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 September 30, 2013

¨	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 September 30, 2013 was 49,776,739.

EQUINIX, INC.

INDEX


		Page No.

Part I - Financial Information

Item 1.	Condensed Consolidated Financial Statements (unaudited):

	Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012		3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012		4

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012		5

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012		6

	Notes to Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		66

Item 4.	Controls and Procedures		66

Part II - Other Information

Item 1.	Legal Proceedings		67

Item 1A.	Risk Factors		67

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		86

Item 3.	Defaults Upon Senior Securities		86

Item 4.	Mine Safety Disclosure		86

Item 5.	Other Information		86

Item 6.	Exhibits		87

Signatures			95

Index to Exhibits			96

PART I - FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements

EQUINIX, INC.

Condensed Consolidated Balance Sheets

(in thousands)


	September 30, 2013			December 31, 2012 (as revised)
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	399,742		$	252,213
Short-term investments		346,038			166,492
Accounts receivable, net		199,644			163,840
Other current assets		59,350			57,547

Total current assets		1,004,774			640,092
Long-term investments		442,195			127,819
Property, plant and equipment, net		4,381,020			3,915,738
Goodwill		1,036,179			1,042,564
Intangible assets, net		182,345			201,562
Other assets		342,531			208,022

Total assets	$	7,389,044		$	6,135,797


Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable and accrued expenses	$	299,135		$	268,853
Accrued property, plant and equipment		91,468			63,509
Current portion of capital lease and other financing obligations		16,979			15,206
Current portion of loans payable		40,185			52,160
Other current liabilities		134,458			149,344

Total current liabilities		582,225			549,072
Capital lease and other financing obligations, less current portion		862,410			545,853
Loans payable, less current portion		156,787			188,802
Convertible debt		720,215			708,726
Senior notes		2,250,000			1,500,000
Other liabilities		263,352			245,725

Total liabilities		4,834,989			3,738,178


Redeemable non-controlling interests (Note 10)		101,059			84,178


Commitments and contingencies (Note 11)

Stockholders’ equity:
Common stock		50			49
Additional paid-in capital		2,692,210			2,582,238
Treasury stock		(35,903	)		(36,676	)
Accumulated other comprehensive loss		(121,731	)		(101,042	)
Accumulated deficit		(81,630	)		(131,128	)

Total stockholders’ equity		2,452,996			2,313,441

Total liabilities, redeemable non-controlling interests and stockholders’ equity	$	7,389,044		$	6,135,797

See accompanying notes to condensed consolidated financial statements

EQUINIX, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)


	Three months ended September 30,						Nine months ended September 30,
	2013			2012 (as revised)			2013			2012 (as revised)
	(unaudited)

Revenues	$	543,084		$	484,835		$	1,588,089		$	1,381,317


Costs and operating expenses:
Cost of revenues		268,960			250,946			794,660			695,288
Sales and marketing		61,619			53,211			179,373			147,224
General and administrative		96,874			83,290			276,324			241,730
Restructuring charge		—			—			(4,837	)		—
Acquisition costs		438			4,542			6,626			6,883

Total costs and operating expenses		427,891			391,989			1,252,146			1,091,125


Income from operations		115,193			92,846			335,943			290,192

Interest income		929			1,054			2,593			2,708
Interest expense		(61,957	)		(50,207	)		(183,289	)		(149,812	)
Other income (expense)		985			507			3,294			(1,491	)
Loss on debt extinguishment		—			(5,204	)		(93,602	)		(5,204	)


Income from continuing operations before income taxes		55,150			38,996			64,939			136,393
Income tax expense		(12,397	)		(12,348	)		(14,189	)		(41,088	)


Net income from continuing operations		42,753			26,648			50,750			95,305
Net income from discontinued operations, net of tax		—			679			—			1,228


Net income		42,753			27,327			50,750			96,533

Net income attributable to redeemable non-controlling interests		(282	)		(362	)		(1,252	)		(1,843	)

Net income attributable to Equinix	$	42,471		$	26,965		$	49,498		$	94,690


Earnings per share (“EPS”) attributable to Equinix:

Basic EPS from continuing operations	$	0.86		$	0.54		$	1.00		$	1.96
Basic EPS from discontinued operations		—			0.02			—			0.02

Basic EPS	$	0.86		$	0.56		$	1.00		$	1.98

Weighted-average shares		49,555			48,361			49,325			47,779


Diluted EPS from continuing operations	$	0.83		$	0.53		$	0.99		$	1.91
Diluted EPS from discontinued operations		—			0.01			—			0.02

Diluted EPS	$	0.83		$	0.54		$	0.99		$	1.93

Weighted-average shares		53,581			52,655			50,050			51,724

See accompanying notes to condensed consolidated financial statements

EQUINIX, INC.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)


	Three months ended September 30,						Nine months ended September 30,
	2013			2012 (as revised)			2013			2012 (as revised)
	(unaudited)

Net income	$	42,753		$	27,327		$	50,750		$	96,533


Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)		78,113			41,782			(25,107	)		26,887
Unrealized gain on available for sale securities		438			113			78			14

		78,551			41,895			(25,029	)		26,901


Comprehensive income, net of tax		121,304			69,222			25,721			123,434


Net income attributable to redeemable non-controlling interests		(282	)		(362	)		(1,252	)		(1,843	)
Other comprehensive (income) loss attributable to redeemable non-controlling interests		(200	)		240			4,340			3,155

Comprehensive income attributable to Equinix	$	120,822		$	69,100		$	28,809		$	124,746

See accompanying notes to condensed consolidated financial statements

EQUINIX, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)


	Nine months ended September 30,
	2013			2012 (as revised)
	(unaudited)
Cash flows from operating activities:
Net income	$	50,750		$	96,533
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		305,651			278,430
Stock-based compensation		75,310			61,432
Excess tax benefits from stock-based compensation		(27,372	)		(53,174	)
Restructuring charge		(4,837	)		—
Amortization of debt issuance costs and debt discounts		17,602			18,057
Amortization of intangible assets		20,445			16,668
Provision for allowance for doubtful accounts		3,160			4,031
Loss on debt extinguishment		93,602			5,204
Other items		6,699			6,524
Changes in operating assets and liabilities:
Accounts receivable		(40,292	)		(46,900	)
Income taxes, net		(71,567	)		21,196
Other assets		(21,046	)		18,805
Accounts payable and accrued expenses		17,399			7,335
Other liabilities		12,398			(5,807	)

Net cash provided by operating activities		437,902			428,334

Cash flows from investing activities:
Purchases of investments		(814,422	)		(365,934	)
Sales of investments		176,971			338,192
Maturities of investments		139,674			542,155
Deposit for purchase of real estate		(891	)		—
Purchase of New York 2 IBX data center		(73,441	)		—
Purchases of property, plant and equipment		(369,565	)		(554,092	)
Purchase of Asia Tone, net of cash acquired		755			(194,205	)
Purchase of ancotel, net of cash acquired		—			(84,236	)
Deposit for purchase of Frankfurt Kleyer 90 Carrier Hotel		(1,353	)		—
Increase in restricted cash		(836,767	)		(8,270	)
Release of restricted cash		843,088			87,437

Net cash used in investing activities		(935,951	)		(238,953	)

Cash flows from financing activities:
Purchases of treasury stock		—			(13,364	)
Proceeds from employee equity awards		28,082			50,139
Excess tax benefits from stock-based compensation		27,372			53,174
Proceeds from senior notes		1,500,000			—
Proceeds from loans payable		1,734			258,542
Repayment of capital lease and other financing obligations		(12,226	)		(8,907	)
Repayment of loans payable		(42,304	)		(315,779	)
Repayment of convertible debt		—			(250,007	)
Repayment of senior notes		(750,000	)		—
Debt extinguishment costs		(84,675	)		—
Debt issuance costs		(22,435	)		(8,767	)

Net cash provided by (used in) financing activities		645,548			(234,969	)

Effect of foreign currency exchange rates on cash and cash equivalents		30			6,452

Net increase (decrease) in cash and cash equivalents		147,529			(39,136	)
Cash and cash equivalents at beginning of period		252,213			278,823

Cash and cash equivalents at end of period	$	399,742		$	239,687

Supplemental cash flow information:
Cash paid for taxes	$	86,736		$	19,578

Cash paid for interest	$	135,958		$	157,917

See accompanying notes to condensed consolidated financial statements

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 as of December 31, 2012 has been derived from audited consolidated financial statements as of that date. The consolidated financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission (‘‘SEC’’), but omit certain information and footnote disclosure necessary to present the statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”). 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 26, 2013. 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. All significant intercompany accounts and transactions have been eliminated in consolidation.

Income Taxes

The Company’s effective tax rates were 21.8% and 30.1% for the nine months ended September 30, 2013 and 2012, respectively. The lower effective tax rate during the nine months ended September 30, 2013 was primarily due to the expected loss in the U.S. for the year as a result of the loss on debt extinguishment recorded during the period (see Note 9) and the recognition of deferred tax assets in a certain jurisdiction in our EMEA region.

The Company re-evaluated the valuation allowance situation in certain jurisdictions in its EMEA region as a result of a new organizational structure that centralized the majority of its EMEA business management activities in the Netherlands which became effective during the three months ended September 30, 2013. The Company concluded that a portion of the valuation allowance previously assessed against the net deferred tax assets in a certain jurisdiction is no longer necessary. As such, the Company recognized a deferred tax asset of $1,906,000 during the three months ended September 30, 2013.

The Company is entitled to a deduction for federal and state tax purposes with respect to employee equity award activity. The reduction in income taxes payable related to windfall tax benefits for employee equity awards has been reflected as an adjustment to additional paid-in capital. For the nine months ended September 30, 2013, the benefits arising from employee equity award activity that resulted in an adjustment to additional paid-in capital were approximately $27,372,000.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Discontinued Operations

In August 2012, the Company entered into an agreement to sell 16 of the Company’s IBX data centers located throughout the U.S. to an investment group including 365 Main, Crosslink Capital, Housatonic Partners and Brightwood Capital for net proceeds of $76,458,000 (the “Divestiture”). The Divestiture closed in November 2012. The Company’s operating results from its discontinued operations associated with the Divestiture consisted of the following (in thousands):


	Three months ended			Nine months ended
	September 30, 2012

Revenues	$	8,826		$	26,796
Cost of revenues		(6,585	)		(22,469	)
Operating expenses		(913	)		(2,077	)
Income taxes		(649	)		(1,022	)

Net income from discontinued operations	$	679		$	1,228

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. In January 2013, the FASB issued ASU 2013-01, clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This ASU clarifies that the scope of ASU 2011-11 only applies to derivatives accounted for in accordance with ASC 815, Derivatives and Hedging, and securities borrowing and securities lending transactions. 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. During the three months ended March 31, 2013, the Company adopted these ASUs and their adoption did not have a material impact on its consolidated financial statements since the ASUs enhance currently required disclosures.

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU requires companies to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income when applicable or to cross-reference the reclassifications with other disclosures that provide additional detail about the reclassification made when the reclassifications are not made to net income. This ASU is effective for fiscal years and interim periods, beginning after December 15, 2012. During the three months ended March 31, 2013, the Company adopted ASU 2013-02 and the adoption did not have a material impact on its consolidated financial statements since the Company did not have material reclassifications in any periods presented.

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This ASU requires companies to present an unrecognized tax benefit, or a portion thereof, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that these instances are not available at the reporting date. This ASU is effective for fiscal years and interim periods beginning after December 15, 2013 with early adoption permitted. The Company is currently evaluating the impact that the adoption of this standard will have to its consolidated financial statements, if any.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Change In Accounting Principle, Reclassifications and Revision of Previously-Issued Financial Statements

Change in Accounting Principle

Commencing in 2013, the Company changed its method of accounting for income taxes by excluding the effects of subsequent events that are not recognized in the Company’s consolidated financial statements in determining its estimated annual effective tax rate for interim reporting periods. Prior to the change, the Company’s policy was to include the effects of events that occurred subsequent to the interim balance sheet date in its estimated annual effective tax rate. The Company believes that the change is preferable as it provides consistency with the reporting of activity on a pre-tax basis and aligns with other income tax guidance which requires items such as changes in tax rates to be reflected in the period such laws become effective. In addition, the Company believes this change results in a more comparable method for interim tax accounting with other companies in its industry. This change did not have a significant impact to the Company’s condensed consolidated financial statements as of and for the three months ended March 31, 2012, the three and six months ended June 30, 2012 and the three and nine months ended September 30, 2012 and as a result, the Company did not retrospectively adjust its prior periods’ condensed consolidated financial statements.

Reclassifications and Revision of Previously-Issued Financial Statements

During the three months ended June 30, 2013, the Company reassessed the estimated period over which revenue related to non-recurring installation fees is recognized as a result of observed trends in customer contract lives. Non-recurring installation fees, although generally paid in a lump sum upon installation, are deferred and recognized ratably over the expected life of the installation. The Company undertook this review due to its determination that its customers were generally benefitting from their installations longer than originally anticipated and, therefore, the estimated period that revenue related to non-recurring installation fees is recognized was extended. This change was originally incorrectly accounted for as a change in accounting estimate on a prospective basis effective April 1, 2013. During the three months ended September 30, 2013, the Company determined that these longer lives should have been identified and utilized for revenue recognition purposes beginning in 2006. As a result, the Company’s installation revenues were overstated by $2,572,000, $1,548,000, $1,548,000 and $1,548,000 for the three months ended March 31, 2013, September 30, 2012, June 30, 2012 and March 31, 2012, respectively; and understated by $3,858,000 for the three months ended June 30, 2013. This error did not impact the Company’s reported total cash flows from operating activities.

Also, during the three months ended December 31, 2012, the Company determined that within the Company’s cash flows from operating activities section of its condensed consolidated statement of cash flows for the nine months ended September 30, 2012, excess tax benefits from stock-based compensation of $60,977,000 were recorded within changes in other assets when they should have been attributed to income taxes payable, and therefore included within changes in accounts payable and accrued expenses. This error has been corrected in the condensed consolidated statement of cash flows for the nine months ended September 30, 2012 presented herein, and did not impact the Company’s condensed consolidated statement of cash flows for the first and second quarters of 2012. The Company’s consolidated statement of cash flows for the year ended December 31, 2012 properly reflected excess tax benefits from stock-based compensation. Additionally, the Company changed its presentation of the impact of income taxes on cash flows from operating activities to present it within a single line within the consolidated statement of cash flows during the year ended December 31, 2012. This item has no impact on the Company’s reported total cash flows from operating activities.

The Company assessed the materiality of the above errors, as well as the previously-identified immaterial errors described below, individually and in the aggregate on prior periods’ financial statements in accordance with the SEC’s Staff Accounting Bulletins No. 99 and 108 and, based on an analysis of quantitative and qualitative factors, determined that the errors were not individually material to any of the Company’s prior interim and annual financial statements and, therefore, the previously-issued financial statements

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

could continue to be relied upon and that the amendment of previously filed reports with the SEC was not required. The Company also determined that correcting the cumulative amount of the non-recurring installation fees of $27,170,000 as of December 31, 2012 in 2013 would be material to the projected 2013 consolidated financial statements and as such the Company will revise its previously-issued consolidated financial statements the next time the financial statements for those periods are filed.

As the Company will revise its previously-issued consolidated financial statements as described above, as part of the revision the Company also corrected certain previously-identified immaterial errors that were either uncorrected or corrected in a period subsequent to the period in which the error originated including (i) certain recoverable taxes in Brazil that were incorrectly recorded in the Company’s statements of operations, which had the effect of overstating both revenues and cost of revenues; (ii) errors related to certain foreign currency embedded derivatives in Asia-Pacific, which have an effect on revenue; (iii) an error in the Company’s statement of cash flows related to the acquisition of Asia Tone Limited (“Asia Tone”) that affects both cash flows from operating and investing activities and (iv) errors in depreciation, stock-based compensation and property tax accruals in the U.S.

All financial information contained in the accompanying footnotes to these condensed consolidation financial statements has been revised to reflect the correction of these errors.

