##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004,



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



COMMISSION FILE NUMBER 0-29375



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SAVVIS COMMUNICATIONS CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 43-1809960                          
|(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |  | (I.R.S. EMPLOYER IDENTIFICATION NO.)



1 SAVVIS PARKWAY

TOWN & COUNTRY, MISSOURI 63017

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)



(314-628-7000)

(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)



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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  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act).    Yes ̈No  x



COMMON STOCK, $0.01 PAR VALUE  109,841,914 SHARES AS OF AUGUST 11,
2004

(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUERS CLASSES

OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE)



The Index of Exhibits appears on page 36.



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##### Table of Contents

SAVVIS COMMUNICATIONS CORPORATION



TABLE OF CONTENTS



|                              |  |         |  |                                                                                                                                 |  |             
|----------------------------- |  | ------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | ------------
|                              | 
|PART I
FINANCIAL INFORMATION |  |        
|                              |  |         | 
|                              |  | Item 1. |  | Financial Statements:                                                                                                           |  | Page 3      
|                              |  |         | 
|                              |  |         |  | Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003                                                 |  | Page 3      
|                              |  |         | 
|                              |  |         |  | Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2004 and June 30, 2003              |  | Page 4      
|                              |  |         | 
|                              |  |         |  | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and June 30, 2003                        |  | Page 5      
|                              |  |         | 
|                              |  |         |  | Condensed Consolidated Statement of Changes in Stockholders Equity (Deficit) for the period December 31, 2003 to June 30, 2004 |  | Pages 6-7   
|                              |  |         | 
|                              |  |         |  | Notes to Condensed Consolidated Financial Statements                                                                            |  | Page 8      
|                              |  |         | 
|                              |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations.                                          |  | Page 22     
|                              |  |         | 
|                              |  | Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk.                                                                     |  | Page 33     
|                              |  |         | 
|                              |  | Item 4. |  | Controls and Procedures.                                                                                                        |  | Page 33     
|                              | 
|PART II
OTHER INFORMATION    |  |        
|                              |  |         | 
|                              |  | Item 1. |  | Legal Proceedings.                                                                                                              |  | Page 34     
|                              |  |         | 
|                              |  | Item 2. |  | Changes in Securities and Use of Proceeds.                                                                                      |  | Page 34     
|                              |  |         | 
|                              |  | Item 3. |  | Defaults Upon Senior Securities.                                                                                                |  | Page 34     
|                              |  |         | 
|                              |  | Item 4. |  | Submission of Matters to a Vote of Security Holders.                                                                            |  | Pages 34 -35
|                              |  |         | 
|                              |  | Item 5. |  | Other Information.                                                                                                              |  | Page 35     
|                              |  |         | 
|                              |  | Item 6. |  | Exhibits and Reports on Form 8-K.                                                                                               |  | Page 36     
|                              | 
|SIGNATURES                    |  | Page 37



2



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##### Table of Contents

PART IFINANCIAL INFORMATION



IT
EM 1. FINANCIAL STATEMENTS.



CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                   |  |               |          |   |                   |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ----------------- | - | -------- | -
|(in thousands, except share amounts)                                                                                                                                                               |  | June 30, 2004 |          |   | December 31, 2003 |  
|                                                                                                                                                                                                   |  | (unaudited)   |          |   |                   |  
|ASSETS                                                                                                                                                                                             |  |               |          |   |                   |   |          |  
|CURRENT ASSETS:                                                                                                                                                                                    |  |               |          |   |                   |   |          |  
|Cash and cash equivalents                                                                                                                                                                          |  | $             | 75,299   |   |                   | $ | 28,173   |  
|Trade accounts receivable, less allowance for doubtful accounts of $4,136 and $1,162 in 2004 and 2003, respectively                                                                                |  |               | 44,855   |   |                   |   | 11,305   |  
|Prepaid expenses                                                                                                                                                                                   |  |               | 10,597   |   |                   |   | 2,467    |  
|Other current assets                                                                                                                                                                               |  |               | 11,775   |   |                   |   | 2,682    |  
|                                                                                                                                                                                                   |  |               |          |   |                   |   |          |  
|TOTAL CURRENT ASSETS                                                                                                                                                                               |  |               | 142,526  |   |                   |   | 44,627   |  
|Property and equipment, net                                                                                                                                                                        |  |               | 289,772  |   |                   |   | 59,357   |  
|Restricted cash                                                                                                                                                                                    |  |               | 6,968    |   |                   |   | 7,843    |  
|Intangibles, net                                                                                                                                                                                   |  |               | 18,254   |   |                   |   | 4,898    |  
|Other non-current assets                                                                                                                                                                           |  |               | 12,373   |   |                   |   | 7,898    |  
|                                                                                                                                                                                                   |  |               |          |   |                   |   |          |  
|TOTAL ASSETS                                                                                                                                                                                       |  | $             | 469,893  |   |                   | $ | 124,623  |  
|                                                                                                                                                                                                   |  |               |          |   |                   |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY / (DEFICIT)                                                                                                                                                   |  |               |          |   |                   |   |          |  
|CURRENT LIABILITIES:                                                                                                                                                                               |  |               |          |   |                   |   |          |  
|Payables and other trade accruals                                                                                                                                                                  |  | $             | 60,094   |   |                   | $ | 26,771   |  
|Capital lease obligations, current                                                                                                                                                                 |  |               | 1,180    |   |                   |   | 315      |  
|Other accrued liabilities                                                                                                                                                                          |  |               | 85,258   |   |                   |   | 22,629   |  
|                                                                                                                                                                                                   |  |               |          |   |                   |   |          |  
|TOTAL CURRENT LIABILITIES                                                                                                                                                                          |  |               | 146,532  |   |                   |   | 49,715   |  
|Capital lease obligations, net of current portion                                                                                                                                                  |  |               | 115,078  |   |                   |   | 56,587   |  
|Long-term debt                                                                                                                                                                                     |  |               | 148,630  |   |                   |   |         |  
|Other accrued liabilities                                                                                                                                                                          |  |               | 75,994   |   |                   |   | 19,248   |  
|                                                                                                                                                                                                   |  |               |          |   |                   |   |          |  
|TOTAL LIABILITIES                                                                                                                                                                                  |  |               | 486,234  |   |                   |   | 125,550  |  
|                                                                                                                                                                                                   |  |               |          |   |                   |   |          |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                      |  |               |          |   |                   |   |          |  
|STOCKHOLDERS EQUITY / (DEFICIT):                                                                                                                                                                  |  |               |          |   |                   |   |          |  
|Convertible Series A Preferred stock at accreted value; 210,000 shares authorized; 203,070 shares issued in 2004 and 2003; 202,490 and 203,070
shares outstanding in 2004 and 2003, respectively   |  |               | 256,975  |   |                   |   | 243,334  |  
|Convertible Series B Preferred stock; $0.01 par value, 11,000,000 shares authorized; 6,552,886 shares issued and outstanding in
2004                                                               |  |               | 66       |   |                   |   |         |  
|Common stock; $.01 par value, 1,500,000 shares authorized; 109,667,015 and 96,478,900 shares issued in 2004 and 2003; 109,635,714 and
96,447,599 shares outstanding in 2004 and 2003, respectively |  |               | 1,097    |   |                   |   | 965      |  
|Additional paid-in capital                                                                                                                                                                         |  |               | 394,890  |   |                   |   | 330,890  |  
|Accumulated deficit                                                                                                                                                                                |  |               | (666,701 | ) |                   |   | (572,465 | )
|Deferred compensation                                                                                                                                                                              |  |               | (853     | ) |                   |   | (1,438   | )
|Treasury stock, at cost, 31,301 shares in 2004 and 2003, respectively                                                                                                                              |  |               | (16      | ) |                   |   | (16      | )
|Accumulated other comprehensive loss:                                                                                                                                                              |  |               |          |   |                   |   |          |  
|Cumulative foreign currency translation adjustment                                                                                                                                                 |  |               | (1,799   | ) |                   |   | (2,197   | )
|                                                                                                                                                                                                   |  |               |          |   |                   |   |          |  
|TOTAL STOCKHOLDERS EQUITY / (DEFICIT)                                                                                                                                                             |  |               | (16,341  | ) |                   |   | (927     | )
|                                                                                                                                                                                                   |  |               |          |   |                   |   |          |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY / (DEFICIT)                                                                                                                                             |  | $             | 469,893  |   |                   | $ | 124,623  |  
|                                                                                                                                                                                                   |  |               |          |   |                   |   |          |  



The accompanying notes are an integral
part of these condensed consolidated financial statements.



3



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##### Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                         |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  
|-------------------------------------------------------- |  | ----------------------------------- | ----------- | - | --------------------------------- | - | ---------- | ---- |  | - | ----------- | - |  | - | ---------- | -
|                                                         |  | For the Three Months Ended June 30, |             |   | For the Six Months Ended June 30, |  
|(in thousands, except share and per share amounts)       |  | 2004                                |             |   | 2003                              |   |            | 2004 |  |   | 2003        |  
|TOTAL REVENUES(1)                                        |  | $                                   | 172,991     |   |                                   | $ | 60,350     |      |  | $ | 281,126     |   |  | $ | 115,551    |  
|                                                         |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  
|Data communications and operations expenses(2)           |  |                                     | 129,079     |   |                                   |   | 40,330     |      |  |   | 207,286     |   |  |   | 77,062     |  
|                                                         |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  
|GROSS MARGIN                                             |  |                                     | 43,912      |   |                                   |   | 20,020     |      |  |   | 73,840      |   |  |   | 38,489     |  
|                                                         |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  
|Sales, general, and administrative expenses(3)           |  |                                     | 50,402      |   |                                   |   | 22,028     |      |  |   | 82,917      |   |  |   | 44,565     |  
|Integration costs                                        |  |                                     | 17,165      |   |                                   |   |           |      |  |   | 22,071      |   |  |   |           |  
|Depreciation, amortization and accretion                 |  |                                     | 19,069      |   |                                   |   | 15,400     |      |  |   | 31,045      |   |  |   | 31,147     |  
|Restructuring charges                                    |  |                                     |            |   |                                   |   | 7,903      |      |  |   |            |   |  |   | 7,903      |  
|Non-cash equity-based compensation(4)                    |  |                                     | 3,943       |   |                                   |   | 2,667      |      |  |   | 10,781      |   |  |   | 5,324      |  
|                                                         |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  
|TOTAL OTHER OPERATING EXPENSES                           |  |                                     | 90,579      |   |                                   |   | 47,998     |      |  |   | 146,814     |   |  |   | 88,939     |  
|                                                         |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  
|LOSS FROM OPERATIONS                                     |  |                                     | (46,667     | ) |                                   |   | (27,978    | )    |  |   | (72,974     | ) |  |   | (50,450    | )
|NON-OPERATING EXPENSES:                                  |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  
|Net interest expense and other                           |  |                                     | (13,341     | ) |                                   |   | (2,145     | )    |  |   | (21,262     | ) |  |   | (4,123     | )
|                                                         |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  
|TOTAL NON-OPERATING EXPENSES                             |  |                                     | (13,341     | ) |                                   |   | (2,145     | )    |  |   | (21,262     | ) |  |   | (4,123     | )
|                                                         |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  
|NET LOSS                                                 |  |                                     | (60,008     | ) |                                   |   | (30,123    | )    |  |   | (94,236     | ) |  |   | (54,573    | )
|Accreted and deemed dividend on Series A Preferred Stock |  |                                     | (9,175      | ) |                                   |   | (8,210     | )    |  |   | (18,101     | ) |  |   | (16,190    | )
|                                                         |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  
|NET LOSS ATTRIBUTABLE TO COMMONSTOCKHOLDERS              |  | $                                   | (69,183     | ) |                                   | $ | (38,333    | )    |  | $ | (112,337    | ) |  | $ | (70,763    | )
|                                                         |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  
|BASIC AND DILUTED LOSS PER COMMON SHARE                  |  | $                                   | (0.63       | ) |                                   | $ | (0.41      | )    |  | $ | (1.06       | ) |  | $ | (0.75      | )
|                                                         |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING(5)            |  |                                     | 109,445,460 |   |                                   |   | 93,840,625 |      |  |   | 105,854,476 |   |  |   | 93,803,553 |  
|                                                         |  |                                     |             |   |                                   |   |            |      |  |   |             |   |  |   |            |  

---

|(1) | Includes $19.7 million and $39.7 million from affiliates as defined in Note 12 for the three
and six months ended June 30, 2004, respectively, and $20.9 million and $41.8 million from affiliates for the three and six months ended June 30, 2003, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes $0.1 million of non-cash equity-based compensation for the six months ended June 30,
2004, and $0.5 million and $1.0 million of non-cash equity-based compensation for the three and six months ended June 30, 2003, respectively, as well as exclusive of depreciation included below.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Excludes $3.9 million and $10.7 million of non-cash equity-based compensation for the three
and six months ended June 30, 2004, respectively, and $2.2 million and $4.3 million of non-cash equity-based compensation for the three and six months ended June 30, 2003, respectively, as well as exclusive of depreciation included below.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes $3.8 million and $10.3 million of non-cash equity-based compensation relating to the
vesting of certain Constellation Ventures performance warrants for the three and six months ended June 30, 2004, respectively, as discussed in Note 4.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | As the effects of including the incremental shares associated with options, warrants,
convertible Series A Preferred stock, and convertible Series B Preferred stock are anti-dilutive, they are not included in the weighted average common shares outstanding.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The accompanying notes are an integral part of these condensed consolidated financial statements.



4



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##### Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                     |  |                                   |          |   |      |   |         |  
|-------------------------------------------------------------------- |  | --------------------------------- | -------- | - | ---- | - | ------- | -
|                                                                     |  | For the Six Months Ended June 30, |         
|(in thousands)                                                       |  | 2004                              |          |   | 2003 |  
|OPERATING ACTIVITIES:                                                |  |                                   |          |   |      |   |         |  
|                                                                     |  |                                  
|Net loss                                                             |  | $                                 | (94,236  | ) |      | $ | (54,573 | )
|                                                                     |  |                                  
|Reconciliation of net loss to net cash used in operating activities: |  |                                   |          |   |      |   |         |  
|Accrued interest                                                     |  |                                   | 21,802   |   |      |   | 3,629   |  
|Depreciation, amortization, and accretion                            |  |                                   | 31,045   |   |      |   | 31,147  |  
|Restructuring charges                                                |  |                                   |         |   |      |   | 7,903   |  
|Non-cash equity-based compensation                                   |  |                                   | 10,781   |   |      |   | 5,324   |  
|Net changes in operating assets and liabilities, net of acquisition: |  |                                   |          |   |      |   |         |  
|Trade accounts receivable                                            |  |                                   | (10,749  | ) |      |   | 7,099   |  
|Prepaid expenses and other current assets                            |  |                                   | 1,180    |   |      |   | (610    | )
|Other non-current assets                                             |  |                                   | 243      |   |      |   | 911     |  
|Accounts payable                                                     |  |                                   | 10,055   |   |      |   | (2,710  | )
|Other accrued liabilities                                            |  |                                   | 6,597    |   |      |   | (861    | )
|                                                                     |  |                                   |          |   |      |   |         |  
|Net cash used in operating activities                                |  |                                   | (23,282  | ) |      |   | (2,741  | )
|                                                                     |  |                                   |          |   |      |   |         |  
|INVESTING ACTIVITIES:                                                |  |                                   |          |   |      |   |         |  
|Capital expenditures                                                 |  |                                   | (14,921  | ) |      |   | (8,813  | )
|Proceeds from sale of acquired assets                                |  |                                   | 2,078    |   |      |   |        |  
|Acquisition, net of cash received                                    |  |                                   | (117,136 | ) |      |   |        |  
|                                                                     |  |                                   |          |   |      |   |         |  
|Net cash used in investing activities                                |  |                                   | (129,979 | ) |      |   | (8,813  | )
|                                                                     |  |                                   |          |   |      |   |         |  
|FINANCING ACTIVITIES:                                                |  |                                   |          |   |      |   |         |  
|Payments under capital lease obligations                             |  |                                   | (1,838   | ) |      |   | (1,297  | )
|Issuance of subordinated debt and associated warrants                |  |                                   | 200,000  |   |      |   |        |  
|Deferred subordinated debt issuance costs                            |  |                                   | (625     | ) |      |   |        |  
|Other                                                                |  |                                   | 2,779    |   |      |   | 641     |  
|                                                                     |  |                                   |          |   |      |   |         |  
|Net cash provided by / (used in) financing activities                |  |                                   | 200,316  |   |      |   | (656    | )
|                                                                     |  |                                   |          |   |      |   |         |  
|Effect of exchange rate changes on cash and cash equivalents         |  |                                   | 71       |   |      |   | (264    | )
|                                                                     |  |                                   |          |   |      |   |         |  
|NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS               |  |                                   | 47,126   |   |      |   | (12,474 | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                       |  |                                   | 28,173   |   |      |   | 32,159  |  
|                                                                     |  |                                   |          |   |      |   |         |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                             |  | $                                 | 75,299   |   |      | $ | 19,685  |  
|                                                                     |  |                                   |          |   |      |   |         |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                   |  |                                   |          |   |      |   |         |  
|Cash paid for interest                                               |  | $                                 | 180      |   |      | $ | 223     |  
|NON-CASH INVESTING AND FINANCING ACTIVITIES:                         |  |                                   |          |   |      |   |         |  
|Accrual of WAM!NET earn-out (Note 6)                                 |  | $                                 | 4,400    |   |      | $ |        |  
|Assets and obligations acquired under capital leases (Note 2)        |  |                                   | 52,000   |   |      |   |        |  



The accompanying notes are an integral
part of these condensed consolidated financial statements.



