##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 333-169979
 Zayo Group, LLC
  DELAWARE
(State or other jurisdiction of
    
    26-2012549
(I.R.S. Employer Identification No.)incorporation or organization)
 400 Centennial Parkway, Suite 200,
Louisville, CO 80027
(Address of Principal Executive Offices)
 (303) 381-4683
(Registrants Telephone Number, Including Area Code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a small reporting company)
 o þ




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##### 



ZAYO GROUP, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 INDEX
 PagePart I. FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements (unaudited)Condensed Consolidated Balance Sheets

As of March 31, 2011 and June 30, 2010
    
    
    1Condensed Consolidated Statements of Operations

Three and nine month periods ended March 31, 2011 and 2010
    
    
    2Condensed Consolidated Statement of Members Equity

Nine month period ended March 31, 2011
    
    
    3Condensed Consolidated Statements of Cash Flows

Nine month periods ended March 31, 2011 and 2010
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    50Item 4. Controls and Procedures
    
    
    51Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    52Item 1A. Risk Factors
    
    
    52Item 6. Exhibits
    
    
    60Signatures
    
    
    61Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



ZAYO GROUP, LLC AND SUBSIDIARIES
 
 PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)
 (in thousands)
 March 31,
    
    
    June 30,2011
    
    
    2010AssetsCurrent assetsCash and cash equivalents
    
    $
    13,137
    
    
    $
    89,161Restricted cash, current
    
    
    
    
    
    
    809Trade receivables, net of allowance of $1,481
and $1,093 as of March 31, 2011 and June 30,
2010, respectively
    
    
    18,122
    
    
    
    12,721Due from Onvoy, Inc.  related-party
    
    
    21
    
    
    
    871Other receivables
    
    
    30
    
    
    
    348Prepaid expenses
    
    
    6,621
    
    
    
    5,144Deferred income taxes
    
    
    2,198
    
    
    
    4,060Total current assets
    
    
    40,129
    
    
    
    113,114Property and equipment, net of accumulated
depreciation of $93,017 and $57,425 as of March
31, 2011 and June 30, 2010, respectively
    
    
    506,775
    
    
    
    301,911Intangible assets, net of accumulated
amortization of $38,290 and $28,222 as of March
31, 2011 and June 30, 2010, respectively
    
    
    110,298
    
    
    
    59,851Goodwill
    
    
    82,962
    
    
    
    68,751Deferred income taxes
    
    
    5,581
    
    
    
    7,050Debt issuance costs, net
    
    
    12,022
    
    
    
    9,560Investment in US Carrier
    
    
    15,075
    
    
    
    Other assets
    
    
    5,022
    
    
    
    4,144Total assets
    
    $
    777,864
    
    
    $
    564,381Liabilities and members equityCurrent liabilitiesAccounts payable
    
    $
    8,504
    
    
    $
    12,144Accrued liabilities
    
    
    24,438
    
    
    
    18,349Accrued interest
    
    
    1,661
    
    
    
    7,794Capital lease obligations, current portion
    
    
    1,039
    
    
    
    1,673Due to CII  related-party
    
    
    4,590
    
    
    
    Deferred revenue, current portion
    
    
    16,336
    
    
    
    8,146Customer deposits
    
    
    3,217
    
    
    
    755Total current liabilities
    
    
    59,785
    
    
    
    48,861Capital lease obligations, net of current portion
    
    
    10,468
    
    
    
    11,033Long-term debt
    
    
    354,378
    
    
    
    247,080Deferred revenue, net of current portion
    
    
    62,462
    
    
    
    22,648Stock-based compensation liability
    
    
    49,891
    
    
    
    21,623Other long term liabilities
    
    
    2,703
    
    
    
    Total liabilities
    
    
    539,687
    
    
    
    351,245Members equityMembers interest
    
    
    257,223
    
    
    
    217,129Accumulated deficit
    
    
    (19,046
    )
    
    
    (3,993
    )Total members equity
    
    
    238,177
    
    
    
    213,136Total liabilities and members equity
    
    $
    777,864
    
    
    $
    564,381
   1




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ZAYO GROUP, LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)
 (in thousands)
 Three months ended
    
    
    Nine months endedMarch 31,
    
    
    March 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Revenue
    
    $
    79,653
    
    
    $
    58,912
    
    
    $
    226,116
    
    
    $
    162,641Operating costs and expensesOperating costs, excluding depreciation and amortization
    
    
    21,020
    
    
    
    19,536
    
    
    
    61,602
    
    
    
    53,739Selling, general and administrative expenses
    
    
    24,937
    
    
    
    18,726
    
    
    
    72,501
    
    
    
    54,496Stock-based compensation
    
    
    21,850
    
    
    
    11,831
    
    
    
    28,877
    
    
    
    13,275Depreciation and amortization
    
    
    16,774
    
    
    
    10,630
    
    
    
    45,673
    
    
    
    30,257Total operating costs and expenses
    
    
    84,581
    
    
    
    60,723
    
    
    
    208,653
    
    
    
    151,767Operating (loss)/income
    
    
    (4,928
    )
    
    
    (1,811
    )
    
    
    17,463
    
    
    
    10,874Other income/(expense)Interest expense
    
    
    (9,005
    )
    
    
    (4,449
    )
    
    
    (24,294
    )
    
    
    (11,260
    )Other income/(expense), net
    
    
    69
    
    
    
    1,001
    
    
    
    (108
    )
    
    
    1,006Loss on extinguishment of debt
    
    
    
    
    
    
    (5,881
    )
    
    
    
    
    
    
    (5,881
    )Total other expense, net
    
    
    (8,936
    )
    
    
    (9,329
    )
    
    
    (24,402
    )
    
    
    (16,135
    )Loss from continuing operations before provision for income taxes
    
    
    (13,864
    )
    
    
    (11,140
    )
    
    
    (6,939
    )
    
    
    (5,261
    )Provision for income taxes
    
    
    (2,797
    )
    
    
    (210
    )
    
    
    (8,114
    )
    
    
    (3,103
    )Loss from continuing operations
    
    
    (16,661
    )
    
    
    (11,350
    )
    
    
    (15,053
    )
    
    
    (8,364
    )Earnings from discontinued operations, net of income taxes
    
    
    
    
    
    
    565
    
    
    
    
    
    
    
    3,231Net Loss
    
    $
    (16,661
    )
    
    $
    (10,785
    )
    
    $
    (15,053
    )
    
    $
    (5,133
    )
   2




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ZAYO GROUP, LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF MEMBERS EQUITY

(UNAUDITED)
 (in thousands)
 Members
    
    
    Accumulated
    
    
    Total Membersinterest
    
    
    Deficit
    
    
    equityBalance at July 1, 2010
    
    $
    217,129
    
    
    $
    (3,993
    )
    
    $
    213,136Capital contributed (cash)
    
    
    35,500
    
    
    
    
    
    
    
    35,500Non-cash settlements with Parent, net
    
    
    3,985
    
    
    
    
    
    
    
    3,985Accretion of preferred stock-based compensation
    
    
    609
    
    
    
    
    
    
    
    609Net loss
    
    
    
    
    
    
    (15,053
    )
    
    
    (15,053
    )Balance at March 31, 2011
    
    $
    257,223
    
    
    $
    (19,046
    )
    
