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EX-32.2 - EX-32.2 - TERREMARK WORLDWIDE INC. | g25037exv32w2.htm |
EX-32.1 - EX-32.1 - TERREMARK WORLDWIDE INC. | g25037exv32w1.htm |
EX-31.2 - EX-31.2 - TERREMARK WORLDWIDE INC. | g25037exv31w2.htm |
EX-31.1 - EX-31.1 - TERREMARK WORLDWIDE INC. | g25037exv31w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For The Quarterly Period Ended September 30, 2010
o | TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-12475
Terremark Worldwide, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 84-0873124 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification No.) |
2 South Biscayne Blvd., Suite 2800, Miami, Florida 33131
(Address of Principal Executive Offices, Including Zip Code)
(Address of Principal Executive Offices, Including Zip Code)
Registrants telephone number, including area code:
(305) 961-3200
(305) 961-3200
Securities registered pursuant to Section 12(b) of the Act:
(Title of Class) | (Name of Exchange on Which Registered) | |
Common Stock, par Value $0.001 per Share | NASDAQ Global Market |
Securities registered pursuant to Section 12(g) of the Act:
None
None
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes o 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 the 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 þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark if the registrant is a shell Company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of October 23, 2010, there were 66,259,263 shares of the registrants common stock, par
value $0.001 per share, outstanding.
TABLE OF CONTENTS
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
(In thousands, except share data)
(Unaudited)
September 30, | March 31, | |||||||
2010 | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 47,661 | $ | 53,468 | ||||
Accounts receivable, net |
52,945 | 50,266 | ||||||
Current portion of capital lease receivables |
330 | 418 | ||||||
Prepaid expenses and other current assets |
14,382 | 12,605 | ||||||
Total current assets |
115,318 | 116,757 | ||||||
Restricted cash |
1,653 | 1,959 | ||||||
Property and equipment, net |
476,116 | 404,656 | ||||||
Debt issuance costs, net |
4,926 | 3,384 | ||||||
Other assets |
13,599 | 15,384 | ||||||
Capital lease receivables, net of current portion |
340 | 235 | ||||||
Intangibles, net |
10,805 | 11,759 | ||||||
Goodwill |
96,112 | 96,112 | ||||||
Total assets |
$ | 718,869 | $ | 650,246 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of capital lease obligations |
$ | 7,208 | $ | 4,919 | ||||
Accounts payable and other current liabilities |
101,335 | 91,948 | ||||||
Total current liabilities |
108,543 | 96,867 | ||||||
Secured loans |
444,952 | 388,835 | ||||||
Convertible debt |
57,192 | 57,192 | ||||||
Deferred rent and other liabilities |
29,374 | 18,351 | ||||||
Deferred revenue |
9,040 | 8,514 | ||||||
Total liabilities |
649,101 | 569,759 | ||||||
Commitments and contingencies |
| | ||||||
Stockholders equity: |
||||||||
Series I convertible preferred stock: $0.001
par value, 310 and 312 shares issued and
outstanding (liquidation value of
approximately $8.0 million) |
| | ||||||
Common stock: $0.001 par value, 100,000,000
shares authorized; 65,758,700 and 65,058,331
shares issued and outstanding |
66 | 65 | ||||||
Common stock warrants |
8,901 | 8,901 | ||||||
Additional paid-in capital |
463,567 | 456,860 | ||||||
Accumulated deficit |
(402,681 | ) | (384,667 | ) | ||||
Accumulated other comprehensive loss |
(85 | ) | (672 | ) | ||||
Total stockholders equity |
69,768 | 80,487 | ||||||
Total liabilities and stockholders equity |
$ | 718,869 | $ | 650,246 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Table of Contents
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Six Months Ended | Three Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
$ | 163,921 | $ | 135,564 | $ | 84,874 | $ | 69,803 | ||||||||
Expenses: |
||||||||||||||||
Cost of revenues, excluding depreciation and amortization |
87,746 | 76,482 | 44,101 | 39,757 | ||||||||||||
General and administrative |
21,692 | 16,715 | 11,177 | 8,479 | ||||||||||||
Sales and marketing |
18,907 | 12,375 | 10,340 | 6,099 | ||||||||||||
Depreciation and amortization |
24,603 | 17,766 | 12,914 | 8,894 | ||||||||||||
Total operating expenses |
152,948 | 123,338 | 78,532 | 63,229 | ||||||||||||
Income from operations |
10,973 | 12,226 | 6,342 | 6,574 | ||||||||||||
Other (expenses) income: |
||||||||||||||||
Interest expense |
(28,647 | ) | (22,993 | ) | (14,428 | ) | (13,929 | ) | ||||||||
Loss on early extinguishment of debt |
| (10,275 | ) | | | |||||||||||
Change in fair value of derivatives |
174 | (1,439 | ) | 149 | 61 | |||||||||||
Interest income |
247 | 212 | 140 | 119 | ||||||||||||
Other |
522 | 755 | 835 | 265 | ||||||||||||
Total other expenses |
(27,704 | ) | (33,740 | ) | (13,304 | ) | (13,484 | ) | ||||||||
Loss before income taxes |
(16,731 | ) | (21,514 | ) | (6,962 | ) | (6,910 | ) | ||||||||
Income tax expense |
(1,283 | ) | (900 | ) | (784 | ) | (326 | ) | ||||||||
Net loss |
(18,014 | ) | (22,414 | ) | (7,746 | ) | (7,236 | ) | ||||||||
Preferred dividend |
(467 | ) | (469 | ) | (234 | ) | (235 | ) | ||||||||
Net loss attributable to common stockholders |
$ | (18,481 | ) | $ | (22,883 | ) | $ | (7,980 | ) | $ | (7,471 | ) | ||||
Net loss per common share: |
||||||||||||||||
Basic and diluted |
$ | (0.28 | ) | $ | (0.36 | ) | $ | (0.12 | ) | $ | (0.12 | ) | ||||
Weighted average common shares outstanding basic
and diluted |
65,465 | 63,050 | 65,725 | 64,669 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated
financial statements.
4
Table of Contents
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(In thousands)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(In thousands)
(Unaudited)
Common | ||||||||||||||||||||||||||||||||
Stock Par | Accumulated | |||||||||||||||||||||||||||||||
Preferred | Value | Common | Additional | Other | ||||||||||||||||||||||||||||
Stock | Issued | Stock | Paid-In | Accumulated | Comprehensive | |||||||||||||||||||||||||||
Series I | Shares | Amount | Warrants | Capital | Deficit | (Loss) Income | Total | |||||||||||||||||||||||||
Balance at March 31, 2010 |
$ | | 65,058 | $ | 65 | $ | 8,901 | $ | 456,860 | $ | (384,667 | ) | $ | (672 | ) | $ | 80,487 | |||||||||||||||
Components of comprehensive (loss) income: |
||||||||||||||||||||||||||||||||
Net loss |
| | | | | (18,014 | ) | | (18,014 | ) | ||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | 587 | 587 | ||||||||||||||||||||||||
Total comprehensive loss |
(17,427 | ) | ||||||||||||||||||||||||||||||
Dividends on preferred stock |
| | | | (467 | ) | | | (467 | ) | ||||||||||||||||||||||
Conversion of preferred shares |
| 7 | | | | | | | ||||||||||||||||||||||||
Issuance of common stock in settlement of
share-based awards |
| 694 | 1 | | 2,503 | | | 2,504 | ||||||||||||||||||||||||
Share-based compensation |
| | | | 4,671 | | | 4,671 | ||||||||||||||||||||||||
Balance at September 30, 2010 |
$ | | 65,759 | $ | 66 | $ | 8,901 | $ | 463,567 | $ | (402,681 | ) | $ | (85 | ) | $ | 69,768 | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Table of Contents
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (18,014 | ) | $ | (22,414 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating
activities: |
||||||||
Depreciation and amortization |
24,603 | 17,766 | ||||||
Loss on early extinguishment of debt |
| 10,275 | ||||||
Change in fair value of derivatives |
(174 | ) | 1,439 | |||||
Gain on currency translation effect |
(281 | ) | (729 | ) | ||||
Accretion on debt, net |
1,117 | 1,433 | ||||||
Amortization of debt issuance costs |
213 | 639 | ||||||
Provision for doubtful accounts |
1,998 | 569 | ||||||
Interest payment in kind on secured loans |
| 395 | ||||||
Settlement of interest rate swaps |
| (8,360 | ) | |||||
Share-based compensation |
6,311 | 4,148 | ||||||
(Increase) decrease in: |
||||||||
Accounts receivable |
(4,546 | ) | (1,747 | ) | ||||
Capital lease receivables, net of unearned interest |
6 | 127 | ||||||
Restricted cash |
306 | 586 | ||||||
Prepaid expenses and other assets |
(3,929 | ) | (2,320 | ) | ||||
Increase (decrease) in: |
||||||||
Accounts payable and other current liabilities |
815 | 1,146 | ||||||
Deferred revenue |
3,055 | 1,771 | ||||||
Deferred rent and other liabilities |
2,264 | 2,893 | ||||||
Net cash provided by operating activities |
13,744 | 7,617 | ||||||
Cash flows from investing activities: |
||||||||
Purchase of property and equipment |
(79,076 | ) | (40,274 | ) | ||||
Net cash used in investing activities |
(79,076 | ) | (40,274 | ) | ||||
Cash flows from financing activities: |
||||||||
Payment on secured loans and convertible debt |
| (290,930 | ) | |||||
Proceeds from financing lease |
7,002 | | ||||||
Payments of preferred stock dividends |
(468 | ) | (456 | ) | ||||
Payments of debt issuance costs |
(1,654 | ) | (3,360 | ) | ||||
Proceeds from issuance of secured notes |
55,000 | 386,963 | ||||||
Payments under capital lease obligations |
(2,431 | ) | (1,587 | ) | ||||
Proceeds from issuance of common stock |
312 | 19,953 | ||||||
Net cash provided by financing activities |
57,761 | 110,583 | ||||||
Effect of foreign currency exchange rates on cash and cash equivalents |
1,764 | 1,012 | ||||||
Net
(decrease) increase in cash and cash equivalents |
(5,807 | ) | 78,938 | |||||
Cash and cash equivalents at beginning of period |
53,468 | 51,786 | ||||||
Cash and cash equivalents at end of period |
$ | 47,661 | $ | 130,724 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Table of Contents
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
1. Business and Organization
Terremark Worldwide, Inc. and subsidiaries (Terremark or the Company) is a global provider
of managed IT solutions leveraging its highly connected carrier-neutral data centers across major
networking hubs in the United States, Europe and Latin America. The Company delivers a
comprehensive suite of managed solutions including colocation, managed hosting, managed network,
disaster recovery, security and cloud computing services. Terremark serves approximately 1,400
customers worldwide across a broad range of sectors, including enterprise, government agencies,
systems integrators, network service providers, internet content and portal companies and internet
infrastructure companies. The Company delivers its solutions through specialized data centers,
including its three primary facilities: NAP of the Americas in Miami, Florida; NAP of the Capital
Region in Culpeper, Virginia outside downtown Washington, D.C.; and NAP of the Americas/West in
Santa Clara, California.
2. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements include the accounts of
Terremark Worldwide, Inc. and all entities in which Terremark Worldwide, Inc. has a controlling
voting interest (subsidiaries and collectively with Terremark Worldwide, Inc. Terremark)
required to be consolidated in accordance with generally accepted accounting principles in the
United States of America (U.S. GAAP). All significant intercompany accounts and transactions
between consolidated companies have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with the accounting policies described in the Terremarks 2010 Annual Report on
Form 10-K and should be read in conjunction with such policies and Terremarks audited consolidated
financial statements and notes. The unaudited condensed consolidated financial statements contained
in this Quarterly Report on Form 10-Q do not include all of the information and footnotes required
by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation of the
financial position, results of operations, cash flows and changes in stockholders equity for the
periods presented have been included. The operating results for interim periods are not necessarily
indicative of the results that can be expected for a full year.
Correction of Immaterial Error Related to Prior Periods
In connection with the preparation of the Quarterly Report on Form 10-Q for the three months
ended June 30, 2010, an error was identified in the calculation and presentation of the changes in
Accounts Payable and Other Current Liabilities and Purchase of Property and Equipment line items in
the statement of cash flows. The Company reviewed the impact of this error on the prior periods in
accordance with FASB and Securities and Exchange Commission (SEC) guidance and determined that
the error was not material to the prior periods. However, the Company has revised the statement of
cash flows for the six months ended September 30, 2009 by decreasing net cash used in investing
activities for the Purchase of Property and Equipment and decreasing cash flows provided by
operating activities in Accounts Payable and Other Current Liabilities by approximately
$2.6 million. For the comparative fiscal years, the Company will also correct the prior periods as
follows (in thousands):
Year Ended | Nine Months Ended | Year Ended | ||||||||||
March 31, 2010 | December 31, 2009 | March 31, 2009 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Accounts payable and other current
liabilities |
$ | (9,070 | ) | $ | 4,318 | $ | 13,672 | |||||
Cash flows from investing activities: |
||||||||||||
Purchase of property and equipment |
$ | 9,070 | $ | (4,318 | ) | $ | (13,672 | ) | ||||
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
Reclassifications
Certain reclassifications have been made to the prior periods condensed consolidated
financial statements to conform to the current presentation.
Significant concentrations
The federal sector, which includes federal government agencies and non-government entities
that contract with the federal government, accounted for approximately 20% and 21% of our revenues
for the six and three months ended September 30, 2010, respectively, and 22% of our revenues for
both the six and three months ended September 30, 2009. No commercial customer accounted for more
than 10% of revenues for each of the six and three months ended September 30, 2010 and 2009.
Derivatives
The Company has, in the past, used financial instruments, including interest cap agreements
and interest rate swap agreements, to manage exposures to movements in interest rates. The use of
these financial instruments modifies the Companys exposure to these risks and is designed to
minimize such risks. The Company does not hold or issue derivative instruments for trading
purposes.
The Company entered into two interest rate swap agreements as required under the provisions of
the $250.0 million mortgage loan entered into on July 31, 2007. The interest rate swaps were
settled on June 24, 2009. See Note 11.
The Companys 6.625% Senior Convertible Notes, due June 15, 2013 (the 6.625% Senior
Convertible Notes), and $50.0 million aggregate principal amount of the Companys 12% Senior
Secured Notes, due June 15, 2017 (the $50.0 million 12% Senior Secured Notes), contain embedded
derivatives that require separate valuation. The Company recognizes these derivatives as assets or
liabilities on its balance sheet, measures them at their estimated fair value and recognizes
changes in their estimated fair value in earnings for the relevant period.
The Company estimates the fair value of its embedded derivatives using available market
information and appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company may eventually pay
to settle these embedded derivatives.
Construction in progress
Construction in progress is stated at its original cost and includes direct expenditures
associated with the expansion of the Companys data center footprint and upgrades to infrastructure
of current data center footprint. Once an expansion project becomes operational, these capitalized
costs are allocated to certain property and equipment categories and are depreciated at the
appropriate rates consistent with the estimated useful life of the underlying assets. In addition,
the Company has capitalized certain interest costs during the construction phase if certain
criteria are met. The following table sets forth total interest cost incurred and total interest
cost capitalized (in thousands):
Six Months Ended | Three Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Interest expense |
$ | 28,647 | $ | 22,993 | $ | 14,428 | $ | 13,929 | ||||||||
Interest capitalized |
2,886 | 631 | 1,592 | 455 | ||||||||||||
Interest
charges incurred |
$ | 31,533 | $ | 23,624 | $ | 16,020 | $ | 14,384 | ||||||||
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
Fair value of financial instruments
The fair value of secured loans and convertible debt is as follows (in thousands):
September 30, 2010 | March 31, 2010 | |||||||||||||||
Book Value | Fair Value | Book Value | Fair Value | |||||||||||||
Secured loans: |
||||||||||||||||
$420.0 million 12% Senior Secured
Notes |
$ | 390,160 | $ | 483,894 | $ | 388,835 | $ | 481,491 | ||||||||
$50.0 million 12% Senior Secured Notes |
54,792 | 57,607 | | | ||||||||||||
$ | 444,952 | $ | 541,501 | $ | 388,835 | $ | 481,491 | |||||||||
Convertible debt: |
||||||||||||||||
6.625% Senior Convertible Notes |
$ | 57,192 | $ | 61,627 | $ | 57,192 | $ | 59,062 |
The book value for the Companys secured loans and convertible debt is net of the unamortized
discount or premium to debt principal. See Notes 9 and 10.