5



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##### Table of Contents

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY / (DEFICIT)



|                                                                              |  |                                   |         |   |                                    |   |             |  |                          |       |  |                    |         |   |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   |         |  
|----------------------------------------------------------------------------- |  | --------------------------------- | ------- | - | ---------------------------------- | - | ----------- |  | ------------------------ | ----- |  | ------------------ | ------- | - | -------------------- | - | -------- | ------------- |  | - | ------------------------------------------ | - |  | ----- | --- | - |  | - | ------ | - |  | - | ------- | -
|(dollars inthousands)                                                         |  | CONVERTIBLESERIES APREFERREDSTOCK |         |   | CONVERTIBLESERIES B PREFERREDSTOCK |   | COMMONSTOCK |  | ADDITIONALPAID-INCAPITAL |       |  | ACCUMULATEDDEFICIT |         |   | DEFERREDCOMPENSATION |   |          | TREASURYSTOCK |  |   | ACCUMULATEDOTHERCOMPREHENSIVEINCOME/(LOSS) |   |  | TOTAL |    
|Balance at December 31, 2003                                                  |  | $                                 | 243,334 |   |                                    | $ |            |  | $                        | 965   |  | $                  | 330,890 |   |                      | $ | (572,465 | )             |  | $ | (1,438                                     | ) |  | $     | (16 | ) |  | $ | (2,197 | ) |  | $ | (927    | )
|Net loss                                                                      |  |                                   |         |   |                                    |   |             |  |                          |       |  |                    |         |   |                      |   | (94,236  | )             |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   | (94,236 | )
|Foreign currency translation adjustments                                      |  |                                   |         |   |                                    |   |             |  |                          |       |  |                    |         |   |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   | 398    |   |  |   | 398     |  
|                                                                              |  |                                   |         |   |                                    |   |             |  |                          |       |  |                    |         |   |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   |         |  
|Comprehensive loss                                                            |  |                                   |         |   |                                    |   |             |  |                          |       |  |                    |         |   |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   | (93,838 | )
|Deemed dividends on Series A Preferred Stock                                  |  |                                   | 18,101  |   |                                    |   |             |  |                          |       |  |                    | (18,101 | ) |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   |        |  
|Beneficial conversion feature of deemed dividends on Series A Preferred Stock |  |                                   | (3,765  | ) |                                    |   |             |  |                          |       |  |                    | 3,765   |   |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   |        |  
|Conversion of Series A Preferred Stock                                        |  |                                   | (695    | ) |                                    |   |             |  |                          | 9     |  |                    | 686     |   |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   |        |  
|Issuance of Series B Preferred Stock                                          |  |                                   |         |   |                                    |   | 66          |  |                          |       |  |                    | 65,806  |   |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   | 65,872  |  
|Vesting of performance warrants                                               |  |                                   |         |   |                                    |   |             |  |                          |       |  |                    | 10,338  |   |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   | 10,338  |  
|Common Stock warrant exercises                                                |  |                                   |         |   |                                    |   |             |  |                          | 95    |  |                    | (95     | ) |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   |        |  
|Issuance of Common Stock upon exercise of stock options                       |  |                                   |         |   |                                    |   |             |  |                          | 28    |  |                    | 1,744   |   |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   | 1,772   |  
|Recognition of deferred compensation costs                                    |  |                                   |         |   |                                    |   |             |  |                          |       |  |                    | (143    | ) |                      |   |          |               |  |   | 585                                        |   |  |       |     |   |  |   |        |   |  |   | 442     |  
|                                                                              |  |                                   |         |   |                                    |   |             |  |                          |       |  |                    |         |   |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   |         |  
|Balance at June 30, 2004                                                      |  | $                                 | 256,975 |   |                                    | $ | 66          |  | $                        | 1,097 |  | $                  | 394,890 |   |                      | $ | (666,701 | )             |  | $ | (853                                       | ) |  | $     | (16 | ) |  | $ | (1,799 | ) |  | $ | (16,341 | )
|                                                                              |  |                                   |         |   |                                    |   |             |  |                          |       |  |                    |         |   |                      |   |          |               |  |   |                                            |   |  |       |     |   |  |   |        |   |  |   |         |  



See the following page for share
information.



The accompanying notes are an integral part of these condensed
consolidated financial statements.



6



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##### Table of Contents

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY / (DEFICIT)



|                                                        |  |                                     |   |  |                                      |  |              |  |               
|------------------------------------------------------- |  | ----------------------------------- | - |  | ------------------------------------ |  | ------------ |  | --------------
|                                                        |  | NUMBER OF SHARES                   
|                                                        |  | CONVERTIBLE SERIES A PREFERREDSTOCK |   |  | CONVERTIBLE SERIES B PREFERRED STOCK |  | COMMON STOCK |  | TREASURY STOCK
|Balance at December 31, 2003                            |  | 203,070                             |   |  |                                     |  | 96,478,900   |  | 31,301        
|Conversion of Series A Preferred Stock                  |  | (580                                | ) |  |                                      |  | 927,594      |  |               
|Issuance of Series B Preferred Stock                    |  |                                     |   |  | 6,552,886                            |  |              |  |               
|Common Stock warrant exercises                          |  |                                     |   |  |                                      |  | 9,547,143    |  |               
|Issuance of Common Stock upon exercise of stock options |  |                                     |   |  |                                      |  | 2,713,378    |  |               
|                                                        |  |                                     |   |  |                                      |  |              |  |               
|Balance at June 30, 2004                                |  | 202,490                             |   |  | 6,552,886                            |  | 109,667,015  |  | 31,301        
|                                                        |  |                                     |   |  |                                      |  |              |  |               



The accompanying notes are an integral
part of these condensed consolidated financial statements.



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##### Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(tabular dollars in thousands, except per share amounts)

(unaudited)



NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Basis of Presentation



These unaudited condensed consolidated financial statements have been prepared under the rules and regulations of the Securities and Exchange Commission on a basis substantially consistent with the audited
consolidated financial statements of SAVVIS Communications Corporation and its subsidiaries (collectively, SAVVIS or the Company) as of and for the year ended December 31, 2003 included in the Companys Annual Report on
Form 10-K (the Annual Report) as filed with the Securities and Exchange Commission. All intercompany balances and transactions have been eliminated in consolidation. These financial statements should be read in conjunction with the
audited consolidated financial statements and the related notes to the consolidated financial statements of the Company included in the Annual Report. In the opinion of management, the accompanying condensed consolidated financial statements contain
all adjustments (consisting of normal, recurring adjustments), which management considers necessary to present fairly the condensed consolidated financial position of the Company at June 30, 2004, the results of its operations for the three and six
month periods ended June 30, 2004 and 2003 and cash flows for the six month periods ended June 30, 2004 and 2003. The results of operations for the three and six month periods ended June 30, 2004 may not be indicative of the results expected for any
succeeding quarter or for the entire year ending December 31, 2004.



On March
5, 2004, the Company through a wholly owned subsidiary secured all regulatory approvals and closed its acquisition of the assets of Cable & Wireless USA, Inc. and Cable & Wireless Internet Services, Inc. together with the assets of certain
of their affiliates (Cable & Wireless America or CWA). The results of CWA are included in the condensed consolidated financial statements since the date of acquisition.



Cash and Cash Equivalents



The Company classifies cash on hand and deposits in banks, including commercial paper, money
market accounts and other investments with an original maturity of three months or less, that the Company may hold from time to time, as cash and cash equivalents.



Restricted Cash



Restricted cash consists of amounts supporting outstanding letters of credit, principally related to office space.



Property and Equipment



Communications and data center equipment, office equipment and other equipment is recorded at cost and depreciated using the straight-line
method over estimated useful lives of five to fifteen years. Facilities and leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the related lease which is seven to fifteen years



Other Non-Current Assets



Other non-current assets consist primarily of deferred financing costs, the unamortized cost
of naming rights to a sports arena in St. Louis, Missouri, facility rent and other deposits, and a note receivable. The components of this financial statement line item are in Note 7.



Intangible Assets



The Company accounts for the commercial customer contracts acquired in the WAM!NET transaction in accordance with Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (SFAS 142). The commercial customer contracts acquired were valued based on their estimated fair value relative to the estimated fair value of the other assets received, including the
incremental direct costs incurred in effecting the transaction.



Based on our
evaluation of the useful life of the existing customer contracts, probability of renewals and projected cash flows from these customers, the assets are being amortized over a 3 year life. SFAS 142 requires management to evaluate the remaining useful
life of the customer contracts each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the customer contracts remaining useful life changes, the
remaining carrying amount is amortized prospectively over that revised remaining useful life.



The intangible assets acquired in the CWA transaction were valued by the Company in accordance with Statement of Financial Accounting Standards No. 141 Business Combinations (SFAS 141).
Identifiable intangible assets acquired included: trademarks, patents, customer relationships, software and peering agreements. Useful lives of these specifically identified intangible assets are: indefinite for trademarks; 13 years for patents; 4
years for customer relationships; 5 years for software and 7 years for peering agreements. Details of the components of intangible assets as of the balance sheet date are in Note 6.



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##### Table of Contents

Fair Value of Financial Instruments



The carrying values of cash and cash equivalents, trade accounts receivable, restricted cash, accounts payable and accrued liabilities,
long-term debt, and capital lease obligations approximate their fair values.



Asset Retirement Obligations



The Company records any
identified asset retirement obligations and the associated asset retirement cost in accordance with Statement of Financial Accounting Standards No. 143 Accounting for Asset Retirement Obligations (SFAS 143). The value of the
obligation is assessed as the present value of the expected future payments to retire the assets. The Companys asset retirement obligations relate primarily to costs to remove leasehold improvements and return the leased space to its original
condition. Only cash flows related to legal obligations as defined in SFAS 143 are recognized. The associated cost of the asset retirement obligation are capitalized and depreciated over their appropriate useful lives as further discussed in Note
10.



Revenue Recognition



Revenues consist primarily of Managed IP VPN, Hosting, Digital Content Management, and Other
Network Services, which are recognized when earned over the term of the contract or as services are delivered. Installation fee revenue and the associated installation costs are deferred in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 104, Revenue Recognition (SAB 104). Such deferred revenue and costs are recognized into revenue and data communications and operations costs in the Condensed Consolidated Statements of Operations on a
straight-line basis over periods of up to 21 months, the estimated average life of a customer contract. For all periods, any services billed and payments received in advance of providing services are deferred until the period such services are
earned. Revenues for estimated credits to be issued are recorded as a reduction of revenue based on historical credits issued and known disputes.



Trade Receivables



The Company classifies amounts owed to the Company and due within twelve months, arising from the sale of goods or services in the normal course of business as trade receivables.



Allowance for Doubtful Accounts



The Company continuously monitors collections from its customers and maintains a provision
for estimated credit losses based upon historical experience and specific customer information, generally not requiring customer deposits or collateral.



Data Communication and Operations Expenses



In the ordinary course of business, invoices from communications service providers will exceed the services the Company has actually taken from them. The Companys
practice is to identify these variances and engage in discussions with the vendors to resolve the differences. Accruals are maintained for the best estimate of the difference between what was previously paid to the vendor and the amount that will
ultimately be paid to them. Variations in the Companys estimate and ultimate settlement of vendor billings may have a material impact on the Companys results of operations. Other operations expenses include rental costs, utilities, other
operating costs for hosting spacing, as well as salaries and related benefits for engineering, service delivery/provisioning, customer service and operations personnel. Indefeasible Rights of Use (IRUs) maintenance and operations costs
are also reflected in this category.



Depreciation, Amortization, and
Accretion



Depreciation and amortization expense consists primarily of the
depreciation and amortization of communications equipment, capital leases, and intangibles. Generally, depreciation and amortization is calculated using the straight-line method over the useful life of the associated asset, which ranges from three
to fifteen years. Subsequent to the CWA acquisition, accretion expenses related to aging of the discounted present value of various liabilities including adjustments for contracts and capital leases are included in this line item. Consistent with
historical presentation, the amortization of intangibles and depreciation of long-lived assets are reported in this line item. The CWA acquisition significantly increased the depreciable asset and intangible base as much of the value was assigned to
IRUs of network capacity, communications equipment, and leasehold improvements.



Integration Costs



Integration costs represents the
incremental costs to the combined organization of the CWA acquisition, including rationalization of facilities, retention bonuses, integration consulting by third parties and specific costs of the CWA asset purchase agreement including cure costs
and contract rejection penalties. These costs provide current or future benefit to the combined company. These costs are direct incremental costs incurred to obtain the synergies of the combined companies and are not expected to continue once the
Company has completed its integration plan.



Employee Stock Options



As permitted under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123), the Company accounts for employee stock options in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25). Under APB 25, compensation expense is recognized based on the intrinsic value of the equity instrument awarded as determined at the measurement date. Compensation expense was recognized related to option grants accounted for in
accordance with APB 25 in the amounts of $0.2 million and $0.4 million during the three and six months ended June 30, 2004, respectively, and $2.7 million and $5.3 million during the three and six months ended June 30, 2003, respectively.



9



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##### Table of Contents

Under Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure (SFAS 148), the Company is required to provide expanded disclosures concerning stock-based compensation. New accounting standards may be promulgated which would require the Company to account for employee
stock options in accordance with SFAS 123 which could have a material impact on the results of operations. Pro forma information regarding net income has been determined as if the Company had accounted for its stock options granted to employees and
non-employee members of its Board of Directors under the fair value method of the statement. The fair value of options was estimated at the date of grant. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to
expense over the options vesting periods.



Had compensation cost for the
Companys stock options been determined consistent with the provisions of SFAS 123 based on the fair value at the grant date, the Companys pro forma net loss would have been as follows:



|                                                         |  |                                     |         |   |                                   |   |         |      |  |   |          |   |  |   |         |  
|-------------------------------------------------------- |  | ----------------------------------- | ------- | - | --------------------------------- | - | ------- | ---- |  | - | -------- | - |  | - | ------- | -
|                                                         |  | For the Three Months Ended June 30, |         |   | For the Six Months Ended June 30, |  
|                                                         |  | 2004                                |         |   | 2003                              |   |         | 2004 |  |   | 2003     |  
|Net loss attributable to common stockholders as reported |  | $                                   | (69,183 | ) |                                   | $ | (38,333 | )    |  | $ | (112,337 | ) |  | $ | (70,763 | )
|Adjustment to net loss for:                              |  |                                     |         |   |                                   |   |         |      |  |   |          |   |  |   |         |  
|Stock based compensation expense as reported(1)          |  |                                     | 159     |   |                                   |   | 2,667   |      |  |   | 443      |   |  |   | 5,324   |  
|Pro forma stock based compensation                       |  |                                     | (721    | ) |                                   |   | (4,406  | )    |  |   | (1,992   | ) |  |   | (7,589  | )
|                                                         |  |                                     |         |   |                                   |   |         |      |  |   |          |   |  |   |         |  
|Pro forma net loss                                       |  | $                                   | (69,745 | ) |                                   | $ | (40,072 | )    |  | $ | (113,886 | ) |  | $ | (73,028 | )
|Basic and diluted net loss per common share              |  |                                     |         |   |                                   |   |         |      |  |   |          |   |  |   |         |  
|As reported                                              |  | $                                   | (0.63   | ) |                                   | $ | (0.41   | )    |  | $ | (1.06    | ) |  | $ | (0.75   | )
|Pro forma                                                |  | $                                   | (0.64   | ) |                                   | $ | (0.43   | )    |  | $ | (1.08    | ) |  | $ | (0.78   | )

---

|(1) | Excludes $3.8 million and $10.3 million of non-cash equity-based compensation relating to the issuance of performance warrants for the three and six months ended
June 30, 2004
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Income Taxes



Income taxes are accounted for under the asset and liability method, which provides for the
establishment of deferred tax assets and liabilities for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax purposes, applying the enacted statutory
tax rates in effect for the years in which differences are expected to reverse. Valuation allowances are established when it is more likely than not the deferred tax assets will not be realized. The Company has provided a full valuation allowance on
tax loss carry-forwards and other potential tax benefits according to Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes because the future realization of the tax benefit is uncertain. As a result, to the
extent that those benefits are realized in future periods, they will favorably impact net income. At June 30, 2004, the Company has approximately $470.0 million in United States net operating loss carry-forwards expiring between 2011 and 2023, of
which approximately $248.0 million is subject to the Section 382 limitation of the Internal Revenue Code.



