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EQUINIX INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[February 28, 2014]

EQUINIX INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


(Edgar Glimpses Via Acquire Media NewsEdge) The following commentary should be read in conjunction with the financial statements and related notes contained elsewhere in this Annual Report on Form 10-K. 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" and "Risk Factors" elsewhere in this Annual Report on Form 10-K. All forward-looking statements in this document are based on information available to us as of the date hereof 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 December 2013, as more fully described in Note 12 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, we announced a share repurchase program to repurchase up to $500.0 million of our common stock in open market transactions through December 31, 2014, which is referred to as the share repurchase program.

In October 2013, as more fully described in Note 3 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, we acquired a property located in Frankfurt, Germany for cash consideration of approximately $50.1 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, who became our tenants upon closing. The Frankfurt Kleyer 90 carrier hotel constitutes a business under the accounting standard for business combinations and as a result, the Frankfurt Kleyer 90 carrier hotel acquisition was accounted for as a business acquisition using the acquisition method of accounting.

In July 2013, as more fully described in Note 6 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, we completed the purchase of a property located in the New York metro area for a net cash consideration of $73.4 million, which is referred to as the New York 2 IBX data center purchase. A majority of the building was leased to us and was being used by us as our New York 2 IBX data center. The remainder of the building was leased by another party, who became our tenant upon closing. The New York 2 IBX data center did not constitute a business under the accounting standard for business combinations and as a result, 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 April 2013, as more fully described in Note 10 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, 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.

38 -------------------------------------------------------------------------------- Table of Contents In March 2013, as more fully described in Note 10 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, 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.

Overview Equinix provides global data center offerings 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 32 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 December 31 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, China, Hong Kong, Indonesia, Japan and Singapore in the Asia-Pacific region.

We leverage our global data centers in 32 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 16 countries, proven operational reliability, improved application performance and network choice, and a highly scalable set of offerings.

39 -------------------------------------------------------------------------------- Table of Contents Excluding the impact of the acquisition of the Dubai IBX data center, our customer count increased to approximately 5,954 as of December 31, 2013 versus approximately 5,110 as of December 31, 2012, an increase of 17%. 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 was approximately 76% as of December 31, 2013 and December 31, 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 increased to approximately 82% as of December 31, 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 IBX data 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 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 offerings.

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.

40 -------------------------------------------------------------------------------- Table of Contents 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 In September 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 addition to taxes owed with respect to our TRS operations. 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.

41-------------------------------------------------------------------------------- Table of Contents The REIT conversion implementation currently includes seeking a private letter ruling, or PLR, from the U.S. Internal Revenue Service, or 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 June 2013, we disclosed that we had been informed that the IRS had convened an internal working group to study what constitutes "real estate" for purposes of the REIT provisions of the U.S. Internal Revenue Code of 1986, as amended (the "Code") and that, pending the completion of the study, the IRS was unlikely to respond definitively to our pending PLR request. In November 2013, the IRS informed us that it was actively resuming work on our PLR request and would respond in due course. We do not expect that this delay will affect the timing of our plan to elect REIT status for the taxable year beginning January 1, 2015. The Company currently expects to receive a favorable PLR from the IRS during 2014 and combined with Board approval and completion of other necessary conversion actions, we would commit to a final REIT conversion plan sometime during 2014. Once the Company reaches this commitment, the financial statements for 2014 will reflect the necessary accounting adjustments including an adjustment to eliminate the U.S. deferred tax assets and liabilities balances discussed below and any tax consequences for the shareholder distributions also discussed below.

We currently estimate that we will incur approximately $75.0 to $85.0 million in costs to support the REIT conversion, in addition to related tax liabilities associated with a change in our methods 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 and is generally payable over a four-year period starting in 2012 even if we abandon the REIT conversion for any reason, including failure to obtain a favorable PLR response. 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 $145.0 to $200.0 million in cash taxes during 2014 which includes taxes on our operations and any tax impacts required by our plan to convert to a REIT.

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 (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. The estimated E&P distribution may change due to potential changes in certain factors impacting the calculations, such as finalization of the 2013 E&P amounts and the actual financial year 2014 performance of the entities to be included in the REIT structure. We expect to make the E&P distribution only after receiving a favorable PLR from the IRS, obtaining Board approval and completion of other necessary REIT conversion actions. The Company anticipates making an 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.

In connection with our contemplated REIT conversion, we expect to reassess the deferred tax assets and liabilities of our U.S. operations to be included in the REIT structure during 2014 at the point in time when it is determined that all significant actions to effect the REIT conversion have occurred and we are committed to that course of action. The reevaluation will result in de-recognizing the deferred tax assets and liabilities of our REIT's U.S.

operations excluding the deferred tax liabilities associated with the depreciation and amortization recapture. The depreciation and amortization recapture is necessary as part of our REIT conversion efforts. The de-recognition of the deferred tax assets and liabilities of our REIT's U.S.

operations will occur because the expected recovery or settlement of the related assets and liabilities will not result in deductible or taxable amounts in any post-REIT conversion periods. As a result of the de-recognition of the aforementioned deferred tax assets and liabilities of our REIT's U.S. operations and the continuing recognition of deferred tax liabilities associated with the depreciation and amortization recapture to be taxed in 2014 and 2015, we expect to record a significant tax provision expense in 2014. As of December 31, 2013, we had a net deferred tax asset of approximately $147.1 million for our U.S.

operations, which includes approximately $176.0 million of deferred tax liabilities associated with the depreciation and amortization recapture.

42-------------------------------------------------------------------------------- Table of Contents Results of Operations Our results of operations for the year ended December 31, 2013 include the operations of the Frankfurt Kleyer 90 carrier hotel acquisition from October 1, 2013. Our results of operations for the year ended December 31, 2012 include the operations of the Dubai IBX data center acquisition from November 9, 2012, Asia Tone from July 4, 2012 and ancotel from July 3, 2012. Our results of operations for the year ended December 31, 2011 include the operations of ALOG from April 25, 2011.

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 and $3.5 million for the years ended December 31, 2012 and 2011, respectively. This error did not impact our reported total cash flows from operating activities.

We assessed the effect of the above errors, as well as that of 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 correction of the cumulative effect of errors of $27.2 million as of December 31, 2012 would be material to the projected 2013 consolidated financial statements and as such we revised our previously-issued consolidated financial statements. Refer to Note 2 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional details.

We have completed the revision with this Annual Report on Form 10-K. 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.

Discontinued Operations We present the results of operations associated with 16 of our IBX centers that we sold in November 2012 as net income from discontinued operations in our consolidated statements of operations. Our results of operations have been reclassified to reflect our discontinued operations for all applicable periods presented. Unless otherwise stated, the results of operations discussed herein refer to our continuing operations.

43-------------------------------------------------------------------------------- Table of Contents 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, Chinese Yuan, Hong Kong dollar, Japanese yen and Singapore dollar. In order to provide a framework for assessing how each of our business segments performed excluding the impact of foreign currency fluctuations, we present period-over-period percentage changes in our revenues and certain operating expenses on a constant currency basis in addition to the historical amounts as reported. Presenting constant currency results of operations is a non-GAAP financial measure and is not meant to be considered in isolation or as an alternative to GAAP results of operations. However, we have presented this non-GAAP financial measure to provide investors with an additional tool to evaluate our operating results. To present this information, our current and comparative prior period revenues and certain operating expenses from entities reporting in currencies other than the U.S. dollar are converted into U.S.

dollars at constant exchange rates rather than the actual exchange rates in effect during the respective periods (i.e. average rates in effect for the year ended December 31, 2012 are used as exchange rates for the year ended December 31, 2013 when comparing the year ended December 31, 2013 with the year ended December 31, 2012, and average rates in effect for the year ended December 31, 2011 are used as exchange rates for the year ended December 31, 2012 when comparing the year ended December 31, 2012 with the year ended December 31, 2011).

Years Ended December 31, 2013 and 2012 Revenues. Our revenues for the years ended December 31, 2013 and 2012 were generated from the following revenue classifications and geographic regions (dollars in thousands): Years ended December 31, % change Constant 2013 % 2012 % Actual currency Americas: Recurring revenues $ 1,214,301 56 % $ 1,111,755 59 % 9 % 10 % Non-recurring revenues 50,473 3 % 40,162 2 % 26 % 26 % 1,264,774 59 % 1,151,917 61 % 10 % 11 % EMEA: Recurring revenues 492,361 23 % 400,002 21 % 23 % 22 % Non-recurring revenues 32,657 1 % 32,918 2 % (1 %) (11 %) 525,018 24 % 432,920 23 % 21 % 19 % Asia-Pacific: Recurring revenues 343,300 16 % 285,311 15 % 20 % 26 % Non-recurring revenues 19,674 1 % 17,228 1 % 14 % 17 % 362,974 17 % 302,539 16 % 20 % 26 % Total: Recurring revenues 2,049,962 95 % 1,797,068 95 % 14 % 15 % Non-recurring revenues 102,804 5 % 90,308 5 % 14 % 11 % $ 2,152,766 100 % $ 1,887,376 100 % 14 % 15 % Americas Revenues. Growth in Americas revenues was primarily due to (i) $58.6 million of revenue generated from our recently-opened IBX data centers and IBX data center expansions in the Chicago, Rio de Janeiro, Seattle, Silicon Valley 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 and utilization rate, as discussed above. During the year ended December 31, 2013, currency fluctuations resulted in approximately $9.7 million of unfavorable foreign currency impact on our Americas revenues primarily due to the generally stronger U.S. dollar relative to the Brazilian reais and Canadian dollar during the year ended December 31, 2013 compared to the year ended December 31, 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 and additional IBX data center expansions currently taking place in the Dallas, Philadelphia, New York, Toronto and Sao Paolo metro areas, which are expected to open during 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.

