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, 2012

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

For the transition period from to

Commission File Number 000-31293

EQUINIX, INC.

(Exact name of registrant as specified in its charter)


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

One Lagoon Drive, Fourth Floor, Redwood City, California 94065

(Address of principal executive offices, including ZIP code)

(650) 598-6000

(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, 2012 was 48,184,834.

EQUINIX, INC.

INDEX


		Page No.
Part I - Financial Information

Item 1.	Condensed Consolidated Financial Statements (unaudited):

	Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011		3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2011		4

	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2011		5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011		6

	Notes to Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		53

Item 4.	Controls and Procedures		53

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		72

Item 3.	Defaults Upon Senior Securities		72

Item 4.	Mine Safety Disclosure		72

Item 5.	Other Information		72

Item 6.	Exhibits		73

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, 2012			December 31, 2011
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	654,096		$	278,823
Short-term investments		115,465			635,721
Accounts receivable, net		169,812			139,057
Other current assets		70,219			182,156

Total current assets		1,009,592			1,235,757
Long-term investments		53,460			161,801
Property, plant and equipment, net		3,525,839			3,225,912
Goodwill		863,187			866,495
Intangible assets, net		138,199			148,635
Other assets		134,411			146,724

Total assets	$	5,724,688		$	5,785,324

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	224,989		$	229,043
Accrued property, plant and equipment		119,703			93,224
Current portion of capital lease and other financing obligations		12,978			11,542
Current portion of loans payable		72,791			87,440
Current portion of convertible debt		—			246,315
Other current liabilities		60,698			57,690

Total current liabilities		491,159			725,254
Capital lease and other financing obligations, less current portion		464,622			390,269
Loans payable, less current portion		141,504			168,795
Convertible debt, less current portion		701,578			694,769
Senior notes		1,500,000			1,500,000
Other liabilities		282,350			286,424

Total liabilities		3,581,213			3,765,511

Redeemable non-controlling interests (Note 9)		75,854			67,601

Commitments and contingencies (Note 10)

Stockholders’ equity:
Common stock		49			48
Additional paid-in capital		2,444,640			2,437,623
Treasury stock		(37,166	)		(86,666	)
Accumulated other comprehensive loss		(155,777	)		(143,698	)
Accumulated deficit		(184,125	)		(255,095	)

Total stockholders’ equity		2,067,621			1,952,212

Total liabilities, redeemable non-controlling interests and stockholders’ equity	$	5,724,688		$	5,785,324

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,
	2012			2011			2012			2011
	(unaudited)
Revenues	$	466,264		$	394,900		$	918,464		$	757,929

Costs and operating expenses:
Cost of revenues		233,192			215,572			458,271			410,148
Sales and marketing		47,764			37,063			94,335			70,699
General and administrative		80,723			65,681			159,148			128,282
Restructuring charges		—			103			—			599
Acquisition costs		1,919			1,615			2,946			2,030

Total costs and operating expenses		363,598			320,034			714,700			611,758

Income from operations		102,666			74,866			203,764			146,171

Interest income		963			632			1,654			847
Interest expense		(46,787	)		(37,677	)		(99,605	)		(75,038	)
Other income (expense)		(1,844	)		1,021			(1,998	)		3,132

Income before income taxes		54,998			38,842			103,815			75,112

Income tax expense		(17,358	)		(8,109	)		(31,364	)		(19,234	)

Net income		37,640			30,733			72,451			55,878
Net income attributable to redeemable non-controlling interests		(1,193	)		(3	)		(1,481	)		(3	)

Net income attributable to Equinix.	$	36,447		$	30,730		$	70,970		$	55,875

Earnings per share (“EPS”) attributable to Equinix (Note 2):
Basic EPS	$	0.76		$	0.65		$	1.49		$	1.20

Weighted-average shares		48,016			46,924			47,485			46,688

Diluted EPS	$	0.73		$	0.64		$	1.44		$	1.18

Weighted-average shares		52,351			50,664			51,633			50,454

See accompanying notes to condensed consolidated financial statements

EQUINIX, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)


	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
	(unaudited)
Net income	$	37,640		$	30,733		$	72,451		$	55,878

Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)		(49,207	)		20,749			(14,895	)		71,432
Unrealized loss on available for sale securities		(177	)		(5	)		(99	)		(26	)

Other comprehensive income (loss), net of tax		(49,384	)		20,744			(14,994	)		71,406

Comprehensive income (loss), net of tax		(11,744	)		51,477			57,457			127,284

Net income attributable to redeemable non-controlling interests		(1,193	)		(3	)		(1,481	)		(3	)
Other comprehensive (income) loss attributable to redeemable non-controlling interests		3,974			(1,067	)		2,915			(1,067	)

Comprehensive income (loss) attributable to Equinix	$	(8,963	)	$	50,407		$	58,891		$	126,214

See accompanying notes to condensed consolidated financial statements

EQUINIX, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)


	Six months ended June 30,
	2012			2011
	(unaudited)
Cash flows from operating activities:
Net income	$	72,451		$	55,878
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		178,615			154,393
Stock-based compensation		39,652			33,853
Restructuring charges		—			599
Amortization of debt issuance costs and debt discounts		13,009			15,609
Amortization of intangible assets		9,751			9,164
Provision for allowance for doubtful accounts		2,446			2,231
Accretion of asset retirement obligation and accrued restructuring charges		2,370			2,264
Other items		1,525			2,536
Changes in operating assets and liabilities:
Accounts receivable		(34,541	)		(16,310	)
Other assets		31,747			(2,693	)
Accounts payable and accrued expenses		1,807			(9,524	)
Other liabilities		1,943			10,118

Net cash provided by operating activities		320,775			258,118

Cash flows from investing activities:
Purchases of investments		(165,818	)		(275,364	)
Sales of investments		274,211			81,963
Maturities of investments		517,594			222,195
Purchases of property, plant and equipment		(341,974	)		(363,990	)
Purchase of real estate		—			(23,993	)
Purchase of ALOG, net of cash acquired		—			(41,954	)
Increase in restricted cash		(51	)		(95,932	)
Release of restricted cash		79,351			944
Other investing activities, net		—			5

Net cash provided by (used in) investing activities		363,313			(426,126	)

Cash flows from financing activities:
Purchases of treasury stock		(13,364	)		—
Proceeds from employee equity awards		36,473			24,597
Proceeds from loans payable		8,909			77,917
Repayment of capital lease and other financing obligations		(5,858	)		(4,323	)
Repayment of mortgage and loans payable		(77,299	)		(10,102	)
Repayment of convertible debt		(250,007	)		—
Debt issuance costs		(7,520	)		(125	)

Net cash provided by (used in) financing activities		(308,666	)		87,964

Effect of foreign currency exchange rates on cash and cash equivalents		(149	)		5,075

Net increase (decrease) in cash and cash equivalents		375,273			(144,969	)
Cash and cash equivalents at beginning of period		278,823			442,841

Cash and cash equivalents at end of period	$	654,096		$	297,872

Supplemental cash flow information:
Cash paid for taxes	$	6,765		$	6,825

Cash paid for interest	$	92,301		$	60,462

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, 2011 has been derived from audited consolidated financial statements at that date. The condensed consolidated financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission (“SEC”), but omit certain information and footnote disclosures 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 24, 2012. Results for the interim periods are not necessarily indicative of results for the entire fiscal year.

Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Equinix and its subsidiaries, including the operations of ALOG Data Centers do Brasil S.A. and its subsidiaries (“ALOG”) from April 25, 2011. All significant intercompany accounts and transactions have been eliminated in consolidation.

Income Taxes

The Company’s effective tax rates were 30.2% and 25.6% for the six months ended June 30, 2012 and 2011, respectively.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”), which amends ASC 820, Fair Value Measurement. ASU 2011-04 does not extend the use of fair value, but provides guidance on how it should be applied where its use is already required or permitted by other standards within U.S. GAAP or IFRS. ASU 2011-04 changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, ASU 2011-04 clarifies the FASB’s intent about the application of existing fair value measurements. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. During the three months ended March 31, 2012, the Company adopted ASU 2011-04 and the adoption did not have a material impact to its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. This ASU is intended to increase the prominence of other comprehensive income in financial statements by presenting the components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The new guidance eliminated the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. During the three months ended March 31, 2012, the Company adopted ASU 2011-05 and the adoption did not have a material impact to its consolidated financial statements other than the addition of the condensed consolidated statements of comprehensive income.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05. This ASU defers the requirement that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. During the three months ended March 31, 2012, the Company adopted ASU 2011-12 and the adoption did not have a material impact to its consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities. This ASU requires companies to disclose both gross information and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This new guidance is effective for interim and annual periods beginning on or after January 1, 2013 and retrospective disclosure is required for all comparative periods presented. The Company is currently evaluating the impact that the adoption of this standard will have to its consolidated financial statements, if any.

2. Earnings Per Share

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


	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
Net income	$	37,640		$	30,733		$	72,451		$	55,878
Net income attributable to redeemable non-controlling interests		(1,193	)		(3	)		(1,481	)		(3	)

Net income attributable to Equinix, basic		36,447			30,730			70,970			55,875

Effect of assumed conversion of convertible debt:
Interest expense, net of tax		1,678			1,746			3,377			3,485

Net income attributable to Equinix, diluted	$	38,125		$	32,476		$	74,347		$	59,360

Weighted-average shares used to compute basic EPS		48,016			46,924			47,485			46,688

Effect of dilutive securities:
Convertible debt		3,185			2,945			2,945			2,945
Employee equity awards		1,150			795			1,203			821

Weighted-average shares used to compute diluted EPS		52,351			50,664			51,633			50,454

EPS attributable to Equinix:
Basic	$	0.76		$	0.65		$	1.49		$	1.20

Diluted	$	0.73		$	0.64		$	1.44		$	1.18

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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,
	2012		2011		2012		2011
Shares reserved for conversion of 2.50% convertible subordinated notes		368		2,232		1,300		2,232
Shares reserved for conversion of 4.75% convertible subordinated notes		4,433		4,433		4,433		4,433
Common stock related to employee equity awards		137		644		100		646

		4,938		7,309		5,833		7,311

3. 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 as of (in thousands):


	June 30, 2012		December 31, 2011
Cash and cash equivalents:
Cash	$	636,708	$	74,101
Cash equivalents:
Money markets		17,388		198,931
Certificates of deposit		—		4,500
Commercial paper		—		1,000
Corporate bonds		—		291

Total cash and cash equivalents		654,096		278,823

Marketable securities:
U.S. government securities		82,147		573,277
U.S. government agencies securities		54,586		129,235
Corporate bonds		18,075		64,308
Certificates of deposit		12,882		24,472
Commercial paper		995		—
Asset-backed securities		240		947
Foreign government securities		—		5,283

Total marketable securities		168,925		797,522

Total cash, cash equivalents and short-term and long-term investments	$	823,021	$	1,076,345

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the fair value and gross unrealized gains and losses related to the Company’s short-term and long-term investments in marketable securities designated as available-for-sale securities as of (in thousands):


	June 30, 2012
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
U.S. government securities	$	82,225	$	12	$	(90	)	$	82,147
U.S. government agencies securities		54,585		43		(42	)		54,586
Corporate bonds		18,057		21		(3	)		18,075
Certificates of deposit		12,890		1		(9	)		12,882
Commercial paper		995		—		—			995
Asset-backed securities		233		7		—			240

Total	$	168,985	$	84	$	(144	)	$	168,925


	December 31, 2011
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
U.S. government securities	$	573,232	$	91	$	(46	)	$	573,277
U.S. government agencies securities		129,159		104		(28	)		129,235
Corporate bonds		64,364		51		(107	)		64,308
Certificates of deposit		24,471		3		(2	)		24,472
Foreign government securities		5,295		—		(12	)		5,283
Asset-backed securities		890		57		—			947

Total	$	797,411	$	306	$	(195	)	$	797,522

As of June 30, 2012 and December 31, 2011, 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, 2012 and December 31, 2011. The maturities of securities classified as long-term investments were greater than one year and less than three years as of June 30, 2012 and December 31, 2011.

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, 2012.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the fair value and gross unrealized losses related to 54 available-for-sale securities with an aggregate cost basis of $88,593,000 aggregated by type of investment and length of time that individual securities have been in a continuous unrealized loss position, as of June 30, 2012 (in thousands):


	Securities in a loss position for less than 12 months
	Fair value		Gross unrealized losses
U.S. government securities	$	66,677	$	(90	)
U.S. government agencies securities		15,929		(42	)
Corporate bonds		4,400		(3	)
Certificates of deposit		1,443		(9	)

	$	88,449	$	(144	)

As of June 30, 2012, the Company did not have any securities in a loss position for 12 months or more. 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, 2012, the Company’s investments are subject to the currently adverse market conditions. If market conditions were to deteriorate, the Company could sustain other-than-temporary impairments to its investment portfolio which could result in realized losses being recorded in interest income, net, or securities markets could become inactive which could affect the liquidity of the Company’s investments.

