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EX-32.2 - EX-32.2 - Zayo Group Holdings, Inc.zayo-20151231ex322597c4c.htm
EX-31.1 - EX-31.1 - Zayo Group Holdings, Inc.zayo-20151231ex311451d54.htm
EX-32.1 - EX-32.1 - Zayo Group Holdings, Inc.zayo-20151231ex32165cf29.htm
EX-31.2 - EX-31.2 - Zayo Group Holdings, Inc.zayo-20151231ex3120e6be2.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


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

For the quarterly period ended December 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      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      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

 

  (Do not check if a smaller 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  

The number of outstanding shares of common stock of Zayo Group Holdings, Inc. as of February 12, 2016, was 243,856,677 shares.

 

 

 

 


 

 

ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

INDEX 

 

 

 

 

 

 

Page

Part I. FINANCIAL INFORMATION 

 

 

Item 1. Financial Statements (Unaudited) 

 

Condensed Consolidated Balance Sheets as of December 31, 2015 and June 30, 2015 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2015 and 2014 

 

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

 

Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended December 31, 2015 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2015 and 2014 

 

Notes to Condensed Consolidated Financial Statements 

 

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

 

31 

Item 3. Quantitative and Qualitative Disclosures about Market Risk 

 

52 

Item 4. Controls and Procedures 

 

53 

Part II. OTHER INFORMATION 

 

 

Item 1. Legal Proceedings 

 

54 

Item 1A. Risk Factors 

 

54 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

 

54

Item 6. Exhibits 

 

55 

Signatures 

 

56 

 

 

 


 

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)

 

 

 

 

 

 

 

 

 

    

December 31, 

    

June 30, 

 

 

 

2015

    

2015

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

176.2

 

$

308.6

 

Trade receivables, net of allowance of $4.8 and $3.4 as of December 31, 2015 and June 30, 2015, respectively

 

 

73.9

 

 

88.0

 

Due from related parties

 

 

0.5

 

 

0.6

 

Prepaid expenses

 

 

33.8

 

 

37.3

 

Deferred income taxes, net

 

 

129.8

 

 

129.5

 

Other assets

 

 

5.6

 

 

3.9

 

Total current assets

 

 

419.8

 

 

567.9

 

Property and equipment, net

 

 

3,626.1

 

 

3,299.2

 

Intangible assets, net

 

 

933.0

 

 

948.3

 

Goodwill

 

 

1,222.2

 

 

1,224.4

 

Other assets

 

 

72.4

 

 

54.8

 

Total assets

 

$

6,273.5

 

$

6,094.6

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

16.5

 

$

16.5

 

Accounts payable

 

 

66.2

 

 

40.0

 

Accrued liabilities

 

 

182.2

 

 

182.2

 

Accrued interest

 

 

40.2

 

 

57.2

 

Capital lease obligations, current

 

 

5.4

 

 

4.4

 

Deferred revenue, current

 

 

97.8

 

 

86.6

 

Total current liabilities

 

 

408.3

 

 

386.9

 

Long-term debt, non-current

 

 

3,649.8

 

 

3,652.2

 

Capital lease obligation, non-current

 

 

30.5

 

 

28.3

 

Deferred revenue, non-current

 

 

727.4

 

 

612.7

 

Deferred income taxes, net

 

 

171.6

 

 

174.7

 

Other long-term liabilities

 

 

37.6

 

 

28.6

 

Total liabilities

 

 

5,025.2

 

 

4,883.4

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Preferred stock, $0.001 par value-- 50,000,000 shares authorized; no shares issued and outstanding as of December 31, 2015 and June 30, 2015, respectively

 

 

 —

 

 

 —

 

Common stock, $0.001 par value--850,000,000 shares authorized; 244,667,472 and 243,008,679 shares issued and outstanding as of December 31, 2015 and June 30, 2015, respectively

 

 

0.2

 

 

0.2

 

Additional paid-in capital

 

 

1,780.6

 

 

1,705.8

 

Accumulated other comprehensive loss

 

 

(19.6)

 

 

(7.9)

 

Accumulated deficit

 

 

(512.9)

 

 

(486.9)

 

Total stockholders' equity

 

 

1,248.3

 

 

1,211.2

 

Total liabilities and stockholders' equity

 

$

6,273.5

 

$

6,094.6

 

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 per share data)  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  December 31, 

 

Six months ended December 31, 

 

 

    

2015

    

2014

 

2015

    

2014

 

Revenue

 

$

369.6

 

$

323.9

 

$

736.4

 

$

644.5

 

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs (excluding depreciation and amortization and including stock-based compensation—Note 8)

 

 

112.2

 

 

97.8

 

 

225.2

 

 

205.1

 

Selling, general and administrative expenses (including stock-based compensation—Note 8)

 

 

85.0

 

 

32.1

 

 

169.6

 

 

188.9

 