44-------------------------------------------------------------------------------- Table of Contents EMEA Revenues. During the years ended December 31, 2013 and 2012, our revenues from the United Kingdom, the largest revenue contributor in the EMEA region for the period, represented approximately 36% and 38%, respectively, of the regional revenues. Our EMEA revenue growth was due to (i) $18.5 million of incremental revenue resulting from acquisitions, (ii) $52.3 million of revenue from our recently-opened IBX data center expansions in the Frankfurt, London 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 and utilization rate, as discussed above, in both our new and existing IBX data centers. During the year ended December 31, 2013, currency fluctuations resulted in approximately $8.5 million of favorable foreign currency impact on our EMEA revenues primarily due to the generally weaker U.S. dollar relative to the Euro and Swiss franc during the year ended December 31, 2013 compared to the year ended December 31, 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 and an additional IBX data center expansion currently taking place in the London metro area, which is expected to open during 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. 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 Revenues. Our revenues from Singapore, the largest revenue contributor in the Asia-Pacific region, represented approximately 36% and 37%, respectively, of the regional revenues for the years ended December 31, 2013 and 2012. Our Asia-Pacific revenue growth was due to $30.0 million of incremental revenue resulting from the Asia Tone acquisition and (ii) an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our customer count and utilization rate, as discussed above, in both our new and existing IBX data centers. During the year ended December 31, 2013, currency fluctuations resulted in approximately $17.6 million of net unfavorable foreign currency impact on our Asia-Pacific revenues primarily due to the generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the year ended December 31, 2013 compared to the year ended December 31, 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, Melbourne, Shanghai, Singapore and Sydney metro areas, which are expected to open during 2014 and 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.

Cost of Revenues. Our cost of revenues for the years ended December 31, 2013 and 2012 were split among the following geographic regions (dollars in thousands): Years ended December 31, % change Constant 2013 % 2012 % Actual currency Americas $ 576,869 54 % $ 533,313 57 % 8 % 9 % EMEA 271,965 26 % 230,239 24 % 18 % 17 % Asia-Pacific 215,569 20 % 181,065 19 % 19 % 26 % Total $ 1,064,403 100 % $ 944,617 100 % 13 % 14 % 45 -------------------------------------------------------------------------------- Table of Contents Years ended December 31, 2013 2012 Cost of revenues as a percentage of revenues: Americas 46 % 46 % EMEA 52 % 53 % Asia-Pacific 59 % 60 % Total 49 % 50 % Americas Cost of Revenues. Our Americas cost of revenues for the years ended December 31, 2013 and 2012 included $216.6 million and $197.3 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to our organic IBX data center expansion activity. Excluding depreciation expense, the increase in our Americas cost of revenues was primarily due to (i) $9.1 million of higher utilities and repair and maintenance expense, (ii) $7.3 million of higher costs associated with certain custom services provided to our customers, (iii) $6.7 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (894 Americas cost of revenues employees as of December 31, 2013 versus 828 as of December 31, 2012), (iv) $4.7 million of higher taxes, including property taxes, and (v) $2.6 million of higher costs related to office expansion, partially offset by $9.2 million of lower rent and facility costs and a $4.8 million reversal of asset retirement obligations associated with certain leases that were amended during the year ended December 31, 2013. During the year ended December 31, 2013, currency fluctuations resulted in approximately $6.4 million of favorable foreign currency impact on our Americas cost of revenues primarily due to the generally stronger U.S. dollar relative to the Brazilian reais and Canadian dollar during the year ended December 31, 2013 compared to the year ended December 31, 2012. We expect Americas cost of revenues to increase as we continue to grow our business.

EMEA Cost of Revenues. EMEA cost of revenues for the years ended December 31, 2013 and 2012 included $77.9 million and $69.4 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 acquisitions, which resulted in $6.6 million of incremental cost of revenues for the year ended December 31, 2013, (ii) $10.3 million of higher utility costs, (iii) $5.8 million of costs associated with certain custom services provided to our customers, (iv) $5.3 million of higher compensation expense and (v) $2.2 million of higher professional fees to support our growth.

During the year ended December 31, 2013, the impact of foreign currency fluctuations on our EMEA cost of revenues was not significant when compared to average exchange rates of the year ended December 31, 2012. 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.

Asia-Pacific Cost of Revenues. Asia-Pacific cost of revenues for the years ended December 31, 2013 and 2012 included $82.6 million and $71.8 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to both our organic 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) $13.9 million of incremental cost of revenues resulting from the Asia Tone acquisition, (ii) $4.3 million in higher utility costs and (iii) $2.3 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (excluding the impact of the Asia Tone acquisition, 240 Asia-Pacific cost of revenues employees as of December 31, 2013 versus 192 as of December 31, 2012). During the year ended December 31, 2013, currency fluctuations resulted in approximately $11.9 million of net favorable foreign currency impact on our Asia-Pacific cost of revenues primarily due to the generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the year ended December 31, 2013 compared to the year ended December 31, 2012. We expect Asia-Pacific cost of revenues to increase as we continue to grow our business.

46-------------------------------------------------------------------------------- Table of Contents Sales and Marketing Expenses. Our sales and marketing expenses for the years ended December 31, 2013 and 2012 were split among the following geographic regions (dollars in thousands): Years ended December 31, % change Constant 2013 % 2012 % Actual currency Americas $ 144,178 58 % $ 122,970 61 % 17 % 18 % EMEA 68,925 28 % 52,595 26 % 31 % 30 % Asia-Pacific 33,520 14 % 27,349 13 % 23 % 28 % Total $ 246,623 100 % $ 202,914 100 % 22 % 23 % Years ended December 31, 2013 2012 Sales and marketing expenses as a percentage of revenues: Americas 11 % 11 % EMEA 13 % 12 % 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 (i) $17.6 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (395 Americas sales and marketing employees as of December 31, 2013 versus 256 as of December 31, 2012) and (ii) $3.0 million of higher advertising and promotion costs. During the year ended December 31, 2013, the impact of foreign currency fluctuations on our Americas sales and marketing expenses was not significant when compared to average exchange rates of the year ended December 31, 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. 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) $5.7 million of additional sales and marketing expenses resulting from acquisitions and (ii) $8.8 million of higher compensation costs, including sales compensation, general salaries, bonuses and stock-based compensation expense and headcount growth (excluding the impact of acquisitions, 179 EMEA sales and marketing employees as of December 31, 2013 versus 148 as of December 31, 2012). For the year ended December 31, 2013, the impact of foreign currency fluctuations on our EMEA sales and marketing expenses was not significant when compared to average exchange rates of the year ended December 31, 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.

Asia-Pacific Sales and Marketing Expenses. The increase in our Asia-Pacific sales and marketing expenses was primarily due to $2.8 million of incremental sales and marketing expenses from the impact of the Asia Tone acquisition. For the year ended December 31, 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 year ended December 31, 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.

47 -------------------------------------------------------------------------------- Table of Contents General and Administrative Expenses. Our general and administrative expenses for the years ended December 31, 2013 and 2012 were split among the following geographic regions (dollars in thousands): Years ended December 31, % change Constant 2013 % 2012 % Actual currency Americas $ 263,145 70 % $ 238,178 73 % 10 % 11 % EMEA 72,867 19 % 57,093 17 % 28 % 28 % Asia-Pacific 38,778 11 % 32,995 10 % 18 % 20 % Total $ 374,790 100 % $ 328,266 100 % 14 % 15 % Years ended December 31, 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 (i) $14.4 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (695 Americas general and administrative employees as of December 31, 2013 versus 661 as of December 31, 2012), (ii) $4.1 million of higher office expansion and travel expenses and (iii) $4.0 million of higher professional fees to support our growth. During the year ended December 31, 2013, the impact of foreign currency fluctuations on our Americas general and administrative expenses was not significant when compared to average exchange rates of the year ended December 31, 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, 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) $2.0 million of incremental general and administrative expenses resulting from acquisitions, (ii) $6.4 million of higher compensation costs, including general salaries, bonuses and headcount growth (excluding the impact of acquisitions, 276 EMEA general and administrative employees as of December 31, 2013 versus 196 as of December 31, 2012) and (iii) $5.8 million of higher professional fees to support our growth.

For the year ended December 31, 2013, the impact of foreign currency fluctuations on our EMEA general and administrative expenses was not significant when compared to average exchange rates of the year ended December 31, 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, 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.

48-------------------------------------------------------------------------------- Table of Contents Asia-Pacific General and Administrative Expenses. Excluding the Asia Tone acquisition, the increase in our Asia-Pacific general and administrative expenses was primarily due to $3.5 million of higher compensation costs, including general salaries, bonuses and headcount growth (208 Asia-Pacific general and administrative employees as of December 31, 2013 versus 166 as of December 31, 2012). For the year ended December 31, 2013, the impact of foreign currency fluctuations on our Asia-Pacific general and administrative expenses was not significant when compared to average exchange rates of the year ended December 31, 2012. Going forward, although we are carefully monitoring our spending, we expect Asia-Pacific general and administrative expenses to increase as we continue to scale our operations to support our growth; however, as a percentage of revenues, we generally expect them to decrease.

Restructuring Charges. During the year ended December 31, 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 year ended December 31, 2012, we did not record any restructuring charges. For additional information, see "Restructuring Charges" in Note 18 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Impairment Charges. During the year ended December 31, 2013, we did not record any impairment charges. During the year ended December 31, 2012, we recorded impairment charges totaling $9.9 million as a result of the fair values of certain long-lived assets being lower than their carrying values due to our decision to abandon two properties in the Americas and Asia-Pacific regions. For additional information, see "Impairment of Long-Lived Assets" in Note 1 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Acquisition Costs. During the year ended December 31, 2013, we recorded acquisition costs totaling $10.9 million primarily attributed to our Americas and EMEA regions. During the year ended December 31, 2012, we recorded acquisition costs totaling $8.8 million primarily attributed to the ancotel and Asia Tone acquisitions.

Interest Income. Interest income was $3.4 million and $3.5 million for the years ended December 31, 2013 and 2012, respectively. The average yield for the year ended December 31, 2013 was 0.32% versus 0.43% for the year ended December 31, 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 $248.8 million for the year ended December 31, 2013 from $200.3 million for the year ended December 31, 2012. This increase in interest expense was primarily due to the impact of our $1.5 billion senior notes offering in March 2013, $15.6 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 years ended December 31, 2013 and 2012, we capitalized $10.6 million and $30.6 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. We may also incur additional indebtedness to support our growth, resulting in higher interest expense.

Other Income (Expense). For the year ended December 31, 2013, we recorded $5.3 million of other income and $2.2 million of other expense for the year ended December 31, 2012, primarily due to foreign currency exchange gains (losses) during the periods.