Fair value measurements
The table below summarizes the fair values of our financial assets (liabilities) as follows
(in thousands):
Fair Value at | ||||||||||||||||
September 30, | Fair Value Measurement Using | |||||||||||||||
2010 | Level 1 | Level 2 | Level 3 | |||||||||||||
Money market fund |
$ | 12,190 | $ | 12,190 | $ | | $ | | ||||||||
Embedded derivatives |
(121 | ) | | | (121 | ) | ||||||||||
$ | 12,069 | $ | 12,190 | $ | | $ | (121 | ) | ||||||||
The following is a description of the valuation methodologies used for these items, as well as
the general classification of such items:
Money market fund instruments these instruments are valued using quoted prices for identical
instruments in active markets. Therefore, the instruments are classified within Level 1 of the fair
value hierarchy. These money market funds are included in cash and cash equivalents.
Embedded derivatives these instruments are embedded within the Companys 6.625% Senior
Convertible Notes and $50.0 million 12% Senior Secured Notes. These instruments were valued using
pricing models that incorporate the Companys stock price, credit risk, volatility, U.S. risk free
interest rate, transaction details such as contractual terms, maturity and amount of future cash
inflows, as well as assumptions about probability and the timing of certain events taking place in
the future. These embedded derivatives are included in deferred rent and other liabilities on the
Companys balance sheet and the change in the fair value is recorded in the income statement line
item, change in fair value of derivatives. For a summary of the changes in the fair value of these
embedded derivatives, see Note 11.
Effective April 1, 2009, the Company adopted the provisions of accounting standards for fair
value measurements for our nonfinancial assets and liabilities measured at fair value on a
nonrecurring basis. Nonfinancial assets such as goodwill, other intangible assets, and long-lived
assets held and used are measured at fair value when there is an indicator of impairment and
recorded at fair value only when impairment is recognized or for a business combination.
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
Recent accounting pronouncements
In September 2009, the FASB issued accounting guidance which amends the criteria for
allocating a contracts consideration to individual services or products in multiple arrangements.
The guidance requires that the best estimate of selling price be used when vendor specific
objective or third-party evidence for deliverables cannot be determined. This guidance is effective
prospectively for revenue arrangements entered into or materially modified beginning in fiscal
years beginning on or after June 15, 2010. Early adoption is permitted. The Company is currently
evaluating the impact that the adoption of this standard will have on its consolidated financial
statements, if any.
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 guidance to clarify
that an entity must provide fair value measurement disclosures for each major class of assets and
liabilities. With respect to the new disclosures for transfers in and out of Level 1 and Level 2
fair value measurements, and its adoption did not have any significant impact on the Companys
condensed consolidated financial statements. The Company is currently evaluating the impact that
the disclosure of activity in Level 3 fair value measurements will have on its consolidated
financial statements, if any.
3. Acquisitions
On November 12, 2009, the Company entered into a purchase agreement to acquire all issued and
outstanding equity interests in DS3 DataVaulting, LLC, a data management solutions provider, for a
final purchase price of $12.1 million in cash, including a working capital adjustment of
$0.6 million paid to the sellers on March 1, 2010. Pursuant to the purchase agreement, the sellers
agreed to indemnify the Company for certain potential contractual obligations. In accordance with
the terms of the related escrow agreement, $1.5 million of the purchase price was placed into an
escrow account to secure such indemnification obligations. The escrow agreement ends on May 11,
2011, at which time the remaining funds, if any, will be distributed to the sellers. This data
management solutions provider delivers offsite, online data backup and restore services, which
enable enterprises and government agencies to rapidly and securely backup and restore files,
databases and operating systems. The costs to acquire the data management solutions provider were
allocated to the tangible and identified intangible assets acquired and liabilities assumed based
on their respective fair values, and any excess was allocated to goodwill. The following summarizes
the allocation of the purchase price as of September 30, 2010 (in thousands):
Cash and cash equivalents |
$ | 44 | ||
Accounts receivable, net |
827 | |||
Prepaid and other current assets |
258 | |||
Property and equipment |
1,690 | |||
Intangibles |
825 | |||
Goodwill |
9,923 | |||
Accounts payable and accrued expenses |
(398 | ) | ||
Deferred revenue |
(162 | ) | ||
Capital lease obligations |
(926 | ) | ||
Net assets acquired |
$ | 12,081 | ||
4. Accounts Receivable
September 30, | March 31, | |||||||
2010 | 2010 | |||||||
Accounts receivable, net,
consists of (in thousands): |
||||||||
Accounts receivable |
$ | 38,033 | $ | 39,359 | ||||
Unbilled revenue |
16,444 | 12,182 | ||||||
Allowance for doubtful accounts |
(1,532 | ) | (1,275 | ) | ||||
$ | 52,945 | $ | 50,266 | |||||
Trade accounts receivable are recorded at the invoiced amount and do not bear interest.
Unbilled revenue consists of revenues earned for which the customer has not been billed.
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
5. Prepaid Expenses and Other Assets
September 30, | March 31, | |||||||
2010 | 2010 | |||||||
Prepaid expenses and
other assets consists of (in
thousands): |
||||||||
Prepaid expenses |
$ | 5,601 | $ | 4,741 | ||||
Deferred costs |
10,582 | 8,758 | ||||||
Deposits |
4,616 | 4,476 | ||||||
Prepaid ground lease |
| 3,602 | ||||||
Deferred rent |
1,385 | 1,364 | ||||||
Other |
3,179 | 2,376 | ||||||
Tenant allowance |
1,402 | 1,418 | ||||||
Deferred tax asset |
960 | 949 | ||||||
Interest and other receivables |
256 | 305 | ||||||
27,981 | 27,989 | |||||||
Less: current portion |
(14,382 | ) | (12,605 | ) | ||||
$ | 13,599 | $ | 15,384 | |||||
6. Property and Equipment
September 30, | March 31, | |||||||
2010 | 2010 | |||||||
Property and equipment, net, consists of
(in thousands): |
||||||||
Land |
$ | 23,307 | $ | 18,336 | ||||
Building |
167,182 | 140,751 | ||||||
Building and leasehold improvements |
97,928 | 81,433 | ||||||
Machinery |
214,570 | 165,035 | ||||||
Equipment, furniture and fixtures |
98,164 | 82,646 | ||||||
Construction in progress |
12,556 | 30,521 | ||||||
613,707 | 518,722 | |||||||
Less: accumulated depreciation and amortization |
(137,591 | ) | (114,066 | ) | ||||
$ | 476,116 | $ | 404,656 | |||||
Depreciation and amortization expense, excluding amortization of intangible assets (see
Note 7), was $23.6 million and $12.4 million for the six and three months ended September 30, 2010,
respectively. Depreciation and amortization expense, excluding amortization of intangible assets,
was $16.7 million and $8.4 million for the six and three months ended September 30, 2009,
respectively.
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
7. Intangibles
Amortization | September 30, | March 31, | ||||||||||
Period (Years) | 2010 | 2010 | ||||||||||
Intangibles, net,
consists of (in thousands): |
||||||||||||
Customer base |
8-10 | $ | 9,125 | $ | 9,125 | |||||||
Technology |
4-5 | 6,400 | 6,400 | |||||||||
Trademarks |
| 4,100 | 4,100 | |||||||||
Non-compete agreements |
3 | 100 | 100 | |||||||||
19,725 | 19,725 | |||||||||||
Less: accumulated amortization |
(8,920 | ) | (7,966 | ) | ||||||||
$ | 10,805 | $ | 11,759 | |||||||||
The Company expects to record amortization expense associated with these intangible assets as
follows for each of the fiscal years ended March 31 (in thousands):
Customer | ||||||||
Base | Technology | |||||||
2011 (six months remaining) |
$ | 538 | $ | 400 | ||||
2012 |
1,075 | 800 | ||||||
2013 |
1,075 | 120 | ||||||
2014 |
1,075 | | ||||||
2015 |
1,075 | | ||||||
2016 |
547 | | ||||||
$ | 5,385 | $ | 1,320 | |||||
Amortization of intangibles was $1.0 million and $0.5 million for the six and three months
ended September 30, 2010, respectively, and $1.1 million and $0.5 million for the six and three
months ended September 30, 2009, respectively, which is included in depreciation and amortization
expense in the Companys accompanying condensed consolidated financial statements.
8. Accounts Payable and Other Current Liabilities
September 30, | March 31, | |||||||
2010 | 2010 | |||||||
Accounts payable and other current
liabilities consists of (in thousands): |
||||||||
Accounts payable |
$ | 48,638 | $ | 45,934 | ||||
Accrued expenses |
20,517 | 17,121 | ||||||
Current portion of deferred revenue |
10,359 | 7,138 | ||||||
Interest payable |
17,576 | 17,308 | ||||||
Customer prepayments |
4,245 | 4,447 | ||||||
$ | 101,335 | $ | 91,948 | |||||
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
9. Secured Loans
September 30, | March 31, | |||||||
2010 | 2010 | |||||||
Secured loans consist of (in thousands): |
||||||||
$420.0 million 12% Senior Secured Notes, due June 15, 2017. Interest is payable semi-annually, on December 15 and June 15 (Effective interest rate of 13.8%) |
$ | 390,160 | $ | 388,835 | ||||
$50.0 million 12% Senior Secured Notes, due June 15, 2017. Interest is payable semi-annually, on December 15 and June 15 (Effective interest rate of 10.7%) |
54,792 | | ||||||
$ | 444,952 | $ | 388,835 | |||||
On June 24, 2009 and April 28, 2010 (collectively the Closing Dates), the Company issued an
aggregate principal amount of $420.0 million ($420.0 million 12% Senior Secured Notes) and $50.0
million, respectively, of 12% Senior Secured Notes, due June 15, 2017 (collectively the 12% Senior
Secured Notes), which are guaranteed by substantially all of the Companys domestic subsidiaries
(the Guarantors). Additionally, the 12% Senior Secured Notes are secured by a first priority
security interest in substantially all of the assets of the Company and the Guarantors, including
the pledge of 100% of all outstanding capital stock of each of the Companys domestic subsidiaries,
excluding Terremark Federal Group, Inc. and Technology Center of the Americas, LLC, and 65% of all
outstanding capital stock of substantially all of the Companys foreign subsidiaries, subject to
certain customary exceptions relating to our ability to remove the pledge with respect to certain
significant subsidiaries which would otherwise result in additional audit requirements under SEC
accounting rules such as providing additional audited financial statements for these subsidiaries.
The 12% Senior Secured Notes bear interest at 12.0% per annum, payable on December 15 and June 15
of each year. In the event of a change in control of the Company, the Company must offer to
purchase all 12% Senior Secured Notes then outstanding at a price equal to 101% of their principal
amount, plus accrued interest (if any), to the date of repurchase.
The loan proceeds for the $420.0 million 12% Senior Secured Notes were used to satisfy and
repay all of the Companys then-outstanding secured indebtedness, which included (i) loans under a
first lien credit agreement with a face value of $150.0 million, (ii) loans under a second lien
credit agreement with a face value of $100.0 million (the foregoing credit agreements together, the
Credit Agreements) and (iii) $8.4 million for the settlement of the two interest rate swap
agreements that were entered into in connection with the Credit Agreements. The Company paid
prepayment premiums of $2.2 million to the holders of the second lien credit agreement in
connection with this financing transaction. The Company expects to use the remainder of the
proceeds to fund working capital and other general operational purposes.
The repayment of the amounts outstanding under the Credit Agreements was accounted for as an
exchange and early extinguishment of debt, and the $420.0 million 12% Senior Secured Notes were
accounted for as a new debt instrument at $387.0 million, net of original issue discount of $33.0
million that included $12.5 million in fees paid to initial purchasers of the notes. The exchange
of debt instruments resulted in a loss on the early extinguishment of debt of $10.3 million for the
six months ended September 30, 2009. The loss included $7.0 million of unamortized deferred
financing costs, $2.3 million of prepayment penalties related to the second lien credit agreement,
breakage fees related to the settlement of the interest rate swaps and $1.0 million of unamortized
discount.
In addition, the Company recorded $3.5 million of debt issuance costs related to the $420.0
million 12% Senior Secured Notes. For the six and three months ended September 30, 2010, the
Company amortized $1.3 million and $0.7 million of the discount, respectively. For the six and
three months ended September 30, 2009, the Company amortized $0.6 million of the discount,
respectively. For the six and three months ended September 30, 2010, and 2009, debt issuance costs
of $0.1 million and less than $0.1 million were amortized into interest expense, respectively.
13
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
The $50.0 million 12% Senior Secured Notes were accounted for as a new debt instrument at
$55.0 million, net of premium that included $1.0 million in fees paid to initial purchaser of the
notes. The $50.0 million 12% Senior Secured Notes were issued with a substantial premium to par and
as a result, the Company determined that the change in control provision would be bifurcated and
accounted for separately. The Company has estimated that this embedded derivative does not have
significant value, see Note 11. In addition, the Company recorded $1.8 million of debt issuance
costs related to the $50.0 million 12% Senior Secured Notes. For the six and three months ended
September 30, 2010, the Company amortized $0.2 million and $0.1 million of the premium and less
than $0.1 million and less than $0.1 million of the debt issuance costs into interest expense,
respectively.
The Company expects to use the proceeds from the issuance of the $50.0 million 12% Senior
Secured Notes for working capital and other general corporate purposes.
10. Convertible Debt
September 30, | March 31, | |||||||
2010 | 2010 | |||||||
Convertible debt consists of (in thousands): |
||||||||
6.625% Senior Convertible Notes, due June
15, 2013, and convertible into shares of
the Companys common stock at $12.50 per
share. Interest at 6.625% is payable
semi-annually, on December 15 and June 15
(Effective interest rate of 6.6%) |
$ | 57,192 | $ | 57,192 | ||||
$ | 57,192 | $ | 57,192 | |||||
On June 15, 2009, all outstanding obligations under the Companys 0.5% Senior Subordinated
Convertible Notes, (the Series B Notes) with a face value of $4.0 million were satisfied and
repaid at maturity. On the maturity date, the Company paid $4.1 million to the holders of the
Series B Notes, representing the principal amount, including interest paid in kind, and all accrued
and unpaid interest. On June 15, 2009, we repaid and satisfied at maturity all outstanding
obligations under our 9% Senior Convertible Notes with a face value of $29.1 million. On the
maturity date, the Company paid $30.4 million to the holders of such notes, representing $29.1
million of principal and $1.3 million of accrued and unpaid interest.
The 6.625% Senior Convertible Notes, which were issued on May 2, 2007 in a private exchange
for $57.2 million aggregate principal amount of our then outstanding 9% Senior Convertible Notes,
are unsecured obligations and rank pari passu with all existing and future unsecured and
unsubordinated indebtedness, senior in right of payment to all existing and future subordinated
indebtedness, and rank junior to any future secured indebtedness. The Companys 6.625% Senior
Convertible Notes contain two embedded derivatives that require separate valuation from the 6.625%
Senior Convertible Notes: an equity participation right which was determined not to have
significant value and a contingent put upon change in control. If there is a change in control, the
holders of the 6.625% Senior Convertible Notes have the right to require the Company to repurchase
their notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest to
and including the date of repurchase. If a holder surrenders notes for conversion at any time
beginning on the effective notice of a change in control in which 10% or more of the consideration
for the Companys common stock consists of cash, the Company will increase the number of shares
issuable upon such conversion by an amount not to exceed 5,085,513 additional shares. The number of
additional shares is based on the date on which the partial cash buy-out becomes effective and the
price paid or deemed to be paid per share of the Companys common stock in the change of control.
If the Company issues a cash dividend on its common stock, it must pay contingent on the 6.625%
Senior Convertible Notes equal to the product of the per share cash dividend and the aggregate
number of shares of common stock issuable upon conversion of the outstanding 6.625% Senior
Convertible Notes.
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
11. Derivatives
The Companys $50.0 million 12% Senior Secured Notes contain an embedded derivative that
requires separate valuation from the $50.0 million 12% Senior Secured Notes: a contingent put upon
change in control which is described in Note 9.
The Companys 6.625% Senior Convertible Notes contain two embedded derivatives that require
separate valuation from the 6.625% Senior Convertible Notes: an equity participation right and a
contingent put upon change in control, See Note 10.
As of September 30, 2010 and March 31, 2010, the outstanding embedded derivatives relating to
the 6.625% Senior Convertible Notes and $50.0 million 12% Senior Secured Notes, amounted in the
aggregate to a liability of $0.1 million and $0.3 million, respectively.
On February 8, 2008, the Company entered into two interest rate swap agreements as required
under the provisions of the Credit Agreements. One of the interest rate swap agreements was
effective March 31, 2008 for a notional amount of $148.0 million and a fixed interest rate of
2.999%. Interest payments on this instrument were due on the last day of each March, June,
September and December, ending on December 31, 2010. The second interest rate swap agreement
entered into was effective on July 31, 2008 for a notional amount of $102.0 million and a fixed
interest rate of 3.067%. Interest payments on this instrument were due on the last day of each
January, April, July and October, ending on January 31, 2011. The interest rate swap agreements
served as an economic hedge against increases in interest rates and were not designated as hedges
for accounting purposes. Accordingly, the Company accounted for these interest rate swap agreements
on a fair value basis and adjusted these instruments to fair value and the resulting changes in
fair value were charged to earnings.
