================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission File Number 000-31293
EQUINIX, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0487526
(State of incorporation) (I.R.S. Employer Identification No.)
2450 Bayshore Parkway, Mountain View, California 94043
(Address of principal executive offices, including ZIP code)
(650) 316-6000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes X No ___ and (2) has been
---
subject to such filing requirements for the past 90 days. Yes X . No ___.
---
The number of shares outstanding of the Registrant's Common Stock as of
September 30, 2001 was 80,034,668.
================================================================================
EQUINIX, INC.
INDEX
Page
No.
Part I. Financial Information
Item 1. Condensed Consolidated Balance Sheets as of September 30, 2001 and
December 31, 2000 ................................................................. 3
Condensed Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2001 and 2000 ................................................. 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2001 and 2000 ....................................................... 5
Notes to Condensed Consolidated Financial Statements .............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ........................................................................ 16
Item 3. Qualitative and Quantitative Disclosures About Market Risk ........................ 32
Part II. Other Information
Item 1. Legal Proceedings ................................................................. 33
Item 2. Changes in Securities and Use of Proceeds ......................................... 33
Item 3. Defaults Upon Senior Securities ................................................... 34
Item 4. Submission of Matters to a Vote of Security Holders ............................... 34
Item 5. Other Information ................................................................. 34
Item 6. Exhibits and Reports on Form 8-K .................................................. 35
Signature ..................................................................................... 37
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
EQUINIX, INC.
Condensed Consolidated Balance Sheets
(in thousands)
September 30, December 31,
2001 2000
------------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents ........................................ $ 84,651 $ 174,773
Short-term investments ........................................... 81,191 32,437
Accounts receivable, net ......................................... 8,250 4,925
Current portion of restricted cash and short-term investments .... 4,699 15,468
Prepaids and other current assets ................................ 8,212 10,373
--------- ---------
Total current assets ......................................... 187,003 237,976
Property and equipment, net .......................................... 327,278 315,380
Construction in progress ............................................. 91,066 94,894
Restricted cash and short-term investments, less current portion ..... 27,875 21,387
Debt issuance costs, net ............................................. 10,900 11,916
Other assets ......................................................... 4,617 1,932
--------- ---------
Total assets ................................................. $ 648,739 $ 683,485
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses ............................ $ 20,814 $ 13,717
Accrued construction costs ....................................... 27,500 89,343
Current portion of senior secured credit facility ................ 45,000 --
Current portion of debt facilities and capital lease obligations.. 7,025 4,426
Accrued interest payable ......................................... 10,410 2,167
Other current liabilities ........................................ 2,179 1,646
--------- ---------
Total current liabilities .................................... 112,928 111,299
Debt facilities and capital lease obligations, less current portion... 8,082 6,506
Senior secured credit facility, less current portion ................. 105,000 --
Senior notes ......................................................... 187,387 185,908
Other liabilities .................................................... 7,617 4,656
--------- ---------
Total liabilities ............................................ 421,014 308,369
--------- ---------
Stockholders' equity:
Common stock ..................................................... 80 77
Additional paid-in capital ....................................... 543,837 553,070
Deferred stock-based compensation ................................ (14,454) (38,350)
Accumulated other comprehensive income ........................... 830 1,919
Accumulated deficit .............................................. (302,568) (141,600)
--------- ---------
Total stockholders' equity ................................... 227,725 375,116
--------- ---------
Total liabilities and stockholders' equity ................... $ 648,739 $ 683,485
========= =========
See accompanying notes to condensed consolidated financial statements.
3
EQUINIX, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(unaudited)
Revenues ................................................... $ 17,178 $ 3,933 $ 45,948 $ 4,961
--------- --------- --------- ---------
Costs and operating expenses:
Cost of revenues (includes stock-based
compensation of $19, $220, $412 and
$434 for the three and nine months
ended September 30, 2001 and 2000,
respectively) ...................................... 24,597 12,639 74,593 21,262
Sales and marketing (includes
stock-based compensation of $496,
$2,351, $2,344 and $5,321 for the
three and nine months ended September
30, 2001 and 2000, respectively) ................... 3,982 5,046 13,274 13,754
General and administrative (includes
stock-based compensation of $2,384,
$7,515, $13,285 and $14,361 for the
three and nine months ended September
30, 2001 and 2000, respectively) ................... 12,621 16,198 47,013 38,367
Restructuring charge ................................. 48,565 -- 48,565 --
--------- --------- --------- ---------
Total costs and operating
expenses ................................... 89,765 33,883 183,445 73,383
--------- --------- --------- ---------
Loss from operations ....................................... (72,587) (29,950) (137,497) (68,422)
Interest income ....................................... 2,318 4,347 9,477 11,879
Interest expense ...................................... (11,305) (6,482) (32,948) (20,362)
--------- --------- --------- ---------
Net loss ................................................... $ (81,574) $ (32,085) $(160,968) $ (76,905)
========= ========= ========= =========
Net loss per share:
Basic and diluted .................................... $ (1.03) $ (0.70) $ (2.07) $ (3.45)
========= ========= ========= =========
Weighted average shares .............................. 79,058 45,534 77,843 22,289
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
4
EQUINIX, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine months ended
September 30,
----------------------
2001 2000
--------- ---------
(unaudited)
Cash flows from operating activities:
Net loss ........................................................................ $(160,968) $ (76,905)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation ................................................................. 36,444 6,830
Amortization of deferred stock-based compensation ............................ 16,041 20,115
Amortization of debt-related issuance costs and discounts .................... 5,884 2,990
Allowance for doubtful accounts .............................................. 192 --
Restructuring charge ......................................................... 48,565 --
Changes in operating assets and liabilities:
Accounts receivable ...................................................... (3,517) (5,242)
Prepaids and other current assets ........................................ 102 (2,349)
Other assets ............................................................. (2,685) (987)
Accounts payable and accrued expenses .................................... (807) 6,144
Accrued restructuring charge ............................................. (574) --
Accrued interest payable ................................................. 8,243 7,197
Other current liabilities ................................................ 533 2,746
Other liabilities ........................................................ 490 2,114
--------- ---------
Net cash used in operating activities ................................ (52,057) (37,347)
--------- ---------
Cash flows from investing activities:
Purchase of short-term investments .............................................. (150,621) (52,710)
Sales and maturities of short-term investments .................................. 102,165 35,717
Purchases of property and equipment ............................................. (77,160) (272,400)
Accrued construction costs ...................................................... (61,843) 51,364
Purchase of restricted cash and short-term investments .......................... (25,325) (18,540)
Sale of restricted cash and short-term investments .............................. 20,972 13,000
--------- ---------
Net cash used in investing activities ................................ (191,812) (243,569)
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan ........ 1,877 3,308
Proceeds from initial public offering of common stock, net ...................... -- 251,710
Proceeds from issuance of debt facilities and capital lease obligations ......... 158,004 6,884
Debt issuance costs ............................................................. (522) --
Repayment of debt facilities and capital lease obligations ...................... (4,207) (4,687)
Proceeds from issuance of redeemable convertible preferred stock, net ........... -- 94,418
Repurchase of common stock ...................................................... (18) (13)
--------- ---------
Net cash provided by financing activities ............................ 155,134 351,620
--------- ---------
Effect of foreign currency exchange rates on cash and cash equivalents .............. (1,387) --
Net increase (decrease) in cash and cash equivalents ................................ (90,122) 70,704
Cash and cash equivalents at beginning of period .................................... 174,773 203,165
--------- ---------
Cash and cash equivalents at end of period .......................................... $ 84,651 $ 273,869
========= =========
Supplemental cash flow information:
Cash paid for interest ....................................................... $ 19,487 $ 14,135
========= =========
See accompanying notes to condensed consolidated financial statements.
5
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have
been prepared by Equinix, Inc. ("Equinix" or the "Company") and reflect all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management are necessary to present fairly the financial position and
the results of operations for the interim periods presented. The balance sheet
at December 31, 2000 has been derived from audited financial statements at that
date. The financial statements have been prepared in accordance with the
regulations of the Securities and Exchange Commission ("SEC"), but omit certain
information and footnote disclosure necessary to present the statements in
accordance with generally accepted accounting principles. For further
information, refer to the Consolidated Financial Statements and Notes thereto
included in Equinix's Form 10-K as filed with the SEC on March 27, 2001. Results
for the interim periods are not necessarily indicative of results for the entire
fiscal year.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the condensed
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Revenues consist of monthly recurring fees for colocation and
interconnection services at the IBX centers, service fees associated with the
delivery of professional services and non-recurring installation fees. Revenues
from colocation and interconnection services are billed monthly and recognized
ratably over the term of the contract, generally one to three years.
Professional service fees are recognized in the period in which the services
were provided and represent the culmination of the earnings process.
Non-recurring installation fees are deferred and recognized ratably over the
term of the related contract.
The accompanying consolidated condensed financial statements have been
prepared assuming the Company will continue as a going concern. Since its
inception, the Company has been successful in completing several rounds of
financing. During the same period, the Company has incurred substantial losses
and negative cash flows from operations in every fiscal period since inception.
For the year ended December 31, 2000, the Company incurred a loss from
operations of $107.1 million and negative cash flows from operations of $68.1
million. For the nine months ended September 30, 2001, the Company incurred a
loss from operations of $137.5 million and negative cash flows from operations
of $52.1 million. As of September 30, 2001, the Company had an accumulated
deficit of $302.6 million.
The Company expects that cash on hand and anticipated cash flow from
operations should be sufficient to complete its seventh IBX center by the end of
2001. Assuming sufficient customer demand and the availability of additional
financing, the Company may build or buy additional IBX centers and expand
certain existing IBX centers. The Company is continually evaluating the
location, number and size of its facilities based upon the availability of
suitable sites, financing and customer demand. If the Company cannot raise
additional funds on acceptable terms or its losses exceed expectations, the
Company may delay or permanently reduce its rollout plans. Additional financing
may take the form of debt or equity. If the Company is unable to raise
additional funds to further its rollout, the Company anticipates that its
existing cash and the cash flow generated from the seven IBX centers, for which
the Company has obtained financing, will be sufficient to meet the working
capital, debt service and corporate overhead requirements associated with those
IBX centers for the foreseeable future. Failure to generate sufficient revenues,
raise additional capital, reduce certain discretionary spending or meet certain
financial covenants could have a material adverse effect on the Company's
ability to continue as a going concern and to achieve its intended business
objectives.
6
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Cash, Cash Equivalents and Short-Term Investments
On January 2, 2001, the Company drew down the $50,000,000 term loan made
available through the Senior Secured Credit Facility (see Note 7). On March 5,
2001, the Company drew down the $75,000,000 term loan made available through the
Senior Secured Credit Facility (see Note 7). On March 30, 2001, the Company
received the $3,004,000 proceeds from the Wells Fargo Loan (see Note 7). On June
27, 2001, the Company drew down the $25,000,000 revolving credit facility made
available through the Senior Secured Credit Facility (see Note 7). On June 29,
2001, the Company received the $5,000,000 proceeds from the Heller Loan (see
Note 7).
On October 16, 2001, the Company repaid $50,000,000 of the Senior Secured
Credit Facility. The Company subsequently re-borrowed $5,000,000 under the
Amended and Restated Senior Secured Credit Facility (see Note 16).
3. Restricted Cash and Short-Term Investments
In September 2001, in connection with the amendment of one of the Company's
long-term operating leases, the Company posted a letter of credit totaling
$15,450,000, including $450,000 for future letter of credit fees (see Note 9).
