Exhibit 99.3
TERREMARK WORLDWIDE, INC.
BASIS OF PRESENTATION
The following unaudited pro forma condensed consolidated financial statements are derived from and should be read in conjunction with historical consolidated financial statements and related notes of Terremark Worldwide Inc. (“TWW”) and Technology Center of the Americas, LLC (“TECOTA”). From February 23, 2001 until December 31, 2004, TWW, through a wholly owned subsidiary, owned 0.84% equity interest in TECOTA. In July 2004, TWW entered into an agreement under which it assumed the obligation to purchase the other equity interests in TECOTA. On December 31, 2004, TWW completed this acquisition of TECOTA.
The unaudited pro forma condensed consolidated statements of operations for the six months ended September 30, 2004, and the year ended March 31, 2004, give effect to (i) TWW’s acquisition of TECOTA; (ii) certain adjustments that are directly attributable to the acquisition of TECOTA and will have a continuing impact; and (iii) TWW’s financing of the TECOTA acquisition. The unaudited pro forma condensed combined statements of operations assume that each of these transactions was consummated at April 1, 2003.
The unaudited pro form condensed consolidated balance sheet presents the consolidated financial position of TWW and TECOTA as if TWW’s acquisition of TECOTA was consummated on September 30, 2004, and gives effect to (i) the acquisition of TECOTA; (ii) certain adjustments that are directly attributable to the acquisition of TECOTA; and (iii) the estimated incremental debt. The unaudited pro forma condensed consolidated financial statements have been prepared based upon currently available information and assumptions that are deemed appropriate by TWW’s management.
The pro forma information is for informational purposes only and is not intended to be indicative of the actual consolidated results that would have been reported had the transactions occurred on the dates indicated, nor does the information represent a forecast of the combined financial results of TWW and TECOTA for any for future period.
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Terremark Worldwide, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of September 30, 2004
Historical | Historical | Pro Forma | Pro Forma | |||||||||||||||||||||||||||||||
Terremark | TECOTA | adjustments | Terremark | |||||||||||||||||||||||||||||||
(Note 1) | (Note 1) | (Note 3) | ||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 21,831,286 | $ | 1,011,315 | $ | (3,500,000 | )[h] | $ | 23,742,601 | |||||||||||||||||||||||||
2,000,000 | [m] | |||||||||||||||||||||||||||||||||
2,400,000 | [l] | |||||||||||||||||||||||||||||||||
Accounts receivable, net | 2,207,564 | — | 2,207,564 | |||||||||||||||||||||||||||||||
Deferred rent receivable | — | 11,444,733 | (7,955,751 | )[d] | — | |||||||||||||||||||||||||||||
(3,488,982 | )[b] | |||||||||||||||||||||||||||||||||
Contracts receivable | 112,151 | — | 112,151 | |||||||||||||||||||||||||||||||
Prepaid and other current assets | 751,720 | 291,134 | 1,042,854 | |||||||||||||||||||||||||||||||
Deferred costs under government contracts | 3,592,328 | — | 3,592,328 | |||||||||||||||||||||||||||||||
Total current assets | 28,495,049 | 12,747,182 | 30,697,499 | |||||||||||||||||||||||||||||||
Investment in unconsolidated subsidiaries | 391,884 | — | (391,884 | )[e] | — | |||||||||||||||||||||||||||||
Restricted cash | 794,018 | 910,458 | 4,000,000 | [a] | 5,704,476 | |||||||||||||||||||||||||||||
Land and building | — | 66,927,819 | (705,731 | )[c] | 66,222,088 | |||||||||||||||||||||||||||||
Property and equipment, net | 56,884,223 | — | 56,884,223 | |||||||||||||||||||||||||||||||
Debt issuance costs and other assets | 10,392,631 | 3,062,609 | (3,062,609 | )[b] | 20,275,564 | |||||||||||||||||||||||||||||