The following table presents the effect of the aforementioned revisions on the Company’s revenues, net income and basic and diluted EPS for the years ended December 31, 2012, 2011 and 2010 (in thousands, except per share data):


	Years ended December 31,
	2012			2011			2010

Revenues	$	(8,368	)	$	(4,159	)	$	(7,562	)
Cost of revenues		(622	)		4,827			(289	)
General and administrative		1,133			—			—
Income from operations		(7,857	)		668			(7,851	)
Income tax expense		3,219			104			1,749
Net income		(4,638	)		772			(6,102	)

Earnings per share (“EPS”) attributable to Equinix:
Basic EPS from continuing operations		(0.09	)		0.01			(0.14	)
Basic EPS		(0.09	)		0.01			(0.14	)
Diluted EPS from continuing operations		(0.09	)		0.02			(0.14	)
Diluted EPS		(0.09	)		0.02			(0.13	)

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The following table presents the effect of the aforementioned revision on the Company’s condensed consolidated balance sheet as of December 31, 2012 (in thousands):


	As of December 31, 2012
	As reported			Revision (1)			As revised
Assets
Cash and cash equivalents	$	252,213		$	—		$	252,213
Short-term investments		166,492			—			166,492
Accounts receivable, net		163,840			—			163,840
Other current assets		57,206			341			57,547

Total current assets		639,751			341			640,092
Long-term investments		127,819			—			127,819
Property, plant and equipment, net		3,918,999			(3,261	)		3,915,738
Goodwill		1,042,564			—			1,042,564
Intangible assets, net		201,562			—			201,562
Other assets		202,269			5,753			208,022

Total assets	$	6,132,964		$	2,833		$	6,135,797


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	268,853			—		$	268,853
Accrued property, plant and equipment		63,509			—			63,509
Current portion of capital lease and other financing obligations		15,206			—			15,206
Current portion of loans payable		52,160			—			52,160
Other current liabilities		139,561			9,783			149,344

Total current liabilities		539,289			9,783			549,072
Capital lease and other financing obligations, less current portion		545,853			—			545,853
Loans payable, less current portion		188,802			—			188,802
Convertible debt		708,726			—			708,726
Senior notes		1,500,000			—			1,500,000
Other liabilities		230,843			14,882			245,725

Total liabilities		3,713,513			24,665			3,738,178


Redeemable non-controlling interests		84,178			—			84,178


Common stock		49			—			49
Additional paid-in capital		2,583,371			(1,133	)		2,582,238
Treasury stock		(36,676	)		—			(36,676	)
Accumulated other comprehensive loss		(101,042	)		—			(101,042	)
Accumulated deficit		(110,429	)		(20,699	)		(131,128	)

Total stockholders’ equity		2,335,273			(21,832	)		2,313,441

Total liabilities, redeemable non-controlling interests and stockholders’ equity	$	6,132,964		$	2,833		$	6,135,797

(1)

The impact of revising the estimated periods over which revenue from non-recurring installation fees is recognized, depreciation of certain fixed assets and amortization of stock-based compensation expense.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The following table presents the effect of the aforementioned revisions on the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2012 (in thousands, except per share data):


	Three months ended September 30, 2012
	As reported			Revision (1)			As revised

Revenues	$	488,730		$	(3,895	)	$	484,835
Costs and operating expenses:
Cost of revenues		251,487			(541	)		250,946
Sales and marketing		53,211			—			53,211
General and administrative		83,621			(331	)		83,290
Acquisition costs		4,542			—			4,542

Total costs and operating expenses		392,861			(872	)		391,989


Income from operations		95,869			(3,023	)		92,846
Interest income		1,054			—			1,054
Interest expense		(50,207	)		—			(50,207	)
Other income		507			—			507
Loss on debt extinguishment		(5,204	)		—			(5,204	)

Income from continuing operations before income taxes		42,019			(3,023	)		38,996
Income tax expense		(13,498	)		1,150			(12,348	)

Net income from continuing operations		28,521			(1,873	)		26,648
Net income from discontinued operations, net of tax		679			—			679

Net income		29,200			(1,873	)		27,327
Net income attributable to redeemable non-controlling interests		(362	)		—			(362	)

Net income attributable to Equinix		28,838			(1,873	)		26,965


Earnings per share (“EPS”) attributable to Equinix:
Basic EPS from continuing operations		0.58			(0.04	)		0.54
Basic EPS		0.60			(0.04	)		0.56
Diluted EPS from continuing operations		0.57			(0.04	)		0.53
Diluted EPS		0.58			(0.04	)		0.54

(1)

The impact of revising the estimated periods over which revenue from non-recurring installation fees is recognized, depreciation of certain fixed assets, recoverable taxes, amortization of stock-based compensation expense and embedded derivatives.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)


	Nine months ended September 30, 2012
	As reported			Revision (1)			As revised

Revenues	$	1,389,224		$	(7,907	)	$	1,381,317
Costs and operating expenses:
Cost of revenues		693,874			1,414			695,288
Sales and marketing		147,224			—			147,224
General and administrative		242,532			(802	)		241,730
Acquisition costs		6,883			—			6,883

Total costs and operating expenses		1,090,513			612			1,091,125


Income from operations		298,711			(8,519	)		290,192
Interest income		2,708			—			2,708
Interest expense		(149,812	)		—			(149,812	)
Other expense		(1,491	)		—			(1,491	)
Loss on debt extinguishment		(5,204	)		—			(5,204	)

Income from continuing operations before income taxes		144,912			(8,519	)		136,393
Income tax expense		(44,489	)		3,401			(41,088	)

Net income from continuing operations		100,423			(5,118	)		95,305
Net income from discontinued operations, net of tax		1,228			—			1,228

Net income		101,651			(5,118	)		96,533
Net income attributable to redeemable non-controlling interests		(1,843	)		—			(1,843	)

Net income attributable to Equinix	$	99,808		$	(5,118	)	$	94,690


Earnings per share (“EPS”) attributable to Equinix:
Basic EPS from continuing operations	$	2.06		$	(0.10	)	$	1.96
Basic EPS		2.09			(0.11	)		1.98
Diluted EPS from continuing operations		2.01			(0.10	)		1.91
Diluted EPS		2.03			(0.10	)		1.93

(1)

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The following table presents the effect of the aforementioned revisions and reclassification on the Company’s condensed consolidated statement of cash flows for the nine months ended September 30, 2012 (in thousands):


	Nine months ended September 30, 2012
	As reported			Revision (1)			Revision (2)			Reclassification			As revised

Cash flows from operating activities:
Net income	$	101,651		$	—		$	(5,118	)	$	—		$	96,533
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		278,214			—			216			—			278,430
Stock-based compensation		62,234			—			(802	)		—			61,432
Excess tax benefits from stock-based compensation		(53,174	)		—			—			—			(53,174	)
Amortization of debt issuance costs and debt discount		18,057			—			—			—			18,057
Amortization of intangibles		16,668			—			—			—			16,668
Provision for allowance for doubtful accounts		4,031			—			—			—			4,031
Loss on debt extinguishment		5,204			—			—			—			5,204
Other items		5,622			—			902			—			6,524
Changes in operating assets and liabilities:
Accounts receivable		(46,900	)		—			—			—			(46,900	)
Income taxes, net		—			—			(3,401	)		24,597			21,196
Other assets		31,020			(60,977	)		1,031			47,731			18,805
Accounts payable and accrued expenses		19,307			60,977			2,256			(75,205	)		7,335
Other liabilities		(19,007	)		—			10,323			2,877			(5,807	)

Net cash provided by operating activities		422,927			—			5,407			—			428,334


Cash flows from investing activities:
Purchase of investments		(365,934	)		—			—			—			(365,934	)
Sales of investments		338,192			—			—			—			338,192
Maturities of investments		542,155			—			—			—			542,155
Purchases of property, plant and equipment		(554,092	)		—			—			—			(554,092	)
Purchase of Asia Tone, net of cash acquired		(188,798	)		—			(5,407	)		—			(194,205	)
Purchase of ancotel, net of cash acquired		(84,236	)		—			—			—			(84,236	)
Increase in restricted cash		(8,270	)		—			—			—			(8,270	)
Release of restricted cash		87,437			—			—			—			87,437

Net cash used in investing activities	$	(233,546	)	$	—		$	(5,407	)	$	—		$	(238,953	)

(1)	The excess tax benefits were originally included within other assets and is corrected and included within accounts payable and accrued expenses.

(2)	The impact of revising the estimated periods over which revenue from non-recurring installation fees is recognized, depreciation of certain fixed assets, recoverable taxes, amortization of stock-based compensation expense, embedded derivatives, property taxes and purchase price of Asia Tone.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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 September,						Nine months ended September 30,
	2013			2012			2013			2012

Net income from continuing operations	$	42,753		$	26,648		$	50,750		$	95,305
Net income attributable to redeemable non-controlling interests		(282	)		(362	)		(1,252	)		(1,843	)

Net income from continuing operations attributable to Equinix, basic		42,471			26,286			49,498			93,462

Effect of assumed conversion of convertible debt:
Interest expense, net of tax		1,865			1,696			—			5,073

Net income from continuing operations attributable to Equinix, diluted	$	44,336		$	27,982		$	49,498		$	98,535


Weighted-average shares used to compute basic EPS		49,555			48,361			49,325			47,779

Effect of dilutive securities:
Convertible debt		3,467			3,328			—			2,945
Employee equity awards		559			966			725			1,000

Weighted-average shares used to compute diluted EPS		53,581			52,655			50,050			51,724


EPS from continuing operations attributable to Equinix:
EPS from continuing operations, basic	$	0.86		$	0.54		$	1.00		$	1.96

EPS from continuing operations, diluted	$	0.83		$	0.53		$	0.99		$	1.91

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 September 30,				Nine months ended September 30,
	2013		2012		2013		2012

Shares reserved for conversion of 2.50% convertible subordinated notes		—		—		—		863
Shares reserved for conversion of 3.00% convertible subordinated notes		—		—		3,613		—
Shares reserved for conversion of 4.75% convertible subordinated notes		4,432		4,433		4,432		4,433
Common stock related to employee equity awards		436		137		269		114

		4,868		4,570		8,314		5,410

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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):


	September 30, 2013		December 31, 2012
Cash and cash equivalents:
Cash (1)	$	234,194	$	150,864
Cash equivalents:
U.S. government securities		—		3,009
Money markets		162,148		98,340
Commercial paper		3,400		—

Total cash and cash equivalents		399,742		252,213


Marketable securities:
U.S. government securities		303,322		126,941
U.S. government agencies securities		139,606		72,979
Certificates of deposit		48,363		48,386
Commercial paper		999		1,993
Corporate bonds		211,318		37,975
Asset-backed securities		84,625		6,037

Total marketable securities		788,233		294,311

Total cash, cash equivalents and short-term and long-term investments	$	1,187,975	$	546,524

(1)

Excludes restricted cash.

As of September 30, 2013 and December 31, 2012, 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 September 30, 2013 and December 31, 2012. The maturities of securities classified as long-term investments were greater than one year and less than three years as of September 30, 2013 and December 31, 2012.

The following table summarizes the cost and estimated fair value of marketable securities based on stated effective maturities as of (in thousands):


	September 30, 2013				December 31, 2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	336,549	$	336,699	$	166,445	$	166,492
Due after one year through three years		451,478		451,534		127,795		127,819

Total	$	788,027	$	788,233	$	294,240	$	294,311

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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):


	September 30, 2013
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
U.S. government securities	$	303,155	$	178	$	(11	)	$	303,322
U.S. government agencies securities		139,598		59		(51	)		139,606
Corporate bonds		211,318		101		(101	)		211,318
Certificates of deposit		48,329		34		—			48,363
Commercial paper		997		2		—			999
Asset-backed securities		84,630		24		(29	)		84,625

Total	$	788,027	$	398	$	(192	)	$	788,233


	December 31, 2012
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
U.S. government securities	$	126,938	$	40	$	(37	)	$	126,941
U.S. government agencies securities		72,948		68		(37	)		72,979
Corporate bonds		48,373		18		(5	)		48,386
Certificates of deposit		37,954		29		(8	)		37,975
Commercial paper		6,036		2		(1	)		6,037
Asset-backed securities		1,991		2		—			1,993

Total	$	294,240	$	159	$	(88	)	$	294,311

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 as of September 30, 2013.

The following table summarizes the fair value and gross unrealized losses related to 143 available-for-sale securities aggregated by type of investment and length of time that individual securities have been in a continuous unrealized loss position, as of September 30, 2013 (in thousands):


	Securities in a loss position for less than 12 months					Securities in a loss position for 12 months or more
	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses

U.S. government agencies securities	$	40,294	$	(40	)	$	2,965	$	(11	)
U.S. government securities		17,826		(11	)		—		—
Corporate bonds		99,257		(101	)		—		—
Asset-backed securities		59,781		(29	)		—		—

	$	217,158	$	(181	)	$	2,965	$	(11	)

While the Company does not believe that as of September 30, 2013, it holds investments that are other-than-temporarily impaired and believes that the Company’s investments will mature at par, the Company’s investments are subject to changes in market conditions. If market conditions were to deteriorate, the Company could sustain other-than-temporary impairments to its investment portfolio which could result in additional realized losses being recorded in interest income, net, or securities markets could become inactive which could affect the liquidity of the Company’s investments.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Accounts Receivable

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


	September 30, 2013			December 31, 2012
Accounts receivable	$	331,808		$	290,326
Unearned revenue		(127,266	)		(122,770	)
Allowance for doubtful accounts		(4,898	)		(3,716	)

	$	199,644		$	163,840

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.

Other Current Assets

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


	September 30, 2013		December 31, 2012

Prepaid expenses	$	24,682	$	21,349
Deferred tax assets, net		8,448		8,448
Taxes receivable		10,045		8,829
Restricted cash		3,211		9,380
Derivative instruments		2,723		3,205
Other receivables		5,703		3,428
Other current assets		4,538		2,908

	$	59,350	$	57,547

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Property, Plant and Equipment

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


	September 30, 2013			December 31, 2012

IBX plant and machinery	$	2,501,903		$	2,292,873
Leasehold improvements		1,016,048			1,078,834
Buildings		1,157,171			762,294
IBX equipment		471,078			410,456
Site improvements		537,113			352,367
Computer equipment and software		174,994			150,382
Land		116,514			98,007
Furniture and fixtures		22,816			21,982
Construction in progress		307,544			379,750

		6,305,181			5,546,945
Less accumulated depreciation		(1,924,161	)		(1,631,207	)

	$	4,381,020		$	3,915,738

IBX plant and machinery, leasehold improvements, buildings, computer equipment and software and construction in progress recorded under capital leases aggregated $394,753,000 and $146,591,000 as of September 30, 2013 and December 31, 2012, respectively. Amortization on the assets recorded under capital leases is included in depreciation expense and accumulated depreciation on such assets totaled $52,427,000 and $39,842,000 as of September 30, 2013 and December 31, 2012, respectively.

Purchase of New York 2 IBX Data Center. In May 2013, the Company entered into a binding purchase and sale agreement for a property located in the New York metro area (the “New York 2 IBX Data Center Purchase”). A portion of the building was leased to the Company and was being used by the Company as its New York 2 IBX data center. The lease was originally accounted for as an operating lease, and the Company had previously recorded a restructuring charge related to the lease (see Note 14). The remainder of the building was leased by another party, which became the Company’s tenant upon closing. In July 2013, the Company completed the New York 2 IBX Data Center Purchase for net cash consideration of $73,441,000. The New York 2 IBX Data Center Purchase was accounted for as an asset acquisition and the purchase price was allocated to the assets acquired based on their relative fair values.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Goodwill and Intangible Assets

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


	September 30, 2013			December 31, 2012

Goodwill:
Americas	$	476,394		$	482,765
EMEA		424,417			423,529
Asia-Pacific		135,368			136,270

	$	1,036,179		$	1,042,564

Intangible assets:
Intangible asset – customer contracts	$	222,530		$	222,571
Intangible asset – favorable leases		28,669			27,785
Intangible asset – licenses		9,697			9,397
Intangible asset – others		9,865			9,889

		270,761			269,642
Accumulated amortization		(88,416	)		(68,080	)

	$	182,345		$	201,562

The Company’s goodwill and intangible assets in EMEA, denominated in the United Arab Emirates dirham, British pounds and Euros, goodwill and intangible assets in Asia-Pacific, denominated in Chinese yuan, Hong Kong dollars and Singapore dollars and certain goodwill and intangible assets 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 intangible assets, are a component of other comprehensive income (loss).

