Annual Report 2015
Financial Highlights
Revenue
Adjusted EBITDA*
Operational Free Cash Flow*
s
n
o
i
l
l
i
M
$
2,500
2,000
1,500
1,000
500
0
$2,197
$1,964
$1,578
1000
750
$697
$897
$853
s
n
o
i
l
l
i
M
$
500
250
0
$513
$479
$439
s
n
o
i
l
l
i
M
$
600
500
400
300
200
100
0
2013
2014
2015
2013
2014
2015
2013
2014
2015
(cid:12)(cid:54)(cid:74)(cid:75)(cid:85)(cid:2)(cid:79)(cid:71)(cid:86)(cid:84)(cid:75)(cid:69)(cid:2)(cid:89)(cid:67)(cid:85)(cid:2)(cid:80)(cid:81)(cid:86)(cid:2)(cid:69)(cid:67)(cid:78)(cid:69)(cid:87)(cid:78)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:84)(cid:70)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:73)(cid:71)(cid:80)(cid:71)(cid:84)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:69)(cid:69)(cid:71)(cid:82)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:84)(cid:75)(cid:80)(cid:69)(cid:75)(cid:82)(cid:78)(cid:71)(cid:85)(cid:2)(cid:10)(cid:41)(cid:35)(cid:35)(cid:50)(cid:11)(cid:16) (cid:50)(cid:78)(cid:71)(cid:67)(cid:85)(cid:71)(cid:2)(cid:84)(cid:71)(cid:72)(cid:71)(cid:84)(cid:2)(cid:86)(cid:81)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:81)(cid:84)(cid:2)(cid:84)(cid:71)(cid:78)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:89)(cid:71)(cid:68)(cid:85)(cid:75)(cid:86)(cid:71)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:70)(cid:71)(cid:386)(cid:80)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:41)(cid:35)(cid:35)(cid:50)(cid:2)(cid:79)(cid:71)(cid:86)(cid:84)(cid:75)(cid:69)(cid:85)
(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:80)(cid:69)(cid:75)(cid:78)(cid:75)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:86)(cid:81)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:78)(cid:81)(cid:85)(cid:71)(cid:85)(cid:86)(cid:2)(cid:41)(cid:35)(cid:35)(cid:50)(cid:2)(cid:79)(cid:71)(cid:86)(cid:84)(cid:75)(cid:69)(cid:16)
Comparison of 5 Year Cumulative Total Return*
Among Akamai Technologies, Inc., the NASDAQ Composite Index, and the S&P Information Technology Index
Akamai Technologies, Inc.
NASDAQ Composite
S&P Information Technology
Revenue
$300
$250
$200
$150
$100
$50
$0
12/10
12/11
12/12
12/13
12/14
12/15
The graph compares the cumulative total return to stockholders of our common stock for the period from
December 31, 2010 through December 31, 2015 to the cumulative total return over such period of:
• The NASDAQ Composite Index
• The S&P Information Technology Sector Index
*$100 invested on 12/31/10 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2015 S&P, a division of The McGraw–Hill Companies Inc. All rights reserved.
/ 1 /
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
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.)
150 Broadway
Cambridge, Massachusetts 02142
(Address of principle executive offices) (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
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
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15
(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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
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.
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
Non-accelerated filer
(Do not check if smaller reporting company)
Accelerated filer
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
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant
was approximately $12,136.9 million based on the last reported sale price of the Common Stock on the
NASDAQ Global Select Market on June 30, 2015.
The number of shares outstanding of the registrant’s Common Stock, par value $0.01 per share, as of
February 23, 2016: 176,747,531 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 2016 Annual Meeting of Stockholders to be held on May 11, 2016 are incorporated by
reference into Items 10, 11, 12, 13 and 14 of Part III of this annual report on Form 10-K.
2
AKAMAI TECHNOLOGIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
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
PART IV
Item 15.
Exhibits, Financial Statement Schedules
SIGNATURES
3
4
12
25
25
26
26
26
28
29
52
54
95
95
96
96
97
97
98
98
98
99
Forward-Looking Statements
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.
PART I
Item 1. Business
Akamai provides cloud services for delivering, optimizing and securing content and business applications
over the Internet. As a global leader in content delivery network, or CDN, services, our goal is to make the
Internet fast, reliable and secure for our customers.
Addressing the Grand Challenges of Doing Business on the Internet
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 a network of remote
servers hosted on the Internet to store, manage and process data rather than relying on a local server. 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 of the Internet presents potential problems for its
widespread usage today, such as:
•
•
•
•
•
traffic congestion at data centers and between networks;
traffic exceeding the capacity of routing equipment;
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;
increased use of mobile networks, which tend to be slower and less reliable than the fixed line Internet;
and
“last mile” issues – such as bandwidth constraints between consumers and their Internet access
provider.
These potential problems intersect with the features of what is sometimes referred to as 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.
4
Achieving an enterprise's goals in the face of these challenges is hard to do, particularly in the face of
internal constraints such as budget cuts and the need to keep pace with new technological developments.
Akamai offers solutions designed to help companies, government agencies, network operators and other
enterprises address what we call four grand challenges of doing business on the Internet:
One: Delivering video with excellent quality, scale and affordability;
Two: Providing superior performance for websites and applications accessed by all types of devices
from anywhere in the world;
Three: Protecting websites and data centers from cyber-attacks that aim to disrupt their online
operations, corrupt their data or steal sensitive information; and
Four: Enabling enterprise networks to handle growing cloud computing workloads with high
performance and low cost.
Forming the foundation of our solutions is the Akamai Intelligent Platform, which we believe is the world's
largest globally-distributed computing platform, having over 200,000 servers deployed in more than 1,400
networks and 120 countries around the world, tied together with sophisticated software and algorithms. This
platform enables us to constantly monitor Internet conditions to:
identify, absorb and block security threats;
•
• make routing and delivery decisions based on comprehensive knowledge of network conditions;
•
•
provide device-level detection and optimization; and
provide our customers with business and technical insights into their online operations.
Our mission is to leverage the Akamai Intelligent Platform and our solutions to provide superior
performance, scalability and security for our customers – addressing the four grand challenges of the Internet.
Our Solutions
Performance and Security Solutions
Our Performance and Security Solutions are designed to help websites and business applications operate
quickly while offering protection against security threats.
Web and Mobile Performance Solutions
Our Web and Mobile Performance Solutions are designed to take advantage of our core content and
application delivery technologies to make the Internet work better for our customers. Key offerings include:
•
Ion – Ion is a situational performance solution that consists of an integrated suite of web delivery,
acceleration and optimization technologies that make real-time optimization decisions based on the
requirements of the device, network location and browser. Ion is designed to simplify increasingly
complex web delivery and enable a faster website experience that is highly available, secure and
scalable to meet peak capacity demands.
• Dynamic Site Accelerator – Dynamic Site Accelerator is designed to help customers experience
globally consistent and faster website performance, handling the specific requirements of dynamically-
generated content. Our platform continuously pulls and caches fresh site content onto Akamai servers,
automatically directs content requests to an optimal server, routes the request via the most reliable path
to data centers to retrieve and deliver dynamic interactive content.
5
• Global Traffic Management – Global Traffic Management is designed to ensure responsiveness to end
user requests by leveraging our global load balancing technology. Unlike traditional hardware-based
solutions that reside within the data center, our Global Traffic Management service is a fault-tolerant
solution that makes intelligent routing decisions based on real-time data center performance health and
global Internet conditions to help ensure user requests are routed to the most appropriate data center for
that user at that moment.
• Cloudlets – Cloudlets are applications that provide our customers with self-serviceable controls and
capabilities designed to help simplify web operations and improve user experiences. Examples include
Visitor Prioritization for managing potentially overloaded applications, Image Converter to improve
delivery of images particularly to mobile devices, IP/Geo Access to handle access restrictions and
Forward Rewrite for managing delivery of targeted content without changing the page's Internet
address.
Cloud Security Solutions
Our Cloud 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:
•
•
•
Kona Site Defender – Kona 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.
Fast DNS – The Domain Name System, or DNS, translates human-readable domain names into
numerical IP addresses to enable individuals who type in a website name to reach the desired location
on the Internet. Our Fast DNS offering is a DNS resolution solution that is designed to quickly and
dependably direct individuals to our customers' websites. Importantly, we have architected this service
to protect against DNS-based DDoS attacks.
Prolexic Routed – Prolexic Routed is designed to protect web- and IP-based applications in data
centers from the threat of DDoS attacks by preventing attacks before they reach the data center. It
provides protection against high-bandwidth, sustained web attacks as well as potentially crippling
DDoS attacks that target specific applications and services.
• Client Reputation – Client Reputation provides an additional layer of protection against DDoS and web
application attacks by allowing customers to automatically block requests from IP addresses. Client
Reputation leverages advanced algorithms to compute a risk score based on prior behavior as observed
over the Akamai network. The algorithms use both legitimate and attack traffic to profile the behavior
of attacks, clients and applications. Based on this information, Akamai assigns risk scores to each IP
address and allows customers to choose which actions they wish to have Kona Site Defender perform
on an IP address with specific risk scores.
6
Cloud Networking Solutions
Our Cloud Networking Solutions are designed to help customers boost enterprise branch office and retail
store productivity by accelerating applications, reducing bandwidth costs and extending the Internet and public
clouds into private wide area networks, or WANs. Our key cloud network offerings include:
• Cloud Networking Suite – Our Cloud Networking Suite of solutions is designed to improve application
and network performance, reliability and security for branch location users who are connecting to
software as a service and cloud applications over the Internet. The services include Internet Transport
Optimization, which provides route optimization and forward error correction; SaaS and Cloud
Acceleration, which enables caching, data deduplication, and transport optimization; and Secure Web
Gateway, which offers outbound web filtering and inbound malware protection.
• Cisco Intelligent WAN with Akamai Connect – This is a fully-integrated solution from Akamai and
Cisco for enterprises with broadly distributed branches and office locations. By combining WAN
optimization and intelligent caching directly into a Cisco router in enterprise branch locations, Akamai
Connect extends the Akamai Intelligent Platform directly into the branch. The solution is architected
to enable customers to reduce costs while delivering high-quality application experiences with minimal
bandwidth impact, regardless of device, connectivity or public/private cloud architectures.
•
Steelhead Cloud Accelerator – Steelhead Cloud Accelerator is a cloud management solution that
combines our Internet optimization technology with Riverbed Technology's private WAN optimization.
By integrating the Akamai Intelligent Platform with Riverbed's RiOS, the solution optimizes Office
365 and Salesforce.com SaaS application performance whether users are located at corporate
headquarters or branch offices.
Network Operator Solutions
With the growth in consumer adoption of Internet video and other media, carriers around the world have
experienced significant traffic increases, resulting in congestion across networks 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
CDN and interconnecting access providers. These offerings include:
• Aura Licensed CDN – Aura Licensed CDN is a suite of solutions designed to enable delivery of next
generation IP video services delivered to myriad types of devices across the Internet. With this
solution, a network operator can build and operate a highly scalable media content delivery network
that efficiently delivers its own content as well as content from Akamai customers and other targeted
services, all utilizing a common HTTP caching infrastructure. The Aura Licensed CDN federates with
the Akamai Intelligent Platform, providing global delivery of operator content with a single business
agreement. The solution also includes HyperCache, a common HTTP caching layer in the network
that supports traffic offload and delivery of content, and Request Router, a DNS-based content request
router that directs user requests to an optimal available CDN node.
• Aura Managed CDN – Aura Managed CDN is a scalable, turnkey CDN solution designed to provide
network operators with CDN capabilities through an infrastructure that is maintained by Akamai. With
it, an operator can leverage the same CDN techniques used by Akamai, but on servers that are
dedicated to the network operator's services. Operators can deliver multi-screen video services and
large objects, plus offer commercial CDN services, relying on Akamai CDN experts and proven
technology for content provisioning, delivery and reporting.
7
• AnswerX – AnswerX is an intelligent recursive DNS platform built for effective management of DNS
traffic. To help make web services fast, safe and uniquely personal for subscribers, AnswerX manages
subscriber preferences (e.g., opt-in or opt-out), tracks popular destinations and maintains lists of typo
squatters (website addresses that are similar to popular ones but with misspelled names) and phishing
domains.
Media Delivery Solutions
In recent years, streaming of movies, television and live events has come to represent a significant
percentage of traffic on the Internet. Providing solutions to handle that media is an important part of our current
and future strategy. Our Media Delivery Solutions are designed to enable enterprises to execute their digital
media distribution strategies, not only by providing solutions for their volume and global reach requirements but
also by improving the end-user experience, boosting reliability and reducing their cost of Internet-related
infrastructure.
Media Content Delivery
Our Media Content Delivery Solutions are designed to provide fast and reliable delivery of movies,
television shows, live events, games, social media, software downloads and other content across the Internet
across both fixed line and mobile networks. We focus on helping media customers improve the performance of
their offerings through the scalability, reliability and reach of the Akamai Intelligent Platform. Each delivery
solution is optimized for the type of content being provided as follows:
•
•
Adaptive Delivery – We provide adaptive delivery solutions for streaming video content that are
designed to cope with variable connection speeds, different devices and disparate locations around the
world.
Download Delivery – Our download delivery offerings provide accelerated distribution for large file
downloads, including games, progressive media (video and audio) files, documents and other file-
based content.
Media Services
Akamai Media Services help simplify the preparation of online media with integrated transcoding, digital
rights management and content packaging designed to enable our customers to quickly and easily deliver live
and on-demand content to multiple types of devices and platforms.
Media Analytics
We offer a comprehensive suite of analytics tools to monitor online video viewer experiences and the
effectiveness of web software downloads, while measuring audience engagement, and quality of service
performance. These solutions are designed to provide actionable and relevant metrics to help businesses
understand their entire media workflow from ingest to device through four complementary modules: Quality of
Service Monitor, Viewer Diagnostics, Audience Analytics and Download Analytics.
NetStorage
NetStorage is a globally-distributed cloud storage solution for our customers' content that offers automatic
geographically-dispersed replication that is designed for resiliency, high availability and real time performance
optimization. It complements our suite of Media Delivery Solutions to offer a simple, high-speed online content
workflow solution.
8
Service and Support Solutions
Akamai offers an array of professional services and solutions that are designed to assist our customers with
integrating, configuring, optimizing and managing our core offerings. Once customers are deployed on the
network, they can rely on our professional services experts for customized solutions, problem resolution and
24/7 technical support. 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
The Akamai Intelligent Platform leverages more than 200,000 servers deployed in approximately 1,400
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 across 120 countries, we are better able to manage and control routing and delivery
quality to geographically-diverse users. We also have thousands of 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 and regardless of global or local traffic conditions. Dedicated professionals staff our network
operations command center 24 hours a day, seven days a week 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.
Our platform offers flexibility too. Customers can 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.
Our Accelerated Network Partner Program allows participating network operators to install Akamai
caching servers inside their network data centers. The servers and CDN capacity are fully managed by Akamai
and are part of the Akamai Intelligent Platform. The program is designed to enable network operators to offer
subscribers a better end-user experience for popular content and services.
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, 2015, we had 1,612 research and development employees. Our research
and development expenses were $148.6 million, $125.3 million and $93.9 million for the years ended
December 31, 2015, 2014 and 2013, respectively. These amounts are net of capitalized costs related to the
development of internal-use software used to deliver our services and operate our network. For the years ended
December 31, 2015, 2014 and 2013, we capitalized $105.7 million, $91.1 million and $67.9 million,
respectively, of payroll, payroll-related and external consulting costs related to the development of internal-use
software. Additionally, for the years ended December 31, 2015, 2014 and 2013, we capitalized $16.7 million,
$13.7 million and $11.5 million, respectively, of stock-based compensation attributable to our research and
development personnel.
9
Industry Segment and Geographic Information
We operate in one industry segment: providing cloud services for delivering, optimizing and securing
content and business applications over the Internet. Our revenue derived from operations outside the U.S. was
$593.0 million, $531.9 million and $432.6 million, for each of the years ended December 31, 2015, 2014 and
2013, respectively. This represented 27% of our total revenue in those years. 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, in addition to other
property and equipment used to support our operations. As of December 31, 2015, we had approximately
$298.9 million and $227.8 million of net property and equipment, excluding internal-use software, located in
the U.S. and foreign locations, respectively. As of December 31, 2014, we had approximately $249.5 million
and $175.8 million of net property and equipment, excluding internal-use software, located in the U.S. and
foreign locations, respectively.
Customers
As of December 31, 2015, our customers included many of the world's leading corporations, including
Airbnb, Apple, Autodesk, BMW, Bristol Myers Squibb, Cathay Pacific, Crate & Barrel, eBay, Electronic Arts,
FedEx, Ford Motor Company, FOX, Home Depot, HubSpot, IKEA, Investec, JetBlue, Marriott, NBCUniversal,
Norwegian Cruise Line, Panasonic, Panera Bread, PayPal, Qantas, Qualcomm, Rabobank, Rakuten, Red Hat,
Salesforce.com, Siemens, Toshiba, Turner Broadcasting, USAA and Virgin America. We also actively sell to
government agencies. As of December 31, 2015, our public sector customers included the Federal Aviation
Administration, the Federal Emergency Management Agency, 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% or more of total revenue for any of the years ended December 31, 2015,
2014 and 2013; however, our two largest customers accounted for 11%, 13% and 14% of our total revenue
during the years ended December 31, 2015, 2014 and 2013. Less than 10% of our total revenue in each of the
years ended December 31, 2015, 2014 and 2013 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% of our
total revenue in 2016.
Sales, Service and Marketing
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, Deutsche Telecom, IBM, Orange Business Services 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, referral
partners and sales agents. By aligning with these partners, 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 professionals are located in more than 60 offices in the Americas, Europe,
the Middle East and Asia and focus on direct and channel sales, sales operations, professional services, account
management and technical consulting. As of December 31, 2015, we had 2,874 employees in this organization.
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.
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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;
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, existing and 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 through the global scale of the
Akamai Intelligent Platform, which we believe provides the most effective means of meeting the needs of
enterprise customers and is unique to us. In our view, we also benefit from the superior quality of our offerings,
our customer service, the information we can provide to our customers about their online operations and value.