In connection with the repayment of the Credit Agreements on June 24, 2009, the interest rate
swap agreements were unwound and settled for $8.4 million payable to the holders. The Company
recorded $0.9 million of interest expense related to the interest rate swap agreements for the six
months ended September 30, 2009.
12. Deferred Rent and Other Liabilities
September 30, | March 31, | |||||||
2010 | 2010 | |||||||
Deferred rent and other liabilities consists of (in thousands): |
||||||||
Deferred rent |
$ | 12,287 | $ | 10,449 | ||||
Long-term portion of capital lease obligations |
14,785 | 5,751 | ||||||
Deferred tax liability |
1,543 | 1,543 | ||||||
Other liabilities |
759 | 608 | ||||||
$ | 29,374 | $ | 18,351 | |||||
During the six months ended September 30, 2010, the Company entered into sale leaseback
financing for the Companys Amsterdam, Netherlands property which resulted in net proceeds of $7.0
million. This transaction is in connection with the construction of a new data center in Amsterdam
and has been accounted for as a financing lease, wherein the property remains on the Companys
financial statements. No gains or losses resulted from this transaction. The Company effected such
financing using an unrestricted subsidiary as permitted under the terms of the indenture
governing the 12% Senior Secured Notes.
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
13. Commitments and Contingencies
In the ordinary course of conducting business, we become involved in various legal actions and
claims. Litigation is subject to many uncertainties and the Company may be unable to accurately
predict the outcome of such matters, some of which could be decided unfavorably to us. The
Companys participation in government contracts subjects us to inquiries, investigations and
subpoenas regarding our business with the federal government. Improper or illegal activities may
subject us to civil and criminal penalties and administrative sanctions, including termination of
contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from
doing business with federal government agencies. Management does not believe the ultimate outcome
of pending matters of the nature described above would be material.
14. Changes in Stockholders Equity
Issuance of Common stock
For the six months ended September 30, 2010, the Company issued an aggregate of 693,702
million shares of its common stock to certain employees upon the exercise of stock options and
vesting of restricted stock. Issued shares were net of shares surrendered to satisfy the employees
withholding tax liability.
On May 29, 2009, in a private transaction, we sold to VMware Bermuda Limited, a wholly-owned
subsidiary of VMware, Inc. (VMware), four million shares of our common stock at a purchase price
of $5.00 per share, for a total purchase price equal to $20 million. As part of the VMware vCloud
Initiative, the two companies have worked together to provide leading-edge utility and cloud
computing services to the enterprise and federal markets and continue to jointly cooperate to
create and launch cloud infrastructure services. For the six and three months ended September 30,
2010, we paid to VMware $0.3 million and $0.1 million in software licensing and other fees,
respectively, and for the six and three months ended September 30, 2009, $0.7 million and $0.6
million, respectively.
15. Earnings (Loss) Per Share
The following table sets forth potential shares of common stock that are not included in the
diluted net loss per share calculation because to do so would be anti-dilutive for the periods
indicated (in thousands):
Six Months Ended | Three Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
9% Senior Convertible Notes |
| 965 | | | ||||||||||||
Common stock warrants |
2,018 | 2,028 | 2,018 | 2,025 | ||||||||||||
Common stock options |
2,191 | 2,294 | 2,117 | 2,379 | ||||||||||||
Nonvested stock |
2,766 | 1,270 | 2,934 | 1,063 | ||||||||||||
Series I convertible preferred stock |
1,067 | 1,072 | 1,066 | 1,072 | ||||||||||||
6.625% Senior Convertible Notes |
4,575 | 4,575 | 4,575 | 4,575 | ||||||||||||
0.5% Senior Subordinated Convertible Notes |
| 244 | | |
16. Share-based Compensation
Option Awards
On May 19, 2010, the Company granted stock options to purchase 116,650 shares of its common
stock with an exercise price of $7.65 per share to members of the Companys Board of Directors.
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
Nonvested Stock Awards
The Company records the intrinsic value of the nonvested stock as additional paid-in capital.
Share-based compensation expense is recognized ratably over the applicable vesting period. As of
September 30, 2010, the future compensation expense related to nonvested stock that is anticipated
to be recognized is approximately $22.0 million. The cost is expected to be recognized over a
weighted average period of 2.2 years. The Company recognized approximately $4.0 million and $2.3
million of share-based compensation expense, associated with nonvested stock, for the six and three
months ended September 30, 2010 and $1.8 million and $0.8 million, for the six and three months
ended September 30, 2009, respectively. A summary of the Companys nonvested stock as of September
30, 2010 and changes for the six months ended September 30, 2010 is presented below (in thousands,
except for per share data):
Weighted Average | ||||||||
Grant Date | ||||||||
Shares | Fair Value | |||||||
Outstanding at April 1, 2010 |
2,430 | $ | 6.54 | |||||
Granted |
1,640 | 8.54 | ||||||
Vested |
(295 | ) | 7.68 | |||||
Forfeited |
(42 | ) | 7.54 | |||||
Outstanding at September 30, 2010 |
3,733 | $ | 7.48 | |||||
Share-based Compensation Recognized in the Statement of Operations
The following table presents, by operating expense category, the Companys share-based
compensation expense recognized for all outstanding equity awards (in thousands):
Six Months Ended | Three Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Cost of revenues |
$ | 2,093 | $ | 1,867 | $ | 1,146 | $ | 950 | ||||||||
General and administrative |
3,580 | 1,969 | 2,057 | 1,033 | ||||||||||||
Sales and marketing |
638 | 312 | 369 | 133 | ||||||||||||
$ | 6,311 | $ | 4,148 | $ | 3,572 | $ | 2,116 | |||||||||
17. Related Party Transactions
Following is a summary of transactions for the six and three months ended September 30, 2010
and 2009 and other receivable balances from a corporation controlled
by a director of the Company that
are included in the accompanying condensed consolidated statements of operations and condensed
consolidated balance sheets as of September 30, 2010 and March 31, 2010 (in thousands):
Six Months | Three Months | |||||||||||||||
Ended | Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Services purchased from related party |
$ | | $ | 61 | $ | | $ | 30 | ||||||||
Services from directors |
250 | 200 | 125 | 100 |
September 30, | March 31, | |||||||
2010 | 2010 | |||||||
Other assets |
$ | 244 | $ | 304 |
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(Unaudited)
The Company has entered into consulting agreements with three members of the Companys Board of
Directors and an employment agreement with a fourth board member. The consulting agreements provide
for a combined annual compensation of $440,000, and the employment agreement provides for an annual
compensation of $60,000.
18. Revenues
Six Months Ended | Three Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues consist of (in thousands): |
||||||||||||||||
Colocation |
$ | 70,320 | $ | 53,225 | $ | 37,624 | $ | 27,584 | ||||||||
Managed and professional services |
78,422 | 69,937 | 40,351 | 36,150 | ||||||||||||
Exchange point services |
10,044 | 9,056 | 5,167 | 4,605 | ||||||||||||
Equipment resales |
5,135 | 3,346 | 1,732 | 1,464 | ||||||||||||
$ | 163,921 | $ | 135,564 | $ | 84,874 | $ | 69,803 | |||||||||
Total arrangement consideration for managed web hosting solutions may include the procurement
of equipment. Amounts allocated to equipment and software sold under these arrangements and
included in managed and professional services were $6.7 million
and $2.9 million for the six and three months ended Spetember 30, 2010, and $4.4 million
and $2.7 million for the six and three months ended September 30, 2009, respectively.
19. Information About the Companys Operating Segment
As of September 30, 2010 and March 31, 2010, the Company had one reportable business segment,
which is data center operations. The data center operations segment provides Tier 1 NAP, Internet
infrastructure and managed services in a data center environment. Additionally, the segment
provides NAP development and technology infrastructure buildout services.
20. Supplemental Cash Flow Information
Six Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Supplemental disclosures of cash flow information (in thousands): |
||||||||
Cash paid for interest, net of amount capitalized |
$ | 27,029 | $ | 10,499 | ||||
Cash paid for income taxes |
941 | 38 | ||||||
Non-cash operating, investing and financing activities: |
||||||||
Assets acquired under capital leases |
9,664 | 3,308 | ||||||
Cancellation and expiration of warrants |
| 32 | ||||||
Changes in accrued property and equipment |
5,425 | (2,033 | ) | |||||
Decrease in other assets related to financing lease |
3,226 | |
21. Supplemental Guarantor and Non-Guarantor Condensed Consolidating Financial Information
On June 17, 2010, the Company consummated its registered offer to exchange (the Exchange
Offer) all outstanding 12% Senior Secured Notes (the Original Notes) that were not registered
under the Securities Act of 1933, as amended (the Securities Act), for new 12% Senior Secured
Notes that are registered under the Securities Act (the New Notes). The terms of the New Notes
are substantially identical to the terms of the Original Notes, except that the New Notes are
registered under the Securities Act, and the transfer restrictions and registration rights and
related additional interest provisions applicable to the Original Notes do not apply to the New
Notes. The New Notes represent the same debt as the Original Notes and were issued under the same
indenture as the Original Notes. In connection with the Exchange Offer and the
registration of the New Notes under the Securities Act, below are certain consolidating financial
statements of the Company, the Guarantors and the Companys subsidiaries that are not Guarantors.
In lieu of providing separate unaudited financial statements of the Guarantors, condensed financial
statements prepared in accordance with Rule 3-10 of Regulation S-X are presented below.
18
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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The column marked Issuer includes the results of Terremark Worldwide, Inc. (the Parent
Company). The column marked Guarantor Subsidiaries includes the results of the Guarantors, which
consist of all of the Companys domestic, wholly-owned, subsidiaries. The column marked
Non-Guarantor Subsidiaries includes results of the Companys subsidiaries that are not
Guarantors, which consist of the Companys foreign subsidiaries. Eliminations necessary to arrive
at the information for the Company on a consolidated basis for the periods presented are included
in the column so labeled and consist primarily of certain intercompany payments between the Parent
Company and the Non-Guarantor Subsidiaries. Separate financial statements and other disclosures
concerning the Guarantors are not presented because management has determined that they are not
material to investors.
The following represents the supplemental financial statements of the Parent Company, the
Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. These financial statements should be
read in conjunction with our consolidated financial statements and notes thereto.
Condensed Consolidating Balance Sheet as of September 30, 2010
(In thousands)
(In thousands)
Guarantor | Non-Guarantor | |||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 27,160 | $ | (63 | ) | $ | 20,564 | $ | | $ | 47,661 | |||||||||
Accounts receivables, net |
| 47,803 | 5,142 | | 52,945 | |||||||||||||||
Current portion of capital lease
receivables |
| 330 | | | 330 | |||||||||||||||
Prepaid expenses and other current assets |
1,056 | 9,945 | 3,381 | | 14,382 | |||||||||||||||
Total current assets |
28,216 | 58,015 | 29,087 | | 115,318 | |||||||||||||||
Investment in subsidiaries |
226,970 | | | (226,970 | ) | | ||||||||||||||
Intercompany accounts receivable |
382,506 | 88,020 | 4,707 | (475,233 | ) | | ||||||||||||||
Restricted cash |
645 | 1,008 | | | 1,653 | |||||||||||||||
Property and equipment, net |
6,930 | 439,716 | 29,470 | | 476,116 | |||||||||||||||
Debt issuance costs, net |
4,926 | | | | 4,926 | |||||||||||||||
Other assets |
1,578 | 10,827 | 1,208 | (14 | ) | 13,599 | ||||||||||||||
Capital lease receivables, net of current
portion |
| 197 | 143 | | 340 | |||||||||||||||
Intangibles, net |
| 9,935 | 870 | | 10,805 | |||||||||||||||
Goodwill |
| 89,169 | 6,943 | | 96,112 | |||||||||||||||
Total assets |
$ | 651,771 | $ | 696,887 | $ | 72,428 | $ | (702,217 | ) | $ | 718,869 | |||||||||
Current liabilities: |
||||||||||||||||||||
Current portion of capital lease
obligations |
1,071 | 5,442 | 695 | | 7,208 | |||||||||||||||
Accounts payable and other current
liabilities |
23,266 | 68,877 | 9,192 | | 101,335 | |||||||||||||||
Total current liabilities |
24,337 | 74,319 | 9,887 | | 108,543 | |||||||||||||||
Intercompany accounts payable |
85,521 | 369,150 | 20,562 | (475,233 | ) | | ||||||||||||||
Secured loans |
444,952 | | | | 444,952 | |||||||||||||||
Convertible debt |
57,192 | | | | 57,192 | |||||||||||||||
Deferred rent and other liabilities |
4,382 | 17,813 | 7,179 | | 29,374 | |||||||||||||||
Deferred revenue |
| 7,161 | 1,892 | (13 | ) | 9,040 | ||||||||||||||
Total liabilities |
616,384 | 468,443 | 39,520 | (475,246 | ) | 649,101 | ||||||||||||||
Commitments and contingencies |
| | | | | |||||||||||||||
Stockholders equity: |
||||||||||||||||||||
Series I convertible preferred stock |
| | | | | |||||||||||||||
Common stock |
66 | | 1,064 | (1,064 | ) | 66 | ||||||||||||||
Common stock warrants |
8,901 | | | | 8,901 | |||||||||||||||
Additional paid-in capital |
463,568 | 189,031 | 36,875 | (225,907 | ) | 463,567 | ||||||||||||||
Accumulated (deficit) earnings |
(437,148 | ) | 39,413 | (4,946 | ) | | (402,681 | ) | ||||||||||||
Accumulated other comprehensive loss |
| | (85 | ) | | (85 | ) | |||||||||||||
Total stockholders equity |
35,387 | 228,444 | 32,908 | (226,971 | ) | 69,768 | ||||||||||||||
Total liabilities and stockholders
equity |
$ | 651,771 | $ | 696,887 | $ | 72,428 | $ | (702,217 | ) | $ | 718,869 | |||||||||
19
Table of Contents
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Condensed Consolidating Balance Sheet as of March 31, 2010
(In thousands)
(In thousands)
Guarantor | Non-Guarantor | |||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 43,497 | $ | 517 | $ | 9,454 | $ | | $ | 53,468 | ||||||||||
Accounts receivable, net |
9 | 45,937 | 4,320 | | 50,266 | |||||||||||||||
Current portion of capital lease receivable |
| 418 | | | 418 | |||||||||||||||
Prepaid expenses and other current assets |
674 | 8,606 | 3,328 | (3 | ) | 12,605 | ||||||||||||||
Total current assets |
44,180 | 55,478 | 17,102 | (3 | ) | 116,757 | ||||||||||||||
Investment in subsidiaries |
224,726 | | | (224,726 | ) | | ||||||||||||||
Intercompany accounts receivable |
288,644 | 45,798 | 4,282 | (338,724 | ) | | ||||||||||||||
Restricted cash |
638 | 1,011 | 310 | | 1,959 | |||||||||||||||
Property and equipment, net |
6,514 | 373,112 | 25,030 | | 404,656 | |||||||||||||||
Debt issuance costs, net |
3,384 | | | | 3,384 | |||||||||||||||
Other assets |
904 | 9,895 | 4,621 | (36 | ) | 15,384 | ||||||||||||||
