~~Table~~UNITED ofSTATES ~~Contents~~

~~UNITED~~SECURITIES ~~STATES~~AND EXCHANGE COMMISSION

~~SECURITIES~~Washington, ~~AND~~D.C. ~~EXCHANGE COMMISSION~~ 20549

~~Washington,~~FORM ~~D.C. 20549~~10-Q

~~FORM~~x ~~10-Q~~ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

xFor ~~QUARTERLY~~the ~~REPORT~~quarterly ~~PURSUANT~~period TOended ~~SECTION~~March 31, 132010 ~~OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~For~~or ~~the quarterly period ended September 30, 2009~~

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

¨For ~~TRANSITION~~the ~~REPORT~~transition ~~PURSUANT~~period ~~TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~from to

~~For~~Commission ~~the~~File ~~transition~~Number: ~~period~~001-33302 ~~from to~~

LOGO

~~Commission~~SWITCH & ~~File~~DATA ~~Number:~~FACILITIES ~~001-33302~~ COMPANY, INC.

~~SWITCH &~~(Exact ~~DATA~~name ~~FACILITIES~~of ~~COMPANY,~~registrant ~~INC.~~as specified in its charter)

(Exact name of registrant as specified in its charter)

Delaware

59-3641081

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Delaware		59-3641081
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1715 Westshore Boulevard, Suite 650, Tampa, Florida 33607

~~1715~~(Address ~~Westshore~~of ~~Boulevard,~~principal ~~Suite~~executive ~~650,~~offices) ~~Tampa,~~(Zip ~~Florida~~Code) ~~33607~~

(~~Address of principal executive offices~~813) ~~(Zip~~207-7700 ~~Code)~~

(~~813)~~Registrant’s ~~207-7700~~telephone number, including area code)

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

Indicate by check mark whether the registrant ~~(1)~~ has ~~filed~~submitted ~~all~~electronically ~~reports~~and posted on its corporate Web site, if any, every Interactive Data File required to be ~~filed~~submitted byand ~~Section 13~~posted orpursuant ~~15(d)~~to Rule 405 of ~~the Securities~~Regulation ~~Exchange~~S-T ~~Act~~(§232.405 of ~~1934~~this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to ~~file~~submit ~~such reports),~~ and ~~(2) has~~post ~~been subject to~~ such ~~filing requirements for the past 90~~ ~~days~~files). Yes x¨ No ¨

Indicate by check mark whether the registrant ~~has~~is ~~submitted~~a ~~electronically~~large ~~and~~accelerated ~~posted~~filer, onan ~~its~~accelerated ~~corporate Web site~~filer, ifa ~~any~~non-accelerated filer, ~~every~~or ~~Interactive~~a smaller ~~Data~~reporting ~~File~~company. ~~required~~See tothe bedefinitions ~~submitted and posted pursuant to Rule 405~~ of ~~Regulation~~“large ~~S-T~~accelerated ~~(§232.405~~filer,” of“accelerated ~~this~~filer” ~~chapter)~~and ~~during~~“smaller ~~the~~reporting ~~preceding~~company” 12in ~~months~~Rule ~~(or~~12b-2 ~~for~~of ~~such shorter period that~~ the ~~registrant~~Exchange ~~was required to submit and post such files)~~Act. ~~Yes ¨ No ¨~~

~~Indicate~~Large ~~by check mark whether the registrant is a large~~ accelerated filer, an¨ ~~accelerated~~Accelerated filer, ax ~~non~~Non-accelerated filer, or¨ a(Do ~~smaller reporting~~not ~~company.~~check ~~See~~if ~~the~~a ~~definitions of “large accelerated filer,” “accelerated filer” and “~~smaller reporting company”) inSmaller ~~Rule~~reporting ~~12b-2~~company ~~of the Exchange Act.~~ ¨

~~Large~~Indicate ~~accelerated~~by ~~filer~~check ¨mark ~~Accelerated~~whether ~~filer~~the xregistrant ~~Non-accelerated~~is ~~filer~~a ¨shell company (Doas ~~not~~defined ~~check~~in ifRule a12b-2 ~~smaller~~of ~~reporting~~the ~~company~~Exchange Act) ~~Smaller reporting company~~ . Yes ¨ No x

~~Indicate~~The bynumber ~~check~~of ~~mark~~shares ~~whether~~outstanding of the registrant’s isCommon aStock ~~shell company (~~as ~~defined in Rule 12b-2~~ of ~~the~~April 28, ~~Exchange~~2010 ~~Act). Yes ¨ No x~~was 35,153,874

The number of shares outstanding of the registrant’s Common Stock as of October 15, 2009 was 34,580,077.


PART I: FINANCIAL INFORMATION		3
Item 1: Financial Statements		3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3: Quantitative and Qualitative Disclosures About Market Risk		28
Item 4: Controls and Procedures		29
PART II: OTHER INFORMATION		29
Item 1: Legal Proceedings		29
Item 1A: Risk Factors		29
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 3: Defaults Upon Senior Securities		29
Item 4: Removed and Reserved		29
Item 5: Other Information		30
Item 6: Exhibits		30

~~Table~~2 ~~of Contents~~

PART I: FINANCIAL INFORMATION		3
Item 1: Financial Statements		3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3: Quantitative and Qualitative Disclosures about Market Risk		34
Item 4: Controls and Procedures		35
PART II: OTHER INFORMATION		35
Item 1: Legal Proceedings		35
Item 1A: Risk Factors		36
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3: Defaults Upon Senior Securities		36
Item 4: Submission of Matters to the Vote of Security Holders		36
Item 5: Other Information		36
Item 6: Exhibits		37

PART I: FINANCIAL INFORMATION

2Item 1: Financial Statements

~~Table~~3 ~~of Contents~~

~~PART~~SWITCH & I:DATA ~~FINANCIAL~~FACILITIES ~~INFORMATION~~COMPANY, INC. AND SUBSIDIARIES

~~Item~~CONSOLIDATED 1:BALANCE ~~Financial~~SHEETS ~~Statements~~

3(IN THOUSANDS)

~~Table~~(UNAUDITED) ~~of Contents~~

SWITCH & DATA FACILITIES COMPANY, INC. AND SUBSIDIARIES


	December 31, 2009			March 31, 2010
Assets
Current assets
Cash and cash equivalents	$	28,528		$	24,120
Accounts receivable, net of allowance for bad debts of $1,056 and $752, respectively		13,930			13,540
Prepaids and other assets		2,849			2,477

Total current assets		45,307			40,137
Property and equipment, net		297,312			308,266
Goodwill		36,023			36,023
Other intangible assets, net		15,274			14,443
Other long-term assets, net		6,464			6,312

Total assets	$	400,380		$	405,181

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and accrued expenses	$	23,741		$	24,515
Derivative liability		8,713			9,543
Current portion of unearned revenue		3,275			3,694
Current portion of deferred rent		336			343
Current portion of customer security deposits		577			492
Current portion of long-term debt		14,250			17,813
Current portion of capital lease obligations		1,934			1,967

Total current liabilities		52,826			58,367
Unearned revenue, less current portion		1,506			1,870
Deferred rent, less current portion		26,287			27,810
Customer security deposits, less current portion		319			385
Long-term debt, less current portion		128,250			121,125
Long-term portion of capital lease obligations		58,364			57,917

Total liabilities		267,552			267,474
Commitments and contingencies
Stockholders’ equity
Common stock, $0.0001 par value, 200,000 shares authorized; 34,737 and 34,965 shares issued and outstanding as of December 31, 2009 and March 31, 2010, respectively		3			3
Preferred stock, $0.0001 par value, 25,000 shares authorized; no shares issued		—			—
Additional paid-in capital		356,624			361,426
Accumulated deficit		(224,126	)		(224,635	)
Accumulated other comprehensive loss		327			913

Total stockholders’ equity		132,828			137,707

Total liabilities and stockholders’ equity	$	400,380		$	405,181

~~CONSOLIDATED~~The ~~BALANCE~~accompanying ~~SHEETS~~notes are an integral part of these consolidated financial statements

~~(IN~~4 ~~THOUSANDS)~~

~~(UNAUDITED)~~SWITCH & DATA FACILITIES COMPANY, INC. AND SUBSIDIARIES

	December 31,2008			September 30,2009
Assets
Current assets
Cash and cash equivalents	$	14,706		$	22,638
Accounts receivable, net of allowance for bad debts of $818 and $1,147, respectively		11,497			11,542
Prepaids and other assets		2,429			2,818
Total current assets		28,632			36,998
Property and equipment, net		270,286			297,350
Goodwill		36,023			36,023
Other intangible assets, net		18,575			16,095
Other long-term assets, net		5,349			6,683
Total assets	$	358,865		$	393,149
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and accrued expenses	$	34,131		$	19,948
Derivative liability		7,434			8,625
Current portion of unearned revenue		3,629			3,418
Current portion of deferred rent		455			377
Current portion of customer security deposits		547			615
Current portion of long-term debt		—			10,687
Current portion of capital lease obligations		—			1,756
Total current liabilities		46,196			45,426
Unearned revenue, less current portion		1,858			2,431
Deferred rent, less current portion		18,587			24,611
Customer security deposits, less current portion		376			282
Long-term debt, less current portion		120,000			131,813
Long-term portion of capital lease obligations		50,927			58,289
Total liabilities		237,944			262,852
Commitments and contingencies
Stockholders’ equity
Common stock, $0.0001 par value, 200,000 shares authorized; 34,563 and 34,580 shares issued and outstanding as of December 31, 2008 and September 30, 2009, respectively		3			3
Preferred stock, $0.0001 par value, 25,000 shares authorized; no shares issued		—			—
Additional paid-in capital		347,909			352,667
Accumulated deficit		(224,534	)		(222,052	)
Accumulated other comprehensive loss		(2,457	)		(321	)
Total stockholders’ equity		120,921			130,297
Total liabilities and stockholders’ equity	$	358,865		$	393,149

CONSOLIDATED STATEMENTS OF OPERATIONS

~~The~~(IN ~~accompanying~~THOUSANDS, ~~notes~~EXCEPT ~~are~~PER anSHARE ~~integral~~AMOUNTS) ~~part of these consolidated financial statements~~

4(UNAUDITED)


	For the three months ended March 31,
	2009			2010
Revenues	$	47,133		$	56,695
Costs and operating expenses
Cost of revenues, exclusive of depreciation and amortization		24,293			27,299
Sales and marketing		5,224			5,924
General and administrative		4,682			5,004
Depreciation and amortization		10,046			11,117

Total costs and operating expenses		44,245			49,344

Operating income		2,888			7,351
Interest income		3			12
Interest expense		(4,358	)		(5,004	)
Other expense, net		(238	)		(2,570	)

Loss before income taxes		(1,705	)		(211	)
Provision for income taxes		(275	)		(298	)

Net loss	$	(1,980	)	$	(509	)

Loss per common share—basic and diluted	$	(0.06	)	$	(0.01	)
Weighted average common shares outstanding—basic and diluted		34,563			34,771

~~SWITCH &~~The ~~DATA~~accompanying ~~FACILITIES~~notes are ~~COMPANY,~~an ~~INC.~~integral ~~AND~~part ~~SUBSIDIARIES~~of these consolidated financial statements

~~CONSOLIDATED~~5 ~~STATEMENTS OF OPERATIONS~~

~~(IN~~SWITCH & ~~THOUSANDS,~~DATA ~~EXCEPT~~FACILITIES ~~PER~~COMPANY, ~~SHARE~~INC. ~~AMOUNTS)~~AND SUBSIDIARIES

~~(UNAUDITED)~~CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the three monthsended September 30,						For the nine monthsended September 30,
	2008			2009			2008			2009
Revenues	$	44,079		$	53,520		$	125,750		$	150,013
Costs and operating expenses
Cost of revenues, exclusive of depreciation and amortization		23,742			25,928			65,741			74,687
Sales and marketing		4,613			4,746			14,677			15,130
General and administrative		4,434			5,065			13,096			14,157
Depreciation and amortization		7,510			10,440			20,762			30,237
Lease litigation settlement		—			—			—			700
Total costs and operating expenses		40,299			46,179			114,276			134,911
Operating income		3,780			7,341			11,474			15,102
Interest income		442			16			1,513			45
Interest expense		(3,713	)		(4,441	)		(8,866	)		(11,229	)
Loss from debt extinguishment		—			—			(695	)		—
Other expense, net		(307	)		(178	)		(654	)		(486	)
Income before income taxes		202			2,738			2,772			3,432
Provision for income taxes		(234	)		(150	)		(1,325	)		(950	)
Net income (loss)	$	(32	)	$	2,588		$	1,447		$	2,482
Income (loss) per common share—basic	$	(0.00	)	$	0.07		$	0.04		$	0.07
Weighted average common shares outstanding—basic		34,522			34,574			34,417			34,565
Income (loss) per common share—diluted	$	(0.00	)	$	0.07		$	0.04		$	0.07
Weighted average common shares outstanding—diluted		34,522			34,972			34,417			34,799

(IN THOUSANDS)

~~The accompanying notes are an integral part of these consolidated financial statements~~ (UNAUDITED)


	For the three months ended March 31,
	2009			2010
Cash flows from operating activities:
Net loss	$	(1,980	)	$	(509	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation		9,144			10,236
Amortization of debt issuance costs		230			230
Amortization of other intangible assets		903			883
Stock compensation expense		1,365			1,878
Provision for bad debts, net of recoveries		223			876
Deferred rent		2,270			1,459
Change in fair value of derivative		739			830
Gain on disposal of fixed assets		(5	)		(1	)
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable		673			(449	)
Decrease in prepaids and other assets		844			374
Increase in other long-term assets		(275	)		(79	)
Decrease in accounts payable, accrued expenses, and other liabilities		(4,904	)		(2,588	)
Increase (decrease) in unearned revenue		(263	)		750

Net cash provided by operating activities		8,964			13,890

Cash flows from investing activities:
Purchase of property and equipment		(23,734	)		(17,216	)

Net cash used in investing activities		(23,734	)		(17,216	)

Cash flows from financing activities:
Principal payments under long-term debt		—			(3,562	)
Principal payments under capital lease		—			(471	)
Proceeds from exercise of stock options		—			2,925
Proceeds from long-term debt		22,500			—

Net cash provided by (used in) financing activities		22,500			(1,108	)

Net increase (decrease) in cash and cash equivalents		7,730			(4,434	)
Effect of exchange rate changes on cash		(15	)		26
Cash and cash equivalents:
Beginning of the period		14,706			28,528

End of the period	$	22,421		$	24,120

Supplemental disclosure of cash flow information:
Cash paid for interest	$	5,482		$	4,487
Cash paid for taxes	$	215		$	894
Supplemental schedule of non-cash investing and financing activities:
Purchased property and equipment in accounts payable and accrued expenses	$	10,583		$	9,780

~~Table~~The accompanying notes are an integral part of ~~Contents~~these consolidated financial statements

~~SWITCH &~~6 ~~DATA FACILITIES COMPANY, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED~~SWITCH & ~~STATEMENTS~~DATA OFFACILITIES ~~CASH~~COMPANY, ~~FLOWS~~INC AND SUBSIDIARIES

~~(IN~~NOTES ~~THOUSANDS)~~TO CONSOLIDATED FINANCIAL STATEMENTS

(~~UNAUDITED~~IN THOUSANDS, EXCEPT PER SHARE DATA)

	For the nine monthsended September 30,
	2008			2009
Cash flows from operating activities:
Net income	$	1,447		$	2,482
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		17,578			27,512
Amortization of debt issuance costs		475			728
Amortization of other intangible assets		3,184			2,728
Loss on debt extinguishment		695			—
Stock compensation expense		4,706			4,621
Provision for bad debts, net of recoveries		494			616
Deferred rent		3,709			5,726
Change in fair value of derivative		603			1,191
Loss (gain) on disposal of fixed assets		6			(89	)
Changes in operating assets and liabilities
Increase in accounts receivable		(1,860	)		(566	)
Increase in prepaids and other assets		(1,404	)		(382	)
Increase in other long-term assets		(192	)		(640	)
Increase (decrease) in accounts payable, accrued expenses, and other liabilities		6,836			(2,684	)
Increase (decrease) in unearned revenue		(35	)		179
Net cash provided by operating activities		36,242			41,422
Cash flows from investing activities:
Purchase of property and equipment		(117,649	)		(54,448	)
Proceeds from sale of property and equipment		—			102
Net cash used in investing activities		(117,649	)		(54,346	)
Cash flows from financing activities:
Principal payments under long-term debt		(38,189	)		—
Principal payments under capital lease		—			(491	)
Proceeds from exercise of stock options		997			139
Proceeds from long-term debt		120,000			22,500
Excess tax benefits from stock-based compensation		91			—
Debt issuance and amendment costs		(4,038	)		(1,425	)
Net cash provided by financing activities		78,861			20,723
Net increase (decrease) in cash and cash equivalents		(2,546	)		7,799
Effect of exchange rate changes on cash		(301	)		133
Cash and cash equivalents:
Beginning of the period		45,595			14,706
End of the period	$	42,748		$	22,638
Supplemental disclosure of cash flow information:
Cash paid for interest	$	5,643		$	12,119
Cash paid for taxes	$	806		$	872
Supplemental schedule of non-cash investing and financing activities:
Purchased property and equipment in accounts payable and accrued expenses	$	25,413		$	5,538
Asset acquired and obligation incurred under capital lease (see Notes 3 and 5)	$	27,500		$	9,422

(UNAUDITED)

~~The accompanying notes are an integral part of these consolidated financial statements~~1. Organization

6Description of Business

~~Table~~Switch & Data Facilities Company, Inc. (together with its subsidiaries, except where the context requires, the “Company”) is a premier provider of ~~Contents~~network-neutral data centers that house, power, and interconnect customers through the Internet and other networks. Leading content companies, enterprises, and communications service providers rely on the Company to connect to customers and exchange network traffic.

~~SWITCH~~On October &21, ~~DATA~~2009, ~~FACILITIES~~the ~~COMPANY~~Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Equinix, ~~INC~~Inc. ~~AND~~(“Equinix”) ~~SUBSIDIARIES~~and Sundance Acquisition Corporation, a wholly-owned subsidiary of Equinix (“Merger Sub”). Pursuant to the terms of the Merger Agreement and subject to the satisfaction or waiver of the conditions therein, Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Equinix (the “Merger”).

~~NOTES~~Subject TOto ~~CONSOLIDATED~~the ~~FINANCIAL~~terms ~~STATEMENTS~~and conditions of the Merger Agreement, at the effective time of and as a result of the Merger, each of the Company’s outstanding shares of common stock (other than dissenting shares and shares held by the Company as treasury stock or owned by Equinix) will be converted into merger consideration that will consist of 0.19409 shares of Equinix’s common stock, $19.06 in cash or a combination of shares of Equinix’s common stock and cash. Under the Merger Agreement, the Company’s stockholders had the opportunity to elect whether they would prefer to receive 0.19409 shares of Equinix’s common stock or $19.06 in cash for each share of the Company’s common stock that they hold.

~~(IN~~The ~~THOUSANDS~~Merger Agreement further provides that the overall consideration to be paid by Equinix in the Merger will consist 80% of Equinix common stock and 20% of cash. At the effective time of and as a result of the Merger, ~~EXCEPT~~each ~~PER~~of ~~SHARE~~the ~~DATA)~~Company’s outstanding shares of common stock will be canceled and extinguished.

The Company’s stockholders voted on January 29, 2010 to approve the Merger. On April 23, 2010, Equinix received notification from the United States Department of Justice (~~UNAUDITED~~the “DOJ”) that the DOJ has closed its investigation with respect to the proposed acquisition of the Company by Equinix and also received notification from the Federal Trade Commission that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 has been terminated. Equinix and the Company expect the Merger to close on April 30, 2010, subject to the satisfaction or waiver of the other closing conditions set forth in the Merger Agreement.

1.Additional information ~~Organization~~regarding the Merger is provided in the Current Report on Form 8-K that was filed with the SEC on October 22, 2009, as well as subsequent SEC filings.

~~Description~~2. Summary of ~~Business~~Significant Accounting Policies

~~Switch &~~Basis ~~Data Facilities Company, Inc. (together with its subsidiaries, except where the context requires, the “Company”) is a premier provider~~ of ~~network-neutral~~Presentation data centers that house, power, and interconnect customers through the Internet and other networks. Leading content companies, enterprises, and communications service providers rely on the Company to connect to customers and exchange network traffic.

2The accompanying unaudited consolidated financial statements have been prepared by the Company and reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary to fairly state the financial position and the results of operations for the interim periods presented. ~~Summary~~The financial statements have been prepared in accordance with the regulations of the SEC, but omit certain information and footnote disclosures necessary to present the statements in accordance with accounting principles generally accepted in the United States. For further information, refer to the Consolidated ~~Significant~~Financial ~~Accounting~~Statements ~~Policies~~and Notes thereto included in the Company’s Annual Report on Form 10-K as filed with the SEC on February 22, 2010. Results for the interim periods are not necessarily indicative of results for the entire fiscal year.

~~Basis~~The preparation of ~~Presentation~~these financial statements in conformity with accounting principles generally accepted in the United States 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

~~The~~7 accompanying unaudited consolidated financial statements have been prepared by the Company and reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary to fairly state the financial position and the results of operations for the interim periods presented. The financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission (“SEC”), but omit certain information and footnote disclosures necessary to present the statements in accordance with accounting principles generally accepted in the United States. For further information, refer to the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 3, 2009. Results for the interim periods are not necessarily indicative of results for the entire fiscal year.

~~The~~SWITCH ~~preparation~~& ofDATA ~~these~~FACILITIES ~~financial~~COMPANY, ~~statements~~INC inAND ~~conformity~~SUBSIDIARIES with accounting principles generally accepted in the United States 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

~~Fair~~NOTES ~~Value~~TO CONSOLIDATED FINANCIAL STATEMENTS

~~The~~(IN ~~following~~THOUSANDS, ~~table~~EXCEPT ~~provides~~PER ~~the~~SHARE ~~assets~~DATA) ~~and liabilities carried at fair value measured on a recurring basis:~~

	Fair value measurement atDecember 31, 2008 using:				Fair value measurement atSeptember 30, 2009 using:
	Quoted pricesin activemarkets(Level 1)		Significantotherobservableinputs(Level 2)		Quoted pricesin activemarkets(Level 1)		Significantotherobservableinputs(Level 2)
Derivative liabilities	$	—	$	7,434	$	—	$	8,625

(UNAUDITED)

~~The~~Fair ~~carrying~~Value amounts of cash and cash equivalents, accounts receivable net of the allowance for doubtful accounts, other current assets, accounts payable, accrued expenses, and other liabilities approximate fair value due to their short-term nature.