Proprietary Rights and Licensing
Our success and ability to compete are dependent on developing and maintaining 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, 2015, we owned, or had exclusive rights to, more than 230 U.S. patents
covering our technology as well as patents issued by other countries. Our U.S.-issued patents have terms
extendable to various dates between 2016 and 2034. We do not believe that the expiration of any particular
patent in the near future would be material to our business. 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 exclusive 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, 2015, we had 6,084 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
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believe our relations with our employees are good, and we have been acknowledged in respected publications as
an excellent place to work.
Additional Information
Akamai was incorporated in Delaware in 1998 and have our corporate headquarters at 150 Broadway,
Cambridge, Massachusetts. 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.
Item 1A. Risk Factors
The following are 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.
If we do not continue to innovate and develop solutions and technologies that are useful for our customers or
that improve our operating efficiencies, our operating results may suffer.
We have been in business for more than 17 years and consider ourselves pioneers in the development of
content and application delivery solutions. As the information technology industry evolves, however, it may
become increasingly difficult for us to maintain a technological advantage. In particular, our traditional
offerings risk becoming commoditized as competitors or even current or former customers seek to replicate
them such that we must lower the prices we charge, reducing the profitability of such offerings or risk losing
such business. We believe, therefore, that developing innovative, high-margin solutions is key to our revenue
growth and profitability. We must do so in a rapidly changing technology environment where it can be difficult
to anticipate the needs of potential customers and where competitors may develop products and services that
are, or may be viewed as, better than ours. The process of developing new solutions is complex and uncertain;
we must commit significant resources to developing new services or features without knowing whether our
investments will result in services the market will accept. This could cause our expenses to grow more rapidly
than our revenue. Furthermore, we may not successfully execute our technology initiatives because of errors in
planning, timing or execution, technical or operational hurdles that we fail to overcome in a timely fashion,
misunderstandings about market demand or a lack of appropriate resources. Failure to adequately develop, on a
cost-effective basis, innovative new or enhanced solutions that are attractive to customers and to keep pace with
rapid technological and market changes could have a material effect on our business, results of operations,
financial condition and cash flows.
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Slower traffic growth on our network and numerous other factors could cause our revenue growth rate to
slow and profitability to decline.
We base our decisions about expense levels and investments on estimates of our future revenue and future
anticipated rate of growth. Many of our expenses are 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. If we experience slower traffic growth on our
network than we expect or than we have experienced in recent years, our revenue growth rate will slow, and we
may not be able to maintain our current level of profitability in 2016 or on a quarterly or annual basis thereafter.
Numerous factors can impact traffic growth including:
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decisions by our customers to delay introduction of over the top (OTT) video delivery initiatives;
customers, particularly larger media customers, implementing their own data centers and delivery
approaches to limit their reliance on third party providers like us; and
• macro-economic market and industry pressures.
Our revenue growth rate may slow and profitability may decline in future periods as a result of a number of
other factors unrelated to traffic growth, including:
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inability to increase sales of our core services and advanced features;
increased headcount expenses;
changes in our customers' business models that we do not fully anticipate or that we fail to address
adequately; and
increased reliance by customers on our secure socket layer, or SSL, network which is more expensive
to maintain and operate.
The information technology industry and the markets in which we compete are constantly evolving, which
makes our future business strategies, practices and results difficult to predict.
The information technology industry and the markets in which we compete have grown rapidly over the
life of our company and continue to evolve in response to new technological advances, changing business
models and other factors. We and the other companies that compete in this industry and these markets
experience continually shifting business relationships, commercial focuses and business priorities, all of which
occur in reaction to industry and market forces and the emergence of new opportunities. These shifts have led or
could lead to:
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our customers or partners becoming our competitors;
our network suppliers becoming partners with us or, conversely, no longer seeking to work with us;
our working more closely with hardware providers;
large technology companies that previously did not appear to show interest in the markets we seek to
address entering into those markets as competitors; and
needing to expand into new lines of business or to change or abandon existing strategies.
As a result of this constantly changing environment, our future business strategies, practices and results
may be difficult to predict, and we may face operational difficulties in adjusting to the changes.
Our technological approach to addressing the challenges of conducting business over the Internet may not
be adequate or cost effective to handle evolving market forces.
We believe that the Internet has the potential to experience dramatic growth in the future. For example,
only a minority of individuals watch television over the Internet now, but many predict that the Internet will
become the dominant medium for delivery of video content in the future. In addition, the use of mobile devices
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has increased rapidly in recent years and is expected to continue to grow in the future. There could develop an
inflection point above which global usage of the Internet increases to a level that our current approaches to the
delivery of content and applications may not be sustainable at current levels of profitability or at all. It is
expensive to deploy dedicated servers in data centers around the world; therefore, that approach of deploying at
the "edge" of the Internet may be inadequate to fully address our customer's evolving needs or we may no
longer be able to maintain our current approach to delivery. If we are unable to develop or acquire scalable new
technologies to address the expected growth and other changes we expect, our business and financial statements
may suffer.
If we are unable to compete effectively, our business will be adversely affected.
We compete in markets that are intensely competitive and rapidly changing. Our current and potential
competitors vary by size, product and 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. Competitors include some of our current partners and customers.
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 allocate greater resources to the promotion,
marketing, and sales of their services; and
dedicate greater resources to the research and development of their products and services.
Smaller and more nimble competitors may be able to:
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attract customers by offering less-sophisticated versions of services than we provide at lower
prices than those we charge;
develop new business models that are disruptive to us; and
respond more quickly than we can to new or emerging technologies, changes in customer
requirements and market and industry developments, resulting in superior offerings.
Existing and potential customers may not purchase our services, or may limit their use of them, because
they:
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pursue a "do-it-yourself" approach by putting in place equipment, 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 multi-vendor policies to reduce reliance on external providers like us.
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.
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Our operating results can be impacted by the actions and business life cycles of a small number of large
customers.
Historically, our operating results have been subject to fluctuations related to dependence on several large
customers, particularly media companies, for a significant portion of our revenues. The amount of traffic we
deliver on behalf of those customers can vary significantly based on decisions they make about their businesses,
including whether to start or delay new business initiatives, build out their own networks to handle delivery, or
implement or maintain multiple vendor strategies. These approaches can change rapidly and unpredictably.
While we believe that we will be less reliant on individual customers in the future, we are likely to continue to
face some uncertainty in forecasting our revenues from quarter to quarter or over longer periods related to these
customers and could also experience inconsistent revenue growth patterns and earnings.
We may be unable to replace lost revenue due to customer cancellations, renewals at lower rates or other less
favorable terms.
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. We cannot predict our
renewal rates. Some customers 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, has involved unit price declines as competition has increased and the market for certain
parts of our business has matured. 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 multi-vendor policies, customers implementing or increasing their
use of in-house technology solutions and general economic conditions. In addition, our customer contracting
models may change to move away from a committed revenue structure to a "pay-as-you-go" approach. The
absence of a commitment would make it easier for customers to stop doing business with us, which would
negatively impact revenue.
Security breaches and other unplanned interruptions in the functioning of our network or services could
lead to significant costs and disruptions that could 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. We transmit and store our customers' information and data as well as
our own. Maintaining the security and availability of our services, network and internal IT systems is a critical
issue for us and our customers. The costs to us to avoid or alleviate cyber or other security problems, bugs,
viruses, worms, malicious software programs and security vulnerabilities are significant, and our efforts to
address these problems may not be successful and could result in interruptions, delays, cessation of service, loss
of existing or potential customers, liability to third parties and regulatory sanctions. As we expand our emphasis
on selling security-related solutions, we may become a more attractive target for attacks on our infrastructure
intended to steal information about our technology, financial data or customer information or take other actions
that would be damaging to our customers and us. Our network or services could also be disrupted by numerous
other events, including failure or refusal of our third party network providers to provide the necessary capacity,
natural disasters, power losses and human error. Any significant breach of our security measures or other
disruptions to our network or IT systems would threaten our ability to provide our customers with fast, efficient
and reliable distribution of applications and content over the Internet, would harm our reputation and could lead
to customer credits, loss of customers, higher expenses and increased legal liability.
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Acquisitions and other strategic transactions we complete could result in operating difficulties, dilution,
diversion of management attention and other harmful consequences that may adversely impact our business
and results of operations.
Acquisitions are an important part of our corporate strategy. 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:
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difficulty integrating the operations and personnel of acquired companies;
potential disruption of our ongoing business;
potential distraction of management;
diversion of business resources from core operations;
expenses related to the transactions;
failure to realize synergies or other expected benefits;
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. As we complete acquisitions, we may encounter difficulty
in incorporating acquired technologies into our offerings while maintaining the quality standards that are
consistent with our brand and reputation. 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.
Our failure to effectively manage our operations as our business evolves 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 key
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. It is also 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.
In February 2016, we announced that our current products and development and global sales, channels and
marketing organizations will be realigned into new groups, initially focused on our Media and Web customers
and solutions. With a goal of improving alignment between customer feedback and product innovation, making
Akamai easier to do business with and increasing productivity, each group will integrate existing personnel
from product management, product development, sales, channels and product marketing functions into its team
effective in April 2016. Structural changes like these can be distracting to management and the rest of the
employee base, and we may not ultimately realize the intended benefits, even after incurring expenses in
carrying out the realignment.
As our business evolves, we must also expand and adapt our IT and operational infrastructure. Our business
relies on our data systems, billing systems and other operational and financial reporting and control systems. All
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of these systems have become increasingly complex 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 may be difficult and costly.
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. If the third parties we rely on
for hosted data solutions for our internal network and information systems are subject to a security breach or
otherwise suffer disruptions that impact the services we utilize, the integrity and availability of our internal
information could be compromised causing the loss of confidential or proprietary information, damage to our
reputation and economic loss.
If we are unable to retain our key employees and hire and retain qualified sales, technical, marketing and
support personnel, our ability to compete could be harmed.
Our future success depends upon the 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. In making employment decisions, particularly in our
industry, job candidates and current personnel often consider the value of stock-based compensation. Declines
in the price of our stock could adversely affect our ability to attract or retain key employees.
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 and
detrimental to our future outlook. The loss of the services of any of our key employees or our inability to attract
and retain new talent 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.
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;
slower than expected growth in traffic over our network;
announcements by our customers related to their businesses that could be viewed as impacting their
usage of our solutions;
introduction of new products, services and strategic developments by us or our competitors;
activism by any single large stockholders or combination of stockholders;
changes in financial estimates and recommendations by securities analysts;
failure to meet the expectations of securities analysts;
purchases or sales of our stock by our officers and directors;
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• macro-economic factors;
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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 revenue, particularly that portion 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 and commerce customers for which
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holiday sales are a key but unpredictable driver of usage of our services. In the future, our customer contracting
models may change to move away from a committed revenue structure to a "pay-as-you-go" approach. The
absence of a commitment would make it easier for customers to stop doing business with us, which would
create additional challenges with our forecasting processes. 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 as a
result.
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 of stock of publicly-
traded technology companies in particular, have experienced significant volatility that often has been unrelated
to the operating performance of such companies. These broad stock market fluctuations may adversely affect
the market price of our common stock, regardless of our operating performance.
We face risks associated with international operations and expansion efforts that could harm our business.
We have operations in numerous foreign countries and may continue to expand our 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, make our operations less efficient 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;
changes in regulatory requirements that could pose risks to our intellectual property, increase the cost
of doing business in a country or create other disadvantages to our business;
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;
reliance on channel partners over which we have limited control or influence on a day-to-day basis;
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 U.S. 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 by our employees or partners 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 financial statements.
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 or
applicable laws.
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In particular, we are conducting an internal investigation, with the assistance of outside counsel, relating to
sales practices in a country outside the U.S. The investigation includes a review of compliance with the
requirements of the U.S. Foreign Corrupt Practices Act and other applicable laws and regulations by employees
in that market. If violations are found, we may be subject to penalties, which could include substantial fines.
Defects or disruptions in our services could diminish demand for our solutions or 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 that have given rise to service incidents. We have also
experienced customer dissatisfaction with the quality of some of our media delivery and other 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. 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
improperly access our services, we could experience loss of revenue and market share, damage to our
reputation, increased expenses, delayed payments and legal actions by our customers.
We may have insufficient transmission and co-location space, which could result in disruptions to our
services and loss of revenue.
Our operations are dependent 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. This risk
is heightened where market power is concentrated with one or a few major networks. We also may be unable to
move quickly enough to augment capacity to reflect growing traffic demands. Failure to put in place the
capacity we require could result in a reduction in, or disruption of, service to our customers and ultimately a
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. In addition, customers have increasingly elected to transmit their
content over our SSL network, which is more costly for us to operate and could require significant additional
investment for us. 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.
Government regulation is evolving, and unfavorable changes could harm our business.
Laws and regulations that apply to communications and commerce over the Internet are becoming more
prevalent. In particular, domestic and foreign government attempts to regulate the operation of the Internet
could negatively impact our business. While regulations recently adopted by the U.S. Federal Communications
Commission that govern certain aspects of the operation of the Internet (such as content blocking and throttling
and paid prioritization) do not apply to content delivery network providers like us, there is no guarantee that
future regulatory and legislative initiatives will not impact our business. Furthermore, with more business being
conducted over the Internet, there have been calls for more stringent copyright protection, tax, consumer
protection, cybersecurity, data localization and content restriction laws, both in the U.S. and abroad, that may
impose additional burdens on companies conducting business online or providing Internet-related services such
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as ours. 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.
We may also be impacted by changes in privacy-related regulations governing the collection, use, retention,
sharing and security of data that we receive from our customers, visitors to their websites and others.
Complying with a diverse range of privacy requirements could cause us to incur substantial costs or require us
to change our business practices in a manner adverse to our business. In addition, we have a publicly-available
privacy policy concerning our 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.
Fluctuations in foreign currency exchange rates affect our operating results in U.S. dollar terms.
An increasing portion of our revenue is derived from international operations. Revenue 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.
We may need to defend against patent or copyright infringement claims, which would cause us to incur
substantial costs or limit our ability to use certain technologies in the future.
As we expand our business and develop new technologies, products and services, we may become
increasingly subject to intellectual property infringement and other claims, including those that may arise under
international laws. In many cases, we have agreed to indemnify our customers and channel and strategic
partners if our services infringe or misappropriate specified intellectual property rights; therefore, we could
become involved in litigation or claims brought against customers or channel or strategic partners if our services
or technology are the subject of such allegations. Any litigation or claims, whether or not valid, brought against
us or pursuant to which we indemnify our customers or channel or strategic partners 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 features, functionalities, 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 contractual 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
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attention from our management and technical personnel, and the outcomes are unpredictable. Monitoring
unauthorized use of our services is difficult, and we cannot be certain that the steps we have taken or will take
will prevent unauthorized use of our technology. We have licensed technology from the Massachusetts Institute
of 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. These patents are scheduled to expire beginning in 2018. As the patents expire, we will no
longer have the right to exclude others from practicing the technologies covered by them. Furthermore, we
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.
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. Open-source software may have security flaws and
other deficiencies that could make our solutions less reliable and damage our business. 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 be expensive and divert resources away from our development efforts. In
addition, the terms relating to disclosure of derivative works in many open-source licenses are unclear. 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.
We may be unsuccessful at developing and maintaining strategic relationships with third parties that expand
our distribution channels and increase revenue, 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 revenue. The need to develop such relationships
can be particularly acute in areas outside of the U.S. 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 and ensuring that they are compliant with our
ethical expectations 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.
21
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, thereby negatively affecting our business.
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.
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 U.S. The preparation of these financial statements requires us to make estimates and judgments about,
among other things, taxes, revenue recognition, stock-based compensation costs, capitalization of internal-use
software development costs, investments, contingent obligations, allowance for doubtful accounts, intangible
assets and restructuring charges. These estimates and judgments affect, among other things, the reported
amounts of our assets, liabilities, revenue 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, our reserves
and the positions we have taken 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.
22
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 control over financial reporting
and disclosure controls and procedures 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. 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, including by expanding our operations in different markets, increasing
reliance on channel partners and completing acquisitions, 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.
Any failure to meet our debt obligations would damage our business.
As of December 31, 2015, we had total par value of $690.0 million of convertible senior notes
outstanding. 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 (as defined in the indenture governing the notes)
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 at such time
could adversely affect our 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 additional
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 the stock of existing stockholders. If we do not have sufficient cash
to repurchase the 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.
Our Board of Directors has the authority to issue 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.
23
Our sales to government clients subject us to risks including early termination, audits, investigations,
sanctions and penalties.
We have customer 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 combine to potentially limit the
revenue we derive from government contracts in the future. Additionally, government contracts generally have
requirements that are more complex than those found in commercial enterprise agreements and therefore are
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.
We may become involved in litigation that may adversely impact our business.
From time to time, we are or may become involved in various legal proceedings relating to matters
incidental to the ordinary course of our business, including patent, commercial, product liability, employment,
class action, whistleblower and other litigation and claims, and governmental and other regulatory
investigations and proceedings. Such matters can be time-consuming, divert management’s attention and
resources and cause us to incur significant expenses. Furthermore, because such matters are inherently
unpredictable, there can be no assurance that the results of any of these matters will not have an adverse impact
on our business, results of operations, financial condition, or cash flows.
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.
To the extent economic 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 revenue. 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 and natural resource conservation regulations could adversely impact our business.
Our deployed network of servers consumes significant energy resources, including those generated by the
burning of fossil fuels. In response to concerns about global climate change, governments may adopt new
regulations affecting the use of fossil fuels or requiring the use of alternative fuel sources. In addition, our
customers and investors may require us to take steps to demonstrate that we are taking ecologically responsible
measures in operating our business. The 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 revenue and damage to our reputation.
24
Because we do not intend to pay dividends, stockholders will benefit from an investment in our common
stock only if it appreciates in value.
We currently intend to retain our future earnings, if any, for use in the operation of our business and do not
expect to pay any cash dividends in the foreseeable future on our common stock. As a result, the success of an
investment in our common stock will depend upon any future appreciation in its value. There is no guarantee
that our common stock will appreciate in value or even maintain the price at which stockholders have purchased
their shares.