Depreciation and amortization

 

 

113.7

 

 

96.9

 

 

230.8

 

 

192.9

 

Total operating costs and expenses

 

 

310.9

 

 

226.8

 

 

625.6

 

 

586.9

 

Operating income

 

 

58.7

 

 

97.1

 

 

110.8

 

 

57.6

 

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(51.2)

 

 

(53.4)

 

 

(105.0)

 

 

(100.3)

 

Loss on extinguishment of debt

 

 

 —

 

 

(30.9)

 

 

 —

 

 

(30.9)

 

Foreign currency loss on intercompany loans

 

 

(7.1)

 

 

(13.3)

 

 

(17.8)

 

 

(27.9)

 

Other expense, net

 

 

(0.1)

 

 

(0.1)

 

 

(0.2)

 

 

(0.2)

 

Total other expenses, net

 

 

(58.4)

 

 

(97.7)

 

 

(123.0)

 

 

(159.3)

 

Income/(loss) from operations before income taxes

 

 

0.3

 

 

(0.6)

 

 

(12.2)

 

 

(101.7)

 

Provision/(benefit) for income taxes

 

 

11.1

 

 

(4.4)

 

 

13.8

 

 

5.0

 

Net (loss)/income

 

$

(10.8)

 

$

3.8

 

$

(26.0)

 

$

(106.7)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

244.8

 

 

236.2

 

 

243.9

 

 

229.6

 

Diluted

 

 

244.8

 

 

237.2

 

 

243.9

 

 

229.6

 

Net (loss)/income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.04)

 

$

0.02

 

$

(0.11)

 

$

(0.46)

 

Diluted

 

 

(0.04)

 

 

0.02

 

 

(0.11)

 

 

(0.46)

 

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 

 

Six months ended

 

 

 

December 31, 

 

December 31, 

 

 

    

2015

    

2014

    

2015

    

2014

    

Net (loss)/income

 

$

(10.8)

 

$

3.8

 

$

(26.0)

 

$

(106.7)

 

Foreign currency translation adjustments

 

 

(7.7)

 

 

(8.7)

 

 

(11.7)

 

 

(21.0)

 

Comprehensive loss

 

$

(18.5)

 

$

(4.9)

 

$

(37.7)

 

$

(127.7)

 

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)

SIX MONTHS ENDED DECEMBER 31, 2015

(in millions, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Common
Shares

    

Common
Stock

    

Additional
paid-in
Capital

    

Accumulated

Other

Comprehensive

Loss

    

Accumulated
Deficit

    

Total
Stockholders'
Equity

 

Balance at June 30, 2015

 

243,008,679

 

$

0.2

 

$

1,705.8

 

$

(7.9)

 

$

(486.9)

 

$

1,211.2

 

Stock-based compensation

 

2,385,120

 

 

 —

 

 

87.6

 

 

 —

 

 

 —

 

 

87.6

 

Tax benefits from stock-based compensation

 

 —

 

 

 —

 

 

5.1

 

 

 —

 

 

 —

 

 

5.1

 

Foreign currency translation adjustment

 

 —

 

 

 —

 

 

 —

 

 

(11.7)

 

 

 —

 

 

(11.7)

 

Repurchase and retirement of common shares

 

(726,327)

 

 

 —

 

 

(17.9)

 

 

 —

 

 

 —

 

 

(17.9)

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(26.0)

 

 

(26.0)

 

Balance at December 31, 2015

 

244,667,472

 

$

0.2

 

$

1,780.6

 

$

(19.6)

 

$

(512.9)

 

$

1,248.3

 

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)

 

 

 

 

 

 

 

 

 

 

Six months ended December 31, 

 

 

 

2015

    

2014

 

Cash flows from operating activities

    

 

 

    

 

 

 

Net loss

 

$

(26.0)

 

$

(106.7)

 

Adjustments to reconcile net loss to net cash provided by operating activities

 

 

 

 

 

 

 

Depreciation and amortization

 

 

230.8

 

 

192.9

 

Loss on extinguishment of debt

 

 

 —

 

 

30.9

 

Non-cash interest expense

 

 

6.6

 

 

9.4

 

Stock-based compensation

 

 

89.0

 

 

117.1

 

Amortization of deferred revenue

 

 

(41.9)

 

 

(34.6)

 

Additions to deferred revenue

 

 

86.6

 

 

84.1

 

Foreign currency loss on intercompany loans

 

 

17.8

 

 

27.9

 

Excess tax benefit from stock-based compensation

 

 

(7.9)

 

 

 —

 

Deferred income taxes

 

 

8.3

 

 

(0.7)

 

Provision for bad debts

 

 

2.5

 

 

0.9

 

Non-cash loss on investments

 

 

0.6

 

 

0.5

 

Changes in operating assets and liabilities, net of acquisitions

 

 

 

 

 

 

 

Trade receivables

 

 

