UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended March 31,
2010
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TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number
001-12475
Terremark Worldwide,
Inc.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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84-0873124
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(State or Other Jurisdiction
of
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(IRS Employer
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Incorporation or
Organization)
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Identification
No.)
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2 South Biscayne Blvd. Suite 2800 Miami, Florida
33131
(Address of Principal Executive
Offices, Including Zip Code)
Registrants telephone number, including area code:
(305) 961-3200
Securities registered pursuant to Section 12(b) of the
Act:
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Common Stock, par value $0.001 per share
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NASDAQ Global Market
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(Title of Class)
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(Name of Exchange on Which
Registered)
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Securities registered pursuant to Section 12(g) of the
Act:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer,as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Securities
Act. Yes o No þ
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 Website, if an, every
Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§229.405 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (17 CFR 229.405) is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form
10-K. 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):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller Reporting
company o
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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
The aggregate market value of the registrants common
stock held by non-affiliates of the registrant computed by
reference to the price at which the common stock was last sold
as of the last business day of the registrants most
recently completed second quarter was approximately $402,331,065
(based on the closing market price of $6.22 per share for the
registrants common stock as reported on the Nasdaq Global
Market on September 30, 2009).
The number of shares outstanding of the registrants
common stock, par value $0.001 per share, as of May 31, 2010 was
65,337,470
DOCUMENTS
INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12, 13 and
14) is incorporated by reference from the registrants
definitive proxy statement for its 2010 Annual Meeting of
Stockholders (to be filed pursuant to Regulation 14A).
PART I
The words Terremark, we,
our, ours, and us refer to
Terremark Worldwide, Inc. All statements in this discussion that
are not historical are forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of
1934, as amended, including statements regarding
Terremarks expectations, beliefs,
hopes, intentions,
strategies or the like. Such statements are based on
managements current expectations and are subject to a
number of factors and uncertainties that could cause actual
results to differ materially from those described in the
forward-looking statements. Terremark cautions investors that
actual results or business condition may differ materially from
those projected or suggested in such forward-looking statements
as a result of various factors, including, but not limited to,
the risk factors discussed in this Annual Report on
Form 10-K.
Except as required by applicable law, Terremark expressly
disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained
herein to reflect any change in Terremarks expectations
with regard thereto or any change in events, conditions, or
circumstances on which any such statements are based.
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 1,300 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.
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Colocation Services: We provide customers with
the space, power and a secure environment to deploy their own
computing, network, storage and IT infrastructure.
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Managed Services: We design, deploy, operate,
monitor and manage our clients IT infrastructure at our
facilities.
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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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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 our average quarterly revenue churn rate for the
past four quarters has been less than 2%. As an illustration of
this principle, for the year ended March 31, 2010,
approximately 90% of our overall revenue was recurring and over
70% of our new bookings were derived from existing customers.
Our principal executive office is located at 2 South Biscayne
Boulevard, Suite 2800, Miami, Florida 33131. Our telephone
number is
(305) 961-3200.
Competitive
Strengths
Our business is characterized by the following strengths:
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Strategically located carrier neutral data
centers Our purpose-built, carrier neutral data
centers have been established in regions with considerable
demand for our services. Because we are not a carrier and are
not affiliated with a particular carrier, we can provide direct
access to more than 160 carriers, including all global
Tier 1 carriers, enabling our customers to realize
significant cost savings, flexibility and the option to scale
their network needs as their businesses grow. Our facilities are
in immediate proximity to major fiber routes, providing
convenient access to the United States, Europe and Latin
America. The NAP of the Americas located in Miami, Florida was
the first purpose-built, carrier neutral Network Access Point of
its kind and is specifically designed to link the United States
with the rest of the world.
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Competitive advantage in serving the federal
sector We believe the combination of our
long-standing relationships with the federal government, high
level security clearances and our dedicated federal sales force
provides us with a competitive advantage. Approximately 17.2% of
our U.S. employee base has federal security clearances, and
we are the first company awarded a GSA Schedule contract
offering colocation space that satisfies the federal
governments requirements to be accredited as a Sensitive
Compartmented Information Facility (SCIF). Since we were awarded
our first federal contract in 2004, we have had success in
expanding our business with the Departments of Defense and State
and we continue to collaborate with key federal IT integrators
such as Computer Sciences Corporation and General Dynamics. Our
cloud computing offerings have been adopted by the federal
government to power sites of national importance such as usa.gov
and data.gov and recognized by government leaders for lowering
operating costs for federal IT outsourcing. Our market presence
with the federal sector and system integrators is increasing as
a result of the success of the NAP of the Capital Region
together with the federal governments current focus on
civilian agency IT infrastructure. The federal sector accounted
for approximately 24% of our revenue for the year ended
March 31, 2010.
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Comprehensive portfolio of IT solutions We
offer our customers a comprehensive suite of services, including
colocation, managed hosting, managed network, disaster recovery,
security and cloud computing services. We believe that the
breadth of our service offerings enables us to better meet our
existing customers changing demands and to cross-sell
various products and services within our portfolio. We have had
significant success in cross-selling our products, with
approximately 70% of our new bookings for the year ended
March 31, 2010 generated by existing customers.
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Scalable infrastructure Our infrastructure is
focused around our three primary facilities in Florida, Virginia
and California, where visibility of future revenues is high and
where we believe the probability of success is significant. We
are able to spread the operating expenses and capital
expenditures of each facility across the facilitys growing
customer base. Our current purpose-built infrastructure also
allows us to build out in incremental data centers within our
facilities with relatively low incremental capital expenditures
as demand increases.
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Diversified customer base We have a diverse
customer base of approximately 1,300 enterprises, government
agencies, systems integrators, internet content and portal
companies and network providers, which are attracted by our
fully integrated suite of products and services. Given the
breadth of our customer base, no commercial customer represents
more than 5% of total recurring revenue.
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Strong management team We have a seasoned
operational, sales and financial management team, comprising
individuals who have an average of approximately 9 years of
communication and data center expertise. Most of our operational
and sales team has been assembled from several of the
worlds leading communication service providers.
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Strategy
Our objective is to become the leading provider of IT
infrastructure and managed services for enterprise and federal
sector customers. Key components of our strategy include the
following:
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Increase revenue from our existing customer base
We will continue to pursue opportunities to
provide new services to existing customers and capture an
increasing portion of each customers IT spending. We
believe that our comprehensive set of services establishes a
foundation for cross-selling opportunities across our broad
customer base. We will focus on cross-selling managed services
to our existing colocation customers, as well as providing
colocation services to existing managed services customers. We
expect our focus on cross-selling to existing customers to
maintain or lower our existing churn rates, which will provide
us with increased revenue visibility.
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Leverage our competitive advantage to serve the federal
sector We will broaden our reach with customers
in the federal sector, including increasing our penetration of
civilian agencies. We will do so by leveraging our dedicated
resources, existing relationships, preferred GSA provider status
and the prime location and design of our NAP in the Washington
D.C. area. We believe that our prior experience and existing
relationships in the federal sector have resulted in our ability
to offer federal sector customers tailored colocation and
managed services. We plan to further capitalize on the current
federal administrations plans to increase their use of
cloud computing, building off our recently awarded federal cloud
computing contracts to host the USA.gov and Data.gov websites.
We believe we are well-positioned to win additional business in
the federal sector, increase our penetration of the civilian
agencies and further augment our relationships with the large
federal IT integrators and other potential partners.
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Continue our disciplined approach to expansion
Our current expansion plans are focused on
growth within our existing footprint when the demand for our
services is established, where there are significant
opportunities to grow revenue and where the probability of
success is significant. The development of our NAP of the
Capital Region, or NCR, is an example of this. We opened Pod 1
at NCR in July 2008 and were able to contract over 80% of its
total built-out space by January 2009. Similarly, we opened
Pod 2 in early 2010 and launched the construction of
Pod 3 on April 2010 and now the NCR campus (including
Pod 3) is 65% contracted. With more than 90% of the built
out space in the NAP of the Americas/West currently contracted,
we intend to apply the same disciplined approach to expansion in
that and our other markets.
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Invest in our proprietary service delivery technology and
products We will continue to invest in
proprietary technologies, including our industry leading cloud
computing solutions that provide reliable, cost-effective and
flexible solutions to our customers and a technological
advantage over our competitors. Our investment in proprietary
technology and products enables us to automate service delivery
processes, which will allow us to drive efficiencies and lower
our operating costs.
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Products
and Services
Our primary products and services include colocation, managed
services and exchange point services.
Colocation
Our colocation services, which represented 38% of our revenue,
or $111.2 million, for the year ended March 31, 2010,
provide clients with the space and power to deploy computing,
network, storage and IT infrastructure in our world-class data
centers. Through a number of redundant subsystems, including
power, fiber and satellite connections, we are able to provide
our customers with 100% Service Level Agreements (SLAs) for
power and environmental systems, which means that we can agree
to provide 100% uptime for all of our customers IT
equipment contained in our facilities. Our colocation solutions
are scalable, allowing our customers
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to upgrade space, connectivity and services as their
requirements evolve. As a result of the scalability, cost
effectiveness and flexibility of our colocation solutions, our
customers continue to increase their outsourcing to us, allowing
them to reduce their cost of powering and cooling their
infrastructure. Furthermore, customers benefit from our data
centers wide range of physical security features,
including biometric scanners, man traps, smoke detection, fire
suppression systems, motion sensors, secured access, video
camera surveillance and security breach alarms. Our customers
sign long-term contracts and are billed on a monthly basis, in
advance, by the square foot or by cabinet for space and by the
circuit (based on the number of amps) for power. We provide the
following colocation services:
Space and Power Each of our data centers
house IT infrastructure in a safe, secure and highly connected
facility, and customers enjoy a high level of network
reliability, which enables them to focus on their core business.
This service provides space and power to our clients to deploy
their own computing, networking and IT infrastructure. Customers
can choose individual cabinets or a secure cage depending on
their space and security requirements.
Sensitive Compartmented Information Facility
(SCIF) Services A service used by
the federal sector that includes the buildout and management of
a colocation facility including extraordinary security
safeguards meeting Director of Central Intelligence Directive
(DCID) 6/9 Physical Security Standards for SCIF
facilities. Facilities meeting DCID 6/9 standards may be
utilized for mission-critical federal infrastructure, including
colocation, network services, managed hosting and security
services delivered by our wholly owned federal subsidiary,
Terremark Federal Group, Inc. As of the date of this offering
circular, we are the only company awarded a GSA Schedule
contract offering colocation space that satisfies the federal
governments requirements to be accredited as a SCIF.
Remote Hands/Smart Hands Reduces cost and
maximizes uptime with
on-site
troubleshooting and maintenance services. Remote Hands service
performs simple functions to customers equipment upon
request, while Smart Hands service offers clients remote
assistance using industry-certified engineers to install and
maintain complex network environments.
Managed
Services
Our managed services represented 53% of our revenue, or
$155.7 million, for the year ended March 31, 2010. We
design, deploy, operate, monitor and manage our clients IT
infrastructure at our facilities. Our customers sign long-term
contracts and are billed on a monthly basis, in advance, to use
these applications, which minimizes the capital expenditure
necessary for them to build this platform in-house while also
allowing them to maintain full control over the operating system
and application infrastructure. This platform is scalable,
allowing us to increase margins as we replicate the service for
incremental customers. The division is composed of four
subdivisions managed hosting services, managed
network services, managed security/data infrastructure services
and equipment/other. The key managed services we provide include:
Managed Hosting Services We offer managed
hosting services, in which we house, serve and maintain data
environments for various computing environments. These
environments can include, without limitation, websites,
enterprise resource planning, or ERP, tools and databases. Our
managed hosting services, which represented approximately 58% of
our managed services revenue for the year ended March 31,
2010, are designed to support complex, transaction-intensive,
mission-critical line-of-business and Internet facing
applications. Our full suite of managed hosting services allows
companies and organizations to reduce their total cost of
ownership while increasing IT capability through access to our
significant technical expertise and capability as well as our
technologically advanced data center, network and computing
infrastructure. We provide managed hosting
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services on dedicated or virtualized servers located within our
facilities. We offer the following managed hosting services to
our customers:
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Service
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Description
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Managed Hosting
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Offers flexibility, scalability and operating efficiency through
our full-service, utility-enabled hosting solutions. We also
provide a more comprehensive suite of hosting services, built
around an application-centric philosophy, with application-level
deep monitoring, return-to-service and code troubleshooting
services. Includes full support for leading database and
application platforms.
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Enterprise
Cloud(tm)
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The Enterprise Cloud service allows our customers to control a
pool of processing, storage and networking resources that allow
them to deploy server capacity on demand instead of investing in
their own infrastructure.
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Managed Network Services Represented
approximately 34% of managed services revenue for the year ended
March 31, 2010, and leverages our robust connectivity and
our Commercial and Secure Network Operations Centers, or NOC, to
deliver cost savings, flexibility and the performance that
customers demand. We generate monthly recurring revenues by
providing the following managed network services to our
customers.
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Service
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Description
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Managed NOC Services
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Provide 24x7 immediate response, customer network monitoring and
management and vendor support management.
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Managed Routing Service
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Provides managed access to the telecommunication backbones of
the worlds leading carriers. The facilities are complete
with redundant systems and infrastructure. Intelligent routing
maximizes optimal network connectivity.
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Managed Satellite Services
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Provide 24x7 monitoring and management, vendor support
management, spectrum management and on-demand move/add/change.
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Equipment/Other Represented approximately 8%
of managed services revenue for the year ended March 31,
2010 and consists primarily of services we provide to procure
and install equipment utilized as part of our managed services
contracts.
We use the following proprietary software tools and technologies
to deliver these services:
Infinistructure®
A virtualized computing platform that allows customers to scale
across equipment and geographies with limited capital
expenditure. This technology eliminates the physical server as a
point of failure and allows customers to leverage a
comprehensive on-demand computing environment with a substantial
enterprise-class computing grid partitioned into secure virtual
servers. The system guarantees a highly secure environment using
complete server isolation, VLAN network partitioning and
PCI-compliant firewalls, and is managed and administered with
our digitalOps service delivery platform.
digitalOps A service delivery software tool
that facilitates the management of most of our colocation,
hosting and network services, including computing network
design, operations and management environments. The technology
also serves as a portal and user interface, enabling customers
to monitor and provision their own servers. This advanced
technology represents the optimization of the surrounding
technical operations and business processes to create the
architectural logic of an entire managed environment.
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Exchange
Point Services
Our Exchange Point Services platform represented
$18.7 million, or approximately 6%, of revenue for the year
ended March 31, 2010 and is designed to allow our customers
to connect their networks and equipment with that of others in a
flexible and cost-effective manner. The attractiveness of our
exchange point services to customers is enhanced by our
substantial connectivity with more than 160 competing carriers,
which allows our customers to reduce costs while enhancing the
reliability and performance associated with the exchange of
Internet and other data traffic. Our connectivity options offer
our customers a key strategic advantage by providing direct,
high-speed connections to peers, partners and some of the most
important sources of IP data, content and distribution in the
world. Key Exchange Point Services include:
Interconnect Services These services
represent physical links that enable our customers to share data
with any other clients connected to our exchange point platform.
We charge for these links, or Cross-Connect services, through an
initial installation fee and an ongoing monthly recurring charge.
Peering Services Provide a highly secure and
reliable means to exchange data, deliver
IP-based
services and deliver content between networks in a carrier
neutral environment. We provide a cost-effective alternative to
conventional transport, significantly reducing the costs, delays
and performance issues often associated with using a complex
patchwork of local loops and long-haul transport.
Industry
Trends
According to Tier 1 Research, global demand for data center
space increased by 116% from 2002 to 2007 while supply increased
by a modest 15% over the same period. Since 2007, demand has
continued to outgrow supply, and Tier 1 projects that
demand will outgrow supply by 2.5x through 2012. This supply and
demand imbalance is replacing what was previously considered a
market with excess supply. We believe this growth is being
driven by escalating broadband utilization trends, rising power
and cooling requirements and an increasing enterprise trend for
outsourcing bolstered by a growing need for advanced networking
technology provided through reliable and secure infrastructure.
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Global Bandwidth Utilization Trends. Demand
for global IP traffic, according to Cisco Systems, Inc,
increased at a combined annual growth rate, or CAGR, of 60% from
2006 to 2009. This growth in end-user traffic over IP networks
is expected to continue to grow due to continued adoption of
broadband access to the Internet by businesses and consumers and
significant mass adoption of high bandwidth and data-intensive
consumer and business applications that have large file content.
The introduction of more powerful computers and software
applications will further exacerbate this trend, and Cisco
projects IP traffic will grow at a CAGR of 46% from 2007 through
2012. Penetration rates are also expected to increase and, when
combined with increasing connection speeds, indicate that global
IP traffic will continue to increase exponentially. Regional
internet traffic is growing fastest in Latin America. Cisco
projects total regional IP traffic in Latin America to grow at a
57% CAGR from 2007 to 2012. The growth is driven mainly by
increasing internet penetration and the advent of high-speed
connections in some of the fastest and largest developing
economies in the world such as Brazil, Argentina and Colombia.
As the increase in global internet traffic continues to drive
demand for IT infrastructure, we believe we are well positioned
to benefit from these trends. Our facilities handle a
significant amount of internet traffic in the U.S., our flagship
facility, the NAP of the Americas, handles approximately 90% of
Latin American IP traffic, and our Brazilian facility is the
largest Internet exchange in South America.
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Rising Power and Cooling Requirements. Power
availability for equipment and cooling is one of the most
important challenges facing data centers today. The power
requirement of a modern server environment has grown
significantly, making many legacy data centers which were not
adequately equipped obsolete. While the size of networking and
computing equipment continues to shrink, the increasing speed at
which this equipment can receive, process and transmit data
continues to fuel power requirements. Additionally, IDC expects
the blade server market to continue to grow at by estimated
20.8% in unit shipments from 2009 to 2013, accounting for nearly
29.8% of the server market by 2011. We expect the demand for the
higher power density and advanced cooling systems provided by
our data centers to continue.
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Increasing Enterprise Demand for
Outsourcing. In the U.S., the following factors
have contributed to enterprise customers increasingly
outsourcing their data center operations:
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Increased Technical Demands and Technological
Developments. Advanced equipment and new
developments have required greater sophistication and augmented
the specifications required of data centers. As a result,
companies are now faced with a choice of either upgrading their
existing facilities or outsourcing all or a portion of their IT
infrastructure to a data center with more advanced networking
technology and a more reliable and secure infrastructure.
Increased Reliance on the Internet. As more
businesses rely on the Internet for
e-commerce,
email and centralized databases, connectivity, speed and
reliability have become a priority, and demands on their IT
infrastructure have increased. We believe that the lack of
adequate security, climate control and bandwidth in most
in-house data centers has led to an increase in data center
outsourcing.
Adoption of Network-Centric Computing and IP
Services. Technologies such as IP/Ethernet,
softswitches and wireless broadband have driven traffic onto
multi-purpose IP networks, enabling new applications to be
purchased separate from network access. These technologies
require increased broadband speeds and reduced latency. Because
these requirements have become increasingly difficult for
in-house data center solutions to provide, we believe that they
have driven the demand for data center outsourcing.
Business Continuity and Disaster Recovery. As
businesses have become increasingly dependent upon their data
systems and IT infrastructure, business continuity concerns and
disaster recovery planning are leading businesses to store an
increasing amount of data in secure, off-site facilities that
enable them to access this data in real-time. Our secure data
centers contain redundant systems (e.g., power and cooling),
which are required under many companies business
continuity and disaster recovery policies. Additionally, our
data centers and services enable our customers to regularly scan
data to track compliance with such policies.
Regulatory Compliance. Regulations have
increasingly addressed enterprises use of electronic
systems, which we believe will drive growth in demand for our
secure, outsourced services. Examples of such regulations
include Basel II, which provides direction for managing capital
risk, supervisory interaction and public risk disclosure for
large banks, as well as Check 21, which permits banks to
truncate original checks and process check information
electronically.
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Increased government demand for
outsourcing: The U.S. Federal government has
announced plans to increase the outsourcing of IT needs, which
we expect will significantly boost federal demand for colocation
and managed services, including cloud services, reducing
government costs and increasing efficiency. Cloud computing is
likely to be one of the key managed hosting services utilized in
this initiative. Outsourcing through cloud computing allows the
government to use a pool of processing, storage and networking
resources that can be provisioned on demand, and offers advanced
capabilities in cyber security. The commercial sector has also
seen similar increased demand for utilizing cloud services such
as those provided by Terremark to reduce the costs and increase
efficiencies in IT outsourcing.
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Customers
Our customers include enterprises, government agencies, systems
integrators, Internet content and portal companies as well as
the worlds largest network providers. As of March 31,
2010, we had approximately 1,300 customers worldwide. The
federal sector accounted for approximately 24% of our revenues
for the year ended March 31, 2010. The largest commercial
customer accounted for less than 5% of our revenues for the year
ended March 31, 2010.
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Sales and
Marketing
Sales
The Terremark sales force markets our services to enterprise,
federal sector, interactive entertainment, Internet
infrastructure, carrier, and channel customers and is organized
by business unit, corresponding to U.S. commercial,
Federal, Europe and Latin America. Our sales force works with
our team of trained support engineers to apply our strategic
approach in targeting customers, which focuses on the design of
a package of Terremark products and IT infrastructure services
based solely on a particular customers needs. We sell our
products and services through three primary channels:
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Direct sales our direct salesforce is
composed of 21 quota-bearing sales people based primarily
in the U.S.
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Sales engagement team team of 5 professionals
responsible for managing inbound demand from marketing campaigns
and website visitors as well as conducting targeted sales
outreach.
|
|
|
|
Our Channels & Strategic Alliances group
responsible for the acquisition, education and
retention of channel partners and reseller agents.
|
Marketing
Our marketing organization is responsible for building and
communicating a distinct brand, driving qualified leads into the
sales pipeline, and ensuring strategic alignment with key
partners. Our marketing team supports our strategic priorities
through the following primary objectives:
|
|
|
|
|
Brand management and positioning This
includes brand identity unification, positioning at the
corporate and product levels, the development of methodology,
marketing assets and brand awareness programs for all of our
business units.
|
|
|
|
Lead generation Utilizing online marketing,
targeted advertising, direct marketing, event marketing, and
public relations programs and strategies to design and execute
successful lead generation campaigns leveraging inside and
direct sales and channel teams and contribute meaningfully and
measurably to pipeline and revenue goals.
|
Competition
Our competition includes:
|
|
|
|
|
Internet data centers operated by established communications
carriers such as AT&T, Level 3, Qwest, and Savvis.
Unlike the major network providers that constructed data centers
primarily to help sell bandwidth, we have aggregated multiple
networks in each of our carrier neutral data centers, providing
superior diversity, pricing and performance. Telecommunications
companies data centers generally provide only one choice
of carrier and prefer customers with high managed services needs
as part of their pricing structures. Locating in our data
centers provides access to a wide choice of top tier networks
and allows customers to negotiate the best prices with a number
of carriers, which we believe results in better economics and
redundancy.
|
|
|
|
Infrastructure service providers such as Equinix, Global Switch
and Internap Network Services Corporation. Infrastructure
service providers often provide either colocation or managed
services or a combination with limited managed services. In
contrast, we offer a full suite of both colocation and managed
services through high quality, technologically advanced, secure
data centers with
24-hour
support.
|
|
|
|
Large scale system integrators such as IBM and HP. Most system
integrators are primarily engaged to deliver large scale
information systems, including their design and development, the
management of vendor contracts, the purchase of equipment and
technical integration. While there may be some overlap with our
services, we focus on providing an end-to-end service offering
in colocation and managed services.
|
9
|
|
|
|
|
Wholesale providers of data center space such as Digital Realty
Trust, Dupont Fabros and 365 Main Inc. These companies have data
centers focused on meeting the outsourced data center needs of
wholesale customer deployments. These centers primarily provide
space and power on a wholesale basis without additional
services. While certain of our customers demand the use of only
the basic elements of our data centers (e.g. power, space and
cooling), our focus is on attracting those customers who demand
services in addition to the physical facilities necessary to
house their equipment. In addition, wholesale customers are not
typically suited to our model as we focus on providing space and
services to a large number of diverse customers in each data
center, which allows our customers and maximizes our financial
returns on a per site basis.
|
|
|
|
Managed hosting and cloud computing providers including
Rackspace, SAVVIS, AT&T, Pipex, The Planet and Verio.
Microsoft, Google and Amazon are also emerging competition, as
they are currently making investments in cloud computing
capabilities. These services allow customers to use shared or
dedicated physical or virtual computer servers to house, serve
and maintain various computing environments including websites
and databases.
|
Employees
As of March 31, 2010, we had 712 full-time employees
in the United States, 89 full-time employees in Europe,
54 full-time employees in Latin America and
4 full-time employees in Turkey. Of these employees, 590
were in data center operations, 109 were in sales and marketing
and 160 were in management, finance and administration.
Approximately 17.2% of employees have high level federal
security clearance. We have no union contracts, and we believe
that our relationship with our employees is good.
Primary
Data Centers
NAP of
the Americas
Constructed in 2001, our owned flagship facility, the NAP of the
Americas, located in Miami, Florida is one of the most
significant telecommunications projects in the world. This
750,000 gross square-foot facility was the first
purpose-built, carrier neutral Network Access Point and is
specifically designed to link the United States with the rest of
the world.
Miami has been ranked as one of the most interconnected cities
in the world, ahead of San Francisco, Chicago and
Washington, D.C. Our NAP of the Americas is located in
downtown Miami, an area that has numerous telecommunications
carrier facilities, fiber loops, international cable landings
and multiple power grids. This convergence of telecommunications
infrastructure, together with the NAP of the Americas
capabilities, are reasons why global carriers, Internet service
providers and other Internet-related businesses, educational
institutions, the federal sector and enterprises have chosen to
become our clients.
Our Network Operations Center, or NOC, provides continuous
24-hour
support, monitoring and management of all elements in a
customers computing infrastructure. This service allows
our customers to leverage our investment in hardware, software
tools and expertise and to be supported by a NOC without
requiring them to make significant investments in equipment and
dedicated staff. The NAP of the Americas is equipped with two
fully staffed NOCs, one serving our commercial customers and the
other serving our federal sector customers.
NAP of
the Capital Region
Constructed in 2008 and strategically located in Culpeper,
Virginia, outside of the
50-mile
blast zone surrounding downtown Washington, D.C., the owned
NAP of the Capital Region (NCR) is one of the most
secure and technologically sophisticated data centers on the
Eastern seaboard.
The 30-acre
campus is the ideal location for government and enterprise
clients requiring colocation solutions engineered to meet the
needs of todays power, space and bandwidth-intensive
mission-critical applications and hot/warm sites for disaster
recovery/COOP environments.
10
The NCR campus supports up to five 50,000 square-foot
independent data center structures and a 72,000-square-foot
secure office building. We have completed two Pods and have a
third Pod underway. Each structure is a secure bunker, designed
to provide clients who require colocation space that meets
standards for sensitive compartmented information facilities
(SCIFs). Inside each data center, a professional security staff
maintains and operates sophisticated surveillance systems,
biometric scanners and secured areas for processing of staff,
customers and visitors. Computer Sciences Corporation serves as
an anchor customer, and we have already contracted with several
new and existing federal and commercial customers.
A complete suite of services from colocation and connectivity to
managed hosting and comprehensive disaster recovery solutions is
offered, including solutions utilizing our
Infinistructure®
utility computing platform. NCR is designed to accommodate
todays power requirements for high density computing
environments. We offer 100% service level agreements on power
and environmentals for NCR.
The Company has also secured an additional 27 acres of land
immediately adjacent to the NCR campus providing the ability to
add at least 250,000 square feet of high-quality data
center space and 100,000 square feet of Class A office
space, which allows the Company to effectively double the size
of the Culpeper campus as demand for the NCR location continues
to grow.