For the three and nine months ended September 30, 2013, the Company recorded amortization expense of $6,822,000 and $20,445,000, respectively, associated with its intangible assets. For the three and nine months ended September 30, 2012, the Company recorded amortization expense of $6,864,000 and $13,623,000, respectively, associated with its intangible assets. The Company’s estimated future amortization expense related to these intangibles is as follows (in thousands):


Year ending:
2013 (three months remaining)	$	6,938
2014		27,540
2015		27,061
2016		26,586
2017		25,016
Thereafter		69,204

Total	$	182,345

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Other Assets

Other assets consisted of the following (in thousands):


	September 30, 2013		December 31, 2012

Prepaid expenses, non-current	$	34,267	$	34,478
Deferred tax assets, net		207,653		90,985
Debt issuance costs, net		43,776		36,704
Deposits		26,781		27,069
Restricted cash, non-current		15,720		8,131
Derivative instruments		3,428		—
Other assets, non-current		10,906		10,655

	$	342,531	$	208,022

The increase in deferred tax assets, net was primarily due to the depreciation and amortization recapture as a result of changing the Company’s method of depreciating and amortizing various data center assets for tax purposes in connection with the Company’s plan to convert to a real estate investment trust (“REIT”).

Accounts Payable and Accrued Expenses

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


	September 30, 2013		December 31, 2012

Accounts payable	$	28,483	$	27,659
Accrued compensation and benefits		79,745		85,619
Accrued interest		68,882		48,436
Accrued taxes		59,990		47,477
Accrued utilities and security		28,195		24,974
Accrued professional fees		9,697		6,699
Accrued repairs and maintenance		4,109		2,938
Accrued other		20,034		25,051

	$	299,135	$	268,853

Other Current Liabilities

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


	September 30, 2013		December 31, 2012

Deferred installation revenue	$	41,883	$	49,455
Deferred recurring revenue		6,723		8,910
Deferred tax liabilities, net		68,204		68,204
Deferred rent		3,564		5,410
Customer deposits		12,373		12,927
Derivative instruments		850		1,097
Accrued restructuring charges		—		2,379
Other current liabilities		861		962

	$	134,458	$	149,344

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Other Liabilities

Other liabilities consisted of the following (in thousands):


	September 30, 2013		December 31, 2012

Deferred installation revenue, non-current	$	59,995	$	41,950
Deferred recurring revenue, non-current		3,814		5,381
Asset retirement obligations, non-current		59,579		63,150
Deferred rent, non-current		39,205		38,041
Deferred tax liabilities, net		61,680		61,310
Accrued taxes, non-current		24,408		19,373
Customer deposits, non-current		5,285		6,185
Accrued restructuring charges, non-current		—		3,300
Derivative instruments, non-current		56		—
Other liabilities		9,330		7,035

	$	263,352	$	245,725

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 IBX data 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.

Derivatives and Hedging Activities

The Company has certain embedded derivatives in its customer contracts and also employs foreign currency forward contracts to partially offset its business exposure to foreign exchange risk for certain existing foreign currency-denominated assets and liabilities and certain forecasted transactions.

Derivatives Not Designated as Hedges

Embedded Derivatives. The Company is deemed to have foreign currency forward contracts embedded in certain of the Company’s customer agreements that are priced in currencies different from the functional or local currencies of the parties involved. These embedded derivatives are separated from their host contracts and carried on the Company’s balance sheet at their fair value. The majority of these embedded derivatives arise as a result of the Company’s foreign subsidiaries pricing their customer contracts in the U.S. dollar.

The Company has not designated these foreign currency embedded derivatives as hedging instruments under the accounting standard for derivatives and hedging. Gains and losses on these embedded derivatives are included within revenues in the Company’s condensed consolidated statements of operations. During the nine months ended September 30, 2013, the Company recognized a net gain of $2,841,000 associated with these embedded derivatives. During the three months ended September 30, 2013 and the three and nine months ended September 30, 2012, gains (losses) from these embedded derivatives were not significant.

Economic Hedges of Embedded Derivatives. The Company uses foreign currency forward contracts to manage the foreign exchange risk associated with the Company’s customer agreements that are priced in currencies different from the functional or local currencies of the parties involved (“economic hedges of embedded derivatives”). 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.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The Company has not designated the economic hedges of embedded derivatives as hedging instruments under the accounting standard for derivatives and hedging. Gains and losses on these contracts are included in revenues along with gains and losses of the related embedded derivatives. The Company entered into various economic hedges of embedded derivatives during the three and nine months ended September 30, 2013 and recognized a net loss of $2,270,000 for the nine months ended September 30, 2013. Gains (losses) from these foreign currency forward contracts were not significant during the three months ended September 30, 2013. The Company did not enter into any economic hedges of embedded derivatives during the three and nine months ended September 30, 2012.

Foreign Currency Forward Contracts. The Company also 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 its foreign currency-denominated assets and liabilities change.

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 the 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 nine months ended September 30, 2013 and 2012 and gains (losses) from these foreign currency forward contracts were not significant during these periods.

Offsetting Derivative Assets and Liabilities

The following table presents the fair value of derivative instruments recognized in the Company’s condensed consolidated balance sheets as of September 30, 2013 (in thousands):


	Gross amounts		Gross amounts offset in the balance sheet		Net amounts (1)		Gross amounts not offset in the balance sheet			Net

Assets:
Embedded derivatives	$	4,808	$	—	$	4,808	$	—		$	4,808
Economic hedges of embedded derivatives		552		—		552		—			552
Foreign currency forward contracts		791		—		791		(128	)		663

	$	6,151	$	—	$	6,151	$	(128	)	$	6,023

Liabilities:
Embedded derivatives	$	290	$	—	$	290	$	—		$	290
Foreign currency forward contracts		616		—		616		(128	)		488

	$	906	$	—	$	906	$	(128	)	$	778

(1)	As presented in the Company’s condensed consolidated balance sheets.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The following table presents the fair value of derivative instruments recognized in the Company’s condensed consolidated balance sheets as of December 31, 2012 (in thousands):


	Gross amounts		Gross amounts offset in the balance sheet			Net amounts (1)		Gross amounts not offset in the balance sheet		Net

Assets:
Embedded derivatives	$	3,205	$	—		$	3,205	$	—	$	3,205
Foreign currency forward contracts		13		(13	)		—		—		—

	$	3,218	$	(13	)	$	3,205	$	—	$	3,205

Liabilities:
Embedded derivatives	$	890	$	—		$	890	$	—	$	890
Foreign currency forward contracts		220		(13	)		207		—		207

	$	1,110	$	(13	)	$	1,097	$	—	$	1,097

(1)	As presented in the Company’s condensed consolidated balance sheets.

Fair Value Measurements

The Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 were as follows (in thousands):


	Fair value at September 30, 2013		Fair value measurement using
	Fair value at September 30, 2013		Level 1		Level 2

Assets:
Cash	$	234,194	$	234,194	$	—
U.S. government securities		303,322		303,322		—
U.S. government agency securities		139,606		—		139,606
Money market and deposit accounts		162,148		162,148		—
Certificates of deposit		48,363		—		48,363
Commercial paper		4,399		—		4,399
Corporate bonds		211,318		—		211,318
Asset-backed securities		84,625		—		84,625
Derivative instruments (1)		6,151		—		6,151

	$	1,194,126	$	699,664	$	494,462


Liabilities:
Derivative instruments (1)	$	906	$	—	$	906

(1)

Includes embedded derivatives, economic hedges of embedded derivatives and foreign currency forward contracts. Amounts are included within other current assets, other assets, other current liabilities and other liabilities in the Company’s accompanying condensed consolidated balance sheet.

The Company did not have any Level 3 financial assets or financial liabilities as of September 30, 2013.

Valuation Methods

Fair value estimates are made as of a specific point in time based on methods 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.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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 U.S. government securities and 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, including 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 priced based on the quoted market price for similar instruments or nonbinding market prices that are corroborated by observable market data. Such instruments are classified within Level 2 of the fair value hierarchy. The Company determines the fair values of its Level 2 investments by using inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, custody bank, third-party pricing vendors, or other sources. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs. The Company is responsible for its condensed consolidated financial statements and underlying estimates.

The Company determined that the major security types held as of September 30, 2013 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 and losses. Short-term and long-term investments are classified as available-for-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.

During the three months ended March 31, 2013, after reviewing the fair value hierarchy and its valuation criteria, the Company reclassified its U.S. government securities from within Level 2 to Level 1 of the fair value hierarchy because treasury securities issued by the U.S. government are valued using quoted prices for identical instruments in active markets.

Derivative Assets and Liabilities. For foreign currency derivatives, including embedded derivatives and economic hedges of embedded derivatives, the Company uses forward contract models employing market observable inputs, such as spot currency rates and forward points 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 nine months ended September 30, 2013, the Company did not have any nonfinancial assets or liabilities measured at fair value on a recurring basis.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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 September 30,				Nine months ended September 30,
	2013		2012		2013		2012

Revenues	$	2,233	$	10,656	$	17,973	$	25,588
Costs and services		132		654		4,665		1,682


	As of September 30,
	2013		2012

Accounts receivable	$	1,938	$	7,034
Accounts payable		—		282

In connection with the acquisition of ALOG Data Centers do Brasil S.A. and its subsidiaries (“ALOG”) (the “ALOG Acquisition”), 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 September 30, 2013, the Company had a financing obligation liability totaling approximately $3,916,000 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.

Leases

Capital Lease and Other Financing Obligations

Digital Realty Capital Leases

In September 2013, the Company entered into lease amendments with Digital Realty Trust, Inc. to extend the lease term of the Company’s Chicago 1, Dallas 4, Washington D.C. 3, Los Angeles 1 and Miami 2 IBX data centers. The leases were originally accounted for as operating leases, with the exception of the Washington D.C. 3 lease which was originally accounted for as a capital lease. Pursuant to the accounting standard for leases, the Company reassessed the lease classification of the leases as a result of the lease amendments and determined that upon the amendments each of the leases should be accounted for as capital leases (the “Digital Realty Capital Leases”). The Company recorded incremental capital lease assets totaling approximately $138,826,000 and liabilities totaling approximately $143,972,000 during the three months ended September 30, 2013. Monthly payments under the Digital Realty Capital Leases commenced in October 2013 and will be made through October 2034.

Toronto 1 Capital Lease

In May 2013, the Company entered into a lease amendment for its first IBX data center in Toronto, Canada (the “Toronto 1 Lease”) to extend the lease term. The lease was originally accounted for as an operating lease. Pursuant to the accounting standard for leases, the Company reassessed the lease classification of the Toronto 1 Lease as a result of the lease amendment and determined that substantially all of the lease should be accounted for as a capital lease (the “Toronto 1 Capital Lease”). The Company recorded a capital lease asset totaling approximately $67,346,000 and liability totaling approximately $68,370,000 during the three months ended June 30, 2013. Monthly payments under the Toronto 1 Capital Lease commenced in June 2013 and will be made through April 2040.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Singapore 2 IBX Financing

In May 2013, the Company commenced construction work to make structural changes to its leased space within its second IBX data center in Singapore (the “Singapore 2 IBX Financing”). The lease was originally accounted for as an operating lease. Pursuant to the accounting standard for lessee’s involvement in asset construction, the Company is considered the owner of the assets during the construction period. As a result, the Company recorded a building asset totaling approximately $34,749,000 and corresponding financing liability totaling approximately $36,030,000 during the three months ended June 30, 2013. Monthly payments under the Singapore 2 IBX Financing commenced in May 2013 and will be made through September 2022.

Singapore 3 IBX Financing

In March 2013, the Company entered into a lease for land and a building that the Company and the landlord will jointly develop into the Company’s third IBX data center in the Singapore metro area (the “Singapore 3 Lease”). The Singapore 3 Lease has a term of 20 years, with an option to purchase the property. If the option to purchase the property is not exercised, the Company has options to extend the lease. The total cumulative minimum rent obligation over the term of the lease is approximately $159,040,000, exclusive of renewal periods. The landlord began construction of the building to the Company’s specifications in August 2013. Pursuant to the accounting standard for lessee’s involvement in asset construction, the Company will be considered the owner of the building during the construction phase due to the building work that the landlord and the Company will be undertaking, while the underlying land is considered an operating lease. As a result, the Company recorded a building asset and corresponding financing liability totaling approximately $1,672,000 during the three months ended September 30, 2013. Monthly payments under the Singapore 3 IBX Financing are expected to commence in January 2015 and will be made through December 2034.

Toronto 2 IBX Financing

In November 2012, the Company entered into a lease for land and a building that the Company and the landlord would jointly develop to meet its needs and which it would ultimately convert into its second IBX data center in the Toronto, Canada metro area (the “Toronto 2 IBX Financing” and the “Toronto Lease”). The Toronto Lease has a fixed term of 15 years, with options to renew, commencing from the date the landlord delivers the completed building to the Company. The Toronto Lease has a total cumulative minimum rent obligation of approximately $140,565,000, exclusive of renewal periods. The landlord began construction of the building to the Company’s specifications in February 2013. Pursuant to the accounting standard for lessee’s involvement in asset construction, the Company is considered the owner of the building during the construction phase due to the building work that the landlord and the Company are undertaking. As a result, as of September 30, 2013, the Company has recorded a building asset and a related financing liability totaling approximately $21,375,000, while the underlying land is considered an operating lease. Monthly payments under the Toronto Lease will commence in October 2015 and will be made through September 2029.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

Maturities of Capital Lease and Other Financing Obligations

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


	Capital lease obligations			Other financing obligations			Total

2013 (three months remaining)	$	9,368		$	9,878		$	19,246
2014		38,342			44,364			82,706
2015		40,397			52,291			92,688
2016		40,713			56,755			97,468
2017		41,399			56,861			98,260
Thereafter		597,772			568,607			1,166,379

Total minimum lease payments		767,991			788,756			1,556,747
Plus amount representing residual property value		—			387,107			387,107
Less estimated building costs		—			(69,768	)		(69,768	)
Less amount representing interest		(384,842	)		(609,855	)		(994,697	)

Present value of net minimum lease payments		383,149			496,240			879,389
Less current portion		(9,601	)		(7,378	)		(16,979	)

	$	373,548		$	488,862		$	862,410

Debt Facilities

Loans Payable

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


	September 30, 2013			December 31, 2012

U.S. term loan	$	150,000		$	180,000
ALOG financing		46,792			48,807
Paris 4 IBX financing		115			8,071
Other loans payable		65			4,084

		196,972			240,962
Less current portion		(40,185	)		(52,160	)

	$	156,787		$	188,802

U.S. Financing

In February 2013, the Company entered into an amendment to 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”) and a $550,000,000 multicurrency revolving credit facility (the “U.S. Revolving Credit Line”). The amendment modified certain definitions of items used in the calculation of the financial covenants with which the Company must comply on a quarterly basis to exclude the write-off of any unamortized debt issuance costs that were incurred in connection with the issuance of the 8.125% Senior Notes; to exclude one-time transaction costs, fees, premiums and expenses incurred by the Company in connection with the issuance of the 4.875% Senior Notes and 5.375% Senior Notes and the redemption of the 8.125% Senior Notes; and to exclude the 8.125% Senior Notes from the calculation of total leverage for the period ended March 31, 2013, provided that certain conditions in connection with the redemption of the 8.125% Senior Notes were satisfied. The amendment also postponed the step-down of the maximum senior leverage ratio covenant from the three months ended March 31, 2013 to the three months ended September 30, 2013.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

In September 2013, the Company entered into an amendment to the U.S. Financing. The amendment allows the Company greater flexibility to make cash dividends and distributions to its stockholders to the extent required to qualify the Company as a REIT (including cash dividends and distributions of undistributed accumulated earnings and profits) and to make cash dividends and distributions on an ongoing basis to the extent required for the Company to continue to be qualified as a REIT or to avoid the imposition of income or franchise taxes on the Company. The amendment also replaced the maximum senior leverage ratio covenant with a maximum senior net leverage ratio covenant and modified the minimum fixed charge coverage ratio and tangible net worth covenants. In addition, the amendment modified certain defined terms used in the calculation of the financial covenants to exclude certain expenses incurred by the Company in connection with its planned REIT conversion. The amendment also permits the Company to request an increase in the U.S. Revolving Credit Line of up to an additional $250,000,000, subject to the receipt of lender commitments. As of September 30, 2013, the Company was in compliance with all financial covenants.