Accounts Receivable

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


	June 30, 2012			December 31, 2011
Accounts receivable	$	287,450		$	250,211
Unearned revenue		(113,419	)		(106,519	)
Allowance for doubtful accounts		(4,219	)		(4,635	)

	$	169,812		$	139,057

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. 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.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Other Current Assets

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


	June 30, 2012		December 31, 2011
Deferred tax assets, net	$	28,026	$	42,743
Prepaid expenses		17,008		19,441
Restricted cash, current		10,812		88,279
Taxes receivable		9,055		24,313
Other receivables		1,061		2,999
Other current assets		4,257		4,381

	$	70,219	$	182,156

Property, Plant and Equipment

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


	June 30, 2012			December 31, 2011
IBX plant and machinery	$	1,880,085		$	1,833,834
Leasehold improvements		976,761			958,391
Buildings		584,530			509,359
IBX equipment		381,106			368,530
Site improvements		307,599			305,169
Computer equipment and software		156,924			138,147
Land		94,728			91,314
Furniture and fixtures		18,386			18,144
Construction in progress		611,299			330,780

		5,011,418			4,553,668
Less accumulated depreciation		(1,485,579	)		(1,327,756	)

	$	3,525,839		$	3,225,912

Leasehold improvements, IBX plant and machinery, computer equipment and software and buildings recorded under capital leases aggregated $187,885,000 and $132,245,000 as of June 30, 2012 and December 31, 2011, respectively. Amortization on the assets recorded under capital leases is included in depreciation expense and accumulated depreciation on such assets totaled $38,084,000 and $33,790,000 as of June 30, 2012 and December 31, 2011, respectively.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Goodwill and Intangible Assets

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


	June 30, 2012			December 31, 2011
Goodwill:
Americas	$	492,480		$	499,455
EMEA		350,216			347,018
Asia-Pacific		20,491			20,022

	$	863,187		$	866,495

Intangible assets:
Intangible asset – customer contracts	$	170,571		$	171,230
Intangible asset – favorable leases		18,339			18,315
Intangible asset – others		5,107			5,245

		194,017			194,790
Accumulated amortization		(55,818	)		(46,155	)

	$	138,199		$	148,635

The Company’s goodwill and intangible assets in EMEA, denominated in British pounds and Euros, goodwill in Asia-Pacific, denominated in Singapore dollars, and certain goodwill and intangibles in Americas, denominated in Canadian dollars and Brazilian reais, are subject to foreign currency fluctuations. The Company’s foreign currency translation gains and losses, including goodwill and intangibles, are a component of other comprehensive income and loss. During the six months ended June 30, 2012, changes in the carrying amount of goodwill and the gross book value of intangible assets were primarily due to foreign currency fluctuations.

For the three and six months ended June 30, 2012, the Company recorded amortization expense of $4,822,000 and $9,751,000, respectively, associated with its intangible assets. For the three and six months ended June 30, 2011, the Company recorded amortization expense of $4,891,000 and $9,164,000, respectively, associated with its intangible assets. The Company’s estimated future amortization expense related to these intangibles is as follows (in thousands):


Year ending:
2012 (six months remaining)	$	9,632
2013		19,217
2014		18,857
2015		18,392
2016		17,850
Thereafter		54,251

Total	$	138,199

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Other Assets

Other assets consisted of the following (in thousands):


	June 30, 2012		December 31, 2011
Debt issuance costs, net	$	44,791	$	41,320
Prepaid expenses, non-current		41,196		54,118
Deposits		20,816		24,304
Deferred tax assets, net		16,579		16,980
Restricted cash, non-current		3,240		4,382
Other assets, non-current		7,789		5,620

	$	134,411	$	146,724

Accounts Payable and Accrued Expenses

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


	June 30, 2012		December 31, 2011
Accounts payable	$	27,517	$	23,268
Accrued compensation and benefits		60,998		66,330
Accrued interest		48,474		50,916
Accrued taxes		45,102		43,539
Accrued utilities and security		20,288		21,456
Accrued professional fees		5,293		4,783
Accrued repairs and maintenance		2,978		3,458
Accrued other		14,339		15,293

	$	224,989	$	229,043

Other Current Liabilities

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


	June 30, 2012		December 31, 2011
Deferred installation revenue	$	37,895	$	35,700
Customer deposits		12,930		13,669
Deferred recurring revenue		5,111		2,918
Accrued restructuring charges		2,382		2,565
Deferred rent		1,624		1,582
Deferred tax liabilities, net		394		394
Asset retirement obligations		92		344
Other current liabilities		270		518

	$	60,698	$	57,690

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Other Liabilities

Other liabilities consisted of the following (in thousands):


	June 30, 2012		December 31, 2011
Deferred tax liabilities, net	$	117,459	$	117,995
Asset retirement obligations, non-current		60,376		56,243
Deferred rent, non-current		45,734		48,372
Deferred installation revenue, non-current		25,877		24,281
Accrued taxes, non-current		18,853		22,226
Accrued restructuring charges, non-current		4,294		5,255
Deferred recurring revenue, non-current		4,091		5,472
Customer deposits, non-current		3,171		4,209
Other liabilities		2,495		2,371

	$	282,350	$	286,424

The Company currently leases the majority of its IBX data centers and certain equipment under non-cancelable operating lease agreements expiring through 2035. 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 some rent expense abatement periods for certain leases 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.

4. Derivatives

Other Derivatives not Designated as Hedging

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 three and six months ended June 30, 2012 and 2011.

The following table sets forth the Company’s net gain (loss), which is reflected in other income (expense) on the accompanying condensed consolidated statement of operations, in connection with its foreign currency forward contracts (in thousands):


	Three months ended June 30,					Six months ended June 30,
	2012			2011		2012			2011
Net gain (loss)	$	(1,219	)	$	2,032	$	(1,411	)	$	1,234

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

5. Fair Value Measurements

The Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 were as follows (in thousands):


	Fair value at June 30, 2012		Fair value measurement using
	Fair value at June 30, 2012		Level 1		Level 2		Level 3
Assets:
Cash	$	636,708	$	636,708	$	—	$	—
U.S. government securities		82,147		—		82,147		—
U.S. government agency securities		54,586		—		54,586		—
Corporate bonds		18,075		—		18,075		—
Money market and deposit accounts		17,388		17,388		—		—
Certificates of deposit		12,882		—		12,882		—
Commercial paper		995		—		995		—
Asset-backed securities		240		—		240		—
Foreign currency forward contracts (1)		51		—		51		—

	$	823,072	$	654,096	$	168,976	$	—

(1)	Amounts are included within other current assets in the Company’s accompanying condensed consolidated balance sheet.

Valuation Methods

Fair value estimates are made as of a specific point in time based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors.

Cash, Cash Equivalents and Investments. The fair value of the Company’s investments in money market funds approximates their face value. Such instruments are included in cash equivalents. The Company’s money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices for identical instruments in active markets. The fair value of the Company’s other investments approximate their face value. These investments include certificates of deposit and available-for-sale debt investments related to the Company’s investments in the securities of other public companies, governmental units and other agencies. The fair value of these investments is based on the quoted market price of the underlying shares. Such instruments are classified within Level 2 of the fair value hierarchy. The Company obtains the fair values of its Level 2 investments based upon fair values obtained from its custody bank and third-party valuation services. The custody bank and third-party valuation services independently use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable instruments, or inputs other than quoted prices that are observable either directly or indirectly. The Company is ultimately responsible for its consolidated financial statements and underlying estimates.

The Company determined that the major security types held as of June 30, 2012 were primarily cash and money market funds, U.S. government and agency securities, corporate bonds, certificate of deposits, commercial paper and asset-backed securities. The Company uses the specific identification method in computing realized gains or losses. Short-term and long-term investments are classified as available-for-

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

sale and are carried at fair value with unrealized gains and losses reported in stockholders’ equity as a component of other comprehensive income or loss, net of any related tax effect. The Company reviews its investment portfolio quarterly to determine if any securities may be other-than-temporarily impaired due to increased credit risk, changes in industry or sector of a certain instrument or ratings downgrades over an extended period of time.

Derivative Assets and Liabilities. For foreign currency derivatives, the Company uses 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 published credit default swap rates of its foreign exchange trading counterparties. The Company has determined that the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, therefore the derivatives are categorized as Level 2.

During the six months ended June 30, 2012, the Company did not have any nonfinancial assets or liabilities measured at fair value on a recurring basis.

6. Related Party Transactions

The Company has several significant stockholders and other related parties that are also customers and/or vendors. The Company’s activity of related party transactions was as follows (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
Revenues	$	10,189	$	6,969	$	14,932	$	12,780
Costs and services		692		1,406		1,027		1,794


	As of June 30,
	2012		2011
Accounts receivable	$	6,559	$	5,330
Accounts payable		296		479

In connection with the acquisition of ALOG, the Company acquired a lease for one of the Brazilian IBX data centers in which the lessor is a member of ALOG management. This lease contains an option to purchase the underlying property for fair market value on the date of purchase. The Company accounts for this lease as a financing obligation as a result of structural building work pursuant to the accounting standard for lessee’s involvement in asset construction. As of June 30, 2012, the Company had a financing obligation liability totaling approximately $4,323,000 related to this lease on its condensed consolidated balance sheet. This amount is considered a related party liability, which is not reflected in the related party data presented above.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

7. Leases

Dallas IBX Leases

In May 2012, the Company entered into a lease amendment for additional IBX space in one of its IBX data centers in the Dallas metro area. The original leases associated with this space were accounted for as operating leases (the “Dallas IBX Leases”). As a result of the amendment, the Dallas IBX Leases are accounted for as capital leases. Monthly payments under the Dallas IBX Leases will be made through December 2029 at an effective interest rate of 7.21%. The total cumulative rent obligation under the Dallas IBX Leases is approximately $105,595,000. The Company recorded a building asset totaling approximately $53,117,000, net of previously recorded deferred rent of approximately $4,472,000, and a corresponding capital lease obligation liability totaling approximately $57,530,000 as of June 30, 2012 associated with the Dallas IBX Leases.

Capital Lease and Other Financing Obligations

The Company’s capital lease and other financing obligations are summarized as follows (dollars in thousands):


	Capital lease obligations			Other financing obligations			Total
2012 (six months remaining)	$	11,949		$	10,845		$	22,794
2013		23,957			23,816			47,773
2014		24,695			27,057			51,752
2015		25,239			29,794			55,033
2016		24,413			30,906			55,319
Thereafter		216,530			252,588			469,118

Total minimum lease payments		326,783			375,006			701,789
Plus amount representing residual property value		—			210,895			210,895
Less amount representing interest		(131,985	)		(303,099	)		(435,084	)

Present value of net minimum lease payments		194,798			282,802			477,600
Less current portion		(9,019	)		(3,959	)		(12,978	)

	$	185,779		$	278,843		$	464,622

8. Debt Facilities

Loans Payable

The Company’s loans payable consisted of the following (in thousands):


	June 30, 2012			December 31, 2011
Asia-Pacific financing	$	184,824		$	193,843
Paris 4 IBX financing		14,925			52,104
ALOG loans payable		14,546			10,288

		214,295			256,235
Less current portion		(72,791	)		(87,440	)

	$	141,504		$	168,795

U.S. Financing

In June 2012, the Company entered into a credit agreement with a group of lenders for a $750,000,000 credit facility (the “U.S. Financing”), comprised of a $200,000,000 term loan facility (the “U.S. Term Loan”)

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

and a $550,000,000 multicurrency revolving credit facility (the “U.S. Revolving Credit Line”). The U.S. Financing contains several financial covenants with which the Company must comply on a quarterly basis, including a maximum senior leverage ratio covenant, a minimum fixed charge coverage ratio covenant and a minimum tangible net worth covenant. The U.S. Financing is guaranteed by certain of the Company’s domestic subsidiaries and is secured by the Company’s and guarantors’ accounts receivable as well as pledges of the equity interests of certain of the Company’s direct and indirect subsidiaries. The U.S. Term Loan and U.S. Revolving Credit Line both have a five-year term, subject to the satisfaction of certain conditions with respect to the Company’s outstanding convertible subordinated notes. The Company is required to repay the principal balance of the U.S. Term Loan in equal quarterly installments over the term. The U.S. Term Loan bears interest at a rate based on LIBOR or, at the option of the Company, the Base Rate (defined as the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the Bank of America prime rate and (c) one-month LIBOR plus 1.00%) plus, in either case, a margin that varies as a function of the Company’s senior leverage ratio in the range of 1.25%-2.00% per annum if the Company elects to use the LIBOR index and in the range of 0.25%-1.00% per annum if the Company elects to use the Base Rate index. As of June 30, 2012, the Company had not borrowed any of the U.S. Term Loan. In July 2012, the Company borrowed the full amount of the U.S. Term Loan and used the funds to prepay the outstanding balance of and terminate the Asia-Pacific Financing (see below). The U.S. Revolving Credit Line allows the Company to borrow, repay and reborrow over the term. The U.S. Revolving Credit Line provides a sublimit for the issuance of letters of credit of up to $150,000,000 at any one time. The Company may use the U.S. Revolving Credit Line for working capital, capital expenditures, issuance of letters of credit, and other general corporate purposes. Borrowings under the U.S. Revolving Credit Line bear interest at a rate based on LIBOR or, at the option of the Company, the Base Rate (defined above) plus, in either case, a margin that varies as a function of the Company’s senior leverage ratio in the range of 0.95%-1.60% per annum if the Company elects to use the LIBOR index and in the range of 0.00%-0.60% per annum if the Company elects to use the Base Rate index. The Company is required to pay a quarterly letter of credit fee on the face amount of each letter of credit, which fee is based on the same margin that applies from time to time to LIBOR-indexed borrowings under the U.S. Revolving Credit Line. The Company is also required to pay a quarterly facility fee ranging from 0.30%-0.40% per annum of the U.S. Revolving Credit Line (regardless of the amount utilized), which fee also varies as a function of the Company’s senior leverage ratio. In June 2012, the outstanding letters of credit issued under the Senior Revolving Credit Line (see below) were assumed under the U.S. Revolving Credit Line and the Senior Revolving Credit Line was terminated. As of June 30, 2012, the Company had 13 irrevocable letters of credit totaling $21,449,000 issued and outstanding under the U.S. Revolving Credit Line. As a result, the amount available to the Company to borrow under the U.S. Revolving Credit Line was $528,551,000 as of June 30, 2012. As of June 30, 2012, the Company was in compliance with all covenants of the U.S. Financing.

