Edgar Filing: EQUINIX INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-31293

EQUINIX, INC.

(Exact name of registrant as specified in its charter)


Delaware		77-0487526
(State of incorporation)		(I.R.S. Employer Identification No.)

301 Velocity Way, Fifth Floor, Foster City, California 94404

(Address of principal executive offices, including ZIP code)

(650) 513-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) Yes x No ¨ and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s Common Stock as of June 30, 2010 was 45,589,839.

EQUINIX, INC.

INDEX


		Page No.
Part I - Financial Information

Item 1.	Condensed Consolidated Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009	5
	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53

Item 4.	Controls and Procedures	54

Part II - Other Information

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	56

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73

Item 3.	Defaults Upon Senior Securities	73

Item 4.	Removed and Reserved	73

Item 5.	Other Information	73

Item 6.	Exhibits	74

Signatures		80

Index to Exhibits		81

PART I - FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

EQUINIX, INC.

Condensed Consolidated Balance Sheets

(in thousands)


	June 30, 2010			December 31, 2009
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	511,342		$	346,056
Short-term investments		206,111			248,508
Accounts receivable, net		106,255			64,767
Other current assets		64,527			68,556

Total current assets		888,235			727,887
Long-term investments		4,497			9,803
Property, plant and equipment, net		2,400,809			1,808,115
Goodwill		760,087			381,050
Intangible assets, net		157,340			51,015
Other assets		71,240			60,280

Total assets	$	4,282,208		$	3,038,150

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	138,725		$	99,053
Accrued property, plant and equipment		85,350			109,876
Current portion of capital lease and other financing obligations		7,995			6,452
Current portion of mortgage and loans payable		21,968			58,912
Other current liabilities		45,531			41,166

Total current liabilities		299,569			315,459
Capital lease and other financing obligations, less current portion		207,305			154,577
Mortgage and loans payable, less current portion		167,351			371,322
Senior notes		750,000			—
Convertible debt		904,769			893,706
Other liabilities		203,017			120,603

Total liabilities		2,532,011			1,855,667

Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock		46			39
Additional paid-in capital		2,288,816			1,665,662
Accumulated other comprehensive loss		(164,610	)		(97,238	)
Accumulated deficit		(374,055	)		(385,980	)

Total stockholders’ equity		1,750,197			1,182,483

Total liabilities and stockholders’ equity	$	4,282,208		$	3,038,150

See accompanying notes to condensed consolidated financial statements

EQUINIX, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)


	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
	(unaudited)
Revenues	$	296,094		$	213,168		$	544,743		$	412,399

Costs and operating expenses:
Cost of revenues		162,582			118,534			295,632			230,339
Sales and marketing		28,913			16,369			48,381			30,772
General and administrative		54,166			37,456			97,321			72,606
Restructuring charges		4,357			(220	)		4,357			(6,053	)
Acquisition costs		5,849			—			10,843			—

Total costs and operating expenses		255,867			172,139			456,534			327,664

Income from operations		40,227			41,029			88,209			84,735
Interest income		491			680			997			1,596
Interest expense		(37,615	)		(15,912	)		(63,290	)		(29,363	)
Other-than-temporary impairment recovery (loss) on investments		—			—			3,420			(2,687	)
Loss on debt extinguishment and interest rate swaps, net		(1,454	)		—			(4,831	)		—
Other income (expense)		(1,481	)		2,610			(1,461	)		1,191

Income before income taxes		168			28,407			23,044			55,472
Income tax expense		(2,442	)		(10,967	)		(11,119	)		(22,575	)

Net income (loss)	$	(2,274	)	$	17,440		$	11,925		$	32,897

Earnings (loss) per share:
Basic earnings (loss) per share	$	(0.05	)	$	0.46		$	0.29		$	0.87

Weighted-average shares		43,507			38,152			41,546			38,007

Diluted earnings (loss) per share	$	(0.05	)	$	0.44		$	0.28		$	0.84

Weighted-average shares		43,507			39,318			42,721			39,008

See accompanying notes to condensed consolidated financial statements

EQUINIX, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)


	Six months ended June 30,
	2010			2009
	(unaudited)
Cash flows from operating activities:
Net income	$	11,925		$	32,897
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		106,418			83,921
Stock-based compensation		33,070			24,997
Restructuring charges		4,357			(6,053	)
Amortization of intangible assets		5,021			2,646
Amortization of debt issuance costs and debt discounts		12,243			5,714
Accretion of asset retirement obligation and accrued restructuring charges		1,379			536
Loss on debt extinguishment and interest rate swaps, net		4,831			—
Other items		1,398			3,825
Changes in operating assets and liabilities:
Accounts receivable		(31,757	)		(1,026	)
Other assets		7,957			3,494
Accounts payable and accrued expenses		19,060			12,965
Other liabilities		(19,184	)		1,527

Net cash provided by operating activities		156,718			165,443

Cash flows from investing activities:
Purchases of investments		(284,926	)		(149,763	)
Sales of investments		2,203			20,754
Maturities of investments		330,021			16,472
Purchase of Switch and Data, net of cash acquired		(113,289	)		—
Purchases of property, plant and equipment		(292,105	)		(179,607	)
Purchase of restricted cash		(1,160	)		(893	)
Release of restricted cash		244			11,013
Other investing activities		—			79

Net cash used in investing activities		(359,012	)		(281,945	)

Cash flows from financing activities:
Proceeds from employee equity awards		22,153			8,954
Proceeds from senior notes		750,000			—
Proceeds from convertible debt		—			373,750
Proceeds from loans payable		98,958			744
Repayment of capital lease and other financing obligations		(12,401	)		(2,338	)
Repayment of mortgage and loans payable		(458,028	)		(23,522	)
Capped call costs		—			(49,664	)
Debt issuance costs		(23,119	)		(9,956	)
Other financing obligations		—			(252	)

Net cash provided by financing activities		377,563			297,716

Effect of foreign currency exchange rates on cash and cash equivalents		(9,983	)		3,796

Net increase in cash and cash equivalents		165,286			185,010
Cash and cash equivalents at beginning of period		346,056			220,207

Cash and cash equivalents at end of period	$	511,342		$	405,217

Supplemental cash flow information:
Cash paid for taxes	$	1,496		$	1,220

Cash paid for interest	$	33,067		$	27,034

See accompanying notes to condensed consolidated financial statements

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Equinix, Inc. (“Equinix” or the “Company”) and reflect all adjustments, consisting only of normal recurring adjustments, which in the opinion of management are necessary to fairly state the financial position and the results of operations for the interim periods presented. The condensed consolidated balance sheet data at December 31, 2009 has been derived from audited consolidated financial statements at that date. The consolidated financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission (“SEC”), but omit certain information and footnote disclosure necessary to present the statements in accordance with generally accepted accounting principles in the United States of America. For further information, refer to the Consolidated Financial Statements and Notes thereto included in Equinix’s Form 10-K as filed with the SEC on February 22, 2010. Results for the interim periods are not necessarily indicative of results for the entire fiscal year.

On April 30, 2010, the Company completed its acquisition of Switch & Data Facilities Company, Inc. (“Switch and Data”), a publicly-held company headquartered in Tampa, Florida (the “Switch and Data Acquisition”) (see Note 2).

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements include the accounts of Equinix and its subsidiaries, including the operations of Switch and Data from the date of acquisition (see Note 2). All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to the consolidated financial statement presentation as of and for the three and six months ended June 30, 2010.

Property, Plant and Equipment

During the year ended December 31, 2009, the Company reassessed the estimated useful lives of certain of its property, plant and equipment as part of a review of the related assumptions. As a result, the estimated useful lives of certain of the Company’s property, plant and equipment were affected.

The Company undertook this review due to its determination that it was generally using certain of its existing assets longer than originally anticipated and, therefore, certain estimated useful lives have been lengthened. The change in the estimated useful lives of certain of the Company’s property, plant and equipment was accounted for as a change in accounting estimate on a prospective basis effective July 1, 2009 under the accounting standard related to changes in accounting estimates.

The change in estimated useful lives of certain of the Company’s property, plant and equipment, which has resulted in less depreciation expense than would have otherwise been recorded, resulted in the following increases (in thousands, except per share amounts):


	Three months ended		Six months ended
	June 30, 2010
Income from operations	$	3,922	$	7,890
Net income		2,209		4,445
Earnings per share:
Basic and diluted		0.05		0.10

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share for the periods presented (in thousands, except per share amounts):


	Three months ended June 30,					Six months ended June 30,
	2010			2009		2010		2009
Numerator:
Numerator for basic earnings (loss) per share	$	(2,274	)	$	17,440	$	11,925	$	32,897

Effect of assumed conversion of convertible debt:
Interest expense, net of tax		—			—		—		22

Numerator for diluted earnings (loss) per share	$	(2,274	)	$	17,440	$	11,925	$	32,919

Denominator:
Weighted-average shares		43,507			38,152		41,546		38,007

Effect of dilutive securities:
Convertible subordinated debentures		—			367		—		426
Employee equity awards		—			799		1,175		575

Total dilutive potential shares		—			1,166		1,175		1,001

Denominator for diluted earnings per share		43,507			39,318		42,721		39,008

Earnings (loss) per share:
Basic	$	(0.05	)	$	0.46	$	0.29	$	0.87

Diluted	$	(0.05	)	$	0.44	$	0.28	$	0.84

The following table sets forth weighted-average outstanding potential shares of common stock that are not included in the diluted earnings per share calculation above because to do so would be anti-dilutive for the periods indicated (in thousands):


	Three months ended June 30,		Six months ended June 30,
	2010	2009	2010	2009
Shares reserved for conversion of 2.50% convertible subordinated notes	2,232	2,232	2,232	2,232
Shares reserved for conversion of 3.00% convertible subordinated notes	2,945	2,945	2,945	2,945
Shares reserved for conversion of 4.75% convertible subordinated notes	4,433	1,072	4,433	539
Common stock warrants	—	1	—	1
Common stock related to employee equity awards	3,752	1,192	785	2,028

	13,362	7,442	10,395	7,745

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Fair Value of Financial Instruments

The following table sets forth the estimated fair values of the Company’s mortgage and loans payable, senior notes and convertible debt as of (in thousands):


	June 30, 2010				December 31, 2009
	Carrying Value		Fair Value		Carrying Value		Fair Value
Mortgage and Loans Payable:
Mortgage payable	$	90,361	$	88,896	$	91,756	$	83,406
Chicago IBX financing		—		—		109,991		109,700
Asia-Pacific financing		—		—		64,559		60,827
New Asia-Pacific financing		98,958		94,985		—		—
European financing		—		—		130,058		111,375
Netherlands financing		—		—		9,311		7,941
Singapore financing		—		—		24,559		21,739

	$	189,319	$	183,881	$	430,234	$	394,988

Senior Notes:
Senior notes	$	750,000	$	752,681	$	—	$	—

Convertible Debt:
2.50% convertible subordinated notes	$	228,457	$	236,824	$	222,943	$	228,935
3.00% convertible subordinated notes		395,986		372,722		395,986		461,324
4.75% convertible subordinated notes		280,326		335,133		274,777		307,248

	$	904,769	$	944,679	$	893,706	$	997,507

Income Taxes

The Company’s effective tax rates were 48.3% and 40.7% for the six months ended June 30, 2010 and 2009, respectively. The increase in the effective tax rate for the six months ended June 30, 2010 as compared to the six months ended June 30, 2009 was primarily due to an increase in foreign losses, which did not benefit the Company’s effective tax rate.

The Company’s unrecognized tax benefits increased by $12,932,000 during the three months ended June 30, 2010 due to the Switch and Data Acquisition. These unrecognized tax benefits served to reduce the deferred tax assets acquired from the Switch and Data Acquisition.

Interest Charges

The following table sets forth total interest costs incurred and total interest costs capitalized for the periods presented (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2010		2009		2010		2009
Interest expense	$	37,615	$	15,912	$	63,290	$	29,363
Interest capitalized		2,988		3,810		6,736		7,769

Interest charges incurred	$	40,603	$	19,722	$	70,026	$	37,132

Stock-Based Compensation

In February and March 2010, the Compensation Committee and the Stock Award Committee of the Board of Directors approved the issuance of an aggregate of 597,063 shares of restricted stock units to certain employees, including executive officers, pursuant to the 2000 Equity Incentive Plan as part of the

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Company’s annual refresh program. All awards are subject to vesting provisions. All such equity awards described in this paragraph had a total fair value as of the dates of grant of $60,226,000, which is expected to be amortized over a weighted-average period of 2.56 years.

In April 2010, as a result of the Switch and Data Acquisition, the Company issued 476,943 options to purchase the Company’s common shares and 98,509 restricted stock units of the Company’ common shares to Switch and Data employees in exchange for their outstanding options to purchase shares of and restricted stock units of Switch and Data (see Note 2). An aggregate fair value of approximately $35,395,000 was attributed to these equity awards, of which $16,508,000 was included as part of the consideration of the Switch and Data Acquisition and the remaining $18,887,000 is expected to be amortized over a weighted-average period of 2.14 years.

The following table presents, by operating expense category, the Company’s stock-based compensation expense recognized in the Company’s condensed consolidated statement of operations (in thousands):


	Three months ended June 30,					Six months ended June 30,
	2010			2009		2010			2009
Cost of revenues	$	1,744		$	1,458	$	3,338		$	2,552
Sales and marketing		3,758			2,838		6,689			5,018
General and administrative		12,594			9,163		23,043			17,427
Restructuring charges		1,491	(1)		—		1,491	(1)		—

	$	19,587		$	13,459	$	34,561		$	24,997

(1) See “Switch and Data Restructuring Charge” in Note 12.

Recent Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update No. 2009-13 (“ASU 2009-13”), which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified beginning in fiscal years on or after June 15, 2010. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its condensed consolidated financial statements, if any.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (“ASU 2010-06”), which amends the use of fair value measures and the related disclosures. ASU 2010-06 requires new disclosures for transfers in and out of Level 1 and Level 2 fair value measurements, which is effective for interim and annual periods beginning after December 15, 2009. ASU 2010-06 also requires disclosure of activity in Level 3 fair value measurements on a gross basis, which is effective for fiscal years beginning after December 15, 2010. The Company adopted ASU 2010-06 during the three months ended March 31, 2010 with respect to the new disclosures for transfers in and out of Level 1 and Level 2 fair value measurements, and its adoption did not have any significant impact on the Company’s condensed consolidated financial statements. The Company is currently evaluating the impact that the disclosure of activity in Level 3 fair value measurements will have on its consolidated financial statements, if any.

2. Switch and Data Acquisition

On April 30, 2010 (the “Acquisition Date”), the Company acquired 100% of the issued and outstanding share capital of Switch and Data, a publicly-held company headquartered in Tampa, Florida. Switch and Data operated 34 data centers in the U.S. and Canada. The combined company operates under the Equinix name. There were no historical transactions between Equinix and Switch and Data.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company included Switch and Data’s results of operations from May 1, 2010 and estimated fair value of assets acquired and liabilities assumed in its condensed consolidated balance sheets beginning April 30, 2010. The Company incurred acquisition costs of $5,849,000 and $10,843,000, respectively, for the three and six months ended June 30, 2010 related to the Switch and Data Acquisition which was included in the condensed consolidated statements of operations.

Additionally, as a result of the Switch and Data Acquistion, the Company incurred a restructuring charge of $4,372,000 during the three months ended June 30, 2010 (see Note 12).

Fair Value of Consideration Transferred

Under the final terms of the Switch and Data Acquisition, each stock-electing share received 0.19409 shares of Equinix common stock, each cash-electing share received $19.06 in cash, and each non-electing share received 0.11321688 shares of Equinix common stock and $7.94189104 in cash, in each case subject to the terms of the merger agreement. Additionally, the Company assumed Switch and Data’s outstanding employee equity awards. The following table presents the fair value of consideration transferred to acquire Switch and Data at the Acquisition Date (in thousands):


Cash (1)	$	134,007
Common stock (2)		549,389
Switch and Data employee equity awards (3)		16,508

Total	$	699,904

(1) Represents payment for approximately 20% of Switch and Data’s total common stock outstanding as of the Acquisition Date. (2) Fair value of 5,458,413 shares of the Company’s common stock issued in exchange for approximately 80% of Switch and Data’s total common stock outstanding as of the Acquisition Date. The value of the Company’s common stock issued was determined based on the Company’s closing share price on the Acquisition Date, or $100.65 per share. (3) Represents fair value attributed to vested shares of Switch and Data employee equity awards which the Company assumed. The Company issued 476,943 options to purchase the Company’s common stock and 98,509 restricted stock units of the Company’s common stock to Switch and Data employees with an aggregate fair value of $35,395,000 in exchange for their options to purchase shares of and restricted stock units of Switch and Data (see Note 1, “Stock-Based Compensation”).