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 control
or 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;
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; and
our Board of Directors may issue, without stockholder approval, shares of undesignated preferred
stock.
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.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease approximately 490,000 square feet of property in Cambridge, Massachusetts where our primary
corporate offices are located. The majority of the leases for such space are scheduled to expire in December
2019, and of this space, we have subleased approximately 18,000 square feet to another company. We maintain
offices in several other locations in the United States, including in or near each of Phoenix, Arizona;
Los Angeles, San Francisco, San Mateo and San Diego, California; Denver, Colorado; Washington, D.C.; Fort
Lauderdale, Florida; Atlanta, Georgia; Chicago, Illinois; Manchester, New Hampshire; 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, Chennai,
Delhi and Mumbai, India; Beijing, Hong Kong, Shenzhen, and Shanghai, China; Sao Paulo, Brazil;
Copenhagen, Denmark; Dusseldorf, Hamburg, Frankfurt and Munich, Germany; Paris, France; Brussels,
Belgium; London, England; Tokyo, Fukuoka, Nagoya and Osaka, Japan; Singapore; Madrid, Spain; Sydney,
Melbourne and Canberra, Australia; Netanya, Israel; Livingston, Scotland; Ottawa, Canada; San Jose, Costa
Rica; Milan, Italy; Stockholm, Sweden; Seoul, South Korea; Geneva and Zurich, Switzerland; Kuala Lumpur,
Malaysia; Taipei, Taiwan; Amsterdam, the Netherlands; Prague, Czech Republic; Dubai, UAE; and Krakow,
Poland.
25
All of our facilities are leased. 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.
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
our common stock on the NASDAQ Global Select Market:
First quarter
Second quarter
Third quarter
Fourth quarter
2015
2014
High
Low
High
Low
$
$
$
$
73.53
78.44
76.98
76.39
$
$
$
$
56.85
69.13
63.14
50.56
$
$
$
$
63.15
62.76
64.74
65.39
$
$
$
$
45.59
50.52
56.40
51.74
As of February 23, 2016, there were 404 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.
26
Issuer Purchases of Equity Securities
The following is a summary of our repurchases of our common stock in the fourth quarter of 2015 (in
thousands, except share and per share data):
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(4)
386,238
$
528,720
750,906
1,665,864
$
71.47
60.21
54.25
60.14
386,238
$
203,599
528,720
750,906
1,665,864
$
171,765
131,028
131,028
Period(1)
October 1, 2015 –
October 31, 2015
November 1, 2015 –
November 30, 2015
December 1, 2015 –
December 31, 2015
Total
(1)
(2)
(3)
(4)
Information is based on settlement dates of repurchase transactions.
Consists of shares of our common stock, par value $0.01 per share. All repurchases were made pursuant to a previously-
announced program.
Includes commissions paid.
In October 2013, the Board of Directors authorized a $750.0 million share repurchase program, announced on October 23, 2013,
which is effective through December 31, 2016. As of December 31, 2015, $131,028 remained available for repurchase under that
program. In February 2016, the Board of Directors authorized a new $1.0 billion share repurchase program, announced on
February 9, 2016, which is effective through December 31, 2018.
During the year ended December 31, 2015, we repurchased 4.5 million shares of our common stock for an
aggregate of $302.6 million.
27
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 income 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,
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
Convertible senior notes
Other long-term liabilities
Total stockholders’ equity
2015
$ 2,197,448
2014
$ 1,963,874
2013
$ 1,577,922
2012
$ 1,373,947
2011
$ 1,158,538
1,731,298
466,150
321,406
1.80
1.78
1,524,235
4,187,925
624,288
110,319
3,120,878
1,474,355
489,519
333,948
1.87
1.84
1,628,284
4,001,546
604,851
117,349
2,945,335
1,163,954
413,968
293,487
1.65
1.61
1,246,922
2,957,685
—
65,088
2,629,431
1,059,460
314,487
203,989
1.15
1.12
1,095,240
2,600,627
—
51,929
2,345,754
867,889
290,649
200,904
1.09
1.07
1,229,955
2,345,501
—
40,859
2,156,250
The following items impact the comparability of the consolidated financial data presented above:
• During the years presented in the table above, various acquisitions occurred. In 2015, we completed
three acquisitions having an aggregate purchase price of $142.3 million. In 2014, we completed one
acquisition for a total purchase price of $392.1 million. In 2013, we completed two acquisitions having
an aggregate purchase price of $61.9 million. In 2012, we completed four acquisitions having an
aggregate purchase price of $344.7 million. See Note 8 to our consolidated financial statements
included elsewhere in this annual report on Form 10-K for more details regarding these acquisitions.
• 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. For the years ended December 31, 2015, 2014 and 2013,
this change decreased depreciation expense on network assets as compared to the years ended
December 31, 2012 and 2011. The change increased net income and both basic and diluted net income
per share for the years ended December 31, 2015, 2014 and 2013 as compared to the years ended
December 31, 2012 and 2011.
• We divested our Advertising Decision Solutions, or ADS, business in January 2013. Revenue from the
ADS business was $2.7 million, $44.0 million and $42.7 million for the years ended December 31,
2013, 2012 and 2011, respectively.
• Our effective income tax rate was 29.6%, 30.4%, 30.0%, 36.6% and 34.6% for the years ended
December 31, 2015, 2014, 2013, 2012 and 2011, respectively. The variability of the rate was caused
28
by certain one-time items recognized in the past few years and also the composition of income from
foreign jurisdictions that is taxed at lower rates as compared to the statutory rates in the U.S. Our
effective income tax rate for 2015 was lower than the federal statutory rate of 35.0%, primarily due to
the retroactive application of a U.S. tax court ruling with respect to the treatment of stock-based
compensation in intercompany arrangements, which resulted in a tax benefit of $9.1 million for the
period from January 1, 2010 to December 31, 2014. In 2014, our effective income tax rate was
favorably impacted by a state tax benefit from software development activities, which resulted in a tax
benefit of $16.0 million for the period from January 1, 2010 to December 31, 2014. In 2013, our
effective income tax rate was favorably impacted by $18.3 million from the 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.
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 provide cloud services for delivering, optimizing and securing content and business applications over
the Internet. For many of our core solutions, we rely on a recurring revenue model with customers executing
contracts having terms of one year or longer. We believe this emphasis on longer-term contracts allows us to
have a consistent and predictable base level of revenue, which is important to our financial success. We are also
dependent on media customers where usage of our services is less predictable; as a result, our revenue is
impacted by the amount of media and software download traffic we serve on our network, the rate of adoption
of social media and video platform capabilities, the timing and variability of customer-specific one-time events
and the impact of seasonal variations on our business. The prices we are able to charge for our services is also a
key factor impacting income.
During each of the periods presented in this annual report, we increased revenue over the prior year and we
have observed the following trends related to our revenue:
•
Increased sales of our Cloud Security Solutions have made a significant contribution to our increased
revenue, and we expect to continue our focus on security solutions in the future.
• We have increased committed recurring revenue by adding new customers and increasing sales of
incremental services to our existing customers. These increases helped to limit the impact of
reductions in usage of our services and contract terminations by certain customers, as well as the effect
of price decreases negotiated as part of contract renewals.
• We have experienced increases in the amount of traffic delivered for our customers that use our
solutions for video, gaming, social media and software downloads. In the second half of 2015,
however, we experienced a slower growth rate in revenue from these services and expect this trend to
continue into 2016. We believe that this development is primarily attributable to an increase in "do-it-
yourself" approaches by our two largest media customers based in the U.S., which led to a moderation
in the overall rate of growth of customer traffic on our network.
29
• The unit prices paid by some of our customers have declined, reflecting the impact of competition. Our
profitability would have been higher absent these price declines.
• We have experienced variations in certain types of revenue from quarter to quarter; in particular, we
experience higher revenue in the fourth quarter of the year for some of our solutions as a result of the
holiday season. We also experience lower revenue in the summer months, particularly in Europe, from
both e-commerce and media customers because overall Internet use declines during that time. In
addition, we experience quarterly variations in revenue attributable to the nature and timing of
software and gaming releases by our customers using our software download solutions and the
frequency and timing of custom services.
We were profitable in each of the years presented in this annual report. Our level of profitability is
impacted by our revenue as well as expense levels, including direct costs to support our revenue such as
bandwidth and co-location costs. We have observed the following trends related to our profitability in recent
years:
• We have made investments to support the potential future growth of over the top, or OTT, media
offerings and to support other strategic initiatives that we anticipate will generate revenue in the future.
On a relative basis, these investments have increased our expenses ahead of expected revenue benefits.
• Network bandwidth costs represent a significant portion of our cost of revenue. Historically, we have
been able to mitigate increases in these costs by reducing our network bandwidth costs per unit and
investing 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 and efficiency measures we take.
• Co-location costs are also a significant portion of our cost of revenue. By improving our internal-use
software and managing our hardware deployments to enable us to use servers more efficiently, we have
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 effectively manage our co-location costs to maintain current levels of
profitability.
•
Payroll and related compensation costs have increased as we have increased headcount to support our
revenue growth and strategic initiatives. We increased our headcount by 979 and 1,200 employees
during the years ended December 31, 2015 and 2014, respectively. We expect to continue to hire
additional employees, but at a slower rate, both domestically and internationally, in support of our
strategic initiatives.
Fluctuations in foreign currency exchange rates have also impacted our reported results. Revenue and
expenses of our operations outside of the U.S. are important contributors to our overall financial performance,
and as currencies have weakened against the U.S. dollar, our revenue has been negatively impacted and our
expenses have been positively impacted. If foreign currency exchange rates during the year ended
December 31, 2015 had remained the same as exchange rates during the year ended December 31, 2014, our
revenue would have increased by 16% as opposed to 12%. Similarly, diluted earnings per share would have
increased 2% as opposed to decreasing 3% had exchange rates remained constant during the same period.
During 2015, we completed three acquisitions. While the impact of the acquisitions was immaterial to our
financial results as a whole, they have increased our revenue and level of expenses. During the year ended
December 31, 2015, our results include the activities of the acquisition of Xerocole, Inc. in February 2015,
Codemate A/S and its wholly-owned subsidiary Octoshape ApS in April 2015 and Bloxx Limited in October
2015.
30
During 2014, we acquired Prolexic Technologies, Inc., or Prolexic. Prolexic was slightly dilutive to our
earnings per share for the year ended December 31, 2014. Revenue and expenses from the acquired operations
have been included in our earnings since the acquisition date of February 18, 2014. Also in February 2014, we
completed an offering of $690.0 million in par value of convertible senior notes. The notes do not bear regular
interest, but have an effective interest rate of 3.2% attributable to the conversion feature.
During 2013, we completed two acquisitions. Although our financial statements include revenue and
expenses of the acquired companies following their acquisitions, the impact was not material, individually or in
the aggregate, to our consolidated financial results. In the first quarter of 2013, we also divested our ADS
business.
Results of Operations
The following sets forth, as a percentage of revenue, consolidated statements of income data for the years
indicated:
Revenue
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible
assets shown below)
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
Interest expense
Other expense, net
Income before provision for income taxes
Provision for income taxes
Net income
Revenue
2015
2014
2013
100.0%
100.0%
100.0%
33.0
6.8
20.1
17.7
1.2
—
78.8
21.2
0.5
(0.8)
(0.1)
20.8
6.2
14.6%
31.1
6.4
19.3
16.6
1.6
0.1
75.1
24.9
0.4
(0.8)
(0.1)
24.4
7.4
17.0%
32.4
5.9
17.8
16.2
1.4
0.1
73.8
26.2
0.4
—
—
26.6
8.0
18.6%
Revenue during the periods presented is as follows (in thousands):
For the Years Ended December 31,
For the Years Ended December 31,
2015
Revenue $ 2,197,448
2014
$ 1,963,874
%
Change
at
Constant
Currency
%
Change
2014
11.9%
15.5% $ 1,963,874
2013
$ 1,577,922
%
Change
24.5%
%
Change
at
Constant
Currency
25.1%
31
The increase in our revenue from 2014 to 2015 was driven by continued strong demand for our services
across all of our solutions and geographies, with particularly strong growth from our Cloud Security Solutions.
We experienced moderation in the rate of revenue growth, particularly in the second half of 2015, from our
Media Delivery Solutions. The moderation was primarily due to an increase in "do-it-yourself" approaches by
our two largest media customers based in the U.S, which led to a slower overall rate of growth of customer
traffic on our network.
The increase in our revenue from 2013 to 2014 was driven by continued strong demand for our services
across all of our major solutions and geographies. In particular, we experienced 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 as well as customer-specific one-time events. In addition, the acquisition of Prolexic
during the first quarter of 2014 contributed to increased revenue. These contributions to higher revenue were
partially offset by lost committed recurring revenue and price declines.
For the year ended December 31, 2015, resellers accounted for 26% of revenue as compared to 25% and
21% of revenue for the years ended December 31, 2014 and 2013, respectively. The increase in revenue from
resellers was attributable to increased traction with our carrier channel partners. For the years ended December
31, 2015, 2014 and 2013, no single customer accounted for 10% or more of revenue.
The following table quantifies revenue derived in the U.S. and internationally (in thousands):
For the Years Ended December 31,
For the Years Ended December 31,
2015
$1,604,492
592,956
2014
$1,429,063
534,811
%
Change
12.3%
10.9
%
Change
at
Constant
Currency
2014
12.3% $1,429,063
534,811
24.3
2013
$1,145,362
432,560
%
Change
24.8%
23.6
%
Change
at
Constant
Currency
24.8%
25.4
$2,197,448
$1,963,874
11.9%
15.5% $1,963,874
$1,577,922
24.5%
25.1%
U.S.
International
Total
revenue
For the years ended December 31, 2015, 2014 and 2013, approximately 27% of our revenue was derived
from our operations located outside of the U.S. No single country outside of the U.S. accounted for 10% or
more of revenue during any of these periods. Our U.S. revenue has been impacted by reduced revenue from our
largest Media Delivery Solutions customers, which contributed to the slowing of the growth rate in our U.S.
revenue.
During 2015, we experienced strong revenue growth from our operations in the Asia Pacific region and
continued improvement in revenue growth from our operations in Europe, the Middle East and Africa, but we
continued to be negatively impacted by foreign currency exchange rates. Changes in foreign currency exchange
rates negatively impacted our revenue by $71.7 million in 2015 as compared to 2014, and by $7.8 million in
2014 as compared to 2013.
32
The following table quantifies the contribution to revenue from our solution categories for the years ended
December 31, 2015, 2014 and 2013 (in thousands); growth rates in constant currency for the year ended
December 31, 2014 exclude the impact of revenue from the ADS business that was divested during the three
months ended March 31, 2013:
For the Years Ended December 31,
For the Years Ended December 31,
2015
2014
%
Change
%
Change
at
Constant
Currency
2014
2013
%
Change
%
Change
at
Constant
Currency
Performance
and Security
Solutions
Media
Delivery
Solutions
Service and
Support
Solutions
Advertising
Decision
Solutions
Total
revenue
$1,049,732
$ 899,232
16.7%
20.2% $ 899,232
$ 697,825
28.9%
29.2%
977,369
917,407
6.5
10.3
917,407
760,550
20.6
21.3
170,347
147,235
15.7
19.8
147,235
117,418
25.4
25.8
—
—
—
—
—
2,129
(100.0)
—
$2,197,448
$1,963,874
11.9%
15.5% $1,963,874
$1,577,922
24.5%
25.1%
The increases in Performance and Security Solutions revenue for 2015 as compared to 2014, and 2014 as
compared to 2013, were due to increased demand across all major product lines, with especially strong growth
in our Cloud Security Solutions. Cloud Security Solutions revenue for the year ended December 31, 2015 was
$254.4 million, as compared to $170.0 million and $59.7 million for the years ended December 31, 2014 and
2013, respectively. Additionally, the increase in 2014 as compared to 2013 was partially attributable to the
acquisition of Prolexic.
The increase in Media Delivery Solutions revenue for 2015 as compared to 2014 was due to higher demand
across most of our customer base. As discussed above, the year over year rate of revenue growth for these
solutions slowed, particularly from our two largest media accounts and the impact of their "do-it-yourself"
efforts. In 2014, we also saw unseasonably high traffic levels and revenue from larger media accounts along
with several large software and gaming releases that did not repeat in 2015, negatively impacting period-over-
period revenue growth. We expect this moderation of revenue growth for Media Delivery Solutions to continue
into 2016.
The increase in Media Delivery Solutions revenue in 2014 as compared to 2013 was due to strong demand
across most of our customer base, including from our largest, most strategic customers. During 2014, we
experienced particularly strong growth from our social media, gaming, video and software download customers.
The increases in the Service and Support Solutions revenue for 2015 as compared to 2014, and 2014 as
compared to 2013, were due to strong new customer attachment rates for our professional services and service
offering upgrades purchased by our installed base.
33
Cost of Revenue
Cost of revenue consisted of the following for the periods presented (in thousands):
Bandwidth fees
Co-location fees
Network build-out and
supporting services
Payroll and related costs
Stock-based
compensation, including
amortization of prior
capitalized amounts
Depreciation of network
equipment
Amortization of
internal-use software
Total cost of
revenue
As a percentage of
revenue
For the Years Ended December 31,
2014
2015
$ 124,470
$ 150,607
113,661
125,983
% Change
For the Years Ended December 31,
2013
2014
$ 103,344
111,052
% Change
20.4%
2.3
21.0% $ 124,470
113,661
10.8%
58,207
158,742
42,114
143,468
38.2%
10.6%
42,114
143,468
37,123
112,806
26,222
21,866
19.9%
21,866
18,568
130,098
107,250
21.3%
107,250
83,811
75,761
58,114
30.4%
58,114
44,383
13.4
27.2
17.8
28.0
30.9
$ 725,620
$ 610,943
18.8% $ 610,943
$ 511,087
19.5%
33.0%
31.1%
31.1%
32.4%
The increase in total cost of revenue for 2015 as compared to 2014 was primarily due to increases in:
•
•
•
•
amounts paid to network providers for bandwidth fees to support the increase in traffic served on our
network;
amounts paid for network build-out and supporting services related to the increase in server
deployments and investments in network expansion;
payroll and related costs of service personnel due to headcount growth to support our product-aligned
and discrete services revenue growth and our network operations personnel to support our product
revenue; and
depreciation of network equipment and amortization of internal-use software as we continued to invest
in our infrastructure and release internally developed software onto our network.