Asia-Pacific Financing

In May 2010, five wholly-owned subsidiaries of the Company, located in Australia, Hong Kong, Japan and Singapore, completed a multi-currency credit facility agreement for approximately $223,636,000 (the “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 Asia-Pacific Financing had a five-year term with semi-annual principal payments and quarterly debt service and consisted of two tranches: (i) Tranche A totaling approximately $90,810,000 was available for immediate drawing upon satisfaction of certain conditions precedent and (ii) Tranche B totaling approximately $132,826,000 was available for drawing in Australian, Hong Kong and Singapore dollars only for up to 24 months following the effective date of the Asia-Pacific Financing. The Asia Pacific Financing bore 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 Asia-Pacific Financing contained four financial covenants, which the Company and its five subsidiaries had to comply with quarterly, consisting of two leverage ratios, an interest coverage ratio and a debt service ratio. The Asia-Pacific Financing was guaranteed by the parent, Equinix, Inc., and was secured by most of the Company’s five subsidiaries’ assets and share pledges. As of December 31, 2011, the Company’s five subsidiaries had fully utilized Tranche A and Tranche B under the Asia-Pacific Financing. The loans payable under the Asia-Pacific Financing had a final maturity date of March 2015. As of June 30, 2012, the Company and its five subsidiaries were in compliance with all financial covenants in connection with the

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Asia-Pacific Financing. As of June 30, 2012, the blended interest rate under the Asia-Pacific Financing was approximately 4.52% per annum. In July 2012, the Company fully repaid and terminated the Asia-Pacific Financing (see Note 14).

Paris 4 IBX Financing

During the six months ended June 30, 2012, construction activity increased the Paris 4 IBX financing liability by $26,856,000 and the Company made payments of approximately $78,215,000 from the restricted cash account under the Paris 4 IBX financing. As a result, the Paris 4 IBX financing liability and the Company’s current restricted cash balance have decreased (refer to “Other Current Assets” in Note 3).

ALOG Financing

In June 2012, ALOG completed a 100,000,000 Brazilian real credit facility agreement, or approximately $49,633,000 (the “ALOG Financing”). The ALOG Financing has a five-year term with semi-annual principal payments beginning in the third year of its term and quarterly interest payments during the entire term. The ALOG Financing bears an interest rate of 2.75% above the local borrowing rate. The ALOG Financing contains financial covenants, which ALOG must comply with annually, consisting of a leverage ratio and a fixed charge coverage ratio. The ALOG Financing is not guaranteed by ALOG or the Company. The ALOG Financing is not secured by ALOG’s or the Company’s assets. The ALOG Financing has a final maturity date of June 2017. In July 2012, ALOG fully utilized the ALOG Financing and intends to use the funds to prepay and terminate ALOG’s loans payable outstanding as of June 30, 2012.

Senior Revolving Credit Line

In September 2011, the Company entered into a $150,000,000 senior unsecured revolving credit facility (the “Senior Revolving Credit Line”) with a group of lenders (the “Lenders”). The Company was able to use the Senior Revolving Credit Line for working capital, capital expenditures, issuance of letters of credit, general corporate purposes and to refinance a portion of the Company’s existing debt obligations. The Senior Revolving Credit Line had a five-year term and allowed the Company to borrow, repay and re-borrow over the term. The Senior Revolving Credit Line provided a sublimit for the issuance of letters of credit of up to $100,000,000 and a sublimit for swing line borrowings of up to $25,000,000. Borrowings under the Senior Revolving Credit Line carried an interest rate of US$ LIBOR plus an applicable margin ranging from 1.25% - 1.75% per annum, which varied as a function of the Company’s senior leverage ratio. The Company was also subject to a quarterly non-utilization fee ranging from 0.30% - 0.40% per annum, the pricing of which would also vary as a function of the Company’s senior leverage ratio. Additionally, the Company was able to increase the size of the Senior Revolving Credit Line at its election by up to $100,000,000, subject to approval by the Lenders and based on current market conditions. The Senior Revolving Credit Line contained several financial covenants, which the Company had to comply with quarterly, including a leverage ratio, fixed charge coverage ratio and a minimum net worth covenant. In June 2012, the Senior Revolving Credit Line was replaced by the U.S. Revolving Credit Line under the U.S. Financing (see above). As a result, issued and outstanding letters of credit were all transferred into the U.S. Revolving Credit Line and the Senior Revolving Credit Line was terminated.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Convertible Debt

The Company’s convertible debt consisted of the following (in thousands):


	June 30, 2012			December 31, 2011
3.00% Convertible Subordinated Notes	$	395,986		$	395,986
4.75% Convertible Subordinated Notes		373,749			373,750
2.50% Convertible Subordinated Notes		—			250,000

		769,735			1,019,736
Less amount representing debt discount		(68,157	)		(78,652	)

		701,578			941,084
Less current portion		—			(246,315	)

	$	701,578		$	694,769

2.50% Convertible Subordinated Notes

In March 2007, the Company issued $250,000,000 aggregate principal amount of 2.50% Convertible Subordinated Notes due April 15, 2012 (the “2.50% Convertible Subordinated Notes”). Holders of the 2.50% Convertible Subordinated Notes were eligible to convert their notes at any time on or after March 15, 2012 through the close of business on the business day immediately preceding the maturity date. Upon conversion, holders would receive, at the Company’s election, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock. However, the Company had the right at any time to irrevocably elect for the remaining term of the 2.50% Convertible Subordinated Notes to satisfy its obligation in cash up to 100% of the principal amount of the 2.50% Convertible Subordinated Notes converted, with any remaining amount to be satisfied, at the Company’s election, in shares of its common stock or a combination of cash and shares of its common stock. Upon conversion, due to the conversion formulas associated with the 2.50% Convertible Subordinated Notes, if the Company’s stock was trading at levels exceeding $112.03 per share, and if the Company elected to pay any portion of the consideration in cash, additional consideration beyond the $250,000,000 of gross proceeds received would be required. However, in no event would the total number of shares issuable upon conversion of the 2.50% Convertible Subordinated Notes exceed 11.6036 per $1,000 principal amount of 2.50% Convertible Subordinated Notes, subject to anti-dilution adjustments, or the equivalent of $86.18 per share of common stock or a total of 2,900,900 shares of the Company’s common stock.

In April 2012, virtually all of the holders of the 2.50% Convertible Subordinated Notes converted their notes. The Company settled the $250,000,000 in aggregate principal amount of the 2.50% Convertible Subordinated Notes, plus accrued interest, in $253,132,000 of cash and 622,867 shares of the Company’s common stock that were issued from its treasury stock. The total value of the shares of the Company’s common stock issued by the Company was $95,915,000, which is based on the closing price of the Company’s common stock on April 16, 2012, the date the shares were issued. The number of shares issued to the holders of the 2.50% Convertible Subordinated Notes was based on the volume weighted average price per share of the Company’s common stock for each of the 10 consecutive trading days during the period beginning on the 12^th scheduled trading day immediately preceding the maturity date.

3.00% Convertible Subordinated Notes

In September 2007, the Company issued $395,986,000 aggregate principal amount of 3.00% Convertible Subordinated Notes due October 15, 2014 (the “3.00% Convertible Subordinated Notes”). Holders of the 3.00% Convertible Subordinated Notes may convert their notes at their option on any day up to and including the business day immediately preceding the maturity date into shares of the Company’s common stock. The base conversion rate is 7.436 shares of common stock per $1,000 principal amount of 3.00% Convertible Subordinated Notes, subject to adjustment. This represents a base conversion price of approximately $134.48 per share of common stock. If, at the time of conversion, the applicable stock price of the Company’s common stock exceeds the base conversion price, the conversion rate will be determined

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

pursuant to a formula resulting in the receipt of up to 4.4616 additional shares of common stock per $1,000 principal amount of the 3.00% Convertible Subordinated Notes, subject to adjustment. However, in no event would the total number of shares issuable upon conversion of the 3.00% Convertible Subordinated Notes exceed 11.8976 per $1,000 principal amount of 3.00% Convertible Subordinated Notes, subject to anti-dilution adjustments, or the equivalent of $84.05 per share of the Company’s common stock or a total of 4,711,283 shares of the Company’s common stock. As of June 30, 2012, had the holders of the 3.00% Convertible Subordinated Notes converted their notes, the 3.00% Convertible Subordinated Notes would have been convertible into 3,328,497 shares of the Company’s common stock.

4.75% Convertible Subordinated Notes

In June 2009, the Company issued $373,750,000 aggregate principal amount of 4.75% Convertible Subordinated Notes due June 15, 2016 (the “4.75% Convertible Subordinated Notes”). Upon conversion, holders will receive, at the Company’s election, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock. However, the Company may at any time irrevocably elect for the remaining term of the 4.75% Convertible Subordinated Notes to satisfy its obligation in cash up to 100% of the principal amount of the 4.75% Convertible Subordinated Notes converted, with any remaining amount to be satisfied, at the Company’s election, in shares of its common stock or a combination of cash and shares of its common stock. Upon conversion, if the Company elects to pay a sufficiently large portion of the conversion obligation in cash, additional consideration beyond the $373,750,000 of gross proceeds received will be required.

The initial conversion rate is 11.8599 shares of common stock per $1,000 principal amount of 4.75% Convertible Subordinated Notes, subject to adjustment. This represents an initial conversion price of approximately $84.32 per share of common stock. Holders of the 4.75% Convertible Subordinated Notes may convert their notes at any time prior to the close of business on the business day immediately preceding the maturity date under the following circumstances:

•

during any fiscal quarter (and only during that fiscal quarter) ending after December 31, 2009, if the sale price of the Company’s common stock, for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the previous fiscal quarter, is greater than 130% of the conversion price per share of common stock on such last trading day, which was $109.62 per share;

•

subject to certain exceptions, during the five business day period following any 10 consecutive trading day period in which the trading price of the 4.75% Convertible Subordinated Notes for each day of such period was less than 98% of the product of the sale price of the Company’s common stock and the conversion rate;

•

upon the occurrence of specified corporate transactions described in the 4.75% Convertible Subordinated Notes Indenture, such as a consolidation, merger or binding share exchange in which the Company’s common stock would be converted into cash or property other than securities; or

•

at any time on or after March 15, 2016.

Holders of the 4.75% Convertible Subordinated Notes were eligible to convert their notes during the three months ended June 30, 2012, since the sale price of the Company’s common stock, for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the three months ended March 31, 2012, was greater than 130% of the conversion price per share of common stock on such last trading day. As of June 30, 2012, had the holders of the 4.75% Convertible Subordinated Notes converted their notes, the 4.75% Convertible Subordinated Notes would have been convertible into a maximum of 4,432,627 shares of the Company’s common stock.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Maturities of Debt Facilities

The following table sets forth maturities of the Company’s debt, including loans payable, senior notes and convertible debt, as of June 30, 2012 (in thousands):


Year ending:
2012 (six months remaining)	$	38,036
2013		69,481
2014		466,941
2015		35,819
2016		305,596
Thereafter		1,500,000

	$	2,415,873

Fair Value of Debt Facilities

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


	June 30, 2012		December 31, 2011
Loans payable	$	222,563	$	269,451
Senior notes		1,690,609		1,612,287
Convertible debt		1,042,045		1,057,801

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,
	2012		2011		2012		2011
Interest expense	$	46,787	$	37,677	$	99,605	$	75,038
Interest capitalized		6,381		3,317		10,733		5,941

Interest charges incurred	$	53,168	$	40,994	$	110,338	$	80,979

9. Redeemable Non-Controlling Interests

The following table provides a summary of the activities of the Company’s redeemable non-controlling interests, which all relate to the Company’s operations in Brazil (in thousands):


Balance as of December 31, 2011	$	67,601
Net income attributable to redeemable non-controlling interests		1,481
Other comprehensive loss attributable to redeemable non-controlling interests		(2,915	)
Change in redemption value of non-controlling interests		10,635
Impact of foreign currency exchange		(948	)

Balance as of June 30, 2012	$	75,854

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

10. Commitments and Contingencies

Legal Matters

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 Hawai’i, 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 $725,000,000 value of Equinix held by Defendants” (a group that includes more than 30 individuals and entities). An amended complaint, which added 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, and plaintiffs’ appeal is currently pending before the Hawai’i Supreme Court. In January 2011, one group of co-defendants (Morgan Stanley and certain persons and entities affiliated with it) entered into a separate settlement with plaintiffs. The trial court determined that the settlement was made in “good faith” in accordance with Hawai’i statutory law, and certain non-settling defendants (including Equinix) filed an appeal from that order before the Intermediate Court of Appeals. That appeal has been stayed pending resolution of plaintiffs’ appeal before the Hawai’i Supreme Court. In August 2011, another group of co-defendants (UBS AG and UBS Capital Asia Pacific Limited Fund) entered into a separate settlement with plaintiffs. The parties stipulated that the ultimate disposition of the Morgan Stanley “good faith” determination will apply to the UBS settlement. In December 2011, the parties reached agreement in principle on a global settlement which provides, among other things, that all claims and proceedings against all defendants will be dismissed with prejudice. On June 29, 2012, the Hawai’i Supreme Court granted the parties’ motion for determination of good faith settlement and the parties signed stipulations for dismissal. Once the order granting good faith settlement is entered, defendants will file the stipulations for dismissal, and the case will be dismissed with prejudice.

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.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company believes that while an unfavorable outcome to this litigation is reasonably possible, a range of potential loss cannot be determined at this time. The Company has not accrued any amounts in connection with this legal matter as of June 30, 2012 as the Company concluded that an unfavorable outcome is not probable.

