CBB - 12.31.14 - 10-K/A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1 TO FORM 10-K)
|
| |
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014
|
| |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-8519
CINCINNATI BELL INC.
|
| | |
Ohio | | 31-1056105 |
(State of Incorporation) | | (I.R.S. Employer Identification No.) |
221 East Fourth Street, Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip Code)
(513) 397-9900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | |
Title of each class | | Name of each exchange on which registered |
Common Shares (par value $0.01 per share) | | New York Stock Exchange |
6 3/4% Convertible Preferred Shares | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
| | | | |
Large accelerated filer | x | | Accelerated filer | o |
| | | | |
Non-accelerated filer | o | | Smaller reporting company | o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of the voting common shares owned by non-affiliates of the registrant was $0.8 billion, computed by reference to the closing sale price of the common stock on the New York Stock Exchange on June 30, 2014, the last trading day of the registrant’s most recently completed second fiscal quarter. The Company has no non-voting common shares.
At January 31, 2015, there were 209,570,776 common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement relating to the Company’s 2015 Annual Meeting of Shareholders are incorporated by reference into Part III of this report to the extent described herein.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A amends the Form 10-K filed by Cincinnati Bell Inc. on February 26, 2015 for the fiscal year ended December 31, 2014. In accordance with Rule 3-09 of SEC Regulation S-X, we are filing this amendment to include the financial statements of our equity method investee, CyrusOne Inc. and subsidiaries and CyrusOne LP and subsidiaries, as of December 31, 2014 (Successor) and 2013 (Successor) and for the years ended December 31, 2014 (Successor) and 2013 (Successor), and 2012 (Predecessor) including the periods from January 24, 2013 to December 31, 2013 (Successor) and January 1, 2013 to January 23, 2013 (Predecessor). The audited financial statements of CyrusOne Inc. and subsidiaries and CyrusOne LP and subsidiaries for these periods are filed in this Form 10-K/A under Item 15 Exhibits and Financial Statement Schedules. In addition to the audited financial statements, new Exhibits 23.1, 23.2, 31.3, 31.4 and 32.3 are being filed pursuant to Commission regulations. Otherwise, this Form 10-K/A does not modify or update the financial position, results of operations, cash flows, disclosures or other information in Cincinnati Bell Inc.'s Annual Report on Form 10-K for the year ended December 31, 2014 and does not reflect events occurring after February 26, 2015 (the date the Form 10-K was filed).
Part IV
|
| |
| Page |
| |
Item 15. Exhibits and Financial Statement Schedules
| |
| |
Signatures | |
| |
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
The consolidated financial statements, as indexed on page 67 of the 2014 Form 10-K, were filed on February 26, 2015.
2. Financial Statement Schedules
Financial Statement Schedule II — Valuation and Qualifying Accounts was included on page 137 of the 2014 Form 10-K filed on February 26, 2015. All other schedules are not required under the related instructions or are not applicable.
3. Exhibits
See the exhibits listed under Exhibits on pages 69 - 73 of this Annual Report on Form 10-K/A.
| |
(c) | Pursuant to Rule 3-09 of SEC Regulation S-X, the following information is included herein in this Annual Report on Form 10-K/A: |
|
| |
| Page |
| |
CyrusOne Inc. | |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | |
| |
| |
CyrusOne LP | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | |
| |
| |
CyrusOne Inc. | |
| |
CONSOLIDATED AND COMBINED BALANCE SHEETS | |
| |
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS | |
| |
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME |
|
| |
CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY | |
| |
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS | |
| |
| |
CyrusOne LP | |
| |
CONSOLIDATED AND COMBINED BALANCE SHEETS | |
| |
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS | |
| |
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME |
|
| |
CONSOLIDATED AND COMBINED STATEMENTS OF PARTNERSHIP CAPITAL | |
| |
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS | |
| |
| |
CyrusOne Inc. and CyrusOne LP | |
| |
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS | |
| |
| |
Financial Statement Schedules | |
| |
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS | |
| |
SCHEDULE III. CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION | |
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
CyrusOne Inc.