    $
    238,177
   3




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ZAYO GROUP, LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)
 (in thousands)
 Nine months endedMarch 31,2011
    
    
    2010Cash flows from operating activitiesNet loss
    
    $
    (15,053
    )
    
    $
    (5,133
    )Earnings from discontinued operations
    
    
    
    
    
    
    3,231Loss from continuing operations
    
    
    (15,053
    )
    
    
    (8,364
    )Adjustments to reconcile net loss to net cash provided by operating activitiesDepreciation and amortization
    
    
    45,673
    
    
    
    30,257Loss on extinguishment of debt
    
    
    
    
    
    
    5,881Provision for bad debt expense
    
    
    875
    
    
    
    2,611Amortization of deferred financing costs and discount on debt
    
    
    2,054
    
    
    
    1,206Accretion of premium on debt
    
    
    (252
    )
    
    
    Stock-based compensation
    
    
    28,877
    
    
    
    13,275Unrealized (gain)/loss on interest rate swap
    
    
    (566
    )
    
    
    817Deferred income taxes
    
    
    5,484
    
    
    
    2,792Changes in operating assets and liabilities, net of acquisitionsTrade receivables
    
    
    244
    
    
    
    (2,102
    )Prepaid expenses
    
    
    (537
    )
    
    
    (546
    )Other assets
    
    
    1,020
    
    
    
    (709
    )Accounts payable and accrued liabilities
    
    
    (10,377
    )
    
    
    (5,168
    )Payables to related parties
    
    
    471
    
    
    
    7,006Deferred revenue
    
    
    (2,286
    )
    
    
    1,505Other liabilities
    
    
    1,724
    
    
    
    (1,347
    )Net cash provided by continuing operating activities
    
    
    57,351
    
    
    
    47,114Cash flows from investing activitiesPurchases of property and equipment
    
    
    (88,880
    )
    
    
    (38,138
    )Broadband stimulus grants received
    
    
    801
    
    
    
    Acquisition of American Fiber Systems Holdings Corporation, net of cash acquired
    
    
    (110,000
    )
    
    
    Acquisition of AGL Networks, LLC, net of cash acquired
    
    
    (73,666
    )
    
    
    Acquisition of FiberNet Telecom Group, Inc., net of cash acquired
    
    
    
    
    
    
    (96,571
    )Net cash used in investing activities
    
    
    (271,745
    )
    
    
    (134,709
    )Cash flows from financing activitiesEquity contributions
    
    
    35,500
    
    
    
    37,000Advance from Communications Infrastructure Investments, LLC
    
    
    17,616
    
    
    
    Return of advances from Communications Infrastructure Investments, LLC
    
    
    (13,026
    )
    
    
    Proceeds from long-term debt
    
    
    103,000
    
    
    
    246,948Principal repayments on long-term debt
    
    
    
    
    
    
    (136,325
    )Changes in restricted cash
    
    
    785
    
    
    
    (6,014
    )Principal repayments on capital lease obligations
    
    
    (1,399
    )
    
    
    (1,541
    )Deferred financing costs
    
    
    (4,106
    )
    
    
    (10,983
    )Net cash provided by financing activities
    
    
    138,370
    
    
    
    129,085Cash flows from discontinued operationsOperating activities
    
    
    
    
    
    
    2,083Investing activities
    
    
    
    
    
    
    (781
    )Net cash provided by discontinued operations
    
    
    
    
    
    
    1,302Net (decrease)/increase in cash and cash equivalents
    
    
    (76,024
    )
    
    
    42,792Cash and cash equivalents, beginning of period
    
    
    89,161
    
    
    
    38,781Increase in cash and cash equivalents of discontinued operations
    
    
    
    
    
    
    (62
    )Cash and cash equivalents, end of period
    
    $
    13,137
    
    
    $
    81,511
  (Continued)
  4




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ZAYO GROUP, LLC AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (in thousands)
 Supplemental disclosure of non-cash, investing and financing activities:
 Nine months endedMarch 31,2011
    
    
    2010Cash paid for interest
    
    
    31,855
    
    
    
    11,245Cash paid for income taxes
    
    
    2,519
    
    
    
    644Non-cash purchases of equipment through capital leasing
    
    
    200
    
    
    
    324Increase in accrued expenses for purchases of property and equipment
    
    
    3,115
    
    
    
    1,017
 Acquisitions Spin-off of Onvoy Voice Services
Segment
 Equity
   5




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ZAYO GROUP, LLC AND SUBSIDIARIES
 
 NOTES TO THE CONDENSED CONSOLIDATED STATEMENTS (UNAUDITED)
 (in thousands)
 (1) ORGANIZATION AND DESCRIPTION OF BUSINESS
  
    
    Dark and lit bandwidth infrastructure services on metro and regional fiber
networks.
 
    
    Colocation and interconnection services.
 
    
    Converged and data services.
  (2) BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 a.
    
    Basis of Presentation
   b.
    
    Spin-off of Business segment
 Discontinued Operations
  6




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c.
    
    Use of Estimates
  d.
    
    Cash and Cash Equivalents and Restricted Cash
  e.
    
    Investments
  f.
    
    Trade Receivables
  g.
    
    Property and Equipment
     7




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##### Table of Contents



h.
    
    Goodwill and Purchased Intangibles
 .
  i.
    
    Derivative Financial Instruments
 Long-term Debt Fair Market Measurements
 j.
    
    Revenue Recognition
    8




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
    
    the sale has been consummated;
 
    
    the customers initial and continuing investments are adequate to
demonstrate a commitment to pay for the property;
 
    
    the Companys receivable is not subject to future subordination; and
 
    
    the Company has transferred to the buyer the usual risks and rewards of
ownership in a transaction that is in substance a sale and does not have a
substantial continuing involvement with the property.
  k.
    
    Operating Costs and Accrued Liabilities
    l.
    
    Stock-Based Compensation
    m.
    
    Government Grants
   9




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##### Table of Contents



n.
    
    Income Taxes
    o.
    
    Fair Value of Financial Instruments
 Fair Value Measurements
 Fair Value Hierarchy
  Level 1
  Level 2
  
    
    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; and
 
    
    inputs that are derived principally from or corroborated by observable market
data by correlation or other means.
   10




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##### Table of Contents



Level 3
   p.
    
    Concentration of Credit Risk
   q.
    