The ~~fair~~following ~~value~~table ofprovides the ~~Company’s~~assets ~~long-term debt, which is not traded in the market, is estimated by using the Company’s credit worthiness, current rates available to the Company for debt of the same remaining maturities~~ and ~~the~~liabilities ~~terms~~carried ofat ~~the~~fair ~~debt.~~value ~~After~~measured ~~considering~~on ~~the~~a ~~items~~recurring ~~above~~basis: ~~and the floating interest rate associated with the long-term debt, the Company believes the carrying amount of the Company’s long-term debt approximates fair value.~~


	Fair value measurement at December 31, 2009 using:				Fair value measurement at March 31, 2010 using:
	Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)
Cash and cash equivalents	$	28,528	$	—	$	24,120	$	—
Derivative liability	$	—	$	8,713	$	—	$	9,543

~~Table~~The following is a description of ~~Contents~~the Company’s valuation methodology for assets and liabilities measured at fair value:

~~SWITCH~~Cash &and ~~DATA~~Cash Equivalents, ~~FACILITIES~~accounts ~~COMPANY~~receivable net of the allowance for doubtful accounts, ~~INC~~other ~~AND~~current ~~SUBSIDIARIES~~assets, accounts payable, accrued expenses, and other current liabilities. Cash equivalents are carried at fair value based on quoted market prices in active markets. All other financial instruments are not carried at fair value, but are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk.

~~NOTES~~Interest TORate ~~CONSOLIDATED~~Swaps. ~~FINANCIAL~~These ~~STATEMENTS—~~financial instruments are carried at fair value, calculated as the present value of amounts estimated to be received or paid to a marketplace participant in a selling transaction. These derivatives are valued using a model based on significant other observable inputs (~~Continued~~Level 2 inputs). The model utilizes Eurodollar Futures settlement pricing from the Chicago Mercantile Exchange to estimate future LIBOR rates and in turn estimate amounts to be received or paid under the terms of the interest rate swap agreements.

~~(IN~~The ~~THOUSANDS~~fair value of the Company’s long-term debt, ~~EXCEPT~~which ~~PER~~is ~~SHARE~~not ~~DATA)~~traded in the market, is estimated by using the Company’s credit worthiness, current rates available to the Company for debt of the same remaining maturities and the terms of the debt. After considering the items above and the floating interest rate associated with the long-term debt, the Company believes the carrying amount of the Company’s long-term debt approximates fair value.

~~(UNAUDITED)~~Stock-Based Compensation

~~Stock~~As of March 31, 2010, there was $7,780 of unrecognized compensation cost related to non-~~Based~~vested ~~Compensation~~stock-based compensation arrangements granted under the Company’s stock-based compensation plans. These costs are to be recognized ratably over a weighted average period of less than four years. The Company recorded $1,778 of compensation expense for the three months ended March 31, 2010.

AsThe ofCompany ~~September 30,~~recognized ~~2009, there was $12,236 of unrecognized~~ compensation ~~cost~~expense ~~related~~for torestricted ~~non-vested~~ stock~~-based~~ ~~compensation arrangements~~of ~~granted~~$100 ~~under~~for the three ~~Company’s~~months ~~stock-based~~ended ~~compensation~~March 31, ~~plans~~2010. ~~These costs are to be recognized ratably over a weighted average period of less than four years.~~ The Company ~~recorded~~did ~~$1,684~~not ~~and~~grant ~~$4,621~~restricted ofstock ~~compensation~~prior ~~expense~~to ~~for the three months and nine months ended September 30,~~ 2009~~, respectively~~.

The Company ~~uses~~did ~~the~~not ~~Black-Scholes option-pricing~~grant ~~model~~any toequity ~~determine the fair value of stock options. The determination of fair value for stock-based payment~~ awards isduring ~~based on a number of assumptions. These assumptions include~~ the ~~expected~~three ~~term~~months ofended ~~the options~~March 31, ~~a risk-free interest rate, expected dividend yields, and stock price volatility~~2010. If factors change and the Company employs different assumptions for estimating stock-based compensation expense or if the Company decides to use a different valuation model, the expense in future periods may differ significantly from what the Company has recorded in the current period, which could have a material impact on the consolidated financial statements.

~~For~~Comprehensive ~~options~~Income ~~granted~~(loss) ~~during the nine months ended September 30, 2009, the fair value of each option grant was calculated using the Black-Scholes option-pricing model with the following assumptions:~~

	For the nine months endedSeptember 30, 2009
	Options to non-employeedirectors vestingimmediately	Options vesting25% annually forfour years
Expected term of the options	5.00 years	6.25 years
Risk-free interest rate	1.89%	2.10% - 3.03%
Expected stock price volatility	61.47%	70.84% - 72.97
Expected dividend yield	None	None

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

As a public company without sufficient option exercise history, the Company estimates the expected term of options granted by taking the weighted average of the vesting period and the contractual term of the option. The Company uses the risk-free interest rate on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on its equity awards. As a public company without a sufficient history of common stock prices for a period equal to the expected option term, the Company estimates the future stock price volatility of its common stock by using its own historical volatility since the Company became public and supplementing the volatility for the period prior to the Company becoming public with the historical volatility of a peer company. The Company believes such an approach best represents its future volatility in accordance with generally accepted accounting principles. The Company does not anticipate paying any cash dividends in the foreseeable future, and therefore, assumed an expected dividend yield of zero in its option-pricing model.


	For the three months ended March 31,
	2009			2010
Net loss	$	(1,980	)	$	(509	)
Currency translation adjustments		(373	)		586

Comprehensive income (loss)	$	(2,353	)	$	77

~~The~~8 ~~weighted average fair value of stock options per share on the date of grant was $4.08 for stock options granted in 2009.~~

~~During~~SWITCH ~~the~~& ~~nine~~DATA ~~months~~FACILITIES ~~ended September 30~~COMPANY, ~~2009,~~INC ~~the~~AND ~~Company~~SUBSIDIARIES granted 205 performance-based restricted stock awards. The grant date fair value of restricted stock awards is based on the quoted fair market value of the Company’s common stock at the grant date. The restricted stock awards vest at the end of the three year performance period. Performance targets are set at the high end of the Company’s publicly disclosed revenue and EBITDA guidance. Compensation expense is recognized ratably during the three year performance period. Grants of restricted stock are subject to forfeiture if a grantee, among other conditions, leaves employment prior to expiration of the restricted period. The Company recognized compensation expense for restricted stock of $100 and $241 for the three months and nine months ended September 30, 2009, respectively. The Company did not grant restricted stock prior to 2009.

8NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

~~Table~~(IN ofTHOUSANDS, ~~Contents~~EXCEPT PER SHARE DATA)

~~SWITCH~~(UNAUDITED) ~~& DATA FACILITIES COMPANY, INC AND SUBSIDIARIES~~

~~NOTES~~The TOCompany’s ~~CONSOLIDATED~~foreign ~~FINANCIAL~~operations ~~STATEMENTS—(Continued)~~use the local currency as their functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect on the balance sheet date. Revenues and expenses of these operations are translated at monthly average rates.

~~(IN~~Recent ~~THOUSANDS,~~Accounting ~~EXCEPT~~Pronouncements ~~PER SHARE DATA)~~

~~(UNAUDITED)~~In January 2010, the FASB issued an accounting standard update regarding fair value measurements and disclosures. The new guidance requires new disclosures for significant transfers in and out of Level 1 and 2 of the fair value hierarchy and the activity within Level 3 of the fair value hierarchy. The updated guidance also clarifies existing disclosures regarding the level of disaggregation of assets or liabilities and the valuation techniques and inputs used to measure fair value. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2009, with the exception of the new Level 3 activity disclosures, which are effective for interim and annual reporting periods beginning after December 15, 2010. The Company adopted the new guidance during the first quarter of 2010.

~~Comprehensive~~In ~~Income~~February 2010, the FASB issued an accounting standard update regarding subsequent events. The new guidance reiterates that an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. The updated guidance was effective upon issuance. The Company adopted the new guidance during the first quarter of 2010.

The ~~components~~adoption of ~~comprehensive~~new accounting ~~income~~guidance ~~are~~did asnot ~~follows:~~have a material effect on the Company’s consolidated financial statements.

	For the three monthsended September 30,					For the nine monthsended September 30,
	2008			2009		2008			2009
Net income (loss)	$	(32	)	$	2,588	$	1,447		$	2,482
Currency translation adjustments		(650	)		1,120		(1,279	)		2,136
Comprehensive income (loss)	$	(682	)	$	3,708	$	168		$	4,618

3. Property and Equipment, Net

The Company’s ~~foreign~~capitalized ~~operations~~costs ~~use the local currency as their functional currency. Assets and liabilities~~ of ~~these~~$20,317 ~~operations~~during ~~are translated at~~ the ~~exchange~~three ~~rates~~months inended ~~effect~~March 31, on2010, ~~the~~primarily ~~balance~~associated ~~sheet~~with constructing ~~date.~~a ~~Revenues~~new ~~and~~data ~~expenses of these operations are translated at monthly average rates~~center.

~~Recent~~4. ~~Accounting~~Goodwill ~~Pronouncements~~and Other Long-Term Assets, Net

InIncluded ~~June~~in ~~2009,~~other ~~the~~long-term ~~Financial~~assets, ~~Accounting~~net, ~~Standards~~on ~~Board (~~the ~~“FASB”)~~Consolidated ~~issued~~Balance ~~The~~Sheets ~~FASB~~are ~~Accounting~~debt ~~Standards~~issuance ~~Codification~~costs, ~~(the~~net, ~~“Codification”). The Codification is the source~~ of ~~authoritative~~ ~~U.S.~~$4,032 ~~GAAP recognized by the FASB to be applied by nongovernmental entities. The Codification is effective for financial statements issued for interim~~ and ~~annual~~$3,802 ~~periods~~as ~~ending after September~~of December 1531, 2009 and ~~was~~March 31, ~~adopted by the Company in September~~ 2009, respectively.

~~In May 2009, new accounting guidance was issued regarding subsequent events~~5. ~~This~~Financing ~~guidance establishes~~Obligations general standards of accounting and disclosure for events that occur after the balance sheet date but before financial statements are issued. This guidance is effective for interim and annual periods ending after June 15, 2009 and was adopted by the Company in June 2009.

InLong-Term ~~April 2009,~~Debt new accounting guidance was issued regarding the estimation of fair value. This guidance provides additional information on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity, as well as additional information on circumstances which may indicate a transaction is not orderly. The guidance requires interim disclosures of the inputs and valuation techniques used to measure fair value reflecting changes in the valuation techniques and related inputs. This guidance is effective prospectively for interim and annual reporting periods ending after June 15, 2009 and was adopted by the Company in June 2009.

InThe ~~April 2009,~~Company’s ~~new~~long-term ~~accounting~~debt ~~guidance~~consisted ~~was~~of issued regarding interim disclosures about fair value. This guidance requires that disclosures provide quantitative and qualitative information on fair value estimates for all financial instruments not measured on the ~~balance sheet at fair value, when practicable. This guidance is effective prospectively for interim reporting periods ending after June 15, 2009 and was adopted by the Company in June 2009.~~ following:

In March 2008, new accounting guidance was issued regarding disclosures about derivative instruments. This new guidance enhances disclosure about how and why a company uses derivatives; how derivative instruments are accounted for; and how derivatives affect a company’s financial position, financial performance, and cash flows. This guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 and was adopted by the Company as of January 1, 2009, as reflected in Note 5.


	December 31, 2009			March 31, 2010
Credit Facility - Total cost of outstanding debt was 6.2% at March 31, 2010	$	142,500		$	138,938
Less current portion		(14,250	)		(17,813	)

Long-term debt	$	128,250		$	121,125

~~The~~Accrued ~~adoption~~interest ofincluded ~~new~~in ~~accounting~~accounts ~~guidance~~payable ~~did~~and ~~not~~accrued ~~have~~expenses arelated ~~material~~to ~~effect~~long-term ondebt in the Consolidated ~~Company’s~~Balance ~~consolidated~~Sheets ~~financial~~is ~~statements~~$719 and $374 at December 31, 2009 and March 31, 2010, respectively.

3.On March 27, ~~Property~~2008, the Company entered into a Fourth Amended and ~~Equipment~~Restated Credit Agreement which provided for: (i) a $120,000 ~~Net~~term loan (the “Term Loan”); (ii) a $22,500 delayed draw term loan (the “Delayed Draw Term Loan”), to be funded at the option of the Company no later than March 27, 2009; (iii) a $15,000 revolving loan (the “Revolver”); and (iv) the option to request an incremental term loan before March 27, 2009, of up to $50,000 (the “Incremental Term Loan”) subject to

~~The Company capitalized costs of $52,882 during the nine months ended September 30, 2009, primarily associated with adding product capacities to existing data centers. Included in this amount is $~~9~~,422~~ ~~of equipment under capital lease.~~

9SWITCH & DATA FACILITIES COMPANY, INC AND SUBSIDIARIES

~~Table~~NOTES ofTO ~~Contents~~CONSOLIDATED FINANCIAL STATEMENTS-Continued

~~SWITCH~~(IN ~~& DATA FACILITIES COMPANY~~THOUSANDS, ~~INC~~EXCEPT ~~AND~~PER ~~SUBSIDIARIES~~SHARE DATA)

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—~~(~~Continued~~UNAUDITED)

~~(IN~~ the ~~THOUSANDS~~willingness of the lenders to make such loan. On March 28, ~~EXCEPT~~2008, ~~PER~~the ~~SHARE~~full ~~DATA)~~$120,000 of the Term Loan was funded, of which $38,189 was used to refinance the $38,189 of term debt remaining outstanding under the Company’s previous credit agreement. On January 5, 2009, the Company borrowed $22,500 under the Delayed Draw Term Loan. The Incremental Term Loan expired unused on March 27, 2009.

On September 4, 2009, the Company entered into the First Amendment to the Fourth Amended and Restated Credit Agreement (~~UNAUDITED)~~as amended, the “Credit Facility”) which, among other things, provided the Company with an additional delayed draw term loan of up to $100,000 (the “Additional Delayed Draw Term Loan”).

4.Total ~~Goodwill~~fees incurred for the First Amendment to the Fourth Amended and ~~Other~~Restated ~~Long-Term~~Credit ~~Assets~~Agreement were $1,425 ~~Net~~of which $1,388 were capitalized and $37 were expensed.

~~Included~~As ~~in other long-term assets, net, on the Consolidated Balance Sheets are debt issuance costs, net,~~ of ~~$3,565 and $4,262 as of December~~March 31, ~~2008 and September 30~~2010, ~~2009,~~no ~~respectively.~~borrowings Onhave ~~March 27,~~occurred ~~2008,~~under the ~~Company~~Revolver ~~executed~~or the ~~Fourth Amended and Restated Credit Agreement, and wrote-off previously capitalized debt issuance costs of $599 and capitalized new~~ ~~debt~~Additional ~~issuance~~Delayed ~~costs~~Draw ofTerm ~~$3,943~~Loan. OnA ~~September 4~~$1,390 ~~2009,~~letter ~~the~~of ~~Company~~credit ~~executed~~has ~~the~~been ~~First~~issued ~~Amendment~~under to the ~~Fourth~~Revolver ~~Amended~~as ~~and~~a ~~Restated~~security ~~Credit Agreement and capitalized new debt issuance costs of $1,388~~deposit. ~~See Note 5 for further discussion on debt issuance costs.~~

~~Each year, during the third quarter, the Company tests for impairment of goodwill according to a two-step~~The ~~approach.~~proceeds ~~In the first step, the Company tests for impairment~~ of ~~goodwill by estimating~~ the ~~fair~~Credit ~~values~~Facility ofnot ~~the~~used ~~data~~to ~~centers~~refinance ~~using~~ the ~~present value of future cash flows. If the carrying amount exceeds the fair value~~$38,189 ~~the second step~~ of ~~the~~term ~~goodwill impairment~~debt ~~test~~must isbe ~~performed~~used tofor ~~measure~~working ~~the amount of the impairment loss~~capital, ifgeneral ~~any.~~corporate ~~In the second step~~purposes, ~~the implied fair value of the goodwill is estimated as the fair value of the data center in the first step less the fair values of all other net tangible~~ and ~~intangible~~for ~~assets~~capital ofexpenditures ~~the data center. If the carrying amount~~ of the goodwill exceeds its implied fair market value, an impairment loss is recognized in an amount equal to that excess, not to exceed the carrying amount of goodwill. Goodwill of a data center is also tested for impairment, between annual tests, if an event occurs or circumstances change that would more likely than not reduce the fair value of a data center below its carrying value. The Company ~~completed its review of goodwill reported for each data center as of September 30, 2009 and no impairment was recorded~~.

Substantially all of the assets of the Company and its restricted subsidiaries are pledged as collateral under the Credit Facility. Interest under the Term Loan, the Revolver, the Delayed Draw Term Loan and the Additional Delayed Draw Term Loan is paid at a rate equal to: (i) 2.5% to 3.5% ~~Financing~~above ~~Obligations~~the alternate base rate (which is equal to the greater of the administrative agent’s prime rate, 0.5% above the federal funds rate, and 3.0% per annum) or (ii) 3.5% to 4.5% above the adjusted LIBOR rate (which is equal to the greater of the LIBOR rate for such interest period and 2.0% per annum); where in each case the applicable margin changes based on the Company’s consolidated total leverage ratio. The current rate of interest is 3.0% above the alternate base rate or 4.0% above the LIBOR rate. The Company also pays unused facility fees equal to 0.5% per annum on the unused portion of the Revolver and 1.0% on the Additional Delayed Draw Term Loan.

~~Long-Term~~The ~~Debt~~Credit Facility requires compliance with various financial covenant ratios, including a consolidated total leverage ratio, a consolidated senior leverage ratio, an annualized consolidated interest coverage ratio, an annualized consolidated fixed charge coverage ratio, and a maximum capital expenditure limit.

The Credit Facility requires that the Company comply with certain other covenants which, among other things, restrict the Company’s ~~long-term~~ability to incur additional debt, ~~consisted~~pay dividends and make other restricted payments, sell assets, enter into affiliate transactions and take other actions. The breach of any of these covenants could result in a default and, if not cured within any applicable cure period or waived by the ~~following:~~lenders, could trigger acceleration of repayment and the exercise of remedies against the collateral and otherwise. The Company was in compliance with all covenants as of March 31, 2010.

	December 31,2008		September 30,2009
Credit Facility - Total cost of outstanding debt was 6.33% at September 30, 2009.	$	120,000	$	142,500
Less current portion		—		(10,687	)
Long-term debt	$	120,000	$	131,813

~~Accrued~~As ~~interest~~of ~~included~~March 31, in2010, ~~accounts~~scheduled ~~payable~~maturities ~~and~~of ~~accrued~~the ~~expenses~~Term ~~related~~Loan ~~to long-term~~for ~~debt in~~ the ~~Consolidated~~next ~~Balance~~five ~~Sheets~~years isare ~~$2,577~~as ~~and~~follows: ~~$583 at December 31, 2008 and September 30, 2009, respectively.~~

On March 27, 2008, the Company entered into a Fourth Amended and Restated Credit Agreement which provided for: (i) a $120,000 term loan (the “Term Loan”); (ii) a $22,500 delayed draw term loan (the “Delayed Draw Term Loan”), to be funded at the option of the Company no later than March 27, 2009; (iii) a $15,000 revolving loan (the “Revolver”); and (iv) the option to request an incremental term loan before March 27, 2009, of up to $50,000 (the “Incremental Term Loan”) subject to the willingness of the lenders to make such loan. On March 28, 2008, the full $120,000 of the Term Loan was funded, of which $38,189 was used to refinance the $38,189 of term debt remaining outstanding under the Company's previous credit agreement. On January 5, 2009, the Company borrowed $22,500 under the Delayed Draw Term Loan. The Incremental Term Loan expired unused on March 27, 2009.


Year	Amount
2010	$	10,688
2011		28,500
2012		28,500
2013		57,000
2014		14,250

Total	$	138,938

OnAt ~~September~~December 431, 2009, ~~the Company entered into the First Amendment to the Fourth Amended~~ and ~~Restated~~ ~~Credit~~March 31, ~~Agreement (as amended~~2010, the fair ~~“Credit~~value ~~Facility”)~~of ~~which, among other things, provided~~ the Company’s ~~with~~debt anwas ~~additional~~estimated ~~delayed~~at ~~draw~~$142,500 ~~term~~and ~~loan of up to~~ $~~100~~138,~~000~~938, ~~(the~~respectively, ~~“Additional~~which ~~Delayed~~approximates ~~Draw~~the ~~Term~~carrying ~~Loan”)~~value.

~~Total~~10 ~~fees incurred for the First Amendment to the Fourth Amended and Restated Credit Agreement were $1,425 of which $1,388 were capitalized and $37 were expensed.~~

10SWITCH & DATA FACILITIES COMPANY, INC AND SUBSIDIARIES

~~Table~~NOTES ofTO ~~Contents~~CONSOLIDATED FINANCIAL STATEMENTS-Continued

~~SWITCH~~(IN ~~& DATA FACILITIES COMPANY~~THOUSANDS, ~~INC~~EXCEPT ~~AND~~PER ~~SUBSIDIARIES~~SHARE DATA)

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—~~(~~Continued~~UNAUDITED)

~~(IN~~Capital ~~THOUSANDS,~~Lease ~~EXCEPT~~Obligations ~~PER SHARE DATA)~~

~~(UNAUDITED)~~During 2009, the Company recorded capital leases totaling $10,001 for data center equipment. Monthly payments under these capital leases commenced in July 2009 and will be made through March 2014, at a weighted average effective interest rate of 7.0% per annum.

As of ~~September~~March 3031, ~~2009~~2010, nototal ~~borrowings~~capital ~~have~~lease ~~occurred~~obligations ~~under~~were ~~the~~$59,884. ~~Revolver~~As orof ~~the Additional~~March 31, ~~Delayed~~2010, ~~Draw~~future ~~Term~~minimum ~~Loan.~~capital Alease ~~$1,400~~payments for ~~letter~~the ofnext ~~credit~~five ~~has~~years ~~been~~and ~~issued~~thereafter ~~under~~are ~~the Revolver~~ as afollows: ~~security deposit.~~

The proceeds of the Credit Facility not used to refinance the $38,189 of term debt must be used for working capital, general corporate purposes, and for capital expenditures of the Company.


Year	Amount
Remainder of 2010	$	5,279
2011		7,084
2012		7,138
2013		7,330
2014		5,605
Thereafter		108,589

Total future minimum capital lease payments		141,025
Less: Interest component of capital lease payments		(81,141	)

Present value of minimum capital lease payments		59,884
Less: Current portion of capital lease obligations		(1,967	)

Long-term capital lease obligations	$	57,917

~~Substantially~~Accrued ~~all~~interest ofincluded ~~the~~in ~~assets~~accounts ofpayable ~~the Company~~ and ~~its~~accrued ~~restricted~~expenses ~~subsidiaries~~related ~~are~~to ~~pledged~~capital aslease ~~collateral~~obligations ~~under the Credit Facility. Interest~~in ~~under~~ the ~~Term~~Consolidated ~~Loan,~~Balance ~~the~~Sheets ~~Revolver, the Delayed Draw Term Loan and the Additional Delayed Draw Term Loan~~ is ~~paid~~$394 at ~~a rate equal to: (i)~~December ~~2.5% to 3.5% above the alternate base rate (which is equal to the greater of the administrative agent’s prime rate~~31, ~~0.5%~~2009 ~~above the federal funds rate,~~ and ~~3.0%~~March ~~per~~31, ~~annum) or (ii) 3.5% to 4.5% above the adjusted LIBOR rate~~2010, ~~(which is equal to the greater of the LIBOR rate for such interest period and 2~~respectively.~~0% per~~ annum); where in each case the applicable margin changes based on the Company’s consolidated total leverage ratio. The current rate of interest is 3.5% above the alternate base rate or 4.5% above the LIBOR rate. The Company also pays unused facility fees equal to 0.5% per annum on the unused portion of the Revolver and 1.0% on the Additional Delayed Draw Term Loan.