Alleged Class Action and Shareholder Derivative Actions

On March 4, 2011, an alleged class action entitled Cement Masons & Plasterers Joint Pension Trust v. Equinix, Inc., et al., No. CV-11-1016-SC, was filed in the United States District Court for the Northern District of California, against Equinix and two of its officers. The suit asserts purported claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 for allegedly misleading statements regarding the Company’s business and financial results. The suit is purportedly brought on behalf of purchasers of the Company’s common stock between July 29, 2010 and October 5, 2010, and seeks compensatory damages, fees and costs. Defendants filed a motion to dismiss on November 7, 2011. On March 2, 2012, the court granted defendants’ motion to dismiss without prejudice and gave plaintiffs thirty days in which to amend their complaint. Pursuant to stipulation and order of the court entered on March 16, 2012, the parties agreed that plaintiffs would have up to and through May 2, 2012 to file a Second Amended Complaint. On May 2, 2012 plaintiffs filed a Second Amended Complaint asserting the same basic allegations as in the prior complaint. On June 15, 2012, defendants moved to dismiss the Second Amended Complaint. The hearing on defendants’ motion to dismiss the Second Amended Complaint is currently scheduled for September 21, 2012.

On March 8, 2011, an alleged shareholder derivative action entitled Rikos v. Equinix, Inc., et al., No. CGC-11-508940, was filed in California Superior Court, County of San Francisco, purportedly on behalf of Equinix, and naming Equinix (as a nominal defendant), the members of its board of directors, and two of its officers as defendants. The suit is based on allegations similar to those in the federal securities class action and asserts causes of action against the individual defendants for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment. By agreement and order of the court, this case has been temporarily stayed pending proceedings in the class action, and, pursuant to that agreement, defendants need not respond to the complaint at this time.

On May 20, 2011, an alleged shareholder derivative action entitled Stopa v. Clontz, et al., No. CV-11-2467-SC was filed in the United States District Court for the Northern District of California, purportedly on behalf of Equinix, naming Equinix (as a nominal defendant) and the members of its board of directors as defendants. The suit is based on allegations similar to those in the federal securities class action and the state court derivative action, and asserts causes of action against the individual defendants for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets. On June 10, 2011, the court signed an order relating this case to the federal securities class action. Plaintiffs filed an amended complaint on December 14, 2011. By agreement and order of the court, this case has been temporarily stayed pending proceedings in the class action and, pursuant to that agreement, defendants need not respond to the complaint at this time.

Due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of these matters. 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.

Other Purchase Commitments

Primarily as a result of the Company’s various IBX expansion projects, as of June 30, 2012, the Company was contractually committed for $187,972,000 of unaccrued capital expenditures, primarily for IBX equipment not yet delivered and labor not yet provided, in connection with the work necessary to open

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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, 2012, such as commitments to purchase power in select locations through the remainder of 2012 and thereafter, and other open purchase orders for goods or services to be delivered or provided during the remainder of 2012 and thereafter. Such other miscellaneous purchase commitments totaled $263,005,000 as of June 30, 2012.

11. Stockholders’ Equity

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax, are as follows (in thousands):


	Balance as of December 31, 2011			Net change			Balance as of June 30, 2012
Foreign currency translation loss	$	(150,872	)	$	(14,895	)	$	(165,767	)
Unrealized gain (loss) on available for sale securities		64			(99	)		(35	)
Other comprehensive loss attributable to redeemable non-controlling interests		7,110			2,915			10,025

	$	(143,698	)	$	(12,079	)	$	(155,777	)

Changes in foreign currencies 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 and fewer U.S. dollars when the U.S. dollar strengthens. During the six months ended June 30, 2012, the U.S. dollar was generally stronger relative to certain of the currencies of the foreign countries in which the Company operates. This overall strength of the U.S. dollar had an overall negative impact on the Company’s consolidated results of operations because the foreign denominations are generally translating into less U.S. dollars. This also impacted the Company’s condensed consolidated balance sheets, as amounts denominated in foreign currencies are generally translating into less U.S. dollars. In future periods, the volatility of the U.S. dollar as compared to the other currencies in which the Company operates could have a significant impact on its consolidated financial position and results of operations including the amount of revenue that the Company reports in future periods.

Treasury Stock

During the six months ended June 30, 2012, the Company repurchased a total of 131,489 shares of its common stock in the open market at an average price of $101.64 per share for total consideration of $13,364,000 under a share repurchase program that was approved by the Company’s Board of Directors in November 2011. As of June 30, 2012, the Company may purchase up to an additional $149,970,000 in value of the Company’s common stock through December 31, 2012 under this share repurchase program.

During the six months ended June 30, 2012, the Company re-issued a total of 633,172 shares of its treasury stock with a total value of $62,864,000, primarily related to the settlement of the 2.50% Convertible Subordinated Notes (see Note 8).

Stock-Based Compensation

In February and March 2012, the Compensation Committee and the Stock Award Committee of the Company’s Board of Directors approved the issuance of an aggregate of 661,659 shares of restricted stock units to certain employees, including executive officers, pursuant to the 2000 Equity Incentive Plan as part of the Company’s annual refresh program. These equity awards are subject to vesting provisions and have a weighted-average grant date fair value of $135.61 and a weighted-average requisite service period of 3.25 years.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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,
	2012		2011		2012		2011
Cost of revenues	$	1,639	$	1,499	$	3,034	$	2,844
Sales and marketing		4,675		3,610		8,710		6,476
General and administrative		14,235		13,209		27,908		24,533

	$	20,549	$	18,318	$	39,652	$	33,853

12. Segment Information

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 Americas, EMEA and 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,
	2012		2011			2012		2011
Total revenues:
Americas	$	297,136	$	253,889		$	585,220	$	486,416
EMEA		102,697		88,611			204,033		170,650
Asia-Pacific		66,431		52,400			129,211		100,863

	$	466,264	$	394,900		$	918,464	$	757,929

Total depreciation and amortization:
Americas	$	61,450	$	56,470		$	121,121	$	109,170
EMEA		18,162		18,358			35,435		35,036
Asia-Pacific		16,015		10,394			31,940		19,351

	$	95,627	$	85,222		$	188,496	$	163,557

Income from operations:
Americas	$	67,242	$	49,072		$	129,160	$	96,391
EMEA		22,962		14,178			50,241		25,649
Asia-Pacific		12,462		11,616			24,363		24,131

	$	102,666	$	74,866		$	203,764	$	146,171

Capital expenditures:
Americas	$	110,696	$	74,848	(1)	$	182,744	$	123,726	(1)
EMEA		39,837		55,774			82,541		138,623
Asia-Pacific		45,951		109,249			76,689		167,588

	$	196,484	$	239,871		$	341,974	$	429,937

(1)	Includes the purchase price for the ALOG Acquisition, net of cash acquired, which totaled $41,954,000.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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


	June 30, 2012		December 31, 2011
Americas	$	2,045,148	$	1,899,769
EMEA		859,561		764,885
Asia-Pacific		621,130		561,258

	$	3,525,839	$	3,225,912

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


	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
Colocation	$	352,759	$	301,586	$	693,535	$	582,321
Interconnection		68,259		58,907		134,049		112,982
Managed infrastructure		20,777		15,369		43,049		23,846
Rental		781		666		1,564		1,288

Recurring revenues		442,576		376,528		872,197		720,437
Non-recurring revenues		23,688		18,372		46,267		37,492

	$	466,264	$	394,900	$	918,464	$	757,929

No single customer accounted for 10% or greater of the Company’s revenues for the three and six months ended June 30, 2012 and 2011. No single customer accounted for 10% or greater of the Company’s gross accounts receivable as of June 30, 2012 and December 31, 2011.

13. Restructuring Charges

2004 Restructuring Charge

A summary of the activity in the 2004 accrued restructuring charge from December 31, 2011 to June 30, 2012 is outlined as follows (in thousands):


Accrued restructuring charge as of December 31, 2011	$	7,680
Accretion expense		223
Cash payments		(1,227	)

Accrued restructuring charge as of June 30, 2012	$	6,676

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, 2012 and December 31, 2011. The Company is contractually committed to this excess space lease through 2015.

14. Subsequent Events

In July 2012, the Company acquired certain assets and operations of Asia Tone Limited (“Asia Tone”), a privately-owned company headquartered in Hong Kong, for cash consideration of approximately $230,500,000 (the “Asia Tone Acquisition”). Asia Tone operates six data centers and one disaster recovery center in Hong Kong, Shanghai and Singapore. The Asia Tone Acquisition includes one data

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

center under construction in Shanghai. The combined company will operate under the Equinix name. The Asia Tone Acquisition will be accounted for using the acquisition method of accounting in accordance with the accounting standard for business combinations. The preliminary purchase price allocation for the Asia Tone Acquisition is not currently available as the appraisals necessary to assess fair values of assets acquired and liabilities assumed are not yet complete.

In July 2012, the Company acquired 100% of the issued and outstanding share capital of ancotel GmbH (“ancotel”), a privately-owned company headquartered in Frankfurt, Germany for cash consideration of approximately $85,714,000 (the “ancotel Acquisition”). Ancotel operates one data center in Frankfurt and edge nodes in Hong Kong, London and Miami. The ancotel Acquisition will be accounted for using the acquisition method of accounting in accordance with the accounting standard for business combinations. The preliminary purchase price allocation for the ancotel Acquisition is not currently available as the appraisals necessary to assess fair values of assets acquired and liabilities assumed are not yet complete.

In July 2012, the Company fully utilized the U.S. Term Loan and used the funds to prepay and terminate the Asia-Pacific Financing (see Note 8, “U.S. Financing”). As a result, the Company will recognize a loss on debt extinguishment in the third quarter of 2012 of approximately $5,177,000, representing the write-off of unamortized debt issuance costs related to the Asia-Pacific Financing.

In July 2012, ALOG fully utilized the ALOG Financing and intends to use the funds to prepay and terminate the outstanding balance of ALOG’s loans payable (see Note 8, “ALOG Financing”).

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 June 2012, as more fully described in Note 8 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we entered into a credit agreement with a group of lenders for a $750.0 million credit facility, comprised of a $200.0 million term loan facility, referred to as the U.S. term loan, and a $550.0 million multicurrency revolving credit facility, referred to as the U.S. revolving credit line. We refer to this transaction as the U.S. financing. In June 2012, the outstanding letters of credit issued under the senior revolving credit line were assumed under the U.S. revolving credit line and the senior revolving credit line was terminated. In July 2012, we fully utilized the U.S. term loan and used the funds to prepay and terminate the Asia-Pacific financing.

In July 2012, as more fully described in Note 14 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we acquired certain assets and operations of Asia Tone Limited, referred to as Asia Tone, a privately-owned company headquartered in Hong Kong, for cash consideration of approximately $230.5 million. We refer to this transaction as the Asia Tone acquisition. Asia Tone operates six data centers and one disaster recovery center in Hong Kong, Shanghai and Singapore. The Asia Tone acquisition includes one data center under construction in Shanghai. The combined company will operate under the Equinix name.

In July 2012, as more fully described in Note 14 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we acquired 100% of the issued and outstanding share capital of ancotel GmbH, referred to as ancotel, a privately-owned company headquartered in Frankfurt, Germany for cash consideration of approximately $85.7 million. We refer to this transaction as the ancotel acquisition. Ancotel operates one data center in Frankfurt and edge nodes in Hong Kong, London and Miami.

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 data centers in 38 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, 2012, we operated or had partner IBX data centers in the Atlanta, Boston, Buffalo, Chicago, Cleveland, Dallas, Denver, Detroit, Indianapolis, Los Angeles, Miami, Nashville, New York, Philadelphia, Phoenix, Pittsburgh, Rio De Janeiro, Sao Paulo, Seattle, Silicon Valley, St. Louis, Tampa, Toronto and Washington, D.C. metro areas in the Americas region; France, Germany, Italy, the Netherlands, Switzerland and the United Kingdom in the Europe, Middle East, Africa (EMEA) region; and Australia, Hong Kong, Japan, China and Singapore in the Asia-Pacific region.

We leverage our global data centers in 38 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 13 countries, proven operational reliability, improved application performance and network choice, and a highly scalable set of services.

Our customer count increased to 5,854 as of June 30, 2012 versus 5,335 as of June 30, 2011, an increase of 10%. Excluding ALOG Data Centers do Brasil S.A. and its subsidiaries, referred to as ALOG, our customer count increased to 4,521 as of June 30, 2012 versus 4,135 as of June 30, 2011, an increase of 10%. This increase was due to organic growth in our business. Our utilization rate represents the percentage of our cabinet space billing versus net sellable cabinet space available taking into account power limitations. Our utilization rate increased to 80% as of June 30, 2012 versus approximately 76% as of June 30, 2011; 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 85% as of June 30, 2012. Excluding the impact of ALOG, our utilization rate increased to 80% as of June 30, 2012 versus approximately 76% as of June 30, 2011; 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 85% as of June 30, 2012. Our utilization rate varies from market to market among our IBX data centers across the Americas, EMEA 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 on a free cash flow basis 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. In addition, 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. Additionally, revenue from contract settlements, when a customer wishes to terminate their contract early, is recognized when no remaining performance obligations exist and collectability is reasonably assured, to the extent that the revenue has not previously been recognized. As a percentage of total revenues, we expect non-recurring revenues to represent less than 10% of total revenues for the foreseeable future.

Our Americas revenues are derived primarily from colocation and interconnection services while our EMEA 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 generally 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 Americas region has a lower cost of revenues as a percentage of revenue than either EMEA or Asia-Pacific. This is due to both the increased scale and maturity of the Americas region compared to either EMEA or Asia-Pacific, as well as a higher cost structure outside of the Americas, particularly in EMEA. 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 the Americas having the lowest cost of revenues as a percentage of revenue and EMEA having the highest to continue. As a result, to the extent that revenue growth outside the Americas grows in greater proportion than revenue growth in the Americas, our overall cost of revenues as a percentage of revenues may increase 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 and six months ended June 30, 2012 and 2011 include the operations of ALOG from April 25, 2011.