15.3

 

 

(5.0)

 

Prepaid expenses

 

 

6.0

 

 

0.2

 

Payables to/(from) related parties, net

 

 

0.1

 

 

 —

 

Accounts payable and accrued liabilities

 

 

(26.0)

 

 

(67.5)

 

Other assets and liabilities

 

 

(20.4)

 

 

(7.5)

 

Net cash provided by operating activities

 

 

341.4

 

 

241.9

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(331.6)

 

 

(244.8)

 

Acquisition of Viatel, net of cash acquired

 

 

(101.0)

 

 

 —

 

Acquisition of Dallas Data Center, net of cash acquired

 

 

(16.7)

 

 

 —

 

Acquisition of Neo Telecoms, net of cash acquired

 

 

 —

 

 

(73.9)

 

Acquisition of Colo Facilities Atlanta, net of cash acquired

 

 

 —

 

 

(52.5)

 

Other

 

 

(0.3)

 

 

(0.1)

 

Net cash used in investing activities

 

 

(449.6)

 

 

(371.3)

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from equity offerings and contributions

 

 

 —

 

 

304.2

 

Direct costs associated with initial public offering

 

 

 —

 

 

(22.2)

 

Principal payments on long-term debt

 

 

(8.3)

 

 

(259.7)

 

Payment of early redemption fees on debt extinguished

 

 

 —

 

 

(23.8)

 

Principal payments on capital lease obligations

 

 

(2.2)

 

 

(1.3)

 

Common stock repurchases

 

 

(17.9)

 

 

 —

 

Excess tax benefit from stock-based compensation

 

 

7.9

 

 

 —

 

Other

 

 

(0.4)

 

 

 —

 

Net cash used in financing activities

 

 

(20.9)

 

 

(2.8)

 

Net cash flows

 

 

(129.1)

 

 

(132.2)

 

Effect of changes in foreign exchange rates on cash

 

 

(3.3)

 

 

(1.6)

 

Net decrease in cash and cash equivalents

 

 

(132.4)

 

 

(133.8)

 

Cash and cash equivalents, beginning of year

 

 

308.6

 

 

297.4

 

Cash and cash equivalents, end of period

 

$

176.2

 

$

163.6

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

Cash paid for interest, net of capitalized interest

 

$

112.5

 

$

144.7

 

Cash paid for income taxes

 

 

6.7

 

 

10.8

 

Non-cash purchases of equipment through capital leasing

 

 

5.8

 

 

5.8

 

Increase in accounts payable and accrued expenses for purchases of property and equipment

 

 

25.5

 

 

5.9

 

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


 

Table of Contents

ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(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 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:

·

Dark Fiber Solutions, including dark fiber and mobile infrastructure services.

·

Colocation and Cloud Infrastructure, including Cloud and Colocation services.

·

Network Connectivity, wavelengths, Ethernet, IP and SONET services.

·

Other services, including Zayo Professional Services (“ZPS”).

The Company’s shares are listed on the New York Stock Exchange (NYSE) under the ticker symbol “ZAYO”.

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, 2015 included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2015. In the opinion of management, all adjustments considered necessary for a fair presentation of financial position, results of operations and cash flows of the Company have been included herein. The results of operations for the three and six months periods ended December 31, 2015 are not necessarily indicative of the operating results for any future interim period or the full year.

The Company’s fiscal year ends June 30 each year, and we refer to the fiscal year ended June 30, 2015 as “Fiscal 2015” and the fiscal year ending June 30, 2016 as “Fiscal 2016.”

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 six months ended December 31, 2015 or the six months ended December 31, 2014 as the Company incurred a loss from continuing operations in those periods and the effect of inclusion would have been anti-dilutive. 

The effect of 146,001 shares reserved for Part A restricted stock units and 2,210,534 shares reserved for Part B restricted stock units outstanding at December 31, 2014 were included in the computation of diluted income per share for the three months ended December 31, 2014.

6


 

Table of Contents

ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies described in its Annual Report on Form 10-K for the year ended June 30, 2015.

Use of Estimates

The preparation of the Company’s condensed 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 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

In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-17, Balance Sheet Classification of Deferred Taxes, which requires an entity to present deferred tax liabilities and assets as noncurrent. The ASU will replace the current classification and presentation requirements for deferred tax assets and liabilities.  Early adoption is permitted as of the original effective date or annual reporting periods and interim reporting periods within annual reporting periods beginning after December 15, 2016. The Company has not yet adopted ASU 2015-17 and it is not expected to have a material effect on the Company’s financial statements.

In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which requires acquirers who have reported provisional amounts for items in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period, in the reporting period in which the adjustments are determined. The ASU also requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  Prior to the issuance of ASU 2015-16, adjustments to provisional amounts were required to be retrospectively adjusted. The Company prospectively early-adopted ASU 2015-16 effective July 1, 2015. The adoption of this standard did not have a material impact on the financial statements.

