(3) ACQUISITIONS AND DISPOSITIONS

Since inception through March 31, 2018, the Company has consummated 43 transactions accounted for as business combinations. The acquisitions were executed as part of the Company’s business strategy of expanding through acquisitions. The acquisitions of these businesses have allowed the Company to increase the scale at which it operates, which in turn affords the Company the ability to increase its operating leverage, extend its network reach, and broaden its customer base.

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

Acquisitions Completed During Fiscal 2018

Optic Zoo Networks

On January 18, 2018, the Company acquired Vancouver BC Canada-based Optic Zoo Networks for net purchase consideration of CAD $30.9 million (or $24.8 million), net of cash acquired, subject to certain post-closing adjustments. Optic Zoo Networks owns and provides access to high-capacity fiber in Vancouver. As of March 31, 2018, CAD $3.8 million (or $2.9 million) of the purchase consideration is being held in escrow pending the expiration of the indemnification adjustment period. The acquisition was funded with cash on hand and was considered a stock purchase for tax purposes.

Spread Networks

On February 28, 2018, the Company acquired Spread Networks, LLC (“Spread Networks”), a privately owned telecommunications provider that owns and operates a high-fiber count long haul route connecting New York and Chicago, for net purchase consideration of $130.5 million, net of cash acquired, subject to certain post-closing adjustments. As of March 31, 2018, $6.4 million of the purchase consideration is being held in escrow pending the expiration of the indemnification adjustment period. The all-cash acquisition was funded with cash on hand and debt and was considered an asset purchase for tax purposes. Additional connectivity of the route will be enabled by Zayo’s existing network.

McLean Data Center and Neutral Path Communications

See Note 15- Subsequent Events.

Acquisitions Completed During Fiscal 2017

KIO Networks US Data Centers

On May 1, 2017, the Company completed the $11.9 million cash acquisition of Castle Access, Inc.’s (d/b/a “KIO Networks US”) San Diego, California data centers. As of March 31, 2018, $1.2 million of the purchase consideration is being held in escrow pending the expiration of the indemnification adjustment period. The acquisition was funded with cash on hand and was considered a stock purchase for tax purposes.

Electric Lightwave Parent, Inc.

On March 1, 2017, the Company acquired Electric Lightwave Parent, Inc. (“Electric Lightwave”), an infrastructure and telecommunications solutions provider serving markets in the western U.S., for net purchase consideration of $1,426.6 million, net of cash acquired, subject to certain post-closing adjustments. As of March 31, 2018, $1.7 million of the purchase consideration is being held in escrow pending the expiration of the indemnification adjustment period. The acquisition was funded through debt (see Note 6 – Long-Term Debt) and cash on hand. The acquisition was considered a stock purchase for tax purposes.

The acquisition added long haul fiber route miles and dense metro fiber across Denver, Minneapolis, Phoenix, Portland, Seattle, Sacramento, San Francisco, San Jose, Salt Lake City, Spokane and Boise, with on-net connectivity to enterprise buildings and data centers.

Santa Clara Data Center Acquisition

On October 3, 2016, the Company acquired a data center in Santa Clara, California (the “Santa Clara Data Center”) for net purchase consideration of $11.3 million. The net purchase consideration represents the net present value of ten quarterly payments of approximately $1.3 million beginning in the December 2016 quarter. As of March 31, 2018, the remaining cash consideration to be paid was $5.1 million. The acquisition was considered an asset purchase for tax purposes and a business combination for accounting purposes. Payments made to the previous owners of the Santa Clara Data Center during the nine months ended March 31, 2018 of $3.8 million, representing the principal portion of the financing arrangement, are included in the accompanying condensed consolidated statement of cash flows within financing activities.

Acquisition Method Accounting Estimates

The Company initially recognizes the assets and liabilities acquired from the aforementioned acquisitions based on its preliminary estimates of their acquisition date fair values. As additional information becomes known concerning the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired company up to the end of the measurement period, which is no longer than a one year period following the acquisition date. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. As a result of obtaining a third-party valuation report during the three and nine months ended March 31, 2018, the Company recorded final fair value estimates of its customer relationship intangible asset and property and equipment associated with the Electric Lightwave acquisition, including the impact of changes in useful lives. During the three months ended March 31, 2018, these changes resulted in a decrease to intangible assets of $56.3 million and an increase to property and equipment of $77.4 million, with a corresponding net decrease to goodwill. These changes resulted in an increase in depreciation and amortization of $1.2 million, of which $1.0 million was related to periods prior to December 31, 2017. During the nine months ended March 31, 2018, these changes resulted in increases of $103.9 million to intangible assets and $129.6 million to property and equipment, with a corresponding decrease to goodwill. These changes resulted in an increase in depreciation and amortization of $16.6 million, of which $5.5 million is related to periods prior to June 30, 2017. Additionally, the tax basis of assets was also updated during the three months ended March 31, 2018 resulting in an increase to the deferred tax liability of $29.8 million.

As of March 31, 2018, for the KIO Networks US Data Centers, Spread Networks and Optic Zoo Networks acquisitions, the Company has not completed its fair value analysis and calculations in sufficient detail necessary to arrive at the final estimates of the fair value of certain working capital and non-working capital acquired assets and assumed liabilities, including the allocations to goodwill and intangible assets, property and equipment and resulting deferred taxes. All information presented with respect to certain working capital and non-working capital acquired assets and liabilities assumed as it relates to these acquisitions is preliminary and subject to revision pending the final fair value analysis.

