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EX-31.1 - EXHIBIT 31.1 - Internap Corpex31-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
FORM 10-Q
 
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2013
OR
 
o
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: 001-31989
 
 
INTERNAP NETWORK SERVICES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
DELAWARE
91-2145721
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
 
One Ravinia Drive, Suite 1300
Atlanta, Georgia 30346
(Address of Principal Executive Offices, Including Zip Code)
 
(404) 302-9700
(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 o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
x
Non-accelerated filer
o
Smaller reporting company
o
(Do not check if a 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 o No x
 
As of April 17, 2013, 53,588,980 shares of the registrant’s outstanding common stock, $0.001 par value per share, were outstanding.
 
 
 

 
 
 INTERNAP NETWORK SERVICES CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2013
TABLE OF CONTENTS
 
   
PART I. FINANCIAL INFORMATION
     
           
ITEM 1.
 
FINANCIAL STATEMENTS
     
           
   
Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
    1  
           
   
Unaudited Condensed Consolidated Balance Sheets
    2  
           
   
Unaudited Condensed Consolidated Statements of Cash Flows
    3  
           
   
Unaudited Condensed Notes to Consolidated Financial Statements
    4  
           
ITEM 2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    9  
           
ITEM 3.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    14  
           
ITEM 4.
 
CONTROLS AND PROCEDURES
    14  
           
   
PART II. OTHER INFORMATION
     
           
ITEM 1.
 
LEGAL PROCEEDINGS
    15  
           
ITEM 1A.
 
RISK FACTORS
    15  
           
ITEM 2.
 
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    15  
           
ITEM 6.
 
EXHIBITS
    16  
           
   
SIGNATURES
     
 
 
i

 

INTERNAP NETWORK SERVICES CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE (LOSS) INCOME
(In thousands, except per share amounts)
 
   
Three Months Ended
March 31,
 
   
2013
   
2012
 
Revenues:
           
Data center services
  $ 44,392     $ 39,938  
Internet protocol (IP) services
    25,307       27,090  
Total revenues
    69,699       67,028  
                 
Operating costs and expenses:
               
    Direct costs of network, sales and services, exclusive of depreciation and amortization, shown below:
               
Data center services
    22,647       20,970  
IP services
    10,223       10,184  
   Direct costs of customer support
    7,151       6,728  
   Direct costs of amortization of acquired technologies
    1,179       1,179  
   Sales and marketing
    7,484       8,090  
   General and administrative
    9,686       10,227  
   Depreciation and amortization
    10,258       7,915  
   Loss (gain) on disposal of property and equipment, net
    3       (16 )
   Exit activities, restructuring and impairments
    248       43  
Total operating costs and expenses
    68,879       65,320  
Income from operations
    820       1,708  
                 
Non-operating expenses:
               
Interest expense
    2,421       1,584  
Other, net
    131       42  
Total non-operating expenses
    2,552       1,626  
                 
(Loss) income before income taxes and equity in (earnings) of equity-method investment
    (1,732 )     82  
Benefit (provision) for income taxes
    63       (35 )
Equity in earnings of equity-method investment, net of taxes
    26       60  
                 
Net (loss) income
    (1,643 )     107  
                 
Other comprehensive (loss) income:
               
Foreign currency translation adjustment, net of taxes
    (663 )     85  
Unrealized loss on interest rate swap, net of taxes
    (49 )      
        Total other comprehensive (loss) income
    (712 )     85  
                 
Comprehensive (loss) income
  $ (2,355 )   $ 192  
                 
Basic and diluted net (loss) income per share
  $ (0.03 )   $ 0.00  
                 
Weighted average shares outstanding used in computing net (loss) income per share:
               
    Basic
    50,771       50,336  
    Diluted
    50,771       51,033  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
1

 
 
INTERNAP NETWORK SERVICES CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
 
   
March 31,
    December 31,  
   
2013
   
2012
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 34,552     $ 28,553  
Accounts receivable, net of allowance for doubtful accounts of $1,799 and $1,809, respectively
    18,960       19,035  
Prepaid expenses and other assets
    13,376       13,438  
                 
Total current assets
    66,888       61,026  
                 
Property and equipment, net
    257,918       248,095  
Investment in joint venture
    2,697       3,000  
Intangible assets, net
    19,957       21,342  
Goodwill
    59,605       59,605  
Deposits and other assets
    5,343       5,735  
Deferred tax asset, net
    1,772       1,909  
                 
Total assets
  $ 414,180     $ 400,712  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 18,107     $ 22,158  
Accrued liabilities
    10,555       11,386  
Deferred revenues
    2,707       2,991  
Capital lease obligations
    4,831       4,504  
Term loan, less discount of $237 and $239, respectively
    3,263       3,261  
Exit activities and restructuring liability
    2,493       2,508  
Other current liabilities
    172       169  
                 
Total current liabilities
    42,128       46,977  
                 
Deferred revenues
    2,582       2,669  
Capital lease obligations
    52,272       44,054  
Revolving credit facility
    40,500       30,501  
Term loan, less discount of $329 and $388, respectively
    60,796       61,612  
Exit activities and restructuring liability
    3,037       3,365  
Deferred rent
    14,596       15,026  
Other long-term liabilities
    3,122       903  
                 
Total liabilities
    219,033       205,107  
Commitments and contingencies (note 4)
               
Stockholders’ equity:
               
Preferred stock, $0.001 par value, 20,000 shares authorized; no shares issued or outstanding
           
Common stock, $0.001 par value; 120,000 shares authorized; 53,585 and 53,459 shares outstanding, respectively
    54       54  
Additional paid-in capital
    1,246,930       1,243,801  
Treasury stock, at cost, 408 and 267 shares, respectively
    (3,077 )     (1,845 )
Accumulated deficit
    (1,047,833 )     (1,046,190 )
Accumulated items of other comprehensive loss
    (927 )     (215 )
                 