~~The~~Interest ~~Credit~~Rate ~~Facility~~Derivatives requires compliance with various financial covenant ratios, including a consolidated total leverage ratio, a consolidated senior leverage ratio, an annualized consolidated interest coverage ratio, an annualized consolidated fixed charge coverage ratio, and a maximum capital expenditure limit.

The Credit Facility requires ~~that~~ the Company ~~comply~~to ~~with~~fix ~~certain other~~its ~~covenants~~floating ~~which,~~interest ~~among~~rate ~~other~~on ~~things,~~no ~~restrict~~less ~~the~~than ~~Company’s~~50% ~~ability~~of tothe principal ~~incur~~of ~~additional~~the ~~debt,~~Credit ~~pay~~Facility. ~~dividends~~The ~~and~~Company ~~make~~utilizes ~~other~~interest ~~restricted~~rate ~~payments,~~swap ~~sell~~agreements ~~assets,~~to ~~enter~~manage ~~into~~its ~~affiliate~~exposure ~~transactions~~to ~~and~~fluctuations ~~take~~in ~~other~~interest ~~actions~~rates. ~~The~~These ~~breach~~agreements ofare ~~any~~recorded ~~of these~~at ~~covenants~~fair ~~could~~value, ~~result~~and the changes in afair ~~default~~value ~~and,~~are ifincluded in interest expense. The Company does not ~~cured~~elect ~~within~~hedge accounting on any ~~applicable~~of ~~cure~~these ~~period~~agreements. orThe ~~waived~~fair byvalue ~~the~~of ~~lenders,~~these ~~could~~agreements ~~trigger~~is ~~acceleration~~reflected ofin ~~repayment~~a ~~and~~separate line item on the ~~exercise~~Consolidated ofBalance ~~remedies~~Sheets. ~~against~~Changes in the ~~collateral~~fair ~~and~~value ~~otherwise.~~of ~~The~~these ~~Company~~agreements ~~was~~are inincluded ~~compliance~~in ~~with~~Interest ~~all~~Expense ~~covenants~~on asthe Consolidated Statements of ~~September 30,~~Operations ~~2009~~and detailed further in this discussion.

~~Borrowings~~In ~~under~~January ~~the Revolver are available until September 26~~2009, ~~2013. Borrowings under~~ the ~~Additional~~Company ~~Delayed~~entered ~~Draw~~into ~~Term~~an ~~Loan~~interest ~~are~~rate ~~available~~swap ~~until~~agreement ~~September 4, 2010. Repayments of principal under the Term Loan and the Delayed Draw Term Loan are due in scheduled quarterly installments, beginning March 31, 2010,~~ with ~~the~~a ~~final~~notional ~~payment~~value ~~due~~of ~~and payable on March 27~~$120, ~~2014~~000. ~~Quarterly~~There ~~payments~~was ofno ~~principal~~up-front ~~outstanding~~cost ~~under~~for ~~the~~this ~~Additional~~agreement. ~~Delayed~~The ~~Draw~~agreement ~~Term~~states ~~Loan,~~that ~~if any, will commence on March 31, 2011. Each of~~ the ~~quarterly~~ ~~payments~~Company ~~through~~pays ~~December 31, 2011 will be equal to 2~~1.571% offrom ~~the~~February ~~aggregate~~2009 ~~principal~~through ~~amount~~February of2010 ~~the~~and ~~Additional Delayed Draw Term Loan, with the percentage increasing to 5~~4.099% ~~for~~from February ~~payments~~2010 ~~beginning March 31, 2012~~ through ~~December 31,~~ ~~2012,~~February 102012.0% ~~for~~The ~~payments~~counterparty ~~beginning~~either ~~March 31,~~pays ~~2013~~to ~~through~~the ~~December 31,~~Company ~~2013,~~or ~~and~~receives ~~30.0%~~from ~~for~~ the ~~payment~~Company onthe ~~March 27,~~difference ~~2014.~~between ~~All outstanding amounts under~~ the ~~Revolver~~actual ~~will~~LIBOR berate ~~due~~ and ~~payable on September 27, 2013. As of September 30, 2009, scheduled maturities of~~ the ~~Term~~contracted ~~Loan~~rates for the ~~next~~given ~~five~~periods. ~~years are as follows:~~

Year	Amount
2010	$	14,250
2011		28,500
2012		28,500
2013		57,000
2014		14,250
Total	$	142,500

The fair value of the interest rate derivative represents the estimated receipts or payments that would be made to terminate the agreement prior to expiration. As of December 31, 2009 and March 31, 2010, the Company recorded interest rate derivative liabilities to the balance sheet of approximately $8,713 and $9,543, respectively. The changes in fair value of $739 and $830 are recorded as increases in interest expense in the Consolidated Statements of Operations for the three months ended March 31, 2009 and 2010, respectively.

~~Capital~~11 ~~Lease Obligations~~

~~During~~SWITCH ~~2009,~~& ~~the~~DATA ~~Company~~FACILITIES ~~recorded a capital lease of $9~~COMPANY,~~422~~ ~~for~~INC ~~data~~AND ~~center~~SUBSIDIARIES ~~equipment. Monthly payments under the capital lease commenced in July 2009 and will be made through March 2014, at a weighted average effective interest rate of 7.2% per annum.~~

11NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued

~~Table~~(IN ofTHOUSANDS, ~~Contents~~EXCEPT PER SHARE DATA)

~~SWITCH~~(UNAUDITED) ~~& DATA FACILITIES COMPANY, INC AND SUBSIDIARIES~~

~~NOTES~~6. TOLoss ~~CONSOLIDATED~~Per ~~FINANCIAL~~Common ~~STATEMENTS—(Continued)~~Share

~~(IN~~The ~~THOUSANDS,~~following ~~EXCEPT~~table ~~PER~~sets ~~SHARE~~forth ~~DATA)~~the detail for the computation of basic and diluted loss per common share attributable to common stockholders.

(UNAUDITED)


	For the three months ended March 31,
	2009			2010
Numerator:
Net loss	$	(1,980	)	$	(509	)
Denominator:
Weighted average common shares outstanding - basic		34,563			34,771
Plus: dilutive effect of stock options		—			—
Plus: dilutive effect of performance-based restricted shares		—			—

Weighted average common shares outstanding - diluted		34,563			34,771

Net loss per common share - basic and diluted	$	(0.06	)	$	(0.01	)

AsThe offollowing ~~September 30,~~table ~~2009,~~sets forth ~~total~~the ~~capital~~potential ~~lease~~common ~~obligations~~shares ~~were~~not ~~$60,045.~~included Asin ~~of September 30,~~the ~~2009,~~diluted ~~future~~net ~~minimum~~loss ~~capital~~per ~~lease~~common ~~payments~~share ~~for~~calculation ~~the~~because ~~next~~these ~~five~~shares ~~years and thereafter~~ are ~~as follows~~anti-dilutive:

Year	Amount
	For the three monthsended March 31,
Remainder of 2009	$	1,711
	2009		2010
2010		6,866
Common stock options	2,681		2,825
2011		6,918
Performance-based restricted stock	205		205
2012		6,972
2013		7,164
2014		5,598
Thereafter		108,582
Total future minimum capital lease payments		143,811
Less: Interest component of capital lease payments		(83,766	)
Present value of minimum capital lease payments		60,045
Less: Current portion of capital lease obligations		(1,756	)
Long-term capital lease obligations	$	58,289

~~Accrued~~7. ~~interest~~Income ~~included~~Taxes ~~in accounts payable and accrued expenses related to capital lease obligations in the Consolidated Balance Sheets is $392 and $394 at December 31, 2008, and September 30, 2009, respectively.~~

~~Interest~~For ~~Rate~~the ~~Derivatives~~three months ended March 31, 2010, the Company recorded income tax expense of $298, on a loss before income taxes of $211. Comparatively, for the three months ended March 31, 2009, the Company recorded income tax expense of $275, on a loss before income taxes of $1,705.

The ~~Credit~~tax ~~Facility~~provision ~~requires~~for the ~~Company to~~three ~~fix~~months ~~its~~ended ~~floating~~March 31, ~~interest~~2010 ~~rate~~was oncalculated noby ~~less~~estimating ~~than 50% of~~ the ~~principal of the Credit Facility~~U. ~~The Company utilizes interest rate swap agreements to manage its exposure to fluctuations in interest rates~~S. ~~These agreements are recorded at fair value,~~ and ~~the~~Canadian ~~changes~~effective inincome fair value are included in interest expense. The Company does not elect hedge accounting on any of these agreements. The fair value of these agreements is reflected in a separate line item on the Consolidated Balance Sheets.tax ~~Changes~~rates inexpected ~~the~~to ~~fair~~be ~~value~~applicable offor ~~these agreements are included in Interest Expense on~~ the ~~Consolidated~~full ~~Statements~~year ofended ~~Operation~~December 31, ~~and detailed further in this discussion~~2010.

InThe ~~November 2005, the~~ Company ~~entered~~has ~~into~~federal annet ~~interest~~operating ~~rate~~loss (“NOL”) ~~swap~~carryforwards ~~agreement with a notional value~~ of approximately $70110,~~000.~~909 ~~There~~at ~~was~~December 31, ~~no up-front cost for this agreement. The agreement stated that the Company was to pay 4.76% from February 2006 through February~~ 2009. ~~The~~available ~~counterparty was~~ to ~~either~~reduce ~~pay~~future tofederal ~~the~~income ~~Company or receive from the Company the difference between actual LIBOR rate and the contracted rate of 4~~taxes.~~76%.~~ ~~This agreement has expired.~~

InThe ~~August~~Company ~~2008,~~maintains ~~the~~a ~~Company~~full ~~entered~~valuation ~~into~~allowance anon ~~interest~~deferred ~~rate~~tax ~~swap~~assets ~~agreement~~arising ~~with~~primarily afrom ~~notional~~NOL ~~value~~carryforwards ofand ~~$75,000~~other ~~(the~~tax ~~"August~~attributes because ~~Swap").~~the ~~There~~future ~~was~~realization ~~no up-front~~of ~~cost~~such ~~for~~benefits ~~this~~is ~~agreement~~uncertain. ~~The~~As ~~agreement~~a ~~stated~~result, ~~that~~to the ~~Company~~extent ~~was~~that tothose ~~pay~~benefits ~~4.07%~~are ~~from~~realized ~~February~~in ~~2009~~future ~~through~~periods, ~~February~~they ~~2012.~~will ~~The~~favorably ~~counterparty~~affect ~~was~~tax toexpense ~~either~~and ~~pay~~net toincome. ~~the~~The ~~Company~~NOLs orwill ~~receive~~begin ~~from~~to ~~the~~expire ~~Company~~in ~~the~~2022 ~~difference~~and ~~between~~ the ~~actual LIBOR~~ ~~rate~~alternative ~~and~~minimum ~~the~~tax ~~contracted~~credit ~~rate~~does ofnot 4expire.~~07%.~~

InThe ~~October 2008, the~~ Company ~~entered~~has ~~into~~approximately an$163 ~~interest~~and ~~rate~~$165 ~~swap~~of ~~agreement~~total ~~with~~unrecognized atax ~~notional~~benefits ~~value~~related ofto ~~$45,000~~uncertain ~~(the~~tax ~~"October~~positions ~~Swap").~~as ~~There~~of ~~was~~December 31, ~~no up-front cost for this agreement. The agreement stated that the Company was to pay 3.10% from February~~ 2009 ~~through~~and ~~February~~March 31, ~~2012~~2010. The ~~counterparty~~final ~~was~~outcome toof ~~either~~these ~~pay~~uncertain totax ~~the~~positions ~~Company~~is ~~or receive~~not ~~from~~yet ~~the Company the difference between the actual LIBOR rate and the contracted rate of 3~~determinable.~~10%.~~

In12 January 2009, the Company cancelled the August Swap and the October Swap agreements. There was no up-front cost to cancel these swaps. The Company then entered into a single interest rate swap agreement with a notional value of $120,000. There was no up-front cost for this agreement. The agreement states that the Company pays 1.71% from February 2009 through February 2010 and 4.99% from February 2010 through February 2012. The counterparty either pays to the Company or receives from the Company the difference between the actual LIBOR rate and the contracted rates for the given periods.

12SWITCH & DATA FACILITIES COMPANY, INC AND SUBSIDIARIES

~~Table~~NOTES ofTO ~~Contents~~CONSOLIDATED FINANCIAL STATEMENTS-Continued

~~SWITCH~~(IN ~~& DATA FACILITIES COMPANY~~THOUSANDS, ~~INC~~EXCEPT ~~AND~~PER ~~SUBSIDIARIES~~SHARE DATA)

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—~~(~~Continued~~UNAUDITED)

~~(IN~~8. ~~THOUSANDS,~~Stock ~~EXCEPT~~Based ~~PER~~Compensation ~~SHARE DATA)~~

~~(UNAUDITED)~~ Stock Options

As of September 30, 2009, the Company’s interest rate swap agreement has a notional value of $120,000. As of December 31, 2008 and September 30, 2009, the Company reflected the fair value of the interest rate swap as a derivative liability in the Consolidated Balance Sheets of approximately $7,434 and $8,625 respectively. The ~~changes~~following intable ~~fair~~summarizes ~~value~~common ofstock ~~$1,087~~option ~~and~~activity ~~$1,191 are recorded as increases in interest expense in the Consolidated Statements of Operations~~ for the three months ~~and nine months~~ ended ~~September~~March 3031, ~~2009,~~2010: respectively. The changes in fair value of $195 and $603 are recorded as increases in interest expense in the Consolidated Statements of Operations for the three months and nine months ended September 30, 2008, respectively.

6. Income (Loss) Per Common Share


	Number of Shares		Weighted Average Exercise Price
Outstanding as of December 31, 2009	3,086		$	10.85
Options granted	—		$	—
Options exercised	(232	)	$	12.62
Options forfeited or cancelled	(29	)	$	11.16

Outstanding as of March 31, 2010	2,825		$	10.70

The following table ~~sets~~summarizes ~~forth~~nonvested ~~the~~stock ~~detail~~option activity for the ~~computation~~three ofmonths ~~basic~~ended March 31, ~~and~~2010: ~~diluted income (loss) per common share attributable to common stockholders.~~

	For the three monthsended September 30,						For the nine monthsended September 30,
	NonvestedCommon StockOptions			WeightedAverageGrant Date FairValue Per Option
	2008				2009		2008		2009
Nonvested at December 31, 2009	1,774			$	8.76
Numerator:
Options granted	—			$	—
Net income (loss)	$	(32	)		$	2,588	$	1,447	$	2,482
Options vested	(566	)		$	9.75
Denominator:
Options forfeited	(29	)		$	8.31
Weighted average common shares outstanding—basic		34,522				34,574		34,417		34,565
Nonvested at March 31, 2010	1,179			$	8.30
Plus: dilutive effect of stock options		—				193		—		29
Plus: dilutive effect of performance-based restricted shares		—				205		—		205
Weighted average common shares outstanding—diluted		34,522				34,972		34,417		34,799
Net income (loss) per common share—basic	$	(0.00	)		$	0.07	$	0.04	$	0.07
Net income (loss) per common share—diluted	$	(0.00	)		$	0.07	$	0.04	$	0.07

The following table ~~sets~~summarizes ~~forth~~information ~~the~~about ~~potential~~ common ~~shares~~stock ~~not~~options ~~included~~outstanding inas ~~the~~of ~~diluted~~March 31, ~~net income (loss) per common share calculation because these shares are anti-dilutive~~2010:

	For the three monthsended September 30,		For the nine monthsended September 30,
Exercise Price	Number ofOptions	WeightedAverageRemainingContractual Life
	2008	2009	2008	2009
$ 0.00 - $4.00	577	3.98
Common stock options	1,999	2,042	1,873	2,089
$ 4.01 - $8.00	516	8.91
$ 8.01 - $12.00	684	7.96
$ 12.01 - $16.00	48	8.98
$ 16.01 - $20.00	1,000	6.96
Total options outstanding	2,825	6.98
Total options exerciseable	1,646	6.98

7The aggregate intrinsic value of options outstanding as of March 31, 2010 was $20,025. ~~Income~~The aggregate ~~Taxes~~intrinsic value of options exercisable as of March 31, 2010 was $12,214.

~~For~~13 the three months and nine months ended September 30, 2009, the Company recorded income tax expenses of $150 and $950, respectively, on income before income taxes of $2,738 and $3,432, respectively. Comparatively, for the three months and nine months ended September 30, 2008, the Company recorded income tax expense of $234 and $1,325, respectively, on income before income taxes of $202 and $2,772, respectively.

~~The~~SWITCH ~~tax~~& ~~provisions~~DATA ~~for~~FACILITIES ~~the three months and nine months ended September 30~~COMPANY, ~~2009~~INC ~~were~~AND ~~calculated~~SUBSIDIARIES ~~by estimating the U.S. and Canadian effective income tax rates expected to be applicable for the full year ended December 31, 2009.~~

~~The~~NOTES ~~Company~~TO ~~has~~CONSOLIDATED ~~federal net~~FINANCIAL ~~operating~~STATEMENTS-Continued ~~loss (“NOL”) carryforwards of approximately $112,053 and an alternative minimum tax credit of approximately $51,409 available to reduce future federal income taxes.~~

13(IN THOUSANDS, EXCEPT PER SHARE DATA)

~~Table~~(UNAUDITED) ~~of Contents~~

~~SWITCH~~Restricted &Stock ~~DATA FACILITIES COMPANY, INC AND SUBSIDIARIES~~

~~NOTES~~The TOfollowing ~~CONSOLIDATED~~table ~~FINANCIAL~~summarizes ~~STATEMENTS—(Continued)~~the changes in restricted stock awards for the three months ended March 31, 2010:

(IN THOUSANDS, EXCEPT PER SHARE DATA)


	Performance Based Restricted Stock	Weighted Average Grant Date Fair Value Per Share
Performance-based restricted stock at December 31, 2009	205	$	5.84
Shares granted	—	$	—
Shares vested	—	$	—
Shares forfeited	—	$	—

Performance-based restricted stock at March 31, 2010	205	$	5.84

~~(UNAUDITED)~~The aggregate intrinsic value of restricted stock outstanding as of March 31, 2010 was $3,641.

~~The Company maintains a full valuation allowance on deferred tax assets arising primarily from NOL carryforwards and other tax attributes because the future realization of such benefits is uncertain~~9. AsCommitments ~~a result, to the extent that those benefits are realized in future periods, they will favorably affect tax expense~~ and ~~net income.~~Contingencies ~~The NOLs will begin to expire in 2022 and the alternative minimum tax credit does not expire.~~

~~The~~Operating ~~Company~~Lease ~~has approximately~~Payments $154 and $160 of total unrecognized tax benefits related to uncertain tax positions as of December 31, 2008 and September 30, 2009. The final outcome of these uncertain tax positions is not yet determinable.

8The Company and its subsidiaries are engaged in the operation of data centers, most of which are held under non-cancelable operating leases expiring at various dates through 2025. ~~Stock~~Certain ~~Based~~of ~~Compensation~~these non-cancelable operating leases provide for renewal options.

~~Stock~~As ~~Options~~of March 31, 2010 minimum future lease payments under these non-cancelable operating leases for the next five years and thereafter are as follows:

During the nine months ended September 30, 2009, the Company granted 612 common stock options with a weighted average exercise price of $6.24 per share to employees and non-employee directors. Of the grants, 577 of the common stock options vest at a rate of 25% on the first anniversary of the grant date and 25% annually until the common stock options are fully vested. Non-employee directors received a total of 35 common stock options that vested immediately. These vesting periods were established by the Compensation Committee of the Board of Directors at the date of grant.


Year	Amount
Remainder of 2010	$	24,583
2011		32,243
2012		32,076
2013		32,799
2014		30,806
Thereafter		195,138

Total minimum lease payments	$	347,645

~~Common~~Power ~~stock~~Purchase ~~options~~Agreements ~~expire ten years after the date of grant or when an individual ceases to be an employee of the Company. Compensation expense for these common stock options will be recognized over the vesting period.~~

The ~~following~~Company ~~table~~has commitments to purchase power in six of its U.S. markets through December 2012. Such agreements are entered into on a ~~summarizes~~normal ~~common~~purchase, ~~stock~~normal ~~option~~sale ~~activity~~basis. As of March 31, 2010, future payments under such agreements are estimated to be $1,494, $598, and $161 for the ~~nine~~remainder ~~months~~of ~~ended~~2010, ~~September 30~~2011, ~~2009:~~and 2012, respectively.

	Number ofShares		WeightedAverageExercise Price
Outstanding as of December 31, 2008	2,708		$	12.10
Options granted	612		$	6.24
Options exercised	(17	)	$	8.13
Options forfeited or cancelled	(61	)	$	13.16
Outstanding as of September 30, 2009	3,242		$	11.00

Legal Proceedings

~~The~~On ~~following~~October 27, ~~table~~2009, ~~summarizes~~a ~~nonvested~~purported ~~stock~~stockholder ~~option~~class ~~activity~~action ~~for~~lawsuit was filed in the ~~nine~~Delaware ~~months~~Chancery Court against the Company, ~~ended~~members ~~September~~of the Company’s board of directors, Merger Sub and Equinix. The lawsuit, Gibbs v. Switch 30& Data Facilities Company, ~~2009:~~Inc., et al. (Case No. 5027-VCS), alleged that the members of the Company’s board of directors breached their fiduciary duties to the Company’s stockholders in connection with the Merger by, among other things, entering into the

	NonvestedCommon StockOptions		WeightedAverageGrant Date FairValue Per Option
Nonvested at December 31, 2008	1,752		$	11.06
Options granted	612		$	4.08
Options vested	(531	)	$	10.86
Options forfeited	(40	)	$	9.26
Nonvested at September 30, 2009	1,793		$	8.78

14SWITCH & DATA FACILITIES COMPANY, INC AND SUBSIDIARIES

~~Table~~NOTES ofTO ~~Contents~~CONSOLIDATED FINANCIAL STATEMENTS-Continued

~~SWITCH~~(IN ~~& DATA FACILITIES COMPANY~~THOUSANDS, ~~INC~~EXCEPT ~~AND~~PER ~~SUBSIDIARIES~~SHARE DATA)

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—~~(~~Continued~~UNAUDITED)

~~(IN~~ Merger ~~THOUSANDS~~Agreement without first taking steps to obtain adequate, ~~EXCEPT~~fair ~~PER~~and ~~SHARE~~maximum ~~DATA)~~consideration for stockholders, by structuring the transaction to benefit themselves and by including provisions intended to dissuade other potential suitors from making competing offers. The complaint also alleged that the Company and Equinix aided and abetted those supposed breaches of duty. The complaint sought various forms of relief, including but not limited to an injunction prohibiting the consummation of the Merger.