In May 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. In July 2015, the FASB deferred the effective date to annual reporting periods and interim reporting periods within annual reporting periods beginning after December 15, 2017.  Early adoption is permitted as of the original effective date or annual reporting periods and interim reporting periods within annual reporting periods beginning after December 15, 2016. 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.

7


 

Table of Contents

ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(2) ACQUISITIONS

Since its formation, the Company has consummated 36 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 2016

Viatel

On December 31, 2015, the Company completed the acquisition of a 100% interest in Viatel Infrastructure Europe Ltd., Viatel (UK) Limited, Viatel France SAS, Viatel Deutschland GmbH and Viatel Nederland BV (collectively, “Viatel”) for cash consideration of €92.6 million (or $101.0 million), net of cash acquired. The final purchase consideration is subject to certain post-closing adjustments. The acquisition was funded with cash on hand. €5.0 million (or $5.5 million) of the purchase consideration is currently held in escrow pending expiration of the indemnification adjustment period. The acquisition was considered a stock purchase for tax purposes.

Dallas Data Center Acquisition (“Dallas Data Center”)

On December 31, 2015, the Company acquired a 36,000 square foot data center located in Dallas, Texas for cash consideration of $16.7 million. The acquisition was funded with cash on hand and was considered an asset purchase for tax purposes.

Acquisitions Completed During Fiscal 2015

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 $51.9 million. The acquisition was considered an asset purchase for tax purposes.

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 million (or $73.9 million), 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. The fair value of the 4% non-controlling interest in Neo as of the acquisition date was $2.9 million and recorded in Other long-term liabilities. The consideration consisted of cash and was paid with cash on hand from the proceeds of the Term Loan Facility (as defined below). €8.7 million (or $11.9 million) 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.

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 $52.7 million and was paid with cash on hand. $3.2 million 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.

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ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

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 $677.8 million, net of cash acquired.  The Latisys acquisition was funded with the proceeds of the January Notes Offering (as defined in Note 5 – Long-Term Debt). $31.4 million 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.

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 December 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 goodwill and intangible assets, deferred revenue and resulting deferred taxes related to its acquisitions of Viatel, Dallas Data Center, 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 is preliminary and subject to revision pending the final fair value analysis.

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ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

The table below reflects the Company's estimates of the acquisition date fair values of the assets and liabilities assumed from its Fiscal 2016 acquisitions:

 

 

 

 

 

 

 

 

 

 

 

Viatel

 

Dallas Data
Center

 

Acquisition date

    

December 31, 2015

    

December 31, 2015

 

 

 

 

(in millions)

 

Cash

 

$

5.3

 

$

 —

 

Other current assets

 

 

7.5

 

 

 —

 

Property and equipment

 

 

127.2

 

 

14.9

 

Deferred tax assets, net

 

 

 —

 

 

 —

 

Intangibles

 

 

24.8

 

 

1.8

 

Goodwill

 

 

12.1

 

 

 —

 

Other assets

 

 

 —

 

 

 —

 

Total assets acquired

 

 

176.9

 

 

16.7

 

Current liabilities

 

 

14.4

 

 

 —

 

Deferred revenue

 

 

46.6

 

 

 —

 

Deferred tax liability, net

 

 

9.6

 

 

 —

 

Other liabilities

 

 

 —

 

 

 —

 

Total liabilities assumed

 

 

70.6

 

 

 —

 

Net assets acquired

 

 

106.3

 

 

16.7

 

Less cash acquired

 

 

(5.3)

 

 

 —

 

Net consideration paid

 

$

101.0

 

$

16.7

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AtlantaNAP

 

 

Neo

 

 

IdeaTek

 

Latisys

 

Acquisition date

    

July 1, 2014

    

July 1, 2014

    

January 1, 2015

     

February 23, 2015

        

 

 

 

(in millions)

 

Cash

 

$

 —

 

$

4.2

 

$

 —

 

$

9.4

 

Other current assets

 

 

0.2

 

 

9.5

 

 

0.8

 

 

17.2

 

Property and equipment

 

 

7.0

 

 

31.3

 

 

32.3

 

 

222.9

 

Deferred tax assets, net

 

 

 —

 

 

 —

 

 

3.1

 

 

0.4

 

Intangibles

 

 

21.0

 

 

26.4

 

 

7.6

 

 

250.2

 

Goodwill

 

 

25.2

 

 

32.5

 

 

39.0

 

 

274.7

 

Other assets

 

 

 —

 

 

2.3

 

 

 —

 

 

5.0

 

Total assets acquired

 

 

53.4

 

 

106.2

 

 

82.8

 

 

779.8

 

Current liabilities

 

 

1.5

 

 

13.5

 

 

4.4

 

 

10.0

 

Deferred revenue

 

 

 —

 

 

3.7

 

 

25.7

 

 

3.1

 