Loss on debt extinguishment. During the year ended December 31, 2013, we recorded a $108.5 million loss on debt extinguishment, of which $93.6 million was attributable to the redemption of our $750.0 million 8.125% senior notes, $13.2 million was attributable to the extinguishment of the financing liabilities for our London 4 and 5 IBX data centers and $1.7 million was attributable to an amendment of our New York 5 and 6 IBX lease. During the year ended December 31, 2012, we recorded $5.2 million of loss on debt extinguishment due to the repayment and termination of our multi-currency credit facility in the Asia-Pacific region. For additional information, see "Loss on Debt Extinguishment" in Note 10 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

49-------------------------------------------------------------------------------- Table of Contents Income Taxes. During the year ended December 31, 2013, we recorded $16.2 million of income tax expense. The income tax expense recorded during the year ended December 31, 2013 was primarily attributable to our foreign operations, as we incurred losses in our domestic operations during the period as a result of the $93.6 million of loss on debt extinguishment from the redemption of our $750.0 million 8.125% senior notes. During the year ended December 31, 2012, we recorded $58.6 million of income tax expense. The income tax expense recorded during the year ended December 31, 2012 was primarily a result of applying the effective statutory tax rates to our operating income adjusted for permanent tax adjustments for the period and the assessments of valuation allowances of $5.5 million against the net deferred tax assets with certain foreign operating entities. Our effective tax rates were 14.4% and 31.0%, respectively, for the years ended December 31, 2013 and 2012. The decrease in our effective tax rate was primarily due to tax benefits from losses incurred in our domestic operations as mentioned above and the new organizational structure in EMEA which became effective on July 1, 2013. The cash taxes for 2013 were primarily for U.S. income taxes and foreign income taxes in certain European jurisdictions and the cash taxes for 2012 were primarily for state and foreign income taxes.

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. In December 2013, our Dutch subsidiaries that were created to carry-out EMEA's centralized management activities received favorable rulings from the Dutch Tax Authorities effective July 1, 2013. The rulings acknowledge the reorganization and agree to a lower level of earnings by our Dutch subsidiaries subject to tax in the Netherlands. The rulings also require both the Dutch Tax Authorities and our Dutch subsidiaries to revisit and renew the agreement in five years from the effective date. 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%.

In connection with our contemplated REIT conversion, we expect to reassess the deferred tax assets and liabilities of our U.S. operations to be included in the REIT structure during 2014 at the point in time when it is determined that all significant actions to effect the REIT conversion have occurred and we are committed to that course of action. The reevaluation will result in de-recognizing the deferred tax assets and liabilities of our REIT's U.S.

operations excluding the deferred tax liabilities associated with the depreciation and amortization recapture. The depreciation and amortization recapture is necessary as part of our REIT conversion efforts. The de-recognition of the deferred tax assets and liabilities of our REIT's U.S.

operations will occur because the expected recovery or settlement of the related assets and liabilities will not result in deductible or taxable amounts in any post-REIT conversion periods. As a result of the de-recognition of the aforementioned deferred tax assets and liabilities of our REIT's U.S. operations and the continuing recognition of deferred tax liabilities associated with the depreciation and amortization recapture to be taxed in 2014 and 2015, we expect to record a significant tax provision expense in 2014. As of December 31, 2013, we had a net deferred tax asset of approximately $147.1 million for our U.S.

operations, which includes approximately $176.0 million of deferred tax liabilities associated with the depreciation and amortization recapture.

During the year ended December 31, 2013, we utilized all of our federal net operating losses free of Section 382 limitations in the U.S. for which a deferred tax asset had been previously recognized and all of our windfall tax losses in the U.S. for which a deferred tax asset had not been previously recognized. We recorded excess income tax benefits of $25.6 million during the year ended December 31, 2013 in our consolidated balance sheet.

Net Income from Discontinued Operations. During the year ended December 31, 2013, we did not have any discontinued operations. For the year ended December 31, 2012, our net income from discontinued operations was $13.1 million, consisting of $11.9 million from the gain on sale of discontinued operations, net of income tax, and $1.2 million of net income from discontinued operations. For additional information, see "Discontinued Operations" in Note 5 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

50 -------------------------------------------------------------------------------- Table of Contents 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 years ended December 31, 2013 and 2012 was split among the following geographic regions (dollars in thousands): Years ended December 31, % change Constant 2013 % 2012 % Actual currency Americas $ 608,718 61 % $ 557,800 63 % 9 % 10 % EMEA 216,186 22 % 183,612 21 % 18 % 13 % Asia-Pacific 175,994 17 % 146,445 16 % 20 % 26 % Total $ 1,000,898 100 % $ 887,857 100 % 13 % 13 % 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 year ended December 31, 2013, currency fluctuations resulted in approximately $3.5 million of unfavorable foreign currency impact on our Americas adjusted EBITDA primarily due to the generally stronger U.S. dollar relative to the Brazilian reais and Canadian dollar during the year ended December 31, 2013 compared to the year ended December 31, 2012.

EMEA Adjusted EBITDA. The increase in our EMEA adjusted EBITDA was primarily due to (i) additional adjusted EBITDA from the impact of acquisitions, which generated $15.2 million of incremental adjusted EBITDA and (ii) our IBX data center expansion activity and organic growth, partially offset by higher adjusted operating expenses as a percentage of revenues primarily attributable to higher compensation expense and higher professional fees to support our growth. During the year ended December 31, 2013, currency fluctuations resulted in approximately $8.0 million of net favorable foreign currency impact on our EMEA adjusted EBITDA primarily due to the generally weaker U.S. dollar relative to the Euro and Swiss franc during the year ended December 31, 2013 compared to the year ended December 31, 2012.

Asia-Pacific Adjusted EBITDA. The increase in our Asia-Pacific adjusted EBITDA was primarily due to (i) additional adjusted EBITDA from the impact of the Asia Tone acquisition, which generated $14.3 million of incremental adjusted EBITDA and (ii) higher revenues as a result of our IBX data center expansion activity and organic growth. During the year ended December 31, 2013, currency fluctuations resulted in approximately $7.8 million of net unfavorable foreign currency impact on our Asia-Pacific adjusted EBITDA primarily due to the generally stronger U.S. dollar relative to the Australian dollar, Japanese yen and Singapore dollar during the year ended December 31, 2013 compared to the year ended December 31, 2012.

51 -------------------------------------------------------------------------------- Table of Contents Years Ended December 31, 2012 and 2011 Revenues. Our revenues for the years ended December 31, 2012 and 2011 were generated from the following revenue classifications and geographic regions (dollars in thousands): Years ended December 31, % change Constant 2012 % 2011 % Actual currency Americas: Recurring revenues $ 1,111,755 59 % $ 957,047 61 % 16 % 16 % Non-recurring revenues 40,162 2 % 32,415 2 % 24 % 26 % 1,151,917 61 % 989,462 63 % 16 % 16 % EMEA: Recurring revenues 400,002 21 % 328,355 21 % 22 % 28 % Non-recurring revenues 32,918 2 % 29,814 2 % 10 % 17 % 432,920 23 % 358,169 23 % 21 % 27 % Asia-Pacific: Recurring revenues 285,311 15 % 206,313 13 % 38 % 38 % Non-recurring revenues 17,228 1 % 11,681 1 % 47 % 47 % 302,539 16 % 217,994 14 % 39 % 38 % Total: Recurring revenues 1,797,068 95 % 1,491,715 95 % 20 % 22 % Non-recurring revenues 90,308 5 % 73,910 5 % 22 % 26 % $ 1,887,376 100 % $ 1,565,625 100 % 21 % 22 % Americas Revenues. Growth in Americas revenues was primarily due to (i) $27.2 million of incremental revenue from ALOG ($71.2 million of full-year revenue contributions from ALOG during the year ended December 31, 2012 as compared to $44.0 million of partial-year revenue contributions during the year ended December 31, 2011), (ii) $26.5 million of revenue generated from our recently-opened IBX data centers and IBX data center expansions in the Dallas, Miami, New York and Washington, D.C. metro areas and (iii) an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our customer count and utilization rate, as discussed above. During the year ended December 31, 2012, the impact of foreign currency fluctuations on our Americas revenues was not significant when compared to average exchange rates of the year ended December 31, 2011.

EMEA Revenues. During the years ended December 31, 2012 and 2011, our revenues from the United Kingdom, the largest revenue contributor in the EMEA region for the period, represented approximately 38% and 35%, respectively, of the regional revenues. Our EMEA revenue growth was due to (i) $11.5 million of additional revenue resulting from the ancotel acquisition, (ii) $31.8 million of revenue from our recently-opened IBX data center expansions in the Amsterdam, Frankfurt, London and Paris metro areas and (iii) an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our customer count and utilization rate, as discussed above, in both our new and existing IBX data centers. During the year ended December 31, 2012, currency fluctuations resulted in approximately $22.8 million of net unfavorable foreign currency impact on our EMEA revenues primarily due to the generally stronger U.S. dollar relative to the British pound, Euro and Swiss Franc during the year ended December 31, 2012 compared to the year ended December 31, 2011.

Asia-Pacific Revenues. Our revenues from Singapore, the largest revenue contributor in the Asia-Pacific region, represented approximately 37% and 40%, respectively, of the regional revenues for the years ended December 31, 2012 and 2011. Our Asia-Pacific revenue growth was due to (i) $23.1 million of additional revenue resulting from the Asia Tone acquisition, (ii) $9.5 million of revenue generated from our recently-opened IBX center expansions in the Hong Kong, Shanghai, Singapore and Sydney metro areas and (iii) an increase in orders from both our existing customers and new customers during the period as reflected in the growth in our customer count and utilization rate, as discussed above, in both our new and existing IBX data centers. For the year ended December 31, 2012, the impact of foreign currency fluctuations on our Asia-Pacific revenues was not significant when compared to average exchange rates of the year ended December 31, 2011.

