Attached files

file filename
EX-32.2 - EX-32.2 - Zayo Group Holdings, Inc.zayo-ex322_20150331226.htm
EX-31.2 - EX-31.2 - Zayo Group Holdings, Inc.zayo-ex312_20150331225.htm
EX-31.1 - EX-31.1 - Zayo Group Holdings, Inc.zayo-ex311_20150331224.htm
EXCEL - IDEA: XBRL DOCUMENT - Zayo Group Holdings, Inc.Financial_Report.xls
EX-32.1 - EX-32.1 - Zayo Group Holdings, Inc.zayo-ex321_20150331223.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36690

 

Zayo Group Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

DELAWARE

 

26-1398293

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1805 29th Street, Suite 2050,

Boulder, CO 80301

(Address of Principal Executive Offices)

(303) 381-4683

(Registrant’s Telephone Number, Including Area Code)

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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.

 

Large accelerated filer

 

¨

 

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x  (Do not check if a small reporting company)

 

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

The number of outstanding shares of common stock of Zayo Group Holdings, Inc. as of May 13, 2015, was 243,008,679 shares.

 

 

 

 


ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

INDEX

 

 

 

Page

Part I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements (Unaudited)

 

1

 

Condensed Consolidated Balance Sheets As of March 31, 2015 and June 30, 2014

 

1

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2015 and 2014

 

2

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended March 31, 2015 and 2014

 

3

 

Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months Ended March 31, 2015

 

4

 

Condensed Consolidated Statements of Cash Flows for the  Nine Months Ended March 31, 2015 and 2014

 

5

 

Notes to Condensed Consolidated Financial Statements

 

6

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

46

 

Item 4. Controls and Procedures

 

47

 

Part II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

48

 

Item 1A. Risk Factors

 

48

 

Item 6. Exhibits

 

49

 

Signatures

 

50

 

Exhibit 31.1

 

 

 

Exhibit 31.2

 

 

 

Exhibit 32.1

 

 

 

Exhibit 32.2

 

 

 

 

 


ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in millions, except share amounts)

 

 

 

March 31,

2015

 

 

June 30,

2014

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

273.7

 

 

$

297.4

 

Trade receivables, net of allowance of $3.6 and $3.7 as of March 31, 2015 and

   June 30, 2014, respectively

 

 

94.5

 

 

 

59.0

 

Due from related parties

 

 

0.2

 

 

 

0.1

 

Prepaid expenses

 

 

36.2

 

 

 

25.6

 

Deferred income taxes, net

 

 

161.0

 

 

 

160.4

 

Other assets

 

 

4.9

 

 

 

2.4

 

Total current assets

 

 

570.5

 

 

 

544.9

 

Property and equipment, net

 

 

3,199.2

 

 

 

2,821.4

 

Intangible assets, net

 

 

969.3

 

 

 

709.7

 

Goodwill

 

 

1,194.2

 

 

 

845.3

 

Debt issuance costs, net

 

 

73.9

 

 

 

89.4

 

Other assets

 

 

58.7

 

 

 

39.7

 

Total assets

 

$

6,065.8

 

 

$

5,050.4

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

 

20.5

 

 

$

20.5

 

Accounts payable

 

 

34.8

 

 

 

27.0

 

Accrued liabilities

 

 

181.5

 

 

 

162.5

 

Accrued interest

 

 

24.2

 

 

 

57.1

 

Capital lease obligations, current

 

 

4.0

 

 

 

2.4

 

Deferred revenue, current

 

 

88.5

 

 

 

75.4

 

Total current liabilities

 

 

353.5

 

 

 

344.9

 

Long-term debt, non-current

 

 

3,720.1

 

 

 

3,219.7

 

Capital lease obligation, non-current

 

 

28.5

 

 

 

22.9

 

Deferred revenue, non-current

 

 

588.9

 

 

 

496.9

 

Stock-based compensation liability

 

 

1.9

 

 

 

392.4

 

Deferred income taxes, net

 

 

196.4

 

 

 

134.9

 

Other long-term liabilities

 