Deferred tax liability, net

 

 

 —

 

 

7.6

 

 

 —

 

 

79.5

 

Other liabilities

 

 

 —

 

 

3.3

 

 

 —

 

 

 —

 

Total liabilities assumed

 

 

1.5

 

 

28.1

 

 

30.1

 

 

92.6

 

Net assets acquired

 

 

51.9

 

 

78.1

 

 

52.7

 

 

687.2

 

Less cash acquired

 

 

 —

 

 

(4.2)

 

 

 —

 

 

(9.4)

 

Net consideration paid

 

$

51.9

 

$

73.9

 

$

52.7

 

$

677.8

 

 

 

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ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

The goodwill arising from the Company’s acquisitions results from synergies, anticipated incremental sales to the acquired company customer base and economies-of-scale expected from the acquisitions. The Company has allocated the goodwill to the reporting units (in existence on the respective acquisition dates) that were expected to benefit from the acquired goodwill. The allocation was determined based on the excess of the estimated fair value of the reporting unit over the estimated fair value of the individual assets acquired and liabilities assumed that were assigned to the reporting units. Note 3 - Goodwill, displays the allocation of the Company's acquired goodwill to each of its reporting units.

 

In each of the Company’s Fiscal 2015 and Fiscal 2016 acquisitions, the Company acquired certain customer relationships. These relationships represent a valuable intangible asset, as the Company anticipates continued business from the acquired customer bases. The Company’s estimate of the fair value of the acquired customer relationships is based on a multi-period excess earnings valuation technique that utilizes Level 3 inputs.

Transaction Costs

Transaction costs include expenses associated with professional services (i.e., legal, accounting, regulatory, etc.) rendered in connection with signed and/or closed acquisitions or disposals (including spin-offs), travel expense, severance expense incurred on the date of acquisition or disposal, and other direct expenses incurred that are associated with such acquisitions or disposals. The Company incurred transaction costs of $3.3 million for the three and six months ended December 31, 2015, and $1.3 million and $4.8 million during the three and six months ended December 31, 2014, respectively. Transaction costs have been included in selling, general and administrative expenses in the condensed consolidated statements of operations and in cash flows from operating activities in the condensed consolidated statements of cash flows during these periods.

Pro-forma Financial Information

The pro forma results presented below include the effects of the Company’s Fiscal 2016 and 2015 acquisitions as if the acquisitions occurred on July 1, 2014. The pro forma net loss for the periods ended December 31, 2015 and 2014 includes the additional depreciation and amortization resulting from the adjustments to the value of property and equipment and intangible assets resulting from purchase accounting and adjustment to amortized revenue during Fiscal 2016 and 2015 as a result of the acquisition date valuation of assumed deferred revenue. The pro forma results also include interest expense associated with debt used to fund the acquisitions. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisitions. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions been consummated as of July 1, 2014.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  December 31, 

 

 

Six months ended December 31, 

 

 

    

2015

    

2014

 

2015

 

2014

 

 

 

(in millions)

 

Revenue

 

$

374.7

 

$

357.6

 

$

746.6

 

$

710.8

 

Net loss

 

$

(11.9)

 

$

(6.7)

 

$

(28.3)

 

$

(127.8)

 

 

The Company is unable to determine the amount of revenue and net income associated with each acquisition recognized during the period as a result of integration activities.

 

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(3) GOODWILL

The Company’s goodwill balance was $1,222.2 million and $1,224.4 million as of December 31, 2015 and June 30, 2015, respectively.

The Company’s reporting units are comprised of its strategic product groups (“SPGs”): Zayo Dark Fiber (“Dark Fiber”), Zayo Wavelength Services (“Waves”), Zayo SONET Services (“SONET”), Zayo Ethernet Services (“Ethernet”), Zayo IP Services (“IP”), Zayo Mobile Infrastructure Group (“MIG”), Zayo Colocation (“zColo"), Zayo Cloud Services (“Cloud”) and Other (primarily ZPS).

The following reflects the changes in the carrying amount of goodwill during the six months ended December 31, 2015:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product Group

    

As of
June 30, 2015

    

Fiscal 2016 Acquisitions

    

Adjustments to Fiscal 2015 Acquisitions

    

Foreign Currency Translation and Other

    

As of
December 31, 2015

 

 

 

(in millions)

 

Dark Fiber

 

$

299.1

 

$

5.3

 

$

 —

 

$

(5.8)

 

$

298.6

 

Waves

 

 

265.6

 

 

2.3

 

 

 —

 

 

(3.1)

 

 

264.8

 

Sonet

 

 

50.3

 

 

1.5

 

 

 —

 

 

 —

 

 

51.8

 

Ethernet

 

 

104.2

 

 

1.3

 

 

 —

 

 

(0.1)

 

 

105.4

 

IP

 

 

86.3

 

 

0.2

 

 

 —

 

 