The increase in total cost of revenue for 2014 as compared to 2013 was primarily due to increases in:
•
•
•
payroll and related costs of service personnel due to headcount growth to support our our product-
aligned and discrete services revenue growth, as well as headcount growth related to our network
operations to support our other solution categories and from acquisitions;
amounts paid to network providers for bandwidth fees to support the increase in traffic served on our
network; and
depreciation and amortization of network equipment and internal-use software as we continued to
invest in our infrastructure and release internally developed software onto our network.
We have long-term purchase commitments for co-location services and bandwidth usage with various
vendors and network and Internet service providers. Our minimum commitments related to bandwidth usage
and co-location services may vary from period to period depending on the timing and length of contract
renewals with our service providers. See Note 10 to our consolidated financial statements included elsewhere in
34
this annual report on Form 10-K for details regarding our bandwidth usage and co-location services purchase
commitments.
We believe that cost of revenue will increase during 2016 as compared to 2015 primarily because we
expect to deploy more servers and deliver more traffic on our network, which will result in higher expenses
associated with the increased traffic. However, our anticipated increases in cost of revenue are likely to be
partially offset by lower bandwidth costs per unit and continued efficiency in network deployment. Additionally,
during 2016, we anticipate amortization of internal-use software development costs to increase as compared to
2015, along with increased payroll and related costs associated with our network and professional services
personnel and related expenses. We plan to continue making investments in our network with the expectation
that our customer base will continue to expand and that we will continue to deliver more traffic to existing
customers including OTT video traffic.
Research and Development Expenses
Research and development expenses consisted of the following for the periods presented (in thousands):
Payroll and related costs $ 220,198
Stock-based
compensation
Capitalized salaries and
related costs
Other expenses
(103,352)
7,819
23,926
For the Years Ended December 31,
2014
2015
$ 188,509
% Change
For the Years Ended December 31,
2013
2014
$ 139,018
% Change
35.6%
16.8% $ 188,509
19,351
(91,106)
8,532
23.6
13.4
(8.4)
19,351
17,472
(91,106)
8,532
(67,935)
5,324
10.8
34.1
60.3
Total research and
development
As a percentage of
revenue
$ 148,591
$ 125,286
18.6% $ 125,286
$
93,879
33.5%
6.8%
6.4%
6.4%
5.9%
The increases in research and development expenses for 2015 as compared to 2014, and 2014 as compared
to 2013, were due to increases in payroll and related costs as a result of continued growth in headcount to
support investments in new product development and network scaling, 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 payroll and related costs for
personnel and external consulting expenses involved in the development of internal-use software used to deliver
our services and operate our network. For the years ended December 31, 2015, 2014 and 2013, we capitalized
$16.7 million, $13.7 million and $11.5 million, respectively, of stock-based compensation. These capitalized
internal-use software development costs are amortized to cost of revenue over their estimated useful lives,
which is generally two years.
We believe that research and development expenses during 2016 will increase as compared to 2015, as we
continue to make improvements to our core technology and support the development of new services and
engineering innovation.
35
Sales and Marketing Expenses
Sales and marketing expenses consisted of the following for the periods presented (in thousands):
Payroll and related costs $ 316,845
Stock-based
compensation
Marketing programs and
related costs
Other expenses
43,990
26,611
53,542
For the Years Ended December 31,
2014
2015
$ 264,788
% Change
For the Years Ended December 31,
2013
2014
$ 191,554
% Change
38.2%
19.7% $ 264,788
47,571
35,833
30,843
12.6
47,571
39,290
22.8
(13.7)
35,833
30,843
26,449
23,087
21.1
35.5
33.6
Total sales and
marketing
As a percentage of
revenue
$ 440,988
$ 379,035
16.3% $ 379,035
$ 280,380
35.2%
20.1%
19.3%
19.3%
17.8%
The increases in sales and marketing expenses for 2015 as compared to 2014, and 2014 as compared to
2013, were primarily due to higher payroll and related costs, as we invested in our sales and marketing
organization, as well as additional marketing programs and related costs in support of our go-to-market strategy
and ongoing geographic expansion.
We believe that sales and marketing expenses will increase during 2016 as compared to 2015, due to
increased payroll and related costs as a result of headcount growth throughout 2015 and into 2016. We expect
headcount growth in 2016, but at a slower pace than we experienced in 2015.
General and Administrative Expenses
General and administrative expenses consisted of the following for the periods presented (in thousands):
For the Years Ended December 31,
2014
2015
$ 146,373
% Change
For the Years Ended December 31,
2013
2014
$ 105,205
% Change
39.1%
10.4% $ 146,373
35,062
Payroll and related costs $ 161,660
Stock-based
compensation
Depreciation and
amortization
Facilities-related costs
Provision for doubtful
accounts
Acquisition-related
costs
Professional fees and
other expenses
54,562
64,302
69,206
1,756
1,717
33,151
40,053
52,684
1,229
3,911
5.8
36.2
22.1
39.7
(55.1)
33,151
28,255
40,053
52,684
1,229
3,911
26,991
44,030
475
1,853
48,444
42.9
48,444
48,409
17.3
48.4
19.7
158.7
111.1
0.1
Total general and
administrative
As a percentage of
revenue
$ 388,265
$ 325,845
19.2% $ 325,845
$ 255,218
27.7%
17.7%
16.6%
16.6%
16.2%
36
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 depreciation of facility-related capital assets. The increases in general and administrative expenses for 2015
as compared to 2014, and 2014 as compared to 2013, were primarily due to the expansion of company
infrastructure to support investments in engineering, go-to-market capacity and enterprise expansion initiatives.
In particular, we increased general and administrative headcount and our facility footprint, which increased
payroll and related costs, facilities-related costs and depreciation and amortization. In the year ended
December 31, 2015, we increased the number of software-as-a-service, or SaaS, solutions that we use, as
compared to 2014, which contributed to the increase in professional fees and other expenses, along with
increases in legal and other professional consulting fees. In addition, acquisition-related costs were higher for
2014 as compared to both 2015 and 2013 due to the acquisition of Prolexic.
During 2016, we expect general and administrative expenses to increase as compared to 2015, due to
anticipated increased payroll and related costs and facilities-related costs. The increase in those expenses is
expected to be attributable to increased hiring, investments in information technology and the expansion of our
facility footprint to support headcount growth, which occurred throughout 2015 and is expected to continue in
2016.
Amortization of Acquired Intangible Assets
(in thousands)
Amortization of
acquired intangible
assets
As a percentage of
revenue
For the Years Ended December 31,
2014
2015
% Change
For the Years Ended December 31,
2013
2014
% Change
$
27,067
$
32,057
(15.6)% $
32,057
$
21,547
48.8%
1.2%
1.6%
1.6%
1.4%
The decrease in amortization of acquired intangible assets for the year ended December 31, 2015, as
compared to 2014, was driven by the finalization of amortization of intangible assets acquired in earlier years,
in addition to the deceleration in recognition of customer backlog-related intangible assets acquired from
Prolexic, which have a short useful life. The decrease in amortization of acquired intangible assets was only
partially offset by amortization from intangible assets related to acquisitions completed in 2015. The increase in
amortization of acquired intangible assets during 2014 as compared to 2013 was due to the acquisition of
Prolexic.
Based on acquired intangible assets at December 31, 2015, future amortization is expected to be
approximately $26.5 million, $27.8 million, $23.7 million, $21.7 million and $17.7 million for the years ending
December 31, 2016, 2017, 2018, 2019 and 2020, respectively.
Restructuring Charges
(in thousands)
Restructuring charges
As a percentage of
revenue
For the Years Ended December 31,
2014
2015
% Change
For the Years Ended December 31,
2013
2014
% Change
$
767
$
1,189
(35.5)% $
1,189
$
1,843
(35.5)%
—%
0.1%
0.1%
0.1%
37
The restructuring charges in 2015 consisted of severance expenses for redundant employees associated with
acquisitions completed during the year. The 2014 restructuring charges consisted of severance and related
expenses for redundant employees acquired as part of the acquisition of Prolexic, in addition to a facility
contract termination fee. During 2013, we recorded a restructuring charge for leasehold improvements that were
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.
During 2016, we expect to incur severance charges as a result of changes to our organizational structure.
The charges relate to a few individuals and are the result of a realignment of our products and development and
global sales, services and marketing groups into organizations centered on our solutions.
Non-Operating Income (Expense)
(in thousands)
Interest income
As a percentage of
revenue
Interest expense
As a percentage of
revenue
Other expense, net
As a percentage of
revenue
For the Years Ended December 31,
2014
2015
7,680
$ 11,200
% Change
$
45.8% $
For the Years Ended December 31,
2013
2014
6,077
7,680
% Change
$
26.4%
0.5 %
0.4 %
0.4 %
$ (18,525)
$ (15,463)
19.8% $ (15,463)
(0.8)%
(0.8)%
(0.8)%
$ (2,201)
$ (1,960)
12.3% $ (1,960)
0.4 %
—
— %
(491)
$
$
100.0%
299.2%
(0.1)%
(0.1)%
(0.1)%
— %
For the periods presented, interest income consists of interest earned on invested cash balances and
marketable securities, and interest expense consists of the amortization of the debt discount and debt issuance
costs related to our convertible senior notes issued in February 2014.
Other expense, net primarily represents net foreign exchange gains and losses and other non-operating
expense and income items. The fluctuations in other expense, net for 2015 as compared to 2014, and 2014 as
compared to 2013, were primarily due to foreign currency exchange rate fluctuations on intercompany and other
non-functional currency transactions. Other expense, net may fluctuate in the future based on changes in foreign
currency exchange rates or other events.
Provision for Income Taxes
(in thousands)
Provision for income
taxes
As a percentage of
revenue
Effective income tax rate
For the Years Ended December 31,
2014
2015
% Change
For the Years Ended December 31,
2013
2014
% Change
$ 135,218
$ 145,828
(7.3)% $ 145,828
$ 126,067
15.7%
6.2%
29.6%
7.4%
30.4%
7.4%
30.4%
8.0%
30.0%
For the year ended December 31, 2015, our effective income tax rate was lower than the federal statutory
tax rate due to the retroactive application of a U.S. tax court ruling with respect to the treatment of stock-based
compensation in intercompany arrangements, the federal research and development credit, the domestic
production activities deduction and the composition of income from foreign jurisdictions that is taxed at lower
rates compared to the statutory tax rates in the U.S. These benefits were partially offset by the effects of
38
accounting for stock-based compensation in accordance with the authoritative guidance for share-based
payments and state income taxes.
For the year ended December 31, 2014, our effective income tax rate was lower than the federal statutory
tax rate mainly due to the federal research and development credit, a state tax benefit from software
development activities, the domestic production activities deduction and the composition of income in foreign
jurisdictions with lower tax rates; partially offset by state income taxes and the effects of accounting for stock-
based compensation in accordance with the authoritative guidance for share-based payments.
For the year ended December 31, 2013, our effective income tax rate was lower than the federal statutory
rate mainly due to the retroactive adoption of the domestic production activities deduction, the reinstatement of
the federal research and development credit, which included a one-time retroactive impact for fiscal 2012, and
the composition of income in foreign jurisdictions with lower tax rates; partially offset by state income taxes.
The decrease in the provision for income taxes for 2015 as compared to 2014 was mainly due to the
retroactive application of a U.S. tax court ruling with respect to the treatment of stock-based compensation in
intercompany arrangements and the composition of income from foreign jurisdictions with lower tax rates than
the statutory tax rates in the U.S. These benefits were partially offset by the effects of accounting for stock-
based compensation in accordance with the authoritative guidance for share-based payments.
The increase in the provision for income taxes for 2014 as compared to 2013 was mainly due to the
increase in operating income and a change in the composition of income in different jurisdictions, partially
offset by the reinstatement of the federal research and development credit, the federal domestic production
activities deduction and state software development activities benefit.
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 accounting principles generally accepted in the
U.S., 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 income from operations, non-GAAP
operating margin, non-GAAP net income, non-GAAP net income per diluted share, Adjusted EBITDA,
Adjusted EBITDA margin and impact of foreign currency exchange rates, 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 the business, as they exclude expenses and
gains that may be infrequent, unusual in nature or not reflective of our ongoing operating results. Management
also believes that these non-GAAP financial measures enable investors to evaluate our operating results and
future prospects in the same manner as management. These non-GAAP financial measures may also facilitate
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 measures and
should only be used as a supplement to, not as a substitute for, our financial results presented in accordance with
GAAP.
39
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 term of its related amortization
can vary significantly and are unique to each acquisition; therefore, we exclude amortization of
acquired intangible assets from our 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 paid to our
employees and executives, the grant date fair value varies based on the stock price 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 our non-GAAP financial measures in
order to highlight the performance of our core business and to be consistent with the way many
investors evaluate our performance and compare our operating results to 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 amounts of contingent consideration and indemnification 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 our 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 that 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 our non-GAAP financial measures when
evaluating our continuing business performance as such items vary significantly based on the
magnitude of the restructuring action and do not reflect expected future operating expense, and do
not necessarily provide meaningful insight into the fundamentals of current or past operations of
our business.
• Amortization of debt discount and issuance costs and amortization of capitalized interest
expense – In February 2014, we issued $690 million of convertible senior notes due 2019 with a
coupon interest rate of 0%. The imputed interest rate of the convertible senior notes was
approximately 3.2%. This is a result of the debt discount recorded for the conversion feature that is
required to be separately accounted for as equity under GAAP, thereby reducing the carrying value
of the convertible debt instrument. The debt discount is amortized as interest expense together
with the issuance costs of the debt which are recorded as an asset in the consolidated balance
sheet. All of our interest expense is comprised of these non-cash components and is excluded from
management's assessment of our operating performance because management believes the non-
cash expense is not indicative of ongoing operating performance.
40
• Loss on investments and legal matters – We have incurred losses from the impairment of certain
investments and the settlement of legal matters. In addition, we have incurred costs with respect to
our internal investigation related to sales practices in a country outside of the U.S. We believe
excluding these amounts from our non-GAAP financial measures is useful to investors as the types
of events giving rise to them occur infrequently and are not representative of our core business
operations.
•
Income tax effect of non-GAAP adjustments and certain discrete tax items – The non-GAAP
adjustments described above 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 highlight income attributable to our core operations.
The following table reconciles GAAP income from operations to non-GAAP income from operations and
non-GAAP operating margin for the years ended December 31, 2015, 2014 and 2013 (in thousands):
Income from operations
Amortization of acquired intangible assets
Stock-based compensation
Amortization of capitalized stock-based compensation and
capitalized interest expense
Other operating expenses
Non-GAAP income from operations
2015
$ 466,150
27,067
126,677
13,618
4,923
$ 638,435
2014
$ 489,519
32,057
111,996
10,506
3,611
$ 647,689
2013
$ 413,968
21,547
95,884
8,077
2,508
$ 541,984
GAAP operating margin
Non-GAAP operating margin
21%
29%
25%
33%
26%
34%
Other operating expenses excluded from the non-GAAP results presented in the table above includes:
acquisition-related costs, restructuring charges, divestiture gains and certain legal matter costs.
41
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, 2015, 2014 and 2013 (in thousands, except per share data):
Net income
Amortization of acquired intangible assets
Stock-based compensation
Amortization of capitalized stock-based compensation and
capitalized interest expense
Other operating expenses
Amortization of debt discount and issuance costs
Loss on investments
Income tax effect of above non-GAAP adjustments and certain
discrete tax items
Non-GAAP net income
GAAP net income per diluted share
Non-GAAP net income per diluted share
Shares used in per share calculations
$
$
$
$
2015
321,406
27,067
126,677
13,618
4,923
18,525
25
(58,309)
453,932
1.78
2.52
180,415
$
$
$
$
2014
333,948
32,057
111,996
10,506
3,611
15,463
443
(59,202)
448,822
1.84
2.48
181,186
$
$
$
$
2013
293,487
21,547
95,884
8,077
2,508
—
—
(54,124)
367,379
1.61
2.02
181,783
Other operating expenses excluded from the non-GAAP results presented in the table above includes:
acquisition-related costs, restructuring charges, divestiture gains, and certain legal matter costs.
Non-GAAP net income per diluted share is calculated as non-GAAP net income divided by diluted
weighted average common shares outstanding. GAAP diluted weighted average shares outstanding are adjusted
in non-GAAP per share calculations for the shares that would be delivered to us pursuant to the note hedge
transactions entered into in connection with the issuance of $690.0 million in par value of convertible senior
notes due 2019. Under GAAP, shares delivered under hedge transactions are not considered offsetting shares in
the fully diluted share calculation until they are delivered. However, we would receive a benefit from the note
hedge transactions and would not allow the dilution to occur, so management believes that adjusting for this
benefit provides a meaningful view of net income per share. Until our weighted average stock price is greater
than $89.56, the initial conversion price, there will be no difference between our GAAP and non-GAAP diluted
weighted average common shares outstanding.
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; income taxes;
depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of
capitalized stock-based compensation; other operating expenses (comprised of acquisition-related costs,
restructuring charges, benefit from adoption of software development activities, gains and other activity related
to divestiture of a business, gains and losses on legal settlements, and costs incurred with respect to our internal
investigation relating to sales practices in a country outside the U.S.); foreign exchange gains and losses; loss on
early extinguishment of debt; amortization of debt discount and issuance costs; amortization of capitalized
interest expense; certain gains and losses on investments; 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.