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Purchase Price Allocation

The Switch and Data Acquisition was accounted for using the acquisition method of accounting in accordance with the accounting standard for business combinations. Under the acquisition method of accounting, the total purchase price was allocated to Switch and Data’s net tangible and intangible assets based upon their fair value as of the Acquisition Date. Based upon the purchase price and the valuation of Switch and Data, the purchase price allocation was as follows (in thousands):


Cash and cash equivalents	$	20,718
Accounts receivable		12,763
Other current assets		2,125
Property, plant and equipment		464,640
Goodwill		407,383
Intangible asset – customer contracts		98,920
Intangible asset – favorable leases		13,680
Intangible asset – other		3,370
Other assets		1,471

Total assets acquired		1,025,070
Accounts payable and accrued expenses		(24,512	)
Accrued property, plant and equipment		(10,363	)
Current portion of capital leases		(10,402	)
Current portion of loan payable		(138,938	)
Other current liabilities		(12,157	)
Capital leases, less current portion		(38,998	)
Unfavorable leases		(2,580	)
Deferred tax liability		(66,422	)
Other liabilities		(20,794	)

Net assets acquired	$	699,904

The following table presents certain information on the acquired identifiable intangible assets (dollars in thousands):


Intangible assets	Fair value			Estimated useful lives (years)	Weighted- average estimated useful lives (years)
Customer contracts	$	98,920		11	11
Favorable leases		13,680		3 – 16	8.6
Other		3,370		0 – 10	4.9
Unfavorable leases		(2,580	)	3 – 15	8.3

The fair value of customer contracts was estimated by applying an income approach. The fair value was determined by calculating the present value of estimated future operating cash flows generated from exisiting customers less costs to realize the revenue. The Company applied a discount rate of approximately 14%, which reflects the nature of the asset, to the estimated future operating cash flows. Other significant assumptions used to estimate the fair value of the customer contracts include projected revenue growth, customer attrition rates, sales and marketing expenses and operating margins. The fair values of favorable and unfavorable leases were estimated by applying an income approach. The fair value was determined by calculating the difference between the discounted cash flows over the remaining term of each lease using contractual lease rates and market lease rates. The Company applied a discount rate ranging from 8.25% to 11.5% depending on the type, location and duration of each lease. Another significant assumption used in estimating the fair values of the favorable and unfavorable leases was the market lease rates. The fair value of the other acquired identifiable intangible assets were estimated by applying an income or cost approach as appropriate. The fair value measurements were based on significant inputs that are not observable in the market and thus represent Level 3 measurements as defined in the accounting standard for fair value measurements.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company determined the fair value of the revolving credit facility assumed in the Switch and Data Acquisition by estimating Switch and Data’s debt rating and reviewed market data with a similar debt rating and other characteristics of the debt, including the maturity date and security type. The Company determined that the book value of $138,938,000 approximated the fair value as of the Acquisition Date.

The Company determined the fair value of the two property capital lease liabilities assumed in the Switch and Data Acquisition of $40,425,000 by calculating the present value of future cash flows using a discount rate of approximately 8.6%, which was equal to the average yield of industrial bonds with similar remaining terms as the leases. The Company determined that the fair value of the equipment capital lease liability assumed in the Switch and Data Acquisition was equal to the fair value of the underlying assets of $9,155,000 as of the Acquisition Date because the lease contained a bargain purchase option and the title of the leased property is expected to be transferred to the Company at the end of the lease term. A total of $407,383,000 has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. Goodwill is attributable to the workforce of Switch and Data and the significant synergies expected to arise after the Switch and Data Acquisition. Goodwill is not expected to be deductible for tax purposes. Goodwill will not be amortized and will be tested for impairment at least annually. Goodwill recorded as a result of the Switch and Data Acquisition is attributable to the Company’s North American reportable segment (see Note 11) and reporting unit (see Note 4). The Company intends to test goodwill attributable to the North American reporting unit annually as of November 30^th, commencing with November 30, 2010.

For additional information on the Switch and Data debt assumed, refer to Note 8.

The Company continues to evaluate certain assets and liabilities related to the Switch and Data Acquisition. Additional information, which existed as of the Acquisition Date but was unknown to the Company at that time, may become known to the Company during the remainder of the measurement period, a period not to exceed 12 months from the Acquisition Date. Changes to the assets and liabilities recorded may result in a corresponding adjustment to goodwill.

Unaudited Pro forma Combined Condensed Consolidated Statements of Operations

The consolidated financial statements of the Company include the operations of Switch and Data from May 1, 2010 through June 30, 2010. Switch and Data recognized revenues of $37,592,000 and incurred net losses of $6,127,000 for the period from May 1, 2010 through June 30, 2010, which were included in the Company’s consolidated financial statements.

The following unaudited pro forma combined consolidated financial information has been prepared to give effect to the Switch and Data Acquisition by the Company using the acquisition method of accounting and the Company’s repayment of Switch and Data’s outstanding debt and equipment capital lease (Note 8). The unaudited pro forma combined consolidated financial information reflect certain adjustments related to the Switch and Data Acquisition, such as additional depreciation and amortization expense on assets acquired from Switch and Data. These pro forma statements were prepared as if the Switch and Data Acquistion and the repayment of Switch and Data’s outstanding debt and equipment capital lease had been completed as of the beginning of each period presented.

The unaudited pro forma combined consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have actually been reported had the acquisition occurred on January 1, 2010 and 2009, nor is it necessarily indicative of the future results of operations of the combined company.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table sets forth the unaudited pro forma consolidated combined results of operations (in thousands, except per share data):


	Three months ended June 30,				Six months ended June 30,
	2010		2009		2010		2009
Revenues	$	315,354	$	262,528	$	620,698	$	508,892
Net income		3,870		14,226		19,373		24,971
Earnings per share:
Basic earnings per share		0.09		0.33		0.43		0.57
Diluted earnings per share		0.08		0.32		0.42		0.56

3. IBX Acquisitions and Expansions

Amsterdam IBX Expansion Project

In April 2010, an indirect wholly-owned subsidiary of the Company amended its existing lease agreements for its two adjacent Amsterdam properties. One of these properties is the Company’s existing Amsterdam IBX data center and the Company is now developing the second property to become its second Amsterdam IBX data center (the “Amsterdam IBX Expansion Project”). The Company’s development plans involve modifying the two building structures to connect the two adjacent buildings into a single campus. The two Amsterdam properties were previously accounted for as operating leases. Pursuant to the accounting standards for lessee’s involvement in asset construction and for leasing transactions involving special-purpose entities, the Company is now considered the owner of the two leased buildings during the construction phase due to the structural building work that the Company is now undertaking, while the underlying land is considered an operating lease. As a result, during the three months ended June 30, 2010, the Company recorded a building asset and a related financing obligation liability (the “Amsterdam IBX Building Financing”) totaling $10,164,000 (using the exchange rate as of June 30, 2010).

Sydney 3 IBX Expansion Project

In June 2010, an indirect wholly-owned subsidiary of the Company entered into a lease for a building that the Company and the landlord will both jointly develop to meet the Company’s needs and which the Company will ultimately convert into its third IBX data center in Sydney, Australia (the “Sydney 3 IBX Expansion Project” and the “Sydney 3 Lease”). The Sydney 3 Lease has a term of 15 years and a total cumulative rent obligation of approximately $24,737,000 (using the exchange rate as of June 30, 2010) commencing September 2010. The landlord began modifying the building structure to the Company’s specifications in June 2010. Pursuant to the accounting standards for lessee’s involvement in asset construction and for leasing transactions involving special-purpose entities, the Company is now considered the owner of the building during the construction phase due to the structural building work that the landlord is now undertaking on the Company’s behalf. As a result, the Company will be recording a building asset during the construction period and a related financing liability (the “Sydney 3 IBX Building Financing”), while the underlying land will be considered an operating lease. The building is expected to be completed during the first half of 2011. In connection with the Sydney 3 IBX Building Financing, the Company recorded a building asset and a corresponding financing obligation liability totaling approximately $5,942,000 (using the exchange rate as of June 30, 2010), representing the fair value of the existing building structure and the estimated percentage-of-completion of the building as of June 30, 2010.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

4. Balance Sheet Components

Cash, Cash Equivalents and Short-Term and Long-Term Investments

Cash, cash equivalents and short-term and long-term investments consisted of the following (in thousands) as of:


	June 30, 2010
	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
U.S. government and agency obligations	$	583,569		$	91		$	(38	)	$	583,622
Cash and money markets		129,381			—			—			129,381
Corporate bonds		5,322			62			(14	)		5,370
Asset-backed securities		3,489			90			(2	)		3,577

Total available-for-sale securities		721,761			243			(54	)		721,950
Less amounts classified as cash and cash equivalents		(511,355	)		(2	)		15			(511,342	)

Total securities classified as investments		210,406			241			(39	)		210,608
Less amounts classified as short-term investments		(206,042	)		(106	)		37			(206,111	)

Total long-term investments	$	4,364		$	135		$	(2	)	$	4,497

Cash, cash equivalents and short-term and long-term investments consisted of the following as of (in thousands):


	December 31, 2009
	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
U.S. government and agency obligations	$	437,764		$	162		$	(3	)	$	437,923
Cash and money markets		147,059			—			—			147,059
Corporate bonds		12,400			203			—			12,603
Asset-backed securities		5,543			134			(4	)		5,673
Other securities		1,108			1			—			1,109

Total available-for-sale securities		603,874			500			(7	)		604,367
Less amounts classified as cash and cash equivalents		(346,059	)		—			3			(346,056	)

Total securities classified as investments		257,815			500			(4	)		258,311
Less amounts classified as short-term investments		(248,300	)		(208	)		—			(248,508	)

Total long-term investments	$	9,515		$	292		$	(4	)	$	9,803

As of June 30, 2010 and December 31, 2009, cash equivalents included investments which were readily convertible to cash and had original maturity dates of 90 days or less. The maturities of securities classified as short-term investments were one year or less as of June 30, 2010 and December 31, 2009. The maturities of securities classified as long-term investments were greater than one year and less than three years as of June 30, 2010 and December 31, 2009.

In January 2010, the Company received an additional distribution of $3,420,000 from its investment in the Reserve Primary Fund (the “Reserve”), a money market fund that suffered a decline in its Net Asset Value (“NAV”) of below $1 per share when the Reserve valued its exposure to investments held in Lehman Brothers Holdings, Inc. (“Lehman Brothers”) at zero. The Reserve held investments in commercial paper and short-term notes issued by Lehman Brothers, which filed for Chapter 11 bankruptcy protection in September 2008. During the years ended December 31, 2008 and 2009, the Company recorded

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

other-than-temporary impairment losses on the Reserve. The Company also received distributions of its outstanding funds held by the Reserve during the years ended December 31, 2008 and 2009. As of December 31, 2009, the Company had no amounts remaining outstanding on its consolidated balance sheet for the Reserve. As a result, during the three months ended March 31, 2010, the Company recorded a recovery of other-than-temporary impairment loss, which is included in the Company’s condensed consolidated statement of operations. During the six months ended June 30, 2009, the Company recorded an other-than-temporary impairment loss of $2,687,000 in connection with its investment in the Reserve, which is included in the Company’s condensed consolidated statement of operations.

As of June 30, 2010, the Company’s net unrealized gains (losses) on its available-for-sale securities were comprised of the following (in thousands):


	Unrealized gains		Unrealized losses			Net unrealized gains/(losses)
Cash and cash equivalents	$	2	$	(15	)	$	(13	)
Short-term investments		106		(37	)		69
Long-term investments		135		(2	)		133

	$	243	$	(54	)	$	189

While certain marketable securities carry unrealized losses, the Company expects that it will receive both principal and interest according to the stated terms of each of the securities and that the decline in market value is primarily due to changes in the interest rate environment from the time the securities were purchased as compared to interest rates at June 30, 2010.

The following table summarizes the fair value and gross unrealized losses related to 19 available-for-sale securities with an aggregate cost basis of $458,229,000, aggregated by type of investment and length of time that individual securities have been in a continuous unrealized loss position, as of June 30, 2010 (in thousands):


	Securities in a loss position for less than 12 months					Securities in a loss position for 12 months or more
	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
U.S. government and agency obligations	$	456,901	$	(38	)	$	—	$	—
Corporate bonds		709		(14	)		—		—
Asset-backed securities		—		—			565		(2	)

	$	457,610	$	(52	)	$	565	$	(2	)

While the Company does not believe it holds investments that are other-than-temporarily impaired and believes that the Company’s investments will mature at par, as of June 30, 2010, the Company’s investments are subject to the currently adverse market conditions. If market conditions were to deteriorate further, the Company could sustain other-than-temporary impairments to its investment portfolio which could result in additional realized losses being recorded or securities markets could become inactive which could affect the liquidity of the Company’s investments. As securities mature, the Company has reinvested the proceeds in U.S. government securities, such as Treasury bills and Treasury notes, of a short-term duration and lower yield in order to meet its near term liquidity and capital expenditure requirements. As a result, the Company expects to recognize lower interest income in future periods.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accounts Receivable

Accounts receivables, net, consisted of the following (in thousands):


	June 30, 2010			December 31, 2009
Accounts receivable	$	173,175		$	126,122
Unearned revenue		(64,849	)		(59,635	)
Allowance for doubtful accounts		(2,071	)		(1,720	)

	$	106,255		$	64,767

Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. The Company generally invoices its customers at the end of a calendar month for services to be provided the following month, although this practice varies in the Company’s Europe region. Accordingly, unearned revenue consists of pre-billing for services that have not yet been provided, but which have been billed to customers in advance in accordance with the terms of their contract. The Company anticipates conforming the accounting of Switch and Data’s monthly billings with that of the Company’s in the third quarter of 2010.

Other Current Assets

Other current assets consisted of the following (in thousands):


	June 30, 2010		December 31, 2009
Deferred tax assets, net	$	42,405	$	46,822
Prepaid expenses		11,232		10,277
Taxes receivable		6,130		7,081
Foreign currency forward contract receivable		2,194		498
Other receivables		1,005		2,083
Other current assets		1,561		1,795

	$	64,527	$	68,556

Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):


	June 30, 2010			December 31, 2009
IBX plant and machinery	$	1,258,411		$	925,360
Leasehold improvements		875,051			552,548
Buildings		263,589			277,247
Site improvements		235,880			231,437
IBX equipment		209,927			175,030
Computer equipment and software		101,283			85,472
Land		81,552			84,681
Furniture and fixtures		12,529			11,428
Construction in progress		236,777			243,129

		3,274,999			2,586,332
Less accumulated depreciation		(874,190	)		(778,217	)

	$	2,400,809		$	1,808,115

Leasehold improvements, IBX plant and machinery, computer equipment and software and buildings recorded under capital leases aggregated $140,427,000 and $87,138,000 at June 30, 2010 and December 31, 2009, respectively. Amortization on the assets recorded under capital leases is included in depreciation expense and accumulated depreciation on such assets totaled $24,197,000 and $13,118,000 as of June 30, 2010 and 2009, respectively.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of June 30, 2010 and December 31, 2009, the Company had accrued property, plant and equipment expenditures of $85,350,000 and $109,876,000, respectively. The Company’s planned capital expenditures during the remainder of 2010 and thereafter in connection with recently acquired IBX properties and expansion efforts are substantial. For further information, refer to “Other Purchase Commitments” in Note 9.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets, net, consisted of the following (in thousands):


	June 30, 2010			December 31, 2009
Goodwill:
North America	$	407,383		$	—
Europe		334,137			362,569
Asia-Pacific		18,567			18,481

		760,087			381,050


Other intangibles:
Intangible asset – customer contracts		154,284			60,499
Intangible asset – favorable leases		17,825			4,690
Intangible asset – others		3,477			111

		175,586			65,301
Accumulated amortization		(18,246	)		(14,286	)

		157,340			51,015

	$	917,427		$	432,065

Changes in the carrying amount of goodwill by geographic regions are as follows (in thousands):


	North America		Europe			Asia- Pacific		Total
Balance at December 31, 2009	$	—	$	362,569		$	18,481	$	381,050
Switch and Data acquisition (see Note 2)		407,383		—			—		407,383
Impact of foreign currency exchange		—		(28,432	)		86		(28,346	)

Balance at June 30, 2010	$	407,383	$	334,137		$	18,567	$	760,087

The Company’s goodwill and intangible assets in Europe, denominated in British pounds and Euros, goodwill in Asia-Pacific, denominated in Singapore dollars, and certain intangible assets in North America, denominated in Canadian dollars, are subject to foreign currency fluctuations. The Company’s foreign currency translation gains and losses, including goodwill and other intangibles, are a component of other comprehensive income and loss.

The Company will test the goodwill attributable to the North American reporting unit for impairment annually as of November 30^th, commencing on November 30, 2010 (see Note 2). The Company has historically tested the goodwill attributable to the Europe and Asia-Pacific reporting units annually as of August 31^st and December 31^st, respectively. The Company changed its method of applying the accounting principle related to annual goodwill impairment testing by conforming the testing of goodwill for all three reporting units to November 30^th of each year, commencing November 30, 2010. The Company will test the Europe reporting unit as of August 31^st as in prior years and will then perform a re-test as of November 30, 2010 to conform it to the other regions.

