UNITED STATES
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
Date of report (Date of earliest event reported): May 7, 2012
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) |
(I.R.S. Employer Identification No.) |
400 Centennial Parkway, Suite 200, Louisville, CO 80027
(Address of Principal Executive Offices)
(303) 381-4683
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 4.02(a) – Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review
On May 7, 2012, the Audit Committee of the Board of Directors of Zayo Group, LLC (the “Company”) and management of the Company concluded that as a result of the identification of an error in accounting for a business combination that occurred during the fiscal year ended June 30, 2010, the Company’s annual financial statements as of and for the fiscal years ended June 30, 2011 (“fiscal 2011”) and 2010 (“fiscal 2010”), the Company’s interim financial statements for each of the periods in fiscal 2011, and the interim financial statements as of and for the periods ended September 30, 2011 and December 31, 2011 should be restated and accordingly can no longer be relied upon. The Company intends to file an amended Annual Report on Form 10-K/A for the fiscal year ended June 30, 2011 and amended Quarterly Reports on Form 10-Q/A for the quarters ended September 30, 2011 and December 31, 2011. We have discussed these matters with Grant Thornton LLP, the independent registered public accounting firm that conducted the audits of the financial statements as of and for the years ended June 30, 2011 and 2010.
The restatement is a result of an error in accounting for the Company’s September 9, 2009 acquisition of FiberNet Telecom Group Inc. (“FiberNet”). The error relates to the calculation of the deferred tax assets recognized in the acquisition. The error arose from a mathematical error on the stub period tax return of FiberNet which covered the period January 1, 2009 through September 9, 2009. The mathematical error in the stub period tax return resulted in an overstatement of the tax deduction associated with the exercise of warrants that had previously been issued to a landlord of FiberNet. In purchase accounting, management utilized the overstated net operating loss carryforward included on the stub period return when determining the value to ascribe to the deferred tax assets and the resulting gain on bargain purchase.
The Company intends to restate the financial statements identified above in order to correct the error. The misstatement does not impact operating income or cash flows from operating, investing or financing activities for any of the periods impacted by the misstatement.
The correction of the amount of the deferred tax asset recorded in the acquisition of FiberNet will have the following impact on the fiscal 2010 financial statements:
ZAYO GROUP, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
| As of June 30, 2010 | ||||||||||||
| Previously Reported |
Correction 1 | Restated | ||||||||||
| Assets |
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| Current assets |
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| Cash and cash equivalents |
$ | 87,864 | — | $ | 87,864 | |||||||
| Trade receivables, net of allowance of $799 and $498 as of June 30, 2011 and 2010, respectively |
11,551 | — | 11,551 | |||||||||
| Due from related-parties |
626 | — | 626 | |||||||||
| Prepaid expenses |
4,810 | — | 4,810 | |||||||||
| Deferred income taxes |
4,060 | — | 4,060 | |||||||||
| Other assets, current |
334 | — | 334 | |||||||||
| Assets of discontinued operations, current |
3,061 | — | 3,061 | |||||||||
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| Total current assets |
112,306 | 112,306 | ||||||||||
| Property and equipment, net of accumulated depreciation of $101,941 and $54,077 as of June 30, 2011 and 2010, respectively |
297,889 | — | 297,889 | |||||||||
| Intangible assets, net of accumulated amortization of $37,980 and $25,421 as of June 30, 2011 and 2010, respectively |
56,714 | — | 56,714 | |||||||||
| Goodwill |
67,854 | 1,160 | 69,014 | |||||||||
| Deferred income taxes |
8,508 | (8,508 | ) | — | ||||||||
| Debt issuance costs, net |
9,560 | — | 9,560 | |||||||||
| Other assets, non-current |
4,866 | — | 4,866 | |||||||||
| Assets of discontinued operations, non-current |
8,143 | — | 8,143 | |||||||||
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| Total assets |
$ | 565,840 | (7,348 | ) | $ | 558,492 | ||||||
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| Liabilities and member’s equity |
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| Current liabilities |
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| Accounts payable |
$ | 10,015 | — | $ | 10,015 | |||||||
| Accrued liabilities |
17,152 | — | 17,152 | |||||||||
| Accrued interest |
7,794 | — | 7,794 | |||||||||
| Capital lease obligations, current |
1,673 | — | 1,673 | |||||||||
| Deferred revenue, current |
8,091 | — | 8,091 | |||||||||
| Liabilities of discontinued operations, current |
1,740 | — | 1,740 | |||||||||
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| Total current liabilities |
46,465 | — | 46,465 | |||||||||
| Capital lease obligations, non-current |
11,033 | — | 11,033 | |||||||||
| Long-term debt |
