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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

For the Quarterly Period Ended March 31, 2010

OR



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

For the Transition Period from  to

Commission File Number: 0-29375





LOGO

SAVVIS, Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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 offices) (Zip Code)

(314) 628-7000

(Registrants telephone number, including area code)





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

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

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:

Common stock, $0.01 Par Value  54,894,203 shares as of April 30, 2010

The Exhibit Index begins on page 32.









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##### Table of Contents

SAVVIS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS



|           |  |                       |  |                                                                                                                                   |  |   
|---------- |  | --------------------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | --
|           |  |                       |  | Page                                                                                                                             
|           |  |                      
|PART I.    |  | FINANCIAL INFORMATION |  |                                                                                                                                  
|           |  |                       | 
|           |  | Item 1.               |  | Financial Statements.                                                                                                             |  | 3 
|           |  |                       | 
|           |  |                       |  | Unaudited Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009.                                       |  | 3 
|           |  |                       | 
|           |  |                       |  | Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009.                     |  | 4 
|           |  |                       | 
|           |  |                       |  | Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009.                     |  | 5 
|           |  |                       | 
|           |  |                       |  | Unaudited Condensed Consolidated Statement of Changes in Stockholders Equity for the period December 31, 2009 to March 31, 2010. |  | 6 
|           |  |                       | 
|           |  |                       |  | Notes to Unaudited Condensed Consolidated Financial Statements.                                                                   |  | 7 
|           |  |                       | 
|           |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations.                                            |  | 20
|           |  |                       | 
|           |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk.                                                                       |  | 30
|           |  |                       | 
|           |  | Item 4.               |  | Controls and Procedures.                                                                                                          |  | 30
|           |  |                      
|PART II.   |  | OTHER INFORMATION     |  |                                                                                                                                  
|           |  |                       | 
|           |  | Item 1.               |  | Legal Proceedings.                                                                                                                |  | 30
|           |  |                       | 
|           |  | Item 1A.              |  | Risk Factors.                                                                                                                     |  | 30
|           |  |                       | 
|           |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds.                                                                      |  | 31
|           |  |                       | 
|           |  | Item 3.               |  | Defaults Upon Senior Securities.                                                                                                  |  | 31
|           |  |                       | 
|           |  | Item 4.               |  | Removed and Reserved.                                                                                                             |  | 31
|           |  |                       | 
|           |  | Item 5.               |  | Other Information.                                                                                                                |  | 31
|           |  |                       | 
|           |  | Item 6.               |  | Exhibits.                                                                                                                         |  | 32
|           | 
|SIGNATURES |  | 33                   



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PART I. FINANCIAL INFORMATION.



|ITEM 1. | FINANCIAL STATEMENTS.
|------- | ---------------------

SAVVIS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)



|                                                                                                            |  |               |           |   |                  |   |           |   |  | 
|----------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | - |  | 
|                                                                                                            |  | March 31,2010 |           |   | December 31,2009 |  
|ASSETS                                                                                                      |  |               |           |   |                  |   |           |  
|                                                                                                            |  |              
|Current Assets:                                                                                             |  |               |           |   |                  |   |           |  
|Cash and cash equivalents                                                                                   |  | $             | 145,928   |   |                  | $ | 160,815   |  
|Trade accounts receivable, net of allowance of $7,084 and $8,133                                            |  |               | 51,823    |   |                  |   | 45,754    |  
|Prepaid expenses and other current assets                                                                   |  |               | 27,686    |   |                  |   | 21,217    |  
|                                                                                                            |  |               |           |   |                  |   |           |  
|Total Current Assets                                                                                        |  |               | 225,437   |   |                  |   | 227,786   |  
|                                                                                                            |  |               |           |   |                  |   |           |  
|Property and equipment, net                                                                                 |  |               | 792,376   |   |                  |   | 783,852   |  
|Other non-current assets                                                                                    |  |               | 12,893    |   |                  |   | 13,120    |  
|                                                                                                            |  |               |           |   |                  |   |           |  
|Total Assets                                                                                                |  | $             | 1,030,706 |   |                  | $ | 1,024,758 |  
|                                                                                                            |  |               |           |   |                  |   |           |  
|                                                                                                            |  |              
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                        |  |               |           |   |                  |   |           |  
|                                                                                                            |  |              
|Current Liabilities:                                                                                        |  |               |           |   |                  |   |           |  
|Payables and other trade accruals                                                                           |  | $             | 59,742    |   |                  | $ | 52,710    |  
|Current portion of long-term debt and lease obligations                                                     |  |               | 18,385    |   |                  |   | 17,479    |  
|Other current accrued liabilities                                                                           |  |               | 68,965    |   |                  |   | 68,314    |  
|                                                                                                            |  |               |           |   |                  |   |           |  
|Total Current Liabilities                                                                                   |  |               | 147,092   |   |                  |   | 138,503   |  
|                                                                                                            |  |               |           |   |                  |   |           |  
|Long-term debt, net of current portion                                                                      |  |               | 374,551   |   |                  |   | 376,089   |  
|Capital and financing method lease obligations, net of current portion                                      |  |               | 221,211   |   |                  |   | 223,897   |  
|Other non-current accrued liabilities                                                                       |  |               | 79,407    |   |                  |   | 76,452    |  
|                                                                                                            |  |               |           |   |                  |   |           |  
|Total Liabilities                                                                                           |  |               | 822,261   |   |                  |   | 814,941   |  
|                                                                                                            |  |               |           |   |                  |   |           |  
|                                                                                                            |  |              
|Stockholders Equity:                                                                                       |  |               |           |   |                  |   |           |  
|Common stock; $0.01 par value, 1,500,000 shares authorized; 54,858 and 54,337 shares issued and
outstanding |  |               | 552       |   |                  |   | 545       |  
|Additional paid-in capital                                                                                  |  |               | 875,112   |   |                  |   | 862,834   |  
|Accumulated deficit                                                                                         |  |               | (645,778  | ) |                  |   | (634,429  | )
|Accumulated other comprehensive loss                                                                        |  |               | (21,441   | ) |                  |   | (19,133   | )
|                                                                                                            |  |               |           |   |                  |   |           |  
|Total Stockholders Equity                                                                                  |  |               | 208,445   |   |                  |   | 209,817   |  
|                                                                                                            |  |               |           |   |                  |   |           |  
|Total Liabilities and Stockholders Equity                                                                  |  | $             | 1,030,706 |   |                  | $ | 1,024,758 |  
|                                                                                                            |  |               |           |   |                  |   |           |  

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



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SAVVIS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                                                                                                   |  |                             |         |   |      |   |        
|------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | ------- | - | ---- | - | -------
|                                                                                                                   |  | Three Months EndedMarch 31,
|                                                                                                                   |  | 2010                        |         |   | 2009
|Revenue                                                                                                            |  | $                           | 216,587 |   |      | $ | 221,523
|Operating Expenses:                                                                                                |  |                             |         |   |      |   |        
|Cost of revenue (including non-cash equity-based compensation of $1,630 and $1,483)(1)                             |  |                             | 119,368 |   |      |   | 120,521
|Sales, general, and administrative expenses (including non-cash equity-based compensation of $6,823 and $5,408)(1) |  |                             | 51,719  |   |      |   | 49,069 
|Depreciation, amortization, and accretion                                                                          |  |                             | 40,737  |   |      |   | 36,335 
|                                                                                                                   |  |                             |         |   |      |   |        
|Total Operating Expenses                                                                                           |  |                             | 211,824 |   |      |   | 205,925
|                                                                                                                   |  |                             |         |   |      |   |        
|Income from Operations                                                                                             |  |                             | 4,763   |   |      |   | 15,598 
|Other (income) and expense                                                                                         |  |                             | 15,757  |   |      |   | 14,426 
|                                                                                                                   |  |                             |         |   |      |   |        
|Income (Loss) before Income Taxes                                                                                  |  |                             | (10,994 | ) |      |   | 1,172  
|Income tax expense                                                                                                 |  |                             | 355     |   |      |   | 555    
|                                                                                                                   |  |                             |         |   |      |   |        
|Net Income (Loss)                                                                                                  |  | $                           | (11,349 | ) |      | $ | 617    
|                                                                                                                   |  |                             |         |   |      |   |        
|Net Income (Loss) per Common Share                                                                                 |  |                             |         |   |      |   |        
|Basic                                                                                                              |  | $                           | (0.21   | ) |      | $ | 0.01   
|                                                                                                                   |  |                             |         |   |      |   |        
|Diluted                                                                                                            |  | $                           | (0.21   | ) |      | $ | 0.01   
|                                                                                                                   |  |                             |         |   |      |   |        
|Weighted-Average Common Shares Outstanding
(2)                                                                     |  |                             |         |   |      |   |        
|Basic                                                                                                              |  |                             | 54,494  |   |      |   | 53,609 
|                                                                                                                   |  |                             |         |   |      |   |        
|Diluted                                                                                                            |  |                             | 54,494  |   |      |   | 53,774 
|                                                                                                                   |  |                             |         |   |      |   |        



|(1) | Excludes depreciation, amortization, and accretion, which is reported separately.
|--- | ---------------------------------------------------------------------------------

|(2) | For the three months ended March 31, 2010, the effects of including the incremental shares associated with the Convertible Notes, options, unvested restricted
stock units, and unvested restricted stock awards are anti-dilutive and, as such, are not included in the diluted weighted-average common shares outstanding. For the three months ended March 31, 2009, the effects of including the incremental
shares associated with unvested restricted stock awards and the Convertible Notes are anti-dilutive, and as such, are not included in the diluted weighted-average common shares outstanding.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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SAVVIS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                  |  |                             |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Three Months EndedMarch 31, |        
|                                                                                  |  | 2010                        |         |   | 2009 |  
|Cash Flows from Operating Activities:                                             |  |                             |         |   |      |   |         |  
|Net income (loss)                                                                 |  | $                           | (11,349 | ) |      | $ | 617     |  
|Reconciliation of net income (loss) to net cash provided by operating activities: |  |                             |         |   |      |   |         |  
|Depreciation, amortization and accretion                                          |  |                             | 40,737  |   |      |   | 36,335  |  
|Non-cash equity-based compensation                                                |  |                             | 8,453   |   |      |   | 6,891   |  
|Accrued interest                                                                  |  |                             | 3,286   |   |      |   | 3,557   |  
|Amortization of debt discount                                                     |  |                             | 3,767   |   |      |   | 3,471   |  
|Other, net                                                                        |  |                             | 332     |   |      |   | 53      |  
|Net changes in operating assets and liabilities:                                  |  |                             |         |   |      |   |         |  
|Trade accounts receivable, net                                                    |  |                             | (6,581  | ) |      |   | 2,203   |  
|Prepaid expenses and other current and non-current assets                         |  |                             | (6,572  | ) |      |   | 991     |  
|Payables and other trade accruals                                                 |  |                             | 7,455   |   |      |   | 27      |  
|Other accrued liabilities                                                         |  |                             | (556    | ) |      |   | (8,495  | )
|                                                                                  |  |                             |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                             | 38,972  |   |      |   | 45,650  |  
|                                                                                  |  |                             |         |   |      |   |         |  
|                                                                                  |  |                            
|Cash Flows from Investing Activities:                                             |  |                             |         |   |      |   |         |  
|Payments for capital expenditures                                                 |  |                             | (50,691 | ) |      |   | (18,252 | )
|                                                                                  |  |                             |         |   |      |   |         |  
|Net cash used in investing activities                                             |  |                             | (50,691 | ) |      |   | (18,252 | )
|                                                                                  |  |                             |         |   |      |   |         |  
|                                                                                  |  |                            
|Cash Flows from Financing Activities:                                             |  |                             |         |   |      |   |         |  
|Proceeds from long-term debt                                                      |  |                             |        |   |      |   | 2,066   |  
|Proceeds from stock option exercises                                              |  |                             | 6,648   |   |      |   | 4       |  
|Payments for employee taxes on equity-based instruments                           |  |                             | (2,812  | ) |      |   | (444    | )
|Principal payments on long-term debt                                              |  |                             | (1,650  | ) |      |   | (1,650  | )
|Principal payments under capital lease obligations                                |  |                             | (2,538  | ) |      |   | (1,950  | )
|Other, net                                                                        |  |                             | (612    | ) |      |   |        |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Net cash used in financing activities                                             |  |                             | (964    | ) |      |   | (1,974  | )
|                                                                                  |  |                             |         |   |      |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                      |  |                             | (2,204  | ) |      |   | (846    | )
|                                                                                  |  |                             |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                              |  |                             | (14,887 | ) |      |   | 24,578  |  
|Cash and cash equivalents, beginning of period                                    |  |                             | 160,815 |   |      |   | 121,284 |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                           | 145,928 |   |      | $ | 145,862 |  
|                                                                                  |  |                             |         |   |      |   |         |  
|                                                                                  |  |                            
|Supplemental Disclosures of Cash Flow Information:                                |  |                             |         |   |      |   |         |  
|Cash paid for interest                                                            |  | $                           | 7,832   |   |      | $ | 7,488   |  
|                                                                                  |  |                             |         |   |      |   |         |  
|Cash paid for income taxes                                                        |  | $                           | 380     |   |      | $ | 1,165   |  
|                                                                                  |  |                             |         |   |      |   |         |  

