencing October 16, 2013, and aggregate commissions paid in
connections therewith.

24

During the year ended December 31, 2013, we repurchased 3.9 million shares of our common stock for an
aggregate $160.4 million.

Stock Performance Graph

The graph below compares the cumulative total return to stockholders of our common stock for the period
from December 31 2008 through December 31, 2013 to the cumulative total return over such period of the
NASDAQ Composite Index and the S&P Information Technology Sector Index.

Comparison of 5 Year Cumulative Total Return

$400

$350

$300

$250

$200

$150

$100

$50

12/08

12/09

12/10

12/11

12/12

12/13

S&P Information Technology

NASDAQ Composite

Akamai Technologies, Inc.

The information included under the heading “Stock Performance Graph” in Item 5 of this annual report on
Form 10-K is “furnished” and not “filed” and shall not be deemed to be “soliciting material” or subject to
Regulation 14A, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.

25

Item 6.

Selected Financial Data

The following selected consolidated financial data should be read in conjunction with our consolidated
financial statements and related notes, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and other financial data included elsewhere in this annual report on Form 10-K. The
consolidated statements of operations and balance sheet data for all periods presented is derived from the audited
consolidated financial statements included elsewhere in this annual report on Form 10-K or in annual reports on
Form 10-K for prior years on file with the Commission.

The following table sets forth selected financial data for the last five fiscal years (in thousands, except per

share data):

Year ended December 31,

2013

2012

2011

2010

2009

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and operating expenses . . . . . . . .
Income from operations . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income per share . . . . . . . . . . . . . .
Diluted net income per share . . . . . . . . . . . . .
Cash, cash equivalents and marketable

securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
1% convertible senior notes, including

current portion . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . .

$1,577,922
1,163,954
413,968
293,487
1.65
1.61

$1,373,947
1,059,460
314,487
203,989
1.15
1.12

$1,158,538
867,889
290,649
200,904
1.09
1.07

$1,023,586
769,309
254,277
171,220
0.97
0.90

$ 859,773
636,293
223,480
145,913
0.85
0.78

1,246,922
2,957,685

1,095,240
2,600,627

1,229,955
2,345,501

1,243,402
2,352,676

1,061,484
2,087,510

—
65,088
2,629,431

—
51,929
2,345,754

—
40,859
2,156,250

—
29,920
2,177,605

199,755
21,495
1,738,722

Prior period amounts have been revised for immaterial revisions of prior period amounts. See Note 1 to our
consolidated financial statements included elsewhere in this annual report on Form 10-K for additional
descriptions of these items.

The following items impact the comparability of the consolidated financial data presented above:

•

Effective January 1, 2013, we increased the expected average useful lives of our network assets,
primarily servers, from three to four years to reflect software and hardware related initiatives to
manage our global network more efficiently. This change decreased depreciation expense on network
assets by approximately $45.7 million and increased net income by approximately $33.6 million for the
year ended December 31, 2013. The change also increased basic and diluted net income per share by
$0.19 and $0.18, respectively, for the year ended December 31, 2013.

• We divested our Advertising Decisions Solutions, or ADS, business in January 2013. Revenue from the
ADS business was $2.7 million, $44.0 million, $42.7 million, $35.5 million and $29.9 million for the
years ended December 31, 2013, 2012, 2011, 2010 and 2009, respectively.

•

•

During the years presented in the table above, various acquisitions occurred. In 2013, we completed two
acquisitions having a total purchase price of $61.9 million. In 2012, we completed four acquisitions
having a total purchase price of $344.7 million, and in 2010 we completed one acquisition having a total
purchase price of $14.4 million. None of the acquisitions, individually or in the aggregate, were material
to our consolidated financial results. See Note 7 to our consolidated financial statements included
elsewhere in this annual report on Form 10-K for details regarding these acquisitions.

Our effective income tax rate was 30%, 37% and 35% for the years ended December 31, 2013, 2012
and 2011, respectively. The decrease to our effective income tax rate during 2013 was the result of our
retroactive adoption of the domestic production activities deduction for the period from January 1,
2010 to December 31, 2013 and the reinstatement of the federal research and development credit,
which was retroactive to 2012. Our effective income tax rate was also favorably impacted in 2011 by
the federal research and development credit, which was not available in 2012.

26

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A,
should be read in conjunction with our consolidated financial statements and notes thereto that appear elsewhere
in this annual report on Form 10-K. See “Risk Factors” elsewhere in this annual report on Form 10-K for a
discussion of certain risks associated with our business. The following discussion contains forward-looking
statements. The forward-looking statements do not include the potential impact of any mergers, acquisitions,
divestitures, or other events that may be announced after the date hereof.

Overview

We primarily derive income from sales of services to customers executing contracts with terms of one year
or longer. We believe that this emphasis on longer-term contracts generally allows us to have a consistent and
predictable base level of revenue which is important to our financial success. Accordingly, to be successful, we
must maintain our base of recurring revenue contracts by minimizing customer cancellations or terminations and
limiting the impact of price reductions reflected in contract renewals, and build on that base by adding new
customers and increasing the number and quality of services, features and functionalities that our existing
customers purchase. Accomplishing these goals requires that we compete effectively in the marketplace on the
basis of the quality, price and the attractiveness of our services and technology.

Our revenue is impacted by a number of factors, including our ability to maintain our base of committed
recurring revenues, the timing and variability of customer-specific one-time events, prices we are able to charge
for our services, the amount of traffic we serve on our network and the impact of seasonal variations on our
business. We have observed the following trends related to our revenue during 2013:

• We have been able to offset lost committed recurring revenue by adding new customers and increasing

sales of incremental services to our existing customers.

•

Consistent with prior years, the unit prices offered to some customers have declined as a result of
increased competition. These price reductions have primarily impacted customers for which we deliver
high volumes of traffic over our network, such as media customers.

• We experienced an increase in the rate of traffic in our video, gaming, social media and software

download solutions as compared to 2012.

• We experienced variations in certain types of revenue from quarter to quarter in 2013; in particular, we
experienced higher revenue in the fourth quarter of the year for some of our solutions as a result of the
holiday season. We also saw lower revenue in the summer months, particularly in Europe, from both
e-commerce and media customers because overall Internet use declined during that time. We also
experienced quarterly variations in revenue attributable to the nature and timing of software releases by
our customers using our software download solutions.

Our profitability is also impacted by our expense levels, including direct costs to support our revenue, such
as co-location and bandwidth costs, and expenses incurred to support strategic initiatives that we anticipate will
generate revenue in the future. We observed the following trends during 2013 and discuss our expectations
related to our cost of revenue and operating expenses:

• We continued to reduce our network bandwidth costs per unit and to invest in internal-use software
development to improve the performance and efficiency of our network. Our total bandwidth costs may
increase in the future as a result of expected higher traffic levels, but we believe such costs would be
partially offset by anticipated continued reductions in bandwidth costs per unit. To achieve these lower
bandwidth costs per unit, we must effectively route traffic over our network through lower cost
providers and continue to reduce our overall bandwidth pricing.

•

Co-location costs are a significant percentage of total cost of revenue. By improving our internal-use
software and managing our hardware deployments to enable us to use servers more efficiently, we have

27

been able to manage the growth of co-location costs. We expect to continue to scale our network in the
future and will need to manage our co-location costs to maintain current levels of profitability.

•

Effective January 1, 2013, we increased the expected average useful lives of our network assets,
primarily servers, from three to four years to reflect software and hardware related initiatives to
manage our global network more efficiently. This change decreased depreciation expense related to our
network equipment during 2013, as compared to 2012 and 2011. Conversely, we expect to continue to
enhance and add functionality to our service offerings, which increases our internal-use software
development costs attributable to employees working on such projects.

• We increased our headcount by more than 800 employees in 2013 to 3,908 employees at year end,
which is net of approximately 70 employees who were part of the divestiture of our ADS business in
the first quarter of 2013. We expect to continue to hire additional employees as we release new
products and services, as well as continue our global expansion.

During 2013 we completed two acquisitions, and in 2012 we completed four acquisitions. The acquisitions
were not material, individually or in the aggregate, to our consolidated financial results. In December 2013, we also
entered into a definitive agreement to acquire Prolexic for approximately $390.0 million in cash and the assumption
of unvested options, subject to post-closing adjustments. The acquisition closed in February 2014. Prolexic has
approximately 200 employees, and the acquisition is expected to be slightly dilutive to our earnings per share.

Results of Operations

The following sets forth, as a percentage of revenue, consolidated statements of operations data for the years

indicated:

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and operating expenses:

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total costs and operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (expense) income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2013

2012

2011

100.0% 100.0% 100.0%

32.4
5.9
17.8
16.2
1.4
0.1

73.8

26.2
0.4
—

26.6
8.0

38.6
5.4
16.3
15.3
1.5
—

77.1

22.9
0.5
—

23.4
8.6

39.2
4.5
14.1
15.3
1.5
0.4

74.9

25.1
0.9
0.5

26.5
9.2

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18.6% 14.8% 17.3%

Revenue

Revenue during the periods presented is as follows (in thousands):

For the Years Ended December 31,

For the Years Ended December 31,

2013

2012

% Change

2012

2011

% Change

Revenue . . . . . . .

$1,577,922

$1,373,947

14.8% $1,373,947

$1,158,538

18.6%

28

The increase in our revenue from 2012 to 2013 was driven by continued strong demand for our services.
The increase was attributable to the addition of new customers, increased sales of incremental services to our
existing customers and amounts earned for traffic usage in excess of committed amounts and customer-specific
one-time events. These contributions to higher revenue were partially offset by lost committed recurring revenue,
price declines and the divestiture of ADS.

The increase in our revenue from 2011 to 2012 was primarily due to the continued growth in use of the
Internet by businesses and consumers, leading to increased purchases of our solutions by our customers.
Additionally, our growth rate in 2012 benefited from revenues from our acquisitions in 2012.

For the year ended December 31, 2013, resellers accounted for 21% of revenue as compared to 22% and
19% of revenue, respectively, for the years ended December 31, 2012 and 2011. For the years ended
December 31, 2013, 2012 and 2011, no single customer accounted for 10% or more of revenue.

For the years ended December 31, 2013, 2012 and 2011, approximately 29%, 28% and 29%, respectively, of
our revenue was derived from our operations located outside of the United States. No single country outside of
the United States accounted for 10% or more of revenue during any of these periods. During 2013 we continued
to see strong growth from our operations in the Asia Pacific region, and our operations in Europe, the Middle
East and Africa performed well, despite continued macroeconomic factors.

Changes in foreign currency exchange rates negatively impacted our revenue by $15.0 million during fiscal

year 2013 as compared to 2012.

The following table quantifies the contribution to revenue during the periods presented from our solution

categories (in thousands):

For the Years Ended December 31,
2013

2012

% Change

For the Years Ended December 31,
2012

2011

% Change

Media Delivery Solutions . . . . . . . .
Performance and Security

Solutions . . . . . . . . . . . . . . . . . . .
Service and Support Solutions . . . .
Advertising Decision Solutions and
other . . . . . . . . . . . . . . . . . . . . . .

$ 757,147

$ 652,968

16.0% $ 652,968

$ 567,586

15.0%

690,559
128,087

583,818
93,830

18.3
36.5

583,818
93,830

478,605
69,170

22.0
35.7

2,129

43,331

(95.1)

43,331

43,177

0.4

Total revenue . . . . . . . . . . . . .

$1,577,922

$1,373,947

14.8% $1,373,947

$1,158,538

18.6%

The increases in Media Delivery Solutions revenue for 2013 as compared to 2012, and 2012 as compared to
2011, were due to increased consumption of our customers’ online media offerings and higher software
download volumes. During 2013, we experienced strong growth in usage by some of our largest, most strategic
accounts driven by increased software downloads, gaming, video delivery and social media consumption, all of
which contributed to our year-over-year revenue growth. These increases were partially offset by a large media
customer finalizing the removal of its video content from our platform during 2013 resulting in loss of revenue as
compared to 2012.

The increases in Performance and Security Solutions revenue for 2013 as compared to 2012, and 2012 as
compared to 2011, were due to increases in demand for our Performance and Security Solutions from both new
and existing customers. During 2013, we experienced strong demand for our website and application acceleration
solutions as well as our security offerings.

The increases in the Service and Support Solutions revenue for 2013 as compared to 2012, and 2012 as
compared to 2011, were due to increases in sales of our services and support offerings due to strong service
attachment rates for both customers of our core Media Delivery and Performance and Security Solutions.

29

The Advertising Decision Solutions business was divested in the first quarter of 2013.

Cost of Revenue

Cost of revenue consisted of the following for the periods presented (in thousands):

Bandwidth and service-related fees . . . . . .
Co-location fees . . . . . . . . . . . . . . . . . . . . .
Network build-out and support
. . . . . . . . .
Payroll and related costs . . . . . . . . . . . . . . .
Stock-based compensation, including
amortization of prior capitalized
amounts . . . . . . . . . . . . . . . . . . . . . . . . .

Depreciation and impairment of network

For the Years Ended December 31,

For the Years Ended December 31,

2013

2012

% Change

2012

2011

% Change

$100,964
129,382
21,173
112,806

$114,595
131,942
16,919
91,954

(11.9)% $114,595
131,942
(1.9)
16,919
25.1
91,954
22.7

$ 92,015
130,879
14,820
72,399

24.5%
0.8
14.2
27.0

18,568

18,731

(0.9)

18,731

16,827

11.3

equipment . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of internal-use software . . . .

83,811
44,383

117,997
37,762

(29.0)
17.5

117,997
37,762

96,741
30,024

22.0
25.8

Total cost of revenue . . . . . . . . . . . . .

$511,087

$529,900

(3.6)% $529,900

$453,705

16.8%

As a percentage of revenue . . . . . . . . . . . .

32.4%

38.6%

38.6%

39.2%

In recent years, we have continued to reduce our network bandwidth costs per unit, co-location fees and
other network-related expenses, which has had the impact of decreasing cost of revenue as a percentage of
revenue.

This net decrease in cost of revenue was primarily due to decreases in:

•

•

•

depreciation expense of network equipment
in place as of January 1, 2013 of approximately
$39.0 million reflecting the increase in the expected average useful lives of our network assets,
primarily servers, from three to four years to reflect software and hardware related initiatives to
manage our global network more efficiently;

bandwidth and service-related fees of our ADS business, which we divested in January 2013; these
expenses were $1.6 million and $24.2 million for the years ended December 31, 2013 and 2012,
respectively; and

amounts paid to network providers due to lower bandwidth and service-related fees due to reduced
bandwidth costs per unit.

These decreases were partially offset by increases in:

•

•

payroll and related costs of service personnel due to headcount growth to support our Service and
Support Solutions revenue growth and our efforts to efficiently scale our network; and

amortization of internal-use software as we continued to invest in our infrastructure.

Cost of revenue increased in 2012 as compared to 2011, primarily due to an increase in amounts paid to
network providers for bandwidth due to higher traffic levels. The increases were partially offset by reduced
bandwidth costs per unit, an increase in depreciation expense of network equipment and amortization of internal-
use software as we continued to invest in our infrastructure.

Cost of revenue for the years ended December 31, 2013, 2012 and 2011 also included credits received of
approximately $9.1 million, $10.8 million and $6.9 million, respectively, from billing settlements and
renegotiations related to bandwidth contracts.

30

We have long-term purchase commitments for bandwidth usage and co-location services with various
network and Internet service providers. See Note 9 to our consolidated financial statements included elsewhere in
this annual report on Form 10-K for further discussion.

We believe that cost of revenue will increase during 2014 as compared to 2013. We expect to deploy more
servers and deliver more traffic on our network, which will result in higher expenses associated with the
increased traffic and additional co-location fees; however, such costs are likely to be partially offset by lower
bandwidth costs per unit and continued efficiency in network deployment. Additionally, during 2014, we
anticipate amortization of internal-use software development costs as comparted to 2013 to increase, along with
increased payroll and related costs associated with our network and professional services personnel and related
expenses. We plan to continue to make investments in our network in the expectation that our customer base will
continue to expand.

We have revised cost of revenue reported in 2012 and 2011 in the table above as a result of a reevaluation of
our business model. Costs that were previously classified as sales and marketing and general and administrative
are now classified as cost of revenue. See Note 1 to our consolidated financial statements included elsewhere in
this annual report on Form 10-K for additional information and amounts revised.

Research and Development Expenses

Research and development expenses consisted of the following for the periods presented (in thousands):

For the Years Ended December 31,

For the Years Ended December 31,

2013

2012

% Change

2012

2011

% Change

Payroll and related costs . . . . . . . . . . . . . . . $139,018
17,472
Stock-based compensation . . . . . . . . . . . . .
(67,935)
Capitalized salaries and related costs . . . . .
5,324
Other expenses . . . . . . . . . . . . . . . . . . . . . .

$104,244
17,275
(50,648)
3,873

33.4% $104,244
17,275
1.1
(50,648)
34.1
3,873
37.5

$ 78,425
11,124
(40,383)
3,167

Total research and development . . . . . $ 93,879

$ 74,744

25.6% $ 74,744

$ 52,333

32.9%
55.3
25.4
22.3

42.8%

As a percentage of revenue . . . . . . . . . . . . .

5.9%

5.4%

5.4%

4.5%

The increases in research and development expenses for 2013 as compared to 2012, and 2012 as compared
to 2011, were due to increases in payroll and related costs as a result of continued growth in headcount to invest
in new product development, partially offset by increases in capitalized salaries and related costs.

Research and development costs are expensed as incurred, other than certain internal-use software
development costs eligible for capitalization. These development costs consist of external consulting expenses
and payroll and related costs for personnel involved in the development of internal-use software used to deliver
our services and operate our network. For the years ended December 31, 2013, 2012 and 2011, we capitalized
$11.5 million, $8.9 million and $7.1 million, respectively, of stock-based compensation. These capitalized
internal-use software costs are amortized to cost of revenue over their estimated useful lives of two years.

We believe that research and development expenses will increase in absolute dollars during 2014 as
compared to 2013 as we expect to continue to hire additional development personnel in order to make
improvements to our core technology and support the development of new services and engineering innovation.

31

Sales and Marketing Expenses

Sales and marketing expenses consisted of the following for the periods presented (in thousands):

For the Years Ended December 31,

For the Years Ended December 31,

2013

2012

% Change

2012

2011

% Change

Payroll and related costs . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . .
Marketing programs and related costs . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . .

$191,554
39,290
26,449
23,087

$147,571
34,322
23,508
17,947

29.8% $147,571
34,322
14.5
23,508
12.5
17,947
28.6

$113,553
20,697
13,137
15,630

Total sales and marketing . . . . . . . . . .

$280,380

$223,348

25.5% $223,348

$163,017

30.0%
65.8
78.9
14.8

37.0%

As a percentage of revenue . . . . . . . . . . . .

17.8%

16.3%

16.3%

14.1%

The increases in sales and marketing expenses for 2013 as compared to 2012, and 2012 as compared to 2011,
were primarily due to higher payroll and related costs, including commissions for sales and support personnel and
stock-based compensation. We increased hiring in our sales organization in support of our go-to-market capacity
and ongoing geographic expansion, which contributed to the increases. Other expenses, which consists primarily of
sales and marketing events and related travel expenses, increased as we supported our revenue goals.

We believe that sales and marketing expenses will increase in absolute dollars during 2014 as compared to
2013 due to an expected increase in payroll and related costs as a result of anticipated continued headcount
growth in our sales and marketing organization.

General and Administrative Expenses

General and administrative expenses consisted of the following for the periods presented (in thousands):

For the Years Ended December 31,
2012

% Change

2013

For the Years Ended December 31,
2011

% Change

2012

Payroll and related costs . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . .
Facilities-related costs . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . .
Acquisition-related costs . . . . . . . . . . . . . .
Professional and other fees . . . . . . . . . . . . .