On October 30, 2009, a second purported stockholder class action lawsuit, Jiannaras v. Switch & Data Facilities Company, Inc., et al. (~~UNAUDITED~~Case No. 09-CA-027950), was filed against the same defendants in a Hillsborough County, Florida state court. The complaint alleges that the members of the Company’s board of directors breached their fiduciary duties to the Company’s stockholders by, among other things, failing to take steps to maximize the Company’s value to its public stockholders, failing to value properly the Company, failing to protect against the directors’ conflicts of interest, and failing to disclose all material information to allow a fully informed vote by the stockholders. Specifically, plaintiffs contended that the defendants timed the Merger to take advantage of the recent downturn in the Company’s share price to sell the Company at an illusory premium that did not reflect its financial performance, thereby depriving the Company’s stockholders of the true value of their shares and allowing defendants to reap disproportionate benefits to themselves instead of maximizing stockholder value. Plaintiffs further asserted that the Company and Equinix aided and abetted the alleged breaches of duty by the Company’s directors. The complaint sought various relief, including but not limited to an injunction prohibiting the consummation of the Merger.

~~The~~On ~~following~~December 7, ~~table~~2009, ~~summarizes~~a ~~information~~third ~~about~~purported ~~common~~stockholder ~~stock~~class ~~options~~action ~~outstanding~~lawsuit, asBroadbased ofEquities v. Keith Olsen, et al. (Case ~~September~~No. 308:09-CV-02473), ~~2009:~~was filed against the same defendants (other than Merger Sub, which was not named) in the United States District Court for the Middle District of Florida. The complaint alleged that the defendants have provided materially incomplete information to the Company’s stockholders in the Proxy Statement, that the Company’s Chief Executive Officer and President

Exercise Price	Number ofOptions	WeightedAverageRemainingContractual Life
$ 0.00 - $ 4.00	590	4.45
$ 4.01 - $ 8.00	573	9.40
$ 8.01 - $ 12.00	814	8.46
$ 12.01 - $ 16.00	50	9.45
$ 16.01 - $ 20.00	1,215	7.43
Total options outstanding	3,242	7.53
Total options exerciseable	1,449	6.42

sought to advance his own interests at the expense of the Company’s stockholders in connection with the Merger, and that the Company’s directors breached their fiduciary duties in connection with the Merger, including by agreeing to provisions in the Merger Agreement intended to dissuade other potential suitors from making competing offers. The complaint also alleged that Equinix aided and abetted those supposed breaches of duty. The complaint sought various forms of relief, including but not limited to an injunction prohibiting the consummation of the Merger.

~~The~~On ~~aggregate~~January 19, ~~intrinsic~~2010, ~~value~~counsel for parties in all three lawsuits entered into a memorandum of ~~options~~understanding ~~outstanding~~in aswhich they agreed upon the terms of ~~September 30~~a settlement of all lawsuits. In connection with this settlement, ~~2009~~the three lawsuits and all claims asserted therein will be dismissed with prejudice, including the claims brought against the Company and its directors. The parties have ~~was~~sought ~~$12~~approval of the settlement in the Florida state court. The parties have stayed the actions pending in the Delaware Chancery Court and the United States District Court for the Middle District of Florida. The proposed settlement is conditional upon,~~808~~ among other things, consummation of the Merger and final approval of the proposed settlement by the Florida state court. The proposed settlement contemplates that plaintiffs’ counsel will apply to the Florida state court for an award of attorneys’ fees and costs in an aggregate ~~intrinsic~~amount ~~value~~of $900, and that the defendants will not oppose or undermine this application. These attorneys’ fees and costs will not be deducted from the Merger consideration. Both the Company and Equinix will share in the payment of ~~options~~such ~~exercisable~~settlement. asAs of ~~September~~December 3031, 2009, ~~was~~the Company accrued $7630,~~014~~ its portion of the settlement and recorded $380 as an insurance receivable.

~~Restricted~~The Company is subject to other legal proceedings and claims which arise in the ordinary course of business. Based upon currently ~~Stock~~available information, management, based upon advice of legal counsel, believes that the amounts accrued in the Consolidated Balance Sheets are adequate for the aforementioned proceedings and claims and the amount of any additional liability with respect to these actions will not materially affect the financial position, results of operations or liquidity of the Company.

~~The~~Taxes ~~following table summarizes the changes in restricted stock awards for the nine months ended September 30, 2009:~~

	PerformanceBased RestrictedStock	WeightedAverageGrant Date FairValue Per Share
Performance-based restricted stock at December 31, 2008	—	$	—
Shares granted	205	$	5.84
Shares vested	—	$	—
Shares forfeited	—	$	—
Performance-based restricted stock at September 30, 2009	205	$	5.84

The Company is examined in the normal course of business by various state and local taxing authorities regarding various tax matters. As of March 31, 2010 the Company is not under examination by any taxing authority related to non-income tax matters. The Company has accrued $133 as of March 31, 2010 in anticipation of future examinations.

~~The~~15 ~~aggregate intrinsic value of restricted stock outstanding as of September 30, 2009 was $2,790.~~

9.SWITCH ~~Commitments~~& ~~and~~DATA ~~Contingencies~~FACILITIES COMPANY, INC AND SUBSIDIARIES

~~Operating~~NOTES ~~Lease~~TO ~~Payments~~CONSOLIDATED FINANCIAL STATEMENTS-Continued

~~The~~(IN ~~Company and its subsidiaries are engaged in the operation of data centers~~THOUSANDS, ~~most~~EXCEPT ofPER ~~which~~SHARE ~~are~~DATA) ~~held under non-cancelable operating leases expiring at various dates through 2025. Certain of these non-cancelable operating leases provide for renewal options.~~

15(UNAUDITED)

~~Table~~10. ofSegment ~~Contents~~Information

~~SWITCH~~The &Company ~~DATA~~manages ~~FACILITIES~~its ~~COMPANY~~business as one reportable segment. Although the Company provides services in several markets, ~~INC~~these ~~AND~~operations have ~~SUBSIDIARIES~~been aggregated into one reportable segment based on the similar economic characteristics among all markets, including the nature of the services provided and the type of customers purchasing such services.

~~NOTES~~The TOCompany’s ~~CONSOLIDATED~~geographic ~~FINANCIAL~~revenues ~~STATEMENTS—(Continued)~~are as follows:

(IN THOUSANDS, EXCEPT PER SHARE DATA)


	For the three months ended March 31,
	2009		2010
Revenues
United States	$	44,396	$	51,908
Canada		2,737		4,787

	$	47,133	$	56,695

~~(UNAUDITED)~~The Company’s long-lived assets are located in the following geographic regions:

As of September 30, 2009, minimum future lease payments under these non-cancelable operating leases for the next five years and thereafter are as follows:


	December 31, 2009		March 31, 2010
Long-lived assets
United States	$	278,088	$	288,839
Canada		19,224		19,427

	$	297,312	$	308,266

Year	Amount
Remainder of 2009	$	7,429
2010		30,236
2011		29,428
2012		29,233
2013		29,935
2014		27,906
Thereafter		185,752
Total minimum lease payments	$	339,919

~~Power~~Item ~~Purchase~~2: ~~Agreements~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~The~~This ~~Company~~Quarterly ~~has~~Report ~~commitments~~on Form 10-Q contains certain statements that are, or may be deemed to ~~purchase~~be, ~~power~~forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are made in ~~six~~reliance upon the protections provided by such acts for forward-looking statements. These forward-looking statements (such as when we describe what “will”, “may” or “should” occur, what we “plan”, “intend”, “estimate”, “believe”, “expect”, or “anticipate” will occur, and other similar statements) include, but are not limited to, statements regarding future sales and operating results, future prospects, anticipated benefits of ~~its~~proposed U(or future) acquisitions and new data centers, growth, the capabilities and capacities of business operations, any financial or other guidance, and all statements that are not based on historical fact, but rather reflect our current expectations concerning future results and events.S We make certain assumptions when making forward-looking statements, any of which could prove inaccurate, including, but not limited to, statements about our future operating results and business plans. ~~markets~~Therefore, ~~through~~we ~~December~~can ~~2012~~give no assurance that the results implied by these forward-looking statements will be realized. ~~Such~~Furthermore, ~~commitments~~the ~~are~~inclusion ~~estimated~~of toforward-looking information should not be $4regarded as a representation by the Company or any other person that future events,~~235~~ plans or expectations contemplated by the asCompany will be achieved. The ultimate correctness of ~~September 30~~these forward-looking statements is dependent upon a number of known and unknown risks and events and is subject to various uncertainties and other factors that may cause our actual results, performance, ~~2009~~or achievements to be different from any future results, performance, or achievements expressed or implied by these statements. The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those expressed or implied in our forward-looking statements:

~~Legal~~• ~~Proceedings~~our pending merger with and into a wholly-owned subsidiary of Equinix, Inc. (“Equinix”);

On• ~~May 31,~~business ~~2006,~~conditions ~~the Company~~ and ~~Switch &~~growth ~~Data Facilities Company, LLC, a subsidiary of the Company, were served with a lawsuit alleging a failure by the Company~~ or ~~its~~declines ~~subsidiary to execute a lease~~ in ~~October~~our ~~2000 for a building in Milwaukee~~industry, ~~Wisconsin.~~our ~~Plaintiffs~~customers’ ~~claimed~~industries ~~the rent~~ and ~~associated lease charges due for~~ the ~~entire~~general ten year term of the lease was $3,666. Plaintiffs also claimed a $750 loss on the sale of the building and $200 in attorney fees. Management believed there was a range of likely outcomes and had accrued $150. On May 21, 2009, the Company agreed to pay $850 to the plaintiffs, in exchange for a full settlement agreement and the execution of a mutual full and complete release of all claims which were raised or could have been raised in the referenced matter. The settlement amount was paid in May 2009 and the case was dismissed with prejudice. economy;

~~The~~• ~~Company~~variability ~~is subject to other legal proceedings and claims which arise in the ordinary course~~ of ~~business.~~ ~~Based~~operating upon currently available information, management, based upon advice of legal counsel, believes that the amounts accrued in the Consolidated Balance Sheets are adequate for the aforementioned proceedings and claims and the amount of any additional liability with respect to these actions will not materially affect the financial position, results ~~of operations or liquidity of the Company.~~ ;

~~Taxes~~• our ability to complete capital expenditure projects on time and on budget;

~~The~~• ~~Company is currently under examination by~~ the ~~states~~availability ~~of New York~~ and ~~Washington~~cost ~~regarding~~of ~~sales,~~sufficient ~~franchise,~~electrical ~~capital~~power and ~~excise~~cooling ~~taxes. As of September 30, 2009, the Company has accrued $225 as a probable loss contingency for these examinations.~~ capacity;

~~10.~~• ~~Segment~~the ~~Information~~non-renewal of any of our data center leases;

~~The~~• ~~Company manages its business as one reportable segment. Although~~ the ~~Company~~variability ~~provides services in several markets, these operations have been aggregated into one reportable segment based on the similar economic characteristics among all markets, including the nature~~ of ~~the~~customer ~~services provided and the type of customers purchasing such services.~~ requirements;

16• other economic, business, and competitive factors affecting our customers, our industry and business generally;

~~Table~~• ofseasonality; ~~Contents~~and

~~SWITCH~~• &other ~~DATA~~factors ~~FACILITIES~~that ~~COMPANY,~~we ~~INC~~may ~~AND~~not ~~SUBSIDIARIES~~have currently identified or quantified.

~~NOTES~~For TOa ~~CONSOLIDATED~~further ~~FINANCIAL~~list ~~STATEMENTS—(Continued)~~and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” section contained in Part II of this document and in our Annual Report on Form 10-K. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.

~~(IN~~All ~~THOUSANDS~~forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report on Form 10-Q, ~~EXCEPT~~and ~~PER~~we ~~SHARE~~do ~~DATA)~~not undertake any obligation to publicly update or correct any forward-looking statements to reflect events or circumstances that subsequently occur, or which we hereafter become aware. You should read this document and the documents that we incorporate by reference into this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We may not update these forward-looking statements, even if our situation changes in the future. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

~~(UNAUDITED)~~ 17

~~The Company~~Management’s ~~geographic~~Discussion ~~revenues~~and ~~are~~Analysis asof ~~follows~~Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in six sections:

	For the three monthsended September 30,				For the nine monthsended September 30,
Revenues	2008		2009		2008		2009
United States	$	41,172	$	50,011	$	116,970	$	140,592
Canada		2,907		3,509		8,780		9,421
	$	44,079	$	53,520	$	125,750	$	150,013

•

Overview

~~The~~• ~~Company’s~~Critical ~~long-lived~~Accounting ~~assets~~Policies ~~are~~and ~~located in the following geographic regions:~~ Estimates

Long-lived assets	December 31,2008		September 30,2009
United States	$	310,601	$	334,175
Canada		19,632		21,976
	$	330,233	$	356,151

•

Key Components of our Results of Operations

~~11.~~• ~~Subsequent~~Results ~~Events~~of Operations

On• ~~October 21,~~Liquidity ~~2009, the Company entered into an Agreement~~ and ~~Plan~~Capital of Merger (the “Merger Agreement”) with Equinix, Inc. (“Equinix”) and Sundance Acquisition Corporation, a wholly-owned subsidiary of Equinix (“Merger Sub”). Pursuant to the terms of the Merger Agreement and subject to the satisfaction or waiver of the conditions therein, Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Equinix (the “Merger”). Resources

~~Subject~~• toRecent ~~the~~Accounting terms and conditions of the Merger Agreement, at the effective time of and as a result of the Merger, each of the Company’s outstanding shares of common stock (other than dissenting shares and shares held by the Company as treasury stock or owned by Equinix) will be converted into merger consideration that will consist of 0.19409 shares of Equinix’s common stock, $19.06 in cash or a combination of shares of Equinix’s common stock and cash. The Merger Agreement provides that the Company’s stockholders will have the opportunity to elect whether they would prefer to receive 0.19409 shares of Equinix’s common stock or $19.06 in cash for each share of the Company common stock that they hold. The Merger Agreement further provides that the overall consideration to be paid by Equinix in the Merger will consist 80% of Equinix common stock and 20% of cash. Accordingly, in the event that holders of more than 80% of the Company’s common stock elect to receive Equinix common stock or holders of more than 20% of the Company’s common stock elect to receive cash, the Merger Agreement provides that the merger consideration will be pro-rated to achieve these proportions. At the effective time of and as a result of the Merger, each of the Company’s outstanding shares of common stock will be canceled and extinguished. Pronouncements

~~Consummation~~This ofMD&A ~~the~~should Merger is subject to customary closing conditions, including, among others: (i) approval of the Merger and adoption of the Merger Agreement by the holders of a majority of the outstanding shares of the Company’s common stock; (ii) expiration or termination of the applicable Hart-Scott-Rodino waiting period and certain other regulatory approvals; (iii) the effectiveness of an Equinix registration statement covering the Equinix shares to be ~~issued~~read toin ~~the~~conjunction ~~Company’s~~with ~~stockholders; (iv)~~ the ~~delivery~~Consolidated ofFinancial ~~customary~~Statements ~~opinions from counsel to Equinix~~ and ~~the~~related ~~Company~~Notes ~~that~~in ~~the~~Part ~~Merger will qualify as a tax-free reorganization for federal income tax purposes; (v) subject to certain exceptions~~I, ~~the accuracy of representations of Equinix and the Company; (vi)~~Item ~~the absence of a material adverse effect on Equinix or the Company; (vii) not greater than 10% of the outstanding shares of~~1, ~~the~~“Financial ~~Company’s~~Statements.” ~~common~~This ~~stock~~MD&A ~~having~~should ~~exercised~~also ~~dissenter’s~~be ~~rights;~~read ~~(viii) the~~in ~~receipt~~conjunction ofwith ~~certain contractual consents and agreements from third parties; and (ix) other customary conditions, including~~ the ~~absence~~MD&A ofincluded ~~any~~in ~~law, regulation~~our or2009 ~~government~~Annual ~~order~~Report ~~prohibiting~~on ~~the~~Form ~~Merger~~10-K.

17OVERVIEW

~~Table~~Pending Merger with and into a Wholly-Owned Subsidiary of ~~Contents~~Equinix

~~SWITCH~~On &October 21, ~~DATA~~2009, ~~FACILITIES~~we ~~COMPANY~~entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Equinix and Sundance Acquisition Corporation, ~~INC~~a ~~AND~~wholly-owned ~~SUBSIDIARIES~~subsidiary of Equinix (“Merger Sub”). Pursuant to the terms of the Merger Agreement and subject to the satisfaction or waiver of the conditions therein, Merger Sub will merge with and into us, with us surviving as a wholly-owned subsidiary of Equinix (the “Merger”).

~~NOTES~~Subject TOto ~~CONSOLIDATED~~the ~~FINANCIAL~~terms ~~STATEMENTS—~~and conditions of the Merger Agreement, at the effective time of and as a result of the Merger, each of our outstanding shares of common stock (~~Continued~~other than dissenting shares and shares held by us as treasury stock or owned by Equinix) will be converted into merger consideration that will consist of 0.19409 shares of Equinix’s common stock, $19.06 in cash or a combination of shares of Equinix’s common stock and cash. Under the Merger Agreement, our stockholders had the opportunity to elect whether they would prefer to receive 0.19409 shares of Equinix’s common stock or $19.06 in cash for each share of our common stock that they hold.

~~(IN~~The ~~THOUSANDS~~Merger Agreement further provides that the overall consideration to be paid by Equinix in the Merger will consist 80% of Equinix common stock and 20% of cash. At the effective time of and as a result of the Merger, ~~EXCEPT~~each ~~PER~~of ~~SHARE~~our ~~DATA)~~outstanding shares of common stock will be canceled and extinguished.

Our stockholders voted on January 29, 2010 to approve the Merger. On April 23, 2010, Equinix received notification from the United States Department of Justice (~~UNAUDITED~~the “DOJ”) that the DOJ has closed its investigation with respect to the proposed acquisition of the Company by Equinix and also received notification from the Federal Trade Commission that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 has been terminated. Equinix and the Company expect the Merger to close on April 30, 2010, subject to the satisfaction or waiver of the other closing conditions set forth in the Merger Agreement.

~~The~~Additional ~~Merger~~information ~~Agreement~~regarding ~~contains certain termination rights for both Equinix and~~ the ~~Company~~ ~~and provides that upon termination of the~~ Merger ~~Agreement~~is ~~under~~provided ~~specified~~in ~~circumstances~~ the ~~Company~~Current ~~may~~Report beon ~~required~~Form to8-K ~~pay~~that ~~Equinix~~we afiled with ~~termination~~the ~~fee~~SEC ~~equal~~on ~~to $26~~October 22,~~758~~ 2009.

~~Subject~~Operations ~~to the satisfaction of the conditions discussed above, the Merger is expected to close during the first quarter of 2010. No assurances that the Merger will close can be made.~~

18We are a premier provider of network-neutral data centers that house, power, and interconnect the Internet. Leading content companies, enterprises, and communications service providers rely on us to connect to customers and exchange network traffic. Our colocation services provide space and power for customers’ networking and computing equipment allowing those customers to avoid the costs of building and maintaining their own data centers. As a network-neutral provider, we do not own or operate our own network, and, as a result, our interconnection services enable our customers to exchange network traffic through direct connections with each other or through peering connections with multiple parties. We provide our services in 34 data centers, which is the broadest network-neutral footprint in North America. Our footprint includes our data center in Palo

~~Table~~18 ~~of Contents~~

~~SWITCH~~ Alto, &one ~~DATA~~of ~~FACILITIES~~the ~~COMPANY~~first commercial Internet exchanges in the world. Our high network densities, ~~INC~~as ~~AND~~demonstrated ~~SUBSIDIARIES~~by approximately 22,400 cross connects between our customers, create a network effect, which provides an incentive for our existing customers to remain within our data centers and is a differentiating factor in attracting new customers.

~~NOTES~~The TOhighlights ~~CONSOLIDATED~~of ~~FINANCIAL~~our ~~STATEMENTS—(Continued)~~financial and operational results for the three months ended March 31, 2010 were as follows:

~~(IN~~• ~~THOUSANDS,~~Revenues ~~EXCEPT~~increased ~~PER~~to ~~SHARE~~$56.7 ~~DATA)~~million from $47.1 million in the same period of 2009.

~~(UNAUDITED)~~ • Cabinet equivalents billed increased 13.4% and cross connects increased by 4.1% over the same period of 2009.

~~This~~• ~~Quarterly~~Existing ~~Report~~customers onaccounted Form 10-Q contains certain statements that are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are made in reliance upon the protections provided by such acts for ~~forward-looking~~ ~~statements.~~85% These forward-looking statements (such as when we describe what “will”, “may” or “should” occur, what we “plan”, “intend”, “estimate”, “believe”, “expect”, or “anticipate” will occur, and other similar statements) include, but are not limited to, statements regarding future sales and operating results, future prospects, anticipated benefits of ~~proposed (or future) acquisitions and~~ new data centers, growth, the capabilities and capacities of business operations, any financial or other guidance, and all statements that are not based on historical fact, but rather reflect our current expectations concerning future results and eventssales. We make certain assumptions when making forward-looking statements, any of which could prove inaccurate, including, but not limited to, statements about our future operating results and business plans. Therefore, we can give no assurance that the results implied by these forward-looking statements will be realized. Furthermore, the inclusion of forward-looking information should not be regarded as a representation by the Company or any other person that future events, plans or expectations contemplated by the Company will be achieved. The ultimate correctness of these forward-looking statements is dependent upon a number of known and unknown risks and events and is subject to various uncertainties and other factors that may cause our actual results, performance, or achievements to be different from any future results, performance, or achievements expressed or implied by these statements. The following important factors, among others, could affect future results and events, causing those results and events to differ materially from those expressed or implied in our forward-looking statements:

• ~~Our~~Over ~~pending~~43% ~~merger~~of ~~with~~new ~~and~~sales ~~into~~were ~~Equinix,~~in ~~Inc.~~our ~~(“Equinix”);~~new or expanded data centers.

•Demand ~~business~~for ~~conditions~~our colocation and interconnection services continues to be driven by the increase in network traffic growth orassociated ~~declines~~with bandwidth-intensive content and web-enabled applications. Our customers continue to offer new services and applications in our ~~industry~~data centers to serve their customers, which creates revenue drivers for us. Our broad footprint of data centers located across key markets, our ~~customers’~~Internet ~~industries~~exchanges, and ~~the~~our ~~general~~network-neutral ~~economy;~~service offering are attractive to network centric businesses as they expand their operations.

•As ~~variability~~a result of ~~operating~~this ~~results;~~growth in customer demand and our reputation for service quality, sales to both new and existing customers have continued to grow in our data centers. Our sales to new and existing customers reflects both a high level of demand for our service offerings from new and existing customers and a high level of customer satisfaction from our existing customers.

•CRITICAL ~~our~~ACCOUNTING ~~ability~~POLICIES toAND ~~complete~~ESTIMATES ~~capital expenditure projects on time and on budget;~~

•Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the ~~availability~~United States of America. Preparing financial statements requires management to make estimates and ~~cost~~assumptions that affect the reported amounts of ~~sufficient~~assets ~~electrical~~and ~~power~~liabilities, the disclosure of contingent assets and ~~cooling~~liabilities ~~capacity;~~at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are affected by management’s application of accounting policies. On an on-going basis, management evaluates its estimates and judgments. Critical accounting policies for the Company are discussed in more detail under the caption “Critical Accounting Policies and Estimates” in our 2009 Annual Report on Form 10-K.