    Recently Issued Accounting Standards
  Disclosure of Supplementary Pro
Forma Information for Business Combinations. Acquisitions
 (3) ACQUISITIONS
   Acquisition during the nine months ended March 31, 2011
 American Fiber Systems Holding Corporation (AFS)
   11




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AFSAcquisition date
    
    October 1, 2010Current assets
    
    $
    3,808Property and equipment
    
    
    56,481Intangibles  customer relationships
    
    
    57,082Goodwill
    
    
    14,041Investment in US Carrier
    
    
    15,075Other assets
    
    
    336Total assets acquired
    
    
    146,823Current liabilities
    
    
    3,404Deferred revenue
    
    
    23,905Deferred tax liability
    
    
    2,246Other liabilities
    
    
    3,127Total liabilities assumed
    
    
    32,682Net assets
    
    
    114,141Seller Note payable to former AFS Holdings owners
    
    
    (4,141
    )Net cash paid
    
    $
    110,000
     AGL Networks, LLC (AGL Networks)
   12




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##### Table of Contents



AGL NetworksAcquisition date
    
    July 1, 2010Current assets
    
    $
    3,714Property and equipment
    
    
    93,136Intangibles  customer relationships
    
    
    3,433Goodwill
    
    
    170Other assets
    
    
    680Total assets acquired
    
    
    101,133Current liabilities
    
    
    956Deferred revenue
    
    
    26,511Total liabilities assumed
    
    
    27,467Net assets
    
    
    73,666Purchase consideration/Net cash paid
    
    $
    73,666
      Acquisition during the nine months ended March 31, 2010
 FiberNet Networks Telecom Group, Inc. (FiberNet)
    13




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FiberNetAcquisition date
    
    September 9, 2009Current assets
    
    $
    16,824Property and equipment
    
    
    50,734Intangibles
    
    
    43,900Deferred income taxes
    
    
    19,659Other assets
    
    
    838Total assets acquired
    
    
    131,955Current liabilities
    
    
    11,534Deferred revenue
    
    
    7,257Total liabilities assumed
    
    
    18,791Net assets
    
    
    113,164Excess of net assets over purchase consideration (bargain purchase)
    
    
    9,081Purchase consideration
    
    
    104,083Less cash acquired
    
    
    (7,512
    )Net cash paid
    
    $
    96,571
      14




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Pro-forma Financial Information
  Three months ended
    
    
    Nine months endedMarch 31,
    
    
    March 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Revenue
    
    $
    79,653
    
    
    $
    72,251
    
    
    $
    234,018
    
    
    $
    215,859Loss from continuing operations
    
    $
    (16,661
    )
    
    $
    (9,755
    )
    
    $
    (17,219
    )
    
    $
    (6,754
    )
 (4) SPIN-OFF OF ONVOY VOICE SERVICES SEGMENT
  Discontinued
Operations
  Three months ended
    
    
    Nine months endedMarch 31, 2010
    
    
    March 31, 2010Revenue
    
    $
    8,941
    
    
    $
    30,018Earnings before income taxes
    
    $
    1,350
    
    
    $
    5,873Income tax expense
    
    
    (785
    )
    
    
    (2,642
    )Earnings from discontinued operations, net of income taxes
    
    $
    565
    
    
    $
    3,231
 Related-Party Transactions,
 (5) INVESTMENT
   15




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(6) PROPERTY AND EQUIPMENT
  Estimated
    
    
    As ofuseful lives (in
    
    
    March 31,
    
    
    June 30,years)
    
    
    2011
    
    
    2010Land
    
    
    N/A
    
    
    $
    227
    
    
    $
    209Building improvements and site improvements
    
    8 to 15
    
    
    11,220
    
    
    
    9,003Furniture, fixtures and office equipment
    
    3 to 7
    
    
    1,357
    
    
    
    1,219Computer hardware
    
    
    2 to 5
    
    
    
    4,799
    
    
    
    3,292Software
    
    
    2 to 3
    
    
    
    5,071
    
    
    
    4,066Machinery and equipment
    
    
    3 to 7
    
    
    
    5,317
    
    
    
    3,568Fiber optic equipment
    
    
    4 to 8
    
    
    
    297,651
    
    
    
    127,379Circuit switch equipment
    
    
    10
    
    
    
    7,732
    
    
    
    7,225Packet switch equipment
    
    
    3 to 5
    
    
    
    23,949
    
    
    
    21,761Fiber optic network
    
    
    8 to 20
    
    
    
    187,572
    
    
    
    141,171Construction in progress
    
    
    N/A
    
    
    
    54,897
    
    
    
    40,443Total
    
    
    
    
    
    
    599,792
    
    
    
    359,336Less accumulated depreciation
    
    
    
    
    
    
    (93,017
    )
    
    
    (57,425
    )Property and equipment, net
    
    
    
    
    
    $
    506,775
    
    
    $
    301,911
   Commitments and Contingencies- Other Commitments.
   16




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(7) GOODWILL
  As of June 30,
    
    
    
    
    
    
    
    
    
    
    As of March 31,2010
    
    
    Additions
    
    
    Transfers
    
    
    2011Zayo Bandwidth
    
    $
    66,548
    
    
    $
    7,483
    
    
    $
    (2,909
    )
    
    $
    71,122Zayo Enterprise Networks
    
    
    2,203
    
    
    
    
    
    
    
    (1,306
    )
    
    
    897Zayo Fiber Solutions
    
    
    
    
    
    
    6,728
    
    
    
    4,191
    
    
    
    10,919zColo
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    24Total
    
    $
    68,751
    
    
    $
    14,211
    
    
    $
    
    
    
    $
    82,962
 Segment Reporting
 Segment Reporting
 (8) INTANGIBLE ASSETS
  GrossCarrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetMarch 31, 2011Customer relationships
    
    $
    139,253
    
    
    $
    (28,955
    )
    
    $
    110,298Non-compete agreements
    
    
    8,835
    
    
    
    (8,835
    )
    
    
    Tradenames
    
    
    500
    
    
    
    (500
    )
    
    
    Total
    
    $
    148,588
    
    
    $
    (38,290
    )
    
    $
    110,298June 30, 2010Customer relationships
    
    $
    78,738
    
    
    $
    (19,182
    )
    
    $
    59,556Non-compete agreements
    
    
    8,835
    
    
    
    (8,623
    )
    
    
    212Tradenames
    
    
    500
    
    
    
    (417
    )
    
    
    83Total
    
    $
    88,073
    
    
    $
    (28,222
    )
    
    $
    59,851
  17




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Year ending June 30,2011 (remaining 3 months)
    
    $
    3,5762012
    
    
    14,3062013
    
    
    14,3062014
    
    
    11,2752015
    
    
    8,521Thereafter
    
    
    58,314Total
    
    $
    110,298
 (9) LONG-TERM DEBT
  Acquisitions)
      Applicable Margin for
    
    
    Applicable Margin forLevel
    
    Leverage Ratio
    
    LIBOR Advances
    
    
    Base Rate AdvancesI
    
    Greater than or equal to 3.25 to 1.00
    
    
    4.50
    %
    
    
    3.50
    %II
    
    Greater than or equal to 2.50 to 1.00 but less than 3.25 to 1.00
    
    
    4.00
    %
    
    
    3.00
    %III
    
    Greater than or equal to 1.75 to 1.00 but less than 2.50 to 1.00
    
    
    3.75
    %
    
    
    2.75
    %IV
    
    Less than 1.75 to 1.00
    
    
    3.50
    %
    
    
    2.50
    %
  18




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##### Table of Contents



Guarantees
  Debt issuance costs
  Debt covenants
  Leverage ratio:The Company must not exceed a consolidated leverage ratio, which is defined as
funded debt to annualized earnings before interest, taxes, depreciation and amortization,
non-cash charges or reserves and certain extraordinary or non-recurring gains or losses
(modified EBITDA) of 4.25x the last quarters annualized modified EBITDA.
 Fixed-charge coverage ratio:The Company must maintain a consolidated fixed-charge coverage
ratio, as determined under the credit agreement, of at least 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.
  Leverage Ratio
    