Foreign Currency



Results of operations
of our foreign subsidiaries are translated from the designated functional currency to the United States dollar using average exchange rates during the period, while assets and liabilities are translated at the exchange rate in effect at the
reporting date. Resulting gains or losses from translating foreign currency financial statements are included in accumulated other comprehensive loss, a separate component of stockholders equity (deficit).



Loss Per Share



All loss per share amounts for all periods have been presented to conform to the provisions of Statement of Financial Accounting Standards
No. 128, Earnings Per Share. All stock options, warrants, convertible Series A Preferred, and convertible Series B Preferred shares outstanding have been excluded from the computations of diluted loss per share, as their effect would be
anti-dilutive. Accordingly, there is no reconciliation between basic and diluted loss per share for the periods presented.



Concentrations of Credit Risk



Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. The Company periodically reviews
the credit quality of its customers and generally does not require collateral.



Reclassifications



Certain amounts from prior periods have
been reclassified to conform to current period presentation.



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##### Table of Contents

Use of Estimates



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Estimates utilized in the Companys financial statements include accruals for
commercial disputes and billing errors by vendors, allowance for doubtful accounts and revenue credits, valuation of long-lived assets, and the valuation of intangible assets.



New Accounting Standards



In March 2004, the FASB issued an Exposure Draft, Share-Based Payment, as a proposed amendment to SFAS No. 123, Accounting for Stock-Based Compensation. The Exposure
Draft would require all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the income statement based on the fair value of such payments. The intrinsic value method of measuring
employee stock options under APB No. 25 would no longer be permitted. The FASB expects to issue a final standard late in 2004, which would become effective for our 2005 fiscal year. We have not yet quantified the impact of adopting the proposed
standard, or considered what, if any changes should be made to our stock-based compensation programs as a result.



NOTE 2CWA ACQUISITION



In January, 2004, the Company signed a definitive agreement to purchase substantially all of the assets of CWA. CWA, wholly-owned by Cable and Wireless PLC, provided a
range of network and hosting services, including internet access to a Tier 1 IP network, colocation, hosting and other value-added services such as managed security and content distribution. The transaction, following approval by the U.S. Bankruptcy
Court and other federal regulatory agencies, closed on March 5, 2004. The results of CWA are included in the condensed consolidated financial statements since the closing date of the acquisition.



The Company paid $117.1 million in cash in addition to the assumption of certain working
capital liabilities and leases for certain data centers and other facilities. In accordance with the CWA asset purchase agreement, the purchase price included the cost to fund CWAs working capital losses from January 28, 2004 through March 5,
2004, which totaled $14.1 million. Additionally, the Company entered into an agreement to transfer its rights at closing to acquire four of the CWA data centers and one office facility to Du Pont Fabros Interests LLC (Du Pont Fabros) for
$52.0 million paid directly to the CWA bankruptcy estate. The Company subsequently leased those facilities back from Du Pont Fabros for 15 years.



The acquisition has been accounted for as a purchase under SFAS 141. The preliminary allocation of the purchase price, pending final determination of certain acquired
balances, accepted contracts and final resolution in the U.S. Bankruptcy Court, is as follows.



|                                                |  |                        |         |   |             |   |        |                    |  |   |         |  
|----------------------------------------------- |  | ---------------------- | ------- | - | ----------- | - | ------ | ------------------ |  | - | ------- | -
|                                                |  | Preliminary Allocation |         |   | Adjustments |   |        | AdjustedAllocation | 
|Trade accounts receivable                       |  | $                      | 25,264  |   |             | $ | (2,502 | )                  |  | $ | 22,762  |  
|Other current assets                            |  |                        | 18,375  |   |             |   |       |                    |  |   | 18,375  |  
|Property and equipment                          |  |                        | 176,134 |   |             |   | 12,897 |                    |  |   | 189,031 |  
|Intangible assets                               |  |                        | 10,684  |   |             |   | 1,761  |                    |  |   | 12,445  |  
|Other non-current assets                        |  |                        | 11,449  |   |             |   | (7,920 | )                  |  |   | 3,529   |  
|Trade accounts payable and accrued compensation |  |                        | (24,019 | ) |             |   | 2,507  |                    |  |   | (21,512 | )
|Deferred revenue                                |  |                        |        |   |             |   | (4,820 | )                  |  |   | (4,820  | )
|Capital leases                                  |  |                        | (1,697  | ) |             |   |       |                    |  |   | (1,697  | )
|Other current liabilities                       |  |                        | (35,776 | ) |             |   | (3,091 | )                  |  |   | (38,867 | )
|Other long-term liabilities                     |  |                        | (63,278 | ) |             |   | 1,168  |                    |  |   | (62,110 | )
|                                                |  |                        |         |   |             |   |        |                    |  |   |         |  
|Acquisition Cost                                |  | $                      | 117,136 |   |             | $ |       |                    |  | $ | 117,136 |  
|                                                |  |                        |         |   |             |   |        |                    |  |   |         |  

---

Note: During the quarter the preliminary allocation
of the purchase price was impacted by the resolution of certain acquired balances, the forfeiture of a long-term lease deposit, write-off of certain prepaid maintenance, and the recognition of certain deferred revenue where legal performance
obligations exist.



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The estimated fair value of CWA assets acquired and liabilities assumed exceeded the acquisition cost. Therefore, in
accordance with SFAS 141, the excess value over the acquisition cost has been allocated as a pro rata reduction of the amounts that otherwise would have been assigned to the acquired assets, except with respect to the following:



| |  | Trade accounts receivablepresent values of amounts to be received less allowance for uncollectibility
| | - | ------------------------------------------------------------------------------------------------------



| |  | Other current assets, notes receivable and depositsfair value of amounts to be received
| | - | ----------------------------------------------------------------------------------------



| |  | Trade accounts payable, accrued compensation, other current liabilities and other long term liabilitiespresent value of amounts to be paid
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



The amount reflected in the preliminary purchase price allocation represents the
Companys current estimate of the liabilities relating to contractual agreements. Additionally, the liabilities assumed by the Company included adjustments to properly reflect the fair market value of long-term facility leases ($13.8 million);
the idle capacity related to a long-term IRU operations, maintenance and power contract ($26.7 million); the cost of leased facilities that will remain idle ($18.9 million); and the obligation to rehabilitate the long term lease spaces at varying
lease termination dates ($17.9 million). These liabilities are not a result of an exit plan, rather they relate solely to properly reflecting the fair value of assets and liabilities assumed.



The fair market value of the long-term facility leases was calculated considering the
difference between fair market rents and contractually required rents in addition to any inherited dark space that is not expected to be utilized. Contracts have been reflected at their fair market value of the service to be provided at
the time of the acquisition, in addition to any inherited purchase commitments for which the combined entity does not plan to utilize. The asset retirement obligation liability was calculated and recorded at the present value of expected future
payments required to restore the lease space to it original condition.



The
Company has $6.9 million of involuntary employee termination costs accrued in the opening balance sheet as a liability. The Company paid $1.5 million in severance payments during the six months ended June 30, 2004. The majority of the remaining
amount is expected to be paid in cash during the second half of 2004. These costs meet the definition of costs to exit an activity of an acquired company as defined in EITF 95-3, Recognition of Liabilities in Connection with a Purchase Business
Combination. Management began to assess and formulated a plan to terminate all redundant positions as of the acquisition date. In total, approximately 350 employees will be terminated in various departments. The details of the severance package have
been finalized and include the costs of severance, insurance, and outplacement services. All employee terminations are expected to be completed by March, 2005, with approximately 90% completed by September, 2004.



The following unaudited pro forma financial information presents the combined results of
operations of the Company and CWA, as if the acquisition had occurred as of the beginning of each fiscal period presented, giving effect to certain adjustments, including depreciation, accretion, interest, the issuance of Series B Convertible
Preferred Stock and the issuance of additional debt. The pro forma information for the three months ended June 30, 2004 is the same as the actual results for the same period, as the companies were combined during the entire period. The pro forma
financial information does not necessarily represent the results of operations that would have occurred had the Company and CWA been a single entity during such period. The Company does not believe that the pro forma information is representative of
the results of the combined business if it had been under the Companys management during that time. The results for three and six months ended June 30,2003 include approximately $72.4 million and $115.0 million, respectively for restructuring
charges.



|                                            |  |                                     |         |   |                                   |   |          |      |  |   |          |   |  |   |          |  
|------------------------------------------- |  | ----------------------------------- | ------- | - | --------------------------------- | - | -------- | ---- |  | - | -------- | - |  | - | -------- | -
|                                            |  | For the Three Months Ended June 30, |         |   | For the Six Months Ended June 30, |  
|Pro Forma                                   |  | 2004                                |         |   | 2003                              |   |          | 2004 |  |   | 2003     |  
|Revenue                                     |  | $                                   | 172,991 |   |                                   | $ | 189,940  |      |  | $ | 343,633  |   |  | $ | 380,009  |  
|Net loss(1)                                 |  |                                     | (60,008 | ) |                                   |   | (206,293 | )    |  |   | (119,826 | ) |  |   | (421,084 | )
|Basic and diluted net loss per common share |  | $                                   | (0.63   | ) |                                   | $ | (2.29    | )    |  | $ | (1.30    | ) |  | $ | (4.66    | )

---

|(1) | Net loss before extraordinary items is equal to net loss, in total and on a per share basis
and, therefore, is not disclosed separately.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



NOTE
3LONG-TERM DEBT



In the first quarter of 2004, the Company issued
$200.0 million of its Series A Subordinated Notes (Subordinated Notes). The proceeds were used to fund the CWA acquisition and to fund the on-going operational, working capital and capital expenditure requirements of the Company related
to the CWA acquisition. The debt issuance costs associated with the Subordinated Notes were $2.0 million and are classified as other non-current assets on the Condensed Consolidated Balance Sheet. These costs consist of fees paid to the purchasers
of the Subordinated Notes and are amortized to interest expense using the effective interest method until the



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maturity date of the Subordinated Notes. The Subordinated Notes accrue interest based on a 365 day year at a rate of
12.5% per annum until February 3, 2005 and 15% per annum thereafter, payable in kind semi-annually on June 30 and December 31. The Subordinated Notes contain an early redemption feature, a make whole premium and a change of control clause. Upon a
change of control the holders of the Subordinated Notes have the right to require the Company to redeem any or all of the Subordinated Notes at a cash price equal to 100% of the principal amount of the Subordinated Notes, plus all accrued and unpaid
interest as of the effective date of a change in control. The Subordinated Notes mature in a single installment on February 9, 2009.



The $200.0 million in proceeds were allocated between long-term debt and Series B Preferred (Original Issue Discount) based on their relative fair values. The fair value
of the Subordinated Notes is reflected as long-term debt and is increased for accrued interest on the $200.0 million proceeds as well as accreted interest on the Original Issue Discount. The fair value of the Series B Preferred was determined with
the assistance of an independent third party appraiser. The allocated fair value of the Series B Preferred is reflected in the accompanying financial statements as components of Stockholders Equity / (Deficit) in the amount of $65.9 million in
additional paid-in capital and $0.1 million, the par value, in Series B Preferred.



The following table summarizes the long-term debt activity for the six month period ended June 30, 2004.



|                                                       |  |   |         |  
|------------------------------------------------------ |  | - | ------- | -
|Proceeds from issuance of Subordinated Notes           |  | $ | 200,000 |  
|Adjustment for the valuation of the Series B Preferred |  |   | (65,872 | )
|                                                       |  |   |         |  
|Adjusted value of Subordinated Notes                   |  |   | 134,128 |  
|Accrued interest on $200,000 of Subordinated Notes     |  |   | 9,913   |  
|Accreted interest on Original Issue Discount           |  |   | 4,589   |  
|                                                       |  |   |         |  
|Balance of Subordinated Notes as of June 30, 2004      |  | $ | 148,630 |  
|                                                       |  |   |         |  



NOTE 4COMMON AND PREFERRED
STOCK TRANSACTIONS



Common Stock



An initial public offering of the Companys common stock was completed in February
2000. A total of 17.0 million shares were sold in the offering at $24 per share. The Company received net proceeds from this offering of approximately $333 million.



In 2004, the stockholders of SAVVIS approved an increase in the authorized common stock to 1,500,000.



Warrants Outstanding



In connection with the Companys recapitalization in 2002, five-year warrants were issued to Nortel Networks, Inc. and General Electric
Capital Corporation (GECC) to purchase approximately 6.4 million and 9.6 million shares, respectively, of the Companys common stock at $0.75 per share. In the first quarter of 2004, GECC exercised their warrant pursuant to a
cashless exercise and received approximately 7.0 million shares of the Companys common stock.



Additionally in 2002, the Company issued ten million five-year performance warrants to entities affiliated with Constellation Ventures (Constellation) to
acquire shares of common stock at $0.75 per share. The warrants vested in a total of three tranches as Constellation earned the right to exercise the warrants when it met certain performance criteria related to aiding the Company in obtaining new
business. During the fourth quarter of 2003, the first quarter of 2004, and the second quarter of 2004, respectively, Constellation met the performance criteria, causing each of the three tranches for a total of 10 million warrants to vest, which
resulted in non-cash equity-based compensation expense of $3.4 million, $6.6 million and $3.8 million, with respect to each of the three tranches. The non-cash equity-based compensation expense was calculated using the Black-Scholes model and
current market and company assumptions. In the first quarter of 2004, Constellation exercised their first tranche of vested warrants pursuant to a cashless exercise and received approximately 2.6 million shares of the Companys
common stock.



Series A Convertible Preferred Stock



In 2002 the Companys Board of Directors authorized 210,000 shares of Series A
Convertible Preferred Stock (Series A Preferred) and the Company issued 203,070 shares of Series A Preferred to entities and individuals affiliated with Welsh, Carson, Anderson & Stowe (Welsh Carson), Constellation,
Reuters, and other parties.



The Company incurred $3.0 million in offering
costs related to the issuance of the Series A Preferred, which was recorded as a reduction of the Series A Preferred Stock balance in Stockholders Equity (Deficit) in the Condensed Consolidated Balance Sheets.



13



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The Series A Preferred accrues dividends at the rate of 11.5% per annum on the outstanding accreted value thereof
(initially $1,000 per share). Dividends may not be paid in cash until after the eighth anniversary of the original issuance date. Accrued but unpaid dividends are added to the outstanding accreted value quarterly. As of June 30, 2004, accrued and
unpaid Series A Preferred dividends totaled $56.9 million. The Series A Preferred is convertible into such number of shares of our common stock equal to the outstanding accreted value divided by the conversion price of $0.75. The Series A Preferred
is entitled to vote on all matters (other than any voluntary repurchase of the Series A Preferred) submitted to the common stockholders on an as-if-converted basis and represented approximately 66% of the voting stock of the Company as of June 30,
2004. The conversion price of $0.75 was set a few days before the commitment date for the Series A Preferred issued in March 2002. On the commitment date, the closing price of the Companys common stock was $1.00. Accordingly, the Company
recorded a non-cash beneficial conversion feature of $52.7 million, representing the $0.25 per share intrinsic value of that feature, as a return to the Series A Preferred stockholders in March 2002. The Company also recorded a non-cash beneficial
conversion feature of $3.8 million related to accrued dividends for the six months ended June 30, 2004.