Capital lease receivable, net of current portion |
| 235 | | | 235 | |||||||||||||||
Intangibles, net |
| 10,799 | 960 | | 11,759 | |||||||||||||||
Goodwill |
| 89,169 | 6,943 | | 96,112 | |||||||||||||||
Total assets |
$ | 568,990 | $ | 585,497 | $ | 59,248 | $ | (563,489 | ) | $ | 650,246 | |||||||||
Current liabilities: |
||||||||||||||||||||
Current portion of capital lease obligations |
$ | 1,183 | $ | 3,589 | $ | 147 | $ | | $ | 4,919 | ||||||||||
Accounts payable and other current
liabilities |
24,412 | 58,455 | 9,081 | | 91,948 | |||||||||||||||
Total current liabilities |
25,595 | 62,044 | 9,228 | | 96,867 | |||||||||||||||
Intercompany accounts payable |
43,783 | 276,341 | 18,600 | (338,724 | ) | | ||||||||||||||
Secured loans |
388,835 | | | | 388,835 | |||||||||||||||
Convertible debt |
57,192 | | | | 57,192 | |||||||||||||||
Deferred rent and other liabilities |
5,074 | 12,115 | 1,162 | | 18,351 | |||||||||||||||
Deferred revenue |
| 6,540 | 2,013 | (39 | ) | 8,514 | ||||||||||||||
Total liabilities |
$ | 520,479 | $ | 357,040 | $ | 31,003 | $ | (338,763 | ) | $ | 569,759 | |||||||||
Commitments and contingencies |
| | | | | |||||||||||||||
Stockholders equity: |
||||||||||||||||||||
Series I convertible preferred stock |
| | | | | |||||||||||||||
Common stock |
65 | | 1,063 | (1,063 | ) | 65 | ||||||||||||||
Common stock warrants |
8,901 | | | | 8,901 | |||||||||||||||
Additional paid-in capital |
456,859 | 189,034 | 34,630 | (223,663 | ) | 456,860 | ||||||||||||||
Accumulated (deficit) earnings |
(417,314 | ) | 39,425 | (6,778 | ) | | (384,667 | ) | ||||||||||||
Accumulated other comprehensive loss |
| (2 | ) | (670 | ) | | (672 | ) | ||||||||||||
Total stockholders equity |
48,511 | 228,457 | 28,245 | (224,726 | ) | 80,487 | ||||||||||||||
Total liabilities and stockholders
equity |
$ | 568,990 | $ | 585,497 | $ | 59,248 | $ | (563,489 | ) | $ | 650,246 | |||||||||
20
Table of Contents
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Condensed Consolidating Statement of Operations for the Six Months Ended September 30, 2010
(In thousands)
(In thousands)
Guarantor | Non-Guarantor | |||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Revenues |
$ | 15,517 | $ | 138,585 | $ | 26,249 | $ | (16,430 | ) | $ | 163,921 | |||||||||
Expenses: |
||||||||||||||||||||
Costs of revenues, excluding
depreciation and amortization |
167 | 73,757 | 14,735 | (913 | ) | 87,746 | ||||||||||||||
General and administrative |
15,819 | 17,973 | 3,417 | (15,517 | ) | 21,692 | ||||||||||||||
Sales and marketing |
1,463 | 14,860 | 2,584 | | 18,907 | |||||||||||||||
Depreciation and amortization |
1,099 | 20,581 | 2,923 | | 24,603 | |||||||||||||||
Total operating expenses |
18,548 | 127,171 | 23,659 | (16,430 | ) | 152,948 | ||||||||||||||
(Loss) income from operations |
(3,031 | ) | 11,414 | 2,590 | | 10,973 | ||||||||||||||
Other (expenses) income: |
||||||||||||||||||||
Interest expense |
(28,275 | ) | (11,578 | ) | (116 | ) | 11,322 | (28,647 | ) | |||||||||||
Change in fair value of derivatives |
174 | | | | 174 | |||||||||||||||
Interest income |
11,389 | 110 | 70 | (11,322 | ) | 247 | ||||||||||||||
Other |
(41 | ) | 47 | 516 | | 522 | ||||||||||||||
Total other (expenses) income |
(16,753 | ) | (11,421 | ) | 470 | | (27,704 | ) | ||||||||||||
(Loss) income before income taxes |
(19,784 | ) | (7 | ) | 3,060 | | (16,731 | ) | ||||||||||||
Income tax expense |
(50 | ) | (5 | ) | (1,228 | ) | | (1,283 | ) | |||||||||||
Net (loss) income |
$ | (19,834 | ) | $ | (12 | ) | $ | 1,832 | $ | | $ | (18,014 | ) | |||||||
21
Table of Contents
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Condensed Consolidating Statement of Operations for the Six Months Ended September 30, 2009
(In thousands)
(In thousands)
Guarantor | Non-Guarantor | |||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Revenues |
$ | | $ | 117,561 | $ | 18,760 | $ | (757 | ) | $ | 135,564 | |||||||||
Expenses: |
||||||||||||||||||||
Costs of revenues, excluding depreciation
and amortization |
142 | 66,305 | 10,792 | (757 | ) | 76,482 | ||||||||||||||
General and administrative |
13,227 | 1,169 | 2,319 | | 16,715 | |||||||||||||||
Sales and marketing |
1,394 | 8,828 | 2,153 | | 12,375 | |||||||||||||||
Depreciation and amortization |
1,213 | 15,016 | 1,537 | | 17,766 | |||||||||||||||
Total operating expenses |
15,976 | 91,318 | 16,801 | (757 | ) | 123,338 | ||||||||||||||
(Loss) income from operations |
(15,976 | ) | 26,243 | 1,959 | | 12,226 | ||||||||||||||
Other (expenses) income: |
||||||||||||||||||||
Interest expense |
(22,762 | ) | (231 | ) | (58 | ) | 58 | (22,993 | ) | |||||||||||
Loss on early extinguishment of debt |
(10,275 | ) | | | | (10,275 | ) | |||||||||||||
Change in fair value of derivatives |
(1,439 | ) | | | | (1,439 | ) | |||||||||||||
Interest income |
155 | 65 | 50 | (58 | ) | 212 | ||||||||||||||
Other |
(135 | ) | (50 | ) | 940 | | 755 | |||||||||||||
Total other (expenses) income |
(34,456 | ) | (216 | ) | 932 | | (33,740 | ) | ||||||||||||
(Loss) income before income taxes |
(50,432 | ) | 26,027 | 2,891 | | (21,514 | ) | |||||||||||||
Income tax expense |
(171 | ) | | (729 | ) | | (900 | ) | ||||||||||||
Net (loss) income |
$ | (50,603 | ) | $ | 26,027 | $ | 2,162 | $ | | $ | (22,414 | ) | ||||||||
22
Table of Contents
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Condensed Consolidating Statement of Operations for the Three Months Ended September 30, 2010
(In thousands)
(In thousands)
Guarantor | Non-Guarantor | |||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Revenues |
$ | 7,758 | $ | 71,987 | $ | 13,327 | $ | (8,198 | ) | $ | 84,874 | |||||||||
Expenses: |
||||||||||||||||||||
Costs of revenues, excluding depreciation
and amortization |
79 | 37,160 | 7,302 | (440 | ) | 44,101 | ||||||||||||||
General and administrative |
8,204 | 8,994 | 1,737 | (7,758 | ) | 11,177 | ||||||||||||||
Sales and marketing |
712 | 8,320 | 1,308 | | 10,340 | |||||||||||||||
Depreciation and amortization |
580 | 10,793 | 1,541 | | 12,914 | |||||||||||||||
Total operating expenses |
9,575 | 65,267 | 11,888 | (8,198 | ) | 78,532 | ||||||||||||||
Income (loss) from operations |
(1,817 | ) | 6,720 | 1,439 | | 6,342 | ||||||||||||||
Other (expenses) income: |
||||||||||||||||||||
Interest expense |
(14,218 | ) | (5,807 | ) | (60 | ) | 5,657 | (14,428 | ) | |||||||||||
Change in fair value of derivatives |
149 | | | | 149 | |||||||||||||||
Interest income |
5,728 | 32 | 37 | (5,657 | ) | 140 | ||||||||||||||
Other |
271 | (3 | ) | 567 | | 835 | ||||||||||||||
Total other (expenses) income |
(8,070 | ) | (5,778 | ) | 544 | | (13,304 | ) | ||||||||||||
(Loss) income before income taxes |
(9,887 | ) | 942 | 1,983 | | (6,962 | ) | |||||||||||||
Income tax expense |
| | (784 | ) | | (784 | ) | |||||||||||||
Net (loss) income |
$ | (9,887 | ) | $ | 942 | $ | 1,199 | $ | | $ | (7,746 | ) | ||||||||
23
Table of Contents
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Condensed Consolidating Statement of Operations for the Three Months Ended September 30, 2009
(In thousands)
(Unaudited)
(In thousands)
(Unaudited)
Guarantor | Non-Guarantor | |||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Revenues |
$ | | $ | 59,888 | $ | 10,300 | $ | (385 | ) | $ | 69,803 | |||||||||
Expenses: |
||||||||||||||||||||
Costs of revenues, excluding depreciation
and amortization |
75 | 34,139 | 5,928 | (385 | ) | 39,757 | ||||||||||||||
General and administrative |
6,618 | 650 | 1,211 | | 8,479 | |||||||||||||||
Sales and marketing |
807 | 4,291 | 1,001 | | 6,099 | |||||||||||||||
Depreciation and amortization |
588 | 7,501 | 805 | | 8,894 | |||||||||||||||
Total operating expenses |
8,088 | 46,581 | 8,945 | (385 | ) | 63,229 | ||||||||||||||
(Loss) income from operations |
(8,088 | ) | 13,307 | 1,355 | | 6,574 | ||||||||||||||
Other (expenses) income: |
||||||||||||||||||||
Interest expense |
(13,834 | ) | (101 | ) | (24 | ) | 30 | (13,929 | ) | |||||||||||
Change in fair value of derivatives |
61 | | | | 61 | |||||||||||||||
Interest income |
96 | 28 | 25 | (30 | ) | 119 | ||||||||||||||
Other |
(44 | ) | (29 | ) | 338 | | 265 | |||||||||||||
Total other (expenses) income |
(13,721 | ) | (102 | ) | 339 | | (13,484 | ) | ||||||||||||
(Loss) income before income taxes |
(21,809 | ) | 13,205 | 1,694 | | (6,910 | ) | |||||||||||||
Income tax expense |
| | (326 | ) | | (326 | ) | |||||||||||||
Net (loss) income |
$ | (21,809 | ) | $ | 13,205 | $ | 1,368 | $ | | $ | (7,236 | ) | ||||||||
24
Table of Contents
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows for the Six Months Ended September 30, 2010
(In thousands)
(In thousands)
Guarantor | Non-Guarantor | |||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net (loss) income |
$ | (19,834 | ) | $ | (12 | ) | $ | 1,832 | $ | | $ | (18,014 | ) | |||||||
Adjustments to reconcile net (loss) income to net cash (used in) provided
by operating activities: |
||||||||||||||||||||
Depreciation and amortization |
1,099 | 20,581 | 2,923 | | 24,603 | |||||||||||||||
Change in fair value of derivatives |
(174 | ) | | | | (174 | ) | |||||||||||||
Gain on currency translation effect |
| | (281 | ) | | (281 | ) | |||||||||||||
Accretion on debt, net |
1,117 | | | | 1,117 | |||||||||||||||
Amortization of debt issuance costs |
213 | | | | 213 | |||||||||||||||
Provision for doubtful accounts |
| 1,998 | | | 1,998 | |||||||||||||||
Share-based compensation |
2,665 | 3,190 | 456 | | 6,311 | |||||||||||||||
Decrease (increase) in: |
||||||||||||||||||||
Accounts receivable |
10 | (3,863 | ) | (693 | ) | | (4,546 | ) | ||||||||||||
Capital lease receivable, net of unearned interest |
| 150 | (144 | ) | | 6 | ||||||||||||||
Restricted cash |
(7 | ) | 3 | 310 | | 306 | ||||||||||||||
Prepaid expenses and other assets |
(1,056 | ) | (2,297 | ) | (576 | ) | | (3,929 | ) | |||||||||||
(Decrease) increase in: |
||||||||||||||||||||
Accounts payable and other current liabilities |
2,506 | (1,395 | ) | (296 | ) | | 815 | |||||||||||||
Deferred revenue |
| 2,583 | 472 | | 3,055 | |||||||||||||||
Deferred rent and other liabilities |
(63 | ) | 2,279 | 48 | | 2,264 | ||||||||||||||
Net cash (used in) provided by operating activities |
(13,524 | ) | 23,217 | 4,051 | | 13,744 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Purchase of property and equipment |
(1,048 | ) | (73,274 | ) | (4,754 | ) | | (79,076 | ) | |||||||||||
Net cash used in investing activities |
(1,048 | ) | (73,274 | ) | (4,754 | ) | | (79,076 | ) | |||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Intercompany activity, net |
(54,370 | ) | 51,044 | 3,326 | | | ||||||||||||||
Proceeds from financing lease |
| | 7,002 | | 7,002 | |||||||||||||||
Payments of preferred stock dividends |
(468 | ) | | | | (468 | ) | |||||||||||||
Payments of debt issuance costs |
(1,654 | ) | | | | (1,654 | ) | |||||||||||||
Proceeds from issuance of secured notes |
55,000 | | | | 55,000 | |||||||||||||||
Payments under capital lease obligations |
(585 | ) | (1,653 | ) | (193 | ) | | (2,431 | ) | |||||||||||
Proceeds from issuance of common stock |
312 | | | | 312 | |||||||||||||||
Net cash (used in) provided by financing activities |
(1,765 | ) | 49,391 | 10,135 | | 57,761 | ||||||||||||||
Effect of foreign currency exchange rates on cash and cash equivalents |
| 86 | 1,678 | | 1,764 | |||||||||||||||
Net (decrease) increase in cash and cash equivalents |
(16,337 | ) | (580 | ) | 11,110 | | (5,807 | ) | ||||||||||||
Cash and cash equivalents at beginning of period |
43,497 | 517 | 9,454 | | 53,468 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 27,160 | $ | (63 | ) | $ | 20,564 | $ | | $ | 47,661 | |||||||||
25
Table of Contents
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows for the Six Months Ended September 30, 2009
(In thousands)
(In thousands)
Guarantor | Non-Guarantor | |||||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||
Cash flows from operating activities: |
||||||||||||||||||||
Net (loss) income |
$ | (50,603 | ) | $ | 26,027 | $ | 2,162 | $ | | $ | (22,414 | ) | ||||||||
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities: |
||||||||||||||||||||
Depreciation and amortization |
1,213 | 15,016 | 1,537 | | 17,766 | |||||||||||||||
Loss on early extinguishment of debt |
10,275 | | | | 10,275 | |||||||||||||||
Change in fair value of derivative |
1,439 | | | | 1,439 | |||||||||||||||
Gain on currency translation effect |
| | (729 | ) | | (729 | ) | |||||||||||||
Accretion on debt, net |
1,434 | (1 | ) | | | 1,433 | ||||||||||||||
Amortization of debt issuance costs |
612 | 27 | | | 639 | |||||||||||||||
Provision for doubtful accounts |
| 569 | | | 569 | |||||||||||||||
Interest payment in kind on secured loans |
395 | | | | 395 | |||||||||||||||
Settlement of interest rate swaps |
(8,360 | ) | | | | (8,360 | ) | |||||||||||||
Share-based compensation |
1,712 | 2,349 | 87 | | 4,148 | |||||||||||||||
(Increase) decrease in: |
||||||||||||||||||||
Accounts receivable |
(6 | ) | (1,175 | ) | (566 | ) | | (1,747 | ) | |||||||||||
Capital lease receivables, net of unearned interest |
| 127 | | | 127 | |||||||||||||||
Restricted cash |
(66 | ) | 1,156 | (504 | ) | | 586 | |||||||||||||
Prepaid expenses and other assets |
21 | (1,413 | ) | (928 | ) | | (2,320 | ) | ||||||||||||
Increase (decrease) in: |
||||||||||||||||||||
Accounts payable and other current liabilities |
8,553 | (9,127 | ) | 1,720 | | 1,146 | ||||||||||||||
Deferred revenue |
| 1,312 | 459 | | 1,771 | |||||||||||||||
Deferred rent and other |
1,834 | 981 | 78 | | 2,893 | |||||||||||||||
Net cash provided by (used in) operating activities |
(31,547 | ) | 35,848 | 3,316 | | 7,617 | ||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Purchase of fixed assets |
(2,494 | ) | (34,336 | ) | (3,444 | ) | | (40,274 | ) | |||||||||||
Net cash used in investing activities |
(2,494 | ) | (34,336 | ) | (3,444 | ) | | (40,274 | ) | |||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Payments on secured loans and convertible debt |
(290,930 | ) | | | | (290,930 | ) | |||||||||||||
Intercompany activity, net |
368 | (1,222 | ) | 854 | | | ||||||||||||||
Payments of preferred stock dividends |
(456 | ) | | | | (456 | ) | |||||||||||||
Payments of debt issuance costs |
(3,360 | ) | | | | (3,360 | ) | |||||||||||||
Proceeds from issuance of secured notes |
386,963 | | | | 386,963 | |||||||||||||||
Payments under capital lease obligations |
(504 | ) | (991 | ) | (92 | ) | | (1,587 | ) | |||||||||||
Proceeds from issuance of common stock |
19,972 | (19 | ) | | | 19,953 | ||||||||||||||
Net cash provided by (used in) financing activities |
112,053 | (2,232 | ) | 762 | | 110,583 | ||||||||||||||
Effect of foreign currency exchange rates on cash and
cash equivalents |
| (346 | ) | 1,358 | | 1,012 | ||||||||||||||
Net increase (decrease) in cash and cash equivalents |
78,012 | (1,066 | ) | 1,992 | | 78,938 | ||||||||||||||
Cash and cash equivalents at beginning of period |
41,895 | 1,364 | 8,527 | | 51,786 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 119,907 | $ | 298 | $ | 10,519 | $ | | $ | 130,724 | ||||||||||
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This report contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 based on our current expectations, assumptions, and estimates about
us and our industry. These forward-looking statements involve risks and uncertainties. Words such
as believe, anticipate, estimate, expect, intend, plan, will, may, and other
similar expressions identify forward-looking statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or circumstances are
forward-looking statements. All statements other than statements of historical facts, including,
among others, statements regarding our future financial position, business strategy, projected
levels of growth, projected costs and projected financing needs, are forward-looking statements.