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



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SAVVIS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

(in thousands)



|                                                        |  |                                 |   |  |             |     |                          |   |         |                    |  |   |                                   |   |  |                          |         |   |  |   |         |  
|------------------------------------------------------- |  | ------------------------------- | - |  | ----------- | --- | ------------------------ | - | ------- | ------------------ |  | - | --------------------------------- | - |  | ------------------------ | ------- | - |  | - | ------- | -
|                                                        |  | Shares ofCommonStockOutstanding |   |  | CommonStock |     | AdditionalPaid-InCapital |   |         | AccumulatedDeficit |  |   | AccumulatedOtherComprehensiveLoss |   |  | TotalStockholdersEquity |        
|Balance at December 31, 2009                            |  | 54,337                          |   |  | $           | 545 |                          | $ | 862,834 |                    |  | $ | (634,429                          | ) |  | $                        | (19,133 | ) |  | $ | 209,817 |  
|                                                        |  |                                 |   |  |             |    
|Issuance of common stock                                |  | 639                             |   |  |             | 7   |                          |   | 6,884   |                    |  |   |                                  |   |  |                          |        |   |  |   | 6,891   |  
|                                                        |  |                                 |   |  |             |    
|Issuance of restricted stock                            |  | (118                            | ) |  |             |    |                          |   |        |                    |  |   |                                  |   |  |                          |        |   |  |   |        |  
|                                                        |  |                                 |   |  |             |    
|Payments for employee taxes on equity-based instruments |  |                                |   |  |             |    |                          |   | (2,812  | )                  |  |   |                                  |   |  |                          |        |   |  |   | (2,812  | )
|                                                        |  |                                 |   |  |             |    
|Recognition of equity-based compensation costs          |  |                                |   |  |             |    |                          |   | 8,206   |                    |  |   |                                  |   |  |                          |        |   |  |   | 8,206   |  
|                                                        |  |                                 |   |  |             |    
|Comprehensive loss                                      |  |                                 |   |  |             |     |                          |   |         |                    |  |   |                                   |   |  |                          |         |   |  |   |         |  
|                                                        |  |                                 |   |  |             |    
|Net loss                                                |  |                                |   |  |             |    |                          |   |        |                    |  |   | (11,349                           | ) |  |                          |        |   |  |   | (11,349 | )
|                                                        |  |                                 |   |  |             |    
|Foreign currency translation adjustment                 |  |                                |   |  |             |    |                          |   |        |                    |  |   |                                  |   |  |                          | (2,116  | ) |  |   | (2,116  | )
|                                                        |  |                                 |   |  |             |    
|Change in derivatives                                   |  |                                |   |  |             |    |                          |   |        |                    |  |   |                                  |   |  |                          | (192    | ) |  |   | (192    | )
|                                                        |  |                                 |   |  |             |     |                          |   |         |                    |  |   |                                   |   |  |                          |         |   |  |   |         |  
|                                                        |  |                                 |   |  |             |    
|Net comprehensive loss                                  |  |                                |   |  |             |    |                          |   |        |                    |  |   | (11,349                           | ) |  |                          | (2,308  | ) |  |   | (13,657 | )
|                                                        |  |                                 |   |  |             |     |                          |   |         |                    |  |   |                                   |   |  |                          |         |   |  |   |         |  
|                                                        |  |                                 |   |  |             |    
|Balance at March 31, 2010                               |  | 54,858                          |   |  | $           | 552 |                          | $ | 875,112 |                    |  | $ | (645,778                          | ) |  | $                        | (21,441 | ) |  | $ | 208,445 |  
|                                                        |  |                                 |   |  |             |     |                          |   |         |                    |  |   |                                   |   |  |                          |         |   |  |   |         |  

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



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SAVVIS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data and where indicated)

NOTE 1DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

SAVVIS, Inc. (the Company) provides information technology services including cloud services, managed hosting, managed security, colocation, professional
services and network services through its global infrastructure to businesses and government agencies around the world.

These unaudited
condensed consolidated financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles, under the rules and regulations of the U.S. Securities and Exchange Commission (the SEC), and on a basis
substantially consistent with the audited consolidated financial statements of the Company as of and for the year ended December 31, 2009. Such audited consolidated financial statements are included in the Companys Annual Report on Form
10-K (the Annual Report) filed with the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the Companys audited consolidated financial statements and footnotes included in the Annual Report.

These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation and, in the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Material subsequent events have been
evaluated and disclosed through the report issuance date and the Company determined that there were no material subsequent events that would impact the Companys consolidated financial statements for the period ended March 31, 2010.

NOTE 2RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

On January 1, 2010, the Company adopted new accounting guidance regarding disclosures about fair value measurements. The guidance amends existing
disclosure criteria, requiring entities to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfers in or out of Level 3, and information
in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. The guidance also amends existing literature to clarify that an entity must provide fair value measurement disclosures for
each major class of assets and liabilities. As this new guidance is disclosure only, adoption did not have a material effect on the Companys consolidated financial position, results of operations, or cash flows.

NOTE 3FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has estimated the fair value of its financial instruments as of March 31, 2010 and December 31, 2009 using available market
information or other appropriate valuation methods. Assets and liabilities are categorized as Level 1, Level 2, or Level 3, dependant on the reliability of the inputs used in the valuation. Level 1 is considered more reliable than Level 3, as Level
3 depends on managements assumptions. The definitions of the levels are as follows:



| |  |  | Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to
access at the measurement date.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, directly or indirectly, such as
a quoted price for similar assets or liabilities in active markets.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3: Inputs are unobservable and are only used to measure fair value when observable inputs are not available. The inputs reflect the
entitys own assumptions and are based on the best information available. This allows for the fair value of an asset or liability to be measured when no active market for that asset or liability exists.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The carrying amounts of cash and cash equivalents, trade accounts receivable, other current assets, payables
and other trade accruals, and other current liabilities approximate fair value because of the short-term nature of such instruments. As of March 31, 2010 and December 31, 2009, substantially all of the Companys $145.9 million and
$160.8 million, respectively, of cash and cash equivalents were held in money market accounts, which are valued using Level 1 inputs. The fair value of the Convertible Notes is estimated based on Level 1 inputs of the current trading value, as
provided by a third party. The Company is exposed to interest rate volatility with respect to the variable interest rates of its Credit Agreement and Lombard Loan Agreement (see Note 6). The Credit Agreement bears interest at current market rates,
plus applicable margin; there were no balances outstanding on this facility as of March 31, 2010 or December 31, 2009. The fair values of the Credit Agreement, Lombard Loan Agreement and the Cisco loan agreement, which are not traded on
the market, are estimated by considering the Companys credit rating, current rates available to the Company for debt of the same remaining maturities, and the terms of the debt. The fair value of the interest rate swap associated with the
Lombard Loan Agreement and the Companys foreign currency hedges are valued using Level 2 market value inputs as provided by a third party, adjusted for the Companys credit risk.

The following table presents the carrying values and estimated fair values of the Companys long-term debt, and derivative instruments, as of the
dates indicated:



|                        |  |                |         |                   |   |               |  |            |         |  |   |        
|----------------------- |  | -------------- | ------- | ----------------- | - | ------------- |  | ---------- | ------- |  | - | -------
|                        |  | March 31, 2010 |         | December 31, 2009
|                        |  | CarryingValue  |         | Fair Value        |   | CarryingValue |  | Fair Value
|Convertible notes       |  | $              | 309,688 |                   | $ | 318,952       |  | $          | 305,921 |  | $ | 310,069
|Lombard loan agreement  |  |                | 52,318  |                   |   | 55,498        |  |            | 55,973  |  |   | 60,881 
|Cisco loan agreement    |  |                | 19,145  |                   |   | 19,040        |  |            | 20,795  |  |   | 20,667 
|Credit agreement        |  |                |        |                   |   |              |  |            |        |  |   |       
|Interest rate swap      |  |                | 3,252   |                   |   | 3,252         |  |            | 3,177   |  |   | 3,177  
|Foreign currency hedges |  |                | 241     |                   |   | 241           |  |            | 116     |  |   | 116    

NOTE 4NET INCOME (LOSS) PER
COMMON SHARE

The Company computes basic net income (loss) per common share by dividing net income (loss) by the weighted-average number of
common shares outstanding during the period, excluding unvested restricted stock awards subject to cancellation. Diluted net income (loss) per common share is computed using the weighted-average number of common shares and, if dilutive, potential
common shares outstanding during the period. Potential common shares represent the incremental common shares issuable for stock option and restricted preferred unit exercises, unvested restricted stock units and restricted stock awards that are
subject to repurchase or cancellation, and conversion of debt securities. The Company calculates the dilutive effect of outstanding stock options, restricted preferred units, restricted stock units, and restricted stock awards on net income (loss)
per share by application of the treasury stock method. The dilutive effect from convertible securities is calculated by application of the if-converted method. The Company had no dilutive securities for the three months ended March 31, 2010.



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The following tables set forth the computation of basic and diluted net income (loss) per common share:



|                                                      |  |                             |         |   |      |   |       
|----------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------
|                                                      |  | Three Months EndedMarch 31,
|                                                      |  | 2010                        |         |   | 2009
|Net income (loss)                                     |  | $                           | (11,349 | ) |      | $ | 617   
|                                                      |  |                             |         |   |      |   |       
|                                                      |  |                            
|Weighted-average shares outstanding  basic           |  |                             | 54,494  |   |      |   | 53,609
|Effect of dilutive securities(1):                     |  |                             |         |   |      |   |       
|Stock options(2)                                      |  |                             |        |   |      |   | 4     
|Restricted preferred
units(2)(3)                      |  |                             |        |   |      |   |      
|Restricted stock units and restricted stock
awards(2) |  |                             |        |   |      |   | 161   
|                                                      |  |                             |         |   |      |   |       
|Weighted-average shares outstanding  diluted         |  |                             | 54,494  |   |      |   | 53,774
|                                                      |  |                             |         |   |      |   |       
|                                                      |  |                            
|Net income (loss) per common share:                   |  |                             |         |   |      |   |       
|Basic                                                 |  | $                           | (0.21   | ) |      | $ | 0.01  
|                                                      |  |                             |         |   |      |   |       
|Diluted                                               |  | $                           | (0.21   | ) |      | $ | 0.01  
|                                                      |  |                             |         |   |      |   |       



|(1) | For the three months ended March 31, 2010, the effects of including the 4.9 million incremental shares associated with the Convertible Notes and the assumed
conversion of 6.7 million of equity instruments into common stock were anti-dilutive and, therefore, excluded from the calculation of diluted net (loss) per common share. For the three months ended March 31, 2009, the effects of including
4.9 million incremental shares associated with the Convertible Notes and 0.4 million shares associated with unvested restricted stock awards were anti-dilutive and, therefore, excluded from the calculation of diluted net income per common
share.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | As of March 31, 2010, the Company had outstanding 4.9 million stock options and 1.8 million shares of restricted stock units and restricted stock awards.
As of March 31, 2009, the Company had outstanding 5.6 million stock options, 0.2 million restricted preferred units, and 0.6 million shares of restricted stock units and restricted stock awards.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | As of March 31, 2010, there were no outstanding restricted preferred units.
|--- | ---------------------------------------------------------------------------

NOTE 5PROPERTY AND EQUIPMENT

The
following table presents property and equipment, by major category, as of March 31, 2010 and December 31, 2009:



|                                               |  |               |           |   |                  |   |           |  
|---------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                               |  | March 31,2010 |           |   | December 31,2009 |  
|Facilities and leasehold improvements          |  | $             | 731,420   |   |                  | $ | 719,597   |  
|Communications and data center equipment       |  |               | 568,424   |   |                  |   | 543,908   |  
|Software                                       |  |               | 112,063   |   |                  |   | 103,498   |  
|Office equipment                               |  |               | 27,502    |   |                  |   | 27,572    |  
|                                               |  |               |           |   |                  |   |           |  
|                                               |  |               | 1,439,409 |   |                  |   | 1,394,575 |  
|Less accumulated depreciation and amortization |  |               | (647,033  | ) |                  |   | (610,723  | )
|                                               |  |               |           |   |                  |   |           |  
|Property and equipment, net                    |  | $             | 792,376   |   |                  | $ | 783,852   |  
|                                               |  |               |           |   |                  |   |           |  

Depreciation and amortization expense for property and equipment was $39.7 million and $35.4 million for the three months
ended March 31, 2010 and 2009, respectively.