    Maximum Annual Dividend Payment> 3.5x
    
    $
    < 3.5x but > 2.5x
    
    $
    25,000<2.5x but > 1.5x
    
    $
    35,000<1.5x
    
    $
    45,000
    19




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##### Table of Contents



Redemption rights
   Year
    
    Redemption Price2013
    
    
    105.125
    %2014
    
    
    102.563
    %2015 and thereafter
    
    
    100.000
    %
   Interest rate derivatives
      20




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##### Table of Contents



(10) INCOME TAXES
   For the three months ended
    
    
    For the nine months endedMarch 31,
    
    
    March 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Federal income taxes  current
    
    $
    409
    
    
    $
    
    
    
    $
    633
    
    
    $
    Federal income taxes  deferred
    
    
    582
    
    
    
    136
    
    
    
    4,739
    
    
    
    2,413Provision for federal income taxes
    
    
    991
    
    
    
    136
    
    
    
    5,372
    
    
    
    2,413State income taxes  current
    
    
    1,566
    
    
    
    53
    
    
    
    1,997
    
    
    
    311State income taxes  deferred
    
    
    240
    
    
    
    21
    
    
    
    745
    
    
    
    379Provision for state income taxes
    
    
    1,806
    
    
    
    74
    
    
    
    2,742
    
    
    
    690Provision for income taxes
    
    $
    2,797
    
    
    $
    210
    
    
    $
    8,114
    
    
    $
    3,103
    For the three months ended
    
    
    For the nine months endedMarch 31,
    
    
    March 31,2011
    
    
    2010
    
    
    2011
    
    
    2010Expected provision at statutory rate of 34%
    
    $
    (4,714
    )
    
    $
    (3,788
    )
    
    $
    (2,358
    )
    
    $
    (1,789
    )Increase due to:Non-deductible stock-based compensation
    
    
    6,618
    
    
    
    4,023
    
    
    
    8,946
    
    
    
    4,514State income taxes, net of federal benefit
    
    
    856
    
    
    
    35
    
    
    
    1,185
    
    
    
    205Transactions costs not deductible
    
    
    8
    
    
    
    68
    
    
    
    297
    
    
    
    305Other, net
    
    
    29
    
    
    
    (128
    )
    
    
    44
    
    
    
    (132
    )Provision for income taxes
    
    $
    2,797
    
    
    $
    210
    
    
    $
    8,114
    
    
    $
    3,103
     21




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##### Table of Contents



(11) EQUITY
         Spin-Off of Onvoy Voice Services Segment
  22




---



##### Table of Contents



(12) STOCK COMPENSATION
      (13) FAIR VALUE MEASUREMENTS
   23




---



##### Table of Contents



Level
    
    
    March 31, 2011
    
    
    June 30, 2010Liabilities Recorded at Fair Value in the Financial Statements:Interest rate swap liabilities
    
    Level 2
    
    $
    
    
    
    $
    566Stock-based compensation liability
    
    Level 3
    
    
    49,891
    
    
    
    21,623Total liabilities recorded at fair value in the consolidated financial statements
    
    
    
    
    
    $
    49,891
    
    
    $
    22,189Liabilities not Recorded at Fair Value in the Financial Statements:Senior secured notes
    
    
    
    
    
    $
    350,154
    
    
    $
    247,080
    (14) COMMITMENTS AND CONTINGENCIES
 Purchase commitments
  Outstanding letters of credit
  Other commitments
    24




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##### Table of Contents



Contingencies
  (15) RELATED-PARTY TRANSACTIONS
 Spin-Off of Onvoy Voice Services Segment,
   (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.
   Acquisitions
   25




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##### Table of Contents



As of and for the three months ended March 31, 2011Corporate/ZB
    
    
    ZEN
    
    
    zColo
    
    
    ZFS
    
    
    eliminations
    
    
    TotalRevenue
    
    $
    54,666
    
    
    $
    5,557
    
    
    $
    9,136
    
    
    $
    11,861
    
    
    $
    
    
    
    $
    81,220Intersegment revenue
    
    
    (448
    )
    
    
    (86
    )
    
    
    (1,033
    )
    
    
    
    
    
    
    
    
    
    
    (1,567
    )Revenue from external customers
    
    
    54,218
    
    
    
    5,471
    
    
    
    8,103
    
    
    
    11,861
    
    
    
    
    
    
    
    79,653Gross profit (revenue less
operating costs excluding
depreciation and amortization)
    
    
    40,688
    
    
    
    2,416
    
    
    
    4,662
    
    
    
    11,482
    
    
    
    (615
    )
    
    
    58,633Depreciation and amortization
    
    
    10,962
    
    
    
    565
    
    
    
    1,354
    
    
    
    3,893
    
    
    
    
    
    
    
    16,774Operating income/(loss)
    
    
    3,704
    
    
    
    32
    
    
    
    1,324
    
    
    
    1,197
    
    
    
    (11,185
    )
    
    
    (4,928
    )Interest expense
    
    
    203
    
    
    
    
    
    
    
    54
    
    
    
    5
    
    
    
    8,743
    
    
    
    9,005Other expense/(income), net
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (86
    )
    
    
    (69
    )Total assets
    
    
    479,031
    
    
    
    9,259
    
    
    
    54,247
    
    
    
    212,230
    
    
    
    23,097
    
    
    
    777,864Capital expenditures, net of
stimulus grant reimbursements
    
    
    25,199
    
    
    
    113
    
    
    
    275
    
    
    
    3,597
    
    
    
    
    
    
    
    29,184
 As of and for the three months ended March 31, 2010Corporate/ZB
    
    
    ZEN
    
    
    zColo
    
    
    ZFS
    
    
    eliminations
    
    
    TotalRevenue
    
    $
    47,637
    
    
    $
    6,319
    
    
    $
    7,282
    
    
    $
    
    
    
    $
    
    
    
    $
    61,238Intersegment revenue
    
    
    (1,671
    )
    
    
    (94
    )
    
    
    (561
    )
    
    
    
    
    
    
    
    
    
    
    (2,326
    )Revenue from external customers
    
    
    45,966
    
    
    
    6,225
    
    
    
    6,721
    
    
    
    
    
    
    
    
    
    
    
    58,912Gross profit (revenue less
operating costs excluding
depreciation and amortization)
    
    
    33,651
    
    
    
    2,825
    
    
    
    3,992
    
    
    
    
    
    
    
    (1,092
    )
    
    
    39,376Depreciation and amortization
    
    
    8,522
    
    
    
    741
    
    
    
    1,367
    
    
    
    
    
    
    
    
    
    
    
    10,630Operating income/(loss)
    
    
    4,584
    
    
    
    23
    
    
    
    1,316
    
    
    
    
    
    
    
    (7,736
    )
    
    
    (1,811
    )Interest expense
    
    
    268
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    4,163
    
    
    
    4,449Other income, net
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (999
    )
    
    
    (1,001
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,881
    )
    
    
    (5,881
    )Capital expenditures
    
    
    16,441
    
    
    
    105
    
    
    
    133
    
    
    
    
    
    
    
    
    
    
    
