Gross profit, defined as revenue less operating costs, excluding depreciation and amortization, is used by management to assess profitability prior to selling, general and administrative expenses, stock-based compensation and depreciation and amortization.
Consolidated Financial InformationZayo GroupConsolidated Statements of OperationsUnauditedFigure 1.2Consolidated Statement of Operations($ in thousands) Three months ended Six months ended December 31, December 31, -------------------- -------------------- 2012 2011 2012 2011 --------- --------- --------- ---------Revenue $ 243,504 $ 88,974 $ 473,198 $ 167,417 --------- --------- --------- ---------Operating costs and expenses Operating costs, excluding depreciation and amortization 34,888 19,275 67,605 37,425 Selling, general and administrative expenses 73,048 26,059 158,842 48,655 Stock-based compensation 33,445 10,372 43,926 14,077 Depreciation and amortization 57,978 19,820 112,478 36,882 --------- --------- --------- --------- Total operating costs and expenses 199,359 75,526 382,851 137,039 --------- --------- --------- ---------Operating income 44,145 13,448 90,347 30,378 --------- --------- --------- ---------Other expenses Interest expense (52,635) (11,504) (115,189) (20,672) Loss on extinguishment of debt (5,707) - (70,682) - Other income/(expense), net 224 (19) 809 (29) --------- --------- --------- --------- Total other expense, net (58,118) (11,523) (185,062) (20,701) --------- --------- --------- ---------(Loss)/earnings from continuing operations before provision for income taxes (13,973) 1,925 (94,715) 9,677Provision/(benefit) for income taxes 6,025 2,994 (21,295) 7,598 --------- --------- --------- ---------(Loss)/earnings from continuing operations (19,998) - (1,069) (73,420) 2,079Earnings from discontinued operations, net of income taxes - - 1,808 - --------- --------- --------- ---------Net (loss)/earnings $ (19,998) $ (1,069) $ (71,612) $ 2,079 ========= ========= ========= =========Zayo GroupConsolidated Balance SheetsFigure 1.3Consolidated Balance Sheet($ in thousands) December 31, June 30, 2012 2012 ------------- -------------AssetsCurrent assets Cash and cash equivalents $ 97,614 $ 150,693 Trade receivables, net 84,579 31,703 Due from related-parties 10,560 231 Prepaid expenses 13,295 7,099 Deferred income taxes, net 25,031 6,018 Restricted cash - 22,417 Other assets 5,181 4,429 ------------- ------------- Total current assets 236,260 222,590Property and equipment, net 1,657,791 754,738Intangible assets, net 609,435 128,705Goodwill 1,373,733 193,331Debt issuance costs, net 91,638 19,706Investment in USCarrier - 12,827Deferred income taxes, net 95,123 30,687Other assets 26,023 9,070 ------------- ------------- Total assets $ 4,090,003 $ 1,371,654 ============= =============Liabilities and member's equityCurrent liabilities Current portion of term loan $ 16,200 $ 4,440 Accounts payable 31,005 16,180 Accrued interest 55,569 10,863 Other accrued liabilities 140,679 45,385 Capital lease obligations, current 4,380 1,148 Deferred revenue, current 44,585 22,940 ------------- ------------- Total current liabilities 292,418 100,956Long-term debt, non-current 2,819,525 685,281Capital lease obligation, non-current 3,610 10,470Deferred revenue, non-current 247,681 146,663Stock-based compensation liability 97,866 54,367Other long-term liabilities 15,029 8,068 ------------- ------------- Total liabilities 3,476,129 1,005,805Member's equity Member's interest 704,120 388,867 Accumulated other comprehensive income 4,384 - Accumulated deficit (94,630) (23,018) ------------- ------------- Total member's equity 613,874 365,849 ------------- ------------- Total liabilities and member's equity $ 4,090,003 $ 1,371,654 ============= =============Zayo GroupConsolidated Statements of Cash FlowsFigure 1.4Consolidated Statements of Cash Flows($ in thousands) Six months ended December 31, ---------------------------- 2012 2011 ------------- -------------Cash flows from operating activities Net (loss)/earnings $ (71,612) $ 2,079 Earnings from discontinued operations 1,808 - ------------- ------------- (Loss)/earnings from continuing operations (73,420) 2,079 Adjustments to reconcile net (loss)/earnings to net cash provided by operating activities Depreciation and amortization 112,478 36,882 Loss on extinguishment of debt 70,682 - Non-cash interest expense 13,973 1,564 Stock-based compensation 43,926 14,077 Amortization of deferred revenues (15,947) (5,688) Additions to deferred revenue 23,336 24,373 Provision for bad debts 1,385 314 Deferred income taxes (22,072) 6,631 Changes in operating assets and liabilities, net of acquisitions Trade receivables (22,111) (2,773) Prepaid expenses 12,000 441 Other assets (7,702) (166) Accounts payable and accrued liabilities 50,260 (19,431) Payables to related parties, net (3,660) (925) Other liabilities 2,280 (69) ------------- ------------- Net cash provided by operating activities of continued operations 185,408 57,309 ------------- -------------Cash flows from investing activities Purchases of property and equipment (132,459) (62,817) Broadband stimulus grants received 6,894 2,798 Acquisition of Abovenet, Inc., net of cash acquired (2,212,492) - Acquisition of FiberGate, net of cash acquired (118,335) - Acquisition of USCarrier Telecom, LLC, net of cash acquired (15,949) - Acquisition of First Telecom Services, LLC, net of cash acquired (110,420) - Acquisition of Litecast/Balticore, LLC, net of cash acquired (22,177) - Acquisition of 360networks Holdings (USA) inc., net of cash acquired - (318,042) Arialink, purchase consideration returned 797 - Acquisition of Marquis Holdings, LLC, net of cash acquired 1,875 (15,456) Mercury Marquis Holdings, LLC purchase price returned - Principal payment received on related party loans 3,000 - ------------- ------------- Net cash used in investing activities of continued operations (2,599,266) (393,517) ------------- -------------Cash flows from financing activities Equity contributions 341,483 100 Return of capital - (46) Principal repayments on capital lease obligations (581) (497) Principal payments on long-term debt (886,846) - Payment of early redemption fees on debt extinguished (55,997) - Proceeds from issuance of long-term debt 3,024,417 335,550 Debt issuance costs (83,404) (9,022) Advance from Communications Infrastructure Investments, LLC - 10,951 Change in restricted cash, net 22,412 (361) Cash contributed to ZPS (Note 3) (7,218) - ------------- ------------- Net cash provided by financing activities of continued operations 2,354,266 336,675 ------------- ------------- Cash flows from continuing operations (59,592) 467Cash flows from discontinued operations Operating activities 3,914 - Investing activities 2,424 - ------------- ------------- Cash flows from discontinued operations $ 6,338 $ - ------------- -------------Effect of changes in foreign exchange rates on cash 175 - ------------- -------------Net (decrease)/increase in cash and cash equivalents (53,079) 467 ------------- -------------Cash and cash equivalents, beginning of period 150,693 25,394 ------------- -------------Cash and cash equivalents, end of period $ 97,614 $ 25,861 ============= =============Zayo GroupReconciliation of Non-GAAP Financial MeasuresFigure 1.5Adjusted EBITDA and Cash Flow Reconciliation($ in millions) Three months ended Six months ended ------------------------------- -------------------- December September December December December 31, 30, 31, 31, 31, 2012 2012 2011 2012 2011 --------- --------- --------- --------- ---------Net earnings/(loss) $ (20.0) $ (51.6) $ (1.1) $ (71.6) $ 2.1Earnings from discontinued operations, net of taxes - (1.8) - (1.8) -Interest expense 52.6 62.5 11.5 115.1 20.7(Benefit)/provision for income taxes 6.0 (27.3) 3.0 (21.3) 7.6Depreciation and amortization expense 58.0 54.5 19.8 112.5 36.9Transaction costs 1.6 11.4 1.5 13.0 1.8Stock-based compensation 33.4 10.5 10.4 43.9 14.1Loss on extinguishment of debt 5.7 65.0 - 70.7 -Foreign currency gain on intercompany loans (0.1) (0.6) - (0.7) - --------- --------- --------- --------- --------- Adjusted EBITDA $ 137.3 $ 122.6 $ 45.1 $ 259.8 $ 83.1Purchases of property and equipment 58.9 66.7 31.4 125.6 60.0 --------- --------- --------- --------- ---------Unlevered Free Cash Flow, as defined $ 78.4 $ 55.9 $ 13.7 $ 134.2 $ 23.1 ========= ========= ========= ========= =========