Below is a summary of Series A Preferred transactions as of June 30, 2004.



|                                                                                                              |  |                                  |             |       |         | 
|------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ----------- | ----- | ------- | 
|Issuance Date                                                                                                 |  | Series A Preferred Shares Issued |             | Value |        
|March 2002                                                                                                    |  | 158,070                          |             | $     | 158,070 | 
|June 2002                                                                                                     |  | 22,400                           |             |       | 22,400  | 
|September 2002                                                                                                |  | 22,600                           |             |       | 22,600  | 
|                                                                                                              |  |                                  |             |       |         | 
|                                                                                                              |  | 203,070                          |             |       | 203,070 | 
|Accrued dividends net of beneficial conversion feature                                                        |  |                                  | 57,616      |      
|                                                                                                              |  |                                  |             |       |         | 
|                                                                                                              |  |                                  | 260,686     |      
|Offering costs of Series A Preferred                                                                          |  |                                  | (3,016      | )    
|Conversion of Series A Preferred into common stock                                                            |  |                                  | (695        | )    
|                                                                                                              |  |                                  |             |       |         | 
|Balance of Series A Preferred as of June 30, 2004                                                             |  | $                                | 256,975     |      
|                                                                                                              |  |                                  |             |       |         | 
|Number of common shares Preferred is convertible into based on the conversion price of $0.75 at June 30,
2004 |  |                                  | 346,654,779 |      
|                                                                                                              |  |                                  |             |       |         | 



Series B Convertible Preferred
Stock



During the first quarter of 2004, the Companys Board of
Directors authorized 11.0 million shares of Series B Convertible Preferred Stock (Series B Preferred) at a $.01 par value. In connection with the issuance of the Companys Series A Subordinated Notes, the Company issued
warrants to purchase shares of the Series B Preferred to a group of investors that included existing stockholders related to Welsh Carson and Constellation. The warrants were exercised simultaneously upon issuance on a cashless basis
into 6.6 million shares of Series B Preferred and, as a result, the outstanding Series B Preferred is convertible, upon stockholder approval, into approximately 65.5 million shares of common stock. The common stock issuable upon conversion of the
Series B Preferred will not be registered under the Securities Act and, therefore, may not be transferred or sold except pursuant to an effective registration statement or pursuant to an exemption from the registration requirement of the Securities
Act. The Company granted Welsh Carson demand and piggy-back registration rights and the Company granted the other stockholders piggy-back registration rights only.



Each share of Series B Preferred is automatically convertible into ten shares of common stock upon the receipt of stockholder approval.
Holders of the Series B Preferred do not have voting rights but are entitled to dividends to the extent dividends are paid on the common stock. Upon a liquidation, dissolution or winding up of the Company, the Series B Preferred will rank senior to
the Companys common stock and junior to the Series A Preferred.



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The following table summarizes the number of diluted common shares on an as converted basis as of June 30, 2004.



|                                                         |  |                               
|-------------------------------------------------------- |  | ------------------------------
|                                                         |  | Number ofDiluted Common Shares
|Common shares outstanding                                |  | 109,635,714                   
|Series B Preferred Stock on an as converted basis        |  | 65,528,860                    
|                                                         |  |                               
|Total common shares outstanding on an as converted basis |  | 175,164,574                   
|Series A Preferred Stock as converted                    |  | 346,654,779                   
|Warrants and options outstanding (treasury stock method) |  | 28,562,076                    
|                                                         |  |                               
|Diluted common shares                                    |  | 550,381,429                   
|                                                         |  |                               



NOTE 5PROPERTY AND EQUIPMENT



Communications and data center equipment, office equipment and other
equipment is recorded at cost and depreciated using the straight-line method over estimated useful lives of five to fifteen years. Facilities and leasehold improvements are amortized over the shorter of their estimated useful lives or the term of
the related lease which is seven to fifteen years. The following table represents the Companys property and equipment by category.



|                                                |  |                         |  |               |          |   |                   |   |          |  
|----------------------------------------------- |  | ----------------------- |  | ------------- | -------- | - | ----------------- | - | -------- | -
|                                                |  | Useful Lives (in years) |  | June 30, 2004 |          |   | December 31, 2003 |  
|Communications and data center equipment        |  | 5 -15                   |  | $             | 370,273  |   |                   | $ | 278,436  |  
|Facilities and leaseholds                       |  | 7 -15                   |  |               | 148,826  |   |                   |   | 2,940    |  
|Office equipment and other                      |  | 5 - 7                   |  |               | 33,418   |   |                   |   | 14,582   |  
|                                                |  |                         |  |               |          |   |                   |   |          |  
|Total                                           |  |                         |  |               | 552,516  |   |                   |   | 295,958  |  
|Less: accumulated depreciation and amortization |  |                         |  |               | (262,744 | ) |                   |   | (236,601 | )
|                                                |  |                         |  |               |          |   |                   |   |          |  
|Total                                           |  |                         |  | $             | 289,772  |   |                   | $ | 59,357   |  
|                                                |  |                         |  |               |          |   |                   |   |          |  



Property and equipment were increased
during the second quarter of 2004 by $12.9 million to reflect changes to the preliminary purchase price allocation related to the CWA acquisition.



Communications equipment under capital leases was $96.5 million as of June 30, 2004 and December 31, 2003. Accumulated amortization for equipment under capital leases was
$63.7 million and $60.9 million as of June 30, 2004 and December 31, 2003, respectively. Facilities under capital leases were $52.0 million as of June 30, 2004. Accumulated amortization for facilities under capital leases was $1.1 million as of June
30, 2004.



Depreciation expense for the three and six months ended June 30,
2004 was $13.2 million and $22.2 million, respectively. Depreciation expense for the same periods in the prior year was $10.0 million and $20.2 million, respectively. Amortization expense for equipment and facilities under capital leases for the
three and six months ended June 30, 2004 was $2.2 million and $3.9 million, respectively. Amortization expense for equipment and facilities under capital leases for the three and six months ended June 30, 2003 was $5.4 million and
$10.9 million, respectively.



The Company prospectively changed its
estimate of legacy SAVVIS service life for communications equipment from 3 to 5 years as of April 1, 2004. The review of appropriate service life was computed in conjunction with the acquisition of CWA. CWA communications equipment assets were
initially assigned a 5-year service life. The impact of this change was not material to the Condensed Consolidated Statements of Operations included herein.



15



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##### Table of Contents

NOTE 6INTANGIBLES



The table below shows the detail of the intangible asset balances of June 30, 2004 and December 31, 2003.



|                               |  |                         |  |               |        |   |                   |   |       |  
|------------------------------ |  | ----------------------- |  | ------------- | ------ | - | ----------------- | - | ----- | -
|                               |  | Useful Lives (in years) |  | June 30, 2004 |        |   | December 31, 2003 |  
|Customer relationships         |  | 3-4                     |  | $             | 14,473 |   |                   | $ | 5,499 |  
|Other(1)                       |  | 5-13                    |  |               | 6,374  |   |                   |   |      |  
|                               |  |                         |  |               |        |   |                   |   |       |  
|Total                          |  |                         |  |               | 20,847 |   |                   |   | 5,499 |  
|Less: accumulated amortization |  |                         |  |               | (2,593 | ) |                   |   | (601  | )
|                               |  |                         |  |               |        |   |                   |   |       |  
|Total                          |  |                         |  | $             | 18,254 |   |                   | $ | 4,898 |  
|                               |  |                         |  |               |        |   |                   |   |       |  

---

|(1) | Includes $1.0 million of trademarks with indefinite lives.
|--- | ----------------------------------------------------------



Intangibles were increased during the second quarter of 2004 by $1.8 million to reflect
changes to the preliminary purchase price allocation related to the CWA acquisition.



The Company recorded $1.3 million and $2.0 million in amortization expense for intangibles for the three and six months ended June 30, 2004, respectively.



The Company valued the specifically identifiable intangible assets in accordance with SFAS 141 for the intangible assets acquired in the CWA
transaction. Identifiable intangible assets acquired included: trademarks, patents, customer relationships, software and peering agreements. Useful lives of these specifically identified intangible assets are: indefinite for trademarks; 13 years for
patents; 4 years for customer relationships; 5 years for software and 7 years for peering agreements. The fair value of the intangibles was determined with the assistance of an independent third party appraiser.



During the third quarter of 2003 the Company recorded an intangible asset in the amount of
$5.5 million for the commercial customer contracts and other fees associated with the WAM!NET asset purchase agreement. The Company accounts for the commercial customer contracts acquired in accordance with SFAS 142. The commercial customer
contracts acquired are valued in the accompanying Condensed Consolidated Balance Sheets as an asset purchase at an amount which reflects the allocation of the estimated purchase price based on their estimated fair value relative to the estimated
fair value of the other assets received, plus the incremental direct costs incurred in effecting the transaction.



The purchase price of the WAM!NET assets was adjusted during the first quarter of 2004 to reflect an achievement of certain performance measures by the acquired
customers. The adjustment of $4.4 million represented an increase in the expected earn-out payment to WAM!NET based on customer performance. Of this $4.4 million total adjustment, $2.9 was allocated to the intangible assets acquired with the
remainder being allocated to property and equipment.



SFAS 142 requires the
Company to evaluate the remaining useful life of its customer contracts each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the customer contracts
remaining useful life changes, the remaining carrying amount is amortized prospectively over that revised remaining useful life. Actual useful lives could differ from those estimated by the Company, which could have a material affect on our
operating results and financial position.



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##### Table of Contents

NOTE 7OTHER NON-CURRENT ASSETS



The following table summarizes the components of non-current assets as of June 30, 2004 and December 31, 2003. The significant increase from
December 31, 2003 is primarily a result of the CWA acquisition.



|                           |  |               |        |                   |   |      
|-------------------------- |  | ------------- | ------ | ----------------- | - | -----
|                           |  | June 30, 2004 |        | December 31, 2003
|Sports arena naming rights |  | $             | 2,552  |                   | $ | 3,742
|Deferred financing costs   |  |               | 5,305  |                   |   | 3,352
|Note receivable            |  |               | 2,188  |                   |   |     
|Rent and other deposits    |  |               | 1,547  |                   |   | 218  
|Other                      |  |               | 781    |                   |   | 586  
|                           |  |               |        |                   |   |      
|                           |  | $             | 12,373 |                   | $ | 7,898
|                           |  |               |        |                   |   |      



NOTE 8CAPITAL LEASE
OBLIGATIONS



In March 2002, the Company entered into a $56.5 million
amended and restated master lease agreement with GECC. The amended lease carries a 12% interest rate, which accrues through December 31, 2004, payable in cash thereafter. The amount of the amended lease is due on March 8, 2007. A portion of the
Companys assets serve as collateral under the amended lease. The amended lease calls for excess cash flow, as defined, to be used first for the payment of any accrued and unpaid interest and second for the prepayment of principal on the
capital leases. Furthermore, the amended lease contains covenants restricting, among other things the incurrence of debt, capital expenditures that can be made by the Company, and the payment of dividends. As of June 30, 2004, the Company was in
compliance with the covenants.



The Company entered into an agreement to
transfer its rights at closing to acquire four of the CWA data centers and one office facility to Du Pont Fabros for $52.0 million paid directly to the CWA bankruptcy estate by Du Pont Fabros. The Company subsequently leased those facilities from Du
Pont Fabros for approximately 15 years. Terms of the lease allow for no cash payments for the first nine months of the lease. The effective interest rate on the transaction is approximately 17.4% over the 15 years of the lease. After the initial
nine-month period, the Company will make monthly payments which represent a combination of rent and interest. The associated capital lease asset will be depreciated over the approximate remaining useful life. The capital lease asset was recorded at
its $52 million fair value as the present value of the minimum lease payments exceeded its fair value.



The balance of all capital lease obligations as of June 30, 2004 and December 31, 2003 are $116.3 million and $56.9 million, respectively.



Amortization of assets recorded under capital leases is disclosed in Note 5, Property and Equipment.



NOTE 9OPERATING LEASES



The Company leases communications and office equipment and office space under various
operating leases. The significant increase from December 31, 2003 primarily relates to the assumption of operating leases as a result of the CWA acquisition. Future minimum lease payments as of June 30, 2004 are as follows:



|           |  |   |        
|---------- |  | - | -------
|2004       |  | $ | 34,716 
|2005       |  |   | 74,474 
|2006       |  |   | 71,436 
|2007       |  |   | 69,205 
|2008       |  |   | 67,232 
|Thereafter |  |   | 378,405
|           |  |   |        
|Total      |  | $ | 695,468
|           |  |   |        



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NOTE 10OTHER ACCRUED LIABILITIES



The following table summarizes the components of current and non-current other accrued liabilities as of June 30, 2004 and December 31,
2003. The principal reason for the change since December 31, 2003 is the assumption of liabilities as a result of the CWA acquisition and the related purchase accounting adjustments.



|                                                         |  |              |        |                  |   |       
|-------------------------------------------------------- |  | ------------ | ------ | ---------------- | - | ------
|                                                         |  | June 30,2004 |        | December 31,2003
|Current other accrued liabilities:                       |  |              |        |                  |   |       
|Wages, employee benefits, and related taxes              |  | $            | 18,244 |                  | $ | 3,652 
|Deferred revenue                                         |  |              | 8,457  |                  |   | 3,700 
|Accrued rent                                             |  |              | 557    |                  |   |      
|Other taxes                                              |  |              | 6,509  |                  |   | 2,758 
|WAM!NET earn-out                                         |  |              | 9,000  |                  |   | 4,600 
|Employee termination costs                               |  |              | 5,397  |                  |   |      
|Acquired contractual obligations in excess of fair value |  |              | 14,856 |                  |   |      
|Customer deposits                                        |  |              | 3,201  |                  |   | 113   
|Integration accrual                                      |  |              | 6,510  |                  |   |      
|Accrued professional fees                                |  |              | 4,004  |                  |   | 752   
|Facility restructuring                                   |  |              | 1,030  |                  |   | 1,030 
|Other current liabilities                                |  |              | 7,493  |                  |   | 6,024 
|                                                         |  |              |        |                  |   |       
|Total current other accrued liabilities                  |  | $            | 85,258 |                  | $ | 22,629
|                                                         |  |              |        |                  |   |       
|Non-current other accrued liabilities:                   |  |              |        |                  |   |       
|Deferred revenue                                         |  | $            | 3,245  |                  | $ | 2,453 
|Deferred rent                                            |  |              | 5,021  |                  |   | 4,029 
|Other taxes                                              |  |              | 5,271  |                  |   | 5,585 
|Facility restructuring                                   |  |              | 5,917  |                  |   | 6,439 
|Acquired contractual obligations in excess of fair value |  |              | 37,516 |                  |   |      
|Asset retirement obligation                              |  |              | 18,907 |                  |   |      
|Other non-current liabilities                            |  |              | 117    |                  |   | 742   
|                                                         |  |              |        |                  |   |       
|Total non-current other accrued liabilities              |  | $            | 75,994 |                  | $ | 19,248
|                                                         |  |              |        |                  |   |       



NOTE 11ASSET RETIRMENT
OBLIGATIONS



The Company adopted Statement of Financial Accounting
Standard No. 143, Accounting for Asset Retirement Obligations on January 1, 2003 without material impact on the consolidated financial statements.



The CWA transaction included the recognition of an asset retirement obligation (ARO) related to the rehabilitation and removal of certain leasehold
improvements at the end of certain leases to return the property to its original condition. This $18.9 million liability is reflected as a non-current liability on the Companys balance sheet. The associated asset was recorded to the opening
balance sheet reflecting the preliminary purchase price allocated to the fair value of the ARO cost and will be depreciated over the useful life of the related asset which was approximately 7 years, using the straight-line method. There are no cash
flows related to this liability expected in the near term. The legal obligation relates to the end of the lease term in all cases. The weighted average life of the leases is approximately 7 years.



The following table provides a reconciliation of the ARO:



|                           |  |   |       
|-------------------------- |  | - | ------
|Balance at January 1, 2004 |  | $ |      
|CWA ARO acquired           |  |   | 17,992
|Accretion expense          |  |   | 915   
|                           |  |   |       
|Balance at June 30, 2004   |  | $ | 18,907
|                           |  |   |       



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##### Table of Contents

NOTE 12OTHER COMPREHENSIVE INCOME (LOSS)



Other comprehensive income (loss) is as follows.



|                                         |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|---------------------------------------- |  | --------------------------- | ------- | - | ------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                         |  | Three Months Ended June 30, |         |   | Six Months Ended June 30, |  
|                                         |  | 2004                        |         |   | 2003                      |   |         | 2004 |  |   | 2003    |  
|Net loss                                 |  | $                           | (60,008 | ) |                           | $ | (30,123 | )    |  | $ | (94,236 | ) |  | $ | (54,573 | )
|Other comprehensive income (loss):       |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Foreign currency translation adjustments |  |                             | 183     |   |                           |   | 288     |      |  |   | 398     |   |  |   | (275    | )
|                                         |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Comprehensive loss                       |  | $                           | (59,825 | ) |                           | $ | (29,835 | )    |  | $ | (93,838 | ) |  | $ | (54,848 | )
|                                         |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  



NOTE 13RELATED PARTY
TRANSACTIONS



On September 28, 2001 Reuters acquired a portion of the
assets of Bridge Information Systems (now known as BIS Administration, Inc., Bridge). In connection with the asset acquisition, Reuters entered into a network services agreement with the Company, pursuant to which the Company agreed to
provide continuing network services to the Bridge customers acquired by Reuters as well as Internet access, and colocation services for a period of five years. The network services agreement provides that SAVVIS network must perform in
accordance with specific quality of service standards. In the event SAVVIS does not meet the required quality of service levels, Reuters would be entitled to credits, and, in the event of a material breach of such quality of service levels, Reuters
would be entitled to terminate the network services agreement. The Company is not aware of any current material breaches. The Company has recognized revenue of $19.7 million and $39.7 million for the three and six months ended June 30, 2004,
respectively, and $20.9 million and $41.8 million for the three and six months ended June 30, 2003, respectively from Reuters under the network services agreement, as amended.