52 -------------------------------------------------------------------------------- Table of Contents Cost of Revenues. Our cost of revenues for the years ended December 31, 2012 and 2011 were split among the following geographic regions (dollars in thousands): Years ended December 31, % change Constant 2012 % 2011 % Actual currency Americas $ 533,313 57 % $ 486,633 59 % 10 % 10 % EMEA 230,239 24 % 212,967 26 % 8 % 15 % Asia-Pacific 181,065 19 % 129,424 15 % 40 % 40 % Total $ 944,617 100 % $ 829,024 100 % 14 % 16 % Years ended December 31, 2012 2011 Cost of revenues as a percentage of revenues: Americas 46 % 49 % EMEA 53 % 59 % Asia-Pacific 60 % 59 % Total 50 % 53 % Americas Cost of Revenues. Our Americas cost of revenues for the years ended December 31, 2012 and 2011 included $197.3 million and $178.9 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to both our organic IBX data center expansion activity and acquisitions. Excluding depreciation expense, the increase in our Americas cost of revenues was primarily due to (i) $9.4 million of incremental Americas cost of revenues resulting from the ALOG acquisition, (ii) $7.0 million of higher compensation costs, including general salaries, bonuses and stock-based compensation cost, (iii) $5.9 million of higher costs associated with certain revenues from offerings provided to customers and (iv) $4.6 million of higher property taxes. During the year ended December 31, 2012, the impact of foreign currency fluctuations on our Americas cost of revenues was not significant when compared to average exchange rates of the year ended December 31, 2011.

EMEA Cost of Revenues. EMEA cost of revenues for the years ended December 31, 2012 and 2011 included $69.4 million and $67.0 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to both our organic IBX data center expansion activity and acquisitions. Excluding depreciation expense, the increase in EMEA cost of revenues was primarily due to (i) $4.4 million of additional cost of revenues resulting from the ancotel acquisition, (ii) an increase of $6.5 million in utility costs arising from increased customer installations and revenues attributed to customer growth and (iii) $3.2 million of higher costs associated with costs of equipment sales.

During the year ended December 31, 2012, currency fluctuations resulted in approximately $13.7 million of net favorable foreign currency impact on our EMEA cost of revenues primarily due to the generally stronger U.S. dollar relative to the British pound, Euro and Swiss franc during the year ended December 31, 2012 compared to the year ended December 31, 2011.

Asia-Pacific Cost of Revenues. Asia-Pacific cost of revenues for the years ended December 31, 2012 and 2011 included $71.8 million and $46.7 million, respectively, of depreciation expense. Growth in depreciation expense was primarily due to both our organic 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) $10.1 million of additional cost of revenues resulting from the Asia Tone acquisition, (ii) $10.7 million in higher utility costs and (iii) $2.9 million of higher compensation expense, including general salaries, bonuses and headcount growth (excluding the impact of the Asia Tone acquisition, 192 Asia-Pacific employees as of December 31, 2012 versus 153 as of December 31, 2011). For the year ended December 31, 2012, the impact of foreign currency fluctuations on our Asia-Pacific cost of revenues was not significant when compared to average exchange rates of the year ended December 31, 2011.

53-------------------------------------------------------------------------------- Table of Contents Sales and Marketing Expenses. Our sales and marketing expenses for the years ended December 31, 2012 and 2011 were split among the following geographic regions (dollars in thousands): Years ended December 31, % change Constant 2012 % 2011 % Actual currency Americas $ 122,970 61 % $ 103,435 65 % 19 % 19 % EMEA 52,595 26 % 36,528 23 % 44 % 49 % Asia-Pacific 27,349 13 % 18,384 12 % 49 % 48 % Total $ 202,914 100 % $ 158,347 100 % 28 % 29 % Years ended December 31, 2012 2011 Sales and marketing expenses as a percentage of revenues: Americas 11 % 10 % EMEA 12 % 10 % Asia-Pacific 9 % 8 % Total 11 % 10 % Americas Sales and Marketing Expenses. The increase in our Americas sales and marketing expenses was due to (i) $3.8 million of incremental sales and marketing expenses resulting from the ALOG acquisition, (ii) $11.4 million of higher compensation costs, including sales compensation, general salaries, bonuses, stock-based compensation and headcount growth (excluding the impact of the ALOG acquisition, 256 Americas sales and marketing employees as of December 31, 2012 versus 241 as of December 31, 2011) and (iii) $3.4 million of professional fees to support our growth. During the year ended December 31, 2012, the impact of foreign currency fluctuations on our Americas sales and marketing expenses was not significant when compared to average exchange rates of the year ended December 31, 2011.

EMEA Sales and Marketing Expenses. The increase in our EMEA sales and marketing expenses was primarily due to (i) $4.6 million of additional sales and marketing expenses resulting from the ancotel acquisition and (ii) $7.7 million of higher compensation costs, including sales compensation, general salaries, bonuses and stock-based compensation expense and headcount growth (excluding the impact of the ancotel acquisition, 148 EMEA sales and marketing employees as of December 31, 2012 versus 117 as of December 31, 2011). For the year ended December 31, 2012, the impact of foreign currency fluctuations on our EMEA sales and marketing expenses was not significant when compared to average exchange rates of the year ended December 31, 2011.

Asia-Pacific Sales and Marketing Expenses. The increase in our Asia-Pacific sales and marketing expenses was primarily due to (i) $1.9 million of additional sales and marketing expenses resulting from the Asia Tone acquisition and (ii) $6.3 million of higher compensation costs, including sales compensation, general salaries, bonuses and headcount growth (excluding the impact of the Asia Tone acquisition, 95 Asia-Pacific sales and marketing employees as of December 31, 2012 versus 70 as of December 31, 2011). For the year ended December 31, 2012, the impact of foreign currency fluctuations on our Asia-Pacific sales and marketing expenses was not significant when compared to average exchange rates of the year ended December 31, 2011.

54-------------------------------------------------------------------------------- Table of Contents General and Administrative Expenses. Our general and administrative expenses for the years ended December 31, 2012 and 2011 were split among the following geographic regions (dollars in thousands): Years ended December 31, % change Constant 2012 % 2011 % Actual currency Americas $ 238,178 73 % $ 191,439 72 % 24 % 24 % EMEA 57,093 17 % 48,936 18 % 17 % 20 % Asia-Pacific 32,995 10 % 25,179 10 % 31 % 30 % Total $ 328,266 100 % $ 265,554 100 % 24 % 24 % Years ended December 31, 2012 2011 General and administrative expenses as a percentage of revenues: Americas 21 % 19 % EMEA 13 % 14 % Asia-Pacific 11 % 12 % Total 17 % 17 % Americas General and Administrative Expenses. Our Americas general and administrative expenses, which include general corporate expenses, included $1.6 million of additional general and administrative expenses resulting from the ALOG acquisition. Excluding the ALOG acquisition, the increase in our Americas general and administrative expenses was primarily due to (i) $21.2 million of higher compensation costs, including general salaries, bonuses, stock-based compensation and headcount growth (excluding the impact of the ALOG acquisition, 605 Americas general and administrative employees as of December 31, 2012 versus 577 as of December 31, 2011), (ii) $15.4 million of higher professional fees to support our growth and our REIT conversion process and (iii) $4.8 million of higher depreciation expense as a result of our ongoing efforts to support our growth, such as investments in systems. During the year ended December 31, 2012, the impact of foreign currency fluctuations on our Americas general and administrative expenses was not significant when compared to average exchange rates of the year ended December 31, 2011.

EMEA General and Administrative Expenses. The increase in our EMEA general and administrative expenses was primarily due to $3.2 million of additional general and administrative expenses resulting from the ancotel acquisition and (ii) $5.9 million of higher compensation costs, including general salaries, bonuses and headcount growth (excluding the impact of the ancotel acquisition, 196 EMEA general and administrative employees as of December 31, 2012 versus 180 as of December 31, 2011), partially offset by $3.7 million of lower professional fees.

For the year ended December 31, 2012, the impact of foreign currency fluctuations on our EMEA general and administrative expenses was not significant when compared to average exchange rates of the year ended December 31, 2011.

Asia-Pacific General and Administrative Expenses. The increase in our Asia-Pacific general and administrative expenses was primarily due to $5.4 million of higher compensation costs, including general salaries, bonuses and headcount growth (excluding the impact of the Asia Tone acquisition, 166 Asia-Pacific general and administrative employees as of December 31, 2012 versus 153 as of December 31, 2011). For the year ended December 31, 2012, the impact of foreign currency fluctuations on our Asia-Pacific general and administrative expenses was not significant when compared to average exchange rates of the year ended December 31, 2011.

Restructuring Charges. During the year ended December 31, 2012, we did not record any restructuring charges. During the year ended December 31, 2011, we recorded restructuring charges totaling $3.5 million primarily related to revised sublease assumptions on our excess leased space in the New York metro area. For additional information, see "Restructuring Charges" in Note 18 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

55 -------------------------------------------------------------------------------- Table of Contents Impairment Charges. During the year ended December 31, 2012, we recorded impairment charges totaling $9.9 million as a result of the fair values of certain long-lived assets being lower than their carrying values due to our decision to abandon two properties in the Americas and Asia-Pacific regions. For additional information, see "Impairment of Long-Lived Assets" in Note 1 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. During the year ended December 31, 2011, no impairment charges were recorded.

Acquisition Costs. During the year ended December 31, 2012, we recorded acquisition costs totaling $8.8 million primarily attributed to the ancotel and Asia Tone acquisitions. During the year ended December 31, 2011, we recorded acquisition costs totaling $3.3 million primarily related to the ALOG acquisition.

Interest Income. Interest income increased to $3.5 million for the year ended December 31, 2012 from $2.3 million for the year ended December 31, 2011.

Interest income increased primarily due to higher yields on invested balances.

The average yield for the year ended December 31, 2012 was 0.43% versus 0.33% for the year ended December 31, 2011. We expect our interest income to remain at these low levels for the foreseeable future due to the impact of a continued low interest rate environment and a portfolio more weighted towards short-term securities.

Interest Expense. During the years ended December 31, 2012 and 2011, we recorded interest expense of $200.3 million and $181.3 million, respectively. This increase was primarily due to the impact of our $750.0 million 7.00% senior notes offering in July 2011, which resulted in an approximately $28.6 million increase in interest expense, and additional financings such as various capital lease and other financing obligations to support our expansion projects. This increase was partially offset by our settlement of the $250.0 million 2.50% convertible subordinated notes in April 2012, which resulted in an approximately $13.7 million decrease in interest expense. During the years ended December 31, 2012 and 2011, we capitalized $30.6 million and $13.6 million, respectively, of interest expense to construction in progress.