During the quarter ended September 30, 2001, the Company recorded a
restructuring charge as part of its revised European services strategy. Part of
this restructuring charge included the write-off of $8,634,000 related to
several letters of credit related to the Company's long-term European operating
leases (see Note 14).
4. Accounts Receivable
Accounts receivables, net, consists of the following (in thousands):
September 30, December 31,
2001 2000
------------- ------------
(unaudited)
Accounts receivable ........................... $ 14,302 $ 8,670
Unearned revenue .............................. (5,612) (3,137)
Allowance for doubtful accounts ............... (440) (608)
--------- ---------
$ 8,250 $ 4,925
========= =========
5. Property and Equipment
Property and equipment is comprised of the following (in thousands):
September 30, December 31,
2001 2000
------------- ------------
(unaudited)
Leasehold improvements ........................ $ 279,120 $ 243,851
IBX plant and machinery ....................... 51,641 51,305
Computer equipment and software ............... 17,061 12,438
IBX equipment ................................. 26,352 21,960
Furniture and fixtures ........................ 3,042 1,241
--------- ---------
377,216 330,795
Less accumulated depreciation ................. (49,938) (15,415)
--------- ---------
$ 327,278 $ 315,380
========= =========
7
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Leasehold improvements, certain computer equipment, IBX plant and
machinery, software and furniture and fixtures recorded under capital leases
aggregated $5,999,000 at both September 30, 2001 and December 31, 2000.
Amortization on the assets recorded under capital leases is included in
depreciation expense.
Included within leasehold improvements is the value attributed to the
earned portion of several warrants issued to certain fiber carriers and our
contractor totaling $6,712,000 and $5,761,000 as of September 30, 2001 and
December 31, 2000, respectively. Amortization on such warrants within leasehold
improvements is included in depreciation expense.
6. Construction in Progress
Construction in progress includes direct and indirect expenditures for the
construction of IBX centers and is stated at original cost. The Company has
contracted out substantially all of the construction of the IBX centers to
independent contractors under construction contracts. Construction in progress
includes certain costs incurred under a construction contract including project
management services, site identification and evaluation services, engineering
and schematic design services, design development and construction services and
other construction-related fees and services. In addition, the Company has
capitalized certain interest costs during the construction phase. Once an IBX
center becomes operational, these capitalized costs are depreciated at the
appropriate rate consistent with the estimated useful life of the underlying
asset.
Included within construction in progress is the value attributed to the
unearned portion of warrants issued to certain fiber carriers and our contractor
totaling $1,862,000 as of September 30, 2001 and $6,270,000 as of December 31,
2000.
Interest incurred is capitalized in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 34, Capitalization of Interest Costs. Total
interest cost incurred and total interest capitalized during the three and nine
months ended September 30, 2001, was $11,808,000 and $503,000 and $34,121,000
and $1,173,000, respectively. Total interest cost incurred and total interest
capitalized during the three and nine months ended September 30, 2000, was
$7,979,000 and $1,497,000 and $23,826,000 and $3,464,000, respectively.
During the quarter ended September 30, 2001, the Company recorded a
restructuring charge as part of its revised European services strategy. Part of
this restructuring charge included the write-down of $29,260,000 in European
construction in progress assets to their net realizable value (see Note 14).
7. Debt Facilities
Heller Loan
In June 2001, the Company obtained a $5,000,000 loan from Heller Financial
Leasing, Inc. (the "Heller Loan"). Repayments on the Heller Loan are made over
36 months and interest accrues at 13.0% per annum. The Heller Loan is secured by
certain equipment located in the New York metropolitan area IBX center.
In connection with the Heller Loan, the Company granted Heller Financial
Leasing, Inc. a warrant to purchase 37,500 shares of the Company's common stock
at $4.00 per share (the "Heller Warrant"). This warrant is immediately
exercisable and expires in five years from the date of grant. The fair value of
the warrant using the Black-Scholes option pricing model was $18,000 with the
following assumptions: fair market value per share of $1.13, dividend yield of
0%, expected volatility of 80%, risk-free interest rate of 5% and a contractual
life of 5 years. Such amount was recorded as a discount to the applicable loan
amount, and is being amortized to interest expense using the effective interest
method, over the life of the loan.
8
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Wells Fargo Loan
In March 2001, the Company obtained a $3,004,000 loan from Wells Fargo
Equipment Finance, Inc. (the "Wells Fargo Loan"). Repayments on the Wells Fargo
Loan are made over 36 months and interest accrues at 13.15% per annum. The Wells
Fargo Loan is secured by certain equipment located in the New York metropolitan
area IBX center currently under construction.
Senior Secured Credit Facility
On December 20, 2000, the Company and a newly created, wholly-owned
subsidiary of the Company, entered into a $150,000,000 Senior Secured Credit
Facility (the "Senior Secured Credit Facility") with a syndicate of lenders. The
Senior Secured Credit Facility consisted of the following:
. Term loan facility in the amount of $50,000,000. The outstanding term loan
amount is required to be paid in quarterly installments beginning in March
2003 and ending in December 2005. The Company drew this down in January
2001.
. Delayed draw term loan facility in the amount of $75,000,000. The Company
was required to borrow the entire facility on or before December 20, 2001.
The outstanding delayed draw term loan amount is required to be paid in
quarterly installments beginning in March 2003 and ending in December 2005.
The Company drew this down in March 2001.
. Revolving credit facility in an amount up to $25,000,000. The outstanding
revolving credit facility is required to be paid in full on or before
December 15, 2005. The Company drew this down in June 2001.
The Senior Secured Credit Facility has a number of covenants, which
included achieving certain minimum revenue targets and limiting cumulative
EBITDA losses and maximum capital spending limits among others. As of September
30, 2001, the Company was not in compliance with one of these covenants.
However, the syndicate of lenders provided a forbearance and, subsequent to
September 30, 2001, the Company successfully completed the renegotiation of the
Senior Secured Credit Facility and amended certain of our covenants to more
accurately reflect the current economic environment as part of the Amended and
Restated Senior Secured Credit Facility (see Note 16).
Borrowings under the Senior Secured Credit Facility are collateralized by a
first priority lien against substantially all of the Company's assets.
Loans under the Senior Secured Credit Facility bear interest at floating
rates, plus applicable margins, based on either the prime rate or LIBOR. At
September 30, 2001, the Company's total indebtedness under the Senior Secured
Credit Facility was $150,000,000 and had an effective interest rate of 7.83%.
Interest on the Senior Secured Credit Facility is paid at various dates
depending on the date of each drawdown; however, no less frequently than
quarterly. As of September 30, 2001, accrued interest payable for the Senior
Secured Credit Facility totaled $1,743,000.
The costs related to the issuance of the Senior Secured Credit Facility
were capitalized and are being amortized to interest expense using the effective
interest method, over the life of the Senior Secured Credit Facility. Debt
issuance costs, net of amortization, are $5,170,000 and $5,966,000 as of
September 30, 2001 and December 31, 2000, respectively.
In October 2001, the Company amended and restated the Senior Secured Credit
Facility. As a result of this amendment, the Company repaid $50,000,000 of the
Senior Secured Credit Facility, of which $25,000,000 represented a permanent
reduction and $25,000,000 represented a temporary reduction. The Company
subsequently re-borrowed $5,000,000 under the Amended and Restated Senior
Secured Credit Facility. In addition, the rate of interest and frequency of
interest payments was amended (see Note 16).
9
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Stockholders' Equity
Stock Plans
On January 1, 2001, pursuant to the provisions of the Company's stock
plans, the number of common shares reserved automatically increased by 4,618,731
shares for the 2000 Equity Incentive Plan, 600,000 shares for the Employee Stock
Purchase Plan and 50,000 shares for the 2000 Director Stock Option Plan.
On January 31, 2001, a total of 222,378 shares were purchased under the
Employee Stock Purchase Plan with total proceeds to the Company of $1,122,000.
On July 31, 2001, a total of 303,300 shares were purchased under the Employee
Stock Purchase Plan with total proceeds to the Company of $361,000.
In September 2001, the Company adopted the 2001 Supplemental Stock Plan
(the "2001 Plan"), in which a total of 5,000,000 shares of the Company's common
stock are available for issuance upon grant in accordance with the terms of the
2001 Plan.
Warrants
In March 2001, holders of the NorthPoint Warrant, the Comdisco Loan and
Security Agreement Warrant, the Comdisco Master Lease Agreement Warrant and the
Comdisco Master Lease Agreement Addendum Warrant exercised such warrants
pursuant to the cashless "net-exercise" provisions thereof. Upon such exercises,
such warrant holders received an aggregate of 1,049,599 shares of the Company's
common stock.
During the quarter ended March 31, 2001, certain holders of Senior Note
Warrants exercised their warrants resulting in 1,283,069 shares of the Company's
common stock being issued. A total of 1,755,781 shares underlying these Senior
Note Warrants remain outstanding as of September 30, 2001.
In September 2001, the Company amended and restated the Worldcom Venture
Fund Warrant, issued in June 2000, and reduced the total number of shares
available to purchase to 295,000 shares of the Company's common stock at $5.33
per share, which had been previously earned. In return for providing services to
the New York metropolitan area IBX center, which is currently under
construction, the Company issued two new warrants to the Worldcom Venture Fund.
The first new warrant is to purchase 355,000 shares of the Company's common
stock at $0.01 per share, of which 150,000 shares are immediately vested and
exercisable (the "Second Worldcom Venture Fund Warrant"). The second new warrant
is to purchase 245,000 shares of the Company's common stock at $0.01 per share
(the "Third Worldcom Venture Fund Warrant"). All Worldcom Venture Fund warrants
expire five years from the date of grant. The unearned portion of the Second
Worldcom Venture Fund Warrant and the Third Worldcom Venture Fund Warrant will
be fully earned and exercisable at such time as Worldcom provides services, as
defined in the warrant agreements, to the New York metropolitan area IBX center.
The unearned portion of the Second Worldcom Venture Fund Warrant and the Third
Worldcom Venture Fund Warrant are subject to a reduction in shares if there are
Worldcom-caused delays in providing Worldcom service by the opening date of the
New York metropolitan area IBX center. The earned portion of the Second Worldcom
Venture Fund Warrant was valued at $56,000 using the Black-Scholes
option-pricing model and has been recorded initially to construction in progress
until installation is complete. The following assumptions were used in
determining the fair value of the earned portion of this warrant: fair market
value per share of $0.38, dividend yield of 0%, expected volatility of 80%,
risk-free interest rate of 3.00% and a contractual life of 5 years. The unearned
portion of the Second Worldcom Venture Fund Warrant and the Third Worldcom
Venture Fund Warrant will be valued at the time that they are earned.
10
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Commitments and Contingencies
In September 2001, the Company amended one of its long-term operating
leases for certain unimproved real property in San Jose, California. Previously,
the Company posted a letter of credit in the amount of $10,000,000 and was
required to increase the letter of credit by $25,000,000 to an aggregate of
$35,000,000 if the Company did not meet certain development and financing
milestones. The Company successfully re-negotiated the letter of credit
provision in the operating lease whereby the aggregate obligation was reduced by
$10,000,000 to $25,000,000 provided the Company agreed to post an additional
letter of credit totaling $15,000,000 prior to September 30, 2001. In addition,
the operating lease commitments, for the 12-month period ending September 2002,
were reduced by $3,000,000 provided the Company prepaid a full year of lease
payments. The benefit of this reduction will be amortized to rent expense over
the full term of the lease. The additional letter of credit was funded prior to
September 30, 2001 and the rent pre-payment was funded subsequent to September
30, 2001.