NAP of
the Americas/West
Located in Santa Clara, California in Silicon Valley, our
leased NAP of the Americas/West (NAP West)
strategically positions us to service the Asian/Pacific Rim
markets and is a key component of our international reach. The
facility was engineered to exceed industry standards for power
and cooling and is on the critical grid for Silicon Valley
Power. Additionally, NAP Wests access to major carriers
provides a competitive marketplace that lowers bandwidth costs
for our customers while allowing them to select the connectivity
best suited to their business. In addition, we own the land
adjacent to this facility which we may use to construct an
additional 50,000 square foot data facility.
Data
Center Summary
We own or lease properties on which we operate Internet exchange
facilities from which we may provide our colocation,
interconnection and managed services to the federal and
commercial sectors. The following tables, together, contain
information on these properties and facilities as of
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential
|
|
|
|
|
|
|
|
Colocation
|
|
|
|
|
|
|
|
Space
|
|
|
|
Location
|
|
Type
|
|
(sq. ft.)
|
|
|
Services Provided
|
|
United States
|
|
|
|
|
|
|
|
|
NAP of the Americas
(Miami, FL)
|
|
Owned
|
|
|
315,000
|
|
|
Colocation; Exchange; Managed Services
|
NAP of the Capital Region
(Culpeper, VA)
|
|
Owned
|
|
|
250,000
|
(1)
|
|
Colocation; Exchange; Managed Services
|
NAP of the Americas/West
(Santa Clara, CA)
|
|
|
|
|
|
|
|
|
Datacenter 1
|
|
Leased
|
|
|
30,000
|
|
|
Colocation; Exchange; Managed Services
|
Datacenter 2
|
|
Owned
|
|
|
50,000
|
|
|
Colocation; Exchange; Managed Services
|
Dallas
|
|
Leased
|
|
|
7,100
|
|
|
Managed Services
|
Herndon
|
|
Leased
|
|
|
|
|
|
Colocation; Exchange
|
International
|
|
|
|
|
|
|
|
|
Bogota
|
|
Leased
|
|
|
18,000
|
|
|
Colocation; Exchange; Managed Services
|
Sao Paulo
|
|
Leased
|
|
|
8,700
|
|
|
Colocation; Exchange; Managed Services
|
Madrid
|
|
Leased
|
|
|
6,500
|
|
|
Colocation; Exchange; Managed Services
|
Brussels
|
|
Leased
|
|
|
1,000
|
|
|
Managed Services
|
London
|
|
Leased
|
|
|
270
|
|
|
Colocation; Exchange; Managed Services
|
Amsterdam
|
|
Leased
|
|
|
19,000
|
|
|
For future expansion
|
11
|
|
|
(1) |
|
Represents total potential colocation space upon completion of
five, 50,000 square foot pods. As of March 31, 2010,
Pod 1 and 2 have been completed and Pod 3 is under construction.
We intend to construct Pods 4 and 5 as needed to satisfy future
demand for space in NAP of the Capital Region. |
Financial
Information About Geographic Areas
For our fiscal years ended 2010, 2009 and 2008, our revenue from
external customers attributable to the United States and
internationally is as set forth below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
$
|
249,761
|
|
|
$
|
218,935
|
|
|
$
|
163,278
|
|
International
|
|
|
|
|
|
|
42,586
|
|
|
|
31,535
|
|
|
|
24,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
292,347
|
|
|
$
|
250,470
|
|
|
$
|
187,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, our long lived assets, including
property and equipment, net, and identifiable and intangible
assets, are located in the following geographic areas (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
United States
|
|
$
|
479,595
|
|
|
$
|
390,790
|
|
International
|
|
|
32,932
|
|
|
|
9,343
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
512,527
|
|
|
$
|
400,133
|
|
|
|
|
|
|
|
|
|
|
Our
History
Terremark was formed in 1982 under the laws of the State of
Delaware, and, with its subsidiaries, was engaged in the
development, sale, leasing, management and financing of various
real estate projects. On April 28, 2000, given the rapid
growth of the IT infrastructure sector, Terremark Holdings, Inc.
completed a reverse merger with AmTec, Inc., a public company,
and contemporaneously changed its name to Terremark Worldwide,
Inc, subsequently using this public company to operate within
the sector. After the reverse merger, we redefined our business
and strategy and implemented a plan to exit all real estate and
other lines of business not directly related to our current
business model described in this Annual Report on
Form 10-K.
12
Directors
and Executive Officers
Our executive officers and directors and their ages as of
March 31, 2010, are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Manuel D. Medina
|
|
|
57
|
|
|
Chairman of the Board of Directors, President and Chief
Executive Officer
|
Joseph R. Wright, Jr.
|
|
|
71
|
|
|
Vice Chairman of the Board of Directors
|
Guillermo Amore
|
|
|
71
|
|
|
Director
|
Timothy Elwes
|
|
|
74
|
|
|
Director
|
Antonio S. Fernandez
|
|
|
70
|
|
|
Director
|
Arthur L. Money
|
|
|
70
|
|
|
Director
|
Marvin S. Rosen
|
|
|
68
|
|
|
Director
|
Rodolfo A. Ruiz
|
|
|
61
|
|
|
Director
|
Frank Botman
|
|
|
43
|
|
|
Director
|
Melissa Hathaway
|
|
|
41
|
|
|
Director
|
Jamie Dos Santos
|
|
|
48
|
|
|
Chief Executive Officer Terremark Federal Group
|
Jose A. Segrera
|
|
|
39
|
|
|
Chief Financial Officer
|
Nelson Fonseca
|
|
|
36
|
|
|
Chief Operating Officer
|
Marvin Wheeler
|
|
|
56
|
|
|
Chief Strategy Officer
|
Adam T. Smith
|
|
|
38
|
|
|
Chief Legal Officer
|
Manuel D. Medina, 57, has served as Chairman of the
Board, President and Chief Executive Officer since April 2000,
the date that we merged with AmTec, as well as in those
positions with Terremark since its founding in 1982. In
addition, Mr. Medina is a managing partner of Communication
Investors Group, one of our investors. Before founding Terremark
as an independent financial and real estate consulting company,
Mr. Medina, a certified public accountant, worked with
Price Waterhouse after earning a Bachelor of Science degree in
Accounting from Florida Atlantic University in 1974.
Joseph R. Wright, Jr., 71, has served as our Vice
Chairman of the Board since April 2000. Mr. Wright is
currently Senior Advisor to The Chart Group, L.P., which is a
merchant banking firm investing in both venture and growth
capital companies and providing senior level advice and capital
access to corporate clients. Previously, Mr. Wright was
Chief Executive Officer of Scientific Games, of which he had
been a member of the board since 2004 and on which he served as
Vice Chairman. Prior to his tenure as Chief Executive Officer of
Scientific Games, Mr. Wright served as Chairman of
Intelsat, the worlds leading provider of satellite/fiber
services with a global fleet of 53 satellites servicing over 200
countries from July 2006 to April 2008 and, prior to this
position, from August 2001 to July 2006, served as Chief
Executive Officer of PanAmSat, a publicly-listed satellite-based
services business, which was acquired by Intelsat in 2006.
Before PanAmSat, he was Chairman of GRC International Inc., a
public company providing advanced information technology,
Internet and software technologies to government and commercial
customers, which was sold to AT&T, was Co-Chairman of
Baker & Taylor Holdings, Inc., an international
book/video/software distribution and
e-commerce
company, owned by The Carlyle Group and was Executive Vice
President, Vice Chairman, and Director of W. R.
Grace & Company, Chairman of Grace Energy Company and
President of Grace Environmental Company. Mr. Wright also
serves on the Board of Directors/Advisors of Federal Signal, the
Defense Business Board, the Defense Science Board task force on
interoperability, Performance Measurement Advisory Council of
the Office of Management and Budget (The White House), the
Network Reliability and Interoperability Council of the Federal
Communications Commission, the Media Security and Reliability
Council of the Federal Communications Commission, the Council on
Foreign Relations, the Committee for the Responsible Federal
Budget and the New York Economic Club.
Guillermo Amore, 71, has served as a member of our Board
of Directors since February 2001. From August 2000 to February
2001, Mr. Amore served as the President and Chief Operating
Officer of our wholly-owned subsidiary, Terremark Latin America,
Inc., prior to which he served as Chairman and Chief Executive
Officer of Spectrum Telecommunications Corporation until its
acquisition. Mr. Amore has nearly 42 years of
13
telecommunications experience, much of it focused on the
developing markets of Latin America and the Caribbean. During
his tenure at GTE Corporation, he built an extensive network of
contacts in the region. These contacts served him well in
business development and regulatory affairs during his
stewardship of Grupo Isacell S.A. of Mexico and of Spectrum
Telecommunications. Mr. Amore holds an MBA from Harvard
University and a Bachelors degree in Science in Electrical
Engineering from Pontificia Universidad Javeriana, Colombia.
Timothy Elwes, 74, has served as a member of our Board of
Directors since April 2000. Mr. Elwes also served as a
member of the Board of Directors of Timothy Elwes &
Partners Ltd., a financial services company, between May 1978
and October 1994, the business of which was merged into Fidux
Trust Co. Ltd. in December 1995. Since December 2000 he has
served as an independent financial services consultant.
Antonio S. Fernandez, 70, was elected to our Board of
Directors in September 2003. In 1970, Mr. Fernandez was a
Systems Engineering Manager at Electronic Data Systems (EDS). In
1971, Mr. Fernandez joined DuPont Glore Forgan as a
Vice-President in Operations. In 1974, he joined Thomson
McKinnon as Director of Operations and Treasurer. In 1979, he
was Director of Operations and Treasurer at
Oppenheimer & Co. Inc., where he also served as Chief
Financial Officer from 1987 until 1994 and a member of the Board
of Directors from 1991 until 1998. In 1991, Mr. Fernandez
founded and headed the International Investment Banking
Department at Oppenheimer & Co. and served in that
capacity until 1999. Mr. Fernandez served on the Board of
Banco Latinoamericano de Exportaciones from 1992 until 1999. He
also served as Trustee of Mulhenberg College, PA from 1995 until
1998. Mr. Fernandez was a director from 2004 to 2009 of
Spanish Broadcasting Systems, an operator of radio stations in
the U.S. He graduated from Pace University, NY in 1968 with
a Bachelors in Business Administration.
Arthur L. Money, 70, has served as a member of our Board
of Directors since May 2003. Since September 2002,
Mr. Money has been a member of the Board of Directors of
SafeNet, a provider of Information Technology security
solutions. From 1999 to 2001, Mr. Money was the Assistant
Secretary of Defense (C3I) and Department of Defense CIO. Prior
to this, Mr. Money served as the Assistant Secretary of the
Air Force for Research, Development, and Acquisition, and was
Vice President and Deputy General Manager of TRW. From 1989 to
1995, Mr. Money was President of ESL, Inc. He has received
distinguished public service awards from the
U.S. Department of Defense (Bronze Palm), the U.S. Air
Force, and the U.S. Navy. He is currently President of ALM
Consulting, specializing in command control and communications,
intelligence, signal processing and information processing.
Mr. Money received his Master of Science Degree in
Mechanical Engineering from the University of Santa Clara
and his Bachelor of Science Degree in Mechanical Engineering
from San Jose State University.
Marvin S. Rosen, 68, has served as a member of our Board
of Directors since April 2000. Mr. Rosen is a co-founder
and Chairman of the Board of Directors of Fusion
Telecommunications International and served as its Vice Chairman
from December 1998 to April 2000 and has served as its Chief
Executive Officer since April 2000. Since 2004, Mr. Rosen
has been a Managing Partner at Diamond Edge Capital Partners,
L.L.C. From September 1995 through January 1997, Mr. Rosen
served as the Finance Chairman of the Democratic National
Committee. Mr. Rosen has served on the Board of Directors
of the Robert F. Kennedy Memorial since 1995 and Fusion
Telecommunications International, Inc., since 1997, where he has
also been Vice-Chairman since December 1998. Mr. Rosen
received his Bachelor of Science degree in Commerce from the
University of Virginia, his LL.B. from Dickinson School of Law
and his LL.M. in Corporations from New York University Law
School.
Rodolfo A. Ruiz, 61, has served as a member of our Board
of Directors since July 2003. Since 2004, Mr. Ruiz has
served as Executive Vice President Spirits for
Southern Wine and Spirits of America, Inc. From 1979 to 2003,
Mr. Ruiz held a series of senior management positions
within the Bacardi organization, inclusive of having served as
President and Chief Executive Officer of Bacardi Global Brands,
President and Chief Executive Officer of Bacardi Asia/Pacific
Region, and several senior executive sales, marketing, financial
and operations positions within Bacardi USA. Prior to joining
Bacardi, from 1966 to 1979, Mr. Ruiz, in his capacity as a
certified public accountant, served as a Senior Auditor, Senior
Internal Auditor and Audit Manager with Price
Waterhouse & Co. for a wide variety of public and
private clients and projects in the United States and Mexico, as
well as throughout Latin America, interspersed by a term, from
1973 to 1975, with International Basic Economy Corp, otherwise
known as IBEC/Rockefeller Group. Mr. Ruiz holds a Bachelor
of Business degree from the University of Puerto Rico.
14
Frank Botman, 43, has served as a member of our Board of
Directors since September 2009. Mr. Botman began his career
in 1989 with HSBC in Investment Management and Research, and
then as a fund manager with IBM Pension Fund from 1992 to 1994
where he managed the Dutch equity portfolio and European venture
capital portfolio. After working at IBM Pension Fund,
Mr. Botman founded HAL Capital Management in 1994 where he
served as Managing Director. He joined Cyrte Investments B.V. in
2000 (f/k/a Talpa Capital B.V.), a private investment company,
as a founder and Managing Director and Head of the Investment
Team. Cyrte Investments is a European investment boutique that
seeks to invest in media, entertainment, telecom and technology
companies. As of September 27, 2007, Cyrte Investments
operates as a subsidiary of Delta Lloyd Asset Management NV.
Mr. Botman currently serves on the boards of Endemol,
Forthnet and RTL Nederland. Mr. Botman holds a degree in
commercial economics and business administration from the HEAO
Amsterdam.
Melissa Hathaway, 41, was appointed to our Board of
Directors on February 5, 2010. Ms. Hathaway brings
more than 20 years of high-level public and private-sector
experience and is considered one of the leading experts on cyber
security matters, having served in two Presidential
administrations. Ms. Hathaway is President of Hathaway
Global Strategies, LLC and a Senior Advisor at Harvard Kennedy
Schools Belfer Center, roles she has held since August
2009. Previously, from February 2009 to August 2009, she led the
development of the Cyberspace Policy Review in her role as the
Acting Senior Director for Cyberspace in the National Security
Council of President Barack Obamas administration. Prior
to that, from March 2007 to February 2009, Ms. Hathaway
served as Cyber Coordination Executive and Director of the Joint
Interagency Cyber Task Force in the Office of the Director of
National Intelligence under President George W. Bush. Before
working in the Obama and Bush administrations, from June 1993 to
February 2007, Ms. Hathaway was a Principal with Booz
Allen & Hamilton, Inc., where she led the information
operations and long-range strategy and policy support business
units. Her efforts at Booz Allen supported key offices within
the Department of Defense and Intelligence Community, including
the U.S. Southern Command, the U.S. Pacific Command,
the Office of the Secretary of Defense for Net Assessment, the
Central Intelligence Agency, the Defense Intelligence Agency and
the Office of the Director of National Intelligence.
Ms. Hathaway earned a B.A. from the American University in
Washington DC and has completed graduate studies in
international economics and technology transfer policy and is a
graduate of the US Armed Forces Staff College with a special
certificate in Information Operations.
Jamie Dos Santos, 48, has served as our CEO of Terremark
Federal Group since July 2005. Ms. Dos Santos is
responsible for the planning, development and execution of our
federal government sales, marketing and operations strategy.
Ms. Dos Santos manages all aspects of our federal
government relationships, including with the Department of
Defense, Civilian Agencies and the federal systems integrators.
From March 2003 to July 2005, Ms. Dos Santos served as our
Chief Marketing Officer, in which capacity she was responsible
for the development of strategic marketing initiatives and
commercial sales strategies that contributed to the
companys sustained growth. From April 2001 to March 2003,
Ms. Dos Santos served as our Senior Vice President Global
Sales. Prior to joining Terremark, Ms. Dos Santos enjoyed a
career of 25 years with several global companies including
BellSouth, Bellcore and SAIC. Ms. Dos Santos sits on the
AFCEA Intelligence Committee and serves on the AFCEA Board of
Directors as a Class Director, Class of 2011. She also sits
on the Information Technology Sector Coordinating Council for
the US protection of Critical Information Infrastructure. She is
a top 100 executive with the Executive Leadership Council and
Vice President of the South Florida AFCEA chapter. Ms. Dos
Santos educational background includes eight years in the
Bellcore Training Center, the University of Florida and Harvard
Business School for Continuing Education.
Jose A. Segrera, 39, has served as our Chief Financial
Officer since September 2001. From September 2000 to June 2001,
Mr. Segrera served as our Vice President
Finance. From January 2000 to September 2000, Mr. Segrera
served as the interim Chief Financial Officer of FirstCom
Corporation. From June 1996 to November 1997, Mr. Segrera
was a manager in the assurance practice at KPMG Peat Marwick
LLP. Mr. Segrera received his Bachelor in Business
Administration and his Masters in Professional Accounting from
the University of Miami.
Nelson Fonseca, 36, has served as our Chief Operating
Officer since November 2009 and has served in a variety of
capacities within Terremark for the last eight years. Prior to
being named Chief Operations Officer, from May 2008 to October
2009, Mr. Fonseca was President of Terremarks
U.S. Public Sector Business Unit. His specific duties
included the oversight of Terremark Federal Group, a
wholly-owned subsidiary of Terremark
15
Worldwide, the management of Terremarks State and Local
government initiatives and the NAP of the Capital Region campus
in Culpeper, Virginia. Some of his other previous roles at
Terremark included, from December 2005 to April 2008, Senior
Vice President of Sales for Terremark Federal Group and, during
2002 to 2005, Vice President of Commercial Sales for Terremark
Worldwide. Prior to joining Terremark, Mr. Fonseca held
various positions at both Telcordia Technologies and Nortel
Networks. His responsibilities included business development,
product management and systems engineering in support of both
domestic and international clients. Mr. Fonseca received
his Bachelors degree in Computer Science from Barry University
and his Masters degree in Business Administration from the
University of Miami.
Marvin Wheeler, 56, has served as our Chief Strategy
Officer since November 2009. From November 2003 to November 2009
he served as our Chief Operations Officer, and from March 2003
to November 2003, he served as our Senior Vice President,
Worldwide Operations. From March 2001 to March 2003,
Mr. Wheeler served as Senior Vice President of Operations
and General Manager of the NAP of the Americas. From June 1978
to March 2000, Mr. Wheeler managed the Data Center and
WAN/LAN Operations for BellSouth, Mr. Wheeler graduated
from the University of Florida, where he earned a degree in
Business Administration with a concentration in marketing.
Adam T. Smith, 38, has served as our Chief Legal Officer
since November 2006. From May 2005 to November 2006,
Mr. Smith served as our SVP Deputy General Counsel, and
from February 2004 to April 2005 as our VP Assistant General
Counsel. From April 2000 to January 2004, Mr. Smith led the
Electronic Commerce & Technology law practice for a
Miami based international law firm, as well as focused on
domestic and international corporate transactions, venture
capital, and corporate securities. Prior to April 2000,
Mr. Smith worked in Washington, D.C., where he was
responsible for the review of the legal issues surrounding the
Internet aspects of the proposed Sprint/Worldcom merger, and
gained federal government experience as an honors intern in the
Office of the Secretary of Defense, as well as the Department of
State (U.S. Embassy/Santiago, Chile), Office of the Deputy
Attorney General, and U.S. House of Representatives
International Relations Committee. Mr. Smith received his
Juris Doctor from the University of Miami School of Law and his
Bachelor of Arts from Tufts University. Mr. Smith is a
member of the bar of the State of Florida and the United States
District Court for the Southern District of Florida.
Where You
Can Find Additional Information
We file annual, quarterly, and special reports, proxy statements
and other information with the SEC. You may read and copy any
materials that we have filed with the SEC at the SECs
Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. Our
Securities and Exchange Commission filings are also available to
the public at the Securities and Exchange Commissions
website at
http://www.sec.gov.
In addition, we make available free of charge on or through our
Internet website,
http://www.terremark.com
under Investor Relations, all of the annual,
quarterly and special reports, proxy statements, Section 16
insider reports on Form 3, Form 4 and Form 5 and
amendments to these reports and other information we file with
the SEC. Additionally, our board committee charters and code of
ethics are available on our website and in print to any
stockholder who requests them. The information contained on our
website is not incorporated herein by reference and does not
comprise a part of this Annual Report on
Form 10-K.
16
You should carefully consider the following risks and all other
information contained in this Annual Report on
Form 10-K.
If any of the following risks actually occur, our business,
financial condition and results of operations could be
materially and adversely affected, and the trading price of our
common stock could decline. 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, financial condition and results of 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 years ended March 31, 2010, 2009, and 2008, we
incurred net losses of $31.7 million, $10.6 million,
and $42.2 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. The net loss for the year ended
March 31, 2008 included a $27.0 million non-cash loss
on the early extinguishment of debt and a $1.1 million
non-cash loss on change in fair value of derivatives. We are
currently investing heavily in our expansion 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 this
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, as 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,
17
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.
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 year ended March 31, 2010, revenues from contracts
with the federal sector constituted approximately 24% 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.
18
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 each of the years ended March 31, 2010 and 2009, we
derived approximately 24% of our revenues from the federal
sector. 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 and 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:
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delayed or lost revenue;
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requirements to provide additional services to a customer at
reduced charges or no charge;
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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.
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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,
19
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:
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require us to spend substantial amounts of money to replace
equipment or facilities;
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entitle customers to claim service credits or seek damages for
losses under our service level guarantees;
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cause customers to seek alternate providers; or
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impede our ability to attract new customers, retain current
customers or enter into additional strategic relationships.
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Difficulties
presented by international economic, political, legal,
accounting and business conditions could harm our business in
international markets.
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:
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unexpected changes in regulatory, tax and political environments;
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longer payment cycles and problems collecting accounts
receivable;
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fluctuations in currency exchange rates;
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our ability to secure and maintain the necessary physical and
telecommunications infrastructure;
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challenges in staffing and managing foreign operations; and
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laws and regulations on content distributed over the Internet
that are more restrictive than those currently in place in the
United States.
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Any one or more of these factors could materially and adversely
affect our business.
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 are currently constructing one pod and have
the capacity to construct 2 additional pods, each yielding
50,000 square feet of net colocation space. These
challenges and difficulties relate to our ability to:
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identify and obtain the use of locations in which we believe
there is sufficient demand for our services;
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generate sufficient cash flow from operations or through
additional debt or equity financings to support these expansion
plans;
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hire, train and retain sufficient additional financial reporting
management, operational and technical employees; and
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install and implement new financial and other systems,
procedures and controls to support this expansion plan with
minimal delays.
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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.
20
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 or parts 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.
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
21
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:
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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;
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pay substantial damages for past use of the asserted
intellectual property;
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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.
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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.
22
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.
23
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. 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.
Our
substantial leverage may impair our cash flow and financial
condition and prevent us from fulfilling our obligations under
the notes.
We have a substantial amount of indebtedness. As of
March 31, 2010, we have debt totaling approximately
$456.6 million, of which $4.9 million is current and
payable during the twelve months ending March 31, 2011.
Additionally, on April 28, 2010, we completed our offering
of an additional $50 million aggregate principal amount of
our 12% Senior Secured Notes. 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 other restrictions under our notes and our other
indebtedness;
|
|
|
|
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 for the payment of 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;
|
|
|
|
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. In addition, any future credit facility or other
agreement governing our
24
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:
|
|
|
|
|
our financial condition and operating results appear to be
unsatisfactory;
|
25
|
|
|
|
|
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.
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 or privately-placed 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. 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
26
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 has been, and may continue to be, volatile, and you
could lose all or part of your investment.
The market for our equity securities has been extremely volatile
(ranging from $2.51 per share to $8.98 per share during the
52-week trading period ended March 31, 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, but are not
limited to, 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 a substantial number of
shares of our common stock could adversely impact the price of
our common stock. Our certificate of incorporation authorizes us
to issue up to 100,000,000 shares of common stock. On
March 31, 2010, there were approximately 65.1 million
shares of our common stock outstanding and approximately
12.4 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;
|
|
|
|
1,041,333 shares of our common stock reserved for issuance
upon conversion of our Series I convertible preferred stock;
|
|
|
|
2,340,037 shares of our common stock issuable upon exercise
of options;
|
|
|
|
2,429,994 shares of our nonvested stock; and
|
|
|
|
2,018,128 shares of our common stock issuable upon exercise
of warrants.
|
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 the
market price of our common stock.
27
Our
common shares are thinly traded and, therefore, relatively
illiquid.
As of March 31, 2010, we had 65,058,331 common shares
outstanding. While our common shares trade on the NASDAQ, our
stock is thinly traded (approximately 0.5%, or
297,669 shares, of our stock traded on an average daily
basis during the year ended March 31, 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, capital expenditures 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, and the indenture governing our
12% Senior Secured Notes restricts our ability to pay dividends.
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 commons stock into which
the shares of Series I convertible preferred stock could be
converted at such time. Therefore, an investor in our common
stock may obtain an economic benefit from the common stock only
after an increase in its trading price and only by selling the
common stock.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS.
|
None.
Our executive offices are located in Miami, Florida. We also
have offices in several cities throughout the United States,
Europe, and Latin America. We own data centers in Miami, Florida
and Culpeper, Virginia. We have also entered into leases for
data center space in Dallas, Texas; Santa Clara,
California; Herndon, Virginia; Madrid, Spain; Amsterdam,
Netherlands; Brussels, Belgium; Istanbul, Turkey; Sao Paulo,
Brazil; and Bogota, Colombia. See Item 1.
Business Primary Data Centers.
|
|
ITEM 3.
|
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 any pending matters of the nature described above
would be material.
|
|
ITEM 4.
|
(REMOVED
AND RESERVED).
|
28
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
Common
Stock and Preferred Stock Information
Our common stock, par value $0.001 per share, trades on the
Nasdaq Global Market under the symbol TMRK.
The following table sets forth, for the fiscal quarters
indicated, the high and low sales prices for our common stock as
reported on the Nasdaq Global Market:
|
|
|
|
|
|
|
|
|
|
|
Prices
|
|
Fiscal Year 2010 Quarter Ended
|
|
High
|
|
|
Low
|
|
|
June 30, 2009
|
|
$
|
5.97
|
|
|
$
|
2.51
|
|
September 30, 2009
|
|
|
6.50
|
|
|
|
4.34
|
|
December 31, 2009
|
|
|
7.25
|
|
|
|
5.70
|
|
March 31, 2010
|
|
|
8.98
|
|
|
|
6.17
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices
|
|
Fiscal Year 2009 Quarter Ended
|
|
High
|
|
|
Low
|
|
|
June 30, 2008
|
|
$
|
7.32
|
|
|
$
|
5.27
|
|
September 30, 2008
|
|
|
7.67
|
|
|
|
5.19
|
|
December 31, 2008
|
|
|
6.92
|
|
|
|
2.56
|
|
March 31, 2009
|
|
|
4.25
|
|
|
|
1.85
|
|
As of May 31, 2010, there were 626 holders of record of our
common stock.