(2,400,000 | )[l] | |||||||||||||||||||||||||||||||||
12,282,933 | [h] | |||||||||||||||||||||||||||||||||
Goodwill | 9,999,870 | — | 9,999,870 | |||||||||||||||||||||||||||||||
TOTAL ASSETS | $ | 106,957,675 | $ | 83,648,068 | $ | 189,783,719 | ||||||||||||||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||||
Current portion of notes payable | $ | 3,890,802 | $ | — | $ | 3,890,802 | ||||||||||||||||||||||||||||
Construction payable | 2,954,530 | — | 2,954,530 | |||||||||||||||||||||||||||||||
Accounts payable and accrued expenses | 7,865,135 | 998,862 | 8,863,997 | |||||||||||||||||||||||||||||||
Current portion of capital lease obligations | 1,272,666 | — | 1,272,666 | |||||||||||||||||||||||||||||||
Interest payable | 2,459,515 | — | 2,459,515 | |||||||||||||||||||||||||||||||
Total current liabilities | 18,442,648 | 998,862 | 19,441,510 | |||||||||||||||||||||||||||||||
Mortgage payable | — | 35,401,567 | 43,598,433 | [a] | 79,000,000 | |||||||||||||||||||||||||||||
Convertible debt | 51,971,488 | — | 51,971,488 | |||||||||||||||||||||||||||||||
Derivatives embedded within convertible debt | 21,804,000 | — | 21,804,000 | |||||||||||||||||||||||||||||||
Deferred rent | 9,716,260 | — | (7,955,751 | )[d] | 1,760,509 | |||||||||||||||||||||||||||||
Capital lease obligations, less current portion | 102,335 | — | 102,335 | |||||||||||||||||||||||||||||||
Deferred revenue | 3,225,056 | — | 3,225,056 | |||||||||||||||||||||||||||||||
Series H redeemable convertible preferred stock | 601,711 | — | 601,711 | |||||||||||||||||||||||||||||||
TOTAL LIABILITIES | 105,863,498 | 36,400,429 | 177,906,609 | |||||||||||||||||||||||||||||||
Minority Interest | 142,885 | — | 142,885 | |||||||||||||||||||||||||||||||
Commitments and Contingencies | — | — | — | |||||||||||||||||||||||||||||||
Series G convertible preferred stock | 1 | — | 1 | |||||||||||||||||||||||||||||||
Series I convertible preferred stock | 1 | — | 1 | |||||||||||||||||||||||||||||||
Common stock | 359,761 | — | 359,761 | |||||||||||||||||||||||||||||||
Common stock warrants | 4,933,016 | — | 8,782,933 | [h] | 13,715,949 | |||||||||||||||||||||||||||||
Common stock options | 1,545,375 | — | 1,545,375 | |||||||||||||||||||||||||||||||
Partner’s capital | — | 48,404,025 | (48,404,025 | )[f] | — | |||||||||||||||||||||||||||||
Additional paid-in capital | 236,023,806 | — | 2,000,000 | [m] | 238,023,806 | |||||||||||||||||||||||||||||
Accumulated deficit | (234,577,155 | ) | (1,156,386 | ) | 1,156,386 | [f] | (234,577,155 | ) | ||||||||||||||||||||||||||
Accumulated other comprehensive loss | (112,876 | ) | — | (112,876 | ) | |||||||||||||||||||||||||||||
Treasury Stock | (7,220,637 | ) | — | (7,220,637 | ) | |||||||||||||||||||||||||||||
TOTAL STOCKHOLDERS’ EQUITY | 951,292 | 47,247,639 | 11,734,225 | |||||||||||||||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 106,957,675 | $ | 83,648,068 | $ | 189,783,719 | ||||||||||||||||||||||||||||
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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Terremark Worldwide, Inc
Historical | Historical | Pro Forma | Pro Forma | ||||||||||||||||
Terremark | TECOTA | adjustments | Terremark | ||||||||||||||||
(Note 1) | (Note 1) | (Note 3) | |||||||||||||||||
Revenues | |||||||||||||||||||
Data center | $ | 15,025,915 | $ | — | $ | 15,025,915 | |||||||||||||
Rental | — | 5,134,971 | $ | (3,878,750 | )[g] | 1,256,221 | |||||||||||||
Operating expense reimbursements | — | 437,589 | (259,135 | )[g] | 178,454 | ||||||||||||||
Management fees | 90,922 | — | (90,922 | )[i] | — | ||||||||||||||
Construction contracts | 996,786 | — | 996,786 | ||||||||||||||||
Other income | — | 24,878 | 24,878 | ||||||||||||||||
Operating revenues | 16,113,623 | 5,597,438 | 17,482,254 | ||||||||||||||||