•KEY ~~the~~COMPONENTS ~~non-renewal~~OF ofOUR ~~any~~RESULTS ofOF ~~our~~OPERATIONS ~~data center leases;~~

•Metrics ~~the variability of customer requirements;~~

•We ~~other~~use ~~economic,~~several ~~business,~~primary ~~and~~metrics ~~competitive~~to ~~factors~~analyze ~~affecting~~ our ~~customers,~~revenues and measure our ~~industry~~performance. ~~and~~These ~~business~~metrics ~~generally;~~include:

•Number ~~seasonality;~~of cross connects. Cross connects enable one-to-one interconnections between customers within a data center, reduce network costs, and lower network latency. The number of cross connects is a measure of our network density. By increasing network densities within our data centers, we are able to further enhance our value proposition to our customers. We target customers with bandwidth intensive and network centric requirements. These customers require data centers with high network densities to optimize their services and enhance the experiences of their customers. We expect the number of cross connects to increase as new and existing customers grow in our data centers.

•Cabinet ~~other~~equivalents ~~factors~~billed. Our data centers have a finite amount of space and power that wecan ~~may~~be ~~not~~utilized ~~have~~to ~~currently~~provide ~~identified~~colocation orservices. ~~quantified~~This space is measured in cabinet equivalents, which includes an assessment of available power and cooling. Cabinet equivalents billed is a measure of how much space in our data centers is used by customers. Cabinet equivalents billed is the sum of the total cage square footage billed divided by 20 (“20” is the estimated square feet required to support a single customer cabinet), plus the actual cabinets billed in each data center. We expect the number of cabinet equivalents billed to increase as new and existing customers grow in our data centers.

~~For~~19 a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” section contained in Part II of this document and in our Annual Report on Form 10-K. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements.

~~All~~Utilization ~~forward-looking~~rate. ~~statements~~The ~~included~~utilization ~~in this~~rate ~~Quarterly~~represents ~~Report~~the onpercentage ~~Form 10-Q are made only as~~ of ~~the~~our ~~date~~data center ofspace ~~this~~that ~~Quarterly~~has ~~Report~~been onsold ~~Form~~to ~~10-Q,~~customers. ~~and~~The weutilization dorate ~~not~~increases ~~undertake~~with ~~any~~sales ~~obligation~~ to ~~publicly~~customers ~~update~~and ordecreases ~~correct~~when ~~any~~new ~~forward-looking~~data ~~statements~~center tocapacity ~~reflect~~is ~~events~~added or ~~circumstances~~when ~~that subsequently~~customers ~~occur,~~exit. orThe ~~which~~utilization werate ~~hereafter~~is ~~become~~calculated ~~aware.~~as ~~You~~a ~~should~~percentage, ~~read~~the ~~this~~numerator ~~document~~of which ~~and~~is ~~the~~equal ~~documents~~to ~~that~~the wetotal ~~incorporate~~space bylicensed ~~reference~~to ~~into~~our ~~this~~customers ~~Quarterly~~and ~~Report~~the ondenominator ~~Form~~of ~~10-Q~~which ~~completely~~is ~~and~~equal ~~with~~to the ~~understanding~~total ~~that~~licensable ~~our~~space ~~actual~~taking ~~future~~into ~~results~~account ~~may be~~existing ~~materially~~power ~~different~~and ~~from what we expect~~cooling. We ~~may~~expect ~~not~~our ~~update~~utilization ~~these~~rate ~~forward-looking~~to ~~statements,~~increase ~~even~~as ifnew ~~our~~and ~~situation~~existing ~~changes~~customers grow in ~~the~~our ~~future.~~data ~~All forward-looking statements attributable to us are expressly qualified by these cautionary statements~~centers.

~~Important~~Percentage ~~Additional~~of ~~Information~~incremental sales to existing customers. This percentage is a measure of sales to existing customers. Over the past few years, approximately 80% of all new sales have been from existing customers. We believe this percentage is a testament to our customers’ satisfaction with our quality of service and product offerings.

~~This~~Churn ~~document~~as ~~may~~a bepercentage ~~deemed to be solicitation material in respect~~ of ~~the~~recurring ~~proposed~~revenues. ~~transaction~~Churn ~~between~~represents ~~Equinix~~lost ~~and~~revenues ~~the~~during ~~Company.~~a Ingiven ~~connection~~period. ~~with~~Our ~~the~~business ~~proposed~~is ~~transaction~~based ~~involving~~on ~~Equinix~~a ~~and~~recurring ~~the~~revenue ~~Company~~model, ~~Equinix~~so ~~plans~~lost torevenues ~~file~~in ~~with the Securities and Exchange Commission (the “SEC”)~~ a ~~Registration~~period ~~Statement~~affect onfuture ~~Form~~periods. ~~S-4~~From ~~containing a Proxy Statement/Prospectus~~March 31, ~~and~~2009 ~~each of Equinix and the Company plans~~ to ~~file~~March 31, ~~with~~2010, ~~the~~churn ~~SEC~~has ~~other~~ranged ~~documents~~between ~~regarding the proposed transaction~~1.1% ~~The definitive Proxy Statement/Prospectus will be mailed~~ to ~~stockholders~~1.4% of ~~the~~monthly ~~Company.~~recurring INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTIONrevenue.

19New sales. New sales represent the recurring revenues from orders initiated during the given quarter. Recurring revenue from new sales represents new service agreements entered into by new and existing customers during the given quarter. Revenue from these agreements will recur monthly over the life of the agreement. Non-recurring revenue represents the one-time installation fees associated with new service agreements. These one-time fees are billed to customers upon completion of the installation service and such revenue is recognized on a straight-line basis over the life of the agreement.

~~Table~~The following tables present a summary of ~~Contents~~these metrics for the periods indicated:

SWITCH & DATA FACILITIES COMPANY, INC AND SUBSIDIARIES


	March 31, 2009			June 30, 2009			September 30, 2009			December 31, 2009			March 31, 2010
Number of cross connects		21,504			21,705			22,085			22,277			22,386
Cabinet equivalents billed		7,864			7,982			8,110			8,588			8,920
Utilization rate		60.4	%		61.2	%		57.7	%		61.3	%		63.7	%

	For the three months ended
	March 31, 2009			June 30, 2009			September 30, 2009			December 31, 2009			March 31, 2010
Percentage of incremental sales to existing customers		78	%		84	%		73	%		92	%		85	%
Churn as a percentage of recurring revenues		1.3	%		1.3	%		1.1	%		1.4	%		1.2	%
New Sales (in Thousands):
Recurring revenue	$	1,297		$	1,382		$	1,269		$	1,640		$	1,488
Non-recurring revenue		1,825			3,321			4,165			2,339			2,969

New Sales	$	3,122		$	4,703		$	5,434		$	3,979		$	4,457

~~NOTES~~Revenues ~~TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~(IN~~Our ~~THOUSANDS~~revenues consist of recurring and non-recurring revenues. We generate recurring revenue from our network-neutral interconnection and colocation services. Our ability to sell our colocation space within each data center is limited by the space required by our existing power and cooling infrastructure, ~~EXCEPT~~as ~~PER~~well ~~SHARE~~as ~~DATA)~~the customer requirements for power and cooling. Power and cooling requirements continue to grow on a per cabinet or square foot basis. We carefully monitor the power and cooling usage in each of our data centers and plan to invest in our power and cooling infrastructure to maximize the amount of utilizable space in our data centers. We generate non-recurring revenue from our TechSmart technical support services and installation services.

~~(UNAUDITED)~~ Colocation.

Investors and security holders will be able to obtain free copies of the Registration Statement and the Proxy Statement/Prospectus (when available) and other documents filed with the SEC by Equinix and the Company through the website maintained by the SEC at wwwSpace.~~sec.gov.~~ InWe ~~addition,~~provide ~~investors~~colocation ~~and~~space ~~security~~for ~~holders~~a ~~will~~recurring bemonthly ~~able~~fee ~~to obtain~~for ~~free copies of the Registration Statement and the Proxy Statement/Prospectus (when available) and other documents filed with the SEC from Equinix by directing~~ a ~~request~~cabinet ~~to Equinix, Inc., 301 Velocity Way, Fifth Floor, Foster City, CA 94404, Attention: Investor Relations (telephone: 888-222-1162)~~ or ~~going to Equinix’s corporate website at www.equinix.com~~rack, or ~~from~~on ~~the Company by directing~~ a ~~request~~per tosquare ~~Switch &~~foot ~~Data~~basis ~~Facilities~~for ~~Company, Inc~~cage space., ~~1715~~Our ~~Westshore~~customers ~~Boulevard,~~that ~~Suite 650,~~license ~~Tampa,~~cage FLspace ~~33607,~~typically ~~Attention:~~use ~~Investor~~between ~~Relations~~50 ~~(telephone:~~and ~~866-797-2633)~~500 orsquare ~~going~~feet toin ~~the~~a ~~Company’s~~data ~~corporate website at www.switchanddata.com. Equinix and the Company~~center, and ~~their~~often ~~respective~~license ~~directors~~such ~~and~~space ~~executive officers, may be deemed to be participants~~ in ~~the~~multiple ~~solicitation~~data ~~of proxies in respect of the proposed transaction~~centers. ~~Information~~Customers ~~regarding~~sign ~~Equinix’s~~a ~~directors~~service ~~and executive officers is contained in its annual proxy statement filed with the SEC on April 23~~order, ~~2009.~~ ~~Information~~governed ~~regarding~~by the ~~Company’s~~terms ~~directors~~ and ~~executive~~conditions ~~officers is contained in the Company’s annual proxy statement filed with the SEC on April 6, 2009. Additional information regarding the interests~~ of ~~such~~a ~~potential~~master ~~participants~~services ~~will~~agreement, betypically ~~included~~for inone ~~the~~to ~~Proxy~~three ~~Statement/Prospectus and the other relevant documents filed with the SEC (when available)~~years.

~~Item~~Power. 2:We ~~Management’s~~provide ~~Discussion~~conditioned ~~and~~power ~~Analysis~~on ofa ~~Financial~~coterminous basis ~~Condition~~with space, for a recurring monthly fee under both arrangements. We provide both alternating current and ~~Results~~direct ofcurrent ~~Operations~~power circuits. Our customers pay for power on a per amp basis, typically in 20 to 30 amp increments.

~~Management's~~20 Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in six sections:

•Interconnection ~~Overview~~Services.

•Our ~~Critical~~interconnection ~~Accounting~~services ~~Policies~~include our cross connect and ~~Estimates~~Internet exchange services. Our cross connect services enable our customers to connect directly to a telecommunications carrier, Internet service provider, or other customers in our data centers. These services are typically provided for a recurring monthly fee per connection. Our Internet exchange services enable our customers to connect directly to our Internet exchange, which provides for public or private peering with other customers. Our customers license ports to connect to our Internet exchange for a recurring monthly fee per port, based on port capacity. Customers typically sign one year agreements for our Internet exchange services and month-to-month agreements for our cross connect services. We also generate recurring revenues from reselling Internet access, which we do to accommodate certain customers. We contract with certain Internet service providers and then resell their Internet access service to customers typically in one megabit per second to one hundred megabits per second increments. Customers typically sign a one-year contract for this service and pay us a recurring monthly fee per megabits per second.

•Non-recurring ~~Key~~Revenue. ~~Components of our Results of Operations~~

•We ~~Results~~generate ofnon-recurring ~~Operations~~revenue from the following services:

•Installation ~~Liquidity~~Services. We receive one-time installation fees related to our interconnection and ~~Capital~~colocation ~~Resources~~services. The complexity of the installation determines the amount of fees charged to the customer. We typically receive a one-time fee per circuit or port for the installation of our interconnection services. We receive a one-time fee per cabinet or rack or per linear foot of cage space for the installation of our colocation services. We receive a one-time fee per amp for the installation of power, depending on the size of circuit and amount of voltage provided.

•TechSmart ~~Recent~~Technical ~~Accounting~~Support ~~Pronouncements~~Services. We provide technical support services to assist customers with installation, circuit testing, equipment rebooting, and other related services. Customers pay for these services on an hourly basis or under contractual arrangements for a certain number of hours of technical support per month. We recognize revenue once the services have been provided.

~~This~~The ~~MD&A~~following ~~should~~table bepresents ~~read~~our inrevenues ~~conjunction with the Consolidated Financial Statements~~ and ~~related~~percentage ~~Notes~~of inrevenues ~~Part~~for ~~I, Item 1, “Financial Statements.” This MD&A should also be read in conjunction with~~ the ~~MD&A~~periods ~~included~~presented: ~~in our 2008 Annual Report on Form 10-K.~~

OVERVIEW


	For the three months ended March 31,
($ in Thousands)	2009				2010
Revenues
Colocation	$	30,228	64	%	$	37,143	66	%
Interconnection		14,629	31	%		16,648	29	%

Recurring Total	$	44,857	95	%	$	53,791	95	%
Non-recurring		2,276	5	%		2,904	5	%

Total	$	47,133	100	%	$	56,695	100	%

~~Pending~~Cost ~~Merger~~of ~~with~~Revenues, ~~and~~Exclusive ~~into~~of ~~Equinix~~Depreciation and Amortization

OnCost ~~October 21~~of Revenues. Cost of revenues is comprised primarily of lease, ~~2009~~utilities, wepersonnel ~~entered~~related ~~into~~expenses, anmaintenance ~~Agreement~~and repair, telecommunications services, security, and ~~Plan~~property taxes. The components of ~~Merger~~our ~~(the~~cost ~~“Merger~~of ~~Agreement”)~~revenues ~~with~~are ~~Equinix,~~mostly ~~Inc.~~fixed ~~(“Equinix”)~~in nature and ~~Sundance~~do ~~Acquisition~~not ~~Corporation~~vary significantly from period to period. However, acertain ~~wholly-owned subsidiary~~components of ~~Equinix~~our ~~(“Merger~~cost ~~Sub”).~~of ~~Pursuant~~revenues are variable in nature and are directly related to the ~~terms~~growth of our revenues. We expect our utilities expenses to increase in the ~~Merger~~future ~~Agreement~~on a per unit basis due to an increase in rates from our utility providers and ~~subject~~increased power usage by our customers. Further, we experience seasonality in our utilities expenses based on temperatures and seasonal rate adjustments, which causes the amount of these expenses to fluctuate during the ~~satisfaction~~year. orAs ~~waiver~~a result of ~~the~~our ~~conditions~~expansions, ~~therein~~we typically incur lease, ~~Merger~~utilities, ~~Sub~~and ~~will~~personnel ~~merge~~related ~~with~~expenses prior to being able to accept customers for, and ~~into~~generate usrevenue from, ~~with~~new usdata ~~surviving~~centers. asAs awe ~~wholly-owned~~expand ~~subsidiary~~ our data centers primarily in our top 10 markets, we expect cost of ~~Equinix~~revenues ~~(the~~to ~~“Merger”)~~increase.

~~Subject~~21 to the terms and conditions of the Merger Agreement, at the effective time of and as a result of the Merger, each of our outstanding shares of common stock (other than dissenting shares and shares held by us as treasury stock or owned by Equinix) will be converted into merger consideration that will consist of 0.19409 shares of Equinix’s common stock, $19.06 in cash or a combination of shares of Equinix’s common stock and cash. The Merger Agreement provides that our stockholders will have the opportunity to elect whether they would prefer to receive 0.19409 shares of Equinix’s common stock or $19.06 in cash for each share of our common stock that they hold. The Merger Agreement further provides that the overall consideration to be paid by Equinix in the Merger will consist 80% of Equinix common stock and 20% of cash. Accordingly, in the event that holders

20Operating Expenses

~~Table~~Sales and Marketing. Sales and marketing expenses consist primarily of ~~Contents~~personnel related expenses for our sales and marketing employees, including wages, benefits, bonuses, commissions, travel, and the cost of marketing programs such as sales support, trade shows, corporate communications, promotional events, and advertising. We expect our sales and marketing expenses to increase in absolute dollars as we increase the headcount of our sales staff and increase our marketing and promotional efforts.

ofGeneral ~~more~~and ~~than~~Administrative. ~~80%~~General ofand ~~our~~administrative ~~common~~expenses ~~stock~~include ~~elect~~personnel torelated ~~receive~~costs ~~Equinix~~as ~~common~~well ~~stock~~as ortravel, ~~holders~~rent, insurance, oflegal, ~~more~~accounting, ~~than~~and ~~20%~~consulting ofexpenses. Personnel related expenses include wages, benefits and bonuses for our ~~common~~executive ~~stock~~management ~~elect~~as towell ~~receive~~as ~~cash~~for our accounting, ~~the~~legal, ~~Merger~~data ~~Agreement~~center ~~provides~~design ~~that~~and ~~the~~construction, ~~merger~~information technology, and ~~consideration~~human ~~will~~resources beemployees. ~~pro-rated~~We toexpect ~~achieve~~general ~~these~~and ~~proportions.~~administrative Atexpenses ~~the~~to ~~effective~~increase ~~time~~in ofabsolute ~~and~~dollars as awe ~~result~~incur additional costs to support the growth of the ~~Merger~~Company, ~~each~~including ofhigher ~~our~~personnel, ~~outstanding~~legal, ~~shares~~insurance, ofand ~~common~~financial ~~stock~~reporting expenses, ~~will~~but bewe ~~canceled~~expect general and ~~extinguished~~administrative expenses to decrease as a percentage of revenues.

~~Additional~~Depreciation ~~information~~and Amortization. ~~regarding~~Depreciation ~~the~~expense ~~Merger~~includes isdepreciation ~~provided~~of inour ~~Note~~leasehold 11improvements, togenerators, ~~our~~uninterruptible ~~Consolidated~~power ~~Financial~~systems, ~~Statements~~direct ~~and~~current inpower ~~the~~plants, ~~Current~~heating, ~~Report~~ventilation ~~on Form~~and 8air-Kconditioning ~~that~~equipment, wefurniture ~~filed~~and ~~with~~fixtures. Amortization expense is composed of the ~~SEC~~amortization onof ~~October 22,~~our ~~2009~~customer based intangible assets related to our acquisitions and debt issuance costs.

~~Operations~~Other Expense, Net

WeOther ~~are a premier provider of network-neutral data centers that house~~Expense, ~~power, and interconnect the Internet~~Net. ~~Leading~~Other ~~content~~expenses ~~companies, enterprises,~~primarily ~~and~~include communications service providers rely on us to connect to customers and exchange network traffic. Our colocation services provide space and power for customers’ networking and computing equipment allowing those customers to avoid the costs of building and maintaining their own data centers. As a networknon-~~neutral~~income ~~provider,~~based wetaxes ~~do not own or operate our own network,~~ and, asrelated ainterest result, our interconnection services enable our customers to exchange network traffic through direct connections with each other or through peering connections with multiple parties. We provide our services in 34 data centers, which is the broadest network-neutral footprint in North America. Our footprint includes our data center in Palo Alto, one of the first commercial Internet exchanges in the world. Our high network densities, as demonstrated by approximately 22,000 cross connects between our customers, create a network effect, which provides an incentive for our existing customers to remain within our data centers and ~~is a differentiating factor in attracting new customers~~penalties.

WeRESULTS ~~continue~~OF ~~to benefit~~OPERATIONS from the strong growth in Internet Protocol (“IP”) traffic. Our strategy has been to expand in key markets where the growth in IP traffic has created the most demand for data center services. Our performance this quarter was due to the execution of our strategy to meet this market demand.

~~The~~Three ~~highlights~~Months ofEnded ~~our~~March 31, ~~financial~~2009 ~~and~~compared ~~operational~~to ~~results for~~ the ~~three~~ ~~months~~Three ~~ended~~Months ~~September~~Ended March 3031, ~~2009~~2010 ~~were as follows:~~

•The ~~Completed~~following is a ~~1,000~~more ~~cabinet~~detailed ~~equivalent~~discussion ~~expansion~~of inour ~~one~~financial condition and results of ~~our~~operations ~~New~~for ~~York~~the ~~Metro~~periods ~~area~~presented. ~~data~~The quarter-to-quarter ~~centers~~comparison of financial results is not necessarily indicative of future results.

~~• Secured $100 million in financing for data center expansion.~~Revenues

• Increased traffic on our PAIX exchange at a rate twice that of the overall U.S. internet traffic.


	For the three months ended March 31,				$ Change		% Change
($ in Thousands)	2009		2010
Revenues	$	47,133	$	56,695	$	9,562	20	%

• Revenues increased 20% for the three months ended March 31, 2010 over the same period in 2009. Approximately 43% of new sales in the three months ended March 31, 2010 were in our new or expanded data centers. Recurring revenue increased toby $538.59 million. The recurring revenue increase consisted of colocation and interconnection revenue of $6.9 million ~~from~~and $442.10 million, inrespectively. Cabinet equivalents billed were 8,920 at March 31, 2010, which is a 13% increase over the ~~same~~March 31, 2009 ~~period~~cabinet equivalents billed of ~~2008~~7,864. The number of cross connects was 22,386 at March 31, 2010, which is a 4% increase over March 31, 2009 cross connects of 21,504. Sales to existing customers were 85% of sales during the three months ended March 31, 2010. Non-recurring revenue was $2.9 million for the three months ended March 31, 2010 as compared to $2.3 million for the three months ended March 31, 2009.

•22 ~~Net income increased to $2.6 million from a net loss of $0.1 million in the same period of 2008.~~

•Cost ~~Cabinet~~of ~~equivalents billed increased 10.4%~~Revenues, ~~number~~Exclusive of ~~customers~~Depreciation ~~increased by 5.7%,~~ and ~~cross~~Amortization ~~connects increased by 5.8% over the same period of 2008.~~

• Existing customers accounted for 73% of new sales.


	For the three months ended March 31,						$ Change		% Change
($ in Thousands)	2009			2010
Cost of revenues, exclusive of depreciation and amortization	$	24,293		$	27,299		$	3,006	12	%
As a percent of revenue		52	%		48	%

•Cost ~~Over~~of ~~50%~~revenues, exclusive of ~~new~~depreciation ~~sales~~and ~~were~~amortization, increased primarily due to utilities, bad debt expense, rent, and personnel related expenses. Utilities increased by $0.8 million, primarily due to additional usage by customers in our New York Metro area data centers. Bad debt expense increased by $0.7 million, due to write-offs of uncollectable receivables. Rent expense increased by $0.5 million primarily due to expanded and renewed leases in Toronto and Atlanta. Personnel related expenses increased by $0.5 million, primarily related to the hiring of additional personnel in our new orand expanded data centers. Cost of revenues included non-cash stock compensation expense of $0.4 million and $0.2 million for the three months ended March 31, 2010 and 2009, respectively. We expect our cost of revenues will increase in absolute dollars as we continue our growth and expansion plan.

•Sales ~~Renewed~~ and ~~extended~~Marketing ~~lease terms for data centers in Cleveland and Phoenix.~~

Demand for our colocation and interconnection services continues to be driven by the increase in network traffic growth associated with bandwidth-intensive content and web-enabled applications. Our customers continue to offer new services and applications in our data centers to serve their customers, which creates revenue drivers for us. Our broad footprint of data centers located across key markets, our Internet exchanges, and our network-neutral service offering are attractive to network centric businesses as they expand their operations.