29
Performance
Graph
The following graph compares the cumulative 5-year total return
to shareholders on Terremark Worldwide, Inc.s common stock
relative to the cumulative total returns of the Russell 2000
index and the RDG Internet Composite index. An investment of
$100 (with reinvestment of all dividends) is assumed to have
been made in the companys common stock and in each of the
indexes on March 31, 2005 and its relative performance is
tracked through March 31, 2010.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Terremark Worldwide, Inc., The Russell 2000 Index
And The RDG Internet Composite Index
|
|
* |
$100 invested on March 31, 2005 in stock or index,
including reinvestment of dividends.
|
The stock performance graph assumes for comparison that the
value of the Companys common stock was $100 on
March 31, 2005 and that all dividends were reinvested.
Dividend
Policy
We have never paid any cash dividends and do not anticipate
paying any cash dividends in the foreseeable future. We intend
to retain any future earnings for reinvestment. Our Board of
Directors will make any future determination as to the payment
of dividends at its discretion, and its determination will
depend upon our operating results, financial condition and
capital requirements, general business conditions and such other
factors that the Board of Directors considers relevant.
Additionally, the indenture governing our 12% Senior
Secured Notes restricts our ability to declare and pay
dividends, and our 6.625% Senior Convertible Notes contain
contingent interest provisions that allow the holders of these
notes to participate in any dividends declared on our common
stock. Also, holders of our Series I preferred stock are
entitled to receive dividends in the event we declare dividends
on our common stock. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources and
Note 10 to our consolidated financial statements contained
in this Annual Report on
Form 10-K.
30
Equity
Compensation Plan Information
This table summarizes share and exercise price information about
our equity compensation plans as of March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
to be Issued Upon
|
|
|
Weighted Average
|
|
|
Number of Securities
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Available for Future
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Issuance Under Equity
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Compensation Plans
|
|
|
Equity compensation plans approved by security holders
|
|
|
4,358,165
|
|
|
$
|
7.24
|
|
|
|
1,000,991
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
$
|
|
|
|
|
|
|
31
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA.
|
The following selected consolidated financial data has been
derived from our audited consolidated financial statements. The
data set forth below should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and the notes thereto included elsewhere
herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
292,347
|
|
|
$
|
250,470
|
|
|
$
|
187,414
|
|
|
$
|
100,949
|
|
|
$
|
62,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
159,596
|
|
|
|
136,434
|
|
|
|
100,886
|
|
|
|
56,902
|
|
|
|
38,824
|
|
Other expenses
|
|
|
164,424
|
|
|
|
124,605
|
|
|
|
128,756
|
|
|
|
58,999
|
|
|
|
60,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
324,020
|
|
|
|
261,039
|
|
|
|
229,642
|
|
|
|
115,901
|
|
|
|
99,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(31,673
|
)
|
|
|
(10,569
|
)
|
|
|
(42,228
|
)
|
|
|
(14,952
|
)
|
|
|
(37,149
|
)
|
Non-cash preferred dividend
|
|
|
(937
|
)
|
|
|
(807
|
)
|
|
|
(794
|
)
|
|
|
(676
|
)
|
|
|
(727
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(32,610
|
)
|
|
$
|
(11,376
|
)
|
|
$
|
(43,022
|
)
|
|
$
|
(15,628
|
)
|
|
$
|
(37,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share basic
|
|
$
|
(0.51
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.74
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share diluted
|
|
$
|
(0.51
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.74
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Financial condition:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
404,656
|
|
|
$
|
301,002
|
|
|
$
|
231,674
|
|
|
$
|
137,937
|
|
|
$
|
129,893
|
|
Total assets
|
|
|
650,246
|
|
|
|
516,342
|
|
|
|
503,860
|
|
|
|
309,646
|
|
|
|
204,716
|
|
Long term obligations(2)
|
|
|
472,892
|
|
|
|
336,793
|
|
|
|
352,391
|
|
|
|
184,510
|
|
|
|
163,967
|
|
Stockholders equity
|
|
|
80,487
|
|
|
|
82,998
|
|
|
|
90,522
|
|
|
|
89,499
|
|
|
|
13,836
|
|
|
|
|
(1) |
|
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources. |
|
(2) |
|
Long term obligations include secured loans less current
portion, convertible debt less current portion, estimated fair
value of derivatives embedded within convertible debt, deferred
rent and other liabilities, deferred revenue less current
portion, capital lease obligations less current portion and
notes payable less current portion. |
32
|
|
ITEM 7.
|
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, competitive factors,
uncertainties inherent in government contracting, concentration
of business with a small number of clients, the ability to
service debt, substantial leverage, material weaknesses in our
internal controls over financial reporting and our disclosure
controls, energy costs, changes in interest rates, 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 to events only as of the
date hereof. 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 1,300 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.
|
33
|
|
|
|
|
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.
|
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 our average quarterly revenue churn rate for the
past four quarters has been less than 2% and we experienced no
revenue churn in our federal customer base, which we believe is
a reflection of the value of our integrated technology solutions
and our ability to deliver the highest quality service. As an
illustration of this principle, for the year ended
March 31, 2010, approximately 90% of our overall revenue
was recurring and over 70% of our new bookings were derived from
existing customers.
Our principal executive office is located at 2 South Biscayne
Boulevard, Suite 2800, Miami, Florida 33131. Our telephone
number is
(305) 961-3200.
Critical
Accounting Policies and Estimates
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues
and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments. Management
bases its estimates and judgments on historical experience and
on various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions.
Management believes the following significant accounting
policies, among others, affect its judgments and estimates used
in the preparation of its consolidated financial statements:
|
|
|
|
|
revenue recognition and allowance for bad debt;
|
|
|
|
derivatives;
|
|
|
|
accounting for income taxes;
|
|
|
|
goodwill;
|
|
|
|
impairment of long-lived assets; and
|
|
|
|
share-based compensation.
|
Revenue
Recognition and Allowance for Bad Debts
Revenues principally consist of monthly recurring fees for
colocation, exchange point, managed and professional services
fees. Colocation revenues also include monthly rental income for
unconditioned space in the NAP of the Americas. Revenues from
colocation, exchange point services, and hosting, as well as
rental income for unconditioned space, are recognized ratably
over the term of the contract. Installation fees and related
direct costs are deferred and recognized ratably over the
expected life of the customer installation which is estimated to
be 36 to 48 months. Managed and professional services are
recognized in the period in which the services are provided.
Revenues also include equipment resales which are generally
recognized in the period in which the equipment is delivered,
title transfers and is accepted by the customer. Revenue from
contract settlements is generally recognized when collectability
is reasonably assured and no remaining performance obligation
exists. Taxes collected from customers and remitted to the
government are excluded from revenues.
As required by the FASB guidance governing when more than one
element such as equipment, installation and colocation services
are contained in a single arrangement, we allocate revenue
between the elements based on
34
acceptable fair value allocation methodologies, provided that
each element meets the criteria for treatment as a separate unit
of accounting. An item is considered a separate unit of
accounting if it has value to the customer on a standalone basis
and there is objective and reliable evidence of the fair value
of the undelivered items. The fair value of the undelivered
elements is determined by the price charged when the element is
sold separately, or in cases when the item is not sold
separately, by using other acceptable objective evidence.
Management applies judgment to ensure appropriate application of
authoritative, including the determination of whether delivered
items have standalone value and the determination of fair value
for the multiple deliverables, among others. For those
arrangements where the deliverables do not qualify as a separate
unit of accounting, revenue from all deliverables are treated as
one accounting unit and recognized ratably over the term of the
arrangement.
Revenue is recognized when there is persuasive evidence of an
arrangement, the fee is fixed or determinable and collection of
the receivable is reasonably assured. We assess collectability
based on a number of factors, including past transaction history
with the customer and the credit-worthiness of the customer. We
do not request collateral from the customers. If we determine
that collectability is not reasonably assured, the fee is
deferred and revenue is recognized at the time collection
becomes reasonably assured, which is generally upon receipt of
cash.
We sell certain third-party service contracts and software
assurance or subscription products and evaluate whether the
subsequent sales of such services should be recorded as gross
revenues or net revenues in accordance with the FASB guidance
governing these types of arrangements. We determine whether our
role is that of a principal in the transaction and therefore
assumes the risks and rewards of ownership or if our role is
acting as an agent or broker. Under gross revenue recognition,
the entire selling price is recorded as revenue and the cost to
the third-party service provider or vendor is recorded as cost
of revenues, product and services. Under net revenue
recognition, the cost to the third-party service provider or
vendor is recorded as a reduction of revenue resulting in net
revenue equal to the gross profit on the transaction and there
is no cost of revenue.
We analyze current economic news and trends, historical bad
debts, customer concentrations, customer credit-worthiness and
changes in customer payment terms when evaluating revenue
recognition and the adequacy of the allowance for bad debts.
Our customer contracts generally require us to meet certain
service level commitments. If we do not meet required service
levels, we may be obligated to provide credits, usually a month
of free service.
Derivatives
In the past, we have 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 exposure of these risks
with the intent to reduce the risk or cost to us. We do not hold
or issue derivative instruments for trading purposes.
We entered into two interest rate swap agreements as required
under the provisions of the $250 million mortgage loan
entered into on July 31, 2007. The interest rate swaps were
settled on June 24, 2009. See Note 11 to our
consolidated financial statements contained in this Annual
Report on Form 10-K.
Our 6.625% Senior Convertible Notes, due June 15,
2013, (the 6.625% Senior Convertible Notes)
contain embedded derivatives that require separate valuation
from the 6.625% Senior Convertible Notes. We recognize
these derivatives as a liability in its balance sheet, measures
them at their estimated fair value, and recognizes changes in
their estimated fair value in earnings in the period of change.
We estimate the fair value of the Notes respective
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 we may eventually pay
to settle these embedded derivatives.
Accounting
for Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
financial statement carrying amounts
35
of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. Valuation allowances are established when
necessary to reduce tax assets to the amounts expected to be
realized. In assessing the likelihood of realization, management
considers estimates of future taxable income.
We have not been audited by the Internal Revenue Service or any
other tax authorities for the following open tax periods: the
quarter ended March 31, 2006, and the years ended
March 31, 2007, 2008, 2009 and 2010. Net operating loss
carryovers incurred in years prior to 2005 are subject to audit
in the event they are utilized in subsequent years.
Goodwill
Goodwill and intangible assets that have indefinite lives are
not amortized and are instead tested for impairment at least
annually or whenever events or changes in circumstances indicate
that the carrying amount of these assets may not be fully
recoverable. The goodwill impairment test involves a two-step
approach. The first step involves a comparison of the fair value
of each of our reporting units with its carrying amount. If a
reporting units carrying amount exceeds its fair value,
the second step is performed. The second step involves a
comparison of the implied fair value and carrying value of that
reporting units goodwill. To the extent that a reporting
units carrying amount exceeds the implied fair value of
its goodwill, an impairment loss is recognized. Identifiable
intangible assets not subject to amortization are assessed for
impairment by comparing the fair value of the intangible asset
to its carrying amount. An impairment loss is recognized for the
amount by which the carrying value exceeds fair value.
Intangible assets that have finite useful lives are amortized
over their useful lives.
As of March 31, 2010 and 2009, our goodwill totaled
approximately $96.1 million and $86.1 million,
respectively. Goodwill represents the carrying amount of the
excess purchase price over the fair value of identifiable net
assets acquired in conjunction with (i) the April 2000
acquisition of a corporation holding rights to develop and
manage facilities catering to the telecommunications industry in
the United States, (ii) the September 2005 acquisition of a
managed hosting services provider in Europe, (iii) the May
2007 acquisition of a managed hosting services provider in the
United States, (iv) the January 2009 acquisition of a
disaster recovery and business continuity provider in the United
States, and (v) the November 2009 acquisition of a
data management solutions company in the United States. We
performed the annual test for impairment for the goodwill in the
fourth quarter of our fiscal year ended March 31, 2010 and
concluded there was no impairment.
Impairment
of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Such events and circumstances
include, but are not limited to, prolonged industry downturns,
significant decline in our market value and significant
reductions in our projected cash flows. Recoverability of assets
to be held and used is measured by comparing the carrying amount
of an asset to estimated undiscounted future net cash flows
expected to be generated by the asset. Significant judgments and
assumptions are required in the forecast of future operating
results used in the preparation of the estimated future cash
flows, including long-term forecasts of profit margins, terminal
growth rates and discounted rates. If the carrying amount of the
asset exceeds its estimated future cash flows, an impairment
charge is recognized for the amount by which the carrying amount
of the asset exceeds the fair value of the asset.
As of March 31, 2010 and 2009, our long-lived assets,
including property and equipment, net, and identifiable
intangible assets, totaled approximately $512.5 million and
$400.1 million, respectively.
Share-based
compensation
We account for share-based compensation in accordance with the
FASB issued accounting guidance which established accounting and
reporting standards for share-based compensation. The fair value
of stock option and nonvested stock awards with only service
conditions, which are subject to graded vesting, are expensed on
a straight-line basis over the vesting period of the awards.
36
Tax benefits resulting from tax deductions in excess of
share-based compensation expense recognized under the fair value
recognition provisions are credited to additional paid-in
capital in our consolidated balance sheets. Realized tax
shortfalls are first offset against the cumulative balance of
windfall tax benefits, if any, and then charged directly to
income tax expense.
Recent
Accounting Pronouncements
See Note 2, Summary of Significant Accounting
Policies, in the accompanying Consolidated Financial
Statements for a discussion of Recent Accounting Pronouncements.
Recent
Events
On April 28, 2010, we completed our offering of $50 million
aggregate principal amount of our 12% Senior Secured Notes
due 2017. These notes are part of the same series as the
$420 million aggregate principal amount of 12% Senior
Secured Notes that we issued on June 24, 2009. We pay
interest on the aggregate $470 million principal amount of
the 12% Senior Secured Notes semi-annually in cash in
arrears on June 15 and December 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 Annual Report on Form 10-K.
On November 12, 2009, we acquired a data management
solutions company for a final purchase price of
$12.1 million in cash. The final purchase price included a
working capital adjustment of $0.6 million paid to the
sellers on March 1, 2010. This data management solutions
company provides customers with 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 acquisition of this data
storage provider enhances our overall data storage offering and
helps us accelerate the development of our solutions in the area
of managed storage. We also expect to realize cost synergies by
relocating this data storage providers infrastructure to
our data centers and eliminating the need to outsource some of
our data storage services.
Results
of Operations
Results
of Operations for the Year Ended March 31, 2010 as Compared
to the Year Ended March 31, 2009.
Revenue.
The following charts provide certain information with respect to
our revenues:
|
|
|
|
|
|
|
|
|
|
|
For The Year
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
United States
|
|
|
85
|
%
|
|
|
87
|
%
|
International
|
|
|
15
|
%
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
|
|
|
Revenues consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colocation
|
|
$
|
111,173
|
|
|
|
38
|
%
|
|
$
|
82,714
|
|
|
|
33
|
%
|
Managed and professional services
|
|
|
155,733
|
|
|
|
53
|
%
|
|
|
142,164
|
|
|
|
57
|
%
|
Exchange point services
|
|
|
18,691
|
|
|
|
6
|
%
|
|
|
15,949
|
|
|
|
6
|
%
|
Equipment resales
|
|
|
6,750
|
|
|
|
3
|
%
|
|
|
9,643
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
292,347
|
|
|
|
100
|
%
|
|
$
|
250,470
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $41.9 million, or 16.7% increase in revenues for the
year ended March 31, 2010 as compared to the year ended
March 31, 2009 is mainly due to both an increase in our
deployed customer base and an expansion of services
37
to existing customers. Our deployed customer base increased from
1,088 customers as of March 31, 2009 to 1,318 customers as
of March 31, 2010. 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 $28.5 million, or 34.4% increase in colocation revenue
for the year ended March 31, 2010 as compared to the year
ended March 31, 2009 is primarily the result of an increase
in our utilization of total net colocation space to 29.0% as of
March 31, 2010 from 21.8% as of March 31, 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 twelve months ended March 31, 2010 was assumed
to be available as of March 31, 2009.
The $13.6 million, or 9.5% increase in managed and
professional services for the year ended March 31, 2010 as
compared to the year ended March 31, 2009 revenue 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 $2.7 million, or 17.2% increase in exchange point
services revenue for the year ended March 31, 2010 as
compared to the year ended March 31, 2009 is mainly due to
an increase in cross-connects billed to customers.
Cross-connects billed to customers increased to 9,154 as of
March 31, 2010 from 8,339 as of March 31, 2009.
We believe revenues from colocation, exchange point and managed
services will increase as we add more customers to our network
of NAPs, sell additional services to existing customers and
introduce new products and services. We believe that the
percentage of revenue derived from public 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 public sector. We believe that public 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
$23.2 million or 17.0% to $159.6 million for the
twelve months ended March 31, 2010 from $136.4 million
for the twelve months ended March 31, 2009. Costs of
revenues, excluding depreciation and amortization, consist
primarily of operations personnel, fees to third party service
providers, procurement of connectivity and equipment, technical
and colocation space rental costs, electricity, chilled water,
insurance, property taxes and security services. The increase is
mainly due to increases of $7.5 million in colocation space
and utility costs, $5.9 million in connectivity procurement
costs, $4.2 million in personnel costs, $2.7 million
in maintenance for technology and service delivery platforms and
$1.9 million in equipment procurement costs.
The $5.9 million increase in connectivity procurement costs
is in line with an increase in revenues from managed and
exchange point services. The $7.5 million increase in
colocation space and utility costs is primarily the result of
the opening of our new facility in Bogota, Colombia and
additional new colocation space in Miami, Florida, Culpeper,
Virginia and Sao Paulo, Brazil. The $4.2 million increase
in personnel costs is mainly due to operations and engineering
staffing levels increasing from 527 employees as of
March 31, 2009 to 590 employees as of March 31,
2010, which is attributable to the increase in managed services
revenues and an increase in the utilization of our colocation
space due to expansion of operations in Santa Clara,
California, Sao Paulo, Brazil and Bogota, Colombia.
General and Administrative Expenses. General
and administrative expenses decreased $2.0 million or 5.5%
to $34.8 million for the year ended March 31, 2010
from $36.8 million for the year ended March 31, 2009.
General and administrative expenses consist primarily of
administrative personnel, professional service fees, rent, and
other general corporate expenses. The decrease in general and
administrative expenses is mainly due to a decrease in one-time
transaction fees of $0.5 million and other personnel
related costs of $0.9 million. The decrease in one-time
transaction
38
fees of $0.5 million relate to costs incurred as a result
of an evaluation of strategic alternatives by our Board of
Directors in the first quarter of the year ended March 31,
2009, offset by acquisition costs related to the purchase of a
data management solutions company in November 2009. The
$0.9 million decrease in personnel related costs is the
result of closely monitoring our spending for the year ended
March 31, 2010. We expect general and administrative
expenses to remain between $9.0 and $9.5 million on a
quarterly basis for the foreseeable future.
Sales and Marketing Expenses. Sales and
marketing expenses increased $2.3 million, or 8.4%, to
$28.8 million for the year ended March 31, 2010 from
$26.5 million for the year ended March 31, 2009. The
$2.3 million increase is mainly due to an increase in sales
commissions paid for new bookings. We expect sales and marketing
expenses for the foreseeable future to range between $9.0 to
$9.5 million on a quarterly basis as we continue to add
direct sales manager and support sales engineering to our sales
and marketing organization.
Depreciation and Amortization
Expenses. Depreciation and amortization expenses
increased $9.7 million, or 34.2%, to $37.9 million for
the year ended March 31, 2010 from $28.2 million for
the year ended March 31, 2009. The increase is the result
of capital expenditures necessary to support our business growth
and the expansion of operations in Culpeper, Virginia, upgrades
to support our infrastructure and expansion in Miami, Florida
and Santa Clara, California.
Interest Expense. Interest expense increased
$19.6 million, or 65.6%, to $49.6 million for the year
ended March 31, 2010 from $30.0 million for the year
ended March 31, 2009. This increase is primarily a result
of an increase in our average outstanding debt balance during
the period.
Interest Income. Interest income decreased
$0.9 million to $0.4 million for the year ended
March 31, 2010 from approximately $1.3 million for the
year ended March 31, 2009. This decrease is primarily due
to a decrease in our average cash and cash equivalents balances
for the period.
Change in Fair Value of Derivatives. For the
year ended March 31, 2010, we recognized an expense of
$1.5 million, as compared to an expense of
$3.9 million for the year ended March 31, 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.
Loss on Early Extinguishment of Debt. For the
year ended March 31, 2010, we incurred a non-cash loss on
the early extinguishment of our debt instruments of
$10.3 million.
Results
of Operations for the Year Ended March 31, 2009 as Compared
to the Year Ended March 31, 2008.
Revenue. The following charts provide certain
information with respect to our revenues:
|
|
|
|
|
|
|
|
|
|
|
For The Year
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
|
87
|
%
|
|
|
87
|
%
|
International
|
|
|
13
|
%
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended March 31,
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
Revenues consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colocation
|
|
$
|
82,714
|
|
|
|
33
|
%
|
|
$
|
60,559
|
|
|
|
32
|
%
|
Managed and professional services
|
|
|
142,164
|
|
|
|
57
|
%
|
|
|
111,702
|
|
|
|
60
|
%
|
Exchange point services
|
|
|
15,949
|
|
|
|
6
|
%
|
|
|
12,592
|
|
|
|
7
|
%
|
Equipment resales
|
|
|
9,643
|
|
|
|
4
|
%
|
|
|
2,561
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,470
|
|
|
|
100
|
%
|
|
$
|
187,414
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $63.1 million, or 34% increase in revenues for the year
ended March 31, 2009 as compared to the year ended
March 31, 2008 was mainly due to both an increase in our
deployed customer base and an expansion of services to existing
customers. Our deployed customer base increased from 983
customers as of March 31, 2008 to 1,088 customers as of
March 31, 2009. Revenues consist of:
|
|
|
|
|
colocation services, such as licensing of space and provision of
power;
|
|
|
|
exchange point services, such as peering and cross connects;
|
|
|
|
procurement and installation of equipment; and
|
|
|
|
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.
|
Our utilization of total net colocation space increased to 24.8%
as of March 31, 2009 from 20.3% as of March 31, 2008.
Our utilization of total net colocation space represents space
billed to customers as a percentage of total space build-out and
available to customers. For comparative purposes, space added
during the year ended March 31, 2009 was assumed to be
available as of the beginning of the year.
The $30.5 million, or 27.3% increase in managed and
professional services revenue was mainly due to a
$8.9 million increase in revenue related to technology
projects primarily from our federal customers and a increase of
approximately $7.3 million in managed web hosting services
as a result of including a full 12 months of revenues in
fiscal 2009 from a managed web hosting provider acquired in May
2007.
The $3.4 million, or 26.7% increase in exchange point
services revenue is mainly due to an increase in cross-connects
billed to customers. Cross-connects billed to customers
increased to 8,339 as of March 31, 2009 from 6,830 as of
March 31, 2008.
Revenues from equipment resales fluctuates year over year based
on customer demand.
Costs of Revenues. Costs of revenues,
excluding depreciation and amortization, increased
$35.5 million or 35.2%, to $136.4 million for the
twelve months ended March 31, 2009 from $100.9 million
for the twelve months ended March 31, 2008. 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 $12.4 million in personnel
costs, $5.9 million in managed services costs,
$3.5 million in colocation space costs and
$1.9 million in costs of equipment resales. We also had
increases of $7.3 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.
The $12.4 million increase in personnel costs was mainly
due to an increase in our operations and engineering staffing
from 466 employees as of March 31, 2008 to
527 employees as of March 31, 2009 which is mainly due
to having a full twelve months of personnel expenses from the
managed web hosting provider acquired in May 2007 and our
expansion of operations in Miami, Florida. The $5.9 million
in managed services costs is consistent with
40
increase in related revenues and includes a $4.9 million
increase in connectivity procurement costs. The
$3.5 million increase in colocation space costs was
primarily the result of the opening of our new facility in
Colombia and the addition of new colocation space in Dallas,
Texas, and in Brussels, Belgium, and Madrid, Spain. The
$1.9 million in costs of equipment resales is consistent
with the increase in related revenues.
General and Administrative Expenses. General
and administrative expenses increased $4.5 million, or
14.0%, to $36.8 million for the year ended March 31,
2009 from $32.3 million for the year ended March 31,
2008. General and administrative expenses consist primarily of
administrative personnel, professional service fees, rent, and
other general corporate expenses. The increase in general and
administrative expenses was mainly due to an increase in
administrative personnel costs of $3.7 million. Personnel
costs include payroll and share-based compensation. The
$3.7 million increase in administrative personnel was the
result of a $1.6 million increase in share-based
compensation and an increase in headcount from an average of 142
administrative employees for the year ended March 31, 2008
to an average of 157 administrative employees for the year ended
March 31, 2009. This increase was primarily attributable to
having a full twelve months of administration personnel expenses
of the managed web hosting provider acquired in May 2007 and our
expansion of operations in Culpeper, Virginia, and Bogota,
Colombia.
Sales and Marketing Expenses. Sales and
marketing expenses increased $5.6 million, or 27.1%, to
$26.5 million for the year ended March 31, 2009 from
$20.9 million for the year ended March 31, 2008. The
$5.6 million increase in sales and marketing expenses were
mainly due to a $3.1 million increase in payroll and sales
commissions and an increase of $1.6 million in provision
for doubtful accounts. The increase in payroll and sales
commissions was mainly due to an increase in headcount from
83 employees as of March 31, 2008 to 98 employees
as of March 31, 2009 coupled with an increase in sales
commissions paid for new bookings.
Depreciation and Amortization
Expenses. Depreciation and amortization expenses
increased $9.5 million, or 51.1%, to $28.2 million for
the year ended March 31, 2008 from $18.7 million for
the year ended March 31, 2009. The increase was the result
of capital expenditures necessary to support our business growth
and the expansion of operations in Culpeper, Virginia, upgrades
to support our infrastructure and expansion in Miami, Florida
and Santa Clara, California.
Interest Expense. Interest expense decreased
$2.1 million, or 6.6%, to $30.0 million for the year
ended March 31, 2009 from $32.1 million for the year
ended March 31, 2008. This decrease was primarily a result
of an increase in the amount of interest capitalized as well as
lower interest rates on our financing arrangements.
Interest Income. Interest income decreased
$3.9 million to $1.3 million for the year ended
March 31, 2009 from approximately $5.2 million for the
year ended March 31, 2008. This decrease was primarily due
to a decrease in our average cash and cash equivalents balances
for the period.
Change in Fair Value of Derivatives. For the
year ended March 31, 2009, we recognized an expense of
$3.9 million, as compared to an expense of
$1.1 million for the year ended March 31, 2008, mainly
due to the changes in the fair values of our derivatives from
our two interest rate swap agreements that became effective
March 31, 2008 (first lien) and July 31, 2008 (second
lien).
Financing Charges and Other. For the year
ended March 31, 2009, we incurred $0.6 million in
foreign currency losses. For the year ended March 31, 2008,
we expensed $1.2 million of financing charges consisting of
title and legal fees. These charges were expensed after
determining that our term loan of $250.0 million was not a
substantial modification of our existing Credit Suisse debt
instruments.
Loss on Early Extinguishment of Debt. For the
year ended March 31, 2008, we incurred a non-cash loss on
the early extinguishment of our debt instruments of
$27.0 million.
Liquidity
and Capital Resources
As of March 31, 2010, our principal source of liquidity was
our $53.5 million in unrestricted cash and cash equivalents
and our $50.3 million in accounts receivable. On
April 28, 2010, we issued an additional $50 million of
our 12% Senior Secured Notes as permitted under the indenture
governing such notes of which $470 million aggregate
principal amount is now outstanding. We anticipate that we will
generate sufficient cash flows from
41
operations to fund our capital expenditures and debt service in
connection with our currently identified business objectives.
