UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q/A


Amendment No. 1


(Mark one)


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


For the quarterly period ended March 31, 2014.


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


For the transition period from ______ to ______.





Commission file number 001-34143





RACKSPACE HOSTING, INC.


(Exact name of registrant as specified in its charter)








Delaware74-3016523(State or other jurisdiction ofincorporation or organization)(IRS EmployerIdentification No.)





1 Fanatical Place


City of Windcrest


San Antonio, Texas 78218


(Address of principal executive offices, including zip code)





(210) 312-4000


(Registrant’s telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes R No o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes R No o





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer," "accelerated filer" and "smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filerRAccelerated fileroNon-accelerated fileroSmaller reporting companyo





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No R





On May 7, 2014, 142,072,413 shares of the registrant’s Common Stock, $0.001 par value, were outstanding.




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EXPLANATORY NOTE





This Form 10-Q/A (the “Amendment”) was prepared solely to correct clerical errors contained in the first paragraph of Item 4 of Part 1, Controls and Procedures ("Item 4") in our original Form 10-Q filed on May 12, 2014 (the “Original Filing”). An amended and restated Item 4 is contained herein reflecting corrections of these errors.





This Amendment should be read in conjunction with the Original Filing, and except as amended herein, no other changes have been made to the Original Filing.  The Original Filing continues to speak as of the date of the Original Filing, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Original Filing other than as expressly indicated in this Amendment.  In connection with the filing of this Amendment, and pursuant to the rules of the Securities and Exchange Commission, we are including with this Amendment new certifications by our principal executive and principal financial officer.





PART I – FINANCIAL INFORMATION





ITEM 4 – CONTROLS AND PROCEDURES





Evaluation of disclosure controls and procedures





Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer identified the material weakness described below and solely based on that material weakness, concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective as of March 31, 2014.





In connection with the preparation of our financial statements for the year ended December 31, 2013, Management concluded there was a material weakness in the design and operating effectiveness of controls over the recognition, measurement, and disclosure of complex real estate development and lease arrangements. Specifically, we have entered into certain complex real estate development and lease arrangements with independent real estate developers to design, construct and lease certain real estate projects. While the independent developer legally owns the real estate projects and must finance the overall construction, we have funded certain structural improvements and/or retained obligations related to certain potential construction cost overruns which have triggered an accounting requirement to include construction costs in progress and a related long-term lease finance liability on our balance sheets as though we are the owner of the asset during the construction period. Our original assessment on the appropriate accounting treatment for these development and lease agreements was incorrect. The material weakness resulted in misstatements in our financial statements, specifically including a non-material change to the previously released unaudited balance sheet as of December 31, 2013, which we had disseminated in our fourth quarter and year-end earnings release and furnished in a Form 8-K on February 10, 2014. See Item 8 of Part II, "Financial Statements and Supplementary Data - Note 9 - Leases" of our Form 10-K for the year ended December 31, 2013 for information on the effect that such leases had on our financial statements.





To remediate this material weakness, in the first quarter of 2014 we have begun to enhance our process around identifying and reviewing complex real estate development and lease agreements by (i) formalizing the process of timely identifying the origination of transactions with development and lease arrangements; (ii) implementing more comprehensive procedures for the accounting review of such transactions; (iii) creating a formal checklist of accounting provisions to be considered and evaluated during the review process; (iv) creating specific documentation standards of how accounting provisions were identified, considered and concluded upon and (v) developing more robust review standards. Our internal audit department will also conduct a review of the enhanced process during fiscal 2014.





Notwithstanding this material weakness, our chief executive officer and chief financial officer have each concluded that the consolidated financial statements included in this Form 10-Q present fairly, in all material respects, the financial position, results of operations and cash flows of our company and its subsidiaries in conformity with accounting principles generally accepted in the United States of America. We are in the process of remediating the underlying causes of the material weakness as described above.


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Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.








Changes in internal control over financial reporting





There were no changes in our internal controls over financial reporting during our most recent fiscal quarter reporting period identified in connection with management’s evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





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ITEM 6 – EXHIBITS





Exhibit NumberDescription31.1*Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2*Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1**Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2**Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





|  |                
|- | ---------------
|* | Filed herewith.

|   |                    
|-- | -------------------
|** | Furnished herewith.




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SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 to be signed on its behalf by the undersigned, thereunto duly authorized, on June 18, 2014 .








Rackspace Hosting, Inc.





Date:June 18, 2014By:/s/ Karl PichlerKarl PichlerChief Financial Officer and Treasurer(Principal Financial Officer)





Date:June 18, 2014By:/s/ Joseph SaporitoJoseph SaporitoChief Accounting Officer(Principal Accounting Officer)





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