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NOTE 6LONG-TERM DEBT

The following table presents the carrying value of long-term debt as of March 31, 2010 and December 31, 2009:



|                                                                               |  |               |         |                   |   |        
|------------------------------------------------------------------------------ |  | ------------- | ------- | ----------------- | - | -------
|                                                                               |  | March 31,2010 |         | December 
31,2009
|Convertible notes                                                              |  | $             | 309,688 |                   | $ | 305,921
|Lombard loan agreement                                                         |  |               | 52,318  |                   |   | 55,973 
|Cisco loan facility, net of current portion of $6,600 and $6,600, respectively |  |               | 12,545  |                   |   | 14,195 
|Credit agreement                                                               |  |               |        |                   |   |       
|                                                                               |  |               |         |                   |   |        
|Long-term debt                                                                 |  | $             | 374,551 |                   | $ | 376,089
|                                                                               |  |               |         |                   |   |        

Convertible Notes

In May 2007, the Company issued $345.0 million aggregate principal amount of 3.0% Convertible Senior Notes due May 15, 2012 (the Notes). Interest is
payable semi-annually on May 15 and November 15 of each year and commenced November 15, 2007.

The Notes are governed by an
Indenture dated May 9, 2007, between the Company, as issuer, and The Bank of New York, as trustee (the Indenture). The Indenture does not contain any financial covenants or restrictions on the payment of dividends, the incurrence of senior debt
or other indebtedness, or the issuance or repurchase of securities by the Company. The Notes are unsecured and are effectively subordinated to the Companys existing or future secured debts to the extent of the assets securing such debt.

Upon conversion, holders will receive, at the Companys election, cash, shares of the Companys common stock, or a combination
thereof. However, the Company may at any time irrevocably elect for the remaining term of the Notes to satisfy its conversion obligation in cash up to 100% of the principal amount of the Notes converted, with any remaining amount to be satisfied, at
the Companys election, in cash, shares of its common stock, or a combination thereof.

The initial conversion rate is 14.2086 shares of
common stock per $1,000 principal amount of Notes, subject to adjustment. This represents an initial conversion price of approximately $70.38 per share of common stock. Holders of the Notes may convert their Notes prior to maturity upon the
occurrence of specified circumstances. Upon conversion, due to the conversion formulas associated with the Notes, if the Companys stock is trading at levels exceeding the conversion price per share of common stock, and if the Company elects to
settle the obligation in cash, additional consideration beyond the $345.0 million of gross proceeds received would be required.

The Notes
contain settlement features that require the Company to account for the liability and equity components of the Notes separately. The Company has calculated the fair value of the liability component using an interest rate of 8.36% per annum.

The following table summarizes the carrying amounts of the equity and liability components of the Notes, along with the unamortized discount
and net carrying amount of the liability component.



|                     |  |               |         |   |                  |   |         |  
|-------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                     |  | March 31,2010 |         |   | December 31,2009 |  
|Equity component     |  | $             | 72,609  |   |                  | $ | 72,609  |  
|Liability component: |  |               |         |   |                  |   |         |  
|Principal amount     |  | $             | 345,000 |   |                  | $ | 345,000 |  
|Unamortized discount |  |               | (35,312 | ) |                  |   | (39,079 | )
|                     |  |               |         |   |                  |   |         |  
|Net carrying amount  |  | $             | 309,688 |   |                  | $ | 305,921 |  
|                     |  |               |         |   |                  |   |         |  



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The following table summarizes the amount of interest cost recognized for the periods relating to both the
contractual interest and the accretion of the discount of the liability component of the Notes:



|                                  |  |                             |       |      |   |      
|--------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                  |  | Three MonthsEnded March 31,
|                                  |  | 2010                        |       | 2009
|Interest at 3% stated coupon rate |  | $                           | 2,588 |      | $ | 2,588
|Discount amortization             |  |                             | 3,767 |      |   | 3,470
|                                  |  |                             |       |      |   |      
|Total interest expense            |  | $                           | 6,355 |      | $ | 6,058
|                                  |  |                             |       |      |   |      

The debt issuance costs related to the Notes, net of accumulated
amortization, were $3.0 million as of March 31, 2010.

Credit Facilities

Credit Agreement.The Company maintains a $50.0 million revolving credit facility (the Credit Agreement), which includes a $40.0 million letter of
credit provision. The Credit Agreement will mature in December 2011. Borrowings under the Credit Agreement may be used to fund working capital, for capital expenditures and other general corporate purposes. The Credit Agreement contains affirmative,
negative, and financial covenants which are measured on a quarterly basis and include limitations on capital expenditures and require maintenance of certain financial measures at defined levels. The Companys obligations under the Credit
Agreement and the guarantees of the Guarantors are secured by a first-priority security interest in substantially all of the Companys assets, interest in assets and proceeds thereof, excluding those assets pledged under our loan with Lombard
North Central, Plc. Under the terms of the Credit Agreement, the Company may elect to pay interest on a base rate or LIBOR rate, plus an applicable margin. Unused commitments on the Credit Agreement are subject to an annual commitment fee of 0.50%
to 0.75% and a fee is applied to outstanding letters of credit of 3.825% to 4.825%. As of March 31, 2010, the interest rate, including margin, would have been 7.00%, however, there were no outstanding borrowings under the Credit Agreement.
There were approximately $28.4 million outstanding letters of credit as of March 31, 2010.

Loan Agreement and Lease Facility.The
Company maintains a loan and security agreement (the Loan Agreement) and a master lease agreement (the Lease Agreement) with Cisco Systems Capital Corporation. The Loan Agreement provides for borrowings of up to $33.0 million, at an annual interest
rate of 6.50%, to purchase network equipment, which are secured by a first-priority security interest in the equipment. The Lease Agreement provides a lease facility (the Lease Facility) to purchase equipment with borrowings at the discretion of
Cisco Systems Capital Corporation. The effective interest rate on current outstanding borrowings ranges from 5.52% to 7.75%. As of March 31, 2010, the Company had $19.1 million in outstanding borrowings under the Loan Agreement and $13.2
million under the Lease Facility.

Lombard Loan Agreement.The Company, through its subsidiary SAVVIS UK Limited (SAVVIS UK), maintains
a loan agreement (the Lombard Loan Agreement) with Lombard North Central, Plc. The Lombard Loan Agreement has a five-year term and requires monthly interest installments for the full term and quarterly principal installments beginning in 2011
through 2013. The Company has guaranteed the obligations of SAVVIS UK under the Lombard Loan Agreement and the obligations are secured by a first priority security interest in substantially all of SAVVIS UKs current data center assets and
certain future assets located in the new data center. The Company currently maintains a letter of credit, issued in 2008, of $17.6 million. The letter of credit may be increased or decreased by specified amounts at specified times, and may be
terminated if certain financial measures are met. As of March 31, 2010, outstanding borrowings under the fully drawn Lombard Loan Agreement totaled £35.0 million, or approximately $52.3 million. The variable interest rate as of
March 31, 2010 was 3.32%. This variable interest expense has been effectively fixed at 7.86%, subject to the terms of an interest rate swap agreement, as described in Note 7.



11



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##### Table of Contents

Debt Covenants

The provisions of the Companys debt agreements contain covenants including, but not limited to, maintaining specified financial conditions,
restricting or limiting the Companys ability to incur more debt, issue guarantees, pay dividends, and repurchase stock (subject to financial measures and other conditions). The Company was in compliance with all such covenants as of and during
the three months ended March 31, 2010, and anticipates compliance with all covenants for at least the next twelve months. However, the ability to comply with these provisions may be affected by events beyond the Companys control. The
breach of any of these covenants could result in a default under the Companys debt agreements and could trigger cross defaults and acceleration of repayment.

Future Principal Payments

As of
March 31, 2010, aggregate future principal payments of long-term debt were $5.0 million for the remainder of the year ended December 31, 2010, and $15.0 million, $369.3 million, and $27.2 million for the years ended December 31, 2011,
2012, and 2013, respectively. Depending on settlement options at the Companys election, the Notes, which mature in May 2012, may be settled in cash, shares, or a combination thereof. The weighted-average cash interest rate applicable to
outstanding borrowings was 3.2% as of both March 31, 2010 and December 31, 2009.

NOTE 7DERIVATIVES

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are foreign
currency exchange rate risk and variable interest rate risk. The fair value of the Companys cash flow hedges are recorded as assets or liabilities, as applicable, on the balance sheet with the offset in accumulated other comprehensive loss. To
the extent that the periodic changes in the fair value of the derivatives are not effective, or if the hedge ceases to qualify for hedge accounting, the ineffective portion of the non-cash changes are recognized immediately in the consolidated
statement of operations in the period of the change. As the hedged items impact earnings, the related hedging gains or losses are reclassified from accumulated other comprehensive loss and recognized in the consolidated statements of operations.

Foreign Currency Hedges

The Company engages in foreign currency hedging transactions to mitigate its foreign currency exchange risk. The Company had recorded a foreign currency
hedge liability of $0.2 million as of March 31, 2010 and $0.1 million as of December 31, 2009.

Interest Rate Swap

In January 2009, the Company dedesignated its existing interest rate swap and redesignated a new interest rate swap by entering into an
amended swap agreement (the Swap Agreement) with National Westminster Bank, Plc (NatWest). At the time of dedesignation, the fair value of the existing interest rate swap was £2.5 million, which represents the financing element of the
Swap Agreement, and will be amortized to earnings as the originally hedged cash flows affect earnings. The Swap Agreement hedges the monthly interest payments incurred and paid under the Lombard Loan Agreement during the three year period beginning
January 1, 2009 and ending December 31, 2011. Under the terms of the Swap Agreement, the Company owes monthly interest to NatWest at a fixed LIBOR rate of 5.06%, and receives from NatWest payments based on the same variable notional amount
at the one month LIBOR interest rate set at the beginning of each month. The Swap Agreement effectively fixes the interest payments paid under the Lombard Loan Agreement at 7.86%. As of March 31, 2010, the notional amount of the Swap Agreement
was £35.0 million. During the three months ended March 31, 2010, the Company recognized a $0.3 million gain on hedge ineffectiveness in the consolidated statement of operations, which was offset by $0.3 million in amortization of the
financing element of the Swap Agreement. As of March 31, 2010, the market value of the interest rate swap was a non-current liability of £2.3 million, or approximately $3.5 million. By using derivative instruments to hedge exposure
to changes in interest rates, the Company exposes itself to credit risk or the failure of one party to perform under the terms of the derivative contract. As of March 31, 2010, the Company had recorded a counterparty credit default risk
adjustment of $0.2 million, decreasing the fair value of the interest rate swap liability to $3.3 million.