For the three and six months ended June 30, 2010, the Company recorded amortization expense of $3,633,000 and $5,021,000, respectively, associated with its other intangible assets. For the three and six months ended June 30, 2009, the Company recorded amortization expense of $1,370,000 and $2,646,000, respectively, associated with its other intangible assets.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Changes in the gross book value of intangible assets by geographic regions are as follows (in thousands):


	North America			Europe			Asia- Pacific		Total
Intangible assets, gross at December 31, 2009	$	2,293		$	63,008		$	—	$	65,301
Switch and Data acquisition (see Note 2)		115,970			—			—		115,970
Impact of foreign currency exchange		(506	)		(5,179	)		—		(5,685	)

Intangible assets, gross at June 30, 2010	$	117,757		$	57,829		$	—	$	175,586

The Company’s estimated future amortization expense related to these intangibles is as follows (in thousands):


Year ending:
2010 (six months remaining)	$	7,674
2011		15,105
2012		14,955
2013		14,910
2014		14,665
2015 and thereafter		90,031

Total	$	157,340

Other Assets

Other assets consisted of the following (in thousands):


	June 30, 2010		December 31, 2009
Debt issuance costs, net	$	38,034	$	19,762
Deposits		23,988		28,032
Restricted cash		3,553		3,021
Prepaid expenses, non-current		3,126		3,247
Deferred tax assets, non-current		1,051		5,171
Other assets, non-current		1,488		1,047

	$	71,240	$	60,280

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following (in thousands):


	June 30, 2010		December 31, 2009
Accounts payable	$	18,366	$	14,874
Accrued compensation and benefits		37,124		35,809
Accrued interest		26,997		6,235
Accrued taxes		19,030		14,508
Accrued utilities and security		15,683		13,526
Accrued professional fees		4,394		4,657
Accrued acquisition costs		8,155		—
Accrued other		8,976		9,444

	$	138,725	$	99,053

Other Current Liabilities

Other current liabilities consisted of the following (in thousands):


	June 30, 2010		December 31, 2009
Deferred installation revenue	$	27,569	$	26,319
Customer deposits		10,037		8,406
Deferred recurring revenue		2,445		2,689
Accrued restructuring charges		3,687		2,043
Deferred tax liabilities		814		814
Deferred rent		405		403
Other current liabilities		574		492

	$	45,531	$	41,166

Other Liabilities

Other liabilities consisted of the following (in thousands):


	June 30, 2010		December 31, 2009
Deferred tax liabilities, non-current	$	88,835	$	25,937
Asset retirement obligations		42,779		17,710
Deferred rent, non-current		37,316		34,288
Deferred installation revenue, non-current		19,352		18,228
Customer deposits, non-current		4,995		5,813
Deferred recurring revenue, non-current		4,968		5,160
Interest rate swap payable, non-current		—		8,496
Accrued restructuring charges, non-current		3,688		3,876
Other liabilities		1,084		1,095

	$	203,017	$	120,603

The increase in deferred tax liabilities, non-current was primarily due to a $66,422,000 deferred tax liability recorded in connection with the Switch and Data Acquisition (see Note 2).

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the activity of the Company’s asset retirement obligation liability (in thousands):


Asset retirement obligations as of December 31, 2009	$	17,710
Additions (1)		24,482
Accretion expense		1,237
Impact of foreign currency exchange		(650	)

Asset retirement obligations as of June 30, 2010	$	42,779

(1) Includes $20,262,000 assumed in connection with the Switch and Data Acquisition.

The Company currently leases the majority of its IBX data centers and certain equipment under non-cancelable operating lease agreements expiring through 2030. The IBX data center lease agreements typically provide for base rental rates that increase at defined intervals during the term of the lease. In addition, the Company has negotiated rent expense abatement periods to better match the phased build-out of its centers. The Company accounts for such abatements and increasing base rentals using the straight-line method over the life of the lease. The difference between the straight-line expense and the cash payment is recorded as deferred rent.

5. Fair Value Measurements

The Company’s financial assets and liabilities measured at fair value on a recurring basis at June 30, 2010 were as follows (in thousands):


	Fair value at June 30, 2010		Fair value measurement using
	Fair value at June 30, 2010		Level 1		Level 2		Level 3
Assets:
U.S. Government and Agency obligations	$	583,622	$	—	$	583,622	$	—
Cash and money markets		129,381		129,381		—		—
Corporate bonds		5,370		—		5,370		—
Asset-backed securities		3,577		—		3,577		—
Derivative assets ₍₁₎		2,194		—		2,194		—

	$	724,144	$	129,381	$	594,763	$	—

(1) Included in the consolidated balance sheets within other current assets.

The Company’s investments in money market funds, which are classified within Level 1 of the fair value hierarchy, are valued using quoted prices for identical instruments in active markets. The Company’s investments in U.S. government and agency securities, corporate bonds and asset-back securities are classified within Level 2 of the fair value hierarchy. Level 2 investments are valued based upon published clearing prices for similar securities with recent trades.

For foreign currency derivatives, the Company’s approach is to use forward contract and option valuation models employing market observable inputs, such as spot currency rates, time value and option volatilities with adjustments made to these values utilizing the credit default swap rates of our foreign exchange trading counterparties. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit risk valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2010, the Company had assessed the significance of the impact of the credit risk valuation adjustments on the overall valuation of its derivative positions and had determined that the credit risk valuation adjustments were not significant to the overall valuation of its derivatives. Therefore, they are categorized as Level 2.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

During the six months ended June 3010, the Company did not have any nonfinancial assets or liabilities measured at fair value on a recurring basis.

During the six months ended June 30, 2010, there were no impairment charges recorded in connection with the Company’s goodwill and long-lived assets (see Note 4). The Company performs impairment tests for its goodwill at least annually (or whenever events or circumstances indicate a triggering event has occurred indicating that the carrying amount of the asset may not be recoverable). The Company performs impairment tests for its long-lived assets other than goodwill whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

6. Derivatives and Hedging Activities

The Company uses foreign currency forward contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities. As a result of foreign currency fluctuations, the U.S. dollar equivalent values of the foreign currency-denominated assets and liabilities change. Foreign currency forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date.

The Company has not designated the foreign currency forward contracts as hedging instruments under the accounting standard for derivatives and hedging. Gains and losses on these contracts are included in other income (expense), net, along with those foreign currency gains and losses of the related foreign currency-denominated assets and liabilities associated with these foreign currency forward contracts. The Company entered into various foreign currency forward contracts during the six months ended June 30, 2010 and 2009. As of June 30, 2010, the Company had gross assets totaling $2,415,000 and gross liabilities totaling $221,000 representing the fair values of these foreign currency forward contracts. The Company recorded its foreign currency forward contracts, net, by counter party, within other current assets. During the three and six months ended June 30, 2010, the Company recognized a net gain of $644,000 and $1,696,000, respectively, in connection with its foreign currency forward contracts, which is reflected in other income (expense) on the accompanying condensed consolidated statement of operations. During the three and six months ended June 30, 2009, the Company recognized a net loss of $1,535,000 and $1,359,000, respectively, in connection with its foreign currency forward contracts, which is reflected in other income (expense) on the accompanying statement of operations.

During the three months ended June 30, 2010, the Company terminated its outstanding interest rate swap instruments (see Note 8). As of June 30, 2010, there were no outstanding interest rate swap instruments.

7. Related Party Transactions

The Company has several significant stockholders and other related parties that are also customers and/or vendors. For the three and six months ended June 30, 2010, revenues recognized from related parties were $5,642,000 and $11,034,000, respectively. For the three and six months ended June 30, 2009, revenues recognized from related parties were $5,843,000 and $11,654,000, respectively. As of June 30, 2010 and 2009, accounts receivable with these related parties were $3,937,000 and $4,199,000, respectively. For the three and six months ended June 30, 2010, costs and services procured from related parties were $416,000 and $809,000, respectively. For the three and six months ended June 30, 2009, costs and services procured from related parties were $153,000 and $299,000, respectively. As of June 30, 2010 and 2009, accounts payable with these related parties were $9,000 and $33,000, respectively.

8. Debt Facilities and Other Financing Obligations

Senior Notes

In February 2010, the Company issued $750,000,000 aggregate principal amount of 8.125% Senior Notes due March 1, 2018 (the “Senior Notes”). Interest is payable semi-annually on March 1 and September 1 of each year, commencing on September 1, 2010.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Senior Notes are governed by an Indenture dated March 3, 2010 between the Company, as issuer, and U.S. Bank National Association, as trustee (the “Senior Notes Indenture”). The Senior Notes Indenture contains covenants that limit the Company’s ability and the ability of its subsidiaries to, among other things:

•

incur additional debt;

•

pay dividends or make other restricted payments;

•

purchase, redeem or retire capital stock or subordinated debt;

•

make asset sales;

•

enter into transactions with affiliates;

•

incur liens;

•

enter into sale-leaseback transactions;

•

provide subsidiary guarantees;

•

make investments; and

•

merge or consolidate with any other person.

Each of these restrictions has a number of important qualifications and exceptions. The Senior Notes are unsecured and rank equal in right of payment to the Company’s existing or future senior debt and senior in right of payment to the Company’s existing and future subordinated debt. The Senior Notes will be effectively junior to any of the Company’s existing and future secured indebtedness and any indebtedness of its subsidiaries.

At any time prior to March 1, 2013, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the Senior Notes outstanding under the Senior Notes Indenture, at a redemption price equal to 108.125% of the principal amount of the Senior Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings, provided that (i) at least 65% of the aggregate principal amount of the Senior Notes issued under the Senior Notes Indenture remains outstanding immediately after the occurrence of such redemption and (ii) the redemption must occur within 90 days of the date of the closing of such equity offerings. On or after March 1, 2014, the Company may redeem all or a part of the Senior Notes, on any one or more occasions, at the redemption prices set forth below plus accrued and unpaid interest thereon, if any, up to, but not including, the applicable redemption date, if redeemed during the one-year period beginning on March 1 of the years indicated below:


	Redemption price of the Senior Notes
2014	104.0625	%
2015	102.0313	%
2016 and thereafter	100.0000	%

In addition, at any time prior to March 1, 2014, the Company may also redeem all or a part of the Senior Notes at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed plus applicable premium (the “Applicable Premium”) and accrued and unpaid interest, if any, to, but not including, the date of redemption (the “Redemption Date”). The Applicable Premium means the greater of:

•

1.0% of the principal amount of the Senior Notes; and

•

the excess of: (a) the present value at such redemption date of (i) the redemption price of the Senior Notes at March 1, 2014 as shown in the above table, plus (ii) all required interest payments due on the Senior Notes through March 1, 2014 (excluding accrued but unpaid interest, if any, to, but not including the redemption date), computed using a discount rate equal to the yield to maturity of the United States Treasury securities with a constant maturity most nearly equal to the period from the redemption date to March 1, 2014, plus 0.50%; over (b) the principal amount of the Senior Notes.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Upon a change in control, the Company will be required to make an offer to purchase each holder’s Senior Notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase.

Debt issuance costs related to the Senior Notes, net of amortization, were $13,964,000 as of June 30, 2010.

New Asia-Pacific Financing

In May 2010, five wholly-owned subsidiaries of the Company, located in Australia, Hong Kong, Japan and Singapore, completed a new multi-currency credit facility agreement for approximately $202,742,000 (the “New Asia-Pacific Financing”), comprising 79,153,000 Australian dollars, 370,433,000 Hong Kong dollars, 99,434,000 Singapore dollars and 1,513,400,000 Japanese yen. The New Asia-Pacific Financing replaced the Company’s existing Asia-Pacific Financing and Singapore Financing. The New Asia-Pacific Financing has a five-year term with semi-annual principal payments and quarterly debt service and consist of two tranches: (i) Tranche A was available for immediate drawing upon satisfaction of certain conditions precedent and was used to refinance the existing Asia-Pacific Financing and Singapore Financing and (ii) Tranche B is available for drawing in Australian, Hong Kong and Singapore dollars only for up to 24 months following the effective date of the New Asia-Pacific Financing. The New Asia Pacific Financing bears an interest rate of 3.50% above the local borrowing rates for the first 12 months and interest rates between 2.50%-3.50% above the local borrowing rates thereafter, depending on the leverage ratio within these five subsidiaries of the Company. The New Asia-Pacific Financing contains financial covenants with which the Company and its five subsidiaries must comply quarterly. The New Asia-Pacific Financing is guaranteed by the parent, Equinix, Inc., and is secured by certain of the Company’s five subsidiaries’ assets and share pledges. In May 2010, the Company’s five subsidiaries drew-down a total of approximately $98,958,000 from Tranche A and Tranche B under the New Asia-Pacific Financing, primarily for the prepayment and termination of the existing Asia-Pacific Financing and the Singapore Financing. As of June 30, 2010, the Company’s five subsidiaries had fully utilized Tranche A under the New Asia-Pacific Financing. The loans payable under the New Asia-Pacific Financing have a final maturity date of March 2015. As of June 30, 2010, the Company and its five subsidiaries were in compliance with all financial covenants in connection with the New Asia-Pacific Financing. As of June 30, 2010, $98,958,000 was outstanding under the New Asia-Pacific Financing at an approximate blended interest rate of 5.30% per annum.

Debt issuance costs associated with the New Asia-Pacific Financing, net of amortization, were $8,136,000 as of June 30, 2010. Debt issuance costs associated with the previously-existing Asia-Pacific Financing and the Singapore Financing were written-off and recorded as losses on debt extinguishment (refer to ““Loss on Debt Extinguishment and Interest Rate Swaps, Net” below).

Chicago IBX Financing

In March 2010, the Company prepaid and terminated the Chicago IBX Financing, of which principal of $109,991,000 was outstanding as of December 31, 2009. The Chicago IBX Financing was prepaid to the lender for an amount equal to 95.909% of the then outstanding principal balance outstanding, plus accrued and unpaid interest, resulting in a gain of $4,460,000. On the same date, the Company paid and terminated the interest rate swap associated with the Chicago IBX Financing totaling $3,160,000. For additional information, refer to “Loss on Debt Extinguishment and Interest Rate Swaps, Net” below.

European Financing

In April 2010, the Company prepaid and terminated the European Financing at par for a total payment of approximately $121,748,000 plus accrued and unpaid interest. On the same date, the Company terminated three interest rate swaps associated with the European Financing and paid a total of $4,272,000 to terminate these interest rate swaps. For additional information, refer to “Loss on Debt Extinguishment and Interest Rate Swaps, Net” below.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Netherlands Financing

In June 2010, the Company prepaid and terminated the Netherlands Financing at par for a total payment of approximately $7,965,000 plus accrued and unpaid interest.

Switch and Data Debt

In May 2010, the Company prepaid and terminated at par a revolving credit facility assumed in connection with the Switch and Data Acquisition for a total payment of $138,938,000 plus accrued and unpaid interest. On the same date, the Company terminated the associated interest rate swap acquired related to this revolving credit facility and paid a total of $9,789,000 to terminate this interest rate swap. For additional information, refer to “Loss on Debt Extinguishment and Interest Rate Swaps, Net” below.

In May 2010, the Company prepaid and terminated an equipment capital lease assumed in connection with the Switch and Data Acquisition for a total payment of $9,191,000, resulting in a loss of $36,000. For additional information, refer to “Loss on Debt Extinguishment and Interest Rate Swaps, Net” below.

In April 2010, the Company also assumed two other capital leases in connection with the Switch and Data Acquisition related to two properties in North Bergen, New Jersey (the “New Jersey Capital Lease”) and Sunnyvale, California (the “Sunnyvale Capital Lease”). The Company assumed a capital lease obligation for the New Jersey Capital Lease totaling $24,660,000 with monthly payments due through July 2023 at an effective interest rate of 8.6% per annum. The Company assumed a capital lease obligation for the Sunnyvale Capital Lease totaling $15,585,000 with monthly payments due through July 2022 at an effective interest rate of 8.6% per annum.

Bank of America Revolving Credit Line

In February 2010, the Company amended the Bank of America Revolving Credit Line and extended the maturity date to February 11, 2011. In addition, the Bank of America Revolving Credit Line was amended to permit the Company to fund the cash payment portion of the pending acquisition of Switch and Data and to repay or retire its outstanding loan obligations upon the closing of the Switch and Data Acquisition. The Bank of America Revolving Credit Line will be used primarily to fund the Company’s working capital and to enable the Company to issue letters of credit. The effect of issuing letters of credit under the Bank of America Revolving Credit Line reduces the amount available for borrowing under the Bank of America Revolving Credit Line. The Company may borrow, repay and reborrow under the Bank of America Revolving Credit Line at either the prime rate or at a borrowing margin of 2.75% over one, three or six month LIBOR, subject to a minimum borrowing cost of 3.00%. The Bank of America Revolving Credit Line contains three financial covenants, which the Company must comply with quarterly, consisting of a tangible net worth ratio, a debt service ratio and a senior leverage ratio and is collateralized by the Company’s domestic accounts receivable balances. As of June 30, 2010, the Company was in compliance with all financial covenants in connection with the Bank of America Revolving Credit Line. The Bank of America Revolving Credit Line is available for renewal subject to mutual agreement by both parties. As of June 30, 2010, the Company had issued 16 irrevocable letters of credit totaling $18,429,000 under the Bank of America Revolving Credit Line. As a result, the amount available to borrow was $6,571,000 as of June 30, 2010.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Loss on Debt Extinguishment and Interest Rate Swaps, Net

Loss on debt extinguishment and interest rate swaps, net consisted of the following (in thousands):


	Three months ended			Six months ended
	June 30, 2010
Principal discount on the Chicago IBX financing	$	—		$	4,460
Principal premium on the Switch and Data equipment capital lease		(36	)		(36	)
Write-off of unamortized debt issuance costs:
Chicago IBX financing		—			(474	)
Asia-Pacific financing		(720	)		(720	)
Singapore financing		(502	)		(502	)

Subtotal – gain (loss) on debt extinguishment		(1,258	)		2,728

Termination of interest rate swaps:
Chicago IBX financing interest rate swap		—			(3,160	)
European financing interest rate swaps		(69	)		(4,272	)
Switch and Data interest rate swap		(83	)		(83	)
Interest rate swap termination fees		(44	)		(44	)

Subtotal – loss on interest rate swaps		(196	)		(7,559	)

Loss on debt extinguishment and interest rate swaps, net	$	(1,454	)	$	(4,831	)

Maturities

Combined aggregate maturities for the Company’s various debt facilities and other financing obligations as of June 30, 2010 were as follows (in thousands):


	Convertible debt (1)			Senior notes (1)		Mortgage and loans payable (1)			Capital lease and other financing obligations (2)			Total
2010 (six months remaining)	$	—		$	—	$	11,358		$	11,414		$	22,772
2011		—			—		21,263			25,047			46,310
2012		250,000			—		23,449			25,462			298,911
2013		—			—		26,426			25,940			52,366
2014		395,986			—		22,480			26,810			445,276
2015 and thereafter		373,750			750,000		84,343			229,533			1,437,626

		1,019,736			750,000		189,319			344,206			2,303,262

Less amount representing interest		—			—		—			(171,597	)		(171,597	)
Less amount representing debt discount		(114,967	)		—		—			—			(114,967	)
Less estimated building costs		—			—		—			(3,166	)		(3,166	)
Plus amount representing residual property value		—			—		—			45,857			45,857

		904,769			750,000		189,319			215,300			2,059,388

Less current portion of principal		—			—		(21,968	)		(7,995	)		(29,963	)

	$	904,769		$	750,000	$	167,351		$	207,305		$	2,029,425

(1)	Represents principal only.