During the quarter ended September 30, 2001, putative shareholder class
action lawsuits were filed against the Company, certain of its officers and
directors, and several investment banks that were underwriters of the Company's
initial public offering. The suits allege that the underwriter defendants agreed
to allocate stock in the Company's initial public offering to certain investors
in exchange for excessive and undisclosed commissions and agreements by those
investors to make additional purchases in the aftermarket at pre-determined
prices. Plaintiffs allege that the prospectus for the Company's initial public
offering was false and misleading and in violation of the securities laws
because it did not disclose these arrangements. The Company and its officers and
directors intend to defend the action vigorously. The Company believes that more
than one hundred other companies have been named in nearly identical lawsuits
that have been filed by some of the same plaintiffs' law firms. The Company
believes it has adequate legal defenses and believes that the ultimate outcome
of these actions will not have a material effect on the Company's consolidated
financial position or results of operations, although there can be no assurance
as to the outcome of such litigation.
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accrues
contingent liabilities when it is probable that future expenditures will be made
and such expenditures can be reasonably estimated. In the opinion of management,
there are no pending claims of which the outcome is expected to result in a
material adverse effect in the financial position or results of operations of
the Company.
10. Related Party Transactions
On February 27, 2001, the Company advanced an aggregate of $1,512,000 to an
officer of the Company, which is evidenced by a promissory note. The proceeds of
this loan were used to fund the purchase of a principal residence. The loan is
due February 27, 2006, but is subject to certain events of acceleration. The
loan is non-interest bearing.
On June 18, 2001, the Company advanced an aggregate of $900,000 to an
officer of the Company, which is evidenced by a promissory note. The proceeds of
this loan were used to fund the purchase of a principal residence. The loan is
due June 18, 2006, but is subject to certain events of acceleration. The loan is
non-interest bearing.
11
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Comprehensive Loss
The components of comprehensive loss are as follows (in thousands)
(unaudited):
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net loss ................................... $ (81,574) $ (32,085) $(160,968) $ (76,905)
Unrealized gain (loss) on available for sale
securities .............................. 1,554 (74) (1,387) (126)
Foreign currency translation loss .......... 209 33 298 33
--------- --------- --------- ---------
Comprehensive loss ......................... $ (79,811) $ (32,126) $(162,057) $ (76,998)
========= ========= ========= =========
There were no significant tax effects on comprehensive loss for the three
and nine months ended September 30, 2001 and 2000.
12. Net Loss per Share
Basic and diluted net loss per share is computed using the weighted average
number of shares of common stock outstanding. Options, warrants and preferred
stock were not included in the computation of diluted net loss per share because
the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share data)
(unaudited):
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Numerator:
Net loss .................................. $ (81,574) $ (32,085) $(160,968) $ (76,905)
========= ========= ========= =========
Historical:
Denominator:
Weighted average shares ................... 81,656 50,908 81,149 27,586
Weighted average unvested shares subject to
repurchase ............................ (2,598) (5,374) (3,306) (5,297)
--------- --------- --------- ---------
Total weighted average shares ......... 79,058 45,534 77,843 22,289
========= ========= ========= =========
Net loss per share:
Basic and diluted ..................... $ (1.03) $ (0.70) $ (2.07) $ (3.45)
========= ========= ========= =========
The following table sets forth potential shares of common stock that are
not included in the diluted net loss per share calculation above because to do
so would be anti-dilutive for the periods indicated:
September 30,
-----------------------
2001 2000
---------- ----------
Common stock warrants ............ 4,462,381 7,113,745
Common stock options ............. 21,167,869 8,417,672
Common stock subject to repurchase 3,305,685 5,297,123
12
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Segment Information
The Company and its subsidiaries are principally engaged in the design,
build-out and operation of neutral IBX centers. All revenues result from the
operation of these IBX centers. Accordingly, the Company considers itself to
operate in a single segment. The Company's chief operating decision-maker
evaluates performance, makes operating decisions and allocates resources based
on financial data consistent with the presentation in the accompanying
consolidated financial statements.
During the quarter ended September 30, 2001, the Company recorded a
restructuring charge as part of its revised European services strategy. A total
of $45,315,000 of the restructuring charge related to the write-off of certain
European assets to their net realizable value (see Note 14). As of September
30, 2001, all of the Company's operations and assets were based in the United
States with the exception of $2,228,000 of the Company's net identifiable
assets based in Europe and $47,253,000 and $51,490,000 of the Company's total
net loss was attributable to the development and restructuring of its European
operations for the three and nine months ending September 30, 2001,
respectively. As of September 30, 2000, all of the Company's operations and
assets were based in the United States.
Revenues from one customer accounted for 17% and 15%, respectively, of the
Company's revenues for the three and nine months ended September 30, 2001. No
other single customer accounted for more than 10% of the Company's revenues for
the three and nine months ended September 30, 2001. Revenues from two customers
accounted for a combined 34% and 28%, respectively, of the Company's revenues
for the three and nine months ended September 30, 2000. Accounts receivables
from two customers accounted for 16% and 11%, respectively, of the Company's
gross accounts receivables as of September 30, 2001.
14. Restructuring Charge
During the quarter ended September 30, 2001, the Company revised its
European services strategy through the development of new partnerships with
other leading international Internet exchange partners rather than build and
operate its own European IBX centers. In addition, the Company initiated
efforts to exit certain leaseholds relating to certain excess U.S. operating
leases. Also, in September 2001, the Company implemented an approximate 15%
reduction in workforce, primarily in headquarter positions, in an effort to
reduce operating costs. As a result, the Company took a total restructuring
charge of $48,565,000 primarily related to the write-down of European
construction in progress assets to their net realizable value, the write-off of
several European letters of credit related to several European operating
leases, the accrual of European and U.S. leasehold exit costs and the severance
accrual related to the reduction in workforce. The remaining European
construction in progress as of September 30, 2001, totaling $2,228,000,
represents assets purchased during pre-construction activities that are now
held for resale. Due to the current economic environment, the resale of this
equipment may take longer than one year. As of September 30, 2001, the Company
has successfully surrendered one of the European leases. The Company expects to
successfully complete the exit of the remaining leases during 2002. The
reduction in workforce is expected to be substantially complete during the
fourth quarter of 2001.
13
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of the restructuring charge is outlined as follows (in
thousands):
Accrued
restructuring
Total charge as of
restructuring Non-cash Cash September 30,
charge charges payments 2001
-------------- ------------ ------------- ---------------
Write-down of European construction in
progress .................................. $ 29,260 $ (29,260) $ -- $ --
Write-off of European letters of credit ...... 8,634 (8,634) -- --
European lease exit costs .................... 6,368 (2,059) (335) 3,974
European legal fees and other charges ........ 1,053 -- -- 1,053
U.S. lease exit costs ........................ 2,000 -- -- 2,000
Workforce reduction .......................... 1,250 (134) (239) 877
-------------- ------------ ------------- ---------------
$ 48,565 $ (40,087) $ (574) $ 7,904
============== ============ ============= ===============
15. Recent Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities. In June 1999, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133."
In June 2000, the FASB issued SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB Statement No.
133." SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities, and requires that all
derivatives, including foreign currency exchange contracts, be recognized on the
balance sheet at fair value. The adoption of SFAS 133, as amended by SFAS 137
and SFAS 138, did not have a material impact on our financial position and
results of operations.
On July 20, 2001 the FASB issued SFAS No. 141, Business Combinations
("SFAS 141") and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS
142").
SFAS 141 supercedes Accounting Principles Board Opinion No. 16 (APB 16),
Business Combinations, and is effective for all business combinations initiated
after June 30, 2001 and for all business combinations accounted for by the
purchase method for which the date of acquisition is after June 30, 2001. One of
the most significant changes made by SFAS 141 is to require the use of the
purchase method of accounting for all business combinations initiated after June
30, 2001.
SFAS 142 supercedes Accounting Principles Board Opinion No. 17 (APB 17),
Intangible Assets, but will carry forward provisions in APB 17 related to
internally developed intangible assets. SFAS 142 primarily addresses the
accounting for goodwill and intangible assets subsequent to their acquisition
and is effective for fiscal years beginning after December 15, 2001. However,
early adoption of SFAS 142 will be permitted for companies with a fiscal year
beginning after March 15, 2001, provided their first quarter financial
statements have not been previously issued. In all cases, SFAS 142 must be
adopted at the beginning of a fiscal year. The most significant changes made by
SFAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer
be amortized, (2) goodwill will be tested for impairment at least annually at
the reporting unit level, (3) intangible assets deemed to have an indefinite
life will be tested for impairment at least annually, and (4) the amortization
period of intangible assets with finite lives will no longer be limited to forty
years.
The Company does not expect the adoption of either SFAS 141 or SFAS 142
will have a material effect on its consolidated financial statements.
14
EQUINIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 supercedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." SFAS 144 applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles Board
Opinion No. 30. SFAS 144 develops one accounting model for long-lived assets
that are to be disposed of by sale. SFAS 144 requires that long-lived assets
that are to be disposed of by sale be measured at the lower of book value or
fair value less cost to sell. Additionally, SFAS 144 expands the scope of
discontinued operations to include all components of an entity with operations
that (1) can be distinguished from the rest of the entity and (2) will be
eliminated from the ongoing operations of the entity in a disposal transaction.
SFAS 144 is effective for the Company for all financial statements issued in
fiscal 2002. The Company is currently evaluating the impacts of the adoption of
SFAS 144 to its financial statements.
16. Subsequent Events
In October 2001, the Company amended and restated the Senior Secured
Credit Facility (the "Amended and Restated Senior Secured Credit Facility")
(see Note 7). As required under this amendment, the Company repaid $50,000,000
of the $150,000,000 Senior Secured Credit Facility outstanding as of September
30, 2001, of which $25,000,000 represented a permanent reduction. As such, the
Amended and Restated Senior Secured Credit Facility provides a total of
$125,000,000 of debt financing and consists of the following:
. Term loan facility, redesignated as tranche A, in the amount of
$100,000,000, which represents the remaining $100,000,000
outstanding after repayment of the $50,000,000 in October 2001.
. Term loan facility, redesignated as tranche B, in the amount of
$25,000,000, of which $5,000,000 was immediately drawn with the
remaining $20,000,000 available for borrowing during a future
designated period.
Repayment of principal under the Amended and Restated Senior Secured
Credit Facility begins in March 2003 with final principal payment occurring by
December 2005. Interest rates on the Amended and Restated Senior Secured Credit
Facility were increased by 0.50% and the frequency of interest payments has
been amended to monthly from quarterly.
As part of the Amended and Restated Senior Secured Credit Facility, the
syndicate of lenders reset and modified the various covenants related to the
Senior Secured Credit Facility to more accurately reflect the current economic
environment. In addition to resetting the existing financial covenants, a new
covenant requiring minimum cash balances was added.
As a result of amending and restating the Senior Secured Credit Facility,
the Company incurred total fees of approximately $1,477,000, which have been
added to debt issuance costs and will be amortized to interest expense using
the effective interest method over the remaining life of the Amended and
Restated Senior Secured Credit Facility.
15
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are based upon current expectations that involve risks and uncertainties. Any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. For example, the words "believes,"
"anticipates," "plans," "expects," "intends" and similar expressions are
intended to identify forward-looking statements. Our actual results and the
timing of certain events may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a discrepancy
include, but are not limited to, those discussed in "Other Factors Affecting
Operating Results" and "Liquidity and Capital Resources" below. 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.