12



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##### Table of Contents

The following table presents the settlement terms of the Swap Agreement:



|                |  |               |        |   |                  |   |        |                  |  |   |        |  
|--------------- |  | ------------- | ------ | - | ---------------- | - | ------ | ---------------- |  | - | ------ | -
|                |  | March 31,2010 |        |   | December 31,2010 |   |        | December 31,2011 | 
|Swap Agreement  |  |               |        |   |                  |   |        |                  |  |   |        |  
|Notional amount |  | £             | 35,000 |   |                  | £ | 35,000 |                  |  | £ | 29,375 |  
|Fixed rate      |  |               | 5.06   | % |                  |   | 5.06   | %                |  |   | 5.06   | %

Balance Sheet Presentation

The Companys foreign currency hedges are presented within current accrued liabilities. The interest rate swap is presented on a net
basis in other non-current accrued liabilities.

The following table summarizes the fair value of the derivatives on a net basis:



|                        |  |               |       |                  |   |      
|----------------------- |  | ------------- | ----- | ---------------- | - | -----
|                        |  | March 31,2010 |       | December 31,2009
|Liabilities:            |  |               |       |                  |   |      
|Interest rate swap, net |  | $             | 3,252 |                  | $ | 3,177
|Foreign currency hedges |  |               | 241   |                  |   | 116  
|                        |  |               |       |                  |   |      
|                        |  | $             | 3,493 |                  | $ | 3,293
|                        |  |               |       |                  |   |      

Income Statement Presentation

Realized gains and losses represent amounts related to the settlement of derivative instruments, which are reported on the consolidated statement of
operations in other (income) and expense. All of the Companys derivative instruments are cash flow hedges; as such, unrealized gains and losses, which represent the change in fair value of the derivative instruments, are recorded as a
component of other comprehensive income (loss).

The following table presents the Companys realized gains and losses on derivative
instruments:



|                        |  |                    |      |   |               |   |      |  
|----------------------- |  | ------------------ | ---- | - | ------------- | - | ---- | -
|                        |  | Three Months Ended |     
|                        |  | March 31,2010      |      |   | March 31,2009 |  
|Realized gains (losses) |  |                    |      |   |               |   |      |  
|Interest rate swap      |  | $                  | (604 | ) |               | $ | (454 | )
|Foreign currency hedges |  |                    | (243 | ) |               |   |     |  
|                        |  |                    |      |   |               |   |      |  
|                        |  | $                  | (847 | ) |               | $ | (454 | )
|                        |  |                    |      |   |               |   |      |  



13



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##### Table of Contents

NOTE 8CAPITAL AND FINANCING METHOD LEASE OBLIGATIONS

The following table presents future minimum payments due under capital and financing method leases as of March 31, 2010:



|                                                     |  |   |          |  
|---------------------------------------------------- |  | - | -------- | -
|Remainder of 2010                                    |  | $ | 29,807   |  
|2011                                                 |  |   | 40,491   |  
|2012                                                 |  |   | 40,255   |  
|2013                                                 |  |   | 36,377   |  
|2014                                                 |  |   | 36,419   |  
|Thereafter                                           |  |   | 210,870  |  
|                                                     |  |   |          |  
|Total capital and financing method lease obligations |  |   | 394,219  |  
|Less amount representing interest                    |  |   | (211,823 | )
|Less current portion                                 |  |   | (11,785  | )
|                                                     |  |   |          |  
|Capital and financing method lease obligations, net  |  | $ | 170,611  |  
|                                                     |  |   |          |  

Financing method lease obligation payments represent interest payments over the term of the lease; as such, the table above
excludes a $50.6 million deferred gain that will be realized upon termination of the lease in accordance with accounting rules for financing method leases.

NOTE 9OPERATING LEASES

The
following table presents future minimum payments under operating leases as of March 31, 2010:



|                                    |  |   |        
|----------------------------------- |  | - | -------
|Remainder of 2010                   |  | $ | 54,286 
|2011                                |  |   | 64,803 
|2012                                |  |   | 62,125 
|2013                                |  |   | 55,001 
|2014                                |  |   | 37,588 
|Thereafter                          |  |   | 222,561
|                                    |  |   |        
|Total future minimum lease payments |  | $ | 496,364
|                                    |  |   |        

Rental expense under operating leases was $19.6 million and $18.0
million for the three months ended March 31, 2010 and 2009, respectively.



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##### Table of Contents

NOTE 10OTHER ACCRUED LIABILITIES

The following table presents the components of other current and non-current accrued liabilities as of March 31, 2010 and December 31, 2009:



|                                                                   |  |               |        |                  |   |       
|------------------------------------------------------------------ |  | ------------- | ------ | ---------------- | - | ------
|                                                                   |  | March 31,2010 |        | December 31,2009
|Other current accrued liabilities:                                 |  |               |        |                  |   |       
|Wages, employee benefits, and related taxes                        |  | $             | 15,179 |                  | $ | 18,470
|Deferred revenue                                                   |  |               | 20,650 |                  |   | 20,829
|Taxes payable                                                      |  |               | 4,416  |                  |   | 4,221 
|Other current liabilities                                          |  |               | 28,720 |                  |   | 24,794
|                                                                   |  |               |        |                  |   |       
|Total other current accrued liabilities                            |  | $             | 68,965 |                  | $ | 68,314
|                                                                   |  |               |        |                  |   |       
|Other non-current accrued liabilities:                             |  |               |        |                  |   |       
|Asset retirement obligations                                       |  | $             | 30,319 |                  | $ | 29,653
|Deferred rent                                                      |  |               | 17,710 |                  |   | 16,622
|Acquired contractual obligations in excess of fair value and other |  |               | 13,448 |                  |   | 13,823
|Deferred revenue                                                   |  |               | 10,791 |                  |   | 8,728 
|Other non-current liabilities                                      |  |               | 7,139  |                  |   | 7,626 
|                                                                   |  |               |        |                  |   |       
|Total other non-current accrued liabilities                        |  | $             | 79,407 |                  | $ | 76,452
|                                                                   |  |               |        |                  |   |       

Acquired contractual obligations in excess of fair value and other as
of March 31, 2010 and December 31, 2009 represent amounts remaining from acquisitions related to fair market value adjustments of acquired facility leases and idle capacity on acquired long-term maintenance contracts that the Company did
not intend to utilize.

NOTE 11COMMITMENTS, CONTINGENCIES, AND OFF-BALANCE SHEET ARRANGEMENTS

The Companys customer contracts generally span multiple periods, which results 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 levels, allocated ratably over the
terms of such contracts, are $35.1 million, $17.2 million, $13.7 million, $9.6 million, $8.3 million, and $51.9 million during the years ended December 31, 2010, 2011, 2012, 2013, 2014, and thereafter, respectively. Should the Company not meet
the minimum spending levels in any given term, decreasing termination liabilities representing a percentage of the remaining contractual amounts may become immediately due and payable. Furthermore, certain of these termination liabilities are
potentially subject to reduction should the Company experience the loss of a major customer or suffer a loss of revenue from a general economic downturn. Before considering the effects of any potential reductions for the business downturn
provisions, if the Company had terminated all of these agreements as of March 31, 2010, the maximum termination liability would have been $135.8 million. To mitigate this exposure, at times, the Company aligns its minimum spending commitments
with customer revenue commitments for related services.

In the normal course of business, the Company is a party to certain guarantees and
financial instruments with off-balance sheet risk as they are not reflected in the accompanying consolidated balance sheets, such as letters of credit, indemnifications, and operating leases under which certain facilities are leased. The agreements
associated with such guarantees and financial instruments mature at various dates through January 2031, and may be renewed as circumstances warrant. As of March 31, 2010, the Company had $28.4 million in letters of credit outstanding under the
Credit Agreement, which are pledged as collateral to primarily support certain facility leases and utility agreements. Also, in connection with its 2007 sale of the assets related to its content delivery network services, the Company agreed to
indemnify the purchaser should it incur certain losses due to a breach of the Companys representations and warranties. The Company has not incurred a liability relating to these indemnification provisions in the past, and management believes
that the likelihood of any future payout relating to these provisions is remote. As such, the Company has not recorded a liability during any period related to these indemnification provisions.



15



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##### Table of Contents

The Companys guarantees and financial instruments are valued based on the estimated amount of exposure
and the likelihood of performance being required. To managements knowledge, no claims have been made against these guarantees and financial instruments nor does it expect exposure to material losses resulting therefrom. As a result, the
Company determined such guarantees and financial instruments do not have significant value and has not recorded any related amounts in its consolidated financial statements.

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

The Company has employment agreements with key executive officers that contain provisions
with regard to base salary, bonus, equity-based compensation, 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 12ACCUMULATED OTHER COMPREHENSIVE LOSS

The following table presents accumulated other comprehensive loss as of March 31, 2010 and December 31, 2009:



|                                     |  |               |         |   |                  |   |         |  
|------------------------------------ |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                     |  | March 31,2010 |         |   | December 31,2009 |  
|Foreign currency translation         |  | $             | (18,054 | ) |                  | $ | (15,938 | )
|Unrealized loss on derivatives(1)    |  |               | (3,387  | ) |                  |   | (3,195  | )
|                                     |  |               |         |   |                  |   |         |  
|Accumulated other comprehensive loss |  | $             | (21,441 | ) |                  | $ | (19,133 | )
|                                     |  |               |         |   |                  |   |         |  



|(1) | Includes foreign currency cash flow hedges and interest rate swap.
|--- | ------------------------------------------------------------------

NOTE 13EQUITY-BASED COMPENSATION

The following table presents information associated with the Companys equity-based compensation awards for the three months ended March 31,
2010:



|                                   |  |                       |   |  |                 |   |  |                                     |  
|---------------------------------- |  | --------------------- | - |  | --------------- | - |  | ----------------------------------- | -
|                                   |  | RestrictedStock Units |   |  | RestrictedStock |   |  | Options andRestrictedPreferredUnits |  
|Outstanding at beginning of period |  | 712                   |   |  | 319             |   |  | 5,706                               |  
|Granted                            |  | 1,202                 |   |  |                |   |  | 602                                 |  
|Delivered/Exercised                |  | (32                   | ) |  | (289            | ) |  | (616                                | )
|Forfeited                          |  | (9                    | ) |  | (13             | ) |  | (685                                | )
|Cancelled                          |  | (60                   | ) |  | (7              | ) |  | (83                                 | )
|                                   |  |                       |   |  |                 |   |  |                                     |  
|Outstanding at end of period       |  | 1,813                 |   |  | 10              |   |  | 4,924                               |  
|                                   |  |                       |   |  |                 |   |  |                                     |  

As of March 31, 2010, the Company had $36.8 million of unrecognized compensation cost which is expected to be
recognized over a weighted-average period of 3.2 years.



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##### Table of Contents

NOTE 14INCOME TAXES

For the three months ended March 31, 2010, the Company recorded income tax expense of $0.4 million on a loss before income taxes of $11.0 million.
Comparatively, for the year ended December 31, 2009, the Company recorded income tax expense of $2.7 million on a loss before income taxes of $18.1 million. Management currently anticipates a pretax loss in 2010; however income tax expense is
expected primarily due to certain jurisdictional alternative minimum taxes on income.

As of December 31, 2009, the Company had
approximately $130.2 million in U.S. net operating loss (NOL) carryforwards. These carryforwards exclude $53.7 million of additional NOLs due to limitations related to equity-based compensation, which are available from an income tax return
perspective.

The Company maintains a full valuation allowance on net deferred tax assets arising primarily from NOL carryforwards and other
tax attributes because the future realization of such benefits is uncertain. As a result, to the extent that those benefits are realized in future periods, they will favorably affect tax expense and net income.

NOTE 15INDUSTRY SEGMENT AND GEOGRAPHIC REPORTING

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis
by the chief operating decision maker in deciding how to allocate resources to an individual segment and in assessing performance of the segment. During the fourth quarter of 2009, the Companys chief operating decision maker, which is defined
as the chief executive officer, began to manage the Companys business differently, separating management by product and using different information than was previously used. As a result, the Company now has two reportable segments based on
products: hosting and network. Hosting products consist of colocation and managed hosting services and provide the core facilities, computing, data storage and network infrastructure on which to run business applications. Network products are
comprised of managed network services, hosting area network, application transport and bandwidth services.