Our actual results could differ materially from those anticipated in such forward-looking
statements as a result of several important factors including, without limitation, that we may be
further impacted by slowdowns, postponements or cancellations in our clients businesses or
deterioration in the financial condition of our clients, a history of losses, competitive factors,
uncertainties inherent in government contracting, inquiries and investigations conducted by
government agencies with respect to our government contracts, concentration of business with a
small number of clients, the ability to service debt, substantial leverage, material weaknesses in
our internal controls and our disclosure controls, energy costs, the interest rate environment,
failure to successfully implement expansion plans or integrate acquired businesses into our
operations, one-time events and other factors more fully described in Risk Factors and elsewhere
in this report. The forward-looking statements made in this report relate only to events as of the
date on which the statements are made. Because forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon
forward-looking statements as predictions of future events. Except as required by applicable law,
including the securities laws of the United States, and the rules and regulations of the Securities
and Exchange Commission, we do not plan and assume no obligation to publicly update or revise any
forward-looking statements contained herein after the date of this report, whether as a result of
any new information, future events or otherwise.
Our Business
We are a global provider of managed IT solutions with data centers in the United States,
Europe and Latin America. We provide carrier neutral colocation, managed services and exchange
point services to approximately 1,400 customers worldwide across a broad range of sectors,
including enterprises, government agencies, systems integrators, Internet content and portal
companies and the worlds largest network providers. We house and manage our customers
mission-critical IT infrastructure, enabling our customers to reduce capital and operational
expenses while improving application performance, availability and security. As a result of our
expertise and our full suite of product offerings, customers find it more cost effective and secure
to contract us rather than hire dedicated IT staff. Furthermore, as a carrier neutral provider we
have more than 160 competing carriers connected to our data centers enabling our customers to
realize significant cost savings and easily scale their network requirements to meet their growth.
We continue to see an increase in outsourcing as customers face escalating operating and capital
expenditures and increased technical demands associated with their IT infrastructure.
We deliver our solutions primarily through three highly specialized data centers, or Network
Access Points (NAPs) that were purpose-built and have been strategically located to enable us to
become one of the industry leaders in terms of reliability, power availability and connectivity.
Our owned NAP of the Americas facility, located in Miami, Florida, is one of the most
interconnected data centers in the world and is a primary exchange point for high levels of traffic
between the United States, Europe and Latin America; our owned NAP of the Capital Region, or NCR,
located outside Washington, D.C., has been designed to address the specific security and
connectivity needs of our federal customers; and our leased NAP of the Americas/West, located in
Santa Clara, California, is strategically located in Silicon Valley to serve the technology and
Internet content provider segments as well as provide access to connectivity to the U.S. west
coast, Asia, Pacific Rim and other international locations. Each facility offers our customers
access to carrier neutral connectivity as well as technologically advanced security, reliability
and redundancy through 100% service level agreements, or SLAs, which means that we agree to provide
100% uptime for all of our customers IT equipment contained in our facilities. Our facilities and
our IT platform can be expanded on a cost effective basis to meet growing customer demand.
Our primary products and services include colocation, managed services and exchange point services.
| Colocation Services: We provide customers with the space, power and a secure environment to deploy their own computing, network, storage and IT infrastructure. |
| Managed Services: We design, deploy, operate, monitor and manage our clients IT infrastructure at our facilities. |
| Exchange Point Services: We enable our customers to exchange Internet and other data traffic through direct connection with each other or through peering connections with multiple parties. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Our business is characterized by long term contracts, which provide for monthly recurring revenue
from a diversified customer base. Our customer contracts are generally three years in duration and
for the six and three months ended September 30, 2010, approximately 93% and 94% of our overall
revenue was recurring.
Our principal executive office is located at 2 South Biscayne Boulevard, Suite 2800, Miami,
Florida 33131. Our telephone number is (305) 961-3200.
Recent Events
On July 16, 2010, at our 2010 Annual Meeting of Stockholders, our stockholders approved the
Amended and Restated Terremark Worldwide, Inc. 2005 Executive Incentive Compensation Plan, which,
among other things, increased the number of shares of our common stock available for awards under
the plan by 5,000,000 shares to a total of 10,500,000 shares.
On April 28, 2010, we completed our offering of $50.0 million 12% Senior Secured Notes due
2017. These notes are part of the same series as the $420.0 million 12% Senior Secured Notes that
we issued on June 24, 2009. We pay interest on the aggregate $470.0 million principal amount of the
12% Senior Secured Notes semi-annually in cash in arrears on December 15 and June 15 of each year
at the rate of 12% per annum. These notes mature on June 15, 2017. See Note 9 to our consolidated
financial statements contained in this Quarterly Report on Form 10-Q.
Results of Operations
Results of Operations for the Three Months Ended September 30, 2010 as Compared to the Three Months Ended September 30, 2009.
Revenues. The following charts provide certain information with respect to our revenues:
Three Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
United States |
84 | % | 85 | % | ||||
International |
16 | % | 15 | % | ||||
100 | % | 100 | % | |||||
Three Months Ended September 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
Revenues consist of (in thousands): |
||||||||||||||||
Colocation |
$ | 37,624 | 44 | % | $ | 27,584 | 40 | % | ||||||||
Managed and professional services |
40,351 | 48 | % | 36,150 | 51 | % | ||||||||||
Exchange point services |
5,167 | 6 | % | 4,605 | 7 | % | ||||||||||
Equipment resales |
1,732 | 2 | % | 1,464 | 2 | % | ||||||||||
$ | 84,874 | 100 | % | $ | 69,803 | 100 | % | |||||||||
The $15.1 million, or 22% increase in revenues for the three months ended September 30, 2010
as compared to the three months ended September 30, 2009 is mainly due to both an increase in our
deployed customer base and an expansion of services to existing customers. Our deployed customer
base increased to 1,349 customers as of September 30, 2010 from 1,089 customers as of September 30,
2009. Revenues consist of:
| colocation services, such as licensing of space and provision of power; | ||
| managed and professional services, such as network management, managed web hosting, outsourced network operating center services, network monitoring, procurement of connectivity, managed router services, secure information services, technical support and consulting; | ||
| exchange point services, such as peering and cross connects; and | ||
| procurement and installation of equipment. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The $10.0 million, or 36% increase in colocation revenue for the three months ended September 30,
2010 as compared to the three months ended September 30, 2009 is primarily the result of an
increase in our utilization of total net colocation space to 36.6% as of September 30, 2010 from
29.8% as of September 30, 2009. Our utilization of total net colocation space represents space
billed to customers as a percentage of total space built-out and available to customers. For
comparative purposes, space added during the three months ended September 30, 2010 was assumed to
be also available as of September 30, 2009.
The
$4.2 million, or 12% increase in managed and professional services revenue for the three
months ended September 30, 2010 as compared to the three months ended September 30, 2009 is
primarily the result of an increase in orders from both existing and new customers as reflected by
the growth in our customer base and utilization of space, as discussed above.
The $0.6 million, or 12% increase in exchange point services revenue for the three months
ended September 30, 2010 as compared to the three months ended September 30, 2009 is mainly due to
an increase in cross-connects billed to customers. Cross-connects billed to customers increased to
9,650 as of September 30, 2010 from 8,789 as of September 30, 2009.
Revenues from equipment resales fluctuate quarter over quarter based on customer demand.
We anticipate an increase in revenue from colocation, managed services and exchange point
services as we add more customers to our network of NAPs, sell additional services to existing
customers and introduce new products and services. We anticipate that the percentage of revenue
derived from federal sector customers will fluctuate depending on the timing of exercise of
expansion options under existing contracts and the rate at which we sell services to the federal
sector. We believe that federal sector revenues will continue to represent a significant portion of
our revenues for the foreseeable future.
Costs of Revenues. Costs of revenues, excluding depreciation and amortization, increased $4.3
million, or 11%, to $44.1 million for the three months ended September 30, 2010, from $39.8 million
for the three months ended September 30, 2009. Cost of revenues, excluding depreciation and
amortization, consist mainly of operations personnel, fees to third party service providers,
procurement of connectivity and equipment, technical and colocation space costs, electricity,
chilled water, insurance, property taxes, and security services. The increase was mainly due to
increases of $2.2 million in certain variable costs such as electricity and maintenance as a result
of an increase in orders from both existing and new customers as reflected by the growth in our
customer base and utilization of space, as discussed above. We also had increases of $1.0 million
in personnel costs, and $0.8 million in technical and colocation space costs.
The $1.0 million increase in personnel costs was mainly due to an increase in our operations and
engineering staffing from 553 employees as of September 30, 2009 to 625 employees as of September
30, 2010 which is mainly due to our expansion of operations throughout our locations. The $0.8
million increase in technical and colocation space costs was primarily the result of new colocation
space in Dallas, Texas, and Sao Paulo, Brazil.
General and Administrative Expenses. General and administrative expenses increased $2.7 million,
or 32%, to $11.2 million for the three months ended September 30, 2010 from $8.5 million for the
three months ended September 30, 2009. General and administrative expenses consist primarily of
administrative personnel, professional service fees, rent, and other general corporate expenses.
The $2.7 million increase in general and administrative expenses was mainly due to an increase in
administrative personnel costs of $1.6 million and professional fees of $0.8 million, which
includes accounting, legal and other services. Personnel costs include payroll and share-based
compensation.
The $1.6 million increase in administrative personnel costs is the result of $1.0 million of
share-based compensation, and an increase in headcount from 157 of administration employees as of
September 30, 2009 to 172 administration employees as of September 30, 2010.
Sales and Marketing Expenses. Sales and marketing expense increased $4.2 million, or 69%, to
$10.3 million for the three months ended September 30, 2010 as compared to $6.1 million for the
three months ended September 30, 2009. The $4.2 million increase in sales and marketing expenses
was mainly due to a $2.5 million increase in payroll and sales commissions, $0.6 million increase
in provision for doubtful accounts and $0.5 million in certain other costs such as marketing
expense, channel commissions and travel-related expenses as a result of our growth in revenue. The
$2.5 million increase in payroll and sales commissions was mainly due to an increase in headcount
from 102 sales and marketing employees as of September 30, 2009 to 133 sales and marketing
employees as of September 30, 2010 coupled with an increase in sales commissions due to increased
customer deployments.
Depreciation and Amortization Expenses. Depreciation and amortization expense increased $4.0
million, or 45% to $12.9 million for the three months ended September 30, 2010 from $8.9 million
for the three months ended September 30, 2009. The increase is the result of capital expenditures
mostly related to the expansion of our data center footprint and upgrades to the infrastructure of
our current footprint.
Other. For the three months ended September 30, 2010 and 2009, we recorded $0.8 million and
$0.3 million of other income, respectively, which was primarily attributable to fluctuations in
foreign currency during the periods.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations for the Six Months Ended September 30, 2010 as Compared to the Six Months Ended September 30, 2009.
Revenues. The following charts provide certain information with respect to our revenues:
Six Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
United States |
84 | % | 86 | % | ||||
International |
16 | % | 14 | % | ||||
100 | % | 100 | % | |||||
Six Months Ended September 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
Revenues consist of (in thousands): |
||||||||||||||||
Colocation |
$ | 70,320 | 43 | % | $ | 53,225 | 39 | % | ||||||||
Managed and professional services |
78,422 | 48 | % | 69,937 | 52 | % | ||||||||||
Exchange point services |
10,044 | 6 | % | 9,056 | 7 | % | ||||||||||
Equipment resales |
5,135 | 3 | % | 3,346 | 2 | % | ||||||||||
$ | 163,921 | 100 | % | $ | 135,564 | 100 | % | |||||||||
The $28.4 million, or 21% increase in revenues for the six months ended September 30, 2010 as
compared to the six months ended September 30, 2009 is mainly due to both an increase in our
deployed customer base and an expansion of services to existing customers. Our deployed customer
base increased to 1,349 customers as of September 30, 2010 from 1,089 customers as of September 30,
2009. Revenues consist of:
| colocation services, such as licensing of space and provision of power; | ||
| managed and professional services, such as network management, managed web hosting, outsourced network operating center services, network monitoring, procurement of connectivity, managed router services, secure information services, technical support and consulting; | ||
| exchange point services, such as peering and cross connects; and | ||
| procurement and installation of equipment. |
The $17.1 million, or 32% increase in colocation revenue for the six months ended September 30,
2010 as compared to the six months ended September 30, 2009 is primarily the result of an increase
in our utilization of total net colocation space to 36.6% as of September 30, 2010 from 29.8% as of
September 30, 2009. Our utilization of total net colocation space represents space billed to
customers as a percentage of total space built-out and available to customers. For comparative
purposes, space added during the six months ended September 30, 2010 was assumed to be also
available as of September 30, 2009.
The $8.5 million, or 12% increase in managed and professional services revenue for the six
months ended September 30, 2010 as compared to the six months ended September 30, 2009 is primarily
the result of an increase in orders from both existing and new customers as reflected by the growth
in our customer base and utilization of space, as discussed above.
The $1.0 million, or 11% increase in exchange point services revenue for the six months ended
September 30, 2010 as compared to the six months ended September 30, 2009 is mainly due to an
increase in cross-connects billed to customers. Cross-connects billed to customers increased to
9,650 as of September 30, 2010 from 8,789 as of September 30, 2009.
Revenues from equipment resales fluctuate quarter over quarter based on customer demand.
We anticipate an increase in revenue from colocation, managed services and exchange point
services as we add more customers to our network of NAPs, sell additional services to existing
customers and introduce new products and services. We anticipate that the percentage of revenue
derived from federal sector customers will fluctuate depending on the timing of exercise of
expansion options under existing contracts and the rate at which we sell services to the federal
sector. We believe that federal sector revenues will continue to represent a significant portion of
our revenues for the foreseeable future.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Costs of Revenues. Costs of revenues, excluding depreciation and amortization, increased $11.2
million, or 15%, to $87.7 million for the six months ended September 30, 2010, from $76.5 million
for the six months ended September 30, 2009. Cost of revenues, excluding depreciation and
amortization, consist mainly of operations personnel, fees to third party service providers,
procurement of connectivity and equipment, technical and colocation space costs, electricity,
chilled water, insurance, property taxes, and security services. The increase was mainly due to
increases of $4.2 million in certain variable costs such as electricity, bandwidth and maintenance
as a result of an increase in orders from both existing and new customers as reflected by the
growth in our customer base and utilization of space, as discussed above. We also had increases of
$2.1 million in personnel costs, $1.9 million in costs of equipment resales, and $1.8 million in
technical and colocation space costs.
The $2.1 million increase in personnel costs was mainly due to an increase in our operations
and engineering staffing from 553 employees as of September 30, 2009 to 625 employees as of
September 30, 2010 which is mainly due to our expansion of operations throughout our locations. The
$1.9 million increase in costs of equipment resales for the six months ended September 30, 2010 as
compared to the six months ended September 30, 2009 is consistent with the increase in related
revenues. The $1.8 million increase in colocation space costs was primarily the result of new
colocation space in Dallas, Texas, and Sao Paulo, Brazil.
General and Administrative Expenses. General and administrative expenses increased $5.0 million,
or 30%, to $21.7 million for the six months ended September 30, 2010 from $16.7 million for the six
months ended September 30, 2009. General and administrative expenses consist primarily of
administrative personnel, professional service fees, rent, and other general corporate expenses.
The $5.0 million increase in general and administrative expenses was mainly due to an increase in
administrative personnel costs of $2.7 million and professional fees of $1.6 million, which
includes accounting, legal and other services. Personnel costs include payroll and share-based
compensation.
The $2.7 million increase in administrative personnel costs is the result of $1.6 million of
share-based compensation, and an increase in headcount from 157 administration employees as of
September 30, 2009 to 172 administration employees as of September 30, 2010.
Sales and Marketing Expenses. Sales and marketing expense increased $6.5 million, or 52%, to
$18.9 million for the six months ended September 30, 2010 as compared to $12.4 million for the six
months ended September 30, 2009. The $6.5 million increase in sales and marketing expenses was
mainly due to a $3.9 million increase in payroll and sales commissions, $1.4 million increase in
provision for doubtful accounts and $0.7 million increase in marketing costs. The $3.9 million
increase in payroll and sales commissions was mainly due to an increase in headcount from 102 sales
and marketing employees as of September 30, 2009 to 133 sales and marketing employees as of
September 30, 2010 coupled with an increase in sales commissions due to increased customer
deployments.
Depreciation and Amortization Expenses. Depreciation and amortization expense increased $6.8
million, or 38% to $24.6 million for the six months ended September 30, 2010 from $17.8 million for
the six months ended September 30, 2009. The increase is the result of capital expenditures mostly
related to the expansion of our data center footprint and upgrades to the infrastructure of our
current footprint.