Total stockholders’ equity
    195,147       195,605  
                 
Total liabilities and stockholders’ equity
  $ 414,180     $ 400,712  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
2

 
 
INTERNAP NETWORK SERVICES CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
   
Three Months Ended
March 31,
 
   
2013
   
2012
 
Cash Flows from Operating Activities:
           
Net (loss) income
  $ (1,643 )   $ 107  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
               
Depreciation and amortization
    11,437       9,094  
Loss (gain) on disposal of property and equipment, net
    3       (16 )
Stock-based compensation expense, net of capitalized amount
    1,637       1,404  
Equity in earnings of equity-method investment
    (26 )     (60 )
Provision for doubtful accounts
    329       79  
Non-cash change in capital lease obligations
    121       294  
Non-cash change in exit activities and restructuring liability
    394        
Non-cash change in deferred rent
    (430 )     (240 )
Deferred income taxes
    137        
Other, net
    (2 )     167  
Changes in operating assets and liabilities:
               
Accounts receivable
    (255 )     575  
Prepaid expenses, deposits and other assets
    397       820  
Accounts payable
    (4,051 )     5,505  
Accrued and other liabilities
    (831 )     1,323  
Deferred revenues
    (371 )     134  
Exit activities and restructuring liability
    (737 )     (661 )
Net cash flows provided by operating activities
    6,109       18,525  
                 
Cash Flows from Investing Activities:
               
Purchases of property and equipment
    (7,438 )     (16,824 )
Net cash flows used in investing activities
    (7,438 )     (16,824 )
                 
Cash Flows from Financing Activities:
               
Proceeds from credit agreement
    9,999        
Principal payments on credit agreement
    (875 )      
Payments on capital lease obligations
    (1,104 )     (612 )
Proceeds from exercise of stock options
    1,397       628  
Tax withholdings related to net share settlements of restricted stock awards
    (1,232 )     (721 )
Capitalized lease incentive liability
    (639 )     (35 )
Net cash flows provided by (used in) financing activities
    7,546       (740 )
Effect of exchange rates on cash and cash equivalents
    (218 )     116  
Net increase in cash and cash equivalents
    5,999       1,077  
Cash and cash equivalents at beginning of period
    28,553       29,772  
Cash and cash equivalents at end of period
  $ 34,552     $ 30,849  
                 
Supplemental disclosure of cash flow information:
               
Cash paid for interest
  $ 2,342     $ 901  
Cash paid for income taxes
          20  
Non-cash acquisition of property and equipment under capital leases
    9,528       7,406  
Capitalized stock-based compensation
    97       131  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
3

 
 
INTERNAP NETWORK SERVICES CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
 
Internap Network Services Corporation (“we,” “us,” “our” or “Internap”) provides intelligent information technology (“IT”) Infrastructure services that combine superior performance and platform flexibility to enable our customers to focus on their core business, improve service levels and lower the cost of IT operations. We provide services at 43 data centers across North America, Europe and the Asia-Pacific region and through 83 Internet Protocol (“IP”) service points, which include 25 content delivery network (“CDN”) points of presence (“POPs”).
 
We prepare our consolidated financial statements and accompanying notes in accordance with accounting principles generally accepted in the United States (“GAAP”). The consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. We have eliminated significant inter-company transactions and balances in consolidation.
 
2.
FAIR VALUE MEASUREMENTS
 
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
 
 
Level 1: Quoted prices in active markets for identical assets or liabilities;
 
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
 
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
 
Assets and liabilities measured at fair value on a recurring basis are summarized as follows (in thousands):
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
March 31, 2013:
                       
Money market funds(1)
  $ 5,004     $     $     $ 5,004  
Liabilities:
                               
Interest rate swap (note 3)
          (49 )           (49 )
Asset retirement obligation(2) (note 4)
                (2,813 )     (2,813 )
                                 
December 31, 2012:
                               
Money market funds(1)
    5,003                   5,003  

 
(1)
Included in “Cash and cash equivalents” in the consolidated balance sheets as of March 31, 2013 and December 31, 2012. Unrealized gains and losses on money market funds were nominal due to the short-term nature of the investments.
 
(2)
The fair value of the asset retirement obligation was calculated by discounting the estimated amount of $3.0 million using the current two-year Treasury bill rate adjusted for our credit non-performance risk.
 
 
 
The following table provides a summary of changes in our Level 3 financial asset, asset retirement obligation, for the three months ended March 31, 2013 (in thousands):
 
 
Balance, January 1, 2013
 
$
 
 
Accrued estimated obligation, less fair value adjustment
   
2,813
 
 
Balance, March 31, 2013
 
$
2,813
 
 
The fair value of our Level 3 liabilities, estimated using discount cash flow analysis based on incremental borrowing rates for similar types of borrowing arrangements, is as follows (in thousands):
 
   
March 31,
 
December 31,
 
   
2013
   
2012
 
   
Carrying
Amount
    Fair Value     Carrying
Amount
    Fair
Value
 
Term loan
  $ 64,625     $ 64,355     $ 65,500     $ 65,180  
Revolving credit facility
    40,500       40,320       30,501       30,342  
 
 
4

 
 
3.
INTEREST RATE SWAPS
 
During the three months ended March 31, 2013, we entered into interest rate swaps to add stability to interest expense and to manage exposure to interest rate movements.  Our interest rate swaps, which were designated and qualified as a cash flow hedge, involve the receipt of variable rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.  The cash flow hedges, effective March 20, 2013, have a notional amount starting at $80.0 million through August 30, 2015, with an interest rate of 4.0%, and $20.0 million through December 31, 2014, with an interest rate of 3.9%. Our first interest settlement date is April 30, 2013.
 