Convertible Debt

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


	September 30, 2013			December 31, 2012

3.00% Convertible Subordinated Notes	$	395,986		$	395,986
4.75% Convertible Subordinated Notes		373,724			373,730

		769,710			769,716
Less amount representing debt discount		(49,495	)		(60,990	)

	$	720,215		$	708,726

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 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 September 30, 2013, had the holders of the 3.00% Convertible Subordinated Notes converted their notes, the 3.00% Convertible Subordinated Notes would have been convertible into 3,317,015 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

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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 (the “Stock Price Condition Conversion Clause”);

•

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 September 30, 2013 and are eligible to convert their notes during the three months ended December 31, 2013, since the Stock Price Condition Conversion Clause was met during the three months ended June 30, 2013 and September 30, 2013, respectively. As of September 30, 2013, 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 4,432,339 shares of the Company’s common stock.

Senior Notes

The Company’s senior notes consisted of the following as of (in thousands):


	September 30, 2013		December 31, 2012

5.375% senior notes due 2023	$	1,000,000	$	—
7.00% senior notes due 2021		750,000		750,000
4.875% senior notes due 2020		500,000		—
8.125% senior notes due 2018		—		750,000

	$	2,250,000	$	1,500,000

4.875% Senior Notes and 5.375% Senior Notes

In March 2013, the Company issued $1,500,000,000 aggregate principal amount of senior notes, which consist of $500,000,000 aggregate principal amount of 4.875% Senior Notes due April 1, 2020 (the “4.875% Senior Notes”) and $1,000,000,000 aggregate principal amount of 5.375% Senior Notes due April 1, 2023 (the “5.375% Senior Notes”). Interest on both the 4.875% Senior Notes and the 5.375% Senior Notes is payable semi-annually on April 1 and October 1 of each year, commencing on October 1, 2013.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The 4.875% Senior Notes and the 5.375% Senior Notes are governed by separate indentures dated March 5, 2013, between the Company, as issuer, and U.S. Bank National Association, as trustee (the “Senior Notes Indentures”). The Senior Notes Indentures contain covenants that limit the Company’s ability and the ability of its subsidiaries to, among other things:

•

incur additional debt;

•

pay dividends or make other restricted payments;

•

purchase, redeem or retire capital stock or subordinated debt;

•

make asset sales;

•

enter into transactions with affiliates;

•

incur liens;

•

enter into sale-leaseback transactions;

•

provide subsidiary guarantees;

•

make investments; and

•

merge or consolidate with any other person.

Each of these restrictions has a number of important qualifications and exceptions. The 4.875% Senior Notes and the 5.375% Senior Notes are unsecured and rank equal in right of payment with the Company’s existing or future senior debt and senior in right of payment with the Company’s existing and future subordinated debt. The 4.875% Senior Notes and the 5.375% Senior Notes are effectively junior to the Company’s secured indebtedness and indebtedness of its subsidiaries.

At any time prior to April 1, 2016, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 4.875% Senior Notes outstanding at a redemption price equal to 104.875% of the principal amount of the 4.875% Senior Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings; provided that (i) at least 65% of the aggregate principal amount of the 4.875% Senior Notes issued under the 4.875% Senior Notes indenture remains outstanding immediately after the occurrence of such redemption (excluding the 4.875% Senior Notes held by the Company and its subsidiaries); and (ii) the redemption must occur within 90 days of the date of the closing of such equity offering.

On or after April 1, 2017, the Company may redeem all or a part of the 4.875% Senior Notes, on any one or more occasions, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to, but not including, the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:


	Redemption price of the 4.875% Senior Notes

2017		102.438	%
2018		101.219	%
2019 and thereafter		100.000	%

At any time prior to April 1, 2017, the Company may also redeem all or a part of the 4.875% Senior Notes at a redemption price equal to 100% of the principal amount of the 4.875% Senior Notes redeemed plus an applicable premium (the “4.875% Senior Notes Applicable Premium”), and accrued and unpaid interest, if any, to, but not including, the date of redemption (the “4.875% Senior Notes Redemption Date”). The 4.875% Senior Notes Applicable Premium means the greater of:

•

1.0% of the principal amount of the 4.875% Senior Notes; and

•

the excess of: (a) the present value at such redemption date of (i) the redemption price of the 4.875% Senior Notes at April 1, 2017 as shown in the above table, plus (ii) all required interest payments due on the 4.875% Senior Notes through April 1, 2017 (excluding accrued but unpaid

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

interest, if any, to, but not including the 4.875% Senior Notes Redemption Date), computed using a discount rate equal to the yield to maturity of the U.S. Treasury securities with a constant maturity most nearly equal to the period from the 4.875% Senior Notes Redemption Date to April 1, 2017, plus 0.50%; over (b) the principal amount of the 4.875% Senior Notes.

At any time prior to April 1, 2016, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 5.375% Senior Notes outstanding at a redemption price equal to 105.375% of the principal amount of the 5.375% Senior Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings; provided that (i) at least 65% of the aggregate principal amount of the 5.375% Senior Notes issued under the 5.375% Senior Notes indenture remains outstanding immediately after the occurrence of such redemption (excluding the 5.375% Senior Notes held by the Company and its subsidiaries); and (ii) the redemption must occur within 90 days of the date of the closing of such equity offering.

On or after April 1, 2018, the Company may redeem all or a part of the 5.375% Senior Notes, on any one or more occasions, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to, but not including, the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:


	Redemption price of the 5.375% Senior Notes

2018		102.688	%
2019		101.792	%
2020		100.896	%
2021 and thereafter		100.000	%

At any time prior to April 1, 2018, the Company may also redeem all or a part of the 5.375% Senior Notes at a redemption price equal to 100% of the principal amount of the 5.375% Senior Notes redeemed plus an applicable premium (the “5.375% Senior Notes Applicable Premium”), and accrued and unpaid interest, if any, to, but not including, the date of redemption (the “5.375% Senior Notes Redemption Date”). The 5.375% Senior Notes Applicable Premium means the greater of:

•

1.0% of the principal amount of the 5.375% Senior Notes; and

•

the excess of: (a) the present value at such redemption date of (i) the redemption price of the 5.375% Senior Notes at April 1, 2018 as shown in the above table, plus (ii) all required interest payments due on the 5.375% Senior Notes through April 1, 2018 (excluding accrued but unpaid interest, if any, to, but not including the 5.375% Senior Notes Redemption Date), computed using a discount rate equal to the yield to maturity of the U.S. Treasury securities with a constant maturity most nearly equal to the period from the 5.375% Senior Notes Redemption Date to April 1, 2018, plus 0.50%; over (b) the principal amount of the 5.375% Senior Notes.

Debt issuance costs related to the 4.875% Senior Notes and 5.375% Senior Notes, net of amortization, were $19,081,000 as of September 30, 2013. In March 2013, the Company placed $836,400,000 of the proceeds from the issuance of the 4.875% and 5.375% Senior Notes into a restricted cash account for the redemption of the 8.125% Senior Notes.

8.125% Senior Notes

In February 2010, the Company issued $750,000,000 aggregate principal amount of 8.125% Senior Notes due March 1, 2018 (the “8.125% Senior Notes”). The indenture governing the 8.125% Senior Notes permitted the Company to redeem the 8.125% Senior Notes at the redemption prices set forth in the 8.125% Senior Notes indenture plus accrued and unpaid interest to, but not including the redemption date.

In April 2013, the Company redeemed the entire principal amount of the 8.125% Senior Notes pursuant to the optional redemption provisions in the indenture governing the 8.125% Senior Notes, plus accrued

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

interest, in cash of $836,511,000, which included the applicable premium paid of $80,925,000. As a result, the Company recognized a loss on debt extinguishment of $93,602,000, which included the applicable premium paid, the write-off of unamortized debt issuance costs of $8,927,000 and $3,750,000 of other transaction-related fees related to the redemption of the 8.125% Senior Notes, during the three months ended June 30, 2013.

Maturities of Debt Facilities

The following table sets forth maturities of the Company’s debt, including loans payable, convertible debt and senior notes, as of September 30, 2013 (in thousands):


Year ending:
2013 (three months remaining)	$	10,180
2014		448,852
2015		53,230
2016		377,532
2017		26,870
Thereafter		2,250,523

	$	3,167,187

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 as of (in thousands):


	September 30, 2013		December 31, 2012

Loans payable	$	197,144	$	238,793
Convertible debt		1,060,227		1,144,568
Senior notes		2,226,540		1,661,400

The fair value of the Company’s 3.00% Convertible Subordinated Notes and senior notes, which are traded in the public debt market, is based on quoted market prices and is classified within Level 1 of the fair value hierarchy. The fair value of the Company’s loans payable and 4.75% Convertible Subordinated Notes is estimated by considering the Company’s credit rating, current rates available to the Company for debt of the same remaining maturities and terms of the debt and is classified within Level 2 of the fair value hierarchy.

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 September 30,				Nine months ended September 30,
	2013		2012		2013		2012

Interest expense	$	61,957	$	50,207	$	183,289	$	149,812
Interest capitalized		2,346		6,315		7,896		19,630

Interest charges incurred	$	64,303	$	56,522	$	191,185	$	169,442

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

10.

Redeemable Non-Controlling Interests

The following table provides a summary of the activities of the Company’s redeemable non-controlling interests (in thousands):


Balance as of December 31, 2012	$	84,178
Net income attributable to redeemable non-controlling interests		1,252
Other comprehensive loss attributable to redeemable non-controlling interests		(4,340	)
Increase in redemption value of non-controlling interests		20,913
Impact of foreign currency exchange		(944	)

Balance as of September 30, 2013	$	101,059

11.

Commitments and Contingencies

Legal Matters

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. On September 19, 2012, the Court took the hearing on defendants’ motion to dismiss the Second Amended Complaint off calendar and notified the parties that it would make its decision on the pleadings. Subsequently, on September 24, 2012 the Court requested the parties submit supplemental briefing on or before October 9, 2012. The supplemental briefing was submitted on October 9, 2012. On December 5, 2012, the Court granted defendants’ motion to dismiss the Second Amended Complaint without prejudice and on January 15, 2013, Plaintiffs filed their Third Amended Complaint. On February 26, 2013, defendants moved to dismiss the Third Amended Complaint. On June 12, 2013, the Court granted defendants’ motion to dismiss the Third Amended Complaint and dismissed the case with prejudice. On July 3, 2013, plaintiffs stipulated that they will not appeal any prior orders issued by the Court in this action, including the Court’s June 12, 2013 order dismissing the Third Amended Complaint with prejudice.

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. On June 25, 2013, the parties entered into a stipulation dismissing the case with prejudice, and on July 11, 2013, the Court entered an order of dismissal with prejudice.

On May 20, 2011, an alleged shareholder derivative action entitled Stopa v. Clontz, et al., No. CV-11-2467-SC, was filed in the U.S. 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

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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. On July 9, 2013, the parties entered into a stipulation dismissing the case with prejudice, and on July 10, 2013, the Court entered an order of dismissal with prejudice.

Other Purchase Commitments

Primarily as a result of the Company’s various IBX expansion projects, as of September 30, 2013, the Company was contractually committed for $136,057,000 of unaccrued capital expenditures, primarily for IBX equipment not yet delivered and labor not yet provided, in connection with the work necessary to open these IBX data centers and make them available to customers for installation. In addition, the Company had numerous other, non-capital purchase commitments in place as of September 30, 2013, such as commitments to purchase power in select locations through the remainder of 2013 and thereafter, and other open purchase orders for goods or services to be delivered or provided during the remainder of 2013 and thereafter. Such other miscellaneous purchase commitments totaled $213,824,000 as of September 30, 2013.

12.

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, 2012			Net change			Balance as of September 30, 2013

Foreign currency translation loss	$	(114,678	)	$	(25,107	)	$	(139,785	)
Unrealized gain on available for sale securities		41			78			119
Other comprehensive loss attributable to redeemable non-controlling interests		13,595			4,340			17,935

	$	(101,042	)	$	(20,689	)	$	(121,731	)

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 or less U.S. dollars when the U.S. dollar strengthens. During the nine months ended September 30, 2013, 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 unfavorable impact on the Company’s consolidated results of operations because the foreign currencies translated 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.

Stock-Based Compensation

In February and March 2013, the Compensation Committee and the Stock Award Committee of the Company’s Board of Directors approved the issuance of an aggregate of 572,104 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 $205.07 and a weighted-average requisite service period of 3.42 years.

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

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 September 30,				Nine months ended September 30,
	2013		2012		2013		2012

Cost of revenues	$	2,270	$	1,726	$	5,666	$	4,577
Sales and marketing		7,250		4,795		19,796		13,505
General and administrative		17,760		15,585		49,848		43,022

	$	27,280	$	22,106	$	75,310	$	61,104

13.

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 reportable segments. The Company defines adjusted EBITDA as income or loss from operations plus depreciation, amortization, accretion, stock-based compensation expense, restructuring charges, impairment charges and acquisition costs as presented below (in thousands):


	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012

Adjusted EBITDA:
Americas	$	150,304		$	139,929		$	449,112		$	408,885
EMEA		57,139			46,392			156,557			138,217
Asia-Pacific		41,002			38,695			131,699			101,069

Total adjusted EBITDA		248,445			225,016			737,368			648,171
Depreciation, amortization and accretion expense		(105,534	)		(105,522	)		(324,326	)		(289,992	)
Stock-based compensation expense		(27,280	)		(22,106	)		(75,310	)		(61,104	)
Restructuring charge		—			—			4,837			—
Acquisitions costs		(438	)		(4,542	)		(6,626	)		(6,883	)

Income from operations	$	115,193		$	92,846		$	335,943		$	290,192

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

The Company also provides the following additional segment disclosures (in thousands):


	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Total revenues:
Americas	$	319,413		$	291,836		$	938,673		$	854,871
EMEA		133,254			111,825			380,232			315,594
Asia-Pacific		90,417			81,174			269,184			210,852

	$	543,084		$	484,835		$	1,588,089		$	1,381,317


Total depreciation and amortization:
Americas	$	64,001		$	60,058		$	191,355		$	175,195
EMEA		24,274			21,876			70,403			57,311
Asia-Pacific		21,626			22,675			64,533			54,615

	$	109,901		$	104,609		$	326,291		$	287,121

Capital expenditures:
Americas	$	154,704	(1)	$	95,744		$	257,817	(1)	$	278,488
EMEA		42,847	(4)		135,145	(2)		91,709	(4)		217,686	(2)
Asia-Pacific		45,454	(5)		254,263	(3)		94,969	(5)		330,952	(3)

	$	243,005		$	485,152		$	444,495		$	827,126

(1)

Includes the purchase price for the New York 2 IBX Data Center Purchase, which totaled $73,441.

(2)

Includes purchase price for the acquisition of ancotel GmbH, net of cash acquired, which totaled $84,236.

(3)

Includes purchase price for the acquisition of Asia Tone, net of cash acquired, which totaled $188,798.

(4)

Includes the deposit for the purchase of the Frankfurt Kleyer 90 Carrier Hotel totaling $1,353.

(5)

Includes the deposit for a real estate purchase totaling $891 and purchase price adjustment for the acquisition of Asia Tone totaling $755.

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


	September 30, 2013		December 31, 2012

Americas	$	2,496,504	$	2,139,774
EMEA		1,057,349		994,912
Asia-Pacific		827,167		781,052

	$	4,381,020	$	3,915,738

Revenue information by category is as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012

Colocation	$	408,569	$	365,787	$	1,201,487	$	1,047,995
Interconnection		81,650		70,681		235,994		198,598
Managed infrastructure services		24,413		23,231		72,324		65,302
Rental		934		783		2,097		2,347

Recurring revenues		515,566		460,482		1,511,902		1,314,242
Non-recurring revenues		27,518		24,353		76,187		67,075

	$	543,084	$	484,835	$	1,588,089	$	1,381,317

EQUINIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

No single customer accounted for 10% or greater of the Company’s revenues for the three and nine months ended September 30, 2013 and 2012. No single customer accounted for 10% or greater of the Company’s gross accounts receivable as of September 30, 2013 and December 31, 2012.

14.

Restructuring Charges

In May 2013, the Company entered into a binding commitment to purchase the New York 2 IBX data center for leased space in respect of which the Company had previously recorded a restructuring reserve (see Note 4). As a result, the Company recorded a reversal to its outstanding accrued restructuring charge during the three months ended June 30, 2013.

A summary of the movement in the accrued restructuring charges during the nine months ended September 30, 2013 is outlined as follows (in thousands):


Accrued restructuring charge as of December 31, 2012	$	5,679
Accretion expense		137
Restructuring charge adjustments		(4,837	)
Cash payments		(979	)

Accrued restructuring charge as of September 30, 2013	$	—

15.