	For the three months ended March 31,						$ Change		% Change
($ in Thousands)	2009			2010
Sales and marketing	$	5,224		$	5,924		$	700	13	%
As a percent of revenue		11	%		10	%

AsSales aand ~~result~~marketing ofexpenses ~~this~~increased ~~growth~~by $0.7 million. The increase was primarily due to increases in ~~customer~~personnel ~~demand~~related expenses commensurate with additional employees. Sales and ~~our~~marketing ~~reputation~~expenses ~~for~~included ~~service~~non-cash ~~quality,~~stock ~~sales~~compensation toexpense ~~both~~of ~~new~~$0.7 million and ~~existing~~$0.5 ~~customers~~million ~~have~~for ~~continued~~the tothree ~~grow~~months inended ~~our~~March 31, ~~data~~2010 ~~centers~~and 2009, respectively. ~~Our~~We ~~year-over-year~~expect ~~revenue~~sales ~~growth primarily~~and ~~results~~marketing ~~from~~expenses ~~new~~will ~~sales~~continue to ~~new~~decrease ~~and~~as ~~existing~~a ~~customers,~~percentage ~~which~~of ~~reflects~~revenues ~~both~~as awe ~~high~~expect ~~level~~revenues ofto ~~customer~~increase ~~satisfaction~~at ~~and~~a ~~demand~~higher ~~for~~rate than our ~~service~~sales ~~offerings~~and marketing expenses.

21General and Administrative


	For the three months ended March 31,						$ Change		% Change
($ in Thousands)	2009			2010
General and administrative	$	4,682		$	5,004		$	322	7	%
As a percent of revenue		10	%		9	%

~~The~~General ~~data center~~ and ~~colocation~~administrative ~~market~~expenses isincreased ~~not~~by ~~immune~~$0.3 tomillion. ~~the~~The ~~impact~~increase ofwas ~~the~~primarily ~~current~~due ~~economic~~to ~~environment.~~increases ~~While~~in wepersonnel ~~have~~related ~~achieved~~expenses ~~increased~~of ~~sales~~$0.3 tomillion. ~~many~~General ~~new~~ and ~~existing~~administrative ~~customers,~~expenses ~~demand~~included ~~from~~non-cash ~~other~~stock ~~potential~~compensation orexpenses ~~existing~~of ~~customers~~$0.8 ~~has~~million ~~slowed~~and $0.7 Ifmillion for the ~~current~~three ~~economic~~months ~~environment~~ended ~~continues~~March 31, or2010 ~~worsens~~and it2009, ~~could~~respectively. ~~have~~We expect ageneral ~~number~~and ofadministrative ~~negative~~expenses ~~impacts on~~to ~~our~~continue ~~business,~~to ~~including~~decrease ~~reduced~~as ~~demand~~a ~~from~~percentage ~~our~~of ~~customers,~~revenues ~~increased~~because ~~churn,~~we ~~delayed~~expect ~~payments,~~revenues ~~and~~to increase at a ~~decreased~~higher rate ofthan ~~sales~~our general and administrative expenses.

~~CRITICAL~~23 ~~ACCOUNTING POLICIES AND ESTIMATES~~

~~Our~~Depreciation ~~financial statements~~ and ~~accompanying~~Amortization notes are prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are affected by management’s application of accounting policies. On an on-going basis, management evaluates its estimates and judgments. Critical accounting policies for the Company are discussed in more detail under the caption “Critical Accounting Policies and Estimates” in our 2008 Annual Report on Form 10-K.

KEY COMPONENTS OF OUR RESULTS OF OPERATIONS


	For the three months ended March 31,						$ Change		% Change
($ in Thousands)	2009			2010
Depreciation and amortization	$	10,046		$	11,117		$	1,071	11	%
As a percent of revenue		21	%		20	%

~~Metrics~~Depreciation and amortization expenses increased by $1.1 million. The increase was primarily related to the expansion of our data centers in the New York Metro area, which resulted in an increase in depreciable assets. We expect depreciation and amortization to continue to increase as we make capital investments in new and existing data centers.

~~We use~~Operating ~~several~~Income ~~primary metrics to analyze our revenues and measure our performance. These metrics include:~~

Number of cross connects. Cross connects enable one-to-one interconnections between customers within a data center, reduce network costs, and lower network latency. The number of cross connects is a measure of our network density. By increasing network densities within our data centers, we are able to further enhance our value proposition to our customers. We target customers with bandwidth intensive and network centric requirements. These customers require data centers with high network densities to optimize their services and enhance the experiences of their customers. We expect the number of cross connects to increase as new and existing customers grow in our data centers.


	For the three months ended March 31,						$ Change		% Change
($ in Thousands)	2009			2010
Operating income	$	2,888		$	7,351		$	4,463	155	%
As a percent of revenue		6	%		13	%

~~Cabinet~~Operating ~~equivalents~~income ~~billed.~~increased ~~Our~~by ~~data~~$4.5 ~~centers~~million. ~~have~~The aincrease ~~finite~~was ~~amount~~primarily ofrelated ~~space and power that can be utilized~~ to ~~provide~~increased ~~colocation~~revenues ~~services. This space is measured in cabinet equivalents, which includes an assessment~~ of ~~available~~$9.6 ~~power and cooling~~million. ~~Cabinet~~The ~~equivalents~~increase ~~billed is a measure of how much space~~ in ~~our~~revenues ~~data~~was ~~centers~~partially isoffset ~~used~~ by ~~customers.~~an ~~Cabinet~~increase ~~equivalents billed~~in isexpenses ~~the sum~~ of ~~the~~$5.1 ~~total~~million, ~~cage~~including ~~square~~$3.0 ~~footage~~million, ~~billed~~$1.1 ~~divided~~million, by$0.7 ~~20 (“20” is the estimated square feet required to support a single customer cabinet)~~million, ~~plus~~and ~~the actual cabinets billed in each data center~~$0.3 Wemillion ~~expect~~for ~~the~~cost ~~number~~ of ~~cabinet equivalents~~revenues, ~~billed~~depreciation toand ~~increase~~amortization, assales ~~new~~and marketing, and ~~existing~~general ~~customers~~and ~~grow~~administrative, ~~in our data centers~~respectively.

~~Utilization~~Interest ~~rate.~~Expense The utilization rate represents the percentage of our data center space that has been sold to customers. The utilization rate increases with sales to customers and decreases when new data center capacity is added or with customer churn. The utilization rate is calculated as a percentage, the numerator of which is equal to the total space licensed to our customers and the denominator of which is equal to the total licensable space taking into account existing power and cooling. Although our utilization rate has decreased as a result of our investments in capacity in 2008 and 2009, we expect our utilization rate to increase as new and existing customers grow in our data centers.

Percentage of incremental sales to existing customers. This percentage is a measure of sales to existing customers. Over the past few years, approximately 80% of all new sales have been from existing customers. We believe this percentage is a testament to our customers’ satisfaction with our quality of service and product offerings.


	For the three months ended March 31,						$ Change			% Change
($ in Thousands)	2009			2010
Interest expense	$	(4,358	)	$	(5,004	)	$	(646	)	15	%

~~Churn~~Interest expense asincreased aby ~~percentage~~$0.6 ofmillion. ~~recurring~~The ~~revenues.~~increase ~~Churn~~in ~~represents~~interest ~~lost~~expense ~~revenues~~is ~~during~~primarily due to a ~~given~~decrease ~~period.~~in ~~Our~~the ~~business~~fair ismarket ~~based~~value onof our interest rate swap. We convert a ~~recurring~~ ~~revenue~~portion ~~model,~~of soour ~~lost~~outstanding ~~revenues~~debt into afixed ~~period~~interest ~~affect~~rates ~~future~~through ~~periods~~the use of interest rate swaps. ~~Churn~~These ~~experienced~~instruments ~~during~~are ~~2008~~marked ~~and~~to ~~for~~fair value at the ~~nine~~end ~~months~~of ~~ended~~each ~~September 30~~quarter, ~~2009~~with ~~averaged~~the ~~1.2%~~non-cash ofgains ~~monthly~~and ~~recurring~~losses ~~revenue.~~treated Weas ~~expect~~decreases ~~churn~~or increases to ~~approximate~~interest 1expense.2% toThe ~~1.3%~~decrease in fair value of our swap resulted in an increase in interest expense of $0.8 million for the ~~remainder~~three months ended March 31, 2010, as a result of ~~2009~~a decline in LIBOR rates.

~~New sales. New sales represent the recurring and non-recurring revenues from~~Other ~~orders~~Expense, ~~initiated~~Net during the given quarter. Recurring revenue from new sales represents new service agreements entered into by new and existing customers during the given quarter. Revenue from these agreements will recur monthly over the life of the agreement. Non-recurring revenue represents the one-time installation fees associated with new service agreements. These one-time fees are billed to customers upon completion of the installation service and such revenue is typically recognized on a straight-line basis over the life of the agreement.


	For the three months ended March 31,						$ Change			% Change
($ in Thousands)	2009			2010
Other expense, net	$	(238	)	$	(2,570	)	$	(2,332	)	980	%

~~Table~~Other ofexpense, net ~~Contents~~increased to $2.3 million. The increase is primarily related to costs associated with the Merger, including but not limited to legal and travel costs.

~~The~~24 ~~following tables present a summary of these metrics for the periods indicated:~~

	September 30,2008			December 31,2008			March 31,2009			June 30,2009			September 30,2009
Number of cross connects		20,879			21,149			21,504			21,705			22,085
Cabinet equivalents billed		7,347			7,596			7,864			7,982			8,110
Utilization rate		62.9	%		58.4	%		60.4	%		61.2	%		57.7	%
	For the three months ended
	September 30,2008			December 31,2008			March 31,2009			June 30,2009			September 30,2009
Percentage of incremental sales to existing customers		75	%		84	%		78	%		84	%		73	%
Churn as a percentage of recurring revenues		1.1	%		1.5	%		1.3	%		1.3	%		1.1	%
New Sales (in Thousands):
Recurring revenue	$	1,488		$	1,305		$	1,297		$	1,382		$	1,269
Non-recurring revenue		2,180			1,717			1,825			3,321			4,165
New Sales	$	3,668		$	3,022		$	3,122		$	4,703		$	5,434

Net Loss

Revenues


	For the three months ended March 31,						$ Change		% Change
($ in Thousands)	2009			2010
Net loss	$	(1,980	)	$	(509	)	$	1,471	(74	%)

~~Our~~Net ~~revenues~~loss improved ~~consist~~by of$1.5 ~~recurring and non-recurring revenues~~million. WeNet ~~generate~~loss ~~recurring~~was ~~revenue from our network-neutral interconnection and colocation services~~$0.5 ~~Our~~million ~~ability~~for ~~to sell our colocation space within each data center is limited by~~ the ~~space~~three ~~required~~months byended ~~our~~March 31, ~~existing power and cooling infrastructure~~2010, ascompared ~~well~~to asa ~~the~~$2.0 ~~customer~~million ~~requirements~~net loss for ~~power and cooling. We carefully monitor~~ the ~~power~~three ~~and~~months ~~cooling~~ended ~~usage~~March 31, in2009. ~~each~~The ofnet ~~our~~income ~~data~~increase ~~centers~~is ~~and~~attributable ~~plan~~ to ~~invest in our power and cooling infrastructure to maximize~~ the ~~amount~~factors ofpreviously described ~~utilizable space~~ in ~~our~~this ~~data~~“Results ~~centers.~~of WeOperations” ~~generate non-recurring revenue from our TechSmart technical support services and installation services~~section.

~~Colocation.~~LIQUIDITY AND CAPITAL RESOURCES

~~Space.~~Overview We provide colocation space for a recurring monthly fee for a cabinet or rack, or on a per square foot basis for cage space. Our customers that license cage space typically use between 50 and 500 square feet in a data center, and often license such space in multiple data centers. Customers sign a service order, governed by the terms and conditions of a master services agreement, typically for one to three years.

~~Power.~~The Wefollowing ~~provide~~table ~~conditioned~~sets ~~power~~forth ~~either on~~ a ~~term basis~~summary ~~for~~of ~~one~~our tocash ~~three~~flows ~~years or on a month-to-month basis,~~ for athe ~~recurring~~periods ~~monthly~~indicated: ~~fee under both arrangements. We provide both alternating current and direct current power circuits. Our customers pay for power on a per circuit basis, typically in 20 to 30 amp increments.~~

Interconnection Services.


	For the three months ended March 31,
($ in Thousands)	2009			2010
Cash provided by (used in):
Operating activities	$	8,964		$	13,890
Investing activities		(23,734	)		(17,216	)
Financing activities		22,500			(1,108	)

~~Our~~Sources ~~interconnection services include our cross connect~~ and ~~Internet~~Uses ~~exchange services. Our cross connect services enable our customers to~~of ~~connect~~Cash directly to a telecommunications carrier, Internet service provider, or other customers in our data centers. These services are typically provided for a recurring monthly fee per connection. Our Internet exchange services enable our customers to connect directly to our Internet exchange, which provides for public or private peering with other customers. Our customers license ports to connect to our Internet exchange for a recurring monthly fee per port, based on port capacity. Customers typically sign one year agreements for our Internet exchange services and month-to-month agreements for our cross connect services. We also generate recurring revenues from reselling Internet access, which we do to accommodate certain customers. We contract with certain Internet service providers and then resell their Internet access service to customers typically in one megabit per second to one hundred megabits per second increments. Customers typically sign a one-year contract for this service and pay us a recurring monthly fee per megabits per second.

23Our principal sources of cash are from our operating activities and the funds available to us from our debt borrowings. On March 27, 2008, we entered into a Fourth Amended and Restated Credit Agreement which provided for: (i) a $120.0 million term loan (the “Term Loan”); (ii) a $22.5 million delayed draw term loan (the “Delayed Draw Term Loan”), to be funded at our option no later than March 27, 2009; (iii) a $15.0 million revolving loan (the “Revolver”); and (iv) the option to request an incremental term loan before March 27, 2009, of up to $50.0 million (the “Incremental Term Loan”) subject to the willingness of lenders to make such loan. On March 28, 2008, the $120.0 million of the Term Loan was funded, of which $38.2 million was used to refinance the $38.2 million of term debt remaining outstanding under our previous credit agreement. On January 5, 2009, we borrowed the $22.5 million Delayed Draw Term Loan. The Incremental Term Loan expired unused on March 27, 2009.

~~Table~~On September 4, 2009, we entered into the First Amendment to the Fourth Amended and Restated Credit Agreement (as amended, the “Credit Facility”) which, among other things, provided us with an additional delayed draw term loan of ~~Contents~~up to $100.0 million (the “Additional Delayed Draw Term Loan”).

~~Non-recurring~~As ~~Revenue~~of March 31, 2010, no borrowings have occurred under the Revolver or the Additional Delayed Draw Term Loan. A $1.4 million letter of credit has been issued under the Revolver as a security deposit.

For the three months ended March 31, 2010, our capital expenditures were $17.2 million. Our capital expenditures are expected to total approximately $97.0 million in 2010. Such expenditures are expected to be funded from cash flows from operations, our cash on hand, and our Additional Delayed Draw Term Loan. We do not expect to access funds under our Revolver in 2010. Our 2010 capital expenditures will include the completion of our expansion in Atlanta. These investments will increase product availability, which we believe will enable us to increase revenue and potentially reduce our accumulated deficit. We typically incur lease, utility, and personnel related expenses prior to being able to accept customers for, and generate ~~non-recurring~~revenue from the additional capacity. As a result of the operating leverage inherent in our business model, we believe incremental revenue from these expansions will increase operating cash flow. In addition, because most of our costs are fixed, once a market achieves positive cash flow from its operations, new revenues typically generate cash flow at higher operating margins. While we expect our cash flow from operations will continue to increase, we expect our cash flow used in investing activities, primarily as a result of our expansion efforts, to be greater than our cash flows generated from operating activities for at least the ~~following~~next ~~services:~~twelve months.

~~Installation~~25 Services. We receive one-time installation fees related to our interconnection and colocation services. The complexity of the installation determines the amount of fees charged to the customer. We typically receive a one-time fee per circuit or port for the installation of our interconnection services. We receive a one-time fee per cabinet or rack or per linear foot of cage space for the installation of our colocation services. We receive a one-time fee per amp for the installation of power, depending on the size of circuit and amount of voltage provided.

~~TechSmart~~While ~~Technical~~we ~~Support~~cannot ~~Services.~~provide Weany ~~provide~~assurances, ~~technical~~given ~~support~~our ~~services~~current tocash ~~assist~~position ~~customers~~and ~~with~~cash ~~installation~~needs, ~~circuit~~we believe ~~testing,~~that ~~equipment~~our ~~rebooting,~~cash ~~and~~generated ~~other~~from ~~related~~operating ~~services.~~activities, ~~Customers pay~~existing ~~for~~cash ~~these~~balance, ~~services~~and onavailable anborrowings ~~hourly~~under ~~basis~~the orCredit ~~under~~Facility ~~contractual~~will ~~arrangements~~be ~~for~~sufficient ato ~~certain~~meet ~~number~~our ofanticipated ~~hours~~capital ofexpenditures, ~~technical~~debt ~~support~~service ~~per~~and ~~month.~~working Wecapital ~~recognize~~requirements ~~revenue~~for at ~~once~~least the ~~services~~next ~~have~~twelve ~~been provided~~months.

~~The~~Net ~~following~~Cash ~~table~~Provided ~~presents~~by ~~our~~Operating ~~revenues~~Activities ~~and percentage of revenues for the periods presented:~~

	For the three months ended September 30,								For the nine months ended September 30,
($ in Thousands)	2008				2009				2008				2009
Revenues
Colocation	$	27,940	63	%	$	33,296	62	%	$	79,481	63	%	$	95,258	63	%
Interconnection		13,659	31	%		15,520	29	%		39,275	31	%		45,396	30	%
Recurring Total	$	41,599	94	%	$	48,816	91	%	$	118,756	94	%	$	140,654	93	%
Non-recurring		2,480	6	%		4,704	9	%		6,994	6	%		9,359	7	%
Total	$	44,079	100	%	$	53,520	100	%	$	125,750	100	%	$	150,013	100	%

Net cash provided by operating activities for the three months ended March 31, 2010 was $13.9 million. This consisted primarily of a net loss of $0.5 million and depreciation, amortization, and other non-cash charges of $16.4 million. Also affecting net cash provided by operating activities was an increase in assets of $0.2 million, primarily related to increases in accounts receivable, and a decrease in liabilities of $1.8 million, primarily due to timing differences in end of period payables.

~~Cost~~Net cash provided by operating activities for the three months ended March 31, 2009 was $9.0 million. This was primarily attributable to a net loss of ~~Revenues~~$2.0 million and depreciation, ~~Exclusive~~amortization, and other non-cash charges of ~~Depreciation~~$14.9 million. Also affecting net cash provided by operating activities was a decrease in assets of $1.2 million, and ~~Amortization~~a decrease in liabilities of $5.2 million.

~~Cost~~Net ofCash ~~Revenues.~~Used Cost of revenues is comprised primarily of lease, utilities, personnel related expenses, maintenance and repair, telecommunications services, security, and property taxes. The components of our cost of revenues are mostly fixed in ~~nature~~Investing ~~and~~Activities do not vary significantly from period to period. However, certain components of our cost of revenues are variable in nature and are directly related to the growth of our revenues. We expect our utilities expenses to increase in the future on a per unit basis due to an increase in rates from our utility providers and increased power usage by our customers. Further, we experience seasonality in our utilities expenses based on temperatures and seasonal rate adjustments, which causes the amount of these expenses to fluctuate during the year. As a result of our expansions, we typically incur lease, utilities, and personnel related expenses prior to being able to accept customers for, and generate revenue from, new data centers. As we expand our data centers primarily in our top 10 markets, we expect cost of revenues to increase.

~~Operating~~Net ~~Expenses~~cash used in investing activities for the three months ended March 31, 2010 was $17.2 million compared to $23.7 million for the three months ended March 31, 2009. Cash used in investing activities in the three months ended March 31, 2010 was for capital expenditures associated with our expansion efforts, primarily in Atlanta. Cash used in investing activities in the three months ended March 31, 2009 was primarily for capital expenditures associated with expansion efforts in the New York Metro area.

~~Sales~~Net ~~and~~Cash ~~Marketing.~~Provided ~~Sales~~by ~~and~~Financing ~~marketing~~Activities expenses consist primarily of personnel related expenses for our sales and marketing employees, including wages, benefits, bonuses, commissions, travel, and the cost of marketing programs such as sales support, trade shows, corporate communications, promotional events, and advertising. We expect sales and marketing expenses will continue to decrease as a percentage of revenues because we expect revenues to increase at a higher rate than our sales and marketing expenses.

~~General~~Net ~~and~~cash ~~Administrative. General~~used ~~and~~in ~~administrative~~financing ~~expenses~~activities ~~include~~for ~~personnel~~the ~~related~~three ~~costs~~months asended ~~well~~March 31, as2010 ~~travel,~~was ~~rent,~~$1.1 ~~insurance,~~million ~~legal,~~compared ~~accounting,~~to ~~and~~net ~~consulting~~cash ~~expenses~~provided by financing activities of $22.5 ~~Personnel~~million ~~related~~for ~~expenses~~the ~~include~~three ~~wages~~months ended March 31, ~~benefits~~2009. ~~and~~Cash ~~bonuses~~used ~~for~~by ~~our~~financing ~~executive~~activities ~~management as~~in ~~well~~the asthree ~~for~~months ~~our~~ended ~~accounting~~March 31, ~~legal,~~2010 ~~data~~was ~~center~~related ~~design~~to ~~and~~long-term ~~construction~~debt payments, ~~information~~which ~~technology,~~were ~~and~~partially ~~human~~offset ~~resources~~by ~~employees.~~cash received Wefrom ~~expect~~stock ~~general~~option ~~and~~exercises. ~~administrative~~Cash ~~expenses~~provided ~~will~~from ~~continue~~financing toactivities ~~decrease~~in asthe athree ~~percentage~~months ofended ~~revenues~~March 31, ~~because~~2009 wewas ~~expect revenues~~primarily tofrom ~~increase~~the atDelayed aDraw ~~higher~~Term ~~rate~~Loan ~~than~~of our ~~general~~Credit ~~and administrative expenses~~Facility.

~~Depreciation~~Debt ~~and Amortization.~~Obligations Depreciation expense includes depreciation of our leasehold improvements, generators, uninterruptible power systems, direct current power plants, heating, ventilation and air-conditioning equipment, furniture and fixtures. Amortization expense is composed of the amortization of our customer based intangible assets related to our acquisitions and the amortization of debt issuance costs.

24As of March 31, 2010, we have $138.9 million in principal outstanding under the Term Loan and Delayed Draw Term Loan, and a $1.4 million letter of credit outstanding under the Revolver.