Carrollton, TX
We have audited the accompanying consolidated balance sheets of CyrusOne Inc. and subsidiaries (the "Company") as of December 31, 2014 (Successor) and 2013 (Successor), and the related consolidated statements of operations, comprehensive income, equity, and cash flows for the year ended December 31, 2014 (Successor), from January 24, 2013 to December 31, 2013 (Successor) and January 1, 2013 to January 23, 2013 (Predecessor) and for the year ended December 31, 2012 (Predecessor). Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CyrusOne Inc. and subsidiaries as of December 31, 2014 (Successor) and 2013 (Successor), and the results of their operations and their cash flows for year ended December 31, 2014 (Successor), from January 24, 2013 to December 31, 2013 (Successor) and January 1, 2013 to January 23, 2013 (Predecessor) and for the year ended December 31, 2012 (Predecessor), in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 3, the financials statements of the Company for the period from January 1, 2013 to January 23, 2013 and for the year ended December 31, 2012 include allocations of certain corporate overhead costs from Cincinnati Bell Inc. (“CBI”). These costs may not be reflective of the actual level of costs which would have been incurred had the Company operated as a separate entity apart from CBI. Also, the financial statements of the Company for the period from January 1, 2013 to January 23, 2013 and for the year ended December 31, 2012 are presented as the “Predecessor” financial statements on a combined bases and the financial statements as of December 31, 2014 and 2013 and for the year ended December 31, 2014 and the period from January 24, 2013 to December 31, 2013 are presented on a consolidated basis as the “Successor” financial statements.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2015 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ Deloitte & Touche LLP
Dallas, Texas
February 27, 2015
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
CyrusOne Inc.
Carrollton, TX
We have audited the internal control over financial reporting of CyrusOne Inc. and subsidiaries (the "Company") as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2014 of the Company and our report dated February 27, 2015 expressed an unqualified opinion on those financial statements and financial statement schedules.
/s/ Deloitte & Touche LLP
Dallas, Texas
February 27, 2015
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Partners of
CyrusOne LP
Carrollton, TX
We have audited the accompanying consolidated balance sheets of CyrusOne LP and subsidiaries (the "Partnership") as of December 31, 2014 (Successor) and 2013 (Successor), and the related consolidated statements of operations, comprehensive income, partnership capital, and cash flows for the year ended December 31, 2014 (Successor), from January 24, 2013 to December 31, 2013 (Successor) and January 1, 2013 to January 23, 2013 (Predecessor) and for the year ended December 31, 2012 (Predecessor). Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CyrusOne LP and subsidiaries as of December 31, 2014 (Successor) and 2013 (Successor), and the results of their operations and their cash flows for year ended December 31, 2014 (Successor), from January 24, 2013 to December 31, 2013 (Successor) and January 1, 2013 to January 23, 2013 (Predecessor) and for the year ended December 31, 2012 (Predecessor), in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 3, the financials statements of the Partnership for the period from January 1, 2013 to January 23, 2013 and for the year ended December 31, 2012 include allocations of certain corporate overhead costs from Cincinnati Bell Inc. (“CBI”). These costs may not be reflective of the actual level of costs which would have been incurred had the Partnership operated as a separate entity apart from CBI. Also, the financial statements of the Partnership for the period from January 1, 2013 to January 23, 2013 and for the year ended December 31, 2012 are presented as the “Predecessor” financial statements on a combined bases and the financial statements as of December 31, 2014 and 2013 and for the year ended December 31, 2014 and the period from January 24, 2013 to December 31, 2013 are presented on a consolidated basis as the “Successor” financial statements.
/s/ Deloitte & Touche LLP
Dallas, Texas
February 27, 2015
CyrusOne Inc.