In addition, under the indenture governing our 12% senior
secured notes, we may incur additional indebtedness, including
up to $75 million of additional indebtedness for the
purpose of financing the purchase price or cost of construction
or improvement of property, plant or equipment, including the
acquisition of the capital stock of an entity that becomes a
restricted subsidiary.
Furthermore, we may incur further indebtedness to the extent
that our fixed charge coverage ratio would have been at least
2.0 to 1 on a pro forma basis (including a pro forma application
of the net proceeds from this additional indebtedness) as if
this indebtedness had been incurred at and as of the beginning
of our most recently completed four fiscal quarters for which
internal financial statements are available.
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,
$21.0 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.
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 year ended March 31,
2010 was $22.5 million as compared to cash provided by
operations of $50.9 million for the year ended
March 31, 2009. The decrease in cash provided by operations
is mainly due to a increase in our net loss and the timing of
vendor payments and collections from customers.
Cash used in investing activities for the year ended
March 31, 2010 was $130.6 million compared to cash
used in investing activities of $90.3 million for the year
ended March 31, 2009, a decrease of $40.3 million.
This decrease is primarily due to the cash used in the
acquisition of a data management solutions provider and higher
capital expenditures mostly related to our NCR data center
campus, upgrade to our technology and service delivery platforms
and the expansion of our footprint in Santa Clara,
California.
Cash provided by financing activities for the year ended
March 31, 2010 was $108.9 million compared to cash
used in financing activities of $4.4 million for the year
ended March 31, 2009, an increase of $113.3 million.
The increase in cash provided by financing activities is
primarily due to the proceeds received from our
$420 million 12% Senior Secured Notes and the issuance
of four million shares of our common stock for approximately
$20.1 million. These proceeds were offset by
$290.9 million used to repay our First Lien and Second Lien
Credit Agreements, 9% Senior Convertible Notes and
Series B Notes.
Debt
Obligations
As of March 31, 2010, our total liabilities were
approximately $569.8 million, of which $96.9 million
is due within one year.
42
12%
Senior Secured Notes
On June 24, 2009 and April 28, 2010, we completed
offerings of $420 million aggregate principal amount and
$50 million aggregate principal amount, respectively, of
12% senior secured notes due in 2017, which are guaranteed
by substantially all of our domestic subsidiaries. Additionally,
the senior secured notes are secured by a first priority
security interest in substantially all of the assets of
Terremark Worldwide, Inc. and the guarantors, including the
pledge of 100% of all outstanding capital stock of each of our
domestic subsidiaries, excluding Terremark Federal Group, Inc.
and Technology Center of the Americas, LLC, and 65% of all
outstanding capital stock of substantially all our 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. The
senior secured notes were offered and sold in private placements
to qualified institutional buyers in the United States in
reliance on Rule 144A under the securities act and outside
the United States in reliance on Regulation S under the
securities act.
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 governed by an indenture, dated
June 24, 2009, as supplemented, among Terremark Worldwide,
Inc., the guarantors and The Bank of New York Mellon
Trust Company, N.A., as trustee.
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.
At any time prior to June 15, 2012, we may on any one or
more occasions redeem up to 35% of the aggregate principal
amount of the senior secured notes at a redemption price equal
to 112% of the principal amount thereof, plus accrued and unpaid
interest thereon, with the net cash proceeds of certain sales of
our capital stock; provided that (i) at least 65% of the
aggregate principal amount of senior secured notes remains
outstanding immediately after such redemption, and (ii) the
redemption occurs within 120 days of the date of the
closing of such sale of our capital stock.
At any time prior to June 15, 2013, we may redeem all or a
part of the senior secured notes at a redemption price equal to
100% of the principal amount of the senior secured notes
redeemed plus an applicable make-whole premium (as
defined in the indenture), as of, and accrued and unpaid
interest, if any, to the redemption date.
Additionally, on or after June 15, 2013, we may redeem all
or a part of the senior secured notes on any one or more
occasions, at the redemption prices (expressed as percentages of
principal amount of the notes to be redeemed) set forth below
plus accrued and unpaid interest on the senior secured notes
redeemed, to the applicable redemption date, if redeemed during
the 12-month
period beginning on June 15 of each of the years indicated below:
|
|
|
|
|
Year
|
|
Percentage
|
|
|
2013
|
|
|
106
|
%
|
2014
|
|
|
103
|
%
|
2015 and thereafter
|
|
|
100
|
%
|
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. Following the first day that the senior secured
notes are assigned an investment grade rating by both
Moodys and S&P, and provided that no default has
occurred and is continuing, certain of the restrictions will 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.
Under the terms of the indenture, we may incur up to
$75 million of additional indebtedness for the purpose of
financing the purchase price or cost of construction or
improvement of property, plant or equipment, including the
acquisition of the capital stock of an entity that becomes a
restricted subsidiary. Any or all of this $75 million of
additional indebtedness 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
43
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 this $75 million of additional indebtedness
may be secured by junior liens on the collateral securing the
senior secured notes.
Any additional indebtedness permitted by the governing indenture
may rank pari passu with the senior secured notes, provided that
our fixed charge coverage ratio would have been at least 2.0 to
1 on a pro forma basis (including a pro forma application of the
net proceeds from this additional indebtedness) as if the
indebtedness had been incurred at and as of the beginning of our
most recently completed four fiscal quarters for which internal
financial statements are available.
In the event of a change in control, we will be required to
commence and complete an offer to purchase all 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. Additionally, if we or a guarantor sell assets, all
or a portion of the net proceeds of which are not reinvested in
accordance with the terms of the indenture or are not used to
repay certain debt, we will be required to offer to purchase an
aggregate principal amount of the outstanding senior secured
notes, in an amount equal to such remaining net proceeds, at a
purchase price equal to 100% of the principal amount thereof,
plus accrued interest and Additional Interest, if any and as
defined below, to the payment date.
The indenture provides for customary events of default, which
include (subject in certain cases to customary grace and cure
periods), among others: nonpayment of principal or interest;
breach of covenants or other agreements in the indenture;
defaults under or failure to pay certain other indebtedness; the
failure by us or our restricted subsidiaries to pay certain
final non-appealable judgments; the failure of certain security
interests in the collateral securing the senior secured notes to
be in full force and effect; the failure in certain instances of
any guarantee to be in full force and effect; and certain events
of bankruptcy or insolvency. Generally, if an event of default
occurs and is continuing under the indenture, the trustee or the
holders of at least 25% in aggregate principal amount of the
senior secured notes then outstanding may declare the principal
of, premium, if any, and accrued interest on all the senior
secured notes immediately due and payable.
The senior secured notes have not been registered under the
securities act or any state securities laws and may not be sold
except in a transaction registered under, or exempt from, the
registration provisions of the securities act and applicable
state securities laws. Under the terms of registration rights
agreements in respect of the senior secured notes, Terremark and
the guarantors have agreed for the benefit of the holders of the
senior secured notes to use their best efforts to file with the
SEC and cause to become effective a registration statement, or
the Exchange Offer Registration Statement. The Exchange Offer
Registration Statement would relate to a registered offer to
exchange the senior secured notes for an issue of our senior
secured notes, or the Exchange Notes, guaranteed by the
guarantors, with terms identical to the senior secured notes,
except that the Exchange Notes will not bear legends restricting
transfer and will not contain terms providing for the payment of
additional interest as described below and in the registration
rights agreement. In addition, we have agreed to file, in
certain circumstances, a shelf registration statement covering
resales of the senior secured notes.
Because we did not timely file the Exchange Offer Registration
Statement or consummate the exchange offer, we have incurred
additional interest on the senior secured notes pursuant to the
terms of the registration rights agreements. As of
March 31, 2010, we had incurred $1.6 million of
additional interest, and such additional interest has continued
to accrue at a rate of .75% per annum since March 31, 2010
and will continue to accrue until we consummate the registered
exchange offer. We have since filed the Exchange Offer
Registration Statement, and we commenced the exchange offer on
May 18, 2010. We expect to close the exchange offer on
June 17, 2010, after which time we will no longer have any
obligation to pay additional interest on the senior secured
notes.
We used a portion of the net proceeds received from the issuance
of the senior secured notes to repay in full all amounts
outstanding under our $150 million first lien credit
agreement and our $100 million second lien credit
agreement, together with all interest accrued thereon. Upon
effecting this repayment, each of these credit agreements was
terminated. Also terminated were the security documents and
instruments related to the credit agreements.
In connection with the repayment, we paid a 2% call premium in
an amount equal to approximately $2.2 million in respect of
the amounts outstanding under the second lien credit agreement.
Additionally, we
44
paid approximately $8.4 million in connection with the
termination of certain interest rate swap agreements that we had
entered into in connection with the credit agreements.
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 depend on our ability to
achieve the financial ratios provided in the indenture governing
our senior secured notes. See Note 9 Secured
Loans, in the accompanying condensed consolidated
financial statements.
Our failure to comply with the obligations in the senior secured
notes could result in an event of default under the indenture
governing the notes, which, 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 sets forth (in thousands)
(i) aggregated interest and principal payments due on our
outstanding notes, including the April 2010, $50 million
new debt (see Note 9 to our consolidated financial
statements contained in this Annual Report on
Form 10-K)
and (ii) the minimum amounts payable in respect of our
operating and capital leases, each of the foregoing for the
years ending March 31, (including principal, interest, and
maintenance).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Lease
|
|
|
Operating
|
|
|
Convertible
|
|
|
Secured
|
|
|
|
|
|
|
Obligations
|
|
|
Leases
|
|
|
Debt
|
|
|
Loans
|
|
|
Total
|
|
|
2011
|
|
$
|
6,820
|
|
|
$
|
17,002
|
|
|
$
|
3,789
|
|
|
$
|
56,400
|
|
|
$
|
84,011
|
|
2012
|
|
|
4,924
|
|
|
|
16,094
|
|
|
|
3,789
|
|
|
|
56,400
|
|
|
|
81,207
|
|
2013
|
|
|
2,488
|
|
|
|
12,431
|
|
|
|
3,789
|
|
|
|
56,400
|
|
|
|
75,108
|
|
2014
|
|
|
89
|
|
|
|
12,343
|
|
|
|
59,086
|
|
|
|
56,400
|
|
|
|
127,918
|
|
2015 and thereafter
|
|
|
75
|
|
|
|
54,952
|
|
|
|
|
|
|
|
667,400
|
|
|
|
722,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,396
|
|
|
$
|
112,822
|
|
|
$
|
70,453
|
|
|
$
|
893,000
|
|
|
$
|
1,090,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
At March 31, 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 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 market risk on those instruments resulting
from changes in interest rates.
Our carrying values of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses are reasonable
approximations of their fair value.
For the year ended March 31, 2010, approximately 85% 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 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 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 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.
46
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
The financial statements required by this Item 8 are
attached hereto as Exhibit (a)(1) to Item 15 of this Annual
Report on
Form 10-K
and are incorporated herein by reference.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES.
|
Evaluation
of Disclosure Controls and Procedures
Disclosure
Controls and Procedures
Our disclosure controls and procedures (as defined in
Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) are designed to ensure that information
required to be disclosed by us under the Exchange Act is
accumulated and communicated to management, including our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), to
allow for timely decisions regarding required disclosure and
appropriate SEC filings.
Our Disclosure Committee is responsible for ensuring that there
is an adequate and effective process for establishing,
maintaining and evaluating disclosure controls and procedures
for our public disclosures.
Our management, with the participation of our CEO and CFO, has
evaluated the effectiveness of our disclosure controls and
procedures as of March 31, 2010, and, based on that
evaluation, our CEO and CFO have concluded that our disclosure
controls and procedures were effective as of such date.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rule 13a-15(f)
under the Exchange Act). Our internal control over financial
reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of the Companys assets that could have a
material effect on the financial statements. All internal
control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Our management, together with our CEO and CFO, assessed the
effectiveness of our internal control over financial reporting
as of March 31, 2010 based on the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. Based on this
assessment, management believes that, as of March 31, 2010,
our internal control over financial reporting was effective.
The effectiveness of our internal control over financial
reporting as of March 31, 2010 has been audited by KPMG
LLP, our independent registered public accounting firm, as
stated in its report appearing on
page F-3,
which expressed an unqualified opinion on the effectiveness of
our internal control over financial reporting as of
March 31, 2010.
Changes
in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting (as defined in
Rule 13a-15(f)
under the Exchange Act) during the fiscal quarter ended
March 31, 2010 that materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION.
|
None.
47
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
|
The information required by Item 10 with respect to our
executive officers is set forth under the caption
Employees contained in Part I, Item 1 of
this Annual Report on
Form 10-K.
We maintain a Code of Ethics that is applicable to our Chief
Executive Officer and Senior Financial Officers. This code of
ethics requires continued observance of high ethical standards
such as honesty, integrity and compliance with the law in the
conduct of our business. Violations under our code of ethics
must be reported to our audit committee. A copy of our code of
ethics may be requested in print by writing to the Secretary at
Terremark Worldwide, Inc., 2 South Biscayne Boulevard,
Suite 2800, Miami, Florida 33131. In addition, our code of
ethics is available on our website, www.terremark.com under
Investor Relations. We intend to post on our website
amendments to or waivers from our code of ethics.
The other information required by this item is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2010 Annual Meeting of Stockholders.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION.
|
The information required by this item is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2010 Annual Meeting of Stockholders.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
|
The information required by this item with respect to related
stockholder matters is set forth under the caption Equity
Compensation Plan Information contained in Part II
Item 5 of this Annual Report on
Form 10-K.
The other information required by this item is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2010 Annual Meeting of Stockholders.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
The information required by this item is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2010 Annual Meeting of Stockholders.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
The information required by this item is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2010 Annual Meeting of Stockholders.
48
PART IV
|
|
ITEM 15.
|
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.
|
|
|
|
Consolidated Balance Sheets as of March 31, 2010 and 2009.
|
|
|
|
Consolidated Statements of Operations for the Years Ended
March 31, 2010, 2009 and 2008.
|
|
|
|
Consolidated Statement of Changes in Stockholders Equity
for the Three Year Period Ended March 31, 2010.
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended
March 31, 2010, 2009 and 2008.
|
|
|
|
Notes to 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
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
3
|
.1
|
|
Certificate of Merger of Terremark Holdings, Inc. with and into
AmTec, Inc. (filed as Exhibit 3.1 to the Companys
Registration Statement on Form S-3 filed on May 15, 2000 and
incorporated by reference herein).
|
|
3
|
.2
|
|
Restated Certificate of Incorporation of the Company (filed as
Exhibit 3.1 to the Companys Registration Statement on Form
S-3 filed on May 15, 2000 and incorporated by reference herein).
|
|
3
|
.3
|
|
Certificate of Amendment to Certificate of Incorporation of the
Company (filed as Exhibit 3.3 to the Companys Registration
Statement on Form S-1/A filed on December 21, 2004 and
incorporated by reference herein).
|
|
3
|
.4
|
|
Certificate of Designations of Preferences of Series I
Convertible Preferred Stock of the Company (filed as Exhibit 3.6
to the Companys Registration Statement on Form S-3/A filed
on March 17, 2004 and incorporated by reference herein).
|
|
3
|
.5
|
|
Certificate of Amendment to Certificate of Incorporation of the
Company (filed as Exhibit 3.7 to the Companys Current
Report on Form 8-K filed on May 18, 2005 and incorporated by
reference herein).
|
|
3
|
.6
|
|
Second Amended and Restated Bylaws of the Company (filed as
Exhibit 3.1 to the Companys Current Report on Form 8-K
filed on February 7, 2008 and incorporated by reference herein).
|
|
4
|
.1
|
|
Specimen Stock Certificate (filed as Exhibit 4.6 to the
Companys Current Report on Form 8-K filed on May 18, 2005
and incorporated by reference herein).
|
|
4
|
.2
|
|
Form of Warrant for the Purchase of Common Stock (filed as
Exhibit 4.1 to the Companys Current Report on Form 8-K
filed on April 15, 2003 and incorporated by reference herein).
|
|
4
|
.3
|
|
Indenture dated as of June 14, 2004, including form of
9% Senior Convertible Note due 2009, (filed as Exhibit 4.5
to the Companys Quarterly Report on Form 10-Q filed on
August 9, 2004 and incorporated by reference herein).
|
49
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
4
|
.4
|
|
Indenture dated as of January 5, 2007 by and between Terremark
Worldwide, Inc. and Bank of New York Trust Company, N.A.,
as trustee (filed as Exhibit 10.42 to the Companys Current
Report on Form 8-K filed on January 11, 2007 and incorporated by
reference herein).
|
|
4
|
.5
|
|
Indenture dated as of May 2, 2007 by and between Terremark
Worldwide, Inc. and Bank of New York Trust Company, N.A., as
trustee (filed as Exhibit 4.1 to the Companys Current
Report on Form 8-K filed on May 4, 2007 and incorporated by
reference herein).
|
|
4
|
.6
|
|
Indenture, dated June 24, 2009, by and among the Company,
certain of the Companys subsidiaries and The Bank of New
York Mellon Trust Company, N.A., as trustee (filed as Exhibit
4.1 to the Companys Current Report on Form 8-K filed on
June 29, 2009 and incorporated by reference herein).
|
|
4
|
.7
|
|
Form of Note (filed as Exhibit 4.2 to the Companys Current
Report on Form 8-K filed on June 29, 2009 and incorporated by
reference herein).
|
|
4
|
.8
|
|
Supplemental Indenture, dated April 28, 2010, by and among
the Company, certain of the Companys subsidiaries and The
Bank of New York Mellon Trust Company, N.A., as trustee (filed
as Exhibit 4.1 to the Companys Current Report on
Form 8-K filed on April 29, 2010 and incorporated by
reference herein).
|
|
4
|
.9
|
|
Form of New Note (filed as Exhibit 4.2 to the
Companys Current Report on Form 8-K filed on
April 29, 2010 and incorporated by reference herein).
|
|
5
|
.1
|
|
Legal opinion of Greenberg Traurig, P.A.**
|
|
10
|
.1
|
|
1995 Stock Option Plan (previously filed as part of the
Companys Transition Report on
Form 10-KSB
for the transition period from October 1, 1994 to March 31, 1995
and incorporated by reference herein).+
|
|
10
|
.2
|
|
1996 Stock Option Plan (previously filed as part of the
Companys Transition Report on
Form 10-KSB
for the transition period from October 1, 1994 to March 31, 1995
and incorporated by reference herein).+
|
|
10
|
.3
|
|
Net Premises Lease by and between Rainbow Property Management,
LLC and Coloconnection, Inc. (filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on April 15,
2003 and incorporated by reference herein).
|
|
10
|
.4
|
|
Amended and Restated 2000 Stock Option Plan (filed as Exhibit
4.1 to the Companys Registration Statement on Form S-8
filed on August 19, 2004 and incorporated by reference herein).+
|
|
10
|
.5
|
|
Agreement between Fundacão De Amparo A Pesquisa Do Estado
De Sao Paulo FAPESP and Terremark Latin America
(Brazil) Ltda. (previously filed as an exhibit to the
Companys Registration Statement on Form S-3/A filed on
December 22, 2003 and incorporated by reference herein).
|
|
10
|
.6
|
|
Form of Warrant Certificate of Terremark Worldwide, Inc. issued
to Citigroup Global Markets Realty Corp. (filed as Exhibit 10.27
to the Companys Current Report on Form 8-K filed on
January 6, 2005 and incorporated by reference herein).
|
|
10
|
.7
|
|
Form of Warrant Certificate of Terremark Worldwide, Inc. issued
to the Purchasers (filed as Exhibit 10.31 to the
Companys Current Report on Form 8-K filed on January 6,
2005 and incorporated by reference herein).
|
|
10
|
.8
|
|
2005 Executive Incentive Compensation Plan (filed as Exhibit A
to the Companys Definitive Proxy Statement relating to the
Companys 2005 Annual Meeting of Stockholders and
incorporated by reference herein).+
|
|
10
|
.9
|
|
Amended and Restated Employment Letter Agreement between
Terremark Worldwide, Inc. and Arthur L. Money (filed as Exhibit
10.38 to the Companys Annual Report on Form 10-K filed on
June 16, 2006 and incorporated by reference herein).+#
|
|
10
|
.10
|
|
Consulting Agreement, dated as of November 8, 2006, by and
between Terremark Management Services, Inc. and Guillermo Amore
(filed as Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q filed on November 9, 2006 and incorporated by
reference herein).+#
|
|
10
|
.11
|
|
Purchase Agreement, dated as of January 5, 2007, by and among
Terremark Worldwide, Inc., as issuer, the guarantors named
therein, the agent named therein, and each of the purchasers
named therein (filed as Exhibit 10.39 to the Companys
Current Report on Form 8-K filed on January 11, 2007 and
incorporated by reference herein).
|
|
10
|
.12
|
|
Registration Rights Agreement, dated as of January 5, 2007 by
and among Terremark Worldwide, Inc. and Credit Suisse
International (previously filed as Exhibit 10.41 to the
Companys Current Report on Form 8-K filed on January 11,
2007 and incorporated by reference herein).
|
50
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.13
|
|
Capital Lease Facility Commitment Letter by and between
Terremark Worldwide, Inc. and Credit Suisse Securities (USA) LLC
and Credit Suisse, Cayman Islands Branch dated January 5, 2007
(filed as an Exhibit 10.46 to the Companys Current Report
on Form 8-K filed on January 11, 2007 and incorporated by
reference herein).
|
|
10
|
.14
|
|
Form of Note of Terremark Worldwide, Inc. issued to Credit
Suisse, International (filed as Exhibit 10.48 to the
Companys Current Report on Form 8-K filed on January 11,
2007 and incorporated by reference herein).
|
|
10
|
.15
|
|
Participation Agreement, dated as of February 15, 2007, by and
among Culpeper Lessor 2007-1 LLC, as Lessor, NAP of the Capital
Region, LLC, as Lessee and Terremark Worldwide, Inc., as
Guarantor (filed as Exhibit 10.49 to the Companys Current
Report on Form 8-K filed on February 20, 2007 and incorporated
by reference herein).
|
|
10
|
.16
|
|
Lease Agreement, dated as of February 15, 2007, by and between
Culpeper Lessor 2007-1 LLC and NAP of the Capital Region, LLC
(filed as Exhibit 10.50 to the Companys Current Report on
Form 8-K
filed on February 20, 2007 and incorporated by reference herein).
|
|
10
|
.17
|
|
Guaranty, dated as of February 15, 2007 by Terremark Worldwide,
Inc. in favor of Culpeper Lessor 2007-1 LLC (filed as Exhibit
10.51 to the Companys Current Report on Form 8-K filed on
February 20, 2007 and incorporated by reference herein).
|
|
10
|
.18
|
|
Lease Supplement, Memorandum of Lease Agreement and Remedies,
dated as of February 15, 2007, by and among Culpeper Lessor
2007-I LLC, as Lessor, NAP of the Capital Region, LLC, as Lessee
and James W. DeBoer, as Trustee (filed as Exhibit 10.52 to the
Companys Current Report on
Form 8-K
filed on February 20, 2007 and incorporated by reference herein).
|
|
10
|
.19
|
|
Appendix I to Participation Agreement, Lease Agreement and Other
Operative Documents Definitions and
Interpretation (filed as Exhibit 10.53 to the Companys
Current Report on Form 8-K filed on February 20, 2007 and
incorporated by reference herein).
|
|
10
|
.20
|
|
Interest Purchase Agreement, dated May 11, 2007, by and among
the Company and the Sellers of Data Return LLC (filed as Exhibit
10.1 to the Companys Current Report on Form 8-K filed on
May 16, 2007 and incorporated by reference herein).
|
|
10
|
.21
|
|
Registration Rights Agreement, dated May 11, 2007, by and among
the Company and the Sellers (filed as Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on May 16, 2007
and incorporated by reference herein).
|
|
10
|
.22
|
|
First Lien Senior Secured Credit Agreement, dated as of July 31,
2007, by and among the Company, each lender from time to time
party thereto, Credit Suisse, as administrative agent and
collateral agent and Societe Generale, as syndication agent
(filed as Exhibit 10.60 to the Companys Current Report on
Form 8-K filed on August 6, 2007 and incorporated by reference
herein).
|
|
10
|
.23
|
|
Form of First Lien Term Note (filed as Exhibit 10.61 to the
Companys Current Report on Form 8-K filed on August 6,
2007 and incorporated by reference herein).
|
|
10
|
.24
|
|
Second Lien Senior Secured Credit Agreement, dated as of July
31, 2007, by and among the Company, each lender from time to
time party thereto and Credit Suisse, as administrative agent
and collateral agent (filed as Exhibit 10.62 to the
Companys Current Report on Form 8-K filed on
August 6, 2007 and incorporated by reference herein).
|
|
10
|
.25
|
|
Form of Second Lien Term Note (filed as Exhibit 10.63 to the
Companys Current Report on
Form 8-K
filed on August 6, 2007 and incorporated by reference herein).
|
|
10
|
.26
|
|
First Lien Security Agreement, dated as of July 31, 2007, by and
among the Company, the other Persons listed on the signature
pages thereto, the Additional Grantors and Credit Suisse, as
collateral agent for the Secured Parties (filed as Exhibit 10.64
to the Companys Current Report on Form 8-K filed on August
6, 2007 and incorporated by reference herein).
|
|
10
|
.27
|
|
Second Lien Security Agreement, dated as of July 31, 2007, by
and among the Company, the other Persons listed on the signature
pages thereto, the Additional Grantors and Credit Suisse, as
collateral agent for the Secured Parties (filed as Exhibit 10.65
to the Companys Current Report on Form 8-K filed on August
6, 2007 and incorporated by reference herein).
|
51
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.28
|
|
First Lien Subsidiary Guaranty, dated as of July 31, 2007, by
and among the Subsidiary Guarantors and the Additional
Guarantors in favor of the Secured Parties (filed as Exhibit
10.66 to the Companys Current Report on Form 8-K filed on
August 6, 2007 and incorporated by reference herein).
|
|
10
|
.29
|
|
Second Lien Subsidiary Guaranty, dated as of July 31, 2007, by
and among the Subsidiary Guarantors and the Additional
Guarantors in favor of the Secured Parties (filed as Exhibit
10.67 to the Companys Current Report on Form 8-K filed on
August 6, 2007 and incorporated by reference herein).
|
|
10
|
.30
|
|
Intercreditor Agreement, dated as of July 31, 2007, by and among
the Company, Credit Suisse, Cayman Islands Branch, in its
capacity as collateral agent for the First Lien Lenders,
including its successors and assigns from time to time, and
Credit Suisse, in its capacity as collateral agent for the
Second Lien Lenders, including its successors and assigns from
time to time (filed as Exhibit 10.68 to the Companys
Current Report on Form 8-K filed on August 6, 2007 and
incorporated by reference herein).
|
|
10
|
.31
|
|
Amendment to Terremark Worldwide, Inc. 2005 Executive Incentive
Compensation Plan (filed as Exhibit A to the Companys
Definitive Proxy Statement in Connection with the Companys
2007 Annual Meeting of Stockholders and incorporated by
reference herein).+
|
|
10
|
.32
|
|
Real Property Purchase Agreement, dated March 9, 2007, by and
between DPJV II, LLC, BDP Partners, L.P., EJLJ Mathews Family
Partners, L.P. and EGP Partners, L.P. and NAP of the
Americas/West, Inc. (filed as Exhibit 10.69 to the
Companys Current Report on Form 8-K filed on September 10,
2007 and incorporated by reference herein).
|
|
10
|
.33
|
|
Lease Termination Agreement, dated July 2, 2007, by and between
NAP of the Americas/West, Inc. and Equant, Inc. (filed as
Exhibit 10.70 to the Companys Current Report on Form 8-K
filed on September 10, 2007 and incorporated by reference
herein).
|
|
10
|
.34
|
|
Employment Agreement with Manuel D. Medina dated February 7,
2008 (filed as Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q filed on February 8, 2008 and incorporated
by reference herein).+#
|
|
10
|
.35
|
|
Form of Indemnification Agreement for directors and officers of
the Company (filed as exhibit 10.39 to the Companys Annual
Report on Form 10-K filed on June 16, 2008 and incorporated by
reference herein)+#
|
|
10
|
.36
|
|
Form of Restricted Stock Agreement (filed as exhibit 10.40 to
the Companys Annual Report on Form 10-K filed on June 16,
2008 and incorporated by reference herein).+#
|
|
10
|
.37
|
|
Employment Agreement with Adam T. Smith dated June 13, 2008
(filed as exhibit 10.41 to the Companys Annual Report on
Form 10-K filed on June 16, 2008 and incorporated by reference
herein).+#
|
|
10
|
.38
|
|
Employment Agreement with Jose A. Segrera dated June 13, 2008
(filed as exhibit 10.42 to the Companys Annual Report on
Form 10-K filed on June 16, 2008 and incorporated by reference
herein).+#
|
|
10
|
.39
|
|
Employment Agreement with Marvin Wheeler dated June 13, 2008
(filed as exhibit 10.43 to the Companys Annual Report on
Form 10-K filed on June 16, 2008 and incorporated by reference
herein).+#
|
|
10
|
.40
|
|
Employment Agreement with Jamie Dos Santos dated July 18, 2008
(filed as Exhibit 10.1 to the Companys Current Report on
Form 8-K filed on July 21, 2008 and incorporated by reference
herein).+#
|
|
10
|
.41
|
|
Amendment to Terremark Worldwide, Inc. 2005 Executive Incentive
Compensation Plan (filed as Exhibit A to the Companys
Definitive Proxy Statement in Connection with the Companys
2008 Annual Meeting of Stockholders and incorporated by
reference herein).+#
|
|
10
|
.42
|
|
Subscription Agreement, dated as of May 25, 2009, between the
Company and VMware Bermuda Limited (filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on May 27, 2009
and incorporated by reference herein).
|
|
10
|
.43
|
|
Purchase Agreement, dated June 17, 2009, by and among the
Company, certain of the Companys subsidiaries and the
Initial Purchasers (filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on June 18, 2009 and
incorporated by reference herein).
|
|
10
|
.44
|
|
Registration Rights Agreement, dated June 24, 2009, by and among
the Company, certain of the Companys subsidiaries and
Credit Suisse Securities (USA) LLC on behalf of the Initial
Purchasers named therein (filed as Exhibit 10.1 to the
Companys Current Report on Form 8-K filed on June 29, 2009
and incorporated by reference herein).
|
52
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.45
|
|
Security Agreement, dated June 24, 2009, by and among the
Company, certain of the Companys subsidiaries and U.S.