247,080 | — | 247,080 | |||||||||
| Deferred revenue, non-current |
22,605 | — | 22,605 | |||||||||
| Stock-based compensation liability |
21,556 | — | 21,556 | |||||||||
| Deferred tax liability |
— | 1,733 | 1,733 | |||||||||
| Other long term liabilities |
2,397 | — | 2,397 | |||||||||
| Liabilities of discontinued operations, non-current |
1,568 | — | 1,568 | |||||||||
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| Total liabilities |
352,704 | 1,733 | 354,437 | |||||||||
| Member’s equity |
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| Member’s interest |
217,129 | — | 217,129 | |||||||||
| Accumulated deficit |
(3,993 | ) | (9,081 | ) | (13,074 | ) | ||||||
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| Total member’s equity |
213,136 | (9,081 | ) | 204,055 | ||||||||
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| Total liabilities and member’s equity |
$ | 565,840 | (7,348 | ) | $ | 558,492 | ||||||
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| 1 | - The adjustments to the balance sheet in fiscal 2010 will flow through each of the quarters and fiscal years subject to restatement. |
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)
| Year Ended June 30, 2010 | ||||||||||||
| Previously Reported |
Correction | Restated | ||||||||||
| Revenue |
$ | 199,330 | $ | — | $ | 199,330 | ||||||
| Operating costs and expenses |
||||||||||||
| Operating costs, excluding depreciation and amortization |
62,688 | — | 62,688 | |||||||||
| Selling, general and administrative expenses |
65,911 | — | 65,911 | |||||||||
| Stock-based compensation |
18,168 | — | 18,168 | |||||||||
| Depreciation and amortization |
38,738 | — | 38,738 | |||||||||
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| Total operating costs and expenses |
185,505 | — | 185,505 | |||||||||
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| Operating income |
13,825 | — | 13,825 | |||||||||
| Other income/(expense) |
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| Interest expense |
(18,692 | ) | — | (18,692 | ) | |||||||
| Other income, net |
1,526 | — | 1,526 | |||||||||
| Gain on bargain purchase |
9,081 | (9,081 | ) | — | ||||||||
| Loss on extinguishment of debt |
(5,881 | ) | — | (5,881 | ) | |||||||
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| Total other expense, net |
(13,966 | ) | (9,081 | ) | (23,047 | ) | ||||||
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| Loss from continuing operations before provision for income taxes |
(141 | ) | (9,081 | ) | (9,222 | ) | ||||||
| Provision for income taxes |
4,823 | — | 4,823 | |||||||||
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| Loss from continuing operations |
(4,964 | ) | (9,081 | ) | (14,045 | ) | ||||||
| Earnings from discontinued operations, net of income taxes |
5,425 | — | 5,425 | |||||||||
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| Net earnings/(loss) |
$ | 461 | $ | (9,081) | $ | (8,620) | ||||||
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Management has evaluated the effect of the restatement on the Company’s prior conclusions on the adequacy of its internal control over financial reporting and disclosure controls and procedures as of the end of each of the applicable restatement periods. Based on this evaluation, management concluded the Company’s controls to evaluate the fair value of acquired assets and liabilities and to record the related deferred income taxes associated with business combinations were not designed in a manner that ensured all relevant factors were considered. The Company will amend its disclosures pertaining to its evaluation of such controls and procedures in connection with filing the amendments to its Form 10-K for the fiscal year ended June 30, 2011 and Forms 10-Q for the quarters ended September 30, 2011 and December 31, 2011.
The foregoing reflects the Company’s views about the accounting adjustments, its financial condition, performance and other matters that constitute “forward-looking” statements, as such term is defined by the federal securities laws. You can find many of these statements by looking for words such as “may,” “will,” “expect,” “anticipate,” believe,” estimate,” “should,” “continue,” “predict,” “preliminary” and similar words used herein. These forward-looking statements are subject to the safe harbor protection provided by federal securities laws. These forward-looking statements are subject to numerous risks, uncertainties and assumptions. These risks and uncertainties include, but are not limited to, the results and effect of the Company’s review of its accounting practices, any potential SEC inquiry with respect to the adjustments or the Company’s accounting practices, the ability of the Company to file its periodic reports, the impact on the Company’s business and the risks detailed from time to time in the Company’s periodic filings under the Securities Exchange Act of 1934. Because the statements are subject to risks and uncertainties, actual developments and results may differ materially from those express or implied by the forward-looking statements. Readers are cautioned not to place undue reliance on the statements, which speak only as of 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: May 9, 2012