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Zayo Enterprise Networks, LLC
Zayo Bandwidth, LLC
Zayo Colocation, Inc.
Zayo Fiber Solutions, LLC
Zayo Bandwidth Tennessee, LLC
Adesta Communications, Inc.
FiberNet Telecom, Inc.
Local Fiber, LLC
American Fiber Systems Holding Corp.
American Fiber Systems, Inc.
10.25% Senior Secured First-Priority Notes due 2017
(CUSIP Nos. 989194 AA3 and U98832 AA3)
for new 10.25% Senior Secured First Priority Notes due 2017
that have been registered under the Securities Act of 1933
• | The terms of the registered 10.25% Senior Secured First-Priority Notes due 2017 to be issued in the exchange offer are substantially identical to the terms of the outstanding 10.25% Senior Secured First-Priority Notes due 2017, except that provisions relating to transfer restrictions, registration rights, and additional interest will not apply to the exchange notes. | |
• | We are offering the exchange notes pursuant to the registration rights agreements that we entered into in connection with the issuance of the outstanding notes. |
• | The exchange offer expires at 5:00 p.m., New York City time, on December 10, 2010, unless extended. | |
• | Upon expiration of the exchange offer, all outstanding notes that are validly tendered and not validly withdrawn will be exchanged for an equal principal amount of exchange notes. | |
• | You may withdraw tendered outstanding notes at any time at or prior to the expiration of the exchange offer. | |
• | The exchange offer is not subject to any minimum tender condition, but is subject to customary conditions. | |
• | The exchange of the exchange notes for outstanding notes will not be a taxable exchange for U.S. federal income tax purposes. | |
• | There is no existing public market for the outstanding notes or the exchange notes. |
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• | does not reflect capital expenditures, or future requirements for capital and major maintenance expenditures or contractual commitments; | |
• | does not reflect changes in, or cash requirements for, our working capital needs; | |
• | does not reflect the significant interest expense, or the cash requirements necessary to service the interest payments, on our debt; and | |
• | does not reflect cash required to pay income taxes. |
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• | our ability to acquire new customers and retain existing customers; | |
• | changes in the competitive environment in which we operate, including the emergence of new competitors; | |
• | changes in government and regulatory policies; | |
• | our ability to complete acquisitions, some of which may be quite large, or divestitures and to integrate any business or operation acquired; | |
• | technological developments and changes in the industry; | |
• | risks related to strategy and financing, including restrictions stemming from our debt agreements and the availability and costs of credit; and | |
• | the risks described below in “Risk Factors.” |
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• | In February 2010, Zayo Bandwidth, as the direct recipient, was awarded $25.1 million in funding to construct 626 miles of fiber network connecting 21 community colleges in Indiana. | |
• | In July 2010, Zayo Bandwidth, as the direct recipient, was awarded a $13.4 million grant to construct 286 miles of fiber network in Anoka County, Minnesota, outside of Minneapolis. |
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![(flowcart)](https://capedge.com/proxy/424B3/0000950123-10-103869/d76509b3d7650901.gif)
(1) | Owns and operates Onvoy Voice Services. | |
(2) | Zayo Group Holdings, Inc. has pledged all its equity interests of Zayo Group, LLC to secure equally and ratably all obligations under our credit agreement, the notes and the guarantees. | |
(3) | Zayo Capital, Inc. is the co-issuer of the notes and co-borrower under our credit agreement. Zayo Capital, Inc. has no operations of its own and now subsidiaries. |
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The Exchange Offer | We are offering to exchange $1,000 principal amount of exchange notes, which have been registered under the Securities Act, for each $1,000 principal amount of outstanding notes, subject to a minimum exchange of $2,000. As of the date of this prospectus, $350,000,000 aggregate principal amount of the outstanding notes is outstanding. We issued the outstanding notes in private transactions for resale pursuant to Rule 144A and Regulation S of the Securities Act. The terms of the exchange notes are substantially identical to the terms of the outstanding notes, except that provisions relating to transfer restrictions, registration rights, and rights to increased interest in addition to the stated interest rate on the outstanding notes (“Additional Interest”) will not apply to the exchange notes. | |
In order to exchange your outstanding notes for exchange notes, you must properly tender them at or before the expiration of the exchange offer. | ||
Expiration Time | The exchange offer will expire at 5:00 p.m., New York City time, on December 10, 2010, unless the exchange offer is extended, in which case the expiration time will be the latest date and time to which the exchange offer is extended. See “The Exchange Offer — Terms of the Exchange Offer; Expiration Time.” | |
Conditions to the Exchange Offer | The exchange offer is subject to customary conditions, see “Exchange Offer — Conditions to the Exchange Offer,” some of which we may waive in our sole discretion. The exchange offer is not conditioned upon any minimum principal amount of outstanding notes being tendered. | |
Procedures for Tendering Outstanding Notes | You may tender your outstanding notes through book-entry transfer in accordance with The Depository Trust Company’s Automated Tender Offer Program, known as ATOP. If you wish to accept the exchange offer, you must: | |
• complete, sign, and date the accompanying letter of transmittal, or a facsimile of the letter of transmittal, in accordance with the instructions contained in the letter of transmittal, and mail or otherwise deliver the letter of transmittal, together with your outstanding notes, to the exchange agent at the address set forth under “The Exchange Offer — The Exchange Agent”; or | ||
• arrange for The Depository Trust Company to transmit to the exchange agent certain required information, including an agent’s |
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message forming part of a book-entry transfer in which you agree to be bound by the terms of the letter of transmittal, and transfer the outstanding notes being tendered into the exchange agent’s account at The Depository Trust Company. | ||
You may tender your outstanding notes for exchange notes in whole or in part in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000. See “The Exchange Offer — How to Tender Outstanding Notes for Exchange.” | ||
Guaranteed Delivery Procedures | If you wish to tender your outstanding notes and time will not permit your required documents to reach the exchange agent by the expiration time, or the procedures for book-entry transfer cannot be completed by the expiration time, you may tender your outstanding notes according to the guaranteed delivery procedures described in “The Exchange Offer — Guaranteed Delivery Procedures.” | |
Special Procedures for Beneficial Owners | If you beneficially own outstanding notes registered in the name of a broker, dealer, commercial bank, trust company, or other nominee and you wish to tender your outstanding notes in the exchange offer, you should contact the registered holder promptly and instruct it to tender on your behalf. See “The Exchange Offer — How to Tender Outstanding Notes for Exchange.” | |
Withdrawal of Tenders | You may withdraw your tender of outstanding notes at any time at or prior to the expiration time by delivering a written notice of withdrawal to the exchange agent in conformity with the procedures discussed under “The Exchange Offer — Withdrawal Rights.” | |
Acceptance of Outstanding Notes and Delivery of Exchange Notes | Upon consummation of the exchange offer, we will accept any and all outstanding notes that are properly tendered in the exchange offer and not withdrawn at or prior to the expiration time. The exchange notes issued pursuant to the exchange offer will be delivered promptly after acceptance of the tendered outstanding notes. See “The Exchange Offer — Terms of the Exchange Offer; Expiration Time.” | |
Registration Rights Agreement | We are making the exchange offer pursuant to the registration rights agreements that we entered into on March 12, 2010 and September 20, 2010, with the initial purchasers of the outstanding notes. | |
Resales of Exchange Notes | We believe that the exchange notes issued in the exchange offer may be offered for resale, resold, or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that: | |
• you are not an “affiliate” of ours; | ||
• the exchange notes you receive pursuant to the exchange offer are being acquired in the ordinary course of your business; | ||
• you have no arrangement or understanding with any person to participate in the distribution of the exchange notes issued to you in the exchange offer; |
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• if you are not a broker-dealer, you are not engaged in, and do not intend to engage in, a distribution of the exchange notes issued in the exchange offer; and | ||
• if you are a broker-dealer, you will receive the exchange notes for your own account, the outstanding notes were acquired by you as a result of market-making or other trading activities, and you will deliver a prospectus when you resell or transfer any exchange notes issued in the exchange offer. See “Plan of Distribution” for a description of the prospectus delivery obligations of broker-dealers in the exchange offer. | ||
If you do not meet these requirements, your resale of the exchange notes must comply with the registration and prospectus delivery requirements of the Securities Act. | ||
Our belief is based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties. The staff of the SEC has not considered this exchange offer in the context of a no-action letter, and we cannot assure you that the staff of the SEC would make a similar determination with respect to this exchange offer. | ||
If our belief is not accurate and you transfer an exchange note without delivering a prospectus meeting the requirements of the federal securities laws or without an exemption from these laws, you may incur liability under the federal securities laws. We do not and will not assume, or indemnify you against, this liability. | ||
See “The Exchange Offer — Consequences of Exchanging Outstanding Notes.” | ||
Consequences of Failure to Exchange Your Outstanding Notes | If you do not exchange your outstanding notes in the exchange offer, your outstanding notes will continue to be subject to the restrictions on transfer provided in the outstanding notes and in the indenture. In general, the outstanding notes may not be offered or sold unless registered or sold in a transaction exempt from registration under the Securities Act and applicable state securities laws. If a substantial amount of the outstanding notes is exchanged for a like amount of the exchange notes, the liquidity and the trading market for your untendered outstanding notes could be adversely affected. | |
See “The Exchange Offer — Consequences of Failure to Exchange Outstanding Notes.” | ||
Exchange Agent | The exchange agent for the exchange offer is The Bank of New York Mellon Trust Company, N.A. For additional information, see “The Exchange Offer — The Exchange Agent” and the accompanying letter of transmittal. | |
Certain U.S. Federal Income Tax Considerations | The exchange of your outstanding notes for exchange notes will not be a taxable exchange for United States federal income tax purposes.You should consult your own tax advisor as to the tax consequences to you of the exchange offer, as well as tax consequences of the ownership and disposition of the exchange notes. For additional information, see “Certain U.S. Federal Income Tax Considerations.” |
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Issuers | Zayo Group, LLC and Zayo Capital, Inc. | |
Securities Offered | $350,000,000 aggregate principal amount of 10.25% Senior Secured First-Priority Notes due 2017. The exchange notes will not be listed on any securities exchange. | |
Maturity Date | March 15, 2017. | |
Interest | We will pay interest on the exchange notes semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 2011, to holders of record on the March 1 or September 1 immediately preceding the interest payment date. Interest on the notes will accrue from September 15, 2010. | |
Subsidiary Guarantees | The exchange notes will be fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by all of our current and future domestic restricted subsidiaries. We refer to these subsidiaries as the “guarantors.” Initially all of our subsidiaries will be guarantors. | |
Ranking | The exchange notes and the guarantees will be the senior secured obligations of the issuers and the guarantors and will: | |
• rank equally in right of payment with the obligations of the issuers (as borrowers) and the guarantors under our credit agreement and any and all existing and future indebtedness that is not subordinated in right of payment to the notes; | ||
• rank senior in right of payment to future indebtedness of the issuers and the guarantors that is subordinated in right of payment to the notes, if any; | ||
• be structurally subordinated in right of payment to all future indebtedness and other liabilities of future subsidiaries of the issuers and the guarantors that do not guarantee the notes, which will consist only of unrestricted subsidiaries and foreign subsidiaries that do not guarantee any of our other indebtedness; and | ||
• be effectively senior in right of payment to all of the issuers’ and the guarantors’ existing and future unsecured indebtedness, if any, to the extent of the value of the collateral securing the notes. | ||
As of June 30, 2010, on an as adjusted basis after giving effect to the September 20, 2010 issuance of the outstanding notes and the use of proceeds thereof, and after giving effect to the September 13, 2010 amendment to our credit agreement: | ||
• on a consolidated basis, we would have had $362.8 million of indebtedness outstanding, which is comprised entirely of the outstanding notes and capital lease obligations; and |
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• we would have had $94.1 million available for borrowing under our credit agreement, as amended, subject to certain conditions. | ||
Collateral and Security | The exchange notes and the guarantees will be secured, subject to certain permitted liens, on a first-priority basis equally and ratably with the obligations under our credit agreement, by a pledge of the equity interests of Zayo Group, LLC and by substantially all assets of the issuers and the guarantors that secure our credit agreement. For more information, see “Description of the Notes — Collateral and Security.” | |
Subject to certain exceptions, pursuant to an intercreditor agreement, the representative of the series of senior secured obligations that constitute the largest total outstanding amount of any outstanding senior secured obligations has the exclusive right, under the circumstances set forth in the applicable security and collateral agreements, to direct the collateral agent to take actions with respect to the collateral. As of the date of this exchange, the trustee of the notes (as the representative of the holders of the notes) will be the controlling representative. See “Description of the Notes — Intercreditor Agreement — Enforcement of Security Interests.” | ||
Optional Redemption | At any time on or after March 15, 2013, we may redeem the notes, in whole or in part, at the applicable redemption prices set forth in this prospectus, plus accrued interest. | |
Before March 15, 2013, we may redeem the notes, in whole or in part, at a redemption price equal to 100% of their principal amount, plus accrued interest and a “make-whole” premium. | ||
In addition, before March 15, 2013, we may redeem up to 35% of the notes at a redemption price equal to 110.25% of their principal amount, plus accrued interest, using the proceeds of certain equity offerings. | ||
See “Description of the Notes — Optional Redemption.” | ||
Change of Control | If we experience a change of control, we will be required to make an offer to repurchase the notes at a price equal to 101% of the outstanding principal amount of the notes plus accrued and unpaid interest, if any, to the date of repurchase. See “Description of the Notes — Repurchase at the Option of Holders — Change of Control.” | |
Certain Covenants | The indenture governing the notes restricts our ability and the ability of our restricted subsidiaries to, among other things: | |
• incur additional indebtedness and issue preferred stock; | ||
• pay dividends or make other distributions with respect to any equity interests or make certain investments or other restricted payments; | ||
• create liens; | ||
• sell assets; | ||
• incur restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us; | ||
• consolidate or merge with or into other companies or transfer all or substantially all of our assets; |
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• engage in transactions with affiliates; and | ||
• enter into sale and leaseback transactions. | ||
These covenants are subject to a number of important qualifications and exceptions. See “Description of the Notes — Certain Covenants.” | ||
Risk Factors | You should carefully consider all information in this prospectus. In particular, you should evaluate the specific risks described in the section entitled “Risk Factors” in this prospectus for a discussion of risks relating to an investment in the notes. Please read that section carefully before you decide whether to invest in the notes. |
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Zayo Group, LLC (Historical) | ||||||||||||
Year Ended June 30, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Consolidated Statements of Operations Data: | ||||||||||||
Revenue | $ | 224,045 | $ | 150,804 | $ | 77,569 | ||||||
Operating costs and expenses: | ||||||||||||
Operating costs, excluding depreciation and amortization | 73,537 | 48,797 | 24,328 | |||||||||
Selling, general and administrative expenses | 73,771 | 62,419 | 37,404 | |||||||||
Stock-based compensation | 18,228 | 6,418 | 3,381 | |||||||||
Depreciation and amortization | 41,184 | 29,567 | 11,922 | |||||||||
Total operating costs and expenses | 206,720 | 147,201 | 77,035 | |||||||||
Operating income | 17,325 | 3,603 | 534 | |||||||||
Other income (expense): | ||||||||||||
Interest expense | (18,692 | ) | (15,248 | ) | (6,287 | ) | ||||||
Other income | 10,607 | 249 | 351 | |||||||||
Loss on extinguishment of debt | (5,881 | ) | — | — | ||||||||
Total other (expenses) net | (13,966 | ) | (14,999 | ) | (5,936 | ) | ||||||
Earnings (loss) from continuing operations before income taxes | 3,359 | (11,396 | ) | (5,402 | ) | |||||||
Provision/(benefit) income taxes | 6,293 | (2,106 | ) | (699 | ) | |||||||
Loss from continuing operations | (2,934 | ) | (9,290 | ) | (4,703 | ) | ||||||
Earnings from discontinued operations, net of income taxes | 3,395 | 7,043 | 2,750 | |||||||||
Net earnings (loss) | $ | 461 | $ | (2,247 | ) | $ | (1,953 | ) | ||||
Consolidated Balance Sheet Data (at period end): | ||||||||||||
Cash and cash equivalents | $ | 89,161 | $ | 38,781 | $ | 4,554 | ||||||
Property and equipment, net | 301,911 | 216,583 | 167,048 | |||||||||
Total assets | 564,381 | 422,162 | 339,439 | |||||||||
Long-term debt and capital lease obligations, including current portion | 259,786 | 151,488 | 115,720 | |||||||||
Total member’s equity | 213,136 | 213,019 | 177,671 | |||||||||
Other Financial Data: | ||||||||||||
EBITDA(1), from continuing operations | 69,106 | 33,217 | 12,456 | |||||||||
Adjusted EBITDA(1), from continuing operations | 78,129 | 40,307 | 15,837 | |||||||||
Total capital expenditures, continuing operations | 59,779 | 62,107 | 22,729 | |||||||||
Adjusted EBITDA: | ||||||||||||
Loss from continuing operations | $ | (2,934 | ) | $ | (9,290 | ) | $ | (4,703 | ) | |||
Add back non-EBITDA items included in loss from continuing operations: | ||||||||||||
Depreciation and amortization | 41,184 | 29,567 | 11,922 | |||||||||
Interest expense (including loss on extinguishment of debt) | 24,573 | 15,248 | 6,287 | |||||||||
Interest income | (10 | ) | (201 | ) | (351 | ) | ||||||
Provision/(benefit) for income taxes | 6,293 | (2,106 | ) | (699 | ) | |||||||
EBITDA, from continuing operations | 69,106 | 33,217 | 12,456 | |||||||||
Stock-based compensation | 18,228 | 6,418 | 3,381 | |||||||||
Other expense (income), net | (10,597 | ) | (48 | ) | — | |||||||
Transaction costs related to acquisitions | 1,392 | 719 | — | |||||||||
Adjusted EBITDA, from continuing operations | $ | 78,129 | 40,307 | 15,837 | ||||||||
(1) | EBITDA and Adjusted EBITDA are not financial measurements prepared in accordance with GAAP. See “Non-GAAP Financial Measures.” The above table sets forth, for the periods indicated, a reconciliation of EBITDA and Adjusted EBITDA to loss from continuing operations, as loss from continuing operations is calculated in accordance with GAAP. We define EBITDA as earnings/(loss) from continuing operations before interest income and expense (including loss on extinguishment of debt), taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA before stock-based compensation, transaction costs related to our acquisitions, and other income (expense), net. |
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Years Ended June 30, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Ratio of Earnings to Fixed Charges(a) | 1.14 | — | — | |||||||||
Deficiency of Earnings to Cover Fixed Charges | — | (11,396 | ) | (5,402 | ) |
(a) | The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For purposes of calculating the ratio of earnings to fixed charges, earnings represents pre-tax income from continuing operations plus fixed charges. Fixed charges include: (i) interest expense, (ii) amortized premiums and discounts and capitalized expenses related to indebtedness and (iii) an estimate of interest within rental expense. |
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• | the number of noteholders; | |
• | our operating performance and financial condition; | |
• | our ability to complete the offer to exchange the notes; | |
• | the market for similar securities; | |
• | the interest of securities dealers in making a market in the notes; and | |
• | prevailing interest rates. |
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• | anyintent-to-use United States trademark application for which an amendment to allege use or statement of use has not been filed and accepted by the United States Patent and Trademark Office; | |
• | any instrument, investment property, contract, license, permit or other general intangible which by its terms cannot be (or requires consent to be) pledged, transferred or assigned, or to the extent that granting a security interest therein would result in a breach or default thereunder; | |
• | any licenses, authorizations, waivers or permits granted under the Federal Communications Act or under any state telecommunications law, solely at such times and to the extent that a security interest in such license, authorization, waiver or permit is not permitted under applicable law; | |