Reuters owned approximately 14% and 16% of our outstanding voting stock as of June 30, 2004 and December 31, 2003, respectively.



NOTE 14COMMITMENTS AND CONTINGENCIES



The Companys customer contracts generally span multiple periods, which result in the
Company entering into arrangements with various suppliers of communications services that require the Company to maintain minimum spending levels, some of which increase over time, to secure favorable pricing terms. The Companys remaining
aggregate minimum spending level allocated ratably over the contract terms are approximately $14.2 million, $26.1 million, and $11.4 million in years 2004, 2005, and 2006, respectively. Should SAVVIS not meet the minimum spending level in any given
year, decreasing termination liabilities representing a percentage of the remaining contracted amount may immediately become due and payable. Furthermore, certain of these termination liabilities are subject to reduction should SAVVIS experience the
loss of a major customer or suffer a loss of revenues from a general economic downturn. Before considering the effects of any reductions for the business downturn provisions, if SAVVIS were to terminate all of these agreements as of June 30, 2004,
the maximum termination liability would amount to approximately $45.6 million.



The Company entered into a long-term communications services contract during the first quarter of 2004 to obtain power and maintenance services for our IRUs until 2021. As of June 30, 2004, this unconditional purchase obligation relative to
this long-term contract is approximately $18.0 million in year 1, $17.0 million in years 2 and 3, $13.8 million in years 4 and 5, and $85.0 million thereafter. This contract was accepted from CWA. The total purchase commitment is $133.8 million.



On August 1, 2003, the Company entered into an asset purchase agreement with
WAM!NET, a leading global provider of content management and delivery services, to acquire certain assets related to their commercial business operations including their commercial customer contracts and related customer premise and other equipment.
Under the terms of the agreement, the Company made an initial payment of $3.0 million for the acquired assets and has accrued an additional $9.0 million in current liabilities for the estimated earn-out, which will be paid in nine equal monthly
installments. The Company has the option to pay the earn-out in cash or a combination of cash and up to one-half of the total purchase price in SAVVIS common stock. The final payment amount will be determined based on revenue performance of the
acquired customers. The asset purchase agreement allows for a final audit, which is pending. The estimated purchase price has been allocated to property and equipment and customer contracts based on their relative fair values.



In August 2000, the Company entered into a 20-year agreement with Kiel Center Partners, L.P.
(KCP) pursuant to which it acquired the naming rights to an arena in St. Louis, Missouri. Total consideration for these rights amounted to approximately $71.8 million, including 750,000 shares of its common stock issued by the Company to
KCP, which had a fair market value of $5.8 million at



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issuance and $66.0 million of cash payments to be made from 2002 through 2020. The related expense will be recognized
over the term of the agreement. As of June 30, 2004 the Company had approximately $2.1 million of remaining deferred charges resulting from the issuance of common stock and $63.4 million of remaining cash payments owed under this agreement.



The Company is subject to various legal proceedings and other actions arising
in the normal course of its business. While the results of such proceedings and actions cannot be predicted, management believes, based on facts known to management today, that the ultimate outcome of such proceedings and actions will not have a
material adverse effect on the Companys financial position, results or operations or cash flows.



SAVVIS has employment agreements with key executive officers. These agreements contain provisions with regard to base salary, bonus, stock options, and other employee benefits. These agreements also provide for
severance benefits in the event of employment termination or a change in control of the Company.



NOTE 15INDUSTRY SEGMENT AND GEOGRAPHIC REPORTING



The Companys operations are organized into three geographic operating segments: Americas, Europe and Asia. Each geographic operating segment provides outsourced managed network, hosting, and application services
to businesses in the legal, media, retail, professional services, healthcare, manufacturing, and financial services industries. The Company evaluates the performance of its segments and allocates resources to them based on revenue and operating
income or loss and eliminates intersegment revenues in consolidation. Financial information for the Companys geographic segments for the three and six months ended June 30, 2004 and 2003 is presented below. For the three months ended June 30,
2004 and 2003 revenues earned in the United States represented approximately 84% and 59%, respectively, of the total revenues and for the six months ended June 30, 2004 and 2003 the comparable percentage of United States revenues to total revenues
was 81% and 58%, respectively.



|                                          |  |          |         |   |        |   |         |      |  |   |              |   |  |       |         |   |  |   |         |  
|----------------------------------------- |  | -------- | ------- | - | ------ | - | ------- | ---- |  | - | ------------ | - |  | ----- | ------- | - |  | - | ------- | -
|Three months ended June 30, 2004          |  | Americas |         |   | Europe |   |         | Asia |  |   | Eliminations |   |  | Total |        
|Revenues                                  |  | $        | 145,791 |   |        | $ | 14,991  |      |  | $ | 12,209       |   |  | $     |        |   |  | $ | 172,991 |  
|Depreciation, amortization, and accretion |  |          | 18,195  |   |        |   | 528     |      |  |   | 346          |   |  |       |        |   |  |   | 19,069  |  
|Integration costs                         |  |          | 17,165  |   |        |   |        |      |  |   |             |   |  |       |        |   |  |   | 17,165  |  
|Non-cash equity based compensation        |  |          | 3,943   |   |        |   |        |      |  |   |             |   |  |       |        |   |  |   | 3,943   |  
|Loss from operations                      |  |          | (29,498 | ) |        |   | (12,141 | )    |  |   | (5,028       | ) |  |       |        |   |  |   | (46,667 | )
|Net interest expense and other            |  |          | 13,341  |   |        |   |        |      |  |   |             |   |  |       |        |   |  |   | 13,341  |  
|Net loss                                  |  |          | (42,839 | ) |        |   | (12,141 | )    |  |   | (5,028       | ) |  |       |        |   |  |   | (60,008 | )
|Identifiable assets                       |  | $        | 494,128 |   |        | $ | 32,126  |      |  | $ | 5,040        |   |  | $     | (61,401 | ) |  | $ | 469,893 |  
|Three months ended June 30, 2003          |  | Americas |         |   | Europe |   |         | Asia |  |   | Eliminations |   |  | Total |        
|Revenues                                  |  | $        | 35,326  |   |        | $ | 11,364  |      |  | $ | 13,660       |   |  | $     |        |   |  | $ | 60,350  |  
|Depreciation, amortization, and accretion |  |          | 14,686  |   |        |   | 459     |      |  |   | 255          |   |  |       |        |   |  |   | 15,400  |  
|Restructuring charges                     |  |          | 7,903   |   |        |   |        |      |  |   |             |   |  |       |        |   |  |   | 7,903   |  
|Non-cash equity based compensation        |  |          | 2,667   |   |        |   |        |      |  |   |             |   |  |       |        |   |  |   | 2,667   |  
|Loss from operations                      |  |          | (18,391 | ) |        |   | (6,132  | )    |  |   | (3,455       | ) |  |       |        |   |  |   | (27,978 | )
|Net interest expense and other            |  |          | 2,145   |   |        |   |        |      |  |   |             |   |  |       |        |   |  |   | 2,145   |  
|Net loss                                  |  |          | (16,246 | ) |        |   | (6,132  | )    |  |   | (3,455       | ) |  |       |        |   |  |   | (30,123 | )
|Identifiable assets                       |  | $        | 188,030 |   |        | $ | 5,811   |      |  | $ | 3,871        |   |  | $     | (41,488 | ) |  | $ | 156,224 |  



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|                                   |  |          |         |   |        |   |         |      |  |   |              |   |  |       |         |   |  |   |         |  
|---------------------------------- |  | -------- | ------- | - | ------ | - | ------- | ---- |  | - | ------------ | - |  | ----- | ------- | - |  | - | ------- | -
|Six months ended June 30, 2004     |  | Americas |         |   | Europe |   |         | Asia |  |   | Eliminations |   |  | Total |        
|Revenues                           |  | $        | 227,322 |   |        | $ | 29,759  |      |  | $ | 24,045       |   |  | $     |        |   |  | $ | 281,126 |  
|Depreciation and amortization      |  |          | 29,240  |   |        |   | 1,119   |      |  |   | 686          |   |  |       |        |   |  |   | 31,045  |  
|Integration costs                  |  |          | 22,071  |   |        |   |        |      |  |   |             |   |  |       |        |   |  |   | 22,071  |  
|Non-cash equity based compensation |  |          | 10,781  |   |        |   |        |      |  |   |             |   |  |       |        |   |  |   | 10,781  |  
|Loss from operations               |  |          | (41,222 | ) |        |   | (22,273 | )    |  |   | (9,479       | ) |  |       |        |   |  |   | (72,974 | )
|Net interest expense and other     |  |          | 21,262  |   |        |   |        |      |  |   |             |   |  |       |        |   |  |   | 21,262  |  
|Net loss                           |  |          | (62,484 | ) |        |   | (22,273 | )    |  |   | (9,479       | ) |  |       |        |   |  |   | (94,236 | )
|Identifiable assets                |  | $        | 494,128 |   |        | $ | 32,126  |      |  | $ | 5,040        |   |  | $     | (61,401 | ) |  | $ | 469,893 |  
|Six months ended June 30, 2003     |  | Americas |         |   | Europe |   |         | Asia |  |   | Eliminations |   |  | Total |        
|Revenues                           |  | $        | 67,568  |   |        | $ | 21,777  |      |  | $ | 26,206       |   |  | $     |        |   |  | $ | 115,551 |  
|Depreciation and amortization      |  |          | 29,631  |   |        |   | 966     |      |  |   | 550          |   |  |       |        |   |  |   | 31,147  |  
|Restructuring charges              |  |          | 7,903   |   |        |   |        |      |  |   |             |   |  |       |        |   |  |   | 7,903   |  
|Non-cash equity based compensation |  |          | 5,324   |   |        |   |        |      |  |   |             |   |  |       |        |   |  |   | 5,324   |  
|Loss from operations               |  |          | (35,638 | ) |        |   | (11,309 | )    |  |   | (3,503       | ) |  |       |        |   |  |   | (50,450 | )
|Net interest expense and other     |  |          | 4,123   |   |        |   |        |      |  |   |             |   |  |       |        |   |  |   | 4,123   |  
|Net loss                           |  |          | (39,761 | ) |        |   | (11,309 | )    |  |   | (3,503       | ) |  |       |        |   |  |   | (54,573 | )
|Identifiable assets                |  | $        | 188,030 |   |        | $ | 5,811   |      |  | $ | 3,871        |   |  | $     | (41,488 | ) |  | $ | 156,224 |  



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##### Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.



YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH (1) OUR ACCOMPANYING UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO, AND (2) OUR
AUDITED CONSOLIDATED FINANCIAL STATEMENTS, NOTES THERETO AND MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2003 INCLUDED IN OUR ANNUAL REPORT ON FORM 10-K FOR
SUCH PERIOD AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE RESULTS SHOWN HEREIN ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE EXPECTED IN ANY FUTURE PERIODS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS (AS SUCH TERM IS
DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995) BASED ON CURRENT EXPECTATIONS WHICH INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS AND THE TIMING OF EVENTS COULD DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
A NUMBER OF FACTORS. FOR A DISCUSSION OF THE MATERIAL FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS, YOU SHOULD READ RISK FACTORS INCLUDED IN PART I, ITEM 1 OF OUR 2003 ANNUAL REPORT ON
FORM 10-K.



EXECUTIVE SUMMARY



SAVVIS Communications is a leading global IT Utility delivering secure, reliable, and
scalable hosting, digital content management and network services. SAVVIS strategic approach combines the use of virtualization technology, a utility services model, and automated software management and provisioning systems. This allows
customers to focus on their core business while SAVVIS ensures the quality of their IT infrastructure.



During the first quarter of 2004, SAVVIS acquired substantially all of the assets of Cable & Wireless USA, Inc. and Cable & Wireless Internet Services, Inc. together with the assets of certain of their
affiliates (Cable & Wireless America or CWA). CWA, wholly-owned by Cable and Wireless PLC (PLC), provided a range of network and hosting services, including internet access via a Tier 1 IP network, complex
hosting and other value-added services such as managed security and content distribution. We include the CWA financial results from the date the transaction closed, March 5, 2004. The CWA acquisition was financed through the issuance of $200 million
in Subordinated Notes and warrants to purchase Series B Preferred Stock. Additionally, SAVVIS entered into a capital lease agreement for certain data centers and another administrative facility with an aggregate fair value of $52 million and a term
of 15 years.



SAVVIS commenced business in 1996 and has grown its customer base
to approximately 6,400 as of June 30, 2004. During the first quarter of 2004 SAVVIS added depth and breadth to its products and services available to its customers worldwide, including the customers acquired through the CWA transaction, through the
addition of enhanced hosting products, a content delivery network and other network services.



PRODUCTS



The following briefly
describes SAVVIS service offerings by revenue category.



Managed IP
VPN



SAVVIS private IP VPN, called Intelligent IP
NetworkingSM, is a high performance network platform for a clients voice, video, and data applications. The
unique architecture of Intelligent IP allows SAVVIS to deliver network solutions that combine the reliability, performance and security of private networks with the scalability and flexibility of the Internet.



Hosting



SAVVIS hosting services and solutions are sold under the Intelligent HostingSMbrand name. Intelligent Hosting includes the full management of customer hardware, operating systems, and servers within a secure, reliable data center
environment. By selecting SAVVIS to outsource their applications infrastructure, clients eliminate most up-front capital expenditures for equipment, reduce the ongoing expense of supporting computing environments, and can focus IT resources on
building differentiating services and applications. The SAVVIS Command Center provides clients full visibility into their hosted environments, giving them greater control and oversight over their systems than is typically found with an in-house
solution. Through its acquisition of CWA assets, SAVVIS also offers complex hosting services which include colocation of customer owned hardware at SAVVIS data centers, network connectivity, and consulting services to implement and optimize the
customers installation.



SAVVIS manages more than 12,000 servers in 24
data centers and thousands of customer sites around the world. Traffic is distributed over SAVVIS highly rated Internet backbone or via a private network solution developed to meet the customers Intranet and/or Extranet requirements.
Through the Intelligent Hosting product set, SAVVIS can satisfy hosting needs with its tailored a la carte service offering, or provide pre-packaged Fast Pack solutions designed to support web, enterprise, and database
applications.



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Digital Content Management



WAM!NET Media Service In August, 2003 SAVVIS entered into an asset purchase agreement with WAM!NET, a leading global provider
of content management and delivery services. The integration of application services from WAM!NET and SAVVIS, along with SAVVIS global infrastructure, resulted in the creation of WAM!NET Media Services. This suite of services, designed for the
media industry, provide a shared-managed infrastructure tied to applications that streamline process and workflow around the creation, production and distribution of digital content. These services help companies to manage, share, store, and
distribute their digital content inside of their organization, and throughout their external supply chains, using a single access point.



With an open and scalable infrastructure, SAVVIS Media Services enable customers to plug into a collaborative workflow and connect to their global communities of interest
with ease. Media customers can gain considerable productivity, faster time-to-market, and cost-saving benefits while eliminating time-intensive and costly analog steps in their workflows, IT management and maintenance requirements, and technology
obsolescence that are generally associated with simple software utilities or proprietary networks.



Content Delivery Network (CDN) SAVVIS acquired one of the largest CDNs in the world as part of the CWA asset acquisition. The CDN, based on patented intellectual property, offers customers
reliable delivery of content, including media, software updates and banner ads without forcing them to commit to a heavily capitalized infrastructure. These data types are subject to occasional bouts of flash traffic and certain latency requirements
that make traditional delivery methods less effective and more costly. SAVVIS CDN puts frequently accessed content closer to the end user and avoids Internet backbone congestion and routing issues. The result is improved performance, increased
scalability and availability, and lower costs.



Other Network Services



SAVVIS offers three groups of network services: Internet, Managed Voice
and Private Line. These services can be purchased individually or in combination with other SAVVIS services. The network portfolio emphasizes high performance and availability, end-to-end management and monitoring, any-to-any connectivity, security,
and cost effectiveness.