Overview
Equinix, Inc. ("Equinix", the "Company", "we" or "us") designs, builds and
operates neutral Internet Business Exchange ("IBX") centers where Internet
businesses place their equipment and their network facilities in order to
interconnect with each other to improve Internet performance. Our neutral IBX
centers and Internet exchange services enable network service providers,
enterprises, content providers, managed service providers and other Internet
infrastructure companies to directly interconnect with each other for increased
performance. Equinix currently has IBX centers totaling an aggregate of 611,000
gross square feet in the Washington, D.C. metropolitan area, the New York
metropolitan area, Silicon Valley, Dallas, Los Angeles and Chicago. We intend to
complete construction of one additional IBX center during the fourth quarter of
2001 in the New York metropolitan area, resulting in seven IBX centers covering
six domestic markets in the United States.
We generate recurring revenues primarily from the leasing of cabinet space
and power. In addition, we offer value-added services and professional services
including direct interconnections between our customers and "Smart Hands"
service for customer equipment installations and maintenance. Customer contracts
for the lease of cabinet space, power, interconnections and switch ports are
renewable and typically are for one to three years with payments for services
made on a monthly basis. In addition, we generate non-recurring revenues, which
are comprised of installation charges that are billed upon successful
installation of our customer cabinets, power, interconnections and switch ports.
Both recurring and non-recurring revenues are recognized ratably over the term
of the contract.
Our cost of revenues consists primarily of lease payments on our existing
and proposed IBX centers, site employees' salaries and benefits, utility costs,
amortization and depreciation of IBX center build-out costs and equipment and
engineering, power, redundancy and security systems support and services. In
addition, cost of revenues includes certain costs related to real estate
obtained for future IBX centers in the United States. We will continue to fund
these costs and they will be expensed as incurred. We expect our cost of
revenues to increase as we open our new IBX center and as we continue to expand
our customer base. Through September 30, 2001, cost of revenues included certain
costs related to real estate obtained for future IBX centers in Europe. During
the quarter ended September 30, 2001, the Company recorded a restructuring
charge of $48.6 million, of which $45.3 million is due to its revised European
services strategy to partner with existing Internet exchange companies in Europe
rather than build and operate its own centers and approximately $1.0 million is
related to anticipated excess U.S. leasehold exit costs.
Our selling, general and administrative expenses consist primarily of costs
associated with recruiting, training and managing of employees, salaries and
related costs of our operations, customer fulfillment
16
and support functions costs, finance and administrative personnel and related
professional fees. During the third quarter 2001, the Company took a
restructuring charge of $48.6 million, of which $1.3 million was related to an
approximate 15% reduction in workforce, primarily in various headquarter
functions, in an effort to streamline costs and approximately $1.0 million was
related to the leasehold exit costs for excess office space in the U.S.
Furthermore, the Company has implemented several cost savings initiatives and
will continue to closely monitor its spending. As a result, selling, general and
administrative expenses are not expected to increase until such time as the
Company reaches certain pre-determined levels of profitability.
We recorded deferred stock-based compensation in connection with stock
options granted during 2000, 1999 and 1998, respectively, where the deemed fair
market value of the underlying common stock was subsequently determined to be
greater than the exercise price on the date of grant. Approximately $2.9 million
and $16.0 million was amortized to stock-based compensation expense for the
three and nine months ended September 30, 2001, respectively. Approximately
$10.1 million and $20.1 million was amortized to stock-based compensation
expense for the three and nine months ended September 30, 2000, respectively.
The options granted are typically subject to a four-year vesting period. We are
amortizing the deferred stock-based compensation on an accelerated basis over
the vesting periods of the applicable options in accordance with FASB
Interpretation No. 28. The remaining $14.5 million of deferred stock-based
compensation will be amortized over the remaining vesting periods. We expect
amortization of deferred stock-based compensation expense to impact our reported
results through December 31, 2004.
Our adjusted net loss before net interest and other expense, income taxes,
depreciation and amortization of capital assets, amortization of stock-based
compensation, restructuring charges and other non-cash charges ("Adjusted
EBITDA") is calculated to enhance an understanding of our operating results.
Adjusted EBITDA is a financial measurement commonly used in capital-intensive
telecommunication and infrastructure industries. Other companies may calculate
Adjusted EBITDA differently than we do. It is not intended to represent cash
flow or results of operations in accordance with generally accepted accounting
principles nor a measure of liquidity. We measure Adjusted EBITDA at both the
IBX center and total company level.
Since inception, we have experienced operating losses and negative cash
flow. As of September 30, 2001 we had an accumulated deficit of $302.6 million
and accumulated cash used in operating and construction activities of $594.2
million. Given the revenue and income potential of our service offerings is
still unproven and we have a limited operating history, we may not generate
sufficient operating results to achieve desired profitability. We therefore
believe that we will continue to experience operating losses for the foreseeable
future. See "Other Factors Affecting Operating Results".
Results of Operations
Three Months Ended September 30, 2001 and 2000
Revenues. We recognized revenues of $17.2 million for the three months
ended September 30, 2001. Revenues consisted of recurring revenues of $15.7
million primarily from the leasing of cabinet space and non-recurring revenues
of $1.5 million related to the recognized portion of deferred installation
revenue and custom service revenues. Installation and service fees are
recognized ratably over the term of the contract. Custom service revenues are
recognized upon completion of the services. We recognized revenues of $3.9
million during the three months ended September 30, 2000.
Cost of Revenues. Cost of revenues increased from $12.6 million for the
three months ended September 30, 2000 to $24.6 million for the three months
ended September 30, 2001. These amounts include $2.6 million and $9.6 million,
respectively, of depreciation and amortization expense. In addition to
depreciation and amortization, cost of revenues consists primarily of rental
payments for our leased IBX centers, site employees' salaries and benefits,
utility costs, power and redundancy system engineering support services and
related costs and security services. The increase in cost of revenues was due to
additional leases and increased expenses related to our opening of additional
IBX centers. During the quarter ended September 30, 2001, the Company incurred a
$45.3 million restructuring charge related to a revised European services
strategy that included accruing for leasehold exit costs related to
17
European leases and an approximate $1.0 million restructuring charge for
anticipated U.S. leasehold exit costs for excess U.S. lease space. The Company
expects that this will reduce cost of revenues commencing in fourth quarter
2001; however, these savings will be offset by increased cost of revenues
associated with the opening of the New York metropolitan IBX center, including
depreciation, and additional cost of revenues in existing IBX centers as the
Company's installed base of customers grows.
Sales and Marketing. Sales and marketing expenses decreased from $5.0
million for the three months ended September 30, 2000 to $4.0 million for the
three months ended September 30, 2001; however, these amounts include $2.4
million and $496,000, respectively, of stock-based compensation expense,
resulting in a 29% increase in period over period cash spending. Sales and
marketing expenses consist primarily of compensation and related costs for the
sales and marketing personnel, sales commissions, marketing programs, public
relations, promotional materials and travel. The increase in sales and marketing
expense resulted from the addition of personnel in our sales and marketing
organizations, reflecting our increased selling effort and our efforts to
develop market awareness. During the quarter ended September 30, 2001, the
Company incurred a $1.3 million restructuring charge related to a reduction in
workforce that included some sales and marketing staff. In addition, the Company
is closely monitoring its discretionary marketing costs as the result of current
market conditions. As a result, we do not expect our sales and marketing costs
to increase significantly in the foreseeable future, until such time as the
Company reaches certain pre-determined levels of profitability.
General and Administrative. General and administrative expenses decreased
from $16.2 million for the three months ended September 30, 2000 to $12.6
million for the three months ended September 30, 2001. These amounts include
$7.5 million and $2.4 million, respectively, of stock-based compensation expense
and $652,000 and $2.8 million, respectively, of depreciation and amortization
expense, resulting in an 8% decrease in period over period cash spending.
General and administrative expenses consist primarily of salaries and related
expenses, accounting, legal and administrative expenses, professional service
fees and other general corporate expenses. The decrease in general and
administrative expenses was primarily the result of several cost savings
initiatives that the Company undertook, including some staff reductions and an
overall decrease in discretionary spending. Furthermore, during the quarter
ended September 30, 2001, the Company incurred a $1.3 million restructuring
charge related to a reduction in workforce that included some general and
administrative staff and an approximate $1.0 million restructuring charge for
leasehold exit costs for excess office space in the U.S. As a result of these
cost saving measures, we do not expect our general and administrative costs to
increase significantly in the foreseeable future.
Restructuring Charge. During the quarter ended September 30, 2001, the
Company took a restructuring charge of $48.6 million consisting of $45.3 million
related to a revised European services strategy, $2.0 million for certain
anticipated excess U.S. leasehold exit costs and $1.3 million related to a
reduction in workforce, primarily in selling, general and administrative
functions at the Company's headquarters. During third quarter 2001, the Company
decided to partner with other Internet exchange companies in Europe rather than
build and operate its own centers outside of the U.S. As a result, the Company
i) recorded a write-down of its European construction in progress assets to
their net realizable value and recorded a charge totaling $29.3 million, ii)
accrued certain leasehold exit costs for its European leasehold interests in the
amount of $6.4 million, iii) wrote-off its European letters of credit that
secured the European leasehold interests in the amount of $8.6 million and iv)
accrued various legal, storage and other costs totaling $1.0 million to
facilitate this change in strategy. The Company expects that the cost-savings
benefits of the $45.3 million European restructuring charge, which will
primarily affect cost of revenues, will commence in fourth quarter 2001.
However, these cost-savings will be partially offset by the increased operating
costs of the New York metropolitan area IBX center. In addition, the Company
incurred a $2.0 million restructuring charge for leasehold exit costs associated
with certain excess U.S. leases and a $1.3 million restructuring charge related
to an approximate 15% reduction in workforce in an effort to streamline and
reduce the cost structure of the Company's headquarter function. The Company
expects to realize the cost savings benefits of the $2.0 million U.S. lease
restructuring charge and $1.3 million workforce reduction restructuring charge,
commencing in the fourth quarter of 2001.
18
Adjusted EBITDA. Adjusted EBITDA loss decreased from $16.6 million for the
three months ended September 30, 2000 to $8.7 million for the three months ended
September 30, 2001. Although many factors affect Adjusted EBITDA and costs vary
from IBX market to IBX market, as of September 30, 2001, five of our six IBX
centers have achieved positive Adjusted EBITDA status. We believe that Adjusted
EBITDA losses peaked during the fourth quarter of 2000 and Adjusted EBITDA
losses will continue to decline in as the Company approaches Adjusted EBITDA
breakeven.
Interest Income. Interest income decreased from $4.3 million for the three
months ended September 30, 2000 to $2.3 million for the three months ended
September 30, 2001 as a result of a decline in short-term interest rates and
reduced cash, cash equivalent and short-term investments.
Interest Expense. Interest expense increased from $6.5 million for the
three months ended September 30, 2000 to $11.3 million for the three months
ended September 30, 2001. The increase in interest expense was attributed to
interest on the senior notes, interest related to an increase in our debt
facilities and capital lease obligations, including the new senior secured
credit facility, and amortization of the senior notes, senior secured credit
facility, other debt facilities and capital lease obligations discount.
Nine Months Ended September 30, 2001 and 2000
Revenues. We recognized revenues of $45.9 million for the nine months ended
September 30, 2001. Revenues consisted of recurring revenues of $42.3 million
primarily from the leasing of cabinet space and non-recurring revenues of $3.6
million related to the recognized portion of deferred installation revenue and
custom service revenues. Installation and service fees are recognized ratably
over the term of the contract. Custom service revenues are recognized upon
completion of the services. We recognized revenues of $5.0 million during the
nine months ended September 30, 2000.