(2)	Represents principal and interest in accordance with minimum lease payments.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

9. Commitments and Contingencies

Legal Matters

IPO Litigation

On July 30, 2001 and August 8, 2001, putative shareholder class action lawsuits were filed against the Company, certain of its officers and directors (the “Individual Defendants”), and several investment banks that were underwriters of the Company’s initial public offering (the “Underwriter Defendants”). The cases were filed in the United States District Court for the Southern District of New York. Similar lawsuits were filed against approximately 300 other issuers and related parties. These lawsuits have been coordinated before a single judge. The purported class action alleges violations of Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b), Rule 10b-5 and 20(a) of the Securities Exchange Act of 1934 against the Company and the Individual Defendants. The plaintiffs have since dismissed the Individual Defendants without prejudice. The suits allege that the Underwriter Defendants agreed to allocate stock in the Company’s initial public offering to certain investors in exchange for excessive and undisclosed commissions and agreements by those investors to make additional purchases in the aftermarket at pre-determined prices. The plaintiffs allege that the prospectus for the Company’s initial public offering was false and misleading and in violation of the securities laws because it did not disclose these arrangements. The action seeks damages in an unspecified amount. On February 19, 2003, the court dismissed the Section 10(b) claim against the Company, but denied the motion to dismiss the Section 11 claim.

The parties in the approximately 300 coordinated cases, including the parties in the Equinix case, reached a settlement. It provides for releases of existing claims and claims that could have been asserted relating to the conduct alleged to be wrongful from the class of investors participating in the settlement. The insurers for the issuer defendants in the coordinated cases will make the settlement payment on behalf of the issuers, including Equinix. On October 6, 2009, the Court granted final approval to the settlement. Six notices of appeal and one petition seeking permission to appeal, from a group of objectors who also filed a notice of appeal, have been filed.

Due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of the matter. The Company is unable at this time to determine whether the outcome of the litigation would have a material impact on its results of operations, financial condition or cash flows. The Company intends to continue to defend the action vigorously if the settlement does not survive the appeal.

Pihana Litigation

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Amended Complaint, the operative complaint in this case. On January 22, 2009, motions to dismiss the Amended Complaint were filed by Equinix and other Defendants. On April 24, 2009, plaintiffs filed a Second Amended Complaint (“SAC”) to correct the naming of certain parties. The SAC is otherwise substantively identical to the Amended Complaint, and all motions to dismiss the Amended Complaint have been treated as responsive to the SAC. On September 1, 2009, the Court heard Defendants’ motions to dismiss the SAC and ruled at the hearing that all claims against all Defendants are time-barred. The Court also considered whether there were further independent grounds for dismissing the claims, and supplemental briefing was submitted with respect to claims against one defendant and plaintiffs’ renewed request for further leave to amend. On March 23, 2010, the Court entered final Orders granting the motions to dismiss as to all Defendants and issued a minute Order denying Plaintiffs’ renewed request for further leave to amend. On May 21, 2010, Plaintiffs filed a Notice of Appeal. The Company believes that plaintiffs’ claims and alleged damages are without merit and it intends to continue to defend the litigation vigorously.

Switch and Data Litigation

In the fourth quarter of 2009, three purported stockholder class action lawsuits were filed against the Company in connection with the Company’s proposed merger with Switch and Data. The first, filed October 27, 2009 in the Delaware Chancery Court, names Equinix, Sundance Acquisition Corporation, Switch and Data, and the members of Switch and Data’s board of directors as defendants. The lawsuit alleges that the Switch and Data directors breached their fiduciary duties to Switch and Data’s stockholders in connection with the proposed merger, and that Equinix aided and abetted these alleged breaches. The second complaint, filed October 30, 2009 in Florida state court, raises similar claims against the same defendants. The third complaint, filed on December 7, 2009 in the United States District Court for the Middle District of Florida, likewise raises similar claims but did not name Sundance Acquisition Corporation as a defendant. Both the second and third complaints included claims alleging that Switch and Data had failed to disclose material information concerning the merger to stockholders.

On January 19, 2010, counsel for parties in all three lawsuits entered into a memorandum of understanding in which they agreed upon the terms of a settlement of all three lawsuits. In connection with this settlement, the three lawsuits and all claims asserted therein are expected to be dismissed with prejudice. The proposed settlement is conditional upon, among other things, consummation of the merger and final approval of the proposed settlement by the Florida state court. The proposed settlement contemplates that plaintiffs’ counsel will apply to the Florida state court for an award of attorneys’ fees and costs in an aggregate amount of $900,000, and that the defendants will not oppose or undermine this application. The Company expects that approximately 70 percent of these attorneys’ fees will be paid by insurance maintained by Switch and Data, and that the Company will pay the remainder. Pursuant to this agreement, the parties sought and obtained stays of the Florida federal and Delaware actions pending approval of the settlement. On March 22, 2010, the parties entered into a stipulation of settlement and release, adopting the terms of the memorandum of understanding outlined above. Pursuant to this stipulation, on March 25, 2010, the parties filed a Joint Motion for Class Certification and Preliminary Approval of Settlement in Florida state court. On May 7, 2010, the Court granted the motion and scheduled a final approval hearing for August 9, 2010. If final approval of the settlement is granted, then the parties will seek dismissal with prejudice of the other two actions. If the settlement is not finalized, the Company intends to continue to defend the action vigorously.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Litigation Summary

The Company believes that while an unfavorable outcome to these litigations is reasonably possible, a range of potential loss cannot be determined at this time with the exception of the Switch and Data litigation. As a result, the Company had not accrued for any amounts in connection with these legal matters as of June 30, 2010 with the exception of the Switch and Data litigation. The Company and its officers and directors intend to continue to defend the actions vigorously.

Other Purchase Commitments

Primarily as a result of the Company’s various IBX expansion projects, as of June 30, 2010, the Company was contractually committed for $77,324,000 of unaccrued capital expenditures, primarily for IBX equipment not yet delivered and labor not yet provided, in connection with the work necessary to open these IBX centers and make them available to customers for installation. In addition, the Company had numerous other, non-capital purchase commitments in place as of June 30, 2010, such as commitments to purchase power in select locations, primarily in the U.S., Australia, Germany, Singapore and the United Kingdom, through the remainder of 2010 and thereafter, and other open purchase orders for goods or services to be delivered or provided during the remainder of 2010 and thereafter. Such other miscellaneous purchase commitments totaled $98,550,000 as of June 30, 2010.

10. Other Comprehensive Income and Loss

The components of other comprehensive income (loss) are as follows (in thousands):


	Three months ended June 30,					Six months ended June 30,
	2010			2009		2010			2009
Net income (loss)	$	(2,274	)	$	17,440	$	11,925		$	32,897
Unrealized gain (loss) on available for sale securities, net of tax of $59, $118, $65 and $406, respectively		(78	)		163		(182	)		557
Unrealized gain on interest rate swaps, net of tax of $0, $517, $3,469 and $371, respectively		—			713		4,933			439
Foreign currency translation gain (loss)		(32,034	)		73,075		(72,123	)		58,283

Comprehensive income (loss)	$	(34,386	)	$	91,391	$	(55,447	)	$	92,176

Changes in foreign currencies, particularly the British pound and Euro, can have a significant impact to the Company’s consolidated balance sheets (as evidenced above in the Company’s foreign currency translation gain or loss), as well as its consolidated results of operations, as amounts in foreign currencies are generally translating into more U.S. dollars when the U.S. dollar weakens or less U.S. dollars when the U.S. dollar strengthens. During the three and six months ended June 30, 2010, the U.S. dollar strengthened against certain of the currencies of the foreign countries in which the Company operates. This has significantly impacted the Company’s condensed consolidated balance sheets (as evidenced in the Company’s foreign currency translation losses), as well as its condensed consolidated statements of operations as amounts denominated in foreign currencies are generally translating into less U.S. dollars. To the extent that the U.S. dollar strengthens further, this will continue to impact the Company’s consolidated financial statements including the amount of revenue that the Company reports in future periods.

11. Segment Information

During the three months ended June 30, 2010, the Company changed its reportable segments as a result of the addition of Switch and Data’s Canadian operations in connection with the Switch and Data Acquisition. The Company’s prior U.S. segment is now re-designated as the North America segment. The change in reportable segments did not impact the Company’s prior periods’ segment disclosures. While the Company has a single line of business, which is the design, build-out and operation of IBX data centers, it has determined that it has three reportable segments comprised of its North America, Europe and

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Asia-Pacific geographic regions. The Company’s chief operating decision-maker evaluates performance, makes operating decisions and allocates resources based on the Company’s revenue and adjusted EBITDA performance both on a consolidated basis and based on these three geographic regions.

The Company provides the following segment disclosures as follows (in thousands):


	Three months ended June 30,					Six months ended June 30,
	2010			2009		2010			2009
Total revenues:
North America (1)	$	191,646		$	129,746	$	340,202		$	254,640
Europe		66,084			55,056		130,248			102,856
Asia-Pacific		38,364			28,366		74,293			54,903

	$	296,094		$	213,168	$	544,743		$	412,399


Total depreciation and amortization:
North America (1)	$	42,542		$	26,995	$	70,408		$	52,844
Europe		13,601			11,203		27,954			20,768
Asia-Pacific		6,607			6,693		13,077			12,955

	$	62,750		$	44,891	$	111,439		$	86,567


Income from operations:
North America (1)	$	22,529		$	28,748	$	52,130		$	62,689
Europe		7,672			7,887		15,993			13,313
Asia-Pacific		10,026			4,394		20,086			8,733

	$	40,227		$	41,029	$	88,209		$	84,735


Capital expenditures:
North America (1)	$	201,081	(2)	$	36,831	$	297,047	(2)	$	112,930
Europe		38,381			21,384		78,225			41,265
Asia-Pacific		22,532			12,551		30,122			25,412

	$	261,994		$	70,766	$	405,394		$	179,607

(1) Includes the operations of Switch and Data from May 1, 2010 through June 30, 2010. (2) Includes the purchase price for the Switch and Data Acquisition, net of cash acquired, which totaled $113,289,000.

The Company’s long-lived assets are located in the following geographic areas as of (in thousands):


	June 30, 2010		December 31, 2009
North America	$	1,693,687	$	1,130,637
Europe		498,190		493,492
Asia-Pacific		208,932		183,986

	$	2,400,809	$	1,808,115

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Revenue information on a services basis is as follows (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2010		2009		2010		2009
Colocation	$	233,320	$	170,041	$	433,679	$	327,525
Interconnection		40,942		26,134		70,174		51,331
Managed infrastructure		7,295		7,131		14,595		14,508
Rental		560		239		905		503

Recurring revenues		282,117		203,545		519,353		393,867
Non-recurring revenues		13,977		9,623		25,390		18,532

	$	296,094	$	213,168	$	544,743	$	412,399

No single customer accounted for 10% or greater of the Company’s revenues for the three and six months ended June 30, 2010 and 2009. No single customer accounted for 10% or greater of the Company’s gross accounts receivable as of June 30, 2010 and December 31, 2009.

12. Restructuring Charges

Switch and Data Restructuring Charge

During the three months ended June 30, 2010, the Company recorded a restructuring charge related to one-time termination benefits, primarily comprised of severance, attributed to certain Switch and Data employees as presented below (in thousands):


Severance-related expenses (1)(2)	$	4,372
Cash payments		(765	)
Non-cash payments (2)		(1,491	)

Accrued restructuring charge as of June 30, 2010 (3)	$	2,116

(1) Included in the condensed consolidated statements of operations as a restructuring charge. (2) Includes a stock-based compensation charge incurred as a result of modifying equity awards for one of the former Switch and Data executives to accelerate vesting. (3) Included within other current liabilities.

As of June 30, 2010, the Company’s remaining accrued restructuring charge associated with the Switch and Data Acquisition is expected to be paid out during the remainder of 2010. The Company anticipates that it will incur additional restructuring charges in connection with the Switch and Data Acquisition related to one-time termination benefits during the remainder of 2010 and the first four months of 2011.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2004 Restructuring Charge

A summary of the movement in the 2004 accrued restructuring charge from December 31, 2009 to June 30, 2010 is outlined as follows (in thousands):


	Accrued restructuring charge as of December 31, 2009			Restructuring charge			Accretion expense		Cash payments			Accrued restructuring charge as of June 30, 2010
Estimated lease exit costs	$	5,919		$	(15	)	$	142	$	(787	)	$	5,259

		5,919			(15	)		142		(787	)		5,259

Less current portion		(2,043	)										(1,571	)

	$	3,876										$	3,688

As the Company currently has no plans to enter into a lease termination with the landlord associated with the excess space lease in the New York metro area, the Company has reflected its accrued restructuring liability as both a current and non-current liability. The Company reports accrued restructuring charges within other current liabilities and other liabilities on the accompanying consolidated balance sheets as of June 30, 2010 and December 31, 2009. The Company is contractually committed to this excess space lease through 2015.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in “Liquidity and Capital Resources” below and “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q. All forward-looking statements in this document are based on information available to us as of the date of this Report and we assume no obligation to update any such forward-looking statements.

Our management’s discussion and analysis of financial condition and results of operations is intended to assist readers in understanding our financial information from our management’s perspective and is presented as follows:

•

Overview

•

Results of Operations

•

Non-GAAP Financial Measures

•

Liquidity and Capital Resources

•

Contractual Obligations and Off-Balance-Sheet Arrangements

•

Critical Accounting Policies and Estimates

•

Recent Accounting Pronouncements

In February 2010, we issued $750.0 million aggregate principal amount of 8.125% senior notes due March 1, 2018 which we refer to as the senior notes offering.

On April 30, 2010, as more fully described in Note 2 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we completed the acquisition of Switch & Data Facilities Company, Inc., referred to as Switch and Data, a publicly-held company headquartered in Tampa, Florida. We refer to this transaction as the Switch and Data acquisition. Switch and Data operated 34 data centers in the U.S. and Canada. The combined company operates under the Equinix name.

Overview

Equinix provides global data center services that protect and connect the world’s most valued information assets. Global enterprises, financial services companies, and content and network service providers rely upon Equinix’s leading insight and our 87 data centers in 35 markets around the world for the safeguarding of their critical IT equipment and the ability to directly connect to the networks that enable today’s information-driven economy. Equinix offers the following data center services: premium data center colocation, interconnection and exchange services, and outsourced IT infrastructure services. As of June 30, 2010, we operated IBX data centers in the Atlanta, Boston, Buffalo, Chicago, Cleveland, Dallas, Denver, Detroit, Indianapolis, Los Angeles, Miami, Nashville, New York, Philadelphia, Phoenix, Pittsburgh, Seattle, Silicon Valley, St. Louis, Tampa, Toronto and Washington, D.C. metro areas in North America; France, Germany, the Netherlands, Switzerland and the United Kingdom in Europe; and Australia, Hong Kong, Japan and Singapore in Asia-Pacific.

We leverage our global data centers in 35 markets around the world as a global service delivery platform which serves more than 90% of the world’s Internet routes and allows our customers to increase information and application delivery performance while significantly reducing costs. Based on our global

delivery platform and the quality of our IBX data centers, we believe we have established a critical mass of customers. As more customers locate in our IBX data centers, it benefits their suppliers and business partners to colocate as well in order to gain the full economic and performance benefits of our services. These partners, in turn, pull in their business partners, creating a “marketplace” for their services. Our global delivery platform enables scalable, reliable and cost-effective colocation, interconnection and traffic exchange thus lowering overall cost and increasing flexibility. Our focused business model is based on our critical mass of customers and the resulting “marketplace” effect. This global delivery platform, combined with our strong financial position, continues to drive new customer growth and bookings as we drive scale into our global business.