Bank National Association, as collateral trustee (filed as
Exhibit 10.2 to the Companys Current Report on Form 8-K
filed on June 29, 2009 and incorporated by reference herein).
|
|
10
|
.46
|
|
Intellectual Property Security Agreement, dated June 24, 2009,
by and among the Company, certain of the Companys
subsidiaries and U.S. Bank National Association, as collateral
trustee (filed as Exhibit 10.3 to the Companys
Current Report on Form 8-K filed on June 29, 2009 and
incorporated by reference herein).
|
|
10
|
.47
|
|
Collateral Trust Agreement, dated June 24, 2009, by and among
the Company, certain of the Companys subsidiaries, U.S.
Bank National Association, as collateral trustee, the other
Secured Debt Representatives from time to time party thereto and
The Bank of New York Mellon Trust Company, N.A., as trustee
under the Indenture (filed as Exhibit 10.4 to the Companys
Current Report on Form 8-K filed on June 29, 2009 and
incorporated by reference herein).
|
|
10
|
.48
|
|
Consulting Agreement, dated February 8, 2010, by and
between the Company and Hathaway Global Strategies, LLC (filed
as Exhibit 10.6 to the Companys Quarterly Report on
Form 10-Q filed on February 10, 2010 and incorporated by
reference herein).
|
|
10
|
.49
|
|
Purchase Agreement, dated April 23, 2010, by and among the
Company, the Guarantors and the Initial Purchaser (filed as
Exhibit 10.1 to the Companys Current Report on
Form 8-K filed on April 29, 2010 and incorporated by
reference herein).
|
|
10
|
.50
|
|
Registration Rights Agreement, dated April 28, 2010, by and
among the Company, the Guarantors and the Initial Purchaser
(filed as Exhibit 10.2 to the Companys Current Report
on Form 8-K filed on April 29, 2010 and incorporated
by reference herein).
|
|
10
|
.51
|
|
Amendment to Collateral Trust Agreement, dated April 28,
2010, by and among the Company, the Guarantors and the
Collateral Trustee (filed as Exhibit 10.3 to the
Companys Current Report on
Form 8-K
filed on April 29, 2010 and incorporated by reference
herein).
|
|
10
|
.52
|
|
Additional Secured Debt Designation, dated April 28, 2010,
by and between the Company and the Collateral Trustee (filed as
Exhibit 10.4 to the Companys Current Report on
Form 8-K filed on April 29, 2010 and incorporated by
reference herein).
|
|
10
|
.53
|
|
Amended and Restated Employment Agreement with Nelson Fonseca,
dated June 10, 2010.+#*
|
|
21
|
|
|
Subsidiaries of the Company*
|
|
23
|
.1
|
|
Consent of KPMG LLP*
|
|
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*
|
|
|
|
* |
|
Filed with this Annual Report on Form 10-K. |
|
+ |
|
Compensation plan or arrangement. |
|
# |
|
Management contract |
53
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TERREMARK WORLDWIDE, INC.
Manuel D. Medina
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Date:
June 11, 2010
Jose A. Segrera
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date:
June 11, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ MANUEL
D. MEDINA
Manuel
D. Medina
|
|
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
|
|
June 11, 2010
|
|
|
|
|
|
/s/ GUILLERMO
AMORE
Guillermo
Amore
|
|
Director
|
|
June 11, 2010
|
|
|
|
|
|
/s/ TIMOTHY
ELWES
Timothy
Elwes
|
|
Director
|
|
June 11, 2010
|
|
|
|
|
|
/s/ ANTONIO
S. FERNANDEZ
Antonio
S. Fernandez
|
|
Director
|
|
June 11, 2010
|
|
|
|
|
|
/s/ HON.
ARTHUR L. MONEY
Hon.
Arthur L. Money
|
|
Director
|
|
June 11, 2010
|
|
|
|
|
|
/s/ MARVIN
S. ROSEN
Marvin
S. Rosen
|
|
Director
|
|
June 11, 2010
|
|
|
|
|
|
/s/ MELISSA
HATHAWAY
Melissa
Hathaway
|
|
Director
|
|
June 11, 2010
|
|
|
|
|
|
/s/ RODOLFO
A. RUIZ
Rodolfo
A. Ruiz
|
|
Director
|
|
June 11, 2010
|
|
|
|
|
|
/s/ JOSEPH
R. WRIGHT, JR.
Joseph
R. Wright, Jr.
|
|
Director
|
|
June 11, 2010
|
|
|
|
|
|
/s/ FRANK
BOTMAN
Frank
Botman
|
|
Director
|
|
June 11, 2010
|
|
|
|
|
|
/s/ JOSE
A. SEGRERA
Jose
A. Segrera
|
|
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
June 11, 2010
|
54
EXHIBIT SCHEDULE
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.53
|
|
Amended and Restated Employment Agreement with Nelson Fonseca,
dated June 10, 2010.#*
|
|
21
|
|
|
Subsidiaries of the Company*
|
|
23
|
.1
|
|
Consent of KPMG LLP*
|
|
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*
|
55
Table of
Contents
|
|
|
|
|
|
|
Page
|
|
|
Audited Consolidated Financial Statements
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Terremark Worldwide, Inc.:
We have audited the accompanying consolidated balance sheets of
Terremark Worldwide, Inc. and subsidiaries as of March 31,
2010 and 2009, and the related consolidated statements of
operations, changes in stockholders equity, and cash flows
for each of the years in the three-year period ended
March 31, 2010. These consolidated financial statements are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Terremark Worldwide, Inc. and subsidiaries as of
March 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended March 31, 2010, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Terremark Worldwide, Inc.s internal control over financial
reporting as of March 31, 2010, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated June 11, 2010 expressed an unqualified opinion on the
effectiveness of the Companys internal control over
financial reporting.
Miami, Florida
June 11, 2010
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Terremark Worldwide, Inc.:
We have audited Terremark Worldwide, Inc.s internal
control over financial reporting as of March 31, 2010,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Terremark
Worldwide, Inc.s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Terremark Worldwide, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of March 31, 2010, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Terremark Worldwide, Inc. and
subsidiaries as of March 31, 2010 and 2009, and the related
consolidated statements of operations, changes in
stockholders equity, and cash flows for each of the years
in the three-year period ended March 31, 2010, and our
report dated June 11, 2010 expressed an unqualified opinion
on those consolidated financial statements.
Miami, Florida
June 11, 2010
F-3
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
53,468
|
|
|
$
|
51,786
|
|
Restricted cash
|
|
|
|
|
|
|
1,107
|
|
Accounts receivable, net
|
|
|
50,266
|
|
|
|
35,816
|
|
Current portion of capital lease receivable
|
|
|
418
|
|
|
|
631
|
|
Prepaid expenses and other current assets
|
|
|
12,605
|
|
|
|
8,615
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
116,757
|
|
|
|
97,955
|
|
Restricted cash
|
|
|
1,959
|
|
|
|
1,484
|
|
Property and equipment, net
|
|
|
404,656
|
|
|
|
301,002
|
|
Debt issuance costs, net
|
|
|
3,384
|
|
|
|
7,409
|
|
Other assets
|
|
|
15,384
|
|
|
|
8,907
|
|
Capital lease receivable, net of current portion
|
|
|
235
|
|
|
|
454
|
|
Intangibles, net
|
|
|
11,759
|
|
|
|
12,992
|
|
Goodwill
|
|
|
96,112
|
|
|
|
86,139
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
650,246
|
|
|
$
|
516,342
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of capital lease obligations and secured loans
|
|
$
|
4,919
|
|
|
$
|
3,823
|
|
Accounts payable and other current liabilities
|
|
|
91,948
|
|
|
|
60,352
|
|
Current portion of convertible debt
|
|
|
|
|
|
|
32,376
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
96,867
|
|
|
|
96,551
|
|
Secured loans, less current portion
|
|
|
388,835
|
|
|
|
252,728
|
|
Convertible debt, less current portion
|
|
|
57,192
|
|
|
|
57,192
|
|
Deferred rent and other liabilities
|
|
|
18,351
|
|
|
|
19,133
|
|
Deferred revenue
|
|
|
8,514
|
|
|
|
7,740
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
569,759
|
|
|
|
433,344
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Series I convertible preferred stock: $.001 par value,
312 shares issued and outstanding (liquidation value of
approximately $8.0 million)
|
|
|
|
|
|
|
|
|
Common stock: $.001 par value, 100,000,000 shares
authorized; 65,058,331 and 59,740,750 shares issued and
outstanding
|
|
|
65
|
|
|
|
60
|
|
Common stock warrants
|
|
|
8,901
|
|
|
|
8,960
|
|
Additional paid-in capital
|
|
|
456,860
|
|
|
|
428,251
|
|
Accumulated deficit
|
|
|
(384,667
|
)
|
|
|
(352,994
|
)
|
Accumulated other comprehensive loss
|
|
|
(672
|
)
|
|
|
(1,279
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
80,487
|
|
|
|
82,998
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
650,246
|
|
|
$
|
516,342
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues
|
|
$
|
292,347
|
|
|
$
|
250,470
|
|
|
$
|
187,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues, excluding depreciation and amortization
|
|
|
159,596
|
|
|
|
136,434
|
|
|
|
100,886
|
|
General and administrative
|
|
|
34,782
|
|
|
|
36,795
|
|
|
|
32,267
|
|
Sales and marketing
|
|
|
28,774
|
|
|
|
26,549
|
|
|
|
20,887
|
|
Depreciation and amortization
|
|
|
37,882
|
|
|
|
28,224
|
|
|
|
18,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
261,034
|
|
|
|
228,002
|
|
|
|
172,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
31,313
|
|
|
|
22,468
|
|
|
|
14,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(49,643
|
)
|
|
|
(29,980
|
)
|
|
|
(32,105
|
)
|
Interest income
|
|
|
356
|
|
|
|
1,332
|
|
|
|
5,231
|
|
Change in fair value of derivatives
|
|
|
(1,464
|
)
|
|
|
(3,886
|
)
|
|
|
(1,107
|
)
|
Financing charges and other
|
|
|
60
|
|
|
|
(582
|
)
|
|
|
(1,173
|
)
|
Loss on early extinguishment of debt
|
|
|
(10,275
|
)
|
|
|
|
|
|
|
(26,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(60,966
|
)
|
|
|
(33,116
|
)
|
|
|
(56,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(29,653
|
)
|
|
|
(10,648
|
)
|
|
|
(41,415
|
)
|
Income tax expense (benefit)
|
|
|
2,020
|
|
|
|
(79
|
)
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(31,673
|
)
|
|
|
(10,569
|
)
|
|
|
(42,228
|
)
|
Preferred dividend
|
|
|
(937
|
)
|
|
|
(807
|
)
|
|
|
(794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(32,610
|
)
|
|
$
|
(11,376
|
)
|
|
$
|
(43,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.51
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic and
diluted
|
|
|
63,977
|
|
|
|
59,438
|
|
|
|
58,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
Common Stock Par
|
|
Common
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Value $.001
|
|
Stock
|
|
Paid-In
|
|
Accumulated
|
|
Comprehensive
|
|
Notes
|
|
|
|
|
|
|
|
|
|
Series I
|
|
Issued Shares
|
|
Amount
|
|
Warrants
|
|
Capital
|
|
Deficit
|
|
(Loss) Income
|
|
Receivable
|
|
Total
|
|
|
|
|
|
|
Balance at March 31, 2007
|
|
$
|
|
|
|
55,813
|
|
$
|
56
|
|
$
|
12,597
|
|
$
|
377,138
|
|
$
|
(300,197
|
)
|
$
|
90
|
|
$
|
(184
|
)
|
$
|
89,500
|
|
|
|
|
|
|
|
Components of comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,228
|
)
|
|
|
|
|
|
|
|
(42,228
|
)
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,079
|
|
|
(18
|
)
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,167
|
)
|
|
|
|
|
|
|
Conversion of preferred stock
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with acquisition
|
|
|
|
|
|
2,316
|
|
|
2
|
|
|
|
|
|
16,744
|
|
|
|
|
|
|
|
|
|
|
|
16,746
|
|
|
|
|
|
|
|
Accrued dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(794
|
)
|
|
|
|
|
|
|
|
|
|
|
(794
|
)
|
|
|
|
|
|
|
Expiration of warrants
|
|
|
|
|
|
|
|
|
|
|
|
(1,380
|
)
|
|
1,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in settlement of share-based awards
|
|
|
|
|
|
398
|
|
|
|
|
|
|
|
|
1,073
|
|
|
|
|
|
|
|
|
|
|
|
1,073
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,570
|
|
|
|
|
|
|
|
|
|
|
|
2,570
|
|
|
|
|
|
|
|
Issuance of common stock in public offering
|
|
|
|
|
|
609
|
|
|
1
|
|
|
|
|
|
4,404
|
|
|
|
|
|
|
|
|
|
|
|
4,405
|
|
|
|
|
|
|
|
Repayments of loans issued to employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
154
|
|
|
|
|
|
|
|
Premium on issuance of convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,728
|
|
|
|
|
|
|
|
|
|
|
|
13,728
|
|
|
|
|
|
|
|
Expiration of early conversion incentive feature within
convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,308
|
|
|
|
|
|
|
|
|
|
|
|
4,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
|
|
|
|
59,172
|
|
|
59
|
|
|
11,217
|
|
|
420,551
|
|
|
(342,425
|
)
|
|
1,169
|
|
|
(48
|
)
|
|
90,523
|
|
|
|
|
|
|
|
Components of comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,569
|
)
|
|
|
|
|
|
|
|
(10,569
|
)
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,448
|
)
|
|
4
|
|
|
(2,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,013
|
)
|
|
|
|
|
|
|
Accrued dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(807
|
)
|
|
|
|
|
|
|
|
|
|
|
(807
|
)
|
|
|
|
|
|
|
Expiration of warrants
|
|
|
|
|
|
|
|
|
|
|
|
(2,257
|
)
|
|
2,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,941
|
|
|
|
|
|
|
|
|
|
|
|
4,941
|
|
|
|
|
|
|
|
Issuance of common stock in settlement of share-based awards
|
|
|
|
|
|
569
|
|
|
1
|
|
|
|
|
|
1,309
|
|
|
|
|
|
|
|
|
|
|
|
1,310
|
|
|
|
|
|
|
|
Repayments of loans issued to employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009
|
|
|
|
|
|
59,741
|
|
|
60
|
|
|
8,960
|
|
|
428,251
|
|
|
(352,994
|
)
|
|
(1,279
|
)
|
|
|
|
|
82,998
|
|
|
|
|
|
|
|
Components of comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,673
|
)
|
|
|
|
|
|
|
|
(31,673
|
)
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
607
|
|
|
|
|
|
607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,066
|
)
|
|
|
|
|
|
|
Expiration of warrants
|
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued dividends on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(937
|
)
|
|
|
|
|
|
|
|
|
|
|
(937
|
)
|
|
|
|
|
|
|
Issuance of common stock in connection with a private placement
|
|
|
|
|
|
4,000
|
|
|
4
|
|
|
|
|
|
19,932
|
|
|
|
|
|
|
|
|
|
|
|
19,936
|
|
|
|
|
|
|
|
Issuance of common stock in settlement of share-based awards
|
|
|
|
|
|
1,317
|
|
|
1
|
|
|
|
|
|
3,143
|
|
|
|
|
|
|
|
|
|
|
|
3,144
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,412
|
|
|
|
|
|
|
|
|
|
|
|
6,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
$
|
|
|
|
65,058
|
|
$
|
65
|
|
$
|
8,901
|
|
$
|
456,860
|
|
$
|
(384,667
|
)
|
$
|
(672
|
)
|
$
|
|
|
$
|
80,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(31,673
|
)
|
|
$
|
(10,569
|
)
|
|
$
|
(42,228
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
37,882
|
|
|
|
28,224
|
|
|
|
18,685
|
|
Loss on early extinguishment of debt
|
|
|
10,275
|
|
|
|
|
|
|
|
26,950
|
|
Change in fair value of derivatives
|
|
|
1,464
|
|
|
|
3,886
|
|
|
|
1,107
|
|
(Gain) loss on currency translation effect
|
|
|
(856
|
)
|
|
|
700
|
|
|
|
|
|
Accretion on debt, net
|
|
|
2,673
|
|
|
|
3,476
|
|
|
|
3,972
|
|
Amortization of debt issue costs
|
|
|
764
|
|
|
|
2,267
|
|
|
|
1,519
|
|
Provision for doubtful accounts
|
|
|
2,181
|
|
|
|
3,128
|
|
|
|
1,555
|
|
Interest payment in kind on secured loans and convertible debt
|
|
|
395
|
|
|
|
4,812
|
|
|
|
4,152
|
|
Share-based compensation
|
|
|
9,548
|
|
|
|
7,729
|
|
|
|
3,963
|
|
Settlement of interest rate swaps
|
|
|
(8,360
|
)
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(15,330
|
)
|
|
|
4,261
|
|
|
|
(17,299
|
)
|
Capital lease receivable, net of unearned interest
|
|
|
382
|
|
|
|
1,098
|
|
|
|
2,042
|
|
Restricted cash
|
|
|
632
|
|
|
|
(251
|
)
|
|
|
95
|
|
Prepaid expenses and other assets
|
|
|
(7,336
|
)
|
|
|
936
|
|
|
|
(3,147
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities
|
|
|
13,318
|
|
|
|
(4,730
|
)
|
|
|
(7,812
|
)
|
Deferred revenue
|
|
|
3,138
|
|
|
|
1,631
|
|
|
|
4,180
|
|
Deferred rent and other liabilities
|
|
|
3,361
|
|
|
|
4,295
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
22,458
|
|
|
|
50,893
|
|
|
|
(1,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(118,581
|
)
|
|
|
(90,383
|
)
|
|
|
(80,037
|
)
|
Acquisition of DS3 DataVaulting, LLC, net of cash acquired
|
|
|
(12,037
|
)
|
|
|
|
|
|
|
|
|
Acquisition of Data Return, LLC, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(68,625
|
)
|
Acquisition of Accris Corporation, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(682
|
)
|
Repayments of notes receivable
|
|
|
|
|
|
|
44
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(130,618
|
)
|
|
|
(90,339
|
)
|
|
|
(149,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment on secured loans and convertible debt
|
|
|
(290,930
|
)
|
|
|
(1,500
|
)
|
|
|
(100,545
|
)
|
Payments of debt issuance costs
|
|
|
(3,545
|
)
|
|
|
(60
|
)
|
|
|
(8,835
|
)
|
Proceeds from issuance of common stock
|
|
|
20,883
|
|
|
|
3
|
|
|
|
4,405
|
|
Proceeds from issuance of secured loans
|
|
|
386,963
|
|
|
|
|
|
|
|
249,500
|
|
Payments of preferred stock dividends
|
|
|
(924
|
)
|
|
|
(781
|
)
|
|
|
(599
|
)
|
Payments under capital lease obligations
|
|
|
(3,520
|
)
|
|
|
(2,028
|
)
|
|
|
(1,577
|
)
|
Proceeds from exercise of stock options and warrants
|
|
|
|
|
|
|
|
|
|
|
613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
108,927
|
|
|
|
(4,366
|
)
|
|
|
142,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rates on cash and cash
equivalents
|
|
|
915
|
|
|
|
(1,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,682
|
|
|
|
(45,204
|
)
|
|
|
(8,101
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
51,786
|
|
|
|
96,990
|
|
|
|
105,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
53,468
|
|
|
$
|
51,786
|
|
|
$
|
96,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
|
|
1.
|
Business
and Organization
|
Terremark Worldwide, Inc. and its consolidated 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
1,300 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 audited consolidated financial statements
include the accounts of Terremark Worldwide, Inc. and all
entities in which Terremark Worldwide, Inc. has a controlling
voting interest (subsidiaries) required to be
consolidated in accordance with generally accepted accounting
principles in the United States (U.S. GAAP).
All significant intercompany accounts and transactions between
consolidated companies have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to the prior
periods consolidated financial statements to conform to
the current presentation.
Use of
estimates
The Company prepares its financial statements in conformity with
U.S. GAAP, which requires that management make estimates
and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements and reported amounts of
revenue and expenses during the reporting period. Key estimates
include: revenue recognition and allowance for bad debts,
derivatives, income taxes, share-based compensation, impairment
of long-lived assets, intangibles and goodwill. Estimates are
based on historical experience and on various other assumptions
that Terremark believes to be reasonable under the
circumstances, the results of which form the basis for judgments
about results and the carrying values of assets and liabilities.
Actual results could differ from such estimates.
Revenue
recognition and allowance for bad debts
Revenues principally consist of monthly recurring fees for
colocation, exchange point, and, managed and professional
services fees. Colocation revenues also include monthly rental
income for unconditioned space in the NAP of the Americas.
Revenues from colocation, exchange point services, and hosting,
as well as rental income for unconditioned space, are recognized
ratably over the term of the applicable contract. Installation
fees and related direct costs are deferred and recognized
ratably over the expected life of the customer installation
which is estimated to be 36 to 48 months. Managed and
professional services are recognized in the period in which the
services are provided. Revenues also include equipment resales
which are generally recognized in the period in which the
equipment is delivered, title transfers and is accepted by the
customer. Revenue from contract settlements is generally
recognized when collectability is reasonably assured and no
remaining performance obligation exists. Taxes collected from
customers and remitted to the government are excluded from
revenues.
When more than one element, such as equipment, installation and
colocation services, are contained in a single arrangement, the
Company allocates revenue between the elements based on
acceptable fair value allocation
F-8
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
methodologies, provided that each element meets the criteria for
treatment as a separate unit of accounting. An item is
considered a separate unit of accounting if it has value to the
customer on a standalone basis and there is objective and
reliable evidence of the fair value of the undelivered items.
The fair value of the undelivered elements is determined by the
price charged when the element is sold separately, or in cases
when the item is not sold separately, by using other acceptable
objective evidence. Management applies judgment to ensure
appropriate application of accounting guidelines, including the
determination of whether delivered items have standalone value,
and the determination of fair value for the multiple
deliverables, among others. For those arrangements where the
deliverables do not qualify as a separate unit of accounting,
revenue from all deliverables are treated as one accounting unit
and recognized ratably over the term of the arrangement.
Revenue is recognized when there is persuasive evidence of an
arrangement, the fee is fixed or determinable and collection of
the receivable is reasonably assured. The Company assesses
collectability based on a number of factors, including past
transaction history with the customer and the credit-worthiness
of the customer. The Company does not request collateral from
the customers. If the Company determines that collectability is
not reasonably assured, the fee is deferred and revenue is
recognized at the time collection becomes reasonably assured,
which is generally upon receipt of cash.
The Company sells certain third-party service contracts and
software assurance or subscription products and evaluates
whether the subsequent sales of such services should be recorded
as gross revenues or net revenues in accordance with the
accounting guidelines. The Company determines whether its role
is that of a principal in the transaction and therefore assumes
the risks and rewards of ownership or if its role is acting as
an agent or broker. Under gross revenue recognition, the entire
selling price is recorded as revenue and the cost to the
third-party service provider or vendor is recorded as cost of
revenues, product and services. Under net revenue recognition,
the cost to the third-party service provider or vendor is
recorded as a reduction of revenue resulting in net revenue
equal to the gross profit on the transaction and there is no
cost of revenue.
The Company analyzes current economic news and trends,
historical bad debts, customer concentrations, customer
credit-worthiness and changes in customer payment terms when
evaluating revenue recognition and the adequacy of the allowance
for bad debts.
The Companys customer contracts generally require the
Company to meet certain service level commitments. If the
Company does not meet required service levels, it may be
obligated to provide credits, usually a month of free service.
Significant
concentrations
The federal sector accounted for revenues of approximately 24%,
24% and 22% for the years ended March 31, 2010, 2009 and
2008, respectively. No single customer accounted for more than
10% of revenues for the three year period ended on
March 31, 2010.
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 exposure of
these risks with the intent to reduce the risk or cost to the
Company. 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 Companys first and
second lien credit agreements entered into on July 31,
2007, which had an aggregate principal amount of
$250 million. The interest rate swaps were settled on
June 24, 2009 together with the repayment of all amounts
outstanding under the first and second lien credit agreements
and the termination of such agreements. See Note 11.
F-9
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys 6.625% Senior Convertible Notes, due
June 15, 2013, (the 6.625% Senior Convertible
Notes) contain embedded derivatives that require separate
valuation from the 6.625% Senior Convertible Notes. The
Company recognizes these derivatives as a liability in its
balance sheet under deferred rent and other liabilities,
measures them at their estimated fair value, and recognizes
changes in their estimated fair value in earnings in the period
of change in the statement of operations as, change in fair
value of derivatives.
The Company estimates the fair value of its embedded derivatives
using available market information and appropriate valuation
methodologies. The market data used to develop these estimates
of fair value requires interpretation and the application of
considerable judgment. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the
Company may eventually pay to settle these embedded derivatives.
Share-based
compensation
The Company accounts for share-based compensation in accordance
with the accounting guidelines for share-based compensation. The
fair value of stock option and nonvested stock awards with only
service conditions, which are subject to graded vesting, are
expensed on a straight-line basis over the vesting period of the
awards.