Management of the Company
evaluates the performance of the two segments primarily based on revenue and adjusted EBITDA. Adjusted EBITDA is defined as income from operations before depreciation, amortization and accretion, and non-cash equity-based compensation. The Company
uses adjusted EBITDA as a performance measure because they believe that such information is a relevant measure of a companys operating performance and liquidity in their industry. The calculation of adjusted EBITDA is not specified by U.S.
generally accepted accounting principles. The Companys calculation of adjusted EBITDA may not be comparable to similarly titled measures of other companies.

The following table presents operating segment results for the years indicated:



|                      |  |                             |         |   |      |   |         |  
|--------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                      |  | Three Months EndedMarch 31, |        
|                      |  | 2010                        |         |   | 2009 |  
|Revenue               |  |                             |         |   |      |   |         |  
|Hosting               |  | $                           | 152,751 |   |      | $ | 152,318 |  
|Network               |  |                             | 63,836  |   |      |   | 69,205  |  
|                      |  |                             |         |   |      |   |         |  
|Total revenue         |  | $                           | 216,587 |   |      | $ | 221,523 |  
|                      |  |                             |         |   |      |   |         |  
|                      |  |                            
|Adjusted EBITDA       |  |                             |         |   |      |   |         |  
|Hosting               |  | $                           | 58,960  |   |      | $ | 64,161  |  
|Network               |  |                             | 16,265  |   |      |   | 16,252  |  
|Corporate  other(1)  |  |                             | (21,272 | ) |      |   | (21,589 | )
|                      |  |                             |         |   |      |   |         |  
|Total adjusted EBITDA |  | $                           | 53,953  |   |      | $ | 58,824  |  
|                      |  |                             |         |   |      |   |         |  



|(1) | Corporate - other adjusted EBITDA includes all general and administrative costs not directly associated with hosting services or network services.
Costs not directly associated with hosting services or network services include, but are not limited to, costs related to the finance, accounting, legal, human resources, and internal information technology (IT) departments.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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As the Companys segments are based on products, with the exception of non-cash equity-based
compensation and depreciation, the components of cost of revenue can be directly tied to the appropriate segment. Total selling, general and administrative costs can be broken down into sales and marketing and general and administrative. A portion
of sales and marketing expenses are directly related to a specific product, such as the direct sales forces, and the remainder of the costs are allocated to segments based on a percentage of customer installations or bookings, as applicable, during
the period and, as a result, may fluctuate. The majority of general and administrative costs are allocated to the corporate  other segment, as the costs primarily relate to corporate groups such as finance, legal, human resources, and internal
IT. Less than 10% of the general and administrative costs can be attributed directly to a segment, and these consist of costs for the Companys WAM!NET engineering and cloud teams. The Company does not allocate the components of other income
and expense or tax expense to segments.

Total assets, depreciation, amortization and accretion, non-cash equity-based compensation, interest
income and expense, and income tax expense by segment have not been disclosed as the information is not available to the Companys chief operating decision maker.

The following table presents a reconciliation of adjusted EBITDA to income from operations and a reconciliation of adjusted EBITDA to income (loss)
before income taxes:



|                                                                       |  |                             |         |   |      |   |         |  
|---------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                       |  | Three Months EndedMarch 31, |        
|                                                                       |  | 2010                        |         |   | 2009 |  
|Adjusted EBITDA reconciliation                                         |  |                             |         |   |      |   |         |  
|Income from operations                                                 |  | $                           | 4,763   |   |      | $ | 15,598  |  
|Depreciation, amortization and accretion                               |  |                             | 40,737  |   |      |   | 36,335  |  
|Non-cash equity-based compensation                                     |  |                             | 8,453   |   |      |   | 6,891   |  
|                                                                       |  |                             |         |   |      |   |         |  
|Adjusted EBITDA                                                        |  | $                           | 53,953  |   |      | $ | 58,824  |  
|                                                                       |  |                             |         |   |      |   |         |  
|                                                                       |  |                            
|Reconciliation of adjusted EBITDA to income (loss) before income taxes |  |                             |         |   |      |   |         |  
|Adjusted EBITDA                                                        |  | $                           | 53,953  |   |      | $ | 58,824  |  
|Depreciation, amortization and accretion                               |  |                             | (40,737 | ) |      |   | (36,335 | )
|Non-cash equity-based compensation                                     |  |                             | (8,453  | ) |      |   | (6,891  | )
|Interest income                                                        |  |                             | 30      |   |      |   | 114     |  
|Interest expense                                                       |  |                             | (15,475 | ) |      |   | (14,516 | )
|Other income (expense)                                                 |  |                             | (312    | ) |      |   | (24     | )
|                                                                       |  |                             |         |   |      |   |         |  
|Income (loss) before income taxes                                      |  | $                           | (10,994 | ) |      | $ | 1,172   |  
|                                                                       |  |                             |         |   |      |   |         |  



18



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##### Table of Contents

The table below presents selected financial information for the Companys three geographic regions:
Americas, EMEA (Europe, Middle East, and Africa) and Asia, for the periods indicated:



|                            |  |                             |         |                   |   |        
|--------------------------- |  | --------------------------- | ------- | ----------------- | - | -------
|                            |  | Three Months EndedMarch 31,
|                            |  | 2010                        |         | 2009             
|Revenue                     |  |                             |         |                   |   |        
|Americas                    |  | $                           | 176,240 |                   | $ | 185,475
|EMEA                        |  |                             | 29,219  |                   |   | 26,743 
|Asia                        |  |                             | 11,128  |                   |   | 9,305  
|                            |  |                             |         |                   |   |        
|Total revenue               |  | $                           | 216,587 |                   | $ | 221,523
|                            |  |                             |         |                   |   |        
|                            |  |                            
|                            |  | March 31,2010               |         | December 
31,2009
|Property and equipment, net |  |                             |         |                   |   |        
|Americas                    |  | $                           | 683,031 |                   | $ | 678,163
|EMEA                        |  |                             | 85,813  |                   |   | 82,329 
|Asia                        |  |                             | 23,532  |                   |   | 23,360 
|                            |  |                             |         |                   |   |        
|Property and equipment, net |  | $                           | 792,376 |                   | $ | 783,852
|                            |  |                             |         |                   |   |        

For the three months ended March 31, 2010 and 2009, revenue
earned in the Americas represented approximately 81% and 84% of total revenue, respectively. Substantially all of the Companys other non-current assets reside in the Americas geographic region.



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##### Table of Contents

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

Our Managements Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is provided in addition to the
accompanying unaudited condensed consolidated financial statements and notes thereto to assist readers in understanding our results of operations, financial condition, and cash flows. You should read the following discussion in conjunction with our
audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2009, and our MD&A as of and for the year ended December 31, 2009, included in our Annual Report on Form 10-K for such period as
filed with the SEC. The following discussion contains, in addition to historical information, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, including those
set forth in Part I, Item 1A of our Annual Report on Form 10-K and in subsequent SEC filings. Our actual results may differ materially from the results discussed in the forward-looking statements.

EXECUTIVE SUMMARY

Overview

We provide information technology, or IT, services including cloud services, managed hosting, managed security, colocation, professional
services, and network services through our global infrastructure to businesses and government agencies around the world. Our services are designed to offer a flexible and comprehensive IT solution that meets the specific IT infrastructure and
business needs of our customers. Our suite of products can be purchased individually, in various combinations, or as part of a total or partial outsourcing arrangement. Our colocation solutions meet the specific needs of customers who require
control of their physical assets, while our managed hosting solution offerings provide customers with access to our services and infrastructure without the upfront capital costs associated with equipment acquisition. By partnering with us, our
customers may drive down the costs of acquiring and managing IT infrastructure and achieve increased operational efficiency by taking advantage of our global monitoring, application performance support and other operational support systems and
tools, which allow our clients to focus their resources on their core business while we focus on the delivery and performance of their IT infrastructure services.

Our Services

We present our revenue in
two categories of services: (1) hosting services and (2) network services.

Hosting Services provide the core
facilities, computing, including cloud services, data storage, security and network infrastructure on which to run business applications. We manage 28 data centers located in the United States, Europe, and Asia with approximately 1.48 million
square feet of gross raised floor space. Our hosting services are comprised of colocation and managed hosting and allow our customers to choose which parts of their IT infrastructure they own and operate versus those that we own and operate for
them. Customers can scale their use of our services as their own requirements change and as customers learn the benefits of outsourcing IT infrastructure management.



| |  |  | Colocation is designed for customers seeking data center space and power for their server and networking equipment needs. Our data
centers provide our customers around the world with a secure, high-powered, purpose-built location for their IT equipment.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Managed Hosting Services provide a fully managed solution for a customers IT infrastructure and network needs. In providing our
managed hosting services, we deploy industry leading hardware and software platforms that are installed in our data centers to deliver the physical or virtualized services necessary for operating our customers applications. Managed hosting
services include:
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Cloud Services,including offerings such as software as a service, enable significant new levels of scalability, flexibility, and cost
efficiency for businesses. Cloud is a style of computing that aligns business needs with IT capacity to drive more efficient and effective use of a customers infrastructure resources. The value of virtualized infrastructure, fully automated or
scheduled provisioning processes, security assurances in complex environments, and flexible business terms can result in lower infrastructure and maintenance costs, preservation of capital, elasticity to respond to changing business needs and
unanticipated load changes, acceleration of new application platforms, better end-user experience and reduction of carbon footprint through consolidation and lower energy consumption.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Managed Security Services provide global around-the-clock monitoring and management of security appliances, software, and network-based
controls, and incident response, for our managed hosting and network services customers. We focus on delivering security services in a cost-effective manner while attempting to adhere to industry best practices to protect infrastructure and
application assets. Utilizing our advanced network tools to detect and filter malicious traffic before it reaches our customers infrastructures, we work to mitigate the impact of such attacks. We also provide virtualized security services by
using industry-standard virtualization technology in our data centers to reduce the need for our customers to pay for dedicated security equipment.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Professional Servicesare provided through our skilled personnel who assist our customers in getting maximum value from our service
offerings. We offer assistance and consultation in security for network and hosting environments, virtualization, web-based applications, business recovery, software as a service, program management, infrastructure, and migration. Our professional
services organization assists our customers with ongoing operational support, as well as assessing, designing, developing, implementing, and managing outsourcing solutions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Dedicated Hosting provides customers with managed hosting services on hardware and software that is isolated to a single customer.
Customers requiring dedicated infrastructure usually have either stringent internal requirements for application performance, security, or data integrity, or they are attempting to become compliant with external industry or governing regulations. In
a dedicated hosting scenario, customers are provided discrete hardware components.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Utility Computing and Storage provides customers with an available, secure applications platform that delivers scalability of an entire
range of IT infrastructure at lower total cost than found with traditional service provider models. We achieve this combination of lower cost and better service through the use of virtualization technology. Whereas IT infrastructure services have
traditionally been provided by discrete hardware components, advances in virtualization technology and software have enabled us to provide a broad range of functionality without the challenges of implementing and managing discrete components. Not
only does this enable us to improve our own asset utilization, it also results in our ability to dynamically configure services to meet customer requirements with a flexible model. Through our managed network, we provide connectivity between the
customer and the utility computing platform housed in our data centers. With our utility computing and storage solution, our customers pay only for the services they currently need, while maintaining the ability to scale up or down the services to
meet their changing business needs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Network Services are comprised of our managed network services, including
managed IP VPN, High Speed Layer-2 VPN and the services marketed under our WAM!NET brand; hosting area network, or HAN; and bandwidth services.



| |  |  | Managed IP VPN service is a fully managed, end-to-end solution that includes hardware, management systems, and operations to transport an
enterprises voice, video and data applications at corresponding quality-of-service levels, whether those applications are housed at our customers site or in our data centers. Customers that purchase this service are generally
geographically dispersed enterprises seeking to transmit latency-sensitive data more cost effectively in a secure environment among their multiple locations around the world.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | High-Speed Layer-2 VPN uses our metro Ethernet ring capabilities to provide access between connected nodes, which may include data
centers, carrier hotels for internet carrier diversity, or financial market data exchanges.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | WAM!NET Services provide a shared infrastructure tied to applications that streamline process and workflow around the creation,
production and distribution of digital media and marketing content. These services help companies to manage, share, store, and distribute their digital media inside of their organization and throughout their external supply chains using a single
access point.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Hosting Area Network is a dedicated network that provides secure, high speed Internet connectivity for hosting and cloud customers
located in our data centers, along with value-added services such as load balancing and network-based firewalls.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Bandwidth Servicesare provided to enterprises and wholesale carrier customers. We offer Tier 1 Internet services in the United States,
Europe, and Asia that are managed, unmanaged, or integrated with our IP VPN. In addition, we offer carrier diversity by enabling connectivity either to Internet providers built into our data centers or to providers in carrier hotels that are
connected to our data centers by our metro Ethernet rings.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For further information on our business and services, please
refer to Part I, Item 1 of our Annual Report on Form 10-K.