We recorded the interest rate derivatives on the balance sheet at fair value, which was determined by the large commercial bank that holds the interest rate swaps. As of March 31, 2013, the fair value of the interest rate swaps was less than $0.1 million and was included in “Other long-term liabilities” in the consolidated balance sheet as of March 31, 2013.  We record the effective portion of the change in fair value of an interest rate swaps, designated and qualified as a cash flow hedge, in “Other comprehensive (loss) income.” We will subsequently reclassify such value into earnings in the period that the hedged transaction affects earnings.  We recognize the ineffective portion of the change in fair value of the derivative directly in earnings.  We did not recognize any hedge ineffectiveness during the three months ended March 31, 2013.
 
We will reclassify amounts reported in “Other comprehensive (loss) income” related to the interest rate swaps to interest expense as interest payments are accrued on our variable-rate debt.  Through March 31, 2014, we estimate that we will reclassify an additional $0.2 million as an increase to interest expense related to the interest rate swaps since the hedge interest rate currently exceeds the variable interest rate on the debt.
 
4.
COMMITMENTS, CONTINGENCIES AND LITIGATION
 
Asset Retirement Obligation
 
During the three months ended March 31, 2013, we recorded an asset retirement obligation related to future removal costs of leasehold improvements for one of our data center leases that expires in December 2014, as we can now reasonably estimate the liability.  During March, the liability became reasonably estimated following detailed discussions with the landlord related to the removal of certain leasehold improvements.  We then obtained third-party estimates to arrive at an estimated retirement obligation of $3.0 million. We recorded the asset retirement obligation, and the corresponding asset retirement cost, in our data center services segment at its fair value of $2.8 million, which we calculated by discounting the estimated amount to present value using the current two-year Treasury bill rate adjusted for our credit non-performance risk.   As the estimated payment date is December 2014, we have included the asset retirement obligation in “Other long-term liabilities” in the consolidated balance sheet as of March 31, 2013.
 
The asset retirement cost, included in “Property and equipment, net” in the consolidated balance sheet as of March 31, 2013, will be depreciated using the straight-line method over the remaining term of the related lease, which is 21 months.
 
Capital Leases
 
During 2012, we entered into a capital lease for new company-controlled data center space to expand our existing services in the metro New York market.  During January 2013, we took possession of the space when it was available according to terms of the lease and recorded the related property and corresponding capital lease obligation of $9.4 million.
 
Future minimum capital lease payments and the present value of the minimum lease payments for all capital leases as of March 31, 2013, are as follows (in thousands):
         
2013
 
$
7,256
 
2014
   
9,912
 
2015
   
10,368
 
2016
   
9,381
 
2017
   
8,917
 
Thereafter
   
38,380
 
Remaining capital lease payments
   
84,214
 
Less: amounts representing imputed interest
   
(27,111
)
Present value of minimum lease payments
   
57,103
 
Less: current portion
   
(4,831
)
   
$
52,272
 
 
 
5

 
 
Other Commitments
 
We have entered into commitments primarily related to IP, telecommunications and data center services. Future minimum payments under these service commitments having terms in excess of one year were as follows at March 31, 2013 (in thousands):
         
2013
 
$
13,779
 
2014
   
16,337
 
2015
   
15,048
 
2016
   
3,583
 
2017
   
390
 
Thereafter
   
429
 
   
$
49,566
 
 
Litigation
 
Securities Class Action Litigation
 
On November 12, 2008, a putative securities fraud class action lawsuit was filed against us and our former chief executive officer in the United States District Court for the Northern District of Georgia, captioned Catherine Anastasio and Stephen Anastasio v. Internap Network Services Corp. and James P. DeBlasio, Civil Action No. 1:08-CV-3462-JOF. The complaint alleges that we and the individual defendant violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and that the individual defendant also violated Section 20(a) of the Exchange Act as a “control person” of Internap. Plaintiffs purport to bring these claims on behalf of a class of our investors who purchased our common stock between March 28, 2007 and March 18, 2008.
 
Plaintiffs allege generally that, during the putative class period, we made misleading statements and omitted material information regarding (a) integration of VitalStream, which we acquired in 2007, (b) customer issues and related credits due to services outages and (c) our previously reported 2007 revenue that we subsequently reduced in 2008 as announced on March 18, 2008. Plaintiffs assert that we and the individual defendant made these misstatements and omissions to maintain our share price. Plaintiffs seek unspecified damages and other relief.
 
On August 12, 2009, the Court granted plaintiffs leave to file an Amended Class Action Complaint (“Amended Complaint”). The Amended Complaint added a claim for violation of Section 14(a) of the Exchange Act based on alleged misrepresentations in our proxy statement in connection with our acquisition of VitalStream. The Amended Complaint also added our former chief financial officer as a defendant and lengthened the putative class period.
 
On September 11, 2009, we and the individual defendants filed motions to dismiss. On November 6, 2009, plaintiffs filed a Corrected Amended Class Action Complaint. On December 7, 2009, plaintiffs filed a motion for leave to file a Second Amended Class Action Complaint to add allegations regarding, inter alia, an alleged failure to conduct due diligence in connection with the VitalStream acquisition and additional statements from purported confidential witnesses.
 
On September 15, 2010, the Court granted our motion to dismiss and denied the individual defendants’ motion to dismiss. The Court dismissed plaintiffs’ claims under Section 14(a) of the Exchange Act. With respect to plaintiffs’ claims under Section 10(b) of the Exchange Act, the Court held that the Amended Complaint failed to satisfy the pleading requirements of the Private Securities Litigation Reform Act, but allowed plaintiffs’ one final opportunity to amend the complaint. On October 26, 2010, plaintiffs filed their Third Amended Class Action Complaint. On December 10, 2010, we filed a motion to dismiss this complaint. On September 30, 2011, the Court granted in large part the motion to dismiss. The two remaining claims involve certain alleged misstatements concerning the progress of the integration of VitalStream and the stability of our CDN platform.
 