Tax benefits resulting from tax deductions in excess of
share-based compensation expense recognized under the fair value
method (windfall tax benefits) are credited to additional
paid-in capital. Realized tax shortfalls are first offset
against the cumulative balance of windfall tax benefits, if any,
and then charged directly to income tax expense.
Stock
warrants
When warrants to acquire the Companys common stock are
issued in connection with the sale of debt or other securities,
aggregate proceeds from the sale of the warrants and other
securities are allocated among all instruments issued based on
their relative fair market values. Any resulting discount from
the face value of debt is amortized to interest expense using
the effective interest method over the term of the debt.
Earnings
(loss) per share
The Companys 6.625% Senior Convertible Notes contain
contingent interest provisions that allow the holders of the
6.625% Senior Convertible Notes to participate in any dividends
declared on the Companys common stock. Further, the
Companys Series I preferred stock contains
participation rights that entitle the holders to receive
dividends in the event the Company declares dividends on its
common stock. Accordingly, the 6.625% Senior Convertible Notes
and the Series I preferred stock are considered
participating securities.
Basic earnings per share (EPS) is calculated as
income (loss) available to common stockholders divided by the
weighted average number of shares of common stock outstanding
during the period. If the effect is dilutive, participating
securities are included in the computation of basic EPS.
Nonvested stock granted to employees and directors are not
included in the computation of basic EPS until the security
vests. The Companys participating securities do not have a
contractual obligation to share in the losses in any given
period. As a result, these participating securities will not be
allocated any losses in the periods of net losses, but will be
allocated income in the periods of net income using the
two-class method. The two-class method is an earnings allocation
formula that determines earnings for each class of common stock
and participating securities according to dividends declared or
accumulated and participation rights in undistributed earnings.
Under the two-class method, net income is reduced by the amount
of dividends declared in the current period for each class of
stock and by the contractual amounts of dividends that must be
paid for the current period. The remaining earnings are then
allocated to common stock and participating securities to the
extent that each security may share in earnings as if all of the
earnings for the period had been distributed. Diluted EPS is
calculated using the treasury stock and if converted
methods for potential dilutive instruments that are convertible
into common stock, as applicable.
F-10
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
comprehensive income (loss)
Other comprehensive income (loss) presents a measure of all
changes in stockholders equity except for changes
resulting from transactions with stockholders in their capacity
as stockholders. Other comprehensive income (loss) consisting of
net income (loss) and foreign currency translation adjustments,
is presented in the accompanying consolidated statement of
stockholders equity.
The Companys foreign operations generally use the local
currency as their functional currency. Assets and liabilities of
these operations are translated at the exchange rates in effect
on the balance sheet date. If exchangeability between the
functional currency and the U.S. dollar is temporarily
lacking at the balance sheet date, the first subsequent rate at
which exchanges can be made is used to translate assets and
liabilities.
Cash
and cash equivalents
The Company considers all amounts held in highly liquid
instruments with an original purchased maturity of three months
or less to be cash equivalents. Cash and cash equivalents
include cash balances maintained in the operating and
interest-bearing money market accounts at the Companys
banks.
Restricted
cash
Restricted cash represents cash required to be on deposit with
financial institutions in connection with operating leases.
Property
and equipment
Property and equipment are stated at the Companys original
cost or fair value at the date of acquisition for acquired
property and equipment. Depreciation is computed using the
straight-line method over the estimated useful lives of the
respective assets, generally three to five years for non-data
center equipment and furniture and fixtures and five to twenty
years for data center equipment and building improvements.
Building and leasehold improvements are amortized over the
shorter of the lease term or the estimated useful life of the
asset or improvement, which averages fifteen years. The data
center buildings, owned by the Company, are depreciated over the
estimated useful life of the buildings, which is thirty-nine
years. Costs for improvement and betterments that extend the
life of assets are capitalized. Maintenance and repair
expenditures are expensed as incurred.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Interest expense
|
|
$
|
49,643
|
|
|
$
|
29,980
|
|
|
$
|
32,105
|
|
Interest capitalized
|
|
|
4,569
|
|
|
|
4,690
|
|
|
|
1,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest charges incurred
|
|
$
|
54,212
|
|
|
$
|
34,670
|
|
|
$
|
33,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company accounts for internal-use software development costs
in accordance accounting guidelines which state that software
costs, including internal payroll costs, incurred in connection
with the development or acquisition of software for internal use
is charged to technology development expense as incurred until
the project enters the application development phase. Costs
incurred in the application development phase are capitalized
and
F-11
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
are depreciated using the straight-line method over an estimated
useful life of five years, beginning when the software is ready
for use. For the years ended March 31, 2010, 2009, and
2008, the Company capitalized software costs totaling
$2.0 million, $1.2 million, and $0.5 million,
respectively.
Goodwill
and Impairment of long-lived assets and long-lived assets to be
disposed of
Goodwill represents the carrying amount of the excess purchase
price over the fair value of identifiable net assets acquired in
conjunction with (i) the April 2000 acquisition of a
corporation holding rights to develop and manage facilities
catering to the telecommunications industry, (ii) the
September 2005 acquisition of a managed hosting services
provider in Europe, (iii) the May 2007 acquisition of a
managed hosting services provider in the United States,
(iv) the January 2008 acquisition of a disaster recovery
and business continuity provider in the United States and
(v) the November 2009 acquisition of a data management
solutions provider.
Goodwill and intangible assets that have indefinite lives are
not amortized and are instead tested for impairment at least
annually or whenever events or changes in circumstances indicate
that the carrying amount of these assets may not be fully
recoverable. The goodwill impairment test involves a two-step
approach. The first step involves a comparison of the fair value
of each of our reporting units with its carrying amount. If a
reporting units carrying amount exceeds its fair value,
the second step is performed. The second step involves a
comparison of the implied fair value and carrying value of that
reporting units goodwill. To the extent that a reporting
units carrying amount exceeds the implied fair value of
its goodwill, an impairment loss is recognized. Identifiable
intangible assets not subject to amortization are assessed for
impairment by comparing the fair value of the intangible asset
to its carrying amount. An impairment loss is recognized for the
amount by which the carrying value exceeds fair value.
Intangible assets that have finite useful lives are amortized
over their useful lives.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Such events and circumstances
include, but are not limited to, prolonged industry downturns,
significant declines in our market value and significant
reductions in our projected cash flows. Recoverability of assets
to be held and used is measured by comparing the carrying amount
of an asset to estimated undiscounted future net cash flows
expected to be generated by the asset. Significant judgments and
assumptions are required in the forecast of future operating
results used in the preparation of the estimated future cash
flows, including long-term forecasts of profit margins, terminal
growth rates and discounted rates. If the carrying amount of the
asset exceeds its estimated future cash flows, an impairment
charge is recognized for the amount by which the carrying amount
of the asset exceeds the fair value of the asset.
The Company performed the annual test for impairment in the
fourth quarter of the fiscal year ended March 31, 2010 and
concluded there was no impairment.
Rent
expense
Rent expense under operating leases is recorded on the
straight-line method based on total contracted amounts.
Differences between the amounts contractually due and those
amounts reported are included in deferred rent and other
liabilities in the accompanying consolidated balance sheets.
Lease incentives received upon entering operating leases
(tenant allowances) are recognized on a
straight-line basis as a reduction to rent over the term of the
respective lease. The Company records the unamortized portion of
tenant allowances as a part of deferred rent, in other
liabilities (non-current), as appropriate.
Fair
value of financial instruments
The Companys short-term financial instruments, including
cash and cash equivalents, restricted cash, accounts receivable,
prepaid expenses and other assets, accounts payable and other
liabilities, consist primarily of instruments without extended
maturities, the fair value of which, based on managements
estimates, reasonably
F-12
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
approximates their book value. The fair value of capital lease
obligations is based on management estimates and reasonably
approximated their book value after comparison to obligations
with similar interest rates and maturities. The fair value of
the Companys redeemable preferred stock is estimated to be
its liquidation value, which includes accumulated and unpaid
dividends. The fair value of the Companys secured loans
(see Note 9) and convertible debt (see Note 10),
which are not actively traded on any securities exchange, are
estimated by considering the Companys credit rating,
current rates available to the Company for similar debt and the
Companys stock price volatility. The fair value of secured
loans and convertible debt as of March 31, 2010 and 2009 is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
|
Book Value
|
|
|
Fair Value
|
|
|
Book Value
|
|
|
Fair Value
|
|
|
Secured loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12% Senior secured notes
|
|
$
|
388,835
|
|
|
$
|
481,491
|
|
|
$
|
|
|
|
$
|
|
|
First lien credit agreement, including current portion
|
|
|
|
|
|
|
|
|
|
|
146,826
|
|
|
|
140,251
|
|
Second lien credit agreement
|
|
|
|
|
|
|
|
|
|
|
107,402
|
|
|
|
101,499
|
|
Convertible debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.625% Senior convertible debt
|
|
|
57,192
|
|
|
|
59,062
|
|
|
|
57,192
|
|
|
|
59,171
|
|
9% Senior convertible debt, current portion
|
|
|
|
|
|
|
|
|
|
|
28,268
|
|
|
|
30,267
|
|
0.5% Senior subordinated convertible debt, current portion
|
|
|
|
|
|
|
|
|
|
|
4,108
|
|
|
|
3,997
|
|
The book value for the Companys secured loans and
convertible debt is net of the unamortized discount to debt
principal. See Notes 9 and 10.
Fair
value measurements
The Company carries various assets and liabilities at fair value
in the accompanying consolidated balance sheets. Fair value is
defined as the amount that would be received for an asset or
paid to transfer a liability (i.e., an exit price) in the
principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the
measurement date. The Company maximizes the use of observable
inputs and minimizes the use of unobservable inputs when
measuring fair value. Three levels of inputs that may be used to
measure fair value are as follows:
|
|
|
Level 1:
|
|
Quoted prices (unadjusted) in active markets that are accessible
at the measurement date for identical assets and liabilities.
The fair value hierarchy gives the highest priority to
Level 1 inputs.
|
Level 2:
|
|
Observable prices that are based on inputs not quoted on active
markets but corroborated by market data.
|
Level 3:
|
|
Unobservable inputs when there is little or no market data
available, thereby requiring an entity to develop its own
assumptions. The fair value hierarchy gives the lowest priority
to Level 3 inputs.
|
F-13
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below summarizes the fair values of our financial
assets (liabilities) as of March 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
Fair Value Measurement Using
|
|
|
|
March 31, 2010
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Money market fund
|
|
$
|
28,177
|
|
|
$
|
28,177
|
|
|
$
|
|
|
|
$
|
|
|
Embedded derivatives
|
|
|
(295
|
)
|
|
|
|
|
|
|
|
|
|
|
(295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,882
|
|
|
$
|
28,177
|
|
|
$
|
|
|
|
$
|
(295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. These instruments were valued using pricing
models which incorporate the Companys stock price, credit
risk, volatility, U.S. risk free 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.
For a summary of the changes in the fair value of these embedded
derivatives, see Note 11.
Effective April 1, 2009, we 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.
Income
taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. Valuation allowances are established when
necessary to reduce tax assets to the amounts expected to be
realized. In assessing the likelihood of realization, management
considers estimates of future taxable income.
The accounting for uncertainty in income taxes recognized in
financial statements and prescribes a recognition threshold and
measurement attribute for the financial recognition and
measurement of a tax position taken or expected to be taken on a
tax return. The accounting guidance requires that we determine
whether the benefits of our tax positions will more likely than
not be sustained upon audit based on the technical merits of the
tax position. The guidance also provided guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, and disclosure. The Company
analyzed the filing positions in all of the federal, state and
foreign jurisdictions where the Company is required to file
income tax returns, as well as all open tax years in these
jurisdictions. The use of the accounting guidelines resulted in
no cumulative effect of a change in accounting principle being
recorded on our consolidated financial statements for the year
ended March 31, 2008. The Company continued its policy of
recognizing penalties and interest related to recognized tax
positions, if any, in general and administrative expenses.
F-14
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has not been audited by the Internal Revenue Service
or any other similar taxing authorities for the following open
tax periods: the quarter ended March 31, 2006, and the
years ended March 31, 2007, 2008, 2009 and 2010. Net
operating loss carryovers incurred in years prior to 2006 are
subject to audit in the event they are utilized in subsequent
years.
Recent
accounting pronouncements
In May 2009, the FASB issued an accounting standard update,
which establishes the accounting for and disclosures of
subsequent events. The Company adopted this accounting standard
update during the three months ended June 30, 2009.
In June 2009, the FASB issued guidance that establishes general
standards of accounting which establishes the FASB Accounting
Standards Codification as the source of authoritative
U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. The Company adopted this guidance
during the three months ended September 30, 2009, and its
adoption did not have any significant impact on the
Companys consolidated financial statements.
In October 2009, the FASB issued guidance that establishes
general standards of accounting which addresses the accounting
for multiple-deliverable arrangements to enable vendors to
account for products or services (deliverables) separately
rather than as a combined unit. 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.
In January 2010, the FASB issued guidance that establishes
general standards of accounting which amends the use of fair
value measures and the related disclosures. This guidance
requires new disclosures for transfers in and out of
Level 1 and Level 2 fair value measurements. This
guidance is effective for the Company for the year ended
March 31, 2011. The Company is currently evaluating the
impact that the adoption of this standard will have on its
consolidated financial statements, if any.
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. The
final purchase price included 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 any remaining funds would 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
F-15
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assets acquired and liabilities assumed based on their
respective fair values and any excess were allocated to
goodwill. The following summarizes the allocation of the
purchase price as of March 31, 2010 (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
44
|
|
Accounts receivable, net
|
|
|
827
|
|
Prepaid and other current assets
|
|
|
258
|
|
Property and equipment, net
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Accounts receivable, net, consists of (in thousands):
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
35,452
|
|
|
$
|
32,575
|
|
Unbilled revenue
|
|
|
16,089
|
|
|
|
5,312
|
|
Allowance for doubtful accounts
|
|
|
(1,275
|
)
|
|
|
(2,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,266
|
|
|
$
|
35,816
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
5.
|
Prepaid
Expenses and Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Prepaid expenses and other assets consists of (in thousands):
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
4,741
|
|
|
$
|
2,278
|
|
Deferred installation costs
|
|
|
8,758
|
|
|
|
7,487
|
|
Deposits
|
|
|
4,476
|
|
|
|
3,874
|
|
Prepaid ground lease
|
|
|
3,602
|
|
|
|
|
|
Deferred rent
|
|
|
1,364
|
|
|
|
1,264
|
|
Other
|
|
|
2,376
|
|
|
|
1,399
|
|
Tenant allowance
|
|
|
1,418
|
|
|
|
|
|
Deferred tax asset
|
|
|
949
|
|
|
|
862
|
|
Interest and other receivables
|
|
|
305
|
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,989
|
|
|
|
17,522
|
|
Less: current portion
|
|
|
(12,605
|
)
|
|
|
(8,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,384
|
|
|
$
|
8,907
|
|
|
|
|
|
|
|
|
|
|
F-16
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Property
and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Property and equipment, net, consists of (in thousands):
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
18,336
|
|
|
$
|
18,336
|
|
Building
|
|
|
169,723
|
|
|
|
107,171
|
|
Building and leasehold improvements
|
|
|
81,433
|
|
|
|
75,395
|
|
Machinery
|
|
|
136,063
|
|
|
|
117,168
|
|
Equipment, furniture and fixtures
|
|
|
82,646
|
|
|
|
54,169
|
|
Construction in progress
|
|
|
30,521
|
|
|
|
7,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
518,722
|
|
|
|
379,399
|
|
Less: accumulated depreciation and amortization
|
|
|
(114,066
|
)
|
|
|
(78,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
404,656
|
|
|
$
|
301,002
|
|
|
|
|
|
|
|
|
|
|
For the years ended March 31, 2010, 2009 and 2008,
depreciation and amortization expense was $35.8 million,
$25.8 million and $16.5 million, respectively. These
amounts include depreciation and amortization expense related to
assets under capital leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
March 31,
|
|
|
|
Period (Years)
|
|
|
2010
|
|
|
2009
|
|
|
Intangibles, net, consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer base
|
|
|
8-10
|
|
|
$
|
9,125
|
|
|
$
|
8,300
|
|
Technology
|
|
|
4-5
|
|
|
|
6,400
|
|
|
|
6,400
|
|
Trademarks
|
|
|
|
|
|
|
4,100
|
|
|
|
4,100
|
|
Non-compete agreements
|
|
|
3
|
|
|
|
100
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,725
|
|
|
|
18,900
|
|
Less: accumulated amortization
|
|
|
|
|
|
|
(7,966
|
)
|
|
|
(5,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,759
|
|
|
$
|
12,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to record amortization expense associated
with these intangible assets as follows for each of the fiscal
years ending March 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Customer
|
|
|
|
|
|
|
Base
|
|
|
Technology
|
|
|
2011
|
|
$
|
1,075
|
|
|
$
|
800
|
|
2012
|
|
|
1,075
|
|
|
|
800
|
|
2013
|
|
|
1,075
|
|
|
|
120
|
|
2014
|
|
|
1,075
|
|
|
|
|
|
2015 and thereafter
|
|
|
1,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,939
|
|
|
$
|
1,720
|
|
|
|
|
|
|
|
|
|
|
For the years ended March 31, 2010, 2009 and 2008,
amortization of intangibles aggregated was $2.1 million,
$2.4 million and $2.2 million, respectively.
F-17
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Accounts
Payable and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Accounts payable and other current liabilities consists of (in
thousands):
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
45,934
|
|
|
$
|
30,739
|
|
Accrued expenses
|
|
|
17,121
|
|
|
|
15,918
|
|
Current portion of deferred revenue
|
|
|
7,138
|
|
|
|
6,904
|
|
Interest payable
|
|
|
17,308
|
|
|
|
4,835
|
|
Customer prepayments
|
|
|
4,447
|
|
|
|
1,956
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
91,948
|
|
|
$
|
60,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Secured loans consists of (in thousands):
|
|
|
|
|
|
|
|
|
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%)
|
|
$
|
388,835
|
|
|
$
|
|
|
First Lien Credit Agreement, due August 15, 2012. Principal
of $375,000 was payable quarterly. Interest was payable monthly
at Eurodollar plus 3.75% at the election of the Company
(Effective interest rate of 6.1%)
|
|
|
|
|
|
|
146,826
|
|
Second Lien Credit Agreement, due February 2, 2013.
Interest was payable at Eurodollar plus 7.75% at the election of
the Company. (Effective interest rate of 10.1%)
|
|
|
|
|
|
|
107,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388,835
|
|
|
|
254,228
|
|
Less: current portion
|
|
|
|
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
388,835
|
|
|
$
|
252,728
|
|
|
|
|
|
|
|
|
|
|
On June 24, 2009 (the Closing Date), the
Company issued an aggregate principal amount of
$420.0 million of 12% Senior Secured Notes, due
June 15, 2017, which are guaranteed by substantially all of
the Companys domestic subsidiaries (the
Guarantors). See Note 23. 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. The 12% Senior Secured Notes were
offered and sold in a private placement to qualified
institutional buyers in the United States in reliance on
Rule 144A under the Securities Act of 1933, as amended (the
Securities Act), and outside the United States in
reliance on Regulation S under the Securities Act. The
12% Senior Secured Notes bear interest at 12.0% per annum,
payable on December 15 and June 15 of each year.
The loan proceeds were used to satisfy and repay all of the
Companys outstanding secured indebtedness, including
(i) loans under the First Lien Credit Agreement, with a
face value of $150 million, due August 15, 2012,
(ii) loans under the Second Lien Credit Agreement (together
with the First Lien Credit Agreement, the Credit
F-18
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Agreements), with a face value of $100 million, due
February 2, 2013 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 exchange of $150 million of the First Lien Credit
Agreement and $100 million of the Second Lien Credit
Agreement were accounted for as an early extinguishment of debt,
and the 12% Senior Secured Notes were accounted for as new
debt instruments at $387.0 million, net of original issue
discount of $33.0 million that includes $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. 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 12% Senior Secured
Notes. For the twelve months ended March 31, 2010, the
Company amortized $1.9 million of the original issue
discount into interest expense. For the twelve months ended
March 31, 2010, the Company amortized $0.2 million of
the debt issuance costs into interest expense.
The 12% Senior Secured Notes were issued pursuant to an
indenture, dated June 24, 2009 (as supplemented, the
Indenture), among the Company, the Guarantors and
The Bank of New York Mellon Trust Company, N.A., as trustee
(the Trustee). The terms of the Indenture generally
limit the Companys ability and the ability of the
Companys 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 the Companys ability or the ability of the
Companys 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 the Companys assets;
(vii) make certain dispositions and transfers of assets;
and (viii) enter into transactions with affiliates.
Any additional indebtedness permitted by the Indenture may rank
pari passu with the 12% Senior Secured Notes, provided that
the Companys fixed charge coverage ratio would have been
at least 2 to 1 on a pro forma basis (including a pro forma
application of the net proceeds) as if such indebtedness had
been incurred at and as of the beginning of the Companys
most recently completed four fiscal quarters for which internal
financial statements are available. If there is a change of
control, the Company is required to offer to repurchase all or
any part of the notes in cash equal to not less than 101% of the
aggregate principal amount of notes repurchased plus accrued and
unpaid interest on the notes repurchased to the date of
repurchase. Additionally, if the Company or a Guarantor sells
assets, all or a portion of the net proceeds of which are not
reinvested in accordance with the terms of the Indenture or are
not used to repay certain debt, the Company will be required to
offer to purchase an aggregate principal amount of the
outstanding 12% Senior Secured Notes, in an amount equal to
such remaining net proceeds, at a purchase price equal to 100%
of the principal amount thereof, plus accrued interest and
Additional Interest (if any and as defined below), to the
payment date. The Indenture provides for customary events of
default.
At any time prior to June 15, 2012, the Company may on any
one or more occasions redeem up to 35% of the aggregate
principal amount of 12% Senior Secured Notes at a
redemption price equal to 112.0% of the principal amount, plus
accrued and unpaid interest to the applicable redemption date,
with the net cash proceeds of certain equity offerings; provided
that (i) at least 65% of the aggregate principal amount of
aggregate principal amount of notes remains outstanding
immediately after such redemption, and (ii) the redemption
occurs within 120 days of the date of the closing of such
equity offering. At any time prior to June 15, 2013, the
Company may redeem all or a part of the 12% Senior Secured
Notes at a redemption price equal to 100% of the principal
amount of the 12% Senior Secured Notes redeemed plus an
applicable make-whole premium (as defined in the
Indenture), as of, and accrued and unpaid interest, if any, to
the applicable redemption date. Additionally, on or after
June 15, 2013, the Company may redeem all or a part of the
Notes on any one or more occasions, at the redemption prices
(expressed as percentages of principal amount of the notes to be
redeemed) set forth below plus accrued and unpaid interest on
F-19
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Notes redeemed, to the applicable redemption date, if
redeemed during the
12-month
period beginning on June 15 of each of the years indicated below:
|
|
|
|
|
Year
|
|
Percentage
|
|
|
2013
|
|
|
106
|
%
|
2014
|
|
|
103
|
%
|
2015 and thereafter
|
|
|
100
|
%
|
Pursuant to the Indenture, the Company may incur certain
additional indebtedness, including up to $50 million under
credit facilities that may be used for any purpose, rank pari
passu with the Notes and which may be secured by parity liens on
the collateral securing the Notes. On April 28, 2010, the
Company issued an additional $50 million aggregate
principal amount of 12% Senior Secured Notes, which used up the
foregoing basket and which are part of the same series as the
12% Senior Secured Notes issued on June 24, 2009. See Note
24. The Company may additionally incur up to $75 million of
additional indebtedness for the purpose of financing the
purchase price or cost of construction or improvement of
property, plant or equipment, including the acquisition of the
capital stock of an entity that becomes a restricted subsidiary.
Any or all of such $75 million of additional indebtedness
may be secured by parity liens on the collateral securing the
Notes, provided that our secured leverage ratio does not exceed
3:75 to 1 on a pro-forma basis as if the Company 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 such $75 million of additional
indebtedness may be secured by second priority liens on the
collateral securing the 12% Senior Secured Notes.
In the event of a change in control, the Company will be
required to commence and complete an 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. Additionally, if the Company or a
guarantor sell assets, all or a portion of the net proceeds of
which are not reinvested in accordance with the terms of the
indenture or are not used to repay certain debt, the Company
will be required to offer to purchase an aggregate principal
amount of the outstanding 12% Senior Secured Notes, in an amount
equal to such remaining net proceeds, at a purchase price equal
to 100% of the principal amount thereof, plus accrued interest
and Additional Interest, if any and as defined below, to the
payment date.
The 12% Senior Secured Notes have not been registered under
the Securities Act or any state securities laws and may not be
sold except in a transaction registered under, or exempt from,
the registration provisions of the Securities Act and applicable
state securities laws. On the Closing Date, the Company and the
Guarantors entered into a registration rights agreement (the
Registration Rights Agreement), pursuant to which
the Company and the Guarantors have agreed for the benefit of
the holders of the 12% Senior Secured Notes to use their
best efforts to file with the Securities and Exchange Commission
(the Commission) and cause to become effective a
registration statement (the Exchange Offer Registration
Statement) with respect to a registered offer to exchange
the Notes and the Guarantees thereof for an issue of the
Companys senior secured notes (the Exchange
Notes) guaranteed by the Guarantors (the Exchange
Note Guarantees and, together with the Exchange Notes, the
Exchange Securities) with terms identical to the
12% Senior Secured Notes, except that the Exchange Notes
will not bear legends restricting transfer and will not contain
terms providing for the payment of additional interest as
described below and in the Registration Rights Agreement. In
addition, the Company has agreed to file, in certain
circumstances, a shelf registration statement covering resales
of the Securities.
Because the Company did not timely file the Exchange Offer
Registration Statement or consummate the exchange offer, it has
incurred additional interest (Additional Interest)
on the senior secured notes pursuant to the terms of the
Registration Rights Agreement. As of March 31, 2010, the
Company had incurred $1.6 million of Additional Interest,
and such Additional Interest has continued to accrue at a rate
of .75% per annum since March 31, 2010 and will continue to
accrue until the Company consummates the registered exchange
offer. Additional Interest accrues on the $420 million
aggregate principal amount of 12% Senior Secured Notes
described
F-20
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
above, together with the $50 million aggregate principal
amount of 12% Senior Secured Notes that the Company issued
on April 28, 2010, see Note 24. The Company has since
filed the Exchange Offer Registration Statement, and it
commenced the exchange offer on May 18, 2010. The exchange
offer is scheduled to expire on June 17, 2010, after which
time the Company will no longer have any obligation to pay
Additional Interest.
The proceeds received from the issuance of the 12% Senior
Secured Notes were used to repay term loan financing
arrangements under the First Lien Credit Agreement and the
Second Lien Credit Agreement described above.
In connection with the repayment of the obligations under the
Credit Agreements, the Company settled interest rate swap
agreements that had served as an economic hedge against
increases in interest rates and were not designated as hedges
for accounting purposes. See Note 11.
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
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
|
|
9% Senior Convertible Notes, due June 15, 2009, and
convertible into shares of the Companys common stock at
$12.50 per share. Interest at 9% was payable semi-annually, on
December 15 and June 15 (Effective interest rate of 26.5%)
|
|
|
|
|
|
|
28,268
|
|
0.5% Senior Subordinated Convertible Notes, due
June 30, 2009, and convertible into shares of the
Companys common stock at $8.14 per share. Interest at 0.5%
was payable semi-annually, on December 1 and June 30 (Effective
interest rate of 0.72%)
|
|
|
|
|
|
|
4,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,192
|
|
|
|
89,568
|
|
Less: current portion
|
|
|
|
|
|
|
(32,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,192
|
|
|
$
|
57,192
|
|
|
|
|
|
|
|
|
|
|
On June 15, 2009, all outstanding obligations related to
the Companys 0.5% Senior Subordinated Convertible
Notes, (the Series B Notes) with a face value
of $4.0 million, held by Credit Suisse, Cayman Islands
Branch and Credit Suisse, International, were satisfied and
repaid at the maturity of the Series B Notes. On the
maturity date, the Company paid $4.1 million to the holders
which represented the principal amount, payment in kind and all
unpaid or accrued interest. On June 15, 2009, all
outstanding obligations related to 9% Senior Convertible
Notes with a face value of $29.1 million were satisfied and
repaid at the maturity of such notes. On the maturity date, the
Company paid $30.4 million to the holders which represented
$29.1 million of principal and $1.3 million of unpaid
interest.