The table below reflects the Company's estimates of the acquisition date fair values of the assets and liabilities assumed from its Fiscal 2018 acquisitions:


	Spread Networks		Optic Zoo Networks
Acquisition date	February 28, 2018		January 18, 2018
	(in millions)
Cash	$	1.5	$	1.4
Other current assets		3.0		0.3
Property and equipment		133.7		13.6
Intangibles		19.8		5.2
Goodwill		23.3		9.2
Other assets		1.4		0.2
Total assets acquired		182.7		29.9
Current liabilities		3.7		0.6
Deferred revenue		27.2		1.3
Deferred tax liability, net		—		1.8
Other liabilities		19.8		—
Total liabilities assumed		50.7		3.7
Net assets acquired		132.0		26.2
Less cash acquired		1.5		1.4
Net consideration paid	$	130.5	$	24.8

The table below reflects the Company's estimates of the acquisition date fair values of the assets and liabilities assumed from its Fiscal 2017 acquisitions:


	KIO Networks US Data Centers		Electric Lightwave		Santa Clara Data Center
Acquisition date	May 1, 2017		March 1, 2017		October 3, 2016
			(in millions)
Cash	$	0.1	$	12.6	$	—
Other current assets		—		55.0		—
Property and equipment		2.4		650.2		31.9
Deferred tax assets, net		2.9		—		—
Intangibles		6.4		416.1		6.0
Goodwill		2.7		488.0		—
Other assets		0.6		1.7		—
Total assets acquired		15.1		1,623.6		37.9
Current liabilities		1.7		61.7		—
Capital lease obligations		—		—		26.6
Deferred tax liabilities, net		—		64.9		—
Deferred revenue		0.5		80.0		—
Other liabilities		—		1.2		—
Total liabilities assumed		2.2		207.8		26.6
Net assets acquired		12.9		1,415.8		11.3
Less cash acquired		(0.1)		(12.6)		—
Impact of U.S. Tax Reform		(0.9)		23.4		—
Net consideration paid/payable	$	11.9	$	1,426.6	$	11.3

The goodwill arising from the Company’s acquisitions results from synergies, anticipated incremental sales to the acquired company customer base and economies-of-scale expected from the acquisitions. The Company has allocated the goodwill to the reporting units (in existence on the respective acquisition dates) that were expected to benefit from the acquired goodwill. The allocation was determined based on the excess of the estimated fair value of the reporting unit over the estimated fair value of the individual assets acquired and liabilities assumed that were assigned to the reporting units. See Note 4 – Goodwill for the allocation of the Company's acquired goodwill to each of its reporting units.

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

Transaction Costs

Transaction costs include expenses associated with professional services (i.e., legal, accounting, regulatory, etc.) rendered in connection with signed and/or closed acquisitions or disposals, travel expense, severance expense incurred associated with acquisitions or disposals, and other direct expenses incurred that are associated with signed and/or closed acquisitions or disposals and unsuccessful acquisitions. The Company incurred transaction costs of $3.3 million and $17.5 million for the three and nine months ended March 31, 2018, respectively, and $8.4 million and $17.6 million for the three and nine months ended March 31, 2017, respectively. Transaction costs have been included in selling, general and administrative expenses in the condensed consolidated statements of operations and in cash flows from operating activities in the condensed consolidated statements of cash flows during these periods.

Pro-forma Financial Information

The pro forma results presented below include the effects of the Company’s Fiscal 2018 and 2017 acquisitions as if the acquisitions occurred on July 1, 2016. The pro forma net income for the periods ended March 31, 2018 and 2017 includes the additional depreciation and amortization resulting from the adjustments to the value of property and equipment and intangible assets resulting from purchase accounting and adjustment to amortized revenue during Fiscal 2018 and 2017 as a result of the acquisition date valuation of assumed deferred revenue. The pro forma results also include interest expense associated with debt used to fund the acquisitions. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisitions. The unaudited pro forma financial information is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions been consummated as of July 1, 2016.


	Three Months Ended March 31,				Nine months ended March 31,
	2018		2017		2018		2017
	(in millions)
Revenue	$	653.0	$	646.8	$	1,962.0	$	1,946.1
Net income	$	21.6	$	12.5	$	51.2	$	7.7
Net income per share:
Basic and diluted	$	0.09	$	0.05	$	0.21	$	0.03

As a result of integrated reporting, it is impracticable to determine the amount of revenue and net income associated with each acquisition recognized in the post-acquisition period with the exception of revenue for Spread Networks and Optic Zoo Networks, which we recognized $1.7 million and $0.7 million, respectively, during the three months ended March 31, 2018.

Scott-Rice Telephone Co.

On February 23, 2018, the Company announced that it has entered into an agreement to sell Scott-Rice Telephone Co. (“SRT”), a Minnesota incumbent local exchange carrier, for $42 million to New Ulm Telecom, Inc. The Company acquired SRT as part of its March 2017 purchase of Electric Lightwave and it is reported as part of the Allstream segment. The Electric Lightwave purchase price which is attributable to the assets and liabilities of SRT has been allocated in the balances presented below. SRT did not meet the held-for-sale criteria upon acquisition. Disposal groups to be sold are classified as held for sale in the period in which they meet all the held for sale criteria. The Company concluded that SRT was not a significant disposal group and did not represent a strategic shift, and therefore was not classified as discontinued operations. The closing of the transaction is subject to regulatory approvals and customary closing conditions, and is expected to occur in the quarter ended June 30, 2018. The following tables summarize the net assets and liabilities held for sale:


	March 31, 2018
	(in millions)
Assets held for sale:
Property and equipment, net	$	41.6
Goodwill		5.2
Other assets		0.6
Total assets held for sale	$	47.4

Liabilities associated with assets held for sale:
Deferred tax liability, net	$	6.1
Other liabilities		1.1
Total liabilities associated with assets held for sale	$	7.2