$105,205
28,255
26,991
44,030
475
1,842
48,420

$ 83,845
27,679
20,018
34,570
(1,402)
5,788
39,602

25.5% $ 83,845
27,679
2.1
20,018
34.8
34,570
27.4
(1,402)
133.9
5,788
(68.2)
39,602
22.3

$ 67,298
19,830
12,876
33,951
367
580
41,976

24.6%
39.6
55.5
1.8
(482.0)
897.9
(5.7)

Total general and administrative . . . .

$255,218

$210,100

21.5% $210,100

$176,878

18.8%

As a percentage of revenue . . . . . . . . . . . .

16.2%

15.3%

15.3%

15.3%

General and administrative expenses include costs of our finance, human resources, information technology,
legal and administrative network infrastructure functions, in addition to our facility-related costs and deprecation
of facility-related capital assets. The increases in general and administrative expenses for 2013 as compared to
2012, and 2012 as compared to 2011, were primarily due to the expansion of company infrastructure to support
investments in engineering, network scaling and go-to-market capacity. Specifically, we had increases to
headcount, external consulting support and our facility footprint. These actions increased payroll and related
costs, network procurement costs, facilities-related costs and depreciation during 2013 as compared to 2012, and
2012 as compared to 2011.

During 2014, we expect general and administrative expenses to increase in absolute dollars as compared to
2013 due to anticipated higher payroll and related costs and facilities-related costs attributable to increased
hiring, investment in information technology, network scaling and planned facility expansion.

32

Amortization of Acquired Intangible Assets

For the Years Ended December 31,

For the Years Ended December 31,

2013

2012

% Change

2012

2011

% Change

Amortization of acquired intangible assets . . . .
As a percentage of revenue . . . . . . . . . . . . . . . .

$21,547

$20,962

1.4%

1.5%

(in thousands)
2.8% $20,962

$17,070

22.8%

1.5%

1.5%

The increase in amortization of acquired intangible assets during 2013 as compared to 2012 was due to the
acquisition of strategic network assets from AT&T Services, Inc. and also a full year of amortization from the
acquisitions occurring throughout 2012, which was partially offset by the write-off of intangible assets recorded
as part of the divestiture of ADS in 2013 and the completion of amortization of intangible assets acquired in
previous years. The increase in amortization of acquired intangible assets during 2012 as compared to 2011 was
due to the amortization of assets related to the acquisitions of Blaze Software, Inc., or Blaze, Cotendo, Inc., or
Cotendo, FastSoft, Inc., or FastSoft, and Verivue, Inc., or Verivue, during 2012.

Based on acquired intangible assets at December 31, 2013, future amortization was expected to be
approximately $20.6 million, $18.9 million, $14.5 million, $10.2 million and $4.4 million for the years ending
December 31, 2014, 2015, 2016, 2017 and 2018, respectively. We anticipate that these amortization amounts will
increase in future periods as a result of our acquisition of Prolexic, which closed in February 2014.

Restructuring Charges

For the Years Ended
December 31,

For the Years Ended
December 31,

Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As a percentage of revenue . . . . . . . . . . . . . . . . . . . . . . .

$1,843

$406

0.1% —%

2013

2012 % Change

2012
(in thousands)
353.9% $406

2011 % Change

$4,886

(91.7)%

—%

0.4%

During 2013, we recorded a restructuring charge for leasehold improvements that are no longer in use as a result
of an early lease termination. In addition, we incurred severance and relocation expenses for employees impacted by
the closing of the facility. In 2012, we recorded restructuring charges related to work force reductions in connection
with the 2012 acquisitions of FastSoft and Verivue. In 2011, we implemented a company-wide workforce reduction
and vacated excess facilities. As a result, we recorded severance and estimated future lease payments, net of sublease
income, in 2011. We do not expect to incur additional restructuring charges as a result of these actions.

Interest Income, Net

For the Years Ended
December 31,

For the Years Ended
December 31,

Interest income, net
. . . . . . . . . . . . . . . . . . . . . . . . .
As a percentage of revenue . . . . . . . . . . . . . . . . . . .

$6,077

$6,455

0.4%

0.5%

2013

2012 % Change

2012
(in thousands)
(5.9)% $6,455

2011

% Change

$10,421

(38.1)%

0.5%

0.9%

Interest income, net consists of interest earned on invested cash balances and marketable securities.

Other (Expense) Income, Net

For the Years Ended
December 31,

For the Years Ended
December 31,

. . . . . . . . . . . . . . . . . . . . . . .
Other (expense) income, net
As a percentage of revenue . . . . . . . . . . . . . . . . . . . . . . . .

$(491) $649

—% —%

33

2013

2012 % Change

2012
(in thousands)
(175.7)% $649

2011 % Change

$6,125

(89.4)%

—%

0.5%

Other (expense) income, net primarily represents net foreign exchange gains and losses incurred and other
non-operating expense and income items. The fluctuation in other (expense) income, net for 2013 as compared to
2012, was primarily due to foreign currency exchange rate fluctuations on inter-company and other non-
functional currency transactions. The fluctuation in other (expense) income, net for 2012 as compared to 2011,
was primarily due to a legal settlement received in 2011. Other (expense) income, net may fluctuate in the future
based upon changes in foreign exchange rates or other events.

Provision for Income Taxes

For the Years Ended December 31,

For the Years Ended December 31,

2013

2012

% Change

2012

2011

% Change

(in thousands)

Provision for income taxes . . . . . . . . . . . . .
As a percentage of revenue . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . .

$126,067

$117,602

7.2% $117,602

$106,291

10.6%

8.0%
30.0%

8.6%
36.6%

8.6%
36.6%

9.2%
34.6%

For the year ended December 31, 2013, our effective income tax rate was lower than the federal statutory
tax rate mainly due to the retroactive adoption of the domestic production activities deduction which resulted in a
net
the
tax benefit of $18.3 million for the period from January 1, 2010 through December 31, 2013,
reinstatement of the federal research and development credit at the beginning of 2013, which included a one-time
retroactive impact for 2012, as well as the composition of income in foreign jurisdictions that is taxed at lower
rates compared to the statutory tax rates in the U.S. For the year ended December 31, 2012 our effective income
tax rate was higher than the federal statutory tax rate mainly due to the effects of accounting for stock-based
compensation in accordance with the authoritative guidance for share-based payments and state income tax
expense. For the year ended December 31, 2011 our effective income tax rate was lower than the federal
statutory tax rate due primarily to benefits recorded for research and development tax credits and the tax rate
differential on foreign earnings, partially offset by state income taxes.

The increase in the provision for income taxes for the year ended December 31, 2013 as compared to the
same period in 2012 was mainly due to the increase in operating income, partially offset by the domestic
production activities deduction, the federal research and development credit and a change in the composition of
projected income in different jurisdictions.

Our effective income tax rate may fluctuate between fiscal years and from quarter to quarter due to items
arising from discrete events, such as tax benefits from the disposition of employee equity awards, settlements of
tax audits and assessments and tax law changes. Our effective income tax rate is also impacted by, and may
fluctuate in any given period because of, the composition of income in foreign jurisdictions where tax rates differ
depending on the local statutory rates.

Non-GAAP Financial Measures

In addition to providing financial measurements based on generally accepted accounting principles in the
United States of America, or GAAP, we publicly discuss additional financial measures that are not prepared in
accordance with GAAP, or non-GAAP financial measures. Management uses non-GAAP financial measures, in
addition to GAAP financial measures, to understand and compare operating results across accounting periods, for
financial and operational decision making, for planning and forecasting purposes and to evaluate our financial
performance. These non-GAAP financial measures are non-GAAP net income, non-GAAP net income per
diluted share, Adjusted EBITDA and Adjusted EBITDA margin, as discussed below.

Management believes that these non-GAAP financial measures reflect our ongoing business in a manner
that allows for meaningful comparisons and analysis of trends in our business, as they exclude expenses and

34

gains that may be infrequent, unusual in nature or otherwise not reflective of our ongoing operating results.
Management also believes that these non-GAAP financial measures provide useful information to investors in
understanding and evaluating our operating results and future prospects in the same manner as management and
in comparing financial results across accounting periods and to those of peer companies.

The non-GAAP financial measures do not replace the presentation of our GAAP financial results and should
only be used as a supplement to, not as a substitute for, our financial results presented in accordance with GAAP.

The non-GAAP adjustments, and our basis for excluding them from non-GAAP financial measures, are

outlined below:

•

•

•

•

•

•

Amortization of acquired intangible assets — We have incurred amortization of intangible assets,
included in our GAAP financial statements, related to various acquisitions we made. The amount of an
acquisition’s purchase price allocated to intangible assets and the term of its related amortization can
vary significantly and are unique to each acquisition; therefore, we exclude amortization of acquired
intangible assets from non-GAAP financial measures to provide investors with a consistent basis for
comparing pre- and post-acquisition operating results.

Stock-based compensation and amortization of capitalized stock-based compensation — Although
stock-based compensation is an important aspect of the compensation we pay to our employees and
executives, the expense varies with changes in the stock price and market conditions at the time of
grant, varying valuation methodologies, subjective assumptions and the variety of award types. This
makes the comparison of our current financial results to previous and future periods difficult to
interpret; therefore, we believe it is useful to exclude stock-based compensation and amortization of
capitalized stock-based compensation from non-GAAP financial measures as one way to better
understand the performance of our core business performance and to be consistent with the way the
investors evaluate our performance and compare our operating results to those of peer companies.

Acquisition-related costs — Acquisition-related costs include transaction fees, due diligence costs and
other direct costs associated with strategic activities. In addition, subsequent adjustments to our initial
estimated amount of contingent consideration associated with specific acquisitions are included within
acquisition-related costs. These amounts are impacted by the timing and size of the acquisitions. We
exclude acquisition-related costs from non-GAAP financial measures to provide a useful comparison of
our operating results to prior periods and to our peer companies because such amounts vary
significantly based on the magnitude of our acquisition transactions.

Restructuring charges — We have incurred restructuring charges which are included in our GAAP
financial statements, primarily related to workforce reductions and estimated costs of exiting facility
lease commitments. We exclude these items from non-GAAP financial measures when evaluating our
continuing business performance as such items are not consistently recurring and do not reflect
expected future operating expense nor, in our view, do they provide meaningful insight into the
fundamentals of our current or past operations.

Gain and other activity related to divestiture of a business — We recognized a gain and other
activity associated with the divestiture of ADS. We exclude gains and other activity related to
divestiture of a business from our non-GAAP financial measures because transactions of this nature
occur infrequently and are not considered part of our core business operations.

Income tax effect of non-GAAP adjustments — The non-GAAP adjustments described above and
listed in the table below are reported on a pre-tax basis. The income tax effect of non-GAAP
adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income
tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP
adjustments) and excludes certain discrete tax items (such as recording or release of valuation
allowances), if any. We believe that applying the non-GAAP adjustments and their related income tax
effect allows us to more properly reflect the income attributable to our core operations.

35

The following table reconciles GAAP net income to non-GAAP net income and non-GAAP net income per

diluted share for the years ended December 31, 2013, 2012 and 2011 (in thousands, except per share data):

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of capitalized stock-based compensation . . . . . . . . . . . . . . . . . . .
Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain and other activity related to divestiture of a business . . . . . . . . . . . . . . . .
Legal settlements, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax effect of above non-GAAP adjustments . . . . . . . . . . . . . . . . . . . . .

2013

2012

2011

$293,487
21,547
95,884
8,077
1,853
1,843
(1,188)
—
—
(54,124)

$203,989
20,962
90,585
7,680
5,787
406
—
—
—
(38,061)

$200,904
17,070
61,305
7,308
580
4,886
—
(8,043)
500
(28,445)

Total non-GAAP net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$367,379

$291,348

$256,065

GAAP net income per diluted share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP net income per diluted share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in per share calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

1.61
2.02
181,783

$
$

1.12
1.60
181,749

$
$

1.07
1.37
187,556

We consider Adjusted EBITDA to be another important

indicator of the operational strength and
performance of our business and a good measure of our historical operating trends. Adjusted EBITDA eliminates
items that are either not part of our core operations or do not require a cash outlay. We define Adjusted EBITDA
as GAAP net income excluding the following items: interest; income taxes; depreciation and amortization of
tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation;
restructuring charges; acquisition-related costs; certain gains and losses on investments; gains, losses and other
activity related to divestiture of a business; foreign exchange gains and losses; loss on early extinguishment of
debt; gains and losses on legal settlements and other non-recurring or unusual items that may arise from time to
time. Adjusted EBITDA margin represents Adjusted EBITDA stated as a percentage of revenue.

The following table reconciles GAAP net income to Adjusted EBITDA and Adjusted EBITDA margin for

the years ended December 31, 2013, 2012 and 2011 (in thousands):

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of capitalized stock-based compensation . . . . . . . . . . . . . . . . . . .
Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain and other activity related to divestiture of a business . . . . . . . . . . . . . . . .
Interest income, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2013

2012

2011

$293,487
21,547
95,884
8,077
1,853
1,843
(1,188)
(6,077)
126,067
154,807
491

$203,989
20,962
90,585
7,680
5,787
406
—
(6,455)
117,602
175,521
(649)

$200,904
17,070
61,305
7,308
580
4,886
—
(10,421)
106,291
143,500
(6,125)

Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$696,791

$615,428

$525,298

Adjusted EBITDA margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

44%

45%

45%

Impact of Foreign Currency Exchange Rates on Revenue

Revenue from our international operations has historically represented a significant portion of our total
revenue. Consequently, our revenue results have been impacted, and management expects they will continue to

36

be impacted, by fluctuations in foreign currency exchange rates. For example, when the local currencies of our
foreign subsidiaries weaken, our consolidated results stated in U.S. dollars are negatively impacted.

Because exchange rates are an important

in understanding period-to-period comparisons,
factor
management believes the presentation of the impact of foreign currency exchange rates on revenue enhances the
understanding of our revenue results and evaluation of performance in comparison to prior periods. The
information presented is calculated by translating current period results using the same average foreign currency
exchange rates per month from the comparative period.

Liquidity and Capital Resources

To date, we have financed our operations primarily through public and private sales of debt and equity
securities and cash generated by operations. As of December 31, 2013, our cash, cash equivalents and marketable
securities, which consisted of corporate bonds and U.S. government agency securities, totaled $1.2 billion. We
place our cash investments in instruments that meet high quality credit standards, as specified in our investment
policy. Our investment policy also limits the amount of our credit exposure to any one issue or issuer and seeks
to manage these assets to achieve our goals of preserving principal and maintaining adequate liquidity at all
times.

Changes in cash, cash equivalents and marketable securities are dependent upon changes in, among other
things, working capital items such as deferred revenues, accounts payable, accounts receivable and various
accrued expenses, as well as changes in our capital and financial structure due to common stock repurchases,
debt repurchases and issuances, stock option exercises, purchases and sales of marketable securities and similar
events. We believe our strong balance sheet and cash position are important competitive differentiators that
provide the financial flexibility necessary to make the best investments at the most opportune times. We continue
to evaluate strategic investments to strengthen our business on an ongoing basis.

As of December 31, 2013, we had cash and cash equivalents of $112.3 million held in accounts outside the
U.S. An immaterial amount of these funds would be subject to U.S. federal taxation if repatriated, with such tax
liability partially offset by foreign tax credits. The remainder of our cash and cash equivalents held outside the
U.S. are subject to, or offset by, inter-company obligations to our parent company in the U.S. and, therefore, are
not subject to U.S. federal taxation. As a result, our liquidity is not materially impacted by the amount of cash
and cash equivalents held in accounts outside the U.S.

Cash Provided by Operating Activities

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash reconciling items included in net income . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$293,487
286,033
(15,612)

(in thousands)
$203,989
265,601
60,430

$200,904
272,763
(27,389)

Net cash flows provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . .

$563,908

$530,020

$446,278

For the Years Ended December 31,

2013

2012

2011

The increase in cash provided by operating activities for the year ended December 31, 2013 as compared to
2012, was primarily due to increased profitability, and the resulting cash collections from customers, offset by
payments to our vendors. The increase in cash provided by operating activities for the year ended December 31,
2012 as compared to 2011 was due to increased profitability and the timing of collections from our customers.
We expect cash provided by operating activities to increase in 2014 due to an expected increase in cash
collections related to anticipated higher revenues, partially offset by an anticipated increase in operating expenses
that require cash outlays such as salaries and commissions.

37

We have revised cash provided by operating activities reported in 2012 and 2011 in the table above to reflect
immaterial cash flow classification errors identified in 2013 between operating, investing and financing activities.
The same amounts have been revised in the cash used in investing and financing activities tables below. See Note 1
to the consolidated financial statements included elsewhere in this annual report on Form 10-K for additional
information and amounts revised.

Cash (Used in) Provided by Investing Activities

Cash paid for acquired businesses, net of cash acquired . . . . . . . . . . . . . . . .
Purchases of property and equipment and capitalization of internal-use

For the Years Ended December 31,

2013

2012

2011

(in thousands)

$ (30,657) $(336,680) $

(550)

software costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net marketable securities activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(260,073)
(19,750)
(2,628)

(220,977)
(222,277)
824

(176,089)
354,113
(124)

Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . .

$(313,108) $(779,110) $ 177,350

The decrease in cash used in investing activities for the year ended December 31, 2013 as compared to
2012, primarily relates to the acquisitions of Blaze, Cotendo, FastSoft and Verivue in 2012, with no
corresponding acquisitions of the same magnitude in 2013. The decrease also relates to the timing of purchases
and sales of marketable securities, offset by an increase in our capital expenditures.

The decrease in cash flows from investing activities for the year ended December 31, 2012 as compared to
2011, primarily relates to the acquisitions occurring in 2012 and the timing of purchases and sales of marketable
securities in both periods.

Cash Used in Financing Activities

Activity related to stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 45,176
(160,419)

(in thousands)
$ 33,439
(141,468)

$ 30,032
(324,070)

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(115,243) $(108,029) $(294,038)

For the Years Ended December 31,

2013

2012

2011

The increase in cash used in financing activities during the year ended December 31, 2013 as compared to
2012, is the result of an increase in repurchases of our common stock, partially offset by an increase in proceeds
received from our stock-based compensation plans. The decrease in cash used in financing activities during the
year ended December 31, 2012 as compared to 2011, is primarily the result of a decrease in repurchases of our
common stock. During the years ended December 31, 2013, 2012 and 2011, we repurchased 3.9 million,
4.4 million and 12.3 million shares of common stock, respectively, at an average price per share of
$41.16, $32.45 and $26.45, respectively.

In April 2012, the Board of Directors authorized a $150.0 million stock repurchase program covering a
twelve-month period commencing on May 1, 2012. In January 2013, the Board of Directors authorized a
$150.0 million extension of our share repurchase program, effective for a twelve-month period beginning
February 1, 2013. In October 2013, the Board of Directors authorized a new $750.0 million share repurchase
program, effective from October 16, 2013 through December 31, 2016. Unused amounts from the May 2012
program were not carried over to the program approved in January 2013, and unused amounts from the January
2013 program were not carried over to the October 2013 program. The goal of the October 2013 share repurchase

38

program is to both offset dilution from our equity compensation plans and to provide the flexibility to increase
distributions to our shareholders as business and market conditions warrant.

Repurchases under the October 2013 plan will be executed in the open market subject to Rule 10b-18
promulgated under the Exchange Act, and may also be made under one or more Rule 10b5-1 plans, which would
permit us to repurchase shares when we might otherwise be precluded from doing so under insider trading laws.
Subject to applicable securities laws requirements, we may choose to suspend or discontinue the repurchase
program at any time. Any purchases made under the program will be reflected as an increase in cash used in
financing activities.

Convertible Senior Notes

In February 2014, we issued $690.0 million par value of convertible senior notes due 2019 and entered into
related convertible note hedge and warrant transactions. The terms of the notes, hedge and warrant transactions
are discussed more fully in Note 19 to the consolidated financial statements included elsewhere in this annual
report on Form 10-K. Akamai intends to use the net proceeds of the offering for share repurchases, working
capital and general corporate purposes, including potential acquisitions and other strategic transactions.