• | any capital stock or other equity interests in any foreign direct subsidiary of an issuer or guarantor in excess of 65% of such capital stock or other equity interests, and any capital stock or other equity interests of a foreign subsidiary not directly owned by an issuer or guarantor; | |
• | any capital stock or other equity interests in any subsidiary of a foreign subsidiary, whether directly or indirectly owned by such foreign subsidiary; | |
• | certain other items agreed by the parties and as more fully set forth in the applicable security documents; and | |
• | interests in any real property (including leases) with individual values of $0.5 million or less. |
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• | we or the guarantor was insolvent or rendered insolvent by reason of delivering the note or guarantee; | |
• | we or the guarantor was engaged in a business or transaction for which our or the guarantor’s remaining assets constituted unreasonably small capital; or | |
• | we or the guarantor intended to incur, or believed that we or it would incur, debts beyond our or its ability to pay such debts at maturity. |
• | the sum of our or its debts, including contingent liabilities, was greater than the fair saleable value of all of our or its assets; | |
• | the present fair saleable value of our or its assets was less than the amount that would be required to pay our or its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or | |
• | we or the guarantor could not pay our or its debts as they become due. |
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• | incur additional indebtedness and issue preferred stock; | |
• | pay dividends or make other distributions with respect to any equity interests or make certain investments or other restricted payments; | |
• | create liens; | |
• | sell assets; | |
• | incur restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us; | |
• | consolidate or merge with or into other companies or transfer all or substantially all of our assets; | |
• | engage in transactions with affiliates; and | |
• | enter into sale and leaseback transactions. |
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• | increased demand on our existing employees and management related to the increase in the size of the business and the possible distraction from our existing business due to the acquisition, particularly with respect to businesses acquired by our sister companies or parent; | |
• | loss of key employees and sales people of the acquired business; | |
• | liabilities of the acquired business, both unknown and known at the time of the consummation of the acquisition; | |
• | we may agree to buy a business before we have obtained its audited financial statements and subsequently discover that the unaudited financial statements we relied on were incorrect; | |
• | expenses associated with the integration of the operations of the acquired business; | |
• | the possibility of future impairment, write-downs of goodwill and other intangibles associated with the acquired business; | |
• | that the services and operations of the acquired business do not meet the level of quality of those of our existing services and operations; and | |
• | that the internal controls of the acquired business are inadequate. |
• | making it more difficult for us to satisfy our obligations under the notes or other debt; | |
• | requiring us to dedicate a substantial portion of our cash flow from operations to required payments on debt, thereby reducing the availability of cash flow for working capital, capital expenditures and other general business activities; | |
• | limiting our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate and other activities; |
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• | limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; | |
• | increasing our vulnerability to both general and industry-specific adverse economic conditions; | |
• | placing us at a competitive disadvantage relative to less leveraged competitors; and | |
• | preventing us from raising the funds necessary to repurchase the notes tendered to us upon the occurrence of certain changes of control, which would constitute a default under the indenture governing the notes. |
• | reducing or delaying capital investments; | |
• | raising additional capital; | |
• | refinancing or restructuring our debt; and | |
• | selling assets. |
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• | expand, develop and retain an effective sales force and other qualified personnel; | |
• | maintain the quality of our operations and our service offerings; | |
• | maintain and enhance our system of internal controls to ensure timely and accurate reporting; and | |
• | expand our operational information systems in order to support our growth. |
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• | increased costs as a result of renewing the IRU under less favorable terms; | |
• | significant capital expenditures in order to build replacement fiber; | |
• | increased costs as a result of entering into short-term leases for lit services; and | |
• | lost revenue resulting from our inability to provide certain services. |
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• | human error; | |
• | power loss; | |
• | improper building maintenance by the landlords of the buildings in which our data centers are located; | |
• | physical or electronic security breaches; | |
• | fire, earthquake, hurricane, flood, and other natural disasters; | |
• | water damage; | |
• | the effect of war, terrorism, and any related conflicts or similar events worldwide; and | |
• | sabotage and vandalism. |
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• | a competitor building new fiber networks; | |
• | consolidation in the industry, leading to larger competitors with more expansive networks; | |
• | the creation of new competitive technology for transport services; | |
• | further technological advances; and | |
• | further deregulation and other regulatory initiatives. |
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As of June 30, 2010 | ||||
(Unaudited) | ||||
(In thousands) | ||||
Cash and cash equivalents | $ | 189,161 | ||
Long-term debt and capital lease obligations: | ||||
Credit facility | $ | — | ||
10.25% Senior Secured First-Priority Notes due 2017(1) | 350,080 | |||
Capital lease obligations | 12,706 | |||
Total debt | 362,786 | |||
Total member’s equity | 213,136 | |||
Total capitalization | $ | 575,922 | ||
(1) | Includes unamortized issuance premium of $3.0 million on the September 2010 $100 million note offering and unamortized issuance discount of $2.9 million on the March 2010 $250 million note offering. |
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Zayo Group, LLC (Historical) | ||||||||||||
Year Ended June 30, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Consolidated Statements of Operations Data: | ||||||||||||
Revenue | $ | 224,045 | $ | 150,804 | $ | 77,569 | ||||||
Operating costs and expenses: | ||||||||||||
Operating costs, excluding depreciation and amortization | 73,537 | 48,797 | 24,328 | |||||||||
Selling, general and administrative expenses | 73,771 | 62,419 | 37,404 | |||||||||
Stock-based compensation | 18,228 | 6,418 | 3,381 | |||||||||
Depreciation and amortization | 41,184 | 29,567 | 11,922 | |||||||||
Total operating costs and expenses | 206,720 | 147,201 | 77,035 | |||||||||
Operating income | 17,325 | 3,603 | 534 | |||||||||
Other income (expense): | ||||||||||||
Interest expense | (18,692 | ) | (15,248 | ) | (6,287 | ) | ||||||
Other income | 10,607 | 249 | 351 | |||||||||
Loss on extinguishment of debt | (5,881 | ) | — | — | ||||||||
Total other (expenses) net | (13,966 | ) | (14,999 | ) | (5,936 | ) | ||||||
Earnings (loss) from continuing operations before income taxes | 3,359 | (11,396 | ) | (5,402 | ) | |||||||
Provision/(benefit) income taxes | 6,293 | (2,106 | ) | (699 | ) | |||||||
Loss from continuing operations | (2,934 | ) | (9,290 | ) | (4,703 | ) | ||||||
Earnings from discontinued operations, net of income taxes | 3,395 | 7,043 | 2,750 | |||||||||
Net earnings (loss) | $ | 461 | $ | (2,247 | ) | $ | (1,953 | ) | ||||
Consolidated Balance Sheet Data (at period end): | ||||||||||||
Cash and cash equivalents | $ | 89,161 | $ | 38,781 | $ | 4,554 | ||||||
Property and equipment, net | 301,911 | 216,583 | 167,048 | |||||||||
Total assets | 564,381 | 422,162 | 339,439 | |||||||||
Long-term debt and capital lease obligations, including current portion | 259,786 | 151,488 | 115,720 | |||||||||
Total member’s equity | 213,136 | 213,019 | 177,671 | |||||||||
Other Financial Data: | ||||||||||||
EBITDA(1), from continuing operations | 69,106 | 33,217 | 12,456 | |||||||||
Adjusted EBITDA(1), from continuing operations | 78,129 | 40,307 | 15,837 | |||||||||
Total capital expenditures, continuing operations | 59,779 | 62,107 | 22,729 | |||||||||
Adjusted EBITDA: | ||||||||||||
Loss from continuing operations | $ | (2,934 | ) | $ | (9,290 | ) | $ | (4,703 | ) | |||
Add back non-EBITDA items included in loss from continuing operations: | ||||||||||||
Depreciation and amortization | 41,184 | 29,567 | 11,922 | |||||||||
Interest expense (including loss on extinguishment of debt) | 24,573 | 15,248 | 6,287 | |||||||||
Interest income | (10 | ) | (201 | ) | (351 | ) | ||||||
Provision/(benefit) for income taxes | 6,293 | (2,106 | ) | (699 | ) | |||||||
EBITDA, from continuing operations | 69,106 | 33,217 | 12,456 | |||||||||
Stock-based compensation | 18,228 | 6,418 | 3,381 | |||||||||
Other expense (income), net | (10,597 | ) | (48 | ) | — | |||||||
Transaction costs related to acquisitions | 1,392 | 719 | — | |||||||||
Adjusted EBITDA, from continuing operations | $ | 78,129 | $ | 40,307 | $ | 15,837 | ||||||
(1) | EBITDA and Adjusted EBITDA are not financial measurements prepared in accordance with GAAP. See “Non-GAAP Financial Measures.” The above table sets forth, for the periods indicated, a reconciliation of EBITDA and Adjusted EBITDA to loss from continuing operations, as loss from continuing operations is calculated in accordance with GAAP. We define EBITDA as earnings/(loss) from continuing operations before interest income and expense (including loss on extinguishment of debt), taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA before stock-based compensation, transaction costs related to our acquisitions, and other income (expense), net. |
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• | Acquisition of FiberNet. On September 9, 2009, we completed a business combination by merger with FiberNet pursuant to a merger agreement among Zayo Group, LLC, Zayo Merger Sub, Inc. and FiberNet. In accordance with the merger agreement, Zayo Merger Sub, Inc. merged with and into FiberNet, with FiberNet surviving the merger as a direct wholly-owned subsidiary of Zayo Group, LLC. FiberNet’s results from the date of its acquisition are included in our June 30, 2010 audited consolidated financial statements. | |
• | Acquisition of AGL Networks and Related use of Cash to Fund the Acquisition. On July 1, 2010, Zayo Group, LLC acquired all of the outstanding membership interests in AGL Networks. | |
• | The consummation of the offering of the notes (including both the offering of $250.0 million and $100.0 million of outstanding notes), and the March 2010 repayment of our prior credit agreement with the proceeds of the $250.0 million offering of outstanding notes. |
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For the Year Ended June 30, 2010
AGL | ||||||||||||||||||||||||||||
FiberNet | Networks | Pro Forma | ||||||||||||||||||||||||||
Zayo Group, | Merger | AGL | Merger | Adjustments | Pro | |||||||||||||||||||||||
LLC | FiberNet | Pro Forma | Networks | Pro Forma | for | Forma As | ||||||||||||||||||||||
Historical(1) | Historical(2) | Adjustments(3) | Historical | Adjustments(4) | Offering(5) | Adjusted | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Revenue | $ | 224,045 | $ | 12,066 | $ | — | $ | 25,233 | $ | (1,597 | )(4a) | $ | — | $ | 259,747 | |||||||||||||
Operating costs, excluding depreciation and amortization | 73,537 | 6,965 | — | 1,060 | — | — | 81,562 | |||||||||||||||||||||
Selling, general and administrative expenses | 73,771 | 8,043 | (4,843 | )(3a) | 10,202 | — | — | 87,173 | ||||||||||||||||||||
Stock-based compensation | 18,228 | 3,987 | (3,726 | )(3b) | — | — | — | 18,489 | ||||||||||||||||||||
Depreciation and amortization | 41,184 | 2,063 | 903 | (3c) | 2,952 | 1,346 | (4b) | — | 48,448 | |||||||||||||||||||
Interest expense | 18,692 | 92 | 226 | (3d) | 218 | (218 | )(4c) | 21,105 | (5a) | 40,115 | ||||||||||||||||||
Interest income | (10 | ) | — | — | — | — | — | (10 | ) | |||||||||||||||||||
Other income, net | (10,597 | ) | — | 9,081 | (3e) | (85 | ) | — | — | (1,601 | ) | |||||||||||||||||
Loss on extinguishment of debt | 5,881 | — | — | — | — | (5,881 | )(5b) | — | ||||||||||||||||||||
Provision/(benefit) for income taxes(6) | 6,293 | (24 | ) | (641 | ) | 4,340 | (1,063 | ) | (5,937 | ) | 2,968 | |||||||||||||||||
Earnings/(loss), from continuing operations | $ | (2,934 | ) | $ | (9,060 | ) | $ | (1,000 | ) | $ | 6,546 | $ | (1,662 | ) | $ | (9,287 | ) | $ | (17,397 | ) | ||||||||
Add back non-EBITDA items included in earnings/(loss), from continuing operations: | ||||||||||||||||||||||||||||
Depreciation and amortization | 41,184 | 2,063 | 903 | 2,952 | 1,346 | — | 48,448 | |||||||||||||||||||||
Interest expense (including loss on extinguishment of debt) | 24,573 | 92 | 226 | 218 | (218 | ) | 15,224 | 40,115 | ||||||||||||||||||||
Interest income | (10 | ) | — | — | — | — | — | (10 | ) | |||||||||||||||||||
Provision/(benefit) for income taxes | 6,293 | (24 | ) | (641 | ) | 4,340 | (1,063 | ) | (5,937 | ) | 2,968 | |||||||||||||||||
EBITDA, from continuing operations | $ | 69,106 | $ | (6,929 | ) | $ | (512 | ) | $ | 14,056 | $ | (1,597 | ) | $ | — | $ | 74,124 | |||||||||||
Other (income), net | (10,597 | ) | — | 9,081 | (85 | ) | — | — | (1,601 | ) | ||||||||||||||||||
Transaction costs | 1,392 | 3,216 | (3,216 | ) | — | — | — | 1,392 | ||||||||||||||||||||
Stock-based compensation | 18,228 | 3,987 | (3,726 | ) | — | — | — | 18,489 | ||||||||||||||||||||
Adjusted EBITDA, from continuing operations | $ | 78,129 | $ | 274 | $ | 1,627 | $ | 13,971 | $ | (1,597 | ) | $ | — | $ | 92,404 | |||||||||||||
(1) | Includes results of FiberNet subsequent to the FiberNet acquisition on September 9, 2009. | |
(2) | Includes pre-acquisition results of operations of FiberNet from the period July 1, 2009 to September 9, 2009. | |
(3) | (a) Represents the reduction to historical FiberNet’s selling, general and administrative expenses of $4.8 million related to the following: |
i. Transaction costs of $3.2 million incurred by FiberNet related to the acquisition. | ||
ii. Severance paid to FiberNet’s executives upon a change of control of $1.6 million. |
(b) Represents the reduction to historical FiberNet’s stock-based compensation of $3.7 million related to the acceleration of stock-based compensation upon the change of control. |
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(c) Represents an increase of $0.9 million to historical depreciation and amortization expense for the period from July 1, 2009 to September 9, 2009, based on adjustments to fair values and useful lives of identified tangible and intangible assets. | ||
(d) Represents $0.2 million additional interest expense related to our $30.0 million incremental debt facility agreement entered into in connection with the FiberNet acquisition. | ||
(e) Represents a reduction to other income of $9.1 million related to the gain on bargain purchase of FiberNet. | ||
(4) | (a) Represents a reduction to revenue recognized resulting from the purchase accounting adjustment to the acquired deferred revenue balance. AGL Networks recognized $4.0 million in revenue during the year ended June 30, 2010 related to the amortization of deferred revenue. Based on a preliminary analysis, the Company estimates that the cost during the year ended June 30, 2010 associated with the amortization of this deferred revenue is approximately $2.4 million. In purchase accounting the Company is required to adjust the deferred revenue balance related to an acquisition down to its fair value, which represents the cost of the Company’s continuing obligation associated with the deferred revenue. This preliminary fair value adjustment results in an estimated reduction to the pro forma revenue of $1.6 million for the year ended June 30, 2010. | |
(b) Represents an increase of $1.3 million to historical depreciation and amortization expense based on the estimated fair value and useful lives of identified tangible and intangible asset for AGL Networks, based on preliminary estimates. The purchase price allocation is preliminary pending completion of independent valuations of identified tangible and intangible assets acquired. | ||
The following table presents the allocation, which is subject to change, of the purchase consideration to the assets and liabilities acquired based on their estimated fair values (in thousands): |
Current assets | $ | 3,507 | ||
Property and equipment | 88,171 | |||
Intangible assets | 4,684 | |||
Other assets | 1,004 | |||
Total assets acquired | 97,366 | |||
Current liabilities (excluding current portion of deferred revenue) | 4,380 | |||
Deferred revenue | 19,320 | |||
Total liabilities assumed | 23,700 | |||
Purchase consideration | 73,666 | |||
Less cash acquired | — | |||
Net cash paid | $ | 73,666 | ||
i. Property and equipment are recorded at preliminary fair value on the date of acquisition. Depreciation and amortization is recorded using the straight-line method over the estimated useful lives of the assets ranging from 5 to 15 years. | ||
ii. Intangible assets mainly represent customer relationships which are being amortized over 6 years. This represents our preliminary estimate of the period of expected benefit. |
(4) | (c) Represents decrease of $218 resulting from the removal of AGL historical interest expense on debt. | |
(5) | (a) The increase in interest expense of $21.1 million represents the following: |
(i) a decrease of $8.6 million related to the elimination of our historical interest expense (which includes amortization of deferred financing costs of $1.2 million) related to our pre-offering indebtedness. | ||
(ii) a decrease of $0.3 million related to the elimination of FiberNet historical and pro forma adjustments to interest expense. | ||
(iii) an increase of $30.0 million at a closing rate of 10.25% (which includes an additional $0.3 million of amortization of the discount on our $250.0 million offering of notes in March 2010, ($0.4) million of |
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accretion of premium on our $100.0 million offering of notes in September 2010, and $1.6 million amortization of deferred debt issuance costs associated with our March 2010 and September 2010 notes offerings. |
(b) elimination of loss on extinguishment of debt of $5.9 million. | ||
(6) | The income tax expense for FiberNet and AGL Networks historical and the pro forma adjustments has been adjusted to reflect an assumed effective tax rate of 39.0%. Historically, FiberNet’s deferred tax assets were fully reserved, however, based on managements’ evaluation we believe that certain of the deferred tax assets will be realizable. The effective tax rate subsequent to the acquisition could be materially different than the effective tax rate used in the unaudited pro forma condensed statement of operations due to changes in estimates related to our deferred tax, valuation allowance and non-deductible expenses in future periods such as stock compensation and other expenses. |
As of June 30, 2010
AGL | ||||||||||||||||||||
Networks | Pro Forma | |||||||||||||||||||
Zayo Group, | AGL | Merger | Adjustment | |||||||||||||||||
LLC | Networks | Pro Forma | for the | Pro Forma | ||||||||||||||||
Historical | Historical | Adjustments(1) | Offering(2) | As Adjusted | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 89,161 | $ | — | $ | (73,666 | ) | $ | 100,000 | $ | 115,495 | |||||||||
Restricted cash, current | 809 | 530 | (530 | ) | — | 809 | ||||||||||||||
Trade receivables, net of allowance | 12,721 | 2,205 | — | — | 14,926 | |||||||||||||||
Other receivables | 348 | 94 | (94 | ) | — | 348 | ||||||||||||||
Due from affiliates | 871 | — | — | — | 871 | |||||||||||||||
Inventories | — | 273 | (273 | ) | — | — | ||||||||||||||
Prepaid expenses | 5,144 | 1,302 | — | — | 6,446 | |||||||||||||||
Deferred income taxes | 4,060 | — | — | — | 4,060 | |||||||||||||||
Total current assets | 113,114 | 4,404 | (74,563 | ) | 100,000 | 142,955 | ||||||||||||||
Property and equipment, net | 301,911 | 102,965 | (14,794 | ) | — | 390,082 | ||||||||||||||
Intangible assets, net | 59,851 | — | 3,434 | — | 63,285 | |||||||||||||||
Goodwill | 68,751 | — | 1,250 | — | 70,001 | |||||||||||||||
Deferred income taxes | 7,050 | — | — | — | 7,050 | |||||||||||||||
Debt issuance costs, net | 9,560 | — | — | 3,000 | 12,560 | |||||||||||||||
Other assets | 4,144 | 1,004 | — | — | 5,148 | |||||||||||||||
Total assets | $ | 564,381 | $ | 108,373 | $ | (84,673 | ) | $ | 103,000 | $ | 691,081 | |||||||||
Liabilities and Member’s Equity | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | 10,502 | $ | 405 | $ | — | $ | — | $ | 10,907 | ||||||||||
Accrued liabilities | 18,349 | 3,975 | — | — | 22,324 | |||||||||||||||
Accrued interest | 7,794 | — | — | — | 7,794 | |||||||||||||||
Capital lease obligations, current portion | 1,673 | — | — | — | 1,673 | |||||||||||||||
Due to parent | — | 55,391 | (55,391 | ) | — | — | ||||||||||||||
Deferred revenue, current portion | 8,146 | 3,927 | (1,563 | ) | — | 10,510 | ||||||||||||||
Total current liabilities | 46,464 | 63,698 | (56,954 | ) | — | 53,208 | ||||||||||||||
Capital lease obligations, net of current portion | 11,033 | — | — | — | 11,033 | |||||||||||||||
Long-term debt, net of current portion | 247,080 | — | — | 103,000 | 350,080 | |||||||||||||||
Deferred revenue, net of current portion | 22,648 | 28,161 | (11,205 | ) | — | 39,604 | ||||||||||||||
Deferred income taxes | — | 17,446 | (17,446 | ) | — | — | ||||||||||||||
Stock-based compensation liability | 21,623 | — | — | — | 21,623 | |||||||||||||||
Other long-term liabilities | 2,397 | 431 | (431 | ) | — | 2,397 | ||||||||||||||
Total liabilities | 351,245 | 109,736 | (86,036 | ) | 103,000 | 477,945 | ||||||||||||||
Member’s equity | 213,136 | (1,363 | ) | 1,363 | — | 213,136 | ||||||||||||||
Total liabilities and member’s equity | $ | 564,381 | $ | 108,373 | $ | (84,673 | ) | $ | 103,000 | $ | 691,081 | |||||||||
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(1) | The pro-form adjustments for the AGL Networks merger include: | |
a. a reduction to the cash balance of $73.7 million related to the cost of acquiring AGL Networks. | ||
b. a reduction of $0.5 million to the restricted cash balance which the Company did not take ownership of per the terms of the purchase agreement. | ||
c. A reduction of $15.1 million to property and equipment resulting from the Company’s preliminary estimates of the fair market value of property and equipment acquired. This reduction to property and equipment is partially offset by an increase of $0.3 million related to reclassifying $0.3 million of AGL Networks historical inventory balance to property and equipment. | ||
d. An increase to the intangible asset balance of $3.4 million related to our preliminary estimate of the fair market value of customer relationships and other intangible assets acquired. | ||