Expenses | |||||||||||||||||||
Data center operations | 12,200,670 | — | (4,137,885 | )]g] | 8,062,785 | ||||||||||||||
Construction contract expenses | 948,813 | — | 948,813 | ||||||||||||||||
General and administrative | 6,979,446 | 1,408,576 | (90,922 | )[i] | 8,297,100 | ||||||||||||||
Sales and marketing | 2,033,119 | 77,648 | 2,110,767 | ||||||||||||||||
Depreciation and amortization | 2,573,054 | 938,279 | (219,273 | )[j] | 3,292,060 | ||||||||||||||
Operating expenses | 24,735,102 | 2,424,503 | 22,711,525 | ||||||||||||||||
Income (loss) from operations | (8,621,479 | ) | 3,172,935 | (5,229,271 | ) | ||||||||||||||
Other income (expense) | |||||||||||||||||||
Change in estimated fair value of derivatives embedded within convertible debt | 13,679,250 | 13,679,250 | |||||||||||||||||
Gain on debt restructuring | 3,420,956 | 3,420,956 | |||||||||||||||||
Interest expense | (6,433,148 | ) | (1,105,346 | ) | (4,164,467 | )[k] | (11,702,961 | ) | |||||||||||
Interest Income | 196,243 | 196,243 | |||||||||||||||||
Other | (4,260 | ) | — | (4,260 | ) | ||||||||||||||
Total other income (expense) | 10,859,041 | (1,105,346 | ) | 5,589,228 | |||||||||||||||
Income before income taxes | $ | 2,237,562 | 2,067,589 | $ | 359,957 | ||||||||||||||
Basic and diluted net loss before income taxes per common share | $ | 0.01 | $ | 0.00 | |||||||||||||||
Weighted average common shares outstanding | 336,054,804 | 336,054,804 | |||||||||||||||||
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations.
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Terremark Worldwide, Inc
Historical | Historical | Pro Forma | Pro Forma | |||||||||||||||
Terremark | TECOTA | adjustments | Terremark | |||||||||||||||
(Note 1) | (Note 1) | (Note 3) | ||||||||||||||||
Revenues | ||||||||||||||||||
Data center | $ | 17,034,377 | $ | — | $ | 17,034,377 | ||||||||||||
Rental | — | 6,808,912 | $ | (4,304,151 | )[g] | 2,504,761 | ||||||||||||
Operating expense reimbursements | — | 776,740 | (526,767 | )[g] | 249,973 | |||||||||||||
Development, commission and construction fees | 41,081 | — | 41,081 | |||||||||||||||
Management fees | 197,827 | — | (184,133 | )[i] | 13,694 | |||||||||||||
Construction contracts | 940,454 | — | 940,454 | |||||||||||||||
Other income | — | 81,496 | 81,496 | |||||||||||||||
Operating revenues | 18,213,739 | 7,667,148 | 20,865,836 | |||||||||||||||
Expenses | ||||||||||||||||||
Data center operations | 16,413,021 | — | (4,830,918 | )[g] | 11,582,103 | |||||||||||||
Construction contract expenses | 918,022 | — | 918,022 | |||||||||||||||
General and administrative | 13,336,400 | 2,180,277 | (184,133 | )[i] | 15,332,544 | |||||||||||||
Sales and marketing | 3,424,411 | 176,001 | 3,600,412 | |||||||||||||||
Depreciation and amortization | 4,698,292 | 1,882,836 | (444,826 | ) [j] | 6,136,302 | |||||||||||||
Operating expenses | 38,790,146 | 4,239,114 | 37,569,383 | |||||||||||||||
Income (loss) from operations | (20,576,407 | ) | 3,428,034 | (16,703,547 | ) | |||||||||||||
Other income (expense) | ||||||||||||||||||
Gain on debt restructuring | 8,475,000 | — | 8,475,000 | |||||||||||||||
Interest expense | (14,624,922 | ) | (2,561,095 | ) | (7,978,530 | )[k] | (25,164,547 | ) | ||||||||||
Interest Income | 131,548 | — | 131,548 | |||||||||||||||
Other | 4,104,204 | — | 4,104,204 | |||||||||||||||
Total other income (expense) | (1,914,170 | ) | (2,561,095 | ) | (12,453,795 | ) | ||||||||||||
Income (loss) before income taxes | $ | (22,490,577 | ) | 866,939 | $ | (29,157,342 | ) | |||||||||||
Basic and diluted loss before income taxes per common share | $ | (0.07 | ) | $ | (0.10 | ) | ||||||||||||
Weighted average common shares outstanding | 305,028,194 | 305,028,194 | ||||||||||||||||
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations.