42
The following table reconciles GAAP net income to Adjusted EBITDA and Adjusted EBITDA margin for
the years ended December 31, 2015, 2014 and 2013 (in thousands):
Net income
Amortization of acquired intangible assets
Stock-based compensation
Amortization of capitalized stock-based compensation and
capitalized interest expense
Other operating expenses
Interest income
Amortization of debt discount and issuance costs
Provision for income taxes
Depreciation and amortization
Other expense, net
Adjusted EBITDA
Adjusted EBITDA margin
Impact of Foreign Currency Exchange Rates
2015
$ 321,406
27,067
126,677
2014
$ 333,948
32,057
111,996
2013
$ 293,487
21,547
95,884
13,618
4,923
(11,200)
18,525
135,218
258,878
2,201
$ 897,313
10,506
3,611
(7,680)
15,463
145,828
204,843
1,960
$ 852,532
8,077
2,508
(6,077)
—
126,067
154,807
491
$ 696,791
41%
43%
44%
Revenue and earnings from our international operations have historically been an important contributor to
our financial results. Consequently, our financial results have been impacted, and management expects they will
continue to 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 a meaningful factor in understanding period-to-period comparisons,
management believes the presentation of the impact of foreign currency exchange rates on revenue and earnings
enhances the understanding of our financial results and evaluation of performance in comparison to prior
periods. The dollar impact of changes in foreign currency exchange rates presented is calculated by translating
current period results using monthly average foreign currency exchange rates from the comparative period and
comparing it to the reported amount. The percentage change at constant currency presented is calculated by
comparing the prior period amounts as reported and the current period amounts translated using the same
monthly average foreign currency exchange rates 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, 2015, our cash, cash equivalents and
marketable securities, which primarily consisted of corporate bonds and U.S. government agency securities,
totaled $1.5 billion. Factoring in our convertible senior notes, our net cash at December 31, 2015 was $834.2
million. 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,
43
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 investments at opportune times. We expect to continue to
evaluate strategic investments to strengthen our business on an ongoing basis.
As of December 31, 2015, we had cash and cash equivalents of $185.3 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, intercompany 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
(in thousands)
Net income
Non-cash reconciling items included in net income
Changes in operating assets and liabilities
Net cash flows provided by operating activities
$
$
For the Years Ended December 31,
2013
2014
2015
293,487
333,948
321,406
286,033
319,312
425,366
(15,612)
17,379
4,810
563,908
658,070
764,151
$
$
$
$
The increase in cash provided by operating activities for 2015 as compared to 2014, was primarily due to
the decrease in cash paid for income taxes of $75.0 million versus $166.2 million for the years ended December
31, 2015 and 2014, respectively. The increase is also due to an increase in cash collections from customers as a
result of increased revenue, offset by the increase in operating expenditures and the overall timing of our
working capital payments. Accounts receivable days outstanding was 59 days as of the year ended December
31, 2015, compared to 56 days as of the year ended December 31, 2014.
The increase in cash provided by operating activities for 2014 as compared to 2013, was primarily due to
increased profitability and the resulting cash collections from customers, offset by payments of working capital
and the timing of those payments. Cash paid for income taxes also impacted cash flows provided by operating
activities, which increased by $102.7 million from 2013 to 2014. During 2014, we paid taxes related to the
acquisition of Prolexic, which contributed to the increase.
We expect cash provided by operating activities to increase in 2016 due to an expected increase in cash
collections related to anticipated higher revenue, partially offset by an anticipated increase in operating
expenses that require cash outlays, such as payroll and payroll-related costs.
Cash Used in Investing Activities
(in thousands)
Cash paid for acquired businesses, net of cash acquired
Purchases of property and equipment and capitalization of
internal-use software development costs
Net marketable securities activity
Other investing activity
Net cash used in investing activities
44
For the Years Ended December 31,
2013
2014
2015
(30,657)
$ (141,147) $ (386,532) $
(444,983)
153,060
(2,494)
(260,073)
(19,750)
(2,628)
$ (435,564) $ (1,178,806) $ (313,108)
(318,627)
(479,392)
5,745
The decrease in cash used in investing activities partially relates to the acquisition of Prolexic during 2014,
with no corresponding acquisition of the same magnitude during 2015. Net marketable securities activity also
contributed to the decrease in cash used in investing activities. During 2014, we invested the proceeds from our
convertible senior notes, which caused the activity for marketable securities to be a net outflow. The decrease
in cash used in investing activities was partially offset by an increase of purchases of property and equipment
and capitalized internal-use software during 2015, as compared to 2014, as we continued to invest in our
network with the goal of enhancing and adding functionality to our service offerings.
The increase in cash used in investing activities for 2014 as compared to 2013, primarily related to the
acquisition of Prolexic, with no corresponding acquisitions of the same magnitude in 2013. The increase also
relates to the increase in net purchases of marketable securities as a result of the investment of the proceeds of
our convertible senior notes issuance. Additionally, expenditures for internal-use software development
increased as we continued to invest in our network with the goal of enhancing and adding functionality to our
service offerings.
Cash (Used in) Provided by Financing Activities
(in thousands)
Activity related to convertible senior notes
Activity related to stock-based compensation
Repurchases of common stock
Other financing activity
Net cash (used in) provided by financing activities
$
— $
For the Years Ended December 31,
2014
2013
2015
655,413
68,698
(268,647)
(19,437)
436,027
36,928
(302,606)
(2,050)
$ (267,728) $
—
45,176
(160,419)
—
$ (115,243)
$
The decrease in cash from financing activities during 2015 as compared to 2014, was primarily the result of
the convertible senior notes issued in February 2014 and related note hedge and warrant transactions. During
2015, we also increased our repurchases of common stock.
Cash provided by financing activities for 2014 was primarily the result of the convertible senior notes
issued in February 2014 and related note hedge and warrant transactions. Concurrent with the convertible senior
notes issuance, we also repurchased $62.0 million of our common stock, which contributed to the increase in
repurchases of common stock as compared to 2013.
In October 2013, the Board of Directors authorized a $750.0 million share repurchase program, effective
from October 16, 2013 through December 31, 2016. The goal of the program was to offset dilution from our
equity compensation plans. During 2015, 2014 and 2013, we repurchased 4.5 million, 4.6 million and 3.9
million shares of our common stock, respectively, at an average price per share of $67.05, $58.02 and $41.16,
respectively, pursuant to the current repurchase program, as well as prior programs approved by the Board of
Directors.
In February 2016, the Board of Directors authorized a new $1.0 billion share repurchase program, effective
from February 9, 2016 through December 31, 2018. Our goal for this program is to offset the dilution created
by our employee equity compensation programs and provide the flexibility to return capital to shareholders as
business and market conditions warrant.
45
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 11 to the consolidated financial statements included elsewhere in this annual
report on Form 10-K. We intend to use the net proceeds of the offering for share repurchases in addition to the
$62.0 million in repurchases discussed above, working capital and general corporate purposes, including
potential acquisitions and other strategic transactions.
Liquidity Outlook
We believe, based on our present business plan, that our current cash, cash equivalents and marketable
securities balances and our forecasted cash flows from operations will be sufficient to meet our foreseeable cash
needs for at least the next 12 months. Our foreseeable cash needs, in addition to our recurring operating costs,
include our planned capital expenditures, investments in information technology and facility expansion, as well
as anticipated share repurchases, lease and purchase commitments and settlements of other long-term liabilities.
Contractual Obligations, Contingent Liabilities and Commercial Commitments
The following table presents our contractual obligations and commercial commitments, as of December 31,
2015, for the next five years and thereafter (in thousands):
Real estate operating leases
Bandwidth and co-location
agreements
Open vendor purchase orders
Convertible senior notes
Total contractual obligations
Total
279,521
$
147,432
123,199
690,000
$ 1,240,152
Payments Due by Period
12 to 36
Months
Less than
12 Months
36 to 60
Months
More than
60 Months
$
52,456
$
95,661
$
59,287
$
72,117
117,044
102,832
—
272,332
$
30,314
19,776
—
145,751
$
74
591
690,000
749,952
$
$
—
—
—
72,117
In accordance with the authoritative guidance for accounting for uncertainty in income taxes, as of
December 31, 2015, we had unrecognized tax benefits of $72.3 million, including $10.0 million of accrued
interest and penalties. We believe that none of our unrecognized tax benefits will be recognized by the end of
2016. The settlement period for the entire amount of the unrecognized tax benefits is unknown.
Letters of Credit
As of December 31, 2015, we had outstanding $6.0 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 above, are unsecured and are expected to remain in
effect, in some cases, until 2024.
46
Off-Balance Sheet Arrangements
We have entered into indemnification agreements with third parties, including vendors, customers,
landlords, our officers and directors, shareholders of acquired companies, joint venture partners and third parties
to which we license technology. Generally, these indemnification agreements require us to reimburse losses
suffered by a third party 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. See Note 10 to our consolidated financial statements included
elsewhere in this annual report on Form 10-K for further discussion of these indemnification agreements. The
fair value of guarantees issued or modified during 2015 and 2014 was determined to be immaterial.
Legal Matters
We are 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 our business,
results of operations, financial condition or cash flows.
We are conducting an internal investigation, with the assistance of outside counsel, relating to sales
practices in a country outside the U.S. that represented less than 1% of our revenue in each of the years ended
December 31, 2015, 2014 and 2013. The internal investigation includes a review of compliance with the
requirements of the U.S. Foreign Corrupt Practices Act and other applicable laws and regulations by employees
in that market. In February 2015, we voluntarily contacted the U.S. Securities and Exchange Commission and
Department of Justice to advise both agencies of this internal investigation. We are cooperating with those
agencies. As of the filing of these financial statements, we cannot predict the outcome of this matter. No
provision with respect to this matter has been made in our consolidated financial statements.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB, issued updated guidance and disclosure
requirements for recognizing revenue. The new revenue recognition standard provides a five-step analysis of
transactions to determine when and how revenue is recognized. The core principle is that a company should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. This
standard will be effective for us on January 1, 2018, and may be applied retrospectively to each period
presented or as a cumulative-effect adjustment as of the date of adoption. We are evaluating the potential impact
of adopting this new accounting guidance.
In April 2015, the FASB issued updated guidance that will change the current presentation of debt issuance
costs on the balance sheet. This new guidance will move debt issuance costs from the assets section of the
balance sheet to the liabilities section as a direct deduction from the carrying amount of the debt issued. The
guidance will be effective for us on January 1, 2016. We will reclassify our debt issuance costs included in other
assets on the consolidated balance sheet to convertible senior notes within the liabilities and stockholders' equity
section. The amount of deferred financing costs expected to be reclassified as of January 1, 2016 is $6.2 million.
This revision will have no impact on our results of operations or cash flows.
In September 2015, the FASB issued updated guidance that eliminates the requirement to restate prior
period financial statements for measurement period adjustments. In an effort to reduce complexity in financial
reporting, the new guidance requires that the cumulative impact of a measurement period adjustment, including
the impact on prior periods, be recognized in the reporting period in which the adjustment is identified. The
standard will be effective for us on January 1, 2016. We do not expect this guidance to have a material impact
on our results of operations, financial condition or cash flows.
47
In November 2015, the FASB issued guidance that requires companies to present deferred income tax
assets and liabilities as noncurrent in a classified balance sheet instead of the current requirement to separate
deferred income tax assets and liabilities into current and noncurrent amounts. The standard is effective for us
on January 1, 2016, but early adoption is permitted. We adopted this standard as of December 31, 2015, and
applied it prospectively. We early adopted the standard because it simplifies our process of determining balance
sheet classification for our deferred taxes. Prior period deferred income tax assets and liabilities have not been
adjusted, due to the prospective application of the standard. The adoption of this standard did not have an
impact on our results of operations or financial condition.
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 intangible assets, income tax reserves, impairment and useful lives of long-lived assets and stock-
based 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.
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 an 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 revenue from sales of services to customers executing contracts with terms of one year
or longer. These contracts generally commit the customer to a minimum 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, 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
48
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
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.
49
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 income. Increases in the reserve for cash-
basis customers are recorded as a 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
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 we 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.
50
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.
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, 2015 and 2014, and it was
substantially in excess of the carrying value of the reporting unit at each date.
Acquired intangible assets consist of completed technologies, customer relationships, trademarks and trade
names, non-compete agreements 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 NOL 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 more or less than the amount that we estimated.
51
Uncertainty in income taxes is recognized in our financial statements using 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 we believe has a greater
than 50% 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 and could materially impact our result of operations.
Capitalized Internal-Use Software Costs
We capitalize salaries and related costs, including stock-based compensation, of employees and consultants
who devote time to the development of internal-use software development projects, as well as interest expense
related to our senior convertible notes. 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 functionality to the software,
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.
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 U.S. government agency obligations, high-quality corporate debt securities, commercial
paper, mutual funds and money market funds. The majority of our investments are classified as available-for-
sale securities and carried at 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.
52
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 that could impact our business, including,
but not limited to, differing economic conditions, changes in political climate, differing tax structures and other
regulations and restrictions.
Transaction Exposure
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 income. 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 income within other
expense, net. Foreign currency transaction gains and losses from these forward contracts were determined to be
immaterial during the years ended December 31, 2015, 2014 and 2013. We do not enter into derivative financial
instruments for trading or speculative purposes.
Translation Exposure
To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency-
denominated transactions will result in increased revenue and decreased operating expenses. Conversely, our
revenue will decrease and our operating expenses will increase when the U.S. dollar strengthens against foreign
currencies.
Foreign exchange rate fluctuations may also adversely impact our consolidated financial condition 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 recorded as a component of accumulated other comprehensive loss
within stockholders' equity.
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. We believe that our accounts receivable credit risk exposure is limited.
As of December 31, 2015 and 2014, no customer had an accounts receivable balance of 10% or more of our
accounts receivable. We believe that at December 31, 2015, the concentration of credit risk related to accounts
receivable was insignificant.
53
Item 8. Financial Statements and Supplementary Data
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, 2015 and 2014, and the results of
their operations and their cash flows for each of the three years in the period ended December 31, 2015 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, 2015, based
on criteria established in Internal Control - Integrated Framework (2013) 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.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it
accounts for the classification of deferred taxes in the consolidated balance sheets due to the adoption of ASU
2015-17, Balance Sheet Classification of Deferred Taxes.
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
February 29, 2016
54
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net of reserves of $7,364 and $9,023 at
December 31, 2015 and 2014, 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
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Other current liabilities
Total current liabilities
Deferred revenue
Deferred income tax liabilities
Convertible senior notes
Other liabilities
Total liabilities
Commitments and contingencies (Note 10)
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;
177,212,181 shares and 178,300,603 shares issued and outstanding at
December 31, 2015 and 2014, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2015
December 31,
2014
$
289,473
460,088
$
238,650
519,642
380,399
123,228
—
1,253,188
753,180
774,674
1,150,244
156,095
4,700
95,844
4,187,925
61,982
216,166
54,154
138
332,440
4,163
12,888
624,288
93,268
1,067,047
$
$
329,578
128,981
45,704
1,262,555
601,591
869,992
1,051,294
132,412
1,955
81,747
4,001,546
77,412
204,686
49,679
2,234
334,011
3,829
39,299
604,851
74,221
1,056,211
—
—
1,772
4,437,420
(41,453)
(1,276,861)
3,120,878
4,187,925
$
1,783
4,559,430
(17,611)
(1,598,267)
2,945,335
4,001,546
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
55
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Revenue
Costs and operating expenses:
Cost of revenue (exclusive of amortization of
acquired intangible assets shown below)
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
Interest expense
Other expense, net
Income before provision for income taxes
Provision for income taxes
Net income
Net income per share:
Basic
Diluted
Shares used in per share calculations:
Basic
Diluted
$
$
$
$
For the Years Ended December 31,
2014
1,963,874
2015
2,197,448
$
$
2013
1,577,922
725,620
148,591
440,988
388,265
27,067
767
1,731,298
466,150
11,200
(18,525)
(2,201)
456,624
135,218
321,406
1.80
1.78
178,391
180,415
$
$
$
610,943
125,286
379,035
325,845
32,057
1,189
1,474,355
489,519
7,680
(15,463)
(1,960)
479,776
145,828
333,948
1.87
1.84
178,279
181,186
$
$
$
511,087
93,879
280,380
255,218
21,547
1,843
1,163,954
413,968
6,077
—
(491)
419,554
126,067
293,487
1.65
1.61
178,196
181,783
The accompanying notes are an integral part of the consolidated financial statements.
56
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive loss:
Foreign currency translation adjustments
Unrealized (losses) gains on investments, net of
income tax benefit of $773, $689 and $457 for the
years ended December 31, 2015, 2014 and 2013,
respectively
Other comprehensive loss
Comprehensive income
For the Years Ended December 31,
2014
2013
2015
$
321,406
$
333,948
$
293,487
(22,872)
(15,349)
(4,361)
(970)
(23,842)
297,564
$
(171)
(15,520)
318,428
$
3,910
(451)
293,036
$
The accompanying notes are an integral part of the consolidated financial statements.
57
For the Years Ended December 31,
2014
2013
2015
$
321,406
$
333,948
$
293,487
299,563
126,677
(29,301)
4,098
18,525
5,804
(56,247)
7,137
51,624
3,224
(345)
11,986
764,151
247,406
111,996
(32,238)
(25,880)
15,463
2,565
(58,397)
(60,788)
94,698
7,725
(702)
22,274
658,070
184,431
95,884
(22,801)
27,343
—
1,176
(67,184)
(3,842)
40,533
11,495
52
3,334
563,908
(141,147)
(311,676)
(386,532)
(207,159)
(30,657)
(187,964)
(133,307)
(111,468)
(72,109)
(692,879)
(1,225,409)
(494,885)
2,008
373,730
160,210
843,931
(2,494)
(435,564)
372,287
5,745
(1,178,806)
314,925
(2,628)
(313,108)
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Stock-based compensation
Excess tax benefits from stock-based
compensation
Provision (benefit) for deferred income taxes
Amortization of debt discount and issuance costs
Other non-cash reconciling items, net
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
Net cash provided by operating activities
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 of short- and long-term
marketable securities
Proceeds from maturities of short- and long-term
marketable securities
Other non-current assets and liabilities
Net cash used in by investing activities
58
AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(in thousands)
Cash flows from financing activities:
Proceeds from the issuance of convertible senior
notes, net of issuance costs
Proceeds from the issuance of warrants related to
convertible senior notes
Purchase of note hedge related to convertible senior
notes
Repayment of acquired debt and capital leases
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
Other non-current assets and liabilities
Net cash (used in) provided by financing
activities
Effects of exchange rate changes on cash and cash
equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds received
in the year ended December 31, 2015 of $19,374
Non-cash financing and investing activities:
Purchases of property and equipment and
capitalization of internal-use software development
costs included in accounts payable and accrued
expenses
Capitalization of stock-based compensation
Convertible note receivable received for divestiture
of a business
$
$
$
$
$
For the Years Ended December 31,
2014
2013
2015
—
—
—
—
61,791
29,301
(54,164)
(302,606)
(2,050)
678,735
77,970
(101,292)
(17,862)
87,109
32,238
(50,649)
(268,647)
(1,575)
—
—
—
—
63,707
22,801
(41,332)
(160,419)
—
(267,728)
436,027
(115,243)
(10,036)
50,823
238,650
289,473
$
(10,532)
(95,241)
333,891
238,650
$
(3,655)
131,902
201,989
333,891
75,033
$
166,211
$
63,508
19,327
17,867
$
$
45,868
15,226
$
$
19,927
12,325
— $
— $
18,882
The accompanying notes are an integral part of the consolidated financial statements.