    16,679
 As of and for the nine months ended March 31, 2011Corporate/ZB
    
    
    ZEN
    
    
    zColo
    
    
    ZFS
    
    
    eliminations
    
    
    TotalRevenue
    
    $
    158,233
    
    
    $
    16,982
    
    
    $
    24,444
    
    
    $
    31,067
    
    
    $
    
    
    
    $
    230,726Intersegment revenue
    
    
    (2,056
    )
    
    
    (261
    )
    
    
    (2,293
    )
    
    
    
    
    
    
    
    
    
    
    (4,610
    )Revenue from external customers
    
    
    156,177
    
    
    
    16,721
    
    
    
    22,151
    
    
    
    31,067
    
    
    
    
    
    
    
    226,116Gross profit (revenue less operating costs
excluding depreciation and amortization)
    
    
    115,906
    
    
    
    7,280
    
    
    
    12,884
    
    
    
    30,341
    
    
    
    (1,897
    )
    
    
    164,514Depreciation and amortization
    
    
    30,278
    
    
    
    1,774
    
    
    
    4,037
    
    
    
    9,584
    
    
    
    
    
    
    
    45,673Operating income/(loss)
    
    
    21,640
    
    
    
    119
    
    
    
    4,050
    
    
    
    6,524
    
    
    
    (14,870
    )
    
    
    17,463Interest expense
    
    
    724
    
    
    
    
    
    
    
    169
    
    
    
    10
    
    
    
    23,391
    
    
    
    24,294Other expense/(income), net
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    78
    
    
    
    108Capital expenditures, net of stimulus grant
Reimbursements
    
    
    77,974
    
    
    
    428
    
    
    
    1,302
    
    
    
    8,375
    
    
    
    
    
    
    
    88,079
  26




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##### Table of Contents



As of and for the nine months ended March 31, 2010Corporate/ZB
    
    
    ZEN
    
    
    zColo
    
    
    ZFS
    
    
    eliminations
    
    
    TotalRevenue
    
    $
    134,018
    
    
    $
    18,595
    
    
    $
    16,538
    
    
    $
    
    
    
    $
    
    
    
    $
    169,151Intersegment revenue
    
    
    (4,920
    )
    
    
    (266
    )
    
    
    (1,324
    )
    
    
    
    
    
    
    
    
    
    
    (6,510
    )Revenue from external customers
    
    
    129,098
    
    
    
    18,329
    
    
    
    15,214
    
    
    
    
    
    
    
    
    
    
    
    162,641Gross profit (revenue less
operating costs excluding
depreciation and amortization)
    
    
    95,931
    
    
    
    7,731
    
    
    
    9,000
    
    
    
    
    
    
    
    (3,760
    )
    
    
    108,902Depreciation and amortization
    
    
    25,173
    
    
    
    1,896
    
    
    
    3,188
    
    
    
    
    
    
    
    
    
    
    
    30,257Operating income/(loss)
    
    
    19,213
    
    
    
    (273
    )
    
    
    2,809
    
    
    
    
    
    
    
    (10,875
    )
    
    
    10,874Interest expense
    
    
    830
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    10,412
    
    
    
    11,260Other income, net
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,003
    )
    
    
    (1,006
    )Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,881
    )
    
    
    (5,881
    )Capital expenditures
    
    
    37,304
    
    
    
    674
    
    
    
    160
    
    
    
    
    
    
    
    
    
    
    
    38,138
 (17) SUBSEQUENT EVENTS
    27




---



##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Certain Factors That May Affect Future Results
    Overview
 Introduction
     28




---



##### Table of Contents



Our Business segments
   Zayo Bandwidth.
 zColo.
 Zayo Enterprise Networks.
 Zayo Fiber Solutions. Recent Developments
   29




---



##### Table of Contents



Recent Developments
 Acquisition of AGL Networks
   Merger with American Fiber Systems Holding Corporation (AFS)
  Acquisition of Dolphini Assets
  Broadband Stimulus Awards
  
    
    In February 2010, ZB, as the direct recipient, was awarded $25.1 million in
funding to construct 626 miles of fiber network connecting 21 community colleges in
Indiana. The total project involves approximately $31.4 million of capital
expenditures of which $6.3 million is anticipated to be funded by the Company.
 
    
    In July 2010, ZB, 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. The total project involves approximately $19.2 million of capital
expenditures of which $5.7 million is anticipated to be funded by the Company.
   30




---



##### Table of Contents



Factors Affecting Our Results of Operations
 Business Acquisitions
    Recent Developments
 Onvoy Spin-Off
 Discontinued Operations
 Formation of the Zayo Fiber Solutions Operating Segment
  Substantial Capital Expenditures
   31




---



##### Table of Contents



Substantial Indebtedness
  Critical Accounting Policies and Estimates
   Revenue and trade receivables
   Property Plant and Equipment: Real Estate Sales
     32




---



##### Table of Contents



Network Expenses and Accrued Liabilities
    Stock-Based Compensation
 Compensation: Stock Compensation
     33




---



##### Table of Contents



34




---



##### Table of Contents



Property and Equipment
 Critical Account Policies and Estimates: Acquisitions  Purchase
Price Allocation
  Land
    
    
    N/ABuildings improvements and site improvements
    
    8 to 15Furniture, fixtures and office equipment
    
    
    3 to 7Computer hardware
    
    
    2 to 5Software
    
    
    2 to 3Machinery and equipment
    
    
    3 to 7Fiber optic equipment
    
    
    4 to 8Circuit switch equipment
    
    
    10Packet switch equipment
    
    
    3 to 5Fiber optic network
    
    
    8 to 20Construction in progress
    
    
    N/A
       35




---



##### Table of Contents



Deferred Tax Accounting
    Net Operating Loss Carryovers Following
Changes in Ownership
     Goodwill and Purchased Intangibles
 Segment Reporting
  36




---



##### Table of Contents




    
    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 guideline and/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 differences that would be perceived as having an
impact on value between the collective guideline companies and us; and
 
    
    selection of a statistical midpoint or range within the dataset most
appropriate for the analysis.
    37




---



##### Table of Contents



Acquisitions  Purchase Price Allocation
    Background for Review of Our Results of Operations
 Operating Costs
   Selling, General and Administrative Expenses
    38




---



##### Table of Contents



Stock-Based Compensation
     39




---



##### Table of Contents



Results of Operations
 Statement of Operations Data
    
    Three months ended March 31,
    
    
    Nine months ended March 31,2011
    
    
    2010
    
    
    2011
    
    
    2010(amounts in thousands)Revenue:Zayo Bandwidth
    
    $
    54,218
    
    
    
    68
    %
    
    $
    45,966
    
    
    
    78
    %
    
    $
    156,177
    
    
    
    69
    %
    
    $
    129,098
    
    
    
    80
    %Zayo Fiber Solutions
    
    
    11,861
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    31,067
    
    
    
    14
    
    
    
    Zayo Enterprise Networks
    
    
    5,471
    
    
    
    7
    
    
    
    6,225
    
    
    
    11
    
    
    
    16,721
    
    
    
    7
    
    
    
    18,329
    
    
    
    11zColo
    
    
    8,103
    
    
    
    10
    
    
    
    6,721
    
    
    
    11
    
    
    
    22,151
    
    
    
    10
    
    
    
    15,214
    
    
    
    9Total Revenue
    
    
    79,653
    
    
    