Subsequent Events

In October 2013, the Company completed the purchase of a property located in Frankfurt, Germany for gross consideration of approximately $90,651,000 (the “Frankfurt Kleyer 90 Carrier Hotel Acquisition”). A portion of the building was leased to the Company and was being used by the Company as its Frankfurt 5 IBX data center. The remainder of the building was leased by other parties, which became the Company’s tenants upon closing. The Frankfurt Kleyer 90 Carrier Hotel Acquisition will be accounted for as a business acquisition using the acquisition method of accounting in accordance with the accounting standard for business combinations. The preliminary purchase price allocation for the Frankfurt Kleyer 90 Carrier Hotel Acquisition is not currently available as the appraisals necessary to assess fair values of assets acquired and liabilities assumed are not yet complete.

In October 2013, the Company initiated a program to hedge its exposure to foreign currency exchange rate fluctuations for forecasted revenues and expenses in its EMEA region in order to manage the Company’s exposure to foreign currency exchange rate fluctuations between the U.S. dollar and the British Pound, Euro and Swiss Franc. The foreign currency forward contracts that the Company uses to hedge this exposure are designated as cash flow hedges.

In November 2013, ALOG executed a 60,000,000 Brazilian real credit facility agreement, or approximately $27,019,000. The credit facility 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 credit facility bears an interest rate of 2.25% above the local borrowing rate. ALOG expects to receive the proceeds from the credit facility upon satisfaction of certain conditions.

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 March 2013, as more fully described in Note 9 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we issued $1.5 billion aggregate principal amount of senior notes, which is referred to as the senior notes offering, consisting of $500.0 million aggregate principal amount of 4.875% senior notes due April 1, 2020, which are referred to as the 4.875% senior notes, and $1.0 billion aggregate principal amount of 5.375% senior notes due April 1, 2023, which are referred to as the 5.375% senior notes. We used a portion of the net proceeds from the senior notes offering for the redemption of our 8.125% senior notes and intend to use the remaining net proceeds for general corporate purposes, including the funding of our expansion activities and distributions to our stockholders in connection with our proposed conversion to a real estate investment trust, which is referred to as a REIT.

In April 2013, as more fully described in Note 9 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q, we redeemed all of our $750.0 million 8.125% senior notes, plus accrued interest, with $836.5 million in cash, which includes the applicable premium paid of $80.9 million. During the three months ended June 30, 2013, we recognized a loss on debt extinguishment of $93.6 million, which included the applicable premium paid, the write-off of unamortized debt issuance costs of $8.9 million and $3.8 million of other transaction-related fees related to the redemption of the 8.125% senior notes.

In May 2013, we entered into a binding purchase and sale agreement for a property located in the New York metro area, which is referred to as the New York 2 IBX data center purchase. A portion of the building was leased to us and was being used by us as our New York 2 IBX data center. The lease was originally accounted for as an operating lease, and we had previously recorded a restructuring charge related to the lease, as fully more described in Note 14 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q. The remainder of the building was leased by another party, which became our tenant upon closing. In July 2013, we completed the New York 2 IBX data center purchase for net cash consideration of $73.4 million. The New York 2 IBX data center purchase was accounted for as an asset acquisition and the purchase price was allocated to the assets acquired based on their relative fair values.

In October 2013, we completed the purchase of a property located in Frankfurt, Germany for gross consideration of approximately $90.7 million, which is referred to as the Frankfurt Kleyer 90 carrier hotel acquisition. A portion of the building was leased to us and was being used by us as our Frankfurt 5 IBX data center. The remainder of the building was leased by other parties, which became our tenants upon closing. The Frankfurt Kleyer 90 carrier hotel acquisition will be accounted for as a business acquisition using the acquisition method of accounting in accordance with the accounting standard for business combinations. The preliminary purchase price allocation for the Frankfurt Kleyer 90 carrier hotel acquisition is not currently available as the appraisals necessary to assess fair values of assets acquired and liabilities assumed are not yet complete.

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 31 markets around the world for the safehousing 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 solutions: (i) premium data center colocation, (ii) interconnection and (iii) exchange and outsourced IT infrastructure services. As of September 30, 2013, we operated or had partner IBX data centers in the Atlanta, Boston, Chicago, Dallas, Denver, Los Angeles, Miami, New York, Philadelphia, Rio De Janeiro, Sao Paulo, Seattle, Silicon Valley, Toronto and Washington, D.C. metro areas in the Americas region; France, Germany, Italy, the Netherlands, Switzerland, the United Arab Emirates and the United Kingdom in the EMEA region; and Australia, Hong Kong, Indonesia, Japan, China and Singapore in the Asia-Pacific region.

We leverage our global data centers in 31 markets around the world as a global platform which allows our customers to increase information and application delivery performance while significantly reducing costs. Based on our global 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 offerings. These partners, in turn, pull in their business partners, creating a “marketplace” for their services. Our global 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 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 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 solutions in the U.S. alone. Each of these data center solutions providers can bundle various colocation, interconnection and network offerings, and outsourced IT infrastructure services. We are able to offer our customers a global platform that supports global reach to 15 countries, proven operational reliability, improved application performance and network choice, and a highly scalable set of offerings.

Excluding the impact of the acquisition of the Dubai IBX data center, referred to as the Dubai IBX data center acquisition, our customer count increased to approximately 5,851 as of September 30, 2013 versus approximately 5,261 as of September 30, 2012, an increase of 11%. 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 approximately 77% as of September 30, 2013 versus approximately 76% as of September 30, 2012; however, excluding the impact of our IBX data center expansion projects that have opened during the last 12 months, our utilization rate would have been approximately 80% as of September 30, 2013. 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 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 and related interconnection and managed infrastructure offerings. We consider these offerings recurring because 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 because 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 expected life of the installation. 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 related interconnection offerings, and 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 our customers. 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 revenues 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 about 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 the EMEA or Asia-Pacific region, 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 revenues 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 revenues as we continue to scale our operations to support our growth.

Potential REIT Conversion

On September 13, 2012, we announced that our board of directors approved a plan for Equinix to pursue conversion to a REIT. We have begun implementation of the REIT conversion, and we plan to make a tax election for REIT status for the taxable year beginning January 1, 2015. Any REIT election made by us must be effective as of the beginning of a taxable year; therefore, as a calendar year taxpayer, if we are unable to convert to a REIT by January 1, 2015, the next possible conversion date would be January 1, 2016.

If we are able to convert to and qualify as a REIT, we will generally be permitted to deduct from federal income taxes the dividends we pay to our stockholders. The income represented by such dividends would not be subject to federal taxation at the entity level but would be taxed, if at all, at the stockholder level. Nevertheless, the income of our domestic taxable REIT subsidiaries, or TRS, which will hold our U.S. operations that may not be REIT-compliant, will be subject, as applicable, to federal and state corporate income tax. Likewise, our foreign subsidiaries will continue to be subject to foreign income taxes in jurisdictions in which they hold assets or conduct operations, regardless of whether held or conducted through TRS or through qualified REIT subsidiaries, or QRS. We will also be subject to a separate corporate income tax on any gains recognized during a specified period (generally 10 years) following the REIT conversion that are attributable to “built-in” gains with respect to the assets that we own on the date we convert to a REIT. Our ability to qualify as a REIT will depend upon our continuing compliance following our REIT conversion with various requirements, including requirements related to the nature of our assets, the sources of our income and the distributions to our stockholders. If we fail to qualify as a REIT, we will be subject to federal income tax at regular corporate rates. Even if we qualify for taxation as a REIT, we may be subject to some federal, state, local and foreign taxes on our income and property. In particular, while state income tax regimes often parallel the federal income tax regime for REITs described above, many states do not completely follow federal rules and some may not follow them at all.

The REIT conversion implementation currently includes seeking a private letter ruling, or PLR, from the IRS. Our PLR request has multiple components, and our timely conversion to a REIT will require favorable rulings from the IRS on certain technical tax issues. We submitted the PLR request to the IRS in the fourth quarter of 2012. In the course of our communications with the IRS relating to our PLR request, the IRS informed us that it has convened an internal working group to study the current legal standards the IRS uses to define “real estate” for purposes of the REIT provisions of the Internal Revenue Code of 1986, as amended (the “Code”) and that, pending the completion of the study, the IRS is unlikely to issue PLRs on what constitutes real estate for REIT purposes. While we anticipate that the formation of the IRS working group may delay receipt of our PLR from the IRS, we do not expect any such potential delay will affect the timing of our plan to elect REIT status for the taxable year beginning January 1, 2015.

We currently estimate that we will incur approximately $50.0 to $80.0 million in costs to support the REIT conversion, in addition to related tax liabilities associated with a change in our method of depreciating and amortizing various data center assets for tax purposes from our prior methods to current methods that are more consistent with the characterization of such assets as real property for REIT purposes. The total recapture of depreciation and amortization expenses across all relevant assets is expected to result in federal and state tax liability of approximately $360.0 to $380.0 million, which amount became payable over a four-year period starting in 2012 even if we abandon the REIT conversion for any reason. Prior to the decision to convert to a REIT, our balance sheet reflected our income tax liability as a non-current deferred tax liability. As a result of the decision to convert to a REIT, our non-current tax liability has been and will continue to be gradually and proportionally reclassified from non-current to current over the four-year period, which started in the third quarter of 2012. The current liability reflects the tax liability that relates to additional taxable income expected to be recognized within the twelve-month period from the date of the balance sheet. If the REIT conversion is successful, we also expect to incur an additional $5.0 to $10.0 million in annual compliance costs in future years. We expect to pay between $150.0 to $180.0 million in cash taxes during 2013.

Results of Operations

Our results of operations for three and nine months ended September 30, 2013 include the operations of ancotel GmbH, referred to as ancotel, Asia Tone Limited, referred to as Asia Tone, and the Dubai IBX data center.

Reclassifications and Revision of Previously-Issued Financial Statements

During the three months ended June 30, 2013, we reassessed the estimated period over which revenue related to non-recurring installation fees is recognized as a result of observed trends in customer contract lives. Non-recurring installation fees, although generally paid in a lump sum upon installation, are deferred and recognized ratably over the expected life of the installation. We undertook this review due to our determination that our customers were generally benefitting from their installations longer than originally anticipated and, therefore, the estimated period that revenue related to non-recurring installation fees is recognized was extended. This change was originally incorrectly accounted for as a change in accounting estimate on a prospective basis effective April 1, 2013. During the three months ended September 30, 2013, we determined that these longer lives should have been identified and utilized for revenue recognition purposes beginning in 2006. As a result, our installation revenues, and therefore adjusted EBITDA, were overstated by $6.2 million, $3.5 million and $5.3 million for the years ended December 31, 2012, 2011 and 2010, respectively; overstated by $2.6 million, $1.5 million, $1.5 million and $1.5 million for the three months ended March 31, 2013, September 30, 2012, June 30, 2012 and March 31, 2012, respectively; and understated by $3.9 million for the three months ended June 30, 2013. This error did not impact our reported total cash flows from operating activities.

Also, during the three months ended December 31, 2012, we determined that within our cash flows from operating activities section of our condensed consolidated statement of cash flows for the nine months ended September 30, 2012, excess tax benefits from stock-based compensation of $61.0 million were recorded within changes in other assets when they should have been attributed to income taxes payable,

and therefore included within changes in accounts payable and accrued expenses. This error has been corrected in the condensed consolidated statement of cash flows for the nine months ended September 30, 2012, and did not impact our condensed consolidated statement of cash flows for the first and second quarter of 2012. Our consolidated statement of cash flows for the year ended December 31, 2012 properly reflected excess tax benefits from stock-based compensation. Additionally, we changed our presentation of the impact of income taxes on cash flows from operating activities to present it within a single line within the consolidated statement of cash flows during the year ended December 31, 2012. This item has no impact on our reported total cash flows from operating activities.

We assessed the materiality of the above errors, as well as the previously-identified immaterial errors described below, individually and in the aggregate on prior periods’ financial statements in accordance with the SEC’s Staff Accounting Bulletins No. 99 and 108 and, based on an analysis of quantitative and qualitative factors, determined that the errors were not material to any of our prior interim and annual financial statements and, therefore, the previously-issued financial statements could continue to be relied upon and that the amendment of previously filed reports with the SEC was not required. We also determined that correcting the cumulative of the non-recurring installation fees of $27.2 million as of December 31, 2012 in 2013 would be material to the projected 2013 consolidated financial statements and as such we will revise our previously-issued consolidated financial statements the next time the financial statements for those periods are filed. Refer to Note 2 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional details.

As we will revise our previously-issued consolidated financial statements as described above, as part of the revision we also corrected certain previously-identified immaterial errors that were either uncorrected or corrected in a period subsequent to the period in which the error originated including (i) certain recoverable taxes in Brazil that were incorrectly recorded in our statements of operations, which had the effect of overstating both revenues and cost of revenues; (ii) errors related to certain foreign currency embedded derivatives in Asia-Pacific, which have an effect on revenue; (iii) an error in our statement of cash flows related to the acquisition of Asia Tone that affects both cash flows from operating and investing activities and (iv) errors in depreciation, stock-based compensation and property tax accruals in the U.S.

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, Singapore dollar and United Arab Emirates dirham. 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 September 30, 2012 are used as exchange rates for the three months ended September 30, 2013 when comparing the three months ended September 30, 2013 with the three months ended September 30, 2012 and average rates in effect for the nine months ended September 30, 2012 are used as exchange rates for the nine months ended September 30, 2013 when comparing the nine months ended September 30, 2013 with the nine months ended September 30, 2012).

Three Months Ended September 30, 2013 and 2012

Revenues. Our revenues for the three months ended September 30, 2013 and 2012 were generated from the following revenue classifications and geographic regions (dollars in thousands):


	Three months ended September 30,										% change
	2013		%			2012		%			Actual			Constant currency
Americas:
Recurring revenues	$	306,290		56	%	$	280,234		58	%		9	%		10	%
Non-recurring revenues		13,123		2	%		11,602		2	%		13	%		14	%

		319,413		58	%		291,836		60	%		9	%		10	%

EMEA:
Recurring revenues		124,470		23	%		104,126		21	%		20	%		15	%
Non-recurring revenues		8,784		2	%		7,699		2	%		14	%		(3	%)

		133,254		25	%		111,825		23	%		19	%		14	%

Asia-Pacific:
Recurring revenues		84,806		16	%		76,122		16	%		11	%		19	%
Non-recurring revenues		5,611		1	%		5,052		1	%		11	%		15	%

		90,417		17	%		81,174		17	%		11	%		19	%

Total:
Recurring revenues		515,566		95	%		460,482		95	%		12	%		13	%
Non-recurring revenues		27,518		5	%		24,353		5	%		13	%		9	%

	$	543,084		100	%	$	484,835		100	%		12	%		13	%

Americas Revenues. Growth in Americas revenues was primarily due to (i) $12.5 million of revenue generated from our recently-opened IBX data centers or IBX data center expansions in the Chicago, Los Angeles, Seattle and Washington, D.C. metro areas 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, as discussed above. During the three months ended September 30, 2013, currency fluctuations resulted in approximately $2.8 million of unfavorable foreign currency impact to our Americas revenues primarily due to generally stronger U.S. dollar relative to the Brazilian reais and Canadian dollar during the three months ended September 30, 2013 compared to the three months ended September 30, 2012. 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 Dallas, New York, Toronto, Sao Paolo and Washington, D.C. metro areas, which are expected to open during the remainder of 2013, 2014 and first half of 2015. Our estimates of future revenue growth also take into account expected 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 36% and 37%, respectively, of the regional revenues during the three months ended September 30, 2013 and 2012. Our EMEA revenue growth was primarily due to (i) approximately $2.9 million of revenue from our recently-opened IBX data centers or IBX data center expansions in the Frankfurt and Zurich metro areas 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, as discussed above. During the three months ended September 30, 2013, currency fluctuations resulted in approximately $5.6 million of net favorable foreign currency impact to our EMEA revenues primarily due to generally weaker U.S. dollar relative to the Euro and Swiss franc during the three months ended September 30, 2013 compared to the three months ended September 30, 2012. We expect that our EMEA revenues will continue to grow in future periods as a result of the Frankfurt Kleyer 90 carrier hotel acquisition and continued growth in recently-opened IBX data centers or IBX data center expansions and additional expansions currently taking place in the Frankfurt and London metro areas, which are expected to open during the remainder of 2013 and 2015. In addition, we anticipate that a cash flow hedging program we commenced in October 2013 for our EMEA region should reduce some of our foreign currency volatility prospectively. Our estimates of future revenue growth also take into account expected 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 35% and 36%, respectively, of the regional revenues for the three months ended September 30, 2013 and 2012. Our Asia-Pacific revenue growth was due to (i) revenue generated from our recently-opened IBX data center expansions in the Singapore and Tokyo metro areas 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, as discussed above. During the three months ended September 30, 2013, currency fluctuations resulted in approximately $6.3 million of net unfavorable foreign currency impact to our Asia-Pacific revenues primarily due to generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the three months ended September 30, 2013 compared to the three months ended September 30, 2012. We expect that our Asia-Pacific revenues will continue to grow in future periods as a result of continued growth in the recently-opened IBX data center expansions and additional expansions currently taking place in the Hong Kong, Osaka, Tokyo, Shanghai, Singapore and Sydney metro areas, which are expected to open during the remainder of 2013 and 2014. Our estimates of future revenue growth also take into account expected changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts.