In February 2014, we used $62.0 million of the net proceeds from the convertible senior notes to repurchase
1.0 million shares of our common stock in accordance with the stock repurchase plan previously approved by our
Board of Directors discussed above.

Liquidity Outlook

We believe, based on our present business plan, that our current cash, cash equivalents and marketable
securities balances, the net proceeds from the convertible senior notes issued in 2014 and our forecasted cash
flows from operations will be sufficient to meet our foreseeable cash needs for at least the next 24 months. Our
foreseeable cash needs include our planned capital expenditures, salaries related to increased hiring, investments
in information technology and facility expansion costs, in addition to anticipated share repurchases, lease and
purchase commitments, settlements of other long-term liabilities and the Prolexic acquisition.

Contractual Obligations, Contingent Liabilities and Commercial Commitments

The following table presents our contractual obligations and commercial commitments, as of December 31,

2013, for the next five years and thereafter (in thousands):

Payments Due by Period

Total

Less than
12 Months

12 to 36
Months

36 to 60
Months

More than
60 Months

Real estate operating leases . . . . . . . . . . . . . . . . . . . . . . .
Bandwidth and co-location agreements . . . . . . . . . . . . . .
Open vendor purchase orders . . . . . . . . . . . . . . . . . . . . . .

$192,330
116,195
71,753

$ 31,583
103,626
65,267

$60,426
11,032
6,486

$52,606
1,514
—

$47,715
23
—

Total contractual obligations . . . . . . . . . . . . . . . . . . . . . .

$380,278

$200,476

$77,944

$54,120

$47,738

In accordance with the authoritative guidance for accounting for uncertainty in income taxes, as of
December 31, 2013, we had unrecognized tax benefits of $30.6 million, which included $5.9 million of accrued
interest and penalties. As of December 31, 2013, we believe that it is reasonably possible that approximately
$3.2 million of our unrecognized tax benefits, each of which are individually insignificant and include research
and development credits and transfer pricing adjustments, may be recognized by the end of 2014 as a result of
ongoing audits.

39

Letters of Credit

As of December 31, 2013, we had outstanding $6.8 million in irrevocable letters of credit issued by us in
favor of third party beneficiaries, primarily related to facility leases. These irrevocable letters of credit, which are
not included in the table of contractual obligations and commercial commitments above, are unsecured and are
expected to remain in effect until December 2019.

Off-Balance Sheet Arrangements

We have entered into various indemnification arrangements with third parties,

including vendors,
customers, landlords, our officers and directors, shareholders of acquired companies and third party licensees of
our technology. Generally, these indemnification agreements require us to reimburse losses suffered by third
parties due to various events, such as lawsuits arising from patent or copyright infringement or our negligence.
These indemnification obligations are considered off-balance sheet arrangements in accordance with the
authoritative guidance for guarantor’s accounting and disclosure requirements for guarantees, including indirect
guarantees of indebtedness of others. To date, we have not encountered material costs as a result of such
obligations and have not accrued any significant liabilities related to such indemnification obligations in our
financial statements. See Note 9 to our consolidated financial statements included elsewhere in this annual report
on Form 10-K for further discussion of these indemnification agreements.

Litigation

We are party to litigation that we consider routine and incidental to our business. Management does not
currently expect the results of any of these litigation matters to have a material effect on our business, results of
operations, financial condition or cash flows.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued guidance and disclosure requirements
for reporting of comprehensive income: amounts reclassified out of accumulated other comprehensive income.
The guidance requires that an entity provide information about the amounts reclassified out of accumulated other
comprehensive income by component. In addition, an entity is required to present, either on the face of the
statement where net
income is presented or in the notes thereto, significant amounts reclassified out of
accumulated other comprehensive income by the respective line items of net income but only if the amount
reclassified is required under GAAP. The guidance is effective for fiscal years, and interim periods within those
years, beginning on or after December 15, 2012. The adoption of this guidance in the first quarter of 2013 did not
have a material impact on our consolidated financial results.

Application of Critical Accounting Policies and Estimates

Overview

Our MD&A is based upon our consolidated financial statements, which have been prepared in accordance
with GAAP. These principles require us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, cash flow and related disclosure of contingent assets and liabilities. Our
estimates include those related to revenue recognition, accounts receivable and related reserves, valuation and
impairment of marketable securities, capitalized internal-use software development costs, goodwill and acquired
lives of long-lived assets and stock-based
intangible assets,
compensation. We base our estimates on historical experience and on various other assumptions that we believe
to be reasonable under the circumstances at the time such estimates are made. Actual results may differ from
these estimates. For a complete description of our significant accounting policies, see Note 2 to our consolidated
financial statements included elsewhere in this annual report on Form 10-K.

impairment and useful

income tax reserves,

40

Definitions

We define our critical accounting policies as those policies that require us to make subjective estimates and
judgments about matters that are uncertain and are likely to have a material impact on our consolidated financial
statements. Our estimates are based upon assumptions and judgments about matters that are highly uncertain at
the time the accounting estimate is made and applied and require us to assess a range of potential outcomes.

Review of Critical Accounting Policies and Estimates

Revenue Recognition

Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement

exists, the service is performed and collectability of the resulting receivable is reasonably assured.

We primarily derive revenues from the sale of services to customers executing contracts with terms of one
year or longer. These contracts generally commit the customer to a minimum of monthly, quarterly or annual
level of usage and specify the rate at which the customer must pay for actual usage above the monthly, quarterly
or annual minimum. For contracts with a monthly committment, we recognize the monthly minimum as revenue
each month, provided that an enforceable contract has been signed by both parties, the service has been delivered
to the customer, the fee for the service is fixed or determinable and collection is reasonably assured. Should a
customer’s usage of our service exceed the monthly minimum, we recognize revenue for such excess usage in the
period of the additional usage. For annual or other non-monthly period revenue commitments, we recognize
revenue monthly based upon the customer’s actual usage each month of the commitment period and only
recognize any remaining committed amount for the applicable period in the last month thereof.

We typically charge customers an integration fee when the services are first activated. The integration fees
are recorded as deferred revenue and recognized as revenue ratably over the estimated life of the customer
arrangement. We also derive revenue from services sold as discrete, non-recurring events or based solely on
usage. For these services, we recognize revenue once the event or usage has occurred.

When more than one element is contained in a revenue arrangement, we determine the fair value for each
element in the arrangement based on vendor-specific objective evidence, or VSOE, for each respective element,
including any renewal rates for services contractually offered to the customer. Elements typically included in our
multiple element arrangements consist of our core services — the delivery of content, applications and software
over the Internet — as well as mobile and security solutions and enterprise professional services. These elements
have value to our customers on a stand-alone basis in that they can be sold separately by another vendor.
Generally, there is no right of return relative to these services.

We typically use VSOE to determine the fair value of our separate elements. All stand-alone sales of
professional services are reviewed to establish the average stand-alone selling price for those services. For our
core services, the fair value is the price charged for a single deliverable on a per unit basis when it is sold
separately.

For arrangements in which we are unable to establish VSOE, third party evidence, or TPE, of the fair value
of each element is determined based upon the price charged when the element is sold separately by another
vendor. For arrangements in which we are unable to establish VSOE or TPE for each element, we use the best
estimate of selling price, or BESP, to determine the fair value of the separate deliverables. We estimate BESP
based upon a management-approved price list and pre-established discount levels for each solution that takes into
consideration volume, geography and industry lines. We allocate arrangement consideration across the multiple
elements using the relative selling price method.

At the inception of a customer contract, we make an estimate as to that customer’s ability to pay for the
services provided. We base our estimate on a combination of factors, including the successful completion of a

41

credit check or financial review, our collection experience with the customer and other forms of payment
assurance. Upon the completion of these steps, we recognize revenue monthly in accordance with our revenue
recognition policy. If we subsequently determine that collection from the customer is not reasonably assured, we
record an allowance for doubtful accounts and bad debt expense for all of that customer’s unpaid invoices and
cease recognizing revenue for continued services provided until cash is received from the customer. Changes in
our estimates and judgments about whether collection is reasonably assured would change the timing of revenue
or amount of bad debt expense that we recognize.

We also sell our services through a reseller channel. Assuming all other revenue recognition criteria are met,
we recognize revenue from reseller arrangements based on the reseller’s contracted non-refundable minimum
purchase commitments over the term of the contract, plus amounts sold by the reseller to its customers in excess
of the minimum commitments. Amounts attributable to this excess usage are recognized as revenue in the period
in which the service is provided.

From time to time, we enter into contracts to sell our services or license our technology to unrelated
enterprises at or about the same time we enter into contracts to purchase products or services from the same
enterprises. If we conclude that these contracts were negotiated concurrently, we record as revenue only the net
cash received from the vendor, unless the product or service received has a separate and identifiable benefit and
the fair value to us of the vendor’s product or service can be objectively established.

We may from time to time resell licenses or services of third parties. We record revenue for these
transactions on a gross basis when we have risk of loss related to the amounts purchased from the third party and
we add value to the license or service, such as by providing maintenance or support for such license or service. If
these conditions are present, we recognize revenue when all other revenue recognition criteria are satisfied.

Deferred revenue represents amounts billed to customers for which revenue has not been recognized.
Deferred revenue primarily consists of the unearned portion of monthly billed service fees, prepayments made by
customers for future periods, deferred integration and activation set-up fees and amounts billed under customer
arrangements with extended payment terms.

Accounts Receivable and Related Reserves

Trade accounts receivable are recorded at the invoiced amounts and do not bear interest. In addition to trade
accounts receivable, our accounts receivable balance includes unbilled accounts that represent revenue recorded
for customers that is typically billed within one month. We record reserves against our accounts receivable
balance. These reserves consist of allowances for doubtful accounts and revenue from certain customers on a
cash-basis. Increases and decreases in the allowance for doubtful accounts are included as a component of
general and administrative expense in the consolidated statements of operations. Increases in the reserve for cash-
basis customers are recorded as reduction of revenue. The reserve for cash-basis customers increases as services
are provided to customers for which collection is no longer reasonably assured. The reserve decreases and
revenue is recognized when and if cash payments are received.

Estimates are used in determining these reserves and are based upon our review of outstanding balances on a
customer-specific, account-by-account basis. The allowance for doubtful accounts is based upon a review of
customer receivables from prior sales with collection issues where we no longer believe that the customer has the
ability to pay for prior services provided. We perform ongoing credit evaluations of our customers. If such an
evaluation indicates that payment is no longer reasonably assured for services provided, any future services
provided to that customer will result in creation of a cash basis reserve until we receive consistent payments.

Valuation and Impairment of Marketable Securities

We measure the fair value of our financial assets and liabilities at the end of each reporting period. Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit

42

price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. We have certain financial assets and liabilities recorded at fair
value (principally cash equivalents and short- and long-term marketable securities) that have been classified as
Level 1, 2 or 3 within the fair value hierarchy. Fair values determined by Level 1 inputs utilize quoted prices
(unadjusted) in active markets for identical assets or liabilities that the Company can access at the reporting date.
Fair values determined by Level 2 inputs utilize data points other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or indirectly. Fair values determined by Level 3 inputs are
based on unobservable data points for the asset or liability.

Marketable securities are considered to be impaired when a decline in fair value below cost basis is
determined to be other-than-temporary. We periodically evaluate whether a decline in fair value below cost basis
is other-than-temporary by considering available evidence regarding these investments including, among other
factors, the duration of the period that, and extent to which, the fair value is less than cost basis, the financial
health of and business outlook for the issuer, including industry and sector performance and operational and
financing cash flow factors, overall market conditions and trends and our intent and ability to retain our
investment in the security for a period of time sufficient to allow for an anticipated recovery in market value.
Once a decline in fair value is determined to be other-than-temporary, a write-down is recorded and a new cost
basis in the security is established. Assessing the above factors involves inherent uncertainty. Write-downs, if
recorded, could be materially different from the actual market performance of marketable securities in our
portfolio if, among other things, relevant information related to our investments and marketable securities was
not publicly available or other factors not considered by us would have been relevant to the determination of
impairment.

Impairment and Useful Lives of Long-Lived Assets

We review our long-lived assets, such as property and equipment and acquired intangible assets, for
impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. Events that would trigger an impairment review include a change in the use of the asset or
forecasted negative cash flows related to the asset. When such events occur, we compare the carrying amount of
the asset to the undiscounted expected future cash flows related to the asset. If this comparison indicates that
impairment is present, the amount of the impairment is calculated as the difference between the carrying amount
and the fair value of the asset. If a readily determinable market price does not exist, fair value is estimated using
discounted expected cash flows attributable to the asset. The estimates required to apply this accounting policy
include forecasted usage of the long-lived assets, the useful lives of these assets and expected future cash flows.
Changes in these estimates could materially impact results from operations.

Effective January 1, 2013, we increased the expected average useful lives of our network assets, primarily
servers, from three to four years to reflect software and hardware related initiatives to manage our global network
more efficiently. This change was recorded prospectively and decreased depreciation expense on network assets
by approximately $45.7 million and increased net income by approximately $33.6 million for the year ended
December 31, 2013. The change also increased basic and diluted net income per share by $0.19 and $0.18,
respectively, for the year ended December 31, 2013.

Goodwill and Acquired Intangible Assets

We test goodwill for impairment on an annual basis, as of December 31, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. We have concluded that we have one
reporting unit and that our chief operating decision maker is our chief executive officer and the executive
management team. We have assigned the entire balance of goodwill to our one reporting unit. The fair value of
the reporting unit was based on our market capitalization as of each of December 31, 2013 and 2012, and it was
substantially in excess of the carrying value of the reporting unit at each date.

43

Acquired intangible assets consist of completed technologies, customer relationships, trademarks and trade
names, and non-compete agreements arising from acquisitions of businesses and acquired license rights. We
engaged third party valuation specialists to assist us with the initial measurement of the fair value of acquired
intangible assets. Acquired intangible assets, other than goodwill, are amortized over their estimated useful lives
based upon the estimated economic value derived from the related intangible assets.

Income Taxes

Our provision for income taxes is comprised of a current and a deferred portion. The current income tax
provision is calculated as the estimated taxes payable or refundable on tax returns for the current year. The
deferred income tax provision is calculated for the estimated future tax effects attributable to temporary
differences and carryforwards by using expected tax rates in effect in the years during which the differences are
expected to reverse or the carryforwards are expected to be realized.

We currently have net deferred tax assets, comprised of net operating loss, or NOL, carryforwards, tax
credit carryforwards and deductible temporary differences. Our management periodically weighs the positive and
negative evidence to determine if it is more likely than not that some or all of the deferred tax assets will be
realized. In determining our net deferred tax assets and valuation allowances, annualized effective tax rates and
cash paid for income taxes, management is required to make judgments and estimates about domestic and foreign
profitability, the timing and extent of the utilization of net operating loss carryforwards, applicable tax rates,
transfer pricing methodologies and tax planning strategies. Judgments and estimates related to our projections
and assumptions are inherently uncertain; therefore, actual results could differ materially from our projections.

We have recorded certain tax reserves to address potential exposures involving our income tax positions.
These potential tax liabilities result from the varying application of statutes, rules, regulations and interpretations
by different taxing jurisdictions. Our estimate of the value of our tax reserves contains assumptions based on past
experiences and judgments about the interpretation of statutes, rules and regulations by taxing jurisdictions. It is
possible that the costs of the ultimate tax liability or benefit from these matters may be materially more or less
than the amount that we estimated.

Uncertainty in income taxes is recognized in our financial statements under guidance that prescribes a two-
step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to
determine the likelihood that it will be sustained upon external examination. If the tax position is deemed more-
likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize
in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a
greater than 50 percent likelihood of being realized upon ultimate settlement.

Accounting for Stock-Based Compensation

We issue stock-based compensation awards including stock options, restricted stock units and deferred stock
units. We measure the fair value of these awards at the grant date and recognize such fair value as expense over
the vesting period. We have selected the Black-Scholes option pricing model to determine the fair value of stock
option awards. Determining the fair value of stock-based awards at the grant date requires judgment, including
estimating the expected life of the stock awards and the volatility of the underlying common stock. Our
assumptions may differ from those used in prior periods. Changes to the assumptions may have a significant
impact on the fair value of stock-based awards, which could have a material impact on our financial statements.
Judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited.
Should our actual forfeiture rates differ significantly from our estimates, our stock-based compensation expense
and results of operations could be materially impacted. In addition, for awards that vest and become exercisable
only upon achievement of specified performance conditions, we make judgments and estimates each quarter
about the probability that such performance conditions will be met or achieved. Changes to the estimates we
make from time to time may have a significant impact on our stock-based compensation expense recorded and
could materially impact our result of operations.

44

For stock options, restricted stock units and deferred stock units that contain only a service-based vesting
feature, we recognize compensation cost on a straight-line basis over the awards’ vesting period. For awards with a
performance condition-based vesting feature, we recognize compensation cost on a graded-vesting basis over the
awards’ expected vesting period, commencing when achievement of the performance condition is deemed probable.

Capitalized Internal-Use Software Costs

We capitalize salaries and related costs, as well as stock-based compensation expense, of employees and
consultants who devote time to the development of internal-use software development projects. Capitalization
begins during the application development stage, once the preliminary project stage has been completed. If a
project constitutes an enhancement to previously-developed software, we assess whether the enhancement is
significant and creates additional
thus qualifying the work incurred for
capitalization. Once the project is available for general release, capitalization ceases and we estimate the useful
life of the asset and begin amortization. We periodically assess whether triggering events are present to review
internal-use software for impairment. Changes in our estimates related to internal-use software would increase or
decrease operating expenses or amortization recorded during the period.

functionality to the software,

45

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our portfolio of cash equivalents and short- and long-term investments is maintained in a variety of
securities, including government agency obligations, corporate bonds and money market funds. Investments are
classified as available-for-sale securities and carried at their fair market value with cumulative unrealized gains
or losses recorded as a component of accumulated other comprehensive loss within stockholders’ equity. A sharp
rise in interest rates could have an adverse impact on the fair market value of certain securities in our portfolio.
We do not currently hedge our interest rate exposure and do not enter into financial instruments for trading or
speculative purposes.

Foreign Currency Risk

Growth in our international operations will

incrementally increase our exposure to foreign currency
fluctuations as well as other risks typical of international operations, including, but not limited to, differing
economic conditions, changes in political climate, differing tax structures and other regulations and restrictions.
Foreign exchange rate fluctuations may adversely impact our consolidated results of operations as exchange rate
fluctuations on transactions denominated in currencies other than our functional currencies result in gains and
losses that are reflected in our consolidated statements of operations. To the extent the U.S. dollar weakens
against foreign currencies, the translation of these foreign currency-denominated transactions will result in
increased net revenues and operating expenses. Conversely, our net revenues and operating expenses will
decrease when the U.S. dollar strengthens against foreign currencies. We do not enter into financial instruments
for trading or speculative purposes.

Transaction Exposure

We enter into short-term foreign currency forward contracts to offset foreign exchange gains and losses
generated by the re-measurement of certain assets and liabilities recorded in non-functional currencies. Changes
in the fair value of these derivatives, as well as re-measurement gains and losses, are recognized in our
statements of operations within other (expense) income, net. Foreign currency transaction gains and losses were
determined to be immaterial during the year ended December 31, 2013.

Translation Exposure

Foreign exchange rate fluctuations may adversely impact our consolidated financial position as the assets
and liabilities of our foreign operations are translated into U.S. dollars in preparing our consolidated balance
sheet. These gains or losses are recognized as an adjustment to stockholders’ equity which is reflected in our
balance sheet under accumulated other comprehensive loss.