    100
    %
    
    
    58,912
    
    
    
    100
    %
    
    
    226,116
    
    
    
    100
    %
    
    
    162,641
    
    
    
    100
    %Costs and expensesOperating costs, excluding
depreciation
and amortization
    
    
    21,020
    
    
    
    25
    %
    
    
    19,536
    
    
    
    32
    %
    
    
    61,602
    
    
    
    30
    %
    
    
    53,739
    
    
    
    35
    %Selling, general and administrative
expenses
    
    
    24,937
    
    
    
    29
    
    
    
    18,726
    
    
    
    31
    
    
    
    72,501
    
    
    
    35
    
    
    
    54,496
    
    
    
    36Stock based compensation
    
    
    21,850
    
    
    
    26
    
    
    
    11,831
    
    
    
    19
    
    
    
    28,877
    
    
    
    14
    
    
    
    13,275
    
    
    
    9Depreciation and amortization
    
    
    16,774
    
    
    
    20
    
    
    
    10,630
    
    
    
    18
    
    
    
    45,673
    
    
    
    22
    
    
    
    30,257
    
    
    
    20Total operating costs and expenses
    
    
    84,581
    
    
    
    75
    %
    
    
    60,723
    
    
    
    68
    %
    
    
    208,653
    
    
    
    71
    %
    
    
    151,767
    
    
    
    65
    %Operating income
    
    
    (4,928
    )
    
    
    (6
    )
    
    
    (1,811
    )
    
    
    (3
    )
    
    
    17,463
    
    
    
    8
    
    
    
    10,874
    
    
    
    7Interest expense
    
    
    (9,005
    )
    
    
    (11
    )
    
    
    (4,449
    )
    
    
    (8
    )
    
    
    (24,294
    )
    
    
    (11
    )
    
    
    (11,260
    )
    
    
    (7
    )Other income/(expense)
    
    
    69
    
    
    
    0
    
    
    
    1,001
    
    
    
    2
    
    
    
    (108
    )
    
    
    (0
    )
    
    
    1,006
    
    
    
    1Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (5,881
    )
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (5,881
    )
    
    
    (4
    )Earnings from continuing
operations
before income taxes
    
    
    (13,864
    )
    
    
    (17
    )
    
    
    (11,140
    )
    
    
    (19
    )
    
    
    (6,939
    )
    
    
    (3
    )
    
    
    (5,261
    )
    
    
    (3
    )Provision for income taxes
    
    
    2,797
    
    
    
    4
    
    
    
    210
    
    
    
    0
    
    
    
    8,114
    
    
    
    4
    
    
    
    3,103
    
    
    
    2Loss from continuing operations
before provision for income taxes
    
    $
    (16,661
    )
    
    
    -21
    %
    
    $
    (11,350
    )
    
    
    -19
    %
    
    $
    (15,053
    )
    
    
    -7
    %
    
    $
    (8,364
    )
    
    
    -5
    %EBITDA (add backs)Interest expense
    
    
    9,005
    
    
    
    
    
    
    
    4,449
    
    
    
    
    
    
    
    24,294
    
    
    
    
    
    
    
    11,260Income taxes
    
    
    2,797
    
    
    
    
    
    
    
    210
    
    
    
    
    
    
    
    8,114
    
    
    
    
    
    
    
    3,103Depreciation and amortization
    
    
    16,774
    
    
    
    
    
    
    
    10,630
    
    
    
    
    
    
    
    45,673
    
    
    
    
    
    
    
    30,257EBITDA
    
    $
    11,915
    
    
    
    15
    %
    
    $
    3,939
    
    
    
    7
    %
    
    $
    63,028
    
    
    
    28
    %
    
    $
    36,256
    
    
    
    22
    %Adjusted EBITDA (add backs)Stock-based compensation
    
    
    21,850
    
    
    
    
    
    
    
    11,831
    
    
    
    
    
    
    
    28,877
    
    
    
    
    
    
    
    13,275Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    5,881
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,881Transaction costs
    
    
    23
    
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    873
    
    
    
    
    
    
    
    898Adjusted EBITDA
    
    $
    33,788
    
    
    
    42
    %
    
    $
    21,851
    
    
    
    37
    %
    
    $
    92,778
    
    
    
    41
    %
    
    $
    56,310
    
    
    
    35
    %
 Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010
 Revenue
   40




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Three months endedMarch 31,2011
    
    
    2010(in thousands)Usage and Monthly Recurring Revenue
    
    $
    76,947
    
    
    
    97
    %
    
    $
    57,864
    
    
    
    98
    %Monthly Amortized Revenue
    
    
    2,413
    
    
    
    3
    
    
    
    987
    
    
    
    2Other Revenue
    
    
    293
    
    
    
    
    
    
    
    61
    
    
    
    Total
    
    $
    79,653
    
    
    
    100
    %
    
    $
    58,912
    
    
    
    100
    %
 zColo.
 Zayo Bandwidth.
 Zayo Enterprise Networks.
 Zayo Fiber Solutions
 Operating Costs, Excluding Depreciation and Amortization
   41




---



##### Table of Contents



Selling, General and Administrative Expenses:
  Three months endedMarch 31,2011
    
    
    2010(In thousands)Compensation and benefits expenses
    
    $
    11,792
    
    
    $
    9,153Network operating expenses
    
    
    7,249
    
    
    
    5,486Other SG&A expenses
    
    
    5,873
    
    
    
    3,887Transaction costs
    
    
    23
    
    
    
    200Total SG&A expenses
    
    $
    24,937
    
    
    $
    18,726
 Compensation and Benefits Expenses.
 Network Operations Expenses.
 Other SG&A.
 Stock-Based Compensation
  Depreciation and Amortization
  Interest Expense
   42




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Provision for Income Taxes
 Factors Affecting Our Results of Operations  Net Operating
Losses
 For the three months endedMarch 31,2011
    
    
    2010(in thousands)Expected provision at statutory rate of 34%
    
    $
    (4,714
    )
    
    $
    (3,788
    )Increase due to:Non-deductible stock-based compensation
    
    
    6,618
    
    
    
    4,023State income taxes, net of federal benefit
    
    
    856
    
    
    
    35Transactions costs not deductible
    
    
    8
    
    
    
    68Other, net
    
    
    29
    
    
    
    (128
    )Provision for income taxes
    
    $
    2,797
    
    
    $
    210
 Nine Months Ended March 31, 2011 Compared to the Nine Months Ended March 31, 2010
 Revenue
   Nine months endedMarch 31,2011
    
    
    2010(in thousands)Usage and Monthly Recurring Revenue
    
    $
    218,244
    
    
    
    96
    %
    
    $
    159,466
    
    
    
    98
    %Monthly Amortized Revenue
    
    
    6,557
    
    
    
    3
    
    
    
    2,511
    
    
    
    2Other Revenue
    
    
    1,315
    
    
    
    1
    
    
    
    664
    
    
    
    Total
    
    $
    226,116
    
    
    
    100
    %
    
    $
    162,641
    
    
    
    100
    %
 zColo.
  43




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##### Table of Contents



Zayo Bandwidth.
 Zayo Enterprise Networks.
 Zayo Fiber Solutions
 Operating Costs, Excluding Depreciation and Amortization
 Operating Costs, Excluding Depreciation and Amortization.
 Selling, General and Administrative Expenses
  Nine months endedMarch 31,2011
    