Historically, our market has been served by large telecommunications carriers who have bundled their telecommunications products and services with their colocation offerings. The data center services market landscape has evolved to include cloud computing/utility providers, application hosting providers and systems integrators, managed infrastructure hosting providers and colocation providers with over 350 companies providing data center services in the United States alone. Each of these data center services providers can bundle various colocation, interconnection and network services, and outsourced IT infrastructure services. We are able to offer our customers a global platform that supports global reach to 12 countries, proven operational reliability, improved application performance and network choice, and a highly scalable set of services.

Our customer count increased to 3,661 as of June 30, 2010 versus 2,430 as of June 30, 2009, an increase of 51%. This significant increase was primarily due to the Switch and Data acquisition in April 2010. Our utilization rate represents the percentage of our cabinet space billing versus net sellable cabinet space available taking into account power limitations. Excluding the impact of the Switch and Data acquisition, our utilization rate decreased to 76% as of June 30, 2010 versus approximately 83% as of June 30, 2009; however, excluding the impact of our IBX data center expansion projects that have opened during the last 12 months, our utilization rate would have increased to approximately 86% as of June 30, 2010. Including the impact of the Switch and Data acquisition, our utilization rate was 74% as of June 30, 2010. Our utilization rate varies from market to market among our IBX data centers across our North America, Europe and Asia-Pacific regions. We continue to monitor the available capacity in each of our selected markets. To the extent we have limited capacity available in a given market it may limit our ability for growth in that market. We perform demand studies on an ongoing basis to determine if future expansion is warranted in a market. In addition, power and cooling requirements for most customers are growing on a per unit basis. As a result, customers are consuming an increasing amount of power per cabinet. Although we generally do not control the amount of power our customers draw from installed circuits, we have negotiated power consumption limitations with certain of our high power demand customers. This increased power consumption has driven the requirement to build out our new IBX data centers to support power and cooling needs twice that of previous IBX data centers. We could face power limitations in our centers even though we may have additional physical cabinet capacity available within a specific IBX data center. This could have a negative impact on the available utilization capacity of a given center, which could have a negative impact on our ability to grow revenues, affecting our financial performance, operating results and cash flows.

Strategically, we will continue to look at attractive opportunities to grow our market share and selectively improve our footprint and service offerings. As was the case with our recent expansions and acquisitions, our expansion criteria will be dependent on a number of factors such as demand from new and existing customers, quality of the design, power capacity, access to networks, capacity availability in the current market location, amount of incremental investment required by us in the targeted property, lead-time to break-even and in-place customers. Like our recent expansions and acquisitions, the right combination of these factors may be attractive to us. Depending on the circumstances, these transactions may require additional capital expenditures funded by upfront cash payments or through long-term financing arrangements, in order to bring these properties up to Equinix standards. Property expansion may be in the form of purchases of real property, long-term leasing arrangements or acquisitions. Future purchases, construction or acquisitions may be completed by us or with partners or potential customers to minimize the outlay of cash, which can be significant.

Our business is based on a recurring revenue model comprised of colocation, interconnection and managed infrastructure services. We consider these services recurring as our customers are generally billed on a fixed and recurring basis each month for the duration of their contract, which is generally one to three years in length. Our recurring revenues have comprised more than 90% of our total revenues during the past three years and during the past three years, in any given quarter, greater than half of our monthly recurring revenue bookings came from existing customers, contributing to our revenue growth.

Our non-recurring revenues are primarily comprised of installation services related to a customer’s initial deployment and professional services that we perform. These services are considered to be non-recurring as they are billed typically once and upon completion of the installation or professional services work performed. The majority of these non-recurring revenues are typically billed on the first invoice distributed to the customer in connection with their initial installation. However, revenues from installation services are deferred and recognized ratably over the longer of the term of the related contract or expected life of the services. As a percentage of total revenues, we expect non-recurring revenues to represent less than 10% of total revenues for the foreseeable future.

Our North America revenues are derived primarily from colocation and interconnection services while our Europe and Asia-Pacific revenues are derived primarily from colocation and managed infrastructure services.

The largest components of our cost of revenues are depreciation, rental payments related to our leased IBX data centers, utility costs, including electricity and bandwidth, IBX data center employees’ salaries and benefits, including stock-based compensation, repairs and maintenance, supplies and equipment and security services. A substantial majority of our cost of revenues is fixed in nature and should not vary significantly from period to period, unless we expand our existing IBX data centers or open or acquire new IBX data centers. However, there are certain costs which are considered more variable in nature, including utilities and supplies, that are directly related to growth in our existing and new customer base. We expect the cost of our utilities, specifically electricity, will increase in the future on a per-unit or fixed basis in addition to the variable increase related to the growth in consumption by the customer. In addition, the cost of electricity is generally higher in the summer months as compared to other times of the year. To the extent we incur increased utility costs, such increased costs could materially impact our financial condition, results of operations and cash flows. Furthermore, to the extent we incur increased electricity costs as a result of either climate change policies or the physical effects of climate change, such increased costs could materially impact our financial condition, results of operations and cash flows.

Sales and marketing expenses consist primarily of compensation and related costs for sales and marketing personnel, including stock-based compensation, sales commissions, marketing programs, public relations, promotional materials and travel, as well as bad debt expense and amortization of customer contract intangible assets.

General and administrative expenses consist primarily of salaries and related expenses, including stock-based compensation, accounting, legal and other professional service fees, and other general corporate expenses such as our corporate regional headquarters office leases and some depreciation expense.

Due to our recurring revenue model, and a cost structure which has a large base that is fixed in nature and generally does not grow in proportion to revenue growth, we expect our cost of revenues, sales and marketing expenses and general and administrative expenses to decline as a percentage of revenue over time, although we expect each of them to grow in absolute dollars in connection with our growth. This is evident in the trends noted below in our discussion on our results of operations. However, for cost of revenues, this trend may periodically be impacted when a large expansion project opens or is acquired and before it starts generating any meaningful revenue. Furthermore, in relation to cost of revenues, we note that the North America region has a lower cost of revenues as a percentage of revenue than either Europe or Asia-Pacific. This is due to both the increased scale and maturity of the North America region compared to either Europe or Asia-Pacific, as well as a higher cost structure

outside of North America, particularly in Europe. While we expect all three regions to continue to see lower cost of revenues as a percentage of revenues in future periods, we expect the trend of North America having the lowest cost of revenues as a percentage of revenue and Europe having the highest to continue. As a result, to the extent that revenue growth outside North America grows in greater proportion than revenue growth in North America, our overall cost of revenues as a percentage of revenues may increase slightly in future periods. Sales and marketing expenses and general and administrative expenses may also periodically increase as a percentage of revenue as we continue to scale our operations to support our growth.

Results of Operations

Our results of operations for the three months and six months ended June 30, 2010 include the operations of Switch and Data from May 1, 2010.

Three Months Ended June 30, 2010 and 2009

Revenues. Our revenues for the three months ended June 30, 2010 and 2009 were generated from the following revenue classifications and geographic regions (dollars in thousands):


	Three months ended June 30,								Change
	2010		%		2009		%		$		%
North America:
Recurring revenues	$	184,794	63	%	$	125,051	59	%	$	59,743	48	%
Non-recurring revenues		6,852	2	%		4,695	2	%		2,157	46	%

		191,646	65	%		129,746	61	%		61,900	48	%


Europe:
Recurring revenues		60,664	20	%		51,508	24	%		9,156	18	%
Non-recurring revenues		5,420	2	%		3,548	2	%		1,872	53	%

		66,084	22	%		55,056	26	%		11,028	20	%


Asia-Pacific:
Recurring revenues		36,659	12	%		26,986	12	%		9,673	36	%
Non-recurring revenues		1,705	1	%		1,380	1	%		325	24	%

		38,364	13	%		28,366	13	%		9,998	35	%


Total:
Recurring revenues		282,118	95	%		203,545	95	%		78,573	39	%
Non-recurring revenues		13,976	5	%		9,623	5	%		4,353	45	%

	$	296,094	100	%	$	213,168	100	%	$	82,926	39	%

North America Revenues. The increase in North America revenues was primarily due to the impact of the Switch and Data acquisition, which resulted in $37.6 million of additional revenue for the three months ended June 30, 2010. The following table presents our North America revenues excluding the impact of the Switch and Data acquisition (dollars in thousands):


	Three months ended June 30,				Change
	2010		2009		$		%
North America:
Recurring revenues	$	147,875	$	125,051	$	22,824	18	%
Non-recurring revenues		6,179		4,695		1,484	32	%

	$	154,054	$	129,746	$	24,308	19	%

each of our IBX markets. Additionally, during the three months ended June 30, 2010, we recorded $9.6 million of revenue generated from our recently-opened IBX data centers or IBX data center expansions in the Chicago, Los Angeles and New York metro areas.

We expect that our North America revenues, including those of the acquired Switch and Data operations, will continue to grow in future periods as a result of continued growth in the recently-opened IBX data centers or IBX data center expansions and additional expansions currently taking place in the Atlanta, Dallas, Silicon Valley and Washington, D.C. metro areas, which are expected to open during the remainder of 2010 and first quarter of 2011.

Europe Revenues. During the three months ended June 30, 2010, our revenues from Germany, the largest revenue contributor in the Europe region for the period, represented approximately 36% of the regional revenues. During the three months ended June 30, 2009, our revenues from the United Kingdom, the largest revenue contributor in the Europe region for the period, represented approximately 36% of the regional revenues. Our Europe revenue growth was due to an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our customer count and utilization rate, as discussed above, in both our new and existing IBX data centers. During the three months ended June 30, 2010, we recorded approximately $6.9 million of revenue from our recently-opened IBX data centers or IBX data center expansions in the Amsterdam, Dusseldorf, Frankfurt, Geneva, London, Munich, Paris and Zurich metro areas. We expect that our Europe revenues will continue to grow in future periods as a result of continued growth in recently-opened IBX data centers or IBX data center expansions and additional expansions currently taking place in the Amsterdam and Frankfurt metro areas, which are expected to open during the remainder of 2010.

Asia-Pacific Revenues. Our revenues from Singapore, the largest revenue contributor in the Asia-Pacific region, represented approximately 38% and 36%, respectively, of the regional revenues for the three months ended June 30, 2010 and 2009. Our Asia-Pacific revenue growth was due to an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our customer count and utilization rate, as discussed above, in both our new and existing IBX data centers. During the three months ended June 30, 2010, we recorded approximately $1.8 million of revenue generated from our IBX center expansions in the Hong Kong and Singapore metro areas. We expect that our Asia-Pacific revenues will continue to grow in future periods as a result of continued growth in these recently-opened IBX center expansions and additional expansions currently taking place in the Singapore, Sydney and Tokyo metro areas which are expected to open during the remainder of 2010.

Cost of Revenues. Our cost of revenues for the three months ended June 30, 2010 and 2009 were split among the following geographic regions (dollars in thousands):


	Three months ended June 30,								Change
	2010		%		2009		%		$		%
North America	$	100,416	61	%	$	66,667	56	%	$	33,749	51	%
Europe		41,678	26	%		34,598	29	%		7,080	20	%
Asia-Pacific		20,488	13	%		17,269	15	%		3,219	19	%

Total	$	162,582	100	%	$	118,534	100	%	$	44,048	37	%


	Three months ended June 30,
	2010		2009
Cost of revenues as a percentage of revenues:
North America	52	%	51	%
Europe	63	%	63	%
Asia-Pacific	53	%	61	%
Total	55	%	56	%

North America Cost of Revenues. The increase in our North America cost of revenues was primarily due to the impact of the Switch and Data acquisition, which resulted in $27.3 million of additional cost of revenues for the three months ended June 30, 2010. Our North America cost of revenues for the three months ended June 30, 2010 and 2009 included $37.0 million and $25.3 million, respectively, of depreciation expense, including $9.6 million of depreciation expense from the impact of the Switch and Data acquisition for the three months ended June 30, 2010.

Excluding the impact of the Switch and Data acquisition, our North America cost of revenues during the three months ended June 30, 2010 was $73.1 million, which represents an increase of 10% from the three months ended June 30, 2009. This increase was primarily due to growth in depreciation expense as a result of our IBX center expansion activity; however, this growth was partially offset by a $2.3 million decrease in depreciation expense as we revised the estimated useful lives of certain of our property, plant and equipment during the three months ended September 30, 2009. Excluding depreciation, the increase was primarily due to overall growth related to our revenue growth and costs associated with our expansion projects, including an increase of $2.1 million in rent and facility costs. We expect North America cost of revenues to increase as we continue to grow our business.

Europe Cost of Revenues. Europe cost of revenues for the three months ended June 30, 2010 and 2009 included $12.2 million and $9.6 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our IBX center expansion activity; however, this growth was partially offset by a $261,000 decrease in depreciation expense as we revised the estimated useful lives of certain of our property, plant and equipment during the three months ended September 30, 2009. Excluding depreciation expense, the increase in Europe cost of revenues was primarily the result of costs associated with our expansion projects and overall growth in costs to support our revenue growth, such as higher utility costs arising from increased customer installations and revenues attributed to customer growth and higher repair and maintenance costs. We expect Europe cost of revenues to increase as we continue to grow our business.

Asia-Pacific Cost of Revenues. Asia-Pacific cost of revenues for the three months ended June 30, 2010 and 2009 included $6.4 million and $6.5 million, respectively, of depreciation expense. Decrease in depreciation expense was primarily due to a $1.4 million decrease in depreciation expense as we revised the estimated useful lives of certain of our property, plant and equipment during the three months ended September 30, 2009; however, this decrease was partially offset by growth in depreciation expense as a result of our IBX center expansion activity. Excluding depreciation expense, the increase in Asia-Pacific cost of revenues was primarily the result of costs associated with our expansion projects and overall growth in costs to support our revenue growth, such as an increase of $1.0 million in utility costs arising from increased customer installations and revenues attributed to customer growth, an increase in rent and facility costs and higher repair and maintenance costs. We expect Asia-Pacific cost of revenues to increase as we continue to grow our business.

Sales and Marketing Expenses. Our sales and marketing expenses for the three months ended June 30, 2010 and 2009 were split among the following geographic regions (dollars in thousands):


	Three months ended June 30,								Change
	2010		%		2009		%		$		%
North America	$	19,506	67	%	$	9,330	57	%	$	10,176	109	%
Europe		5,915	21	%		4,728	29	%		1,187	25	%
Asia-Pacific		3,492	12	%		2,311	14	%		1,181	51	%

Total	$	28,913	100	%	$	16,369	100	%	$	12,544	77	%


	Three months ended June 30,
	2010		2009
Sales and marketing expenses as a percentage of revenues:
North America	10	%	7	%
Europe	9	%	9	%
Asia-Pacific	9	%	8	%
Total	10	%	8	%

North America Sales and Marketing Expenses. The increase in our North America sales and marketing expenses was primarily due to the impact of the Switch and Data acquisition, which resulted in $5.4 million of additional sales and marketing expenses including $1.7 million of amortization expense for customer contracts for the three months ended June 30, 2010.

Excluding the impact of the Switch and Data acquisition, our North America sales and marketing expenses during the three months ended June 30, 2010 were $14.1 million, which represents an increase of 51% from the three months ended June 30, 2009. This increase was primarily due to $3.7 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation expense and headcount growth (138 North America sales and marketing employees as of June 30, 2010 versus 103 as of June 30, 2009).

We generally expect North America sales and marketing expenses to increase as we continue to grow our business and invest further in various branding initiatives; however, as a percentage of revenues, we generally expect them to decrease. However, we have decided to invest further in our North America sales and marketing team in 2010 including anticipated headcount growth and new product innovation efforts and, as a result, this trend will be temporarily impacted.

Europe Sales and Marketing Expenses. The increase in our Europe sales and marketing expenses was primarily due to higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation expense and headcount growth(67 Europe sales and marketing employees as of June 30, 2010 versus 54 as of June 30, 2009). Going forward, although we are carefully monitoring our spending given the current economic environment, we generally expect Europe sales and marketing expenses to increase as we continue to grow our business; however, as a percentage of revenues, we generally expect them to decrease.

Asia-Pacific Sales and Marketing Expenses. The increase in our Asia-Pacific sales and marketing expenses was primarily due to higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation expense and headcount growth (52 Asia-Pacific sales and marketing employees as of June 30, 2010 versus 35 as of June 30, 2009). Going forward, although we are carefully monitoring our spending given the current economic environment, we expect Asia-Pacific sales and marketing expenses to increase as we continue to grow our business; however, as a percentage of revenues, we generally expect them to decrease.

General and Administrative Expenses. Our general and administrative expenses for the three months ended June 30, 2010 and 2009 were split among the following geographic regions (dollars in thousands):


	Three months ended June 30,								Change
	2010		%		2009		%		$			%
North America	$	38,989	72	%	$	25,221	67	%	$	13,768		55	%
Europe		10,819	20	%		7,843	21	%		2,976		38	%
Asia-Pacific		4,358	8	%		4,392	12	%		(34	)	(1	%)

Total	$	54,166	100	%	$	37,456	100	%	$	16,710		45	%


	Three months ended June 30,
	2010		2009
General and administrative expenses as a percentage of revenues:
North America	20	%	19	%
Europe	16	%	14	%
Asia-Pacific	11	%	15	%
Total	18	%	18	%

North America General and Administrative Expenses. The increase in our North America general and administrative expenses was primarily due to the impact of the Switch and Data acquisition, which resulted in $6.5 million of additional general and administrative expenses for the three months ended June 30, 2010.