Other Income (Expense). For the year ended December 31, 2012, we recorded $2.2 million of other expense compared to $2.8 million of other income for the year ended December 31, 2011, primarily due to foreign currency exchange gains (losses) during the periods.

Loss on debt extinguishment. During the year ended December 31, 2012, we recorded $5.2 million of loss on debt extinguishment due to the repayment and termination of our multi-currency credit facility in the Asia-Pacific region.

During the year ended December 31, 2011, no loss on debt extinguishment was recorded.

Income Taxes. During the year ended December 31, 2012, we recorded $58.6 million of income tax expense. The income tax expense recorded during the year ended December 31, 2012 was primarily a result of applying the effective statutory tax rates to our operating income adjusted for permanent tax adjustments for the period and the assessments of valuation allowances of $5.5 million against the net deferred tax assets with certain foreign operating entities. During the year ended December 31, 2011, we recorded $37.3 million of income tax expense. The income tax expense recorded during the year ended December 31, 2011 was primarily a result of applying the effective statutory tax rates to our operating income adjusted for permanent tax adjustments for the period, partially offset by an income tax benefit due to the release of a valuation allowance of $2.5 million associated with certain foreign operating entities.

Our effective tax rates were 31.0% and 28.8%, respectively, for the years ended December 31, 2012 and 2011. The cash taxes for 2012 and 2011 were primarily for state and foreign income taxes.

In connection with the planned REIT Conversion, we changed our methods of depreciating and amortizing various data center assets for tax purposes to methods more consistent with the characterization of such assets as real property for REIT purposes. As a result of this decision, we reclassified $89.2 million of non-current deferred tax liabilities to current deferred tax liabilities as of December 31, 2012 associated with taxes that were expected to be paid in the next 12 months. The change in depreciation and amortization method also increased our taxable income for 2012, resulting in an acceleration of the usage of our operating and windfall employee equity award net operating loss carryforwards. As a result of the tax depreciation method change, the taxable gain recognized in the divestiture and the level of operating profits, we utilized most of our net operating losses in the U.S. for which a deferred tax asset had been previously recognized and all of our windfall tax losses in the U.S. for which a deferred tax asset had not been previously recognized. We recorded excess income tax benefits of $84.7 million for the year ended December 31, 2012 in our consolidated balance sheet.

56-------------------------------------------------------------------------------- Table of Contents Net Income from Discontinued Operations. For the year ended December 31, 2012, our net income from discontinued operations was $13.1 million, consisting of $11.9 million from the gain on sale of discontinued operations, net of income tax, and $1.2 million of net income from discontinued operations. For the year ended December 31, 2011, our net income from discontinued operations was $1.0 million. For additional information, see "Discontinued Operations" in Note 5 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

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 years ended December 31, 2012 and 2011 was split among the following geographic regions (dollars in thousands): Years ended December 31, % change Constant 2012 % 2011 % Actual currency Americas $ 557,800 62 % $ 477,527 66 % 17 % 17 % EMEA 183,612 21 % 143,093 20 % 28 % 35 % Asia-Pacific 146,445 17 % 100,884 14 % 45 % 45 % Total $ 887,857 100 % $ 721,504 100 % 23 % 24 % Americas Adjusted EBITDA. The increase in our Americas adjusted EBITDA was primarily due to (i) incremental adjusted EBITDA from the impact of the ALOG acquisition, which generated $13.0 million of adjusted EBITDA, and (ii) higher revenues as result of our IBX data center expansion activity and organic growth as described above. During the year ended December 31, 2012, the impact of foreign currency fluctuations to our Americas adjusted EBITDA was not significant when compared to average exchange rates of the year ended December 31, 2011.

EMEA Adjusted EBITDA. The increase in our EMEA adjusted EBITDA was primarily due to (i) additional adjusted EBITDA from the impact of the ancotel acquisition, which generated $2.4 million of adjusted EBITDA, (ii) higher revenues as result of our IBX data center expansion activity and organic growth as described above and (iii) lower adjusted operating expenses as a percentage of revenues primarily attributable to lower rent and facility costs and utility costs.

During the year ended December 31, 2012, currency fluctuations resulted in approximately $10.2 million of net unfavorable foreign currency impact on our EMEA adjusted EBITDA primarily due to generally stronger U.S. dollar relative to the British pound, Euro and Swiss franc during the year ended December 31, 2012 compared to the year ended December 31, 2011.

Asia-Pacific Adjusted EBITDA. The increase in our Asia-Pacific adjusted EBITDA was primarily due to (i) additional adjusted EBITDA from the impact of the Asia Tone acquisition, which generated $12.0 million of adjusted EBITDA, (ii) higher revenues as result of our IBX data center expansion activity and organic growth as described above and (iii) lower adjusted operating expenses as a percentage of revenues primarily attributable to lower rent and facility costs. During the year ended December 31, 2012, the impact of foreign currency fluctuations to our Asia-Pacific adjusted EBITDA was not significant when compared to average exchange rates of the year ended December 31, 2011.

57-------------------------------------------------------------------------------- Table of Contents 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. 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.

58-------------------------------------------------------------------------------- Table of Contents 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): Years ended December 31, 2013 2012 2011 Income from continuing operations $ 460,932 $ 392,896 $ 305,922 Depreciation, amortization and accretion expense 431,008 393,543 337,667 Stock-based compensation expense 102,940 82,735 71,137 Restructuring charges (4,837 ) - 3,481 Impairment charges - 9,861 - Acquisition costs 10,855 8,822 3,297 Adjusted EBITDA $ 1,000,898 $ 887,857 $ 721,504 Our adjusted EBITDA results have improved each year and in each region in total dollars due to the improved operating results discussed earlier in "Results of Operations", as well as the nature of our business model consisting of a recurring revenue stream and a cost structure which has a large base that is fixed in nature also 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), 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 December 31, 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) $253.2 million of principal from our mortgage and loans payable and (c) $931.2 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 December 31, 2013, we had $1.0 billion of cash, cash equivalents and short-term and long-term investments, of which approximately $833.8 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 $550.0 million revolving credit facility that forms part of our $750.0 million credit facility, referred to as the U.S. financing, any further financing activities we may pursue, and 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 December 31, 2013, we had 17 irrevocable letters of credit totaling $33.2 million issued and outstanding under the U.S. revolving credit line; as a result, we had a total of approximately $516.8 million of additional liquidity available to us under the U.S. revolving credit line. 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 plans with our existing resources, additional financing, either debt or equity, may be required to pursue certain new or unannounced additional 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.

59 -------------------------------------------------------------------------------- Table of Contents 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. For additional information, see "Derivatives and Hedging Instruments" in Note 7 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Impact of REIT Conversion We currently estimate that we will incur approximately $75.0 to $85.0 million in costs to support the REIT conversion, in addition to related tax liabilities associated with a change in our methods 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 and is generally payable over a four-year period starting in 2012 even if we abandon the REIT conversion for any reason, including failure to obtain a favorable PLR response. 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 $145.0 to $200.0 million in cash taxes during 2014 which includes taxes on our operations and any tax impacts required by our plan to convert to a REIT.

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 (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. The estimated E&P distribution may change due to potential changes in certain factors impacting the calculations, such as finalization of the 2013 E&P amounts and the actual financial year 2014 performance of the entities to be included in the REIT structure. We expect to make the E&P distribution only after receiving a favorable PLR from the IRS, obtaining Board approval and completion of other necessary REIT conversion actions. The Company anticipates making an 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.

Sources and Uses of Cash Years ended December 31, 2013 2012 2011 (in thousands)Net cash provided by operating activities $ 604,608 $ 632,026 $ 587,320 Net cash used in investing activities (1,169,313 ) (442,873 ) (1,499,155 ) Net cash provided (used in) by financing activities 574,907 (222,721 ) 748,728 Operating Activities The decrease in net cash provided by operating activities during 2013 compared to 2012 was primarily attributed to unfavorable working capital activities, such as $87.0 million and $25.3 million, respectively, of higher payments of income taxes and interest expense in 2013, partially offset by improved operating results. The increase in net cash provided by operating activities during 2012 compared to 2011 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 December 2013 were instead collected in January 2014, which negatively impacted cash flows from operating activities for the year ended December 31, 2013. We expect that we will continue to generate cash from our operating activities throughout 2014 and beyond; however, we expect to pay an increased amount of income taxes until such time that we become a REIT, which will negatively impact the cash we generate from operating activities.

60 -------------------------------------------------------------------------------- Table of Contents Investing Activities The increase in net cash used in investing activities during 2013 compared to 2012 was primarily due to $526.1 million of higher purchases of investments and $452.3 million of lower sales and maturities of investments, partially offset by $192.1 million of lower capital expenditures as a result of less expansion activity and $260.2 million of lower business acquisition spending. The decrease in net cash used in investing activities during 2012 compared to 2011 was primarily due to $825.7 million of lower purchases of investments, $320.6 million of higher sales and maturities of investments and $76.5 million of proceeds from the sale of discontinued operations, partially offset by $267.5 million of higher business acquisition spending and $79.1 million of higher capital expenditures. During 2014, we expect that our IBX expansion construction activity will be similar to our 2013 levels. However, if the opportunity to expand is greater than planned and we have sufficient funding to pursue such expansion opportunities, we may increase the level of capital expenditures to support this growth as well as pursue additional business acquisitions, property acquisitions or joint ventures.

Financing Activities The net cash provided by financing activities for 2013 was primarily due to $1.5 billion of proceeds from the senior notes offering in March 2013, partially offset by $834.7 million for the redemption of the $750.0 million 8.125% senior notes, repayments of various debt and purchases of treasury stock. The net cash used in financing activities for 2012 was primarily due to the repayment of our multi-currency credit facility in the Asia-Pacific region and the settlement of the $250.0 million 2.50% convertible subordinated notes, partially offset by proceeds from the U.S. financing and the ALOG financings. The net cash provided by financing activities for 2011 was primarily due to our $750.0 million 7.00% senior notes offering in July 2011, partially offset by purchases of treasury stock and repayments of various debt. Going forward, we expect that our financing activities will consist primarily of repayment of our debt and additional financings needed to support expansion opportunities, additional acquisitions or joint ventures, or our conversion to a REIT.