Cost of Revenues. Cost of revenues increased from $21.3 million for the
nine months ended June 30, 2000 to $74.6 million for the nine months ended
September 30, 2001. These amounts include $4.9 million and $30.0 million,
respectively, of depreciation and amortization expense. In addition to
depreciation and amortization, cost of revenues consists primarily of rental
payments for our leased IBX centers, site employees' salaries and benefits,
utility costs, power and redundancy system engineering support services and
related costs and security services. The increase in cost of revenues was due to
additional leases and increased expenses related to our opening of additional
IBX centers. During the quarter ended September 30, 2001, the Company incurred a
$45.3 million restructuring charge related to a revised European services
strategy that included accruing for leasehold exit costs related to European
leases and an approximate $1.0 million restructuring charge for anticipated U.S.
leasehold exit costs for excess U.S. lease space. The Company expects that this
will reduce cost of revenues commencing in fourth quarter 2001; however, these
savings will be offset by increased cost of revenues associated with the opening
of the New York metropolitan IBX center, including depreciation, and additional
cost of revenues in existing IBX centers as the Company's installed base of
customers grows.
Sales and Marketing. Sales and marketing expenses decreased from $13.8
million for the nine months ended September 30, 2000 to $13.3 million for the
nine months ended September 30, 2001; however, these amounts include $5.3
million and $2.3 million, respectively, of stock-based compensation expense,
resulting in a 30% increase in period over period cash spending. Sales and
marketing expenses consist primarily of compensation and related costs for the
sales and marketing personnel, sales commissions, marketing programs, public
relations, promotional materials and travel. The increase in sales and marketing
expense resulted from the addition of personnel in our sales and marketing
organizations, reflecting our increased selling effort and our efforts to
develop market awareness. During the quarter ended September 30, 2001, the
Company incurred a $1.3 million restructuring charge related to a reduction in
workforce that included some sales and marketing staff. In addition, the Company
is closely monitoring its discretionary marketing costs as the result of current
market conditions. As a result, we do not expect our sales and marketing costs
to increase significantly in the foreseeable future, until such time as the
Company reaches certain pre-determined levels of profitability.
19
General and Administrative. General and administrative expenses increased
from $38.4 million for the nine months ended September 30, 2000 to $47.0 million
for the nine months ended September 30, 2001. These amounts include $14.4
million and $13.3 million, respectively, of stock-based compensation expense and
$2.0 million and $6.5 million, respectively, of depreciation and amortization
expense, resulting in a 24% increase in period over period cash spending.
General and administrative expenses consist primarily of salaries and related
expenses, accounting, legal and administrative expenses, professional service
fees and other general corporate expenses. The increase in general and
administrative expenses was primarily the result of increased expenses
associated with additional hiring of personnel in management, finance and
administration, as well as other related costs associated with supporting the
Company's expansion. During the second quarter of 2001, the Company implemented
several cost-savings initiatives, including some staff reductions and an overall
decrease in discretionary spending. Furthermore, during the quarter ended
September 30, 2001, the Company incurred a $1.3 million restructuring charge
related to a reduction in workforce that included some general and
administrative staff and an approximate $1.0 million restructuring charge for
leasehold exit costs for excess office space in the U.S. As a result of these
cost saving measures, we do not expect our general and administrative costs to
increase significantly in the foreseeable future.
Restructuring Charge. During the period ended September 30, 2001, the
Company took a restructuring charge of $48.6 million consisting of $45.3 million
related to a revised European services strategy, $2.0 million for certain
anticipated excess U.S. leasehold exit costs and $1.3 million related to a
reduction in workforce, primarily in selling, general and administrative
functions at the Company's headquarters. During third quarter 2001, the Company
decided to partner with other Internet exchange companies in Europe rather than
build and operate its own centers outside of the U.S. As a result, the Company
i) recorded a write-down of its European construction in progress assets to
their net realizable value and recorded a charge totaling $29.3 million, ii)
accrued certain leasehold exit costs for its European leasehold interests in the
amount of $6.4 million, iii) wrote-off its European letters of credit that
secured the European leasehold interests in the amount of $8.6 million and iv)
accrued various legal, storage and other costs totaling $1.0 million to
facilitate this change in strategy. The Company expects that the cost-savings
benefits of the $45.3 million European restructuring charge, which will
primarily affect cost of revenues, will commence in fourth quarter 2001.
However, these cost-savings will be partially offset by the increased operating
costs of the New York metropolitan area IBX center. In addition, the Company
incurred a $2.0 million restructuring charge for leasehold exit costs associated
with certain excess U.S. leases and a $1.3 million restructuring charge related
to an approximate 15% reduction in workforce in an effort to streamline and
reduce the cost structure of the Company's headquarter function. The Company
expects to realize the cost savings benefits of the $2.0 million U.S. lease
restructuring charge and $1.3 million workforce reduction restructuring charge,
commencing in the fourth quarter of 2001.
Adjusted EBITDA. Adjusted EBITDA loss decreased from $41.5 million for the
nine months ended September 30, 2000 to $36.4 million for the nine months ended
September 30, 2001. Although many factors affect Adjusted EBITDA and costs vary
from IBX market to IBX market, as of September 30, 2001, five of our six IBX
centers achieved positive Adjusted EBITDA status. We believe that Adjusted
EBITDA losses peaked during the fourth quarter of 2000 and Adjusted EBITDA
losses will continue to decline in subsequent quarters as the Company approaches
Adjusted EBITDA breakeven.
Interest Income. Interest income decreased from $11.9 million for the nine
months ended September 30, 2000 to $9.5 million for the nine months ended
September 30, 2001 as a result of a decline in short-term interest rates and
reduced cash, cash equivalent and short-term investments.
Interest Expense. Interest expense increased from $20.4 million for the
nine months ended September 30, 2000 to $32.9 million for the nine months ended
September 30, 2001. The increase in interest expense was attributed to interest
on the senior notes, interest related to an increase in our debt facilities and
capital lease obligations, including the new senior secured credit facility, and
amortization of the senior notes, senior secured credit facility, other debt
facilities and capital lease obligations discount.
20
Liquidity and Capital Resources
Since inception, we have financed our operations and capital requirements
primarily through the issuance of senior notes, the private sale of preferred
stock, our initial public offering and various debt financings, including our
$150.0 million senior secured credit facility, for aggregate gross proceeds of
approximately $844.2 million. As of September 30, 2001, we had approximately
$165.8 million in cash, cash equivalents and short-term investments.
Furthermore, we have an additional $32.6 million of restricted cash, cash
equivalents and short-term investments to provide collateral under a number of
separate security agreements for standby letters of credit and escrow accounts
entered into and in accordance with certain lease and construction agreements.
Our principal sources of liquidity consist of our cash, cash equivalent and
short-term investment balances. As of September 30, 2001, our total indebtedness
from our senior notes, senior secured credit facility and debt facilities and
capital lease obligations was $352.5 million; however, in October 2001, the
Company repaid $50.0 million of the senior secured credit facility and
subsequently borrowed $5.0 million under the amended and restated senior secured
credit facility. This repayment occurred in conjunction with amending and
restating the original agreement to reset certain financial covenants contained
in this facility to more accurately reflect current economic market conditions.
Net cash used in our operating activities was $52.1 million and $37.3
million for the nine months ended September 30, 2001 and 2000, respectively. We
used cash primarily to fund our net loss from operations.
Net cash used in investing activities was $191.8 million and $243.6 million
for the nine months ended September 30, 2001 and 2000, respectively. Net cash
used in investing activities was primarily attributable to the construction of
our IBX centers and the purchase of restricted cash and short-term investments.
Net cash generated by financing activities was $155.1 million and $351.6
million for the nine months ended September 30, 2001 and 2000, respectively. Net
cash generated by financing activities during the nine months ended September
30, 2001 was primarily attributable to the full draw down of our $150.0 million
senior secured credit facility. Net cash generated by financing activities
during the nine months ended September 30, 2000 was primarily attributable to
the issuance of Series C redeemable convertible preferred stock and the net
proceeds from our initial public offering.
In May 1999, we entered into a master lease agreement in the amount of $1.0
million. This master lease agreement was increased by addendum in August 1999 by
$5.0 million. This agreement bears interest at either 7.5% or 8.5% and is
repayable over 42 months in equal monthly payments with a final interest payment
equal to 15% of the advance amounts due on maturity. As of September 30, 2001,
these capital lease financings were fully drawn.
In August 1999, we entered into a loan agreement in the amount of $10.0
million. This loan agreement bears interest at 8.5% and is repayable over 42
months in equal monthly payments with a final interest payment equal to 15% of
the advance amounts due on maturity. As of September 30, 2001, this loan
agreement was fully drawn.
In December 1999, we issued $200.0 million aggregate principal amount of
13% senior notes due 2007 for aggregate net proceeds of $193.4 million, net of
offering expenses. Of the $200.0 million gross proceeds, $16.2 million was
allocated to additional paid-in capital for the fair market value of the common
stock warrants and recorded as a discount to the senior notes. Senior notes, net
of the unamortized discount, are valued at $187.4 million as of September 30,
2001.
In December 1999, we completed the private sale of our Series B redeemable
convertible preferred stock, net of issuance costs, in the amount of $81.7
million.
In May 2000, we entered into a purchase agreement regarding approximately
80 acres of real property in San Jose, California. In June 2000, before closing
on this property, we assigned our interest in the purchase agreement to iStar
San Jose, LLC ("iStar"). On the same date, iStar purchased this property
21
and entered into a 20-year lease with us for the property. Under the terms of
the lease, we have the option to extend the lease for an additional 60 years,
for a total lease term of 80 years. In addition, we have the option to purchase
the property from iStar after 10 years.
In June 2000, we completed the private sale of our Series C redeemable
convertible preferred stock in the amount of $94.4 million.
In August 2000, we completed an initial public offering of 20,000,000
shares of common stock. In addition, in September 2000, the underwriters
exercised their option to purchase 2,704,596 additional shares to cover
over-allotments. Total net proceeds from the offering and over-allotment were
$251.5 million.
In December 2000, we entered into a $150.0 million senior secured credit
facility. As of September 30, 2001, this facility has been fully drawn down;
however, in October 2001, the Company repaid $50.0 million of this facility.
This repayment occurred in conjunction with amending and restating the original
agreement to reset certain financial covenants contained in this facility to
more accurately reflect current economic market conditions. Of the $50.0 million
repaid, a total of $25.0 million is a permanent reduction of this facility,
while the remaining $25.0 million is available for re-borrow under the amended
and restated senior secured credit facility. In October 2001, $5.0 million was
drawn under the amended and restated senior secured credit facility with the
remaining balance of $20.0 million available for re-borrow during a future
designated period.
In March 2001, we entered into a loan agreement in the amount of $3.0
million. This loan agreement bears interest at 13.15% and is repayable over 36
months. As of September 30, 2001, this loan agreement was fully drawn.
In June 2001, we entered into a loan agreement in the amount of $5.0
million. This loan agreement bears interest at 13.0% and is repayable over 36
months. As of September 30, 2001, this loan agreement was fully drawn.
We expect that our cash on hand and anticipated cash flow from operations
should be sufficient to complete our seventh IBX center in the New York
metropolitan area by the end of 2001. Assuming sufficient customer demand and
the availability of additional financing, we may build or buy additional IBX
centers and expand certain existing IBX centers. We are continually evaluating
the location, number and size of our facilities based upon the availability of
suitable sites, financing and customer demand. If we cannot raise additional
funds on acceptable terms or our losses exceed our expectations, we may delay or
permanently reduce our rollout plans. Additional financing may take the form of
debt or equity. If we are unable to raise additional funds to further our
rollout, we anticipate that our existing cash and the cash flow generated from
the seven IBX centers, for which we will have obtained financing, will be
sufficient to meet the working capital, debt service and corporate overhead
requirements associated with those IBX centers for the foreseeable future.