On May 2, 2007, the Company completed a private exchange
offer of its 6.625% Senior Convertible Notes with a limited
number of holders for $57.2 million aggregate principal
amount of its outstanding 9% Senior Convertible Notes in
exchange for an equal aggregate principal amount of the
6.625% Senior Convertible Notes. After completion of the
private exchange offer, only $29.1 million aggregate
principal amount of the 9% Senior Convertible Notes
remained outstanding under the global note and indenture
governing the 9% Senior Convertible Notes which notes were
eventually repaid on June 15, 2009 as described above. The
Company accounted for the exchange of $57.2 million of the
9% Senior Convertible Notes as an early extinguishment of
debt and the 6.625% Senior Convertible Notes were accounted
for as new debt instruments and recorded at $57.2 million
on the
F-21
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
date of the transaction. The exchange of the 9% Senior
Convertible Notes with the 6.625% Senior Convertible Notes
resulted in a loss on the early extinguishment of debt of
$18.5 million. The loss included $2.2 million of
unamortized deferred financing costs, $13.3 million of the
unamortized discount on the 9% Senior Convertible Notes and
the write off of $10.8 million of the derivative liability
associated with the 9% Senior Convertible Notes that was
bifurcated and accounted for separately. In addition, the
exchange resulted in a substantial premium of $13.7 million
associated with the fair value of the 6.625% Senior
Convertible Notes that was recorded as additional paid-in
capital.
Market data was used in the option pricing model to determine
the volatility of the stock price of the Company, the interest
rate term structure, the volatility of the interest rate and the
correlation between the interest rate and the stock price.
The 6.625% 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. 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. 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 interest to the holders of the 6.625% Senior
Convertible Notes equal to the product of the per share cash
dividend and the number of shares of common stock issuable upon
conversion of such holders 6.625% Senior Convertible
Notes.
The following table represents the combined aggregate principal
maturities for the following obligations for each of the fiscal
years ending March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
Secured
|
|
|
|
|
|
|
Debt
|
|
|
Loans
|
|
|
Total
|
|
|
2011
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
57,192
|
|
|
|
|
|
|
|
57,192
|
|
2015 and thereafter
|
|
|
|
|
|
|
420,000
|
|
|
|
420,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,192
|
|
|
|
420,000
|
|
|
|
477,192
|
|
Less: unamortized premiums and discounts
|
|
|
|
|
|
|
(31,165
|
)
|
|
|
(31,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,192
|
|
|
$
|
388,835
|
|
|
$
|
446,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The Companys 9% Senior Convertible Notes contained
three embedded derivatives that required separate valuation from
the 9% Senior Convertible Notes: a conversion option that
included an early conversion incentive, an equity participation
right and a takeover make-whole premium due upon a change in
control. The early conversion incentive expired on June 14,
2007. The Company determined that with the expiration of the
early
F-22
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
conversion incentive on June 14, 2007, the conversion
feature no longer met the conditions that would require separate
accounting as a derivative.
The Companys Series B Notes contained one embedded
derivative that required separate valuation from the
Series B Notes: a call option which provided the Company
with the option to redeem the Series B Notes at fixed
redemption prices plus accrued and unpaid interest and plus any
difference in the fair value of the conversion feature.
The Company has estimated that the embedded derivatives within
the 9% Senior Convertible Notes, the Series B Notes
and the 6.625% Senior Convertible Notes amounted in the
aggregate to a net liability of $0.2 million at
March 31, 2009. The resulting loss of $0.3 million and
income of $0.2 million was included in the change in the
fair value of derivatives in the accompanying consolidated
statement of operations for the year ended March 31, 2008.
In connection with the repayment of the 9% Senior
Convertible Notes and the Series B Notes on their
respective due dates, each of the embedded derivatives within
these instruments was cancelled. As of March 31, 2010, the
only remaining outstanding embedded derivatives were related to
the 6.625% Senior Convertible Notes, which amounted in the
aggregate to a liability of $0.3 million at March 31,
2010.
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 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 adjusts these instruments
to fair value and the resulting changes in fair value are
charged to earnings. At March 31, 2009, the fair value of
the interest rate swap agreements was a liability of
$6.1 million.
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 $1.3 million for the change
in the fair value of derivatives prior to June 24, 2009 and
$0.9 million of interest expense related to the interest
rate swap agreements for the year ended March 31, 2010.
|
|
12.
|
Deferred
Rent and Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred rent and other liabilities consists of (in thousands):
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
$
|
10,449
|
|
|
$
|
6,467
|
|
Interest rate swap, at fair value
|
|
|
|
|
|
|
6,073
|
|
Long-term portion of capital lease obligations
|
|
|
5,751
|
|
|
|
2,990
|
|
Deferred tax liability
|
|
|
1,543
|
|
|
|
1,543
|
|
Other liabilities
|
|
|
608
|
|
|
|
2,060
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,351
|
|
|
$
|
19,133
|
|
|
|
|
|
|
|
|
|
|
F-23
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Changes
in Stockholders Equity
|
Series I
convertible preferred stock
In 2004, the Company issued 400 shares of Series I
8% Convertible Preferred Stock (Series I
Preferred Stock) for $10.0 million, together with
warrants to purchase 280,000 shares of the Companys
common stock, which were exercisable for five years at $9.00 per
share. As of March 31, 2010, all warrants related to
issuance of Series I Preferred Stock have expired. The
Series I Preferred Stock is convertible into shares of the
Companys common stock at $7.50 per share. In January 2007,
the Series I Preferred Stock dividend rate increased to 10%
per year until January 2009, when it increased to 12%. Dividends
are payable, at the Companys discretion, in shares of the
Companys common stock or cash. The Company has the right
to redeem the Series I Preferred Stock at any time at
$25,000 per share plus accrued dividends. Series I
Preferred Stock contains an equity participation feature. Some
of the Series I Preferred Stock shares were sold on dates
on which the conversion price was less than the market price for
the Companys common stock. The Company recognized a
preferred dividend out of additional paid-in capital of
approximately $0.9 million, $0.8 million, and
$0.8 million for the years ended March 31, 2010, 2009
and 2008, respectively. The Series I Preferred Stock votes
together with the Companys common stock based on the
then-current conversion ratio of the Series I Preferred
Stock.
Common
stock
Issuance
of Common Stock
For the year ended March 31, 2010, the Company issued
1,317,581 shares of its common stock, valued at
$3.1 million, net of shares surrendered to satisfy the
holders withholding tax liability upon settlement of
share-based awards.
For the year ended March 31, 2009, the Company issued
568,728 shares of its common stock, valued at
$1.3 million, net of shares surrendered to satisfy the
holders withholding tax liability upon settlement of
share-based awards.
For the year ended March 31, 2008, the Company issued
398,182 shares of its common stock, valued at
$1.1 million, upon settlement of share-based awards.
In May 2009, the Company, in a private transaction, issued to
VMware Bermuda Limited (VMware), a wholly-owned
subsidiary of VMware, Inc., four million shares of its common
stock, valued at $19.9 million, net of issuance costs. The
governing subscription agreement grants to VMware a right of
first refusal with respect to certain future equity sales by the
Company that occur within the
18-month
period following the closing of the VMware purchase. If such
equity sales are proposed to be made to a competitor of VMware
or certain affiliates, VMware may elect to purchase such equity
in lieu of the competitor. If such equity sales are proposed to
be made to a non-competitor of VMware, VMware will not have the
ability to prevent such sale but will have the right to elect to
purchase an additional amount of equity sufficient to maintain
its initial equity percentage interest in the Company.
In January 2008, the Company issued 390,000 shares of its
common stock, valued at $2.1 million, in connection with
the acquisition of all of the outstanding common stock of a
disaster recovery and business continuity provider. See
Note 3.
In May 2007, the Company issued 1,925,544 shares of its
common stock, valued at $14.7 million, in connection with
the acquisition of all of the outstanding equity interests of a
managed web hosting services provider. See Note 3.
In April 2007, the Company sold 608,500 shares of common
stock in a public offering, at an offering price of $8.00 per
share, pursuant to the underwriters exercise of their
over-allotment option following the sale of
F-24
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
11 million shares in the March 2007 public offering. After
payment of underwriting discounts, commission and other offering
costs, the net proceeds to the Company of the over-allotment
were approximately $4.4 million.
Conversion
of preferred stock
During the year ended March 31, 2008, 11 shares of the
Companys Series I preferred stock, with an aggregate
fair value of $0.3 million (based on the closing price of
the Companys common stock at conversion date) were
converted into 36,667 shares of common stock.
Stock
warrants
During the period from November 2000 through April 2006, the
Company issued warrants to third parties for services and to
facilitate certain debt and equity transactions. The following
table summarizes information about stock warrants outstanding as
of March 31, 2010 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Shares
|
|
|
|
|
|
|
|
|
Estimated Fair
|
|
Issuance Date
|
|
Able to Purchase
|
|
|
Exercise Price
|
|
|
Expiration Date
|
|
|
Value at Issuance
|
|
|
April 2006
|
|
|
12,500
|
|
|
$
|
4.80
|
|
|
|
April 2011
|
|
|
$
|
93
|
|
December 2004
|
|
|
2,003,378
|
|
|
|
6.80-8.80
|
|
|
|
December 2011
|
|
|
|
8,783
|
|
June 2001
|
|
|
1,300
|
|
|
|
17.20
|
|
|
|
June 2011
|
|
|
|
21
|
|
January 2003
|
|
|
950
|
|
|
|
4.80
|
|
|
|
June 2011
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,018,128
|
|
|
|
|
|
|
|
|
|
|
$
|
8,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended March 31, 2010 and 2009, 12,200
warrants with a value of $0.1 million expired and 333,859
warrants with a value of $2.3 million expired, respectively
. During the year ended March 31, 2008, 181,579 warrants
with a value of $1.4 million expired.
Sale of
Treasury Shares
As of March 31, 2010, the Company does not have any
treasury stock.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
9% Senior Convertible Notes
|
|
|
484
|
|
|
|
2,325
|
|
|
|
2,725
|
|
Common stock warrants
|
|
|
2,023
|
|
|
|
2,261
|
|
|
|
2,364
|
|
Common stock options
|
|
|
2,330
|
|
|
|
2,257
|
|
|
|
2,303
|
|
Early conversion incentive
|
|
|
|
|
|
|
|
|
|
|
192
|
|
Nonvested stock
|
|
|
1,713
|
|
|
|
1,554
|
|
|
|
798
|
|
Series I convertible preferred stock
|
|
|
1,073
|
|
|
|
1,067
|
|
|
|
1,059
|
|
6.625% Senior Convertible Notes
|
|
|
4,575
|
|
|
|
4,575
|
|
|
|
4,175
|
|
0.5% Senior Subordinated Convertible Notes
|
|
|
123
|
|
|
|
491
|
|
|
|
491
|
|
|
|
15.
|
Share-Based
Compensation
|
On August 9, 2005, the Companys Board of Directors
adopted the 2005 Executive Incentive Compensation Plan (the
Plan), which was approved by the Companys
stockholders on September 23, 2005. This comprehensive
F-25
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
plan superseded and replaced all of the Companys
pre-existing stock option plans. The Compensation Committee has
the authority, under the Plan, to grant share-based incentive
awards to executives, key employees, directors, and consultants.
These awards include stock options, stock appreciation rights or
SARS, nonvested stock (commonly referred to as restricted
stock), deferred stock, other stock-related awards and
performance or annual incentive awards that may be settled in
cash, stock or other property (collectively, the
Awards). Awards granted generally vest over three
years with one third vesting each year from the date of grant
and generally expire ten years from the date of grant. On
September 28, 2007, the Companys stockholders
approved a proposal to increase the number of shares available
for issuance under the plan from 1,000,000 to 4,000,000. On
October 10, 2008, the Companys stockholders approved
a proposal to increase the number of shares available for
issuance under the plan from 4,000,000 to 5,500,000. There were
1,000,991 unissued shares available for grant under the Plan as
of March 31, 2010.
Option
Awards
A summary of the Companys stock option activity as of
March 31, 2010 and changes for the year ended
March 31, 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Contractual Term
|
|
|
Intrinsic Value
|
|
|
Outstanding at April 1, 2009
|
|
|
2,209,887
|
|
|
$
|
10.06
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
220,000
|
|
|
|
4.98
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(56,126
|
)
|
|
|
5.91
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(33,724
|
)
|
|
|
8.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
2,340,037
|
|
|
$
|
9.69
|
|
|
|
3.38
|
|
|
$
|
(6,266,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2010
|
|
|
2,103,370
|
|
|
$
|
10.20
|
|
|
|
3.59
|
|
|
$
|
(6,705,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
Compensation Recognized in the Consolidated 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):
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Cost of revenues
|
|
$
|
4,340
|
|
|
$
|
2,882
|
|
General and administrative
|
|
|
4,297
|
|
|
|
4,003
|
|
Sales and marketing
|
|
|
910
|
|
|
|
844
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,547
|
|
|
$
|
7,729
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, the future compensation expense
related to unvested options that will be recognized is
approximately $0.3 million. The cost is expected to be
recognized over a weighted-average period of 13 months. The
Company recognized approximately $1.2 million of
share-based compensation expense, associated with options, for
the year ended March 31, 2010. The total intrinsic value of
stock options exercised for the years ended March 31, 2010,
2009 and 2008 was less than $0.1 million, $0.1 million
and $0.3 million, respectively. The intrinsic value is
calculated as the difference between the market value of the
Companys common stock on the date of the
F-26
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
exercise and the exercise price of the shares under the
exercised options. The following table summarizes information
about stock options outstanding and exercisable in various price
ranges at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Outstanding
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
Range of Exercise Prices
|
|
Options
|
|
|
(Years)
|
|
|
(Outstanding)
|
|
|
Exercisable
|
|
|
(Exercisable)
|
|
|
$2.50-5.00
|
|
|
437,050
|
|
|
|
2.94
|
|
|
$
|
4.18
|
|
|
|
257,050
|
|
|
$
|
3.97
|
|
$5.01-10.00
|
|
|
1,498,059
|
|
|
|
4.30
|
|
|
|
6.18
|
|
|
|
1,441,392
|
|
|
|
6.13
|
|
$10.01-20.00
|
|
|
87,121
|
|
|
|
0.89
|
|
|
|
15.65
|
|
|
|
87,121
|
|
|
|
15.65
|
|
$20.01-30.00
|
|
|
13,230
|
|
|
|
0.91
|
|
|
|
24.71
|
|
|
|
13,230
|
|
|
|
24.71
|
|
$30.01-50.00
|
|
|
304,577
|
|
|
|
0.29
|
|
|
|
32.50
|
|
|
|
304,577
|
|
|
|
32.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,340,037
|
|
|
|
3.38
|
|
|
$
|
9.69
|
|
|
|
2,103,370
|
|
|
$
|
10.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Assumptions
The Company uses the Black-Scholes-Merton option-pricing model
to determine the fair value of stock options granted under the
Companys equity compensation plans. The determination of
the fair value of share-based payment awards on the date of
grant using an option-pricing model is affected by the
Companys stock price as well as assumptions regarding a
number of complex and subjective variables. These variables
include:
|
|
|
|
|
the expected price volatility of the Companys common stock
over the term of the awards;
|
|
|
|
actual and projected employee stock option exercise behaviors,
which is referred to as expected term;
|
|
|
|
risk-free interest rate; and
|
|
|
|
expected dividends.
|
The Company estimates the expected term of options granted by
taking the average of the vesting term and the contractual term
of the option. Expected volatility is based on the combination
of the historical volatility of the Companys common stock
over the period commensurate with the expected term of the
award. The Company bases the risk-free interest rate that it
uses in its option-pricing models on U.S. Treasury
zero-coupon issues with remaining terms similar to the expected
term on its equity awards. The Company does not anticipate
paying any cash dividends in the foreseeable future and
therefore uses an expected dividend yield of zero in its
option-pricing models. If factors change and the Company employs
different assumptions for estimating share-based compensation
expense in future periods or if it decides to use a different
valuation model in the future, the future periods may differ
significantly from what the Company has recorded in the current
period and could materially affect its operating results, net
income or loss and net income or loss per share. There were no
options granted during the year ended March 31, 2009.
The assumptions used to value stock options were as follows:
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Risk Free Rate
|
|
2.2%
|
|
|
|
4.1%
|
Volatility
|
|
129%
|
|
|
|
102%
|
Expected Term
|
|
6 years
|
|
|
|
6 years
|
Expected Dividends
|
|
0%
|
|
|
|
0%
|
F-27
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Nonvested
Awards
The Company records the intrinsic value of nonvested stock
awarded under the Companys equity compensation plans as
additional paid-in capital. Share-based compensation expense is
recognized ratably over the applicable vesting period. As of
March 31, 2010, the future compensation expense related to
nonvested stock that will be recognized is approximately
$12.1 million. The cost is expected to be recognized over a
weighted-average period of 2.1 years. The Company
recognized approximately $5.2 million of share-based
compensation expense, associated with nonvested stock, for the
year ended March 31, 2010. A summary of the Companys
nonvested stock, as of March 31, 2010 and changes for the
year ended March 31, 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Outstanding at April 1, 2009
|
|
|
1,489,630
|
|
|
$
|
6.07
|
|
Granted
|
|
|
1,719,500
|
|
|
|
6.78
|
|
Vested
|
|
|
(628,178
|
)
|
|
|
5.27
|
|
Forfeited
|
|
|
(150,958
|
)
|
|
|
6.04
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
2,429,994
|
|
|
$
|
6.54
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Commitments
and Contingencies
|
Leasing
activities
The Company leases space for its operations, office equipment
and furniture under operating leases. Certain of these operating
leases contain renewal options
and/or
purchase options. The same lease term is used for classification
purposes, amortization of leasehold improvements (unless the
useful life is shorter), and the estimation of future lease
commitments. Equipment is also leased under capital leases,
which are included in improvements, furniture and equipment.
As of March 31, 2010, future minimum lease/rental payments
under non-cancelable operating and capital leases having a
remaining term in excess of one year are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Lessee
|
|
|
As Lessor
|
|
|
|
Capital
|
|
|
Operating
|
|
|
Sales-Type
|
|
|
Operating
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Leases
|
|
|
Leases
|
|
|
2011
|
|
$
|
6,820
|
|
|
$
|
17,002
|
|
|
$
|
548
|
|
|
$
|
3,747
|
|
2012
|
|
|
4,924
|
|
|
|
16,094
|
|
|
|
208
|
|
|
|
3,611
|
|
2013
|
|
|
2,488
|
|
|
|
12,431
|
|
|
|
83
|
|
|
|
2,930
|
|
2014
|
|
|
89
|
|
|
|
12,343
|
|
|
|
|
|
|
|
2,168
|
|
2015 and thereafter
|
|
|
75
|
|
|
|
54,952
|
|
|
|
|
|
|
|
7,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
14,396
|
|
|
$
|
112,822
|
|
|
|
839
|
|
|
$
|
19,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount representing interest and maintenance
|
|
|
(3,192
|
)
|
|
|
|
|
|
|
(276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net minimum lease payments
|
|
$
|
11,204
|
|
|
|
|
|
|
$
|
563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease expense, in the aggregate, amounted to
approximately $13.1 million, $11.0 million, and
$9.7 million, for the years ended March 31, 2010, 2009
and 2008, respectively. Total future sublease rentals of
$0.7 million are included within the future minimum rental
payments for operating leases as lessee.
F-28
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Litigation
From time to time, the Company is involved in various
litigations relating to claims arising in the normal course of
business. These claims are generally covered by insurance. The
Company is not currently subject to any litigation which
singularly or in the aggregate could reasonably be expected to
have a material adverse effect on the Companys financial
position or results of operations.
In the ordinary course of conducting business, the Company
becomes 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 it.
The Companys participation in government contracts
subjects the Company to inquiries, investigations and subpoenas
regarding business with the federal government. Improper or
illegal activities may subject the Company 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 any pending matters of the nature described above
would be material.
|
|
17.
|
Related
Party Transactions
|
Due to the nature of the following relationships, the terms of
the respective agreements may not be the same as those that
would result from transactions among wholly unrelated parties.
Following is a summary of transactions for the years ended
March 31, 2010, 2009 and 2008 and balances with related
parties included in the accompanying consolidated balance sheets
as of March 31, 2010 and 2009, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Services purchased from related party
|
|
$
|
111
|
|
|
$
|
|
|
|
$
|
|
|
Services provided to Fusion
|
|
|
34
|
|
|
|
76
|
|
|
|
71
|
|
Services from directors
|
|
|
417
|
|
|
|
521
|
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
|
2010
|
|
2009
|
|
Other assets
|
|
$
|
304
|
|
|
$
|
348
|
|
The Company has entered into consulting agreements with two
members of its Board of Directors and into an employment
agreement with another board member. One consulting agreement
provides for annual compensation of $240,000, payable monthly.
In addition, in October 2006, the Companys Board of
Directors approved the issuance to this director of
50,000 shares of nonvested stock, vesting over a period of
one year. The remaining consulting agreement and employment
agreement provides for annual compensation aggregating $160,000.
In June 2006, the Company agreed to issue 15,000 shares of
nonvested stock to the director with the employment agreement,
pursuant to a prior agreement in connection with the director
bringing additional business to the Company. In February 2010,
the Company entered into a consulting agreement with a new board
member which provides for annual compensation of $100,000, and
the issuance of options to purchase 20,000 shares of common
stock.
F-29
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Colocation
|
|
$
|
111,173
|
|
|
$
|
82,714
|
|
|
$
|
60,559
|
|
Managed and professional services
|
|
|
155,733
|
|
|
|
142,164
|
|
|
|
111,702
|
|
Exchange point services
|
|
|
18,691
|
|
|
|
15,949
|
|
|
|
12,592
|
|
Equipment resales
|
|
|
6,750
|
|
|
|
9,643
|
|
|
|
2,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
292,347
|
|
|
$
|
250,470
|
|
|
$
|
187,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total arrangement consideration for managed web hosting
solutions may include the procurement of equipment. Amounts
allocated to equipment sold under these arrangements and
included in managed and professional services were
$8.1 million, $5.4 million and $7.1 million for
the years ended March 31, 2010, 2009 and 2008, respectively.
|
|
19.
|
Information
About the Companys Operating Segment
|
As of March 31, 2010 and March 31, 2009, the Company
had one reportable business segment, which is the 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.
The Company recorded a tax expense of $2.0 million and a
tax benefit of $0.1 million for the years ended
March 31, 2010 and 2009, respectively.
Net loss before income taxes is attributable to the following
geographic locations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
$
|
(35,001
|
)
|
|
$
|
(10,505
|
)
|
|
$
|
(42,675
|
)
|
International
|
|
|
5,348
|
|
|
|
(143
|
)
|
|
|
1,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(29,653
|
)
|
|
$
|
(10,648
|
)
|
|
$
|
(41,415
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consisted of the following
components for the year ended March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current
|
|
$
|
2,107
|
|
|
$
|
1,021
|
|
|
$
|
(745
|
)
|
Deferred
|
|
|
(87
|
)
|
|
|
(1,100
|
)
|
|
|
1,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
2,020
|
|
|
$
|
(79
|
)
|
|
$
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred tax assets (liabilities) consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
122,747
|
|
|
$
|
93,835
|
|
Interest rate swap and embedded derivatives
|
|
|
187
|
|
|
|
2,354
|
|
Allowances and other
|
|
|
8,898
|
|
|
|
7,031
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
131,832
|
|
|
|
103,220
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(108,922
|
)
|
|
|
(92,388
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangibles with indefinite lives
|
|
|
(1,647
|
)
|
|
|
(1,543
|
)
|
Depreciation and amortization
|
|
|
(21,729
|
)
|
|
|
(9,970
|
)
|
Other
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability
|
|
|
(23,504
|
)
|
|
|
(11,513
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(594
|
)
|
|
$
|
(681
|
)
|
|
|
|
|
|
|
|
|
|
The Companys accounting for deferred taxes involves the
evaluation of a number of factors concerning the realizability
of the Companys deferred tax assets. A 100% valuation
allowance has been provided on the net deferred tax assets of
the U.S. companies and operations in Spain, United Kingdom,
Colombia and Turkey. The net consolidated deferred tax liability
is a combination of a liability related to intangibles with
indefinite lives in the United States and the net deferred tax
assets of the profitable foreign operating units. To support the
Companys conclusion that a 100% valuation allowance was
required for certain taxing jurisdictions, the Company primarily
considered such factors as the Companys history of
operating losses, the nature of the Companys deferred tax
assets and the absence of taxable income in prior carryback
years. Although the Companys operating plans assume
taxable and operating income in future periods, the
Companys evaluation of all the available evidence in
assessing the realizability of the deferred tax assets indicates
that it is more likely than not that such plans are insufficient
to overcome the available negative evidence.
The net non-current deferred tax asset as of March 31, 2010
and 2009 of $0.9 million is included in other assets in the
accompanying consolidated balance sheets. The net non-current
deferred tax liabilities as of March 31, 2010 and 2009, of
$1.5 million and $1.5 million, respectively, are
included in deferred rent and other liabilities in the
accompanying consolidated balance sheet.
The valuation allowance increased by $16.5 million and
$0.6 million for the years ended March 31, 2010 and
2009, respectively. The net change of the valuation allowance
for the year ended March 31, 2010 was primarily due to a
net increase to the Companys deferred tax assets.
As of March 31, 2010, the Company has not recorded deferred
income taxes on the unremitted earnings of its foreign
subsidiaries. As of March 31, 2010, these earnings are
intended to be permanently re-invested in foreign operations.
The Company has U.S. federal net operating loss
carryforwards of $305.5 million, expiring currently through
tax year 2030, and foreign net operating loss carryforwards of
approximately $8.9 million expiring through tax years 2015
to 2025, and approximately $5.1 million that may be carried
forward indefinitely.
F-31
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The reconciliation between the statutory income tax rate and the
effective income tax rate on pre-tax loss is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Statutory tax rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State income taxes, net of federal income tax benefit
|
|
|
3.5
|
|
|
|
(1.3
|
)
|
|
|
(2.9
|
)
|
Foreign income tax
|
|
|
(0.5
|
)
|
|
|
(1.1
|
)
|
|
|
0.1
|
|
Permanent differences
|
|
|
(2.0
|
)
|
|
|
8.3
|
|
|
|
(0.9
|
)
|
Valuation allowance
|
|
|
39.8
|
|
|
|
27.1
|
|
|
|
39.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
6.8
|
%
|
|
|
(1.0
|
)%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has not been audited by the Internal Revenue Service
or other applicable tax authorities for the following open tax
periods: the years ended March 31, 2010, 2009, 2008 and
2007. Net operating loss carryovers incurred in years prior to
2006 are subject to audit in the event they are utilized in
subsequent years.