Debt Obligations - Convertible Debt 4.75% Convertible Subordinated Notes. In June 2009, we issued $373.8 million aggregate principal amount of 4.75% convertible subordinated notes due June 15, 2016. Interest is payable semi-annually on June 15 and December 15 of each year and commenced on December 15, 2009. 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. Upon conversion, holders will receive, at our election, cash, shares of our common stock or a combination of cash and shares of our common stock.

Holders of the 4.75% convertible subordinated notes were eligible to convert their notes during the year ended December 31, 2013 and are eligible to convert their notes during the three months ending March 31, 2014, since the stock price condition conversion clause was met during the applicable periods. As of December 31, 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 4.4 million shares of our common stock.

Upon conversion, if we elected to pay a sufficiently large portion of the conversion obligation in cash, additional consideration beyond the $373.8 million of gross proceeds received would be required. However, to minimize the impact of potential dilution upon conversion of the 4.75% convertible subordinated notes, we entered into capped call transactions, which are referred to as the capped call, separate from the issuance of the 4.75% convertible subordinated notes, for which we paid a premium of $49.7 million. The capped call covers a total of approximately 4.4 million shares of our common stock, subject to adjustment. Under the capped call, we effectively raised the conversion price of the 4.75% convertible subordinated notes from $84.32 to $114.82. Depending upon our stock price at the time the 4.75% convertible subordinated notes are converted, the capped call will return up to 1.2 million shares of our common stock to us; however, we will receive no benefit from the capped call if our stock price is $84.32 or lower at the time of conversion and will receive less shares for share prices in excess of $114.82 at the time of conversion than we would have received at a share price of $114.82 (our benefit from the capped call is capped at $114.82, and no additional benefit is received beyond this price).

61 -------------------------------------------------------------------------------- Table of Contents We do not have the right to redeem the 4.75% convertible subordinated notes at our option.

We separately accounted for the liability and equity components of our 4.75% convertible subordinated notes in accordance with the accounting standard for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). For additional information, see "4.75% Convertible Subordinated Notes" in Note 10 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

3.00% Convertible Subordinated Notes. In September 2007, we issued $396.0 million aggregate principal amount of 3.00% Convertible Subordinated Notes due October 15, 2014. Interest is payable semi-annually on April 15 and October 15 of each year and commenced in April 2008.

Holders of the 3.00% convertible subordinated notes may convert their notes at their option on any day up to and including the business day immediately preceding the maturity date into shares of our common stock. We do not have the right to redeem the 3.00% convertible subordinated notes at our option. 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 our common stock exceeds the base conversion price, the conversion rate will be determined pursuant to a formula resulting in the receipt of up to 4.4616 additional shares of common stock per $1,000 principal amount of the 3.00% convertible subordinated notes, subject to adjustment. However, in no event would the total number of shares issuable upon conversion of the 3.00% convertible subordinated notes exceed 11.8976 per $1,000 principal amount of 3.00% convertible subordinated notes, subject to anti-dilution adjustments, or the equivalent of $84.05 per share of our common stock or a total of 4.7 million shares of our common stock. As of December 31, 2013, we expect the holders of the 3.00% convertible subordinated notes to convert their notes into shares of our common stock prior to the notes' maturity date and the 3.00% convertible subordinated notes were convertible into 3.4 million shares of our common stock.

Debt Obligations - Non-Convertible Debt Senior Notes 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 and commenced 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 are 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.

62 -------------------------------------------------------------------------------- Table of Contents 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 to 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.

63 -------------------------------------------------------------------------------- Table of Contents 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 $18.5 million as of December 31, 2013.

7.00% Senior Notes. In July 2011, we issued $750.0 million aggregate principal amount of 7.00% senior notes due July 15, 2021, which are referred to as the 7.00% senior notes. Interest is payable semi-annually in arrears on January 15 and July 15 of each year and commenced on January 15, 2012.

The 7.00% senior notes are unsecured and rank equal in right of payment to our existing or future senior debt and senior in right of payment to our existing and future subordinated debt. The 7.00% senior notes are effectively junior to any of our existing and future secured indebtedness and any indebtedness of our subsidiaries. The 7.00% senior notes are also structurally subordinated to all debt and other liabilities (including trade payables) of our subsidiaries and will continue to be subordinated to the extent that these subsidiaries do not guarantee the 7.00% senior notes in the future.

The 7.00% Senior Notes are governed by an indenture which contains covenants that limit the Company's ability and the ability of its subsidiaries to, among other things: • incur additional debt; • pay dividends or make other restricted payments; • purchase, redeem or retire capital stock or subordinated debt; • make asset sales; • enter into transactions with affiliates; • incur liens; • enter into sale-leaseback transactions; • provide subsidiary guarantees; • make investments; and • merge or consolidate with any other person.

64 -------------------------------------------------------------------------------- Table of Contents At any time prior to July 15, 2014, we may on any one or more occasions redeem up to 35% of the aggregate principal amount of the 7.00% senior notes outstanding at a redemption price equal to 107.000% of the principal amount of the 7.00% 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 7.00% senior notes issued remains outstanding immediately after the occurrence of such redemption and (ii) the redemption must occur within 90 days of the date of the closing of such equity offerings. On or after July 15, 2016, we may redeem all or a part of the 7.00% senior notes, on any one or more occasions, at the redemption prices set forth below plus accrued and unpaid interest thereon, if any, up to, but not including, the applicable redemption date, if redeemed during the twelve-month period beginning on July 15 of the years indicated below: Redemption price of the Senior Notes 2016 103.500 % 2017 102.333 % 2018 101.167 % 2019 and thereafter 100.000 % In addition, at any time prior to July 15, 2016, we may also redeem all or a part of the 7.00% senior notes at a redemption price equal to 100% of the principal amount of the 7.00% senior notes redeemed plus a premium, which is referred to as the applicable premium, and accrued and unpaid interest, if any, to, but not including, the date of redemption, which is referred to as the redemption date. The applicable premium means the greater of: • 1.0% of the principal amount of the 7.00% senior notes to be redeemed; and • the excess of: (a) the present value at such redemption date of (i) the redemption price of the 7.00% senior notes to be redeemed at July 15, 2016 as shown in the above table, plus (ii) all required interest payments due on these 7.00% senior notes through July 15, 2016 (excluding accrued but unpaid interest, if any, to, but not including the redemption date), computed using a discount rate equal to the yield to maturity as of the redemption date of the U.S. Treasury securities with a constant maturity most nearly equal to the period from the redemption date to July 15, 2016, plus 0.50%; over (b) the principal amount of the 7.00% senior notes to be redeemed.

Upon a change in control, we will be required to make an offer to purchase each holder's 7.00% senior notes at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase.

Debt issuance costs related to the 7.00% senior notes, net of amortization, were $10.7 million as of December 31, 2013.

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 10 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

65-------------------------------------------------------------------------------- Table of Contents Loans Payable U.S. Financing. In June 2012, we entered into a credit agreement with a group of lenders for a $750.0 million credit facility, referred to as the U.S. financing, comprised of a $200.0 million term loan facility, referred to as the U.S. term loan, and a $550.0 million multicurrency revolving credit facility, referred to as the U.S. revolving credit line. The U.S. financing contains several financial covenants with which we must comply on a quarterly basis, including a maximum senior leverage ratio covenant, a minimum fixed charge coverage ratio covenant and a minimum tangible net worth covenant. The U.S. financing is guaranteed by certain of our domestic subsidiaries and is secured by our and the guarantors' accounts receivable as well as pledges of the equity interests of certain of our direct and indirect subsidiaries. The U.S. term loan and U.S. revolving credit line both have a five-year term, subject to the satisfaction of certain conditions with respect to our outstanding convertible subordinated notes. We are required to repay the principal balance of the U.S. term loan in equal quarterly installments over the term. The U.S. term loan bears interest at a rate based on LIBOR or, at our option, the base rate, which is defined as the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the Bank of America prime rate and (c) one-month LIBOR plus 1.00%, plus, in either case, a margin that varies as a function of our senior leverage ratio in the range of 1.25%-2.00% per annum if we elect to use the LIBOR index and in the range of 0.25%-1.00% per annum if we elect to use the base rate index. In July 2012, we fully utilized the U.S. term loan and used the funds to prepay the outstanding balance of and terminate a multi-currency credit facility in our Asia-Pacific region. The U.S. revolving credit line allows us to borrow, repay and reborrow over the term. The U.S. revolving credit line provides a sublimit for the issuance of letters of credit of up to $150.0 million at any one time. We may use the U.S. revolving credit line for working capital, capital expenditures, issuance of letters of credit, and other general corporate purposes. Borrowings under the U.S. revolving credit line bear interest at a rate based on LIBOR or, at our option, the base rate, as defined above, plus, in either case, a margin that varies as a function of our senior leverage ratio in the range of 0.95%-1.60% per annum if we elect to use the LIBOR index and in the range of 0.00%-0.60% per annum if we elect to use the base rate index. We are required to pay a quarterly letter of credit fee on the face amount of each letter of credit, which fee is based on the same margin that applies from time to time to LIBOR-indexed borrowings under the U.S. revolving credit line. We are also required to pay a quarterly facility fee ranging from 0.30%-0.40% per annum of the U.S. revolving credit line, regardless of the amount utilized, which fee also varies as a function of our senior leverage ratio.

In February 2013, the U.S. financing was amended to modify 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, the U.S. financing was further amended. Among other changes, the amendment (i) modified certain covenants to accommodate our planned conversion to a REIT, and related matters; (ii) 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; (iii) 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; and (iv) permits us to request an increase to the U.S. revolving credit line of up to an additional $250.0 million, subject to various conditions including the receipt of lender commitments.

As of December 31, 2013, we had $140.0 million outstanding under the U.S. term loan with an effective interest rate of 2.17% per annum. As of December 31, 2013, we had 17 irrevocable letters of credit totaling $33.2 million issued and outstanding under the U.S. Revolving Credit Line. As a result, the amount available to us to borrow under the U.S. revolving credit line was $516.8 million as of December 31, 2013. As of December 31, 2013, we were in compliance with all covenants of the U.S. financing. Debt issuance costs related to the U.S. financing, net of amortization, were $8.0 million as of December 31, 2013.