Internet Access - SAVVIS
provides Internet Access services on a managed or unmanaged basis. The managed offering includes all equipment, installation and technical support to deliver the service and optional in-network services such as security. The SAVVIS Internet service
is designed for businesses that run mission critical applications over the Internet. SAVVIS is also able to include Internet service as part of a private IP VPN solution so that, for example, a company can use a private network to connect its
offices and the Internet to reach its customers or partners. The acquisition of CWAs Tier 1 OC-192 Internet backbone offers SAVVIS significant savings in delivering its Internet services.



Managed Voice - In the third quarter of 2003 SAVVIS, along with its
partner AccessLine, launched a managed voice services product family, which included services such as conferencing, find me/follow me access, 1-800, and automated voice response as well as integration with our managed VPN voice service.



Private Line Network Services -SAVVIS offers domestic and
international regulated private line network services, which provide customers with secure transmission paths of fixed amounts of permanently open, dedicated bandwidth between two or more locations in different cities. The circuits can carry any
form of digital transmission.



CRITICAL ACCOUNTING POLICIES



Revenue Recognition



Revenues consist primarily of Managed IP VPN, Hosting, Digital Content Management, and Other Network Services, which are recognized when
earned over the term of the related contract or as services are delivered. Installation fee revenue and the associated installation costs are deferred in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104,
Revenue Recognition (SAB 104). Such deferred revenue and costs are recognized into Revenue and Data Communications and Operations costs in the Condensed Consolidated Statements of Operations on a straight-line basis over
periods of up to 21 months, the estimated average life of a customer contract. For all periods, any services billed and payments received in advance of providing services are deferred until the period such services are earned. Revenues for estimated
credits to be issued are recorded as reduction in revenue based on historical credits issued and known disputes.



Intangible Assets



Management accounts for the identifiable intangible assets acquired in various transactions in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS 142). The intangible assets acquired are valued in the accompanying Consolidated Balance Sheets as an asset purchase at an amount which reflects the allocation of the estimated purchase price based on their estimated fair value
relative to the estimated fair value of the other assets received, plus the incremental direct costs incurred in effecting the transaction.



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Accounting for Income Taxes



We have provided a full valuation allowance on tax loss carry-forwards and other potential tax benefits according to Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. As a result, to the extent that we realize those benefits in future periods, they will favorably impact net income. We have recorded a valuation allowance for the full amount of
our net deferred tax assets because the future realization of the tax benefit is uncertain. At June 30, 2004, the Company has approximately $470.0 million in United States net operating loss carry-forwards expiring between 2011 and 2023, of which
approximately $248.0 million is subject to the Section 382 limitation of the Internal Revenue Code.



AGREEMENTS AND TRANSACTIONS



Cable
and Wireless Agreements



In January, 2004, the Company signed a definitive
agreement to purchase substantially all of the assets of CWA. CWA, wholly-owned by PLC, provides a range of network and hosting services, including internet access to a Tier 1 IP network, colocation, hosting and other value-added services such as
managed security and content distribution. The transaction was approved by the U.S. Bankruptcy Court and other regulatory agencies. The results of CWA are included in our results since the date of the acquisition on March 5, 2004.



The Company paid $117.1 million in cash in addition to the assumption of certain working
capital liabilities and leases for certain data centers and other facilities. In accordance with the CWA asset purchase agreement, the purchase price included the cost to fund CWAs working capital losses from January 28, 2004 through March 5,
2004, which totaled $14.1 million. Additionally, the Company entered an agreement to transfer its rights at closing to acquire four of the CWA data centers and one office facility to Du Pont Fabros Interests LLC (Du Pont Fabros) for
$52.0 million paid directly to the CWA bankruptcy estate. The Company subsequently leased those facilities back from Du Pont Fabros for 15 years.



In February, 2004, SAVVIS entered into a transition services agreement with PLC, to provide for the exchange of certain services between the parties over a twelve month
period from the acquisition date. The agreement defines the various services to be provided, the appropriate service levels and the associated pricing of those services for each party. The agreement provides for PLC to continue providing certain
support and access to licensed software, the settlement of accounts receivable, and customer migration procedures. The agreement requires SAVVIS to continue to allow PLCs use of the SAVVIS network during the transition period, until PLCs
customers are fully migrated to an alternative network.



Reuters Agreements



On September 28, 2001 Reuters acquired a portion of the assets of Bridge.
In connection with the asset acquisition, Reuters entered into a network services agreement with us, pursuant to which we agreed to provide continuing network services to the Bridge customers acquired by Reuters as well as Internet access, and
colocation services for a period of five years. The network services agreement provides that our network must perform in accordance with specific quality of service standards. In the event we do not meet the required quality of service levels,
Reuters would be entitled to credits, and, in the event of a material breach of such quality of service levels, Reuters would be entitled to terminate the network services agreement. We are not aware of any current material breaches. We have
recognized revenue of $19.7 million and $39.7 million for the three and six months ended June 30, 2004, respectively, and $20.9 million and $41.8 million for the three and six months ended June 30, 2003, respectively from Reuters under the network
services agreement, as amended. The existing Reuters minimum revenue obligation under the network services agreement is $61.3 million through 2006.



Reuters owned approximately 14% and 16% of our outstanding voting stock as of June 30, 2004 and December 31, 2003, respectively. During the first quarter of 2004, Reuters
notified the Company that they voluntarily suspended their right (under terms of their investment) to have an observer present at the Companys board of directors and audit committee meetings.



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WAM!NET Transaction



On August 1, 2003, we entered into an asset purchase agreement with WAM!NET, a leading global provider of content management and delivery services, to acquire certain
assets related to its commercial business operations including their commercial customer contracts and related customer premise and other equipment. Under the terms of the agreement we made an initial payment of $3.0 million for the acquired assets
and accrued an additional $9.0 million in current liabilities for the estimated earn-out which will be paid in nine equal monthly installments, upon final audit determination. The asset purchase agreement allows for a final audit, which is pending.
SAVVIS has the option to pay the earn-out in cash or a combination of cash and up to one-half of the total purchase price in SAVVIS common stock. The final payment amount will be determined based on revenue performance of the acquired customers. The
estimated purchase price has been allocated to property and equipment and customer contracts based on their relative fair values. Revenue from the customers acquired from WAM!NET from August 1, 2003 (purchase date) through June 30, 2004 was $22.7
million. Revenues from the customers acquired from WAM!NET which were recognized for the three and six month periods ending June 30, 2004 were $5.9 million and $12.3 million, respectively.



The purchase price of the assets was adjusted during the first quarter of 2004 to reflect an
achievement of certain performance measures by the acquired customers. The adjustment of $4.4 million represented an increase in the expected earn-out payment to WAM!NET from $4.6 million to $9.0 million based on customer performance.



Long-Term Debt, Preferred Stock, and Warrants Outstanding



Series A Subordinated Notes



In the first quarter of 2004, we issued $200.0 million of our Series A Subordinated Notes
(Subordinated Notes). The proceeds were used to fund the CWA acquisition and to fund the on-going operational, working capital and capital expenditure requirements related to the CWA acquired assets or caused by the CWA acquisition. The
debt issuance costs associated with the Subordinated Notes were $2.0 million. The Subordinated Notes accrue interest based on a 365 day year at a rate of 12.5% per annum until February 3, 2005 and 15% per annum thereafter, payable in kind
semi-annually on June 30 and December 31. The Subordinated Notes contain an early redemption feature, a make whole premium and a change of control clause. Upon a change of control the holders of the Subordinated Notes have the right to require us to
redeem any or all of the Subordinated Notes at a cash price equal to 100% of the principal amount of the Subordinated Notes, plus all accrued and unpaid interest as of the effective date of the change in control. The Subordinated Notes mature in a
single installment on February 9, 2009. The outstanding long-term debt balance as of June 30, 2004 was $148.6 million, net of $61.3 million in unamortized Original Issue Discount resulting from the issuance of Series B Convertible Preferred Stock as
discussed below.



Series A Convertible Preferred Stock



In 2002, we issued 203,070 shares of Series A Convertible Preferred Stock (Series A
Preferred) to entities and individuals affiliated with Welsh, Carson, Anderson & Stowe (Welsh Carson), Constellation Ventures (Constellation), Reuters, and other parties. The Series A Preferred accrues dividends at
the rate of 11.5% per annum on the outstanding accreted value thereof (initially $1,000 per share) through March 18, 2010. Thereafter, dividends will be payable in cash or in kind at our option. Accrued but unpaid dividends will be added to the
outstanding accreted value quarterly. The Series A Preferred is convertible into such number of shares of our common stock equal to the outstanding accreted value divided by the conversion price, $0.75. In connection with this transaction, we
granted the holders registration rights with respect to the shares of our common stock issuable upon conversion of the Series A Preferred, including demand registration rights and piggy back registration rights. Additionally, we incurred $3.0
million in offering costs related to the issuance of the 203,070 shares of Series A Preferred which was recorded as a reduction of the convertible Series A Preferred balance in Stockholders Equity (Deficit) in the Condensed Consolidated
Balance Sheets.



Series B Convertible Preferred Stock



During the first quarter of 2004, our Board of Directors authorized 11.0 million
shares of Series B Convertible Preferred Stock (Series B Preferred) at a $.01 par value. In connection with the issuance of our Subordinated Notes as discussed above, we issued warrants to purchase shares of the Series B Preferred to a
group of investors that also included existing stockholders related to Welsh Carson and Constellation. The warrants were exercised simultaneously upon issuance on a cashless basis into 6.6 million shares of Series B Preferred and, as a
result, the outstanding Series B Preferred is convertible, upon stockholder approval, into approximately 65.5 million shares of common stock. The common stock issuable upon conversion of the Series B Preferred will not be registered under the
Securities Act and, therefore, may not be transferred or sold except pursuant to an effective registration statement or pursuant to an exemption from the registration requirement of the Securities Act. We granted Welsh Carson demand and piggy-back
registration rights and we granted the other stockholders piggy-back registration rights only.



Warrants Outstanding



In connection
with our recapitalization in 2002, five-year warrants were issued to Nortel Networks, Inc. and GECC to purchase approximately 6.4 million and 9.6 million shares, respectively, of our common stock at $0.75 per share. In the first quarter of 2004,
GECC exercised their warrant pursuant to a cashless exercise and received approximately 7.0 million shares of our common stock.



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Additionally in 2002, we issued five-year performance warrants to entities affiliated with Constellation to acquire
shares of common stock at $0.75 per share. The warrants vested in a total of three tranches as Constellation earned the right to exercise the warrants when it met certain performance criteria related to aiding the Company in winning new business.
During the fourth quarter of 2003, the first quarter of 2004, and the second quarter of 2004, respectively, Constellation met the performance criteria under the warrants causing 10 million warrants to vest, which resulted in non-cash equity-based
compensation expense of $3.4 million and $6.6 million and $3.8 million, respectively. In the first quarter of 2004, Constellation exercised their first tranche of vested warrants pursuant to a cashless exercise and received approximately
2.6 million shares of our common stock.



STATEMENT OF OPERATIONS CAPTION
SUMMARY



Revenue. Our revenue is derived primarily from the sale of
Managed IP VPN, Hosting, Digital Content Management, and Other Network Services. Revenue from a related party, Reuters, was approximately 11% and 14% for the three and six months ended June 30, 2004, respectively, and 35% and 36% for the three and
six months ended June 30, 2003, respectively, of our total revenue. We expect our revenue from related parties to continue to decrease as a percentage of our total revenues as we expand our diversified customer base. Our diversified customer base
includes all customers, except Reuters and Telerate.



For some customers, we
charge an installation fee that typically equals one months revenue. Additionally, we charge a fixed or variable monthly fee depending on the services provided. Our customer contracts are typically for 12 to 36 months in length. Installation
fees are recognized as revenue over a period up to 21 months, the estimated average life of customer contracts.



Prices for telecommunication services, including the network-related services we offer, have decreased significantly over the past several years and we expect to continue
to see decreases for the foreseeable future. Lower prices charged to our customers are reflective of our lower costs incurred to provide the service.



Data communications and operations. Data communications and operations expenses include the cost of:



| |  | leasing local access lines to connect customers to our points of presence (PoPs);
| | - | -----------------------------------------------------------------------------------



| |  | leasing backbone circuits to interconnect our PoPs;
| | - | ---------------------------------------------------



| |  | IRU operations and maintenance;
| | - | -------------------------------



| |  | rental costs, utilities, and other operating costs for hosting space;
| | - | ---------------------------------------------------------------------



| |  | internet usage associated with CDN traffic;
| | - | -------------------------------------------



| |  | salaries and related benefits for engineering, service delivery / provisioning, customer service, consulting services personnel and operations personnel, who maintain our network,
monitor network performance, resolve service faults, and install new sites; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | other related repairs and maintenance items.
| | - | --------------------------------------------



Sales, general and administrative. These expenses include the cost of:



| |  | sales and marketing salaries and related benefits;
| | - | --------------------------------------------------



| |  | product management, pricing and support, salaries and related benefits;
| | - | -----------------------------------------------------------------------



| |  | sales commissions and referral payments;
| | - | ----------------------------------------



| |  | advertising, direct marketing and trade shows;
| | - | ----------------------------------------------



| |  | occupancy costs;
| | - | ----------------



| |  | executive, financial, legal, tax and administrative support personnel and related costs;
| | - | ----------------------------------------------------------------------------------------



| |  | professional services, including legal, accounting, tax and consulting services; and
| | - | ------------------------------------------------------------------------------------



| |  | bad debt expense.
| | - | -----------------



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Integration Costs.Integration costs represents the incremental costs to the combined organization of the
acquisition, including rationalization of facilities, retention bonus, integration consulting by third parties and specific costs pursuant to the CWA asset purchase agreement including cure costs and contract rejection penalty costs. These costs
provide current or future benefit to the combined company. These costs are direct incremental costs incurred to obtain the synergies of the combined companies and are not expected to continue once the Company has completed its integration plan.



Depreciation, amortization and accretion.Depreciation and amortization
expense consists primarily of the depreciation and amortization of communications equipment, capital leases, and intangibles. Generally, depreciation and amortization is calculated using the straight-line method over the useful life of the
associated asset. Subsequent to the CWA acquisition, accretion expenses related to the aging of the discounted present value of various liabilities including adjustments for contracts and capital leases are included in this line item. The CWA
acquisition significantly increased the depreciable asset and intangible asset base as much of the value was assigned to IRUs, communications equipment, and leasehold improvements.



Non-cash Equity-based Compensation.Non-cash equity-based compensation primarily represents compensation expense related to the
vesting of the performance warrants granted to Constellation as more fully described above under the Long-Term Debt, Preferred Stock, and Warrants Outstanding caption. A charge of $3.8 million was recorded in the second quarter of 2004
to reflect the third and final tranche of Constellation performance warrants being earned.



Interest expense. Interest expense is incurred relative to our Subordinated Notes and our capital lease obligations. Interest on our Subordinated Notes accrues interest on the $200 million of proceeds and
accrued unpaid interest until February 3, 2005 at 12.5% increasing to 15% in the remaining 4 years of the term. The unamortized Original Issue Discount of $61.3 million is being accreted over the term of the Subordinated Notes and reflected in
interest expense. Interest on our capital lease liability with GECC accrues at 12% and is compounded and paid in kind until cash interest payments commence in 2005. Interest on our capital lease liability with Du Pont Fabros accrues at approximately
17.4% and is compounded. Cash interest payments commence in the fourth quarter of 2004. Additionally, in the future we may pursue other financing arrangements including leases, which we expect to include an interest component.



RESULTS OF OPERATIONS



The historical financial information included in this Form 10-Q will not reflect our future results of operations, financial position and
cash flows.



THREE MONTHS ENDED JUNE 30, 2004 AS COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 2003



Executive Summary of Results of Operations



Our revenues increased 187% in 2004 as a result of the addition of the CWA business and
organic growth in our legacy service offerings, which outpaced declines in services provided to Reuters and Telerate. Gross margin increased $23.9 million or 119% over 2003 to $43.9 million or 25% of revenue. Net loss was $60.0 million, a change
from a net loss of $30.1 million in 2003 primarily driven by $17.2 million in integration expenses, an $11.2 million increase in interest expense, a $3.7 million increase in depreciation expense, and a $1.3 million increase in non-cash equity-based
compensation. $7.9 million of restructuring charges were reflected in the three months ended June 30, 2003 with no comparable charges in three months ended June 30, 2004.