59
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6
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 content and business applications. The Company's globally distributed platform comprises more than
200,000 servers in more than 1,400 networks in 120 countries. The Company was incorporated in Delaware in
1998 and is headquartered in Cambridge, Massachusetts. The Company currently operates in one industry
segment: providing cloud services for delivering, optimizing and securing content and business 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.
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, revenue 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.
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. Marketable securities
consist of corporate, government and other securities. Securities having remaining maturities of more than three
months at the date of purchase and less than one year from the date of the balance sheet are classified as short-
term, and those with maturities of more than one year from the date of the balance sheet are classified as long-
term in the consolidated balance sheet.
The Company classifies its debt and equity investments with readily determinable market values as
available-for-sale. 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 and
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
statements of income. 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
63
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 and business outlook of 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 the 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 revenue 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 income. 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.
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, 2015, its concentration of credit risk related to cash equivalents and marketable
securities was 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, 2015, 2014 and 2013, no
customer accounted for more than 10% of total revenue. As of December 31, 2015 and 2014, no customers had
an accounts receivable balance greater than 10% of total accounts receivable. The Company believes that, as of
December 31, 2015, its concentration of credit risk related to accounts receivable was not significant.
64
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 include 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 the 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.
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.
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 test of goodwill as of
December 31. As of December 31, 2015, 2014 and 2013, the fair value of the Company's reporting unit was
substantially in excess of the carrying value. The tests did not result in an impairment to goodwill during the
years ended December 31, 2015, 2014 and 2013.
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, 2015, 2014 and 2013.
65
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.
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
66
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
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 a discount or no cost. In
exchange, the ISP and its customers benefit by receiving content through a local 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 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 internal-use software
development costs eligible for capitalization.
67
Capitalized costs include external consulting fees, payroll and payroll-related costs and stock-based
compensation 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. Capitalization
begins when the planning stage is complete and the Company commits resources to the software project, and
continues during the application development stage. Capitalization ceases when the software has been tested
and is ready for its intended use. Costs incurred during the planning, training and post-implementation stages of
the software development life-cycle are expensed as incurred. The Company amortizes completed internal-use
software that is used on its network to cost of revenue over its estimated useful life.
Advertising Expense
The Company recognizes advertising expense as incurred. The Company recognized total advertising
expense of $3.6 million for the year ended December 31, 2015, and $2.7 million for each of the years ended
December 31, 2014 and 2013.
Accounting for Stock-Based Compensation
The Company recognizes compensation costs for all stock-based payment awards made to employees based
upon the awards’ grant-date fair value. The stock-based payment awards include 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 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 revenue 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, net.
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, net. As of December 31, 2015 and 2014, the fair value of the
forward currency contracts and the underlying net gains for the years ended December 31, 2015, 2014 and 2013
were immaterial.
The Company's foreign currency forward contracts may be exposed to credit risk to the extent that its
counterparties are unable to meet the terms of the agreements. The Company seeks to minimize counterparty
68
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 as 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 more or less than the amount the Company estimated.
Uncertainty in income taxes is recognized in the Company's consolidated financial statements using a two-
step process. 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.
The Company has elected to account for the indirect income tax effects of stock-based compensation as
provision for income taxes. This primarily includes the impact of the research and development tax credit and
the domestic production activities deduction.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance and disclosure
requirements for recognizing revenue. The new revenue recognition standard provides a five-step analysis of
transactions to determine when and how revenue is recognized. The core principle is that a company should
recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services. This
standard will be effective for the Company on January 1, 2018, and may be applied retrospectively to each
period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the
potential impact of adopting this new accounting guidance.
In April 2015, the FASB issued updated guidance that will change the current presentation of debt issuance
costs on the balance sheet. This new guidance will move debt issuance costs from the assets section of the
balance sheet to the liabilities section as a direct deduction from the carrying amount of the debt issued. The
guidance will be effective for the Company on January 1, 2016. The Company will reclassify its debt issuance
costs included in other assets on the consolidated balance sheet to convertible senior notes within the liabilities
and stockholders' equity section. The amount of deferred financing costs expected to be reclassified as of
69
January 1, 2016 is $6.2 million. This revision will have no impact on the Company's results of operations or
cash flows.
In September 2015, the FASB issued updated guidance that eliminates the requirement to restate prior
period financial statements for measurement period adjustments. In an effort to reduce complexity in financial
reporting, the new guidance requires that the cumulative impact of a measurement period adjustment, including
the impact on prior periods, be recognized in the reporting period in which the adjustment is identified. The
standard will be effective for the Company on January 1, 2016. The Company does not expect this guidance to
have a material impact on its results of operations, financial condition or cash flows.
In November 2015, the FASB issued guidance that requires companies to present deferred income tax
assets and liabilities as noncurrent in a classified balance sheet instead of the current requirement to separate
deferred income tax assets and liabilities into current and noncurrent amounts. The standard is effective for the
Company on January 1, 2016, but early adoption is permitted. The Company has adopted this standard as of
December 31, 2015, and has applied it prospectively. The Company early adopted the standard because it
simplifies the Company's process of determining balance sheet classification for its deferred taxes. Prior period
deferred income tax assets and liabilities have not been adjusted, due to the prospective application of the
standard. The adoption of this standard did not have an impact on the Company's results of operations or
financial condition.
3. Fair Value Measurements
The following is a summary of available-for-sale marketable securities held as of December 31, 2015 and
2014 (in thousands):
As of December 31,
2015
Commercial paper
Corporate bonds
U.S. government
agency obligations
As of December 31,
2014
Certificates of
deposit
Commercial paper
Corporate bonds
U.S. government
agency obligations
Amortized
Cost
$
2,491
995,100
239,587
$ 1,237,178
$
39
10,487
1,077,387
303,808
$ 1,391,721
$
$
$
$
Gross Unrealized
Gains
Losses
— $
73
(4) $
(3,365)
Aggregate
Fair Value
2,487
991,808
41
114
$
(575)
239,053
(3,944) $ 1,233,348
— $
—
454
20
474
$
— $
(2)
(2,132)
39
10,485
1,075,709
(427)
303,401
(2,561) $ 1,389,634
Classification on Balance
Sheet
Short-Term
Marketable
Securities
2,487
$
432,585
Long-Term
Marketable
Securities
—
$
559,223
25,016
460,088
$
214,037
773,260
— $
10,485
424,777
39
—
650,932
84,380
519,642
$
219,021
869,992
$
$
$
During the first quarter of 2015, the Company began offering eligible employees the ability to participate in
a non-qualified deferred compensation plan. The mutual funds held by the Company that are associated with
this plan are classified as restricted trading securities. These securities are not included in the available-for-sale
securities table above but are included in marketable securities in the consolidated balance sheets.
70
Unrealized gains and unrealized temporary losses on investments classified as available-for-sale are
included within accumulated other comprehensive loss in the consolidated balance sheets. Upon realization,
those amounts are reclassified from accumulated other comprehensive loss to interest income in the
consolidated statements of income. As of December 31, 2015, the Company held for investment corporate
bonds with a fair value of $71.4 million, which are classified as available-for-sale marketable securities and
have been in a continuous unrealized loss position for more than 12 months. The unrealized losses are not
significant and are attributable to changes in interest rates. The Company does not believe any unrealized losses
represent other than temporary impairments based on the evaluation of available evidence. As of December 31,
2014, there were no securities in a continuous unrealized loss position for more than 12 months.
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, 2015 and 2014 (in thousands):
Total Fair Value
Fair Value Measurements at Reporting Date Using
Level 2
Level 1
Level 3
As of December 31, 2015
Cash Equivalents and Marketable
Securities:
Money market funds
Commercial paper
Corporate bonds
U.S. government agency
obligations
Mutual funds
As of December 31, 2014
Cash Equivalents and Marketable
Securities:
Money market funds
Certificates of deposit
Commercial paper
Corporate bonds
U.S. government agency
obligations
Other Liabilities:
Contingent consideration
obligation related to Velocius
acquisition
$
$
$
$
$
$
$
$
1,250
2,487
991,808
239,053
1,414
1,236,012
501
39
10,485
1,075,709
303,401
1,390,135
$
1,250
—
—
—
1,414
2,664
501
39
—
—
—
540
$
$
$
$
— $
2,487
991,808
239,053
—
1,233,348
$
— $
—
10,485
1,075,709
303,401
1,389,595
$
—
—
—
—
—
—
—
—
—
—
—
—
(900) $
— $
— $
(900)
71
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, 2015 and 2014 (in thousands):
Balance, January 1, 2014
Fair value adjustment to Velocius contingent consideration included in
general and administrative expense
Achievement of first milestone related to Velocius contingent
consideration
Unrealized gain on convertible note receivable included in other
comprehensive income
Amendment of the convertible note receivable for preferred stock of the
issuer and cash
Balance, December 31, 2014
Fair value adjustment to Velocius contingent consideration included in
general and administrative expense
Achievement of final milestone related to Velocius contingent
consideration
Balance, December 31, 2015
Other Assets:
Note
Receivable
Other
Liabilities:
Contingent
Consideration
Obligation
$
22,879
$
(2,600)
—
—
2,121
(25,000)
— $
—
—
— $
$
$
(300)
2,000
—
—
(900)
(100)
1,000
—
As of December 31, 2015 and 2014, the Company grouped money market funds, certificates of deposit, and
mutual funds using a Level 1 valuation because market prices for such investments are readily available in
active markets. As of December 31, 2015 and 2014, 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,
2015 and 2014.
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 the fair value of a Level 3 asset held by the Company, which
consisted of a $25.0 million face value convertible note receivable, was primarily an income approach, where
the expected weighted average future cash flows were discounted back to present value. The significant
unobservable inputs used in the fair value measurement of the convertible note receivable were the probability
of conversion to equity and the fair value of equity into which the note was convertible. In the second quarter of
2014, the note was amended. Under the terms of the amendment, the note became convertible into shares of
preferred stock of the issuer valued at $12.5 million at the time of conversion; the remaining $12.5 million was
paid in cash in the second and third quarters of 2014.
The valuation technique used to measure fair value of the Company's Level 3 liability, which consisted of
contingent consideration related to the acquisition of Velocius Networks, Inc. ("Velocius") in 2013 (Note 8),
72
was primarily an income approach. The significant unobservable input used in the fair value measurement of the
Velocius contingent consideration was the likelihood of achieving development milestones to integrate the
acquired technology into the Company's technology. During the third quarter of 2014, the first of two
milestones was achieved and a portion of the contingent consideration was paid. The remaining milestone was
achieved in June 2015 and was paid in the third quarter of 2015.
Contractual maturities of the Company’s available-for-sale marketable securities held as of December 31,
2015 and 2014 were as follows (in thousands):
Due in 1 year or less
Due after 1 year through 5 years
4. Accounts Receivable
December 31,
2015
December 31,
2014
$
$
460,088
773,260
1,233,348
$
$
519,642
869,992
1,389,634
Net accounts receivable consisted of the following as of December 31, 2015 and 2014 (in thousands):
Trade accounts receivable
Unbilled accounts receivable
Gross accounts receivable
Allowance for doubtful accounts
Reserve for cash-basis customers
Total accounts receivable reserves
Accounts receivable, net
December 31,
2015
December 31,
2014
$
$
262,885
124,878
387,763
(906)
(6,458)
(7,364)
380,399
$
$
222,531
116,070
338,601
(1,033)
(7,990)
(9,023)
329,578
A summary of activity in the accounts receivable reserves for the years ended December 31, 2015, 2014
and 2013, is as follows (in thousands):
Beginning balance
Charges to income from operations
Collections from cash basis customers and write-offs
Ending balance
$
$
9,023
37,870
(39,529)
7,364
$
$
3,703
32,293
(26,973)
9,023
$
$
3,807
17,900
(18,004)
3,703
2015
2014
2013
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.
73
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following as of December 31, 2015 and 2014 (in
thousands):
Prepaid income taxes
Other prepaid expenses
Other current assets
Total
6. Property and Equipment
December 31,
2015
December 31,
2014
$
$
31,045
43,751
48,432
123,228
$
$
44,631
37,669
46,681
128,981
Property and equipment consisted of the following as of December 31, 2015 and 2014 (dollars in
thousands):
Computer and networking equipment
Purchased software
Furniture and fixtures
Office equipment
Leasehold improvements
Internal-use software
Property and equipment, gross
Accumulated depreciation and amortization
Property and equipment, net
December 31,
2015
1,046,739
46,509
35,212
21,108
119,466
546,520
1,815,554
(1,062,374)
753,180
$
$
December 31,
2014
Estimated
Useful Life in
Years
3-7
3-10
5
3-5
1-16
2-7
$
$
850,533
46,537
27,923
14,035
92,544
448,777
1,480,349
(878,758)
601,591
Depreciation and amortization expense on property and equipment and capitalized internal-use software for
the years ended December 31, 2015, 2014 and 2013 was $272.5 million, $215.3 million and $162.9 million,
respectively. During the years ended December 31, 2015, 2014 and 2013, the Company capitalized $17.9
million, $15.2 million and $12.3 million, respectively, of stock-based compensation related to employees who
developed and enhanced internal-use software applications.
During the years ended December 31, 2015 and 2014, the Company wrote off $48.7 million and $100.1
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 had been substantially depreciated and amortized.
74
7. Goodwill and Acquired Intangible Assets
The changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2014 were as
follows (in thousands):
Beginning balance
Acquisition of Prolexic Technologies, Inc.
Acquisition of Xerocole, Inc.
Acquisition of Codemate A/S
Acquisition of Bloxx Limited
Foreign currency translation
Ending balance
2015
1,051,294
—
12,859
69,445
17,694
(1,048)
1,150,244
$
$
2014
757,368
293,926
—
—
—
—
1,051,294
$
$
Acquired intangible assets that are subject to amortization consisted of the following as of December 31,
2015 and 2014 (in thousands):
December 31, 2015
December 31, 2014
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
120,791
$
(58,633) $
62,158
$
88,331
$
(45,537) $
42,794
191,710
(102,872)
88,838
173,600
(91,160)
82,440
6,540
(3,374)
3,166
8,890
(4,224)
4,666
3,700
(1,767)
1,933
3,700
(1,188)
2,512
490
323,231
$
(490)
(167,136) $
—
156,095
$
490
275,011
$
(490)
(142,599) $
—
132,412
$
Completed
technologies
Customer-
related
intangible
Non-compete
agreements
Trademarks
and trade
names
Acquired
license rights
Total
Aggregate expense related to amortization of acquired intangible assets for the years ended December 31,
2015, 2014 and 2013 was $27.1 million, $32.1 million and $21.5 million, respectively. Based on the Company's
acquired intangible assets as of December 31, 2015, aggregate expense related to amortization of acquired
intangible assets is expected to be approximately $26.5 million, $27.8 million, $23.7 million, $21.7 million and
$17.7 million for the years ending December 31, 2016, 2017, 2018, 2019 and 2020, respectively.
8. Business Acquisitions and Divestitures
Acquisition-related costs were $1.8 million, $4.2 million and $3.1 million during the years ended
December 31, 2015, 2014 and 2013, 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 the years
ended December 31, 2015, 2014 and 2013 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 dates of the acquisitions included in the Company's consolidated statements of income are
also not presented because they are not material.
75
2015 Acquisitions
Xerocole
On February 27, 2015, the Company acquired Xerocole, Inc. ("Xerocole"), a provider of recursive Domain
Name System ("DNS") functionality, for $16.6 million in cash. The Company acquired Xerocole with a goal of
expanding its existing Authoritative DNS products. The Company allocated $12.9 million of the cost of the
acquisition to goodwill and $4.9 million to acquired intangible assets. The allocation of the purchase price was
finalized in the third quarter of 2015. The total weighted average useful life of the intangible assets acquired
from Xerocole is 8.8 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 expected to be realized. The total
amount of goodwill expected to be deducted for tax purposes is $2.7 million.
Octoshape
On April 6, 2015, the Company acquired all of the outstanding capital stock of Codemate A/S and its
wholly-owned subsidiary Octoshape ApS (together, "Octoshape") in exchange for $107.0 million in cash.
Octoshape is a cloud service provider focused on delivering broadcast, enterprise and carrier solutions. The goal
of acquiring Octoshape is to make available for the Company's customers additional delivery and optimization
technologies for video streams of over-the-top ("OTT") content and to enable the Company to more fully
support Internet Protocol television ("IPTV") solutions. The consolidated financial statements include the
operating results of Octoshape from the date of acquisition.
The purchase price allocation was finalized in the fourth quarter of 2015. The Company recorded a
decrease of $0.5 million to goodwill upon the finalization of net working capital adjustments to the purchase
price in the third quarter of 2015. The following table presents the final allocation of the purchase price for
Octoshape (in thousands):
Total purchase consideration
Allocation of the purchase consideration:
Cash
Accounts receivable
Other current assets
Identifiable intangible assets
Goodwill
Deferred tax assets
Total assets acquired
Other current liabilities
Current deferred revenue
Deferred tax liabilities
Total liabilities assumed
Net assets acquired
$
$
$
107,047
664
1,976
393
41,950
69,445
5,230
119,658
(1,983)
(770)
(9,858)
(12,611)
107,047
The value of the goodwill can be attributed to a number of business factors, including a trained technical
and sales workforce and cost synergies expected to be realized. The total amount of goodwill related to the
acquisition of Octoshape expected to be deducted for tax purposes is $69.4 million.