Derivative Action Litigation
 
On November 12, 2009, stockholder Walter M. Unick filed a putative derivative action purportedly on behalf of Internap against certain of our directors and officers in the Superior Court of Fulton County, Georgia, captioned Unick v. Eidenberg, et al., Case No. 2009cv177627. This action is based upon substantially the same facts alleged in the securities class action litigation described above. The complaint seeks to recover damages in an unspecified amount. On January 28, 2010, the Court entered the parties’ agreed order staying the matter until the motions to dismiss are resolved in the securities class action litigation. Given the developments in the securities class action described above, we intend to move to dismiss the derivative complaint.
 
While we will vigorously contest the securities class action and derivative action lawsuits, we cannot determine the final resolution of the lawsuits or when they might be resolved. In addition to the expenses incurred in defending this litigation and any damages that may be awarded in the event of an adverse ruling, our management’s efforts and attention may be diverted from the ordinary business operations to address these claims. Regardless of the outcome, this litigation described above may have a material adverse impact on our financial results because of defense costs, including costs related to our indemnification obligations, diversion of resources and other factors.
 
As of March 31, 2013, we determined that we could not reasonably estimate the potential loss with respect to the litigation described above, and as a result, we have not recognized any accruals for loss related to such pending litigation and cannot estimate losses exceeding amounts previously recognized in connection with these matters, which consisted of expenses in the aggregate of $0.5 million in 2008 and 2009.
 
 
6

 
 
We are subject to other legal proceedings, claims and litigation arising in the ordinary course of business. Although the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse impact on our financial condition, results of operations or cash flows.
 
5.           OPERATING SEGMENTS
 
We operate in two business segments: data center services and IP services. The data center services segment includes colocation, hosting and cloud services. Colocation involves providing physical space within data centers and associated services such as power, interconnection, environmental controls monitoring and security while allowing our customers to deploy and manage their servers, storage and other equipment in our secure data centers. Hosting and cloud services involve the provision and maintenance of  hardware, operating system software, management and monitoring software, data center infrastructure and interconnection, while allowing our customers to own and manage their software applications and content. Our IP services segment includes our patented Performance IP™ service, CDN services and IP routing hardware and software platform.
 
The following table shows operating results for our operating segments, along with reconciliations from segment profit to (loss) income before income taxes and equity in (earnings) of equity-method investment:
 
   
Three Months Ended
March 31,
 
       2013        2012  
Revenues:
           
Data center services
  $ 44,392     $ 39,938  
IP services
    25,307       27,090  
Total revenues
    69,699       67,028  
                 
Direct costs of network, sales and services, exclusive of depreciation and amortization:
               
Data center services
    22,647       20,970  
IP services
    10,223       10,184  
Total direct costs of network, sales and services, exclusive of depreciation and amortization
    32,870       31,154  
                 
Segment profit:
               
Data center services
    21,745       18,968  
IP services
    15,084       16,906  
Total segment profit
    36,829       35,874  
                 
Exit activities, restructuring and impairments
    248       43  
Other operating expenses, including direct costs of customer support, depreciation and amortization
    35,761       34,123  
Income from operations
    820       1,708  
Non-operating expense
    2,552       1,626  
(Loss) income before income taxes and equity in (earnings) of equity-method investment
  $ (1,732 )   $ 82  
 
6.
NET (LOSS) INCOME PER SHARE
 
We compute basic net (loss) income per share by dividing net (loss) income attributable to our common stock by the weighted average number of shares of common stock outstanding during the period. We exclude all outstanding stock options and unvested restricted stock as such securities are anti-dilutive for all periods presented.
 
 
7

 
 
Basic and diluted net (loss) income per share is calculated as follows (in thousands, except per share amounts):
 
   
  Three Months Ended
March 31,
 
      2013       2012  
Net (loss) income attributable to common stock
  $ (1,643 )   $ 107  
Weighted average shares outstanding, basic
    50,771       50,366  
Weighted average shares outstanding, diluted
    50,771       51,033  
                 
Net (loss) income per share, basic and diluted
  $ (0.03 )   $ 0.00  
Anti-dilutive securities excluded from diluted net loss per share calculation for stock-based compensation plans
    7,204       7,218  
 
7.
RECENT ACCOUNTING PRONOUNCEMENTS
 
In March 2013, the Financial Accounting Standards Board (“FASB) issued new guidance to resolve the diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. The guidance is effective prospectively for fiscal years beginning after December 15, 2013. We do not anticipate that the adoption of this standard will have a material impact on our financial condition or results of operations, absent any material transactions involving the derecognition of subsidiaries or groups of assets within a foreign entity.
 
In January 2013, we adopted new guidance to improve the transparency of reporting reclassifications out of accumulated other comprehensive income. The guidance requires us to (a) present (either on the face of the statement where net income is presented or in the notes to the financial statements) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, but only if the item reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period and (b) cross-reference to other disclosures currently required under GAAP for other reclassification items (that are not required under GAAP) to be reclassified directly to net income in their entirety in the same reporting period. Because the guidance impacts presentation only, adoption had no effect on our financial condition or results of operations.
 
In January 2013, we adopted new guidance that requires us to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement and new guidance that applies to derivatives and securities borrowing or lending transactions subject to an agreement similar to a master netting arrangement.  The prospective adoption did not have a material impact on our financial condition or results of operations.
 