Recent Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities. In June 1999, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133."
In June 2000, the FASB issued SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB Statement No.
133." SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities, and requires that all
derivatives, including foreign currency exchange contracts, be recognized on the
balance sheet at fair value. The adoption of SFAS 133, as amended by SFAS 137
and SFAS 138, did not have a material impact on our financial position and
results of operations.
On July 20, 2001 the FASB issued SFAS No. 141, Business Combinations ("SFAS
141") and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142").
22
SFAS 141 supercedes Accounting Principles Board Opinion No. 16 (APB 16),
Business Combinations, and is effective for all business combinations initiated
after June 30, 2001 and for all business combinations accounted for by the
purchase method for which the date of acquisition is after June 30, 2001. One of
the most significant changes made by SFAS 141 is to require the use of the
purchase method of accounting for all business combinations initiated after June
30, 2001.
SFAS 142 supercedes Accounting Principles Board Opinion No. 17 (APB 17),
Intangible Assets, but will carry forward provisions in APB 17 related to
internally developed intangible assets. SFAS 142 primarily addresses the
accounting for goodwill and intangible assets subsequent to their acquisition
and is effective for fiscal years beginning after December 15, 2001. However,
early adoption of SFAS 142 will be permitted for companies with a fiscal year
beginning after March 15, 2001, provided their first quarter financial
statements have not been previously issued. In all cases, SFAS 142 must be
adopted at the beginning of a fiscal year. The most significant changes made by
SFAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer
be amortized, (2) goodwill will be tested for impairment at least annually at
the reporting unit level, (3) intangible assets deemed to have an indefinite
life will be tested for impairment at least annually, and (4) the amortization
period of intangible assets with finite lives will no longer be limited to forty
years.
The Company does not expect the adoption of either SFAS 141 or SFAS 142
will have a material effect on its consolidated financial statements.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 supercedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." SFAS 144 applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles Board
Opinion No. 30. SFAS 144 develops one accounting model for long-lived assets
that are to be disposed of by sale. SFAS 144 requires that long-lived assets
that are to be disposed of by sale be measured at the lower of book value or
fair value less cost to sell. Additionally, SFAS 144 expands the scope of
discontinued operations to include all components of an entity with operations
that (1) can be distinguished from the rest of the entity and (2) will be
eliminated from the ongoing operations of the entity in a disposal transaction.
SFAS 144 is effective for the Company for all financial statements issued in
fiscal 2002. The Company is currently evaluating the impacts of the adoption of
SFAS 144 to its financial statements.
23
Other Factors Affecting Operating Results
Risks Related to Our Business
Our business model is new and unproven and we may not succeed in generating
sufficient revenue to sustain or grow our business.
We were founded in June 1998. We did not recognize any revenue until
November 1999. Our limited history and lack of meaningful financial or operating
data makes evaluating our operations and the proposed scale of our business
difficult. Moreover, the neutrality aspect of our business model is unique and
largely unproven. We expect that we will encounter challenges and difficulties
frequently experienced by early-stage companies in new and rapidly evolving
markets, such as our ability to generate cash flow, hire, train and retain
sufficient operational and technical talent, and implement our plan with minimal
delays. We may not successfully address any or all of these challenges and the
failure to do so would seriously harm our business plan and operating results,
and affect our ability to raise additional funds.
We have a history of losses, and we expect our operating expenses and
losses to increase significantly.
As an early-stage company, we have experienced operating losses since
inception. As of September 30, 2001, we had cumulative net losses of $302.6
million and cumulative cash used in operating activities of $130.8 million since
inception. We expect to incur significant losses on a quarterly and annual basis
in the foreseeable future. Our losses will increase as we:
. increase the number and size of IBX centers;
. increase our sales and marketing activities, including expanding our
direct sales force; and
. enlarge our customer support and professional services organizations.
In addition, we may also use significant amounts of cash and equity to
acquire complementary businesses, products, services and technologies, which
could further increase our expenses and losses.
We expect our operating results to fluctuate.
We have experienced fluctuations in our results of operations on a
quarterly and annual basis. We expect to experience significant fluctuations in
the foreseeable future due to a variety of factors, many of which are outside of
our control, including:
. the timely completion of our IBX centers;
. demand for space and services at our IBX centers;
. our pricing policies and the pricing policies of our competitors;
. the timing of customer installations and related payments;
. customer retention and satisfaction;
. the provision of customer discounts and credits;
. competition in our markets;
. the timing and magnitude of capital expenditures and expenses related
to the expansion of sales, marketing, operations and acquisitions, if
any, of complementary businesses and assets;
. the cost and availability of adequate public utilities, including
power;
. growth of Internet use;
. governmental regulation;
. conditions related to international operations;
. economic conditions specific to the Internet industry; and
. general economic factors.
24
In addition, a relatively large portion of our expenses is fixed in the
short-term, particularly with respect to real estate and personnel expenses,
depreciation and amortization, and interest expenses. Therefore, our results of
operations are particularly sensitive to fluctuations in revenues.
Because our ability to generate enough revenues to achieve profitability
depends on numerous factors, we may not become profitable.
Our IBX centers may not generate sufficient revenue to achieve
profitability. Our ability to generate sufficient revenues to achieve
profitability will depend on a number of factors, including:
. the timely completion of our IBX centers;
. demand for space and services at our IBX centers;
. our pricing policies and the pricing policies of our competitors;
. the timing of customer installations and related payments;
. customer retention and satisfaction;
. the provision of customer discounts and credits;
. competition in our markets;
. growth of Internet use;
. governmental regulation;
. conditions related to international operations;
. economic conditions specific to the Internet industry; and
. general economic factors.
Although we have experienced significant growth in revenues in recent
quarters, this growth rate is not necessarily indicative of future operating
results. It is possible that we may never achieve profitability on a quarterly
or annual basis.
We are substantially leveraged and we may not generate sufficient cash
flow to meet our debt service and working capital requirements.
We are highly leveraged. As of September 30, 2001, we had total
indebtedness of $352.5 million consisting primarily of the following:
. our 13% senior notes due 2007;
. our $150.0 million senior secured credit facility; and
. other outstanding debt facilities and capital lease obligations.
We expect to incur further debt to fund our IBX construction plans and
operating losses. Our highly leveraged position could have important
consequences, including:
. impairing our ability to obtain additional financing for working
capital, capital expenditures, acquisitions or general corporate purposes;
. requiring us to dedicate a substantial portion of our operating cash
flow to paying principal and interest on our indebtedness, thereby
reducing the funds available for operations;
. limiting our ability to grow and make capital expenditures due to the
financial covenants contained in our debt arrangements;
. impairing our ability to adjust rapidly to changing market
conditions, invest in new or developing technologies, or take advantage of
significant business opportunities that may arise; and
. making us more vulnerable if a general economic downturn continues or
if our business experiences difficulties.
In the past, we have experienced unforeseen delays and expenses in
connection with our IBX construction activities. We will need to successfully
implement our business strategy on a timely basis to meet our debt service and
working capital needs. We may not successfully implement our business strategy,
and even if we do, we may not realize the anticipated results of our strategy or
generate sufficient operating cash flow to meet our debt service obligations and
working capital needs.
25
In the event our cash flow is inadequate to meet our obligations, we could
face substantial liquidity problems. If we are unable to generate sufficient
cash flow or otherwise obtain funds needed to make required payments under
indebtedness, or if we breach any covenants under this indebtedness, we would be
in default under its terms and the holders of such indebtedness may be able to
accelerate the maturity of such indebtedness, which could cause defaults under
our other indebtedness.
We may be unable to draw down additional funds from our senior secured
credit facilities and the banks could require repayment of amounts previously
drawn down if we do not maintain specific financial ratios and comply with
covenants in the credit agreement.
Subsequent to September 30, 2001, we amended and restated our $150.0
million senior secured credit facility with a permanent $25.0 million reduction.
We also made an additional $25.0 repayment, of which we immediately re-borrowed
$5.0 million and the remaining $20.0 million is available to draw during a
future designated period provided certain financial covenants are reached. Our
$125.0 million senior secured credit facility contains a number of financial
ratios and covenants which we must meet each quarter, such as achieving certain
revenue targets and limiting our EBITDA losses. In addition, we have a monthly
cash covenant that requires us to maintain certain minimum cash balances. We are
in full compliance with all of these covenants and ratios at this time. If we
are unable to maintain these ratios or comply with these covenants, we will not
be able to draw down additional funds from the amended and restated senior
secured credit facility and the banks could require repayment of amounts
previously drawn down. If we are unable to draw down the full amount of the
amended and restated senior secured credit facility or if we are required to
repay amounts currently outstanding under this facility, we may not be able to
meet some of our spending needs and this could harm our business.
We are subject to restrictive covenants in our credit agreements that
limit our flexibility in managing our business.
Our credit agreements require that we maintain specific financial ratios
and comply with covenants containing numerous restrictions on our ability to
incur debt, pay dividends or make other restricted payments, sell assets, enter
into affiliate transactions and take other actions. Furthermore, our existing
financing arrangements are, and future financing arrangements are likely to be,
secured by substantially all of our assets.
In addition, we are restricted in how we use funds raised in our debt
financings. As a result, from time to time we may not be able to meet some of
our spending needs and this could harm our business.
The success of our business depends on the overall demand for data center
space and services and Internet infrastructure services.
Our success depends on the growth of overall demand for data center
services. In addition, a large percentage of our revenues are and will in the
future be derived from companies providing Internet infrastructure services,
such as web hosting companies, managed service providers, storage service
providers and performance enhancers. A softening of demand for data center
services or Internet infrastructure services caused by a weakening of the global
economy in general and the U.S. economy in particular may result in decreased
revenues or slower growth for us.
We may continue to have customer concentration.
To date, we have relied upon a small number of customers for a majority of
our revenue. We expect that we will continue to rely upon a limited number of
customers for a significant percentage of our revenue. As a result of this
concentration, a loss of, or decrease in business from, one or more of our large
customers could have a material and adverse effect on our results of operations.
26
Any failure of our physical infrastructure or services could lead to
significant costs and disruptions that could reduce our revenue and harm our
business reputation and financial results.
Our business depends on providing our customers with highly reliable
service. We must protect our IBX infrastructure and our customers' equipment
located in our IBX centers. The services we provide are subject to failure
resulting from numerous factors, including:
. human error;
. physical or electronic security breaches;
. fire, earthquake, flood and other natural disasters;
. water damage;
. power loss; and
. sabotage and vandalism.
Problems at one or more of our IBX centers, whether or not within our
control, could result in service interruptions or significant equipment damage.
In the past, a limited number of our customers have experienced temporary losses
of power. If we incur significant financial commitments to our customers in
connection with a loss of power, or our failure to meet other service level
commitment obligations, our liability insurance may not be adequate to cover
those expenses. In addition, any loss of services, equipment damage or inability
to meet our service level commitment obligations, particularly in the early
stage of our development, could reduce the confidence of our customers and could
consequently impair our ability to obtain and retain customers, which would
adversely affect both our ability to generate revenues and our operating
results.
Our business could be harmed by prolonged electrical power outages or
shortages, or increased costs of energy.