Constant Currency Presentation

Our revenues and certain operating expenses (cost of revenues, sales and marketing and general and administrative expenses) from our international operations have represented and will continue to represent a significant portion of our total revenues and certain operating expenses. As a result, our revenues and certain operating expenses have been and will continue to be affected by changes in the U.S. dollar against major international currencies such as the Brazilian reais, British pound, Canadian dollar, Euro, Swiss franc, Australian dollar, Hong Kong dollar, Japanese yen and Singapore dollar. In order to provide a framework for assessing how each of our business segments performed excluding the impact of foreign currency fluctuations, we present period-over-period percentage changes in our revenues and certain operating expenses on a constant currency basis in addition to the historical amounts as reported. Presenting constant currency results of operations is a non-GAAP financial measure and is not meant to be considered in isolation or as an alternative to GAAP results of operations. However, we have presented this non-GAAP financial measure to provide investors with an additional tool to evaluate our operating results. To present this information, our current and comparative prior period revenues and certain operating expenses from entities reporting in currencies other than the U.S. dollar are converted into U.S. dollars at constant exchange rates rather than the actual exchange rates in effect during the respective periods (i.e. average rates in effect for the three months ended June 30, 2011 are used as exchange rates for the three months ended June 30, 2012 when comparing the three months ended June 30, 2012 with the three months ended June 30, 2011 and average rates in effect for the six months ended June 30, 2011 are used as exchange rates for the six months ended June 30, 2012 when comparing the six months ended June 30, 2012 with the six months ended June 30, 2011).

Three Months Ended June 30, 2012 and 2011

Revenues. Our revenues for the three months ended June 30, 2012 and 2011 were generated from the following revenue classifications and geographic regions (dollars in thousands):


	Three months ended June 30,										% Change
	2012		%			2011		%			Actual			Constant currency
Americas:
Recurring revenues	$	284,603		61	%	$	245,199		62	%		16	%		16	%
Non-recurring revenues		12,533		3	%		8,690		2	%		44	%		44	%

		297,136		64	%		253,889		64	%		17	%		17	%

EMEA:
Recurring revenues		95,610		21	%		81,506		21	%		17	%		27	%
Non-recurring revenues		7,087		1	%		7,105		2	%		0	%		10	%

		102,697		23	%		88,611		23	%		16	%		26	%

Asia-Pacific:
Recurring revenues		62,363		13	%		49,823		13	%		25	%		27	%
Non-recurring revenues		4,068		1	%		2,577		1	%		58	%		60	%

		66,431		14	%		52,400		14	%		27	%		29	%

Total:
Recurring revenues		442,576		95	%		376,528		95	%		18	%		20	%
Non-recurring revenues		23,688		5	%		18,372		5	%		29	%		33	%

	$	466,264		100	%	$	394,900		100	%		18	%		21	%

Americas Revenues. Growth in Americas revenues was primarily due to (i) $6.0 million of incremental revenues from the impact of the ALOG acquisition, (ii) $4.3 million of revenue generated from our recently-opened IBX data centers or IBX data center expansions in the Chicago and Washington, D.C. metro areas and (iii) 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. We expect that our Americas revenues 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 Chicago, Dallas, Miami, New York, Rio de Janeiro, Sao Paulo, Seattle and Washington, D.C. metro areas, which are expected to open during the remainder of 2012 and the first half of 2013. Our estimates of future revenue growth take account of known or anticipated changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts.

EMEA Revenues. Our revenues from the U.K., the largest revenue contributor in the EMEA region for the period, represented approximately 38% of the regional revenues during the three months ended June 30, 2012. During the three months ended June 30, 2011, our revenues from Germany and the U.K., the largest revenue contributors in the EMEA region for the period, each represented approximately 34% of the regional revenues. Our EMEA revenue growth was due to revenues from our recently-opened IBX data center expansion in the Frankfurt metro area and 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, 2012, the U.S. dollar was generally stronger relative to the British pound and Euro than during the three months ended June 30, 2011, resulting in approximately $8.6 million of unfavorable foreign currency impact to our EMEA revenues during the three months ended June 30, 2012 when compared to average exchange rates of the three months ended June 30, 2011. We expect that our EMEA revenues will continue to grow in future periods as a result of the ancotel acquisition, continued growth in recently-opened IBX data centers or IBX data center expansions and additional expansions currently taking place in the Amsterdam, Frankfurt, London, Paris and Zurich metro areas, which are

expected to open during the remainder of 2012 and the first half of 2013. Our estimates of future revenue growth take account of known or anticipated changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts.

Asia-Pacific Revenues. Our revenues from Singapore, the largest revenue contributor in the Asia-Pacific region, represented approximately 40% of the regional revenues for the three months ended June 30, 2012 and 2011. Our Asia-Pacific revenue growth was due to revenues generated from our recently-opened IBX center expansions in the Hong Kong metro area and 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. For the three months ended June 30, 2012, the impact of foreign currency fluctuations to our Asia-Pacific revenues was not significant when compared to average exchange rates of the three months ended June 30, 2011. We expect that our Asia-Pacific revenues will continue to grow in future periods as a result of the Asia Tone acquisition, continued growth in these recently-opened IBX center expansions and additional expansions currently taking place in the Hong Kong, Singapore and Sydney metro areas, which are expected to open during the remainder of 2012. Our estimates of future revenue growth take account of known or anticipated changes in recurring revenues attributed to customer bookings, or changes or amendments to customers’ contracts.

Cost of Revenues. Our cost of revenues for the three months ended June 30, 2012 and 2011 were split among the following geographic regions (dollars in thousands):


	Three months ended June 30,										% Change
	2012		%			2011		%			Actual			Constant currency
Americas.	$	139,782		60	%	$	132,468		61	%		6	%		6	%
EMEA		54,177		23	%		53,173		25	%		2	%		11	%
Asia-Pacific		39,233		17	%		29,931		14	%		31	%		33	%

Total	$	233,192		100	%	$	215,572		100	%		8	%		11	%


	Three months ended June 30,
	2012			2011
Cost of revenues as a percentage of revenues:
Americas		47	%		52	%
EMEA		53	%		60	%
Asia-Pacific		59	%		57	%
Total		50	%		55	%

Americas Cost of Revenues. Our Americas cost of revenues for the three months ended June 30, 2012 and 2011 included $51.6 million and $48.3 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our IBX center expansion activity. Excluding depreciation expense, the increase in our Americas cost of revenues was primarily due to $2.5 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (855 Americas cost of revenues employees as of June 30, 2012 versus 765 as of June 30, 2011). We expect Americas cost of revenues to increase as we continue to grow our business.

EMEA Cost of Revenues. EMEA cost of revenues for the three months ended June 30, 2012 and 2011 included $16.4 million and $16.5 million, respectively, of depreciation expense. Excluding depreciation expense, our EMEA cost of revenues did not materially change. During the three months ended June 30, 2012, the U.S. dollar was generally stronger relative to the British pound and Euro than during the three months ended June 30, 2011, resulting in approximately $4.9 million of favorable foreign currency impact to our EMEA cost of revenues during the three months ended June 30, 2012 when compared to average exchange rates of the three months ended June 30, 2011. On a constant currency

basis, the increase in EMEA cost of revenues was primarily due to higher utility costs, compensation costs and depreciation expense. We expect EMEA cost of revenues to increase as we continue to grow our business, including the impact of the ancotel acquisition.

Asia-Pacific Cost of Revenues. Asia-Pacific cost of revenues for the three months ended June 30, 2012 and 2011 included $15.5 million and $10.0 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to 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 $2.3 million of higher utility costs. During the three months ended June 30, 2012, the impact of foreign currency fluctuations to our Asia-Pacific cost of revenues was not significant when compared to average exchange rates of the three months ended June 30, 2011. We expect Asia-Pacific cost of revenues to increase as we continue to grow our business, including the impact of the Asia Tone acquisition.

Sales and Marketing Expenses. Our sales and marketing expenses for the three months ended June 30, 2012 and 2011 were split among the following geographic regions (dollars in thousands):


	Three months ended June 30,										% Change
	2012		%			2011		%			Actual			Constant currency
Americas	$	30,068		63	%	$	23,683		64	%		27	%		27	%
EMEA		11,365		24	%		8,699		23	%		31	%		39	%
Asia-Pacific		6,331		13	%		4,681		13	%		35	%		36	%

Total	$	47,764		100	%	$	37,063		100	%		29	%		31	%


	Three months ended June 30,
	2012			2011
Sales and marketing expenses as a percentage of revenues:
Americas		10	%		9	%
EMEA		11	%		10	%
Asia-Pacific		10	%		9	%
Total		10	%		9	%

Americas Sales and Marketing Expenses. The increase in our Americas sales and marketing expenses was primarily due to $5.1 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (287 Americas sales and marketing employees as of June 30, 2012 versus 264 as of June 30, 2011). Over the past several years, we have been investing in our Americas sales and marketing initiatives to further increase our revenue. These investments have included the hiring of additional headcount and new product innovation efforts and, as a result, our Americas sales and marketing expenses as a percentage of revenues have increased. Although we anticipate that we will continue to invest in Americas sales and marketing initiatives, we believe our Americas sales and marketing expenses as a percentage of revenues will remain at approximately current levels over the next year but should ultimately decrease as we continue to grow our business.

EMEA Sales and Marketing Expenses. The increase in our EMEA sales and marketing expenses was primarily due to higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation expense and headcount growth (143 EMEA sales and marketing employees as of June 30, 2012 versus 99 as of June 30, 2011). During the three months ended June 30, 2012, the impact of foreign currency fluctuations to our EMEA sales and marketing expenses was not significant when compared to average exchange rates of the three months ended June 30, 2011. Over the past several years, we have been investing in our EMEA sales and marketing initiatives to further increase our revenue. These investments have included the hiring of additional headcount and new product innovation

efforts and, as a result, our EMEA sales and marketing expenses as a percentage of revenues have increased. Although we anticipate that we will continue to invest in EMEA sales and marketing initiatives, and our EMEA sales and marketing expenses will also increase as a result of the ancotel acquisition, we believe our EMEA sales and marketing expenses as a percentage of revenues will remain at approximately current levels over the next year but should ultimately decrease as we continue to grow our business.

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 (88 Asia-Pacific sales and marketing employees as of June 30, 2012 versus 63 as of June 30, 2011). For the three months ended June 30, 2012, the impact of foreign currency fluctuations to our Asia-Pacific sales and marketing expenses was not significant when compared to average exchange rates of the three months ended June 30, 2011. Over the past several years, we have been investing in our Asia-Pacific sales and marketing initiatives to further increase our revenue. These investments have included the hiring of additional headcount and new product innovation efforts and, as a result, our Asia-Pacific sales and marketing expenses have increased. Although we anticipate that we will continue to invest in Asia-Pacific sales and marketing initiatives, and our Asia-Pacific sales and marketing expenses will also increase as a result of the Asia Tone acquisition, we believe our Asia-Pacific sales and marketing expenses as a percentage of revenues will remain at approximately current levels over the next year but should ultimately decrease as we continue to grow our business.

General and Administrative Expenses. Our general and administrative expenses for the three months ended June 30, 2012 and 2011 were split among the following geographic regions (dollars in thousands):


	Three months ended June 30,										% Change
	2012		%			2011		%			Actual			Constant currency
Americas	$	59,792		74	%	$	47,007		72	%		27	%		27	%
EMEA		12,952		16	%		12,549		19	%		3	%		9	%
Asia-Pacific		7,979		10	%		6,125		9	%		30	%		32	%

Total	$	80,723		100	%	$	65,681		100	%		23	%		24	%


	Three months ended June 30,
	2012			2011
General and administrative expenses as a percentage of revenues:
Americas		20	%		19	%
EMEA		13	%		14	%
Asia-Pacific		12	%		12	%
Total		17	%		17	%

Americas General and Administrative Expenses. The increase in our Americas general and administrative expenses was primarily due to $6.2 million of higher professional services related to various consulting projects to support our growth and $4.3 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (642 Americas general and administrative employees as of June 30, 2012 versus 598 as of June 30, 2011). Over the course of the past year, we have been investing in our Americas general and administrative functions to scale this region effectively for growth, which has included additional investments into improving our back office systems. We expect our current efforts to improve our back office systems will continue over the next several years. Going forward, although we are carefully monitoring our spending given the current economic environment, we expect Americas general and administrative expenses to increase as we continue to further scale our operations to support our growth, including this investment in our back office systems; however, as a percentage of revenues, we generally expect them to decrease.

EMEA General and Administrative Expenses. The increase in our EMEA general and administrative expenses was primarily due to higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (179 EMEA general and administrative employees as of June 30, 2012 versus 163 as of June 30, 2011), partially offset by lower professional services related to various consulting projects. For the three months ended June 30, 2012, the impact of foreign currency fluctuations to our EMEA general and administrative expenses was not significant when compared to average exchange rates of the three months ended June 30, 2011. Over the course of the past year, we have been investing in our EMEA general and administrative functions as a result of our ongoing efforts to scale this region effectively for growth. Going forward, although we are carefully monitoring our spending given the current economic environment, we expect our EMEA general and administrative expenses to increase in future periods as we continue to scale our operations to support our growth, as well as due to the ancotel acquisition; 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, including general salaries, bonuses, stock-based compensation and headcount growth (164 Asia-Pacific general and administrative employees as of June 30, 2012 versus 143 as of June 30, 2011). For the three months ended June 30, 2012, the impact of foreign currency fluctuations to our Asia-Pacific general and administrative expenses was not significant when compared to average exchange rates of the three months ended June 30, 2011. 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, as well as due to the Asia Tone acquisition; however, as a percentage of revenues, we generally expect them to decrease.