In January 2013, we adopted new guidance that allows us to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived asset is impaired for determining whether it is necessary to perform the quantitative impairment test. We do not expect adoption to have an impact on our financial condition or results of operations.
 
 
8

 
 
INTERNAP NETWORK SERVICES CORPORATION AND SUBSIDIARIES
 
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS
 
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding industry trends, our future financial position and performance, business strategy, revenues and expenses in future periods, projected levels of growth and other matters that do not relate strictly to historical facts. These statements are often identified by words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “projects,” “forecasts,” “plans,” “intends,” “continue,” “could,” or “should,” or similar expressions or variations. These statements are based on the beliefs and expectations of our management team based on information currently available. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by forward-looking statements. Important factors currently known to our management that could cause or contribute to such differences include, but are not limited to, those referenced in our Annual Report on Form 10-K for the year ended December 31, 2012 under Item 1A “Risk Factors.” We undertake no obligation to update any forward-looking statements as a result of new information, future events or otherwise.
 
As used herein, except as otherwise indicated by context, references to “we,” “us,” “our” or “Internap” refers to Internap Network Services Corporation.
 
Overview
 
We provide intelligent information technology (“IT”) Infrastructure services that combine superior performance and platform flexibility to enable our customers to focus on their core business, improve service levels and lower the cost of IT operations.
 
We currently have approximately 3,700 customers. Our customer base is not concentrated in any particular industry and, for the three months ended March 31, 2013, no single customer accounted for 10% or more of our revenues.
 
Operating Segments
 
Data Center Services
 
Our data center services segment includes colocation, hosting and cloud services. Colocation involves providing physical space within data centers and associated services such as power, interconnection, environmental controls monitoring and security while allowing our customers to deploy and manage their servers, storage and other equipment in our secure data centers. Hosting and cloud services involve the provision and maintenance of  hardware, operating system software, management and monitoring software, data center infrastructure and interconnection, while allowing our customers to own and manage their software applications and content.
 
We sell our data center services at 43 data centers across North America, Europe and the Asia-Pacific region. We refer to 11 of these facilities as “company-controlled,” meaning we control the data centers’ operations, staffing and infrastructure and have negotiated long term leases for the facilities. For these company-controlled facilities, we have designed the datacenter infrastructure, procured the capital equipment, deployed the infrastructure and are responsible for the operation and maintenance of the facility.
 
We believe the long-term demand for data center services will continue, and to address this long-term demand, we continue to incur capital expenditures to build and expand company-controlled data centers. In 2013, we took possession and will begin the build out of new company-controlled data center space to expand our existing services in the metro New York market.  This expansion will increase our company-controlled data center footprint by approximately 55,000 net sellable square feet when fully deployed.
 
IP Services
 
Our IP services segment includes our patented Performance IP™ service, content delivery network (“CDN”) services and IP routing hardware and software platform. By intelligently routing traffic with redundant, high-speed connections over multiple major Internet backbones, our IP services provide high-performance and highly-reliable delivery of content, applications and communications to end-users globally. We deliver our IP services through 83 IP service points around the world, which include 25 CDN points of presence (“POPs”).
 
Our patented and patent-pending network route optimization technologies address inherent weaknesses of the Internet, allowing businesses to take advantage of the convenience, flexibility and reach of the Internet to connect to customers, suppliers and partners, and to adopt new IT delivery models, in a scalable, reliable and predictable manner. Our services and products take into account the unique performance requirements of each business application to ensure performance as designed, without unnecessary cost.
 
Our CDN services enable our customers to quickly and securely stream and distribute rich media and content, such as video, audio software and applications, to audiences across the globe through strategically-located POPs. Providing capacity-on-demand to handle large events and unanticipated traffic spikes, we deliver scalable high-quality content distribution and audience-analytic tools.
 
 
9

 
 
Recent Accounting Pronouncements
 
Recent accounting pronouncements are summarized in note 7 to the accompanying consolidated financial statements. Currently, we do not expect any recent accounting pronouncements that we have not yet adopted to have a material impact on our consolidated financial statements.
 
Results of Operations
 
The following table sets forth selected consolidated statements of operations and comprehensive (loss) income data during the periods presented, including comparative information between the periods (dollars in thousands):
                         
   
Three Months Ended
March 31,
   
Increase (decrease)
from 2012 to 2013
 
 
 
2013
   
2012
   
Amount
   
Percent
 
Revenues:
                               
Data center services
  $ 44,392     $ 39,938     $ 4,454       11 %
IP services
    25,307       27,090       (1,783 )     (7 )
  Total revenues
    69,699       67,028       2,671       4  
                                 
Operating costs and expenses:
                               
Direct costs of network, sales and services, exclusive of depreciation and amortization, shown below:
                               
       Data center services
    22,647       20,970       1,677       8  
       IP services
    10,223       10,184       39        
Direct costs of customer support
    7,151       6,728       423       6  
Direct costs of amortization of acquired technologies
    1,179       1,179              
Sales and marketing
    7,484       8,090       (606 )     (7 )
General and administrative
    9,686       10,227       (541 )     (5 )
Depreciation and amortization
    10,258       7,915       2,343       30  
Loss (gain) on disposal of property and equipment, net
    3       (16 )     19        
Exit activities, restructuring and impairments
    248       43       205        
  Total operating costs and expenses
    68,879       65,320       3,559       5  
Income from operations
  $ 820     $ 1,708     $ (888 )     (52 )
                                 
Interest expense
  $ 2,421     $ 1,584     $ 837       53  
 
Three Months Ended March 31, 2013 and 2012
 
Data Center Services
 
Revenues for data center services increased $4.5 million, or 11%, to $44.4 million for the three months ended March 31, 2013, compared to $39.9 million for the same period in 2012. The increase in revenue was primarily due to net revenue growth in company-controlled colocation, hosting and cloud services.
 