Our IBX centers are susceptible to regional costs of power, electrical
power shortages and planned or unplanned power outages caused by these
shortages, such as those currently occurring in California. The overall power
shortage in California has increased the cost of energy, which we may not be
able to pass on to our customers. We attempt to limit exposure to system
downtime by using backup generators and power supplies. Power outages, which
last beyond our backup and alternative power arrangements, could harm our
customers and our business.
Our rollout plan is subject to change and we may need to alter our plan
and reallocate funds.
Our IBX center rollout plan has been developed from our current market
data and research, projections and assumptions. If we are able to secure
additional funds, we expect to pursue additional IBX projects and to reconsider
the timing and approach to IBX projects. We expect to continually reevaluate our
business and rollout plan in light of evolving competitive and market conditions
and the availability of suitable sites, financing and customer demand. As a
result, we may alter our IBX center rollout plan, reallocate funds or eliminate
segments of our plan entirely if there are:
. changes or inaccuracies in our market data and research, projections
or assumptions;
. unexpected results of operations or strategies in our target
markets;
. regulatory, technological, or competitive developments, including
additional market developments and new opportunities; or
. changes in, or discoveries of, specific market conditions or factors
favoring expedited development in other markets.
27
We depend on third parties to provide Internet connectivity to our IBX
centers; if connectivity is not established, delayed or interrupted, our
operating results and cash flow will be adversely affected.
The presence of diverse Internet fiber from communications carriers' fiber
networks to our IBX centers is critical to our ability to attract new customers.
We believe that the availability of such carrier capacity will directly affect
our ability to achieve our projected results.
We are not a communications carrier, and as such we rely on third parties
to provide our customers with carrier facilities. We rely primarily on revenue
opportunities from our customers to encourage carriers to incur the expenses
required to build facilities from their locations to our IBX centers. Carriers
will likely evaluate the revenue opportunity of an IBX center based on the
assumption that the environment will be highly competitive. There can be no
assurance that, after conducting such an evaluation, any carrier will elect to
offer its services within our IBX centers. In addition, there can be no
assurance once a carrier has decided to provide Internet connectivity to our IBX
centers that it will continue to do so for any period of time.
The construction required to connect multiple carrier facilities to our
IBX centers is complex and involves factors outside of our control, including
regulatory processes and the availability of construction resources. For
example, in the past carriers have experienced delays in connecting to our
facilities due to some of these factors. If the establishment of highly diverse
Internet connectivity to our IBX centers does not occur or is materially delayed
or is discontinued, our operating results and cash flow will be adversely
affected.
We operate in a new highly competitive market and we may be unable to
compete successfully against new entrants and established companies with greater
resources.
In a market that we believe will likely have an increasing number of
competitors, we must be able to differentiate ourselves from existing providers
of space for telecommunications equipment and web hosting companies. In addition
to competing with neutral colocation providers, we will compete with traditional
colocation providers, including local phone companies, long distance phone
companies, Internet service providers and web hosting facilities. Most of these
companies have longer operating histories and significantly greater financial,
technical, marketing and other resources than we do. We believe our neutrality
provides us with an advantage over these competitors. However, these competitors
could offer colocation on neutral terms, and may start doing so in the same
metropolitan areas where we have IBX centers. In addition, some of these
competitors may provide our target customers with additional benefits, including
bundled communication services, and may do so at reduced prices or in a manner
that is more attractive to our potential customers than obtaining space in our
IBX centers. If these competitors were to provide communication services at
reduced prices together with colocation space, it may lower the total price of
these services in a fashion that we cannot match.
We may also face competition from persons seeking to replicate our IBX
concept. Our competitors may operate more successfully than we do or form
alliances to acquire significant market share. Furthermore, enterprises that
have already invested substantial resources in peering arrangements may be
reluctant or slow to adopt our approach that may replace, limit or compete with
their existing systems. If we are unable to complete the buildout of our IBX
centers in a timely manner, other companies may be able to attract the same
potential customers that we are targeting. Once customers are located in our
competitors' facilities, it will be extremely difficult to convince them to
relocate to our IBX centers.
Because of their greater financial resources, some of these companies have
the ability to adopt aggressive pricing policies. As a result, in the future, we
may suffer from pricing pressure that would adversely affect our ability to
generate revenues and adversely affect our operating results.
28
Because we depend on the development and growth of a balanced customer
base, failure to attract and retain this base of customers could harm our
business and operating results.
Our ability to maximize revenues depends on our ability to develop and
grow a balanced customer base, consisting of a variety of companies, including
network service providers, site and performance management companies, and
enterprise and content companies. Our ability to attract customers to our IBX
centers will depend on a variety of factors, including the presence of multiple
carriers, the overall mix of our customers, our operating reliability and
security and our ability to effectively market our services. Construction
delays, our inability to find suitable locations to build additional IBX
centers, equipment and material shortages or our inability to obtain necessary
permits on a timely basis could delay our IBX center rollout schedule and
prevent us from developing our anticipated customer base.
A customer's decision to lease cabinet space in our IBX centers typically
involves a significant commitment of resources and will be influenced by, among
other things, the customer's confidence that network and other Internet
infrastructure-related businesses will be located in a particular IBX center. In
particular, some customers will be reluctant to commit to locating in our IBX
centers until they are confident that the IBX center has adequate carrier
connections. As a result, we have a long sales cycle. We generally incur
significant expenses in sales and marketing prior to getting customer
commitments for our services. Delays due to the length of our sales cycle may
adversely affect our business, financial condition and results of operations.
Our success will also depend upon generating significant interconnection
revenues from customers, which may depend upon a balanced customer base, as well
as upon the success of our IBX centers and Internet exchange services at
facilitating business among customers. In addition, some of our customers will
be Internet companies that face many competitive pressures and that may not
ultimately be successful. If these customers do not succeed, they will not
continue to use our IBX centers. This may be disruptive to our business and may
adversely affect our business, financial condition and results of operations.
If not properly managed, our growth and expansion could significantly harm
our business and operating results.
We have experienced, and expect to continue to experience, rapid growth.
This growth has placed, and we expect it to continue to place, a significant
strain on our financial, management, operational and other resources. Any
failure to manage growth effectively could seriously harm our business and
operating results. To succeed, we will need to:
. hire, train and retain new employees and qualified engineering
personnel at each IBX center;
. implement additional management information systems;
. improve our operating, administrative, financial and accounting
systems and controls; and
. maintain close coordination among our executive, engineering,
accounting, finance, marketing, sales and operations organizations.
To date, we have experienced difficulties implementing and upgrading our
management information systems. We have hired a permanent Chief Information
Officer and may need additional information technology personnel to upgrade and
operate our management information systems. If we are unable to hire and retain
such personnel, and successfully upgrade and operate adequate management
information systems to support our growth effectively, our business will be
materially and adversely affected.
We may make acquisitions, which pose integration and other risks that
could harm our business.
We may seek to acquire complementary businesses, products, services and
technologies. As a result of these acquisitions, we may:
. be required to incur additional debt and expenditures; and
29
. issue additional shares of our stock to pay for the acquired
business, product, service or technology, which will dilute existing
stockholders' ownership interest in the Company.
In addition, if we fail to successfully integrate and manage acquired
businesses, products, services and technologies, our business and financial
results would be harmed. Currently, we have no present commitments or agreements
with respect to any such acquisitions.
We face risks associated with international operations that could harm
our business.
We have recently partnered with several international Internet exchange
companies to offer our customers a comprehensive global solution for their
Internet infrastructure and network exchange needs. Our management has limited
experience conducting business outside of the United States and we may not be
aware of all the factors that affect our business in foreign jurisdictions. In
addition, we have yet to work out all of the operational details of working with
these new partners. We will be subject to a number of risks associated with
these international business activities that may increase our costs, lengthen
our sales cycles and require significant management attention. These risks
include:
. increased costs and expenses related to offering customers a global
solution with our chosen partners;
. increased expenses associated with marketing services in foreign
countries or sharing marketing costs with our partners;
. incurring technical and operational difficulties in rolling out the
logistics of these partnerships and getting customers set up;
. business practices that favor local competition and protectionist
laws;
. difficulties associated with enforcing agreements through foreign
legal systems;
. general economic and political conditions in international markets;
. potentially adverse tax consequences, including complications and
restrictions on the repatriation of earnings;
. currency exchange rate fluctuations;
. unusual or burdensome regulatory requirements or unexpected changes
to those requirements;
. tariffs, export controls and other trade barriers; and
. longer accounts receivable payment cycles and difficulties in
collecting accounts receivable.
To the extent that our operations are incompatible with, or not
economically viable within, any given foreign market, we may not be able to
offer global solutions to customers that require it.
Our stock price has been volatile in the past and is likely to continue to
be volatile.
The market price of our common stock has been volatile in the past and is
likely to continue to be volatile. In addition, the securities markets in
general, and Internet stocks in particular, have experienced significant price
volatility and accordingly the trading price of our common stock is likely to be
affected by this activity.
If there is a change of control of Equinix, we may be required under our
indenture and our senior secured credit facility to repurchase or repay the debt
outstanding under those agreements.
Change of control provisions in our indenture and senior secured credit
facility could limit the price that investors might be willing to pay in the
future for shares of our common stock and significantly impede the ability of
the holders of our common stock to change management because the change in
control provisions of these agreements can trigger the repayment of the debt
outstanding under those agreements.
30
We are subject to securities class action litigation, which may harm our
business and results of operations.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We are a party to the securities class action litigation described
in Part II, Item 1 - "Legal Proceedings" of this report. The defense of the
litigation described in Part II, Item 1 may increase our expenses and divert our
management's attention and resources, and an adverse outcome in this litigation
could seriously harm our business and results of operations. In addition, we may
in the future be the target of other securities class action or similar
litigation.
Risks Related to Our Industry
If use of the Internet and electronic business does not continue to grow,
a viable market for our IBX centers may not develop.
Rapid growth in the use of and interest in the Internet has occurred only
recently. Acceptance and use may not continue to develop at historical rates and
a sufficiently broad base of consumers may not adopt or continue to use the
Internet and other online services as a medium of commerce. Demand and market
acceptance for recently introduced Internet services and products are subject to
a high level of uncertainty and there are few proven services and products. As a
result, we cannot be certain that a viable market for our IBX centers will
emerge or be sustainable.
We must respond to rapid technological change and evolving industry
standards in order to meet the needs of our customers.
The market for IBX centers will be marked by rapid technological change,
frequent enhancements, changes in customer demands and evolving industry
standards. Our success will depend, in part, on our ability to address the
increasingly sophisticated and varied needs of our current and prospective
customers. Our failure to adopt and implement the latest technology in our
business could negatively affect our business and operating results.
In addition, we have made and will continue to make assumptions about the
standards that may be adopted by our customers and competitors. If the standards
adopted differ from those on which we have based anticipated market acceptance
of our services or products, our existing services could become obsolete. This
would have a material adverse effect on our business, financial condition and
results of operations.
Government regulation may adversely affect the use of the Internet and our
business.
Laws and regulations governing Internet services, related communications
services and information technologies, and electronic commerce are beginning to
emerge but remain largely unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing
laws, such as those governing intellectual property, privacy, libel,
telecommunications, and taxation, apply to the Internet and to related services
such as ours. In addition, the development of the market for online commerce and
the displacement of traditional telephony services by the Internet and related
communications services may prompt increased calls for more stringent consumer
protection laws or other regulation, both in the United States and abroad, that
may impose additional burdens on companies conducting business online and their
service providers. The adoption or modification of laws or regulations relating
to the Internet, or interpretations of existing law, could have a material
adverse effect on our business, financial condition and results of operations.