66 -------------------------------------------------------------------------------- Table of Contents ALOG Financings. In June 2012, ALOG completed a 100.0 million Brazilian real borrowing agreement, or approximately $48.8 million, referred to as the 2012 ALOG financing. The 2012 ALOG financing has a five-year term with semi-annual principal payments beginning in the third year of its term and quarterly interest payments during the entire term. The 2012 ALOG financing bears an interest rate of 2.75% above the local borrowing rate. The 2012 ALOG financing contains financial covenants, which ALOG must comply with annually, consisting of a leverage ratio and a fixed charge coverage ratio. As of December 31, 2013, we were in compliance with all financial covenants under the 2012 ALOG financing. The 2012 ALOG financing is not guaranteed by ALOG or us. The 2012 ALOG financing is not secured by ALOG's or our assets. The 2012 ALOG financing has a final maturity date of June 2017. In September 2012, ALOG fully utilized the 2012 ALOG financing and used a portion of the funds to prepay and terminate ALOG loans payable outstanding. As of December 31, 2013, the effective interest rate under the 2012 ALOG financing was 12.52% per annum.

In November 2013, ALOG completed a 60.3 million Brazilian real borrowing agreement, or approximately $25.5 million, referred to as the 2013 ALOG financing. The 2013 ALOG financing has a five-year term with semi-annual principal payments beginning in the third year of its term and semi-annual interest payments during the entire term. The 2013 ALOG Financing bears an interest rate of 2.25% above the local borrowing rate. The 2013 ALOG Financing contains financial covenants, which ALOG must comply with annually, consisting of a leverage ratio and a fixed charge coverage ratio. As of December 31, 2013, we were in compliance with all financial covenants under the 2013 ALOG financing. The 2013 ALOG financing is not guaranteed by ALOG or us. The 2013 ALOG financing is not secured by ALOG's or our assets. The 2013 ALOG financing has a final maturity date of November 2018. During the three months ended December 31, 2013, ALOG fully utilized the 2013 ALOG financing. As of December 31, 2013, the effective interest rate under the 2013 ALOG financing was 12.24% per annum.

Capital Lease and Other Financing Obligations We have numerous capital lease and other financing obligations with maturity dates ranging from 2015 to 2053 under which a total principal balance of $931.2 million remained outstanding as of December 31, 2013 with a weighted average effective interest rate of 7.89%. For further information on our capital leases and other financing obligations, see "Capital Leases and Other Financing Obligations" in Note 9 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

67-------------------------------------------------------------------------------- Table of Contents 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 2053. The following represents our debt maturities, financings, leases and other contractual commitments as of December 31, 2013 (in thousands): 2014 2015 2016 2017 2018 Thereafter Total Convertible debt(1) $ 395,986 $ - $ 373,724 $ - $ - $ - $ 769,710 Senior notes(2) - - - - - 2,250,000 2,250,000 U.S. term loan(2) 40,000 40,000 40,000 20,000 - - 140,000 ALOG financings(2) 12,096 15,742 19,389 13,346 7,309 - 67,882 ALOG loans payable(2) - 342 411 411 410 68 1,642 Mortgage payable(2) 1,221 1,274 1,330 1,387 1,447 36,838 43,497 Other loan payable(2) 65 - - - - - 65 Paris 4 IBX financing(3) 122 - - - - - 122 Interest(4) 169,032 157,479 145,945 134,313 132,838 441,351 1,180,958 Capital lease and other financing obligations(5) 85,386 94,865 99,663 100,681 105,009 1,187,512 1,673,116 Operating leases(6) 91,658 81,848 79,806 75,692 72,817 552,357 954,178 Other contractual commitments(7) 299,079 39,133 1,141 1,000 285 4,346 344,984 Asset retirement obligations(8) 4,339 1,984 540 7,714 3,241 41,730 59,548 ALOG acquisition contingent consideration(9) 1,757 2,021 2,926 - - - 6,704 Redeemable non-controlling interests 123,902 - - - - - 123,902 $ 1,224,643 $ 434,688 $ 764,875 $ 354,544 $ 323,356 $ 4,514,202 $ 7,616,308 (1) Represents principal only. As of December 31, 2013, had the holders of the 3.00% convertible subordinated notes due 2014 converted their notes, the 3.00% convertible subordinated notes would have been convertible into approximately 3.4 million shares of our common stock, which would have a total value of $598.1 million based on the closing price of our common stock on December 31, 2013. As of December 31, 2013, had the holders of the 4.75% convertible subordinated notes due 2016 converted their notes, the 4.75% convertible subordinated notes would have been convertible into approximately 4.4 million shares of our common stock, which would have a total value of $786.5 million based on the closing price of our common stock on December 31, 2013.

(2) Represents principal only.

(3) Represents total payments to be made under two agreements to purchase and develop the Paris 4 IBX center.

(4) Represents interest on ALOG financings, convertible debt, mortgage payable, senior notes and U.S. term loan based on their approximate interest rates as of December 31, 2013.

(5) Represents principal and interest.

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

(7) Represents unaccrued contractual commitments. Other contractual commitments are described below.

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

(9) Represents unaccrued ALOG acquisition contingent consideration, subject to reduction for any post-closing balance sheet adjustments and any claims for indemnification, and includes the portion of the contingent consideration that will be funded by Riverwood Capital L.P., who has an indirect, non-controlling equity interest in ALOG. As of December 31, 2013, we accrued approximately $419 of ALOG acquisition contingent consideration.

In connection with certain of our leases and other contracts requiring deposits, we entered into 17 irrevocable letters of credit totaling $33.2 million under the senior revolving credit line. These letters of credit were provided in lieu of cash deposits under the senior revolving credit line. If the landlords for these IBX leases decide to draw down on these letters of credit triggered by an event of default under the lease, we will be required to fund these letters of credit either through cash collateral or borrowing under the senior revolving credit line. These contingent commitments are not reflected in the table above.

We had accrued liabilities related to uncertain tax positions totaling approximately $27.1 million as of December 31, 2013. These liabilities, which are reflected on our balance sheet, are not reflected in the table above since it is unclear when these liabilities will be paid.

Primarily as a result of our various IBX data center expansion projects, as of December 31, 2013, we were contractually committed for $155.1 million of unaccrued capital expenditures, primarily for IBX equipment not yet delivered and labor not yet provided in connection with the work necessary to complete construction and open these IBX data centers prior to making them available to customers for installation. This amount, which is expected to be paid during 2014 and thereafter, is reflected in the table above as "other contractual commitments." 68 -------------------------------------------------------------------------------- Table of Contents We had other non-capital purchase commitments in place as of December 31, 2013, such as commitments to purchase power in select locations and other open purchase orders, which contractually bind us for goods or services to be delivered or provided during 2014 and beyond. Such other purchase commitments as of December 31, 2013, which total $189.8 million, are also reflected in the table above as "other contractual commitments." In addition, although we are not contractually obligated to do so, we expect to incur additional capital expenditures of approximately $230 million to $270 million, in addition to the $155.1 million in contractual commitments discussed above as of December 31, 2013, in our various IBX data center expansion projects during 2014 and thereafter in order to complete the work needed to open these IBX data centers. These non-contractual capital expenditures are not reflected in the table above. If we so choose, whether due to economic factors or other considerations, we could delay these non-contractual capital expenditure commitments to preserve liquidity.

Other Off-Balance-Sheet Arrangements We have various guarantor arrangements with both our directors and officers and third parties, including customers, vendors and business partners. As of December 31, 2013, there were no significant liabilities recorded for these arrangements. For additional information, see "Guarantor Arrangements" in Note 15 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP"). The preparation of our financial statements requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP.

Management bases its assumptions, estimates and judgments on historical experience, current trends and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. However, because future events and their effects cannot be determined with certainty, actual results may differ from these assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 1 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Management believes that the following critical accounting policies and estimates, among others, are the most critical to aid in fully understanding and evaluating our consolidated financial statements, and they require significant judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain: • Accounting for income taxes; • Accounting for business combinations; • Accounting for impairment of goodwill; and • Accounting for property, plant and equipment.

69 -------------------------------------------------------------------------------- Table of Contents Effect if Actual Judgments and Results Differ From Description Uncertainties Assumptions Accounting for Income Taxes.

Deferred tax assets and The valuation of deferred As of December 31, 2013 liabilities are recognized tax assets requires and 2012, we recorded a based on the future tax judgment in assessing the total of net deferred consequences attributable to likely future tax tax assets of $95.6 temporary differences that consequences of events million and net exist between the financial that have been recognized deferred tax statement carrying value of in our financial liabilities of $30.1 assets and liabilities and statements or tax million, respectively.

their respective tax bases, returns. Our accounting As of December 31, 2013 and operating loss and tax for deferred tax and 2012, we had a credit carryforwards on a consequences represents total valuation taxing jurisdiction basis. our best estimate of allowance of $31.1 We measure deferred tax those future events. million and $44.9 assets and liabilities using million, respectively.

enacted tax rates that will In assessing the need for During the year ended apply in the years in which a valuation allowance, we December 31, 2013, we we expect the temporary consider both positive decided to provide a differences to be recovered and negative evidence full valuation or paid. related to the likelihood allowance against the of realization of the net deferred tax assets The accounting standard for deferred tax assets. If, associated with certain income taxes requires a based on the weight of foreign operating reduction of the carrying available evidence, it is entities, which amounts of deferred tax more likely than not the resulted in an assets by recording a deferred tax assets will insignificant income valuation allowance if, not be realized, we tax expense in our based on the available record a valuation results of operations.

evidence, it is more likely allowance. The weight During the year ended than not (defined by the given to the positive and December 31, 2012, we accounting standard as a negative evidence is decided to provide a likelihood of more than 50%) commensurate with the full valuation such assets will not be extent to which the allowance against the realized. evidence may be net deferred tax assets objectively verified. associated with certain A tax benefit from an foreign operating uncertain income tax This assessment, which is entities which resulted position may be recognized completed on a taxing in an income tax in the financial statements jurisdiction basis, takes expense of $5.5 million only if it is more likely into account a number of in our results of than not that the position types of evidence, operations.

is sustainable, based solely including the following: on its technical merits and 1) the nature, frequency Our decisions to consideration of the and severity of current release our valuation relevant taxing authority's and cumulative financial allowances were based widely understood reporting losses, 2) on our belief that the administrative practices and sources of future taxable operations of these precedents. income and 3) tax jurisdictions had planning strategies. achieved a sufficient level of profitability In assessing the tax and will sustain a benefit from an uncertain sufficient level of income tax position, the profitability in the tax position that meets future to support the the more-likely-than-not release of these recognition threshold is valuation allowances initially and based on relevant facts subsequently measured as and circumstances.

the largest amount of tax However, if our benefit that is greater assumptions on the than 50% likely of being future performance of realized upon ultimate these jurisdictions settlement with a taxing prove not to be correct authority that has full and these jurisdictions knowledge of all relevant are not able to sustain information. a sufficient level of profitability to support the associated deferred tax assets on our consolidated balance sheet, we will have to impair our deferred tax assets through an additional valuation allowance, which would impact our financial position and results of operations in the period such a determination is made.