Excluding the impact of the Switch and Data acquisition, our North America general and administrative expenses during the three months ended June 30, 2010 was $32.4 million, which represents an increase of 29% from the three months ended June 30, 2009. The increase in our North America general and administrative expenses was primarily due to $5.5 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (352 North America general and administrative employees as of June 30, 2010 versus 285 as of June 30, 2009) and higher professional services related to various consulting projects to support our growth.

Going forward, although we are carefully monitoring our spending given the current economic environment, we expect North America general and administrative expenses to increase as we continue to scale our operations to support our growth; however, as a percentage of revenues, we generally expect them to decrease.

Europe General and Administrative Expenses. The increase in our Europe general and administrative expenses was primarily due to $2.1 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (143 Europe general and administrative employees as of June 30, 2010 versus 94 as of June 30, 2009). Going forward, although we are carefully monitoring our spending given the current economic environment, we expect our Europe general and administrative expenses to increase in future periods as we continue to scale our operations to support our growth; however, as a percentage of revenues, we generally expect them to decrease.

Asia-Pacific General and Administrative Expenses. Our Asia-Pacific general and administrative expenses did not significantly change. Going forward, although we are carefully monitoring our spending given the current economic environment, we expect Asia-Pacific general and administrative expenses to increase as we continue to scale our operations to support our growth; however, as a percentage of revenues, we generally expect them to decrease.

Restructuring Charges. During the three months ended June 30, 2010, we recorded restructuring charges totaling $4.4 million primarily related to one-time termination benefits attributed to certain Switch and Data employees. For additional information, see “Restructuring Charges” in Note 12 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q. We anticipate that we will incur additional restructuring charges in connection with the Switch and Data acquisition also related to one-time termination benefits during the remainder of 2010 and the first four months of 2011. During the three months ended June 30, 2009, we recorded a reduction to restructuring charges of $220,000 from revised sublease assumptions on our excess space in the New York metro area. Our restructuring charges all relate to our North America geographic region.

Acquisition Costs. During the three months ended June 30, 2010, we recorded acquisition costs totaling $5.8 million related to the Switch and Data acquisition. During the three months ended June 30, 2009, we did not record any acquisition costs. We do not expect to incur significant additional acquisition costs related to the Switch and Data acquisition. Our acquisition costs all relate to our North America geographic region.

Interest Income. Interest income decreased to $491,000 for the three months ended June 30, 2010 from $680,000 for the three months ended June 30, 2009. Interest income decreased primarily due to lower yields on invested balances. The average yield for the three months ended June 30, 2010 was 0.20% versus 0.48% for the three months ended June 30, 2009. We expect our interest income to remain at these low levels for the foreseeable future due to the impact of a lower interest rate environment, a portfolio more weighted towards short-term U.S. treasuries and from the utilization of cash to finance our expansion activities.

Interest Expense. Interest expense increased to $37.6 million for the three months ended June 30, 2010 from $15.9 million for the three months ended June 30, 2009. This increase in interest expense was primarily due to additional financings entered into during 2009 and 2010 consisting of (i) our $750.0 million 8.125% senior notes offering in February 2010, (ii) our $373.8 million 4.75% convertible subordinated notes offering in June 2009 and (iii) our new Asia-Pacific financing in May 2010, of which $99.0 million was outstanding as of June 30, 2010 with an approximate blended interest rate of 5.30% per annum, which replaced both our previously-existing Asia-Pacific and Singapore financings. This increase was partially offset by our repayment of the Chicago IBX financing in March 2010 and the European financing in April 2010. During the three months ended June 30, 2010 and 2009, we capitalized $3.0 million and $3.8 million, respectively, of interest expense to construction in progress. Going forward, we expect to incur higher interest expense as we recognize the full impact of our new Asia-Pacific financing, although this has been partially offset by repayment of debt, such as the European financing, and capitalized interest, which we expect to increase during the remainder of 2010 as we intend to embark on more expansion projects. We may also incur additional indebtedness to support our growth, resulting in further interest expense.

Loss on debt extinguishment and interest rate swaps, net. During the three months ended June 30, 2010, we recorded a $1.5 million loss on debt extinguishment and interest rate swaps, net. See “Loss on Debt Extinguishment and Interest Rate Swaps, Net” in Note 8 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q. We did not record a loss on debt extinguishment and interest rate swaps, net, during the three months ended June 30, 2009.

Other Income (Expense). For the three months ended June 30, 2010, we recorded $1.5 million of other expense, primarily due to foreign currency exchange losses during the period. For the three months ended June 30, 2009, we recorded $2.6 million of other income, primarily due to foreign currency exchange gains during the period.

Income Taxes. For the three months ended June 30, 2010 and 2009, we recorded $2.4 million and $11.0 million of income tax expenses, respectively. During the three months ended June 30, 2010, our effective tax rate was not meaningful for comparison purposes because of an increase in the amount of foreign losses not benefited in our effective tax rate and an expected decline in our income before income taxes in the U.S. resulting from the effects of the Switch and Data acquisition. Our effective tax rate was 40.7% for the three months ended June 30, 2009. We expect cash income taxes during the remainder of 2010 to be significantly lower than income tax expense for the year because we still have a large amount of net operating loss carry-forwards in most of the jurisdictions in which we operate, which can be used to offset the taxable profit generated in 2010. The cash tax for 2010 is primarily for the U.S. Alternative Minimum Tax and foreign income taxes, while cash tax for 2009 was primarily for the U.S. Alternative Minimum Tax, the California state income tax and foreign income taxes.

Six Months Ended June 30, 2010 and 2009

Revenues. Our revenues for the six months ended June 30, 2010 and 2009 were generated from the following revenue classifications and geographic regions (dollars in thousands):


	Six months ended June 30,								Change
	2010		%		2009		%		$		%
North America:
Recurring revenues	$	328,211	60	%	$	245,212	60	%	$	82,999	34	%
Non-recurring revenues		11,991	2	%		9,428	2	%		2,563	27	%

		340,202	62	%		254,640	62	%		85,562	34	%


Europe:
Recurring revenues		120,109	22	%		96,383	23	%		23,726	25	%
Non-recurring revenues		10,139	2	%		6,473	2	%		3,666	57	%

		130,248	24	%		102,856	25	%		27,392	27	%


Asia-Pacific:
Recurring revenues		71,033	13	%		52,272	12	%		18,761	36	%
Non-recurring revenues		3,260	1	%		2,631	1	%		629	24	%

		74,293	14	%		54,903	13	%		19,390	35	%


Total:
Recurring revenues		519,353	95	%		393,867	95	%		125,486	32	%
Non-recurring revenues		25,390	5	%		18,532	4	%		6,858	37	%

	$	544,743	100	%	$	412,399	100	%	$	132,344	32	%

North America Revenues. The increase in North America revenues was primarily due to the impact of the Switch and Data acquisition, which resulted in $37.6 million of additional revenue for the six months ended June 30, 2010. The following table presents our North America revenues excluding the impact of the Switch and Data acquisition (dollars in thousands):


	Six months ended June 30,				Change
	2010		2009		$		%
North America:
Recurring revenues	$	291,292	$	245,212	$	46,080	19	%
Non-recurring revenues		11,318		9,428		1,890	20	%

	$	302,610	$	254,640	$	47,970	19	%

Excluding the impact of the Switch and Data acquisition, the period over period growth in recurring revenues was primarily the result of an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our customer count and utilization rate, as discussed above, in both our new and existing IBX data centers, as well as selective price increases in each of our IBX markets. Additionally, during the six months ended June 30, 2010, we recorded $17.4 million of revenue generated from our recently-opened IBX data centers or IBX data center expansions in the Chicago, Los Angeles and New York metro areas.

Europe Revenues. During the six months ended June 30, 2010, our revenues from Germany, the largest revenue contributor in the Europe region for the period, represented approximately 36% of the regional revenues. During the six months ended June 30, 2009, our revenues from the United Kingdom, the largest revenue contributor in the Europe region for the period, represented approximately 37% of the

regional revenues. Our Europe revenue growth was due to an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our customer count and utilization rate, as discussed above, in both our new and existing IBX data centers. During the six months ended June 30, 2010, we recorded approximately $13.2 million of revenue from our recently-opened IBX data centers or IBX data center expansions in the Dusseldorf, Frankfurt, Geneva, London, Munich, Paris and Zurich metro areas. We expect that our Europe revenues will continue to grow in future periods as a result of continued growth in recently-opened IBX data centers or IBX data center expansions and additional expansions currently taking place in the Amsterdam and Frankfurt metro areas, which are expected to open during the remainder of 2010.

Asia-Pacific Revenues. Our revenues from Singapore, the largest revenue contributor in the Asia-Pacific region, represented approximately 37% and 36%, respectively, of the regional revenues for the six months ended June 30, 2010 and 2009. Our Asia-Pacific revenue growth was due to an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our customer count and utilization rate, as discussed above, in both our new and existing IBX data centers. During the six months ended June 30, 2010, we recorded approximately $4.0 million of revenue generated from our IBX center expansions in the Hong Kong and Singapore metro areas. We expect that our Asia-Pacific revenues will continue to grow in future periods as a result of continued growth in these recently-opened IBX center expansions and additional expansions currently taking place in the Singapore, Sydney and Tokyo metro areas which are expected to open during the remainder of 2010.

Cost of Revenues. Our cost of revenues for the six months ended June 30, 2010 and 2009 were split among the following geographic regions (dollars in thousands):


	Six months ended June 30,								Change
	2010		%		2009		%		$		%
North America	$	172,489	58	%	$	130,478	57	%	$	42,011	32	%
Europe		83,510	28	%		66,440	28	%		17,070	26	%
Asia-Pacific		39,633	14	%		33,421	15	%		6,212	19	%

Total	$	295,632	100	%	$	230,339	100	%	$	65,293	28	%


	Six months ended June 30,
	2010		2009
Cost of revenues as a percentage of revenues:
North America	51	%	51	%
Europe	64	%	65	%
Asia-Pacific	53	%	61	%
Total	54	%	56	%

North America Cost of Revenues. The increase in our North America cost of revenues was primarily due to the impact of the Switch and Data acquisition, which resulted in $27.3 million of additional cost of revenues for the six months ended June 30, 2010. Our North America cost of revenues for the six months ended June 30, 2010 and 2009 included $63.4 million and $49.5 million, respectively, of depreciation expense, including $9.6 million of depreciation expense from the impact of the Switch and Data acquisition for the six months ended June 30, 2010.

Excluding the impact of the Switch and Data acquisition, our North America cost of revenues during the six months ended June 30, 2010 was $145.2 million, which represents an increase of 11% from the six months ended June 30, 2009. This increase was primarily due to growth in depreciation expense as resulted from our IBX center expansion activity; however, this growth was partially offset by a $4.6 million decrease in depreciation expense as we revised the estimated useful lives of certain of our property, plant and equipment during the three months ended September 30, 2009. Excluding depreciation, the increase was primarily due to overall growth related to our revenue growth and costs associated with our

expansion projects, including (i) an increase of $4.2 million in rent and facility costs, (ii) $1.7 million in higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (323 North America employees as of June 30, 2010 versus 292 as of June 30, 2009) and (iii) an increase of $1.6 million in utility costs as a result of increased customer installations. We expect North America cost of revenues to increase as we continue to grow our business.

Europe Cost of Revenues. Europe cost of revenues for the six months ended June 30, 2010 and 2009 included $25.0 million and $17.7 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our IBX center expansion activity; however, this growth was partially offset by a $526,000 decrease in depreciation expense as we revised the estimated useful lives of certain of our property, plant and equipment during the three months ended September 30, 2009. Excluding depreciation expense, the increase in Europe cost of revenues was primarily the result of costs associated with our expansion projects and overall growth in costs to support our revenue growth, such as (i) an increase of $2.6 million of utility costs arising from increased customer installations and revenues attributed to customer growth, (ii) $1.5 million of higher rent and facility costs, (iii) $1.4 million of higher compensation expense, (iv) $1.2 million of higher professional services related to our various consulting projects to support our growth in Europe and (v) $1.1 million of higher repair and maintenance costs. We expect Europe cost of revenues to increase as we continue to grow our business.

Asia-Pacific Cost of Revenues. Asia-Pacific cost of revenues for the six months ended June 30, 2010 and 2009 included $12.7 million and $12.6 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our IBX center expansion activity; however, this growth was partially offset by a $2.8 million decrease in depreciation expense as we revised the estimated useful lives of certain of our property, plant and equipment during the three months ended September 30, 2009. Excluding depreciation expense, the increase in Asia-Pacific cost of revenues was primarily the result of costs associated with our expansion projects and overall growth in costs to support our revenue growth, such as $2.0 million of higher utility costs and an increase of $1.5 million of rent and facility costs. We expect Asia-Pacific cost of revenues to increase as we continue to grow our business.

Sales and Marketing Expenses. Our sales and marketing expenses for the six months ended June 30, 2010 and 2009 were split among the following geographic regions (dollars in thousands):


	Six months ended June 30,								Change
	2010		%		2009		%		$		%
North America	$	31,458	65	%	$	17,464	57	%	$	13,994	80	%
Europe		10,906	23	%		8,662	28	%		2,244	26	%
Asia-Pacific		6,017	12	%		4,646	15	%		1,371	30	%

Total	$	48,381	100	%	$	30,772	100	%	$	17,609	57	%


	Six months ended June 30,
	2010		2009
Sales and marketing expenses as a percentage of revenues:
North America	9	%	7	%
Europe	8	%	8	%
Asia-Pacific	8	%	8	%
Total	9	%	7	%

Excluding the impact of the Switch and Data acquisition, our North America sales and marketing expenses during the six months ended June 30, 2010 were $26.1 million, which represents an increase of 49% from the six months ended June 30, 2009. This increase was primarily due to $6.2 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation expense and headcount growth (138 North America sales and marketing employees as of June 30, 2010 versus 103 as of June 30, 2009).

Europe Sales and Marketing Expenses. The increase in our Europe sales and marketing expenses was primarily due to $1.6 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation expense and headcount growth (67 Europe sales and marketing employees as of June 30, 2010 versus 54 as of June 30, 2009). Going forward, although we are carefully monitoring our spending given the current economic environment, we generally expect Europe sales and marketing expenses to increase as we continue to grow our business; however, as a percentage of revenues, we generally expect them to decrease.

Asia-Pacific Sales and Marketing Expenses. The increase in our Asia-Pacific sales and marketing expenses was primarily due to $985,000 of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation expense and headcount growth (52 Asia-Pacific sales and marketing employees as of June 30, 2010 versus 35 as of June 30, 2009); however, our Asia-Pacific sales and marketing expenses for the six months ended June 30, 2010 included the benefit of a $680,000 accrual reversal associated with adjusting the estimated costs of an annual sales recognition program which is an out-of-period adjustment. This $680,000 out-of-period adjustment represents the correction of errors attributable to the year ended December 31, 2009, which we have concluded was not material to any previously-reported historical annual or quarterly period for the year ended December 31, 2009. Going forward, although we are carefully monitoring our spending given the current economic environment, we expect Asia-Pacific sales and marketing expenses to increase as we continue to grow our business; however, as a percentage of revenues, we generally expect them to decrease.

General and Administrative Expenses. Our general and administrative expenses for the six months ended June 30, 2010 and 2009 were split among the following geographic regions (dollars in thousands):


	Six months ended June 30,								Change
	2010		%		2009		%		$		%
North America	$	68,925	71	%	$	50,062	69	%	$	18,863	38	%
Europe		19,839	20	%		14,441	20	%		5,398	37	%
Asia-Pacific		8,557	9	%		8,103	11	%		454	6	%

Total	$	97,321	100	%	$	72,606	100	%	$	24,715	34	%


	Six months ended June 30,
	2010		2009
General and administrative expenses as a percentage of revenues:
North America	20	%	20	%
Europe	15	%	14	%
Asia-Pacific	12	%	15	%
Total	18	%	18	%

Excluding the impact of the Switch and Data acquisition, our North America general and administrative expenses during the six months ended June 30, 2010 was $62.4 million, which represents an increase of 25% from the six months ended June 30, 2009. This increase in our North America general and administrative expenses was primarily due to $10.1 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (352 North America general and administrative employees as of June 30, 2010 versus 285 as of June 30, 2009).

Europe General and Administrative Expenses. The increase in our Europe general and administrative expenses was primarily due to $3.4 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (143 Europe general and administrative employees as of June 30, 2010 versus 94 as of June 30, 2009). Going forward, although we are carefully monitoring our spending given the current economic environment, we expect our Europe general and administrative expenses to increase in future periods as we continue to scale our operations to support our growth; however, as a percentage of revenues, we generally expect them to decrease.

Asia-Pacific General and Administrative Expenses. The increase in our Asia-Pacific general and administrative expenses was primarily due to higher compensation costs. Going forward, although we are carefully monitoring our spending given the current economic environment, we expect Asia-Pacific general and administrative expenses to increase as we continue to scale our operations to support our growth; however, as a percentage of revenues, we generally expect them to decrease.

Restructuring Charges. During the six months ended June 30, 2010, we recorded restructuring charges totaling $4.4 million primarily related to one-time termination benefits attributed to certain Switch and Data employees. For additional information, see “Restructuring Charges” in Note 12 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q. We anticipate that we will incur additional restructuring charges in connection with the Switch and Data acquisition also related to one-time termination benefits during the remainder of 2010 and the first four months of 2011. During the six months ended June 30, 2009, we recorded reductions of restructuring charges totaling $6.1 million, primarily due to a reversal of a restructuring charge accrual of $5.8 million for our excess space in the Los Angeles metro area as a result of our decision to utilize this space to expand our original Los Angeles IBX center. Our excess space lease in the New York metro area remains abandoned and continues to carry a restructuring charge. Our restructuring charges all relate to our North America geographic region.