    
    2010(In thousands)Compensation and benefits expenses
    
    $
    33,691
    
    
    $
    26,739Network operating expenses
    
    
    20,691
    
    
    
    15,438Other SG&A expenses
    
    
    17,246
    
    
    
    11,421Transaction costs
    
    
    873
    
    
    
    898Total SG&A expenses
    
    $
    72,501
    
    
    $
    54,496
 Compensation and Benefits Expenses.
 Network Operations Expenses.
  44




---



##### Table of Contents



Other SG&A.
 Transaction Costs.
 Stock-Based Compensation
  Depreciation and Amortization
  Interest Expense
  Provision for Income Taxes
 Factors Affecting Our Results of Operations  Net Operating Losses
 For the nine months endedMarch 31,2011
    
    
    2010(in thousands)Expected provision at statutory rate of 34%
    
    $
    (2,358
    )
    
    $
    (1,789
    )Increase due to:Non-deductible stock-based compensation
    
    
    8,946
    
    
    
    4,514State income taxes, net of federal benefit
    
    
    1,185
    
    
    
    205Transactions costs not deductible
    
    
    297
    
    
    
    305Other, net
    
    
    44
    
    
    
    (132
    )Provision for income taxes
    
    $
    8,114
    
    
    $
    3,103
  45




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##### Table of Contents



Adjusted EBITDA
    
    
    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.
  Three months ended March 31, 2011ZayoZayo
    
    
    Enterprise($ in millions)
    
    Bandwidth
    
    
    Networks
    
    
    zColo
    
    
    ZFS
    
    
    Corporate
    
    
    Zayo GroupEarnings/(loss) from continuing operations
    
    $
    3.5
    
    
    $
    
    
    
    $
    1.3
    
    
    $
    1.2
    
    
    $
    (22.6
    )
    
    $
    (16.6
    )Interest expense
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.8
    
    
    
    9.0Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.8
    
    
    
    2.8Depreciation and amortization expense
    
    
    11.0
    
    
    
    0.6
    
    
    
    1.3
    
    
    
    3.9
    
    
    
    
    
    
    
    16.8EBITDA
    
    
    14.7
    
    
    
    0.6
    
    
    
    2.6
    
    
    
    5.1
    
    
    
    (11.0
    )
    
    
    12.0Transaction costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    8.4
    
    
    
    
    
    
    
    0.6
    
    
    
    1.6
    
    
    
    11.2
    
    
    
    21.8Adjusted EBITDA
    
    $
    23.1
    
    
    $
    0.6
    
    
    $
    3.2
    
    
    $
    6.7
    
    
    $
    0.2
    
    
    $
    33.8
 Three months ended March 31, 2010ZayoZayo
    
    
    Enterprise($ in millions)
    
    Bandwidth
    
    
    Networks
    
    
    zColo
    
    
    ZFS
    
    
    Corporate
    
    
    Zayo GroupEarnings/(loss) from continuing operations
    
    $
    4.3
    
    
    $
    
    
    
    $
    1.3
    
    
    $
    
    
    
    $
    (17.0
    )
    
    $
    (11.4
    )Interest expense
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.2
    
    
    
    4.5Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.2Depreciation and amortization expense
    
    
    8.5
    
    
    
    0.8
    
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    10.7EBITDA
    
    
    13.1
    
    
    
    0.8
    
    
    
    2.7
    
    
    
    
    
    
    
    (12.6
    )
    
    
    4.0Transaction costs
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.9
    
    
    
    5.9Stock-based compensation
    
    
    4.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.2
    
    
    
    11.8Adjusted EBITDA
    
    $
    17.9
    
    
    $
    0.8
    
    
    $
    2.7
    
    
    $
    
    
    
    $
    0.5
    
    
    $
    21.9
  46




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Nine months ended March 31, 2011ZayoZayo
    
    
    Enterprise($ in millions)
    
    Bandwidth
    
    
    Networks
    
    
    zColo
    
    
    ZFS
    
    
    Corporate
    
    
    Zayo GroupEarnings/(loss) from continuing operations
    
    $
    20.9
    
    
    $
    0.1
    
    
    $
    3.9
    
    
    $
    6.5
    
    
    $
    (46.5
    )
    
    $
    (15.1
    )Interest expense
    
    
    0.7
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    23.4
    
    
    
    24.3Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.1
    
    
    
    8.1Depreciation and amortization expense
    
    
    30.3
    
    
    
    1.8
    
    
    
    4.0
    
    
    
    9.6
    
    
    
    
    
    
    
    45.7EBITDA
    
    
    51.9
    
    
    
    1.9
    
    
    
    8.1
    
    
    
    16.1
    
    
    
    (14.9
    )
    
    
    63.0Transaction costs
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.9Stock-based compensation
    
    
    11.3
    
    
    
    0.1
    
    
    
    0.6
    
    
    
    2.1
    
    
    
    14.9
    
    
    
    28.9Adjusted EBITDA
    
    $
    63.8
    
    
    $
    2.0
    
    
    $
    8.7
    
    
    $
    18.4
    
    
    $
    (0.1
    )
    
    $
    92.8
 Nine months ended March 31, 2010ZayoZayo
    
    
    Enterprise($ in millions)
    
    Bandwidth
    
    
    Networks
    
    
    zColo
    
    
    ZFS
    
    
    Corporate
    
    
    Zayo GroupEarnings/(loss) from continuing operations
    
    $
    18.4
    
    
    $
    (0.3
    )
    
    $
    2.8
    
    
    $
    
    
    
    $
    (29.3
    )
    
    $
    (8.4
    )Interest expense
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.5
    
    
    
    11.3Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.1
    
    
    
    3.1Depreciation and amortization expense
    
    
    25.2
    
    
    
    1.9
    
    
    
    3.2
    
    
    
    
    
    
    
    
    
    
    
    30.3EBITDA
    
    
    44.4
    
    
    
    1.6
    
    
    
    6.0
    
    
    
    
    
    
    
    (15.7
    )
    
    
    36.3Transaction costs
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.9
    
    
    
    5.9Stock-based compensation
    
    
    4.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.5
    
    
    
    13.2Adjusted EBITDA
    
    $
    50.0
    
    
    $
    1.6
    
    
    $
    6.0
    
    
    $
    
    
    
    $
    (1.3
    )
    
    $
    56.3
 Liquidity and Capital Resources
 Cash flows.
     47




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##### Table of Contents



Cash Flows
    Nine months endedMarch 31,2011
    
    
    2010(In thousands)Net cash provided by operating activities
    
    $
    57,351
    
    
    $
    47,114Net cash used in investing activities
    
    
    (271,745
    )
    
    
    (134,709
    )Net cash provided by financing activities
    
    
    138,370
    
    
    
    129,085
 Net Cash Flows from Operating Activities
   Cash Flows Used for Investing Activities
  Cash Flows from Financing Activities
   48




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##### Table of Contents



Contractual Cash Obligations
  Less
    
    
    
    
    
    
    
    
    
    
    MoreThan
    
    
    
    
    
    
    
    
    