Interest Expense. Interest expense increased $5.6 million, or 24%, to $28.6 million for the
six months ended September 30, 2010 from $23.0 million for the six months ended September 30, 2009.
This increase is due to higher average outstanding debt balance during the periods.
Loss on Early Extinguishment of Debt. For the six months ended September 30, 2009, we
incurred a non-cash loss on the early extinguishment of debt of $10.3 million.
Change in Fair Value of Derivatives. For the six months ended September 30, 2010, we
recognized income of $0.2 million, as compared to an expense of $1.4 million for the six months
ended September 30, 2009, mainly due to the changes in the fair values of our derivatives from our
two interest rate swap agreements that became effective February 2009 (first lien) and July 2009
(second lien). We terminated these swap agreements on June 24, 2009 in connection with our issuance
of $420 million aggregate principal amount of 12% Senior Secured Notes and the repayment of our
first and second lien senior secured credit facilities with a portion of the proceeds from the note
issuance.
Other. For the six months ended September 30, 2010 and 2009, we recorded $0.5 million and
$0.8 million of other income, respectively, which were primarily attributable to fluctuations in foreign currency during the periods.
Liquidity and Capital Resources
As of September 30, 2010, our principal source of liquidity was our $47.7 million in
unrestricted cash and cash equivalents and our $52.9 million in accounts receivable. On April 28,
2010, we issued an additional $50.0 million of our 12% Senior Secured Notes under the same
indenture (the Indenture) governing the $420.0 million aggregate principal amount of the notes
that we issued on June 24, 2009. The $470.0 million 12% Senior Secured Notes now outstanding
comprises a single class of notes. We anticipate that we will generate sufficient cash flows from
operations to fund our capital expenditures and debt service in connection with our currently
identified business objectives.
In addition, under the indenture (the Indenture) governing our $470.0 million aggregate
principal amount of 12.0% Senior Secured Notes, due 2017, we may incur certain additional
indebtedness, including up to $75 million for the purpose of financing the purchase price or cost
of construction or improvement of property, plant or equipment, and/or the acquisition of the
capital stock of an entity that becomes a restricted subsidiary.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
For fiscal year 2011, we anticipate capital expenditures of approximately $115.0 to $120.0 million,
with $73.0 million related to the completion of the second and third data centers on our NCR campus
in Culpeper, Virginia, $23.0 million to upgrade our technology and service delivery platforms,
$13.0 million to finish funding phase 1 of our expansion in Santa Clara, California, $7.0 million
for expansion at our Miami NAP, and $4.0 million related to our
international operations. We anticipate funding these expenditures
with current and future unrestricted
cash and other possible resources such as additional indebtedness under our current 12.0% Senior
Secured Notes, secured borrowing and other such options.
Our projected revenues and cash flows depend on several factors, some of which are beyond our
control, including the rates at which we provide services, the timing of exercise of expansion
options by customers under existing contracts, the rate at which new services are sold to the
federal sector and the commercial sector, the ability to retain the customer base, the willingness
and timing of potential customers in outsourcing the housing and management of their technology
infrastructure to us, the reliability and cost-effectiveness of our services and our ability to
market our services. Besides our cash on hand and any financing activities we may pursue, customer
collections are our primary source of cash.
While we believe we have a strong customer base and have experienced strong collections in the
past, if the current market conditions continue to deteriorate we may experience increased churn in
our customer base, including reductions in their commitments to us, which could have a material
adverse effect on our liquidity.
Sources and Uses of Cash
Cash provided by operations for the six months ended September 30, 2010 was $13.7 million as
compared to cash provided by operations of $7.6 million for the six months ended September 30,
2009. The increase in cash provided by operations is mainly due to
timing of cash collections and vendor payments.
Cash used in investing activities for the six months ended September 30, 2010 was $79.1
million compared to cash used in investing activities of $40.3 million for the six months ended
September 30, 2009. This increase is the result of higher capital expenditures mostly related to
the expansions of our NCR data center campus in Culpeper, Virginia, upgrades to our technology and
service delivery platforms, upgrades to our infrastructure in Miami, Florida and the expansion of
our footprint in Santa Clara, California.
Cash provided by financing activities for the six months ended September 30, 2010 was $57.8
million compared to cash provided by financing activities of $110.6 million for the six months
ended September 30, 2009. The decrease in cash provided by financing activities is primarily due to
the current proceeds received from our $50.0 million 12% Senior Secured Notes and financing lease
of our property which resulted in net proceeds of $7.0 million, compared to the prior year proceeds
received from our $420.0 million 12% Senior Secured Notes, the issuance of four million shares of
our common stock for approximately $20.0 million, and the $290.9 million in repayments of the first
lien and second lien credit agreements, 9% Senior Convertible Debt and Series B Notes.
Debt Obligations
As of September 30, 2010, our total liabilities were approximately $649.1 million, of which
$108.5 million is due within one year.
12% Senior Secured Notes
On June 24, 2009 and April 28, 2010, we completed offerings of $420.0 million and $50.0
million, respectively, of 12% senior secured notes due in 2017, which
are guaranteed by substantially all of the Companys domestic
subsidiaries. The 12% Senior Secured Notes are
secured by a first priority security interest in substantially all of the assets of the Company and
the Guarantors, including the pledge of 100% of all outstanding capital stock of each of the
Companys domestic subsidiaries, excluding Terremark Federal Group, Inc. and Technology Center of
the Americas, LLC, and 65% of all outstanding capital stock of substantially all of the Companys
foreign subsidiaries, subject to certain customary exceptions relating to our ability to remove the
pledge with respect to certain significant subsidiaries which would otherwise result in additional
audit requirements under SEC accounting rules such as providing additional audited financial
statements for these subsidiaries.
The senior secured notes bear interest at 12% per annum, payable on December 15 and June 15 of
each year.
The senior secured notes are our general secured obligations, secured by first-priority liens
on the collateral securing the senior secured notes and rank equal in right of payment with all of
our existing and future senior secured indebtedness that is secured on an equal basis with the
senior secured notes.
The terms of the Indenture generally limit our ability and the ability of our subsidiaries to,
among other things: (i) make restricted payments; (ii) incur additional debt and issue preferred or
disqualified stock; (iii) create liens; (iv) create or permit to exist restrictions on our ability
or the ability of our restricted subsidiaries to make certain payments or distributions; (v) engage
in sale-leaseback transactions; (vi) engage in mergers or consolidations or transfer all or
substantially all of our assets; (vii) make certain dispositions and transfers of assets; and
(viii) enter into transactions with affiliates. If the senior secured notes are assigned an
investment grade rating by both Moodys and S&P (Standard & Poors), and provided that no default
has occurred and is continuing, certain of the restrictions would be suspended, including, but not
limited to, restrictions on the incurrence of debt, restricted payments, transactions with
affiliates and certain restrictions on mergers, consolidations and sales of assets.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
In addition to certain permitted debt incurrence baskets, including the $75.0 million basket
described above, if our pro forma fixed charge coverage ratio is 2.0 to 1.0, then we may incur
additional indebtedness that ranks pari passu with the senior secured notes.
Any additional indebtedness permitted under the Indenture may be secured by parity liens on
the collateral securing the senior secured notes, provided that our secured leverage ratio does not
exceed 3:75 to 1 on a pro-forma basis as if we had incurred such indebtedness at and as of the
beginning of our most recently completed four fiscal quarters for which internal financial
statements are available. Irrespective of our leverage ratio, any or all of the $75 million basket
described above may be secured by junior liens on the collateral securing the senior secured notes.
6.625% Senior Convertible Notes
We have outstanding $57.2 million aggregate principal amount of 6.625% Senior Convertible
Notes due 2013. The notes bear interest at a rate of 6.625% per annum, payable semi-annually, on
each December 15 and June 15 and are convertible into shares of our common stock at the option of
the holders at $12.50 per share. The notes rank pari passu with all existing and future unsecured
and unsubordinated indebtedness, senior in right of payment to all existing and future subordinated
indebtedness, and effectively rank junior to any secured indebtedness.
If there is a change in control, the holders of the 6.625% senior convertible notes have the
right to require us to repurchase their notes at a price equal to 100% of the principal amount,
plus accrued and unpaid interest. If we issue a cash dividend on our common stock, we will pay
contingent interest to the holders equal to the product of the per share cash dividend and the
number of shares of common stock issuable upon conversion of each holders note.
The 6.625% senior convertible notes provide for a make whole premium payable upon conversions
occurring in connection with a change in control in which at least 10% or more of the consideration
is cash, which can result in our issuing up to 5,085,513 additional shares of our common stock upon such conversions.
Debt Covenants
The provisions of our debt contain a number of covenants that limit or restrict our ability to
incur more debt or liens, pay dividends, enter into transactions with affiliates, merge or
consolidate with others, dispose of assets or use asset sale proceeds, make acquisitions or
investments, enter into hedging activities, make capital expenditures and repurchase stock, subject
to financial measures and other conditions. Our ability to incur additional indebtedness and liens
and make certain restricted payments and investments depends on our ability to achieve the
financial ratios provided in the Indenture governing our senior secured notes.
Our failure to comply with the obligations contained in the indentures governing our debt
could result in an event of default under such indentures. Both the indenture governing our 6.625%
senior convertible notes and the indenture governing our 12.0% senior secured notes contain
cross-default provisions, pursuant to which certain events of default under one indenture could
trigger an event of default under the other indenture. An event of default under either such
indenture, if not cured or waived, could permit acceleration of the indebtedness or other
indebtedness, which could have a material adverse effect on our liquidity, cash flows and results
of operations.
Guarantees and Commitments
We lease space for our operations, office equipment and furniture under non-cancelable
operating leases. Some equipment is also leased under capital leases, which are included in
leasehold improvements, furniture and equipment.
The following table represents the minimum future operating and capital lease payments for
these commitments which includes a financing lease that the total commitment will not be finalized
until the completion of the build and inception of the lease, as well as the combined aggregate
maturities (principal, interest and maintenance) for the following obligations for each of the
fiscal years ended (in thousands):
Capital Lease | Operating | Convertible | Secured | |||||||||||||||||
Obligations | Leases | Debt | Loans | Total | ||||||||||||||||
2011 (six months remaining) |
$ | 4,413 | $ | 9,010 | $ | 1,894 | $ | 28,200 | $ | 43,517 | ||||||||||
2012 |
9,135 | 16,474 | 3,789 | 56,400 | 85,798 | |||||||||||||||
2013 |
6,698 | 12,732 | 3,789 | 56,400 | 79,619 | |||||||||||||||
2014 |
2,330 | 12,613 | 59,086 | 56,400 | 130,429 | |||||||||||||||
2015 |
1,072 | 12,666 | | 56,400 | 70,138 | |||||||||||||||
2016 and thereafter |
11,213 | 42,630 | | 594,550 | 648,393 | |||||||||||||||
$ | 34,861 | $ | 106,125 | $ | 68,558 | $ | 848,350 | $ | 1,057,894 | |||||||||||
See Liquidity above.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, in the accompanying condensed
consolidated financial statements for a discussion of Recent Accounting Pronouncements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
At September 30, 2010, our exposure to market risk related primarily to changes in interest
rates on our investment portfolio. Our marketable investments consist primarily of short-term fixed interest rate securities. We invest only with
high credit quality issuers, and we do not use derivative financial instruments in our investment
portfolio. We do not believe that a significant increase or decrease in interest rates would have a
material impact on the fair value of our investment portfolio.
We have not entered into any financial instruments for trading purposes. However, the
estimated fair value of the derivatives embedded within our 6.625% Senior Convertible Notes and
$50.0 million 12% Senior Secured Notes create a market risk exposure resulting from changes in the
price of our common stock, interest rates and our credit rating. We do not expect in the near term
significant changes in the two-year historical volatility of our common stock used to calculate the
estimated fair value of the embedded derivatives. We do not expect the change in the estimated fair
value of the embedded derivative to significantly affect our results of operations, and it will not
impact our cash flows.
Our 12% Senior Secured Notes and 6.625% Senior Convertible Notes have fixed interest rates
and, accordingly, we are not exposed to interest rate or market risk on those instruments.
Our carrying values of cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses are reasonable approximations of their fair value.
For the six months ended September 30, 2010, approximately 84% of our recognized revenue was
denominated in U.S. dollars, generated mostly from customers in the U.S., and our exposure to
foreign currency exchange rate fluctuations was minimal. In the future, a larger portion of our
revenues may be derived from operations outside of the U.S. and may be denominated in foreign
currency. As a result, future operating results or cash flows could be increasingly impacted due to
currency fluctuations relative to the U.S. dollar.
Furthermore, to the extent we engage in international sales that are denominated in U.S.
dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our
services less competitive in the international markets. Although we will continue to
monitor our exposure to currency fluctuations and, when appropriate, may use financial hedging
techniques to minimize the effect of these fluctuations, we cannot conclude that exchange rate
fluctuations will not adversely affect our financial results in the future.
Some of our operating costs are subject to price fluctuations caused by the volatility of
underlying commodity prices. The commodity most likely to have an impact on our results of
operations in the event of significant price change is electricity. We are closely monitoring the
cost over time of electricity. To the extent that electricity costs rise, we have the ability to
pass these additional power costs onto our customers that utilize this power. We do not employ
forward contracts or other financial instruments to hedge commodity price risk.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, Terremark carried out an evaluation, under
the supervision and with the participation of Terremarks management, including Terremarks Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of
Terremarks disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that, at September 30, 2010, Terremarks disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)
were effective in ensuring that information required to be disclosed in the reports Terremark files
and submits under the Exchange Act are recorded, processed, summarized and reported as and when
required.
(b) Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter
ended September 30, 2010 that has materially affected, or is reasonably likely to affect, our
internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the ordinary course of conducting our business, we become involved in various legal actions
and claims. Litigation is subject to many uncertainties and we may be unable to accurately predict
the outcome of such matters, some of which could be decided unfavorably to us. Our participation in
government contracts subjects us to inquiries, investigations and subpoenas regarding our business
with the federal government.
Improper or illegal activities may subject us to civil and criminal penalties and
administrative sanctions, including termination of contracts, forfeiture of profits, suspension of
payments, fines, and suspension or debarment from doing business with federal government agencies.
Management does not believe the ultimate outcome of pending matters of the nature described above
would be material.
ITEM 1A. RISK FACTORS.
You should carefully consider the following risks and all other information contained in this
report. If any of the following risks actually occur, our business along with the consolidated
financial conditions and results of operations could be materially and adversely affected. The
risks and uncertainties described below are those that we currently believe may materially affect
our company. Additional risks and uncertainties not currently known to us or that we currently deem
to be immaterial also may materially and adversely affect our business operations.
We have incurred substantial losses in the past and expect to continue to incur additional
losses in the future, which may reduce our ability to raise capital.
For the six and three months ended September 30, 2010, we incurred a net loss of $18.0 million
and $7.7 million. The net loss for the six and three months ended September 30, 2010, included $0.2
million and $0.1 million of non-cash income on change in fair value of derivatives. For the years
ended March 31, 2010 and 2009, we incurred net losses of $31.7 million and $10.6 million
respectively. The net loss for the year ended March 31, 2010 included a $1.5 million non-cash
loss on change in fair value of derivatives and a $10.3 million non-cash loss on the early
extinguishment of debt. The net loss for the year ended March 31, 2009 included a $3.9 million
non-cash loss on change in fair value of derivatives. We are currently investing heavily in our
expansion of our datacenters in Culpeper, Virginia, upgrades to support our infrastructure in
Miami, Florida and expansion in Santa Clara, California. As a result, we will incur higher
depreciation and other operating expenses that will negatively impact our ability to achieve and
sustain profitability unless and until these new facilities generate enough revenue to exceed their
operating costs and cover additional overhead needed to scale our business to the anticipated
growth. Although our goal is to achieve profitability, there can be no guarantee that we will
become profitable, and we may continue to incur additional losses. Even if we achieve
profitability, given the competitive nature of the industry in which we operate, we may not be able
to sustain or increase profitability on a quarterly or annual basis. Our continuing losses may
limit our ability to raise needed financing, or to do so on favorable terms, for various reasons
including that those losses are taken into account by the organizations that issue investment
ratings on our indebtedness.
We may not be able to compete successfully against current and future competitors.
Our products and services must be able to differentiate themselves from existing providers of
space and services for telecommunications companies, web hosting companies, virtualized IT
solutions and other colocation providers. In addition to competing with carrier neutral colocation
providers, we must compete with traditional colocation providers, including local phone companies,
long distance phone companies, Internet service providers and web hosting facilities. Likewise,
with respect to our other products and services, including managed services, bandwidth services and
security services, we must compete with more established providers of similar services. Most of
these companies have longer operating histories and significantly greater financial, technical,
marketing and other resources than we do.