 

26.2

 

 

 

22.3

 

Total liabilities

 

 

4,915.5

 

 

 

4,634.0

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value--50,000,000 shares authorized; no shares issued and

   outstanding as of March 31, 2015 and June 30, 2014, respectively

 

 

 

 

 

 

Common Stock, $0.001 par value--850,000,000 shares authorized; issued and outstanding

   243,008,679 shares and 223,000,000 shares as of March 31, 2015 and June 30, 2014,

   respectively

 

 

0.2

 

 

 

0.2

 

Additional paid-in capital

 

 

1,663.2

 

 

 

755.4

 

Accumulated other comprehensive (loss)/income

 

 

(21.1

)

 

 

14.4

 

Accumulated deficit

 

 

(492.0

)

 

 

(331.6

)

Note receivable from shareholder

 

 

 

 

 

(22.0

)

Total stockholders' equity

 

 

1,150.3

 

 

 

416.4

 

Total liabilities and stockholders' equity

 

$

6,065.8

 

 

$

5,050.4

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

1


ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in millions, except share and per share data)

 

 

 

Three months ended

March 31,

 

 

Nine months ended

March 31,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

 

$

340.7

 

 

$

281.4

 

 

$

985.2

 

 

$

826.5

 

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs (excluding depreciation and amortization)

 

 

100.9

 

 

 

85.1

 

 

 

306.0

 

 

 

251.1

 

Selling, general and administrative expenses

 

 

83.0

 

 

 

96.3

 

 

 

271.9

 

 

 

259.1

 

Depreciation and amortization

 

 

100.1

 

 

 

84.2

 

 

 

293.0

 

 

 

246.9

 

Total operating costs and expenses

 

 

284.0

 

 

 

265.6

 

 

 

870.9

 

 

 

757.1

 

Operating income

 

 

56.7

 

 

 

15.8

 

 

 

114.3

 

 

 

69.4

 

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(60.7

)

 

 

(49.1

)

 

 

(161.0

)

 

 

(150.9

)

Loss on extinguishment of debt

 

 

(54.9

)

 

 

 

 

 

(85.8

)

 

 

(1.9

)

Foreign currency (loss)/gain on intercompany loans

 

 

(13.2

)

 

 

0.1

 

 

 

(41.2

)

 

 

0.9

 

Other (expense)/income, net

 

 

 

 

 

 

 

 

(0.1

)

 

 

0.3

 

Total other expenses, net

 

 

(128.8

)

 

 

(49.0

)

 

 

(288.1

)

 

 

(151.6

)

Loss from operations before income taxes

 

 

(72.1

)

 

 

(33.2

)

 

 

(173.8

)

 

 

(82.2

)

(Benefit)/provision for income taxes

 

 

(18.4

)

 

 

9.5

 

 

 

(13.4

)

 

 

27.2

 

Loss from continuing operations

 

 

(53.7

)

 

 

(42.7

)

 

 

(160.4

)

 

 

(109.4

)

Earnings from discontinued operations, net of income taxes

 

 

 

 

 

1.1

 

 

 

 

 

3.6

 

Net loss

 

$

(53.7

)

 

$

(41.6

)

 

$

(160.4

)

 

$

(105.8

)

Weighted-average shares used to compute net income/(loss) per

   share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

239,630,901

 

 

 

223,000,000

 

 

 

232,903,068

 

 

 

223,000,000

 

Loss from continuing operations per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.22

)

 

$

(0.19

)

 

$

(0.69

)

 

$

(0.49

)

Earnings from discontinued operations per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

 

 

$

0.01

 

 

$

 

 

$

0.02

 

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.22

)

 

$

(0.18

)

 

$

(0.69

)

 

$

(0.47

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

2


ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

(in millions)

 

 

 

Three months ended

March 31,

 

 

Nine months ended

March 31,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net loss

 

$

(53.7

)

 

$

(41.6

)

 

$

(160.4

)

 

$

(105.8

)

Foreign currency translation adjustments

 

 

(14.5

)

 

 