e. An increase of $1.3 million to our goodwill balance resulting from the excess of consideration paid over the preliminary fair market value of assets acquired and liabilities assumed in the acquisition. | ||
f. A decrease of $55.4 million to the due to parent balance related to intercompany liabilities of AGL Networks which will be retained by AGL Resources. | ||
g. A reduction to the deferred revenue balance resulting from managements preliminary estimates of the fair value of the deferred revenue. In accordance with purchase accounting the Company is required to adjust the deferred revenue balance to its fair value which represents the cost of the Company’s continuing obligation associated with the deferred revenue. This adjustment results in an estimated reduction to the deferred revenue balance of $12.8 million. The primary expense associated with this revenue represent depreciation costs, franchise andright-of-way fees and other network expenses. | ||
h. A reduction of $0.1 million to other tax receivable as the Company did not take ownership of this receivable, per the terms of the purchase agreement and a reduction of $17.4 million to deferred income taxes as the purchase will be accounted for as an asset purchase for tax purposes. | ||
i. A reduction of $0.4 million associated with the historical pension liability which will be retained by AGL Resources. | ||
(2) | The pro-forma adjustments for the offering include: | |
a. the principal amount of the notes offered hereby of $100.0 million at an issuance price of 103.000%. | ||
b. the estimated debt issuance costs of $3.0 million associated with the issuance of the notes offered hereby | ||
c. the estimated net cash received of $100.0 million |
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• | to extend the expiration time; | |
• | if any one of the conditions set forth below under “— Conditions to the Exchange Offer” has not been satisfied, to terminate the exchange offer and not accept any outstanding notes for exchange; and | |
• | to amend the exchange offer in any manner. |
• | transmit a properly completed and duly executed letter of transmittal, the outstanding notes being tendered and all other documents required by such letter of transmittal, to The Bank of New York Mellon Trust Company, N.A., the exchange agent, at the address set forth below under the heading “— The Exchange Agent”; or | |
• | if outstanding notes are tendered pursuant to the book-entry procedures set forth below, an agent’s message must be transmitted by The Depository Trust Company (“DTC”), to the exchange agent at the address set forth below under the heading “— The Exchange Agent,” and the exchange agent must receive, at or prior to the expiration time, a confirmation of the book-entry transfer of the outstanding notes being tendered into the exchange agent’s account at DTC, along with the agent’s message; or |
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• | if time will not permit the required documentation to reach the exchange agent before the expiration time, or the procedures for book-entry transfer cannot be completed by the expiration time, the holder may effect a tender by complying with the guaranteed delivery procedures described below. |
• | is transmitted by DTC; | |
• | is received by the exchange agent and forms a part of a book-entry transfer; | |
• | states that DTC has received an express acknowledgement that the tendering holder has received and agrees to be bound by, and makes each of the representations and warranties contained in, the letter of transmittal; and | |
• | states that we may enforce the letter of transmittal against such holder. |
• | by a holder of outstanding notes who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or | |
• | for the account of a recognized member in good standing of a Medallion Signature Guarantee Program recognized by the exchange agent, such as a firm which is a member of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or certain other eligible institutions, each of the foregoing being referred to herein as an “eligible institution.” |
• | reject any and all tenders of any outstanding note not validly tendered; | |
• | refuse to accept any outstanding note if, in our judgment or the judgment of our counsel, acceptance of the outstanding note may be deemed unlawful; | |
• | waive any defects or irregularities or conditions of the exchange offer, either before or after the expiration time; and | |
• | determine the eligibility of any holder who seeks to tender outstanding notes in the exchange offer. |
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• | at or prior to the expiration time, the exchange agent receives from an eligible institution a validly completed and executed notice of guaranteed delivery, substantially in the form accompanying this prospectus, by facsimile transmission, mail, or hand delivery, setting forth the name and address of the holder of the outstanding notes being tendered and the amount of the outstanding notes being tendered. The notice of guaranteed delivery will state that the tender is being made and guarantee that within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered outstanding notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a validly completed and executed letter of transmittal with any required signature guarantees, or an agent’s message, and any other documents required by the letter of transmittal, will be transmitted to the exchange agent; and | |
• | the exchange agent receives the certificates for all physically tendered outstanding notes, in proper form for transfer, or a book-entry confirmation, as the case may be, together with a validly completed and executed letter of transmittal with any required signature guarantees or an agent’s message and any other documents required by the letter of transmittal, within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery. |
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• | specify the name of the person having tendered the outstanding notes to be withdrawn; | |
• | identify the outstanding notes to be withdrawn, including the principal amount of such outstanding notes; | |
• | where outstanding notes have been tendered pursuant to the procedure for book-entry transfer described above, specify the name and number of the account at DTC to be credited with the withdrawn outstanding notes and otherwise comply with the procedures of DTC; and | |
• | bear the signature of the holder in the same manner as the original signature on the letter of transmittal, if any, by which such outstanding notes were tendered, with such signature guaranteed by an eligible institution, unless such holder is an eligible institution. |
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• | any action or proceeding is instituted or threatened in any court or by or before any governmental agency challenging the exchange offer or that we believe might be expected to prohibit or materially impair our ability to proceed with the exchange offer; | |
• | any stop order is threatened or in effect with respect to either (1) the registration statement of which this prospectus forms a part or (2) the qualification of the indenture governing the notes under the Trust Indenture Act of 1939, as amended; | |
• | any law, rule or regulation is enacted, adopted, proposed, or interpreted that we believe might be expected to prohibit or impair our ability to proceed with the exchange offer or to materially impair the ability of holders generally to receive freely tradeable exchange notes in the exchange offer. See “— Consequences of Failure to Exchange Outstanding Notes”; | |
• | any change or a development involving a prospective change in our business, properties, assets, liabilities, financial condition, operations, or results of operations taken as a whole, that is or may be adverse to us; | |
• | any declaration of war, armed hostilities, or other similar international calamity directly or indirectly involving the United States, or the worsening of any such condition that existed at the time that we commence the exchange offer; or | |
• | we become aware of facts that, in our reasonable judgment, have or may have adverse significance with respect to the value of the outstanding notes or the exchange notes to be issued in the exchange offer. |
• | SEC registration fees; | |
• | fees and expenses of the exchange agent and trustee; | |
• | our accounting and legal fees; | |
• | printing fees; and | |
• | related fees and expenses. |
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Deliver to: Melonee Young By Mail, by Courier, or by Hand: The Bank of New York Mellon Trust Company, N.A. 700 S. Flower St., Suite 500 Los Angeles, CA 90017 Attention: Corporate Unit |
By Facsimile Transmission: (212)298-1915 | Confirm Facsimile Transmission (212) 815-5098 |
• | the holder is not an “affiliate” of ours within the meaning of Rule 405 promulgated under the Securities Act; | |
• | the exchange notes issued in the exchange offer are acquired in the ordinary course of the holder’s business; | |
• | neither the holder, nor, to the actual knowledge of such holder, any other person receiving exchange notes from such holder, has any arrangement or understanding with any person to participate in the distribution of the exchange notes issued in the exchange offer; | |
• | if the holder is not a broker-dealer, the holder is not engaged in, and does not intend to engage in, a distribution of the exchange notes; and | |
• | if such a holder is a broker-dealer, such broker-dealer will receive the exchange notes for its own account in exchange for outstanding notes and that: |
• | such outstanding notes were acquired by such broker-dealer as a result of market-making or other trading activities; and |
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• | it will deliver a prospectus meeting the requirements of the Securities Act in connection with the resale of exchange notes issued in the exchange offer, and will comply with the applicable provisions of the Securities Act with respect to resale of any exchange notes. (In no-action letters issued to third parties, the SEC has taken the position that broker-dealers may fulfill their prospectus delivery requirements with respect to exchange notes (other than a resale of an unsold allotment from the original sale of outstanding notes) by delivery of the prospectus relating to the exchange offer). See “Plan of Distribution” for a discussion of the exchange and resale obligations of broker-dealers in connection with the exchange offer. |
• | may not rely on the applicable interpretation of the SEC staff’s position contained in Exxon Capital Holdings Corp., SEC No-Action Letter (April 13, 1988), Morgan, Stanley & Co., Inc., SEC No-Action Letter (June 5, 1991) and Shearman & Sterling, SEC No-Action Letter (July 2, 1993); and | |
• | must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. |
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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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• | In February 2010, Zayo Bandwidth, as the direct recipient, was awarded $25.1 million in funding to construct 626 miles of fiber network connecting 21 community colleges in Indiana. | |
• | In July 2010, Zayo Bandwidth, as the direct recipient, was awarded a $13.4 million grant to construct 286 miles of fiber network in Anoka County, Minnesota, outside of Minneapolis. |
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Acquisition | Date | Acquisition Cost | ||||||
(In thousands) | ||||||||
Memphis Networx | July 31, 2007 | $ | 9,789 | |||||
PPL Telecom | August 24, 2007 | 56,734 | ||||||
Indiana Fiber Works | September 28, 2007 | 23,134 | ||||||
Onvoy | November 7, 2007 | 77,167 | ||||||
Voicepipe | November 7, 2007 | 3,250 | ||||||
Citynet Fiber Networks | February 15, 2008 | 102,183 | ||||||
Northwest Telephone | May 30, 2008 | 6,897 | ||||||
CenturyTel Tri-State Markets | July 22, 2008 | 2,700 | ||||||
Columbia Fiber Solutions | September 30, 2008 | 12,161 | ||||||
CityNet Holdings Assets | September 30, 2008 | 3,350 | ||||||
Adesta Assets | September 30, 2008 | 6,430 | ||||||
Northwest Telephone California | May 26, 2009 | 15 | ||||||
FiberNet | September 9, 2009 | 104,083 | ||||||
AGL Networks | July 1, 2010 | 73,666 | ||||||
Dolphini Assets | September 20, 2010 | 235 | ||||||
American Fiber Systems | October 1, 2010 | 114,500 | ||||||
Lessportion of Onvoy costs related to Onvoy Voice Services | — | (30,772 | ) | |||||
Total | $ | 565,522 | ||||||
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• | the development of projected free cash flows; | |
• | the estimation of an appropriate risk adjusted present value discount rate; | |
• | the calculation of the present value of projected free cash flow; and | |
• | the calculation of a terminal value. |
• | identification and selection of a group of acceptable and relevant guideline companies; | |
• | selection of financial ratios and time period most appropriate for the analysis; | |
• | financial adjustments made to both or either of the guidelineand/or subject companies to make the underlying financial figures comparable. Examples of adjustments include add-backs for non-recurring expenses and calculations to make the figure related to the same time period. | |
• | subjective discounts or premiums to implied ratios to account for observations relating to substantial difference that would be perceived as having an impact on value between the collective guideline companies and the Company; and | |
• | selection of a statistical midpoint or range within the dataset most appropriate for the analysis. |
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Year Ended June 30 | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Zayo Bandwidth | $ | 169,736 | $ | 124,761 | ||||
zColo | 21,064 | — | ||||||
Zayo Enterprise Networks | 33,245 | 26,043 | ||||||
Total revenue | $ | 224,045 | $ | 150,804 | ||||
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Year Ended June 30 | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Compensation and benefits expenses | $ | 36,456 | $ | 29,309 | ||||
Network operating expenses | 20,846 | 17,915 | ||||||
Other SG&A expenses | 15,077 | 14,476 | ||||||
Transaction costs | 1,392 | 719 | ||||||
Total SG&A expenses | $ | 73,771 | $ | 62,419 | ||||
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Year Ended June 30 | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Interest expense | $ | (18,692 | ) | $ | (15,248 | ) | ||
Interest income | 10 | 201 | ||||||
Other income/(expense), net | 1,516 | 48 | ||||||
Gain on bargain purchase | 9,081 | — | ||||||
Loss on extinguishment of debt | (5,881 | ) | — | |||||
Total other expenses, net | $ | (13,966 | ) | $ | (14,999 | ) | ||
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Year Ended June 30 | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Zayo Bandwidth | $ | 124,761 | $ | 64,623 | ||||
zColo | — | — | ||||||
Zayo Enterprise Networks | 26,043 | 12,946 | ||||||
Total revenue | $ | 150,804 | $ | 77,569 | ||||
Year Ended June 30 | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Compensation and benefits expenses | $ | 29,309 | $ | 16,859 | ||||
Network operating expenses | 17,915 | 9,468 | ||||||
Other SG&A expenses | 14,476 | 11,077 | ||||||
Transaction costs | 719 | — | ||||||
Total SG&A expenses | $ | 62,419 | $ | 37,404 | ||||
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Year Ended June 30 | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Interest expense | $ | (15,248 | ) | $ | (6,287 | ) | ||
Interest income | 201 | 280 | ||||||
Other income | 48 | 71 | ||||||
Total other income (expenses) | $ | (14,999 | ) | $ | (5,936 | ) | ||
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Year Ended June 30 | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Net cash provided by operating activities | $ | 61,415 | $ | 28,408 | ||||
Net cash used in investing activities | (156,350 | ) | (73,645 | ) | ||||
Net cash provided by financing activities | 136,010 | 67,921 |
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Less Than | More Than | |||||||||||||||||||
Total | 1 Year | 2-3 Years | 4-5 Years | 5 Years | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Long-term debt (principal and interest) | $ | 429,796 | $ | 25,625 | $ | 51,250 | $ | 51,250 | $ | 301,671 | ||||||||||
Operating leases | 175,335 | 22,688 | 36,434 | 29,866 | 86,347 | |||||||||||||||
Purchase obligations | 26,847 | 26,847 | — | — | — | |||||||||||||||
Capital leases | 18,115 | 2,572 | 3,454 | 3,297 | 8,792 | |||||||||||||||
Total | $ | 650,093 | $ | 77,732 | $ | 91,138 | $ | 84,413 | $ | 396,810 | ||||||||||
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• | PPL Telecom. We acquired PPL Telecom on August 24, 2007 for $56.7 million. PPL Telecom’s businesses and assets are primarily deployed in our Zayo Bandwidth business unit. | |
• | Onvoy. We acquired Onvoy on November 7, 2007, for $77.2 million. The business and the assets that we acquired when we purchased Onvoy were divided into the Zayo Bandwidth, Zayo Enterprise Networks and Onvoy Voice Services business units. On March 12, 2010, we distributed all of the shares of common stock of Onvoy., which holds the Onvoy Voice Services business unit, to Holdings, our current direct shareholder. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Our Results of Operations — Onvoy Spin-Off.” | |
• | Citynet Fiber Networks. We acquired Citynet Fiber Networks on February 15, 2008, for $102.2 million. Citynet Fiber Networks’ assets are deployed in the Zayo Bandwidth business units. | |
• | FiberNet. We acquired FiberNet on September 9, 2009, for $104.1 million. We formed our zColo business unit from a portion of the legacy FiberNet assets. The remaining FiberNet assets were contributed to our Zayo Bandwidth unit. |
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• | AGL Networks. We acquired AGL Networks on July 1, 2010, for approximately $73.7 million. The business and the assets that we acquired with AGL Networks were used to establish the new Zayo Fiber Solutions business unit. | |
• | American Fiber Systems. We acquired American Fiber Systems on October 1, 2010 for $114.5 million. The business and the assets were contributed to the Zayo Bandwidth, Zayo Enterprise Networks, and Zayo Fiber Solutions business units. |
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Business Unit | Key Services | Target Customers | Peer Group | |||
Zayo Bandwidth | • Bandwidth Infrastructure, including lit services such as private lines, wavelengths, and Ethernet | • Top 200 bandwidth users in the United States (wireless, carriers/local exchange carriers, media and content companies) | • AboveNet, Inc. • Sidera Networks (formerly RCN Metro) | |||
ZColo | • Network-neutral colocation • Interconnection | • Carriers, service providers, colocation-intensive enterprises | • Equinix, Inc. • The telx Group, Inc. | |||
Zayo Enterprise Networks | • Bandwidth Infrastructure • Enterprise IP | • Healthcare, education, financial, media, technology companies | • tw telecom inc | |||
Zayo Fiber Solutions | • Bandwidth Infrastructure, primarily dark-fiber leases | • Carriers, media and content companies, large enterprises and public sector | • AboveNet, Inc. • Fibertech Networks, LLC |
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• | Enablers of Infrastructure: Entities that approve, sell, or provide the licenses,rights-of-way, and other necessary permits and land that are required in order to provide telecom and Internet infrastructure services. | |
• | Telecom and Internet Infrastructure Service Providers: Companies that own and operate assets that are used to provide (i) raw bandwidth services, including Bandwidth Infrastructure, that are used to transport wireless, data, voice, Internet and video traffic using fiber, legacy copper, or microwave networks, (ii) colocation services used to house and interconnect networks, and (iii) cellular tower services to Communication Service Providers. Telecom and Internet Infrastructure Service Providers rely on Enablers of Infrastructure to provide their services. | |
• | Communications Service Providers: Companies that market and sell communications services such as voice, Internet, data, video, wireless, CDN services, and hosting solutions. Telecom and Internet infrastructure services are used by nearly all Communications Service Providers in the provision of services such as Internet connectivity, wireless voice and data services, content delivery, and voice and data networks to End Users. | |
• | End Users: Public sector entities, businesses, and private consumers that purchase communications services. |
• | Bandwidth Infrastructure. Bandwidth Infrastructure providers transport communications services, such as wireless, data, voice, Internet and video traffic over fiber networks. Bandwidth Infrastructure providers supply lit bandwidthand/or dark fiber between locations, such as cellular towers, neutral and network-specific data centers, carrier hotels, mobile switching centers, CATV head ends and satellite uplink sites, ILEC central offices, and other key buildings that house telecommunications and computer equipment. Bandwidth Infrastructure services (includingfiber-to-the-tower) primarily consist of private line, Ethernet and Wavelength services commonly referred to as lit services, Bandwidth Infrastructure services that are not lit are sold as dark-fiber capacity. | |
• | Colocation. Colocation providers offer a highly controlled environment for housing telecommunications, Internet and other networking and computer equipment such as switches, routers, transport equipment, servers and storage devices within their own colocation facilities. Network-neutral data center providers allow customers who colocate in their facilities to purchase Bandwidth Infrastructure and other telecommunications services from third parties. This enables customers to interconnect with other customers colocated at the same facilityand/or with Bandwidth Infrastructure providers of their choice. Network-specific data center providers require their customers to purchase Bandwidth Infrastructure and other telecommunications services from them. |
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• | Modern Fiber and Optronics. Our modern fiber networks support current generation optronics as well as Dense Wave Division Multiplex (DWDM) systems, Add Drop Multiplexing (ADM) systems, and Ethernet switches. This equipment is used to provide our lit Bandwidth Infrastructure services. The vast majority of our networks are capable of supporting next generation technologies with minimal capital investment. | |
• | Scalable Network Architecture. Our networks are scalable, meaning we have spare fiber that will allow us to continue to add additional capacity to our network as demand for our services increases. In addition, many of our core network technologies utilize DWDM systems, nearly all of which have spare capacity whereby we can continue to add wavelengths to our network without consuming additional fiber. | |
• | Extensive Coverage in Locations with Few Fiber Alternatives. We focus our sales and marketing efforts within our network footprint, specifically those areas within our networks (including ourfiber-to-the-tower networks) that we believe are less competitive. The majority of our revenue is derived from small and midsized markets and from ourfiber-to-the-tower network that, in general, have a limited number of fiber alternatives. We frequently connect customer locations in our target small to midsized markets back to major data centers, carrier hotels and central offices, single-tenant high-bandwidth locations, enterprise buildings and other major telecommunications buildings that are usually located in larger markets. We also target locations in larger markets with few fiber alternatives such as cellular towers and enterprise buildings. |