Cost of Revenues. Our cost of revenues for the three months ended September 30, 2013 and 2012 were split among the following geographic regions (dollars in thousands):


	Three months ended September 30,										% change
	2013		%			2012		%			Actual			Constant currency

Americas	$	144,316		54	%	$	137,075		55	%		5	%		6	%
EMEA		69,963		26	%		61,642		24	%		13	%		11	%
Asia-Pacific		54,681		20	%		52,229		21	%		5	%		13	%

Total	$	268,960		100	%	$	250,946		100	%		7	%		9	%


	Three months ended September 30,
	2013			2012
Cost of revenues as a percentage of revenues:
Americas		45	%		47	%
EMEA		53	%		55	%
Asia-Pacific		60	%		64	%
Total		50	%		52	%

Americas Cost of Revenues. Our Americas cost of revenues for the three months ended September 30, 2013 and 2012 included $54.7 million and $50.3 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our IBX data center expansion activity. Excluding depreciation expense, the increase in our Americas cost of revenues was primarily due to (i) $3.0 million of higher utility costs and repairs and maintenance expense and (ii) $2.2 million of higher property taxes, partially offset by a $4.9 million reversal of asset retirement obligations associated with certain leases that were amended during the three months ended September 30, 2013. During the three months ended September 30, 2013, the impact of foreign currency fluctuations to our Americas cost of revenues was not significant when compared to average exchange rates of the three months ended September 30, 2012. We expect Americas cost of revenues to increase as we continue to grow our business.

EMEA Cost of Revenues. Our EMEA cost of revenues for the three months ended September 30, 2013 and 2012 included $21.1 million and $18.6 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our IBX data center expansion activity. Excluding depreciation expense, the increase in our EMEA cost of revenues was primarily due to $3.9 million of higher utility costs. During the three months ended September 30, 2013, the impact of foreign currency fluctuations to our EMEA cost of revenues was not significant when compared to average exchange rates of the three months ended September 30, 2012. Commencing in the fourth quarter of 2013, we expect that our EMEA cost of

revenues will increase as a result of the Frankfurt Kleyer 90 carrier hotel acquisition. Overall, we expect EMEA cost of revenues to increase as we continue to grow our business. In addition, we anticipate that a cash flow hedging program we commenced in October 2013 for our EMEA region should reduce some of our foreign currency volatility prospectively.

Asia-Pacific Cost of Revenues. Our Asia-Pacific cost of revenues for the three months ended September 30, 2013 and 2012 included $20.4 million and $21.5 million, respectively, of depreciation expense. Excluding depreciation expense, the increase in our Asia-Pacific cost of revenues was primarily due to higher costs associated with certain custom services provided to our customers and higher utility costs. During the three months ended September 30, 2013, currency fluctuations resulted in approximately $4.2 million of net favorable foreign currency impact to our Asia-Pacific cost of revenues primarily due to generally stronger U.S. dollar relative to Australian dollar, Japanese yen and Singapore dollar during the three months ended September 30, 2013 compared to the three months ended September 30, 2012. We expect Asia-Pacific cost of revenues to increase as we continue to grow our business.

Sales and Marketing Expenses. Our sales and marketing expenses for the three months ended September 30, 2013 and 2012 were split among the following geographic regions (dollars in thousands):


	Three months ended September 30,										% change
	2013		%			2012		%			Actual			Constant currency

Americas	$	35,594		58	%	$	31,891		60	%		12	%		13	%
EMEA		16,340		26	%		13,978		26	%		17	%		15	%
Asia-Pacific		9,685		16	%		7,342		14	%		32	%		42	%

Total	$	61,619		100	%	$	53,211		100	%		16	%		17	%


	Three months ended September 30,
	2013			2012
Sales and marketing expenses as a percentage of revenues:
Americas		11	%		11	%
EMEA		12	%		12	%
Asia-Pacific		11	%		9	%
Total		11	%		11	%

Americas Sales and Marketing Expenses. The increase in our Americas sales and marketing expenses was primarily due to $4.6 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (387 Americas sales and marketing employees as of September 30, 2013 versus 322 as of September 30, 2012), partially offset by lower bad debt expense and professional fees. During the three months ended September 30, 2013, the impact of foreign currency fluctuations to our Americas sales and marketing expenses was not significant when compared to average exchange rates of the three months ended September 30, 2012. 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 or two 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 $2.1 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (212 EMEA sales and marketing employees as of September 30, 2013 versus 183 as of September 30, 2012). For the three months ended September 30, 2013, 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 September 30, 2012.

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, we believe our EMEA sales and marketing expenses as a percentage of revenues will remain at approximately current levels over the next year or two but should ultimately decrease as we continue to grow our business. In addition, we anticipate that a cash flow hedging program we commenced in October 2013 for our EMEA region should reduce some of our foreign currency volatility prospectively.

Asia-Pacific Sales and Marketing Expenses. The increase in our Asia-Pacific sales and marketing expenses was primarily due to higher bad debt expense and higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (125 Asia-Pacific general and administrative employees as of September 30, 2013 versus 94 as of September 30, 2012). For the three months ended September 30, 2013, 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 September 30, 2012. 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, we believe our Asia-Pacific sales and marketing expenses as a percentage of revenues will remain at approximately current levels over the next year or two 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 September 30, 2013 and 2012 were split among the following geographic regions (dollars in thousands):


	Three months ended September 30,										% change
	2013		%			2012		%			Actual			Constant currency

Americas	$	68,729		71	%	$	60,303		72	%		14	%		14	%
EMEA		17,911		18	%		14,767		18	%		21	%		21	%
Asia-Pacific		10,234		11	%		8,220		10	%		25	%		29	%

Total	$	96,874		100	%	$	83,290		100	%		16	%		17	%


	Three months ended September 30,
	2013			2012
General and administrative expenses as a percentage of revenues:
Americas		22	%		21	%
EMEA		13	%		13	%
Asia-Pacific		11	%		10	%
Total		18	%		17	%

Americas General and Administrative Expenses. The increase in our Americas general and administrative expenses was primarily due to $3.6 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (898 Americas general and administrative employees as of September 30, 2013 versus 853 as of September 30, 2012) and $3.4 million of higher professional fees. During the three months ended September 30, 2013, the impact of foreign currency fluctuations to our Americas general and administrative expenses was not significant when compared to average exchange rates of the three months ended September 30, 2012. 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. We are also incurring costs to support our REIT conversion process. Collectively, these investments in our back office systems and our REIT conversion process have resulted in increased

professional fees. 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 these investments in our back office systems and the REIT conversion process.

EMEA General and Administrative Expenses. The increase in our EMEA general and administrative expenses was primarily due to $2.4 million of higher professional fees. The impact of foreign currency fluctuations to our EMEA general and administrative expenses for the three months ended September 30, 2013 was not significant when compared to average exchange rates of the three months ended September 30, 2012. 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 including certain corporate reorganization activities, which has resulted in an increased level of professional fees. 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; however, as a percentage of revenues, we generally expect them to decrease. In addition, we anticipate that a cash flow hedging program we commenced in October 2013 for our EMEA region should reduce some of our foreign currency volatility prospectively.

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 (203 Asia-Pacific general and administrative employees as of September 30, 2013 versus 169 as of September 30, 2012). For the three months ended September 30, 2013, 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 September 30, 2012. Going forward, although we are carefully monitoring our spending given the current economic environment, we expect Asia-Pacific general and administrative expenses to increase as we continue to scale our operations to support our growth; however, as a percentage of revenues, we generally expect them to decrease.

Acquisition Costs. During the three months ended September 30, 2013, we recorded acquisition costs totaling $438,000 primarily attributed to the EMEA region. During the three months ended September 30, 2012, we recorded acquisition costs totaling $4.5 million primarily attributed to the ancotel and Asia Tone acquisitions.

Interest Income. Interest income decreased to $929,000 for the three months ended September 30, 2013 compared to $1.1 million for the three months ended September 30, 2012. The average annualized yield for the three months ended September 30, 2013 was 0.27% versus 0.76% for the three months ended September 30, 2012. 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 $62.0 million for the three months ended September 30, 2013 from $50.2 million for the three months ended September 30, 2012. This increase in interest expense was primarily due to the impact of our $1.5 billion senior notes offering in March 2013, $5.5 million of higher interest expense from various capital lease and other financing obligations to support our expansion projects and less capitalized interest expense, partially offset by the redemption of our 8.125% senior notes in April 2013. During the three months ended September 30, 2013 and 2012, we capitalized $2.3 million and $6.3 million, respectively, of interest expense to construction in progress. Going forward, we expect to incur higher interest expense as we recognize the full impact of our $1.5 billion senior notes offering, partially offset by the redemption of our 8.125% senior notes, which will contribute approximately $17.7 million in incremental interest expense annually. However, we may incur additional indebtedness to support our growth, resulting in higher interest expense.

Other Income (Expense). We recorded $985,000 and $507,000, respectively, of other income for the three months ended September 30, 2013 and 2012, primarily due to foreign currency exchange gains during the periods.

Loss on Debt Extinguishment. During the three months ended September 30, 2013, we did not record any loss on debt extinguishment. During the three months ended September 30, 2012, we recorded $5.2 million of loss on debt extinguishment due to the repayment and termination of our outstanding loans payable in Asia-Pacific, referred to as the Asia-Pacific financing.

Income Taxes. For the three months ended September 30, 2013 and 2012, we recorded $12.4 million and $12.3 million, respectively, of income tax expense. Our effective tax rates were 22.5% and 31.7%, respectively, for the three months ended September 30, 2013 and 2012. We expect cash income taxes during the remainder of 2013 will primarily be related to the impact of recognizing the depreciation and amortization recapture as a result of changing our method of depreciating and amortizing various data center assets for tax purposes in connection with our REIT conversion plan. The cash taxes for 2013 and 2012 are primarily for U.S. federal and state income taxes and foreign income taxes in certain foreign jurisdictions.

To better align our EMEA corporate structure and intercompany relationship with the nature of our business activities and regional centralization, we commenced certain reorganization activities during the fourth quarter of 2012 in the EMEA region. The new organizational structure centralized the majority of our EMEA business management activities in the Netherlands effective July 1, 2013. As a result, we expect our overall effective tax rate will be lower in subsequent periods as the new structure begins to take full effect. Assuming a successful conversion to a REIT, and no material changes to tax rules and regulations, we expect our effective long-term worldwide cash tax rate to ultimately decrease to a range of 10% to 15%.

Net Income from Discontinued Operations. During the three months ended September 30, 2013, we did not have any discontinued operations. For the three months ended September 30, 2012, our net income from discontinued operations was $679,000. For additional information, see “Discontinued Operations” in Note 1 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

Adjusted EBITDA. Adjusted EBITDA is a key factor in how we assess the performance of our segments, measure the operational cash generating abilities of our segments and develop regional growth strategies such as IBX data center expansion decisions. Adjusted EBITDA is the result of our revenues less our adjusted operating expenses. Our adjusted operating expenses exclude depreciation expense, amortization expense, accretion expense, stock-based compensation, restructuring charge, impairment charges and acquisition costs. Periodically, we enter into new lease agreements or amend existing lease agreements. To the extent we conclude that a lease is an operating lease, the rent expense may decrease our adjusted EBITDA whereas to the extent we conclude that a lease is a capital or financing lease, and this lease was previously reported as an operating lease, this outcome may increase our adjusted EBITDA. Our adjusted EBITDA for the three months ended September 30, 2013 and 2012 were split among the following geographic regions (dollars in thousands):


	Three months ended September 30,										% change
	2013		%			2012		%			Actual			Constant currency

Americas	$	150,304		60	%	$	139,929		62	%		7	%		8	%
EMEA		57,139		23	%		46,392		21	%		23	%		14	%
Asia-Pacific		41,002		17	%		38,695		17	%		6	%		13	%

Total	$	248,445		100	%	$	225,016		100	%		10	%		10	%

Americas Adjusted EBITDA. The increase in our Americas adjusted EBITDA was due to higher revenues as result of our IBX data center expansion activity and organic growth as described above, partially offset by higher adjusted operating expenses as a percentage of revenues primarily attributable to higher professional fees to support our growth. During the three months ended September 30, 2013, the impact of foreign currency fluctuations to our Americas adjusted EBITDA was not significant when compared to average exchange rates of the three months ended September 30, 2012. Effective September 30, 2013, we amended certain Americas lease agreements which converted four of these leases from operating to capital leases, which is expected to increase Americas adjusted EBITDA by approximately $2.2 million each quarter commencing with the fourth quarter of 2013.

EMEA Adjusted EBITDA. The increase in our EMEA adjusted EBITDA was primarily due to higher revenues as result of our IBX data center expansion activity and organic growth as described above. During the three months ended September 30, 2013, currency fluctuations resulted in approximately $4.2 million of net favorable foreign currency impact to our EMEA adjusted EBITDA primarily due to generally weaker U.S. dollar relative to the Euro and Swiss franc during the three months ended September 30, 2013 compared to the three months ended September 30, 2012. We expect to enter into new EMEA lease agreements that will be accounted for as operating leases, which we expect will decrease EMEA adjusted EBITDA when these anticipated lease agreements are executed.

Asia-Pacific Adjusted EBITDA. Our Asia-Pacific adjusted EBITDA did not materially change. During the three months ended September 30, 2013, currency fluctuations resulted in approximately $2.7 million of net unfavorable foreign currency impact to our Asia-Pacific adjusted EBITDA primarily due to generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the three months ended September 30, 2013 compared to the three months ended September 30, 2012.