1.6

 

 

 

(35.5

)

 

 

14.7

 

Comprehensive loss

 

$

(68.2

)

 

$

(40.0

)

 

$

(195.9

)

 

$

(91.1

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

3


ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

NINE MONTHS ENDED MARCH 31, 2015

(in millions, except share data)

 

 

 

Common

Shares

 

 

Common

Stock

 

 

Additional

paid-in

Capital

 

 

Accumulated

Other

Comprehensive

Income/(Loss)

 

 

Accumulated

Deficit

 

 

Note

receivable

from

shareholder

 

 

Total

Stockholders'

Equity

 

Balance at June 30, 2014

 

 

223,000,000

 

 

$

0.2

 

 

$

755.4

 

 

$

14.4

 

 

$

(331.6

)

 

$

(22.0

)

 

$

416.4

 

Proceeds from issuance of common stock

 

 

20,008,679

 

 

 

 

 

 

387.2

 

 

 

 

 

 

 

 

 

 

 

 

387.2

 

Reclassification of common unit liability

   to additional paid-in capital

 

 

 

 

 

 

 

 

490.2

 

 

 

 

 

 

 

 

 

 

 

 

490.2

 

Stock-based compensation

 

 

 

 

 

 

 

 

52.4

 

 

 

 

 

 

 

 

 

 

 

 

52.4

 

Non-cash settlement of note receivable

   from Communications Infrastructure

   Investments, LLC (Note 8)

 

 

 

 

 

 

 

 

(22.0

)

 

 

 

 

 

 

 

 

22.0

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(35.5

)

 

 

 

 

 

 

 

 

(35.5

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(160.4

)

 

 

 

 

 

(160.4

)

Balance at March 31, 2015

 

 

243,008,679

 

 

$

0.2

 

 

$

1,663.2

 

 

$

(21.1

)

 

$

(492.0

)

 

$

 

 

$

1,150.3

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

 

4


 

ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in millions)

 

 

 

Nine months ended

March 31,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(160.4

)

 

$

(105.8

)

Earnings from discontinued operations, net of income taxes

 

 

 

 

 

3.6

 

Loss from continuing operations

 

 

(160.4

)

 

 

(109.4

)

Adjustments to reconcile net loss to net cash provided by operating activities of continuing operations

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

293.0

 

 

 

246.9

 

Loss on extinguishment of debt

 

 

85.8

 

 

 

1.9

 

Non-cash interest expense

 

 

16.3

 

 

 

14.9

 

Non-cash loss on investments

 

 

0.5

 

 

 

 

Stock-based compensation

 

 

157.8

 

 

 

165.1

 

Amortization of deferred revenue

 

 

(52.9

)

 

 

(40.4

)

Additions to deferred revenue

 

 

123.6

 

 

 

112.6

 

Provision for bad debts

 

 

1.3

 

 

 

1.6

 

Foreign currency loss/(gain) on intercompany loans

 

 

41.2

 

 

 

(0.9

)

Deferred income taxes

 

 

(20.1

)

 

 

25.1

 

Changes in operating assets and liabilities, net of acquisitions

 

 

 

 

 

 

 

 

Trade receivables

 

 

(18.5

)

 

 

24.1

 

Prepaid expenses

 

 

(3.5

)

 

 

(0.8

)

Accounts payable and accrued liabilities

 

 

(46.4

)

 

 

(33.1

)

Other assets and liabilities

 

 

(7.3

)

 

 

(9.2

)

Net cash provided by operating activities of continuing operations

 

 

410.4

 

 

 

398.4

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(374.9

)

 

 

(265.9

)

Acquisition of Latisys Holdings, LLC, net of cash acquired

 

 

(677.5

)

 

 

 

Acquisition of IdeaTek Systems, Inc., net of cash acquired

 

 

(53.6

)

 

 

 

Acquisition of Neo Telecoms, net of cash acquired

 

 

(73.9

)

 

 

 

Acquisition of Colo Facilities Atlanta, net of cash acquired

 

 

(52.5

)

 

 

 