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• | Data Centers, Carrier Hotels and Central Offices. These buildings house multiple consumers of Bandwidth Infrastructure services. Our networks generally connect the most important of these buildings in the markets where we operate. We have 301 of these types of facilities connected to our network. | |
• | Single-Tenant, High-Bandwidth Locations. These buildings house a single large consumer of Bandwidth Infrastructure services. Examples of these buildings include video aggregation sites, mobile switching centers and hosting centers. Our network is connected to these buildings only when the tenant purchases services from us. We currently have 403 single-tenant, high-bandwidth locationson-net. |
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• | Cellular Towers. We connect to cellular towers and other locations that house wireless antennas. We have 1,085 cellular towerson-net, and we are actively constructing an additional 564. We have signed contracts to provide service to at least one tenant at each tower that we connect or will connect to. Typically, towers have multiple tenants, which provide us with the opportunity to sell services to those additional tenants. | |
• | Enterprise Buildings. Our network extends to 1,524 enterprise buildings. These buildings contain a mix of single tenant and multi-tenant enterprise buildings and include hospitals, corporate data centers, schools, government buildings, research centers and other key corporate locations that require Bandwidth Infrastructure services. |
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• | avoidance of the cost of third-party service providers, including ILECs; | |
• | the ability to rapidly and cost effectively scale, or increase bandwidth, to meet the growing network requirements of our customers; and | |
• | ease in identifying and responding to customer service inquiries over one contiguous fiber network. |
• | Space. We sell cabinets, racks, half-racks and cages. We also provide and charge for remote hands/remote technician services. | |
• | Power. We provide alternating current (AC) and direct current (DC) power at various levels. Our power product is backed up by batteries and generators. |
• | Cross connects. We enable customers in a building or within our colocation facilities to connect directly to each other. These products are sold as DS-1 cross connects, DS-3 cross connects, two-fiber pair cross connects and four-fiber pair cross connects. | |
• | Meet-Me Room cross connects. We have the exclusive right to operate the Meet-Me Room at 60 Hudson Street in New York, New York. We provide cross connect services within the Meet-Me Room. |
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Name | Age | Position | ||||
Daniel Caruso | 46 | President, Chief Executive Officer, and Director | ||||
Kenneth desGarennes | 39 | Chief Financial Officer and Treasurer | ||||
Scott Beer | 41 | General Counsel and Secretary | ||||
John Scarano | 45 | President, Zayo Bandwidth | ||||
Glenn S. Russo | 51 | President, Zayo Enterprise Networks | ||||
David Howson | 39 | President, zColo | ||||
Matthew Erickson | 33 | President, Zayo Fiber Solutions | ||||
Rick Connor | 61 | Director and Audit Committee Chairman | ||||
Don Detampel | 55 | Director and Compensation Committee Chairman | ||||
Michael Choe | 38 | Director and Compensation Committee Member | ||||
John Siegel | 41 | Director and Compensation Committee Member | ||||
Gillis Cashman | 35 | Director and Audit Committee Member | ||||
John Downer | 52 | Director |
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• | selecting and hiring our independent auditors, and approving the audit and non-audit services to be performed by our independent auditors; | |
• | evaluating the qualifications, performance and independence of our independent auditors; | |
• | discussing the scope and results of each audit with our management team and our independent auditors and reviewing with our management team and independent auditors our interim and year-end operating results; | |
• | reviewing the adequacy and effectiveness of our system of internal accounting controls and disclosure controls and procedures; | |
• | reviewing our financial statements, balance sheets, profit and loss statements, statements of cash flows, shareholder equity, and related financial information; and | |
• | investigating, reviewing and reporting to the Board of Directors the propriety and ethical implications of any transactions, as reported or disclosed to the Audit Committee, between us and any independent auditor, employees, officers or member of the Board. |
• | studying, reviewing, monitoring and evaluating our employment, compensation, benefits, perquisite, employee equity, hiring and retention practices, policies and needs; |
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• | providing such information and materials as the Compensation Committee deems necessary or advisable to make the Board aware of significant employment matters that require Board attention; | |
• | reviewing and approving such compensation matters as the Compensation Committee, the Board or the Chief Executive Officer wish to review or approve; | |
• | reviewing and approving certain executive and employee compensation plans, including applicable annual base salary, quarterly incentive bonuses (including the specific goals and amounts), equity compensation, employment agreements, severance arrangements and any other relevant benefits; and | |
• | administering, reviewing and making recommendations with respect to our equity compensation plans. |
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First Quarter | ||||||||||||||
Business Unit/Metric | Threshold | Target | Maximum | Actual | ||||||||||
Zayo Bandwidth | ||||||||||||||
Revenue | $ | 35.0 | $ | 35.3 | $ | 35.7 | Greater than $35.7 | |||||||
Modified adjusted EBITDA | 12.9 | 13.7 | 14.5 | Greater than $14.5 | ||||||||||
Zayo Enterprise Networks | ||||||||||||||
Revenue | $ | 7.5 | $ | 7.6 | $ | 7.7 | Less than $7.5 | |||||||
Modified adjusted EBITDA | 0.9 | 1.2 | 1.5 | Less than $0.9 | ||||||||||
Onvoy Voice Services | ||||||||||||||
Revenue | $ | 10.1 | $ | 10.3 | $ | 10.5 | Less than $10.1 | |||||||
Modified adjusted EBITDA | 2.6 | 2.9 | 3.2 | Less than $2.6 |
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Second Quarter | ||||||||||||||
Business Unit/Metric | Threshold | Target | Maximum | Actual | ||||||||||
Zayo Bandwidth and zColo | ||||||||||||||
Revenue | $ | 49.6 | $ | 50.7 | $ | 51.8 | Greater than $51.8 | |||||||
Modified adjusted EBITDA | 17.8 | 18.7 | 19.6 | Greater than $19.6 | ||||||||||
Zayo Enterprise Networks | ||||||||||||||
Revenue | $ | 9.3 | $ | 9.5 | $ | 9.7 | Less than $9.3 | |||||||
Modified adjusted EBITDA | 1.6 | 1.9 | 2.2 | Less than $1.6 | ||||||||||
Onvoy Voice Services | ||||||||||||||
Revenue | $ | 10.0 | $ | 10.3 | $ | 10.6 | Less than $10.0 | |||||||
Modified adjusted EBITDA | 2.0 | 2.9 | 2.6 | Less than $2.0 |
Fiscal Quarter | Threshold | Target | Maximum | Actual | ||||||||||
Third Quarter | $ | 23.2 | $ | 24.2 | $ | 26.2 | $24.8 | |||||||
Fourth Quarter | $ | 24.1 | $ | 25.1 | $ | 27.2 | Greater than $27.2 |
Name | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
Daniel Caruso | — | — | — | — | ||||||||||||
Kenneth desGarennes | 120 | % | 120 | % | 150 | % | 152 | % | ||||||||
John Scarano | — | — | — | — | ||||||||||||
Glenn Russo(1) | N.A. | 0 | % | 100 | % | 50 | % | |||||||||
Marty Snella | 200 | % | 200 | % | 100 | % | 175 | % | ||||||||
Christopher Yost | 200 | % | 200 | % | 100 | % | 175 | % |
(1) | Mr. Russo did not participate in the non-equity incentive compensation plan in the first quarter of Fiscal 2010. See “— Bonus” below. |
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Plan | Plan | |||||||
Target | Actual | |||||||
Name | Payout | Payout | ||||||
Daniel Caruso | $ | — | $ | — | ||||
Kenneth desGarennes | $ | 90,000 | $ | 122,880 | ||||
John Scarano | $ | — | $ | — | ||||
Glenn Russo | $ | 76,500 | $ | 38,250 | ||||
Marty Snella | $ | 82,000 | $ | 138,500 | ||||
Christopher Yost | $ | 48,000 | $ | 81,000 |
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Non-Equity | ||||||||||||||||||||||||
Incentive Plan | ||||||||||||||||||||||||
Fiscal | Stock | Compensation | ||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($) | Awards ($)(3) | ($)(2) | Total ($) | ||||||||||||||||||
Daniel Caruso | 2008 | 10,291 | — | — | — | 10,291 | ||||||||||||||||||
Chief Executive Officer | 2009 | 10,951 | — | — | — | 10,951 | ||||||||||||||||||
2010 | 10,951 | — | — | — | 10,951 | |||||||||||||||||||
Kenneth desGarennes | 2008 | 157,192 | — | — | 68,460 | 225,652 | ||||||||||||||||||
Chief Financial Officer | 2009 | 210,000 | — | — | 68,250 | 278,250 | ||||||||||||||||||
2010 | 225,000 | — | — | 122,880 | 347,880 | |||||||||||||||||||
John Scarano | 2008 | 10,291 | — | — | — | 10,291 | ||||||||||||||||||
Chief Operating Officer & | 2009 | 10,951 | — | — | — | 10,951 | ||||||||||||||||||
President Zayo Bandwidth | 2010 | 10,951 | — | — | — | 10,951 | ||||||||||||||||||
Glenn Russo(1) | 2008 | — | — | — | ||||||||||||||||||||
President, Zayo Enterprise | 2009 | 211,682 | 114,750 | (1) | 64,000 | — | 390,432 | |||||||||||||||||
2010 | 255,000 | 38,250 | (1) | — | 38,250 | 331,500 | ||||||||||||||||||
Marty Snella | 2008 | 95,667 | — | — | — | 91,667 | ||||||||||||||||||
Senior Vice President of | 2009 | 200,000 | — | — | 60,000 | 260,000 | ||||||||||||||||||
Operations, Zayo Bandwidth | 2010 | 201,667 | — | — | 138,500 | 340,167 | ||||||||||||||||||
Christopher Yost | 2008 | 67,500 | — | — | 30,375 | 97,875 | ||||||||||||||||||
General Counsel, Zayo Bandwith | 2009 | 151,875 | — | — | 43,876 | 195,751 | ||||||||||||||||||
2010 | 160,000 | 1,000 | — | 81,000 | 242,000 |
(1) | Mr. Russo’s bonus was guaranteed at 150% of his target bonus for the quarters ended December 31, 2008, March 31, 2009, June 30, 2009, and September 30, 2009. | |
(2) | Comprises compensation which we describe under “— Compensation Discussion and Analysis — Elements of Executive Compensation — Non-Equity Incentive Compensation Plan.” | |
(3) | Amounts shown reflect the dollar value recognized, before forfeiture assumptions, by the Company for financial statement reporting purposes in accordance with Financial Accounting Standards Board Accounting Standards Codification 718-10-10, for the fiscal years ended June 30, 2010, June 30, 2009 and June 30, 2008. Assumptions used to determine these values can be found in Note 9 of our Consolidated Financial Statements. |
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Estimated | ||||||||||||||||||||||
Future | All Other | |||||||||||||||||||||
Payments Under | Stock Awards: | Grant Date | ||||||||||||||||||||
Non-Equity | Number of | Fair Value | ||||||||||||||||||||
Incentive Plan | Shares of | of Stock and | ||||||||||||||||||||
Grant | Awards(1) | Stock or | Option | |||||||||||||||||||
Name | Date | Threshold | Target ($) | Maximum | Units (#) | Awards ($) | ||||||||||||||||
Daniel Caruso | 10.20.09 | — | — | — | 2,300,000 | 0 | ||||||||||||||||
3.19.10 | — | — | — | 1,300,000 | 0 | |||||||||||||||||
Kenneth desGarennes | N/A | 0 | 90,000 | 180,000 | — | 0 | ||||||||||||||||
10.20.09 | — | — | — | 1,750,000 | ||||||||||||||||||
3.19.10 | — | — | — | 1,600,000 | ||||||||||||||||||
John Scarano | 10.20.09 | — | — | — | 1,000,000 | 0 | ||||||||||||||||
3.19.10 | — | — | — | 100,000 | ||||||||||||||||||
Glen Russo | N/A | 0 | 76,500 | 153,000 | — | 0 | ||||||||||||||||
3.19.10 | — | — | — | 500,000 | ||||||||||||||||||
Marty Snella | N/A | 0 | 82,000 | 164,000 | — | 0 | ||||||||||||||||
10.20.09 | — | — | — | 450,000 | ||||||||||||||||||
3.19.10 | — | — | — | 130,000 | ||||||||||||||||||
5.27.10 | — | — | — | 250,000 | ||||||||||||||||||
Christopher Yost | N/A | 0 | 48,000 | 96,000 | — | |||||||||||||||||
10.20.09 | — | — | — | 25,000 | ||||||||||||||||||
3.19.10 | — | — | — | 250,000 | ||||||||||||||||||
5.27.10 | — | — | — | 50,000 |
(1) | These figures represent the threshold, target and maximum annual cash payout opportunity for each executive under our quarterly non-equity incentive compensation plan (see page 77 above for additional information regarding this plan). |
Market Value of | ||||||||
Number of Shares | Shares or Units of | |||||||
or Units of Stock that | Stock that have not | |||||||
Name | have not Vested (#) | Vested ($)(1) | ||||||
Daniel Caruso | 5,047,685 | (2)(3) | 1,868,866 | |||||
Kenneth desGarennes | 4,475,704 | (4) | 1,489,595 | |||||
John Scarano | 2,001,053 | (2)(5) | 840,416 | |||||
Glenn Russo | 1,343,750 | (2)(6) | 553,438 | |||||
Marty Snella | 1,392,742 | (7) | 445,644 | |||||
Christopher Yost | 541,672 | (8) | 204,573 |
(1) | Market value is based on the fair market value of our Class A Common Units ($0.49 per unit), our Class B Common Units ($0.28 per unit), our Class C Common Units ($0.03 per unit) and our Class A Preferred Units ($1.50 per unit) at the end of Fiscal 2010. | |
(2) | Includes unvested Class A Common Units, Class B Common Units, Class C Common Units and Class A Preferred Units. |
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(3) | 150,000 Class A preferred units will vest on October 1, 2010. 324,421.25 Class A common units will vest on the 1st of each month beginning on July 1, 2010, and ending on October 1, 2010. 1,533,333 Class B common units will vest on October 20, 2010. 1,002,083 Class B common units will vest on March 19, 2011. 27,0831/3 Class B common units will vest on the 19th of each month beginning April 19, 2011 and ending February 1, 2010. 47,9162/3 Class B common units will vest on the 20th of each month beginning November 20, 210 and ending February 1, 2010. |
(4) | 33,204 Class A common units will vest each month beginning July 22, 2010, and ending on October 22, 2011. 37,153 Class A common units will vest on the 22nd of each month beginning on July 22, 2010, and ending on October 22, 2011. 692,708 Class B common units will vest on October 20, 2010. 36,4581/3 Class B common units will vest on the 20th of each month beginning on November 20, 2010, and ending on March 20, 2013. 833,333 Class B common units will vest on March 19, 2011. 33,3331/3 Class B common units will vest on the 19th of each month beginning on April 19, 2011, and ending on February 19, 2013. |
(5) | 150,000 Class A preferred units will vest on October 1, 2010. 202,763 Class A common units will vest on the 1st of each month beginning on July 1, 2010, and ending on October 1, 2010. 666,667 will vest on October 20, 2010. 77,083 will vest on March 19, 2011. 2,0831/3 will vest on the 19th of each month beginning April 19, 2011, and ending February 1, 2010. 20,833 will vest on the 20th of each month beginning November 20, 2010 and ending February 1, 2010. |
(6) | 31,250 Class A common units will vest on the 2nd of each month beginning on July 2, 2010, and ending on September 2, 2012. 145,833 Class B common units will vest on March 19, 2011. 10,417 Class B common units will vest on the 19th of each month beginning on April 19, 2011, and ending on January 19, 2014. |
(7) | 29,618 Class A common units will vest on the 21st of each month beginning on July 21, 2010 and ending on January 21, 2012. 59,583 Class B common units will vest on March 19, 2011. 2,7081/3 Class B common units will vest on the 19th of each month beginning April 19, 2011, and ending May 19, 2013. 150,000 Class B common units will vest on October 20, 2010. 9,375 Class B common units will vest on the 20th of each month beginning on November 20, 2010, and ending on June 20, 2013. 125,000 Class C common units will vest on May 27, 2011. 5,2081/3 Class C common units will vest on the 27th of each month beginning June 27, 2011, and ending May 27, 2013. |
(8) | 13,542 Class A common units will vest on the 1st of each month beginning on July 1, 2010, and ending on October 1, 2011. 8,854 Class B common units will vest on October 20, 2010. 521 Class B common units will vest on the 20th of each month beginning on November 20, 2010, and ending on May 20, 2013. 25,00 Class C common units will vest on May 27, 2011. 114,853 Class B common units will vest on March 19, 2011. 5,2081/3 Class B common units will vest on the 19th of each month beginning on April 19, 2011, and ending on May 19, 2013. 1,042 Class C common units will vest on the 27th of each month beginning on June 27, 2011, and ending on June 27, 2013. |
Market Value of | ||||||||
Number of Shares | Shares or Units of | |||||||
or Units of Stock | Stock that Vested | |||||||
Name | that Vested in 2010 (#) | in 2010 ($)(1) | ||||||
Daniel Caruso | 5,331,151 | 4,064,740 | ||||||
Kenneth desGarennes | 844,278 | 1,266,417 | ||||||
John Scarano | 3,296,017 | 2,486,534 | ||||||
Glenn Russo | 700,694 | 388,229 | ||||||
Marty Snella | 355,417 | 533,125 | ||||||
Christopher Yost | 162,500 | 243,750 |
(1) | Market value is based on the fair market value of our Class A Common Units ($0.49 per unit), Class B Common Units ($0.28 per unit), Class C Common Units ($0.03 per unit) and Class A Preferred Units ($1.50 per unit) at year end for Fiscal 2010. |
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Market Value of | ||||
Unvested Units | ||||
as at June 30, | ||||
2010 | ||||
that would vest | ||||
Name | upon Change in Control | |||
Daniel Caruso | $1,868,866 | |||
Kenneth desGarennes | $1,489,595 | |||
John Scarano | $840,416 | |||
Glenn Russo | $553,438 | |||
Marty Snella | $445,644 | |||
Christopher Yost | $204,573 |
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Grant Date Fair Value | ||||
Name | of Equity Grants | |||
Rick Connor | ||||
Class C Common Units | $ | 3,804 | ||
Class B Common Units | 197,990 | |||
Total | $ | 201,784 | ||
Don Detampel | ||||
Class C Common Units | 3,328 | |||
Class B Common Units | 173,240 | |||
Total | $ | 176,568 | ||
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Number of | Number of | |||||||||||||||||||||||
Preferred | Preferred | |||||||||||||||||||||||
Class A Units | Class B Units | |||||||||||||||||||||||
Beneficially | Percent of | Beneficially | Percent of | Common | Percent of | |||||||||||||||||||
Name of Beneficial Owner | Owned | Class | Owned | Class | Units | Class | ||||||||||||||||||
5% Beneficial Owners of CII | ||||||||||||||||||||||||
Battery Ventures(1) | 22,439,636 | 10.2 | % | 908,330 | 2.5 | % | — | — | ||||||||||||||||
Centennial Ventures(2) | 13,199,787 | 6.0 | % | 3,027,767 | 8.3 | % | — | — | ||||||||||||||||
Charlesbank Capital Partners(3)(8) | 16,189,149 | 7.4 | % | 21,042,981 | 57.7 | % | — | — | ||||||||||||||||
Columbia Capital(4)(9) | 51,056,575 | 23.3 | % | — | — | — | — | |||||||||||||||||
M/C Venture Partners(5)(10) | 51,056,576 | 23.3 | % | — | — | — | — | |||||||||||||||||
Morgan Stanley Alternative Investment Partners(6) | 6,107,143 | 2.8 | % | 8,629,136 | 23.7 | % | — | — | ||||||||||||||||
Oak Investment Partners XII, Limited Partnership(7)(11) | 51,928,571 | 23.7 | % | 2,724,990 | 7.5 | % | — | — | ||||||||||||||||
Our Directors | ||||||||||||||||||||||||
Daniel Caruso | 4,665,333 | 2.1 | % | — | — | 19,172,222 | 25.5 | % | ||||||||||||||||
Michael Choe(8) | — | — | — | — | — | — | ||||||||||||||||||
John Siegel(9) | — | — | — | — | — | — | ||||||||||||||||||
Gillis Cashman(10) | — | — | — | — | — | — | ||||||||||||||||||
John Downer(11) | — | — | — | — | — | — | ||||||||||||||||||
Rick Connor | — | — | 73,059 | 0.2 | % | 126,783 | * | |||||||||||||||||
Don Detampel | — | — | 63,926 | 0.2 | % | 110,935 | * | |||||||||||||||||
Our Named Executive Officers | — | — | — | — | — | — | ||||||||||||||||||
John Scarano | 2,560,666 | 1.2 | % | — | — | 10,832,639 | 14.4 | % | ||||||||||||||||
Kenneth desGarennes | 25,000 | * | — | — | 6,727,111 | 8.9 | % | |||||||||||||||||
Glenn S. Russo | 100,000 | * | — | — | 2,000,000 | 2.7 | % | |||||||||||||||||
Marty Snella | * | — | — | 2,251,667 | 3.0 | % | ||||||||||||||||||
Christopher Yost | — | — | — | — | 975,000 | 1.3 | % | |||||||||||||||||
All directors and executive officers as a group | 7,350,999 | 3.3 | % | 136,985 | 0.4 | % | 42,196,357 | 56.1 | % |
* | Less than 1%. |
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(1) | Aggregate holdings of Battery Ventures VII, L.P., Battery Investment Partners VII, LLC, and Battery Ventures VII, L.P. The address for all three entities is 930 Winter Street, Suite 2500, Waltham, MA 02451. | |
(2) | Aggregate holdings of Centennial Ventures VII, L.P. and Centennial Entrepreneurs Fund VII, L.P. The address for both entities is 1428 Fifteenth Street, Denver, Colorado 80202. | |
(3) | Aggregate holdings of Charlesbank Equity Fund VI, Limited Partnership, CB Offshore Equity Fund VI, Charlesbank Equity Coinvestment Fund VI, LP, and Charlesbank Equity Coinvestment Partners, LP. The address for all four entities is 200 Clarendon, 5th Floor, Boston, MA 02116. | |
(4) | Aggregate holdings of Columbia Capital Equity Partners IV (QP), L.P., Columbia Capital Equity Partners IV (QPCO), L.P., Columbia Capital Employee Investors IV, L.P., Columbia Capital Equity Partners III (QP), L.P., Columbia Capital Equity Partners III (Cayman) L.P., Columbia Capital Equity Partners III (AI), L.P., Columbia Capital Investors III, L.L.C., and Columbia Capital Employee Investors III, L.L.C. The address for all seven entities is 201 N. Union Street, Suite 300, Alexandria, VA, 22314. | |
(5) | Aggregate holdings of M/C Venture Partners VI, L.P., M/C Venture Investors, L.L.C., M/C Venture Partners V, L.P., and Chestnut Venture Partners, L.P. The address for all four entities is 75 State Street, Suite 2500, Boston, MA, 02109. | |
(6) | Aggregate holdings of Yawlbreak & Co FTBO GTB Capital Partners LP, Morgan Stanley Private Markets Fund IV LP, Stormbay & Co FTBO Vijverpoort Hulzen C.V. The address for all three entities is 100 Front Street, Suite 400, West Conshohocken, PA19428-2881. | |
(7) | 525 University Avenue, Suite 1300, Palo Alto, CA 94301. | |
(8) | Michael Choe is the Managing Director of Charlesbank Capital Partners. | |
(9) | John Siegel is a Partner of Columbia Capital. | |
(10) | Gillis Cashman is a General Partner of M/C Venture Partners. | |
(11) | John Downer is the Director-Private Equity of Oak Investment Partners. |
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• | Transport services for circuits. | |
• | Leases of colocation racks in various markets. | |
• | Fiber and optronics management. |
• | Leases of colocation racks at the colocation facility at 60 Hudson Street, New York, New York. |
• | Hosted PBX and IP services for voice services and dedicated Internet access. | |
• | Transport services relating to hands service, IP backhaul and DS-3 services. |
• | Agent fee services detailing customer referrals. | |
• | Fiber IRU and services related to fiber in Minnesota. | |
• | Transport services covering lit services. | |
• | Sublease for space in Minneapolis and Plymouth, Minnesota. | |
• | Lease of colocation racks. |
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• | Agreements covering each of long distance/toll free services, operator services, directory assistance, local voice services, dedicated PRI and DS-0 services, and switching services. | |
• | Sublease of space in Minneapolis and Plymouth, Minnesota. | |