Because of their greater financial resources, some of our competitors have the ability to
adopt aggressive pricing policies. As a result, in the
future, we may suffer from pricing pressure that would adversely affect our ability to generate
revenues and adversely affect our operating results. In addition, these competitors could offer
colocation on neutral terms, and may start doing so in the same metropolitan areas where we have
NAP centers. Some of these competitors may also provide our target customers with additional
benefits, including bundled communication services, and may do so in a manner that is more
attractive to our potential customers than obtaining space in our data centers. If our competitors
were able to adopt aggressive pricing policies together with offering colocation space, our ability
to generate revenues would be materially adversely affected. We may also face competition from
persons seeking to replicate our Internet Exchanges concept by building new centers or converting
existing centers that some of our competitors are in the process of divesting. We may experience
competition from our landlords in this regard. Rather than licensing our available space to large
single tenants, they may decide to convert the space instead to smaller square foot units designed
for multi-tenant colocation use. Landlords may enjoy a cost effective advantage in providing
similar services as our data centers, and this could also reduce the amount of space available to
us for expansion in the future. Competitors may operate more successfully or form alliances to
acquire significant market share. Furthermore, enterprises that have already invested substantial
resources in outsourcing arrangements may be reluctant or slow to adopt our approach that may
replace, limit or compete with their existing systems.
In addition, other companies may be able to attract the same potential customers that we are
targeting. Once customers are located in competitors facilities, it may be extremely difficult to
convince them to relocate to our data centers.
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A significant portion of our revenues is from contracts with agencies of the United States
government and uncertainties and costs inherent in the government contracting arena could adversely
affect our business.
For the six months ended September 30, 2010 and the fiscal year ended March 31, 2010, revenues
from contracts with the federal sector constituted approximately 20% and 24%, respectively, of our
revenues. Generally, U.S. government contracts are subject to oversight audits by government
representatives, to profit and cost controls and limitations and to provisions permitting
modification or termination, in whole or in part, without prior notice, at the
governments convenience. Government contracts typically have an initial term of one year and
renewals are at the discretion of the U.S. government. In some cases, government contracts are
subject to the uncertainties surrounding congressional appropriations or agency funding. Our
failure to renew or replace U.S. government contracts when they expire could have a material
adverse effect on our business, financial condition and results of operations.
Government contracts are also subject to specific procurement regulations and other
requirements which, although customary in U.S. government contracts, increase our performance and
compliance costs. These costs might increase in the future, reducing our margins, which could have
a negative effect on our financial condition. The government may also change its procurement
practices or adopt new contracting rules and regulations that could be costly to satisfy or that
could impair our ability to obtain new contracts. Failure to comply with these regulations and
requirements could lead to contract modification or termination, the assessment of penalties and
fines and/or suspension or debarment from government contracting or subcontracting for a period of
time or permanently, which would limit our growth prospects, have an adverse effect on our
reputation and ability to secure future U.S. government contracts and materially adversely affect
our business, results of operations and financial condition.
Our participation in government contracts subjects us from time to time to inquiries,
investigations and subpoenas and other requests or demands for information regarding our business
with the federal government. If improper or illegal activities are uncovered, we may be subject to
civil and criminal penalties and administrative sanctions, including termination of contracts,
forfeiture of profits, suspension of payments, fines and suspension or debarment from doing
business with federal government agencies. In addition, mere allegations of impropriety could
adversely impact our reputation. If we were suspended or debarred from contracting with the federal
government generally or with any specific agency, if our reputation or relationships with
government agencies were impaired or if the government otherwise were to cease doing business with
us or were to significantly decrease the amount of business it does with us, our revenue, cash
flows and operating results would be materially adversely affected.
We have been awarded, and may in the future submit bids for, U.S. government contracts that
require our employees to maintain various levels of security clearances and require us or our
subsidiaries to maintain certain facility security clearances in compliance with Department of
Defense and other government requirements. The classified work that we currently perform at our
facilities subjects us to the industrial security regulations of the Department of Defense and
other federal agencies that are designed to safeguard against unauthorized access by foreigners and
others to classified and other sensitive information. Obtaining and maintaining security clearances
for employees involves a lengthy process, and it can be difficult to identify, recruit and retain
employees who already hold security clearances. If our employees are unable to obtain or retain
security clearances, or if our employees who hold security clearances stop working for us, we may
face delays in fulfilling contracts or be unable to fulfill or secure new contracts with any
customer involved in classified work. Any breach of security for which we are responsible could
seriously harm our business, damage our reputation and make us ineligible to work on any classified
programs.
We may be subject to penalties for violations of these regulations. If we were to come under
foreign ownership, control, or influence, the U.S. government could terminate our contracts with it
or decide not to renew them and such a situation could also impair our ability to obtain new
contracts and subcontracts.
We derive a significant portion of our revenues from a few clients; accordingly, a reduction
in our clients demand for our services or the loss of clients could impair our financial
performance.
For the six months ended September 30, 2010, and 2009 we derived approximately 20% and 22% of
our revenues and for the years ended March 31, 2010 and 2009 we derived approximately 24% of our
revenues from the federal sector, respectively. Because we derive a large percentage of our
revenues from a few major customers, our revenues could significantly decline if we lose one or
more of these customers or if the amount of business we obtain from them is reduced.
A failure to meet customer specifications or expectations could result in lost revenues, increased
expenses, negative publicity, claims for damages, harm to our reputation and cause demand for our
services to decline.
Our agreements with customers require us to meet specified service levels for the services we
provide. In addition, our customers may have additional expectations about our services. Any
failure to meet customers specifications or expectations could result in:
| delayed or lost revenue; | ||
| requirements to provide additional services to a customer at reduced charges or no charge; | ||
| negative publicity about us, which could adversely affect our ability to attract or retain customers; and |
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| claims by customers for substantial damages against us, regardless of our responsibility for the failure, which may not be covered by insurance policies and which may not be limited by contractual terms of our engagement. |
Our ability to successfully market our services could be substantially impaired if we are unable to
deploy new infrastructure systems and applications or if new infrastructure systems and
applications deployed by us prove to be unreliable, defective or incompatible.
We may experience difficulties that could delay or prevent the successful development,
introduction or marketing of hosting and application management services in the future. If any
newly introduced infrastructure systems and applications suffer from reliability, quality or
compatibility problems, market acceptance of our services could be greatly hindered and our ability
to attract new customers could be significantly reduced. We cannot assure you that new applications
deployed by us will be free from any reliability, quality or compatibility problems. If we incur
increased costs or are unable, for technical or other reasons, to host and manage new
infrastructure systems and applications or enhancements of existing applications, our ability to
successfully market our services could be substantially limited.
Any interruptions in, or degradation of, our private transit Internet connections could result
in the loss of customers or hinder our ability to attract new customers.
Our customers rely on our ability to move their digital content as efficiently as possible to
the people accessing their websites and infrastructure systems and applications. We utilize our
direct private transit Internet connections to major network providers, such as AT&T and Global
Crossing as a means of avoiding congestion and resulting performance degradation at public Internet
exchange points.
We rely on these telecommunications network suppliers to maintain the operational integrity of
their networks so that our private transit Internet connections operate effectively. If our private
transit Internet connections are interrupted or degraded, we may face claims by, or lose,
customers, and our reputation in the industry may be harmed, which may cause demand for our
services to decline.
Our network infrastructure could fail, which would impair our ability to provide guaranteed
levels of service and could result in significant operating losses.
To provide our customers with guaranteed levels of service, we must operate our network
infrastructure 24 hours a day, seven days a week, without interruption. We must, therefore, protect
our network infrastructure, equipment and customer files against damage from human error, natural
disasters, unexpected equipment failure, power loss or telecommunications failures, terrorism,
sabotage or other intentional acts of vandalism. Even if we take precautions, the occurrence of a
natural disaster, equipment failure or other unanticipated problem at one or more of our data
centers could result in interruptions in the services we provide to our customers. We cannot assure
you that our disaster recovery plan will address all, or even most, of the problems we may
encounter in the event of a disaster or other unanticipated problem. We have experienced service
interruptions in the past, and any future service interruptions could:
| require us to spend substantial amounts of money to replace equipment or facilities; | ||
| entitle customers to claim service credits or seek damages for losses under our service level guarantees; | ||
| cause customers to seek alternate providers; or | ||
| impede our ability to attract new customers, retain current customers or enter into additional strategic relationships. |
Our dependence on third parties increases the risk that we will not be able to meet our customers
needs for software, systems and services on a timely or cost-effective basis, which could result in
the loss of customers.
Our services and infrastructure rely on products and services of third-party providers. We
purchase key components of our infrastructure, including networking equipment, from a limited
number of suppliers, such as IBM, Cisco Systems, Inc., Microsoft and Oracle.
We may experience operational problems attributable to the installation, implementation,
integration, performance, features or functionality of third-party software, systems and services.
We may not have the necessary hardware, parts, or software on hand or that our suppliers will be
able to provide them in a timely manner in the event of equipment failure. Our inability to timely
obtain and continue to maintain the necessary hardware or parts could result in sustained equipment
failure and a loss of revenue due to customer loss or claims for service credits under our service
level guarantees.
We could be subject to increased operating costs, as well as claims, litigation or other
potential liability, in connection with risks associated with Internet security and the security of
our systems.
A significant barrier to the growth of e-commerce and communications over the Internet has
been the need for secure transmission of confidential information. Several of our infrastructure
systems and application services use encryption and authentication technology licensed from third
parties to provide the protections necessary to ensure secure transmission of confidential
information. We also rely on security systems designed by third parties and the personnel in our
network operations centers to secure those data centers. Any unauthorized access, computer viruses,
accidental or intentional actions and other disruptions could result in increased operating costs
or worsen our reputation with our customers.
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For example, we may incur additional significant costs to protect against these interruptions
and the threat of security breaches or to alleviate problems caused by these interruptions or
breaches. If a third party were able to misappropriate a consumers personal or proprietary
information, including credit card information, during the use of an application solution provided
by us, we could be subject to claims, litigation or other potential liability as well as loss of
reputation.
We may be subject to legal claims in connection with the information disseminated through our
network, which could divert managements attention and require us to expend significant financial
resources.
We may face liability for claims of defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature of the materials disseminated through our
network.
For example, lawsuits may be brought against us claiming that content distributed by some of
our customers may be regulated or banned. In these and other instances, we may be required to
engage in protracted and expensive litigation that could have the effect of diverting managements
attention from our business and require us to expend significant financial resources. Our general
liability insurance may not cover any of these claims or may not be adequate to protect us against
all liability that may be imposed. In addition, on a limited number of occasions in the past,
businesses, organizations and individuals have sent unsolicited commercial e-mails from servers
hosted at our facilities to a number of people, typically to advertise products or services. This
practice, known as spamming, can lead to statutory liability as well as complaints against
service providers that enable these activities, particularly where recipients view the materials
received as offensive. We have in the past received, and may in the future receive, letters from
recipients of information transmitted by our customers objecting to the transmission. Although we
prohibit our customers by contract from spamming, we cannot assure you that our customers will not
engage in this practice, which could subject us to claims for damages.
If we are unable to protect our intellectual property and prevent its use by third parties, our
ability to compete in the market will be harmed.
We rely on a combination of patent, copyright, trade secret and trademark laws to protect our
proprietary technology and prevent others from duplicating our products and services. However,
these means may afford only limited protection and may not: (1) prevent our competitors from
duplicating our products or services; (2) prevent our competitors from gaining access to our
proprietary information and technology; or (3) permit us to gain or maintain a competitive
advantage.
Any of our patents may be challenged, invalidated, circumvented or rendered unenforceable. We
cannot assure you that we will be successful should one or more of our patents be challenged for
any reason. If our patent claims are rendered invalid or unenforceable, or narrowed in scope, the
patent coverage afforded our products or services could be impaired, which could significantly
impede our ability to market our products or services, negatively affect our competitive position
and harm our business and operating results.
We cannot assure you that any pending or future patent applications held by us will result in
an issued patent or that, if patents are issued to us, that such patents will provide meaningful
protection against competitors or against competitive technologies. The issuance of a patent is not
conclusive as to its validity or its enforceability.
The United States federal courts or equivalent national courts or patent offices elsewhere may
invalidate our patents or find them unenforceable. Competitors may also be able to design around
our patents. Other parties may develop and obtain patent protection for more effective
technologies, designs or methods. If these developments were to occur, it could have an adverse
effect on our sales.
We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or
trade secrets by consultants, vendors, former employees and current employees, despite the
existence of nondisclosure and confidentiality agreements and other contractual restrictions.
Furthermore, the laws of foreign countries may not protect our intellectual property rights
effectively or to the same extent as the laws of the United States. If our intellectual property
rights are not adequately protected, we may not be able to commercialize our technologies, products
or services and our competitors could commercialize our technologies, which could result in a
decrease in our sales and market share that would harm our business and operating results.
Our products or services could infringe on the intellectual property rights of others, which
may lead to litigation that could itself be costly, could result in the payment of substantial
damages or royalties and/or prevent us from using technology that is essential to our products or
services.
We cannot assure you that our products, services or other methods do not infringe the patents
or other intellectual property rights of third parties. Infringement and other intellectual
property claims and proceedings brought against us, whether successful or not, could result in
substantial costs and harm our reputation. Such claims and proceedings can also distract and divert
management and key personnel from other tasks important to the success of our business. In
addition, intellectual property litigation or claims could force us to do one or more of the
following:
| cease selling or using any of our products or services that incorporate or makes use of the asserted intellectual property, which would adversely affect our revenue; | ||
| pay substantial damages for past use of the asserted intellectual property; | ||
| obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; or |
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| redesign or rename, in the case of trademark claims, our products or services to avoid infringing the intellectual property rights of third parties, which may not be possible and could be costly and time-consuming if it is possible to do. |
In the event of an adverse determination in an intellectual property suit or proceeding, or our
failure to license essential technology, our sales could be harmed and/or our costs increase, which
would harm our financial condition and our stock price may likely decline.
We license intellectual property rights from third-party owners. If such owners do not properly
maintain or enforce the intellectual property underlying such licenses, our competitive position
and business prospects could be harmed. Our licensor may also seek to terminate our license.
We are a party to a number of licenses that give us rights to third-party intellectual
property that is necessary or useful to our business. Our success will depend in part on the
ability of our licensors to obtain, maintain and enforce our licensed intellectual property. Our
licensors may not successfully prosecute the applications for intellectual property to which we
have licenses. Even if patents or other intellectual property registrations issue in respect of
these applications, our licensors may fail to maintain these patents or intellectual property
registrations, may determine not to pursue litigation against other companies that are infringing
these patents or intellectual property registrations, or may pursue such litigation less
aggressively than we would. Without protection for the intellectual property we license, other
companies might be able to offer substantially identical products or services for sale, which could
adversely affect our competitive business position and harm our business prospects.
One or more of our licensors may allege that we have breached our license agreement with them
and accordingly seek to terminate our license. If successful, this could result in our loss of the
right to use the licensed intellectual property, which could adversely affect our ability to
commercialize our technologies, products or services, as well as harm our competitive business
position and our business prospects.
We rely on trade secrets and other forms of non-patent intellectual property protection. If we
are unable to protect our trade secrets, other companies may be able to compete more effectively
against us.
We rely on trade secrets, know-how and technology, which are not protected by patents, to
maintain our competitive position. Our trade secrets may otherwise become known or be independently
discovered by competitors.
To the extent that our commercial partners, collaborators, employees and consultants use
intellectual property owned by others in their work for us, disputes may arise as to the rights in
related or resulting know-how and inventions.
If any of our trade secrets, know-how or other technologies not protected by a patent were to
be disclosed to or independently developed by a competitor, our business, financial condition and
results of operations could be materially adversely affected.
We may be subject to damages resulting from claims that we or our employees have wrongfully
used or disclosed alleged trade secrets of their former employers.
Some of our employees may have been previously employed by other companies, including our
competitors or potential competitors. As such, we may be subject to claims that these employees or
we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information
of their former employers. Litigation may be necessary to defend against these claims. Even if we
are successful in defending against these claims, litigation could result in substantial costs and
be a distraction to management. If we fail in defending such claims, in addition to paying money
claims, we may lose valuable intellectual property rights or personnel. A loss of key personnel or
their work product could hamper or prevent our ability to commercialize certain products or
services, which would adversely affect our business.
We may be exposed to liability under non-solicitation agreements to which one or more of our
employees may be a party with certain of our competitors.
From time to time, we may hire employees who may be parties to non-solicitation or
non-competition agreements with one or more of our competitors. Although we expect that all such
employees will comply with the terms of their non-solicitation agreements, it is possible that if
customers of our competitors chose to move their business to us, or employees of a competitor seek
employment with us, even without any action on the part of any employee bound by any such
agreement, one or more of our competitors may chose to bring a claim against us and
our employee.