Our remaining valuation allowances as of December 31, 2013 was $31.1 million and primarily relates to certain of our subsidiaries outside of the U.S. If and when we release our remaining valuation allowances, it will have a favorable impact to our financial position and results of operations in the periods such determinations are made. We will continue to assess the need for our valuation allowances, by country or location, in the future.

70 -------------------------------------------------------------------------------- Table of Contents Effect if Actual Judgments and Results Differ From Description Uncertainties Assumptions As of December 31, 2013 and 2012, we had unrecognized tax benefits of $36.6 million and $25.0 million, respectively, exclusive of interest and penalties. During the year ended December 31, 2013, the unrecognized tax benefits increased by $11.6 million primarily due to losses of certain foreign operating entities, which more likely than not, will not benefit the operating entities.

During the year ended December 31, 2012, the unrecognized tax benefits decreased by $9.0 million primarily due to the settlement of a tax audit and the lapse of statutes of limitations in our foreign operations. The unrecognized tax benefits of $36.6 million as of December 31, 2013, if subsequently recognized, will affect our effective tax rate favorably at the time when such benefits are recognized.

Accounting for Business Combinations In accordance with the Our purchase price During the last three accounting standard for allocation methodology years, we have business combinations, we contains uncertainties completed several allocate the purchase price because it requires business combinations, of an acquired business to assumptions and including the Frankfurt its identifiable assets and management's judgment to Kleyer 90 Carrier Hotel liabilities based on estimate the fair value acquisition in October estimated fair values. The of assets acquired and 2013, the Dubai IBX excess of the purchase price liabilities assumed at data center acquisition over the fair value of the the acquisition date. in November 2012, the assets acquired and Management estimates the Asia Tone and ancotel liabilities assumed, if any, fair value of assets and acquisitions in July is recorded as goodwill. liabilities based upon 2012 and ALOG quoted market prices, the acquisition in April We use all available carrying value of the 2011. Our measurement information to estimate fair acquired assets and period for the values. We typically engage widely accepted valuation Frankfurt Kleyer 90 outside appraisal firms to techniques, including Carrier Hotel assist in the fair value discounted cash flows and acquisition will remain determination of market multiple analyses. open through the fourth identifiable intangible Our estimates are quarter of 2014. The assets such as customer inherently uncertain and purchase price contracts, leases and any subject to refinement. allocation for the other significant assets or Unanticipated events or ALOG, Asia Tone and liabilities and contingent circumstances may occur ancotel and Dubai IBX consideration. We adjust the which could affect the data center preliminary purchase price accuracy of our fair acquisitions was allocation, as necessary, up value estimates, completed in the second to one year after the including assumptions quarter of 2012, third acquisition closing date if regarding industry quarter of 2013 and we obtain more information economic factors and fourth quarter of 2013, regarding asset valuations business strategies. respectively.

and liabilities assumed.

We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we used to complete the purchase price allocations and the fair value of assets acquired and liabilities assumed.

However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material, which would be recorded in our statements of operations in 2014.

71 -------------------------------------------------------------------------------- Table of Contents Effect if Actual Judgments and Results Differ From Description Uncertainties Assumptions Accounting for Impairment of Goodwill In accordance with the When we elect to perform As of December 31, accounting standard for the first step of the 2013, goodwill goodwill and other two-step goodwill attributable to the intangible assets, we impairment test, we use Americas reporting perform goodwill impairment both the income and unit, the EMEA reviews annually, or market approach. Under reporting unit and the whenever events or changes the income approach, we Asia-Pacific reporting in circumstances indicate develop a five-year cash unit was $471.8 that the carrying value of flow forecast and use our million, $435.0 million an asset may not be weighted-average cost of and $135.3 million, recoverable. capital applicable to our respectively.

reporting units as During the fourth quarter of discount rates. This Future events, changing 2011, we early adopted the requires assumptions and market conditions and accounting standard update estimates derived from a any changes in key for testing goodwill for review of our actual and assumptions may result impairment. The accounting forecasted operating in an impairment standard update provides results, approved charge. While we have companies with the option to business plans, future not recorded an assess qualitative factors economic conditions and impairment charge to determine whether it is other market data. When against our goodwill to more likely than not that we elect to perform the date, the development the fair value of a goodwill impairment test of adverse business reporting unit is less than by assessing qualitative conditions in our its carrying value. If, factors determine whether Americas, EMEA or after assessing the it is more likely than Asia-Pacific reporting qualitative factors, a not that the fair value units, such as higher company determines that it of a reporting unit is than anticipated is not more likely than not less than its carrying customer churn or that the fair value of a value requires significantly increased reporting unit is less than assumptions and operating costs, or its carrying value, then estimates, the assessment significant performing the two-step also requires assumptions deterioration of our impairment test is and estimates derived market comparables that unnecessary. However, if a from a review of our we use in the market company concludes otherwise, actual and forecasted approach, could result then it is required to operating results, in an impairment charge perform the first step of approved business plans, in future periods.

the two-step goodwill future economic impairment test. conditions and other Any potential market data. impairment charge During the year ended against our goodwill December 31, 2013, we These assumptions require would not exceed the completed annual goodwill significant management amounts recorded on our impairment reviews of the judgment and are consolidated balance Americas reporting unit, the inherently subject to sheets.

EMEA reporting unit and the uncertainties.

Asia-Pacific reporting unit and concluded that there was no impairment as the fair value of these reporting units exceeded their carrying value.

72 -------------------------------------------------------------------------------- Table of Contents Effect if Actual Judgments and Results Differ From Description Uncertainties Assumptions Accounting for Property, Plant and Equipment We have a substantial amount While there are numerous During the quarter of property, plant and judgments and ended December 31, equipment recorded on our uncertainties involved in 2012, we revised the consolidated balance sheet. accounting for property, estimated useful lives The vast majority of our plant and equipment that of certain of our property, plant and are significant, arriving property, plant and equipment represent the at the estimated useful equipment. As a result, costs incurred to build out life of an asset requires we recorded or acquire our IBX data the most critical approximately $5.0 centers. Our IBX data judgment for us and million of lower centers are long-lived changes to these depreciation expense assets. The majority of our estimates would have the for the quarter ended IBX data centers are in most significant impact December 31, 2012 due properties that are leased. on our financial position to extending the We depreciate our property, and results of estimated useful lives plant and equipment using operations. When we lease of certain of our the straight-line method a property for our IBX property, plant and over the estimated useful data centers, we equipment. We undertook lives of the respective generally enter into this review due to our assets (subject to the term long-term arrangements determination that we of the lease in the case of with initial lease terms were generally using leased assets or leasehold of at least 8-10 years certain of our existing improvements). and with renewal options assets longer than generally available to originally anticipated Accounting for property, us. During the next and, therefore, the plant and equipment involves several years, a number estimated useful lives a number of accounting of leases for our IBX of certain of our issues including determining data centers will come up property, plant and the appropriate period in for renewal. As we start equipment has been which to depreciate such approaching the end of lengthened. This change assets, making assessments these initial lease was accounted for as a for leased properties to terms, we will need to change in accounting determine whether they are reassess the estimated estimate on a capital or operating leases, useful lives of our prospective basis assessing such assets for property, plant and effective October 1, potential impairment, equipment. In addition, 2012 under the capitalizing interest during we may find that our accounting standard for periods of construction and estimates for the useful change in accounting assessing the asset lives of non-leased estimates. We did not retirement obligations assets may also need to revise the estimated required for certain leased be revised periodically. useful lives of our properties that require us We periodically review property, plant and to return the leased the estimated useful equipment during the properties back to their lives of certain of our years ended original condition at the property, plant and December 31, 2013 and time we decide to exit a equipment and changes in 2011.

leased property. these estimates in the future are possible. Additionally, during the year ended Another area of judgment December 31, 2012, we for us in connection with recorded impairment our property, plant and charges totaling $9.9 equipment is related to million associated with lease accounting. Most of certain long-lived our IBX data centers are assets, of which $7.0 leased. Each time we million was associated enter into a new lease or with property, plant lease amendment for one and equipment. No of our IBX data centers, impairment charges were we analyze each lease or recorded during the lease amendment for the years ended proper accounting. This December 31, 2013 and requires certain 2011.

judgments on our part such as establishing the As of December 31, 2013 lease term to include in and 2012, we had a lease test, property, plant and establishing the equipment of $4.6 remaining estimated billion and $3.9 useful life of the billion, respectively.

underlying property or During the years ended equipment and estimating December 31, 2013, 2012 the fair value of the and 2011, we recorded underlying property or depreciation expense of equipment. All of these $405.5 million, $367.0 judgments are inherently million and $314.7 uncertain. Different million, respectively.

assumptions or estimates Further changes in our could result in a estimated useful lives different accounting of our property, plant treatment for a lease. and equipment could have a significant impact on our results of operations.

73 -------------------------------------------------------------------------------- Table of Contents Effect if Actual Judgments and Results Differ From Description Uncertainties Assumptions The assessment of As of December 31, 2013 long-lived assets for and 2012, we had impairment requires property, plant and assumptions and estimates equipment under capital of undiscounted and leases and other discounted future cash financing obligations flows. These assumptions of $949.0 million and and estimates require $555.7 million, significant judgment and respectively. During are inherently uncertain. the years ended December 31, 2013, 2012 and 2011, we recorded depreciation expense of $32.5 million, $18.8 million and $14.2 million, respectively, related to property, plant and equipment under capital leases and other financing obligations.

Additionally, during the years ended December 31, 2013, 2012 and 2011, we recorded rent expense of $112.7 million, $113.3 million and $111.8 million under operating leases.

Recent Accounting Pronouncements See "Recent Accounting Pronouncements" in Note 1 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

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