31
Item 3. Qualitative and Quantitative Disclosures about Market Risk
Market Risk
The following discussion about market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We may be exposed to market risks
related to changes in interest rates and foreign currency exchange rates and to
a lesser extent we are exposed to fluctuations in the prices of certain
commodities, primarily electricity.
In the past, we have employed foreign currency forward exchange contracts
for the purpose of hedging certain specifically identified net currency
exposures. The use of these financial instruments was intended to mitigate some
of the risks associated with fluctuations in currency exchange rates, but does
not eliminate such risks. We may decide to employ such contracts again in the
future. We do not use financial instruments for trading or speculative purposes.
Interest Rate Risk
Our exposure to market risk resulting from changes in interest rates
relates primarily to our investment portfolio. Our interest income is impacted
by changes in the general level of U.S. interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the short-term
nature of our investments, we do not believe that we are subject to any material
market risk exposure. An immediate 10% increase or decrease in current interest
rates would not have a material effect on the fair market value of our
investment portfolio. We would not expect our operating results or cash flows to
be significantly affected by a sudden change in market interest rates in our
investment portfolio.
An immediate 10% increase or decrease in current interest rates would
furthermore not have a material impact to our debt obligations due to the fixed
nature of our long-term debt obligations. The fair market value of our long-term
fixed interest rate debt is subject to interest rate risk. Generally, the fair
market value of fixed interest rate debt will increase as interest rates fall
and decrease as interest rates rise. These interest rate changes may affect the
fair market value of the fixed interest rate debt but does not impact earnings
or cash flows of the Company.
The fair market value of our 13% senior notes due 2007 is based on quoted
market prices. The estimated fair value of our 13% senior notes due 2007 as of
September 30, 2001 is approximately $70.0 million.
Foreign Currency Risk
To date, all of our recognized revenue has been denominated in U.S.
dollars, generated mostly from customers in the United States, and our exposure
to foreign currency exchange rate fluctuations has been minimal. We expect that
future revenues may be derived from customers outside of the United States and
may be denominated in foreign currency. As a result, our operating results or
cash flows may be impacted due to currency fluctuations relative to the U.S.
dollar.
Furthermore, to the extent we engage in international sales that are
denominated in U.S. dollars, an increase in the value of the U.S. dollar
relative to foreign currencies could make our services less competitive in the
international markets. Although we will continue to monitor our exposure to
currency fluctuations, and when appropriate, may use financial hedging
techniques in the future to minimize the effect of these fluctuations, we cannot
assure you that exchange rate fluctuations will not adversely affect our
financial results in the future.
Commodity Price Risk
Certain operating costs incurred by Equinix are subject to price
fluctuations caused by the volatility of underlying commodity prices. The
commodities most likely to have an impact on our results of operations in the
event of significant price changes are electricity and building materials for
the construction of our
32
IBX centers such as steel. We are closely monitoring the cost of electricity,
particularly in California. To the extent that electricity costs continue to
rise, we are investigating opportunities to pass these additional power costs
onto our customers that utilize this power. For building materials, we rely on
Bechtel's expertise and bulk purchasing power to best manage the procurement of
these required materials for the construction of our IBX centers. We do not
employ forward contracts or other financial instruments to hedge commodity price
risk.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On July 30, 2001 and August 8, 2001, putative shareholder class action
lawsuits were filed against Equinix, certain of its officers and
directors, and several investment banks that were underwriters of our
initial public offering. The cases were filed in the United States
District Court for the Southern District of New York, purportedly on
behalf of investors who purchased our stock between August 10, 2000
and December 6, 2000. The suits allege that the underwriter defendants
agreed to allocate stock in Equinix's initial public offering to
certain investors in exchange for excessive and undisclosed
commissions and agreements by those investors to make additional
purchases in the aftermarket at pre-determined prices. Plaintiffs
allege that the Prospectus for our initial public offering was false
and misleading and in violation of the securities laws because it did
not disclose these arrangements. It is possible that additional
similar complaints may also be filed. Equinix and its officers and
directors intend to defend the action vigorously. We believe that more
than one hundred other companies have been named in nearly identical
lawsuits that have been filed by some of the same plaintiffs' law
firms.
Item 2. Changes in Securities and Use of Proceeds.
(a) Modification of Constituent Instruments.
None.
(b) Change in Rights.
None.
(c) Issuance of Securities.
On September 24, 2001, we issued two warrants to purchase a total
of 600,000 shares of our common stock with exercise prices of $0.01
per share to Worldcom Venture Fund, Inc.
The sale of the above securities was determined to be exempt from
registration under Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. In
addition, the recipient of securities in such transaction
represented their intentions to acquire the securities for
investment only and not with a view to, or for sale in connection
with, any distribution thereof. The recipient had adequate access,
through its relationship with us, to information about us.
(d) Use of Proceeds.
The effective date of the Company's registration statement for our
initial public offering, filed on Form S-1 under the Securities Act
of 1933, as amended (Commission File No. 333-93749), was August 10,
2000. There has been no change to the disclosure contained in the
Company's report on Form 10-Q for the quarter ended September 30,
2000 regarding the use of proceeds generated by the Company's
initial public offering of its common stock.
33
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
34
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Description of Document
- -------------- --------------------------------------------------------------------------------------------------------
3.1** Amended and Restated Certificate of Incorporation of the Registrant, as amended to date.
3.2* Bylaws of the Registrant.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2** Form of Registrant's Common Stock certificate.
4.6* Common Stock Registration Rights Agreement (See Exhibit 10.3).
4.9* Amended and Restated Investors' Rights Agreement (See Exhibit 10.6).
10.1* Indenture, dated as of December 1, 1999, by and among the Registrant and State Street Bank and Trust
Company of California, N.A. (as trustee).
10.2* Warrant Agreement, dated as of December 1, 1999, by and among the Registrant and State Street Bank and
Trust Company of California, N.A. (as warrant agent).
10.3* Common Stock Registration Rights Agreement, dated as of December 1, 1999, by and among the Registrant,
Benchmark Capital Partners II, L.P., Cisco Systems, Inc., Microsoft Corporation, ePartners, Albert M.
Avery, IV and Jay S. Adelson (as investors), and the Initial Purchasers.
10.4* Registration Rights Agreement, dated as of December 1, 1999, by and among the Registrant and the
Initial Purchasers.
10.5* Form of Indemnification Agreement between the Registrant and each of its officers and directors.
10.6* Amended and Restated Investors' Rights Agreement, dated as of May 8, 2000, by and between the
Registrant, the Series A Purchasers, the Series B Purchasers, the Series C Purchasers and members of the
Registrant's management.
10.8* The Registrant's 1998 Stock Option Plan.
10.9*+ Lease Agreement with Carlyle-Core Chicago LLC, dated as of September 1, 1999.
10.10*+ Lease Agreement with Market Halsey Urban Renewal, LLC, dated as of May 3, 1999.
10.11*+ Lease Agreement with Laing Beaumeade, dated as of November 18, 1998.
10.12*+ Lease Agreement with Rose Ventures II, Inc., dated as of June 10, 1999.
10.13*+ Lease Agreement with Carrier Central LA, Inc., as successor in interest to 600 Seventh Street
Associates, Inc., dated as of August 8, 1999.
10.14*+ First Amendment to Lease Agreement with TrizecHahn Centers, Inc. (dba TrizecHahn Beaumeade Corporate
Management), dated as of October 28, 1999.
10.15*+ Lease Agreement with Nexcomm Asset Acquisition I, L.P., dated as of January 21, 2000.
10.16*+ Lease Agreement with TrizecHahn Centers, Inc. (dba TrizecHahn Beaumeade Corporate Management), dated as
of December 15, 1999.
10.17* Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore LLC, dated as of January 28, 2000.
10.19*+ Master Agreement for Program Management, Site Identification and Evaluation, Engineering and
Construction Services between Equinix, Inc. and Bechtel Corporation, dated November 3, 1999.
10.20*+ Agreement between Equinix, Inc. and WorldCom, Inc., dated November 16, 1999.
10.21* Customer Agreement between Equinix, Inc. and WorldCom, Inc., dated November 16, 1999.
10.22*+ Lease Agreement with GIP Airport B.V., dated as of April 28, 2000.
10.23* Purchase Agreement between International Business Machines Corporation and Equinix, Inc.
dated May 23, 2000.
10.24** 2000 Equity Incentive Plan.
10.25** 2000 Director Option Plan.
10.26** 2000 Employee Stock Purchase Plan.
10.27** Ground Lease by and between iStar San Jose, LLC and Equinix, Inc., dated June 21, 2000.
10.28***+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC, dated as of July 1, 2000.
10.29***+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC, dated as of May 1, 2000.
10.30***+ Lease Agreement with Carrier Central LA, Inc., as successor in interest to 600 Seventh Street
35
Associates, Inc., dated as of August 24, 2000.
10.31***+ Lease Agreement with Burlington Associates III Limited Partnership, dated as of July 24, 2000.
10.32***+ Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine
Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of August 7, 2000.
10.33***+ Lease Agreement with Quattrocento Limited, dated as of June 1, 2000.
10.34*** Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore, LLC, dated as of March 20, 2000.
10.35*** First Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A.
Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of October 11,
2000.
10.37****+ Lease Agreement with Quattrocentro Limited, dated as of June 9, 2000.
10.39****+ Second Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A.
Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of December 22,
2000.
10.40**** Third Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A.
Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of March 8, 2001.
10.41*****+ Fourth Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A.
Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, acting in partnership under
the name Naxos-Union Grundstucksverwaltungsgesellschaft GbR, dated as of July 3, 2001.
10.42*****+ First Amendment to Deed of Lease with TrizecHahn Beaumeade Technology Center LLC, dated as of March 22,
2001.
10.43*****+ First Lease Amendment Agreement with Market Halsey Urban Renewal, LLC, dated as of May 23, 2001.
10.44*****+ First Amendment to Lease with Nexcomm Asset Acquisition I, L.P., dated as of April 18, 2000.
10.45*****+ Amendment to Lease Agreement with Burlington Realty Associates III Limited Partnership, dated as of
December 18, 2000.
10.46 First Modification to Ground Lease by and between iStar San Jose, LLC and Equinix, Inc., dated as of
September 26, 2001.
10.47 Amended and Restated Credit and Guaranty Agreement, dated as of September 30, 2001.
10.48 2001 Supplemental Stock Plan.
16.1* Letter regarding change in certifying accountant.
21.1**** Subsidiaries of Equinix.
- ----------
* Incorporated herein by reference to the exhibit of the same number in the
Registrant's Registration Statement on Form S-4 (Commission File No. 333-93749).
** Incorporated herein by reference to the exhibit of the same number in the
Registrant's Registration Statement in Form S-1 (Commission File No. 333-39752).
*** Incorporated herein by reference to the exhibit of the same number in the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
2000.
**** Incorporated herein by reference to the exhibit of the same number in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 2000.
***** Incorporated herein by reference to the exhibit of the same number in the
Registrants' Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
+ Confidential treatment has been requested for certain portions which are
omitted in the copy of the exhibit electronically filed with the Securities and
Exchange Commission. The omitted information has been filed separately with the
Securities and Exchange Commission pursuant to Equinix's application for
confidential treatment.
(b) Reports on Form 8-K.
None.
36
EQUINIX, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EQUINIX, INC.
Date: November 13, 2001
By: /S/ PHILIP J. KOEN
--------------------------------------
Interim Chief Financial Officer
and Chief Operating Officer
/S/ KEITH D. TAYLOR
--------------------------------------
Vice President, Finance
(Principal Financial
and Accounting Officer)
37