We may become subject to burdensome government regulation and legal uncertainties that could
substantially harm our business or expose us to unanticipated liabilities.
It is likely that laws and regulations directly applicable to the Internet or to hosting and
managed application service providers may be adopted. These laws may cover a variety of issues,
including user privacy and the pricing, characteristics and quality of products and services. The
adoption or modification of laws or regulations relating to commerce over the Internet could
substantially impair the growth of our business or expose us to unanticipated liabilities.
Moreover, the applicability of existing laws to the Internet and hosting and managed application
service providers is uncertain. These existing laws could expose us to substantial liability if
they are found to be applicable to our business.
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For example, we provide services over the Internet in many states in the United States and
elsewhere and facilitate the activities of our customers in these jurisdictions. As a result, we
may be required to qualify to do business, be subject to taxation or be subject to other laws and
regulations in these jurisdictions, even if we do not have a physical presence, employees or
property in those states.
Difficulties presented by international economic, political, legal, accounting and business
conditions could harm our business in international markets.
For the six months ended September 30, 2010 and 2009, 16% and 14% of our total revenue and for
the years ended March 31, 2010 and 2009, 15% and 13% of our total revenue, respectively was
generated in countries outside of the United States. Some risks inherent in conducting business
internationally include:
| unexpected changes in regulatory, tax and political environments; | ||
| longer payment cycles and problems collecting accounts receivable; | ||
| fluctuations in currency exchange rates; | ||
| our ability to secure and maintain the necessary physical and telecommunications infrastructure; | ||
| challenges in staffing and managing foreign operations; and | ||
| laws and regulations on content distributed over the Internet that are more restrictive than those currently in place in the United States. |
Any one or more of these factors could materially and adversely affect our business.
Our substantial leverage may impair our cash flow and financial condition and prevent us from
fulfilling our obligations under our indebtedness.
We have a substantial amount of indebtedness. As of September 30, 2010, we have debt totaling
approximately $524.1 million, of which $7.2 million is current and payable during the twelve months
ending September 30, 2011. As of March 31, 2010, we had debt totaling approximately $456.6 million,
of which $4.9 million was current and payable during the twelve months ending March 31, 2011. For a
description of our outstanding debt, see Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and Capital Resources. Our substantial
indebtedness could have important consequences, including, but not limited to:
| making it more difficult for us to satisfy our obligations and comply with the restrictions under our outstanding notes; | ||
| increasing our vulnerability to general adverse economic and industry conditions by making it more difficult for us to react quickly to changing conditions; | ||
| limiting our ability to obtain additional or favorable financing to fund future working capital, capital expenditures, debt service requirements, acquisitions and other general corporate purposes; | ||
| requiring that we use a substantial portion of our cash flow from operations to pay principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions and general corporate purposes; |
| limiting our flexibility in planning for, or reacting to, changes in our business, and the industry in which we operate; and | ||
| placing us at a competitive disadvantage to those of our competitors that have less indebtedness. |
Should we need additional capital or financing, our ability to arrange financing and the cost of
this financing will depend upon many factors, including:
| general economic and capital markets conditions, and in particular the non-investment grade debt market; | ||
| conditions in the Internet infrastructure market; | ||
| credit availability from banks or other lenders; |
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| investor confidence in the telecommunications industry generally and our company specifically; and | ||
| the success of our facilities. |
Despite our current level of indebtedness, we may still be able to incur substantially more
indebtedness, which could further exacerbate the risks associated with our substantial leverage.
Subject to specified limitations, the Indenture governing our senior secured notes permits us
to incur substantial additional indebtedness, including indebtedness secured equally and ratably by
first priority liens on the same collateral securing the notes. In addition, any future credit
facility or other agreement governing our indebtedness may allow us to incur additional
indebtedness, including secured indebtedness. If new indebtedness is added to our current
indebtedness, the risks described above could intensify.
We will require a significant amount of cash to fund our debt service, working capital needs
and our expansion plans, and our ability to generate sufficient cash depends upon many factors,
some of which are beyond our control
Our ability to make payments on our indebtedness, including the senior secured notes, fund
working capital needs and fulfill our expansion plans depends on our ability to generate adequate
cash flow. To some extent, our ability to generate adequate cash flow is subject to general
economic, financial, competitive, legislative and regulatory factors and other factors that are
beyond our control. We cannot assure you that our business will generate cash flow from operations
at sufficient levels or that our cash needs will not increase. If we are unable to generate
sufficient cash flow from operations to service our indebtedness and meet our other needs, we may
have to refinance all or a portion of our existing indebtedness, or obtain additional financing.
Alternatively, we may have to reduce expenditures that we deem necessary to our business or sell
assets, which may further reduce our ability to generate cash and may reduce the amount of
collateral securing the notes. We cannot assure you that any or all of these actions will be
sufficient to allow us to service our debt obligations or that any additional financing could be
obtained on commercially reasonable terms or at all.
Covenant restrictions under our indebtedness may limit our ability to operate our business.
The indenture that governs our senior secured notes contains, and future financing agreements
may contain, covenants that may restrict our ability to finance future operations or capital needs
or to engage in other business activities. The indenture governing our senior secured notes
restricts, among other things, our ability and the ability of our subsidiaries to:
| make restricted payments; | ||
| incur additional debt and issue preferred or disqualified stock; | ||
| create liens; | ||
| create or permit to exist restrictions on our ability or the ability of our restricted subsidiaries to make | ||
| certain payments or distributions; | ||
| engage in sale-leaseback transactions; | ||
| engage in mergers or consolidations or transfer all or substantially all of our assets; | ||
| make certain dispositions and transfers of assets; and | ||
| enter into transactions with affiliates. |
Our ability to comply with these covenants may be affected by many events beyond our control,
and we may not be able to comply with these covenants, or in the event of default, to remedy that
default. Our failure to comply with the covenants under the notes could result in a default, which
could cause our senior secured notes (and by reason of cross-acceleration provisions, our other
indebtedness) to become immediately due and payable.
If our financial condition deteriorates, we may be delisted by the NASDAQ and our stockholders
could find it difficult to sell our common stock.
Our common stock trades on the NASDAQ Global Market. The NASDAQ requires companies to fulfill
specific requirements in order for their shares to continue to be listed. Our securities may be
considered for delisting if:
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| our financial condition and operating results appear to be unsatisfactory; | ||
| we have sustained losses that are so substantial in relation to our overall operations or our existing financial condition has become so impaired that it appears questionable whether we will be able to continue operations and/or meet our obligations as they mature. |
If our shares are delisted from the NASDAQ, our stockholders could find it difficult to sell our
stock. To date, we have had no communication from the NASDAQ regarding delisting. If our common
stock is delisted from the NASDAQ, we may apply to have our shares quoted on NASDAQs Bulletin
Board or in the pink sheets maintained by the National Quotation Bureau, Inc. The Bulletin Board
and the pink sheets are generally considered to be less efficient markets than the NASDAQ.
In addition, if our shares are no longer listed on the NASDAQ or another national securities
exchange in the United States, our shares may be subject to the penny stock regulations. If our
common stock were to become subject to the penny stock regulations it is likely that the price of
our common stock would decline and that our stockholders would find it more difficult to sell their
shares on a liquid and efficient market.
Our business could be harmed by prolonged electrical power outages or shortages, or increased
costs of energy.
A significant amount of our business is dependent upon the continued operation of the NAP of
the Americas building. The NAP of the Americas building and our other NAP facilities are
susceptible to regional costs of power, electrical power shortages and planned or unplanned power
outages caused by these shortages. A power shortage at an internet exchange facility may result in
an increase of the cost of energy, which we may not be able to pass on to our customers. We attempt
to limit exposure to system downtime by using backup generators and power supplies. Power outages
that last beyond our backup and alternative power arrangements could harm our customers and have a
material adverse effect on our business.
We are dependent on key personnel and the loss of these key personnel could have a material
adverse effect on our success.
We are highly dependent on the skills, experience and services of key personnel. The loss of
key personnel could have a material adverse effect on our business, operating results or financial
condition. We do not maintain key man life insurance with respect to these key individuals. Our
recent and potential growth and expansion are expected to place increased demands on our management
skills and resources. Therefore, our success also depends upon our ability to recruit, hire, train
and retain additional skilled and experienced management personnel. Employment and retention of
qualified personnel is important due to the competitive nature of our industry. Our inability to
hire new personnel with the requisite skills could impair our ability to manage and operate our
business effectively.
We may encounter difficulties implementing our expansion plan.
We expect that we may encounter challenges and difficulties in implementing our expansion plan
to establish new facilities in those domestic and international locations where we believe there is
significant demand for our services and to expand our facilities in those locations we currently
own such as Culpeper, Virginia, where we have the capacity to construct two additional pods, each
yielding 50,000 square feet of net colocation space:
| identify and obtain the use of locations in which we believe there is sufficient demand for our services; | ||
| generate sufficient cash flow from operations or through additional debt or equity financings to support these expansion plans; | ||
| hire, train and retain sufficient additional financial reporting management, operational and technical employees; and | ||
| install and implement new financial and other systems, procedures and controls to support this expansion plan with minimal delays. |
If we encounter greater than anticipated difficulties in implementing our expansion plan, it
may be necessary to take additional actions, which could divert managements attention and strain
our operational and financial resources. We may not successfully address any or all of these
challenges, and our failure to do so would adversely affect our business plan and results of
operations, our ability to raise additional capital and our ability to achieve enhanced
profitability.
If the world-wide financial crisis and the ongoing economic recession continues or
intensifies, our ability to meet long-term commitments and our ability to grow our business would
be adversely affected; this could adversely affect our results of operations, cash flows and
financial condition.
The global economy is currently experiencing a significant contraction, with an almost
unprecedented lack of availability of business and consumer credit. We rely on the capital markets,
particularly for publicly offered debt, as well as the credit markets, to meet our financial
commitments and short-term liquidity needs if internal funds are not available from our operations.
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Long-term disruptions in the capital and credit markets, similar to those that are currently being
experienced, could result from uncertainty, changing or increased regulation, reduced alternatives
or failures of significant financial institutions and could adversely affect our access to
liquidity needed for our business.
Any disruption could require us to take measures to conserve cash until the markets stabilize
or until alternative credit arrangements or other funding for our business needs can be arranged.
Such measures could include deferring capital expenditures and reducing or eliminating
discretionary uses of cash.
Besides our cash on hand and any financing activities we may purse, customer collections are
our primary source of cash. While we believe we have a strong customer base and have experienced
strong collections in the past, if the current market conditions continue to deteriorate we may
experience increased churn in our customer base, including reductions in their commitments to us,
which could also have a material adverse effect on our liquidity, results of operation and financial position.
If the ongoing economic recession continues or worsens or if markets continue to be disrupted,
there may be lower demand for our services and increased incidence of customers inability to pay
their accounts. Further, bankruptcies or similar events by customers may cause us to incur bad debt
expense at levels higher than historically experienced. These events would adversely impact our
results of operations, cash flows and financial position.
Risk Factors Related to Our Common Stock
Our stock price may be volatile, and you could lose all or part of your investment.
The market for our equity securities has been extremely volatile (ranging from $5.70 per share
to $10.72 per share, during the 52-week trading period ended September 30, 2010). Our stock price
could suffer in the future as a result of any failure to meet the expectations of public market
analysts and investors about our results of operations from quarter to quarter. The
factors that could cause the price of our common stock in the public market to fluctuate
significantly include the following:
| actual or anticipated variations in our quarterly and annual results of operations; | ||
| changes in market valuations of companies in our industry; | ||
| changes in expectations of future financial performance or changes in estimates of securities analysts; | ||
| fluctuations in stock market prices and volumes; | ||
| future issuances of common stock or other securities; | ||
| the addition or departure of key personnel; and | ||
| announcements by us or our competitors of acquisitions, investments or strategic alliances. |
We expect that the price of our common stock will be significantly affected by the availability of
shares for sale in the market.
The sale or availability for sale of substantial amounts of our common stock could adversely
impact its price. Our certificate of incorporation authorizes us to issue 100,000,000 shares of
common stock. On September 30, 2010, there were approximately 65.8 million shares of our common
stock issued and outstanding, also there are approximately 13.4 million shares of our common stock
reserved for issuance pursuant to our 6.625% Senior Convertible Notes, Series I convertible
preferred stock, options, nonvested stock and warrants to purchase our common stock, which consist
of:
| 4,575,200 shares of our common stock reserved for issuance upon conversion of our 6.625% Senior Convertible Notes, plus up to an additional 5,085,513 reserved for issuance in the event of certain change in control transactions in which at least 10% or more of the consideration paid to our stockholders is in cash; | ||
| 1,034,667 shares of our common stock reserved for issuance upon conversion of our Series I convertible preferred stock; | ||
| 2,071,263 shares of our common stock issuable upon exercise of options; | ||
| 3,733,134 shares of our nonvested stock; and | ||
| 2,018,128 shares of our common stock issuable upon exercise of warrants. |
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Accordingly, a substantial number of additional shares of our common stock are likely to
become available for sale in the foreseeable future, which may have an adverse impact on our stock
price.
Our common shares are thinly traded and, therefore, relatively illiquid.
While our common shares trade on the NASDAQ, our stock is thinly traded (approximately 0.7%,
or 431,914 shares, of our stock traded on an average daily basis during the twelve months ended
September 30, 2010) and you may have difficulty in selling your shares quickly. The low trading
volume of our common stock is outside of our control, and may not increase in the near future or,
even if it does increase in the future, may not be maintained.
Existing stockholders interest in us may be diluted by additional issuances of equity
securities.
We expect to issue additional equity securities to fund the acquisition of additional
businesses and pursuant to employee benefit plans. We may also issue additional equity for other
purposes. These securities may have the same rights as our common stock or, alternatively, may have
dividend, liquidation, or other preferences to our common stock. The issuance of additional equity
securities will dilute the holdings of existing stockholders and may reduce the share price of our
common stock.
We do not expect to pay dividends on our common stock, and investors will be able to receive cash
in respect of the shares of common stock only upon the sale of the shares.
We have no intention in the foreseeable future to pay any cash dividends on our common stock
in accordance with the terms of our new credit facilities. Furthermore, unless we satisfy specified
financial ratio covenants we may not pay cash or stock dividends without the written consent of our
note holders. Further, the terms of our Series I convertible preferred stock provide that, in the
event we pay any dividends on our common stock, an additional dividend must be paid with respect to
all of our outstanding Series I convertible preferred stock in an amount equal to the aggregate
amount of dividends that would be owed for all shares of common stock into which the shares of
Series I convertible preferred stock could be converted at such time. Therefore, an investor in our
common stock will obtain an economic benefit from the common stock only after an increase in its
trading price and only by selling the common stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. (REMOVED AND RESERVED).
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) List of documents filed as part of this report:
1. Financial Statements
| Managements Report on Internal Control over Financial Reporting. | ||
| Report of Independent Registered Certified Public Accounting Firm on the Financial Statements KPMG LLP. | ||
| Report of Independent Registered Certified Public Accounting Firm on Internal Control Over Financial Reporting KPMG LLP. |
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| Consolidated Balance Sheets as of September 30, 2010 and March 31, 2010. | ||
| Consolidated Statements of Operations for the Six and Three Months Ended September 30, 2010 and 2009. | ||
| Consolidated Statement of Changes in Stockholders Equity for the Six Months Ended September 30, 2010. | ||
| Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2010 and 2009. | ||
| Notes to Condensed Consolidated Financial Statements. |
2. Financial Statement Schedules
All schedules have been omitted because the required information is included in the
consolidated financial statements or the notes thereto, or the omitted schedules are not
applicable.
3. Exhibits
The following exhibits, which are furnished with this Quarterly Report or incorporated herein
by reference, are filed as part of this Quarterly Report.
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Exhibit | ||||
Number | Description of Exhibit | |||
10.1 | Amended and Restated Terremark Worldwide, Inc. 2005 Executive Incentive Plan.,
filed as Annex A to the Companys definitive proxy statement filed in connection
with its 2010 Annual Meeting of Stockholders and incorporated by reference
herein. |
|||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) |
|||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) |
|||
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|||
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on the 1st day of November, 2010.
TERREMARK WORLDWIDE, INC. |
||||
By: | /s/ MANUEL D. MEDINA | |||
Manuel D. Medina | ||||
Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) |
||||
Date: November 1, 2010
By: | /s/ JOSE A. SEGRERA | |||
Jose A. Segrera | ||||
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
||||
Date: November 1, 2010
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EXHIBIT SCHEDULE
Exhibit | ||||
Number | Description | |||
10.1 | Amended and Restated Terremark Worldwide, Inc. 2005 Executive Incentive Plan., filed as Annex A to
the Registrants definitive proxy statement filed in connection with its 2010 Annual Meeting of
Stockholders and incorporated by reference herein. |
|||
31.1 | Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
31.2 | Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
32.1 | Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
|||
32.2 | Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
49