• | Leases of colocation racks. |
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• | dispose of assets; | |
• | incur additional debt or issue certain types of stock; | |
• | incur guarantee obligations; | |
• | repay or prepay certain other debt; | |
• | redeem or repurchase capital stock or certain other debt; | |
• | make specified restricted payments, including dividends; | |
• | enter into swap agreements; | |
• | make investments, loans or advances; | |
• | engage in mergers, acquisitions or consolidations; | |
• | engage to any substantial extent in businesses other than our current businesses; | |
• | enter into sale and leaseback transactions; or | |
• | engage in certain transactions with affiliates. |
• | Fixed Charge Coverage Ratio: We must maintain a consolidated fixed charge coverage ratio, as determined under the credit agreement, of at least 1.0x for the periods ending September 30 and December 31, 2010; 1.1x for the periods ending March 31 and June 30, 2011; 1.15x for the periods ending September 30 and December 31, 2011 and March 31 and June 30, 2012; and 1.25x for the periods ending September 30, 2012 and each fiscal quarter thereafter. |
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• | will have been registered under the Securities Act; | |
• | will not contain transfer restrictions and registration rights that relate to the outstanding notes; and | |
• | will not contain provisions relating to the payment of Additional Interest. |
• | be the Issuers’ senior secured obligations; | |
• | mature on March 15, 2017; | |
• | be secured, subject to Permitted Liens, on a first-priority basis equally and ratably with the Issuers’ obligations under the Credit Agreement; | |
• | be structurally subordinated to all Indebtedness and other liabilities of future Subsidiaries of the Issuers that do not provide Note Guarantees, which will only consist of Unrestricted Subsidiaries and Foreign Subsidiaries that do not guarantee other Indebtedness of the Company; | |
• | rank equally in right of payment with the Issuers’ obligations under the Credit Agreement and any and all of the Issuers’ existing and future Indebtedness that is not subordinated in right of payment to the notes; | |
• | rank senior in right of payment to any and all of the Issuers’ future Indebtedness that is subordinated in right of payment to the notes, if any; |
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• | be effectively senior to all of the Issuers’ existing and future unsecured Indebtedness, if any, to the extent of the value of the Collateral; and | |
• | be guaranteed on an unsubordinated, senior secured basis by the Guarantors. |
• | be the Guarantor’s senior secured obligation; | |
• | be secured, subject to Permitted Liens, on a first-priority basis equally and ratably with such Guarantor’s obligations under the Credit Agreement; | |
• | rank equally in right of payment with such Guarantor’s obligations under the Credit Agreement and with any and all of such Guarantor’s other existing and future Indebtedness that is not subordinated in right of payment to its Note Guarantee, if any; | |
• | rank senior in right of payment to any and all of such Guarantor’s existing and future Indebtedness that is subordinated in right of payment to its Note Guarantee, if any; and | |
• | be effectively senior to all of such Guarantor’s existing and future unsecured Indebtedness, if any, to the extent of the value of the Collateral. |
• | on a consolidated basis, the Company and its Subsidiaries would have had $362.8 million of Indebtedness outstanding, entirely in the form of capital lease obligations and the notes; | |
• | the Company and its Subsidiaries would have had $94.1 million available for borrowing under the Credit Agreement, as amended, subject to certain conditions; and | |
• | there would have been no Restricted Subsidiaries other than the Guarantors. |
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• | anyintent-to-use United States trademark application for which an amendment to allege use or statement of use has not been filed and accepted by the United States Patent and Trademark Office; | |
• | any instrument, investment, property, contract, license, permit or other general intangible which by its terms cannot be, or requires any consent to be, pledged, transferred or assigned, or to the extent that granting a security interest therein would result in a breach or default under the instrument, investment, property, contract, license, permit or other general intangible; | |
• | any FCC License or any State PUC License, solely at such times and to the extent that a security interest in such FCC License or such State PUC License is not permitted under applicable law; and | |
• | any Capital Stock of any Foreign Subsidiary directly owned by the Company or any Guarantor in excess of 65% of the Capital Stock of such Foreign Subsidiary; | |
• | any Capital Stock of any direct or indirect Subsidiaries of any Foreign Subsidiary; | |
• | any Capital Stock or other securities of any Subsidiary of the Company in excess of the maximum amount of such Capital Stock or securities that could be included in the Collateral without creating a requirement pursuant toRule 3-16 ofRegulation S-X under the Securities Act for separate financial statements of such Subsidiary to be included in filings by the Company with the SEC; and | |
• | certain other items agreed by the parties and as more fully set forth in the Security Documents. |
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• | to enable the disposition or other use of such property or assets to the extent permitted under the Indenture and all other Secured Credit Documents; and | |
• | in the case of a Guarantor that is released from its Guarantee, the release of the property and assets of such Guarantor. |
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Year | Percentage | |||
2013 | 105.125 | % | ||
2014 | 102.563 | % | ||
2015 and thereafter | 100.000 | % |
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• | an individual who is a citizen or resident of the United States; | |
• | a corporation (or other business entity treated as a corporation) created or organized in or under the laws of the United States or any state thereof or the District of Columbia; | |
• | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or | |
• | a trust if a court within the United States can exercise primary supervision over its administration, and one or more United States persons have the authority to control all of the substantial decisions of that trust (or the trust was in existence on August 20, 1996, and validly elected to continue to be treated as a U.S. trust). |
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• | thenon-U.S. holder does not actually or constructively own 10% or more of the total combined voting power of all classes of the common stock of Zayo Group Holdings, Inc. that is entitled to vote; | |
• | thenon-U.S. holder is not, and is not treated as, a bank receiving interest on an extension of credit pursuant to a loan agreement entered into in the ordinary course of its trade or business; | |
• | thenon-U.S. holder is not a “controlled foreign corporation” that is related (actually or constructively) to us; and | |
• | certain certification requirements are met. |
• | If anon-U.S. holder provides to us or our paying agent a statement on IRSForm W-8BEN (or suitable successor form), together with all appropriate attachments, signed under penalties of perjury, identifying thenon-U.S. holder by name and address and stating, among other things, that thenon-U.S. holder is not a United States person. | |
• | If a note is held through a securities clearing organization, bank or another financial institution that holds customers’ securities in the ordinary course of its trade or business, (i) thenon-U.S. holder provides such a form to such organization or institution, and (ii) such organization or institution, under penalty of perjury, |
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certifies to us that it has received such statement from the beneficial owner or another intermediary and furnishes us or our paying agent with a copy thereof. |
• | If a financial institution or other intermediary that holds the note on behalf of thenon-U.S. holder has entered into a withholding agreement with the IRS and submits an IRSForm W-8IMY (or suitable successor form) and certain other required documentation to us or our paying agent. |
• | thenon-U.S. holder is an individual who is present in the U.S. for 183 days or more during the taxable year and who has a “tax home” in the United States and certain other conditions are met; or | |
• | the gain is effectively connected with the conduct of a U.S. trade or business of thenon-U.S. holder. |
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• | Zayo Group, LLC as of June 30, 2010 and 2009 and for the three years ended June 30, 2010 | |
• | Onvoy, Inc. as of November 7, 2007 and September 30, 2007 and for the period October 1, 2007 through November 7, 2007 and the year ended September 30, 2007 | |
• | AGL Networks, LLC as of June 30, 2010 and 2009 and for the years then ended |
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Zayo Group, LLC | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-8 | ||||
Onvoy, Inc. | ||||
F-36 | ||||
F-37 | ||||
F-38 | ||||
F-39 | ||||
F-40 | ||||
F-41 | ||||
AGL Networks, LLC | ||||
F-55 | ||||
F-56 | ||||
Consolidated statements of operations for the years ended June 30, 2010 and 2009 | F-57 | |||
Consolidated statements of stockholders’ equity for the years ended June 30, 2010 and 2009 | F-58 | |||
F-59 | ||||
F-60 | ||||
American Fiber Systems Holdings Corp. and Subsidiaries | ||||
F-68 | ||||
F-69 | ||||
F-70 | ||||
F-71 | ||||
F-72 | ||||
F-73 | ||||
American Fiber Systems Holdings Corp. and Subsidiaries | ||||
F-86 | ||||
F-87 | ||||
F-88 | ||||
F-89 | ||||
F-90 |
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June 30, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 89,161 | $ | 38,781 | ||||
Restricted cash, current | 809 | — | ||||||
Trade receivables, net of allowance of $1,093 and $1,151 as of June 30, 2010 and 2009, respectively | 12,721 | 4,755 | ||||||
Due from related parties | 871 | 30 | ||||||
Other receivables | 348 | 158 | ||||||
Prepaid expenses | 5,144 | 2,626 | ||||||
Deferred income taxes | 4,060 | — | ||||||
Debt issuance costs, net | — | 1,176 | ||||||
Assets of discontinued operations, current | — | 5,810 | ||||||
Total current assets | 113,114 | 53,336 | ||||||
Property and equipment, net of accumulated depreciation of $57,425 and $28,379 as of June 30, 2010 and 2009, respectively | 301,911 | 216,583 | ||||||
Intangible assets, net of accumulated amortization of $28,222 and $16,159 as of June 30, 2010 and 2009, respectively | 59,851 | 30,242 | ||||||
Goodwill | 68,751 | 68,751 | ||||||
Deferred income taxes | 7,050 | — | ||||||
Restricted cash, non-current | — | 245 | ||||||
Debt issuance costs, net | 9,560 | 3,536 | ||||||
Other assets | 4,144 | 3,072 | ||||||
Assets of discontinued operations, non-current | — | 46,397 | ||||||
Total assets | $ | 564,381 | $ | 422,162 | ||||
LIABILITIES AND MEMBER’S EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 10,502 | $ | 6,279 | ||||
Accrued liabilities | 18,349 | 10,060 | ||||||
Accrued interest | 7,794 | 1,579 | ||||||
Current portion of capital lease obligations | 1,673 | 1,959 | ||||||
Current portion long-term debt | — | 1,350 | ||||||
Deferred revenue, current portion | 8,146 | 2,602 | ||||||
Liabilities of discontinued operations, current | — | 2,602 | ||||||
Total current liabilities | 46,464 | 26,431 | ||||||
Capital lease obligations, net of current portion | 11,033 | 13,204 | ||||||
Long-term debt, net of current portion | 247,080 | 134,975 | ||||||
Deferred revenue, net of current portion | 22,648 | 18,724 | ||||||
Stock-based compensation liability | 21,623 | 4,590 | ||||||
Deferred income taxes | — | 6,470 | ||||||
Other long term liabilities | 2,397 | 2,383 | ||||||
Liabilities of discontinued operations, non-current | — | 2,367 | ||||||
Total liabilities | 351,245 | 209,143 | ||||||
Member’s equity | ||||||||
Member’s interest | 217,129 | 217,473 | ||||||
Accumulated deficit | (3,993 | ) | (4,454 | ) | ||||
Total member’s equity | 213,136 | 213,019 | ||||||
Total liabilities and member’s equity | $ | 564,381 | $ | 422,162 | ||||
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Years Ended June 30, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Revenue | $ | 224,045 | $ | 150,804 | $ | 77,569 | ||||||
Operating costs and expenses | ||||||||||||
Operating costs, excluding depreciation and amortization | 73,537 | 48,797 | 24,328 | |||||||||
Selling, general and administrative expenses | 73,771 | 62,419 | 37,404 | |||||||||
Stock-based compensation | 18,228 | 6,418 | 3,381 | |||||||||
Depreciation and amortization | 41,184 | 29,567 | 11,922 | |||||||||
Total operating costs and expenses | 206,720 | 147,201 | 77,035 | |||||||||
Operating income | 17,325 | 3,603 | 534 | |||||||||
Other income (expense) | ||||||||||||
Interest expense | (18,692 | ) | (15,248 | ) | (6,287 | ) | ||||||
Other income | 10,607 | 249 | 351 | |||||||||
Loss on extinguishment of debt | (5,881 | ) | — | — | ||||||||
Total other expense, net | (13,966 | ) | (14,999 | ) | (5,936 | ) | ||||||
Earnings/(loss) from continuing operations before income taxes | 3,359 | (11,396 | ) | (5,402 | ) | |||||||
Provision/(benefit) for income taxes | 6,293 | (2,106 | ) | (699 | ) | |||||||
Loss from continuing operations | (2,934 | ) | (9,290 | ) | (4,703 | ) | ||||||
Earnings from discontinued operations, net of income taxes | 3,395 | 7,043 | 2,750 | |||||||||
Net earnings/(loss) | $ | 461 | $ | (2,247 | ) | $ | (1,953 | ) | ||||
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Total | ||||||||||||
Members’ | Accumulated | Members’ | ||||||||||
Interest | Deficit | Equity | ||||||||||
(In thousands) | ||||||||||||
Balance at July 1, 2007 | $ | 6,797 | $ | (254 | ) | $ | 6,543 | |||||
Capital contributed (cash) | 166,450 | — | 166,450 | |||||||||
Property contributed | 3,250 | — | 3,250 | |||||||||
Stock-based compensation | 3,381 | — | 3,381 | |||||||||
Net loss | — | (1,953 | ) | (1,953 | ) | |||||||
Balance at June 30, 2008 | 179,878 | (2,207 | ) | 177,671 | ||||||||
Capital contributed (cash) | 35,546 | — | 35,546 | |||||||||
Stock-based compensation | 2,049 | — | 2,049 | |||||||||
Net loss | — | (2,247 | ) | (2,247 | ) | |||||||
Balance at June 30, 2009 | 217,473 | (4,454 | ) | 213,019 | ||||||||
Capital contributed (cash) | 39,800 | — | 39,800 | |||||||||
Capital contributed (non cash) | 1,200 | — | 1,200 | |||||||||
Stock-based compensation | 1,195 | — | 1,195 | |||||||||
Spin-off of Onvoy Voice Services | (42,539 | ) | — | (42,539 | ) | |||||||
Net earnings | — | 461 | 461 | |||||||||
Balance at June 30, 2010 | $ | 217,129 | $ | (3,993 | ) | $ | 213,136 | |||||
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Years Ended June 30, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Cash Flows from Operating Activities: | ||||||||||||
Net earnings/(loss) | $ | 461 | $ | (2,247 | ) | $ | (1,953 | ) | ||||
Earning from discontinued operations | 3,395 | 7,043 | 2,750 | |||||||||
Loss from continuing operations | (2,934 | ) | (9,290 | ) | (4,703 | ) | ||||||
Adjustments to reconcile net earnings/(loss) from continuing operations to net cash provided by operating activities | ||||||||||||
Depreciation and amortization | 41,184 | 29,567 | 11,922 | |||||||||
Loss on extinguishment of debt | 5,881 | — | — | |||||||||
Loss on disposal of assets | — | 66 | — | |||||||||
Bad debt expense | 278 | 756 | 112 | |||||||||
Amortization of deferred financing costs | 1,624 | 1,114 | 500 | |||||||||
Stock-based compensation | 18,228 | 6,418 | 3,381 | |||||||||
Gain on bargain purchase | (9,081 | ) | — | — | ||||||||
Amortization of deferred revenue | (7,858 | ) | (3,843 | ) | (4,944 | ) | ||||||
Unrealized loss on interest rate swaps | 744 | 3,143 | — | |||||||||
Deferred income taxes | 5,421 | (1,906 | ) | (600 | ) | |||||||
Changes in operating assets and liabilities, net of acquisitions | ||||||||||||
Customer prepayments | 7,988 | 7,462 | 1,317 | |||||||||
Payments on interest rate swap | (2,463 | ) | (859 | ) | — | |||||||
Receivables | 977 | 2,126 | 6,740 | |||||||||
Prepaid expenses | (288 | ) | (775 | ) | (189 | ) | ||||||
Restricted cash | (564 | ) | — | — | ||||||||
Other assets | (1,245 | ) | (1,973 | ) | (179 | ) | ||||||
Accounts payable and accrued liabilities | 5,538 | (3,283 | ) | (1,617 | ) | |||||||
Payables to related parties | (2,030 | ) | 7 | (37 | ) | |||||||
Other liabilities | 15 | (322 | ) | 781 | ||||||||
Net cash provided by operating activities | 61,415 | 28,408 | 12,484 | |||||||||
Cash Flows From Investing Activities: | ||||||||||||
Purchases of property and equipment | (59,779 | ) | (62,107 | ) | (22,729 | ) | ||||||
Proceeds from disposition of property and equipment | — | — | 1,189 | |||||||||
Acquisition of FiberNet Telecom Group, Inc., net of cash acquired | (96,571 | ) | — | — | ||||||||
Acquisition of Columbia Fiber Solutions LLC, net of cash acquired | — | (12,091 | ) | — | ||||||||
Acquisition of Onvoy, Inc. net of cash acquired | — | — | (34,327 | ) | ||||||||
Acquisition of Memphis Networx, LLC, net of cash acquired | — | — | (9,173 | ) | ||||||||
Acquisition of PPL Telcom, LLC, net of cash acquired | — | — | (41,318 | ) | ||||||||
Acquisition of Indiana Fiber Works, LLC, net of cash acquired | — | — | (22,601 | ) | ||||||||
Acquisition of Voicepipe Communications, Inc., net of cash acquired | — | (15 | ) | 465 | ||||||||
Acquisition of Citynet Fiber Network, LLC, net of cash acquired | — | (35 | ) | (99,168 | ) | |||||||
Acquisition of Northwest Telephone, Inc., net of cash acquired | — | 618 | (5,799 | ) | ||||||||
Acquisition of NTI CA LLC, net of cash acquired | — | (15 | ) | — | ||||||||
Net cash used in investing activities | (156,350 | ) | (73,645 | ) | (233,461 | ) | ||||||
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Years Ended June 30, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
(In thousands) | ||||||||||||
Cash Flows from Financing Activities: | ||||||||||||
Equity contributions | 39,800 | 35,546 | 166,450 | |||||||||
Proceeds from borrowings | 276,948 | 47,000 | 100,002 | |||||||||
Principal repayments on debt obligations | (166,193 | ) | (10,677 | ) | — | |||||||
Principal repayments on capital lease obligations | (2,192 | ) | (2,267 | ) | (877 | ) | ||||||
Restricted cash | — | — | (230 | ) | ||||||||
Deferred financing costs | (12,353 | ) | (1,681 | ) | (4,645 | ) | ||||||
Net cash provided by financing activities | 136,010 | 67,921 | 260,700 | |||||||||
Cash flows from discontinued operations: | ||||||||||||
Operating activities | 10,144 | 11,932 | 1,149 | |||||||||
Investing activities | (781 | ) | (1,033 | ) | (36,782 | ) | ||||||
Financing activities | — | — | — | |||||||||
Net cash provided/(used) by discontinued operations | 9,363 | 10,899 | (35,633 | ) | ||||||||
Net increase in cash and cash equivalents | 50,438 | 33,583 | 4,090 | |||||||||
Cash and cash equivalents, beginning of year | 38,781 | 4,554 | 1,552 | |||||||||
(Increase)/ decrease in cash and cash equivalents of discontinued operations | (58 | ) | 644 | (1,088 | ) | |||||||
Cash and cash equivalents, end of year | $ | 89,161 | $ | 38,781 | $ | 4,554 | ||||||
Supplemental Disclosure of Cash Flows Information: | ||||||||||||
Cash paid for interest | $ | 6,215 | $ | 10,845 | $ | 5,346 | ||||||
Cash paid for income taxes | 257 | 326 | 5 |
F-7
Table of Contents
(1) | Organization and Description of Business |
• | Converged and data services. | |
• | Private line services consisting of local and intercity dedicated facilities. | |
• | Colocation services and intra building transport services. |
(2) | Basis of Presentation and Significant Accounting Policies |
a. | Basis of Presentation |
b. | Spin-Off of Operating Segment |
c. | Use of Estimates |
F-8
Table of Contents
d. | Cash and Cash Equivalents and Restricted Cash |
e. | Trade Receivables |
f. | Property and Equipment |
F-9
Table of Contents
g. | Goodwill and Purchased Intangibles |
h. | Derivative Financial Instruments |
i. | Revenue Recognition |
Year Ended June 30, | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
Amounts | Percentage(1) | Amounts | Percentage(1) | Amounts | Percentage(1) | |||||||||||||||||||
Converged and data services | $ | 33,245 | 14.8 | % | $ | 26,043 | 17.3 | % | $ | 12,946 | 16.7 | % | ||||||||||||
Private line services | 169,736 | 75.8 | 124,761 | 82.7 | 64,623 | 83.3 | ||||||||||||||||||
Colocation services(2) | 21,064 | 9.4 | N/A | (2) | N/A | (2) | N/A | (2) | N/A | (2) | ||||||||||||||
$ | 224,045 | 100 | % | $ | 150,804 | 100 | % | $ | 77,569 | 100 | % | |||||||||||||
(1) | Represents percentage of revenue | |
(2) | Colocation services business was acquired in September 2009. |
F-10
Table of Contents
j. | Operating Costs and Accrued Liabilities |
k. | Stock-Based Compensation |
l. | Government Grants |
m. | Income Taxes |
F-11
Table of Contents
n. | Fair Value of Financial Instruments |
• | Quoted prices for similar assets or liabilities in active markets; | |
• | Quoted prices for identical or similar assets or liabilities in inactive markets; | |
• | Inputs other than quoted prices that are observable for the asset or liability; | |
• | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
F-12
Table of Contents
o. | Concentration of Credit Risk |
p. | Recently Issued Accounting Standards |
F-13
Table of Contents
(3) | Acquisitions |
F-14
Table of Contents
Fibernet | ||||
Acquisition Date | September 9, 2009 | |||
Current assets | $ | 16,824 | ||
Property and equipment | 50,734 | |||
Intangibles | 43,900 | |||
Deferred income taxes | 19,659 | |||
Other assets | 838 | |||
Total assets acquired | 131,955 | |||
Current liabilities | 11,534 | |||
Deferred revenue | 7,257 | |||
Total liabilities assumed | 18,791 | |||
Net assets | 113,164 | |||
Excess of net assets over purchase consideration (bargain purchase) | 9,081 | |||
Purchase consideration | 104,083 | |||
Cash acquired | 7,512 | |||
Net cash paid | $ | 96,571 | ||
F-15
Table of Contents
CFS | NTI CA | |||||||
Acquisition Date | September 30, 2008 | May 26, 2009 | ||||||
Current assets | $ | 461 | $ | 1 | ||||
Property and equipment | 4,772 | 92 | ||||||
Intangibles | 3,412 | — | ||||||
Goodwill | 4,170 | — | ||||||
Other assets | — | 101 | ||||||
Total assets acquired | 12,815 | 194 | ||||||
Current liabilities | 500 | 179 | ||||||
Deferred revenue | 154 | — | ||||||
Total liabilities assumed | 654 | 179 | ||||||
Purchase consideration | 12,161 | 15 | ||||||
Less cash acquired | 70 | — | ||||||
Net cash paid | $ | 12,091 | $ | 15 | ||||
Memphis | PPL | Indiana | Onvoy | Voicepipe | Citynet | Northwest | ||||||||||||||||||||||
July 31, | August 24, | September 28, | November 7, | November 7, | February 15, | May 30, | ||||||||||||||||||||||
Acquisition Date | 2007 | 2007 | 2007 | 2007 | 2007 | 2008 | 2008 | |||||||||||||||||||||
Current assets | $ | 754 | $ | 2,819 | $ | 1,669 | $ | 16,175 | $ | 810 | $ | 4,365 | $ | 1,224 | ||||||||||||||
Property and equipment | 10,771 | 54,631 | 25,646 | 41,910 | 180 | 32,185 | 4,353 | |||||||||||||||||||||
Intangibles | 1,581 | 6,307 | — | 26,912 | 1,085 | 16,947 | 786 | |||||||||||||||||||||
Goodwill | — | — | 5,606 | 3,032 | 2,184 | 52,967 | 2,957 | |||||||||||||||||||||
Deferred income taxes | — | 56 | 4,534 | 22,448 | 27 | — | 28 | |||||||||||||||||||||
Other assets | 506 | 100 | 13 | 88 | — | 301 | 113 | |||||||||||||||||||||