Restructuring Charges. We recorded no restructuring charges during the three months ended June 30, 2012. During the three months ended June 30, 2011, we recorded restructuring charges of $103,000 related to one-time termination benefits attributed to certain Switch and Data employees. For additional information, see “Restructuring Charges” in Note 13 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q. Our restructuring charges all relate to our Americas region.

Acquisition Costs. During the three months ended June 30, 2012, we recorded acquisition costs totaling $1.9 million primarily attributed to the ancotel and Asia Tone acquisitions. During the three months ended June 30, 2011, we recorded acquisition costs totaling $1.6 million primarily attributed to the ALOG acquisition. We expect to incur additional acquisition costs related to the ancotel and Asia Tone acquisitions in the third quarter of 2012.

Interest Income. Interest income increased to $963,000 for the three months ended June 30, 2012 from $632,000 for the three months ended June 30, 2011. Interest income increased primarily due to higher invested balances as a result of the proceeds from the $750.0 million 7.00% senior notes offering in July 2011. The average annualized yield for the three months ended June 30, 2012 was 0.24% versus 0.55% for the three months ended June 30, 2011. We expect our interest income to remain at these low levels for the foreseeable future due to the impact of a continued low interest rate environment and a portfolio more weighted towards short-term securities.

Interest Expense. Interest expense increased to $46.8 million for the three months ended June 30, 2012 from $37.7 million for the three months ended June 30, 2011. This increase in interest expense was primarily due to the impact of our $750.0 million 7.00% senior notes offering in July 2011 and additional financings such as various capital lease and other financing obligations to support our expansion projects, partially offset by our settlement of the 2.50% convertible subordinated notes in April 2012. During the three months ended June 30, 2012 and 2011, we capitalized $6.4 million and $3.3 million, respectively, of interest expense to construction in progress. Going forward, we expect our interest expense to increase by approximately $5.0 million annually as a result of our drawdowns from the ALOG financing in July 2012. However, we may take additional drawdowns from the U.S. revolving credit line under the U.S. financing or incur additional indebtedness to support our growth, resulting in higher interest expense.

Other Income (Expense). We recorded $1.8 million of other expense for the three months ended June 30, 2012 and $1.0 million of other income for the three months ended June 30, 2011, primarily due to foreign currency exchange gains (losses) during the periods.

Income Taxes. For the three months ended June 30, 2012 and 2011, we recorded $17.4 million and $8.1 million of income tax expenses, respectively. Our effective tax rates were 31.6% and 20.9% for the three months ended June 30, 2012 and 2011, respectively. The substantially higher effective tax rate for the three months ended June 30, 2012 was primarily due to the reassessment of the valuation allowance position for our foreign operations in Switzerland. As a result of the reassessment, we provided a full valuation allowance against the net deferred tax asset in the jurisdiction, which reduced the tax benefit associated with the foreign losses during the three months ended June 30, 2012. We expect cash income taxes during the remainder of 2012 to increase. The cash taxes for 2012 and 2011 are primarily for state income taxes and foreign income taxes.

Six Months Ended June 30, 2012 and 2011

Revenues. Our revenues for the six months ended June 30, 2012 and 2011 were generated from the following revenue classifications and geographic regions (dollars in thousands):


	Six months ended June 30,										% Change
	2012		%			2011		%			Actual			Constant currency
Americas:
Recurring revenues	$	563,366		62	%	$	468,588		62	%		20	%		20	%
Non-recurring revenues		21,854		2	%		17,828		2	%		23	%		23	%

		585,220		64	%		486,416		64	%		20	%		20	%

EMEA:
Recurring revenues		187,143		20	%		155,834		21	%		20	%		27	%
Non-recurring revenues		16,890		2	%		14,816		2	%		14	%		21	%

		204,033		22	%		170,650		23	%		20	%		26	%

Asia-Pacific:
Recurring revenues		121,688		13	%		96,015		13	%		27	%		26	%
Non-recurring revenues		7,523		1	%		4,848		1	%		55	%		55	%

		129,211		14	%		100,863		14	%		28	%		28	%

Total:
Recurring revenues		872,197		95	%		720,437		95	%		21	%		23	%
Non-recurring revenues		46,267		5	%		37,492		5	%		23	%		26	%

	$	918,464		100	%	$	757,929		100	%		21	%		23	%

Americas Revenues. Growth in Americas revenues was primarily due to (i) $24.7 million of incremental revenues from the impact of the ALOG acquisition, (ii) $7.2 million of revenue generated from our recently-opened IBX data centers or IBX data center expansions in the Chicago and Washington, D.C. metro areas and (iii) 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. We expect that our Americas revenues 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 Chicago, Dallas, Miami, New York, Rio de Janeiro, Sao Paulo, Seattle and Washington, D.C. metro areas, which are expected to open during the remainder of 2012 and the first half of 2013. Our estimates of future revenue growth take account of known or anticipated changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts.

EMEA Revenues. Our revenues from the U.K., the largest revenue contributor in the EMEA region for the period, represented approximately 39% of the regional revenues during the six months ended June 30, 2012. During the six months ended June 30, 2011, our revenues from Germany and the U.K., the largest revenue contributors in the EMEA region for the period, each represented approximately 34% of the regional revenues. Our EMEA revenue growth was due to (i) approximately $2.9 million of revenue from our recently-opened IBX data center expansion in the Frankfurt metro area and (ii) 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, 2012, the U.S. dollar was generally stronger relative to the British pound and Euro than during the six months ended June 30, 2011, resulting in approximately $11.5 million of unfavorable foreign currency impact to our EMEA revenues during the six months ended June 30, 2012 when compared to average exchange rates of the six months ended June 30, 2011. We expect that our EMEA revenues will continue to grow in future periods as a result of the ancotel acquisition, continued growth in recently-opened IBX data centers or IBX data center expansions and additional expansions currently taking place in the Amsterdam, Frankfurt, London, Paris and Zurich metro areas, which are expected to open during the remainder of 2012 and the first half of 2013. Our estimates of future revenue growth take account of known or anticipated changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts.

Asia-Pacific Revenues. Our revenues from Singapore, the largest revenue contributor in the Asia-Pacific region, represented approximately 40% of the regional revenues for the six months ended June 30, 2012 and 2011. Our Asia-Pacific revenue growth was due to revenues generated from our recently-opened IBX center expansions in the Hong Kong metro area and 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, 2012, the impact of foreign currency fluctuations to our Asia-Pacific revenues was not significant when compared to average exchange rates of the six months ended June 30, 2011. We expect that our Asia-Pacific revenues will continue to grow in future periods as a result of the Asia Tone acquisition, continued growth in these recently-opened IBX center expansions and additional expansions currently taking place in the Hong Kong, Singapore and Sydney metro areas, which are expected to open during the remainder of 2012. Our estimates of future revenue growth take account of known or anticipated changes in recurring revenues attributed to customer bookings, or changes or amendments to customers’ contracts.

Cost of Revenues. Our cost of revenues for the six months ended June 30, 2012 and 2011 were split among the following geographic regions (dollars in thousands):


	Six months ended June 30,										% Change
	2012		%			2011		%			Actual			Constant currency
Americas	$	275,876		60	%	$	250,054		61	%		10	%		10	%
EMEA		105,315		23	%		103,144		25	%		2	%		8	%
Asia-Pacific		77,080		17	%		56,950		14	%		35	%		35	%

Total	$	458,271		100	%	$	410,148		100	%		12	%		13	%


	Six months ended June 30,
	2012			2011
Cost of revenues as a percentage of revenues:
Americas		47	%		51	%
EMEA		52	%		60	%
Asia-Pacific		60	%		56	%
Total		50	%		54	%

Americas Cost of Revenues. Our Americas cost of revenues for the six months ended June 30, 2012 and 2011 included $102.2 million and $93.5 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our IBX center expansion activity. Excluding depreciation expense, the increase in our Americas cost of revenues was primarily due to (i) $9.4 million of incremental cost of revenues from the impact of the ALOG acquisition, (ii) $3.3 million of higher compensation costs, including general salaries, bonuses, stock-based compensation cost and headcount growth (855 Americas cost of revenues employees as of June 30, 2012 versus 765 as of June 30, 2011) and (iii) $3.0 million of higher utility costs. We expect Americas cost of revenues to increase as we continue to grow our business.

EMEA Cost of Revenues. EMEA cost of revenues for the six months ended June 30, 2012 and 2011 included $31.8 million and $31.6 million, respectively, of depreciation expense. Excluding depreciation expense, our EMEA cost of revenues did not materially change. During the six months ended June 30, 2012, the U.S. dollar was generally stronger relative to the British pound and Euro than during the six months ended June 30, 2011, resulting in approximately $6.4 million of favorable foreign currency impact to our EMEA cost of revenues during the six months ended June 30, 2012 when compared to average exchange rates of the six months ended June 30, 2011. On a constant currency basis, the increase in EMEA cost of revenues was primarily due to higher utility costs and depreciation expense. We expect EMEA cost of revenues to increase as we continue to grow our business, including the impact of the ancotel acquisition.

Asia-Pacific Cost of Revenues. Asia-Pacific cost of revenues for the six months ended June 30, 2012 and 2011 included $30.9 million and $18.6 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to 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 $5.0 million of higher utility costs. During the six months ended June 30, 2012, the impact of foreign currency fluctuations to our Asia-Pacific cost of revenues was not significant when compared to average exchange rates of the six months ended June 30, 2011. We expect Asia-Pacific cost of revenues to increase as we continue to grow our business, including the impact of the Asia Tone acquisition.

Sales and Marketing Expenses. Our sales and marketing expenses for the six months ended June 30, 2012 and 2011 were split among the following geographic regions (dollars in thousands):


	Six months ended June 30,										% Change
	2012		%			2011		%			Actual			Constant currency
Americas	$	61,157		65	%	$	45,494		64	%		34	%		34	%
EMEA		21,849		23	%		17,137		24	%		27	%		33	%
Asia-Pacific		11,329		12	%		8,068		12	%		40	%		40	%

Total	$	94,335		100	%	$	70,699		100	%		33	%		35	%


	Six months ended June 30,
	2012			2011
Sales and marketing expenses as a percentage of revenues:
Americas		10	%		9	%
EMEA		11	%		10	%
Asia-Pacific		9	%		8	%
Total		10	%		9	%

Americas Sales and Marketing Expenses. The increase in our Americas sales and marketing expenses was primarily due to $4.0 million of incremental sales and marketing expenses from the impact

of the ALOG acquisition and $9.3 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (287 Americas sales and marketing employees as of June 30, 2012 versus 264 as of June 30, 2011). Over the past several years, we have been investing in our Americas sales and marketing initiatives to further increase our revenue. These investments have included the hiring of additional headcount and new product innovation efforts and, as a result, our Americas sales and marketing expenses as a percentage of revenues have increased. Although we anticipate that we will continue to invest in Americas sales and marketing initiatives, we believe our Americas sales and marketing expenses as a percentage of revenues will remain at approximately current levels over the next year but should ultimately decrease as we continue to grow our business.

EMEA Sales and Marketing Expenses. The increase in our EMEA sales and marketing expenses was primarily due to $2.8 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation expense and headcount growth (143 EMEA sales and marketing employees as of June 30, 2012 versus 99 as of June 30, 2011). For the six months ended June 30, 2012, the impact of foreign currency fluctuations to our EMEA sales and marketing expenses was not significant when compared to average exchange rates of the six months ended June 30, 2011. Over the past several years, we have been investing in our EMEA sales and marketing initiatives to further increase our revenue. These investments have included the hiring of additional headcount and new product innovation efforts and, as a result, our EMEA sales and marketing expenses as a percentage of revenues have increased. Although we anticipate that we will continue to invest in EMEA sales and marketing initiatives, and our EMEA sales and marketing expenses will also increase as a result of the ancotel acquisition, we believe our EMEA sales and marketing expenses as a percentage of revenues will remain at approximately current levels over the next year but should ultimately decrease as we continue to grow our business.

Asia-Pacific Sales and Marketing Expenses. The increase in our Asia-Pacific sales and marketing expenses was primarily due to $3.3 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation expense and headcount growth (88 Asia-Pacific sales and marketing employees as of June 30, 2012 versus 63 as of June 30, 2011). For the six months ended June 30, 2012, the impact of foreign currency fluctuations to our Asia-Pacific sales and marketing expenses was not significant when compared to average exchange rates of the six months ended June 30, 2011. Over the past several years, we have been investing in our Asia-Pacific sales and marketing initiatives to further increase our revenue. These investments have included the hiring of additional headcount and new product innovation efforts and, as a result, our Asia-Pacific sales and marketing expenses have increased. Although we anticipate that we will continue to invest in Asia-Pacific sales and marketing initiatives, and our Asia-Pacific sales and marketing expenses will also increase as a result of the Asia Tone acquisition, we believe our Asia-Pacific sales and marketing expenses as a percentage of revenues will remain at approximately current levels over the next year but should ultimately decrease as we continue to grow our business.

General and Administrative Expenses. Our general and administrative expenses for the six months ended June 30, 2012 and 2011 were split among the following geographic regions (dollars in thousands):


	Six months ended June 30,										% Change
	2012		%			2011		%			Actual			Constant currency
Americas	$	118,513		74	%	$	91,956		72	%		29	%		29	%
EMEA		25,258		16	%		24,706		19	%		2	%		6	%
Asia-Pacific		15,377		10	%		11,620		9	%		32	%		32	%

Total	$	159,148		100	%	$	128,282		100	%		24	%		25	%


	Six months ended June 30,
	2012			2011
General and administrative expenses as a percentage of revenues:
Americas		20	%		19	%
EMEA		12	%		14	%
Asia-Pacific		12	%		12	%
Total		17	%		17	%

Americas General and Administrative Expenses. The increase in our Americas general and administrative expenses was primarily due to (i) $3.1 million of incremental general and administrative expenses from the impact of the ALOG acquisition, (ii) $10.6 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (642 Americas general and administrative employees as of June 30, 2012 versus 598 as of June 30, 2011) and (iii) $10.0 million of higher professional fees related to various consulting projects to support our growth. Over the course of the past year, we have been investing in our Americas general and administrative functions to scale this region effectively for growth, which has included additional investments into improving our back office systems. We expect our current efforts to improve our back office systems will continue over the next several years. Going forward, although we are carefully monitoring our spending given the current economic environment, we expect Americas general and administrative expenses to increase as we continue to further scale our operations to support our growth, including this investment in our back office systems; however, as a percentage of revenues, we generally expect them to decrease.