Direct costs of data center services, exclusive of depreciation and amortization, were $22.6 million for the three months ended March 31, 2013, compared to $21.0 million for the same period in 2012. The increase in direct costs was primarily due to the revenue growth in hosting services and increased costs related to the opening of our Los Angeles, California and the expansion of our Atlanta, Georgia data centers.
 
 
10

 
 
Direct costs of data center services, exclusive of depreciation and amortization, have substantial fixed cost components, primarily rent for operating leases, but also significant demand-based pricing variables, such as utilities attributable to seasonal costs and customers’ changing power requirements. Direct costs of data center services as a percentage of revenues vary with the mix of usage between company-controlled data centers and partner sites, and the utilization of total available space. Since we recognize some of the initial operating costs of company-controlled data centers in advance of revenues or in advance of sites being fully utilized, these sites are less profitable in the early years of operation compared to partner sites and we expect them to be more profitable as occupancy increases. Conversely, costs in partner sites are more demand-based and therefore are more closely associated with the level of utilization.
 
We will continue to focus on increasing revenues from company-controlled facilities as compared to partner sites. We also expect direct costs of data center services as a percentage of corresponding revenues to decrease as our new and recently-expanded company-controlled data centers continue to contribute to revenue and become more fully occupied. This is evidenced by the improvement in direct costs of data center services as a percentage of corresponding revenues of 51% during the three months ended March 31, 2013, compared to 53% during the same period in 2012.
 
IP Services
 
Revenues for IP services decreased $1.8 million, or 7%, to $25.3 million for the three months ended March 31, 2013, compared to $27.1 million for the same period in 2012. The decrease continues to be driven by a decline in IP pricing for new and renewing customers and the loss of legacy contracts, partially offset by an increase in overall traffic. IP traffic increased approximately 19% for the three months ended March 31, 2013, compared to the same period in 2012, calculated based on an average over the number of months in the respective periods.
 
Direct costs of IP services, exclusive of depreciation and amortization, remained constant at $10.2 million for the three months ended March 31, 2013 and 2012.
 
There have been ongoing industry-wide pricing declines over the last several years and this trend continued during the three months ended March 31, 2013 and 2012. Technological improvements and excess capacity have been the primary drivers for lower pricing of IP services. The increase in IP traffic resulted from both new and existing customers using more applications and the nature of applications consuming greater amounts of bandwidth.
 
Other Operating Costs and Expenses
 
Compensation. Total compensation and benefits, including stock-based compensation, were $17.3 million and $16.9 million for the three months ended March 31, 2013 and 2012, respectively.
 
Cash-based compensation and benefits remained relatively flat at $15.6 million during the three months ended March 31, 2013 from $15.5 million during the same period in 2012.
 
Stock-based compensation, net of amount capitalized, increased to $1.6 million during the three months ended March 31, 2013 from $1.4 million during the same period in 2012. The following table summarizes the amount of stock-based compensation, net of estimated forfeitures, included in the accompanying consolidated statements of operations and comprehensive (loss) income (in thousands):
 
      2013       2012  
Direct costs of customer support
  $ 222     $ 250  
Sales and marketing
    259       180  
General and administrative
    1,156       974  
    $ 1,637     $ 1,404  
 
Direct Costs of Customer Support. Direct costs of customer support increased 6% to $7.2 million during the three months ended March 31, 2013 from $6.7 million during the same period in 2012. The increase was primarily due to a $0.5 million increase in cash-based compensation and payroll taxes due to changes in headcount.
 
Sales and Marketing. Sales and marketing costs decreased 7% to $7.5 million during the three months ended March 31, 2013 from $8.1 million during the same period in 2012. The decrease was primarily due to a $0.3 million decrease in training and conference costs.
 
General and Administrative. General and administrative costs decreased 5% to $9.7 million during the three months ended March 31, 2013 from $10.2 million during the same period in 2012. The decrease was primarily due to a $0.6 million decrease in cash-based compensation and payroll taxes due to changes in headcount, a $0.4 million decrease in taxes and licenses, offset by a $0.5 million decrease in capitalized payroll costs related to software development.
 
 
11

 
 
Depreciation and Amortization. Depreciation and amortization increased 30% to $10.3 million during the three months ended March 31, 2013 from $7.9 million during the same period in 2012. The increase was primarily due to the effects of expanding our company-controlled data centers, private network access point (“P-NAP”) infrastructure and capitalized software.
 
Interest Expense. Interest expense increased 53% to $2.4 million during the three months ended March 31, 2013 from $1.6 million during the same period in 2012. The increase in interest expense was primarily due to new capital lease obligations related to expanding our company-controlled data centers and the increase in our borrowings under our term loan and revolving credit facility.
 
Non-GAAP Financial Measure
 
We report our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (“GAAP”). However, the non-GAAP performance measure of adjusted EBITDA, defined as income from operations plus depreciation and amortization, loss (gain) on disposal of property and equipment, exit activities, restructuring and impairments and stock-based compensation, is presented to enhance investors’ ability to analyze trends in our business and evaluate our performance relative to other companies. We use this non-GAAP performance measure to assist us in explaining underlying performance trends in our business.
 
As a non-GAAP financial measure, adjusted EBITDA should not be considered in isolation of, or as a substitute for, net (loss) income or other GAAP measures as an indicator of operating performance. In addition, adjusted EBITDA should not be considered as an alternative to income from operations or net (loss) income as a measure of operating performance. Our calculation of adjusted EBITDA may differ from others in our industry and is not necessarily comparable with similar titles used by other companies.
 