Total assets acquired | 13,612 | 63,913 | 37,468 | 110,565 | 4,286 | 106,765 | 9,461 | |||||||||||||||||||||
Current liabilities | 3,823 | 4,220 | 3,485 | 13,261 | 364 | 1,989 | 1,023 | |||||||||||||||||||||
Capital lease obligations | 616 | 10,433 | — | 1,407 | — | 1,688 | 1,594 | |||||||||||||||||||||
Long-term debt | — | — | — | 303 | — | — | — | |||||||||||||||||||||
Deferred revenue | — | 2,909 | 10,849 | 3,051 | 227 | 2,520 | 689 | |||||||||||||||||||||
Deferred income taxes | — | — | — | 13,255 | 445 | — | 852 | |||||||||||||||||||||
Other liabilities | — | 50 | — | 3,831 | — | 73 | — | |||||||||||||||||||||
Total liabilities assumed | 4,439 | 17,612 | 14,334 | 35,108 | 1,036 | 6,270 | 4,158 | |||||||||||||||||||||
Purchase consideration | 9,173 | 46,301 | 23,134 | 75,457 | 3,250 | 100,495 | 5,303 | |||||||||||||||||||||
Less cash acquired | — | — | 533 | 5,495 | 450 | 1,292 | 122 | |||||||||||||||||||||
Less units issued | — | — | — | — | 3,250 | — | — | |||||||||||||||||||||
Net cash paid (received) | $ | 9,173 | $ | 46,301 | $ | 22,601 | $ | 69,962 | $ | (450 | ) | $ | 99,203 | $ | 5,181 | |||||||||||||
F-16
Table of Contents
Year Ended June 30, | ||||||||
2010 | 2009 | |||||||
Revenue | $ | 236,111 | $ | 212,580 | ||||
Loss from continuing operations | (3,913 | ) | (13,265 | ) |
F-17
Table of Contents
(4) | Spin-Off of ONVOY Voice Services Segment |
Years Ended June 30, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Revenue | $ | 28,489 | $ | 38,721 | $ | 24,780 | ||||||
Earnings before income taxes | $ | 6,037 | $ | 11,687 | $ | 4,181 | ||||||
Income tax expense | 2,642 | 4,644 | 1,431 | |||||||||
Earnings from discontinued operations, net of tax | $ | 3,395 | $ | 7,043 | $ | 2,750 | ||||||
Current assets | $ | 5,810 | ||
Property and equipment, net | 18,579 | |||
Intangible assets, net | 6,494 | |||
Deferred tax asset and other | 21,324 | |||
Total assets | $ | 52,207 | ||
Current liabilities | $ | 2,602 | ||
Other liabilities | 2,367 | |||
Total liabilities | $ | 4,969 | ||
F-18
Table of Contents
Year Ended June 30, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Zayo Group, LLC | ||||||||||||
Revenue from Onvoy Voice Services | $ | 2,488 | $ | 1,570 | $ | 967 | ||||||
Operating costs from Onvoy Voice Services | 473 | (3,720 | )(1) | (2,269 | )(1) | |||||||
Selling, general and administrative expenses from Onvoy Voice Services | 82 | 25 | — |
(1) | — Certain intercompany transactions between the Company and Onvoy have historically been internally accounted for as a reduction to expenses rather than revenues. Prior to the spin-off these transactions eliminated upon consolidation. |
(5) | Property and Equipment |
Estimated | ||||||||||
Useful Lives | June 30, | |||||||||
(In Years) | 2010 | 2009 | ||||||||
Land | N/A | $ | 209 | $ | 209 | |||||
Buildings improvements and site improvements | 15 | 9,003 | 8,230 | |||||||
Furniture, fixtures and office equipment | 7 | 1,219 | 623 | |||||||
Computer hardware | 3 to 5 | 3,292 | 2,165 | |||||||
Software | 3 | 4,066 | 2,658 | |||||||
Machinery and equipment | 4 to 7 | 3,568 | 3,327 | |||||||
Fiber optic equipment | 8 | 127,379 | 94,127 | |||||||
Circuit switch equipment | 10 | 7,225 | 7,027 | |||||||
Packet switch equipment | 5 | 21,761 | 19,527 | |||||||
Fiber optic network | 20 | 141,171 | 89,877 | |||||||
Construction in progress | N/A | 40,443 | 17,192 | |||||||
Total | 359,336 | 244,962 | ||||||||
Less accumulated depreciation | (57,425 | ) | (28,379 | ) | ||||||
Property and equipment, net | $ | 301,911 | $ | 216,583 | ||||||
F-19
Table of Contents
(6) | Goodwill |
Zayo Bandwidth | $ | 66,548 | ||
Zayo Enterprise Networks | 2,203 | |||
Total | $ | 68,751 | ||
(7) | Intangible Assets |
Gross Carrying | Accumulated | |||||||||||
Amount | Amortization | Net | ||||||||||
June 30, 2010 | ||||||||||||
Customer relationships | $ | 78,738 | $ | (19,182 | ) | $ | 59,556 | |||||
Non-compete Agreements | 8,835 | (8,623 | ) | 212 | ||||||||
Tradenames | 500 | (417 | ) | 83 | ||||||||
Total | $ | 88,073 | $ | (28,222 | ) | $ | 59,851 | |||||
June 30, 2009 | ||||||||||||
Customer relationships | 37,556 | (9,961 | ) | 27,595 | ||||||||
Non-compete Agreements | 8,845 | (6,198 | ) | 2,647 | ||||||||
Total | $ | 46,401 | $ | (16,159 | ) | $ | 30,242 | |||||
F-20
Table of Contents
Year ending June 30, | ||||
2011 | $ | 10,276 | ||
2012 | 9,981 | |||
2013 | 9,981 | |||
2014 | 7,096 | |||
2015 | 4,435 | |||
Thereafter | 18,082 | |||
$ | 59,851 | |||
Year Ended June 30, | ||||||||
2010 | 2009 | |||||||
Senior Secured Notes due 2017 (10.25%) | $ | 247,080 | $ | — | ||||
Tranche A term loan due 2013 (6.39%) | — | 69,650 | ||||||
Tranche B term loan due 2013 (5.86%) | — | 29,850 | ||||||
Tranche C term loan due 2013 (6.33%) | — | 34,825 | ||||||
Revolver maturing in 2013 (6.36%)(1) | — | 2,000 | ||||||
Less current portion | — | (1,350 | ) | |||||
Total long-term debt | $ | 247,080 | $ | 134,975 | ||||
F-21
Table of Contents
Maximum Annual | ||||
Leverage Ratio | Dividend Payment | |||
³ 3.5x | $ | 0 | ||
< 3.5x but³ 2.5x | $ | 25,000 | ||
< 2.5x but³ 1.5x | $ | 35,000 | ||
< 1.5x | $ | 45,000 |
F-22
Table of Contents
(9) | Income Taxes |
Year Ended June 30, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Federal income taxes — current | $ | — | $ | — | $ | — | ||||||
Federal income taxes — deferred | 4,726 | (1,662 | ) | (703 | ) | |||||||
Provision for federal income taxes | 4,726 | (1,662 | ) | (703 | ) | |||||||
State income taxes — current | 872 | (200 | ) | 107 | ||||||||
State income taxes — deferred | 695 | (244 | ) | (103 | ) | |||||||
Provision for state income taxes | 1,567 | (444 | ) | 4 | ||||||||
Total provision for income taxes | $ | 6,293 | $ | (2,106 | ) | $ | (699 | ) | ||||
F-23
Table of Contents
Year Ended June 30, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Expected provision/(benefit) at statutory rate of 34% | $ | 1,142 | $ | (3,874 | ) | $ | (1,837 | ) | ||||
Increase/(decrease) due to: | ||||||||||||
Deferred compensation | 6,198 | 2,160 | 1,150 | |||||||||
State taxes, net of federal benefit | 985 | (200 | ) | (55 | ) | |||||||
Transaction costs not deductible | 438 | — | — | |||||||||
Gain on bargain purchase | (3,087 | ) | — | — | ||||||||
Other, net | 337 | (192 | ) | 43 | ||||||||
Adjustment of income taxes provided for in prior periods | 280 | — | — | |||||||||
Provision/(benefit) for income taxes | $ | 6,293 | $ | (2,106 | ) | $ | (699 | ) |
Year Ended June 30, | ||||||||
2010 | 2009 | |||||||
Deferred income tax assets | ||||||||
Net operating loss carry forwards | $ | 38,262 | $ | 2,209 | ||||
Alternate minimum tax credit carryforwards | 78 | 150 | ||||||
Deferred revenue | 8,790 | 5,462 | ||||||
Unrealized loss on interest rate swaps | 223 | 860 | ||||||
Accrued expenses | 722 | 685 | ||||||
Other liabilities | 354 | 53 | ||||||
Allowance for doubtful accounts | 1,402 | 76 | ||||||
Other | 1 | 1 | ||||||
Total deferred income tax assets | $ | 49,832 | $ | 9,496 | ||||
Deferred income tax liabilities | ||||||||
Property and equipment | 24,483 | 11,325 | ||||||
Intangible assets | 13,884 | 4,641 | ||||||
Total deferred income tax liabilities | 38,367 | 15,966 | ||||||
Less: Valuation allowance | (355 | ) | — | |||||
Net deferred income tax assets | $ | 11,110 | $ | (6,470 | ) | |||
F-24
Table of Contents
(10) | Accrued Liabilities |
Year Ended June 30, | ||||||||
2010 | 2009 | |||||||
Accrued compensation and benefits | $ | 3,854 | $ | 2,347 | ||||
Accrued property and equipment purchases | 2,441 | 697 | ||||||
Network expense accruals | 4,445 | 2,636 | ||||||
Other accruals | 7,609 | 4,380 | ||||||
Total | $ | 18,349 | $ | 10,060 | ||||
(11) | Equity |
F-25
Table of Contents
(12) | Stock Compensation |
F-26
Table of Contents
A Common | B Common | C Common | Totals | |||||||||||||
Units | Units | Units | Units | |||||||||||||
Balance at June 30, 2007 | — | — | — | — | ||||||||||||
Common units issued | 45,954,072 | — | — | 45,954,072 | ||||||||||||
Common units forfeited | (720,417 | ) | — | — | (720,417 | ) | ||||||||||
Balance at June 30, 2008 | 45,233,655 | — | — | 45,233,655 | ||||||||||||
Common units issued | 6,199,665 | — | — | 6,199,665 | ||||||||||||
Common units forfeited | (3,212,262 | ) | — | — | (3,212,262 | ) | ||||||||||
Balance at June 20, 2009 | 48,221,058 | — | — | 48,221,058 | ||||||||||||
Common units issued | — | 19,879,500 | 3,630,218 | 23,509,718 | ||||||||||||
Common units forfeited | (545,646 | ) | (210,000 | ) | — | (755,646 | ) | |||||||||
Balance at June 30, 2010 | 47,675,412 | 19,669,500 | 3,630,218 | 70,975,130 | ||||||||||||
Year Ended June 30, | ||||||||||||||||
2008 | 2009 | 2010 | Totals | |||||||||||||
Common A vested | 15,846,600 | 11,837,579 | 12,604,516 | 40,288,694 | ||||||||||||
Common B vested | — | 2,604,479 | 4,092,625 | 6,697,104 | ||||||||||||
Common C vested | — | 54,792 | 258,859 | 313,650 | ||||||||||||
Total Vested | 15,846,600 | 14,496,850 | 16,956,000 | 47,299,449 | ||||||||||||
(13) | Fair Value Measurements |
F-27
Table of Contents
As of June 30, | ||||||||||
Level | 2010 | 2009 | ||||||||
Liabilities Recorded at Fair Value in the Financial Statements: | ||||||||||
Interest rate swap liabilities | Level 2 | $ | 566 | $ | 2,284 | |||||
Stock-based compensation liability | Level 3 | 21,623 | 4,590 | |||||||
Total liabilities recorded at fair value in the consolidated financial statements | $ | 22,189 | $ | 6,874 | ||||||
Liabilities not Recorded at Fair Value in the Financial Statements: | ||||||||||
Long-term debt, including the current portion | $ | 247,080 | $ | 136,325 | ||||||
F-28
Table of Contents
(14) | Commitments and Contingencies |
As of | ||||
June 30, 2010 | ||||
Year ending June 30, | ||||
2011 | $ | 2,572 | ||
2012 | 1,745 | |||
2013 | 1,709 | |||
2014 | 1,670 | |||
2015 | 1,627 | |||
Thereafter | 8,792 | |||
Total minimum lease payments | 18,115 | |||
Less amounts representing interest | (5,409 | ) | ||
Less current portion | (1,673 | ) | ||
Capital lease obligations, less current portion | $ | 11,033 | ||
As of | ||||
June 30, 2010 | ||||
Year ending June 30, | ||||
2011 | $ | 22,688 | ||
2012 | 19,257 | |||
2013 | 17,177 | |||
2014 | 15,460 | |||
2015 | 14,406 | |||
Thereafter | 86,347 | |||
$ | 175,335 | |||
F-29
Table of Contents
Year Ended June 30, | ||||||||
2010 | 2009 | |||||||
Revenue | $ | 247,681 | $ | 168,238 | ||||
Loss, from continuing operations | 1,950 | (13,743 | ) |
F-30
Table of Contents
(15) | Related Party Transactions |
(16) | Segment Reporting |
• | It engages in business activities from which it may earn revenues and incur expenses. | |
• | Its operating results are regularly reviewed by the public entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. | |
• | Its discrete financial information is available. |
F-31
Table of Contents
For the Year Ended June 30, 2010 | ||||||||||||||||||||
BW | ZEN | zColo | Corporate | Total | ||||||||||||||||
Revenue | $ | 175,348 | $ | 33,953 | $ | 22,850 | $ | — | $ | 232,151 | ||||||||||
Intersegment revenue | (5,612 | ) | (708 | ) | (1,786 | ) | — | (8,106 | ) | |||||||||||
Revenue from external customers | 169,736 | 33,245 | 21,064 | — | 224,045 | |||||||||||||||
Depreciation and amortization | 32,915 | 3,765 | 4,504 | — | 41,184 | |||||||||||||||
Operating income/(loss) | 26,992 | 750 | 3,386 | (13,803 | ) | 17,325 | ||||||||||||||
Interest expense | (1,130 | ) | — | (164 | ) | (17,398 | ) | (18,692 | ) | |||||||||||
Loss on extinguishments of debt | — | — | — | (5,881 | ) | (5,881 | ) | |||||||||||||
Other income(1) | 382 | — | — | 10,225 | 10,607 | |||||||||||||||
Total assets | 373,391 | 35,666 | 56,431 | 98,893 | 564,381 | |||||||||||||||
Capital Expenditures | 57,064 | 2,201 | 514 | — | 59,779 |
(1) | Other income includes a gain of $9,081 on the bargain purchase of Fibernet. See Note 3 —Acquisitions. |
For the Year Ended June 30, 2009 | ||||||||||||||||||||
BW | ZEN | zColo | Corporate | Total | ||||||||||||||||
Revenue | $ | 128,695 | $ | 26,135 | $ | — | $ | — | $ | 154,830 | ||||||||||
Intersegment revenues | (3,934 | ) | (92 | ) | — | — | (4,026 | ) | ||||||||||||
Revenues from external customers | 124,761 | 26,043 | — | — | 150,804 | |||||||||||||||
Depreciation and amortization | 26,287 | 3,280 | — | — | 29,567 | |||||||||||||||
Operating income/(loss) | 17,153 | (3,195 | ) | — | (10,356 | ) | 3,602 | |||||||||||||
Interest expense | (1,182 | ) | (3 | ) | — | (14,063 | ) | (15,248 | ) | |||||||||||
Other income | 52 | 15 | — | 182 | 249 | |||||||||||||||
Total assets(2) | 302,577 | 26,685 | — | 92,900 | 422,162 | |||||||||||||||
Capital expenditures | 60,829 | 1,278 | — | — | 62,107 |
(2) | Total assets of corporate include $52,207 of assets of discontinued operations. |
For the Year Ended June 30, 2008 | ||||||||||||||||||||
BW | ZEN | zColo | Corporate | Total | ||||||||||||||||
Revenue | $ | 66,149 | $ | 12,946 | $ | — | $ | — | $ | 79,095 | ||||||||||
Intersegment revenues | (1,526 | ) | — | — | — | (1,526 | ) | |||||||||||||
Revenues from external customers | 64,623 | 12,946 | — | — | 77,569 | |||||||||||||||
Depreciation and amortization | 10,374 | 1,548 | — | — | 11,922 | |||||||||||||||
Operating income/(loss) | 6,034 | (1,139 | ) | — | (4,361 | ) | 534 | |||||||||||||
Interest expense | (820 | ) | — | — | (5,467 | ) | (6,287 | ) | ||||||||||||
Other income | 220 | 44 | — | 87 | 351 | |||||||||||||||
Total assets(3) | 275,761 | 12,684 | — | 50,994 | 339,439 | |||||||||||||||
Capital expenditures | 22,729 | — | — | — | 22,729 |
(3) | Total assets of corporate include $69,936 of assets of discontinued operations. |
(17) | Subsequent Events |
F-32
Table of Contents
F-33
Table of Contents
(19) | Quarterly Financial Data (Unaudited) |
2010 Quarter Ended | ||||||||||||||||||||
September 30 | December 31 | March 31 | June 30 | Total | ||||||||||||||||
Revenue | $ | 45,503 | $ | 58,227 | (1) | $ | 58,912 | $ | 61,403 | $ | 224,045 | |||||||||
— | ||||||||||||||||||||
Operating costs and expenses | — | |||||||||||||||||||
Operating costs, excluding depreciation and amortization | 14,426 | 19,777 | (1) | 19,536 | 19,798 | 73,537 | ||||||||||||||
Selling, general and administrative expenses | 16,850 | 18,920 | (1) | 18,726 | 19,275 | 73,771 | ||||||||||||||
Stock-based compensation | 852 | 592 | 11,831 | (2) | 4,953 | (2) | 18,228 | |||||||||||||
Depreciation and amortization | 9,062 | 10,565 | 10,630 | 10,927 | 41,184 | |||||||||||||||
Total operating costs and expenses | 41,190 | 49,854 | 60,723 | 54,953 | 206,720 | |||||||||||||||
Operating income/(loss) | 4,313 | 8,373 | (1,811 | ) | 6,450 | 17,325 | ||||||||||||||
Other income (expense) | ||||||||||||||||||||
Interest expense | (3,570 | ) | (3,241 | ) | (4,449 | ) | (7,432 | )(3) | (18,692 | ) | ||||||||||
Other income | 5 | — | 1,001 | 9,601 | (4) | 10,607 | ||||||||||||||
Loss on extinguishment of debt | — | — | (5,881 | )(3) | — | (5,881 | ) | |||||||||||||
Total other expense, net | (3,565 | ) | (3,241 | ) | (9,329 | ) | 2,169 | (13,966 | ) | |||||||||||
Earnings/(loss) from continuing operations before income taxes | 748 | 5,132 | (11,140 | ) | 8,619 | 3,359 | ||||||||||||||
Provision/(benefit) for income taxes | 1,112 | 2,513 | 525 | 2,143 | 6,293 | |||||||||||||||
Earnings/(loss) from continuing operations | $ | (364 | ) | $ | 2,619 | $ | (11,665 | ) | $ | 6,476 | $ | (2,934 | ) | |||||||
Earnings/(loss) from discontinued operations, net of income taxes | 1,963 | 1,436 | 879 | (883 | ) | 3,395 | ||||||||||||||
Net earnings/(loss) | $ | 1,599 | $ | 4,055 | $ | (10,786 | ) | $ | 5,593 | $ | 461 | |||||||||
(1) | The Company realized an increase in revenue beginning September 9, 2009 as a result of the acquisition of Fibernet. As a result of the acquisition the Company incurred additional operating and selling, general and administrative expenses attributed to the additional revenues associated with the acquisition. | |
(2) | Stock-based compensation expense increased significantly during the quarters ended March 31, 2010 and June 30, 2010 as a result of an increase in the value of the common units granted to the Company’s employees and additional units vesting during these quarters. See Note 12 —Stock Compensation. | |
(3) | Interest expense increased during the quarter ended June 30, 2010 primarily as a result of the bond offering which closed on March 11, 2010. Interest expense increased as a result of the higher interest rates on the bonds as compared to the senior debt which was repaid on March 11, 2010 and as a result of the larger debt balance during the quarter. As a result of paying off the senior notes with the proceeds from the bond offering, the Company wrote off $5,881 in unamortized debt issuance costs during the quarter ended March 31, 2010. See Note 8 —Long Term Debt. | |
(4) | During the year ended June 30, 2010 the Company recognized a gain on bargain purchase of $9,081 associated with the Fibernet acquisition. See Note 3 —Acquisitions. |
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2009 Quarter Ended | ||||||||||||||||||||
September 30 | December 31 | March 31 | June 30 | Total | ||||||||||||||||
Revenue | $ | 34,515 | $ | 37,446 | $ | 38,399 | $ | 40,444 | $ | 150,804 | ||||||||||
Operating costs and expenses | ||||||||||||||||||||
Operating costs, excluding depreciation and amortization | 12,360 | 12,319 | 11,898 | 12,220 | 48,797 | |||||||||||||||
Selling, general and administrative expenses | 13,921 | 14,996 | 15,565 | 17,937 | 62,419 | |||||||||||||||
Stock-based compensation | 403 | 547 | 403 | 5,065 | 6,418 | |||||||||||||||
Depreciation and amortization | 6,212 | 7,003 | 7,498 | 8,854 | 29,567 | |||||||||||||||
Total operating costs and expenses | 32,896 | 34,865 | 35,364 | 44,076 | 147,201 | |||||||||||||||
Operating income/(loss) | 1,619 | 2,581 | 3,035 | (3,632 | ) | 3,603 | ||||||||||||||
Other income (expense) | ||||||||||||||||||||
Interest expense | (3,242 | ) | (5,661 | ) | (3,455 | ) | (2,890 | ) | (15,248 | ) | ||||||||||
Other income | 39 | 105 | 81 | 24 | 249 | |||||||||||||||
Total other expense, net | (3,203 | ) | (5,556 | ) | (3,374 | ) | (2,866 | ) | (14,999 | ) | ||||||||||
Earnings/(loss) from continuing operations before income taxes | (1,584 | ) | (2,975 | ) | (339 | ) | (6,498 | ) | (11,396 | ) | ||||||||||
Provision/(benefit) for income taxes | 82 | (368 | ) | 519 | (2,339 | ) | (2,106 | ) | ||||||||||||
Earnings/(loss) from continuing operations | (1,666 | ) | (2,607 | ) | (858 | ) | (4,159 | ) | (9,290 | ) | ||||||||||
Earnings/(loss) from discontinued operations, net of income taxes | 2,536 | 2,282 | 2,321 | (96 | ) | 7,043 | ||||||||||||||
Net earnings/(loss) | $ | 870 | $ | (325 | ) | $ | 1,463 | $ | (4,255 | ) | $ | (2,247 | ) | |||||||
F-35
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F-36
Table of Contents
As of | ||||||||
November 7, | September 30, | |||||||
2007 | 2007 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 1,593,932 | $ | 3,458,649 | ||||
Accounts receivable, net of allowance of $359,386 and $352,059, respectively | 11,253,033 | 9,961,536 | ||||||
Prepaid expenses and other current assets | 1,322,045 | 1,397,404 | ||||||
Total current assets | 14,169,010 | 14,817,589 | ||||||
Property and equipment | ||||||||
Switching and circuit equipment | 65,025,704 | 64,599,195 | ||||||
Computer equipment and software | 22,055,307 | 22,006,697 | ||||||
Buried cable | 13,052,463 | 13,052,463 | ||||||
Construction in progress | 414,562 | 694,114 | ||||||
Buildings | 2,992,265 | 2,992,265 | ||||||
Furniture and office equipment | 2,883,471 | 2,863,593 | ||||||
Leasehold improvements | 2,057,710 | 2,057,710 | ||||||
Land | 238,363 | 238,363 | ||||||
108,719,845 | 108,504,400 | |||||||
Less accumulated depreciation | (77,608,601 | ) | (76,917,658 | ) | ||||
Total property and equipment, net | 31,111,244 | 31,586,742 | ||||||
Investments | 1,332,483 | 1,335,580 | ||||||
Debt issuance and other deferred costs, net | 805,436 | 817,664 | ||||||
Other assets | 87,807 | 287,557 | ||||||
Total assets | $ | 47,505,980 | $ | 48,845,132 | ||||
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities | ||||||||
Current portion of long-term debt | $ | 4,672,829 | $ | 5,419,987 | ||||
Accounts payable | 5,300,417 | 4,911,378 | ||||||
Accrued expenses and other current liabilities | 10,606,473 | 7,892,112 | ||||||
Advanced billings and customer deposits | 3,050,826 | 3,028,046 | ||||||
Total current liabilities | 23,630,545 | 21,251,523 | ||||||
Long-term debt, net of current portion | 25,987,810 | 26,045,194 | ||||||
Other long-term liabilities | 2,288,230 | 1,513,803 | ||||||
Total liabilities | 51,906,585 | 48,810,520 | ||||||
Commitments and contingencies | ||||||||
Class B convertible redeemable preferred stock, $1,000 par value, 50,000 shares authorized, issued and outstanding at November 7, 2007 and September 30, 2007; aggregate liquidation preference of $109,572,226 and $108,947,226 at November 7, 2007 and September 30, 2007, respectively | 105,746,784 | 105,140,210 | ||||||
Stockholders’ deficit | ||||||||
Common stock, $.01 par value, 60,000,000 shares authorized; 333,196 shares issued and outstanding at November 7, 2007 and September 30, 2007 | 3,332 | 3,332 | ||||||
Common stock Class C, no par value, 13,891,137 shares, authorized; 13,452,084 shares issued and outstanding at November 7, 2007 and September 30, 2007 | 134,521 | 134,521 | ||||||
Common stock Class D, no par value, 1,000,000 shares authorized, no shares issued or outstanding | — | — | ||||||
Accumulated deficit | (110,285,242 | ) | (105,243,451 | ) | ||||
Total stockholders’ deficit | (110,147,389 | ) | (105,105,598 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 47,505,980 | $ | 48,845,132 | ||||
F-37
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Period | ||||||||
October 1, 2007 | ||||||||
Through | Year Ended | |||||||
November 7, | September 30, | |||||||
2007 | 2007 | |||||||
Revenue | ||||||||
Voice | $ | 4,470,665 | $ | 38,502,404 | ||||
Data | 4,727,434 | 36,659,851 | ||||||
Total revenue | 9,198,099 | 75,162,255 | ||||||
Costs and expenses | ||||||||
Facilities and network operations, excluding depreciation and amortization and loss on disposal of property and equipment | 4,661,768 | 43,712,919 | ||||||
Selling, general and administrative, including bad debt expense (recoveries) of $105,016 and $(181,168), respectively | 7,729,845 | 24,995,930 | ||||||
Depreciation and amortization | 695,703 | 7,548,828 | ||||||
Loss on disposal of property and equipment | — | 5,721 | ||||||
Total costs and expenses | 13,087,316 | 76,263,398 | ||||||
Operating loss | (3,889,217 | ) | (1,101,143 | ) | ||||
Other income (expense) | ||||||||
Interest income | 13,569 | 56,376 | ||||||
Interest expense | (364,916 | ) | (3,171,548 | ) | ||||
Equity in net (loss) earnings of investees | (3,097 | ) | 42,661 | |||||
Other (expense) income, net | (186,556 | ) | 1,041,010 | |||||
Total other expense | (541,000 | ) | (2,031,501 | ) | ||||
Loss before income taxes | (4,430,217 | ) | (3,132,644 | ) | ||||
Income taxes | 5,000 | 5,000 | ||||||
Net loss | (4,435,217 | ) | (3,137,644 | ) | ||||
Dividend and accretion on Class B preferred stock to redemption value | (606,574 | ) | (6,885,929 | ) | ||||
Net loss attributable to common stockholders | $ | (5,041,791 | ) | $ | (10,023,573 | ) | ||
F-38
Table of Contents
Common Stock | Common Stock Class C | Accumulated | ||||||||||||||||||||||
Shares | Amount | Shares | Amount | Deficit | Total | |||||||||||||||||||
Balance at October 1, 2006 | 333,196 | $ | 3,332 | 13,452,084 | $ | 134,521 | $ | (95,219,878 | ) | $ | (95,082,025 | ) | ||||||||||||
Net loss attributable to common stockholders | — | — | — | — | (10,023,573 | ) | (10,023,573 | ) | ||||||||||||||||
Balance at September 30, 2007 | 333,196 | 3,332 | 13,452,084 | 134,521 | (105,243,451 | ) | (105,105,598 | ) | ||||||||||||||||