(0.2)

 

 

86.3

 

MIG

 

 

73.4

 

 

 —

 

 

0.3

 

 

 —

 

 

73.7

 

zColo

 

 

273.2

 

 

1.5

 

 

(5.1)

 

 

(0.2)

 

 

269.4

 

Cloud

 

 

57.0

 

 

 —

 

 

 —

 

 

(0.1)

 

 

56.9

 

Other

 

 

15.3

 

 

 —

 

 

 —

 

 

 —

 

 

15.3

 

Total

 

$

1,224.4

 

$

12.1

 

$

(4.8)

 

$

(9.5)

 

$

1,222.2

 

 

During the six months ended December 31, 2015, the Company recorded adjustments to its provisional accounting estimates primarily associated with deferred tax asset balances acquired from the IdeaTek and Latisys acquisitions, which resulted in a $4.8 million reduction to goodwill.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(4) INTANGIBLE ASSETS

Identifiable acquisition-related intangible assets as of December 31, 2015 and June 30, 2015 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Gross
Carrying
Amount

    

Accumulated
Amortization

    

Net

 

 

 

(in millions)

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

Finite-Lived Intangible Assets

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

1,102.3

 

$

(191.1)

 

$

911.2

 

Trade names

 

 

0.2

 

 

(0.2)

 

 

 —

 

Underlying rights

 

 

1.7

 

 

(0.3)

 

 

1.4

 

Total

 

 

1,104.2

 

 

(191.6)

 

 

912.6

 

Indefinite-Lived Intangible Assets

 

 

 

 

 

 

 

 

 

 

Certifications

 

 

3.5

 

 

 —

 

 

3.5

 

Underlying Rights

 

 

16.9

 

 

 —

 

 

16.9

 

Total

 

$

1,124.6

 

$

(191.6)

 

$

933.0

 

June 30, 2015

 

 

 

 

 

 

 

 

 

 

Finite-Lived Intangible Assets

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

1,080.3

 

$

(155.0)

 

$

925.3

 

Trade names

 

 

0.2

 

 

(0.1)

 

 

0.1

 

Underlying rights

 

 

1.7

 

 

(0.2)

 

 

1.5

 

Total

 

 

1,082.2

 

 

(155.3)

 

 

926.9

 

Indefinite-Lived Intangible Assets

 

 

 

 

 

 

 

 

 

 

Certifications

 

 

3.5

 

 

 —

 

 

3.5

 

Underlying Rights

 

 

17.9

 

 

 —

 

 

17.9

 

Total

 

$

1,103.6

 

$

(155.3)

 

$

948.3

 

 

 

 

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(5) LONG-TERM DEBT

As of December 31, 2015 and June 30, 2015, long-term debt was as follows:

 

 

 

 

 

 

 

 

 

 

    

December 31, 

    

June 30, 

 

 

    

2015

    

2015

 

 

 

(in millions)

Term Loan Facility due 2021

 

$

1,638.5

 

$

1,646.8

 

10.125% Senior Unsecured Notes due 2020

 

 

325.6

 

 

325.6

 

6.00% Senior Unsecured Notes Due 2023

 

 

1,430.0

 

 

1,430.0

 

6.375% Senior Unsecured Notes Due 2025

 

 

350.0

 

 

350.0

 

Total debt obligations

 

 

3,744.1

 

 

3,752.4

 

Unamortized discount on Term Loan Facility

 

 

(18.3)

 

 

(19.8)

 

Unamortized premium on 6.00% Senior Unsecured Notes

 

 

6.7

 

 

7.1

 

Unamortized debt issuance costs

 

 

(66.2)

 

 

(71.0)

 

Carrying value of debt

 

 

3,666.3

 

 

3,668.7

 

Less current portion

 

 

(16.5)

 

 

(16.5)

 

Long-term debt, less current portion

 

$

3,649.8

 

$

3,652.2

 

 

Term Loan Facility due 2021 and Revolving Credit Facility

On May 6, 2015, ZGL entered into an Amendment and Restatement Agreement whereby its Credit Agreement (the “Credit Agreement”) governing its senior secured term loan facility (the “Term Loan Facility”) and $450 million senior secured revolving credit facility (the “Revolver”) was amended and restated in its entirety. The amended and restated Credit Agreement extended the maturity date of the outstanding term loans under the Term Loan Facility to May 6, 2021. The interest rate margins applicable to the Term Loan Facility were decreased by 25 basis points to LIBOR plus 2.75% with a minimum LIBOR of 1.0%. In addition, the amended and restated Credit Agreement removed the fixed charge coverage ratio covenant and replaced such covenant with a springing senior secured leverage ratio maintenance requirement applicable only to the Revolver, increased certain lien and debt baskets, and removed certain covenants related to collateral. The terms of the Term Loan Facility require the Company to make quarterly principal payments of $4.1 million plus an annual payment of up to 50% of excess cash flow, as determined in accordance with the Credit Agreement (no such payment was required during the three and six months ended December 31, 2015 or 2014). 