Acquisition of FiberLink, LLC, net of cash acquired

 

 

 

 

 

(43.1

)

Acquisition of Access Communications Inc., net of cash acquired

 

 

 

 

 

(40.1

)

Acquisition of CoreXchange, LLC, net of cash acquired

 

 

0.3

 

 

 

(17.5

)

Other

 

 

(0.1

)

 

 

(0.3

)

Net cash used in investing activities of continuing operations

 

 

(1,232.2

)

 

 

(366.9

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from debt

 

 

1,437.3

 

 

 

150.0

 

Proceeds from revolving credit facility

 

 

 

 

 

45.0

 

Proceeds from equity offerings

 

 

413.7

 

 

 

 

Direct costs associated with equity offerings

 

 

(26.5

)

 

 

 

Distribution to parent

 

 

 

 

 

(0.4

)

Principal payments on long-term debt

 

 

(939.8

)

 

 

(12.9

)

Payment of early redemption fees on debt extinguished

 

 

(62.6

)

 

 

 

Principal repayments on capital lease obligations

 

 

(2.4

)

 

 

(6.9

)

Payments on revolving credit facility

 

 

 

 

 

(45.0

)

Payment of debt issuance costs

 

 

(18.8

)

 

 

(1.7

)

Net cash provided by financing activities of continuing operations

 

 

800.9

 

 

 

128.1

 

Cash flows from continuing operations

 

 

(20.9

)

 

 

159.6

 

Cash flows from discontinued operations

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

11.8

 

Investing activities

 

 

 

 

 

(4.3

)

Financing activities

 

 

 

 

 

(4.0

)

Cash flows from discontinued operations

 

 

 

 

 

3.5

 

Effect of changes in foreign exchange rates on cash

 

 

(2.8

)

 

 

0.5

 

Net (decrease)/increase in cash and cash equivalents

 

 

(23.7

)

 

 

163.6

 

Continuing operations:

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of year

 

$

297.4

 

 

$

91.3

 

Cash flows from continuing operations

 

 

(20.9

)

 

 

159.6

 

Cash flows from discontinued operations

 

 

 

 

 

3.5

 

Effect of changes in foreign exchange rates on cash

 

 

(2.8

)

 

 

0.5

 

Cash and cash equivalents, end of period

 

$

273.7

 

 

$

254.9

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Cash paid for interest, net of capitalized interest - continuing operations

 

$

176.9

 

 

$

160.2

 

Cash paid for interest, net of capitalized interest - discontinued operations

 

$

 

 

$

0.3

 

Cash paid for income taxes

 

$

12.7

 

 

$

2.7

 

Non-cash purchases of long-lived assets through capital leasing

 

$

6.2

 

 

$

5.6

 

Increase/(decrease) in accruals for purchases of property and equipment - continuing operations

 

$

8.6

 

 

$

(12.1

)

 

Refer to Note 2 — Acquisitions for details regarding the Company’s recent acquisitions.

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

5


ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(in millions, except share and per share data)

 

(1) BUSINESS AND BASIS OF PRESENTATION

Business

Zayo Group Holdings, Inc., a Delaware corporation, was formed on November 13, 2007, and is the parent company of a number of subsidiaries engaged in bandwidth infrastructure provision and services. Zayo Group Holdings, Inc. and its subsidiaries are collectively referred to as “Zayo Group Holdings” or the “Company.” The Company’s primary operating subsidiary is Zayo Group, LLC (“ZGL”). Headquartered in Boulder, Colorado, the Company operates bandwidth infrastructure assets, including fiber networks and datacenters, in the United States and Europe to offer:

Physical infrastructure, including dark fiber, mobile infrastructure and colocation services.  

Cloud and Connectivity, previously referred to as Lit services, including wavelengths, Ethernet, IP, SONET and Cloud services.

Other services, provided by Zayo Professional Services and Zayo France.

