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EX-99.1 - EXHIBIT 99.1 - ZAYO GROUP LLC | c24799exv99w1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 15, 2011
ZAYO GROUP, LLC
(Exact name of registrant as specified in its charter)
Delaware | 333-169979 | 26-201259 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
400 Centennial Parkway, Suite 200, Louisville, CO |
80027 |
|
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (303) 381-4683
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Section 7 Regulation FD
Item 7.01 | Regulation FD Disclosure |
On October 7, 2011, Zayo Group, LLC (Zayo, the Company or we) issued a filing on Form 8-K
announcing its entrance into a Stock Purchase Agreement (the Agreement) to acquire 100 percent of
the outstanding capital stock of 360networks Holdings (USA) Inc. (360networks). In conjunction
with the Agreement, the Company anticipates raising an incremental $315 million of senior secured
debt to partially fund the $345 million acquisition. The remainder of the purchase price and
transaction expenses will be initially funded with a short term unsecured bridge loan from RBC
Capital Markets, Barclays Capital, Inc. and SunTrust Bank, Inc.
RBC Capital Markets, Barclays Capital, Inc. and SunTrust Bank, Inc. (collectively the Lead
Arrangers), in their capacity as Lead Arrangers of the Facility, anticipate distributing marketing
materials to potential investors in the Facility. The Lead Arrangers intend to communicate to
potential investors certain financial data of 360networks and its parent 360networks
Corporation, which has not been made publicly available. The Company is issuing this filing on Form
8-K in order to make publicly available the financial information of 360networks and 360networks
Corporation which may be used by the Lead Arrangers in their marketing material for purposes of
soliciting potential investors in the Facility.
Subsequent to the close of the acquisition, the Company anticipates pro-forma leverage, which
is defined under the Companys existing credit agreement as total indebtedness divided by last
quarter annualized adjusted EBITDA, to be approximately 3.6x. The annualized adjusted EBITDA
(unaudited) for the quarter ended September 30, 2011 was $152.1 million and $29.1 million for Zayo
and 360networks (excluding adjusted EBITDA attributed to 360networks Voice over Internet Protocol
(VoIP) business), respectively. In addition the Company expects to realize approximately $15.8
million of cost savings from the integration of the businesses.
The calculation of pro-forma leverage is as follows:
Combined Indebtedness as of September 30, 2011 | Zayo Group | 360networks | Combined | |||||||||
(unaudited) | ||||||||||||
(in thousands) | ||||||||||||
Senior secured notes |
$ | 350,000 | $ | | $ | 350,000 | ||||||
Capital lease obligations |
10,945 | 133 | 11,078 | |||||||||
Other debts |
4,450 | | 4,450 | |||||||||
Total indebtedness as of September 30, 2011 |
365,395 | 133 | 365,528 | |||||||||
Additional debt associated with acquisition |
345,000 | | 345,000 | |||||||||
Total combined indebtedness |
710,528 | |||||||||||
Estimated Annualized EBITDA |
$ | 196,964 | ||||||||||
Estimated leverage ratio |
3.6 |
We define Adjusted EBITDA as earnings before interest, income taxes, depreciation and
amortization (EBITDA) adjusted to exclude transaction costs, stock-based compensation, and
certain non-cash items. We use EBITDA and Adjusted EBITDA to evaluate operating performance and
liquidity, and these financial measures are among the primary measures used by management for
planning and forecasting of future periods. We believe Adjusted EBITDA is especially important in a
capital-intensive industry such as telecommunications. We further believe that the presentation of
EBITDA and Adjusted EBITDA is relevant and useful for investors because it allows investors to view
results in a manner similar to the method used by management and makes it easier to compare our
results with the results of other companies that have different financing and capital structures.
We also monitor EBITDA as we have debt covenants that restrict our borrowing capacity that are
based on a leverage ratio which utilizes EBITDA. We must not exceed a consolidated leverage ratio
(funded debt to annualized EBITDA), as determined under the credit agreement, of 4.25x the last
quarters annualized EBITDA.
EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered
in isolation from, or as substitutes for, analysis of our results as reported under GAAP. For
example, Adjusted EBITDA:
| does not reflect capital expenditures, or future requirements for capital and major
maintenance expenditures or contractual commitments; |
| does not reflect changes in, or cash requirements for, our working capital needs; |
| does not reflect the significant interest expense, or the cash requirements necessary to
service the interest payments, on our debt; and |
| does not reflect cash required to pay income taxes. |
Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures
computed by other companies, because all companies do not calculate Adjusted EBITDA in the same
fashion. A reconciliation from earnings from continuing operations during the three months ended
September 30, 2011to annualized Adjusted EBITDA for Zayo and 360networks is as follows:
Zayo Group | 360networks (1) | Combined | ||||||||||
(unaudited) | ||||||||||||
(in thousands) | ||||||||||||
Earnings from continuing operations during
the three months ended September
30, 2011 |
$ | 3,148 | $ | 1,083 | $ | 4,231 | ||||||
EBITDA (add backs) |
||||||||||||
Interest expense |
9,168 | 10 | 9,178 | |||||||||
Provision for income taxes |
4,604 | | 4,604 | |||||||||
Depreciation and amortization |
17,062 | 2,839 | 19,901 | |||||||||
EBITDA |
33,982 | 3,932 | 37,914 | |||||||||
Adjusted EBITDA (add backs) |
||||||||||||
Stock-based compensation |
3,704 | | 3,704 | |||||||||
Transaction costs |
330 | | 330 | |||||||||
Other |
| 3,343 | 3,343 | |||||||||
Adjusted EBITDA |
$ | 38,016 | $ | 7,275 | $ | 45,291 | ||||||
Annualized Adjusted EBITDA (quarter ended
September 30, 2011 EBITDA x 4) |
$ | 152,064 | $ | 29,100 | $ | 181,164 | ||||||
Expected synergies from combined businesses |
15,800 | |||||||||||
Estimated combined EBITDA (annualized) |
$ | 196,964 | ||||||||||
A reconciliation from earnings from continuing operations during the twelve months ended
September 30, 2011to annualized Adjusted EBITDA for Zayo and 360networks is as follows:
Zayo Group | 360networks (1) | Combined | ||||||||||
(in thousands) | ||||||||||||
Earnings from continuing operations during
the twelve months ended September
30, 2011 |
$ | (1,294 | ) | $ | 11,632 | $ | 10,338 | |||||
EBITDA (add backs) |
||||||||||||
Interest expense |
36,325 | 40 | 36,365 | |||||||||
Provision for income taxes |
14,348 | 36 | 14,384 | |||||||||
Depreciation and amortization |
65,716 | 9,035 | 74,751 | |||||||||
EBITDA |
115,095 | 20,743 | 135,838 | |||||||||
Adjusted EBITDA (add backs) |
||||||||||||
Stock-based compensation |
22,883 | | 22,883 | |||||||||
Transaction costs |
1,036 | | 1,036 | |||||||||
Other |
| 3,309 | 3,309 | |||||||||
Adjusted EBITDA |
$ | 139,014 | $ | 24,052 | $ | 163,066 | ||||||
Expected synergies from combined businesses |
15,800 | |||||||||||
Estimated combined EBITDA (TTM) |
$ | 178,866 | ||||||||||
(1) | Zayo had previously spun-off its voice operations to its parent company Zayo Group
Holdings, Inc. in order to maintain focus on its Bandwidth Infrastructure business. Upon
closing the acquisition, Zayo intends to spin-off 360networks VoIP operations to Zayo Group
Holdings, Inc. As such, the earnings and Adjusted EBITDA add backs, above, for 360networks
excludes the operating results of its VoIP business. The operating results for
360networks, as reflected above, have been derived from the historical records of
360networks and do not include anticipated purchase price adjustments. These figures have
not been audited and are subject to change. |
Select financial information of 360networks Corporation as of and for the three and nine
months ended September 30, 2011 has been attached to this filing as exhibit 99.1. The information
in exhibit 99.1 is unaudited.
The Agreement is to acquire 100 percent of the outstanding capital stock of 360networks which
is a subsidiary of 360networks Corporation. Upon the closing of the acquisition, the Company would
acquire substantially all of the operating assets of 360networks Corporation; however, there are
certain non-operating assets which are included in the attached select financial information of
360networks Corporation exhibit which will not be acquired by the Company. These non-operating
assets include, but are not limited, to the $115.6 million restricted and non-restricted investment
balance held by 360networks Corporation as of September 30, 2011. Additionally, 360networks
Corporations historical results include the operating results generated by its VoIP product
offerings. Upon the closing of the acquisition, Zayo intends to spin-off the components of
360networks which support the VoIP business to the Companys parent Zayo Group Holdings, Inc.
For these and other reasons, the historical operating results of 360networks Corporation are not
indicative of expected future results of operations which the Company would realize subsequent to
closing the acquisition.
This filing is not intended to fulfill the Companys requirements to file with the SEC the
financial statements of businesses acquired or to be acquired under Article 3-05 of Regulation S-X.
The Company intends to file the pre-acquisition audited financial statements required by Article
3-05 of Regulation S-X and any required pro-forma financial information required by Article 11 of
Regulation S-X at a later date.
Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits. The following exhibit is furnished with this Form 8-K:
Exhibit No. | Description | |||
99.1 | Select financial information of 360networks Corporation
as of and for the three and nine months ended September
30, 2011. |
The information contained under Item 7.01 and 9.01 of this filing on Form 8-K shall not be
deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be
deemed incorporated by reference in any filing with the Securities and Exchange Commission under
the Securities Exchange Act of 1934 or the Securities Act of 1933, whether made before or after the
date hereof and irrespective of any general incorporation language in any filings.
Portions of this report may constitute forward-looking statements as defined by federal law.
Although the Company believes any such statements are based on reasonable assumptions, there is no
assurance that actual outcomes will not be materially different. Additional information about
issues that could lead to material changes in the Companys performance is contained in the
Companys filings with the Securities and Exchange Commission. The Company undertakes no
obligation to publicly update or revise any forward-looking statements to reflect events or
circumstances after the date hereof.
SIGNATURE
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 hereunto duly authorized.
ZAYO GROUP, LLC |
||||
By: | /s/ Ken desGarennes | |||
Ken desGarennes | ||||
Chief Financial Officer |
DATED: November 15, 2011