Acquisition Costs. During the six months ended June 30, 2010, we recorded acquisition costs totaling $10.8 million related to the Switch and Data acquisition. During the six months ended June 30, 2009, we did not record any acquisition costs. We do not expect to incur significant additional acquisition costs related to the Switch and Data acquisition. Our acquisition costs all relate to our North America geographic region.

Interest Income. Interest income decreased to $997,000 for the six months ended June 30, 2010 from $1.6 million for the six months ended June 30, 2009. Interest income decreased primarily due to lower yields on invested balances. The average yield for the six months ended June 30, 2010 was 0.19% versus 0.72% for the six months ended June 30, 2009. We expect our interest income to remain at these low levels for the foreseeable future due to the impact of a lower interest rate environment, a portfolio more weighted towards short-term U.S. treasuries, and from the utilization of cash to finance our expansion activities.

Interest Expense. Interest expense increased to $63.3 million for the six months ended June 30, 2010 from $29.4 million for the six months ended June 30, 2009. This increase in interest expense was primarily due to additional financings entered into during 2009 and 2010 consisting of (i) our $750.0 million 8.125% senior notes offering in February 2010, (ii) our $373.8 million 4.75% convertible subordinated notes offering in June 2009 and (iii) our new Asia-Pacific financing in April 2010, of which $99.0 million was outstanding as of June 30, 2010 with an approximate interest rate of 5.30% per annum, which replaced both our previously-existing Asia-Pacific and Singapore financings. This increase was partially offset by our repayment of the Chicago IBX financing in March 2010 and the European financing in April 2010. During the six months ended June 30, 2010 and 2009, we capitalized $6.7 million and $7.8 million, respectively, of interest expense to construction in progress. Going forward, we expect to incur higher interest expense as we recognize the full impact of our new Asia-Pacific financing, although this has been partially offset by repayment of debt, such as the Chicago IBX financing in March 2010 and the European financing in April 2010, and capitalized interest, which we expect to increase during the remainder of 2010 as we intend to embark on more expansion projects. We may also incur additional indebtedness to support our growth, resulting in further interest expense.

Other-Than-Temporary Impairment Recovery (Loss) On Investments. For the six months ended June 30, 2010, we recorded a $3.4 million recovery of other-than-temporary impairment loss on investments due to an additional distribution from one of our money market accounts as more fully described in Note 4 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q. During the six months ended June 30, 2009, we recorded $2.7 million of other-than-temporary impairment loss on this same money market account.

Loss on debt extinguishment and interest rate swaps, net. During the six months ended June 30, 2010, we recorded a $4.8 million loss on debt extinguishment and interest rate swaps, net. See “Loss on Debt Extinguishment and Interest Rate Swpas, Net” in Note 8 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q. We did not record loss on debt extinguishment and interest rate swaps, net, during the six months ended June 30, 2009.

Other Income (Expense). For the six months ended June 30, 2010, we recorded $1.5 million of other expense, primarily due to foreign currency exchange losses during the period. For the six months ended June 30, 2009, we recorded $1.2 million of other income, primarily due to foreign currency exchange gains during the period.

Income Taxes. For the six months ended June 30, 2010 and 2009, we recorded $11.1 million and $22.6 million of income tax expenses, respectively. Our effective tax rates were 48.3% and 40.7% for the six months ended June 30, 2010 and 2009, respectively. The increase in the effective tax rate for the six months ended June 30, 2010 as compared to the six months ended June 30, 2009 was due primarily to an increase in foreign losses which did not benefit the Company’s effective tax rate. We expect cash income taxes during the remainder of 2010 to be significantly lower than income tax expense for the year because we still have a large amount of net operating loss carry-forwards in most of the jurisdictions in which we operate, which can be used to offset the taxable profit generated in 2010. The cash tax for 2010 is primarily for the U.S. Alternative Minimum Tax and foreign income taxes, while cash tax for 2009 was primarily for the U.S. Alternative Minimum Tax, the California state income tax and foreign income taxes.

Non-GAAP Financial Measures

We provide all information required in accordance with generally accepted accounting principles (GAAP), but we believe that evaluating our ongoing operating results may be difficult if limited to reviewing only GAAP financial measures. Accordingly, we use non-GAAP financial measures, primarily adjusted EBITDA, to evaluate our operations. In presenting adjusted EBITDA, we exclude certain items that we believe are not good indicators of our current or future operating performance. These items are depreciation, amortization, accretion of asset retirement obligations and accrued restructuring charges, stock-based compensation, restructuring charges and acquisition costs. Legislative and regulatory requirements encourage the use of and emphasis on GAAP financial metrics and require companies to

explain why non-GAAP financial metrics are relevant to management and investors. We exclude these items in order for our lenders, investors, and industry analysts, who review and report on us, to better evaluate our operating performance and cash spending levels relative to our industry sector and competitors.

For example, we exclude depreciation expense as these charges primarily relate to the initial construction costs of our IBX data centers and do not reflect our current or future cash spending levels to support our business. Our IBX data centers are long-lived assets, and have an economic life greater than 10 years. The construction costs of our IBX data centers do not recur and future capital expenditures remain minor relative to our initial investment. This is a trend we expect to continue. In addition, depreciation is also based on the estimated useful lives of our IBX data centers. These estimates could vary from actual performance of the asset, are based on historical costs incurred to build out our IBX data centers, and are not indicative of current or expected future capital expenditures. Therefore, we exclude depreciation from our operating results when evaluating our operations.

In addition, in presenting the non-GAAP financial measures, we exclude amortization expense related to certain intangible assets, as it represents a cost that may not recur and is not a good indicator of our current or future operating performance. We exclude accretion expense, both as it relates to asset retirement obligations as well as accrued restructuring charge liabilities, as these expenses represent costs which we believe are not meaningful in evaluating our current operations. We exclude non-cash stock-based compensation expense as it represents expense attributed to equity awards that have no current or future cash obligations. As such, we, and many investors and analysts, exclude this stock-based compensation expense when assessing the cash generating performance of our operations. We also exclude restructuring charges from our non-GAAP financial measures. The restructuring charges relate to our decisions to exit leases for excess space adjacent to several of our IBX data centers, which we did not intend to build out, or our decision to reverse such restructuring charges or severance charges related to the Switch and Data acquisition. Finally, we also exclude acquisition costs from our non-GAAP financial measures. The acquisition costs relate to costs we incur in connection with business combinations. Management believes such items as restructuring charges and acquisition costs are non-core transactions; however, these types of costs will or may occur in future periods.

Our management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. However, we have presented such non-GAAP financial measures to provide investors with an additional tool to evaluate our operating results in a manner that focuses on what management believes to be our core, ongoing business operations. We believe that the inclusion of this non-GAAP financial measure provides consistency and comparability with past reports and provides a better understanding of the overall performance of the business and its ability to perform in subsequent periods. We believe that if we did not provide such non-GAAP financial information, investors would not have all the necessary data to analyze Equinix effectively.

Investors should note, however, that the non-GAAP financial measures used by us may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as that of other companies. In addition, whenever we use non-GAAP financial measures, we provide a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure.

We define adjusted EBITDA as income or loss from operations plus depreciation, amortization, accretion, stock-based compensation expense, restructuring charges and acquisition costs as presented below (dollars in thousands):


	Three months ended June 30,					Six months ended June 30,
	2010		2009			2010		2009
Income from operations	$	40,227	$	41,029		$	88,209	$	84,735
Depreciation, amortization and accretion expense		63,626		45,266			112,948		87,233
Stock-based compensation expense		18,096		13,459			33,070		24,997
Restructuring charges		4,357		(220	)		4,357		(6,053	)
Acquisitions costs		5,849		—			10,843		—

Adjusted EBITDA	$	132,155	$	99,534		$	249,427	$	190,912

The geographic split of our adjusted EBITDA is presented below (dollars in thousands):


	Three months ended June 30,					Six months ended June 30,
	2010		2009			2010		2009
North America:
Income from operations	$	22,529	$	28,748		$	52,130	$	62,689
Depreciation, amortization and accretion expense		43,081		27,274			71,255		53,313
Stock-based compensation expense		13,650		10,212			24,663		19,028
Restructuring charges		4,357		(220	)		4,357		(6,053	)
Acquisitions costs		5,849		—			10,843		—

Adjusted EBITDA	$	89,466	$	66,014		$	163,248	$	128,977


Europe:
Income from operations	$	7,672	$	7,887		$	15,993	$	13,313
Depreciation, amortization and accretion expense		13,737		11,234			28,221		20,835
Stock-based compensation expense		2,531		1,480			4,681		2,832

Adjusted EBITDA	$	23,940	$	20,601		$	48,895	$	36,980


Asia-Pacific:
Income from operations	$	10,026	$	4,394		$	20,086	$	8,733
Depreciation, amortization and accretion expense		6,808		6,758			13,472		13,085
Stock-based compensation expense		1,915		1,767			3,726		3,137

Adjusted EBITDA	$	18,749	$	12,919		$	37,284	$	24,955

Our adjusted EBITDA results have improved each year and in each region due to the improved operating results discussed earlier in “Results of Operations”, as well as the nature of our business model consisting of a recurring revenue stream and a cost structure which has a large base that is fixed in nature that is also discussed earlier in “Overview”. We believe that our adjusted EBITDA results will continue to improve in future periods as we continue to grow our business.

Liquidity and Capital Resources

As of June 30, 2010, our total indebtedness was comprised of (i) convertible debt principal totaling $1.0 billion from our 2.50% convertible subordinated notes (gross of discount), our 3.00% convertible subordinated notes, and our 4.75% convertible subordinated notes (gross of discount) and (ii) non-convertible debt and financing obligations totaling $1.2 billion consisting of (a) $750.0 million of principal from our senior notes, (b) $189.3 million of principal from our mortgage and loans payable and (c) $215.3 million from our capital lease and other financing obligations.

We believe we have sufficient cash, coupled with anticipated cash generated from operating activities, to meet our operating requirements, including repayment of our current portion of debt due, and to complete our publicly-announced expansion projects. As of June 30, 2010, we had $722.0 million of cash, cash equivalents and short-term and long-term investments. Besides our investment portfolio and any financing activities we may pursue, customer collections are our primary source of cash. While we believe we have a strong customer base and have continued to experience relatively strong collections, if the current market conditions were to deteriorate further, some of our customers may have difficulty paying us and we may experience increased churn in our customer base, including reductions in their commitments to us, all of which could have a material adverse effect on our liquidity.

As of June 30, 2010, we had a total of approximately $110.3 million of additional liquidity available to us, which consists of (i) approximately $103.7 million under the new Asia-Pacific financing and (ii) $6.6 million under the $25.0 million Bank of America revolving credit line. Our indebtedness as of June 30, 2010, as noted above, included approximately $1.0 billion of non-convertible senior debt. Although these are committed facilities, most of which are fully drawn or utilized and for which we are amortizing debt repayments of either principal and/or interest only, and we are in full compliance with all covenants related to them effective June 30, 2010, deteriorating market and liquidity conditions may give rise to issues which may impact the lenders’ ability to hold these debt commitments to their full term.

While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and to complete our publicly-announced IBX expansion plans, we may pursue additional expansion opportunities, primarily the build-out of new IBX data centers, in certain of our existing markets which are at or near capacity within the next year, as well as potential acquisitions. While we will be able to fund some of these expansion plans with our existing resources, additional financing, either debt or equity, may be required to pursue certain of these additional expansion plans. However, if current market conditions were to deteriorate further, we may be unable to secure additional financing or any such additional financing may be available to us on unfavorable terms. An inability to pursue additional expansion opportunities will have a material adverse effect on our ability to maintain our desired level of revenue growth in future periods.

Sources and Uses of Cash


	Six Months Ended June 30,
	2010			2009
	(in thousands)
Net cash provided by operating activities	$	156,718		$	165,443
Net cash used in investing activities		(359,012	)		(281,945	)
Net cash provided by financing activities		377,563			297,716

Operating Activities. The decrease in net cash provided by operating activities was primarily due to growth in accounts receivable and payments related to the termination of several interest rate swaps totaling $17.3 million. We expect that we will continue to generate cash from our operating activities during the remainder of 2010 and beyond.

Investing Activities. The increase in net cash used in investing activities was primarily due to higher capital expenditures as a result of expansion activity and the Switch and Data acquisition. During the six months ended June 30, 2010 and 2009, these capital expenditures were $292.1 million and $179.6 million, respectively. We expect that our IBX expansion construction activity will be at consistent levels. However, if the opportunity to expand is greater than planned and we have sufficient funding to increase the expansion opportunities available to us, we may increase the level of capital expenditures to support this growth.

Financing Activities. The net cash provided by financing activities for the six months ended June 30, 2010 was primarily due to our $750.0 million 8.125% senior notes offering in February 2010, partially offset by repayment of our debt facilities, including the Chicago IBX financing, the European financing, the Asia-Pacific financing, the Singapore financing and the Netherlands financing; however, the Asia-Pacific financing and the Singapore financing were replaced by the new Asia-Pacific financing. Net cash provided by financing activities during the six months ended June 30, 2009 was primarily due to our 4.75% convertible notes offering, partially offset by repayment of our debt facilities. We expect that our financing activities will consist primarily of repayment of our debt during the remainder of 2010.

Debt Obligations

Senior Notes. In February 2010, we issued $750.0 million aggregate principal amount of 8.125% senior notes due March 1, 2018, which are referred to as the senior notes. Interest is payable semi-annually on March 1 and September 1 of each year, commencing on September 1, 2010.

The senior notes are unsecured and rank equal in right of payment to our existing or future senior debt and senior in right of payment to our existing and future subordinated debt. The senior notes will be effectively junior to any of our existing and future secured indebtedness and any indebtedness of our subsidiaries.

At any time prior to March 1, 2013, we may on any one or more occasions redeem up to 35% of the aggregate principal amount of the senior notes outstanding at a redemption price equal to 108.125% of the principal amount of the senior notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings, provided that (i) at least 65% of the aggregate principal amount of the senior notes remains outstanding immediately after the occurrence of such redemption and (ii) the redemption must occur within 90 days of the date of the closing of such equity offerings. On or after March 1, 2014, we may redeem all or a part of the 8.125% senior notes, on any one or more occasions, at the redemption prices set forth below plus accrued and unpaid interest thereon, if any, to, but not including, the applicable redemption date, if redeemed during the one-year period beginning on March 1 of the years indicated below:


	Redemption price of the senior notes
2014	104.0625	%
2015	102.0313	%
2016 and thereafter	100.0000	%

In addition, at any time prior to March 1, 2014, we may also redeem all or a part of the senior notes at a redemption price equal to 100% of the principal amount of the senior notes redeemed plus applicable premium plus accrued and unpaid interest, if any, to, but not including, the date of redemption.

Upon a change in control, we will be required to make an offer to purchase each holder’s senior notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase.

New Asia-Pacific Financing. In May 2010, our five wholly-owned subsidiaries, located in Australia, Hong Kong, Japan and Singapore, completed a new multi-currency credit facility agreement for approximately $202.7 million, which is referred to as the new Asia-Pacific financing, comprising 79.2 million Australian dollars, 370.4 million Hong Kong dollars, 99.4 million Singapore dollars and 1.5 billion Japanese yen. The new Asia-Pacific financing replaced our existing Asia-Pacific financing and Singapore financing. The new Asia-Pacific financing has a five-year term with semi-annual principal payments and quarterly debt service and consist of two tranches: (i) Tranche A was available for immediate drawing upon satisfaction of certain conditions precedent and was used to refinance the existing Asia-Pacific financing and Singapore financing and (ii) Tranche B is available for drawing in Australian, Hong Kong and Singapore dollars only for up to 24 months following the effective date of the new Asia-Pacific

financing. The new Asia Pacific financing bears an interest rate of 3.50% above the local borrowing rates for the first 12 months and interest rates between 2.50%-3.50% above the local borrowing rates thereafter, depending on the leverage ratio within our five subsidiaries. The new Asia-Pacific financing contains financial covenants with which we must comply quarterly. The new Asia-Pacific financing is guaranteed by us and is secured by certain of our five subsidiaries’ assets and share pledges. In May 2010, our five subsidiaries drew-down a total of approximately $99.0 million from Tranche A and Tranche B under the new Asia-Pacific financing, primarily for the prepayment and termination of the existing Asia-Pacific financing and the Singapore financing. As of June 30, 2010, our five subsidiaries had fully utilized Tranche A under the new Asia-Pacific financing. The loans payable under the new Asia-Pacific financing have a final maturity date of March 2015. As of June 30, 2010, we were in compliance with all financial covenants in connection with the new Asia-Pacific financing. As of June 30, 2010, approximately $99.0 million was outstanding under the new Asia-Pacific financing at an approximate blended interest rate of 5.30% per annum, leaving approximately $103.7 million available for future borrowings under the new Asia-Pacific financing.