On October 22, 2014, the Company completed an initial public offering (“IPO”) of shares of its common stock, which were listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “ZAYO”. Prior to its IPO, Zayo Group Holdings was wholly owned by Communications Infrastructure Investments, LLC ("CII"). The Company’s fiscal year ends June 30 each year.  The fiscal year ended June 30, 2014 is referred to as “Fiscal 2014” and the fiscal year ending June 30, 2015 as “Fiscal 2015.”

Stock Split and Amended and Restated Certificate of Incorporation

On October 9, 2014, the Company’s Board of Directors approved a 223,000-for-one stock split of the Company’s common stock. The stock split became effective upon filing of the amended and restated certificate of incorporation on October 10, 2014. Immediately subsequent to the stock split, 223,000,000 shares of common stock were outstanding. All of the shares outstanding and per share amounts have been retroactively adjusted to reflect the stock split in the accompanying condensed consolidated financial statements.

On October 10, 2014, the Company filed its amended and restated certificate of incorporation to authorize the issuance of additional shares of common and preferred stock, establish related voting and holding rights for these shares, and address certain other matters related to corporate governance.

Initial Public Offering

On October 22, 2014, the Company completed an IPO of 24,079,002 shares of common stock at an offering price of $19 per share. Shares sold in the IPO consisted of 16,008,679 shares sold by the Company and 8,070,323 shares sold by selling stockholders (including CII investors and employees, former employees, and directors and officers of the Company). The shares sold included the exercise of an option by the underwriters to purchase an additional 3,026,371 shares from selling shareholders.  The underwriters’ option to purchase additional shares was exercised on October 20, 2014. Proceeds to the Company after deducting the underwriting discount and other offering expenses totaled approximately $282.0, and net proceeds to selling stockholders, including the exercised underwriter option, totaled approximately $150.2. Proceeds to the Company from the IPO are recorded as an increase in common stock and additional paid-in-capital, net of direct offering costs (including previously capitalized amounts), during the second quarter of Fiscal 2015. The Company’s shares were listed on the New York Stock Exchange (NYSE) on October 17, 2014.

 

 

Basis of Presentation

The accompanying condensed consolidated financial statements include all the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements and related notes are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q, and do not include all of the note disclosures required by GAAP for complete financial statements. These condensed consolidated financial statements should, therefore, be read in conjunction with the consolidated financial statements and notes thereto for the year ended June 30, 2014 included in the Company’s final prospectus filed with the SEC on March 13, 2015. In the opinion of management, all adjustments considered necessary for the fair presentation of financial position, results of operations and cash flows of the Company have been included herein. The results of

6


ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(in millions, except share and per share data)

 

operations for the three and nine-month periods ended March 31, 2015 are not necessarily indicative of the operating results for any future interim period or the full year.

Unless otherwise noted, dollar amounts and disclosures throughout the notes to the condensed consolidated financial statements relate to the Company’s continuing operations and are presented in millions of dollars.

Earnings or Loss per Share

Basic earnings or loss per share attributable to the Company’s common shareholders is computed by dividing net earnings or loss attributable to common shareholders by the weighted average number of common shares outstanding for the period.   Diluted earnings or loss per share attributable to common shareholders presents the dilutive effect, if any, on a per share basis of potential common shares (such as restricted stock units) as if they had been vested or converted during the periods presented.  No such items were included in the computation of diluted loss per share for the three and nine months ended March 31, 2015 and 2014 because the Company incurred a loss from continuing operations in each of these periods and the effect of inclusion would have been anti-dilutive.

Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies described in its final prospectus filed with the SEC on March 13, 2015.

Discontinued Operations

On June 13, 2014, the Company completed a spin-off of Onvoy, LLC and its subsidiaries (“OVS”) to CII. The spin-off is reported as an equity distribution at carryover basis equal to the net assets and liabilities of OVS on the spin-off date, as the transaction was between entities under common control. See Note 3—Spin-off of Business.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Significant estimates are used when establishing allowances for doubtful accounts and accruals for billing disputes, determining useful lives for depreciation and amortization and accruals for exit activities associated with real estate leases, assessing the need for impairment charges (including those related to intangible assets and goodwill), determining the fair values of assets acquired and liabilities assumed in business combinations, accounting for income taxes and related valuation allowances against deferred tax assets and estimating the common unit and restricted stock unit grant fair values used to compute the stock-based compensation liability and expense. Management evaluates these estimates and judgments on an ongoing basis and makes estimates based on historical experience, current conditions, and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions.