Revenues



|                           |  |                                            |         |      |   |              |  |   |               |   |  |      |   
|-------------------------- |  | ------------------------------------------ | ------- | ---- | - | ------------ |  | - | ------------- | - |  | ---- | --
|                           |  | Three Months Ended June 30, (in thousands) |        
|                           |  | 2004                                       |         | 2003 |   | DollarChange |  |   | PercentChange |  
|Diversified Revenue:       |  |                                            |         |      |   |              |  |   |               |   |  |      |   
|Managed IP VPN             |  | $                                          | 20,803  |      | $ | 13,487       |  | $ | 7,316         |   |  | 54   | % 
|Hosting                    |  |                                            | 78,341  |      |   | 6,818        |  |   | 71,523        |   |  | 1049 | % 
|Other Network Services     |  |                                            | 30,592  |      |   | 4,585        |  |   | 26,007        |   |  | 567  | % 
|Digital Content Management |  |                                            | 12,415  |      |   |             |  |   | 12,415        |   |  | 100  | % 
|                           |  |                                            |         |      |   |              |  |   |               |   |  |      |   
|Total Diversified Revenue  |  |                                            | 142,151 |      |   | 24,890       |  |   | 117,261       |   |  | 471  | % 
|                           |  |                                            |         |      |   |              |  |   |               |   |  |      |   
|Reuters and Telerate       |  |                                            | 30,840  |      |   | 35,460       |  |   | (4,620        | ) |  | (13  | )%
|                           |  |                                            |         |      |   |              |  |   |               |   |  |      |   
|Total Revenue              |  | $                                          | 172,991 |      | $ | 60,350       |  | $ | 112,641       |   |  | 187  | % 
|                           |  |                                            |         |      |   |              |  |   |               |   |  |      |   



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##### Table of Contents

Revenue. Revenue was $173.0 million for the three months ended June 30, 2004, an increase of $112.6 million or
187%, from $60.4 million for the three months ended June 30, 2003. Diversified Managed IP VPN revenues increased $7.3 million or 54% to $20.8 million compared to $13.5 million for 2003 due to growth in new business. Diversified Hosting revenue
increased $71.5 million, or 1049%, to $78.3 million in 2004 from $6.8 million in 2003. The increase in Hosting revenue is primarily attributable to the CWA acquisition which added approximately $68.0 million for the second quarter of 2004. Digital
Content Management revenues include CWA CDN revenues and the revenues from WAM!NET customers. Digital Content Management revenues increased $12.4 million from the previous year, as neither revenue source existed in the second quarter of 2003. Other
Network Services includes the legacy SAVVIS and CWA Internet Access revenues and CWA private line services. Other Network Services revenue increased $26.0 million or 567% to $30.6 million in 2004, compared to $4.6 million for 2003. The CWA
acquisition contribution to this revenue category was approximately $25.0 million for the second quarter 2004.



Reuters and Telerate revenues were $30.8 million in the three months ended June 30, 2004, a decrease of $4.6 million or 13% from $35.5 million in the three months ended June 30, 2003. The decline represents the
continued reduction in those companys customer bases.



Data
Communications and Operations (exclusive of non-cash compensation, depreciation, amortization, and accretion).Data communications and operations expenses were $129.1 million for the three months ended June 30, 2004, an increase of $88.7
million, from $40.3 million in 2003. The increase in these costs was primarily related to the CWA acquisition, contributing $81.4 million, as well as increases in personnel, network expenses, facility rent, and facility maintenance. Furthermore,
gross margin was $43.9 million for the three months ended June 30, 2004, an increase of $23.9 million, from $20.0 million in 2003. As a percentage of revenue, gross margin decreased to 25% in the current quarter, compared to 33% reported in 2003.
The gross margin differences relate to the change in product mix as a result of the CWA acquisition and the existence of low margin product lines acquired. We expect gross margin as a percentage of revenue to improve during the remainder of 2004
from its current level as integration and rationalization activities progress.



Sales, General and Administrative (exclusive of non-cash compensation).Sales, general and administrative expenses were $50.4 million for the three months ended June 30, 2004, an increase of $28.4 million, or 129%, from $22.0 million
for 2003. This increase is primarily attributable to the CWA acquisition, contributing approximately $24.0 million, as well as increases in personnel, commissions, provision for bad debt, property taxes, and facility maintenance. Sales, general and
administrative expenses as a percentage of revenue were 29%, for 2004 as compared to 37% of revenue in 2003. We expect these costs as a percentage of revenue to decrease as we realize reductions in personnel expenses.



Integration Costs.Integration costs were $17.2 million during the three months ended
June 30, 2004. Included in these costs were $5.6 million for specific contractual costs enumerated in the CWA asset purchase agreement; $2.4 million for consulting services related to integration, $2.8 million for payroll costs and stay bonuses and
$6.1 million for PoP consolidation and network restructuring. We expect these costs to be in a range of $25-$30 million in total, for the year. We are focused on completing the integration of SAVVIS and CWA assets and operations and believe
annualized savings of approximately $100.0 million can be generated through this process. To that end, a number of initiatives have already been completed, including renegotiations with carriers and other vendors, closure of duplicate office space,
headcount reductions, and initial phases of PoP consolidation and rationalization of overlapping networks.



Depreciation, Amortization and Accretion. Depreciation, amortization, and accretion expense was $19.1 million and $15.4 million for the three months ended June 30, 2004 and June 30, 2003, respectively.
Subsequent to the CWA acquisition, accretion expenses relating to aging of the discounted present value of various liabilities including adjustments for long term fixed price contracts and capital leases are included in this line item. Consistent
with historical presentation, the amortization of intangibles and depreciation of long-lived assets are reflected here. The acquisition significantly increased the depreciable asset and intangible base as much of the value was assigned to IRUs,
communications equipment, and leasehold improvements. Management expects depreciation, amortization, and accretion to be approximately $19.0 million per quarter throughout the remainder of 2004, excluding the impact of additional capital
expenditures.



Non-cash Equity-based Compensation. Non-cash equity-based
compensation amounted to $3.9 million for the three months ended June 30, 2004 versus $2.7 million in 2003. The increase primarily represents non-cash compensation expense for 3.3 million performance warrants held by Constellation which were earned
during the period. All contingent warrants have been fully expensed as of June 30, 2004.



Net Interest Expense and Other. Net interest expense and other for the three months ended June 30, 2004 was $13.3 million, an increase of $11.2 million from 2003. The increase is a result of the new
Subordinated Notes issued during the first quarter and the capital lease interest on the Du Pont Fabros capital leases. Management expects interest expense will be approximately $14.5 million per quarter for the remainder of 2004, under our current
financing arrangements.



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##### Table of Contents

Net Loss. The net loss for the three months ended June 30, 2004 was $60.0 million, a $29.9 million increase from
the net loss for the three months ended June 30, 2003 of $30.1 million.Net loss was primarily impacted by a $17.2 million increase of integration expense, an $11.2 million increase in interest expense, a $3.7 million increase in
depreciation, amortization, and accretion expenses, and a $1.3 million increase in non-cash equity-based compensation, offset by a $7.9 million restructuring charge in 2003.



SIX MONTHS ENDED JUNE 30, 2004 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2003



Executive Summary of Results of Operations



Our revenues increased 143% in 2004 as growth in our diversified revenue service lines and
the addition of the CWA service lines far outpaced declines in services provided to Reuters and Telerate. Gross margin increased $35.4 million or 92% over 2003 to $73.8 million or 26% of revenue. Net loss was $94.2 million, a change from a net loss
of $54.6 million in 2003 primarily driven by $22.1 million integration expenses, a $17.6 million increase in interest expense, and a $5.5 million increase in non-cash equity-based compensation, offset by a $7.9 million restructuring charge in 2003.



Revenues



|                           |  |                           |         |      |   |              |  |   |               |   |  |      |   
|-------------------------- |  | ------------------------- | ------- | ---- | - | ------------ |  | - | ------------- | - |  | ---- | --
|                           |  | Six Months Ended June 30, |        
|                           |  | (in thousands)            |        
|                           |  | 2004                      |         | 2003 |   | DollarChange |  |   | PercentChange |  
|Diversified Revenue:       |  |                           |         |      |   |              |  |   |               |   |  |      |   
|Managed IP VPN             |  | $                         | 39,755  |      | $ | 25,155       |  | $ | 14,600        |   |  | 58   | % 
|Hosting                    |  |                           | 111,234 |      |   | 9,725        |  |   | 101,509       |   |  | 1044 | % 
|Other Network Services     |  |                           | 46,581  |      |   | 8,980        |  |   | 37,601        |   |  | 419  | % 
|Digital Content Management |  |                           | 20,974  |      |   |             |  |   | 20,974        |   |  | 100  | % 
|                           |  |                           |         |      |   |              |  |   |               |   |  |      |   
|Total Diversified Revenue  |  |                           | 218,544 |      |   | 43,860       |  |   | 174,684       |   |  | 398  | % 
|                           |  |                           |         |      |   |              |  |   |               |   |  |      |   
|Reuters and Telerate       |  |                           | 62,582  |      |   | 71,691       |  |   | (9,109        | ) |  | (13  | )%
|                           |  |                           |         |      |   |              |  |   |               |   |  |      |   
|Total Revenue              |  | $                         | 281,126 |      | $ | 115,551      |  | $ | 165,575       |   |  | 143  | % 
|                           |  |                           |         |      |   |              |  |   |               |   |  |      |   



Revenue. Revenue was $281.1
million for the six months ended June 30, 2004, an increase of $165.6 million or 143%, from $115.6 million for the six months ended June 30, 2003. Diversified Managed IP VPN revenues increased $14.6 million or 58% to $39.8 million compared to $25.2
million for 2003 due to growth in new business. Diversified Hosting revenue increased $101.5 million, or 1044%, to $111.2 million in 2004 from $9.7 million in 2003. The increase in Hosting revenue is mainly attributable to the CWA acquisition which
added approximately $90.0 million year-to-date as of June 30, 2004. Digital Content Management revenues include CWA CDN revenues and revenues from WAM!NET customers. Digital Content Management revenues increased $21.0 million from the previous year,
as neither revenue source existed in 2003. Other Network Services includes the legacy SAVVIS and CWA Internet Access revenues and CWA private line services. Other Network Services revenue increased $37.6 million or 419% to $46.6 million in 2004,
compared to $9.0 million for 2003. The CWA acquisition contribution to this revenue category was approximately $37.0 million for the six months ended June 30, 2004.



Reuters and Telerate revenues were $62.6 million in the six months ended June 30, 2004, a decrease of $9.1 million or 13% from $71.7 million
in the six months ended June 30, 2003. The decline represents the continued reduction in those companys customer bases.



Data Communications and Operations (exclusive of non-cash compensation, depreciation, amortization, and accretion).Data communications and operations expenses
were $207.3 million for the six months ended June 30, 2004, an increase of $130.2 million, from $77.1 million in 2003. The increase in these costs was primarily related to the CWA acquisition, contributing $113.7 million, as well as increases in
personnel, network expenses, facility rent, and facility maintenance. Gross margin was $73.8 million for the six months ended June 30, 2004, an increase of $35.4 million, from $38.5 million in 2003. As a percentage of revenue, gross margin was 26%
in 2004 as compared to 33% in 2003. The gross margin differences relate to the change in product mix as a result of the CWA acquisition and the existence of low margin product lines acquired. We expect gross margin as a percentage of revenue to
improve during the remainder of 2004 from its current level as integration and rationalization activities progress.



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Sales, General and Administrative (exclusive of non-cash compensation).Sales, general and administrative expenses
were $82.9 million for the six months ended June 30, 2004, an increase of $38.3 million, or 86%, from $44.6 million for 2003. This increase is primarily attributed to the CWA acquisition, contributing approximately $33.0 million, as well as
increases in personnel, commissions, provision for bad debt, property tax, and facility maintenance. Sales, general and administrative expenses as a percentage of revenue were 29%, for the six months ended June 30, 2004 and 39 % for 2003. We expect
these costs as a percentage of revenue to decrease as we realize reductions in personnel expenses.



Integration Costs.Integration costs were $22.1 million during the six months ended June 30, 2004. Included in these costs were $7.5 million for specific contractual costs enumerated in the CWA asset purchase
agreement; $3.3 million for consulting services related to integration, $4.5 million for payroll costs and stay bonuses, $1.5 million for PoP consolidation and network restructuring, and $4.6 million for rationalization and migration off of rejected
vendor circuits. We expect these costs to be in a range of $25-$30 million in total, for the year. We are focused on completing the integration of SAVVIS and CWA assets and operations and believe annualized savings of approximately $100.0 million
can be generated through this process. To that end, a number of initiatives have already been completed, including renegotiations with carriers and other vendors, closure of duplicate office space, headcount reductions, and initial phases of PoP
consolidation and rationalization of overlapping networks.



Depreciation, Amortization and Accretion. Depreciation, amortization, and accretion expense was $31.0 million and $31.1 million for the six months ended June 30, 2004 and June 30, 2003, respectively. Subsequent to the CWA
acquisition, accretion expenses relating to aging of the discounted present value of various liabilities including adjustments for long term fixed price contracts and operating leases are included in this line item. Consistent with historical
presentation, the amortization of intangibles and depreciation of long-lived assets are reflected here. The acquisition significantly increased the depreciable asset and intangible base as much of the value was assigned to communication equipment,
IRUs and leasehold improvements. Management expects depreciation, amortization, and accretion to be approximately $19.0 million per quarter throughout the remainder of 2004, excluding the impact of additional capital expenditures.



Non-cash Equity-based Compensation. Non-cash equity-based compensation amounted to
$10.8 million for the six months ended June 30, 2004 versus $5.3 million in 2003. The increase primarily represents non-cash compensation expense for 6.6 million performance warrants held by Constellation which were earned during the six-month
period. All contingent warrants have been fully expensed as of June 30, 2004.



Net Interest Expense and Other. Net interest expense and other for the six months ended June 30, 2004 was $21.3 million, an increase of $17.1 million from 2003. The increase is a result of the new Subordinated Notes issued during the
first quarter of 2004 and the capital lease interest on the Du Pont Fabros capital leases. Management expects interest expense will be approximately $14.5 million per quarter for the remainder of 2004, under our current financing arrangements.



Net Loss. The net loss for the six months ended June 30, 2004 was
$94.2 million, a $39.6 million increase from the net loss for the six months ended June 30, 2003 of $54.6 million.Net loss was primarily impacted by a $22.1 million increase of integration expense, a $17.1 million increase in net interest
expense and other, a $5.5 million increase in non-cash equity-based compensation, offset by a $7.9 restructuring charge in 2003.



LIQUIDITY AND CAPITAL RESOURCES



Executive Summary of Liquidity and Capital Resources



At June 30, 2004 our cash balances were $75.3 million. We used $23.3 million in operating cash flow during the six month period ended June 30, 2004, an increase in cash
used of $20.5 million compared to 2003. The significant impact in the period on our cash balance was the acquisition of the CWA assets, the related financing, and subsequent integration costs. $200 million Subordinated Notes were issued in the first
quarter of 2004. The transfer of the Companys rights to acquire certain data center property of CWA provided cash of $52.0 million which was paid directly to CWA, resulting in lowering our purchase price of the CWA assets. The cash impact of
the acquisition was cash payments of $117.1 million, plus working capital funding of $14.1 million. Cash payments for acquisition and integration related to costs necessary to realize synergies were $22.9 million during the six month period. Net
increase in cash during the six month period ended June 30, 2004 was $47.1 million as compared to a net decrease in cash of $12.5 million for the six months ended June 30, 2003.



Discussion of Changes in Liquidity and Capital Resources



Cash used in operating activities increased to $23.3 million for the six months ended June 30, 2004 from cash used of $2.7 million in 2003.
The $20.5 million increased cash usage is primarily due to payments of $22.9 million for acquisition and integration-related costs. The following is a comparison of some of the larger items for each period. Cash used by changes in working capital
and other assets and liabilities was $7.3 million compared to cash provided of $3.8 million in 2003. Accounts Receivable used cash of $10.7 million as compared to providing cash of $7.1 million in 2003. Accrued other liabilities provided $6.6
million in cash as compared to a $0.9 million use in 2003. During the year, we expect cash balances to decline to fund losses and integration costs in advance of our realizing significant benefit from the planned synergies of the acquisition. Cash
costs related to the acquisition and related integration paid in the six month period was approximately $22.9 million.



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Net cash used by investing activities for the six months ended June 30, 2004 was approximately $130.0 million comprised
of the net cash used for the CWA acquisition of $117.1 million and capital expenditures of $14.9 million offset by $2.1 million in proceeds from the sale of excess acquired assets. This is an increase of $121.2 million from the $8.8 million cash
used during the six months ended June 30, 2003.