EMEA General and Administrative Expenses. Our EMEA general and administrative expenses did not materially change. For the six months ended June 30, 2012, the impact of foreign currency fluctuations to our EMEA general and administrative expenses was not significant when compared to average exchange rates of the six months ended June 30, 2011. Over the course of the past year, we have been investing in our EMEA general and administrative functions as a result of our ongoing efforts to scale this region effectively for growth. Going forward, although we are carefully monitoring our spending given the current economic environment, we expect our EMEA general and administrative expenses to increase in future periods as we continue to scale our operations to support our growth, as well as due to the ancotel acquisition; 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 $2.5 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (164 Asia-Pacific general and administrative employees as of June 30, 2012 versus 143 as of June 30, 2011). For the six months ended June 30, 2012, the impact of foreign currency fluctuations to our Asia-Pacific general and administrative expenses was not significant when compared to average exchange rates of the six months ended June 30, 2011. 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, as well as due to the Asia Tone acquisition; however, as a percentage of revenues, we generally expect them to decrease.

Restructuring Charges. We recorded no restructuring charges during the six months ended June 30, 2012. During the six months ended June 30, 2011, we recorded restructuring charges of $599,000 related to one-time termination benefits attributed to certain Switch and Data employees. For additional information, see “Restructuring Charges” in Note 13 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q. Our restructuring charges all relate to our Americas region.

Acquisition Costs. During the six months ended June 30, 2012, we recorded acquisition costs

totaling $2.9 million primarily attributed to the ancotel and Asia Tone acquisitions. During the six months ended June 30, 2011, we recorded acquisition costs totaling $2.0 million primarily attributed to the ALOG acquisition. We expect to incur additional acquisition costs related to the ancotel and Asia Tone acquisitions in the third quarter of 2012.

Interest Income. Interest income increased to $1.7 million for the six months ended June 30, 2012 from $847,000 for the six months ended June 30, 2011. Interest income increased primarily due to higher invested balances as a result of the proceeds from the $750.0 million 7.00% senior notes offering in July 2011. The average annualized yield for the six months ended June 30, 2012 was 0.24% versus 0.43% for the six months ended June 30, 2011. We expect our interest income to remain at these low levels for the foreseeable future due to the impact of a continued low interest rate environment and a portfolio more weighted towards short-term securities.

Interest Expense. Interest expense increased to $99.6 million for the six months ended June 30, 2012 from $75.0 million for the six months ended June 30, 2011. This increase in interest expense was primarily due to the impact of our $750.0 million 7.00% senior notes offering in July 2011 and additional financings such as various capital lease and other financing obligations to support our expansion projects, partially offset by our settlement of the 2.50% convertible subordinated notes. During the six months ended June 30, 2012 and 2011, we capitalized $10.7 million and $5.9 million, respectively, of interest expense to construction in progress. Going forward, we expect our interest expense to increase by approximately $5.0 million annually as a result of our drawdowns from the ALOG financing in July 2012. However, we may take additional drawdowns from the U.S. revolving credit line under the U.S. financing or incur additional indebtedness to support our growth, resulting in higher interest expense.

Other Income (Expense). We recorded $2.0 million of other expense for the six months ended June 30, 2012 and $3.1 million of other income for the six months ended June 30, 2011, primarily due to foreign currency exchange gains (losses) during the periods.

Income Taxes. For the six months ended June 30, 2012 and 2011, we recorded $31.4 million and $19.2 million of income tax expenses, respectively. Our effective tax rates were 30.2% and 25.6% for the six months ended June 30, 2012 and 2011, respectively. The higher effective tax rate for the six months ended June 30, 2012 was primarily due to a reduction in the tax benefit associated with the foreign losses in 2012 as a result of the reassessment of the valuation allowance position for our foreign operations in Switzerland. We expect cash income taxes during the remainder of 2012 to increase. The cash taxes for 2012 and 2011 are primarily for state income taxes 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. We also use adjusted EBITDA as a metric in the determination of employees’ annual bonuses and vesting of restricted stock units that have both a service and performance condition. 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 stock-based compensation expense as it primarily 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 (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
Income from operations	$	102,666	$	74,866	$	203,764	$	146,171
Depreciation, amortization and accretion expense		96,944		86,426		190,866		165,951
Stock-based compensation expense		20,549		18,318		39,652		33,853
Restructuring charges		—		103		—		599
Acquisition costs		1,919		1,615		2,946		2,030

Adjusted EBITDA	$	222,078	$	181,328	$	437,228	$	348,604

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


	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
Americas:
Income from operations	$	67,242	$	49,072	$	129,160	$	96,391
Depreciation, amortization and accretion expense		62,329		57,246		122,750		110,728
Stock-based compensation expense		15,657		14,527		30,808		26,369
Restructuring charges		—		103		—		599
Acquisition costs		252		1,556		514		1,922

Adjusted EBITDA	$	145,480	$	122,504	$	283,232	$	236,009

EMEA:
Income from operations	$	22,962	$	14,178	$	50,241	$	25,649
Depreciation, amortization and accretion expense		18,329		18,512		35,641		35,356
Stock-based compensation expense		2,673		2,147		4,837		4,442
Acquisition costs		1,241		12		1,370		14

Adjusted EBITDA	$	45,205	$	34,849	$	92,089	$	65,461

Asia-Pacific:
Income from operations	$	12,462	$	11,616	$	24,363	$	24,131
Depreciation, amortization and accretion expense		16,286		10,668		32,475		19,867
Stock-based compensation expense		2,219		1,644		4,007		3,042
Acquisition costs		426		47		1,062		94

Adjusted EBITDA	$	31,393	$	23,975	$	61,907	$	47,134

Our adjusted EBITDA results have improved each year and in each region in total dollars 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”. Although we have also been investing in our future growth as described above (e.g. additional IBX data center expansions, acquisitions and increased investments in sales and marketing expenses), 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, 2012, our total indebtedness was comprised of (i) convertible debt principal totaling $769.7 million from 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 $2.2 billion consisting of (a) $1.5 billion of principal from our 8.125% and 7.00% senior notes, (b) $214.3 million of principal from our loans payable and (c) $477.6 million from our capital lease and other financing obligations. In April 2012, virtually all of the holders of the 2.50% convertible subordinated notes converted their notes. We settled the $250.0 million in aggregate principal amount of the 2.50% convertible subordinated notes, plus accrued interest, in $253.1 million of cash and 622,867 shares of our common stock, which were issued from our treasury stock. Additionally, in July 2012, we fully utilized the $200.0 million U.S. term loan under the U.S. financing to prepay and terminate the Asia-Pacific financing, which had $184.8 million of principal outstanding, and the 100.0 million Brazilian real ALOG financing to prepay and terminate the existing outstanding ALOG’s loans payable and to fund operations.

We believe we have sufficient cash, coupled with anticipated cash generated from operating

activities, to meet our operating requirements, including repayment of the current portion of our debt as it becomes due, and to complete our publicly-announced expansion projects. As of June 30, 2012, we had $823.0 million of cash, cash equivalents and short-term and long-term investments, of which approximately $204.0 million was held in the U.S.; however, in July 2012, we used approximately $316.2 million of our cash to pay for the Asia Tone and ancotel acquisitions. We believe that our current expansion activities in the U.S. can be funded with our U.S.-based cash and cash equivalents and investments. Besides our investment portfolio, additional liquidity available to us from the U.S. financing and any further 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, 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. Additionally, approximately 18% of our gross trade receivables are attributable to our EMEA region, and due to the risks posed by the current European debt crisis and credit downgrade, our EMEA-based customers may have difficulty paying us. As a result, our liquidity could be adversely impacted by the possibility of increasing trade receivable aging and higher allowance for doubtful accounts.

As of June 30, 2012, we had a total of approximately $778.2 million of additional liquidity available to us, comprising $728.6 million available under the U.S. financing and approximately $49.6 million available under the ALOG financing. 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 expect to fund these expansion plans with our existing resources, additional financing, either debt or equity, may be required to pursue certain new or unannounced additional expansion plans, including acquisitions. However, if current market conditions were to deteriorate, we may be unable to secure additional financing or any such additional financing may only 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,
	2012			2011
	(in thousands)
Net cash provided by operating activities	$	320,775		$	258,118
Net cash provided by (used in) investing activities		363,313			(496,126	)
Net cash provided by (used in) financing activities		(308,666	)		87,964

Operating Activities. The increase in net cash provided by operating activities was primarily due to improved operating results, partially offset by payments of accrued expenses. Although our collections remain strong, it is possible for some large customer receivables that were anticipated to be collected in one quarter to slip to the next quarter. For example, certain customer receivables that were anticipated to be collected in June 2012 were instead collected in July 2012, which negatively impacted cash flows from operating activities for the six months ended June 30, 2012. We expect that we will continue to generate cash from our operating activities during the remainder of 2012 and beyond.

Investing Activities. The net cash provided by investing activities for the six months ended June 30, 2012 was primarily due to $791.8 million of maturities and sales of investments and $79.4 million of release of restricted cash primarily related to payments made in connection with the Paris 4 IBX financing, partially offset by $342.0 million of capital expenditures as a result of expansion activity and $165.8 million of purchases of investments. The net cash used in investing activities for the six months ended June 30, 2011 was primarily due to $364.0 million of capital expenditures as a result of expansion activity and $95.9 million of cash deposited into a restricted cash account as collateral for the developer of the Paris 4 IBX during the construction period. During 2012, we expect that our IBX expansion construction

activity will be similar to our 2011 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 as well as pursue additional acquisitions or joint ventures. In addition, we used $316.2 million in cash to pay for the Asia Tone and ancotel acquisitions in July 2012.

Financing Activities. The net cash used in financing activities for the six months ended June 30, 2012 was primarily due to $250.0 million of repayment of the principal amount of the 2.50% convertible subordinated notes and $83.2 million of repayments of principal on our loans payable and capital lease and other financing obligations, partially offset by $36.5 million of proceeds from employee equity awards. The net cash provided by financing activities for the six months ended June 30, 2011 was primarily due to $77.9 million of gross proceeds from the Asia-Pacific debt facility and $24.6 million of proceeds from employee equity awards, partially offset by $14.4 million of repayments of principal on our debt facilities. As a result of our additional debt facilities entered into in June 2012, $750.0 million from the U.S. financing and 100.0 million Brazilian reais from the ALOG financing, we intend to significantly utilize our new debt facilities during the remainder of 2012 to repay our existing debt and fund our operations. In July 2012, we fully utilized the $200.0 million U.S. term loan under the U.S. financing to prepay and terminate the Asia-Pacific financing and the 100.0 million Brazilian real ALOG financing to prepay and terminate the outstanding ALOG’s loans payable and to fund our operations.

Debt Obligations

2.50% Convertible Subordinated Notes. In March 2007, we issued $250.0 million aggregate principal amount of 2.50% convertible subordinated notes due April 15, 2012. Holders of the 2.50% convertible subordinated notes were eligible to convert their notes at any time on or after March 15, 2012 through the close of business on the business day immediately preceding the maturity date. Upon conversion, holders would receive, at our election, cash, shares of our common stock or a combination of cash and shares of our common stock. However, we had the right at any time to irrevocably elect for the remaining term of the 2.50% convertible subordinated notes to satisfy our obligation in cash up to 100% of the principal amount of the 2.50% convertible subordinated notes converted, with any remaining amount to be satisfied, at our election, in shares of our common stock or a combination of cash and shares of our common stock. Upon conversion, due to the conversion formulas associated with the 2.50% convertible subordinated notes, if our stock was trading at levels exceeding $112.03 per share, and if we elected to pay any portion of the consideration in cash, additional consideration beyond the $250.0 million of gross proceeds received would be required. However, in no event would the total number of shares issuable upon conversion of the 2.50% convertible subordinated notes exceed 11.6036 per $1,000 principal amount of 2.50% convertible subordinated notes, subject to anti-dilution adjustments, or the equivalent of $86.18 per share of common stock or a total of 2,900,900 shares of our common stock. In April 2012, virtually all of the holders of the 2.50% convertible subordinated notes converted their notes. We settled the $250.0 million in aggregate principal amount of the 2.50% convertible subordinated notes, plus accrued interest, in $253.1 million of cash and 622,867 shares of our common stock that were issued from our treasury stock.

3.00% Convertible Subordinated Notes. In September 2007, we issued $396.0 million aggregate principal amount of 3.00% convertible subordinated notes due October 15, 2014. Holders of the 3.00% convertible subordinated notes may convert their notes at their option on any day up to and including the business day immediately preceding the maturity date into shares of our common stock. The base conversion rate is 7.436 shares of common stock per $1,000 principal amount of 3.00% convertible subordinated notes, subject to adjustment. This represents a base conversion price of approximately $134.48 per share of common stock. If, at the time of conversion, the applicable stock price of the our common stock exceeds the base conversion price, the conversion rate will be determined pursuant to a formula resulting in the receipt of up to 4.4616 additional shares of common stock per $1,000 principal amount of the 3.00% convertible subordinated notes, subject to adjustment. However, in no event would the total number of shares issuable upon conversion of the 3.00% convertible subordinated notes exceed 11.8976 per $1,000 principal amount of 3.00% convertible subordinated notes, subject to anti-dilution adjustments, or the equivalent of $84.05 per share of our common stock or a total of 4,711,283 shares of our common stock. As of June 30, 2012, had the holders of the 3.00% convertible subordinated notes converted their notes, the 3.00% convertible subordinated notes would have been convertible into 3,328,497 shares of our common stock.