 

Recently Issued Accounting Pronouncements

On April 7, 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts.  The ASU is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  Early application is permitted.  The ASU requires retrospective application to all prior periods presented in the financial statements.  The Company has elected not to early adopt ASU 2015-03.  If adopted during the period, debt issuance costs and long term debt as reflected on the Company’s condensed consolidated balance sheets would decrease $73.9 and $89.4 as of March 31, 2015 and June 30, 2014, respectively.

7


ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(in millions, except share and per share data)

 

On May 28, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for the Company on or after July 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.  In April 2015, the FASB tentatively decided to defer for one year the effective date of ASU 2014-09. The FASB also tentatively decided to permit entities to early adopt the standard. The tentative decision will be exposed in an upcoming proposed ASU.  

 

(2) ACQUISITIONS

As of March 31, 2015 and since its formation, the Company has consummated 34 transactions accounted for as business combinations. The acquisitions were executed as part of the Company’s business strategy of expanding through acquisitions. The acquisitions of these businesses have allowed the Company to increase the scale at which it operates, which in turn affords the Company the ability to increase its operating leverage, extend its network reach, and broaden its customer base.

The accompanying condensed consolidated financial statements include the operations of the acquired entities from their respective acquisition dates.

Acquisitions Completed During Fiscal 2015

Neo Telecoms (“Neo”)

On July 1, 2014, the Company acquired a 96% equity interest in Neo, a Paris-based bandwidth infrastructure company. The purchase agreement also includes a call option to acquire the remaining equity interest on or after December 31, 2015. The purchase consideration of €54.1 (or $73.9), net of cash acquired, was in consideration of acquiring 96% equity ownership in Neo and a call option to purchase the remaining 4% equity interest in Neo, and is subject to certain adjustments post-closing. The consideration consisted of cash and was paid with cash on hand from the proceeds of the Sixth Amendment to the Company’s term loan facility. €8.7 (or $11.9) of the purchase consideration is currently held in escrow pending the expiration of the indemnification adjustment period. The acquisition was considered an asset purchase for tax purposes.

Colo Facilities Atlanta (“AtlantaNAP”)

On July 1, 2014, the Company acquired 100% of the equity interest in AtlantaNAP, a datacenter and managed services provider in Atlanta, for cash consideration of $52.5. $5.3 of the purchase price is currently held in escrow pending the expiration of the indemnification adjustment period. The acquisition was considered an asset purchase for tax purposes.

IdeaTek Systems, Inc. (“IdeaTek”)

Effective January 1, 2015, the Company acquired all of the equity interest in IdeaTek. The purchase price, subject to certain post-closing adjustments, was $53.6 and was paid with cash on hand.  $3.2 of the purchase consideration is currently held in escrow pending the expiration of the indemnification adjustment period.  The acquisition was considered a stock purchase for tax purposes.

The IdeaTek acquisition added 1,800 route miles to the Company’s network in Kansas, and includes a dense metro footprint in Wichita, Kansas. The network spans across Kansas and connects to approximately 600 cellular towers and over 100 additional buildings.

Latisys Holdings, LLC (“Latisys”)

On February 23, 2015, the Company acquired the operating units of Latisys, a colocation and infrastructure as a service (“Iaas”) provider for a price of $677.5, net of cash acquired.  The Latisys acquisition was funded with the proceeds of the New Notes Offering (as defined in Note 6 – Long-Term Debt). $31.4 of the purchase consideration is currently held in escrow pending the expiration of the indemnification adjustment period. The acquisition was considered a stock purchase for tax purposes.

8


ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(in millions, except share and per share data)

 

The Latisys acquisition added colocation and IaaS services through eight datacenters across five markets in Northern Virginia, Chicago, Denver, Orange County and London. The acquired datacenters currently total over 185,000 square feet of billable space and 33 megawatts of critical power.