Nine months ended September 30, 2013 and 2012

Revenues. Our revenues for the nine months ended September 30, 2013 and 2012 were generated from the following revenue classifications and geographic regions (dollars in thousands):


	Nine months ended September 30,										% change
	2013		%			2012		%			Actual			Constant currency
Americas:
Recurring revenues	$	901,490		57	%	$	824,732		60	%		9	%		10	%
Non-recurring revenues		37,183		2	%		30,139		2	%		23	%		24	%

		938,673		59	%		854,871		62	%		10	%		11	%

EMEA:
Recurring revenues		356,394		22	%		291,269		21	%		22	%		23	%
Non-recurring revenues		23,838		2	%		24,325		2	%		(2	%)		(11	%)

		380,232		24	%		315,594		23	%		20	%		20	%

Asia-Pacific:
Recurring revenues		254,018		16	%		198,241		14	%		28	%		34	%
Non-recurring revenues		15,166		1	%		12,611		1	%		20	%		23	%

		269,184		17	%		210,852		15	%		28	%		33	%

Total:
Recurring revenues		1,511,902		95	%		1,314,242		95	%		15	%		16	%
Non-recurring revenues		76,187		5	%		67,075		5	%		14	%		11	%

	$	1,588,089		100	%	$	1,381,317		100	%		15	%		16	%

Americas Revenues. Growth in Americas revenues was primarily due to (i) $34.4 million of revenue generated from our recently-opened IBX data centers or IBX data center expansions in the Chicago, Dallas, Los Angeles, Miami, New York, Seattle and Washington, D.C. metro areas 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, as discussed above. During the nine months ended September 30, 2013, currency fluctuations resulted in approximately $6.9 million of unfavorable foreign currency impact to our Americas revenues primarily due to generally stronger U.S. dollar relative to the Brazilian reais and Canadian dollar during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. 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 Dallas, New York, Toronto, Sao Paolo and Washington, D.C. metro areas, which are expected to open during the remainder of 2013, 2014 and first half of 2015. Our estimates of future revenue growth also take into account expected 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 36% and 38%, respectively, of the regional revenues during the nine

months ended September 30, 2013 and 2012. Our EMEA revenue growth was due to (i) $14.8 million of additional revenue from the impact of the ancotel and Dubai IBX data center acquisitions, (ii) $6.1 million of revenue from our recently-opened IBX data centers or IBX data center expansions in the Amsterdam, Frankfurt, London, Paris and Zurich 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, as discussed above. During the nine months ended September 30, 2013, currency fluctuations resulted in approximately $2.1 million of net favorable foreign currency impact to our EMEA revenues primarily due to generally weaker U.S. dollar relative to Euro and Swiss franc during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. We expect that our EMEA revenues will continue to grow in future periods as a result of the Frankfurt Kleyer 90 carrier hotel acquisition and continued growth in recently-opened IBX data centers or IBX data center expansions and additional expansions currently taking place in the Frankfurt and London metro areas, which are expected to open during the remainder of 2013 and 2015. In addition, we anticipate that a cash flow hedging program we commenced in October 2013 for our EMEA region should reduce some of our foreign currency volatility prospectively. Our estimates of future revenue growth also take into account expected 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 35% and 38%, respectively, of the regional revenues for the nine months ended September 30, 2013 and 2012. Our Asia-Pacific revenue growth was due to (i) $29.3 million of additional revenue from the impact of the Asia Tone acquisition, (ii) approximately $2.4 million of revenue generated from our recently-opened IBX data center expansions in the Hong Kong, Singapore, Sydney and Tokyo 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, as discussed above. During the nine months ended September 30, 2013, currency fluctuations resulted in approximately $11.3 million of net unfavorable foreign currency impact to our Asia-Pacific revenues primarily due to generally stronger U.S. dollar relative to Australian dollar, Japanese yen and Singapore dollar during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. We expect that our Asia-Pacific revenues will continue to grow in future periods as a result of continued growth in these recently-opened IBX data center expansions and additional expansions currently taking place in the Hong Kong, Osaka, Tokyo, Shanghai, Singapore and Sydney metro areas, which are expected to open during the remainder of 2013 and 2014. Our estimates of future revenue growth also take into account expected changes in recurring revenues attributed to customer bookings, customer churn or changes or amendments to customers’ contracts.

Cost of Revenues. Our cost of revenues for the nine months ended September 30, 2013 and 2012 were split among the following geographic regions (dollars in thousands):


	Nine months ended September 30,										% change
	2013		%			2012		%			Actual			Constant currency

Americas	$	434,012		55	%	$	399,022		57	%		9	%		10	%
EMEA		201,912		25	%		166,957		24	%		21	%		21	%
Asia-Pacific		158,736		20	%		129,309		19	%		23	%		29	%

Total	$	794,660		100	%	$	695,288		100	%		14	%		16	%


	Nine months ended September 30,
	2013			2012
Cost of revenues as a percentage of revenues:
Americas		46	%		47	%
EMEA		53	%		53	%
Asia-Pacific		59	%		61	%
Total		50	%		50	%

Americas Cost of Revenues. Our Americas cost of revenues for the nine months ended September 30, 2013 and 2012 included $162.8 million and $146.6 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our IBX data center expansion activity. Excluding depreciation expense, the increase in our Americas cost of revenues was primarily due to (i) $5.5 million of higher costs associated with certain custom services provided to our customers, (ii) $5.3 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (898 Americas cost of revenues employees as of September 30, 2013 versus 853 as of September 30, 2012), (iii) $4.3 million of higher taxes, including property taxes, and (iv) $4.7 million of higher utilities and repair and maintenance expense, partially offset by a $4.9 million reversal of asset retirement obligations associated with certain leases that were amended during the three months ended September 30, 2013. During the nine months ended September 30, 2013, currency fluctuations resulted in approximately $4.7 million of favorable foreign currency impact to our Americas cost of revenues primarily due to generally stronger U.S. dollar relative to the Brazilian reais and Canadian dollar during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. We expect Americas cost of revenues to increase as we continue to grow our business.

EMEA Cost of Revenues. Our EMEA cost of revenues for the nine months ended September 30, 2013 and 2012 included $60.7 million and $50.4 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our IBX data center expansion activity and acquisitions. Excluding depreciation expense, the increase in our EMEA cost of revenues was primarily due to (i) the impact of the ancotel and Dubai IBX data center acquisitions, which resulted in $5.8 million of additional cost of revenues for the nine months ended September 30, 2013, (ii) $7.3 million of higher utility costs, (iii) $5.6 million of costs associated with certain custom services provided to our customers, (iv) $3.6 million of higher compensation expense and (v) higher professional fees to support our growth. During the nine months ended September 30, 2013, the impact of foreign currency fluctuations to our EMEA cost of revenues was not significant when compared to average exchange rates of the nine months ended September 30, 2012. Commencing in the fourth quarter of 2013, we expect that our EMEA cost of revenues will increase as a result of the Frankfurt Kleyer 90 carrier hotel acquisition. Overall, we expect EMEA cost of revenues to increase as we continue to grow our business. In addition, we anticipate that a cash flow hedging program we commenced in October 2013 for our EMEA region should reduce some of our foreign currency volatility prospectively.

Asia-Pacific Cost of Revenues. Our Asia-Pacific cost of revenues for the nine months ended September 30, 2013 and 2012 included $61.0 million and $52.4 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our IBX data center expansion activity and the Asia Tone acquisition. Excluding depreciation expense, the increase in Asia-Pacific cost of revenues was primarily due to (i) the impact of the Asia Tone acquisition, which resulted in $13.2 million of additional cost of revenues, (ii) $3.2 million of higher utility costs and (iii) higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (excluding the impact of the Asia Tone acquisition, 235 Asia-Pacific cost of revenues employees as of September 30, 2013 versus 174 as of September 30, 2012). During the nine months ended September 30, 2013, currency fluctuations resulted in approximately $7.7 million of net favorable foreign currency impact to our Asia-Pacific cost of revenues primarily due to generally stronger U.S. dollar relative to Australian dollar, Japanese yen and Singapore dollar during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. We expect Asia-Pacific cost of revenues to increase as we continue to grow our business.

Sales and Marketing Expenses. Our sales and marketing expenses for the nine months ended September 30, 2013 and 2012 were split among the following geographic regions (dollars in thousands):


	Nine months ended September 30,										% change
	2013		%			2012		%			Actual			Constant currency

Americas	$	105,148		59	%	$	92,726		63	%		13	%		14	%
EMEA		49,408		27	%		35,827		24	%		38	%		38	%
Asia-Pacific		24,817		14	%		18,671		13	%		33	%		39	%

Total	$	179,373		100	%	$	147,224		100	%		22	%		23	%


	Nine months ended September 30,
	2013			2012
Sales and marketing expenses as a percentage of revenues:
Americas		11	%		11	%
EMEA		13	%		11	%
Asia-Pacific		9	%		9	%
Total		11	%		11	%

Americas Sales and Marketing Expenses. The increase in our Americas sales and marketing expenses was primarily due to $12.9 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (387 Americas sales and marketing employees as of September 30, 2013 versus 322 as of September 30, 2012) and higher advertising and promotion costs, partially offset by $2.5 million of lower bad debt expense. During the nine months ended September 30, 2013, the impact of foreign currency fluctuations to our Americas sales and marketing expenses was not significant when compared to average exchange rates of the nine months ended September 30, 2012. 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 or two 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 (i) the impact of the ancotel and Dubai IBX data center acquisitions, which resulted in $4.5 million of additional sales and marketing expenses for the nine months ended September 30, 2013, and (ii) $7.1 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation expense and headcount growth (excluding the impact of acquisitions, 181 EMEA sales and marketing employees as of September 30, 2013 versus 144 as of September 30, 2012). For the nine months ended September 30, 2013, the impact of foreign currency fluctuations to our EMEA sales and marketing expenses was not significant when compared to average exchange rates of the nine months ended September 30, 2012. 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, we believe our EMEA sales and marketing expenses as a percentage of revenues will remain at approximately current levels over the next year or two but should ultimately decrease as we continue to grow our business. In addition, we anticipate that a cash flow hedging program we commenced in October 2013 for our EMEA region should reduce some of our foreign currency volatility prospectively.

Asia-Pacific Sales and Marketing Expenses. The increase in our Asia-Pacific sales and marketing expenses was primarily due to $2.8 million of additional sales and marketing expenses from the impact of the Asia Tone acquisition. For the nine months ended September 30, 2013, 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 nine months ended September 30, 2012. 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, we believe our Asia-Pacific sales and marketing expenses as a percentage of revenues will remain at approximately current levels over the next year or two but should ultimately decrease as we continue to grow our business.

General and Administrative Expenses. Our general and administrative expenses for the nine months ended September 30, 2013 and 2012 were split among the following geographic regions (dollars in thousands):


	Nine months ended September 30,										% change
	2013		%			2012		%			Actual			Constant currency

Americas	$	194,988		71	%	$	178,108		74	%		9	%		9	%
EMEA		53,052		19	%		40,025		16	%		33	%		33	%
Asia-Pacific		28,284		10	%		23,597		10	%		20	%		22	%

Total	$	276,324		100	%	$	241,730		100	%		14	%		15	%


	Nine months ended September 30,
	2013			2012
General and administrative expenses as a percentage of revenues:
Americas		21	%		21	%
EMEA		14	%		13	%
Asia-Pacific		11	%		11	%
Total		17	%		17	%

Americas General and Administrative Expenses. The increase in our Americas general and administrative expenses was primarily due to $10.1 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (691 Americas general and administrative employees as of September 30, 2013 versus 660 as of September 30, 2012). During the nine months ended September 30, 2013, the impact of foreign currency fluctuations to our Americas general and administrative expenses was not significant when compared to average exchange rates of the nine months ended September 30, 2012. 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. We are also incurring costs to support our REIT conversion process. Collectively, these investments in our back office systems and our REIT conversion process have resulted in increased professional fees. 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 these investments in our back office systems and the REIT conversion process.

EMEA General and Administrative Expenses. The increase in our EMEA general and administrative expenses was primarily due to (i) $5.4 million of higher professional fees and (ii) $3.2 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (excluding the impact of acquisitions, 269 EMEA general and administrative employees as of September 30, 2013 versus 194 as of September 30, 2012). The impact of foreign currency fluctuations to our EMEA general and administrative expenses for the nine months ended September 30, 2013 was not significant when compared to average exchange rates of the nine months ended September 30, 2012. 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 including certain corporate reorganization activities, which has resulted in an increased level of professional fees. 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; however, as a percentage of revenues, we generally expect them to decrease. In addition, we anticipate that a cash flow hedging program we commenced in October 2013 for our EMEA region should reduce some of our foreign currency volatility prospectively.

Asia-Pacific General and Administrative Expenses. The increase in our Asia-Pacific general and administrative expenses was primarily due to $2.9 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (excluding the impact of the Asia

Tone acquisition, 199 Asia-Pacific general and administrative employees as of September 30, 2013 versus 168 as of September 30, 2012). For the nine months ended September 30, 2013, 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 nine months ended September 30, 2012. Going forward, although we are carefully monitoring our spending given the current economic environment, we expect Asia-Pacific general and administrative expenses to increase as we continue to scale our operations to support our growth; however, as a percentage of revenues, we generally expect them to decrease.

Restructuring Charge. During the nine months ended September 30, 2013, we recorded a $4.8 million reversal of the restructuring charge accrual for our excess space in the New York 2 IBX data center as a result of our decision to purchase this property and utilize the space. During the nine months ended September 30, 2012, we did not record any restructuring charge.

Acquisition Costs. During the nine months ended September 30, 2013, we recorded acquisition costs totaling $6.6 million primarily attributed to our Americas region. During the nine months ended September 30, 2012, we recorded acquisition costs totaling $6.9 million primarily attributed to the ancotel and Asia Tone acquisitions.

Interest Income. Interest income was $2.6 million and $2.7 million, respectively, for the nine months ended September 30, 2013 and 2012. The average annualized yield for the nine months ended September 30, 2013 was 0.27% versus 0.41% for the nine months ended September 30, 2012. 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 $183.3 million for the nine months ended September 30, 2013 from $149.8 million for the nine months ended September 30, 2012. This increase in interest expense was primarily due to the impact of our $1.5 billion senior notes offering in March 2013, $15.4 million of higher interest expense from various capital lease and other financing obligations to support our expansion projects and less capitalized interest expense, which was partially offset by the redemption of our 8.125% senior notes in April 2013. During the nine months ended September 30, 2013 and 2012, we capitalized $7.9 million and $19.6 million, respectively, of interest expense to construction in progress. Going forward, we expect to incur higher interest expense as we recognize the full impact of our $1.5 billion senior notes offering, partially offset by the redemption of our 8.125% senior notes, which will contribute approximately $17.7 million in incremental interest expense annually. However, we may incur additional indebtedness to support our growth, resulting in higher interest expense.

Other Income (Expense). We recorded $3.3 million of other income and $1.5 million of other expense, respectively, for the nine months ended September 30, 2013 and 2012, primarily due to foreign currency exchange gains and losses during the periods.

Loss on Debt Extinguishment. During the nine months ended September 30, 2013, we recorded a $93.6 million loss on debt extinguishment as a result of the redemption of our $750.0 million 8.125% senior notes. During the nine months ended September 30, 2012, we recorded a $5.2 million loss on debt extinguishment due to the repayment and termination of our outstanding Asia-Pacific financing.

Income Taxes. For the nine months ended September 30, 2013 and 2012, we recorded $14.2 million and $41.1 million of income tax expenses, respectively. Our effective tax rates were 21.8% and 30.1% for the nine months ended September 30, 2013 and 2012, respectively. The lower tax rate for the nine months ended September 30, 2013 was primarily due to the $93.6 million loss on debt extinguishment recorded during the nine months ended September 30, 2013. The 2013 income tax provision is expected to be lower than 2012 primarily due to the loss on debt extinguishment recorded during the period and the corporate structure reorganization in the EMEA region, as discussed below. We expect that cash income taxes during the remainder of 2013 will primarily be related to the impact of recognizing depreciation and amortization recapture as a result of changing our method of depreciating and amortizing various data center assets for tax purposes in connection with our REIT conversion plan. The cash taxes for 2013 and 2012 are primarily for U.S. federal and state income taxes and foreign income taxes in certain foreign jurisdictions.

Net Income from Discontinued Operations. During the nine months ended September 30, 2013, we did not have any discontinued operations. For the nine months ended September 30, 2012, our net income from discontinued operations was $1.2 million. For additional information, see “Discontinued Operations” in Note 1 of Notes to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

Adjusted EBITDA. Adjusted EBITDA is a key factor in how we assess the performance of our segments, measure the operational cash generating abilities of our segments and develop regional growth strategies such as IBX data center expansion decisions. Adjusted EBITDA is the result of our revenues less our adjusted operating expenses. Our adjusted operating expenses exclude depreciation expense, amortization expense, accretion expense, stock-based compensation, restructuring charge, impairment charges and acquisition costs. Periodically, we enter into new lease agreements or amend existing lease agreements. To the extent we conclude that a lease is an operating lease, the rent expense may decrease our adjusted EBITDA whereas to the extent we conclude that a lease is a capital or financing lease, and this lease was previously reported as an operating lease, this outcome may increase our adjusted EBITDA. Our adjusted EBITDA for the nine months ended September 30, 2013 and 2012 were split among the following geographic regions (dollars in thousands):


	Nine months ended September 30,										% change
	2013		%			2012		%			Actual			Constant currency

Americas	$	449,112		61	%	$	408,885		63	%		10	%		10	%
EMEA		156,557		21	%		138,217		21	%		13	%		11	%
Asia-Pacific		131,699		18	%		101,069		16	%		30	%		35	%

Total	$	737,368		100	%	$	648,171		100	%		14	%		15	%

Americas Adjusted EBITDA. The increase in our Americas adjusted EBITDA was due to higher revenues as result of our IBX data center expansion activity and organic growth as described above. During the nine months ended September 30, 2013, the U.S. dollar was generally stronger relative to the Brazilian reais and Canadian dollar compared to the nine months ended September 30, 2012, resulting in approximately $2.5 million of net unfavorable foreign currency impact to our Americas adjusted EBITDA during the nine months ended September 30, 2013 when compared to average exchange rates of the nine months ended September 30, 2012. Effective September 30, 2013, we amended certain Americas lease agreements which converted four of these leases from operating to capital leases, which is expected to increase Americas adjusted EBITDA by approximately $2.2 million each quarter commencing with the fourth quarter of 2013.