Business Trends and Outlook

While the economy is showing signs of stabilizing, predictability in timing of sales cycles for new business has continued to be challenged by lengthy
decision making cycles caused, in part, by strained IT budgets. Despite these challenges, we believe we have considerable opportunity and believe that companies will increasingly consider adopting outsourced IT solutions as they attempt to reduce
their infrastructure spending and meet the increasing demands from their user communities. Our services model enables our enterprise customers to choose from a number of different strategies designed to reduce their IT costs. Our focus is to provide
mission-critical, non-discretionary IT infrastructure outsourcing and we believe that our target customer base considers us specialists in the areas of server management, storage, virtualization, security and network infrastructure. With the
completion in 2008 of a significant phase of our global data center expansion, and additional expansion in key markets in 2010, we believe we have the right footprint, operational plan, and functionality in place to provide our customers with the
products and services they need at the locations where they need it. However, we continue to work with our existing customers to understand their business needs and related geographic and product extension opportunities; the pursuit of which, we
believe, will foster stronger, mutually beneficial relationships with our customers. Additionally, we are evaluating and entering into strategic alliances, such as our agreement with Thomson Reuters, which provides managed hosting and network
solutions to Thomson Reuters customers through our data centers.

The center point of our strategy is to grow our hosting business through our
managed hosting service offerings. We believe that we can show customers that we can decrease their costs by moving towards our managed hosting solutions for their IT needs. While colocation and network services play an important and foundational
role, we remain intensely focused on growing our managed hosting business, specifically in our new offerings such as cloud services. We successfully launched the first of our cloud service offerings during 2009 and accelerated the acceptance program
on our advanced virtual private data center for cloud services in the first quarter of 2010. The colocation market has grown, pricing has stabilized and we remain committed to delivering growth in that business as well. However, in the fourth
quarter of 2009, we experienced revenue decreases from non-core, below-market margin customers, including certain of those in the internet content business, and certain of our network products, which we expect to remain under pressure throughout
2010. We have increased our focus on our network services, with the goal of stabilizing that segment of our business while continuing to provide an integrated managed hosting and managed network solution, particularly in hosted applications
requiring higher network performance characteristics. Approximately two-thirds of our revenue comes from customers that purchase all three of our services: managed hosting, colocation and network. Accordingly, we believe the intersection of these
three services allows us to produce a much higher return on invested capital than managed hosting, colocation or network alone, particularly by leveraging technologies for shared platform resources.

Based on current economic conditions and demand for our services, we also will continue to remain focused on initiatives that we believe will continue to
improve and grow our business, including:



| |  |  | Increasing the quality of our infrastructure and the reliability of our services through additional investments in systems;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | Improving efficiencies in our services and support and our general and administrative areas through process and productivity improvements;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expanding data center space to support growth in our hosting products and services;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Investing in cloud platforms and services;
| | - |  | ------------------------------------------



| |  |  | Increasing client satisfaction through our delivery of differentiated services as reflected in responses to our customer satisfaction surveys; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Exploring options for acquisitions and divestitures that facilitate the achievement of our strategic business objectives.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

RESULTS OF OPERATIONS

The historical financial information included in this Quarterly Report on Form 10-Q is not intended to represent the consolidated results of operations,
financial position, or cash flows that may be achieved in the future.

Three Months Ended March 31, 2010 Compared to the Three
Months Ended March 31, 2009

Executive Summary of Results of Operations

Revenue decreased $4.9 million, or 2%, for the three months ended March 31, 2010 compared to the three months ended March 31, 2009, primarily as
a result of an 8% decline in network services revenue and minimal growth in total hosting revenue. Income from operations decreased $10.8 million to $4.8 million for the three months ended March 31, 2010 compared to income from operations of
$15.6 million for the three months ended March 31, 2009 primarily due to the decreased revenue and an increase in depreciation expense of $4.4 million. Loss before income taxes for the three months ended March 31, 2010 was $11.0 million
compared to income before income taxes of $1.2 million for the three months ended March 31, 2009.

The following table presents revenue
by major service category (dollars in thousands):



|                 |  |                              |         |      |   |              |  |   |                  |   |  |    |   
|---------------- |  | ---------------------------- | ------- | ---- | - | ------------ |  | - | ---------------- | - |  | -- | --
|                 |  | Three Months Ended March 31, |        
|                 |  | 2010                         |         | 2009 |   | DollarChange |  |   | PercentageChange |  
|Revenue:         |  |                              |         |      |   |              |  |   |                  |   |  |    |   
|Colocation       |  | $                            | 82,467  |      | $ | 84,232       |  | $ | (1,765           | ) |  | (2 | )%
|Managed hosting  |  |                              | 70,284  |      |   | 68,086       |  |   | 2,198            |   |  | 3  | % 
|                 |  |                              |         |      |   |              |  |   |                  |   |  |    |   
|Total hosting    |  |                              | 152,751 |      |   | 152,318      |  |   | 433              |   |  | 0  | % 
|Network services |  |                              | 63,836  |      |   | 69,205       |  |   | (5,369           | ) |  | (8 | )%
|                 |  |                              |         |      |   |              |  |   |                  |   |  |    |   
|Total revenue    |  | $                            | 216,587 |      | $ | 221,523      |  | $ | (4,936           | ) |  | (2 | )%
|                 |  |                              |         |      |   |              |  |   |                  |   |  |    |   

Revenue. Revenue was $216.6 million for the three months ended March 31, 2010, a decrease of $4.9
million, or 2%, from $221.5 million for the three months ended March 31, 2009. Revenue for the three months ended March 31, 2009, included $3.0 million of non-recurring termination fees and $6.1 million of revenue from the American Stock
Exchange, or AMEX, a customer which was acquired by the New York Stock Exchange and subsequently cancelled its service with us in 2009. Total hosting revenue was $152.8 million for the three months ended March 31, 2010, an increase of $0.4
million from $152.3 million for the three months ended March 31, 2009. The increase was driven by a $2.2 million increase in managed hosting revenue which reflected strong growth in our dedicated hosting and professional services products.
During the three months ended March 31, 2009, we recorded approximately $3.0 million of non-recurring termination fees and approximately $4.9 million of revenue from AMEX. Offsetting this prior year non-recurring revenue was net growth of $10.1
million primarily in our dedicated hosting and storage products. Overall hosting growth was moderated by declines in our colocation product, which decreased $1.8 million for the three months ended March 31, 2010, as we experienced $6.1 million
of customer churn in the fourth quarter of 2009 primarily related to certain large internet content customers and financial services industry customers. Network services revenue was $63.8 million for the three months ended March 31, 2010, a
decrease of $5.4 million, or 8%, from $69.2 million for the three months ended March 31, 2009. The decrease was driven primarily by $2.2 million in managed VPN and $2.5 million in internet access.

Cost of revenue. Cost of revenue includes facility rental costs, utilities, circuit costs and other operating costs for hosting space; costs of
leasing local access lines to connect customers to our Points of Presence, or PoPs; leasing backbone circuits to interconnect our PoPs; indefeasible rights of use, operations and maintenance; and salaries and related benefits for engineering,
service delivery and provisioning, customer service, consulting services and operations personnel who maintain our network, monitor network performance, resolve service issues, and install new sites. Cost of revenue excludes depreciation,
amortization, and accretion, which is reported as a separate line item of operating costs, and includes non-cash equity-based compensation. Cost of revenue was $119.4 million for the three months ended March 31, 2010, a decrease of $1.1
million, or 1%, from $120.5 million for the three months ended March 31, 2009. The decrease was driven by a $3.2 million decrease in customer related costs, $1.3 million in reduced network backbone costs, $2.9 million of higher equipment and
software maintenance and increased salaries, wages and related benefits of $0.6 million.



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##### Table of Contents

Sales, general, and administrative expenses.Sales, general, and administrative expenses include
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 show costs; 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. It excludes depreciation, amortization, and accretion, which is
reported as a separate line item of operating costs, and includes non-cash equity-based compensation. Sales, general, and administrative expenses were $51.7 million for the three months ended March 31, 2010, an increase of $2.6 million, or 5%,
from $49.1 million for the three months ended March 31, 2009. This increase was primarily driven by a $1.4 million increase in non-cash equity-based compensation and a $1.2 million increase in other costs consisting primarily of salaries,
wages, commissions and related benefits.

Depreciation, amortization, and accretion.Depreciation, amortization, and accretion
expense consists primarily of the depreciation of property and equipment, amortization of intangible assets, and accretion expense related to the aging of the discounted present value of certain liabilities and unfavorable long-term contracts
assumed in acquisitions. Depreciation, amortization, and accretion was $40.7 million for the three months ended March 31, 2010, an increase of $4.4 million, or 12%, from $36.3 million for the three months ended March 31, 2009. This
increase was due to depreciation on the addition of new data center assets and other capital expenditures of $7.7 million, which was partially offset by a $2.7 million decrease in depreciation due to certain assets becoming fully depreciated.

Other income and expense.Other income and expense represents interest on our long-term debt, interest on our capital and
financing method lease obligations, certain other non-operating charges, and interest income on our invested cash balances. Other income and expense was $15.8 million for the three months ended March 31, 2010, an increase of $1.3 million, or
9%, from $14.4 million for the three months ended March 31, 2009. The $1.0 million increase in interest expense for the three months ended March 31, 2010 was due to $1.2 million of interest related to the expansion of an existing data
center in Chicago which resulted in the reclassification of the lease to a capital lease and $0.3 million increase in accreted convertible debt interest, partially offset by a $0.4 million increase in capitalized interest. Interest income decreased
$0.1 million due to lower average interest rates during the three months ended March 31, 2010. Other income and expense increased $0.3 million on foreign exchange losses from currency revaluation of foreign denominated balances during the three
months ended March 31, 2010. The following table presents a quarterly overview of the components of other income and expense (dollars in thousands):



|                                 |  |                              |        |   |      |   |        |              |  |                  |       |  |       |  
|-------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | ------------ |  | ---------------- | ----- |  | ----- | -
|                                 |  | Three Months Ended March 31, |       
|                                 |  | 2010                         |        |   | 2009 |   |        | DollarChange |  | PercentageChange |      
|Other (income) and expense       |  |                              |        |   |      |   |        |              |  |                  |       |  |       |  
|Interest expense                 |  | $                            | 15,475 |   |      | $ | 14,516 |              |  | $                | 959   |  | 7     | %
|Interest income                  |  |                              | (30    | ) |      |   | (114   | )            |  |                  | 84    |  | 74    | %
|Other (income) expense           |  |                              | 312    |   |      |   | 24     |              |  |                  | 288   |  | 1,200 | %
|                                 |  |                              |        |   |      |   |        |              |  |                  |       |  |       |  
|Total other (income) and expense |  | $                            | 15,757 |   |      | $ | 14,426 |              |  | $                | 1,331 |  | 9     | %
|                                 |  |                              |        |   |      |   |        |              |  |                  |       |  |       |  

Income (loss) before income taxes. Loss before income taxes for the three months ended March 31, 2010
was $11.0 million compared to income before income taxes of $1.2 million for the three months ended March 31, 2009.

Income tax
expense.Income tax expense for the three months ended March 31, 2010 was $0.4 million compared to $0.6 million for the three months ended March 31, 2009. The $0.2 million decrease was due to the expectation of a lower alternative
minimum tax liability in 2010.

Net income (loss).Net loss for the three months ended March 31, 2010 was $11.3
million compared to net income of $0.6 million for the three months ended March 31, 2009, driven by the factors previously described.