The Revolver matures at the earliest of (i) April 17, 2020, (ii) six months prior to the maturity date of the Term Loan Facility, subject to amendment thereof, and (iii) six months prior to the maturity date of the 2020 Unsecured Notes (as defined below), subject to repayment or amendment thereof.  The Credit Agreement also allows for letter of credit commitments of up to $50.0 million.  The Revolver is subject to a fee per annum of 0.25% to 0.375% (based on ZGL’s current leverage ratio) of the weighted-average unused capacity, and the undrawn amount of outstanding letters of credit backed by the Revolver are subject to a 0.25% fee per annum. Outstanding letters of credit backed by the Revolver accrue interest at a rate ranging from LIBOR plus 2.0% to LIBOR plus 3.0% per annum based upon ZGL’s leverage ratio.

Interest rates on the Term Loan Facility as of December 31, 2015 and June 30, 2015 were 3.75%. Interest rates on the Revolver as of December 31, 2015 and June 30, 2015 were approximately 3.2% and 3.0%, respectively.

As of December 31, 2015, no amounts were outstanding under the Revolver. Standby letters of credit were outstanding in the amount of $9.2 million as of December 31, 2015, leaving $440.8 million available under the Revolver.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

10.125% Senior Unsecured Notes due 2020

On July 2, 2012, ZGL and Zayo Capital, Inc. (the “Issuers”) issued $500.0 million aggregate principal amount of 10.125% senior unsecured notes due 2020 (the “2020 Unsecured Notes”).  On December 15, 2014, the Issuers redeemed $174.4 million of their outstanding 2020 Unsecured Notes at a price of 110.125% and $75.0 million of their then outstanding 8.125% senior secured notes due 2020 at a price of 108.125% (the “Note Redemption”). As part of the Note Redemption, the Company paid an early redemption call premium of $23.8 million, which was recorded as a loss on extinguishment of debt on the consolidated statements of operations during three and six months ended December 31, 2014.

6.00% Senior Unsecured Notes Due 2023 and 6.375% Senior Unsecured Notes due 2025

On January 23, 2015, the Issuers completed a private offering (the “January Notes Offering”) of $700.0 million aggregate principal amount of 6.00% senior unsecured notes due in 2023 (the “2023 Unsecured Notes”).  On March 9, 2015, the Issuers completed a private offering of an additional $730.0 million aggregate principal amount of 2023 Unsecured Notes at a premium of 1% (the “March Notes Offering”) resulting in aggregate gross proceeds for the 2023 Unsecured Notes of $1,437.3 million.  The issue premium of $7.3 million on the March Notes Offering is being accreted against interest expense over the term of the notes under the effective interest method.  The 2023 Unsecured Notes bear interest at the rate of 6.00% per year, which is payable on April 1 and October 1 of each year, beginning on October 1, 2015. The 2023 Unsecured Notes will mature on April 1, 2023.  The net proceeds from the January Notes Offering were used to fund the Latisys acquisition (see Note 2 – Acquisitions).   The net proceeds from the March Notes Offering were used to redeem the remaining $675.0 million of the Issuers’ then outstanding 8.125% senior secured notes due 2020 at a price of 105.75% (the “Second Notes Redemption”).  As part of the Second Notes Redemption, the Company paid an early redemption call premium of $38.8 million.  The call premium was recorded as a loss on extinguishment of debt on the consolidated statements of operations during the three months ended March 31, 2015.

On May 6, 2015, the Issuers completed a private offering of $350.0 million aggregate principal amount of 6.375% senior unsecured notes due in 2025 (the “2025 Unsecured Notes”). Interest on the 2025 Unsecured Notes is payable on May 15 and November 15 of each year, beginning on November 15, 2015. The 2025 Unsecured Notes will mature on May 15, 2025.  The net proceeds from the 2025 Unsecured Notes were used to repay $344.5 million of the Term Loan Facility. As a result of the repayment, the Company recorded a loss on extinguishment of debt of $8.4 million during the three months ended June 30, 2015.

Debt covenants

The indentures (the “Indentures”) governing the 2020 Unsecured Notes, the 2023 Unsecured Notes and the 2025 Unsecured Notes (collectively the “Notes”) contain covenants that, among other things, restrict the ability of ZGL and its subsidiaries to incur additional indebtedness and issue preferred stock, pay dividends or make other distributions with respect to any equity interests, make certain investments or other restricted payments, create liens, sell assets, incur restrictions on the ability of ZGL’s restricted subsidiaries to pay dividends or make other payments to ZGL, consolidate or merge with or into other companies or transfer all or substantially all of their assets, engage in transactions with affiliates, and enter into sale and leaseback transactions.  The terms of the Indentures include customary events of default.