4.75% Convertible Subordinated Notes. In June 2009, we issued $373.8 million aggregate principal amount of 4.75% convertible subordinated notes due June 15, 2016. Upon conversion, holders will receive, at our election, cash, shares of our common stock or a combination of cash and shares of our common stock. However, we may at any time irrevocably elect for the remaining term of the 4.75% convertible subordinated notes to satisfy our obligation in cash up to 100% of the principal amount of the 4.75% convertible subordinated notes converted, with any remaining amount to be satisfied, at our election, in shares of our common stock or a combination of cash and shares of our common stock. Upon conversion, if we elect to pay a sufficiently large portion of the conversion obligation in cash, additional consideration beyond the $373.8 million of gross proceeds received will be required.

The initial conversion rate is 11.8599 shares of common stock per $1,000 principal amount of 4.75% convertible subordinated notes, subject to adjustment. This represents an initial conversion price of approximately $84.32 per share of common stock. Holders of the 4.75% convertible subordinated notes may convert their notes at any time prior to the close of business on the business day immediately preceding the maturity date under the following circumstances:

•

during any fiscal quarter (and only during that fiscal quarter) ending after December 31, 2009, if the sale price of our common stock, for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the previous fiscal quarter, is greater than 130% of the conversion price per share of common stock on such last trading day, which was $109.62 per share;

•

subject to certain exceptions, during the five business day period following any 10 consecutive trading day period in which the trading price of the 4.75% convertible subordinated notes for each day of such period was less than 98% of the product of the sale price of our common stock and the conversion rate;

•

upon the occurrence of specified corporate transactions described in the 4.75% convertible subordinated notes indenture, such as a consolidation, merger or binding share exchange in which our common stock would be converted into cash or property other than securities; or

•

at any time on or after March 15, 2016.

Holders of the 4.75% convertible subordinated notes were eligible to convert their notes during the three months ended June 30, 2012, since the sale price of our common stock, for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the three months ended March 31, 2012, was greater than 130% of the conversion price per share of common stock on such last trading day. As of June 30, 2012, had the holders of the 4.75% convertible subordinated notes converted their notes, the 4.75% convertible subordinated notes would have been convertible into a maximum of 4,432,627 shares of our common stock.

U.S. Financing. In June 2012, we entered into a credit agreement with a group of lenders for a $750.0 million credit facility, referred to as the U.S. financing, comprised of a $200.0 million term loan facility, referred to as the U.S. term loan, and a $550.0 million multicurrency revolving credit facility, referred to as the U.S. revolving credit line. The U.S. financing contains several financial covenants with which we must comply on a quarterly basis, including a maximum senior leverage ratio covenant, a minimum fixed charge coverage ratio covenant and a minimum tangible net worth covenant. The U.S. financing is guaranteed by certain of our domestic subsidiaries and is secured by our and the guarantors’ accounts receivable as well as pledges of the equity interests of certain of our direct and indirect subsidiaries. The U.S. term loan and U.S. revolving credit line both have a five-year term, subject to the satisfaction of certain conditions with respect to our outstanding convertible subordinated notes. We are required to repay the principal balance of the U.S. term loan in equal quarterly installments over the term. The U.S. term loan bears interest at a rate based on LIBOR or, at our option, the base rate, which is

defined as the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the Bank of America prime rate and (c) one-month LIBOR plus 1.00%, plus, in either case, a margin that varies as a function of our senior leverage ratio in the range of 1.25%-2.00% per annum if we elect to use the LIBOR index and in the range of 0.25%-1.00% per annum if we elect to use the base rate index. As of June 30, 2012, we had not borrowed any of the U.S. term loan. In July 2012, we borrowed the full amount of the U.S. term loan and used the funds to prepay the outstanding balance of and terminate the Asia-Pacific financing (see below). The U.S. revolving credit line allows us to borrow, repay and reborrow over the term. The U.S. revolving credit line provides a sublimit for the issuance of letters of credit of up to $150.0 million at any one time. We may use the U.S. revolving credit line for working capital, capital expenditures, issuance of letters of credit, and other general corporate purposes. Borrowings under the U.S. revolving credit line bear interest at a rate based on LIBOR or, at our option, the base rate as defined above plus, in either case, a margin that varies as a function of our senior leverage ratio in the range of 0.95%-1.60% per annum if we elect to use the LIBOR index and in the range of 0.00%-0.60% per annum if we elect to use the base rate index. We are required to pay a quarterly letter of credit fee on the face amount of each letter of credit, which fee is based on the same margin that applies from time to time to LIBOR-indexed borrowings under the U.S. revolving credit line. We are also required to pay a quarterly facility fee ranging from 0.30%-0.40% per annum of the U.S. revolving credit line, regardless of the amount utilized, which fee also varies as a function of our senior leverage ratio. In June 2012, the outstanding letters of credit issued under the senior revolving credit line (see below) were assumed under the U.S. revolving credit line and the senior revolving credit line was terminated. As of June 30, 2012, we had 13 irrevocable letters of credit totaling $21.4 million issued and outstanding under the U.S. revolving credit line. As a result, the amount available to us to borrow under the U.S. revolving credit line was $528.6 million as of June 30, 2012. As of June 30, 2012, we were in compliance with all covenants of the U.S. financing.

Asia-Pacific Financing. In May 2010, our five wholly-owned subsidiaries, located in Australia, Hong Kong, Japan and Singapore, completed a multi-currency credit facility agreement for approximately $223.6 million, comprising 79.2 million Australian dollars, 370.4 million Hong Kong dollars, 99.4 million Singapore dollars and 1.5 billion Japanese yen. The Asia-Pacific financing had a five-year term with semi-annual principal payments and quarterly debt service and consisted of two tranches: (i) Tranche A totaling approximately $90.8 million was available for immediate drawing upon satisfaction of certain conditions precedent and (ii) Tranche B totaling approximately $132.8 million was available for drawing in Australian, Hong Kong and Singapore dollars only for up to 24 months following the effective date of the Asia-Pacific financing. The Asia Pacific financing bore 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. The Asia-Pacific financing contained four financial covenants, which we had to comply with quarterly, consisting of two leverage ratios, an interest coverage ratio and a debt service ratio. The Asia-Pacific financing was guaranteed by us, and was secured by most of our five subsidiaries’ assets and share pledges. As of December 31, 2011, our five subsidiaries had fully utilized Tranche A and Tranche B under the Asia-Pacific financing. The loans payable under the Asia-Pacific financing had a final maturity date of March 2015. As of June 30, 2012, we were in compliance with all financial covenants in connection with the Asia-Pacific financing. As of June 30, 2012, the blended interest rate under the Asia-Pacific financing was approximately 4.52% per annum. In July 2012, we fully repaid and terminated the Asia-Pacific financing. As a result, we will recognize a loss on debt extinguishment in the third quarter of 2012 of approximately $5.2 million, representing the write-off of unamortized debt issuance costs related to the Asia-Pacific financing.

Senior Revolving Credit Line. In September 2011, we entered into a $150.0 million senior unsecured revolving credit facility with a group of lenders. This transaction is referred to as the senior revolving credit line. We were able to use the senior revolving credit line for working capital, capital expenditures, issuance of letters of credit, general corporate purposes and to refinance a portion of our existing debt obligations. The senior revolving credit line had a five-year term and allowed us to borrow, repay and re-borrow over the term. The senior revolving credit line provided a sublimit for the issuance of letters of credit of up to $100.0 million and a sublimit for swing line borrowings of up to $25.0 million. Borrowings under the senior revolving credit line carried an interest rate of US$ LIBOR plus an applicable margin ranging from 1.25%-1.75% per annum, which varied as a function of our senior leverage ratio. We were also subject to a quarterly non-utilization fee ranging from 0.30%-0.40% per annum, the pricing of which

would also vary as a function of our senior leverage ratio. Additionally, we were able to increase the size of the senior revolving credit line at our election by up to $100.0 million, subject to approval by the lenders and based on current market conditions. The senior revolving credit line contained several financial covenants, which we had to comply with quarterly, including a leverage ratio, fixed charge coverage ratio and a minimum net worth covenant. In June 2012, the senior revolving credit line was replaced by the U.S. revolving credit line under the U.S. financing (see above). As a result, issued and outstanding letters of credit were all transferred into the U.S. revolving credit line and the senior revolving credit line was terminated.

ALOG Financing. In June 2012, ALOG completed a 100.0 million Brazilian real credit facility agreement, or approximately $49.6 million, referred to as the ALOG financing. The ALOG financing has a five-year term with semi-annual principal payments beginning in the third year of its term and quarterly interest payments during the entire term. The ALOG financing bears an interest rate of 2.75% above the local borrowing rate. The ALOG financing contains financial covenants, which ALOG must comply with annually, consisting of a leverage ratio and a fixed charge coverage ratio. The ALOG financing is not guaranteed by ALOG or us. The ALOG financing is not secured by ALOG’s or our assets. The ALOG financing has a final maturity date of June 2017. In July 2012, ALOG fully utilized the ALOG financing and intends to use the funds to prepay and terminate ALOG’s loans payable outstanding as of June 30, 2012.

Paris 4 IBX Financing. During the six months ended June 30, 2012, construction activity increased the Paris 4 IBX financing liability by $26.9 million and we made payments of $78.2 million from the restricted cash account under the Paris 4 IBX financing.

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 2035. The following represents our debt maturities, financings, leases and other contractual commitments as of June 30, 2012 (in thousands):


	2012 (6 months)		2013		2014		2015		2016		Thereafter		Total
Convertible debt (1)	$	—	$	—	$	395,986	$	—	$	373,750	$	—	$	769,736
Senior notes (1)		—		—		—		—		—		1,500,000		1,500,000
Asia-Pacific financing (2)		26,232		58,500		64,799		35,293		—		—		184,824
Paris 4 IBX financing (3)		9,063		5,862		—		—		—		—		14,925
ALOG debt (1)		2,742		5,119		6,155		526		4		—		14,546
Interest (4)		75,649		149,237		143,779		131,477		122,314		354,076		976,532
Capital lease and other financing obligations (5)		22,794		47,773		51,752		55,033		55,319		469,118		701,789
Operating leases under accrued restructuring charges (6)		1,217		2,444		2,459		1,444		—		—		7,564
Operating leases (7)		65,990		112,809		107,534		88,157		76,239		423,882		874,611
Other contractual commitments (8)		287,420		88,253		53,415		21,878		11		—		450,977
Asset retirement obligations (9)		92		3,092		4,565		12,079		815		39,825		60,468
ALOG acquisition contingent consideration (10)		—		17,868		—		—		—		—		17,868
Redeemable non-controlling interests		—		—		75,854		—		—		—		75,854

	$	491,199	$	490,957	$	906,298	$	345,887	$	628,452	$	2,786,901	$	5,649,694

(1)	Represents principal only.

(2)	Represents principal only. In July 2012, we fully repaid and terminated the Asia-Pacific financing.

(3)	Represents total payments to be made to complete the construction of the Paris 4 IBX center.

(4)	Represents interest on ALOG debt, convertible debt, senior notes and Asia-Pacific financing based on their approximate interest rates as of June 30, 2012. In July 2012, we fully repaid and terminated the Asia-Pacific financing.

(5)	Represents principal and interest.

(6)	Excludes any subrental income.

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

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

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

(10)

Represents an off-balance sheet arrangement for the ALOG acquisition contingent consideration and includes the portion of the contingent consideration that will be funded by Riverwood Capital L.P. (“Riverwood”), who has an indirect, non-controlling equity interest in ALOG through Zion RJ Participações S.A. (“Zion”), a Brazilian joint-stock company controlled by our wholly-owned subsidiary and co-owned by RW Brasil Fundo de Investimento em Participações, a subsidiary of Riverwood.

In connection with certain of our leases, we entered into 13 irrevocable letters of credit totaling $21.4 million under the U.S. revolving credit line. These letters of credit were provided in lieu of cash deposits under the revolving credit line. 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 senior revolving credit line. These contingent commitments are not reflected in the table above.

We had accrued liabilities related to uncertain tax positions totaling approximately $18.9 million as of June 30, 2012. These liabilities, which are reflected on our balance sheet, are not reflected in the table above since it is unclear when these liabilities will be paid.

Primarily as a result of our various IBX expansion projects, as of June 30, 2012, we were contractually committed for $188.0 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 2012 and thereafter, is reflected in the table above as “other contractual commitments.”

We had other non-capital purchase commitments in place as of June 30, 2012, such as commitments to purchase power in select locations and other open purchase orders, which contractually bind us for goods or services to be delivered or provided during 2012 and beyond. Such other purchase commitments as of June 30, 2012 which total $263.0 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 $100 million to $150 million, in addition to the $188.0 million in contractual commitments discussed above as of June 30, 2012, in our various IBX expansion projects during 2012 and thereafter 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 Policies and 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 business combinations, accounting for impairment of goodwill and accounting for property, plant and equipment, which are discussed in more detail under the caption “Critical Accounting Policies and 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, 2011.

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

While there have been no significant changes in our market risk, investment portfolio risk, interest rate risk, foreign currency risk and commodity price risk exposures and procedures during the six months ended June 30, 2012 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, 2011, the U.S. dollar strenghtened relative to certain of the currencies of the foreign countries in which we operate during the six months ended June 30, 2012. 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 or weakening of the U.S. dollar will 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 proc