24



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##### Table of Contents

Segment Information

Segment Adjusted EBITDA

The
discussion of our results of operations by segment presented below includes references to and analysis of our segment adjusted EBITDA results. Adjusted EBITDA represents income from operations before depreciation, amortization and accretion, and
non-cash equity-based compensation. Adjusted EBITDA is reconciled below to its most comparable measure, income from operations. Adjusted EBITDA is further reconciled to income (loss) before income taxes in Note 15 of Notes to Consolidated Financial
Statements included in this Quarterly Report on Form 10-Q. We use adjusted EBITDA as a performance measure to evaluate our segments because we believe that such information is a relevant measure of a companys operating financial performance
and liquidity in our industry. The calculation of adjusted EBITDA is not specified by U.S. generally accepted accounting principles. As such, our calculation of adjusted EBITDA may not be comparable to similarly titled measures of other companies.

The following table presents revenue and adjusted EBITDA by segment (dollars in thousands):



|                                         |  |                              |         |   |      |   |         |              |  |   |               |   |  |    |   
|---------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | ------------ |  | - | ------------- | - |  | -- | --
|                                         |  | Three Months Ended March 31, |        
|                                         |  | 2010                         |         |   | 2009 |   |         | DollarChange |  |   | PercentChange |  
|Revenue                                  |  |                              |         |   |      |   |         |              |  |   |               |   |  |    |   
|Hosting                                  |  | $                            | 152,751 |   |      | $ | 152,318 |              |  | $ | 433           |   |  | 0  | % 
|Network                                  |  |                              | 63,836  |   |      |   | 69,205  |              |  |   | (5,369        | ) |  | (8 | )%
|                                         |  |                              |         |   |      |   |         |              |  |   |               |   |  |    |   
|Total revenue                            |  | $                            | 216,587 |   |      | $ | 221,523 |              |  | $ | (4,936        | ) |  | (2 | )%
|                                         |  |                              |         |   |      |   |         |              |  |   |               |   |  |    |   
|                                         |  |                              |         |  
|Adjusted EBITDA                          |  |                              |         |   |      |   |         |              |  |   |               |   |  |    |   
|Hosting                                  |  | $                            | 58,960  |   |      | $ | 64,161  |              |  | $ | (5,201        | ) |  | (8 | )%
|Network                                  |  |                              | 16,265  |   |      |   | 16,252  |              |  |   | 13            |   |  | 0  | % 
|Corporate - other(1)                     |  |                              | (21,272 | ) |      |   | (21,589 | )            |  |   | 317           |   |  | 1  | % 
|                                         |  |                              |         |   |      |   |         |              |  |   |               |   |  |    |   
|Total adjusted EBITDA                    |  | $                            | 53,953  |   |      | $ | 58,824  |              |  | $ | (4,871        | ) |  | (8 | )%
|                                         |  |                              |         |   |      |   |         |              |  |   |               |   |  |    |   
|                                         |  |                              |         |  
|Adjusted EBITDA reconciliation           |  |                              |         |   |      |   |         |              |  |   |               |   |  |    |   
|Income from operations                   |  | $                            | 4,763   |   |      | $ | 15,598  |              |  |   |               |   |  |    |   
|Depreciation, amortization and accretion |  |                              | 40,737  |   |      |   | 36,335  |              |  |   |               |   |  |    |   
|Non-cash equity-based compensation       |  |                              | 8,453   |   |      |   | 6,891   |              |  |   |               |   |  |    |   
|                                         |  |                              |         |   |      |   |         |              |  |   |               |   |  |    |   
|Adjusted EBITDA                          |  | $                            | 53,953  |   |      | $ | 58,824  |              |  |   |               |   |  |    |   
|                                         |  |                              |         |   |      |   |         |              |  |   |               |   |  |    |   



|(1) | Includes all costs not directly associated with hosting services or network services.
|--- | -------------------------------------------------------------------------------------

Revenue

Hosting.Revenue
from our hosting segment was $152.8 million for the three months ended March 31, 2010, a $0.4 million increase from $152.3 million for the three months ended March 31, 2009. The increase is driven by a $2.2 million increase in managed
hosting revenue which reflects strong growth in our dedicated hosting and professional services products. During the three months ended March 31, 2009, we recorded approximately $3.0 million of non-recurring termination fees and approximately
$4.9 million of revenue from AMEX. Offsetting this prior year non-recurring revenue was net growth of $10.1 million primarily in our dedicated hosting and storage products. Overall hosting growth was moderated by declines in our colocation product
which decreased $1.8 million for the three months ended March 31, 2010, as we experienced $6.1 million of customer churn in the fourth quarter of 2009 primarily related to certain large internet content customers and financial services industry
customers which was included as a component of revenue during the three months ended March 31, 2009.

Network. Network services
revenue was $63.8 million for the three months ended March 31, 2010, a decrease of $5.4 million, or 8%, from $69.2 million for the three months ended March 31, 2009. The decrease was driven primarily by a $2.2 million reduction in managed
VPN and $2.5 million in bandwidth revenue.



25



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##### Table of Contents

Adjusted EBITDA

Hosting.Adjusted EBITDA for our hosting segment was $59.0 million for the three months ended March 31, 2010, a decrease of $5.2 million, or
8%, from $64.2 million for the three months ended March 31, 2009 which included $3.0 million of non-recurring termination fee revenue which had no associated costs. The decrease was driven by the overall flat revenue performance for the
segment, partially offset by an increase of $5.6 million in hosting costs. Costs directly associated with our hosting segment include the costs of facility rentals, utilities, equipment and software maintenance costs and other operating costs for
hosting space and the salaries and related benefits for personnel directly or indirectly associated with our hosting products. The $5.6 million increase in costs was primarily driven by $2.5 million of higher equipment and software maintenance costs
primarily due to new business and increased license usage and an additional $2.7 million of increased costs for third party contractors to support increased managed hosting revenue. Segment adjusted EBITDA as a percentage of segment revenue was 39%
for the three months ended March 31, 2010 compared to 42% for the three months ended March 31, 2009.

Network.Adjusted
EBITDA for our network segment was $16.3 million for both of the three months ended March 31, 2010 and 2009. Revenue declined by $5.4 million primarily due to $2.2 million in managed VPN and $2.5 million in internet access offset by $5.4
million of cost savings comprised of $3.9 million of reduced local loop and circuit costs and $1.2 million of decreased people costs which were driven by the aforementioned reduction in revenue. Segment adjusted EBITDA as a percentage of segment
revenue increased to 25% for the three months ended March 31, 2010 compared to 23% for the three months ended March 31, 2009.

Corporate - other.Corporate - other adjusted EBITDA includes all operating costs not directly associated with our hosting or network segments,
primarily general and administrative costs including executive, financial, legal, tax, internal IT and administrative support personnel and related costs, costs for professional services, including legal accounting, tax and consulting services, and
bad debt expense. These costs were $21.3 million for the three months ended March 31, 2010, a decrease of $0.3 million from $21.6 million for the three months ended March 31, 2009. This was driven by a $0.3 million decrease in bad debt
expense.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Use of Cash

As of
March 31, 2010, our cash and cash equivalents balance was $145.9 million, and we have $21.6 million of available capacity on our revolving credit facility. We believe we have sufficient cash to fund business operations and capital expenditures
for at least twelve months from the date of this filing, from cash on hand, operations, and available debt capacity.

The following table
presents our cash flows for the periods indicated (dollars in thousands):



|                                                      |  |                                      |         |   |      |   |         |  
|----------------------------------------------------- |  | ------------------------------------ | ------- | - | ---- | - | ------- | -
|                                                      |  | For the Three Months 
EndedMarch 31, |        
|                                                      |  | 2010                                 |         |   | 2009 |  
|Cash provided by (used in):                           |  |                                      |         |   |      |   |         |  
|Operating activities                                  |  | $                                    | 38,972  |   |      | $ | 45,650  |  
|Investing activities                                  |  |                                      | (50,691 | ) |      |   | (18,252 | )
|Financing activities                                  |  |                                      | (964    | ) |      |   | (1,974  | )
|Effect of exchange rates on cash and cash equivalents |  |                                      | (2,204  | ) |      |   | (846    | )
|                                                      |  |                                      |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents  |  | $                                    | (14,887 | ) |      | $ | 24,578  |  
|                                                      |  |                                      |         |   |      |   |         |  



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##### Table of Contents

Operating activities.We generated $39.0 million in net cash provided by operating activities during
the three months ended March 31, 2010, a decrease of $6.7 million from net cash provided by operating activities of $45.7 million for the three months ended March 31, 2009. This decrease was driven by lower operating results, largely
resulting from customer churn during 2009 and during the three months ended March 31, 2010 and increased prepayments for maintenance related costs. We anticipate continuing to generate cash from operating activities during the next twelve
months.

Investing activities.Net cash used in investing activities for the three months ended March 31, 2010 was $50.7 million,
an increase of $32.4 million from net cash used in investing activities of $18.3 million for the three months ended March 31, 2009. The increase in cash used was driven by an increase in data center expansion related capital expenditures during
the three months ended March 31, 2010.

Financing activities.Net cash used in financing activities for the three months ended
March 31, 2010 was $1.0 million, a decrease of $1.0 million from net cash used by financing activities of $2.0 million for the three months ended March 31, 2009. This decrease primarily relates to $6.6 million in proceeds from stock option
exercise activity in the three months ended March 31, 2010 which is partially offset by the absence of long-term debt funding during the three months ended March 31, 2009. Although we anticipate our financing activities for the next twelve
months to consist primarily of principal payments on our long-term debt and capital lease obligations, we are evaluating alternative financing for all or a significant portion of our debt. Any such refinancing may have higher costs than our existing
debt and may be subject to covenants or other terms that are less favorable than our existing indebtedness. We will evaluate any such refinancing transaction in the light of the then-existing market conditions.

Trade Accounts Receivable

Trade
accounts receivable, net of allowance, was $51.8 million as of March 31, 2010, an increase of $6.0 million from $45.8 million at December 31, 2009, primarily due to timing of certain customer billings based upon completion of contractual
milestones reached near the end of the period combined with fewer collection days during the three months ended March 31, 2010. Other than any financing activities we may pursue, customer collections are a primary source of cash. As such, we
are vulnerable to economic downturn and the impact it may have on our customers spending. We believe we have a strong customer base with no one customer accounting for more than 10% of our revenues; however, 26% of our revenue for the three
months ended March 31, 2010 was generated by customers in the financial services industry. Given the current economic environment and uncertainty in the financial services industry, we remain cautious regarding these customers and their future
impact on our revenue and profitability.

Long-term Debt and Other Financing

Long-term debt.The following table sets forth our long-term debt and other financing as of March 31, 2010 and December 31, 2009 (dollars
in thousands):



|                                                  |  |                |         |                   |   |        
|------------------------------------------------- |  | -------------- | ------- | ----------------- | - | -------
|                                                  |  | March 
31,2010 |         | December 
31,2009
|Convertible notes                                 |  | $              | 309,688 |                   | $ | 305,921
|Lombard loan agreement                            |  |                | 52,318  |                   |   | 55,973 
|Other financing(1)                                |  |                | 19,145  |                   |   | 20,795 
|Credit agreement                                  |  |                |        |                   |   |       
|Capital and financing method lease obligations(2) |  |                | 232,996 |                   |   | 234,776
|                                                  |  |                |         |                   |   |        
|Total long-term debt and other financing          |  | $              | 614,147 |                   | $ | 617,465
|                                                  |  |                |         |                   |   |        



|(1) | Other financing includes borrowings under our Cisco loan agreement, for which the weighted-average interest rate was 6.50% as of March 31, 2010 and
December 31, 2009. The amount presented in the table above includes the current amounts due of $6.6 million for both March 31, 2010 and December 31, 2009. Payments on the loan are made monthly.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Capital and financing method lease obligations include capital and financing method leases on certain of our facilities and equipment held under capital leases. The
weighted-average interest rates for such leases were 12.69% as of March 31, 2010 and 15.32% as of December 31, 2009. The amounts presented in the table above include the current amounts due of $11.8 million as of March 31, 2010 and
$10.9 million as of December 31, 2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Future principal payments.The following table sets forth our aggregate future principal payments of
long-term debt and other financing as of March 31, 2010 (dollars in thousands):