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Terremark Worldwide, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
Note 1 — Basis of Presentation
Historical financial information for TWW has been derived from its historical financial statements for the year ended March 31, 2004 (audited) and for the six months ended September 30, 2004 (unaudited). Historical financial information for TECOTA has been derived from its historical financial statements for the year ended December 31, 2003 (audited) and for the six months ended September 30, 2004 (unaudited). No adjustments have been made to the pro forma financial information to account for the difference between the financial reporting dates used by TECOTA and TWW due to the close proximity of the period-end dates.
Note 2 — Acquisition of TECOTA
From February 23, 2001 until December 31, 2004, the Company owned a 0.84% interest in Technology Center of the Americas, LLC (“TECOTA”), the entity that owns the building in which the NAP of the Americas is housed (“TECOTA building”). In July 2004, the Company entered into an agreement under which it assumed the obligation to purchase the other outstanding equity interests in TECOTA. On December 31, 2004, the Company completed the purchase of those other outstanding equity interests such that TECOTA became a wholly-owned subsidiary. In connection with this purchase, the Company paid approximately $40.0 million for the equity interests and repaid an approximately $35.0 million mortgage to which the TECOTA building was subject.
Note 3 — Pro Forma Adjustments
Following are brief descriptions of the pro forma adjustments to reflect the acquisition of TECOTA:
(a) | Records TWW new borrowings to purchase other equity interest in TECOTA and pay off of existing mortgage. This adjustment is calculated as follows: |
New borrowings | $ | 79,000,000 | ) | ||
Pay off of existing mortgage | (35,401,567 | ) | |||
Adjustment | 43,598,433 | ||||
Tenant improvement cash reserve | (4,000,000 | ) | |||
Cash paid to sellers | $ | (39,598,433 | ) | ||
(b) | Records purchase accounting adjustment for the elimination of deferred financing costs and deferred leasing commissions included in other assets of TECOTA. Further, records the elimination of deferred rent balances with tenants other than TWW. See (d) below. | |
(c) | Records purchase accounting adjustment for the allocation of the fair value of identifiable net current assets acquired over the TECOTA purchase price. | |
(d) | Records the elimination of deferred rent balances between TWW and TECOTA as of the balance sheet date. | |
(e) | Records the elimination of TWW’s ownership interest in TECOTA as of September 30, 2004. | |
(f) | Records the elimination of TECOTA equity accounts acquired in the purchase. | |
(g) | Records the elimination of transactions between TWW and TECOTA resulting from TECOTA leasing space to TWW. | |
(h) | Records the estimated debt issuance costs of $12,282,933, of which $8,782,933 is estimated to be paid in TWW stock warrants. | |
(i) | Records the elimination of transactions between TWW and TECOTA resulting from TWW management fees charged to TECOTA pursuant to a property management agreement. | |
(j) | Records the elimination of historical depreciation and amortization expense related to TECOTA and the depreciation resulting from the allocation of the purchase price to the building using the straight-line method over a 39 year period. |
Six Months Ended | Year Ended | |||||||
September 30, 2004 | March 31, 2004 | |||||||
Elimination of historical amounts of TECOTA | $ | (938,279 | ) | $ | (1,882,836 | ) | ||
Depreciation of the cost of acquired building (estimated to be $56,000,000) using a 39 year life | 719,006 | 1,438,010 | ||||||
$ | (219,273 | ) | $ | (444,826 | ) | |||
(k) | Records the interest on new borrowings for the acquisition of TECOTA and the elimination of interest on existing debt to be repaid. Adjustment also records amortization of debt issuance costs. The adjustment is calculated as follows: |
Six Months Ended | Year Ended | |||||||
September 30, 2004 | March 31, 2004 | |||||||
Elimination of historical amounts of TECOTA | $ | (1,105,346 | ) | $ | (2,561,095 | ) | ||
Interest expense on $79 million of new borrowings at a variable rate of 9.5% | 3,794,771 | 7,589,541 | ||||||
Amortization of debt issuance costs of new borrowings using a four year term | 1,475,042 | 2,950,084 | ||||||
$ | 4,164,467 | $ | 7,978,530 | |||||
The effect of a .0125% variance on interest expense is $46,875 and $93,750 for the six months ended September 30, 2004 and the year ended March 31, 2004, respectively. | ||
(l) | Records the return to the company of a deposit totalling $2.4 million at September 30, 2004, for the acquisition of TECOTA. | |
(m) | Records anticipated issuance of stock for cash as part of the TECOTA acquisition. |
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