The following table reconciles adjusted EBITDA to income from operations as presented in our consolidated statements of operations and comprehensive (loss) income:
 
   
Three Months Ended
March 31,
 
   
2013
   
2012
 
Income from operations
  $ 820     $ 1,708  
Depreciation and amortization, including amortization of acquired technologies
    11,437       9,094  
Loss (gain) on disposal of property and equipment, net
    3       (16 )
Exit activities, restructuring and impairments
    248       43  
Stock-based compensation
    1,637       1,404  
     Adjusted EBITDA
  $ 14,145     $ 12,233  
 
Liquidity and Capital Resources
 
Liquidity
 
We monitor and review our performance and operations in light of global economic conditions. The current economic environment may impact the ability of our customers to meet their obligations to us, which could result in delayed collection of accounts receivable and an increase in our provision for doubtful accounts.
 
We expect to meet our cash requirements for the next 12 months through a combination of net cash provided by operating activities, existing cash on hand and utilizing additional borrowings under our credit facility described below in “Capital Resources—Credit Agreement.” Our capital requirements depend on a number of factors, including the continued market acceptance of our IT Infrastructure services and the ability to expand and retain our customer base. If our cash requirements vary materially from what we expect or if we fail to generate sufficient cash flows from selling our IT Infrastructure services, we may require additional financing sooner than anticipated. We can offer no assurance that we will be able to obtain additional financing on commercially favorable terms, or at all, and provisions in our credit agreement limit our ability to incur additional indebtedness. Our anticipated uses of cash include capital expenditures, working capital needs and required payments on our credit agreement and other commitments.
 
We have a history of quarterly and annual period net losses. During the three months ended March 31, 2013, we had a net loss of $1.6 million. As of December 31, 2012, our accumulated deficit was $1.0 billion. We continue to analyze our business to control our costs, principally through making process enhancements and renegotiating network contracts for more favorable pricing and terms. We may not be able to sustain or increase profitability on a quarterly basis, and our failure to do so may adversely affect our business, including our ability to raise additional funds.
 
 
12

 
 
Capital Resources
 
Credit Agreement. We have a $137.3 million credit agreement that expires in August 2015, which provides for a revolving credit facility up to $70.0 million and the term loan up to $67.3 million.
 
As of March 31, 2013, the revolving credit facility had an outstanding balance of $40.5 million and we issued $4.1 million letters of credit, resulting in $25.4 million in borrowing capacity. The term loan had an outstanding principal amount of $64.6 million, which we repay in $875,000 quarterly installments on the last day of each fiscal quarter, with the remaining unpaid balance due on August 30, 2015.
 
As of March 31, 2013, the interest rate on the revolving credit facility and term loan was 3.7%. However, during the three months ended March 31, 2013, we entered into interest rate swaps with a notional amount starting at $80.0 million through August 30, 2015 with an interest rate of 4.0%, and $20.0 million through December 31, 2014 with an interest rate of 3.9%. We summarize our interest rate swaps in note 3 to the accompanying consolidated financial statements.
 
The credit agreement includes customary representations, warranties, negative and affirmative covenants, including certain financial covenants relating to minimum liquidity, fixed charge coverage ratio and senior leverage ratio. As of March 31 2013, we were in compliance with these covenants.
 
Capital Leases. During 2012, we entered into a capital lease for new company-controlled data center space to expand our existing services in the metro New York area. During January 2013, we took possession of the space when it was available according to terms of the lease and recorded the related property and corresponding capital lease obligation of $9.4 million.
 
Our future minimum lease payments on all remaining capital lease obligations at March 31, 2013 were $57.1 million. We summarize our existing capital lease obligations in note 4 to the accompanying consolidated financial statements.
 
Commitments and Other Obligations. We have commitments and other obligations that are contractual in nature and will represent a use of cash in the future unless the agreements are modified. Service and purchase commitments primarily relate to IP, telecommunications and data center services. Our ability to improve cash provided by operations in the future would be negatively impacted if we do not grow our business at a rate that would allow us to offset the purchase and service commitments with corresponding revenue growth.
 
The following table summarizes our commitments and other obligations as of March 31, 2013 (in thousands):
 
   
Payments Due by Period
 
      Total    
  Less than
 1 Year
   
 
 1-3 Years
   
 
3-5 Years
   
More than 
5 Years
 
                                         
Revolving credit facility(1)
  $ 44,181     $ 1,148     $ 43,033     $     $  
Term loan(1)
    70,154       4,432       65,722              
Capital lease obligations, including interest
    84,214       7,256       20,280       18,298       38,380  
Asset retirement obligation
    3,000             3,000              
Operating lease commitments
    142,218       21,772       49,143       36,177       35,126  
Service and purchase commitments
    49,566       13,779       31,385       3,973       429  
                                         
    $ 393,333     $ 48,387     $ 212,563     $ 58,448     $ 73,935  

(1)
At March 31, 2013, the applicable interest rates were 3.7% and the projected interest included in the debt payments above incorporates this rate.
 
Cash Flows
 
Operating Activities
 
Net cash provided by operating activities during the three months ended March 31, 2013 was $6.1 million. Our net loss, after adjustments for non-cash items, generated cash from operations of $12.0 million, while changes in operating assets and liabilities used cash from operations of $5.8 million. We expect to use cash flows from operating activities to fund a portion of our capital expenditures and other requirements and to meet our other commitments and obligations, including outstanding debt.
 
 
13

 
 
The primary non-cash adjustment for the three months ended March 31, 2013 was $11.4 million for depreciation and amortization, which included the effects of the expansion of our company-controlled data centers and P-NAP facilities. Non-cash adjustments also included $1.6 million for stock-based compensation expense. The changes in operating assets and liabilities included a $4.1 million decrease in accounts payable and a $0.8 million decrease in accrued liabilities.
 