|                             |  |                                                                 |         |               |   |        |  |      |        |      |   |         |  |            |        |  |   |        |  |   |        
|---------------------------- |  | --------------------------------------------------------------- | ------- | ------------- | - | ------ |  | ---- | ------ | ---- | - | ------- |  | ---------- | ------ |  | - | ------ |  | - | -------
|                             |  | Future Principal Payments of Long-term Debt and Other Financing
|                             |  | Total                                                           |         | Remainder2010 |   | 2011   |  | 2012 |        | 2013 |   | 2014    |  | Thereafter
|Convertible notes(1)         |  | $                                                               | 345,000 |               | $ |       |  | $    |       |      | $ | 345,000 |  | $          |       |  | $ |       |  | $ |       
|Capital lease obligations(2) |  |                                                                 | 180,120 |               |   | 8,397  |  |      | 12,939 |      |   | 14,059  |  |            | 11,640 |  |   | 13,285 |  |   | 119,800
|Lombard loan agreement(3)    |  |                                                                 | 52,318  |               |   |       |  |      | 8,408  |      |   | 18,218  |  |            | 25,692 |  |   |       |  |   |       
|Other financing              |  |                                                                 | 19,145  |               |   | 4,950  |  |      | 6,600  |      |   | 6,122   |  |            | 1,473  |  |   |       |  |   |       
|Credit facility              |  |                                                                 |        |               |   |       |  |      |       |      |   |        |  |            |       |  |   |       |  |   |       
|                             |  |                                                                 |         |               |   |        |  |      |        |      |   |         |  |            |        |  |   |        |  |   |        
|Total                        |  | $                                                               | 596,583 |               | $ | 13,347 |  | $    | 27,947 |      | $ | 383,399 |  | $          | 38,805 |  | $ | 13,285 |  | $ | 119,800
|                             |  |                                                                 |         |               |   |        |  |      |        |      |   |         |  |            |        |  |   |        |  |   |        



|(1) | Represents principal amount of the convertible notes.
|--- | -----------------------------------------------------

|(2) | Does not include future payments on our financing method lease obligation as they represent interest payments over the term of the lease.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(3) | The Lombard loan agreement is denominated in GBP; future principal payments in USD are based on our quarter-end exchange rate.
|--- | ------------------------------------------------------------------------------------------------------------------------------

The weighted-average cash interest rate applicable to outstanding borrowings was 3.2% as of both March 31, 2010 and December 31, 2009,
respectively.

For further information on our long-term debt, please refer to Note 6 of Notes to the Financial Statements located in this
Quarterly Report on Form 10-Q.

Debt Covenants

The provisions of our debt agreements also contain covenants including, but not limited to, restricting or limiting our ability to incur more debt, issue
guarantees, pay dividends, and repurchase stock (subject to financial measures and other conditions). We were in compliance with all such covenants as of and during the three months ended March 31, 2010, and anticipate compliance with all
covenants for at least the next twelve months. However, the ability to comply with these provisions may be affected by events beyond our control. The breach of any of these covenants could result in a default under our debt agreements and could
trigger cross defaults and acceleration of repayment obligations.

Commitments and Contingencies

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 levels, allocated ratably over the terms of such contracts, are $35.1 million, $17.2
million, $13.7 million, $9.6 million, $8.3 million, and $51.9 million during the years ended December 31, 2010, 2011, 2012, 2013, 2014, and thereafter, respectively. Should we not meet the minimum spending levels in any given term, decreasing
termination liabilities, representing a percentage of the remaining contractual amounts, may become immediately due and payable. Furthermore, certain of these termination liabilities are potentially subject to reduction should we experience the loss
of a major customer or suffer a loss of revenue from a general economic downturn. Before considering the effects of any potential reductions for the business downturn provisions, if we had terminated all of these agreements as of March 31,
2010, the maximum liability would have been $135.8 million. To mitigate this exposure, at times, we align our minimum spending commitments with customer revenue commitments for related services.

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



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

Off-Balance-Sheet Arrangements

As of March 31, 2010, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. In
the normal course of business, we are a party to certain guarantees and financial instruments with off-balance sheet risk as they are not reflected in our consolidated balance sheets, such as letters of credit, indemnifications, and operating leases
under which certain facilities are leased. The agreements associated with such guarantees and financial instruments mature at various dates through January 2031, and may be renewed as circumstances warrant. As of March 31, 2010, we had $28.4
million in letters of credit outstanding under our revolving credit facility, pledged as collateral to support certain facility leases and utility agreements. Also, in connection with the 2007 sale of our assets related to content delivery network
services, we agreed to indemnify the purchaser should it incur certain losses due to a breach of our representations and warranties. We have not incurred a liability relating to these indemnification provisions in the past, and we believe that the
likelihood of any future payout relating to these provisions is remote. Therefore, we have not recorded a liability during any period related to these indemnification provisions.

Our guarantees and financial instruments are valued based on the estimated amount of exposure and the likelihood of performance being required. Based on
our past experience, no claims have been made against these guarantees and financial instruments nor do we expect exposure to material losses resulting therefrom. As a result, we determined such guarantees and financial instruments did not have
significant value and have not recorded any related amounts in our consolidated financial statements.

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based upon our financial
statements, which are prepared in accordance with U.S. GAAP. U.S. GAAP requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Critical accounting policies for SAVVIS, Inc. that affect our more significant
judgments and estimates used in the preparation of our condensed consolidated financial statements are discussed in more detail in Note 2 to the Notes to the Consolidated Financial Statements and in Managements Discussion and Analysis of
Financial Condition and Results of Operations under the caption Critical Accounting Estimates included in our report on Form 10-K as filed with the SEC on March 5, 2010. There have been no significant changes to our critical
accounting policies during the three months ended March 31, 2010.

For information on recently adopted and recently issued accounting
pronouncements, please refer to Note 2 of Notes to the Financial Statements.



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##### Table of Contents

|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|------- | -----------------------------------------------------------

Interest Rate Risk

As of
March 31, 2010, we had approximately $52.3 million outstanding variable rate debt under the Lombard Loan Agreement. The interest rate payable for the three months ended March 31, 2010 was based on one-month LIBOR, set at the beginning of
each month, plus 2.80%, and averaged 3.31%. In January 2009, we entered into an amended interest rate swap agreement with NatWest to fix the variable interest rate for the outstanding balance as of December 31, 2008 at 7.86%. The remainder of
our outstanding debt was fixed rate debt and was comprised of our Convertible Notes and our Loan Agreement with Cisco Systems Capital Corporation. The Convertible Notes bear cash interest on the $345.0 million principal at 3% per annum, and an
additional 5.36% of interest expense is recognized as accretion of the discounted portion of the Convertible Notes. As of March 31, 2010, the carrying amount of the Convertible Notes was $309.7 million. There was $19.1 million outstanding for
the Loan Agreement with Cisco Systems Capital Corporation as of March 31, 2010, which provided for borrowings of up to $33.0 million, at an annual interest rate of 6.50%, to purchase network equipment.

There have been no material changes in our assessment of market risk sensitivity since our presentation of Quantitative and Qualitative Disclosures
About Market Risk, in our Annual Report on Form 10-K for the year ended December 31, 2009.



|ITEM 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------

Evaluation
of Disclosure Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of management,
including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended, (the Exchange Act)) as of the end of the period covered by this report. Based on managements evaluation as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and
procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
U.S. Securities and Exchange Commission rules and forms.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the
period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION.



|ITEM 1. | LEGAL PROCEEDINGS.
|------- | ------------------

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



|ITEM 1A. | RISK FACTORS.
|-------- | -------------

There have been no
material changes from the Risk Factors we previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K as of and for the year ended December 31, 2009, as filed with the U.S. Securities and Exchange Commission.



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##### Table of Contents

|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|------- | ------------------------------------------------------------

(c) Issuer Purchases of Securities

The following table summarizes the Companys repurchase activity of its common stock during the quarter ended March 31, 2010. All transactions
represent deemed repurchases in connection with the vesting of restricted stock and restricted stock units under employee benefit plans to satisfy minimum statutory tax withholding obligations.



|                                          |  |                                 |  |                                 |       |                                                                              |   |                                                                                                      |  
|----------------------------------------- |  | ------------------------------- |  | ------------------------------- | ----- | ---------------------------------------------------------------------------- | - | ---------------------------------------------------------------------------------------------------- | -
|Period                                    |  | Total Number ofShares Purchased |  | Average PricePaid per 
Share(1) |       | Total Number ofShares Purchasedas Part ofPubliclyAnnounced 
Plansor Programs |   | MaximumNumber 
(orApproximateDollar Value) 
ofShares that MayYet be 
Purchasedunder Plans orPrograms
|January 2010 (January 1 to January 31)    |  | 69,320                          |  | $                               | 16.22 |                                                                              |  |                                                                                                      | 
|February 2010 (February 1 to February 28) |  | 2,828                           |  | $                               | 14.78 |                                                                              |  |                                                                                                      | 
|March 2010 (March 1 to March 31)          |  | 99,407                          |  | $                               | 16.56 |                                                                              |  |                                                                                                      | 
|Total                                     |  | 171,155                         |  | $                               | 16.39 |                                                                              |  |                                                                                                      | 

(1)Shares valued at the closing price of the common stock as reported by The NASDAQ Global Select Market on the vesting date.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES.
|------- | --------------------------------

None.



|ITEM 4. | (REMOVED AND RESERVED).
|------- | -----------------------

None.



|ITEM 5. | OTHER INFORMATION.
|------- | ------------------

None.



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|ITEM 6. | EXHIBITS.
|------- | ---------

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



|                     |  |                                                                                                                                                   |  |                |  |                           |  |                   |  |     
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | ------------------------- |  | ----------------- |  | ----
|Exhibit
Index
Number |  | Exhibit Description                                                                                                                               |  | Filed
with the |  | Incorporated by Reference
|                     |  | Form10-Q                                                                                                                                          |  | Form           |  | Filing Date with
the SEC  |  | ExhibitNumber    
|                     |  |                                                                                                                                                   |  |                | 
|3.1                  |  | Amended and Restated Certificate of Incorporation of the Registrant                                                                               |  |                |  | S-1                       |  | November 12, 1999 |  | 3.1 
|3.2                  |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant                                                   |  |                |  | S-1/A                     |  | January 31, 2000  |  | 3.2 
|3.3                  |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant                                                   |  |                |  | 10-Q                      |  | August 14, 2002   |  | 3.3 
|3.4                  |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant                                                   |  |                |  | 10-Q                      |  | August 13, 2004   |  | 3.4 
|3.5                  |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant                                                   |  |                |  | 10-Q                      |  | August 5, 2005    |  | 3.5 
|3.6                  |  | Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant                                                   |  |                |  | 8-K                       |  | June 7, 2006      |  | 3.1 
|3.7                  |  | Amended and Restated Bylaws of the Registrant                                                                                                     |  |                |  | 10-Q                      |  | August 1, 2008    |  | 3.3 
|10.1*                |  | Letter Employment Agreement, dated March 10, 2010, between the Registrant and James E. Ousley                                                     |  | X              |  |                           |  |                   |  |     
|10.2*                |  | Separation Agreement and General Release, executed January 7, 2010, between the Registrant and Philip J. Koen                                     |  |                |  | 8-K                       |  | January 13, 2010  |  | 10.1
|10.3*                |  | Letter Agreement, dated February 25, 2010, between the Registrant and Gregory W. Freiberg                                                         |  |                |  | 8-K                       |  | March 3, 2010     |  | 10.1
|31.1                 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                |  | X              |  |                           |  |                   |  |     
|31.2                 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                |  | X              |  |                           |  |                   |  |     
|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 |  | X              |  |                           |  |                   |  |     
|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 |  | X              |  |                           |  |                   |  |     



|* | Compensation arrangement
|- | ------------------------



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##### Table of Contents

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, Inc.                                                  
|                  | 
|Date: May 6, 2010 |  | By: /s/ James E. Ousley                                       
|                  | 
|                  |  | James E. Ousley                                               
|                  |  | Chief Executive Officer                                       
|                  |  | (principal executive officer)                                 
|                  | 
|Date: May 6, 2010 |  | By: /s/ Gregory W. Freiberg                                   
|                  | 
|                  |  | Gregory W. Freiberg                                           
|                  |  | Chief Financial Officer                                       
|                  |  | (principal financial officer and principal accounting officer)



33