76
The following were the identified intangible assets acquired and their respective weighted average useful
lives (in thousands, except years):
Completed technologies
Customer-related intangible assets
Non-compete agreements
Total
Gross Carrying
Amount
$
$
25,310
16,560
80
41,950
Weighted
Average Useful
Life (in years)
9.8
11.8
2.0
The total weighted average amortization period for the intangible assets acquired from Octoshape is 10.6
years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the
intangible assets are being utilized.
Bloxx
On October 30, 2015, the Company acquired Bloxx Limited ("Bloxx"), a provider of Secure Web Gateway
technology, for $18.7 million in cash. The acquisition is expected to provide the Company with technology to
complement the Company's cloud security strategy for protecting businesses against Internet vulnerabilities.
The Company allocated $17.7 million of the cost of the acquisition to goodwill and $3.9 million to the acquired
intangible assets. The allocation of the purchase price has not been finalized as the Company is in the process of
gathering the facts and circumstances existing as of the acquisition date in order to finalize the valuation. The
total weighted average useful life of the intangible assets acquired from Bloxx is 7.2 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 expected to be realized. The total amount of goodwill related to the acquisition of
Bloxx expected to be deducted for tax purposes is $17.7 million.
2014 Acquisitions
Prolexic Acquisition
On February 18, 2014, the Company acquired all of the outstanding capital stock of Prolexic Technologies,
Inc. ("Prolexic") in exchange for $392.1 million in cash and the assumption of unvested stock options. The goal
of acquiring Prolexic was to provide the Company's 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 consolidated financial statements include the operating
results of Prolexic from the date of acquisition.
The purchase price allocation was finalized in the fourth quarter of 2014. The Company recorded an
increase of $2.2 million to goodwill upon the finalization of measurement period adjustments related to certain
tax-related assets and liabilities in the fourth quarter of 2014.
77
The following table presents the final allocation of the purchase price for Prolexic (in thousands):
Total purchase consideration
Allocation of the purchase consideration:
Cash
Accounts receivable
Property and equipment
Identifiable intangible assets
Goodwill
Deferred tax assets
Other current and long-term assets
Total assets acquired
Other current liabilities
Current deferred revenue
Deferred tax liabilities
Debt, capital leases and other long-term liabilities
Total liabilities assumed
Net assets acquired
$
$
$
392,104
33,072
11,208
12,225
87,040
293,926
16,340
5,664
459,475
(5,940)
(5,812)
(36,203)
(19,416)
(67,371)
392,104
The value of the goodwill can be attributed to a number of business factors, including a trained technical
and sales workforce and the fair value of cost synergies expected to be realized. The total amount of goodwill
related to the acquisition of Prolexic expected to be deducted for tax purposes is $62.4 million.
The following were the identified intangible assets acquired and their respective weighted average useful
lives (in thousands, except for years):
Completed technologies
Customer-related intangible assets
Non-compete agreements
Trademark
Total
Gross Carrying
Amount
$
$
26,800
58,500
940
800
87,040
Weighted
Average Useful
Life (in years)
6.9
10.4
3.0
4.9
The total weighted average amortization period for the intangible assets acquired from Prolexic is 9.2 years.
The intangible assets are being amortized based upon the pattern in which the economic benefits of the
intangible assets are being utilized.
78
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 maximum potential payout of the contingent consideration was $3.0 million. As
of December 31, 2015, all milestones were achieved and $3.0 million had been paid.
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 was finalized in the first quarter of 2014. 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
expected to be realized. The total amount of goodwill related to the acquisition of Velocius expected to be
deducted for tax purposes is $0.3 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 was $55.0 million, of which $27.5 million was paid during the third quarter of 2013 and $27.5
million was paid during 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 synergies expected to be realized by the Company related to anticipated future customer expansion
and cost reductions. The total amount of goodwill expected to be deducted for tax purposes is $30.2 million.
Divestitures
ADS Divestiture
Consistent with its strategy to prioritize higher-margin businesses, the Company sold its Advertising
Decision Solutions ("ADS") business to MediaMath, Inc. ("MediaMath") in exchange for a $25.0 million face
value convertible note receivable (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, and 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 sheets. 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.
During the second quarter of 2014, the convertible note receivable was amended. Under the terms of the
amendment, the note became convertible into shares of preferred stock of MediaMath valued at $12.5 million at
79
the time of conversion and was included in other assets in the consolidated balance sheet as of December 31,
2015 and 2014; the remaining $12.5 million was received in cash during the second and third quarters of 2014.
9. Accrued Expenses
Accrued expenses consisted of the following as of December 31, 2015 and 2014 (in thousands):
Payroll and other related benefits
Bandwidth and co-location
Property, use and other taxes
Professional service fees
Other
Total
10. Commitments and Contingencies
Operating Lease Commitments
December 31,
2015
December 31,
2014
$
$
108,230
48,228
47,364
4,636
7,708
216,166
$
$
125,938
28,459
40,411
4,434
5,444
204,686
The Company leases its facilities under non-cancelable operating leases. These operating leases expire at
various dates through May 2027 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, 2015 were as
follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
$
$
52,456
51,978
43,683
39,800
19,487
72,117
279,521
Rent expense for the years ended December 31, 2015, 2014 and 2013 was $47.9 million, $39.9 million and
$30.8 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
$3.6 million, $3.4 million and $1.9 million for the years ended December 31, 2015, 2014 and 2013,
respectively.
As of December 31, 2015, the Company had outstanding letters of credit in the amount of $6.0 million
related to certain of its real estate leases. The letters of credit expire as the Company fulfills its operating lease
obligations.
80
Purchase Commitments
As of December 31, 2015, the Company had 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, 2015, the Company had entered into purchase orders with various vendors. The minimum future
commitments as of December 31, 2015 were as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
Legal Matters
Bandwidth and
Co-location
Commitments
117,044
$
29,914
400
74
—
—
147,432
$
Purchase Order
Commitments
102,832
$
11,363
8,413
591
—
—
123,199
$
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.
The Company is conducting an internal investigation, with the assistance of outside counsel, relating to
sales practices in a country outside the U.S. that represented less than 1% of the Company’s revenue in each of
the years ended December 31, 2015, 2014 and 2013. The internal investigation includes a review of compliance
with the requirements of the U.S. Foreign Corrupt Practices Act and other applicable laws and regulations by
employees in that market. In February 2015, the Company voluntarily contacted the U.S. Securities and
Exchange Commission and Department of Justice to advise both agencies of this internal investigation. The
Company is cooperating with those agencies. As of the filing of these financial statements, the Company cannot
predict the outcome of this matter. No provision with respect to this matter has been made in the Company's
consolidated financial statements.
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 in that respect.
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.
81
To date, the Company has not encountered material costs as a result of such indemnification obligations
and has not accrued any related liabilities in its financial statements. In assessing whether to establish an
accrual, 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.
11. Convertible Senior Notes
In February 2014, the Company issued $690.0 million in par value of convertible senior notes due 2019
(the "Notes"). The Notes are senior unsecured obligations of the Company, do not bear regular interest and
mature on February 15, 2019, unless repurchased or converted prior to maturity.
At their option, holders may convert their Notes prior to the close of business on the business day
immediately preceding August 15, 2018 only under the following circumstances:
•
•
during any calendar quarter commencing after the calendar quarter ended June 30, 2014 (and only
during such calendar quarter), if the last reported sale price of the Company's common stock for at
least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days
ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to
130% of the conversion price on each applicable trading day; or
during the five business day period after any five consecutive trading day period in which the trading
price per $1,000 principal amount of Notes for each trading day of the measurement period was less
than 98% of the product of the last reported sale price of the Company's common stock and the
conversion rate on each such trading day; or upon the occurrence of specified corporate events.
On or after August 15, 2018, holders may convert all or any portion of their Notes at any time prior to the
close of business on the second scheduled trading day immediately preceding the maturity date, regardless of
the foregoing circumstances.
Upon conversion, the Company, at its election, may pay or deliver to holders cash, shares of the Company's
common stock or a combination of cash and shares of the Company's common stock. The initial conversion rate
is 11.1651 shares of the Company's common stock per $1,000 principal amount, 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.
In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity
components. The carrying cost of the liability component was calculated by measuring the fair value of a
similar debt obligation that does not have an associated convertible feature. The carrying amount of the equity
component representing the conversion option was determined by deducting the fair value of the liability
component from the par value of the Notes. The difference between the principal amount of the Notes and the
proceeds allocated to the liability component (“debt discount”) is amortized to interest expense using the
effective interest method over the term of the Notes. The equity component is recorded in additional paid-in
capital in the consolidated balance sheet and will not be remeasured as long as it continues to meet the
conditions for equity classification.
In accounting for the transaction costs related to the issuance of the Notes, the Company allocated the total
transaction costs incurred to the liability and equity components based on their relative values. Transaction costs
attributable to the liability component are being amortized to interest expense over the term of the Notes, and
transaction costs attributable to the equity component are netted with the equity component of the Notes in
stockholders’ equity.
82
The Notes consisted of the following components as of December 31, 2015 (in thousands):
Liability component:
Principal
Less: debt discount, net of amortization
Net carrying amount
Equity component:
December 31,
2015
$
$
$
690,000
(65,712)
624,288
101,276
The estimated fair value of the Notes at December 31, 2015 was $660.7 million. The fair value was
determined based on data points other than quoted prices that are observable, either directly or indirectly, and
has been classified as Level 2 within the fair value hierarchy. Based on the closing price of the Company's
common stock of $52.63 on December 31, 2015, the value of the Notes if converted to common stock was less
than the principal amount of $690.0 million.
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 share
repurchase program previously approved by the Board of Directors (Note 12). Additionally, $23.3 million of
the proceeds was used for the net cost of convertible note hedge and warrant transactions. The Company
intends to use the remaining net proceeds for working capital, share repurchases and other general corporate
purposes, as well as for potential acquisitions and other strategic transactions.
Note Hedge
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 in February 2014. 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 dilution in the event of conversion of the Notes.
Warrants
Separately, in February 2014, 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.
83
Interest Expense
The Notes do not bear regular interest, but have an effective interest rate of 3.2% attributable to the
conversion feature. The following table sets forth total interest expense included in the statement of income
related to the Notes for the years ended December 31, 2015 and 2014 (in thousands):
Amortization of debt discount
Amortization of debt issuance costs
Capitalization of interest expense
Total interest expense
12. Stockholders’ Equity
Stock Repurchase Program
2015
2014
19,436
1,844
(2,755)
18,525
$
$
16,127
1,531
(2,195)
15,463
$
$
In October 2013, the Board of Directors authorized a $750.0 million share repurchase program, effective
from October 16, 2013 through December 31, 2016. During the years ended December 31, 2015, 2014 and
2013, the Company repurchased 4.5 million, 4.6 million and 3.9 million shares, respectively, of its common
stock for $302.6 million, $268.6 million and $160.4 million, respectively, pursuant to the current repurchase
program as well as prior ones approved by the Board of Directors. As of December 31, 2015, the Company had
$131.0 million available for future purchases of shares under the current repurchase program.
In February 2016, the Board of Directors authorized a new $1.0 billion share repurchase program, effective
from February 9, 2016 through December 31, 2018. The Company's goal for this program is to offset the
dilution created by its employee equity compensation programs and provide the flexibility to return capital to
shareholders as business and market conditions warrant.
The Board of Directors authorized the retirement of all the outstanding shares of its treasury stock as of
each of December 31, 2015, 2014 and 2013. The retired shares were returned to the number of authorized but
unissued shares of the Company's common stock, and the retirement was recorded to additional paid-in capital.
13. 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, 2015 (in thousands):
Balance as of January 1, 2015
Other comprehensive loss
Balance as of December 31, 2015
$
$
(22,064) $
(22,872)
(44,936) $
Foreign
Currency
Translation
Net Unrealized
Gains (Losses)
on Investments
4,453
(970)
3,483
Total
(17,611)
(23,842)
(41,453)
$
$
The tax effect on accumulated unrealized gains on investments was insignificant as of December 31, 2015
and 2014. Amounts reclassified from accumulated other comprehensive loss to net income were insignificant
for the year ended December 31, 2015.
84
14. 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 $13.1
million, $16.6 million and $11.1 million of cash to the savings plan for the years ended December 31, 2015,
2014 and 2013, respectively, under a matching program.
15. 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 11.0
million shares of common stock to employees, officers, directors, consultants and advisers of the Company.
Additionally, the Company may grant up to 3.8 million shares of common stock thereunder that were available
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, 2015, the Company had reserved
approximately 10.4 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, 2015, 2014 and 2013, the Company issued 0.7 million, 0.7 million and 0.6 million shares
under the 1999 ESPP, respectively, with a weighted average purchase price per share of $52.05, $41.76 and
$34.26, respectively. Total cash proceeds from the purchase of shares under the 1999 ESPP in the years ended
December 31, 2015, 2014 and 2013 were $34.8 million, $29.3 million and $22.1 million, respectively. As of
December 31, 2015, approximately $3.7 million had been withheld from employees for future purchases under
the 1999 ESPP.
85
Stock-Based Compensation Expense
The following table summarizes the components of total stock-based compensation expense included in the
Company’s consolidated statements of income for the years ended December 31, 2015, 2014 and 2013 (in
thousands):
Cost of revenue
Research and development
Sales and marketing
General and administrative
Total stock-based compensation
Provision for income taxes
Total stock-based compensation, net of taxes
2015
2014
2013
$
$
14,145
23,927
53,542
35,063
126,677
(49,033)
77,644
$
$
11,934
19,341
47,570
33,151
111,996
(39,182)
72,814
$
$
10,867
17,472
39,290
28,255
95,884
(34,829)
61,055
In addition to the amounts of stock-based compensation reported in the table above, the Company’s
consolidated statements of income for the years ended December 31, 2015, 2014 and 2013 also include stock-
based compensation reflected as a component of amortization of capitalized internal-use software; the
additional stock-based compensation was $12.7 million, $10.3 million and $8.1 million, respectively, before
taxes.
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 U.S. 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.
The Company did not grant any stock options during 2015. The grant-date fair values of the Company's
stock option awards granted during the years ended December 31, 2014 and 2013 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
2014
2013
4.4
0.8%
40.4%
—%
4.5
0.8%
44.4%
—%
For the years ended December 31, 2014 and 2013, the weighted average fair value of stock option awards
granted was $49.67 per share and $14.17 per share, respectively.
86
The grant-date fair values of the Company's ESPP awards granted during the years ended December 31,
2015, 2014 and 2013 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
2015
2014
2013
0.5
0.2%
28.0%
—%
0.5
0.1%
33.5%
—%
0.5
0.1%
42.0%
—%
For the years ended December 31, 2015, 2014 and 2013, the weighted average fair value of ESPP awards
granted was $15.63 per share, $12.64 per share and $11.34 per share, respectively.
As of December 31, 2015, 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 $213.3 million. The
expense is expected to be recognized through 2019 over a weighted average period of 1.5 years.
Stock Options
The following table summarizes stock option activity during the year ended December 31, 2015:
Outstanding at January 1, 2015
Exercised
Forfeited
Outstanding at December 31, 2015
Exercisable at December 31, 2015
Vested or expected to vest December
31, 2015
Shares
(in thousands)
2,671
(1,132)
(15)
1,524
1,244
Weighted
Average
Exercise Price
28.65
$
23.40
29.23
32.39
33.33
$
$
1,498
$
32.46
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic Value
(in thousands)
3.06
2.64
3.03
$
$
$
30,875
24,033
30,225
The total pre-tax intrinsic value of options exercised during the years ended December 31, 2015, 2014 and
2013 was $53.6 million, $45.8 million and $47.2 million, respectively. The total fair value of options vested for
the years ended December 31, 2015, 2014 and 2013 was $10.3 million, $16.9 million and $12.4 million,
respectively.
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the
Company’s closing stock price of $52.63 on December 31, 2015, 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, 2015 was approximately
1.2 million.
87
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. For those granted prior to 2014, DSUs vest 50%
upon the first anniversary of the 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. Beginning in
2014, DSUs vest 100% on the first anniversary of the grant date. 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, 2015:
Outstanding at January 1, 2015
Granted
Vested and distributed
Outstanding at December 31, 2015
Units
(in thousands)
260
28
(142)
146
Weighted
Average Grant
Date Fair Value
36.35
$
76.12
34.63
45.42
$
The total pre-tax intrinsic value of DSUs that were vested and distributed during the years ended December
31, 2015, 2014 and 2013 was $10.7 million, $1.4 million and $3.8 million, respectively. The total fair value of
DSUs that were vested and distributed during the years ended December 31, 2015, 2014 and 2013 was $4.9
million, $0.8 million and $1.5 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, 2015, 28,000 DSUs were unvested,
with an aggregate intrinsic value of approximately $1.5 million and a weighted average remaining contractual
life of approximately 0.4 years. These units are expected to vest in May 2016.
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, 2015, 2014 and 2013 (in thousands):
RSUs with service-based vesting conditions
RSUs with performance-based vesting conditions
Total
December 31,
2015
December 31,
2014
December 31,
2013
2,507
583
3,090
1,949
575
2,524
2,338
760
3,098
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 revenue and income targets or other key financial performance indicators.
For RSUs with service-based vesting conditions, the fair value is 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
88
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, 2015, 2014 and 2013, management measured compensation expense for
performance-based RSUs based upon a review of the Company’s expected achievement against specified
financial 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. On a periodic basis,
management reviews the Company’s expected performance and adjusts the compensation cost, if needed, at
such time.