Days sales outstanding was 25 days at March 31, 2013 and December 31, 2012. Days sales outstanding are measured as of a point in time and may fluctuate based on a number of factors, including, among other things, changes in revenues, cash collections, allowance for doubtful accounts and the amount of revenues billed in advance.
 
Investing Activities
 
Net cash used in investing activities during the three months ended March 31, 2013 was $7.4 million, primarily due to capital expenditures related to the continued expansion and upgrade of our company-controlled data centers and network infrastructure.
 
Financing Activities
 
Net cash provided by financing activities during the three months ended March 31, 2013 was $7.5 million, primarily due to $10.0 million of proceeds received on the credit agreement, partially offset by principal payments of $2.0 million on the credit agreement and capital lease obligations.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Other Investments
 
Prior to 2013, we invested $4.1 million in Internap Japan Co., Ltd., our joint venture with NTT-ME Corporation and Nippon Telegraph and Telephone Corporation. We account for this investment using the equity method and we have recognized $1.9 million in equity-method losses over the life of the investment, representing our proportionate share of the aggregate joint venture losses and income. The joint venture investment is subject to foreign currency exchange rate risk.
 
Interest Rate Risk
 
Our objective in managing interest rate risk is to maintain favorable long-term fixed rate or a balance of fixed and variable rate debt within reasonable risk parameters. During the three months ended March 31, 2013, we entered into interest rate swaps with a notional amount starting at $80.0 million through August 30, 2015 with an interest rate of 4.0%, and $20.0 million through December 31, 2014, with an interest rate of 3.9%. We summarize our interest rate swaps in note 3 to the accompanying consolidated financial statements.
 
As of March 31, 2013, our long-term debt consisted of $64.6 million borrowed under our term loan and $40.5 million borrowed under our revolving credit facility. Interest on the term loan was 3.7% based on either (a) the Base Rate (as defined in the credit agreement) plus 3.50 percentage points, or (b) the LIBOR Rate (as defined in the credit agreement) plus 3.50 percentage points, as we elect from time to time. Interest on the revolving credit facility was 3.7% based on either (x) the Base Rate plus 1.75 percentage points or (y) the LIBOR Rate plus 3.50 percentage points, as we elect from time to time.
 
Foreign Currency Risk
 
Substantially all of our revenue is currently in U.S. dollars and from customers in the U.S. However, our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. We also have exposure to foreign currency transaction gains and losses as the result of certain receivables due from our foreign subsidiaries. During the three months ended March 31, 2013, we realized foreign currency losses of $0.1 million, which is included as a non-operating expense in “Other, net,” and we recorded unrealized foreign currency translation losses of $0.7 million, which is included in “Other comprehensive (loss) income,” both in the consolidated statement of operations and comprehensive loss.  As we grow our international operations, our exposure to foreign currency risk could become more significant.

ITEM 4. CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
 
Based on our management’s evaluation (with the participation of our Chief Executive Officer and Chief Financial Officer), as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that 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”)) are effective to ensure 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 SEC rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
 
14

 
 
Changes in Internal Control over Financial Reporting
 
There was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2013 that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. Although the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse impact on our financial condition, results of operations or cash flows. Please see note 4 to the accompanying consolidated financial statements under “Litigation” for a discussion of certain ongoing legal proceedings.
 
ITEM 1A. RISK FACTORS
 
There have been no material changes from the Risk Factors we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission on February 21, 2013.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
The following table sets forth information regarding our repurchases of securities for each calendar month in the three months ended March 31, 2013:
 
ISSUER PURCHASES OF EQUITY SECURITIES
 
 
Period
 
 
Total
Number
of Shares
Purchased*
   
  Average
Price
Paid per
Share
   
  Total
Number of
Shares
Purchased as
Part of
Publicly
Announced
Plans or  
Programs
   
Maximum  
Number
(or
 Approximate
Dollar Value) of
Shares That  
May Yet Be  
Purchased
Under the Plans
or Programs
 
    January 1 to 31, 2013
        $              
    February 1 to 28, 2013
    40,687       349,556              
    March 1 to 31, 2013
    100,403       882,360              
    Total
    141,090     $ 1,231,916              

*           These shares were surrendered to us to satisfy tax withholding obligations in connection with the vesting of shares of restricted stock previously issued to employees and directors.
 
 
15

 
 
ITEM 6. EXHIBITS
 
Exhibit
Number
 
Description
 
       
10.1     2013 Short Term Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Internap’s Current Report on Form 8-K, filed February 19, 2013).
       
31.1
 
  Rule 13a-14(a)/15d-14(a) Certification, executed by J. Eric Cooney, President, Chief Executive Officer and Director of Internap.
       
31.2    
Rule 13a-14(a)/15d-14(a) Certification, executed by Kevin M. Dotts, Chief Financial Officer of Internap.
       
32.1
 
 
Section 1350 Certification, executed by J. Eric Cooney, President and Chief Executive Officer of Internap.
       
 32.2    
Section 1350 Certification, executed by Kevin M. Dotts, Chief Financial Officer of Internap.
       
 101.INS    
XBRL Instance Document.
       
101.SCH
   
XBRL Taxonomy Extension Schema Document.
       
101.CAL
   
XBRL Taxonomy Extension Calculation Linkbase Document.
       
 101.DEF    
XBRL Taxonomy Extension Definition Linkbase Document.
       
 101.LAB    
XBRL Taxonomy Extension Label Linkbase Document.
       
101.PRE
   
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
16

 
 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
 
 
INTERNAP NETWORK SERVICES CORPORATION
 
       
 
By:
/s/ Kevin M. Dotts
 
   
Kevin M. Dotts
 
   
Chief Financial Officer
 
   
(Principal Accounting Officer)
 
Date: April 25, 2013
 
 
 
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