Credit Risk

Concentrations of credit risk with respect to accounts receivable are limited to certain customers to which
we make substantial sales. Our customer base consists of a large number of geographically dispersed customers
diversified across numerous industries. To reduce risk, we routinely assess the financial strength of our
customers. As of December 31, 2013 and 2012, one customer had an account receivable balance greater than
10% of our accounts receivable. We believe that at December 31, 2013, concentration of credit risk related to
accounts receivable was not significant.

46

Item 8.

Financial Statements and Supplementary Data

AKAMAI TECHNOLOGIES, INC.

Index to Consolidated Financial Statements and Schedule

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and 2011 . . . . . . . . .
Consolidated Statements of Comprehensive Income for the years ended December, 2013, 2012 and

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011 . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013, 2012 and

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

48
49
50

51
52

53
55

Note: All financial statement schedules are omitted because they are not applicable or the required information is
included in the consolidated financial statements or notes thereto.

47

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Akamai Technologies, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
operations, comprehensive income, stockholders’ equity and cash flows present fairly, in all material respects,
the financial position of Akamai Technologies, Inc. and its subsidiaries at December 31, 2013 and 2012, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2013
in conformity with accounting principles generally accepted in the United States of America. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by
the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Company’s
management is responsible for these financial statements, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express opinions on these financial statements and on the Company’s internal control over
financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
March 3, 2014

48

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS
Current assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of reserves of $3,703 and $3,807 at December 31,

2013 and 2012, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Acquired intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2013

December 31,
2012

(in thousands, except share data)

$

333,891
340,005

$

201,989
235,592

271,988
62,096
21,734

1,029,714
450,287
573,026
757,368
77,429
2,325
67,536

218,777
51,604
20,422

728,384
345,091
657,659
723,701
84,554
21,427
39,811

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,957,685

$ 2,600,627

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

73,710
150,385
36,952
2,119

263,166
3,199
4,737
57,152

328,254

$

43,291
133,087
26,291
275

202,944
2,565
—
49,364

254,873

Commitments and contingencies (Note 9)
Stockholders’ equity:

Preferred stock, $0.01 par value; 5,000,000 shares authorized; 700,000 shares

designated as Series A Junior Participating Preferred Stock; no shares issued
or outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Common stock, $0.01 par value; 700,000,000 shares authorized; 178,580,696
shares issued and outstanding at December 31, 2013; 200,199,536 shares
issued and 177,782,814 shares outstanding at December 31, 2012 . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Treasury stock, at cost, no shares at December 31, 2013 and 22,416,722 shares
at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

1,808
4,561,929

2,015
5,195,543

—
(2,091)
(1,932,215)

(624,462)
(1,640)
(2,225,702)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,629,431

2,345,754

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,957,685

$ 2,600,627

The accompanying notes are an integral part of the consolidated financial statements.

49

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31,

2013

2012

2011

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and operating expenses:

(in thousands, except per share data)
$1,373,947

$1,577,922

$1,158,538

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired intangible assets . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

511,087
93,879
280,380
255,218
21,547
1,843

529,900
74,744
223,348
210,100
20,962
406

Total costs and operating expenses . . . . . . . . . . . . . . . . . . . . . .

1,163,954

1,059,460

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (expense) income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

413,968
6,077
(491)

419,554
126,067

314,487
6,455
649

321,591
117,602

453,705
52,333
163,017
176,878
17,070
4,886

867,889

290,649
10,421
6,125

307,195
106,291

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 293,487

$ 203,989

$ 200,904

Net income per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

1.65
1.61

$
$

1.15
1.12

$
$

1.09
1.07

Shares used in per share calculations:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

178,196
181,783

177,900
181,749

183,866
187,556

The accompanying notes are an integral part of the consolidated financial statements.

50

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income:

Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
Change in unrealized gain on investments, net of income tax benefit

(expense) of $457, $(404) and $(5,018) for the years ended
December 31, 2013, 2012 and 2011, respectively . . . . . . . . . . . . . . . . .

Other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the Years Ended December 31,

2013

2012

2011

$293,487

(in thousands)
$203,989

$200,904

(4,361)

(904)

(3,553)

3,910

(451)

523

(381)

8,035

4,482

Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$293,036

$203,608

$205,386

The accompanying notes are an integral part of the consolidated financial statements.

51

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

2013

2012

2011

(in thousands)

Cash flows from operating activities:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 293,487 $ 203,989 $ 200,904
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . .
Non-cash portion of restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain from divestiture of a business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

184,431
95,884
27,343
1,169
(22,801)
781
414
(1,188)

204,163
90,585
(5,819)
(316)
(23,015)
—

3

—

167,878
61,305
53,628
2,066
(13,123)
412
597
—

Changes in operating assets and liabilities, net of effects of acquisitions and

divestitures:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(67,184)
(3,842)
40,533
11,495
52
3,334

(2,108)
6,357
58,672
4,552
(3,278)
(3,765)

(37,837)
(4,828)
7,214
(3,721)
3,572
8,211

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

563,908

530,020

446,278

Cash flows from investing activities:

Cash paid for acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization of internal-use software development costs . . . . . . . . . . . . . . . . . . . . .
Purchases of short- and long-term marketable securities . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales and redemptions of short- and long-term marketable

securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of short- and long-term marketable securities . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(30,657)
(187,964)
(72,109)
(494,885)

(336,680)
(166,773)
(54,204)
(752,342)

(550)
(133,445)
(42,644)
(880,110)

160,210
314,925
827
(3,455)

214,277
315,788
12
812

701,313
532,910
150
(274)

Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . . . . . . . . . . .

(313,108)

(779,110)

177,350

Cash flows from financing activities:

Proceeds related to the issuance of common stock under stock plans . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee taxes paid related to net share settlement of stock-based awards . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

63,707
22,801
(41,332)
(160,419)

45,114
23,015
(34,690)
(141,468)

25,302
13,123
(8,393)
(324,070)

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effects of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .

(115,243)
(3,655)

(108,029)
(89)

(294,038)
(2,259)

Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

131,902
201,989

(357,208)
559,197

327,331
231,866

Cash and cash equivalents at end of year

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 333,891 $ 201,989 $ 559,197

Supplemental disclosure of cash flow information:

Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,508 $ 94,833 $ 45,578

Non-cash financing and investing activities:

Purchases of property and equipment and capitalization of internal-use software

development costs included in accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization of stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible note receivable received for divestiture of a business . . . . . . . . . . . . . . .

19,927
12,325
18,882

12,939
9,276
—

12,412
7,473
—

The accompanying notes are an integral part of the consolidated financial statements.

52

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Common Stock

Shares

Amount

Additional
Paid-in
Capital

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Total
Stock-
holders’
Equity

Balance at January 1, 2011 . . . . . . . . . . . 186,603,380
Issuance of common stock upon the

$1,924

$4,970,278 $(158,261)

$(5,741)

$(2,630,595) $2,177,605

(in thousands)

exercise of stock options and vesting of
restricted and deferred stock units, net
of shares withheld for employee
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock under employee
stock purchase plan . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . .
Tax benefit from stock-based award

activity, net . . . . . . . . . . . . . . . . . . . . . . .

Stock-based compensation from awards
issued to non-employees for services
rendered . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment
. .
Change in unrealized gain on investments,
net of tax . . . . . . . . . . . . . . . . . . . . . . . . .

2,686,726

491,396

30

5

4,173

12,651
69,260

11,855

18

(12,276,878)

(324,733)

200,904

4,203

12,656
69,260

11,855

18
(324,733)
200,904
(3,553)

8,035

(3,553)

8,035

(1,259)

Balance at December 31, 2011 . . . . . . . . . 177,504,624
Issuance of common stock upon the

1,959

5,068,235

(482,994)

(2,429,691)

2,156,250

exercise of stock options and vesting of
restricted and deferred stock units, net
of shares withheld for employee
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock under employee
stock purchase plan . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . .
Tax benefit from stock-based award

activity, net . . . . . . . . . . . . . . . . . . . . . . .

Stock-based compensation from awards
issued to non-employees for services
rendered . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment
. .
Change in unrealized gain on investments,
net of tax . . . . . . . . . . . . . . . . . . . . . . . . .

3,961,440

676,853

49

7

(6,902)

16,816
99,038

17,533

823

(4,360,103)

(141,468)

(6,853)

16,823
99,038

17,533

823
(141,468)
203,989
(904)

523

203,989

(904)

523

Balance at December 31, 2012 . . . . . . . . . 177,782,814

2,015

5,195,543

(624,462)

(1,640)

(2,225,702)

2,345,754

53

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—(Continued)

Common Stock

Shares

Amount

Additional
Paid-in
Capital

Treasury
Stock

Accumulated
Other
Comprehensive
Loss

Accumulated
Deficit

Total
Stockholders’
Equity

Balance at December 31, 2012 . . . . . . 177,782,814
Issuance of common stock upon the

2,015

5,195,543

(624,462)

(1,640)

(2,225,702)

2,345,754

(in thousands)

exercise of stock options and vesting
of restricted and deferred stock units,
net of shares withheld for employee
taxes . . . . . . . . . . . . . . . . . . . . . . . . . .

Issuance of common stock under

employee stock purchase plan . . . . . .
Stock-based compensation . . . . . . . . . .
Tax benefit from stock-based award

activity, net

. . . . . . . . . . . . . . . . . . . .
Stock-based compensation from awards
issued to non-employees for services
rendered . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . .
Treasury stock retirement . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation

adjustment . . . . . . . . . . . . . . . . . . . . .

Change in unrealized gain on

investments, net of tax . . . . . . . . . . . .

4,050,525

644,639

50

6

(218)

22,086
107,882

20,926

327

(3,897,282)

(263)

(784,617)

(160,418)
784,880

(168)

22,092
107,882

20,926

327
(160,418)

—
293,487

(4,361)

3,910

293,487

(4,361)

3,910

Balance at December 31, 2013 . . . . . . 178,580,696

$1,808

$4,561,929 $

—

$(2,091)

$(1,932,215)

$2,629,431

The accompanying notes are an integral part of the consolidated financial statements.

54

AKAMAI TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Basis of Presentation

Akamai Technologies, Inc. (the “Company”) provides cloud services for delivering, optimizing and securing
online content and business applications. The Company’s globally distributed platform comprises more than
140,000 servers in approximately 1,200 networks in over 90 countries. The Company was incorporated in
Delaware in 1998 and is headquartered in Cambridge, Massachusetts. The Company currently operates in one
industry segment: providing services for accelerating and improving the delivery of content and applications over
the Internet.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-
owned subsidiaries. All intercompany transactions and balances have been eliminated in the accompanying
consolidated financial statements.

Revision of Prior Period Amounts

In the first quarter of 2013, the Company conducted a reevaluation of its business model. Following the
review, the Company determined it was appropriate to change the classification of cost of services and support
and cost of network build-out and support from sales and marketing and general and administrative expenses,
respectively, to costs of revenue because such costs directly support the Company’s revenue. The Company has
concluded that the prior classification was an error and that it is immaterial to all annual and quarterly periods
previously presented. However, to facilitate period-over-period comparisons, the Company has revised its prior
period financial statements to reflect the corrections in the period in which the expenses were incurred.

The effect of the revisions to the consolidated statements of operations is as follows for the years ended

December 31, 2012 and 2011 (in thousands):

2012

2011

As
Previously
Reported

$ 431,911
74,744
304,404
227,033

Adjustment

$ 97,989

—
(81,056)
(16,933)

As
Revised

$ 529,900
74,744
223,348
210,100

As
Previously
Reported

$374,543
52,333
227,331
191,726

Adjustment

$ 79,162
—
(64,314)
(14,848)

As
Revised

$453,705
52,333
163,017
176,878

20,962
406

—
—

20,962
406

17,070
4,886

—
—

17,070
4,886

Cost of revenue . . . . . . . . . . . . . . . . .
Research and development . . . . . . . .
Sales and marketing . . . . . . . . . . . . .
General and administrative . . . . . . . .
Amortization of acquired intangible

assets . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . .

Total costs and operating

expenses . . . . . . . . . . . . . . . . . . . .

$1,059,460

$ — $1,059,460

$867,889

$ — $867,889

The classification error did not affect reported revenue, total costs and operating expenses, income from

operations, net income, net income per share, cash flows or any balance sheet line item.

During the third quarter of 2013, the Company identified immaterial classification errors in its historical
consolidated statements of cash flows. The errors relate to the timing of cash payments for property and
equipment, cash receipts from employees for common stock related to the Company’s employee stock purchase
plan and cash payments for lease deposits. The cash flows for these items were improperly reflected as changes
in operating assets and liabilities rather than as investing or financing activities. There was no impact to the net
change in cash and cash equivalents. The Company concluded these errors are immaterial to all annual and

55

quarterly periods previously presented and has reflected the corrections as a revision to the consolidated
statements of cash flows previously filed.

The effect of the revisions to the consolidated statements of cash flows is as follows for the years ended

December 31, 2012 and 2011 (in thousands):

2012

2011

As
Previously
Reported

Adjustment

As
Revised

As
Previously
Reported

Adjustment

As
Revised

Cash flows from operating activities:
Changes in operating assets and
liabilities, net of effects from
acquisitions:

Prepaid expenses and other
current assets . . . . . . . . .

Accounts payable and

$

6,066

$

291

$

6,357

$

(7,014)

$ 2,186

$

(4,828)

accrued expenses . . . . . .

59,653

(981)

58,672

15,184

(7,970)

7,214

Other non-current assets

and liabilities . . . . . . . . .

(4,070)

305

(3,765)

8,704

(493)

8,211

Net cash provided by operating

activities . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:

Purchases of property and

530,405

(385)

530,020

452,555

(6,277)

446,278

equipment

. . . . . . . . . . . . . . . . .

(165,642)

(1,131)

(166,773)

(140,218)

6,773

(133,445)

Other non-current assets and

liabilities . . . . . . . . . . . . . . . . . .

(250)

1,062

812

272

(546)

(274)

(779,041)

(69)

(779,110)

171,123

6,227

177,350

Net cash (used in) provided by

investing activities . . . . . . . . . . . . .
Cash flows from financing activities:
Proceeds related to the issuance
of common stock under stock
plans . . . . . . . . . . . . . . . . . . . .

Net cash used in financing

44,660

454

45,114

25,252

50

50

25,302

(294,038)

activities . . . . . . . . . . . . . . . . . . . . .

(108,483)

454

(108,029)

(294,088)

Net (decrease) increase in cash and

cash equivalents . . . . . . . . . . . . . . .

(357,208)

—

(357,208)

327,331

—

327,331

2.

Summary of Significant Accounting Policies

Use of Estimates

The Company prepares its consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America. These principles require management to make estimates,
judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the
amounts disclosed in the related notes to the consolidated financial statements. Actual results and outcomes may
differ materially from management’s estimates, judgments and assumptions. Significant estimates, judgments
and assumptions used in these financial statements include, but are not limited to, those related to revenue,
accounts receivable and related reserves, valuation and impairment of investments and marketable securities,
useful lives and realizability of long-lived assets, capitalized internal-use software development costs, income tax
reserves and accounting for stock-based compensation. Estimates are periodically reviewed in light of changes in
circumstances, facts and experience. The effects of material revisions in estimates are reflected in the
consolidated financial statements prospectively from the date of the change in estimate.

56

Cash, Cash Equivalents and Marketable Securities

Cash and cash equivalents consist of cash held in bank deposit accounts and short-term, highly-liquid
investments with remaining maturities of three months or less at the date of purchase. Short-term marketable
securities consist of corporate, government and other securities with remaining maturities of more than three
months at the date of purchase and less than one year from the date of the balance sheet. Long-term marketable
securities consist of corporate, government and other securities with maturities of more than one year from the
date of the balance sheet.

The Company classifies its debt and equity securities with readily determinable market values as available-
for-sale in accordance with the authoritative guidance for accounting for certain investments in debt and equity
securities. These investments are classified as marketable securities on the consolidated balance sheets and are
carried at fair market value, with unrealized gains and losses considered to be temporary in nature reported as
accumulated other comprehensive loss, a separate component of stockholders’ equity. The Company reviews all
investments for reductions in fair value that are other-than-temporary. When such reductions occur, the cost of
the investment is adjusted to fair value through recording a loss on investments in the consolidated statement of
operations. Gains and losses on investments are calculated on the basis of specific identification.

Marketable securities are considered to be impaired when a decline in fair value below cost basis is
determined to be other-than-temporary. The Company periodically evaluates whether a decline in fair value
below cost basis is other-than-temporary by considering available evidence regarding these investments
including, among other factors: the duration of the period that, and extent to which, the fair value is less than cost
basis, the financial health of and business outlook for the issuer, including industry and sector performance and
operational and financing cash flow factors, overall market conditions and trends and the Company’s intent and
ability to retain its investment in the security for a period of time sufficient to allow for an anticipated recovery in
market value. Once a decline in fair value is determined to be other-than-temporary, a write-down is recorded
and a new cost basis in the security is established. Assessing the above factors involves inherent uncertainty.
Write-downs, if recorded, could be materially different from the actual market performance of marketable
securities in the Company’s portfolio, if, among other things, relevant information related to its marketable
securities was not publicly available or other factors not considered by the Company would have been relevant to
the determination of impairment.

Accounts Receivable and Related Reserves

The Company’s accounts receivable balance includes unbilled amounts that represent revenues recorded for
customers that are typically billed monthly in arrears. The Company records reserves against its accounts
receivable balance. These reserves consist of allowances for doubtful accounts and reserves for cash-basis
customers. Increases and decreases in the allowance for doubtful accounts are included as a component of
general and administrative expense in the consolidated statements of operations. The Company’s reserve for
cash-basis customers increases as services are provided to customers where collection is no longer assured.
Increases to the reserve for cash-basis customers are recorded as reductions of revenue. The reserve decreases
and revenue is recognized when and if cash payments are received.

Estimates are used in determining these reserves and are based upon the Company’s review of outstanding
balances on a customer-specific, account-by-account basis. The allowance for doubtful accounts is based upon a
review of customer receivables from prior sales with collection issues where the Company no longer believes
that the customer has the ability to pay for services previously provided. The Company also performs ongoing
credit evaluations of its customers. If such an evaluation indicates that payment is no longer reasonably assured
for services provided, any future services provided to that customer will result in the creation of a cash-basis
reserve until the Company receives consistent payments. The Company does not have any off-balance sheet
credit exposure related to its customers.

57

Concentrations of Credit Risk

The amounts reflected in the consolidated balance sheets for accounts receivable, other current assets,
accounts payable, accrued liabilities and other current liabilities approximate their fair values due to their short-
term maturities. The Company maintains the majority of its cash, cash equivalents and marketable securities with
major financial institutions that the Company believes to be of high credit standing. The Company believes that,
as of December 31, 2013, its concentration of credit risk related to cash equivalents and marketable securities is
not significant.

Concentrations of credit risk with respect to accounts receivable are primarily limited to certain customers
to which the Company makes substantial sales. The Company’s customer base consists of a large number of
geographically dispersed customers diversified across several industries. To reduce risk, the Company routinely
assesses the financial strength of its customers. Based on such assessments, the Company believes that its
accounts receivable credit risk exposure is limited. For the years ended December 31, 2013, 2012 and 2011, no
customer accounted for more than 10% of total revenue. As of December 31, 2013 and 2012, one customer had
an account receivable balance greater than 10% of total accounts receivable. The Company believes that, as of
December 31, 2013, its concentration of credit risk related to accounts receivable is not significant.

Fair Value of Financial Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. The Company has certain financial assets and liabilities
recorded at fair value, principally cash equivalents and short- and long-term marketable securities, that have been
classified as Level 1, 2 or 3 within the fair value hierarchy. Fair values determined by Level 1 inputs utilize
quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the
reporting date. Fair values determined by Level 2 inputs utilize data points other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly or indirectly. Fair values determined by
Level 3 inputs are based on unobservable data points for the asset or liability.