Net loss attributable to common stockholders | — | — | — | — | (5,041,791 | ) | (5,041,791 | ) | ||||||||||||||||
Balance at November 7, 2007 | 333,196 | $ | 3,332 | 13,452,084 | $ | 134,521 | $ | (110,285,242 | ) | $ | (110,147,389 | ) | ||||||||||||
F-39
Table of Contents
Period | ||||||||
October 1, 2007 | ||||||||
Through | Year Ended | |||||||
November 7, | September 30, | |||||||
2007 | 2007 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (4,435,217 | ) | $ | (3,137,644 | ) | ||
Reconciliation of net loss to net cash (used in) provided by operating activities | ||||||||
Depreciation and amortization | 695,703 | 7,548,828 | ||||||
Provision for doubtful accounts | 105,016 | — | ||||||
Patronage refund received | — | (37,515 | ) | |||||
Loss on disposal of property and equipment | — | 5,721 | ||||||
Non-cash incentive compensation | — | 3,913,624 | ||||||
Equity in net loss (earnings)of investees | 3,097 | (42,661 | ) | |||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | (1,396,513 | ) | 295,296 | |||||
Prepaid expenses and other current assets | 75,359 | (340,160 | ) | |||||
Deferred costs and other assets | 211,978 | 498,810 | ||||||
Accounts payable | 389,039 | (1,449,667 | ) | |||||
Accrued expenses and other current liabilities | 2,714,361 | 1,884,024 | ||||||
Advance billings and customer deposits | 22,780 | 318,628 | ||||||
Other long-term liabilities | 774,427 | 303,812 | ||||||
Net cash (used in) provided by operating activities | (839,970 | ) | 9,761,096 | |||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment | (220,205 | ) | (4,599,264 | ) | ||||
Cash dividends/distributions received from investees | — | 67,256 | ||||||
Net cash used in investing activities | (220,205 | ) | (4,532,008 | ) | ||||
Cash flows from financing activities | ||||||||
Payments on long-term debt | (804,542 | ) | (3,387,007 | ) | ||||
Net cash used in financing activities | (804,542 | ) | (3,387,007 | ) | ||||
Net change in cash and cash equivalents | (1,864,717 | ) | 1,842,081 | |||||
Cash and cash equivalents, beginning of period | 3,458,649 | 1,616,568 | ||||||
Cash and cash equivalents, end of period | $ | 1,593,932 | $ | 3,458,649 | ||||
Supplemental cash flow information | ||||||||
Interest paid, net of amounts capitalized | $ | 155,663 | $ | 2,782,265 | ||||
Taxes paid | $ | — | $ | 5,000 | ||||
Non-cash investing and financing activities | ||||||||
Dividend and accretion on Class B convertible redeemable preferred stock to redemption value | $ | 606,574 | $ | 6,885,929 | ||||
Interest capitalized | $ | — | $ | 25,000 |
F-40
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 7, 2007 and September 30, 2007
F-41
Table of Contents
Switching and circuit equipment | 3 to 11 years | |
Computer equipment and software | 3 to 5 years | |
Buried cable | 20 to 35 years | |
Construction in progress | N/A | |
Buildings | 25 to 35 years | |
Furniture and office equipment | 5 to 8 years | |
Leasehold improvements | The shorter of the lease term or leasehold life |
F-42
Table of Contents
F-43
Table of Contents
As of | ||||||||
November 7, | September 30, | |||||||
2007 | 2007 | |||||||
Prepaid expenses | $ | 798,512 | $ | 891,309 | ||||
Deferred costs and other | 223,533 | 206,095 | ||||||
Restricted cash (see note F) | 300,000 | 300,000 | ||||||
$ | 1,322,045 | $ | 1,397,404 | |||||
As of | ||||||||
November 7, | September 30, | |||||||
2007 | 2007 | |||||||
Employee compensation and benefits (see note H) | $ | 7,204,778 | $ | 6,919,779 | ||||
Accrued interest | 455,527 | 336,311 | ||||||
Deferred revenue | 177,636 | 175,623 | ||||||
Accrued transaction costs (see Note L) | 2,299,253 | — | ||||||
Other current expenses | 469,279 | 460,399 | ||||||
$ | 10,606,473 | $ | 7,892,112 | |||||
F-44
Table of Contents
As of | ||||||||
November 7, | September 30, | |||||||
2007 | 2007 | |||||||
Deferred interest (see note E) | $ | 688,968 | $ | 662,510 | ||||
Long-term severance | 189,373 | 189,373 | ||||||
Deferred revenue | 175,608 | 172,542 | ||||||
Long-term incentive-based compensation (see note H) | 489,378 | 489,378 | ||||||
Other long-term liabilities | 744,903 | — | ||||||
$ | 2,288,230 | $ | 1,513,803 | |||||
West Central | Northern | |||||||||||
Transport | Transport | |||||||||||
Group, LLC | Group, LLC | Total | ||||||||||
Balances at October 1, 2006 | $ | 146,334 | $ | 50,480 | $ | 196,814 | ||||||
Pro-rata share of income (losses) | 67,740 | (25,079 | ) | 42,661 | ||||||||
Distributions | (50,000 | ) | — | (50,000 | ) | |||||||
Balances at September 30, 2007 | 164,074 | 25,401 | 189,475 | |||||||||
Pro-rata share of income (losses) | — | (3,097 | ) | (3,097 | ) | |||||||
Balances at November 7, 2007 | $ | 164,074 | $ | 22,304 | $ | 186,378 | ||||||
Percentage ownership at November 7, 2007 and September 30, 2007 | 5 | % | 10 | % |
As of | ||||||||
November 7, | September 30, | |||||||
2007 | 2007 | |||||||
Stock in Co-Bank, ACB | $ | 1,124,140 | $ | 1,124,140 | ||||
Stock in Rural Telephone Financing Cooperative | 21,965 | 21,965 | ||||||
$ | 1,146,105 | $ | 1,146,105 | |||||
F-45
Table of Contents
As of | ||||||||
November 7, | September 30, | |||||||
2007 | 2007 | |||||||
Notes payable to CoBank | $ | 15,000,000 | $ | 15,750,000 | ||||
Note payable for fiber purchase to lessor with monthly payments of $77,500 including interest at 5.09% through August 10, 2014(1) | 5,357,639 | 5,412,181 | ||||||
Note payable to the City of Halstad(2) | 303,000 | 303,000 | ||||||
Subordinated notes payable to stockholders with interest at 11% due in March 2011 (8% interest payable semi-annually, 3% deferred and payable at maturity) | 10,000,000 | 10,000,000 | ||||||
30,660,639 | 31,465,181 | |||||||
Less current portion | (4,672,829 | ) | (5,419,987 | ) | ||||
Long-term debt, net of current portion | $ | 25,987,810 | $ | 26,045,194 | ||||
(1) | Collateralized by fiber cable and equipment with a carrying value of $6,082,284 at November 7, 2007. | |
(2) | In May 2006, the Company entered into an agreement with the City of Halstad to operate a telecommunications operator service center in Halstad, MN. As an incentive to choose Halstad as the location, the City of Halstad offered both a building and monetary contributions with requirements that the Company use the building as a staffed operator service center with specific, minimum Full Time Employees. If the Company meets the conditions in the agreement, the note payable to the City of Halstad will be reduced over time and the contribution will be recognized. |
F-46
Table of Contents
As of | ||||
November 7, 2007 | ||||
Year ending November 7, | ||||
2008 | $ | 4,672,829 | ||
2009 | 5,707,886 | |||
2010 | 6,744,770 | |||
2011 | 10,783,575 | |||
2012 | 824,403 | |||
Thereafter | 1,927,176 | |||
$ | 30,660,639 | |||
Related Parties | Other | Total | ||||||||||
October 1, 2007 through November 7, 2007 | $ | 473,268 | $ | 232,975 | $ | 706,243 | ||||||
Year ended September 30, 2007 | 5,012,095 | 2,630,842 | 7,642,937 |
F-47
Table of Contents
As of November 7, 2007 | ||||||||||||
Related Parties | Other | Total | ||||||||||
Year ending November 7, | ||||||||||||
2008 | $ | 4,252,901 | $ | 1,539,645 | $ | 5,792,546 | ||||||
2009 | 3,984,890 | 1,547,117 | 5,532,007 | |||||||||
2010 | 2,003,673 | 1,266,707 | 3,270,380 | |||||||||
2011 | 78,672 | 1,176,087 | 1,254,759 | |||||||||
2012 | 78,672 | 443,470 | 522,142 | |||||||||
Thereafter | 210,010 | 906,447 | 1,116,457 | |||||||||
$ | 10,608,818 | $ | 6,879,473 | $ | 17,488,291 | |||||||
F-48
Table of Contents
As of | ||||||||
November 7, | September 30, | |||||||
2007 | 2007 | |||||||
Current deferred tax assets | ||||||||
Accrued liabilities and reserves | $ | 1,119,190 | $ | 476,716 | ||||
Non-current deferred tax assets | ||||||||
Operating loss carry-forwards | 27,280,884 | 28,202,331 | ||||||
AMT credit carry-forwards | 166,761 | 166,761 | ||||||
Accrued liabilities and reserves | 254,129 | — | ||||||
Other | 430,078 | 421,621 | ||||||
Total deferred tax assets | 29,251,042 | 29,267,429 | ||||||
Non-current deferred tax liabilities | ||||||||
Property and equipment | 5,321,426 | 5,430,627 | ||||||
Total deferred tax liabilities | 5,351,426 | 5,430,627 | ||||||
Less valuation allowance | (23,929,616 | ) | (23,836,802 | ) | ||||
Net deferred income taxes | $ | — | $ | — | ||||
F-49
Table of Contents
Balance at October 1, 2006 | $ | 98,254,281 | ||
Dividend and accretion to redemption value | 6,885,929 | |||
Balance at September 30, 2007 | 105,140,210 | |||
Dividend and accretion to redemption value | 606,574 | |||
November 7, 2007 | $ | 105,746,784 | ||
Amount of Fixed Dividend | Percentage Payable to | |||||||||
Originally Payable to | Class C Common | |||||||||
Tranche No. | Class B Preferred Stockholders | Stockholders | ||||||||
1 | First $10,000,000 | 30 | % | |||||||
2 | Second $20,000,000 | 35 | % | |||||||
3 | Third $10,000,000 | 40 | % | |||||||
4 | Remaining $4,964,384 | 45 | % |
F-50
Table of Contents
• | Restrictions on Transfer of Sharesthat requires the consent of Board of Directors for the transfer of any share of the Company’s stock. | |
• | Right of First Offerthat provides the Company the first option and other stockholders the second option to purchase shares of the Company’s stock offered for sale by stockholders to third parties. | |
• | Tag Along Rightsthat provide the Class B preferred stockholders the option to participate, on a pro-rata basis, in the sale of other stockholders’ shares of the Company’s stock when the other stockholders sell in aggregate 40% or more of their shares. | |
• | Bring Along Rightsthat provide stockholders owning at least 662/3% of the fully diluted equity of the Company to require all other stockholders to sell their stock in the Company if there has been a bona fide offer from a third-party purchaser. | |
• | Preemptive Rightsthat provide stockholders the right to participate, on a pro-rata basis, under the same terms, in the issuance of any shares of common stock or any rights to acquire common stock by the Company. | |
• | Forced Sale Rightsthat provide Class B preferred stockholders the right to sell all of the Class B preferred stock to the other stockholders on the earlier of October 6, 2004, or upon a Forced Control Event which is defined as the failure of the Company to meet specified financial targets as defined under the agreement. |
F-51
Table of Contents
Price | ||||||||||||
Total | Vested | per Share | ||||||||||
Outstanding at October 1, 2006 | $ | 3,087,444 | $ | 2,636,411 | $ | 0.56 | ||||||
Forfeited | (59,000 | ) | — | 0.29 | ||||||||
Outstanding at September 30, 2007 and November 7, 2007 | $ | 3,028,444 | $ | 2,846,411 | $ | 0.57 | ||||||
F-52
Table of Contents
Shares | ||||
Outstanding at October 1, 2006 | 184,067 | |||
Expired | (2,640 | ) | ||
Outstanding at September 30, 2007 and November 7, 2007 | 181,427 | |||
F-53
Table of Contents
As of | ||||||||
November 7, | September 30, | |||||||
2007 | 2007 | |||||||
Accounts receivable | $ | 2,189,356 | $ | 2,305,835 | ||||
Accounts payable | 315,604 | 319,816 |
F-54
Table of Contents
F-55
Table of Contents
JUNE 30, 2010 AND 2009
(IN THOUSANDS)
As of June 30, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Receivables, net of allowance of $81 and $75, respectively | $ | 2,205 | $ | 2,522 | ||||
Prepaids | 1,302 | 1,236 | ||||||
Inventories | 273 | 205 | ||||||
Restricted cash | 530 | 455 | ||||||
Income taxes | 94 | 695 | ||||||
Other current assets | — | 69 | ||||||
Total current assets | 4,404 | 5,182 | ||||||
Long-term assets | ||||||||
Property, plant and equipment | 119,673 | 98,735 | ||||||
Less accumulated depreciation | (16,708 | ) | (13,717 | ) | ||||
Property, plant and equipment, net | 102,965 | 85,018 | ||||||
Prepaids, net of current portion | 1,004 | 1,671 | ||||||
Total long-term assets | 103,969 | 86,689 | ||||||
Total assets | $ | 108,373 | $ | 91,871 | ||||
LIABILITIES AND MEMBER’S DEFICIT | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 405 | $ | 560 | ||||
Accrued wages and salaries | 868 | 758 | ||||||
Accrued taxes | 3,107 | 667 | ||||||
Due to Parent | 55,391 | 43,214 | ||||||
Deferred revenue | 3,927 | 3,666 | ||||||
Total current liabilities | 63,698 | 48,865 | ||||||
Long-term liabilities | ||||||||
Deferred revenue, net of current portion | 28,161 | 30,324 | ||||||
Deferred income taxes | 17,446 | 16,310 | ||||||
Accrued pension and postretirement benefit costs | 431 | 343 | ||||||
Total long-term liabilities | 46,038 | 46,977 | ||||||
Commitments and contingencies | ||||||||
Member’s deficit | (1,363 | ) | (3,971 | ) | ||||
Total liabilities and member’s deficit | $ | 108,373 | $ | 91,871 | ||||
F-56
Table of Contents
Years Ended June 30, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Revenues | $ | 25,233 | $ | 18,957 | ||||
Operating costs and expenses | ||||||||
Cost of sales | 1,060 | 3,404 | ||||||
Payroll and benefits | 3,632 | 3,534 | ||||||
Other operating expenses | 6,570 | 6,281 | ||||||
Depreciation | 2,952 | 2,874 | ||||||
Total operating costs and expenses | 14,214 | 16,093 | ||||||
Operating income | 11,019 | 2,864 | ||||||
Other income (expense) | 85 | (5 | ) | |||||
Interest expense, net | 218 | 850 | ||||||
Income before income taxes | 10,886 | 2,009 | ||||||
Provision for income taxes | 4,340 | 721 | ||||||
Net income | $ | 6,546 | $ | 1,288 | ||||
F-57
Table of Contents
JUNE 30, 2010 AND 2009
(IN THOUSANDS)
STATEMENTS OF MEMBERS’ DEFICIT AND OTHER COMPREHENSIVE LOSS
Years Ended June 30, 2010 and 2009 | ||||||||||||||||
Other | ||||||||||||||||
Member’s | Accumulated | Comprehensive | ||||||||||||||
Equity | Deficit | Loss | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Balance as of July 1, 2008 | $ | 274 | $ | (1,747 | ) | $ | (51 | ) | $ | (1,524 | ) | |||||
Comprehensive income | ||||||||||||||||
Net income | — | 1,288 | — | 1,288 | ||||||||||||
Loss resulting from unfunded pension and postretirement obligation (net of taxes, $101) | — | — | (155 | ) | (155 | ) | ||||||||||
Total comprehensive income | 1,133 | |||||||||||||||
Dividends declared | — | (3,580 | ) | — | (3,580 | ) | ||||||||||
Balance as of June 30, 2009 | 274 | (4,039 | ) | (206 | ) | (3,971 | ) | |||||||||
Comprehensive income | ||||||||||||||||
Net income | — | 6,546 | — | 6,546 | ||||||||||||
Loss resulting from unfunded pension and postretirement obligation (net of taxes, $37) | — | — | (55 | ) | (55 | ) | ||||||||||
Total comprehensive income | 6,491 | |||||||||||||||
Dividends declared | — | (3,883 | ) | — | (3,883 | ) | ||||||||||
Balance as of June 30, 2010 | $ | 274 | $ | (1,376 | ) | $ | (261 | ) | $ | (1,363 | ) | |||||
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Years Ended June 30, | ||||||||
2010 | 2009 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities | ||||||||
Net income | $ | 6,546 | $ | 1,288 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Depreciation | 2,952 | 2,874 | ||||||
Deferred income taxes | 1,180 | 3,422 | ||||||
Changes in assets and liabilities | ||||||||
Receivables | 317 | 2,474 | ||||||
Inventories | (68 | ) | 1,394 | |||||
Prepaids | 601 | (2,280 | ) | |||||
Restricted cash | (75 | ) | (105 | ) | ||||
Accounts payable | (181 | ) | (2,491 | ) | ||||
Accrued taxes, net | 3,041 | (3,117 | ) | |||||
Deferred revenue | (1,857 | ) | (607 | ) | ||||
Others, net | 233 | 777 | ||||||
Net cash flow provided by operating activities | 12,689 | 3,629 | ||||||
Cash flows from investing activities | ||||||||
Purchase of property, plant and equipment | (21,096 | ) | (4,540 | ) | ||||
Proceeds from disposition of property, plant and equipment | 113 | 654 | ||||||
Net cash flow (used in) investing activities | (20,983 | ) | (3,886 | ) | ||||
Cash flows from financing activities | ||||||||
Net borrowings from Parent | 12,177 | 3,837 | ||||||
Dividends paid | (3,883 | ) | (3,580 | ) | ||||
Net cash flow provided by financing activities | 8,294 | 257 | ||||||
Net decrease in cash and cash equivalents | — | — | ||||||
Cash and cash equivalents at beginning of period | — | — | ||||||
Cash and cash equivalents at end of period | $ | — | $ | — | ||||
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JUNE 30, 2010 AND 2009
(IN THOUSANDS)
NOTES TO FINANCIAL STATEMENTS — (Continued)
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JUNE 30, 2010 AND 2009
(IN THOUSANDS)
NOTES TO FINANCIAL STATEMENTS — (Continued)
As of June 30, | ||||||||
2010 | 2009 | |||||||
Current | ||||||||
Franchise fees | $ | 1,228 | $ | 1,169 | ||||
Other | 74 | 67 | ||||||
Total current | 1,302 | 1,236 | ||||||
Long-term | ||||||||
Franchise fees | 707 | 1,379 | ||||||
Telecommunication hubs | 243 | 254 | ||||||
Other | 54 | 38 | ||||||
Total long-term | 1,004 | 1,671 | ||||||
Total prepaids | $ | 2,306 | $ | 2,907 | ||||
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JUNE 30, 2010 AND 2009
(IN THOUSANDS)
NOTES TO FINANCIAL STATEMENTS — (Continued)
Estimated Useful | As of June 30, | |||||||||
Lives (Years) | 2010 | 2009 | ||||||||
Building and site improvements | 40 | $ | 21 | $ | 21 | |||||
Furniture, fixtures and office equipment | 7 | 2 | 2 | |||||||
Computer hardware and software | 5 | 1,117 | 1,001 | |||||||
Machinery and equipment | 5-40 | 20 | 59 | |||||||
Fiber optic equipment | 20-40 | 99,820 | 94,416 | |||||||
Construction work in progress(1) | N/A | 18,693 | 3,236 | |||||||
Total gross property, plant and equipment | 119,673 | 98,735 | ||||||||
Less accumulated depreciation | (16,708 | ) | (13,717 | ) | ||||||
Property, plant and equipment, net | $ | 102,965 | $ | 85,018 | ||||||
(1) | Amounts not subject to depreciation. |
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JUNE 30, 2010 AND 2009
(IN THOUSANDS)
NOTES TO FINANCIAL STATEMENTS — (Continued)
Retirement Plans | Postretirement Plan | |||||||||||||||
As of June 30, | As of June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Current liability | $ | 3 | $ | 2 | $ | — | $ | — | ||||||||
Long-term liability | 415 | 330 | 16 | 13 | ||||||||||||
Total liability | $ | 418 | $ | 332 | $ | 16 | $ | 13 | ||||||||
Years Ended June 30, | ||||||||
2010 | 2009 | |||||||
Current income taxes | ||||||||
Federal | $ | 2,654 | $ | (2,593 | ) | |||
State | 506 | (108 | ) | |||||
Deferred income taxes | ||||||||
Federal | 908 | 3,185 | ||||||
State | 272 | 237 | ||||||
Total | $ | 4,340 | $ | 721 | ||||
Years Ended June 30, | ||||||||
2010 | 2009 | |||||||
Computed tax expense at statutory rate | $ | 3,810 | $ | 703 | ||||
State income tax, net of federal income tax benefit | 506 | 92 | ||||||
Other, net | 24 | (74 | ) | |||||
Provision for income taxes | $ | 4,340 | $ | 721 | ||||
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JUNE 30, 2010 AND 2009
(IN THOUSANDS)
NOTES TO FINANCIAL STATEMENTS — (Continued)
As of June 30, | ||||||||
2010 | 2009 | |||||||
Deferred income tax liabilities | ||||||||
Property, plant and equipment | $ | 17,730 | $ | 16,609 | ||||
Accrued bonus | 57 | — | ||||||
Other | — | 13 | ||||||
Total deferred income tax liabilities | 17,787 | 16,622 | ||||||
Deferred income tax assets | ||||||||
Bad debts and insurance reserves | 32 | 29 | ||||||
Unfunded pension and postretirement benefit obligation | 204 | 147 | ||||||
Other | 105 | 136 | ||||||
Total deferred income tax assets | 341 | 312 | ||||||
Net deferred income tax liabilities | $ | 17,446 | $ | 16,310 | ||||
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JUNE 30, 2010 AND 2009
(IN THOUSANDS)
NOTES TO FINANCIAL STATEMENTS — (Continued)
As of June 30, 2010 | ||||||||||||||||||||||||||||
Years Ending June 30, | ||||||||||||||||||||||||||||
Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | ||||||||||||||||||||||
Unrecorded contractual obligations and commitments(1) | ||||||||||||||||||||||||||||
Right of way leases(2) | $ | 8,320 | $ | 586 | $ | 1,775 | $ | 1,220 | $ | 459 | $ | 472 | $ | 3,808 | ||||||||||||||
Utility location services leases(2) | 99 | 99 | — | — | — | — | — | |||||||||||||||||||||
Colocation building access leases(2) | 1,740 | 47 | 94 | 96 | 98 | 99 | 1,306 | |||||||||||||||||||||
Other leases(2) | 992 | 168 | 186 | 184 | 63 | 47 | 344 | |||||||||||||||||||||
Standby letters of credit, performance/surety bonds | 1,634 | 445 | 139 | 450 | 250 | — | 350 | |||||||||||||||||||||
Total | $ | 12,785 | $ | 1,345 | $ | 2,194 | $ | 1,950 | $ | 870 | $ | 618 | $ | 5,808 | ||||||||||||||
(1) | In accordance with generally accepted accounting principles, these items are not reflected in the balance sheet | |
(2) | The Company has certain operating leases with provisions for step rent or escalation payments and certain lease concessions. The Company accounts for these leases by recognizing the future minimum lease payments on a straight-line basis over the respective minimum lease terms, in accordance with authoritative guidance related to leases. However, this lease accounting treatment does not affect the future annual operating lease cash obligations as shown herein. |
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JUNE 30, 2010 AND 2009
(IN THOUSANDS)
NOTES TO FINANCIAL STATEMENTS — (Continued)
Years Ended June 30, | ||||||||
2010 | 2009 | |||||||
Revenue (expense) | ||||||||
Global Energy Resource Insurance Corporation | $ | (66 | ) | $ | (77 | ) | ||
Fiber optic line lease to Parent and SouthStar Energy Services LLC connecting their networks together | 24 | 24 | ||||||
Rental of storage space from Atlanta Gas Light Company | (13 | ) | (13 | ) | ||||
Total affiliated transactions, net expense | $ | (55 | ) | $ | (66 | ) | ||
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American Fiber Systems Holding Corporation and Subsidiaries
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2009 | ||||
(As restated) | ||||
(Amounts in thousands, except per share amounts) | ||||
ASSETS | ||||
Current Assets: | ||||
Cash and cash equivalents | $ | 4,382 | ||
Accounts receivable, net of doubtful accounts of $176 | 3,949 | |||
Prepaid expenses and other current assets | 340 | |||
Total Current Assets | 8,671 | |||
Fiber networks, property and equipment, net | 51,315 | |||
Intangible assets — net | 2,127 | |||
Other assets | 1,307 | |||
Investment | 7,443 | |||
Total Assets | $ | 70,863 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
Current Liabilities: | ||||
Accounts payable and accrued expenses | $ | 4,055 | ||
Deferred revenue — current | 7,671 | |||
Current portion of long-term debt and capital lease obligations | 313 | |||
Contingent liabilities — current | 2,370 | |||
Total Current Liabilities | 14,409 | |||
Long Term Liabilities | ||||
Long term debt and capital lease obligations | 20,708 | |||
Deferred revenue — non-current | 21,000 | |||
Contingent liabilities — non-current | 1,898 | |||
Total Liabilities | 58,015 | |||
Stockholders’ Equity | ||||
Convertible preferred stock, $.0001 par value, 110,979 authorized, 107,735 issued and outstanding | 52,412 | |||
Common stock, $.0001 par, 149,300 authorized, 26,760 issued and outstanding | 3 | |||
Additional paid in capital | 10,251 | |||
Accumulated deficit | (49,818 | ) | ||
Total Stockholders’ Equity | 12,848 | |||
Total Liabilities and Stockholders’ Equity | $ | 70,863 | ||
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2009 | ||||
(As restated) | ||||
(Amounts in thousands, except per share amounts) | ||||
Revenue | $ | 29,704 | ||
Direct Costs | 8,874 | |||
Other Operating Expenses: | ||||
General and administrative | 11,984 | |||
Depreciation, amortization and accretion | 9,441 | |||
Total Other Operating Expenses | 21,425 | |||
Operating Loss | (595 | ) | ||
Other Income (Expense): | ||||
Interest and investment income | 12 | |||
Interest expense | (2,289 | ) | ||
Other income, net | 787 | |||
Total Other Expense | (1,490 | ) | ||