~~Table~~Substantially all of ~~Contents~~the assets of the Company and its restricted subsidiaries are pledged as collateral for the Credit Facility, and the Credit Facility is guaranteed by the Company’s restricted subsidiaries. All loans under the Credit Facility bear interest at a rate equal to: (a) 2.5% to 3.5% above the alternate base rate (which is equal to the greater of the administrative agent’s prime rate, 0.5% above the federal funds rate, and 3.0% per annum) or (b) 3.5% to 4.5% above the adjusted LIBOR rate (which is equal to the greater of the LIBOR rate for such interest period and 2.0% per annum), where in each case the applicable margin changes based on our consolidated total leverage ratio. The current rate of interest is 3.0% above the alternate base rate or 4.0% above the LIBOR rate. We also pay unused facility fees equal to 0.50% per annum on the unused portion of the Revolver and 1.0% per annum on the unused portion of the Additional Delayed Draw Term Loan.

~~Other~~Borrowings ~~Expense~~under the Revolver are available until September 26, ~~Net~~2013. Borrowings under the Additional Delayed Draw Term Loan are available until September 4, 2010. Repayments of principal under the Term Loan and the Delayed Draw Term Loan are due in scheduled quarterly installments, beginning March 31, 2010, with the final payment due and payable on March 27, 2014. All outstanding amounts under the Revolver will be due and payable on September 27, 2013. Quarterly payments of principal outstanding under the Additional Delayed Draw Term Loan, if any, will commence on March 31, 2011.

~~Other~~The ~~Expense,~~Credit ~~Net.~~Facility ~~Other~~requires ~~expenses~~compliance ~~primarily~~with ~~include~~certain ~~non-income~~financial ~~based~~covenant ~~taxes~~ratios ~~and~~including ~~related~~a consolidated total leverage ratio, a consolidated senior leverage ratio, an annualized consolidated interest coverage ratio, and ~~penalties~~an annualized consolidated fixed charge coverage ratio. The Credit Facility also limits capital expenditures. We were in compliance with all such financial covenants as of March 31, 2010. A 10% change in the financial covenant ratios would not change our compliance status.

~~RESULTS~~26 ~~OF OPERATIONS~~

~~Three~~The ~~Months~~Credit ~~Ended~~Facility ~~September 30~~also requires that we comply with certain other covenants which, ~~2008~~among other ~~compared~~things, restrict our ability to ~~the~~incur ~~Three~~additional ~~Months~~debt, ~~Ended~~pay ~~September 30~~dividends and make other restricted payments, ~~2009~~sell assets, enter into affiliate transactions and take other actions. We were in compliance with all such covenants as of March 31, 2010.

The ~~following~~ability isto acomply ~~more~~with ~~detailed~~these ~~discussion~~provisions ofmay be affected by events beyond our ~~financial~~control. ~~condition~~The ~~and~~breach ~~results~~of any of ~~operations~~these covenants ~~for~~could ~~the~~result ~~periods~~in ~~presented.~~a ~~The~~default, ~~quarter-~~subject to~~-quarter~~ ~~comparison~~customary ofcure ~~financial~~rights, ~~results~~under isthe Credit Facility and, if not ~~necessarily~~cured ~~indicative~~within any applicable cure period or waived by our lenders, could trigger acceleration of ~~future~~repayment ~~results~~and the exercise of remedies against the collateral and otherwise, thus adversely affecting the business.

~~Revenues~~Capital Lease Obligations

	For the three monthsended September 30,				$Change		%Change
($ in Thousands)	2008		2009
Revenues	$	44,079	$	53,520	$	9,441	21	%

Obligations under capital leases at March 31, 2010 totaled $59.9 million.

~~Revenues~~Contractual ~~increased~~Obligations 21% for the three months ended September 30, 2009 over the same period in 2008. Approximately 52% of new sales in the three months ended September 30, 2009 were in our new or expanded data centers. Recurring revenue increased by $7.2 million. The recurring revenue increase consisted of colocation and interconnection revenue of $5.4 million and $1.9 million, respectively. Cabinet equivalents billed were 8,110 at September 30, 2009, which is a 10% increase over the September 30, 2008 cabinet equivalents billed of 7,347. The number of cross connects was 22,085 at September 30, 2009, which is a 6% increase over September 30, 2008 cross connects of 20,879. Sales to existing customers were 73% of sales during the three months ended September 30, 2009. Non-recurring revenue was $4.7 million for the three months ended September 30, 2009 as compared to $2.5 million for the three months ended September 30, 2008. The increase in non-recurring revenue was primarily related to a single customer contract with a $2.2 million one-time charge.

~~Cost~~The offollowing ~~Revenues~~table summarizes, ~~Exclusive~~as of ~~Depreciation~~March 31, 2010, our minimum payments for long-term debt and ~~Amortization~~other obligations for the next five years and thereafter:

	For the three monthsended September 30,								$Change			%Change
($ in Thousands)	Total			Remainderof 2010			2011 and2012			2013 and2014			Thereafter
($ in Thousands)	2008				2009
Operating lease obligations	$	347,645		$	24,583		$	64,319		$	63,605		$	195,138
Cost of revenues, exclusive of depreciation and amortization	$	23,742			$	25,928			$	2,186		9	%
Capital lease obligations *		141,025			5,279			14,222			12,935			108,588
As a percent of revenue		54	%			48	%
Long-term debt		138,938			10,688			57,000			71,250			—
Interest expense on long-term debt **		27,942			7,444			15,681			4,817			—
Power Purchase Agreements		2,253			1,494			759			—			—
Total contractual obligations ***	$	657,802		$	49,488		$	151,981		$	152,607		$	303,726

~~Cost~~* ofMinimum ~~revenues,~~payments ~~exclusive~~for ofcapital ~~depreciation~~lease ~~and~~obligations ~~amortization,~~includes ~~increased~~imputed ~~primarily~~interest ~~due to~~included ~~rent, carrier services, and personnel related expenses. Rent expenses increased $1.7 million, primarily due to expansions or renewed leases~~ in Seattle, Atlanta, and Los Angeles. Carrier services increased by approximately $0.3 million primarily due to our expanded data centers. Personnel related expenses increased by $0.2 million, primarily related to the ~~hiring~~capital oflease ~~additional personnel in our new and expanded data centers~~accounting. Cost of revenues included non-cash stock compensation expense of $0.4 million and $0.5 million for the three months ended September 30, 2009 and 2008, respectively. We expect our cost of revenues will increase in absolute dollars as we continue our growth and expansion plan.

25** The interest expense forecast is based on the greater of the LIBOR rate or 6.5% as of March 31, 2010. Interest expense was calculated by multiplying the outstanding balance by the interest rate for the given time period.

~~Table~~*** The contractual obligations table above does not include accruals for uncertain income tax liabilities of ~~Contents~~$0.2 million, due to their uncertain nature and timing.

~~Sales~~Off ~~and~~Balance ~~Marketing~~Sheet Arrangements

	For the three monthsended September 30,						$Change		%Change
($ in Thousands)	2008			2009
Sales and marketing	$	4,613		$	4,746		$	133	3	%
As a percent of revenue		10	%		9	%

As of December 31, 2009 and March 31, 2010 we did not have any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or special purpose entities, which were established for the purpose of facilitating off balance sheet arrangements.

~~Sales~~We ~~and~~lease ~~marketing~~space ~~expenses~~for ~~increased~~a bymajority ~~$0.1 million. The increase was primarily due to increases in marketing related activities~~ of ~~$0.2~~our ~~million,~~data ~~offset~~centers bythrough ~~decreased~~operating ~~personnel related expenses of $0~~leases.1 ~~million.~~This ~~Sales~~space ~~and~~is ~~Marketing~~not ~~expenses~~represented ~~included~~as ~~non-cash~~an ~~stock~~asset, ~~compensation~~nor ~~expense~~is ~~of $0.6 million and $0.5 million for~~ the ~~three~~obligation ~~months~~associated ~~ended~~with ~~September 30,~~the ~~2009~~lease ~~and~~arrangements ~~2008,~~represented ~~respectively.~~as Wea ~~expect~~liability ~~sales~~on ~~and~~our ~~marketing~~Consolidated ~~expenses~~Balance ~~will~~Sheets. ~~continue~~Minimum topayments ~~decrease~~for assuch aoperating ~~percentage~~lease ofobligations ~~revenues~~are asdisclosed wein ~~expect~~the ~~revenues~~footnotes to ~~increase~~our atfinancial astatements ~~higher~~and ~~rate~~are ~~than~~included ~~our~~in ~~sales~~the contractual ~~and~~obligations ~~marketing~~table ~~expenses~~above.

~~General~~Pending Merger with and ~~Administrative~~into Equinix

	For the three monthsended September 30,						$Change		%Change
($ in Thousands)	2008			2009
General and administrative	$	4,434		$	5,065		$	631	14	%
As a percent of revenue		10	%		9	%

Our ability to, among other things, make acquisitions, incur debt, make capital expenditures and expend funds outside of the ordinary course of business is limited by the Merger Agreement.

~~General~~RECENT ~~and~~ACCOUNTING ~~administrative~~PRONOUNCEMENTS expenses increased by $0.6 million. The increase was primarily due to increases in personnel related expenses of $0.6 million. General and administrative expenses included non-cash stock compensation expenses of $0.7 million and $0.5 million for the three months ended September 30, 2009 and 2008, respectively. We expect general and administrative expenses to continue to decrease as a percentage of revenues because we expect revenues to increase at a higher rate than our general and administrative expenses.

~~Depreciation~~In January 2010, the FASB issued an accounting standard update regarding fair value measurements and ~~Amortization~~disclosures. The new guidance requires new disclosures for significant transfers in and out of Level 1 and 2 of the fair value hierarchy and the activity within Level 3 of the fair value hierarchy. The updated guidance also clarifies existing disclosures regarding the level of

	For the three monthsended September 30,						$Change		%Change
($ in Thousands)	2008			2009
Depreciation and amortization	$	7,510		$	10,440		$	2,930	39	%
As a percent of revenue		17	%		20	%

~~Depreciation~~ disaggregation of assets or liabilities and ~~amortization~~the ~~expenses~~valuation ~~increased~~techniques byand ~~$2.9~~inputs ~~million~~used to measure fair value. The ~~increase~~updated ~~was primarily~~guidance ~~related~~is toeffective ~~the~~for ~~expansion~~interim ofand ~~our~~annual ~~data~~reporting ~~centers~~periods inbeginning after ~~Seattle~~December 15, ~~and~~2009, with the ~~New~~exception ~~York~~of ~~Metro~~the ~~and~~new ~~Northern~~Level ~~Virginia~~3 ~~areas~~activity disclosures, which ~~resulted~~are ineffective anfor ~~increase~~interim inand ~~depreciable~~annual ~~assets~~reporting periods beginning after December 15, 2010. We ~~expect~~adopted ~~depreciation~~the ~~and~~new ~~amortization~~guidance toduring ~~continue~~the tofirst ~~increase~~quarter of 2010.

~~Operating~~In ~~Income~~February 2010, the FASB issued an accounting standard update regarding subsequent events. The new guidance reiterates that an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. The updated guidance was effective upon issuance. We adopted the new guidance during the first quarter of 2010.

	For the three monthsended September 30,						$Change		%Change
($ in Thousands)	2008			2009
Operating income	$	3,780		$	7,341		$	3,561	94	%
As a percent of revenue		9	%		14	%

The adoption of new accounting guidance did not have a material effect on our consolidated financial statements.

~~Operating~~Item ~~income increased by $~~3.6: ~~million.~~Quantitative The increase was primarily related to increased revenues of $9.4 million. The increase in revenues was partially offset by an increase in expenses of $5.8 million, including $2.9 million, $2.2 million, $0.6 million, and ~~$0.1~~Qualitative ~~million~~Disclosures ~~for~~About ~~depreciation~~Market ~~and amortization, cost of revenues, general and administrative, and sales and marketing, respectively.~~ Risk

26Interest Rate Risk

~~Table~~We are required by our credit agreements to manage the interest rate risk on our debt. A portion of ~~Contents~~the floating interest rate on the outstanding debt of $138.9 million is swapped to fixed rate through an interest rate swap derivative, thus minimizing interest rate risk.

~~Interest~~Our ~~Income~~existing interest rate swap was entered into on January 15, 2009, has a notional amount of $120.0 million, and ~~Interest~~a ~~Expense~~maturity date of February 2012. There was no up-front cost for this agreement. The fixed LIBOR rates associated with this swap are 1.71% from February 2009 through February 2010 and 4.99% from February 2010 through February 2012. If the three-month LIBOR rate is higher than these fixed rates for the given periods, we will receive cash payments for the difference between actual three-month LIBOR and the fixed rates for the given periods. If the three-month LIBOR rate is lower than these fixed rates for the given periods, we will pay the difference between actual three-month LIBOR and the fixed rates for the given periods.

	For the three monthsended September 30,						$Change			%Change
($ in Thousands)	2008			2009
Interest expense	$	(3,713	)	$	(4,441	)	$	(728	)	(20	)%
Interest income	$	442		$	16		$	(426	)	(96	)%

As of March 31, 2010, the three-month LIBOR rate was 0.29%, which is lower than our contracted rates. A 10% change in the current LIBOR rate would not change our current net pay position.

~~Interest~~Foreign ~~expense~~Currency ~~increased~~Risk by $0.7 million. The increase in interest expense is primarily due to a decrease in the fair market value of our interest rate swap. We convert a portion of our outstanding debt to fixed interest rates through the use of interest rate swaps. These instruments are marked to fair value at the end of each quarter, with the non-cash gains and losses treated as decreases or increases to interest expense. The decrease in fair value of our swap resulted in an increase in interest expense of $1.1 million for the three months ended September 30, 2009, as a result of a decline LIBOR rates. This increase, was partially offset by a decrease in cash interest paid, commensurate with a decrease in our cost of capital to 6.3% at September 30, 2009 from 7.3% at September 30, 2008.

~~Interest~~We ~~income~~have ~~decreased~~a bydata $0center located in Toronto, Canada. Revenue from this data center was 8.4% ~~million~~of total revenues for the three months ended ~~September~~ March 3031, 2010. We primarily receive payment for services provided at this data center, and primarily pay expenses related to it, in Canadian dollars, which mitigates our exposure to currency exchange rate risk. However, fluctuating foreign currency exchange rates have a direct impact on how our international results of operations translate into U.S. dollars. During the first quarters of 2009 and 2010, ~~compared~~the U.S. dollar was generally stronger relative to the ~~three~~Canadian ~~months~~dollar. This ~~ended~~change ~~September 30,~~adversely ~~2008~~impacted our results of operations as amounts in Canadian dollars generally translated into fewer U.S. ~~The~~dollars. We ~~decrease~~have isdetermined ~~attributable~~that the impact of a near-term 10% appreciation or depreciation of the U.S. dollar relative to the Canadian dollar would not have a ~~lower~~significant ~~average~~effect on our financial position, results of operations, or cash ~~balance~~flows. ~~during~~We do not maintain any derivative instruments to mitigate the ~~third~~exposure ~~quarter~~to translation and transaction risk. Our foreign exchange transaction gains and losses are included in our results of ~~2009,~~operations asand ~~well~~were asnot ~~lower~~material ~~interest~~for ~~rates~~all periods presented.

~~Provision~~Fair ~~for~~Value ~~Income~~Risk ~~Taxes~~

	For the three monthsended September 30,						$Change		%Change
($ in Thousands)	2008			2009
Provision for income taxes	$	(234	)	$	(150	)	$	84	36	%

We do not have material exposure to market risk with respect to investments as our investments consist primarily of highly liquid cash equivalent securities. We do not use derivative financial instruments for speculative or trading purposes; however, this does not preclude our adoption of specific hedging strategies in the future.

~~Provision~~Commodity ~~for~~Price ~~income~~Risk taxes decreased by $0.1 million for the three months ended September 30, 2009. The decrease is related to an expected decrease in Canadian taxes for 2009. The tax provision for the three months ended September 30, 2009, was calculated by estimating the U.S. and Canadian effective income tax rates expected to be applicable for the full year.

~~Net~~Operating ~~Income~~costs incurred by us are subject to price fluctuations caused by the volatility of underlying electricity prices at some of our data centers. We monitor the cost of electricity at our data centers. In a limited number of our data centers, we enter into power purchase agreements to fix the price at which we acquire electricity.

	For the three monthsended September 30,					$Change		%Change
($ in Thousands)	2008			2009
Net income (loss)	$	(32	)	$	2,588	$	2,620	N/A

~~Net~~Item ~~income~~4: ~~increased~~Controls byand $2.6 million. Net income was $2.5 million for the three months ended September 30, 2009, compared to a $0.1 million net loss for the three months ended September 30, 2008. The net income increase is attributable to the factors previously described in this “Results of Operations” section.Procedures

27Evaluation of Disclosure Controls and Procedures

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

~~RESULTS~~Changes OFin ~~OPERATIONS~~Internal Control over Financial Reporting

~~Nine~~There ~~Months~~were ~~Ended~~no ~~September 30,~~changes ~~2008~~in ~~compared~~our tointernal control over financial reporting identified in connection with the ~~Nine~~evaluation ~~Months~~required ~~Ended~~by ~~September~~paragraph (d) ~~30,~~of ~~2009~~Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

~~The~~PART ~~following~~II: isOTHER aINFORMATION more detailed discussion of our financial condition and results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.

~~Revenues~~Item 1: Legal Proceedings

	For the nine monthsended September 30,				$Change		%Change
($ in Thousands)	2008		2009
Revenues	$	125,750	$	150,013	$	24,263	19	%

As we disclosed in our Annual Report on Form 10-K for our year ended December 31, 2009, three purported stockholder class action lawsuits were filed against us, members of our board of directors, Merger Sub (which was named as a defendant in only two of the lawsuits) and Equinix.

~~Revenues~~On ~~increased~~ January 19%, 2010, counsel for ~~the~~parties ~~nine~~in ~~months~~all ~~ended~~three ~~September 30,~~lawsuits ~~2009,~~entered ~~over~~into ~~the~~a memorandum ~~same~~of ~~period~~understanding in ~~2008.~~which ~~Approximately~~they ~~52%~~agreed ofupon ~~new~~the ~~sales~~terms ~~for~~of ~~2009~~a ~~were~~settlement inof ~~our~~all ~~new~~lawsuits. orIn ~~expanded~~connection ~~data~~with ~~centers.~~this ~~Recurring~~settlement, ~~revenue~~the ~~increased~~three bylawsuits ~~$21.9~~and ~~million.~~all ~~The~~claims ~~recurring~~asserted ~~revenue~~therein ~~increase~~will ~~consisted~~be ofdismissed ~~colocation~~with ~~and~~prejudice, ~~interconnection~~including ~~revenue~~the ofclaims ~~$15.8~~brought ~~million~~against us and $6our directors.1 ~~million,~~The ~~respectively.~~parties ~~Cabinet~~have ~~equivalents~~sought ~~billed~~approval ~~were~~of ~~8,110~~the atsettlement ~~September 30,~~in ~~2009,~~the ~~which~~Florida isstate acourt. ~~10%~~The ~~increase~~parties ~~over~~have stayed the ~~September 30,~~actions ~~2008~~pending ~~cabinet~~in ~~equivalents~~the ~~billed~~Delaware Chancery Court and the United States District Court for the Middle District of ~~7,347~~Florida. The proposed ~~number~~settlement ofis ~~cross~~conditional ~~connects~~upon, ~~was~~among ~~22,085~~other ~~at September 30~~things, ~~2009,~~consummation ~~which~~of isthe aMerger 6%and ~~increase~~final ~~over~~approval ~~September 30,~~of ~~2008~~the ~~cross~~proposed ~~connects~~settlement ofby ~~20,879~~the Florida state court. ~~Sales~~The toproposed ~~existing~~settlement ~~customers~~contemplates ~~were~~that ~~78%~~plaintiffs’ ofcounsel ~~sales~~will ~~during~~apply to the Florida ~~nine~~state ~~months~~court ~~ended~~for ~~September 30,~~an ~~2009.~~award ~~Non-recurring~~of ~~revenue~~attorneys’ ~~was~~fees and costs in an aggregate amount of $90.49 million, ~~for~~and that the ~~nine~~ ~~months~~defendants ~~ended~~will ~~September 30,~~not ~~2009~~oppose asor ~~compared~~undermine tothis $7application.0 ~~million~~These ~~for~~attorneys’ ~~the~~fees ~~nine~~and ~~months~~costs ~~ended~~will ~~September 30,~~not ~~2008~~be deducted from the Merger consideration. ~~The~~Both ~~increase~~Equinix and us will share in ~~non-recurring~~the ~~was~~payment ~~primarily~~of ~~related~~such tosettlement. aAs ~~single~~of ~~customer~~December 31, ~~contract~~2009, ~~with~~we aaccrued $20.26 million, ~~onetime~~our ~~charge~~portion of the settlement and recorded $0. 4 million as an insurance receivable.

~~Cost~~We are subject to other legal proceedings and claims which arise in the ordinary course of ~~Revenues~~business. Based upon currently available information, ~~Exclusive~~management, based upon advice of ~~Depreciation~~legal counsel, believes that the amounts accrued in the Consolidated Balance Sheets are adequate for the aforementioned proceedings and ~~Amortization~~claims and the amount of any additional liability with respect to these actions will not materially affect our financial position, results of operations, or liquidity.

	For the nine monthsended September 30,						$Change		%Change
($ in Thousands)	2008			2009
Cost of revenues, exclusive of depreciation and amortization	$	65,741		$	74,687		$	8,946	14	%
As a percent of revenue		52	%		50	%

Item 1A:

Risk Factors

~~Cost~~No ~~of revenues, exclusive of depreciation and amortization, increased primarily due~~material tochanges ~~rent,~~from ~~utilities,~~the ~~property~~risk ~~taxes,~~factors ~~and~~previously ~~carrier~~disclosed ~~related services. Rent expense increased $5.5 million, primarily due to expansions or renewed leases~~ in ~~Seattle,~~our ~~San~~Annual ~~Jose,~~Report ~~Atlanta,~~on ~~Toronto,~~Form ~~and~~10-K ~~Los~~for ~~Angeles.~~our ~~Utilities~~year ~~increased~~ended ~~$1.2 million due to additional usage by our customers~~December 31, ~~largely~~2009 inhave ~~our New York Metro and San Francisco Bay markets~~occurred. ~~Carrier~~Additional ~~related~~risks ~~services~~ and ~~property~~uncertainties ~~taxes~~of ~~increased~~which bywe ~~approximately~~are ~~$1.1 million each~~unaware, ~~primarily~~or ~~due~~that toare ~~our~~currently ~~new~~deemed ~~and~~immaterial ~~expanded~~by ~~data centers. Cost of~~us, ~~revenues~~may ~~included~~become ~~non-cash~~important ~~stock~~factors ~~compensation~~that ~~expense~~affect ofus ~~$0.9~~in ~~million and $1.4 million for~~ the ~~nine months ended September 30, 2009 and 2008, respectively~~future. ~~We anticipate our cost of revenues will increase in absolute dollars as we continue our growth and expansion plan.~~

Item 2: Unregistered Sales of Equity Securities and ~~Marketing~~Use of Proceeds

	For the nine monthsended September 30,						$Change		%Change
($ in Thousands)	2008			2009
Sales and marketing	$	14,677		$	15,130		$	453	3	%
As a percent of revenue		12	%		10	%

None

~~Sales~~Item ~~and~~3: ~~marketing~~Defaults ~~expenses~~Upon ~~increased~~Senior ~~by $0.5 million. The increase was primarily due to increases in marketing related expenses of $0.4 million and personnel related expenses of $0.1 million. Sales and marketing expenses included~~ Securities

28None

~~Table~~Item of4: ~~Contents~~Removed and Reserved

~~non-cash~~None stock compensation expense of $1.7 million and $1.6 million for the nine months ended September 30, 2009 and 2008, respectively. We expect sales and marketing expenses to continue to decrease as a percentage of revenues because we expect revenues to increase at a higher rate than our sales and marketing expenses.