Net cash provided by financing
activities was $200.3 million for the six months ended June 30, 2004 as compared to net cash used in financing activities of $0.7 million in the six months ended June 30, 2003. The cash provided in 2004 was due to our issuance of Subordinated Notes
in the amount of $200.0 million. We issued Subordinated Notes together with warrants to purchase Series B Preferred, to the investors in exchange for $200.0 million in cash. The Subordinated Notes were used to fund the CWA acquisition and to fund
our on-going operational, working capital and capital expenditure requirements related to the CWA acquired assets or caused by the CWA acquisition.



CWA Acquisition



In January, 2004, we signed a definitive agreement to purchase substantially all of the assets of CWA. CWA, wholly-owned by Cable and Wireless PLC, provides a range of network and hosting services, including internet
access to a Tier 1 network, colocation, hosting and other value-added services such as managed security and content distribution. The transaction was approved by the U.S. Bankruptcy Court and other regulatory agencies. The transaction closed on
March 5, 2004 and therefore, the results of CWA are included in our results since the date of the acquisition.



We paid $117.1 million in cash in addition to the assumption of certain working capital liabilities and leases for certain data centers and other facilities. In accordance with the CWA asset purchase agreement, the
purchase price included the cost to fund CWAs working capital losses from January 28, 2004 through March 5, 2004, which totaled $14.1 million. Additionally, the Company entered into an agreement to transfer its rights at closing to acquire
four of the CWA data centers and one office facility to Du Pont Fabros Interests LLC (Du Pont Fabros) for $52.0 million paid directly to the CWA bankruptcy estate. The Company subsequently leased those facilities back from Du Pont Fabros
for 15 years.



We paid approximately $22.9 million in the first six months of
2004 for costs related to the CWA acquisition. These cash costs include payments for direct transaction costs, vendor settlements, contract penalties, severance and professional fees. We expect total cash payments for acquisition and integration
related costs to realize synergies to be in a range of $40.0 - $45.0 million for the year. This amount includes approximately $5.4 million in settlement of remaining exit liabilities related to employee terminations. Cash payments of $1.5 million
were paid during the six months ended June 30, 2004 directly related to the employee terminations.



Subordinated Notes and Other Financing



In the first quarter of 2004, we issued $200.0 million of Subordinated Notes. The proceeds were used to fund the CWA acquisition and to fund the on-going operational, working capital and capital expenditure requirements of the Company
related to the CWA acquired assets or caused by the CWA acquisition. The debt issuance costs associated with the Subordinated Notes were $2.0 million, of which $0.6 million was paid during the six month period ending June 30, 2004. The Subordinated
Notes contain an early redemption feature, a make whole premium, a change of control clause and various other restrictive covenants. The maturity date for the notes is February 9, 2009 payable in a single installment with all applicable accrued
interest. The financing parties for the transaction include existing stockholders Welsh Carson and Constellation, who were joined by Oak Hill Special Opportunities Fund and other parties.



We entered into a long-term lease with Du Pont Fabros during the six month period ending June 30, 2004. The agreement allows for no cash
payments in the first nine months. The expected cash requirements related to these lease payments and associated interest costs during the remainder of 2004 are $0.8 million. Cash payments commence December, 2004.



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General



In August 2000, we entered into a 20-year agreement with Kiel Center Partners, L.P. (KCP) pursuant to which we acquired the naming rights to a sports arena in
St. Louis, Missouri. Total consideration for these rights amounted to approximately $71.8 million, including 750,000 shares of our common stock issued to KCP, which had a fair value of $5.8 million at issuance and $66.0 million of cash payments to
be made from 2002 through 2020. The related expense will be recognized over the term of the agreement. As of June 30, 2004, we had approximately $2.1 million of remaining deferred charges resulting from the issuance of common stock and $64.6 million
of remaining cash payments under this agreement. Cash payments are due each year in December. The amount payable in the current year is $1.3 million.



Obligations and Commitments



Our customer contracts generally span multiple periods, which result in us entering into arrangements with various suppliers of communications services that require us to
maintain minimum spending levels, some of which increase over time, to secure favorable pricing terms. Our remaining aggregate minimum spending level allocated ratably over the contract terms are approximately $14.2 million, $26.1 million, and $11.4
million in years 2004, 2005, and 2006, respectively. Should SAVVIS not meet the minimum spending level in any given year, decreasing termination liabilities representing a percentage of the remaining contracted amount may immediately become due and
payable. Furthermore, certain of these termination liabilities are subject to reduction should SAVVIS experience the loss of a major customer or suffer a loss of revenues from a downturn in general economic activity. Before considering the effects
of any reductions for the business downturn provisions, if SAVVIS were to terminate all of these agreements as of June 30, 2004, the maximum termination liability would amount to approximately $45.6 million.



We entered into a long-term communications services contract during the first quarter of 2004
which provides power and maintenance for our IRUs until 2021. As of June 30, 2004, this unconditional purchase obligation relative to this long-term contract is approximately $18.0 million in year 1, $17.0 million in years 2 and 3, $13.8 million in
years 4-5, and $85.0 million thereafter. This contract was accepted from CWA. The total purchase commitment is $133.8 million.



We may meet any additional funding needs through a combination of equity offerings, debt financings, renegotiation of repayment terms on existing debt and sales of assets
and services. If these additional financings were required, there can be no assurance that we would be successful in completing any of these financings or that if we were, the terms of such financings would be favorable to us.



We are subject to various legal proceedings and other actions arising in the normal course of
its business. While the results of such proceedings and actions cannot be predicted, management believes, based on facts known to management today, that the ultimate outcome of such proceedings and actions will not have a material adverse effect on
our financial position, results or operations or cash flows.



We have
employment agreements with key executive officers. These agreements contain provisions with regard to base salary, bonus, stock options, and other employee benefits. These agreements also provide for severance benefits in the event of employment
termination or a change in control of SAVVIS.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.



Foreign Currency Exchange Rats Risk



Our primary market risk exposure relates to changes in foreign currency exchange rates. Changes in foreign exchange rates did not materially impact our results of operations. We expect these percentages to decrease in the periods ahead as
our United States business base grows. In the future, we may engage in hedging transactions to mitigate foreign exchange risk.



|                                                                                         |  |                                    |   |  |                                  |   |  |      |   |  |      |  
|---------------------------------------------------------------------------------------- |  | ---------------------------------- | - |  | -------------------------------- | - |  | ---- | - |  | ---- | -
|                                                                                         |  | For the Three MonthsEnded June 30, |   |  | For the Six MonthsEnded June 30, |  
|                                                                                         |  | 2004                               |   |  | 2003                             |   |  | 2004 |   |  | 2003 |  
|Service revenue denominated in currencies other than the United States dollar            |  | 4                                  | % |  | 5                                | % |  | 5    | % |  | 3    | %
|Direct and operating costs incurred in currencies other than the United States dollar(1) |  | 10                                 | % |  | 20                               | % |  | 12   | % |  | 19   | %

---

|(1) | Excludes depreciation, amortization, accretion, non-cash equity based compensation, restructuring charges, and integration costs
|--- | --------------------------------------------------------------------------------------------------------------------------------



ITEM 4. CONTROLS AND PROCEDURES.



We carried out
an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
(as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in our periodic SEC filings.



There has been no change in our internal controls over financial reporting during the most
recent fiscal year that materially affected or is reasonably likely to materially affect the internal controls.



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##### Table of Contents

PART IIOTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS.



The Company is
subject to various legal proceedings and actions arising in the normal course of its business. While the results of such proceedings and actions cannot be predicted, management believes, based on facts known to management today, that the ultimate
outcome of such proceedings and actions will not have a material adverse effect on the Companys financial position or results of operations.



ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS



None.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES.



None.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITITY HOLDERS.



The 2004 Annual Meeting of Stockholders of SAVVIS Communications Corporation was held on June 22, 2004. The following matters were voted upon at the meeting: (1) elect ten directors to the Board of Directors; (2)
authorize our board of directors, in their discretion, to amend our certificate of incorporation to effect a reverse stock split from among any of the following ratios: 1-for-5 and 1-for-10; (3) approve an amendment to our certificate of
incorporation to increase the total number of authorized shares of common stock of the company from 900,000,000 shares to 1,500,000,000 shares; (4) approve an amendment to our 2003 Incentive Compensation Plan to increase the number of shares of
common stock reserved for issuance under the Plan from 20,000,000 to 40,000,000 shares; and (5) ratify the appointment of Ernst & Young LLP as our independent auditors for the year ending December 31, 2004.



|(i) | The entire nominated board of directors was elected and the votes cast for or withheld with respect to the election of each director were as follows:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|                      |  |                                     |  |                          
|--------------------- |  | ----------------------------------- |  | -------------------------
|Nominee for Director  |  | Number of Votes inFavor of Nominees |  | Withhold Authorityto Vote
|Robert A. McCormick   |  | 440,276,646                         |  | 709,105                  
|John D. Clark         |  | 440,425,988                         |  | 559,763                  
|John M. Finlayson     |  | 440,363,008                         |  | 622,743                  
|Clifford H. Friedman  |  | 440,425,926                         |  | 559,763                  
|Clyde A. Heintzelman  |  | 440,364,403                         |  | 621,348                  
|Thomas E. Mcinerney   |  | 440,385,521                         |  | 600,230                  
|James E. Ousley       |  | 440,504,815                         |  | 480,936                  
|James P. Pellow       |  | 440,538,827                         |  | 446,924                  
|Jeffrey H. Von Deylen |  | 440,427,358                         |  | 558,393                  
|Patrick J. Welsh      |  | 440,382,646                         |  | 603,105                  



|(ii) | The votes cast for, against or abstaining and the broker non-votes, with respect to the approval of the proposal to authorize the board of directors, in its discretion, to amend the
certificate of incorporation to effect a 1-for-5 reverse stock split were as follows:
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                         |  |                         |  |                           |  |                           
|------------------------ |  | ----------------------- |  | ------------------------- |  | --------------------------
|Number of Votes in Favor |  | Number of Votes Against |  | Number of Votes Abstained |  | Number of Broker Non-Votes
|438,732,609              |  | 2,204,917               |  | 48,225                    |  | 0                         



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|(iii) | The votes cast for, against or abstaining and the broker non-votes, with respect to the approval of the proposal to authorize the board of directors, in its discretion, to amend the
certificate of incorporation to effect a 1-for-10 reverse stock split were as follows:
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                         |  |                         |  |                           |  |                           
|------------------------ |  | ----------------------- |  | ------------------------- |  | --------------------------
|Number of Votes in Favor |  | Number of Votes Against |  | Number of Votes Abstained |  | Number of Broker Non-Votes
|438,158,726              |  | 2,755,805               |  | 71,220                    |  | 0                         



|(iv) | At such meeting, the proposal to approve an amendment to the Companys certificate of incorporation received the number of votes set forth below:
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------



|                         |  |                         |  |                           |  |                           
|------------------------ |  | ----------------------- |  | ------------------------- |  | --------------------------
|Number of Votes in Favor |  | Number of Votes Against |  | Number of Votes Abstained |  | Number of Broker Non-Votes
|438,816,266              |  | 2,078,926               |  | 90,559                    |  | 0                         



|(v) | At such meeting, the proposal to approve an amendment to the Companys 2003 Incentive Compensation Plan received the number of votes set forth below:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|                         |  |                         |  |                           |  |                           
|------------------------ |  | ----------------------- |  | ------------------------- |  | --------------------------
|Number of Votes in Favor |  | Number of Votes Against |  | Number of Votes Abstained |  | Number of Broker Non-Votes
|406,953,898              |  | 2,047,745               |  | 182,779                   |  | 31,801,329                



|(vi) | The votes cast for, against or abstaining, with respect to the approval of the proposal to ratify the appointment of Ernst & Young LLP as the Companys independent auditors
for the year ending December 31, 2004 were as follows:
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                         |  |                         |  |                          
|------------------------ |  | ----------------------- |  | -------------------------
|Number of Votes in Favor |  | Number of Votes Against |  | Number of Votes Abstained
|440,674,446              |  | 224,534                 |  | 86,771                   



In May 2004, the holders of the
Companys Series B Preferred approved by written consent an amendment to the Certificate of Designations for the Series B Preferred providing that the Series B Preferred would be entitled to receive dividends at the same rate and at the same
time as any dividends paid on the common stock.



ITEM 5. OTHER INFORMATION.



None.



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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.



(a)
Exhibits. The following exhibits are either provided with this Form 10-Q or are incorporated herein by reference.



EXHIBIT INDEX



|       |  |                                                                                                                                                                                                                                                
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Exhibit Description                                                                                                                                                                                                                            
|       | 
|3.1    |  | Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to the same numbered exhibit to SAVVIS Registration Statement on Form S-1, as amended
(File No. 333-90881)).                                   
|       | 
|3.2    |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to the same numbered exhibit to SAVVIS Registration Statement
on Form S-1, as amended (File No. 333-90881)).       
|       | 
|3.3    |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to the same numbered exhibit to SAVVIS Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2002).
|       | 
|3.4    |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant.                                                                                                                                               
|       | 
|3.5    |  | Amended and Restated Bylaws of the Registrant. (incorporated by reference to the same numbered exhibit to SAVVIS Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2003).                                                
|       | 
|4.1    |  | Form of Common Stock Certificate (incorporated by reference to the same numbered exhibit to SAVVIS Registration Statement on Form S-1, as amended (File No. 333-90881)).                                                                      
|       | 
|4.2    |  | Certificate of Designations relating to the Registrants Series A Convertible Preferred Stock (incorporated by reference to the same numbered exhibit to SAVVIS Current Report on
Form 8-K, dated March 27, 2002).                            
|       | 
|4.3    |  | Amended and Restated Certificate of Designations relating to Registrants Series B Convertible Preferred Stock.                                                                                                                                 
|       | 
|4.4    |  | Warrant Agreement, dated as of March 15, 2002, between the Registrant and Nortel Networks Inc. (incorporated by reference to Exhibit 4.4 to SAVVIS Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2002).              
|       | 
|4.5    |  | Warrant, dated March 18, 2002, to purchase the Registrants common stock issued to Nortel Networks Inc. (incorporated by reference to Exhibit 4.6 to SAVVIS Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2002).     
|       | 
|4.6+   |  | Warrant, dated June 28, 2002, to purchase the Registrants common stock issued to Constellation Venture Capital II, L.P. (incorporated by reference to Exhibit 4.7 to SAVVIS Current
Report on Form 8-K, dated July 8, 2002).                 
|       | 
|4.7+   |  | Warrant, dated June 28, 2002, to purchase the Registrants common stock issued to Constellation Venture Capital Offshore II, L.P. (incorporated by reference Exhibit 4.8 to SAVVIS
Current Report on Form 8-K, dated July 8, 2002).           
|       | 
|4.8+   |  | Warrant, dated June 28, 2002, to purchase the Registrants common stock issued to The BSC Employee Fund IV, L.P. (incorporated by reference to Exhibit 4.9 to SAVVIS Current Report
on Form 8-K, dated July 8, 2002).                         
|       | 
|4.9+   |  | Warrant, dated, June 28, 2002, to purchase the Registrants common stock issued to CVC II Partners, L.L.C. (incorporated by reference to Exhibit 4.10 to SAVVIS Current Report on
Form 8-K, dated July 8, 2002).                              
|4.10   |  | Form of Series A Subordinated Note (incorporated by reference to the same numbered exhibit to SAVVIS Current Report on Form 8-K, dated February 25, 2004).                                                                                    
|       | 
|10.1   |  | Amendment to 2003 Incentive Compensation Plan.                                                                                                                                                                                                 
|       | 
|31.1   |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                            
|       | 
|31.2   |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                            
|       | 
|32.1   |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                             
|       | 
|32.2   |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                             

---

+ Confidential treatment has been granted for this
exhibit. The copy filed as an exhibit omits the information subject to the request for confidential treatment.

++ A request for confidential treatment has
been submitted with respect to this exhibit. The copy filed as an exhibit omits the information subject to the request for confidential treatment.



(b) Reports on Form 8-K. On May 12, 2004, we filed a Current Report on Form 8-K with respect to Item 12, Results of Operations and Financial Condition.



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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.



|                      |  |                                  
|--------------------- |  | ---------------------------------
|                      |  | SAVVIS Communications Corporation
|                      | 
|Date: August 12, 2004 |  | By: /s/ Robert A. McCormick      
|                      |  | Robert A. McCormick              
|                      |  | Chief Executive Officer          
|                      | 
|Date: August 12, 2004 |  | By: /s/ Jeffrey H. Von Deylen    
|                      |  | Jeffrey H. Von Deylen            
|                      |  | Chief Financial Officer          



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