    
    ThanTotal
    
    
    1 Year
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    5 Years(in thousands)Long-term debt (principal and interest)
    
    $
    568,255
    
    
    $
    35,875
    
    
    $
    76,250
    
    
    $
    71,750
    
    
    $
    384,380Operating leases
    
    
    171,343
    
    
    
    22,761
    
    
    
    38,375
    
    
    
    31,844
    
    
    
    78,363Purchase obligations
    
    
    22,107
    
    
    
    21,410
    
    
    
    697
    
    
    
    
    
    
    
    Capital leases (principal and interest)
    
    
    16,267
    
    
    
    1,878
    
    
    
    3,490
    
    
    
    3,253
    
    
    
    7,646Total
    
    $
    777,972
    
    
    $
    81,924
    
    
    $
    118,812
    
    
    $
    106,847
    
    
    $
    470,389
 Off-Balance Sheet Arrangements
  New Accounting Pronouncements
   49




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       50




---



##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES
    51




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  We have a Limited Operating History as a Consolidated Entity.
   Future Acquisitions are a Component of Our Strategic Plan, and will Include Integration and Other
Risks That could Harm Our Business.
   
    
    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.
  52




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##### Table of Contents



Our Debt Level could Negatively Impact Our Financial Condition, Results of Operations and
Business Prospects and Prevent us From Fulfilling Our Debt Obligations. In the Future, We may
Incur Substantially More Indebtedness, Which could Further Increase the Risks Associated With Our
Leverage.
   
    
    making it more difficult for us to satisfy our obligations under our debt agreements;
 
    
    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;
 
    
    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 our notes.
 We may not be Able to Generate Enough Cash Flow to Meet Our Debt Obligations.
    53




---



##### Table of Contents




    
    reducing or delaying capital investments;
 
    
    raising additional capital;
 
    
    refinancing or restructuring our debt; and
 
    
    selling assets.
   Since Our Inception We have Used More Cash Than We have Generated From Operations and We Expect
to Continue to do so in the Next Several Quarters.
   We Incurred Net Losses in the Current and Prior Periods and We Cannot Guarantee That We will
Generate Net Income in the Future.
  We are Experiencing Rapid Growth of Our Business and Operations and We may not be Able to
Efficiently Manage Our Growth.
  
    
    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.
  54




---



##### Table of Contents



Our Back Office Infrastructure, Including the Operational Support Systems, Processes and People,
is a Key Component to Providing a Good Experience to Our Customers, the Failure of Which could
Impair Our Ability to Retain Customers or Attract New Customers.
  Our Ability to Provide Services would be Hindered if Any of Our Franchises, Licenses, Permits,
Rights-of-Way, Conduit Leases, Fiber Agreements, or Property Leases are Canceled or Not Renewed.
  
    
    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.
   If Our Contracts With Our Customers are Not Renewed or are Terminated, Our Business could be
Substantially Harmed.
    55




---



##### Table of Contents



Our Revenue is Relatively Concentrated Among a Small Number of Customers and the Loss of any of
These Customers could Significantly Harm Our Business, Financial Condition and Results of
Operations.
  Service Level Agreements in Our Customer Agreements could Subject us to Liability or the Loss of
Revenue.
  We are Required to Maintain, Repair, Upgrade and Replace Our Network and Our Facilities, and Our
Failure to do so could Harm Our Business.
  Any Failure of Our Physical Infrastructure or Services could Lead to Significant Costs and
Disruptions That could Reduce Our Revenues, Harm Our Business Reputation, and have a Material
Adverse Effect on Our Financial Results.
  
    
    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.
  56




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##### Table of Contents



We do not Own the Buildings in Which Our Data Centers are Located. Instead, We Lease Our Data
Center Space, and the non-Renewal of Leases could be a Significant Risk to Our Ongoing
Operations.
  We may be Unable to Expand Our Existing Data Centers or Locate and Secure Suitable Sites for
Additional Data Centers.
  We may not be Able to Obtain or Construct Additional Laterals to Connect New Buildings to Our
Network.
  Our Services have a Long Sales Cycle, Which May Have a Material Adverse Effect on Our Business,
Financial Condition, and Results of Operations.
  We are Highly Dependent on Our Management Team and Other Key Employees.
   57




---



##### Table of Contents



Our Future Tax Liabilities are not Predictable or Controllable. If We Become Subject to Increased
Levels of Taxation, Our Financial Condition and Operations could be Negatively Impacted.
  Risks Relating to Our Industry
 The Telecommunications Industry is Highly Competitive, and Contains Competitors That have
Significantly Greater Resources and a More Diversified Base of Existing Customers Than We do.
   
    
    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.
  If We do not Adapt to Swift Changes in the Telecommunications Industry, We could Lose Customers
or Market Share.
   We are Subject to Significant Regulation that could Change or Otherwise Impact us in an Adverse
Manner.
   58




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##### Table of Contents



Unfavorable General Economic Conditions in the United States could Negatively Impact Our
Operating Results and Financial Condition.
  Disruptions in the Financial Markets could Affect Our Ability to Obtain Debt or Equity Financing
or to Refinance Our Existing Indebtedness on Reasonable Terms (or at All).
  Terrorism and Natural Disasters could Adversely Impact Our Business.
  Changes in Regulations Affecting Commercial Power Providers may Increase Our Costs.
  Consolidation Among Companies in the Telecommunications Industry could Adversely Impact our
Business
   59




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##### Table of Contents



ITEM 6.
    
    EXHIBITS 
 Exhibit No.
    
    Description of Exhibit3.1
    
    
    Certificate of Formation of Zayo Group, LLC (incorporated
by reference to Exhibit 3.1 of our Registration Statement
on Form S-4 filed with the SEC on October 18, 2010).3.2
    
    
    Operating Agreement of Zayo Group, LLC (incorporated by
reference to Exhibit 3.2 of our Registration Statement on
Form S-4 filed with the SEC on October 18, 2010).10.1
    
    
    Vesting Agreement between Communications Infrastructure
Investments, LLC; Daniel P. Caruso; and Bear Equity, LLC,
dated December 29, 2010 (incorporated by reference to
Exhibit 10.1 of our Current Report on Form 8-K filed with
the SEC on January 13, 2011).10.2
    
    
    Vesting Agreement between Communications Infrastructure
Investments, LLC; Daniel P. Caruso; and Bear Equity, LLC,
dated January 5, 2011 (incorporated by reference to
Exhibit 10.2 of our Current Report on Form 8-K filed with
the SEC on January 13, 2011).31.1
    
    
    Certification of Chief Executive Officer of the
Registrant, pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934.31.2
    
    
    Certification of Chief Financial Officer of the
Registrant, pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934.32.1
    
    
    Certification of Chief Executive Officer of the
Registrant, pursuant to 18 U.S.C. Section 1350, as
adopted, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.32.2
    
    
    Certification of Chief Financial Officer of the
Registrant, pursuant to 18 U.S.C. Section 1350, as
adopted, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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##### Table of Contents



SIGNATURES
  ZAYO GROUP, LLCDate: May 13, 2011
    By:
    /s/ Dan CarusoDan CarusoChief Executive OfficerDate: May 13, 2011
    By:
    /s/ Ken desGarennesKen desGarennesChief Financial Officer  61