The Company has determined that it has no uncertain tax
positions.
|
|
21.
|
Information
About the Geographic Segments
|
The Companys geographic statements of operations
disclosures are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
249,761
|
|
|
$
|
218,935
|
|
|
$
|
163,278
|
|
International
|
|
|
42,586
|
|
|
|
31,535
|
|
|
|
24,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
292,347
|
|
|
$
|
250,470
|
|
|
$
|
187,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
135,026
|
|
|
$
|
117,236
|
|
|
$
|
86,416
|
|
International
|
|
|
24,570
|
|
|
|
19,198
|
|
|
|
14,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
159,596
|
|
|
$
|
136,434
|
|
|
$
|
100,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
27,424
|
|
|
$
|
21,117
|
|
|
$
|
13,676
|
|
International
|
|
|
3,889
|
|
|
|
1,351
|
|
|
|
1,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,313
|
|
|
$
|
22,468
|
|
|
$
|
14,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys long-lived assets, including property and
equipment, net and identifiable and intangible assets, are
located in the following geographic areas (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
United States
|
|
$
|
479,595
|
|
|
$
|
390,790
|
|
International
|
|
|
32,932
|
|
|
|
9,343
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
512,527
|
|
|
$
|
400,133
|
|
|
|
|
|
|
|
|
|
|
F-32
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
22.
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Supplemental disclosures of cash flow information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amount capitalized
|
|
$
|
34,406
|
|
|
$
|
18,042
|
|
|
$
|
21,386
|
|
Cash paid for income taxes
|
|
|
2,460
|
|
|
|
256
|
|
|
|
217
|
|
Non-cash operating, investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired under capital leases
|
|
|
8,207
|
|
|
|
4,521
|
|
|
|
1,528
|
|
Net assets acquired in exchange for common stock
|
|
|
|
|
|
|
|
|
|
|
16,746
|
|
Cancellation and expiration of warrants
|
|
|
59
|
|
|
|
2,257
|
|
|
|
1,380
|
|
Changes in accounts payable and other current liabilities
related to purchase of property, plant and equipment
|
|
|
10,086
|
|
|
|
1,978
|
|
|
|
18,259
|
|
|
|
23.
|
Supplemental
Guarantor and Non-Guarantor Financial Information
|
On June 24, 2009, the Company completed an offering of
$420 million of 12% Senior Secured Notes, which are
guaranteed by substantially all of the Companys domestic
subsidiaries (the Guarantor Subsidiaries).
Additionally, the debt is 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 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. On April 28, 2010, the Company issued
an additional $50 million aggregate principal amount of 12%
Senior Secured Notes, which are part of the same series as the
notes issued on June 24, 2009. See Note 24.
In anticipation of the Guarantor Subsidiaries being guarantors
of debt securities that are registered under the Securities Act
of 1933, as amended, below are certain consolidating financial
statements of the Company, the Guarantor Subsidiaries and the
Non-Guarantor Subsidiaries. In lieu of providing separate
unaudited financial statements of the Guarantor Subsidiaries,
condensed financial statements prepared in accordance with
Rule 3-10
of
Regulation S-X
are presented below. The column marked Issuer
includes the results of Terremark Worldwide, Inc. (the
Parent Company). The column marked Guarantor
Subsidiaries includes the results of the Guarantor
Subsidiaries, which consists of all domestic subsidiaries. The
column marked Non-Guarantor Subsidiaries includes
results of the Non-Guarantor Subsidiaries, which consists
primarily of 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 Guarantor Subsidiaries 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.
F-33
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Balance Sheet as of March 31, 2010
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43,497
|
|
|
$
|
517
|
|
|
$
|
9,454
|
|
|
$
|
|
|
|
$
|
53,468
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and secured loans
|
|
$
|
1,183
|
|
|
$
|
3,589
|
|
|
$
|
147
|
|
|
$
|
|
|
|
$
|
4,919
|
|
Accounts payable and other current liabilities
|
|
|
24,412
|
|
|
|
58,455
|
|
|
|
9,081
|
|
|
|
|
|
|
|
91,948
|
|
Current portion of convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
25,595
|
|
|
|
62,044
|
|
|
|
9,228
|
|
|
|
|
|
|
|
96,867
|
|
Intercompany accounts payable
|
|
|
43,783
|
|
|
|
276,341
|
|
|
|
18,600
|
|
|
|
(338,724
|
)
|
|
|
|
|
Secured loans, less current portion
|
|
|
388,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388,835
|
|
Convertible debt, less current portion
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Balance Sheet as of March 31, 2009
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
41,895
|
|
|
$
|
1,363
|
|
|
$
|
8,528
|
|
|
$
|
|
|
|
$
|
51,786
|
|
Restricted cash
|
|
|
|
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
1,107
|
|
Accounts receivable, net
|
|
|
2
|
|
|
|
32,814
|
|
|
|
3,000
|
|
|
|
|
|
|
|
35,816
|
|
Current portion of capital lease receivable
|
|
|
|
|
|
|
631
|
|
|
|
|
|
|
|
|
|
|
|
631
|
|
Prepaid expenses and other current assets
|
|
|
865
|
|
|
|
6,317
|
|
|
|
1,433
|
|
|
|
|
|
|
|
8,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
42,762
|
|
|
|
42,232
|
|
|
|
12,961
|
|
|
|
|
|
|
|
97,955
|
|
Investment in subsidiaries
|
|
|
200,512
|
|
|
|
|
|
|
|
|
|
|
|
(200,512
|
)
|
|
|
|
|
Intercompany accounts receivable
|
|
|
242,013
|
|
|
|
65,673
|
|
|
|
1,907
|
|
|
|
(309,593
|
)
|
|
|
|
|
Restricted cash
|
|
|
626
|
|
|
|
858
|
|
|
|
|
|
|
|
|
|
|
|
1,484
|
|
Property and equipment, net
|
|
|
5,808
|
|
|
|
285,549
|
|
|
|
9,645
|
|
|
|
|
|
|
|
301,002
|
|
Debt issuance costs, net
|
|
|
7,382
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
7,409
|
|
Other assets
|
|
|
937
|
|
|
|
7,386
|
|
|
|
584
|
|
|
|
|
|
|
|
8,907
|
|
Capital lease receivable, net of current portion
|
|
|
|
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
|
454
|
|
Intangibles, net
|
|
|
|
|
|
|
11,652
|
|
|
|
1,340
|
|
|
|
|
|
|
|
12,992
|
|
Goodwill
|
|
|
|
|
|
|
79,196
|
|
|
|
6,943
|
|
|
|
|
|
|
|
86,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
500,040
|
|
|
$
|
493,027
|
|
|
$
|
33,380
|
|
|
$
|
(510,105
|
)
|
|
$
|
516,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of capital lease obligations and secured loans
|
|
$
|
2,257
|
|
|
$
|
1,406
|
|
|
$
|
160
|
|
|
$
|
|
|
|
$
|
3,823
|
|
Accounts payable and other current liabilities
|
|
|
12,409
|
|
|
|
41,675
|
|
|
|
6,268
|
|
|
|
|
|
|
|
60,352
|
|
Current portion of convertible debt
|
|
|
32,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
47,042
|
|
|
|
43,081
|
|
|
|
6,428
|
|
|
|
|
|
|
|
96,551
|
|
Intercompany accounts payable
|
|
|
64,794
|
|
|
|
233,073
|
|
|
|
11,726
|
|
|
|
(309,593
|
)
|
|
|
|
|
Secured loans, less current portion
|
|
|
252,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252,728
|
|
Convertible debt, less current portion
|
|
|
57,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,192
|
|
Deferred rent and other liabilities
|
|
|
10,258
|
|
|
|
7,975
|
|
|
|
900
|
|
|
|
|
|
|
|
19,133
|
|
Deferred revenue
|
|
|
|
|
|
|
5,921
|
|
|
|
1,819
|
|
|
|
|
|
|
|
7,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
432,014
|
|
|
$
|
290,050
|
|
|
$
|
20,873
|
|
|
$
|
(309,593
|
)
|
|
$
|
433,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series I convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
60
|
|
|
|
|
|
|
|
1,000
|
|
|
|
(1,000
|
)
|
|
|
60
|
|
Common stock warrants
|
|
|
8,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,960
|
|
Additional paid-in capital
|
|
|
428,251
|
|
|
|
176,833
|
|
|
|
22,679
|
|
|
|
(199,512
|
)
|
|
|
428,251
|
|
Accumulated (deficit) earnings
|
|
|
(369,245
|
)
|
|
|
26,144
|
|
|
|
(9,893
|
)
|
|
|
|
|
|
|
(352,994
|
)
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(1,279
|
)
|
|
|
|
|
|
|
(1,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
68,026
|
|
|
|
202,977
|
|
|
|
12,507
|
|
|
|
(200,512
|
)
|
|
|
82,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
500,040
|
|
|
$
|
493,027
|
|
|
$
|
33,380
|
|
|
$
|
(510,105
|
)
|
|
$
|
516,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Operations for the Year Ended March 31,
2010
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenues
|
|
$
|
22,911
|
|
|
$
|
251,196
|
|
|
$
|
42,840
|
|
|
$
|
(24,600
|
)
|
|
$
|
292,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues, excluding depreciation and amortization
|
|
|
264
|
|
|
|
136,198
|
|
|
|
24,823
|
|
|
|
(1,689
|
)
|
|
|
159,596
|
|
General and administrative
|
|
|
27,454
|
|
|
|
25,005
|
|
|
|
5,234
|
|
|
|
(22,911
|
)
|
|
|
34,782
|
|
Sales and marketing
|
|
|
2,425
|
|
|
|
21,614
|
|
|
|
4,735
|
|
|
|
|
|
|
|
28,774
|
|
Depreciation and amortization
|
|
|
2,025
|
|
|
|
31,698
|
|
|
|
4,159
|
|
|
|
|
|
|
|
37,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
32,168
|
|
|
|
214,515
|
|
|
|
38,951
|
|
|
|
(24,600
|
)
|
|
|
261,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(9,257
|
)
|
|
|
36,681
|
|
|
|
3,889
|
|
|
|
|
|
|
|
31,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(49,130
|
)
|
|
|
(22,922
|
)
|
|
|
(177
|
)
|
|
|
22,586
|
|
|
|
(49,643
|
)
|
Interest income
|
|
|
22,692
|
|
|
|
123
|
|
|
|
127
|
|
|
|
(22,586
|
)
|
|
|
356
|
|
Change in fair value of derivatives
|
|
|
(1,464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,464
|
)
|
Financing charges and other
|
|
|
(548
|
)
|
|
|
(298
|
)
|
|
|
906
|
|
|
|
|
|
|
|
60
|
|
Loss on early extinguishment of debt
|
|
|
(10,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expenses) income
|
|
|
(38,725
|
)
|
|
|
(23,097
|
)
|
|
|
856
|
|
|
|
|
|
|
|
(60,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(47,982
|
)
|
|
|
13,584
|
|
|
|
4,745
|
|
|
|
|
|
|
|
(29,653
|
)
|
Income taxes expense
|
|
|
87
|
|
|
|
303
|
|
|
|
1,630
|
|
|
|
|
|
|
|
2,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(48,069
|
)
|
|
$
|
13,281
|
|
|
$
|
3,115
|
|
|
$
|
|
|
|
$
|
(31,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-36
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Operations for the Year Ended March 31,
2009
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
219,615
|
|
|
$
|
31,535
|
|
|
$
|
(680
|
)
|
|
$
|
250,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues, excluding depreciation and amortization
|
|
|
7
|
|
|
|
117,910
|
|
|
|
19,197
|
|
|
|
(680
|
)
|
|
|
136,434
|
|
General and administrative
|
|
|
26,424
|
|
|
|
6,147
|
|
|
|
4,224
|
|
|
|
|
|
|
|
36,795
|
|
Sales and marketing
|
|
|
452
|
|
|
|
21,860
|
|
|
|
4,237
|
|
|
|
|
|
|
|
26,549
|
|
Depreciation and amortization
|
|
|
1,027
|
|
|
|
23,977
|
|
|
|
3,220
|
|
|
|
|
|
|
|
28,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
27,910
|
|
|
|
169,894
|
|
|
|
30,878
|
|
|
|
(680
|
)
|
|
|
228,002
|
|
(Loss) income from operations
|
|
|
(27,910
|
)
|
|
|
49,721
|
|
|
|
657
|
|
|
|
|
|
|
|
22,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(29,479
|
)
|
|
|
(468
|
)
|
|
|
(386
|
)
|
|
|
353
|
|
|
|
(29,980
|
)
|
Interest income
|
|
|
1,330
|
|
|
|
184
|
|
|
|
171
|
|
|
|
(353
|
)
|
|
|
1,332
|
|
Change in fair value of derivatives
|
|
|
(3,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,886
|
)
|
Financing charges and other
|
|
|
6
|
|
|
|
(15
|
)
|
|
|
(573
|
)
|
|
|
|
|
|
|
(582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(32,029
|
)
|
|
|
(299
|
)
|
|
|
(788
|
)
|
|
|
|
|
|
|
(33,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(59,939
|
)
|
|
|
49,422
|
|
|
|
(131
|
)
|
|
|
|
|
|
|
(10,648
|
)
|
Income taxes (benefit) expense
|
|
|
(898
|
)
|
|
|
|
|
|
|
819
|
|
|
|
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(59,041
|
)
|
|
$
|
49,422
|
|
|
$
|
(950
|
)
|
|
$
|
|
|
|
$
|
(10,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Operations for the Year Ended March 31,
2008
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Revenues
|
|
$
|
|
|
|
$
|
163,443
|
|
|
$
|
24,136
|
|
|
$
|
(165
|
)
|
|
$
|
187,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of revenues, excluding depreciation and amortization
|
|
|
7
|
|
|
|
86,574
|
|
|
|
14,470
|
|
|
|
(165
|
)
|
|
|
100,886
|
|
General and administrative
|
|
|
22,284
|
|
|
|
6,689
|
|
|
|
3,294
|
|
|
|
|
|
|
|
32,267
|
|
Sales and marketing
|
|
|
623
|
|
|
|
16,786
|
|
|
|
3,478
|
|
|
|
|
|
|
|
20,887
|
|
Depreciation and amortization
|
|
|
523
|
|
|
|
15,570
|
|
|
|
2,592
|
|
|
|
|
|
|
|
18,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
23,437
|
|
|
|
125,619
|
|
|
|
23,834
|
|
|
|
(165
|
)
|
|
|
172,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(23,437
|
)
|
|
|
37,824
|
|
|
|
302
|
|
|
|
|
|
|
|
14,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(29,352
|
)
|
|
|
(2,712
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
(32,105
|
)
|
Interest income
|
|
|
4,564
|
|
|
|
379
|
|
|
|
288
|
|
|
|
|
|
|
|
5,231
|
|
Change in fair value of derivatives
|
|
|
(1,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,107
|
)
|
Financing charges and other
|
|
|
(1,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,173
|
)
|
Loss on early extinguishment of debt
|
|
|
(24,226
|
)
|
|
|
(2,724
|
)
|
|
|
|
|
|
|
|
|
|
|
(26,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expenses) income
|
|
|
(51,294
|
)
|
|
|
(5,057
|
)
|
|
|
247
|
|
|
|
|
|
|
|
(56,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(74,731
|
)
|
|
|
32,767
|
|
|
|
549
|
|
|
|
|
|
|
|
(41,415
|
)
|
Income taxes expense
|
|
|
325
|
|
|
|
9
|
|
|
|
479
|
|
|
|
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(75,056
|
)
|
|
$
|
32,758
|
|
|
$
|
70
|
|
|
$
|
|
|
|
$
|
(42,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Cash Flows for the Year Ended March 31,
2010
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(48,069
|
)
|
|
$
|
13,281
|
|
|
$
|
3,115
|
|
|
$
|
|
|
|
$
|
(31,673
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,025
|
|
|
|
31,698
|
|
|
|
4,159
|
|
|
|
|
|
|
|
37,882
|
|
Loss on early extinguishment of debt
|
|
|
10,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,275
|
|
Change in fair value of derivatives
|
|
|
1,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,464
|
|
Gain on currency translation effect
|
|
|
|
|
|
|
|
|
|
|
(856
|
)
|
|
|
|
|
|
|
(856
|
)
|
Accretion on debt, net
|
|
|
2,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,673
|
|
Amortization of debt issue costs
|
|
|
657
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
764
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
2,181
|
|
|
|
|
|
|
|
|
|
|
|
2,181
|
|
Interest payment in kind on secured loans and convertible debt
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
395
|
|
Share-based compensation
|
|
|
3,641
|
|
|
|
5,596
|
|
|
|
311
|
|
|
|
|
|
|
|
9,548
|
|
Settlement of interest rate swaps
|
|
|
(8,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,360
|
)
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(7
|
)
|
|
|
(14,478
|
)
|
|
|
(845
|
)
|
|
|
|
|
|
|
(15,330
|
)
|
Capital lease receivable, net of unearned interest
|
|
|
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
382
|
|
Restricted cash
|
|
|
(12
|
)
|
|
|
954
|
|
|
|
(310
|
)
|
|
|
|
|
|
|
632
|
|
Prepaid expenses and other assets
|
|
|
64
|
|
|
|
(1,224
|
)
|
|
|
(6,176
|
)
|
|
|
|
|
|
|
(7,336
|
)
|
(Decrease) increase in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities
|
|
|
16,858
|
|
|
|
(4,482
|
)
|
|
|
942
|
|
|
|
|
|
|
|
13,318
|
|
Deferred revenue
|
|
|
|
|
|
|
2,708
|
|
|
|
430
|
|
|
|
|
|
|
|
3,138
|
|
Deferred rent and other liabilities
|
|
|
1,469
|
|
|
|
1,806
|
|
|
|
86
|
|
|
|
|
|
|
|
3,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(16,927
|
)
|
|
|
38,529
|
|
|
|
856
|
|
|
|
|
|
|
|
22,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(882
|
)
|
|
|
(100,563
|
)
|
|
|
(17,136
|
)
|
|
|
|
|
|
|
(118,581
|
)
|
Acquisition of DS3 DataVaulting, LLC, net of cash acquired
|
|
|
|
|
|
|
(12,037
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(882
|
)
|
|
|
(112,600
|
)
|
|
|
(17,136
|
)
|
|
|
|
|
|
|
(130,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment on secured loans and convertible debt
|
|
|
(290,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(290,930
|
)
|
Intercompany activity, net
|
|
|
(91,933
|
)
|
|
|
75,734
|
|
|
|
16,199
|
|
|
|
|
|
|
|
|
|
Payments of debt issuance costs
|
|
|
(3,544
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,545
|
)
|
Proceeds from issuance of common stock
|
|
|
20,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,883
|
|
Proceeds from issuance of secured loans
|
|
|
386,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386,963
|
|
Payments of preferred stock dividends
|
|
|
(924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(924
|
)
|
Payments under capital lease obligations
|
|
|
(1,104
|
)
|
|
|
(2,229
|
)
|
|
|
(187
|
)
|
|
|
|
|
|
|
(3,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
19,411
|
|
|
|
73,504
|
|
|
|
16,012
|
|
|
|
|
|
|
|
108,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate on cash and cash
equivalents
|
|
|
|
|
|
|
(279
|
)
|
|
|
1,194
|
|
|
|
|
|
|
|
915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,602
|
|
|
|
(846
|
)
|
|
|
926
|
|
|
|
|
|
|
|
1,682
|
|
Cash and cash equivalents at beginning of period
|
|
|
41,895
|
|
|
|
1,363
|
|
|
|
8,528
|
|
|
|
|
|
|
|
51,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
43,497
|
|
|
$
|
517
|
|
|
$
|
9,454
|
|
|
$
|
|
|
|
$
|
53,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Cash Flows for the Twelve Months Ended
March 31, 2009
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(59,041
|
)
|
|
$
|
49,422
|
|
|
$
|
(950
|
)
|
|
$
|
|
|
|
$
|
(10,569
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,027
|
|
|
|
23,977
|
|
|
|
3,220
|
|
|
|
|
|
|
|
28,224
|
|
Change in fair value of derivatives
|
|
|
3,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,886
|
|
Loss on currency translation effect
|
|
|
|
|
|
|
|
|
|
|
700
|
|
|
|
|
|
|
|
700
|
|
Accretion on debt, net
|
|
|
3,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,476
|
|
Amortization of debt issue costs
|
|
|
2,188
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
2,267
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
3,128
|
|
|
|
|
|
|
|
|
|
|
|
3,128
|
|
Interest payment in kind on secured loans and convertible debt
|
|
|
4,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,812
|
|
Share-based compensation
|
|
|
3,689
|
|
|
|
4,040
|
|
|
|
|
|
|
|
|
|
|
|
7,729
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1
|
|
|
|
4,717
|
|
|
|
(457
|
)
|
|
|
|
|
|
|
4,261
|
|
Capital lease receivables, net of unearned interest
|
|
|
|
|
|
|
1,098
|
|
|
|
|
|
|
|
|
|
|
|
1,098
|
|
Restricted cash
|
|
|
123
|
|
|
|
(374
|
)
|
|
|
|
|
|
|
|
|
|
|
(251
|
)
|
Prepaid expenses and other assets
|
|
|
52
|
|
|
|
1,790
|
|
|
|
(906
|
)
|
|
|
|
|
|
|
936
|
|
(Decrease) Increase in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities
|
|
|
1,869
|
|
|
|
(7,910
|
)
|
|
|
1,311
|
|
|
|
|
|
|
|
(4,730
|
)
|
Deferred revenue
|
|
|
|
|
|
|
823
|
|
|
|
808
|
|
|
|
|
|
|
|
1,631
|
|
Deferred rent and other liabilities
|
|
|
2,620
|
|
|
|
1,508
|
|
|
|
167
|
|
|
|
|
|
|
|
4,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(35,298
|
)
|
|
|
82,298
|
|
|
|
3,893
|
|
|
|
|
|
|
|
50,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(1,959
|
)
|
|
|
(81,443
|
)
|
|
|
(6,981
|
)
|
|
|
|
|
|
|
(90,383
|
)
|
Repayment of notes receivable
|
|
|
48
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,911
|
)
|
|
|
(81,447
|
)
|
|
|
(6,981
|
)
|
|
|
|
|
|
|
(90,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on secured loans and convertible debt
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,500
|
)
|
Payments of debt issuance costs
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60
|
)
|
Proceeds from issuance of common stock
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Intercompany activity, net
|
|
|
(6,473
|
)
|
|
|
(1,005
|
)
|
|
|
7,478
|
|
|
|
|
|
|
|
|
|
Payments of preferred stock dividends
|
|
|
(781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(781
|
)
|
Payments under capital lease obligations
|
|
|
(645
|
)
|
|
|
(1,140
|
)
|
|
|
(243
|
)
|
|
|
|
|
|
|
(2,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(9,456
|
)
|
|
|
(2,145
|
)
|
|
|
7,235
|
|
|
|
|
|
|
|
(4,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rates on cash and cash
equivalents
|
|
|
(4
|
)
|
|
|
470
|
|
|
|
(1,858
|
)
|
|
|
|
|
|
|
(1,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(46,669
|
)
|
|
|
(824
|
)
|
|
|
2,289
|
|
|
|
|
|
|
|
(45,204
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
88,564
|
|
|
|
2,187
|
|
|
|
6,239
|
|
|
|
|
|
|
|
96,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
41,895
|
|
|
$
|
1,363
|
|
|
$
|
8,528
|
|
|
$
|
|
|
|
$
|
51,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consolidated
Statement of Cash Flows for the Year Ended March 31,
2008
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(75,056
|
)
|
|
$
|
32,758
|
|
|
$
|
70
|
|
|
$
|
|
|
|
$
|
(42,228
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
523
|
|
|
|
15,570
|
|
|
|
2,592
|
|
|
|
|
|
|
|
18,685
|
|
Loss on early extinguishment of debt
|
|
|
24,226
|
|
|
|
2,724
|
|
|
|
|
|
|
|
|
|
|
|
26,950
|
|
Change in fair value of derivatives
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,107
|
|
Accretion on debt, net
|
|
|
3,546
|
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
3,972
|
|
Amortization of debt issue costs
|
|
|
1,292
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
1,519
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
1,555
|
|
|
|
|
|
|
|
|
|
|
|
1,555
|
|
Interest payment in kind on secured loans and convertible debt
|
|
|
3,984
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
4,152
|
|
Share-based compensation
|
|
|
2,157
|
|
|
|
1,806
|
|
|
|
|
|
|
|
|
|
|
|
3,963
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3
|
)
|
|
|
(15,734
|
)
|
|
|
(1,562
|
)
|
|
|
|
|
|
|
(17,299
|
)
|
Capital lease receivable, net of unearned interest
|
|
|
|
|
|
|
2,042
|
|
|
|
|
|
|
|
|
|
|
|
2,042
|
|
Restricted cash
|
|
|
(117
|
)
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
Prepaid expenses and other assets
|
|
|
147
|
|
|
|
(3,380
|
)
|
|
|
86
|
|
|
|
|
|
|
|
(3,147
|
)
|
(Decrease) increase in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities
|
|
|
(762
|
)
|
|
|
(8,169
|
)
|
|
|
1,119
|
|
|
|
|
|
|
|
(7,812
|
)
|
Deferred revenue
|
|
|
|
|
|
|
3,510
|
|
|
|
670
|
|
|
|
|
|
|
|
4,180
|
|
Deferred rent and other liabilities
|
|
|
93
|
|
|
|
124
|
|
|
|
176
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(38,863
|
)
|
|
|
33,839
|
|
|
|
3,151
|
|
|
|
|
|
|
|
(1,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(535
|
)
|
|
|
(77,148
|
)
|
|
|
(2,354
|
)
|
|
|
|
|
|
|
(80,037
|
)
|
Acquisition of Data Return LLC, net of cash acquired
|
|
|
(68,681
|
)
|
|
|
303
|
|
|
|
(247
|
)
|
|
|
|
|
|
|
(68,625
|
)
|
Acquisition of Accris Corporation, net of cash acquired
|
|
|
(791
|
)
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
(682
|
)
|
Repayments of notes receivable
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(69,853
|
)
|
|
|
(76,736
|
)
|
|
|
(2,601
|
)
|
|
|
|
|
|
|
(149,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on secured loans and convertible debt
|
|
|
(48,124
|
)
|
|
|
(52,421
|
)
|
|
|
|
|
|
|
|
|
|
|
(100,545
|
)
|
Intercompany activity, net
|
|
|
(98,564
|
)
|
|
|
95,968
|
|
|
|
2,596
|
|
|
|
|
|
|
|
|
|
Payments of debt issuance costs
|
|
|
(8,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,835
|
)
|
Proceeds from issuance of common stock
|
|
|
4,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,405
|
|
Proceeds from issuance of secured loans
|
|
|
249,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
249,500
|
|
Payments of preferred stock dividends
|
|
|
(599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(599
|
)
|
Payments under capital lease obligations
|
|
|
(188
|
)
|
|
|
(983
|
)
|
|
|
(406
|
)
|
|
|
|
|
|
|
(1,577
|
)
|
Proceeds from exercise of stock options and warrants
|
|
|
613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
98,208
|
|
|
|
42,564
|
|
|
|
2,190
|
|
|
|
|
|
|
|
142,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(10,508
|
)
|
|
|
(333
|
)
|
|
|
2,740
|
|
|
|
|
|
|
|
(8,101
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
99,072
|
|
|
|
2,520
|
|
|
|
3,499
|
|
|
|
|
|
|
|
105,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
88,564
|
|
|
$
|
2,187
|
|
|
$
|
6,239
|
|
|
$
|
|
|
|
$
|
96,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
TERREMARK
WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On April 28, 2010, the Company completed the offering of
$50 million aggregate principal amount of our
12% Senior Secured Notes due 2017. These notes are part of
the same series as the $420 million aggregate principal
amount of 12% Senior Secured Notes that we issued on
June 24, 2009. The Company pays interest on the aggregate
$470 million principal amount of the 12% Senior
Secured Notes semi-annually in cash in arrears on June 15 and
December 15 of each year at the rate of 12% per annum. These
notes mature on June 15, 2017.
F-42