EMEA Adjusted EBITDA. The increase in our EMEA adjusted EBITDA was primarily due to the impact of the Dubai IBX data center and ancotel acquisitions, which generated $9.7 million of adjusted EBITDA during the nine months ended September 30, 2013. Excluding acquisitions, the increase was due to higher revenues as result of our IBX data center expansion activity and organic growth as described above, partially offset by higher adjusted operating expenses as a percentage of revenues primarily attributable to higher sales and marketing compensation costs, including general salaries, bonus and headcount growth, and higher professional fees to support our growth. During the nine months ended September 30, 2013, currency fluctuations resulted in approximately $2.5 million of net favorable foreign currency impact to our EMEA adjusted EBITDA primarily due to generally weaker U.S. dollar relative to Euro and Swiss franc during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012. We expect to enter into new EMEA lease agreements that will be accounted for as operating leases, which we expect will decrease EMEA adjusted EBITDA when these anticipated lease agreements are executed.

Asia-Pacific Adjusted EBITDA. The increase in our Asia-Pacific adjusted EBITDA was primarily due to the impact of the Asia Tone acquisition, which generated $14.8 million of adjusted EBITDA during the nine months ended September 30, 2013. Excluding the acquisition, the increase was due to higher revenues as result of our IBX data center expansion activity and organic growth as described above. During the nine months ended September 30, 2013, the U.S. dollar was generally stronger relative to the Australian dollar and Japanese yen compared to the nine months ended September 30, 2012, resulting in approximately $4.8 million of net unfavorable foreign currency impact to our Asia-Pacific adjusted EBITDA during the nine months ended September 30, 2013 when compared to average exchange rates of the nine months ended September 30, 2012.

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 from continuing operations may be difficult if limited to reviewing only GAAP financial measures. Accordingly, we use non-GAAP financial measures, primarily adjusted EBITDA, to evaluate our continuing 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, impairment 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 continuing 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 continuing 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. We also exclude impairment charges related to certain long-lived assets. The impairment charges are related to expense recognized whenever events or changes in circumstances indicate that the carrying amount of long-lived assets are not recoverable. Finally, we 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, impairment 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 those 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, impairment charges and acquisition costs as presented below (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013			2012

Income from operations	$	115,193	$	92,846	$	335,943		$	290,192
Depreciation, amortization and accretion expense		105,534		105,522		324,326			289,992
Stock-based compensation expense		27,280		22,106		75,310			61,104
Restructuring charge		—		—		(4,837	)		—
Acquisition costs		438		4,542		6,626			6,883

Adjusted EBITDA	$	248,445	$	225,016	$	737,368		$	648,171

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 due to the nature of our business model which consists of a recurring revenue stream and a cost structure which has a large base that is fixed in nature as discussed earlier in “Overview”. Although we have also been investing in our future growth as described above (e.g. through 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 September 30, 2013, 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 $3.4 billion consisting of (a) $2.3 billion of principal from our 7.00%, 5.375% and 4.875% senior notes, (b) $197.0 million of principal from our loans payable and (c) $885.0 million from our capital lease and other financing obligations.

We believe we have sufficient cash, coupled with anticipated cash generated from operating activities, to meet our operating requirements, including repayment of the current portion of our debt as it becomes due, payment of tax liabilities related to the decision to convert to a REIT (see below) and completion of our publicly-announced expansion projects. As of September 30, 2013, we had $1.2 billion of cash, cash equivalents and short-term and long-term investments, of which approximately $931.6 million was held in the U.S. 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 $750.0 million credit facility, referred to as 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.

As of September 30, 2013, we had a total of approximately $521.0 million of additional liquidity available to us under the U.S. financing and 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 data center 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, and have also announced our planned conversion to a REIT (see below). 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.

In October 2013, we initiated a program to hedge our exposure to foreign currency exchange rate fluctuations for forecasted revenues and expenses in our EMEA region in order to manage our exposure to foreign currency exchange rate fluctuations between the U.S. dollar and the British Pound, Euro and Swiss Franc. The foreign currency forward contracts that we use to hedge this exposure are designated as cash flow hedges.

Impact of REIT Conversion

In accordance with tax rules applicable to REIT conversions, we expect to issue special distributions to our stockholders of undistributed accumulated earnings and profits of approximately $700.0 million to $1.1 billion, which is collectively referred to as the E&P distribution, which we expect to pay out in a combination of up to 20% in cash and at least 80% in the form of our common stock. We expect to make the E&P distribution only after receiving a favorable PLR from the IRS and anticipate making a significant portion of the E&P distribution before 2015, with the balance distributed in 2015. In addition, following the completion of the REIT conversion, we intend to declare regular distributions to our stockholders.

There are significant tax and other costs associated with implementing the REIT conversion, and certain tax liabilities may be incurred regardless of the whether we ultimately succeed in converting to a REIT. We currently estimate that we will incur approximately $50.0 to $80.0 million in costs to support the REIT conversion, in addition to related tax liabilities associated with a change in our method of depreciating and amortizing various data center assets for tax purposes from our prior method to current methods that are more consistent with the characterization of such assets as real property for REIT purposes. The total recapture of depreciation and amortization expenses across all relevant assets is expected to result in federal and state tax liability of approximately $360.0 to $380.0 million, which amount became payable over a four-year period starting in 2012 even if we abandon the REIT conversion for any reason. We expect to utilize all our net operating loss carryforwards for federal and state income tax purposes in 2013. If the REIT conversion is successful, we also expect to incur an additional $5.0 to $10.0 million in annual compliance costs in future years.

Sources and Uses of Cash


	Nine Months Ended September 30,
	2013			2012
Net cash provided by operating activities	$	437,902		$	428,334
Net cash used in investing activities		(935,951	)		(238,953	)
Net cash provided by (used in) financing activities		645,548			(234,969	)

Operating Activities. The increase in net cash provided by operating activities was primarily due to improved operating results, partially offset by unfavorable working capital activities, such as increased

payments of income taxes. 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, some large customer receivables that were anticipated to be collected in September 2013 were instead collected in October 2013, which negatively impacted cash flows from operating activities for the nine months ended September 30, 2013. We expect that we will continue to generate cash from our operating activities during the remainder of 2013 and beyond.

Investing Activities. The net cash used in investing activities for the nine months ended September 30, 2013 was primarily due to $814.4 million of purchases of investments, $369.6 million of capital expenditures as a result of expansion activity and $73.4 million for the New York 2 IBX data center purchase, partially offset by $316.6 million of sales and maturities of investments. The net cash used in investing activities for the nine months ended September 30, 2012 was primarily due to $365.9 million of purchases of investments, $554.1 million of capital expenditures as a result of expansion activity and $278.4 million of cash paid for the Asia Tone and ancotel acquisitions, partially offset by $880.3 million of sales and maturities of investments and $87.4 million of release of restricted cash primarily related to payments made in connection with the Paris 4 IBX financing. During 2013, we expect that our IBX expansion construction activity will be less than our 2012 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 October 2013, we closed the Frankfurt Kleyer 90 carrier hotel acquisition for gross consideration of $90.7 million.

Financing Activities. The net cash provided by financing activities for the nine months ended September 30, 2013 was primarily due to $1.5 billion of proceeds from the senior notes offering in March 2013, $27.4 million of excess tax benefits from stock-based compensation and $28.1 million of proceeds from employee equity awards, partially offset by $834.7 million for the redemption of the $750.0 million 8.125% senior notes, $54.5 million of repayments of various long-term debt and capital lease and other financing obligations and $22.4 million of debt issuance costs primarily related to the senior notes offering in March 2013. The net cash used in financing activities for the nine months ended September 30, 2012 was primarily due to $574.7 million of repayments of the principal amount of the 2.50% convertible subordinated notes, our loans payable and capital lease and other financing obligations, partially offset by $249.6 million of proceeds from drawdowns of new financings entered into during the period and $53.2 million of excess tax benefits from stock-based compensation. Going forward, we expect that our financing activities will consist primarily of repayment of our debt for the foreseeable future. However, we may pursue additional financings in the future to support expansion opportunities, additional acquisitions or joint ventures. In November 2013, ALOG executed a 60.0 million Brazilian real, or $27.0 million, credit facility agreement and it expects to receive the proceeds from this credit facility upon satisfaction of certain conditions.

Debt Obligations

4.875% Senior Notes and 5.375% Senior Notes. In March 2013, we issued $1.5 billion aggregate principal amount of senior notes, which consist of $500.0 million aggregate principal amount of 4.875% senior notes due April 1, 2020 and $1.0 billion aggregate principal amount of 5.375% senior notes due April 1, 2023. Interest on both the 4.875% senior notes and the 5.375% senior notes is payable semi-annually on April 1 and October 1 of each year, commencing on October 1, 2013.

The 4.875% senior notes and the 5.375% senior notes are governed by separate indentures dated March 5, 2013, which is referred to as the senior notes indentures, between us, as issuer, and U.S. Bank National Association, as trustee (the “Senior Notes Indentures”). The senior notes indentures contain covenants that limit our ability and the ability of our subsidiaries to, among other things:

•

incur additional debt;

•

pay dividends or make other restricted payments;

•

purchase, redeem or retire capital stock or subordinated debt;

•

make asset sales;

•

enter into transactions with affiliates;

•

incur liens;

•

enter into sale-leaseback transactions;

•

provide subsidiary guarantees;

•

make investments; and

•

merge or consolidate with any other person.

Each of these restrictions has a number of important qualifications and exceptions. The 4.875% senior notes and the 5.375% senior notes are unsecured and rank equal in right of payment with our existing or future senior debt and senior in right of payment to our existing and future subordinated debt. The 4.875% senior notes and the 5.375% senior notes are effectively junior with our secured indebtedness and indebtedness of our subsidiaries.

At any time prior to April 1, 2016, we may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 4.875% senior notes outstanding at a redemption price equal to 104.875% of the principal amount of the 4.875% senior notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings; provided that (i) at least 65% of the aggregate principal amount of the 4.875% senior notes issued under the 4.875% senior notes indenture remains outstanding immediately after the occurrence of such redemption (excluding the 4.875% senior notes held by us and our subsidiaries); and (ii) the redemption must occur within 90 days of the date of the closing of such equity offering.

On or after April 1, 2017, we may redeem all or a part of the 4.875% senior notes, on any one or more occasions, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to, but not including, the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:


	Redemption price of the 4.875% Senior Notes

2017		102.438	%
2018		101.219	%
2019 and thereafter		100.000	%

At any time prior to April 1, 2017, we may also redeem all or a part of the 4.875% senior notes at a redemption price equal to 100% of the principal amount of the 4.875% senior notes redeemed plus an applicable premium, which is referred to as the 4.875% senior notes applicable premium, and accrued and unpaid interest, if any, to, but not including, the date of redemption, which is referred to as the 4.875% senior notes redemption date. The 4.875% senior notes applicable premium means the greater of:

•

1.0% of the principal amount of the 4.875% senior notes; and

•

the excess of: (a) the present value at such redemption date of (i) the redemption price of the 4.875% senior notes at April 1, 2017 as shown in the above table, plus (ii) all required interest payments due on the 4.875% senior notes through April 1, 2017 (excluding accrued but unpaid interest, if any, to, but not including the 4.875% senior notes redemption date), computed using a discount rate equal to the yield to maturity of the U.S. Treasury securities with a constant maturity most nearly equal to the period from the 4.875% senior notes redemption date to April 1, 2017, plus 0.50%; over (b) the principal amount of the 4.875% senior notes.

At any time prior to April 1, 2016, we may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 5.375% senior notes outstanding at a redemption price equal to 105.375% of the principal amount of the 5.375% senior notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings; provided that (i) at least 65% of the aggregate principal amount of the 5.375% senior notes issued under the 5.375% senior notes indenture remains outstanding immediately after the occurrence of such redemption (excluding the 5.375% senior notes held by us and our subsidiaries); and (ii) the redemption must occur within 90 days of the date of the closing of such equity offering.

On or after April 1, 2018, we may redeem all or a part of the 5.375% senior notes, on any one or more occasions, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to, but not including, the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:


	Redemption price of the 5.375% Senior Notes

2018		102.688	%
2019		101.792	%
2020		100.896	%
2021 and thereafter		100.000	%

At any time prior to April 1, 2018, we may also redeem all or a part of the 5.375% senior notes at a redemption price equal to 100% of the principal amount of the 5.375% senior notes redeemed plus an applicable premium, which is referred to as the 5.375% senior notes applicable premium, and accrued and unpaid interest, if any, to, but not including, the date of redemption, which is referred to as the 5.375% senior notes redemption date. The 5.375% senior notes applicable premium means the greater of:

•

1.0% of the principal amount of the 5.375% senior notes; and

•

the excess of: (a) the present value at such redemption date of (i) the redemption price of the 5.375% senior notes at April 1, 2018 as shown in the above table, plus (ii) all required interest payments due on the 5.375% senior notes through April 1, 2018 (excluding accrued but unpaid interest, if any, to, but not including the 5.375% senior notes redemption date), computed using a discount rate equal to the yield to maturity of the U.S. Treasury securities with a constant maturity most nearly equal to the period from the 5.375% senior notes redemption date to April 1, 2018, plus 0.50%; over (b) the principal amount of the 5.375% senior notes.

Debt issuance costs related to the 4.875% senior notes and 5.375% senior notes, net of amortization, were $19.1 million as of September 30, 2013. In March 2013, we placed $836.4 million of the proceeds from the issuance of the 4.875% and 5.375% senior notes into a restricted cash account for the redemption of the 8.125% senior notes.

8.125% Senior Notes. In February 2010, we issued $750.0 million aggregate principal amount of 8.125% senior notes due March 1, 2018. The indenture governing the 8.125% senior notes permitted us to redeem the 8.125% senior notes at the redemption prices set forth in the 8.125% senior notes indenture plus accrued and unpaid interest to, but not including the redemption date.

In April 2013, we redeemed all of the 8.125% senior notes and incurred a loss on debt extinguishment. See Note 9 to Condensed Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

U.S. Financing. In February 2013, we entered into an amendment to a credit agreement with a group of lenders for a $750.0 million credit facility, referred to as the U.S. financing, which is 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 amendment modified certain definitions of items used in the calculation of the financial covenants with which we must comply on a quarterly basis to exclude the write-off of any unamortized debt issuance costs that were incurred in connection with the issuance of the 8.125% senior notes; to exclude one-time transaction costs, fees, premiums and expenses incurred by us in connection with the issuance of the 4.875% senior notes and 5.375% senior notes and the redemption of the 8.125% senior notes; and to exclude the 8.125% senior notes from the calculation of total leverage for the period ended March 31, 2013, provided that certain conditions in connection with the redemption of the 8.125% senior notes were satisfied. The amendment also postponed the step-down of the maximum senior leverage ratio covenant from the three months ended March 31, 2013 to the three months ended September 30, 2013.

In September 2013, we entered into an amendment to the U.S. financing. The amendment allows us greater flexibility to make cash dividends and distributions to our stockholders to the extent required to qualify us as a REIT (including cash dividends and distributions of undistributed accumulated earnings and

profits) and to make cash dividends and distributions on an ongoing basis to the extent required for us to continue to be qualified as a REIT or to avoid the imposition of income or franchise taxes on us. The amendment also replaced the maximum senior leverage ratio covenant with a maximum senior net leverage ratio covenant and modified the minimum fixed charge coverage ratio and tangible net worth covenants. In addition, the amendment modified certain defined terms used in the calculation of the financial covenants to exclude certain expenses incurred by us in connection with our planned REIT conversion. The amendment also permits us to request an increase in the U.S. revolving credit line of up to an additional $250.0 million, subject to the receipt of lender commitments. As of September 30, 2013, we were in compliance with all financial covenants.

Contractual Obligations and Off-Balance-Sheet Arrangements

We lease a majority of our IBX data centers and certain equipment under non-cancelable lease agreements expiring through 2040. The following represents our debt maturities, financings, leases and other contractual commitments as of September 30, 2013 (in thousands):


	2013 (3 months)		2014		2015		2016		2017		Thereafter		Total
Convertible debt (1)	$	—	$	395,986	$	—	$	373,724	$	—	$	—	$	769,710
Senior notes		—		—		—		—		—		2,250,000		2,250,000
U.S. term loan (2)		10,000		40,000		40,000		40,000		20,000		—		150,000