The Credit Agreement contains customary events of default, including among others, non-payment of principal, interest, or other amounts when due, inaccuracy of representations and warranties, breach of covenants, cross default to certain other indebtedness, insolvency or inability to pay debts, bankruptcy, or a change of control. The Credit Agreement also contains a covenant, applicable only to the Revolver, that ZGL maintain a senior secured leverage ratio below 5.25:1.00 at any time when the aggregate principal amount of loans outstanding under the Revolver is greater than 35% of the commitments under the Revolver.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

The indenture governing the 2020 Unsecured Notes limits any increase in ZGL’s secured indebtedness (other than certain forms of secured indebtedness expressly permitted under such indenture) to a pro forma secured debt ratio of 4.50 times the Company’s previous quarter’s annualized modified EBITDA, as defined in the indenture, and limits ZGL’s incurrence of additional indebtedness to a total indebtedness ratio of 5.25 times the previous quarter’s annualized modified EBITDA. The indentures governing the 2023 Unsecured Notes and the 2025 Unsecured Notes limit any increase in ZGL’s secured indebtedness (other than certain forms of secured indebtedness expressly permitted under such indentures) to a pro forma secured debt ratio of 4.50 times ZGL’s previous quarter’s annualized modified EBITDA (as defined in such indentures), and limit ZGL’s incurrence of additional indebtedness to a total indebtedness ratio of 6.00 times the previous quarter’s annualized modified EBITDA.

The Company was in compliance with all covenants associated with its debt agreements as of December 31, 2015.

Guarantees

The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of ZGL’s current and future domestic restricted subsidiaries. The Notes were co-issued with Zayo Capital, which does not have independent assets or operations.

Debt issuance costs

In connection with the Credit Agreement (and subsequent amendments thereto), and the various Notes offerings, the Company incurred debt issuance costs of $99.5 million (net of extinguishments). These costs are being amortized to interest expense over the respective terms of the underlying debt instruments using the effective interest method, unless extinguished earlier, at which time the related unamortized costs are to be immediately expensed.

Unamortized debt issuance costs of $23.2 million associated with the Company’s previous indebtedness were recorded as part of the loss on extinguishment of debt during Fiscal 2015. 

The balance of debt issuance costs as of December 31, 2015 and June 30, 2015 was $66.2 million and $71.0 million, net of accumulated amortization of $33.3 million and $28.3 million, respectively. The amortization of debt issuance costs is included on the condensed consolidated statements of cash flows within the caption “Non-cash interest expense” along with the amortization or accretion of the premium and discount on the Company’s indebtedness and changes in the fair value of the Company’s interest rate derivatives.  Interest expense associated with the amortization of debt issuance costs was $2.5 million and $5.0 million for the three and six months ended December 31, 2015 and $3.8 million and $7.5 million during the three and six months ended December 31, 2014, respectively.

Debt issuance costs are presented in the condensed consolidated balance sheets as a reduction to “Long-term debt, non-current”.

Loss on extinguishment of debt

In connection with the Note Redemption, the Company recorded an early redemption call premium of $23.8 million and recorded an expense of $7.1 million related to unamortized debt issuance costs associated with the notes redeemed. These expenses are included on the consolidated statements of operations during three and six months ended December 31, 2014. 

Interest rate derivatives

On August 13, 2012, the Company entered into forward-starting interest rate swap agreements with an aggregate notional value of $750.0 million, a maturity date of June 30, 2017, and a start date of June 30, 2013. There were no up-

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Table of Contents

ZAYO GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

front fees for these agreements. The contract states that the Company shall pay a 1.67% fixed rate of interest for the term of the agreement beginning on the start date. The counterparty will pay to the Company the greater of actual LIBOR or 1.25%. The Company entered into the forward-starting swap arrangements to reduce the risk of increased interest costs associated with potential changes in LIBOR rates.

Changes in the fair value of interest rate swaps are recorded in interest expense in the condensed consolidated statements of operations for the applicable period. The fair value of the interest rate swaps of $3.5 million and $4.1 million are included in “Other long term liabilities” in the Company’s condensed consolidated balance sheets as of December 31, 2015 and June 30, 2015, respectively. During the three and six months ended December 31, 2015, respectively, $1.0 million and $0.6 million was recorded as a decrease in interest expense for the change in fair value of the interest rate swaps. During the three and six months ended December 31, 2014, respectively, $1.5 million and $(0.5) million was recorded as an increase/(decrease) in interest expense for the change in the fair value of the interest rate swaps.

(6) INCOME TAXES

The Company’s provision for income taxes from operations is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  December 31, 

 

Six months ended December 31, 

 

 

    

2015

    

2014

    

2015

    

2014

 

Current Income Taxes

 

(in millions)

Federal

 

$

0.7

 

$

1.6

 

$

0.8

 

$

3.1

 

State

 

 

3.1

 

 

0.9