Acquisitions Completed During Fiscal 2014

Corelink Data Centers, LLC (“Corelink”)

On August 1, 2013, the Company entered into an asset purchase agreement to acquire Corelink. The transaction was consummated on the same date, at which time the Company acquired substantially all of the net assets of this business for consideration of approximately $1.9, comprised of 301,949 preferred units of CII with an estimated fair value of $1.6 and cash of $0.3 net of cash acquired. The acquisition was considered a stock purchase for tax purposes. The purchase price was paid with cash on hand.    

Access Communications, Inc. (“Access”)

On October 1, 2013, the Company acquired 100% of the equity interest in Access, a Minnesota corporation, for cash consideration of $40.1, net of cash acquired, of which $4.0 is currently held in escrow pending the expiration of the indemnification adjustment period. The acquisition was considered a stock purchase for tax purposes. The purchase price was paid with cash on hand.

FiberLink, LLC (“FiberLink”)

On October 2, 2013, the Company acquired 100% of the equity interest in FiberLink, an Illinois limited liability company, for cash consideration of $43.1, which was primarily funded with available funds drawn on the Company’s revolving credit facility. The acquisition was considered an asset purchase for tax purposes.  

CoreXchange, Inc. (“CoreXchange”)

On March 4, 2014, the Company acquired 100% of the equity interest in CoreXchange, a data center, bandwidth and managed services provider located in Dallas, Texas for consideration of $17.2. Through the transaction, the Company acquired one new data center operation located at 8600 Harry Hines Blvd. and secured additional square footage in its existing data center. The consideration was paid with cash on hand. $1.8 is currently held in escrow pending the expiration of the indemnification adjustment period. The acquisition was considered an asset purchase for tax purposes.

Geo Networks Limited (“Geo”)

On May 16, 2014, the Company acquired 100% of the equity interest in Ego Holdings Limited, a London-based dark fiber provider. The consideration consisted of cash of £174.3 (or $292.3), net of cash acquired, and was funded with a combination of cash on hand and available funds drawn on the Company’s revolving credit facility. In conjunction with the acquisition, the Company repaid Geo’s existing debt obligations to the note holders totaling £113.4 and £69.1 was paid to the shareholders. The acquisition was considered an asset purchase for tax purposes.

Acquisition Method Accounting Estimates

The Company initially recognizes the assets and liabilities acquired from the aforementioned acquisitions based on its preliminary estimates of their acquisition date fair values. As additional information becomes known concerning the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired company up to the end of the measurement period, which is no longer than a one year period following the acquisition date. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. As of March 31, 2015, the Company has not completed its fair value analysis and calculations in sufficient detail necessary to arrive at the final estimates of the fair value of certain working capital and non-working capital acquired assets and assumed liabilities, including the allocations to property, plant and equipment, goodwill and intangible assets, deferred revenue and resulting deferred taxes related to its acquisitions of Geo, AtlantaNAP, Neo, IdeaTek and Latisys. All information presented with respect to certain working capital and non-working capital acquired assets and liabilities assumed as it relates to these acquisitions are preliminary and subject to revision pending the final fair value analysis. During the first quarter of Fiscal 2015, the Company finalized its fair value analysis and resulting purchase accounting for the Access and FiberLink

9


ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(in millions, except share and per share data)

 

acquisitions. During the third quarter of Fiscal 2015, the Company finalized its fair value analysis and resulting purchase accounting for the CoreXchange acquisition.