Property and Equipment

Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Property
and equipment generally includes purchases of items with a per-unit value greater than $1,000 and an estimated
useful life greater than one year. Depreciation and amortization are computed on a straight-line basis over the
estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of related lease terms
or their estimated useful lives. The Company periodically reviews the estimated useful lives of property and
equipment and any changes to the estimated useful lives are recorded prospectively from the date of the change.

Effective January 1, 2013, we increased the expected average useful lives of our network assets, primarily
servers, from three to four years to reflect software and hardware related initiatives to manage our global network
more efficiently. This change was recorded prospectively and decreased depreciation expense on network assets
by approximately $45.7 million and increased net income by approximately $33.6 million for the year ended
December 31, 2013. The change also increased basic and diluted net income per share by $0.19 and $0.18,
respectively, for the year ended December 31, 2013.

Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in income from operations. Repairs and
maintenance costs are expensed as incurred.

58

Goodwill, Acquired Intangible Assets and Long-Lived Assets

Goodwill is the amount by which the cost of acquired net assets in a business combination exceeds the fair
value of the net identifiable assets on the date of purchase and is carried at its historical cost. The Company tests
goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate
that the asset might be impaired. The Company performs its impairment tests of goodwill as of December 31.
The tests did not result in an impairment to goodwill during the years ended December 31, 2013, 2012 and 2011.

Acquired intangible assets consist of completed technologies, customer relationships, trademarks and trade
names, non-compete agreements and acquired license rights. Acquired intangible assets, other than goodwill, are
amortized over their estimated useful lives based upon the estimated economic value derived from the related
intangible asset.

Long-lived assets, including property and equipment and acquired intangible assets, are reviewed for
impairment whenever events or changes in circumstances, such as service discontinuance,
technological
obsolescence, significant decreases in the Company’s market capitalization, facility closures or work-force
reductions indicate that the carrying amount of the long-lived asset may not be recoverable. When such events
occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows
related to the asset. If this comparison indicates that an impairment is present, the amount of the impairment is
calculated as the difference between the carrying amount and the fair value of the asset. The Company did not
have any impairments during the years ended December 31, 2013, 2012 and 2011.

Revenue Recognition

The Company recognizes service revenue in accordance with the authoritative guidance for revenue
recognition, including guidance on revenue arrangements with multiple deliverables. Revenue is recognized only
when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed
and collectability of the resulting receivable is reasonably assured.

The Company primarily derives revenue from the sale of services to customers executing contracts having
terms of one year or longer. These contracts generally commit the customer to a minimum of monthly, quarterly
or annual level of usage and specify the rate at which the customer must pay for actual usage above the monthly,
quarterly or annual minimum. For contracts with a monthly commitment, the Company recognizes the monthly
minimum as revenue each month, provided that an enforceable contract has been signed by both parties, the
service has been delivered to the customer, the fee for the service is fixed or determinable and collection is
reasonably assured. Should a customer’s usage of the Company’s services exceed the monthly, quarterly or
annual minimum, the Company recognizes revenue for such excess in the period of additional usage. For annual
or other non-monthly period revenue commitments, the Company recognizes revenue monthly based upon the
customer’s actual usage each month of the commitment period and only recognizes any remaining committed
amount for the applicable period in the last month thereof.

The Company typically charges its customers an integration fee when the services are first activated.
Integration fees are recorded as deferred revenue and recognized as revenue ratably over the estimated life of the
customer arrangement. The Company also derives revenue from services sold as discrete, non-recurring events or
based solely on usage. For these services, the Company recognizes revenue once the event or usage has occurred.

When more than one element is contained in a revenue arrangement, the Company determines the fair value
for each element in the arrangement based on vendor-specific objective evidence (“VSOE”) for each respective
element, including any renewal rates for services contractually offered to the customer. Elements typically
included in the Company’s multiple element arrangements consist of its core services — the delivery of content,
applications and software over the Internet — as well as mobile and security solutions, and enterprise
professional services. These elements have value to the customer on a stand-alone basis in that they can be sold
separately by another vendor. Generally, there is no right of return relative to these services.

59

The Company typically uses VSOE to determine the fair value of its separate elements. All stand-alone sales
of professional services are reviewed to establish the average stand-alone selling price for those services. For the
Company’s core services, the fair value is the price charged for a single deliverable on a per unit basis when it is
sold separately.

For arrangements in which the Company is unable to establish VSOE, third party evidence (“TPE”) of the
fair value of each element is determined based upon the price charged when the element is sold separately by
another vendor. For arrangements in which the Company is unable to establish VSOE or TPE for each element,
the Company uses the best estimate of selling price (“BESP”) to determine the fair value of the separate
deliverables. The Company estimates BESP based upon a management-approved listing of all solution unit
pricing and pre-established discount levels for each solution that takes into consideration volume, geography and
industry lines. The Company allocates arrangement consideration across the multiple elements using the relative
selling price method.

At the inception of a customer contract, the Company makes an assessment as to that customer’s ability to
pay for the services provided. The Company bases its assessment on a combination of factors, including the
successful completion of a credit check or financial review, its collection experience with the customer and other
forms of payment assurance. Upon the completion of these steps, the Company recognizes revenue monthly in
accordance with its revenue recognition policy. If the Company subsequently determines that collection from the
customer is not reasonably assured, the Company records an allowance for doubtful accounts and bad debt
expense for all of that customer’s unpaid invoices and ceases recognizing revenue for continued services
provided until cash is received from the customer. Changes in the Company’s estimates and judgments about
whether collection is reasonably assured would change the timing of revenue or amount of bad debt expense that
the Company recognizes.

The Company also sells its services through a reseller channel. Assuming all other revenue recognition
criteria are met, the Company recognizes revenue from reseller arrangements based on the reseller’s contracted
non-refundable minimum purchase commitments over the term of the contract, plus amounts sold by the reseller
to its customers in excess of the minimum commitments. Amounts attributable to this excess usage are
recognized as revenue in the period in which the service is provided.

From time to time, the Company enters into contracts to sell its services or license its technology to
unrelated enterprises at or about the same time that it enters into contracts to purchase products or services from
the same enterprises. If the Company concludes that these contracts were negotiated concurrently, the Company
records as revenue only the net cash received from the vendor, unless the product or service received has a
separate identifiable benefit, and the fair value of the vendor’s product or service can be established objectively.

The Company may from time to time resell licenses or services of third parties. The Company records
revenue for these transactions on a gross basis when the Company has risk of loss related to the amounts
purchased from the third party and the Company adds value to the license or service, such as by providing
maintenance or support for such license or service. If these conditions are present, the Company recognizes
revenue when all other revenue recognition criteria are satisfied.

Deferred revenue represents amounts billed to customers for which revenue has not been recognized.
Deferred revenue primarily consists of the unearned portion of monthly billed service fees, prepayments made by
customers for future periods, deferred integration and activation set-up fees and amounts billed under customer
arrangements with extended payment terms.

Cost of Revenue

Cost of revenue consists primarily of fees paid to network providers for bandwidth and to third party
network data centers for housing servers, also known as co-location costs. Cost of revenue also includes

60

employee costs for network operation, build-out and support and services delivery; network storage costs; cost of
software licenses; depreciation of network equipment used to deliver the Company’s services; amortization of
network-related internal-use software; and costs for the production of live events. The Company enters into
contracts for bandwidth with third party network providers with terms typically ranging from several months to
two years. These contracts generally commit the Company to pay minimum monthly fees plus additional fees for
bandwidth usage above the committed level. In some circumstances, Internet service providers (“ISPs”) make
rack space available for the Company’s servers and access to their bandwidth at discounted or no cost. In
exchange, the ISP and its customers benefit by receiving content through a local the Company server resulting in
better content delivery. The Company does not consider these relationships to represent the culmination of an
earnings process. Accordingly, the Company does not recognize as revenue the value to the ISPs associated with
the use of the Company’s servers, nor does the Company recognize as expense the value of the rack space and
bandwidth received at discounted or no cost.

Research and Development Costs and Capitalized Internal-Use Software

Research and development costs consist primarily of payroll and related personnel costs for the design,
development, deployment, testing, operation and enhancement of the Company’s services and network. Costs
incurred in the development of the Company’s services are expensed as incurred, except certain software
development costs eligible for capitalization. Costs incurred during the application development stage of internal-
use software projects, such as those used in the Company’s network operations, are capitalized in accordance
with the accounting guidance for costs of computer software developed for internal use. Capitalized costs include
external consulting fees, payroll and payroll-related costs and stock-based compensation expense for employees
in the Company’s development and information technology groups who are directly associated with, and who
devote time to,
the Company’s internal-use software projects during the application development stage.
Capitalization begins when the planning stage is complete and the Company commits resources to the software
project. Capitalization ceases when the software has been tested and is ready for its intended use. Amortization of
the asset commences when the software is complete and placed in service. The Company amortizes completed
internal-use software to cost of revenue over an estimated life of two years. Costs incurred during the planning,
training and post-implementation stages of the software development life-cycle are expensed as incurred. Costs
related to upgrades and enhancements of existing internal-use software that increase the functionality of the
software are also capitalized.

Advertising Expense

The Company recognizes advertising expense as incurred. The Company recognized total advertising
expense of $2.7 million, $2.8 million and $0.8 million for the years ended December 31, 2013, 2012 and 2011,
respectively.

Accounting for Stock-Based Compensation

The Company recognizes compensation costs for all stock-based payment awards made to employees and
directors based upon the awards’ grant-date fair value. The stock-based payment awards include employee stock
options, restricted stock units, deferred stock units and employee stock purchases related to the Company’s
employee stock purchase plan.

For stock options, the Company has selected the Black-Scholes option-pricing model to determine the fair
value of stock option awards. For stock options, restricted stock units and deferred stock units that contain only a
service-based vesting feature, the Company recognizes compensation cost on a straight-line basis over the
award’s vesting period. For awards with a performance condition-based vesting feature, the Company recognizes
compensation cost on a graded-vesting basis over the award’s expected vesting period, commencing when
achievement of the performance condition is deemed probable. In addition, for awards that vest and become
exercisable only upon achievement of specified performance conditions, the Company makes judgments and

61

estimates each quarter about the probability that such performance conditions will be met or achieved. Any
changes to those estimates that the Company makes from time to time may have a significant impact on the
stock-based compensation expense recorded and could materially impact the Company’s results of operation.

Foreign Currency Translation and Forward Currency Contracts

The assets and liabilities of the Company’s subsidiaries are translated at the applicable exchange rate as of
the balance sheet date, and revenues and expenses are translated at an average rate over the period. Resulting
currency translation adjustments are recorded as a component of accumulated other comprehensive loss, a
separate component of stockholders’ equity. Gains and losses on inter-company and other non-functional
currency transactions are recorded in other (expense) income, net. For the years ended December 31, 2013, 2012
and 2011, the Company recorded a net loss of $0.7 million, a net gain of $0.3 million and a net loss of
$1.9 million, respectively, in the consolidated statements of operations.

The Company enters into short-term foreign currency forward contracts to offset foreign exchange gains and
losses generated by the re-measurement of certain assets and liabilities recorded in non-functional currencies.
Changes in the fair value of these derivatives, as well as re-measurement gains and losses, are recognized in
current earnings in other (expense) income, net. As of December 31, 2013 and 2012, the fair value of the forward
currency contracts and the underlying net gains for the years ended December 31, 2013, 2012 and 2011 were
immaterial.

The Company’s foreign currency forward contracts may be exposed credit risk to the extent that its
counterparties are unable to meet the terms of the agreements. The Company minimizes counterparty credit (or
repayment) risk by entering into transactions only with major financial institutions of investment grade credit
rating.

Taxes

The Company’s provision for income taxes is comprised of a current and a deferred portion. The current
income tax provision is calculated as the estimated taxes payable or refundable on tax returns for the current
year. The deferred income tax provision is calculated for the estimated future tax effects attributable to temporary
differences and carryforwards using expected tax rates in effect during the years in which the differences are
expected to reverse or the carryforwards are expected to be realized.

The Company currently has net deferred tax assets consisting of net operating loss (“NOL”) carryforwards,
tax credit carryforwards and deductible temporary differences. Management periodically weighs the positive and
negative evidence to determine if it is more likely than not that some or all of the deferred tax assets will be
realized.

The Company has recorded certain tax reserves to address potential exposures involving its income tax and
sales and use tax positions. These potential tax liabilities result from the varying application of statutes, rules,
regulations and interpretations by different taxing jurisdictions. The Company’s estimate of the value of its tax
reserves contains assumptions based on past experiences and judgments about the interpretation of statutes, rules
and regulations by taxing jurisdictions. It is possible that the costs of the ultimate tax liability or benefit from
these matters may be materially more or less than the amount the Company estimated.

Uncertainty in income taxes is recognized in the Company’s consolidated financial statements under
guidance that prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax
position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the
tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the
amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is
the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement.

62

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued guidance and disclosure requirements
for reporting of comprehensive income: amounts reclassified out of accumulated other comprehensive income.
The guidance requires that an entity provide information about the amounts reclassified out of accumulated other
comprehensive income by component. In addition, an entity is required to present, either on the face of the
statement where net income is presented or in the notes, significant amounts reclassified out of accumulated
other comprehensive income by the respective line items of net income but only if the amount reclassified is
required under generally accepted accounting principles in the United States of America. The guidance is
effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. The
adoption of this guidance in the first quarter of 2013 did not have a material impact on the Company’s
consolidated financial results.

3.

Fair Value Measurements

The following is a summary of available-for-sale marketable securities held as of December 31, 2013 and

2012 (in thousands):

Gross Unrealized

Classification on Balance Sheet

As of December 31, 2013

Amortized
Cost

Gains

Losses

Aggregate
Fair Value

Certificates of deposit . . . . . . . . . . . . . . $
Corporate bonds . . . . . . . . . . . . . . . . . .
U.S. government agency obligations . .

222
736,945
174,982

$ — $ — $
1,197
51

(281)
(85)

222
737,861
174,948

Short-Term
Marketable
Securities

$

173
278,318
61,514

Long-Term
Marketable
Securities

$

49
459,543
113,434

$912,149

$1,248

$(366) $913,031

$340,005

$573,026

As of December 31, 2012

Certificates of deposit . . . . . . . . . . . . . . $
Commercial paper
. . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . .
U.S. government agency obligations . .

3,100
7,481
691,931
189,607

$ — $ — $

2
1,269
95

(1)
(205)
(28)

3,100
7,482
692,995
189,674

$

3,057
7,482
217,548
7,505

$

43
—
475,447
182,169

$892,119

$1,366

$(234) $893,251

$235,592

$657,659

Unrealized gains and unrealized temporary losses on investments classified as available-for-sale are
included within accumulated other comprehensive loss. Upon realization, those amounts are reclassified from
accumulated other comprehensive loss to interest income, net in the consolidated statements of operations. As of
December 31, 2013, the Company did not hold any investment-related assets that had been in a continuous loss
position for more than 12 months.

63

The following table details the fair value measurements within the fair value hierarchy of the Company’s

financial assets and liabilities as of December 31, 2013 and 2012 (in thousands):

Total Fair Value

Fair Value Measurements at Reporting
Date Using
Level 2

Level 1

Level 3

As of December 31, 2013
Cash Equivalents and Marketable Securities:

Money market funds . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper
. . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency obligations . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 40,482
3,418
29,999
174,948
737,861

$986,708

$40,482
3,418
—
—
—

$ —
—
29,999
174,948
737,861

$ —
—
—
—
—

$43,900

$942,808

$ —

Other Assets:

Note receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 22,879

$ —

$ —

$22,879

Other Liabilities:

Contingent consideration obligation related to

Velocius acquisition . . . . . . . . . . . . . . . . . . . . . . .

$ (2,600)

$ —

$ —

$ (2,600)

As of December 31, 2012
Cash Equivalents and Marketable Securities:

Money market funds . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper
. . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency obligations . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Liabilities:

Contingent consideration obligation related to

$ 22,255
7,473
9,482
189,674
692,995

$921,879

$22,255
7,473
—
—
—

$ —
—
9,482
189,674
692,995

$ —
—
—
—
—

$29,728

$892,151

$ —

Verivue acquisition . . . . . . . . . . . . . . . . . . . . . . .

$ (1,200)

$ —

$ —

$ (1,200)

As of December 31, 2013 and 2012, the Company grouped money market funds and certificates of deposit
using a Level 1 valuation because market prices for such investments are readily available in active markets. As
of December 31, 2013 and 2012, the Company grouped commercial paper, U.S. government agency obligations
and corporate bonds using a Level 2 valuation because quoted prices for identical or similar assets are available
in markets that are inactive. The Company did not have any transfers of assets and liabilities between Level 1 and
Level 2 of the fair value measurement hierarchy during the years ended December 31, 2013 and 2012.

When developing fair value estimates, the Company maximizes the use of observable inputs and minimizes
the use of unobservable inputs. When available, the Company uses quoted market prices to measure fair value.
The valuation technique used to measure fair value for the Company’s Level 1 and Level 2 assets is a market
approach, using prices and other relevant information generated by market transactions involving identical or
comparable assets. If market prices are not available, the fair value measurement is based on models that use
primarily market-based parameters including yield curves, volatilities, credit ratings and currency rates. In
certain cases where market rate assumptions are not available, the Company is required to make judgments about
assumptions market participants would use to estimate the fair value of a financial instrument.

The valuation technique used to measure fair value for the Company’s Level 3 asset, which consists of a
$25.0 million face value convertible note receivable that is due and payable on July 24, 2014, is primarily an
income approach, where the expected weighted average future cash flows are discounted back to present value.

64

The significant unobservable inputs used in the fair value measurement of the convertible note receivable are the
probability of conversion to equity and the fair value of equity into which the note is convertible. The valuation
assumed a 90% probability of being converted to equity. If a 70% probability of conversion was used, the fair
value of the note would have been $23.4 million.

The valuation technique used to measure fair value of the Company’s Level 3 liabilities, which consist of
contingent consideration related to the acquisition of Velocius Networks, Inc. (“Velocius”) and Verivue, Inc.
(“Verivue”) (Note 7), is primarily an income approach. The significant unobservable input used in the fair value
measurement of the Velocius contingent consideration is the likelihood of achieving development milestones to
integrate the acquired technology into the Company’s technology. The significant unobservable input used in the
fair value measurement of the Verivue contingent consideration is the likelihood of achieving defined levels of
customer revenue.

Significant increases or decreases in the underlying assumptions used to value the Company’s Level 3 asset
and liabilities held at December 31, 2013 and 2012, respectively, could significantly increase or decrease the fair
value estimates recorded in the consolidated balance sheets.

Contractual maturities of the Company’s available-for-sale marketable securities held as of December 31,

2013 and 2012 were as follows (in thousands):

Due in 1 year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after 1 year through 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2013

December 31,
2012

$340,005
573,026

$913,031

$235,592
657,659

$893,251

The following table reflects the activity for the Company’s major classes of assets and liabilities measured

at fair value using Level 3 inputs for the years ended December 31, 2013 and 2012 (in thousands):

Balance, January 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration obligation related to Verivue

acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance, December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustment to contingent consideration for acquisition of
Verivue included in general and administrative expense . . . . . . .

Contingent consideration obligation related to Velocius

acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible note receivable from divestiture of a business . . . . . . . .
Unrealized gain on convertible note receivable included in other

Other Assets:
Note Receivable

Other Liabilities:
Contingent
Consideration
Obligation

$ —

$ —

—

—

—

—
18,882

(1,200)

(1,200)

1,200

(2,600)
—

comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,997

—

Balance, December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,879

$(2,600)

65

4. Accounts Receivable

Net accounts receivable consisted of the following as of December 31, 2013 and 2012 (in thousands):

December 31,
2013

December 31,
2012

Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$175,391
100,300

$143,533
79,051

Gross accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for cash-basis customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total accounts receivable reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

275,691
(708)
(2,995)

(3,703)

222,584
(1,154)
(2,653)

(3,807)

Accounts receivable, net

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$271,988

$218,777

A summary of activity in the accounts receivable reserves for the years ended December 31, 2013, 2012 and

2011, is as follows (in thousands):

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges to income from operations . . . . . . . . . . . . . . . . . . . . . . . .
Write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collections from cash basis customers . . . . . . . . . . . . . . . . . . . . .