Net Loss | $ | (2,085 | ) | |
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(Amounts in thousands, except | Additional | Total | ||||||||||||||||||||||||||
per share amounts) | Paid in | Accumulated | Stockholders’ | |||||||||||||||||||||||||
Preferred Stock | Common Stock | Capital | Deficit | Equity | ||||||||||||||||||||||||
(Shares) | (Amount) | (Shares) | (Amount) | |||||||||||||||||||||||||
Balance at December 31, 2008 | 107,735 | $ | 52,412 | 26,692 | $ | 3 | $ | 10,177 | $ | (47,733 | ) | $ | 14,859 | |||||||||||||||
Issuance of Common Stock | — | — | 68 | — | 3 | — | 3 | |||||||||||||||||||||
Stock Based Compensation Expense | — | — | — | — | 71 | — | 71 | |||||||||||||||||||||
Net loss(as restated) | — | — | — | — | — | (2,085 | ) | (2,085 | ) | |||||||||||||||||||
Balance at December 31, 2009 (as restated) | 107,735 | $ | 52,412 | 26,760 | $ | 3 | $ | 10,251 | $ | (49,818 | ) | $ | 12,848 | |||||||||||||||
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2009 | ||||
(As restated) | ||||
(Amounts in | ||||
thousands, | ||||
except per | ||||
share amounts) | ||||
Cash Flows From Operating Activities | ||||
Net loss | $ | (2,085 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities | ||||
Depreciation, amortization and accretion | 9,441 | |||
Increase in allowance for doubtful accounts | 99 | |||
Stock based compensation | 71 | |||
Amortization of discount on debt | 136 | |||
Income from investment using equity method | (620 | ) | ||
Accounts receivable | 83 | |||
Prepaid expenses and other current assets | 256 | |||
Other assets and liabilities | 401 | |||
Accounts payable and accrued expenses | (1,222 | ) | ||
Deferred revenue | 515 | |||
Total adjustments | 9,160 | |||
Net cash and cash equivalents provided by operating activities | 7,075 | |||
Cash Flow From Investing Activities | ||||
Expenditures for fiber networks, property and equipment | (7,782 | ) | ||
Net cash and cash equivalents used in investing activities | (7,782 | ) | ||
Cash Flows From Financing Activities | ||||
Net proceeds from issuance of preferred stock and common stock | 3 | |||
Proceeds from notes payable | 22,200 | |||
Payments on notes payable | (23,510 | ) | ||
Net cash and cash equivalents used in financing activities | (1,307 | ) | ||
Net Decrease In Cash and Cash Equivalents | (2,014 | ) | ||
Cash and Cash Equivalents — Beginning of year | 6,396 | |||
Cash and Cash Equivalents — End of year | $ | 4,382 | ||
Supplemental Cash Flows Disclosures | ||||
Cash paid for interest | $ | 1,272 | ||
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NOTE 1. — | DESCRIPTION |
NOTE 2. — | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Fiber networks | 15 - 20 years | |
Laterals | Lesser of the lease term or estimated useful life of the fiber network | |
Furniture and fixtures | 7 years | |
Telecommunications equipment | 5 years | |
Computer equipment and software | 3-5 years | |
Vehicles | 5 years | |
Leasehold improvements | Lesser of the lease term or estimated useful life |
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IRU’s | $ | 16,680 | ||
Deferred billings | 7,379 | |||
Advanced billings | 4,612 | |||
Total deferred revenue | 28,671 | |||
Current portion of deferred revenue | (7,671 | ) | ||
Deferred revenue — non current | $ | 21,000 | ||
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NOTE 3. — | RESTATEMENT |
• | Contingent Liabilities/ Interest Expense: On the Company’s financial statements released April 23, 2010 the Company recorded a contingent liability of $2,000 related to the Idacorp holdback (See Note 8 -Contingent Liabilities). Per the terms of the Idacorp purchase agreement there was a holdback clause which allowed the Company to hold back $2,000 of the purchase price to satisfy certain indemnification claims. To the extent that no such claims occurred within the four year period subsequent to the close date of the acquisition (such four year period ending February 11, 2011), the Company would be required to repay Idacorp the $2,000 and pay interest at 6% per annum compounded quarterly, unless such claims exist in good faith at that time. In February 2009, the Company notified Idacorp of potential indemnification claims |
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• | Other Current Assets: On the Company’s financial statements released April 23, 2010 the Company recorded an asset in the amount of $391 related to capitalizable fees paid to service providers in connection with a stimulus award application with the Broadband Technology Opportunities Program (“BTOP”). As of April 23, 2010, it was management’s determination that the Company would be awarded the grant and the capitalized fees would be expensed over the term of the grant agreement. As of October 13, 2010, it does not appear that the Company will be granted this award and the fees should be expensed when incurred. As such, in connection with the revised audit opinion, management has expensed the full amount of expenditures related to the BTOP application which were capitalized during the year ended December 31, 2009. | |
• | Net Operating Loss Carryforwards (“NOL’s”): On the Company’s financial statements released April 23, 2010, the Company disclosed net operating loss carryforwards of $46,770 for federal and state income tax purposes as of December 31, 2009. The deferred tax asset of $17,744 associated with these NOL’s was offset by a valuation allowance of the same amount. During September 2010, the Internal Revenue Service (“IRS”) finalized a tax audit of the Company covering the 2007 and 2008 tax years. As a result of the tax audit it was determined that the NOL carryforward balance as of December 31, 2009 should be decreased to $33,444. The reduction to the deferred tax asset associated with this NOL carryforward adjustment was $5,069 which is offset by a corresponding increase to the deferred revenue deferred tax asset of the same amount. Additionally, the 2009 NOL and deferred tax assets were revised to reflect the IRS audit. Also, the deferred tax asset was adjusted to reflect the impact of the restatements noted above. As a result of all of these changes, the NOL deferred tax asset decreased from $17,744 to $12,688, the deferred revenue deferred tax asset increased from $2,168 to $6,892, other deferred tax assets increased from $87 to $376 and the valuation allowance increased from $19,209 to $19,166. |
As Previously | ||||||||||||
Balance Sheet: | Issued | Adjustment | Restated | |||||||||
Assets | ||||||||||||
Prepaid expenses and other current assets | $ | 731 | $ | (391 | ) | $ | 340 | |||||
Liabilities | ||||||||||||
Contingent liabilities | 3,898 | 370 | 4,268 | |||||||||
Equity | ||||||||||||
Accumulated deficit | (49,057 | ) | (761 | ) | (49,818 | ) | ||||||
Income Statement: | ||||||||||||
General and administrative | $ | 11,593 | $ | 391 | $ | 11,984 | ||||||
Interest expense | (1,919 | ) | (370 | ) | (2,289 | ) | ||||||
Net income | (1,324 | ) | (761 | ) | (2,085 | ) | ||||||
Statement of Cash Flows: | ||||||||||||
Net loss | $ | (1,324 | ) | $ | (761 | ) | $ | (2,085 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities Prepaid expenses and other current assets | (135 | ) | 391 | 256 | ||||||||
Other assets and liabilities | 31 | 370 | 401 | |||||||||
Statement of Changes in Stockholders’ Equity: | ||||||||||||
Net loss | $ | (1,324 | ) | $ | (761 | ) | $ | (2,085 | ) |
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NOTE 4. — | INVESTMENT |
U.S. Carrier Balance Sheet | ||||
Assets | $ | 30,734 | ||
Liabilities | 16,994 | |||
Equity | 13,740 | |||
Liabilities and Equity | $ | 30,734 | ||
U.S. Carrier Statement of Operations | ||||
Revenue | $ | 15,319 | ||
Direct costs | 11,106 | |||
Selling, general and administrative | 2,350 | |||
Other expenses | 736 | |||
Net income before non-controlling interest | 1,127 | |||
Non-controlling interest | (19 | ) | ||
Net income | $ | 1,108 | ||
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NOTE 5 — | FIBER NETWORKS, PROPERTY AND EQUIPMENT |
Fiber network equipment and infrastructure | $ | 80,711 | ||
Furniture and fixtures and leasehold improvements | 556 | |||
Computer equipment and software | 2,553 | |||
Construction in process | 1,294 | |||
Assets held for future use, net of reserve of $449 | 660 | |||
Vehicles | 211 | |||
Gross fiber network, property and equipment | 85,985 | |||
Less accumulated depreciation | (34,670 | ) | ||
Fiber networks, property and equipment — net | $ | 51,315 | ||
NOTE 6. — | INTANGIBLE AND OTHER ASSETS |
Gross Carrying | Accumulated | Net Carrying | ||||||||||
Amount | Amortization | Amount | ||||||||||
Customer Lists — MFN | $ | 1,690 | $ | (1,690 | ) | $ | — | |||||
Customer List Idacomm | 2,700 | (765 | ) | 1,935 | ||||||||
Customer Lists | 4,390 | (2,455 | ) | 1,935 | ||||||||
Franchise Fees — MFN | 255 | (84 | ) | 171 | ||||||||
Franchise Fees — Idacomm | 26 | (5 | ) | 21 | ||||||||
Franchise Agreements | 281 | (89 | ) | 192 | ||||||||
Balance | $ | 4,671 | $ | (2,544 | ) | $ | 2,127 | |||||
Year Ending December 31, | Total | |||
2010 | $ | 288 | ||
2011 | 288 | |||
2012 | 288 | |||
2013 | 288 | |||
2014 | 288 | |||
Thereafter | 687 | |||
Total | $ | 2,127 | ||
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Capitalized debt costs | $ | 468 | ||
Duct inventory | 456 | |||
Long term prepaids and deposits | 349 | |||
Other | 34 | |||
$ | 1,307 | |||
NOTE 7. — | DEBT |
Senior debt | $ | 20,691 | ||
Notes payable — equipment loans | 234 | |||
Capital leases — network equipment | 96 | |||
21,021 | ||||
Less: current portion | 313 | |||
Long-term debt | $ | 20,708 | ||
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2010 | $ | 313 | ||
2011 | 1,508 | |||
2012 | 1,500 | |||
2013 | 3,500 | |||
2014 | 14,200 | |||
Total | $ | 21,021 | ||
NOTE 8. — | CONTINGENT LIABILITIES (RESTATED) |
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Balance — December 31, 2008 | $ | 1,713 | ||
Accretion due to passage of time | 185 | |||
Balance — December 31, 2009 | $ | 1,898 | ||
NOTE 9. — | EQUITY TRANSACTIONS |
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Liquidation Value | ||||||||||||||
Issued and | (to Original | Liquidation | ||||||||||||
Series | Authorized | Outstanding | Dividend | Investment) | Preference | |||||||||
A | 12,400 | 12,400 | 8% — non-cumulative | 1 Times Investment | Pari-Passu Basis | |||||||||
B | 6,834 | 6,834 | 8% — non-cumulative | 1 Times Investment | Pari-Passu Basis | |||||||||
C | 23,019 | 23,019 | 8% — non-cumulative | 1 Times Investment | Pari-Passu Basis | |||||||||
D | 17,187 | 17,187 | 8% — non-cumulative | 1.5 Times Investment | Pari-Passu Basis | |||||||||
E | 36,928 | 33,684 | 8% — non-cumulative | 2 Times Investment | Senior | |||||||||
F | 14,611 | 14,611 | 8% — non-cumulative | 2 Times Investment | Super Senior | |||||||||
Total | 110,979 | 107,735 | ||||||||||||
December 31, 2009 | ||
Volatility | 136.1% to 148.6% | |
Expected option term | 10 years | |
Risk-free interest rate | 2.4% to 3.5% | |
Expected dividend yield | 0% |
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Number of | ||||
Options | ||||
Outstanding beginning of year | 8,446 | |||
Granted | 266 | |||
Exercised | (68 | ) | ||
Cancelled, forfeited, terminated | (712 | ) | ||
Outstanding at end of year | 7,932 | |||
Exercisable at end of year | 6,774 | |||
NOTE 10. — | COMMITMENTS |
2010 | $ | 1,975 | ||
2011 | 1,189 | |||
2012 | 987 | |||
2013 | 840 | |||
2014 | 587 | |||
Thereafter | 3,969 | |||
Total | $ | 9,547 | ||
NOTE 11. — | EMPLOYEE BENEFIT PLAN |
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NOTE 12. — | INCOME TAXES (RESTATED) |
Net operating loss carry forward | $ | 12,688 | ||
Assets held for future use/Inventory reserve | 170 | |||
Impairment | 1,556 | |||
Deferred revenue | 6,892 | |||
Investment in subsidiary | (1,065 | ) | ||
Valuation allowance | (19,166 | ) | ||
1,075 | ||||
Depreciation | (1,158 | ) | ||
Amortization | (293 | ) | ||
Other | 376 | |||
Net deferred tax asset (liability) | $ | — | ||
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NOTE 13. — | SUBSEQUENT EVENTS |
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June 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | (as restated) | |||||||
(Amounts in thousands, except per share amounts) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 7,052 | $ | 4,382 | ||||
Accounts receivable, net of doubtful accounts of $192 and $176, respectively | 3,288 | 3,949 | ||||||
Prepaid expenses and other current assets | 508 | 340 | ||||||
Total Current Assets | 10,848 | 8,671 | ||||||
Fiber networks, property and equipment, net | 50,431 | 51,315 | ||||||
Intangible assets — net | 1,983 | 2,127 | ||||||
Other assets | 1,021 | 1,307 | ||||||
Investment | 7,801 | 7,443 | ||||||
Total Assets | $ | 72,084 | $ | 70,863 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | 5,133 | 4,055 | ||||||
Deferred revenue — current | 6,449 | 7,671 | ||||||
Current portion of long-term debt and capital lease obligations | 576 | 313 | ||||||
Contingent liabilities — current | 2,448 | 2,370 | ||||||
Total Current Liabilities | 14,606 | 14,409 | ||||||
Long Term Liabilities | ||||||||
Long term debt and capital lease obligations | 20,720 | 20,708 | ||||||
Deferred revenue — non-current | 21,383 | 21,000 | ||||||
Contingent liabilities | 2,002 | 1,898 | ||||||
Total Liabilities | 58,711 | 58,015 | ||||||
Stockholders’ Equity | ||||||||
Convertible preferred stock, $.0001 par value, 110,979 authorized, 107,735 issued and outstanding at June 30, 2010 and December 30, 2009 | 52,412 | 52,412 | ||||||
Common stock, $.0001 par, 149,300 authorized, 26,768 and 26,760 issued and outstanding at June 30, 2010 and December 31, 2009, respectively | 3 | 3 | ||||||
Additional paid in capital | 10,270 | 10,251 | ||||||
Accumulated deficit | (49,312 | ) | (49,818 | ) | ||||
Total Stockholders’ Equity | 13,373 | 12,848 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 72,084 | $ | 70,863 | ||||
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(Amounts in thousands, except per share amounts) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Revenue | $ | 7,851 | $ | 7,234 | $ | 15,770 | $ | 14,538 | ||||||||
Direct costs | 2,136 | 2,317 | 4,370 | 4,884 | ||||||||||||
Other operating expenses: | ||||||||||||||||
General and administrative | 2,778 | 2,935 | 5,524 | 5,932 | ||||||||||||
Depreciation, amortization and accretion | 2,377 | 2,429 | 4,778 | 4,667 | ||||||||||||
Total Other Operating Expenses | 5,155 | 5,364 | 10,302 | 10,599 | ||||||||||||
Operating loss | ||||||||||||||||
Other income (expense): | ||||||||||||||||
Interest and investment income | 194 | 104 | 5 | 306 | ||||||||||||
Other income (expense), net | (465 | ) | (408 | ) | (597 | ) | (795 | ) | ||||||||
Total Other Income (expense) | (271 | ) | (304 | ) | (592 | ) | (489 | ) | ||||||||
Net income (loss) | $ | 289 | $ | (751 | ) | $ | 506 | $ | (1,434 | ) | ||||||
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Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
(Amounts in thousands, except per share amounts) | ||||||||
(Unaudited) | ||||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 506 | $ | (1,434 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||||||||
Depreciation, amortization and accretion | 4,778 | 4,667 | ||||||
Loss on sale of assets | 8 | — | ||||||
Increase (decrease) in allowance for doubtful accounts | 16 | 207 | ||||||
Stock based compensation | 19 | 102 | ||||||
Equity method USC (income) loss | (358 | ) | (293 | ) | ||||
Accounts receivable | 665 | 464 | ||||||
Prepaid expenses and other current assets | (166 | ) | (152 | ) | ||||
Other assets and liabilities | 322 | 240 | ||||||
Accounts payable and accrued expenses | 707 | (664 | ) | |||||
Deferred revenue | (837 | ) | (716 | ) | ||||
Total adjustments | 5,154 | 3,855 | ||||||
Net cash and cash equivalents provided by operating activities | 5,660 | 2,421 | ||||||
Cash flow from investing activities | ||||||||
Expenditures for fiber networks, property and equipment | (3,317 | ) | (3,886 | ) | ||||
Proceeds from sale of fiber networks, property and equipment | 23 | — | ||||||
Net cash and cash equivalents used in investing activities | (3,294 | ) | (3,886 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from notes payable | 1,000 | — | ||||||
Payment of note payable | (696 | ) | (1,829 | ) | ||||
Net cash and cash equivalents (used in) provide by financing activities | 304 | (1,829 | ) | |||||
Net increase in cash and cash equivalents | 2,670 | (3,294 | ) | |||||
Cash and cash equivalents — Beginning of period | 4,382 | 6,396 | ||||||
Cash and cash equivalents — End of period | $ | 7,052 | $ | 3,102 | ||||
Supplemental cash flows disclosures: | ||||||||
Cash paid for interest | 640 | 636 | ||||||
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Total | ||||||||||||||||||||||||||||
Additional Paid | Accumulated | Stockholders’ | ||||||||||||||||||||||||||
Preferred Stock | Common Stock | in Capital | Deficit | Equity | ||||||||||||||||||||||||
(Shares) | (Amount) | (Shares) | (Amount) | |||||||||||||||||||||||||
(Amounts in thousands, except per share amounts) | ||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
Balance at December 31, 2009 | 107,735 | $ | 52,412 | 26,760 | $ | 3 | $ | 10,251 | $ | (49,818 | ) | $ | 12,848 | |||||||||||||||
Issuance of Common Stock | — | — | 8 | — | — | — | — | |||||||||||||||||||||
Stock Option Expense | — | — | — | — | 19 | — | 19 | |||||||||||||||||||||
Net Income | — | — | — | — | — | 506 | 506 | |||||||||||||||||||||
Balance at June 30, 2010 | 107,735 | $ | 52,412 | 26,768 | $ | 3 | $ | 10,270 | $ | (49,312 | ) | $ | 13,373 | |||||||||||||||
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Fiber networks | 15 - 20 years | |
Laterals | Lesser of lease term or estimated useful life of the fiber network | |
Furniture and fixtures | 7 years | |
Telecommunications equipment | 5 years | |
Computer equipment and software | 3-5 years | |
Vehicles | 5 years | |
Leasehold improvements | Lesser of the lease term or estimated useful life |
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June 30, | December 31, | |||||||
2010 | 2009 | |||||||
IRU’s | $ | 17,585 | $ | 16,680 | ||||
Deferred billings | 6,858 | 7,379 | ||||||
Advanced billings | 3,389 | 4,612 | ||||||
Total deferred revenue | 27,832 | 28,671 | ||||||
Current portion of deferred revenue | (6,449 | ) | (7,671 | ) | ||||
Deferred revenue — non current | $ | 21,383 | $ | 21,000 | ||||
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June 30, | December 31, | |||||||
2010 | 2009 | |||||||
U.S. Carrier Balance Sheet | ||||||||
Assets | $ | 31,171 | $ | 30,734 | ||||
Liabilities | 17,023 | 16,994 | ||||||
Equity | 14,147 | 13,740 | ||||||
Liabilities and Equity | $ | 31,170 | $ | 30,734 | ||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
U.S. Carrier Statement of Operations | ||||||||||||||||
Revenue | $ | 3,675 | $ | 3,774 | $ | 7,491 | $ | 7,523 | ||||||||
Direct Costs | 2,873 | 2,726 | 5,679 | 5,429 | ||||||||||||
Selling, general and administrative | 571 | 592 | 1,150 | 1,169 | ||||||||||||
Other Expenses, net | 197 | 219 | 396 | 341 | ||||||||||||
Net income/(loss) before non-controlling interest | 34 | 237 | 266 | 584 | ||||||||||||
Non-controlling interest | (6 | ) | (5 | ) | (13 | ) | (15 | ) | ||||||||
Net income/(loss) | $ | 40 | $ | 242 | $ | 279 | $ | 599 | ||||||||
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June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Fiber network equipment and infrastructure | $ | 82,796 | $ | 80,711 | ||||
Furniture and fixtures and leasehold improvements | 561 | 556 | ||||||
Computer equipment and software | 2,645 | 2,553 | ||||||
Construction in process | 2,398 | 1,294 | ||||||
Assets held for future use, net of reserve of $401 and $449, respectively | 795 | 660 | ||||||
Vehicles | 199 | 211 | ||||||
Gross fiber network, property and equipment | 89,394 | 85,985 | ||||||
Less accumulated depreciation | (38,963 | ) | (34,670 | ) | ||||
Fiber networks, property and equipment — net | $ | 50,431 | $ | 51,315 | ||||
June 30, 2009 | December 31, 2009 | |||||||||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
Customer Lists — MFN | $ | 1,690 | $ | (1,690 | ) | $ | — | $ | 1,690 | $ | (1,690 | ) | $ | — | ||||||||||
Customer List Idacomm | 2,700 | (900 | ) | 1,800 | 2,700 | (765 | ) | 1,935 | ||||||||||||||||
Customer Lists | 4,390 | (2,590 | ) | 1,800 | 4,390 | (2,455 | ) | 1,935 | ||||||||||||||||
Franchise Fees — MFN | 255 | (92 | ) | 163 | 255 | (84 | ) | 171 | ||||||||||||||||
Franchise Fees — Idacomm | 26 | (6 | ) | 20 | 26 | (5 | ) | 21 | ||||||||||||||||
Franchise Agreements | 281 | (97 | ) | 183 | 281 | (89 | ) | 192 | ||||||||||||||||
Balance | $ | 4,671 | $ | (2,688 | ) | $ | 1,983 | $ | 4,671 | $ | (2,544 | ) | $ | 2,127 | ||||||||||
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Years Ending December 31, | Total | |||
2010 (remaining six months) | $ | 144 | ||
2011 | 288 | |||
2012 | 288 | |||
2013 | 288 | |||
2014 | 288 | |||
Thereafter | 687 | |||
Total | $ | 1,983 | ||
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Capitalized debt costs | $ | 439 | $ | 468 | ||||
Duct inventory | 228 | 456 | ||||||
Long term prepaids and deposits | 327 | 349 | ||||||
Other | 27 | 34 | ||||||
$ | 1,021 | $ | 1,307 | |||||
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Senior debt | $ | 21,200 | $ | 20,691 | ||||
Notes payable — equipment loans | 23 | 234 | ||||||
Capital leases — network equipment | 73 | 96 | ||||||
21,296 | 21,021 | |||||||
Less: current portion | 576 | 313 | ||||||
Long-term debt | $ | 20,720 | $ | 20,708 | ||||
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2010 (remaining 6 months) | $ | 88 | ||
2011 | 2,008 | |||
2012 | 1,500 | |||
2013 | 3,500 | |||
2014 | 14,200 | |||
Total | $ | 21,296 | ||
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Balance — December 31, 2008 | $ | 1,713 | ||
Accretion due to passage of time | 185 | |||
Balance — December 31, 2009 | 1,898 | |||
Accretion due to passage of time | 104 | |||
Balance — June 30, 2010 | $ | 2,002 | ||
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Liquidation Value | ||||||||||||||
Issued and | (to Original | Liquidation | ||||||||||||
Series | Authorized | Outstanding | Dividend | Investment) | Preference | |||||||||
A | 12,400 | 12,400 | 8% — non-cumulative | 1 Times Investment | Pari-Passu Basis | |||||||||
B | 6,834 | 6,834 | 8% — non-cumulative | 1 Times Investment | Pari-Passu Basis | |||||||||
C | 23,019 | 23,019 | 8% — non-cumulative | 1 Times Investment | Pari-Passu Basis | |||||||||
D | 17,187 | 17,187 | 8% — non-cumulative | 1.5 Times Investment | Pari-Passu Basis | |||||||||
E | 36,928 | 33,684 | 8% — non-cumulative | 2 Times Investment | Senior | |||||||||
F | 14,611 | 14,611 | 8% — non-cumulative | 2 Times Investment | Super Senior | |||||||||
Total | 110,979 | 107,735 | ||||||||||||
Outstanding — January 1, 2010 | 7,932 | |||
Granted | 89 | |||
Exercised | (8 | ) | ||
Cancelled, forfeited, terminated | (245 | ) | ||
Outstanding — June 30, 2010 | 7,768 | |||
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NOTE 9. — | COMMITMENTS |
Next 12 months | $ | 2,295 | ||
Next13-24 months | 1,272 | |||
Next25-36 months | 1,144 | |||
Next37-48 months | 921 | |||
Thereafter | 4,724 | |||
Total | $ | 10,356 | ||
NOTE 10. — | EMPLOYEE BENEFIT PLAN |
NOTE 11. — | INCOME TAXES |
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Note 12. — | Subsequent Events |
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(CUSIP Nos. 989194 AA3 and U98832 AA3)
for new
10.25% Senior Secured First-Priority Notes due 2017
that have been registered under the Securities Act of 1933