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EQUINIX INC filed this Form 10-Q on 11/02/2018
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Company not to assess at transition whether any expired or existing land easements are or contain leases if they were not previously accounted for as leases under Topic 840.
The Company expects that this standard will have a material effect on its financial statements including (1) the recognition of new ROU assets and lease liabilities on its balance sheet for operating leases; (2) the de-recognition of existing debt obligations and the corresponding financed assets in build-to-suit lease arrangements for which construction was completed before the effective date and the recognition of new ROU assets and liabilities on completion of construction, with a corresponding net adjustment to retained earnings on the effective date; and (3) significant new disclosures about its leasing activities. The Company is currently evaluating the extent of the impact that the adoption of this standard will have on its consolidated financial statements, including its accounting policies, processes and systems.
Accounting Standards Adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09") and issued subsequent amendments to the initial guidance, collectively referred as "Topic 606." Topic 606 replaces most existing revenue recognition guidance in U.S. GAAP. The core principle of Topic 606 is that an entity should recognize revenue for the transfer of control of the goods or services equal to the amount that it expects to be entitled to receive for those goods or services. Topic 606 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments.
On January 1, 2018, the Company adopted Topic 606 using the modified retrospective approach applied to those contracts, which were not completed as of January 1, 2018, and recognized a net increase to the opening retained earnings of $269.8 million, net of tax impacts. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while the comparative information has not been restated and continues to be reported under accounting standards in effect for those periods.
In adopting the new guidance, the Company elected to apply the practical expedient which allows the Company, when using the modified retrospective method of adoption, to not retrospectively restate contracts with multiple modifications on a modification by modification basis. Instead, the Company will reflect the aggregate amount of all modifications that occur before the beginning of the earliest period presented using the new standard. In addition, where appropriate, the Company elected to apply the practical expedient to account for the new standard under the portfolio approach as the Company reasonably expects that the effects of applying the guidance under the portfolio approach will not differ materially from applying the guidance to individual contracts.
The most significant impacts to the Company from Topic 606 relate to installation revenue and costs to obtain contracts. Under the new standard, the Company now recognizes installation revenue over the contract period rather than over the estimated installation life as under the prior revenue standard. Under the new standard, the Company is also required to capitalize and amortize certain costs to obtain contracts, rather than expense them immediately as under the previous standard.