$ 3,807
17,900
(486)
(17,518)

$ 4,555
15,599
(47)
(16,300)

$ 5,232
16,165
(420)
(16,422)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,703

$ 3,807

$ 4,555

2013

2012

2011

Charges to income from operations represent charges to bad debt expense for increases in the allowance for

doubtful accounts and reductions to revenue for increases in reserves for cash basis customers.

5.

Property and Equipment

Property and equipment consisted of the following as of December 31, 2013 and 2012 (dollars in

thousands):

December 31,
2013

December 31,
2012

Estimated
Useful
Life in Years

Computer and networking equipment
. . . . . . . . . . . . . . . .
Purchased software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . .
Internal-use software . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 737,957
40,237
20,838
10,353
64,471
340,421

$ 655,043
35,176
16,917
7,109
44,539
272,441

3-4
3
5
3
2-12
2-3

Property and equipment, gross . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . .

1,214,277
(763,990)

1,031,225
(686,134)

Property and equipment, net

. . . . . . . . . . . . . . . . . . . . . . .

$ 450,287

$ 345,091

Depreciation and amortization expense on property and equipment and capitalized internal-use software for
the years ended December 31, 2013, 2012 and 2011 was $162.9 million, $183.2 million and $150.8 million,
respectively. During the years ended December 31, 2013, 2012 and 2011, the Company capitalized $12.3 million,
$9.3 million and $7.5 million, respectively, of stock-based compensation related to employees who developed
and enhanced internal-use software applications.

66

During the years ended December 31, 2013 and 2012, the Company wrote off $68.5 million and $77.4
million, respectively, of property and equipment, gross, along with the associated accumulated depreciation and
amortization. The write-offs were primarily related to computer and networking equipment and internal-use
software no longer in use. These assets were substantially depreciated and amortized.

6. Goodwill and Acquired Intangible Assets

The changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012 were as

follows (in thousands):

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$723,701
35,606
(1,939)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$757,368

$452,914
270,787
—

$723,701

December 31,
2013

December 31,
2012

The additions to goodwill during the year ended December 31, 2013 were related to the acquisitions of
strategic network assets from AT&T Services, Inc. (“AT&T”) and of Velocius. The disposal of goodwill during
the year ended December 31, 2013 was related to the sale of the Company’s Advertising Decision Solutions
(“ADS”) business. The additions to goodwill during the year ended December 31, 2012 were related to the
acquisitions of Blaze Software, Inc. (“Blaze”), Cotendo, Inc. (“Cotendo”), FastSoft, Inc. (“FastSoft”) and
Verivue.

Acquired intangible assets that are subject to amortization consisted of the following as of December 31,

2013 and 2012 (in thousands):

December 31, 2013

December 31, 2012

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Completed technologies . . . . . . . . . . . . . $ 65,631
115,100
Customer relationships . . . . . . . . . . . . . .
7,950
Non-compete agreements . . . . . . . . . . . .
3,400
Trademarks and trade names . . . . . . . . .
490
Acquired license rights . . . . . . . . . . . . . .

$ (35,476) $30,155
39,537
5,327
2,410
—

(75,563)
(2,623)
(990)
(490)

$ 71,531
104,700
14,770
3,700
490

$ (32,842) $38,689
35,998
7,125
2,742
—

(68,702)
(7,645)
(958)
(490)

Total

. . . . . . . . . . . . . . . . . . . . . . . . $192,571

$(115,142) $77,429

$195,191

$(110,637) $84,554

Aggregate amortization expense of acquired intangible assets for the years ended December 31, 2013, 2012
and 2011 was $21.5 million, $21.0 million and $17.1 million, respectively. Based on intangible assets held as of
December 31, 2013, amortization expense is expected to be approximately $20.6 million, $18.9 million,
$14.5 million, $10.2 million and $4.4 million for the years ending December 31, 2014, 2015, 2016, 2017 and
2018, respectively.

7. Business Acquisitions and Divestitures

Acquisition-related costs were $3.1 million, $5.8 million and $0.6 million during the years ended
December 31, 2013, 2012 and 2011, respectively, and are included in general and administrative expense in the
consolidated statements of income. Pro forma results of operations for the acquisitions completed in 2013 and
2012 have not been presented because the effects of the acquisitions, individually or in the aggregate, are not
material to the Company’s consolidated financial results. Revenue and earnings since the date of the acquisitions
included in the Company’s consolidated statements of operations are also not included because they are not
material.

67

Prolexic Acquisition

In December 2013, the Company announced that it had signed a definitive agreement to acquire Prolexic
Technologies, Inc. (“Prolexic”). The goal of acquiring Prolexic is to provide customers with a comprehensive
portfolio of security solutions designed to defend an enterprise’s Web and IP infrastructure against application-
layer, network-layer and data center attacks delivered via the Internet. The transaction closed in February 2014
for an approximate purchase price of $390.0 million, plus the assumption of unvested options, subject to post-
closing adjustments.

2013 Acquisitions

Velocius Acquisition

On November 8, 2013, the Company acquired Velocius in exchange for $4.3 million in cash. In addition,
the Company recorded a liability of $2.6 million for contingent consideration related to expected achievement of
post-closing milestones. The Company acquired Velocius with a goal of complementing its hybrid cloud
optimization strategy for optimizing IP application traffic across the Internet for remote and branch-end users.
The Company allocated $5.4 million of the cost of the acquisition to goodwill and $2.5 million to acquired
intangible assets. The allocation of the purchase price is preliminary, pending the finalization of the fair value of
the acquired intangible assets. The total weighted average useful life of the intangible assets acquired from
Velocius is 7.9 years. The value of the goodwill from the acquisition can be attributed to a number of business
factors including a trained technical workforce and cost synergies. The total amount of goodwill related to the
acquisition of Velocius expected to be deducted for tax purposes is $0.5 million.

Strategic Network Transaction

On November 30, 2012, the Company entered into a strategic alliance with AT&T. Under the agreement,
AT&T became a reseller of the Company’s services and the Company acquired certain assets and contracted to
purchase bandwidth, co-location and related services from AT&T. The Company entered into the agreement with
a goal of expanding its content delivery network customer base and developing a relationship with AT&T as a
bandwidth and co-location service provider. The transaction meets the definition of a business combination and it
was determined that the Company obtained control of the acquired assets in July 2013. The total consideration is
$55.0 million, of which $27.5 million was paid by the Company during the third quarter of 2013. The remaining
payment to AT&T is included in accounts payable in the consolidated balance sheet and is expected to be paid in
the first quarter of 2014.

The Company allocated $30.2 million of the consideration to goodwill and $16.1 million to acquired
intangible assets. The allocation of the purchase price was finalized in the fourth quarter of 2013. The weighted
average useful life of the intangible assets acquired is 9.8 years. The value of the goodwill acquired can be
attributed to expected synergies between AT&T and the Company related to future customer expansion and cost
reductions. The total amount of goodwill expected to be deducted for tax purposes is $30.2 million.

2012 Acquisitions

Verivue Acquisition

On December 4, 2012, the Company acquired all of the outstanding common and preferred stock of Verivue
in exchange for $30.9 million in cash. In addition, the Company recorded a liability of $1.2 million for
contingent consideration related to expected achievement of post-closing milestones. The Company acquired
Verivue with a goal of complementing its network operator solutions and accelerating time to market in
providing a comprehensive, licensed content delivery network solution for network operators. The Company
allocated $14.9 million of the cost of the acquisition to goodwill and $7.5 million to acquired intangible assets.
The purchase price was finalized in the third quarter of 2013. The Company recorded a reduction of $5.8 million

68

to goodwill upon the finalization of measurement period adjustments related to deferred tax assets and liabilities
in the third quarter of 2013, and revised prior period balances to reflect the change.

The total weighted average useful life of the intangible assets acquired from Verivue is 6.4 years. The value
of the goodwill from the acquisition can be attributed to a number of business factors, including a trained
technical workforce in place in the United States and expected cost synergies. The total amount of goodwill
related to the acquisition of Verivue expected to be deducted for tax purposes is $3.0 million. As of March 31,
2013, the Company determined the agreed upon post-closing milestones were not expected to be achieved and
therefore reversed the $1.2 million liability recorded at December 31, 2012 for the contingent consideration and
recorded it as general and administrative expense in the consolidated statement of operations. As of
December 31, 2013, the milestones were not achieved.

FastSoft Acquisition

On September 13, 2012, the Company acquired all of the outstanding common and preferred stock of
FastSoft in exchange for $14.4 million in cash. The Company acquired FastSoft with a goal of complementing
the Company’s Media Delivery Solutions with technology for optimizing the throughput of video and other
digital content across IP networks. The Company allocated $7.1 million of the cost of the acquisition to goodwill
and $3.7 million to acquired intangible assets. The allocation of the purchase price was finalized in the third
quarter of 2013. The Company recorded a reduction of $1.8 million to goodwill upon the finalization of
measurement period adjustments related to deferred tax assets and liabilities in the third quarter of 2013, and
revised prior period balances to reflect the change.

The total weighted average useful life of the intangible assets acquired from FastSoft is 9.0 years. The value
of the goodwill from the acquisition can be attributed to a number of business factors including a trained
technical workforce in place in the United States and cost synergies. The total amount of goodwill related to the
acquisition of FastSoft expected to be deducted for tax purposes is $1.7 million.

Cotendo Acquisition

On March 6, 2012, the Company acquired all of the outstanding common and preferred stock, including
vested and unvested stock options, of Cotendo in exchange for $278.9 million in cash and assumption of
unvested options. The Company acquired Cotendo with the intention of increasing the Company’s pace of
innovation in the areas of site acceleration and mobile optimization.

The value of the goodwill from the acquisition of Cotendo can be attributed to a number of business factors
including potential sales opportunities to provide the Company services to Cotendo customers; a trained technical
workforce in place in the United States and Israel; an existing sales pipeline and trained sales force; and cost
synergies expected to be realized.

69

The purchase price allocation has been finalized. The following table presents the final allocation of the purchase
price of Cotendo (in thousands):

Total purchase consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocation of the purchase consideration

Current assets, including cash and cash equivalents of $6,405 . . . . . . . . . . .
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indemnification assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$278,877

$

6,751
2,920
5,812
6,200
75
43,800
233,828
(15,376)
(5,133)

$278,877

The following were the identified intangible assets acquired and the respective estimated periods over which

such assets will be amortized (in thousands, except for years):

Completed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks and trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gross
Carrying
Amount

$24,100
13,400
3,900
2,400

Weighted
Average Useful
Life

6
9
6
10

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$43,800

The total weighted average amortization period for the intangible assets acquired from Cotendo is 7.1 years.
The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible
assets are being utilized. The total amount of goodwill related to the acquisition of Cotendo expected to be
deducted for tax purposes is $44.4 million.

Blaze

On February 7, 2012, the Company acquired all of the outstanding common and preferred stock, including
vested and unvested stock options, of Blaze in exchange for $19.3 million in cash and assumption of unvested
options. The Company acquired Blaze with a goal of complementing the Company’s site acceleration solutions
with technology designed to optimize the speed at which a web page is rendered. The Company allocated
$15.1 million of the cost of the acquisition to goodwill and $5.1 million to acquired intangible assets. The
purchase price allocation has been finalized. The total weighted average useful life of the intangible assets
acquired from Blaze is 5.3 years. The value of the goodwill from this acquisition can be attributed to a number of
business factors including a trained technical workforce in place in Canada and cost synergies expected to be
realized. The total amount of goodwill related to the acquisition of Blaze expected to be deducted for tax
purposes is $13.5 million.

Divestitures

ADS Divestiture

Consistent with its strategy to prioritize higher-margin businesses, the Company sold its ADS business to
MediaMath, Inc. (“MediaMath”) in exchange for a $25.0 million face value convertible note receivable that is

70

due and payable on July 24, 2014 (Note 3). The transaction closed during the first quarter of 2013. These
operations were not material to the Company’s annual net sales, net income or earnings per share. No significant
gains or losses were realized on the transaction. The accompanying consolidated financial statements for the year
ended December 31, 2013 include the impact of approximately one month of ADS operations prior to the sale.
All assets and liabilities used by the ADS operations have been excluded from the consolidated balance sheet
presentation. Simultaneously with the sale, the Company entered into a multi-year relationship agreement
whereby MediaMath will have exclusive rights to leverage the Company’s pixel-free technology for use within
digital advertising and marketing applications.

8. Accrued Expenses

Accrued expenses consisted of the following as of December 31, 2013 and 2012 (in thousands):

December 31,
2013

December 31,
2012

Payroll and other related benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bandwidth and co-location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, use and other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other

$ 90,093
20,991
32,503
4,388
2,410

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$150,385

$ 75,039
27,260
22,093
3,643
5,052

$133,087

9. Commitments and Contingencies

Operating Lease Commitments

The Company leases its facilities under non-cancelable operating leases. These operating leases expire at
various dates through April 2024 and generally require the payment of real estate taxes, insurance, maintenance
and operating costs.

The minimum aggregate future obligations under non-cancelable leases as of December 31, 2013 were as

follows (in thousands):

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 31,583
31,502
28,924
28,275
24,331
47,715

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$192,330

Rent expense for the years ended December 31, 2013, 2012 and 2011 was $30.8 million, $23.5 million and
$23.0 million, respectively. The Company has entered into sublease agreements with tenants of various
properties previously vacated by the Company. The amounts paid to the Company by these sublease tenants was
$1.9 million, $1.4 million and $0.8 million for the years ended December 31, 2013, 2012 and 2011, respectively.

As of December 31, 2013, the Company had outstanding letters of credit in the amount of $6.8 million
related to certain of its real estate leases. The letters of credit expire as the Company fulfills its operating lease
obligations.

71

Purchase Commitments

As of December 31, 2013, the Company has long-term commitments for bandwidth usage and co-location
with various networks and ISPs and for asset purchases for network equipment. Additionally, as of December 31,
2013, the Company had entered into purchase orders with various vendors. The minimum future commitments as
of December 31, 2013 were as follows (in thousands):

Bandwidth and
Co-location
Commitments

Purchase
Order
Commitments

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$103,626
8,587
2,445
1,446
68
23

$116,195

$65,267
6,212
274
—
—
—

$71,753

Litigation

The Company is party to various litigation matters that management considers routine and incidental to its
business. Management does not expect the results of any of these routine actions to have a material effect on the
Company’s business, results of operations, financial condition or cash flows.

Indemnification

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant
to these agreements, the Company agrees to indemnify, hold harmless and reimburse the indemnified party for
losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in
connection with its provision of its services. Generally, these obligations are limited to claims relating to
infringement of a patent, copyright or other intellectual property right or the Company’s negligence, willful
misconduct or violation of law. Subject to applicable statutes of limitation, the term of these indemnification
agreements is generally perpetual from the time of execution of the agreement. The maximum potential amount
of future payments the Company could be required to make under these indemnification agreements is unlimited;
however, the Company carries insurance that covers certain third party claims relating to its services and could
limit the Company’s exposure.

The Company has agreed to indemnify each of its officers and directors during his or her lifetime for certain
events or occurrences that happen by reason of the fact that the officer or director is or was or has agreed to serve
as an officer or director of the Company. The Company has director and officer insurance policies that may limit
its exposure and may enable the Company to recover a portion of certain future amounts paid.

To date, the Company has not encountered material costs as a result of such indemnifications and has not
accrued any related liabilities in its financial statements. The Company considers such factors as the degree of
probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

10. Stockholders’ Equity

Stock Repurchase Program

In April 2012, the Company’s Board of Directors authorized a $150.0 million stock repurchase program
covering a twelve-month period commencing on May 1, 2012. In January 2013, the Board of Directors
authorized a $150.0 million extension of its share repurchase program, effective for a twelve-month period

72

beginning February 1, 2013. In October 2013, the Board of Directors authorized a new $750.0 million share
repurchase program, effective from October 16, 2013 through December 31, 2016. Unused amounts from the
May 2012 program were not carried over to the program approved in January 2013, and unused amounts from
the January 2013 program were not carried over to the October 2013 program.

During the years ended December 31, 2013, 2012 and 2011, the Company repurchased 3.9 million,
4.4 million and 12.3 million shares, respectively, of its common stock for $160.4 million, $141.5 million and
$324.7 million, respectively. As of December 31, 2013, the Company had $702.3 million remaining available for
future purchases of shares under the approved repurchase program.

The Board of Directors authorized the retirement of all the outstanding shares of its treasury stock as of
December 31, 2013. The retired shares were returned to the number of authorized but unissued shares of the
Company’s common stock.

11. Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss, which is reported as

a component of stockholders’ equity, for the year ended December 31, 2013 (in thousands):

Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(2,354)
(4,361)

Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(6,715)

$ 714
3,910

$4,624

Foreign
Currency
Translation

Net Unrealized
Gain on
Investments

Total

$(1,640)
(451)

$(2,091)

The tax effect on accumulated unrealized gain on investments as of December 31, 2013 and 2012,
respectively, was immaterial. Amounts reclassified from accumulated other comprehensive loss to net income
were insignificant for the year ended December 31, 2013.

12. Employee Benefit Plan

The Company has established a savings plan for its employees that is designed to be qualified under
Section 401(k) of the Internal Revenue Code. Eligible employees are permitted to contribute to this plan through
payroll deductions within statutory and plan limits. The Company contributed approximately $11.1 million,
$6.4 million and $3.4 million of cash to the savings plan for the years ended December 31, 2013, 2012 and 2011,
respectively, under a matching program.

13. Stock-Based Compensation

Equity Plans

In May 2013, the Company’s stockholders approved the Akamai Technologies, Inc. 2013 Stock Incentive
Plan (the “2013 Plan”). The 2013 Plan replaced the Akamai Technologies, Inc. 2009 Stock Incentive Plan (the
“2009 Plan”), which in turn replaced the Akamai Technologies, Inc. 2006 Stock Incentive Plan, the Akamai
Technologies, Inc. 2001 Stock Incentive Plan and the Akamai Technologies, Inc. 1998 Stock Incentive Plan
(together with the 2009 Plan, the “Previous Plans”). The Company no longer issues equity awards under the
Previous Plans, and they solely exist to satisfy outstanding equity awards previously granted under those plans.
The 2013 Plan allows for the issuance of incentive stock options, non-statutory stock options, stock appreciation
rights, restricted stock, restricted stock units, other stock-based awards and cash-based awards up to 8.0 million
the Company.
shares of common stock to employees, officers, directors, consultants and advisers of
Additionally, the Company may grant up to 3.8 million shares of common stock thereunder that were available

73

for grant under the 2009 Plan immediately prior to stockholder approval of the 2013 Plan. Any shares of common
stock that are currently outstanding under the Previous Plans that are terminated, canceled, surrendered or
forfeited will become available to grant. As of December 31, 2013, the Company had reserved approximately
11.7 million shares of common stock available for future issuance of equity awards under the 2013 Plan.

The Company has assumed certain stock option plans and the outstanding stock options of companies that it
has acquired (“Assumed Plans”). Stock options outstanding as of the date of acquisition under the Assumed Plans
were exchanged for the Company’s stock options and adjusted to reflect the appropriate conversion ratio as
specified by the applicable acquisition agreement, but are otherwise administered in accordance with the terms of
the Assumed Plans. Stock options under the Assumed Plans generally vest over four years and expire ten years
from the date of grant.