Chicago IBX Financing. In March 2010, we prepaid and terminated the Chicago IBX financing, of which principal of $110.0 million was outstanding as of December 31, 2009. The Chicago IBX financing was prepaid to the lender for an amount equal to 95.909% of the then outstanding principal balance outstanding, plus accrued and unpaid interest, resulting in a gain of $4.5 million. On the same date, we paid and terminated the interest rate swap associated with the Chicago IBX financing totaling $3.2 million.

European Financing. In April 2010, we prepaid and terminated the European financing at par for a total payment of approximately $121.7 million plus accrued and unpaid interest. On the same date, we terminated three interest rate swaps associated with the European financing and paid a total of $4.2 million to terminate these interest rate swaps.

Netherlands Financing. In June 2010, we prepaid and terminated the Netherlands financing at par for a total payment of approximately $8.0 million plus accrued and unpaid interest.

Switch and Data Debt. In May 2010, we prepaid and terminated at par a revolving credit facility assumed in connection with the Switch and Data acquisition for a total payment of $138.9 million plus accrued and unpaid interest. On the same date, the Company terminated the associated interest rate swap acquired related to this revolving credit facility and paid a total of $9.8 million to terminate this interest rate swap.

In May 2010, we prepaid and terminated an equipment capital lease assumed in connection with the Switch and Data acquisition for a total payment of $9.2 million.

In April 2010, we also assumed two other capital leases in connection with the Switch and Data acquisition related to two properties in North Bergen, New Jersey, which is referred to as the New Jersey capital lease, and Sunnyvale, California, which is referred to as the Sunnyvale capital lease. We assumed a capital lease obligation for the New Jersey capital lease with a fair value of $24.7 million at the acquisition date and monthly payments due through July 2023 at an effective interest rate of 8.6% per annum. We assumed a capital lease obligation for the Sunnyvale capital lease with a fair value of $15.6 million at the acquisition date and monthly payments due through July 2022 at an effective interest rate of 8.6% per annum.

$25.0 Million Bank of America Revolving Credit Line. In February 2010, we amended the $25.0 million Bank of America revolving credit line and extended the maturity date to February 11, 2011. In addition, the $25.0 million Bank of America revolving credit line was amended to permit us to fund the cash payment portion of the pending acquisition of Switch and Data and to repay or retire its outstanding loan obligations upon the closing of the Switch and Data acquisition. The $25.0 million Bank of America revolving credit line will be used primarily to fund our working capital and to enable us to issue letters of credit. The effect of issuing letters of credit under the $25.0 million Bank of America revolving credit line reduces the amount available for borrowing under the $25.0 million Bank of America revolving credit line. We may borrow, repay and reborrow under the $25.0 million Bank of America revolving credit line at

either the prime rate or at a borrowing margin of 2.75% over one, three or six month LIBOR, subject to a minimum borrowing cost of 3.00%. The $25.0 million Bank of America revolving credit line contains three financial covenants, which we must comply with quarterly, consisting of a tangible net worth ratio, a debt service ratio and a senior leverage ratio and is collateralized by our domestic accounts receivable balances. As of June 30, 2010, we were in compliance with all financial covenants in connection with the $25.0 million Bank of America revolving credit line. The $25.0 million Bank of America revolving credit line is available for renewal subject to mutual agreement by both parties. As of June 30, 2010, we had issued 16 irrevocable letters of credit totaling $18.4 million under the $25.0 million Bank of America revolving credit line. As a result, the amount available to borrow was $6.6 million as of June 30, 2010.

Contractual Obligations and Off-Balance Sheet Arrangements

We lease a majority of our IBX centers and certain equipment under non-cancelable lease agreements expiring through 2030. The following represents our debt maturities, financings, leases and other contractual commitments as of June 30, 2010 (in thousands):


	2010 (6 months)		2011		2012		2013		2014		2015 and thereafter		Total
Convertible debt (1)	$	—	$	—	$	250,000	$	—	$	395,986	$	373,750	$	1,019,736
Senior notes (1)		—		—		—		—		—		750,000		750,000
New Asia-Pacific financing (1)		9,927		18,199		20,147		22,826		18,578		9,281		98,958
Interest (2)		50,257		100,506		96,459		92,291		88,875		240,150		668,538
Mortgage payable (3)		5,082		10,164		10,164		10,165		10,165		113,174		158,914
Capital lease and other financing obligations (3)		11,414		25,047		25,462		25,940		26,810		229,533		344,206
Operating leases under accrued restructuring charges (4)		1,392		2,182		2,369		2,382		2,395		1,405		12,125
Operating leases (5)		51,036		100,710		102,813		103,390		99,122		502,772		959,843
Other contractual commitments (6)		122,781		38,470		14,615		8		—		—		175,874
Asset retirement obligations (7)		—		—		—		—		—		42,779		42,779

	$	251,889	$	295,278	$	522,029	$	257,002	$	641,931	$	2,262,844	$	4,230,973

(1)	Represents principal only.

(2)	Represents interest on convertible debt, senior notes and new Asia-Pacific financing based on their approximate interest rates as of June 30, 2010.

(3)	Represents principal and interest.

(4)	Excludes any subrental income.

(5)	Represents minimum operating lease payments, excluding potential lease renewals.

(6)	Represents off-balance sheet arrangements. Other contractual commitments are described below.

(7)	Represents liability, net of future accretion expense.

In connection with some of our leases, we entered into 15 irrevocable letters of credit totaling $17.4 million with Bank of America. These letters of credit were provided in lieu of cash deposits under the $25.0 million Bank of America revolving credit line and automatically renew in successive one-year periods until the final lease expiration date. If the landlords for these IBX leases decide to draw down on these letters of credit triggered by an event of default under the lease, we will be required to fund these letters of credit either through cash collateral or borrowing under the $25.0 million Bank of America revolving credit line. These contingent commitments are not reflected in the table above.

Primarily as a result of our various IBX expansion projects, as of June 30, 2010, we were contractually committed for $77.3 million of unaccrued capital expenditures, primarily for IBX equipment not yet delivered and labor not yet provided in connection with the work necessary to complete construction and open these IBX data centers prior to making them available to customers for installation. This amount, which is expected to be paid during the remainder of 2010 and 2011, is reflected in the table above as “other contractual commitments.”

We had other non-capital purchase commitments in place as of June 30, 2010, such as commitments to purchase power in select locations, primarily in the U.S., Australia, Singapore and Tokyo, during the remainder of 2010 and thereafter, and other open purchase orders, which contractually bind us for goods or services to be delivered or provided during the remainder of 2010 and beyond. Such other purchase commitments as of June 30, 2010, which total $98.5 million, are also reflected in the table above as “other contractual commitments.”

In addition, although we are not contractually obligated to do so, we expect to incur additional capital expenditures of approximately $150.0 million to $200.0 million, in addition to the $77.3 million in contractual commitments discussed above as of June 30, 2010, in our various IBX expansion projects during the remainder of 2010 in order to complete the work needed to open these IBX data centers. These non-contractual capital expenditures are not reflected in the table above. If we so choose, whether due to economic factors or other considerations, we could delay these non-contractual capital expenditure commitments to preserve liquidity.

Critical Accounting Estimates

Equinix’s financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are affected by management’s application of accounting policies. On an on-going basis, management evaluates its estimates and judgments. Critical accounting policies for Equinix that affect our more significant judgment and estimates used in the preparation of our condensed consolidated financial statements include accounting for income taxes, accounting for impairment of goodwill and accounting for property, plant and equipment, which are discussed in more detail under the caption “Critical Accounting Estimates” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2009.

Recent Accounting Pronouncements

See Note 1 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

As more fully described in Cash, Cash Equivalents and Short-Term and Long-Term Investments in Note 4 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we received an additional distribution of $3.4 million from our investment in the Reserve Primary Fund in January 2010. In addition, as more fully described in Debt Facilities and Other Financing Obligations in Note 8 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, during the six months ended June 30, 2010, we terminated and paid all interest rate swaps outstanding for a total payment of $17.3 million in connection with the prepayment and termination of several debt facilities that bore interest rates at variable rates. As of June 30, 2010, we had only one debt instrument remaining with variable interest rates, which is our new Asia-Pacific financing. While there have been no other significant changes in our market risk, investment portfolio risk, interest rate risk, foreign currency risk and commodity price risk exposures and procedures during the three and six months ended June 30, 2010 as compared to the respective risk exposures and procedures disclosed in Quantitative and Qualitative Disclosures About Market Risk, set forth in Part II Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2009, during the six months ended June 30, 2010, the U.S. dollar strengthened relative to certain of the currencies of the foreign countries in which we operate. This has significantly impacted our consolidated financial position and results of operations during this period including the amount of revenue that we reported. Continued strengthening of the U.S. dollar may continue to have a significant impact to us in future periods.

Item 4.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this quarterly report, have concluded that our disclosure controls and procedures are effective based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

(b) Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(c) Limitations on the Effectiveness of Controls. Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed and operated to be effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

IPO Litigation

On July 30, 2001 and August 8, 2001, putative shareholder class action lawsuits were filed against us, certain of our officers and directors (the “Individual Defendants”), and several investment banks that were underwriters of our initial public offering (the “Underwriter Defendants”). The cases were filed in the United States District Court for the Southern District of New York. Similar lawsuits were filed against approximately 300 other issuers and related parties. These lawsuits have been coordinated before a single judge. The purported class action alleges violations of Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b), Rule 10b-5 and 20(a) of the Securities Exchange Act of 1934 against us and the Individual Defendants. The plaintiffs have since dismissed the Individual Defendants without prejudice. The suits allege that the Underwriter Defendants agreed to allocate stock in our initial public offering to certain investors in exchange for excessive and undisclosed commissions and agreements by those investors to make additional purchases in the aftermarket at pre-determined prices. The plaintiffs allege that the prospectus for our initial public offering was false and misleading and in violation of the securities laws because it did not disclose these arrangements. The action seeks damages in an unspecified amount. On February 19, 2003, the court dismissed the Section 10(b) claim against us, but denied the motion to dismiss the Section 11 claim.

Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of the matter. We are unable at this time to determine whether the outcome of the litigation would have a material impact on our results of operations, financial condition or cash flows. We intend to continue to defend the action vigorously if the settlement does not survive the appeal.

Pihana Litigation

On August 22, 2008, a complaint was filed against Equinix, certain former officers and directors of Pihana Pacific, Inc. (“Pihana”), certain investors in Pihana, and others. The lawsuit was filed in the First Circuit Court of the State of Hawaii, and arises out of December 2002 agreements pursuant to which Equinix merged Pihana and i-STT (a subsidiary of Singapore Technologies Telemedia Pte Ltd) into the internet exchange services business of Equinix. Plaintiffs, who were allegedly holders of Pihana common stock, allege that their rights as shareholders were violated, and the transaction was effectuated improperly, by Pihana’s majority shareholders, officers and directors, with the alleged assistance of Equinix and others. Among other things, plaintiffs contend that they effectively had a right to block the transaction, that this supposed right was disregarded, and that they improperly received no consideration when the deal was completed. The complaint seeks to recover unspecified punitive damages, equitable relief, fees and costs, and compensatory damages in an amount that plaintiffs allegedly “believe may be all or a substantial portion of the approximately $725.0 million value of Equinix held by Defendants” (a group that includes more than 30 individuals and entities). An amended complaint, which adds new plaintiffs (other alleged holders of Pihana common stock) but is otherwise substantially similar to the original pleading, was filed on September 29, 2008 (the “Amended Complaint”). On October 13, 2008, a complaint was filed in a separate action by another purported holder of Pihana common stock, naming the same defendants and asserting substantially similar allegations as the August 22, 2008 and September 29, 2008 pleadings. On December 12, 2008, the court entered a stipulated order, which consolidated the two actions under one case number and set January 22, 2009 as the last day for Defendants to move to dismiss or otherwise respond to the Amended Complaint, the operative complaint in this case. On January 22, 2009, motions to dismiss the Amended Complaint were filed by Equinix and other Defendants. On April 24, 2009, plaintiffs filed a Second Amended Complaint (“SAC”) to correct the naming of certain parties. The SAC is otherwise substantively identical to the Amended Complaint, and all motions to dismiss the Amended Complaint have been treated as responsive to the SAC. On September 1, 2009, the Court heard Defendants’ motions to dismiss the SAC and ruled at the hearing that all claims against all Defendants are time-barred. The Court also considered whether there were further independent grounds for dismissing the claims, and supplemental briefing was submitted with respect to claims against one defendant and plaintiffs’ renewed request for further leave to amend. On March 23, 2010, the Court entered final Orders granting the motions to dismiss as to all Defendants and issued a minute Order denying Plaintiffs’ renewed request for further leave to amend. On May 21, 2010, Plaintiffs filed a Notice of Appeal. We believe that plaintiffs’ claims and alleged damages are without merit and we intend to continue to defend the litigation vigorously.

Switch and Data Litigation

In the fourth quarter of 2009, three purported stockholder class action lawsuits were filed against us in connection with our proposed merger with Switch and Data. The first, filed October 27, 2009 in the Delaware Chancery Court, names Equinix, Sundance Acquisition Corporation, Switch and Data, and the members of Switch and Data’s board of directors as defendants. The lawsuit alleges that the Switch and Data directors breached their fiduciary duties to Switch and Data’s stockholders in connection with the proposed merger, and that Equinix aided and abetted these alleged breaches. The second complaint, filed October 30, 2009 in Florida state court, raises similar claims against the same defendants. The third complaint, filed on December 7, 2009 in the United States District Court for the Middle District of Florida, likewise raises similar claims but did not name Sundance Acquisition Corporation as a defendant. Both the second and third complaints included claims alleging that Switch and Data had failed to disclose material information concerning the merger to stockholders.

On January 19, 2010, counsel for parties in all three lawsuits entered into a memorandum of understanding in which they agreed upon the terms of a settlement of all three lawsuits. In connection with this settlement, the three lawsuits and all claims asserted therein are expected to be dismissed with prejudice. The proposed settlement is conditional upon, among other things, consummation of the merger and final approval of the proposed settlement by the Florida state court. The proposed settlement contemplates that plaintiffs’ counsel will apply to the Florida state court for an award of attorneys’ fees and costs in an aggregate amount of $900,000, and that the defendants will not oppose or undermine this application. We expect that approximately 70 percent of these attorneys’ fees will be paid by insurance maintained by Switch and Data, and that we will pay the remainder. Pursuant to this agreement, the parties sought and obtained stays of the Florida federal and Delaware actions pending approval of the settlement. On March 22, 2010, the parties entered into a stipulation of settlement and release, adopting the terms of the memorandum of understanding outlined above. Pursuant to this stipulation, on March 25, 2010, the parties filed a Joint Motion for Class Certification and Preliminary Approval of Settlement in Florida state court. On May 7, 2010, the Court granted the motion and scheduled a final approval hearing for August 9, 2010. If final approval of the settlement is granted, then the parties will seek dismissal with prejudice of the other two actions. If the settlement is not finalized, we intend to continue to defend the action vigorously.

Item 1A.

Risk Factors

In addition to the other information contained in this report, the following risk factors should be considered carefully in evaluating our business and us:

Acquisitions present many risks, and we may not realize the financial or strategic goals that were contemplated at the time of any transaction.

Over the last several years, we have completed several acquisitions, including that of IXEurope plc in 2007, Virtu Secure Webservices B.V. in 2008, Upminster GmbH in 2009 and Switch and Data in 2010. We may make additional acquisitions in the future, which may include acquisitions of businesses, products, services or technologies that we believe to be complementary, as well as acquisitions of new IBX data centers or real estate for development of new IBX data centers. We may pay for future acquisitions by using our existing cash resources (which may limit other potential uses of our cash), incurring additional debt (which may increase our interest expense, leverage and debt service requirements) and/or issuing shares (which may dilute our existing stockholders and have a negative effect on our earnings per share). Acquisitions expose us to several potential risks, including:

•

the possible disruption of our ongoing business and diversion of management’s attention by acquisition, transition and integration activities;

•

our potential inability to successfully pursue or realize some or all of the anticipated revenue opportunities associated with an acquisition;

•

the possibility that we may not be able to successfully integrate acquired businesses or achieve anticipated operating efficiencies or cost savings;

•

the possibility that announced acquisitions may not be completed, due to failure to satisfy the conditions to closing or for other reasons;

•

the dilution of our existing stockholders as a result of our issuing stock in transactions, such as our acquisition of Switch and Data, where 80% of the consideration payable to Switch and Data’s stockholders consisted of shares of our common stock;

•

the possibility of customer dissatisfaction if we are unable to achieve levels of quality and stability on par with past practices;

•

the possibility that our customers may not accept either the existing equipment infrastructure or the “look-and-feel” of a new or different IBX data center;

•

the possibility that additional capital expenditures may be required or that transaction expenses associated with acquisitions may be higher than anticipated;

•

the possibility that required financing to fund the requirements of an acquisition may not be available on acceptable terms or at all;

•

the possibility that we may be unable to obtain required approvals from governmental authorities under antitrust and competition laws on a timely basis or at all, which could, among other things, delay or prevent us from completing an acquisition, limit our ability to realize the expected financial or strategic benefits of an acquisition or have other adverse effects on our current business and operations;

•

the possible loss or reduction in value of acquired businesses;

•

the possibility that carriers may find it cost-prohibitive or impractical to bring fiber and networks into a new IBX data center;

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the possibility of litigation or other claims in connection with or as a result of an acquisition, including claims from terminated employees, customers, former stockholders or other third parties; and

•