The following table summarizes the RSU activity for the year ended December 31, 2015:
Outstanding at January 1, 2015
Granted
Vested
Forfeited
Outstanding at December 31, 2015
Units
(in thousands)
4,542
3,090
(2,289)
(274)
5,069
Weighted
Average Grant
Date Fair Value
48.98
$
69.00
46.01
57.37
62.20
$
The total pre-tax intrinsic value of RSUs that vested during the years ended December 31, 2015, 2014 and
2013 was $153.6 million, $145.6 million and $117.5 million, respectively. The total fair value of RSUs that
vested during the years ended December 31, 2015, 2014 and 2013 was $105.3 million, $86.9 million and $89.2
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, 2015, 5.1 million RSUs were outstanding and unvested,
with an aggregate intrinsic value of $266.8 million and a weighted average remaining vesting period of
approximately 1.5 years. These RSUs are expected to vest on various dates through December 2019.
16. Income Taxes
The components of income before provision for income taxes were as follows for the years ended
December 31, 2015, 2014 and 2013 (in thousands):
U.S.
Foreign
Income before provision for income taxes
2015
2014
2013
$
$
233,247
223,377
456,624
$
$
408,391
71,385
479,776
$
$
365,821
53,733
419,554
89
The provision for income taxes consisted of the following for the years ended December 31, 2015, 2014
and 2013 (in thousands):
Current tax provision (benefit):
Federal
State
Foreign
Deferred tax provision (benefit):
Federal
State
Foreign
Change in valuation allowance
Total
2015
2014
2013
$
$
$
70,298
(1,750)
62,572
23,381
(742)
(18,536)
(5)
135,218
$
153,471
4,978
13,259
(13,073)
(15,220)
2,442
(29)
145,828
$
$
77,671
8,034
13,019
24,210
(1,106)
1,869
2,370
126,067
The Company includes the provision for income taxes incurred on intercompany sales as part of its current
tax provision. The amount of the current year provision for income taxes required to be deferred is included as
a deferred tax benefit. The amount of the current year deferral included in the Company’s deferred tax
provision was a benefit of $15.5 million and $24.3 million in the years ended December 31, 2015 and 2014,
respectively. There were no amounts included in the deferred tax provision in 2013.
The Company’s effective rate differed from the U.S. federal statutory rate as follows for the years ended
December 31, 2015, 2014 and 2013:
U.S. federal income tax rate
State taxes
Nondeductible stock-based compensation
U.S. federal, state and foreign research and
development credits
Foreign earnings
Domestic production activities deduction
State software development activities benefit
Other
2015
2014
2013
35.0%
1.7
1.9
(4.1)
(4.6)
(1.2)
—
0.9
29.6%
35.0%
2.3
1.4
(3.2)
(1.9)
(2.2)
(2.4)
1.4
30.4%
35.0%
3.4
0.8
(3.5)
(2.6)
(4.3)
—
1.2
30.0%
90
The components of the net deferred tax asset and the related valuation allowance as of December 31, 2015
and 2014 were as follows (in thousands):
Accrued bonus
Deferred revenue
Deferred rent
Stock-based compensation
Net operating losses
Unrealized losses
Tax credit carryforwards
Other
Deferred tax assets
Depreciation and amortization
Acquired intangible assets
Internal-use software development costs capitalized
Deferred tax liabilities
Valuation allowance
Net deferred tax (liabilities) assets
2015
2014
$
$
$
13,161
11,334
13,224
31,705
8,855
1,421
22,918
5,989
108,607
(10,848)
(37,923)
(66,807)
(115,578)
(1,217)
(8,188) $
19,572
9,536
10,518
27,538
11,466
748
18,066
6,528
103,972
(14,868)
(40,126)
(39,396)
(94,390)
(1,222)
8,360
During the years ended December 31, 2015 and 2014, the valuation allowance related to the Company's
deferred tax assets decreased by an insignificant amount. As of December 31, 2015 and 2014, the Company
had the following NOL and credit carryforwards (in thousands):
NOL carryforwards:
Federal
State
Foreign
Federal and state research and development tax credit
carryforwards
2015
2014
$
$
21,500
28,200
—
39,800
26,100
45,000
300
30,500
Expirations at
Various Dates
Through:
2029
2034
2030
The Company's U.S. federal NOL carryforwards relate to acquisitions completed during 2012. As of
December 31, 2015, the Company had no foreign tax credit carryforwards.
As of December 31, 2015, undistributed earnings of non-U.S. subsidiaries totaled $349.8 million. No
provision for U.S. income and foreign withholding taxes has been made for these permanently reinvested
foreign 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 $53.8
million.
91
The following is a rollforward of the Company’s unrecognized tax benefits for the years ended December
31, 2015, 2014 and 2013 (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
Balance at end of year
2015
2014
2013
$
$
33,320
11,238
27,043
(5,996)
(315)
65,290
$
$
24,651
12,925
2,106
(6,362)
—
33,320
$
$
20,902
2,878
2,834
(1,213)
(750)
24,651
As of December 31, 2015, 2014 and 2013, the Company had approximately $72.3 million, $41.1 million
and $30.6 million, respectively, of total unrecognized tax benefits, including $10.0 million, $7.7 million, and
$5.9 million of accrued interest and penalties as of December 31, 2015, 2014 and 2013, respectively. Interest
and penalties related to unrecognized tax benefits are recorded in the provision for income taxes and were $2.2
million and $1.8 million for the years ended December 31, 2015 and 2014, respectively. Interest and penalties
included in the provision for income taxes for the year ended December 31, 2013 were insignificant. 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, 2015, the Company does not expect to recognize
any of its unrecognized tax benefits in earnings in the next 12 months.
The Company's U.S. federal income tax return for the 2013 tax year is currently under audit by the Internal
Revenue Service. In addition, certain state and foreign income tax returns from 2008 through 2013 are currently
under audit in 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, in the U.S. federal and state taxing jurisdictions, tax periods in which certain loss and credit
carryovers are generated remain open for audit until such time as the limitation period ends for the year in
which such losses or credits are utilized. In major foreign jurisdictions, tax years after 2011 are open for
examination.
17. 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, RSUs, DSUs, convertible senior notes and
warrants issued by the Company. The dilutive effect of outstanding awards and convertible securities is
reflected in diluted earnings per share by application of the treasury stock method.
92
The following table sets forth the components used in the computation of basic and diluted net income per
share for the years ended December 31, 2015, 2014 and 2013 (in thousands, except per share data):
Numerator:
Net income
Denominator:
2015
2014
2013
$
321,406
$
333,948
$
293,487
Shares used for basic net income per share
178,391
178,279
178,196
Effect of dilutive securities:
Stock options
RSUs and DSUs
Convertible senior notes
Warrants related to issuance of convertible senior
notes
Shares used for diluted net income per share
Basic net income per share
Diluted net income per share
794
1,230
—
1,221
1,686
—
—
180,415
1.80
1.78
$
$
—
181,186
1.87
1.84
$
$
$
$
1,622
1,965
—
—
181,783
1.65
1.61
For the years ended December 31, 2015, 2014 and 2013, certain potential outstanding shares from stock
options, service-based RSUs, convertible notes and warrants were excluded from the computation of diluted net
income per share because the effect of including these items was 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 number of potentially
outstanding shares excluded from the computation of diluted net income per share for the years ended
December 31, 2015, 2014 and 2013 (in thousands):
2015
2014
2013
Stock options
Service-based RSUs
Performance-based RSUs
Convertible senior notes
Warrants related to issuance of convertible senior notes
Total shares excluded from computation
22
660
1,007
7,704
7,704
17,097
402
786
570
7,704
7,704
17,166
1,649
188
985
—
—
2,822
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.
93
18. 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, 2015, the Company operated in one industry segment: providing cloud
services for delivering, optimizing and securing content and business 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 solutions
and does not have separate operating or reportable segments.
The Company deploys its servers into networks worldwide. As of December 31, 2015, the Company had
approximately $298.9 million and $227.8 million of net property and equipment, excluding internal-use
software, located in the U.S. and foreign locations, respectively. As of December 31, 2014, the Company had
approximately $249.5 million and $175.8 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.
Revenue derived from operations outside of the U.S. is determined based on the country in which the sale
originated and was $593.0 million, $531.9 million and $432.6 million for the years ended December 31, 2015,
2014 and 2013, respectively. Other than the U.S., no single country accounted for 10% or more of the
Company’s total revenue for any reported period.
19. Quarterly Financial Results (unaudited)
(in thousands, except per share data)
Year ended December 31, 2015:
Revenue
Cost of revenue (exclusive of
amortization of acquired
intangible assets)
Net income
Basic net income per share
Diluted net income per share
Year ended December 31, 2014:
Revenue
Cost of revenue (exclusive of
amortization of acquired
intangible assets)
Net income
Basic net income per share
Diluted net income per share
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
526,536
$
540,723
$
551,030
$
579,159
169,294
77,746
0.44
0.43
179,910
67,200
0.38
0.37
183,204
88,040
0.49
0.49
193,212
88,420
0.50
0.49
$
453,502
$
476,035
$
498,042
$
536,295
139,612
72,800
0.41
0.40
149,318
72,886
0.41
0.40
158,812
91,155
0.51
0.50
163,201
97,107
0.55
0.54
94
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, 2015. The term “disclosure controls and procedures,” as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or 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 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 disclosures. 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, 2015, 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, the company's 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.
95
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2015. In making this assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework
2013.
Based on our assessment, management, with the participation of our Chief Executive Officer and Chief
Financial Officer, concluded that, as of December 31, 2015, 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, 2015 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 change in our internal control over financial reporting occurred during the fourth quarter ended
December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Item 9B. Other Information
None.
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 2016 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.
96
Our executive officers and directors and their positions as of February 29, 2016, are as follows:
Position
Name
Chief Executive Officer and Director (Principal Executive Officer)
F. Thomson Leighton
Chief Financial Officer (Principal Financial and Accounting Officer)
James Benson
Executive Vice President – Platform
Robert Blumofe
Executive Vice President and Chief Human Resources Officer
James Gemmell
Executive Vice President and General Counsel
Melanie Haratunian
President – Worldwide Operations
Robert W. Hughes
President – Products and Development
Rick McConnell
Director
George H. Conrades
Director
Pamela J. Craig
Director
Monte E. Ford
Director
Jill A. Greenthal
Director
Jonathan F. Miller
Director
Paul Sagan
Director
Frederic V. Salerno
Director
Steven Scopellite
Director
Naomi O. Seligman
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 2016 Annual Meeting of Stockholders under the sections captioned “Executive Compensation Matters,”
“Corporate Governance Matters,” “Compensation Committee Interlocks and Insider Participation” and
“Director Compensation.”
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 2016 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.”
97
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 2016 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 2016 Annual Meeting of Stockholders under the section captioned “Ratification of Selection of
Independent Auditors.”
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, 2015 and 2014
• Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013
• Consolidated Statements of Comprehensive Income for the years ended December 31, 2015,
2014 and 2013
• Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and
2013
• Consolidated Statements of Stockholders' Equity for the years ended December 31, 2015,
2014 and 2013
• 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.
98
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.
February 29, 2016
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)
February 29, 2016
/s/ JAMES BENSON
James Benson
/s/ GEORGE H. CONRADES
George H. Conrades
/s/ PAMELA J. CRAIG
Pamela J. Craig
/s/ MONTE E. FORD
Monte E. Ford
/s/ JILL A. GREENTHAL
Jill A. Greenthal
/s/ JONATHAN F MILLER
Jonathan F. Miller
/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
Chief Financial Officer (Principal Financial
and Accounting Officer)
February 29, 2016
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
99
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
EXHIBIT INDEX
3.1(A)
3.2(B)
4.1(C)
4.2(D)
10.1(E)
10.2
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.
Summary of the Registrant’s Compensatory Arrangements with Non-Executive Directors
Summary of the Registrant’s Compensatory Arrangements with Executive Officers
10.3(F)@
Second Amended and Restated 1998 Stock Incentive Plan of the Registrant, as amended
10.4(G)@
Amended and Restated 1999 Employee Stock Purchase Plan of the Registrant
10.5(H)@
Amendment to Amended and Restated 1999 Employee Stock Purchase Plan of the Registrant
10.6(I)@
2001 Stock Incentive Plan of the Registrant
10.7(J)
10.8(K)
10.9(L)
2006 Stock Incentive Plan of the Registrant
Speedera Networks, Inc. 1999 Equity Incentive Plan, as amended
Netli, Inc. Amended and Restated Stock Option Plan
10.10(L)
Netli, Inc. 2002 Equity Incentive Plan
10.11(M)
Blaze Software Inc. Stock Option Plan
10.12(N)
10.13(O)
Cotendo, Inc. Amended and Restated 2008 Stock Plan
Amended and Restated 1999 Stock Compensation Plan of Acerno Intermediate Holdings,
Inc. (formerly known as I-Behavior Inc.)
10.14(P)@
2009 Akamai Technologies, Inc. Stock Incentive Plan
10.15(Q)@
2013 Akamai Technologies, Inc. Stock Incentive Plan (as amended)
10.16(R)@
Form of Incentive Stock Option Agreement granted under the 2006 Stock Incentive Plan
10.17(R)@
Form of Nonstatutory Stock Option Agreement granted under the 2006 Stock Incentive Plan
10.18(S)
10.19(S)
10.20(T)†
10.21(U)@
10.22 (V)@
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
Employment Letter Agreement between the Registrant and F. Thomson Leighton dated
February 25, 2013
Amendment to Employment Letter Agreement between the Registrant and F. Thomson
Leighton dated November 12, 2015
10.22@
Form of Executive Bonus Plan
10.23(W)@
Akamai Technologies, Inc. Executive Severance Pay Plan
10.24(V)@
Form of Executive Change in Control and Severance Agreement
10.25(X)@
Akamai Technologies, Inc. Policy on Departing Director Compensation
100
10.26(Y)@
Form of Incentive Stock Option Agreement for use under the 2009 Stock Incentive Plan
10.27(Y)@
10.28(Y)
10.29(Y)@
10.30(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 Stock Option Agreement for Director Options for use under the 2009 Stock
Incentive Plan
10.31(AA)@ Form of Restricted Stock Unit Agreement for use under the 2009 Stock Incentive Plan
10.32(AA)@ Form of Stock Option Agreement for use under the 2009 Stock Incentive Plan (three-year
vest)
10.33(BB)@ Form of Stock Option Grant Agreement for use under the 2009 Stock Incentive Plan
10.34(BB)
Form of Deferred Stock Unit Grant Agreement for use under the 2009 Stock Incentive Plan
10.35(BB)@ Form of Time-Based Vesting Restricted Stock Unit Agreement for use under the 2009 Stock
Incentive Plan (2012)
10.36(BB)@ Form of Performance-Based Vesting Restricted Stock Unit Agreement for use under the 2009
Stock Incentive Plan (2012)
10.37(CC)@ Form of Restricted Stock Unit Agreement for use under the 2013 Stock Incentive Plan (time
vesting)
10.38(CC)@ Form of Restricted Stock Unit Agreement for use under the 2013 Stock Incentive Plan
(performance vesting)
10.39(CC)@ Form of Stock Option Agreement for use under the 2013 Stock Incentive Plan
10.40(CC)
Form of Deferred Stock Unit Agreement for use under the 2013 Stock Incentive Plan
10.41(DD)@ Form of Performance-Based Vesting Restricted Stock Unit Agreement with Retirement
Provision
Form of Call Option Confirmation between Akamai and each Option Counterparty
10.42(D)
10.43(D)
10.44(V)@
Form of Warrant Confirmation between Akamai and each Option Counterparty
Form of Restricted Stock Unit Agreement for use under the 2013 Stock Incentive Plan
(performance vesting 2015)
10.45(EE)@
Akamai Technologies, Inc. U.S. Non-Qualified Deferred Compensation 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
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Label Linkbase Document
XBRL Taxonomy Presentation Linkbase Document
________________
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(I)
(J)
(K)
(L)
(M)
(N)
(O)
(P)
(Q)
(R)
(S)
(T)
(U)
(V)
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 Current Report on Form 8-K (File No. 000-27275,
141172551) filed with the Commission on October 24, 2014.
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 Current Report on Form 8-K (File No. 000-27275,
14629736) filed with the Commission on February 20, 2014.
Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-27275,
4660513) filed with the Commission on March 3, 2014.
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.
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 8-K (File No. 000-27275,
11865051) filed with the Commission on May 23, 2011.
Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed with the
Commission on May 15, 2015.
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,
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 (File No. 000-27275,
13657899) filed with the Commission on March 1, 2013.
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-27275,
151238671) filed with the Commission on November 17, 2015.
102
(W)
(X)
(Y)
(Z)
(AA)
(BB)
(CC)
(DD)
(EE)
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-27275,
12974652) filed with the Commission on July 23, 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 (File No. 000-27275,
09851919) filed with the Commission on May 26, 2009.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-27275,
12829214) filed with the Commission on May 10, 2012.
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-27275,
12532825) filed with the Commission on January 18, 2012.
Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-27275,
121192724) filed with the Commission on November 9, 2012.
Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 000-27275,
131025074) filed with the Commission on August 9, 2013.
Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-27275,
15585212) filed with the Commission on February 6, 2015.
Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q (File No. 000-27275,
15850176) filed with the Commission on May 11, 2015.
________________
@ 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.
103
Our Management
EXECUTIVE OFFICERS
BOARD OF DIRECTORS
Tom Leighton
Co-Founder and Chief Executive Officer
George Conrades
Chairman
Jim Benson
Executive Vice President and
Chief Financial Officer
Robert Blumofe
Executive Vice President, Platform
James Gemmell
Executive Vice President and
Chief Human Resources Officer
Frederic Salerno
Lead Independent Director
Pamela Craig
Director
Monte Ford
Director
Jill Greenthal
Director
Melanie Haratunian
Executive Vice President,
General Counsel, and Corporate Secretary
Tom Leighton
Co-Founder and Chief Executive Officer
Robert Hughes
President, Worldwide Operations
Rick McConnell
President and General Manager,
Web Division
William Wheaton
Executive Vice President and
General Manager, Media Division
Jonathan Miller
Director
Paul Sagan
Director
Steven Scopellite
Director
Naomi Seligman
Director
Bernardus Verwaayen
Director
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 akamai.com
Corporate Headquarters
Akamai Technologies, Inc.
150 Broadway, 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
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