The 1999 Employee Stock Purchase Plan (“1999 ESPP”) permits eligible employees to purchase up to
1.5 million shares each June 1 and December 1, provided that the aggregate number of shares issued shall not
exceed 20.0 million. The 1999 ESPP allows participants to purchase shares of common stock at a 15% discount
from the fair market value of the stock as determined on specific dates at six-month intervals. During the years
ended December 31, 2013, 2012 and 2011, the Company issued 0.6 million, 0.7 million and 0.5 million shares
under the 1999 ESPP, respectively, with a weighted average purchase price per share of $34.26, $24.76 and
$25.75, respectively. Total cash proceeds from the purchase of shares under the 1999 ESPP in 2013, 2012 and
2011 were $22.1 million, $16.8 million and $12.7 million, respectively. As of December 31, 2013, approximately
$2.3 million had been withheld from employees for future purchases under the 1999 ESPP.

Stock-Based Compensation Expense

The following table summarizes the components of total stock-based compensation expense included in the
Company’s consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011 (in
thousands):

Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 10,867
17,472
39,290
28,255

$ 11,309
17,275
34,322
27,679

$ 9,654
11,125
20,697
19,829

Total stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

95,884
(34,829)

90,585
(33,126)

61,305
(21,212)

Total stock-based compensation, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 61,055

$ 57,459

$ 40,093

2013

2012

2011

In addition to the amounts of stock-based compensation reported in the table above, the Company’s
consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011 also included
stock-based compensation reflected as a component of amortization of capitalized internal-use software; such
additional stock-based compensation was $8.1 million, $7.7 million and $7.3 million, respectively, before tax.

The Company uses the Black-Scholes option pricing model to determine the fair value of the Company’s
stock option awards. This model requires the input of subjective assumptions, including expected stock price
volatility and the estimated term of each award. The estimated fair value of the Company’s stock-based awards,
less expected forfeitures, is amortized over the awards’ vesting period on a straight-line basis. Expected
volatilities are based on the Company’s historical stock price volatility and implied volatility from traded options
in its stock. The Company uses historical data to estimate the expected term of options granted within the
valuation model. The risk-free interest rate for periods commensurate with the expected term of the option is
based on the United States Treasury yield rate in effect at the time of grant. The expected dividend yield is zero,
as the Company currently does not pay a dividend and does not anticipate doing so in the future.

74

The grant-date fair values of the Company’s stock option awards granted during the years ended
December 31, 2013, 2012 and 2011 were estimated using the Black-Scholes option pricing model with the
following weighted-average assumptions:

Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.2

4.5
4.2
0.8% 0.6% 1.3%
44.4% 50.8% 48.9%
—% —% —%

2013

2012

2011

For the years ended December 31, 2013, 2012 and 2011, the weighted average fair value of stock option

awards granted was $14.17 per share, $25.20 per share and $14.93 per share, respectively.

The grant-date fair values of the Company’s ESPP awards granted during the years ended December 31,
2013, 2012 and 2011 were estimated using the Black-Scholes option pricing model with the following weighted-
average assumptions:

Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.5

0.5
0.5
0.1% 0.1% 0.1%
42.0% 51.0% 43.7%
—% —% —%

2013

2012

2011

For the years ended December 31, 2013, 2012 and 2011, the weighted average fair value of ESPP awards

granted was $11.34 per share, $8.71 per share and $10.24 per share, respectively.

As of December 31, 2013, total pre-tax unrecognized compensation cost for stock options, restricted stock
units, deferred stock units and shares of common stock issued under the 1999 ESPP was $133.2 million. This
non-cash expense will be recognized through 2017 over a weighted average period of 1.2 years.

Stock Options

The following table summarizes stock option activity during the year ended December 31, 2013:

Outstanding at January 1, 2013 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2013 . . . . . . . . . . .

Exercisable at December 31, 2013 . . . . . . . . . . .
Vested or expected to vest December 31,

Shares
(in thousands)

6,223
515
(2,127)
(153)

4,458

3,303

Weighted
Average
Exercise
Price

$26.30
38.07
19.34
36.82

$30.67

$29.56

2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,416

$30.53

Weighted
Average
Remaining
Contractual
Term
(in years)

Aggregate
Intrinsic
Value
(in
thousands)

3.34

2.51

3.30

$210,719

$155,813

$208,353

The total pre-tax intrinsic value of options exercised during the years ended December 31, 2013, 2012 and
2011 was $47.2 million, $47.9 million and $22.6 million, respectively. The total fair value of options vested for
the years ended December 31, 2013, 2012 and 2011 was $12.4 million, $16.6 million and $14.8 million,
respectively.

75

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the
Company’s closing stock price of $47.18 on December 31, 2013, that would have been received by the option
holders had all option holders exercised their “in-the-money” options as of that date. The total number of shares
issuable upon the exercise of “in-the-money” options exercisable as of December 31, 2013 was approximately
$3.8 million.

Deferred Stock Units

The Company has granted deferred stock units (“DSUs”) to non-employee members of its Board of
Directors. Each DSU represents the right to receive one share of the Company’s common stock upon vesting.
The holder may elect to defer receipt of the vested shares of stock represented by the DSU for a period of at least
one year but not more than ten years from the grant date. The DSUs typically vest 50% upon the first anniversary
of grant date, with the remaining 50% vesting in equal installments of 12.5% each quarter thereafter so that all
DSUs are vested in full at the end of two years from date of grant. If a director has completed one year of Board
service, vesting of 100% of the DSUs held by such director will accelerate at the time of his or her departure
from the Board.

The following table summarizes the DSU activity for the year ended December 31, 2013:

Outstanding at January 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

285
35
(82)

238

$25.93
48.03
17.90

$32.01

Units (in
thousands)

Weighted Average
Grant Date
Fair Value

The total pre-tax intrinsic value of DSUs that vested during the years ended December 31, 2013, 2012 and
2011 was $3.8 million, $2.3 million and $0.5 million, respectively. The total fair value of DSUs that vested
during the years ended December 31, 2013, 2012 and 2011 was $1.5 million, $2.4 million and $0.5 million,
respectively. The grant-date fair value is calculated based upon the Company’s closing stock price on the date of
grant. As of December 31, 2013, 48,000 DSUs were unvested, with an aggregate intrinsic value of approximately
$2.3 million and a weighted average remaining contractual life of approximately 6.1 years. These units are
expected to vest on various dates through May 2017.

Restricted Stock Units

The following table summarizes the different types of restricted stock units (“RSUs”) granted by the

Company during the years ended December 31, 2013, 2012 and 2011 (in thousands):

RSUs with service-based vesting conditions . . . . . . . . . . . . . . . . . . . . .
RSUs with performance-based vesting conditions . . . . . . . . . . . . . . . . .

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,338
760

3,098

2,782
369

3,151

3,003
550

3,553

December 31,
2013

December 31,
2012

December 31,
2011

RSUs represent the right to receive one share of the Company’s common stock upon vesting. RSUs are
granted at the discretion of the Board of Directors, a committee thereof or, subject to defined limitations, the
Chief Executive Officer of the Company, acting as a committee of one director, to whom such authority has been
delegated. The Company has issued RSUs that vest based on the passage of time assuming continued service
with the Company, as well as RSUs that vest only upon the achievement of defined performance metrics tied
primarily to corporate revenue and earnings per share targets or other key performance indicators.

76

For RSUs with service-based vesting conditions, the fair value was calculated based upon the Company’s
closing stock price on the date of grant, and the stock-based compensation expense is being recognized over the
vesting period. Most RSUs with service-based vesting provisions vest in installments over a three- or four-year
period following the grant date.

For the years ended December 31, 2013, 2012 and 2011, management measured compensation expense for
performance-based RSUs based upon a review of the Company’s expected achievement against specified
performance targets. Such compensation cost is being recorded using a graded-vesting method for each series of
grants of performance-based RSUs, to the extent management has deemed that such awards are probable of
vesting based upon the expected achievement against the specified targets. Management will continue to
periodically review the Company’s expected performance and adjust the compensation cost, if needed, at such
time.

The following table summarizes the RSU activity for the year ended December 31, 2013:

Units (in
thousands)

Weighted Average
Grant Date
Fair Value

Outstanding at January 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,946
3,098
(2,837)
(669)

Outstanding at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,538

$32.97
37.96
31.46
32.68

$36.43

The total pre-tax intrinsic value of RSUs that vested during the years ended December 31, 2013, 2012 and
2011 was $117.5 million, $98.3 million and $68.0 million, respectively. The total fair value of RSUs that vested
during the years ended December 31, 2013, 2012 and 2011 was $89.2 million, $71.4 million and $44.7 million,
respectively. The grant-date fair value of each RSU is calculated based upon the Company’s closing stock price
on the date of grant. As of December 31, 2013, 5.5 million RSUs were outstanding and unvested, with an
aggregate intrinsic value of $261.3 million and a weighted average remaining contractual life of approximately
5.6 years. These RSUs are expected to vest on various dates through December 2017.

14. Restructuring

In December 2011, the Company implemented a workforce reduction of approximately 70 employees from
all areas of the Company. The Company recorded $4.2 million as a restructuring charge for the amount of one-
time benefits to be provided to affected employees. Additionally, during 2011, in connection with excess and
vacated facilities under long-term non-cancelable leases, the Company recorded $0.7 million as a restructuring
charge for the estimated future lease payments, less estimated sublease income, for these vacated facilities.

In December 2012,

the Company implemented work force reductions in connection with the 2012
acquisitions of FastSoft and Verivue. The Company recorded $0.4 million as a restructuring charge for the
amount of one-time benefits provided to affected employees.

During 2013, the Company recorded a $0.9 million restructuring charge for leasehold improvements which
are no longer in use as a result of an early lease termination. In connection with the vacated facility, the Company
also incurred $0.9 million in charges related to severance and relocation of employees impacted by the closing of
the facility.

77

The following table summarizes the activity of the restructuring accrual during 2013 (in thousands):

Leases

Severance

Total

Beginning balance, January 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash portion of restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 517
940
(781)
(311)

$ 124
903
—
(830)

Ending balance, December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 365

$ 197

Current portion of accrued restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 85

$ 197

Long-term portion of accrued restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 280

$ —

$

641
1,843
(781)
(1,141)

$

$

$

562

282

280

The Company does not expect to incur additional restructuring charges related to the actions discussed

above. The restructuring liability is expected to be fully paid by December 2019.

15. Income Taxes

The components of income before provision for income taxes were as follows for the years ended

December 31, 2013, 2012 and 2011 (in thousands):

U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$365,821
53,733

$245,252
76,339

$257,656
49,539

Income before provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$419,554

$321,591

$307,195

2013

2012

2011

The provision for income taxes consisted of the following for the years ended December 31, 2013, 2012 and

2011 (in thousands):

Current tax provision:

2013

2012

2011

Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 77,671
8,034
13,019

$ 94,423
10,046
18,952

$ 39,517
2,953
10,193

Deferred tax provision (benefit):

Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .

24,210
(1,106)
1,869
2,370

(582)
(2,045)
(3,189)
(3)

54,980
4,413
1,209
(6,974)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$126,067

$117,602

$106,291

78

The Company’s effective rate differed from the U.S. federal statutory rate as follows for the years ended

December 31, 2013, 2012 and 2011:

U.S. federal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. federal and state research and development credits . . . . . . . . . . . . . . .
Change in state tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration of capital loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disallowed officer compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestic production activities deduction . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in the deferred tax asset valuation allowance . . . . . . . . . . . . . . . . .

2013

2012

2011

35.0% 35.0% 35.0%
3.5
3.4
1.3
0.8
(0.6)
(3.5)
(0.4)
—
(3.5)
(2.6)
—
—
0.6
0.1
—
(4.3)
0.7
0.5
—
0.6

2.8
0.8
(2.4)
(0.1)
(2.2)
2.1
—
—
0.9
(2.3)

30.0% 36.6% 34.6%

The components of the net deferred tax asset and the related valuation allowance as of December 31, 2013

and 2012 were as follows (in thousands):

December 31,
2013

December 31,
2012

Net operating loss and credit carryforwards . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other

Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internal-use software development costs capitalized . . . . . . . . . . . . . . . . .

Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 25,498
—
45,246
16,936

87,680
(15,607)
(19,530)
(31,970)

(67,107)
(1,251)

$ 21,556
5,813
46,298
19,333

93,000
—
(26,002)
(24,301)

(50,303)
(430)

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 19,322

$ 42,267

As of December 31, 2013,

the Company had U.S. federal NOL carryforwards of approximately
$30.7 million related to acquisitions during 2012, which expire at various dates through 2029. As of
December 31, 2013 and 2012, the Company had state NOL carryforwards of approximately $59.0 million and
$48.2 million, respectively, which expire at various dates through 2024. The Company also had foreign NOL
carryforwards of approximately $2.4 million and $1.0 million as of December 31, 2013 and 2012, respectively.
The majority of the foreign NOL carryforwards have no expiration dates. As of December 31, 2013 and 2012, the
Company had U.S. federal and state research and development tax credit carryforwards of $10.0 million and
$1.7 million, respectively, which will expire at various dates through 2031. As of December 31, 2013 and 2012,
the Company had foreign tax credit carryforwards of $4.4 million and $4.3 million, respectively, which will
expire at various dates through 2023.

As of December 31, 2013 and 2012, the Company recorded a valuation allowance on its deferred tax assets

of $1.3 million and $0.4 million, respectively, an increase of $0.8 million.

As of December 31, 2013, undistributed earnings of non-U.S. subsidiaries totaled $167.3 million. No
provision for U.S. income and foreign withholding taxes has been made for these permanently reinvested foreign

79

earnings because it is expected that such earnings will be reinvested indefinitely. If these earnings were
distributed to the U.S in the form of dividends or otherwise, it would be included in the Company’s U.S. taxable
income. The amount of unrecognized deferred income tax liability related to these earnings is $33.0 million.

During 2013 and 2012, the Company corrected immaterial errors in its reported income tax expense
attributable to prior fiscal periods, which reduced income tax expense by $3.6 million and $5.3 million,
respectively, during those years.

The following is a rollforward of the Company’s unrecognized tax benefits for the years ended

December 31, 2013, 2012 and 2011 (in thousands):

Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross increases — tax positions of prior periods . . . . . . . . . . . . . . . . . . . . . . .
Gross increases — current-period tax positions . . . . . . . . . . . . . . . . . . . . . . . .
Gross decreases — tax positions of prior periods . . . . . . . . . . . . . . . . . . . . . .
Gross decreases — settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$20,902
2,878
2,834
(1,213)
(750)

$12,496
12,173
2,251
(6,018)
—

$10,773
—
2,824
(794)
(307)

Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$24,651

$20,902

$12,496

2013

2012

2011

As of December 31, 2013, 2012 and 2011, the Company had approximately $30.6 million, $26.9 million and
$17.2 million, respectively, of total unrecognized tax benefits, including $5.9 million of accrued interest and
penalties as of December 31, 2013 and 2012 and $4.7 million of accrued interest and penalties as of
December 31, 2011. Interest and penalties related to unrecognized tax benefits are recorded in the provision for
income taxes and was insignificant during the year ended December 31, 2013. Interest and penalties included in
the provision for income taxes for the years ended December 31, 2012 and 2011 were $1.2 million and
$0.4 million, respectively. If recognized, all amounts of unrecognized tax benefits would have resulted in a
reduction of income tax expense, impacting the effective income tax rate.

As of December 31, 2013, the Company believes it is reasonably possible that approximately $3.2 million of
its unrecognized tax benefits, each of which is individually insignificant, including research and development
credits and transfer pricing adjustments, may be recognized by the end of 2014 as a result of ongoing audits.

The Company’s income tax return for the 2010 tax year is currently under audit by the Internal Revenue
Service. In addition, certain state tax and foreign tax returns for the 2008 through 2011 tax years are currently
under audit by those jurisdictions. The Company does not expect the results of these examinations to have a
material effect on its financial condition, results of operations or cash flows.

Generally, all tax years are open for examination by the U.S. federal and state taxing jurisdictions to which
the Company is subject due to net operating losses and the limited number of prior year audits by taxing
jurisdictions. In our major foreign jurisdictions, tax years after 2009 are open for examination.

16. Net Income per Share

Basic net income per share is computed using the weighted average number of common shares outstanding
during the applicable period. Diluted net income per share is computed using the weighted average number of
common shares outstanding during the period, plus the dilutive effect of potential common stock. Potential
common stock consists of shares issuable pursuant to stock options, DSUs and RSUs.

80

The following table sets forth the components used in the computation of basic and diluted net income per

common share for the years ended December 31, 2013, 2012 and 2011 (in thousands, except per share data):

2013

2012

2011

Numerator:

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$293,487

$203,989

$200,904

Denominator:

Shares used for basic net income per share . . . . . . . . . . . . . . . . . . . . . . . .

178,196

177,900

183,866

Effect of dilutive securities:

Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units and deferred stock units . . . . . . . . . . . . . . . . . . . . .

1,622
1,965

2,182
1,667

2,550
1,140

Shares used for diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . .

181,783

181,749

187,556

Basic net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

1.65
1.61

$
$

1.15
1.12

$
$

1.09
1.07

For the years ended December 31, 2013, 2012 and 2011 certain potential outstanding stock options and
service-based RSUs were excluded from the computation of diluted earnings per share because the effect of
including these options and restricted stock units would be anti-dilutive. Additionally, certain performance-based
RSUs were excluded from the computation of diluted net income per share because the underlying performance
conditions for such RSUs had not been met as of these dates. The potentially outstanding shares excluded from
the computation of diluted earnings per share are as follows for the years ended December 31, 2013, 2012 and
2011 (in thousands):

Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service-based restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance-based restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,649
188
985

2,551
1,154
1,734

3,335
906
2,637

Total shares excluded from computation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,822

5,439

6,878

2013

2012

2011

The calculation of assumed proceeds used to determine the diluted weighted average shares outstanding
under the treasury stock method in the periods presented was adjusted by tax windfalls and shortfalls associated
with all of the Company’s outstanding stock awards. Such windfalls and shortfalls are computed by comparing
the tax deductible amount of outstanding stock awards to their grant-date fair values and multiplying the results
by the applicable statutory tax rate. A positive result creates a windfall, which increases the assumed proceeds,
and a negative result creates a shortfall, which reduces the assumed proceeds.

17. Segment and Geographic Information

The Company’s chief operating decision-maker is the chief executive officer and the executive management
team. As of December 31, 2013, the Company operated in one industry segment: providing services for
accelerating and improving the delivery of content and applications over the Internet. The Company is not
organized by market and is managed and operated as one business. A single management team that reports to the
chief executive officer comprehensively manages the entire business. The Company does not operate any
material separate lines of business or separate business entities with respect to its services. Accordingly, the
Company does not accumulate discrete financial information with respect to separate product lines and does not
have separate operating or reportable segments.

The Company deploys its servers into networks worldwide. As of December 31, 2013, the Company had
approximately $210.9 million and $124.9 million of net property and equipment, excluding internal-use software,
the Company had
located in the U.S. and foreign locations, respectively. As of December 31, 2012,

81

approximately $159.0 million and $99.0 million of net property and equipment, excluding internal-use software,
located in the U.S. and foreign locations, respectively.

The Company sells its services and licenses through a sales force located both domestically and abroad.
Revenues derived from operations outside of the U.S. for the years ended December 31, 2013, 2012 and 2011,
were $458.2 million, $388.2 million and $334.3 million, respectively. Other than the U.S. no single country
accounted for 10% or more of the Company’s total revenue for any reported period.

18. Quarterly Financial Results (unaudited)

Year ended December 31, 2013:

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . . . .

Year ended December 31, 2012:

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . . . .

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

(in thousands, except per share data)

$368,046
120,392
71,487
0.40
0.39

$319,448
124,925
43,227
0.24
0.24

$378,106
124,705
61,895
0.35
0.34

$331,306
131,260
44,239
0.25
0.24

$395,790
132,039
79,756
0.45
0.44

$345,321
134,221
48,231
0.27
0.27

$435,980
133,951
80,349
0.45
0.44

$377,872
139,494
68,292
0.38
0.38

In the first quarter of 2013, the Company conducted a reevaluation of its business model. Following the
review, the Company determined it was appropriate to change the classification of cost of services and support
and cost of network build-out and support from sales and marketing and general and administrative expenses,
respectively, to costs of revenue because such costs directly support the Company’s revenue. The Company has
concluded that the prior classification was an error and that it is immaterial to all annual and quarterly periods
previously presented. However, to facilitate period-over-period comparisons, the Company has revised its prior
period financial statements to reflect the corrections in the period in which the expenses were incurred.

The effect of the revisions to the selected quarterly financial results reflected above, is as follows for the

year ended December 31, 2012 (in thousands):

Year ended December 31, 2012:

Cost of revenue, as previously reported . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment

$102,566
22,359

$107,457
23,803

$109,995
24,226

$111,893
27,601

Cost of revenue, as revised . . . . . . . . . . . . . . . . . . . . . . . . . . .

$124,925

$131,260

$134,221

$139,494

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

The classification error did not affect reported revenue, net income or net income per share.

19. Subsequent Event

In February 2014, the Company issued $690.0 million par value of convertible senior notes. The notes are
senior unsecured obligations of the Company, do not bear regular interest and mature in February 2019, unless
repurchased or converted prior to maturity.

82

The notes are convertible after August 15, 2018 at any time until the close of business on the second
scheduled trading day immediately preceding the maturity date into cash, shares of the Company’s common
stock or a combination of cash and shares of the Company’s common stock at the Company’s option. The
conversion rate will initially be 11.1651 shares of the Company’s common stock per $1,000 which is equivalent
to an initial conversion price of approximately $89.56 per share, subject to adjustments in certain events, and
represents a potential conversion into 7.7 million shares.

To minimize the impact of potential dilution upon conversion of the notes, the Company entered into
convertible note hedge transactions with respect to its common stock. The Company paid $101.3 million for the
note hedge transactions. The note hedge transactions cover approximately 7.7 million shares of the Company’s
common stock at a strike price that corresponds to the initial conversion price of the notes, also subject to
adjustment, and are exercisable upon conversion of the notes. The note hedge transactions are intended to reduce
the potential dilution upon conversion of the notes in the event that the market value per share of the Company’s
common stock, as measured under the notes, at the time of exercise is greater than the conversion price of the
notes.

Separately, the Company entered into warrant transactions, whereby the Company sold warrants to acquire,
subject to anti-dilution adjustments, up to 7.7 million shares of the Company’s common stock at a strike price of
approximately $104.49 per share. The Company received aggregate proceeds of $78.0 million from the sale of
the warrants. The convertible note hedge and warrant transactions will generally have the effect of increasing the
conversion price of the notes to approximately $104.49 per share.

The Company used $62.0 million of the proceeds from the offering to repurchase shares of its common
stock, concurrent with the issuance of the notes. The repurchase was made in accordance with the stock
repurchase plan recently approved by the Board of Directors (Note 10).

83

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our
principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our
disclosure controls and procedures as of December 31, 2013. The term “disclosure controls and procedures,” as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed by a company in the reports that it
files or submits under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is accumulated and communicated to the Company’s management, including
its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving their objectives, and management necessarily applies its
judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation
of our disclosure controls and procedures as of December 31, 2013, our Chief Executive Officer and Chief
Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the
reasonable assurance level.

Management’s Annual Report on Internal Control over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, is
responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a
process designed by, or under the supervision of, our principal executive and principal financial officers and
effected by the company’s board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those policies and procedures that:

•

•

•

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the Company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management
and directors of the Company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of the Company’s assets that could have a material effect on the financial statements.

To assist management, we have established an internal audit function to verify and monitor our internal
controls and procedures. Because of its inherent limitations, however, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of

84

Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework
1992.

Based on our assessment, management, with the participation of our Chief Executive Officer and Chief
Financial Officer, concluded that, as of December 31, 2013, our internal control over financial reporting was
effective based on those criteria at the reasonable assurance level.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its
report, which is included in Item 8 of this annual report on Form 10-K.

Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) occurred during the fourth quarter ended December 31, 2013 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

85

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The complete response to this Item regarding the backgrounds of our executive officers and directors and
other information required by Items 401, 405 and 407 of Regulation S-K will be contained in our definitive proxy
statement for our 2014 Annual Meeting of Stockholders under the sections captioned “Executive Compensation
Matters,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance Matters” and
is incorporated by reference herein.

Our executive officers and directors and their positions as of March 3, 2014, are as follows:

Name

Position

F. Thomson Leighton . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Executive Officer and Director

(Principal

Executive Officer)

James Benson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chief Financial Officer

(Principal Financial and

Accounting Officer)

Robert Blumofe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Vice President — Platform

Melanie Haratunian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Vice President and General Counsel

Robert W. Hughes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

President — Worldwide Operations

Rick McConnell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

President — Products and Development

George H. Conrades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director

Martin M. Coyne II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director

Pamela J. Craig . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director

Jill A. Greenthal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director

Monte E. Ford . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director

Geoffrey A. Moore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director

Paul Sagan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director

Frederic V. Salerno . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director

Steven Scopellite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director

Naomi O. Seligman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director

Bernardus Verwaayen . . . . . . . . . . . . . . . . . . . . . . . . . . . Director

We have adopted a written code of business ethics, as amended, that applies to our principal executive
officer, principal financial and accounting officer or persons serving similar functions and all of our other
employees and members of our Board of Directors. The text of our amended code of ethics is available on our
website at www.akamai.com. If we amend, or grant a waiver under, our code of business ethics that applies to
our principal executive officer, principal financial and accounting officer, or persons performing similar
functions, we intend to post information about such amendment or waiver on our website at www.akamai.com.

Item 11. Executive Compensation

The information required by this Item is incorporated by reference herein to our definitive proxy statement
for our 2014 Annual Meeting of Stockholders under the sections captioned “Executive Compensation Matters,”
“Corporate Governance Matters,” “Compensation Committee Interlocks and Insider Participation” and “Director
Compensation.”

86

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

The information required by this Item is incorporated by reference herein to our definitive proxy statement
for our 2014 Annual Meeting of Stockholders under the sections captioned “Executive Compensation Matters,”
“Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance
Under Equity Compensation Plans.”

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated by reference herein to our definitive proxy statement
for our 2014 Annual Meeting of Stockholders under the sections captioned “Certain Relationships and Related
Party Transactions,” “Corporate Governance Matters” and “Compensation Committee Interlocks and Insider
Participation.”

Item 14. Principal Accounting Fees and Services

The information required by this Item is incorporated by reference herein to our definitive proxy statement
for our 2014 Annual Meeting of Stockholders under the section captioned “Ratification of Selection of
Independent Auditors.”

87

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Documents Filed as Part of this Annual Report on Form 10-K

1.

Financial Statements (included in Item 8 of this Annual Report on Form 10-K):

• Report of Independent Registered Public Accounting Firm

• Consolidated Balance Sheets as of December 31, 2013 and 2012

• Consolidated Statements of Operations for the years ended December 31, 2013, 2012 and

2011

• Consolidated Statements of Comprehensive Income for the years ended December 31, 2013,

2012 and 2011

• Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and

2011

• Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013,

2012 and 2011

• Notes to Consolidated Financial Statements

2.

Financial Statement Schedules

Financial statements schedules are omitted as they are either not required or the information is
otherwise included in the consolidated financial statements.

(b) The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index immediately

preceding the exhibits and are incorporated herein.

(c) Not applicable.

88

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant

has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

March 3, 2014

AKAMAI TECHNOLOGIES, INC.

By:

/S/

JAMES BENSON
James Benson
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by

the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/S/ F. THOMSON LEIGHTON

F. Thomson Leighton

Chief Executive Officer and
Director (Principal Executive
Officer)

March 3, 2014

/S/

JAMES BENSON
James Benson

Chief Financial Officer (Principal
Financial and Accounting Officer)

March 3, 2014

/S/ GEORGE H. CONRADES

George H. Conrades

/S/ MARTIN M. COYNE II

Martin M. Coyne II

/S/ PAMELA J. CRAIG

Pamela J. Craig

/S/

JILL A. GREENTHAL
Jill A. Greenthal

/S/ MONTE E. FORD

Monte E. Ford

/S/ GEOFFREY MOORE

Geoffrey Moore

/S/ PAUL SAGAN

Paul Sagan

/S/ FREDERIC V. SALERNO

Frederic V. Salerno

/S/ STEVEN SCOPELLITE

Steven Scopellite

/S/ NAOMI O. SELIGMAN

Naomi O. Seligman

/S/ BERNARDUS VERWAAYEN

Bernardus Verwaayen

Director

March 3, 2014

Director

March 3, 2014

Director

March 3, 2014

Director

March 3, 2014

Director

March 3, 2014

Director

March 3, 2014

Director

March 3, 2014

Director

March 3, 2014

Director

March 3, 2014

Director

March 3, 2014

Director

March 3, 2014

89

3.1(A)

3.2(B)

4.1(C)

4.2(DD)

EXHIBIT INDEX

Amended and Restated Certificate of Incorporation of the Registrant

Amended and Restated By-Laws of the Registrant, as amended

Specimen common stock certificate

Indenture (including form of Notes) with respect to Akamai’s 0% Convertible Senior Notes due
2019, dated as of February 20, 2014, between Akamai and U.S. Bank National Association, as
trustee.

10.1(D)@

Second Amended and Restated 1998 Stock Incentive Plan of the Registrant, as amended

10.2(E)@

Amended and Restated 1999 Employee Stock Purchase Plan of the Registrant

10.3(F)@

Amendment to Amended and Restated 1999 Employee Stock Purchase Plan of the Registrant

10.4(G)@

2001 Stock Incentive Plan of the Registrant

10.5(H)

2006 Stock Incentive Plan of the Registrant

10.6(I)

10.7(J)

10.8(J)

Speedera Networks, Inc. 1999 Equity Incentive Plan, as amended

Netli, Inc. Amended and Restated Stock Option Plan

Netli, Inc. 2002 Equity Incentive Plan

10.9(K)

Blaze Software Inc. Stock Option Plan

10.10(L)

Cotendo, Inc. Amended and Restated 2008 Stock Plan

10.11(M)

Amended and Restated 1999 Stock Compensation Plan of Acerno Intermediate Holdings, Inc.
(formerly known as I-Behavior Inc.)

10.12(N)@

2009 Akamai Technologies, Inc. Stock Incentive Plan

10.13(O)@

2013 Akamai Technologies, Inc. Stock Incentive Plan

10.14(P)@

Form of Incentive Stock Option Agreement granted under the 2006 Stock Incentive Plan

10.15(P)@

Form of Nonstatutory Stock Option Agreement granted under the 2006 Stock Incentive Plan

10.16(Q)

10.17(Q)@

10.18(Q)@

10.19

10.20

10.21(Q)

10.22(R)

10.23(R)

10.24(S)†

Form of Deferred Stock Unit Agreement for Directors of the Registrant under the 2006 Stock
Incentive Plan

Form of Restricted Stock Unit Agreement with Annual Vesting under the 2006 Stock Incentive
Plan

Form of Restricted Stock Unit Agreement with Performance-Based Vesting under the 2006
Stock Incentive Plan

Summary of the Registrant’s Compensatory Arrangements with Non-Executive Directors

Summary of the Registrant’s Compensatory Arrangements with Executive Officers

Office Lease Agreement dated March 31, 2008 between the Registrant and Locon San Mateo,
LLC

Four Cambridge Center Lease Agreement dated October 1, 2007

Eight Cambridge Center Lease Agreement dated October 1, 2007

Exclusive Patent and Non-Exclusive Copyright License Agreement, dated as of
October 26, 1998, between the Registrant and Massachusetts Institute of Technology

10.25(R)@

10.26@(T)

Incentive Stock Option Agreement, dated February 8, 2008, by and between the Registrant and
Robert W. Hughes

Employment Letter Agreement between the Registrant and F. Thomson Leighton dated
February 25, 2013

10.27@

Form of Executive Bonus Plan

10.28(U)@

Akamai Technologies, Inc. Executive Severance Pay Plan

10.29(V)@

Form of Executive Change in Control Agreement

10.30(W)@

Akamai Technologies, Inc. Policy on Departing Director Compensation

10.31(X)@

Form of Incentive Stock Option Agreement for use under the 2009 Stock Incentive Plan

10.32(X)@

10.33(X)

10.34(X)@

10.35(X)

10.36(Y)

10.37(Y)

10.38(Z)@

10.39(Z)@

10.40(Z)@

Form of Non-Qualified Stock Option Agreement for use under the 2009 Stock Incentive Plan
(four year vest)

Form of Time-Based Vesting Restricted Stock Unit Agreement for use under the 2009 Stock
Incentive Plan

Form of Baseline Restricted Stock Unit Agreement for Executives for use under the 2009
Stock Incentive Plan

Form of Deferred Stock Unit Agreement for Directors for use under the 2009 Stock Incentive
Plan

Form of Deferred Stock Unit Agreement (2012)

Form of Stock Option Agreement for Director Options (2012)

Form of Three-Year Equal Annual Time-Based Vesting Restricted Stock Unit Agreement for
use under the 2009 Stock Incentive Plan

Form of 2011 Three-Year Performance-Based Vesting Restricted Stock Unit Agreement for
Executives for use under the 2009 Stock Incentive Plan

Form of Three-Year Performance-Based Vesting Restricted Stock Unit Agreement for use
under the 2009 Stock Incentive Plan

10.41(AA)@

Form of Restricted Stock Unit Agreement for use under the 2009 Stock Incentive Plan

10.42(AA)@

Form of 2012 Performance-Based Vesting Restricted Stock Unit Agreement for use under the
2009 Stock Incentive Plan

10.43(AA)@

Form of Stock Option Agreement for use under the 2009 Stock Incentive Plan (three-year vest)

10.44(BB)@

Form of Stock Option Grant Agreement (2012)

10.45(BB)

Form of Deferred Stock Unit Grant Agreement (2013)

10.46(BB)@

Form of Time-Based Vesting Restricted Stock Unit Agreement (2012)

10.47(BB)@

Form of Performance-Based Vesting Restricted Stock Unit Agreement (2012)

10.48(B)@

10.49(B)@

Form of Restricted Stock Unit Agreement for use under the 2013 Stock Incentive Plan (time
vesting)

Form of Restricted Stock Unit Agreement for use under the 2013 Stock Incentive Plan
(performance vesting)

10.50(B)@

Form of Stock Option Agreement for use under the 2013 Stock Incentive Plan

10.51(B)

10.52(CC)

Form of Deferred Stock Unit Agreement for use under the 2013 Stock Incentive Plan

Agreement and Plan of Merger by and among Akamai Technologies, Inc., Panther Acquisition
Corp., Prolexic Technologies, Inc. and the Principal Stockholders of Prolexic Technologies,
Inc., dated December 2, 2013.

10.53(EE)

Amendment to Agreement and Plan of Merger dated January 27, 2014 by and among Akamai
Technologies, Inc., Panther Acquisition Corp., Prolexic Technologies, Inc., the Principal
Stockholders of Prolexic Technologies, Inc. and the Representative of the selling equity holders
of Prolexic Technologies Inc.

10.54(DD)

Form of Call Option Confirmation between Akamai and each Option Counterparty

10.55(DD)

Form of Warrant Confirmation between Akamai and each Option Counterparty

10.56

Form of Performance RSU Agreement Under 2013 Stock Incentive Plan

21.1

23.1

31.1

31.2

32.1

32.2

Subsidiaries of the Registrant

Consent of Independent Registered Public Accounting Firm

Certification of Chief Executive Officer pursuant to Rule 13a- 14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended

Certification of Chief Financial Officer pursuant to Rule 13a- 14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Label Linkbase Document

101.PRE

XBRL Taxonomy Presentation Linkbase Document

(A)

(B)

(C)

(D)

(E)

(F)

(G)

(H)

(I)

(J)

(K)

Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-27275,
701319) filed with the Commission on August 14, 2000.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission
on August 9, 2013.
Incorporated by reference to the Registrant’s Registration Statement on Form S-1, as amended, filed with
the Commission on October 13, 1999.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-27275,
04961682) filed with the Commission on August 9, 2004.
Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-27275,
06691330) filed with the Commission on March 16, 2006.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-27275,
08823347) filed with the Commission on May 12, 2008.
Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-27275,
02560808) filed with the Commission on February 27, 2002.
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-27275, 06870771)
filed with the Commission on May 26, 2006.
Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed with the
Commission on June 24, 2005.
Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed with the
Commission on April 3, 2007.
Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed with the
Commission on February 29, 2012.

(L)

(M)

(N)

(O)

(P)

(Q)

(R)

(S)

(T)

(U)

(V)

(W)

(X)

(Y)

(Z)

Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed with the
Commission on March 14, 2012.
Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed with the
Commission on November 18, 2008.
Incorporated by reference to the Registrant’s Current Report on Form 10-Q filed with the Commission on
May 23, 2011.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on
May 20, 2013.
Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-27275,
07663384) filed with the Commission on March 1, 2007.
Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-27275,
09647152) filed with the Commission on March 2, 2009.
Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-27275,
08655930) filed with the Commission on February 29, 2008.
Incorporated by reference to the Registrant’s Registration Statement on Form S-1 filed with the
Commission on September 27, 1999.
Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the Commission on
March 1, 2013.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on
July 23, 2012.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission
on August 9, 2012.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-27275,
061202248) filed with the Commission on November 9, 2006.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on
May 26, 2009.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission
on May 10, 2012.
Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on
January 19, 2011.

(AA) Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on

January 18, 2012.

(BB) Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission

on November 9, 2012.

(CC) Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on

December 2, 2013.

(DD) Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on

February 20, 2014.

(EE) Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the Commission on

February 27, 2014.

@ Management contract or compensatory plan or arrangement filed as an exhibit to this Annual Report on

†

Form 10-K pursuant to Item 15(b) of this Annual Report.
Confidential Treatment has been granted as to certain portions of this Exhibit. Such portions have been
omitted and filed separately with the Securities and Exchange Commission.

Corporate Headquarters
Akamai Technologies, Inc.
8 Cambridge Center, Cambridge, MA 02142
Tel: 617.444.3000
U.S. Toll-Free Tel: 877.425.2624

Transfer Agent
Computershare, College Station, TX
U.S. Toll-Free Tel: 877.282.1168

Independent Auditors
PricewaterhouseCoopers LLP, Boston, MA

Corporate Counsel
Wilmer Cutler Pickering Hale and Dorr LLP
Boston, MA

Annual Meeting of Stockholders
9:30 am ET, Wednesday, May 14, 2014
Akamai Technologies, Inc.
8 Cambridge Center, Cambridge, MA 02142

Stock Listing
Akamai’s common stock is traded on the
NASDAQ Stock Market under the symbol “AKAM”

Investor Inquiries
Additional copies of this report and other financial
information are available through investor relations
at www.akamai.com

MANAGEMENT TEAM

F. Thomson Leighton
Chief Executive Officer and Co-Founder

Jim Benson
Executive Vice President and Chief Financial Officer

Robert Blumofe
Executive Vice President, Platform

Melanie Haratunian
Executive Vice President, General Counsel
and Corporate Secretary

Robert Hughes
President, Worldwide Operations

Rick McConnell
President, Products and Development

BOARD MEMBERS

George H. Conrades
Chairman

Paul Sagan
Vice Chairman

F. Thomson Leighton
Chief Executive Officer and Co-Founder

Frederic V. Salerno
Lead Independent Director

Martin M. Coyne II
Director

Monte E. Ford
Director

Geoffrey A. Moore
Director

Naomi O. Seligman
Director

Pamela J. Craig
Director

Jill A. Greenthal
Director

Steven M. Scopellite
Director

Bernardus Verwaayen
Director

Akamai Technologies, Inc.
8 Cambridge Center
Cambridge, MA 02142