The table below reflects the Company's preliminary estimates of the acquisition date fair values of the assets and liabilities assumed from its Fiscal 2015 acquisitions:

 

 

 

AtlantaNAP

July 1, 2014

 

 

Neo

July 1, 2014

 

 

IdeaTek

January 1, 2015

 

 

Latisys

February 23, 2015

 

Acquisition date

 

 

 

 

 

 

 

 

Cash

 

$

 

 

$

4.2

 

 

$

 

 

$

9.4

 

Other current assets

 

 

0.2

 

 

 

10.5

 

 

 

0.8

 

 

 

18.8

 

Property and equipment

 

 

7.0

 

 

 

28.1

 

 

 

32.8

 

 

 

220.6

 

Deferred tax assets, net

 

 

0.1

 

 

 

 

 

 

 

 

 

 

Intangibles

 

 

21.0

 

 

 

26.6

 

 

 

24.0

 

 

 

243.2

 

Goodwill

 

 

25.6

 

 

 

23.7

 

 

 

29.8

 

 

 

279.0

 

Other assets

 

 

 

 

 

8.9

 

 

 

0.1

 

 

 

5.8

 

Total assets acquired

 

 

53.9

 

 

 

102.0

 

 

 

87.5

 

 

 

776.8

 

Current liabilities

 

 

1.4

 

 

 

11.3

 

 

 

4.4

 

 

 

10.2

 

Deferred revenue

 

 

 

 

 

3.7

 

 

 

25.2

 

 

 

3.2

 

Deferred tax liability, net

 

 

 

 

 

5.7

 

 

 

4.3

 

 

 

76.5

 

Other liabilities

 

 

 

 

 

3.2

 

 

 

 

 

 

 

Total liabilities assumed

 

 

1.4

 

 

 

23.9

 

 

 

33.9

 

 

 

89.9

 

Net assets acquired

 

 

52.5

 

 

 

78.1

 

 

 

53.6

 

 

 

686.9

 

Less cash acquired

 

 

 

 

 

(4.2

)

 

 

 

 

 

(9.4

)

Net consideration paid

 

$

52.5

 

 

$

73.9

 

 

$

53.6

 

 

$

677.5

 

 

The table below reflects the Company's estimates of the acquisition date fair values of the assets and liabilities assumed from its Fiscal 2014 acquisitions:

 

 

 

Corelink

 

 

Access

 

 

FiberLink

 

 

CoreXchange

 

 

Geo

 

Acquisition date

 

August 1, 2013

 

 

October 1, 2013

 

 

October 2, 2013

 

 

March 4, 2014

 

 

May 16, 2014

 

Cash

 

$

0.1

 

 

$

1.2

 

 

$

 

 

$

 

 

$

13.7

 

Other current assets

 

 

0.5

 

 

 

2.3

 

 

 

0.8

 

 

 

0.5

 

 

 

9.2

 

Property and equipment

 

 

15.9

 

 

 

11.5

 

 

 

15.9

 

 

 

3.2

 

 

 

221.2

 

Deferred tax assets, net

 

 

 

 

 

 

 

 

7.7

 

 

 

0.2

 

 

 

 

Intangibles

 

 

0.2

 

 

 

18.0

 

 

 

19.3

 

 

 

11.0

 

 

 

61.2

 

Goodwill

 

 

3.0

 

 

 

24.0

 

 

 

19.8

 

 

 

3.4

 

 

 

108.8

 

Other assets

 

 

0.5

 

 

 

 

 

 

0.1

 

 

 

 

 

 

9.8

 

Total assets acquired

 

 

20.2

 

 

 

57.0

 

 

 

63.6

 

 

 

18.3

 

 

 

423.9

 

Current liabilities

 

 

0.7

 

 

 

1.0

 

 

 

1.3

 

 

 

0.5

 

 

 

30.9

 

Deferred revenue

 

 

0.2

 

 

 

5.1

 

 

 

19.2

 

 

 

0.4

 

 

 

44.4

 

Capital lease obligations

 

 

14.3

 

 

 

 

 

 

 

 

 

0.2

 

 

 

 

Deferred tax liability, net

 

 

3.0

 

 

 

9.6

 

 

 

 

 

 

 

 

 

38.9

 

Other liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.7

 

Total liabilities assumed

 

 

18.2

 

 

 

15.7

 

 

 

20.5

 

 

 

1.1

 

 

 

117.9

 

Net assets acquired

 

 

2.0

 

 

 

41.3

 

 

 

43.1