~~General~~29 ~~and Administrative~~

	For the nine monthsended September 30,						$Change		%Change
($ in Thousands)	2008			2009
General and administrative	$	13,096		$	14,157		$	1,061	8	%
As a percent of revenue		10	%		9	%

Item 5:

Other Information

~~General and administrative expenses increased by $1.0 million. The increase was~~None primarily due to increases in personnel related expenses of $1.2 million, partially offset by a decrease in professional fees of $0.2 million. General and administrative expenses included non-cash stock compensation expenses of $2.0 million and $1.7 million for the nine months ended September 30, 2009 and 2008, respectively. We expect general and administrative expenses to continue to decrease as a percentage of revenues because we expect revenues to increase at a higher rate than our general and administrative expenses.

~~Depreciation~~Item ~~and~~6: ~~Amortization~~ Exhibits

	For the nine monthsended September 30,						$Change		%Change
Exhibit Number	Description of Document		IncorporatedByReference	FormDate		FiledHerein
($ in Thousands)	2008			2009
10.1	Memorandum of Understanding, dated January 19, 2010 – Jiannaras v. Switch & Data Facilities Co., Inc., et al.; Gibbs v. Switch & Data Facilities Co., Inc., et al.; and Broadbased Equities v. Keith Olsen, et al.					X
Depreciation and amortization	$	20,762		$	30,237		$	9,475	46	%
31.1	Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
As a percent of revenue		17	%		20	%
31.2	Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1	Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
32.2	Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X

~~Depreciation~~30 and amortization expenses increased by $9.5 million. The increase was primarily related to the expansion of our data centers in Dallas, Seattle, and the New York Metro, Northern Virginia, and San Francisco Bay areas, which resulted in a substantial increase in depreciable assets. We expect depreciation and amortization to continue to increase.

~~Lease~~SIGNATURES ~~Litigation Settlement~~

	For the nine monthsended September 30,						$Change		%Change
($ in Thousands)	2008			2009
Lease litigation settlement	$	—		$	700		$	700	N/A
As a percent of revenue		0	%		0	%

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.

Lease litigation settlement for the nine months ended September 30, 2009 relates to a lease settlement in Milwaukee, in which over $4.7 million in damages were sought by the plaintiffs. The settlement amount of $0.9 million, which was $0.7 million more than the previously accrued amount, was paid in May 2009, and the case was dismissed with prejudice.


	Switch & Data Facilities Company, Inc.

Date: April 30, 2010	By:	/s/ KEITH OLSEN
		Keith Olsen
		Chief Executive Officer

Date: April 30, 2010	By:	/s/ GEORGE POLLOCK, JR.
		George Pollock, Jr.
		Senior Vice President and Chief Financial Officer

2931

~~Table~~Exhibit ofIndex ~~Contents~~

Operating Income


Exhibit Number	Description of Document	Incorporated By Reference	Form Date	Filed Herein

10.1	Memorandum of Understanding, dated January 19, 2010 – Jiannaras v. Switch & Data Facilities Co., Inc., et al.; Gibbs v. Switch & Data Facilities Co., Inc., et al.; and Broadbased Equities v. Keith Olsen, et al.			X

31.1	Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			X

31.2	Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			X

32.1	Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002			X

32.2	Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002			X

	For the nine monthsended September 30,						$Change		%Change
($ in Thousands)	2008			2009
Operating income	$	11,474		$	15,102		$	3,628	32	%
As a percent of revenue		9	%		10	%

Operating income increased by $3.6 million. The increase was primarily related to increased revenues of $24.3 million. The increase in revenues was partially offset by an increase in expenses of $20.7 million, including $9.5 million, $8.9 million, $1.1 million, $0.7 million, and $0.5 million for depreciation and amortization, cost of revenues, general and administrative, lease litigation settlement, and sales and marketing, respectively.

Interest Income and Interest Expense

	For the nine monthsended September 30,						$Change			%Change
($ in Thousands)	2008			2009
Interest expense	$	(8,866	)	$	(11,229	)	$	(2,363	)	27	%
Interest income	$	1,513		$	45		$	(1,468	)	(97	)%
Loss from debt extinguishment	$	(695	)	$	—		$	695		N/A

Interest expense increased by $2.4 million. The increase in interest expense was primarily due to an increase in our weighted average outstanding debt balance, which increased to $141.6 million for the nine months ended September 30, 2009, from $93.6 million for the nine months ended September 30, 2008, as a result of borrowing additional funds primarily used for our investment in product capacities. Interest expense also increased due to the change in fair value of our interest rate swap. The fair value of the interest rate swap is adjusted each quarter, with gains and losses treated as decreases or increases to interest expense. The change in market value of the interest rate swap, directly related to the decreases in current and future LIBOR rates, resulted in an increase in interest expense of $1.2 million for the nine months ended September 30, 2009.

Interest income decreased by $1.5 million for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008. The decrease is attributable to a lower average cash balance during the first nine months of 2009, as well as lower interest rates.

Loss from debt extinguishment was $0.7 million for the nine months ended September 30, 2008, due to the write-off of certain debt issuance costs related to our debt refinancing that occurred in March 2008.

Provision for Income Taxes

	For the nine monthsended September 30,						$Change		%Change
($ in Thousands)	2008			2009
Provision for income taxes	$	(1,325	)	$	(950	)	$	375	28	%

Provision for income taxes decreased by $0.4 million for the nine months ended September 30, 2009. The decrease is related to an expected decrease in Canadian taxes for 2009. The tax provision for the nine months ended September 30, 2009, was calculated by estimating the U.S. and Canadian effective income tax rates expected to be applicable for the full year.

Net Income (Loss)

	For the nine monthsended September 30,				$Change		%Change
($ in Thousands)	2008		2009
Net income	$	1,447	$	2,482	$	1,035	72	%

Net income increased by $1.0 million. Net income was $2.5 million for the nine months ended September 30, 2009, compared to net income of $1.4 million for the nine months ended September 30, 2008. The net income increase is attributable to the factors previously described in this “Results of Operations” section.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The following table sets forth a summary of our cash flows for the periods indicated:

	For the nine monthsended September 30,
($ in Thousands)	2008			2009
Cash provided by (used in):
Operating activities	$	36,242		$	41,422
Investing activities		(117,649	)		(54,346	)
Financing activities		78,861			20,723

Sources and Uses of Cash

Our principal sources of cash are from our operating activities and the funds available to us from our debt borrowings. On March 27, 2008, we entered into a Fourth Amended and Restated Credit Agreement which provided for: (i) a $120.0 million term loan (the “Term Loan”); (ii) a $22.5 million delayed draw term loan (the “Delayed Draw Term Loan”), to be funded at our option no later than March 27, 2009; (iii) a $15.0 million revolving loan (the “Revolver”); and (iv) the option to request an incremental term loan before March 27, 2009, of up to $50.0 million (the “Incremental Term Loan”) subject to the willingness of lenders to make such loan. On March 28, 2008, the $120.0 million of the Term Loan was funded, of which $38.2 million was used to refinance the $38.2 million of term debt remaining outstanding under our previous credit agreement. On January 5, 2009, we borrowed the $22.5 million Delayed Draw Term Loan. The Incremental Term Loan expired unused on March 27, 2009.

On September 4, 2009, we entered into the First Amendment to the Fourth Amended and Restated Credit Agreement (as amended, the “Credit Facility”) which, among other things, provided us with an additional delayed draw term loan of up to $100.0 million (the “Additional Delayed Draw Term Loan”).

As of September 30, 2009, no borrowings have occurred under the Revolver or the Additional Delayed Draw Term Loan. A $1.4 million letter of credit has been issued under the Revolver as a security deposit.

For the nine months ended September 30, 2009, our capital expenditures were $54.4 million. Our capital expenditures are expected to be less in 2009 than in 2008. We expect our capital expenditures for the remainder of 2009 to be approximately $20.6 million, which is expected to be funded from cash flows from operations and our cash on hand. We do not expect to access funds under our Revolver or Additional Delayed Draw Term Loan during the remainder of 2009. Our 2009 capital expenditures include the expansion of our new data center in the New York Metro area. These investments will increase product availability, which we believe will enable us to increase revenue and potentially reduce our accumulated deficit. We typically incur lease, utility, and personnel related expenses prior to being able to accept customers for, and generate revenue from the additional capacity. As a result of the operating leverage inherent in our business model, we believe incremental revenue from these expansions will increase operating cash flow. In addition, because most of our costs are fixed, once a market achieves positive cash flow from its operations, new revenues typically generate cash flow at higher operating margins.

While we expect our cash flow from operations will continue to increase, we expect our cash flow used in investing activities, primarily as a result of our expansion efforts, to be greater than our cash flows generated from operating activities for at least the next twelve months.

While we cannot provide any assurances, given our current cash position and cash needs, we believe that our cash generated from operating activities, existing cash balance, and available borrowings under the Credit Facility will be sufficient to meet our anticipated capital expenditures, debt service and working capital requirements for at least the next twelve months.

Net Cash Provided by Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2009 was $41.4 million. This consisted primarily of a net income of $2.5 million and depreciation, amortization, and other non-cash charges of $43.0 million. Also affecting net cash provided by operating activities was an increase in assets of $1.6 million, primarily related to increases in accounts receivable, and an increase in liabilities of $2.5 million, primarily due to timing differences in end of period payables.

Net cash provided by operating activities for the nine months ended September 30, 2008 was $36.2 million. This was primarily attributable to a net income of $1.4 million and depreciation, amortization, and other non-cash charges of $31.5 million. Also affecting net cash provided by operating activities was an increase in assets of $3.5 million, and an increase in liabilities of $6.8 million.

Net Cash Used in Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2009 was $54.3 million compared to $117.6 million for the nine months ended September 30, 2008. Cash used in investing activities in the nine months ended September 30, 2009 was for capital expenditures associated with our expansion efforts, primarily in our New York Metro area. Cash used in investing activities in the nine months ended September 30, 2008 was primarily for capital expenditures associated with expansion efforts in several markets.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2009 was $20.7 million compared to net cash provided by financing activities of $78.9 million for the nine months ended September 30, 2008. Cash provided from financing activities in the nine months ended September 30, 2009 was from the Delayed Draw Term Loan of our Credit Facility. Cash provided from financing activities in the nine months ended September 30, 2008 was primarily from the Term Loan of our Credit Facility.

Debt Obligations

As of September 30, 2009, we have $120.0 million in principal outstanding under the Term Loan, $22.5 million in principal outstanding under the Delayed Draw Term Loan, and a $1.4 million letter of credit outstanding under the Revolver.

Substantially all of the assets of the Company and its restricted subsidiaries are pledged as collateral for the Credit Facility, and the Credit Facility is guaranteed by the Company's restricted subsidiaries. All loans under the Credit Facility bear interest at a rate equal to: (a) 2.5% to 3.5% above the alternate base rate (which is equal to the greater of the administrative agent’s prime rate, 0.5% above the federal funds rate, and 3.0% per annum) or (b) 3.5% to 4.5% above the adjusted LIBOR rate (which is equal to the greater of the LIBOR rate for such interest period and 2.0% per annum), where in each case the applicable margin changes based on our consolidated total leverage ratio. The current rate of interest is 3.5% above the alternate base rate or 4.5% above the LIBOR rate. We also pay unused facility fees equal to 0.50% per annum on the unused portion of the Revolver and 1.0% per annum on the unused portion of the Additional Delayed Draw Term Loan.

Borrowings under the Revolver are available until September 26, 2013. Borrowings under the Additional Delayed Draw Term Loan are available until September 4, 2010. Repayments of principal under the Term Loan and the Delayed Draw Term Loan are due in scheduled quarterly installments, beginning March 31, 2010, with the final payment due and payable on March 27, 2014. All outstanding amounts under the Revolver will be due and payable on September 27, 2013. Quarterly payments of principal outstanding under the Additional Delayed Draw Term Loan, if any, will commence on March 31, 2011. Each of the quarterly payments through December 31, 2011 will be equal to 2.5% of the aggregate principal amount of the Additional

Delayed Draw Term Loan, with the percentage increasing to 5.0% for payments beginning March 31, 2012 through December 31, 2012, 10.0% for payments beginning March 31, 2013 through December 31, 2013, and 30.0% for the payment on March 27, 2014.

The Credit Facility requires compliance with certain financial covenant ratios including a consolidated total leverage ratio, a consolidated senior leverage ratio, an annualized consolidated interest coverage ratio, an annualized consolidated fixed charge coverage ratio and a maximum capital expenditure limit. The Credit Facility also limits capital expenditures. We were in compliance with all such financial covenants as of September 30, 2009. A 10% change in these financial covenant ratios would not change our compliance status.

The Credit Facility also requires that we comply with certain other covenants which, among other things, restrict our ability to incur additional debt, pay dividends and make other restricted payments, sell assets, enter into affiliate transactions and take other actions. We were in compliance with all such covenants as of September 30, 2009.

The ability to comply with these provisions may be affected by events beyond our control. The breach of any of these covenants could result in a default, subject to customary cure rights, under the Credit Facility and, if not cured within any applicable cure period or waived by our lenders, could trigger acceleration of repayment and the exercise of remedies against the collateral and otherwise, thus adversely affecting the business.

Capital Lease Obligations

Obligations under capital leases at September 30, 2009 totaled $60.0 million

In March 2009, we executed a lease agreement for equipment. The lease agreement term is for five years and includes a bargain purchase option. The lease agreement commenced during the second and third quarters of 2009, at which time capital lease assets and obligations of $9.4 million was recorded. Payments under this lease agreement are $0.2 million monthly.

Contractual Obligations

The following table summarizes, as of September 30, 2009, our minimum payments for long-term debt and other obligations for the next five years and thereafter:

($ in Thousands)	Total		Remainderof 2009		2010 and 2011		2012 and 2013		Thereafter
Operating lease obligations	$	339,919	$	7,429	$	59,664	$	59,168	$	213,658
Capital lease obligations		143,812		1,711		13,784		14,137		114,180
Long-term debt		142,500		—		42,750		85,500		14,250
Interest expense on long-term debt *		33,165		2,599		18,822		11,262		482
Power Purchase Agreements		4,235		850		3,177		208		—
Total contractual obligations **	$	663,631	$	12,589	$	138,197	$	170,275	$	342,570

* The interest expense forecast is based on an interest rate of 6.5% as of September 30, 2009. Interest expense was calculated by multiplying the outstanding balance by the interest rate for the given time period.

** The contractual obligations table above does not include accruals for uncertain income tax liabilities of $0.2 million.

Off Balance Sheet Arrangements

As of December 31, 2008 and September 30, 2009 we did not have any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or special purpose entities, which were established for the purpose of facilitating off balance sheet arrangements.

We lease space for a majority of our data centers through operating leases. This space is not represented as an asset, nor is the obligation associated with the lease arrangements represented as a liability on our Consolidated Balance Sheets. Minimum payments for such operating lease obligations are disclosed in the footnotes to our financial statements and are included in the contractual obligations table above.

Pending Merger with and into Equinix

Our ability to, among other things, make acquisitions, incur debt, make capital expenditures and expend funds outside of the ordinary course of business is limited by the Merger Agreement.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued The FASB Accounting Standards Codification (the “Codification”). The Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

In May 2009, new accounting guidance was issued regarding subsequent events. This guidance establishes general standards of accounting and disclosure for events that occur after the balance sheet date but before financial statements are issued. This guidance is effective for interim and annual periods ending after June 15, 2009.

In April 2009, new accounting guidance was issued regarding the estimation of fair value. This guidance provides additional information on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity, as well as additional information on circumstances which may indicate a transaction is not orderly. The guidance requires interim disclosures of the inputs and valuation techniques used to measure fair value reflecting changes in the valuation techniques and related inputs. This guidance is effective prospectively for interim and annual reporting periods ending after June 15, 2009.

In April 2009, new accounting guidance was issued regarding interim disclosures about fair value. This guidance requires that disclosures provide quantitative and qualitative information on fair value estimates for all financial instruments not measured on the balance sheet at fair value, when practicable. This guidance is effective prospectively for interim reporting periods ending after June 15, 2009.

The adoption of new accounting guidance did not have a material effect on our consolidated financial statements.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are required by our credit agreements to manage the interest rate risk on our debt. A portion of the floating interest rate on the outstanding debt of $142.5 million is swapped to fixed rate through an interest rate swap derivative, thus minimizing interest rate risk.

Our existing interest rate swap was entered into on January 15, 2009, has a notional amount of $120.0 million, and a maturity date of February 2012. There was no up-front cost for this agreement. The fixed LIBOR rates associated with this swap are 1.71% from February 2009 through February 2010 and 4.99% from February 2010 through February 2012. If the three-month LIBOR rate is higher than these fixed rates for the given periods, we will receive cash payments for the difference between actual three-month LIBOR and the fixed rates for the given periods. If the three-month LIBOR rate is lower than these fixed rates for the given periods, we will pay the difference between actual three-month LIBOR and the fixed rates for the given periods.

As of September 30, 2009, the three-month LIBOR rate was 0.29%, which is lower than our contracted rates. A 10% change in the current LIBOR rate would not change our current net pay position.

Foreign Currency Risk

We have a data center located in Toronto, Canada. Revenue from this data center was 6.6% and 6.3% of total revenues for the three months and nine months ended September 30, 2009, respectively. We primarily receive payment for services provided at this data center, and primarily pay expenses related to it, in Canadian dollars, which mitigates our exposure to currency exchange rate risk. However, fluctuating foreign currency exchange rates have a direct impact on how our international results of operations translate into U.S. dollars. During the first three quarters of 2009, the U.S. dollar was generally weaker relative to the Canadian dollar. This change adversely impacted our results of operations as amounts in Canadian dollars generally translated into fewer U.S. dollars. We have determined that the impact of a near-term 10% appreciation or depreciation of the U.S. dollar relative to the Canadian dollar would not have a significant effect on our financial position, results of operations, or cash flows. We do not maintain any derivative instruments to mitigate the exposure to translation and transaction risk. Our foreign exchange transaction gains and losses are included in our results of operations and were not material for all periods presented.

Fair Value Risk

Commodity Price Risk

Operating costs incurred by us are subject to price fluctuations caused by the volatility of underlying electricity prices at some of our data centers. We monitor the cost of electricity at our data centers closely. In a limited number of our data centers, we enter into power purchase agreements to fix the price at which we acquire electricity.

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1: Legal Proceedings

We are presently involved in various legal proceedings arising in the ordinary course of our business operations. Based on information currently available to us, we believe these proceedings will not have a material effect on our financial position, results of operations, or cash flows.

Item 1A: Risk Factors

As discussed above, we entered into the Merger Agreement with Equinix on October 21, 2009. No material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for our year ended December 31, 2008 and our Quarterly Reports on Form 10-Q for our quarters ended March 31, 2009 and June 30, 2009 have occurred, except for the addition of the following risk factors relating to the Merger:

Failure to complete the Merger with Equinix could materially and adversely affect us.

The Merger is conditioned upon, among other things, the approval of our stockholders, the receipt of regulatory approvals and other closing conditions. There can be no assurance that these conditions will be met or waived, that the necessary approvals will be obtained, or that we will be able to successfully consummate the Merger as currently contemplated under the Merger Agreement or at all. If the Merger is not consummated, we will not realize the potential benefits of the Merger, including any synergies that could result from our combining with Equinix and, under certain circumstances, we may have to pay a termination fee to Equinix in the amount of approximately $26.8 million.

Obtaining required approvals and satisfying closing conditions may delay or prevent completion of the Merger.

Completion of the Merger is conditioned upon the receipt of certain governmental authorizations, consents, orders and approvals, including the expiration or termination of the applicable waiting period, and any extension of the waiting period, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Although there is currently no contemplation that this will occur, these consents, orders and approvals may impose conditions on, or require divestitures relating to, the divisions, operations or assets of Equinix or us. To the extent required, these conditions or divestitures may jeopardize or delay completion of the Merger or may reduce the anticipated benefits of the Merger. Further, no assurance can be given that the required consents and approvals will be obtained or that the required conditions to closing will be satisfied, and, if all required consents and approvals are obtained and the conditions are satisfied, no assurance can be given as to the terms, conditions and timing of the consents and approvals.

The pending Merger may disrupt our normal business operations and the Merger Agreement imposes certain restrictions on our activities until the closing.

Our customers may seek to modify or terminate existing agreements, and prospective customers may delay entering into new agreements as a result of the announcement of the Merger. Our ability to attract new employees and retain our existing employees may be harmed by uncertainties associated with the Merger. In addition, the Merger Agreement limits certain of our activities that are considered as other than in the ordinary course of business, including capital expenditures, acquisitions and investments, the ability to incur additional indebtedness and the settlement of certain claims, among others.

The Merger Agreement restricts our ability to pursue alternatives to the Merger.

The Merger Agreement precludes us from, directly or indirectly soliciting, initiating, or knowingly encouraging the submission of any takeover proposal or participating in any discussions or negotiations regarding, or furnishing to any person any information in connection with, or otherwise cooperating in any way that could reasonably lead to, any third party takeover proposal. In connection with the termination of the Merger Agreement in certain circumstances involving a change in our board of directors' recommendation of the Merger to our stockholders, we will be required to pay Equinix a termination fee of $26.8 million. These restrictions could discourage a potential third-party acquirer from considering or proposing a transaction, or could reduce the price that a potential third-party acquirer would be willing to pay, because of the added cost of the termination fee.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3: Defaults Upon Senior Securities

None

Item 4: Submission of Matters to the Vote of Security Holders

None

Item 5: Other Information

None

Item 6: Exhibits

Exhibit Number	Description of Document	IncorporatedBy Reference	Form Date	FiledHerein
2.1	Agreement and Plan of Merger dated October 21, 2009	8-K Exhibit 2.1	10/21/2009
2.2	Voting Agreement dated October 21, 2009	8-K Exhibit 2.2	10/21/2009
3.1	Amended Certificate of Incorporation	S-8 Exhibit 4.2	3/14/2007
3.2	Amended and Restated By-laws	S-8 Exhibit 4.3	3/14/2007
10.1	First Amendment, dated as of September 4, 2009, to the Fourth Amended and Restated Credit Agreement	8-K Exhibit 10.1	9/4/2009
31.1	Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			X
31.2	Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002			X
32.1	Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002			X
32.2	Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002			X

SIGNATURES

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.

	Switch & Data Facilities Company, Inc.
Date: November 2, 2009	By:	/S/ KEITH OLSEN
		Keith Olsen
		Chief Executive Officer
Date: November 2, 2009	By:	/S/ GEORGE POLLOCK, JR.
		George Pollock, Jr.
		Senior Vice President and Chief Financial Officer

Exhibit Index

Exhibit Number		Description of Document
31.1		Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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Filing Compare · Switch & Data Facilities Company, Inc.