CONSOLIDATED BALANCE SHEETS
(amounts in millions, except for shares and per share amounts)
|
| | | | | | | |
| As of December 31, 2014 | | As of December 31, 2013 |
Assets | | | |
Investment in real estate: | | | |
Land | $ | 89.7 |
| | $ | 89.3 |
|
Buildings and improvements | 812.6 |
| | 783.7 |
|
Equipment | 349.1 |
| | 190.2 |
|
Construction in progress | 127.0 |
| | 57.3 |
|
Subtotal | 1,378.4 |
| | 1,120.5 |
|
Accumulated depreciation | (327.0 | ) | | (236.7 | ) |
Net investment in real estate | 1,051.4 |
| | 883.8 |
|
Cash and cash equivalents | 36.5 |
| | 148.8 |
|
Rent and other receivables, net of allowance for doubtful accounts of $1.0 and $0.5 as of December 31, 2014 and December 31, 2013, respectively | 60.9 |
| | 41.2 |
|
Goodwill | 276.2 |
| | 276.2 |
|
Intangible assets, net of accumulated amortization of $72.1 and $55.1 as of December 31, 2014 and December 31, 2013, respectively | 68.9 |
| | 85.9 |
|
Due from affiliates | 0.8 |
| | 0.6 |
|
Other assets | 91.8 |
| | 70.3 |
|
Total assets | $ | 1,586.5 |
| | $ | 1,506.8 |
|
Liabilities and equity | | | |
Accounts payable and accrued expenses | $ | 69.9 |
| | $ | 66.8 |
|
Deferred revenue | 65.7 |
| | 55.9 |
|
Due to affiliates | 7.3 |
| | 8.5 |
|
Capital lease obligations | 13.4 |
| | 16.7 |
|
Long-term debt | 659.8 |
| | 525.0 |
|
Other financing arrangements | 53.4 |
| | 56.3 |
|
Total liabilities | 869.5 |
| | 729.2 |
|
Commitment and contingencies |
| |
|
Equity | | | |
Preferred stock, $.01 par value, 100,000,000 authorized; no shares issued or outstanding | — |
| | — |
|
Common stock, $.01 par value, 500,000,000 shares authorized and 38,651,517 and 21,991,669 shares issued and outstanding at December 31, 2014 and December 31, 2013, respectively | 0.4 |
| | 0.2 |
|
Additional paid in capital
| 516.5 |
| | 340.7 |
|
Accumulated deficit | (55.9 | ) | | (18.9 | ) |
Accumulated other comprehensive loss | (0.3 | ) | | — |
|
Total shareholders’ equity | 460.7 |
| | 322.0 |
|
Noncontrolling interest | 256.3 |
| | 455.6 |
|
Total equity | 717.0 |
| | 777.6 |
|
Total liabilities and equity | $ | 1,586.5 |
| | $ | 1,506.8 |
|
CyrusOne Inc.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(amounts in millions, except per share data)
|
| | | | | | | | | | | | | | | |
| Successor | | Predecessor |
| Year Ended December 31, 2014 | | January 24, 2013 to December 31, 2013 | | January 1, 2013 to January 23, 2013 | | Year Ended December 31, 2012 |
Revenue | $ | 330.9 |
| | $ | 248.4 |
| | $ | 15.1 |
| | $ | 220.8 |
|
Costs and expenses: | | | | | | | |
Property operating expenses | 124.5 |
| | 88.4 |
| | 4.8 |
| | 76.0 |
|
Sales and marketing | 12.8 |
| | 9.9 |
| | 0.7 |
| | 9.7 |
|
General and administrative | 34.6 |
| | 26.5 |
| | 1.5 |
| | 20.7 |
|
Depreciation and amortization | 118.0 |
| | 89.9 |
| | 5.3 |
| | 73.4 |
|
Restructuring charges | — |
| | 0.7 |
| | — |
| | — |
|
Transaction costs | 1.0 |
| | 1.3 |
| | 0.1 |
| | 5.7 |
|
Transaction-related compensation | — |
| | — |
| | 20.0 |
| | — |
|
Management fees charged by CBI | — |
| | — |
| | — |
| | 2.5 |
|
Loss on sale of receivables to an affiliate | — |
| | — |
| | — |
| | 3.2 |
|
Asset impairments | — |
| | 2.8 |
| | — |
| | 13.3 |
|
Total costs and expenses | 290.9 |
| | 219.5 |
| | 32.4 |
| | 204.5 |
|
Operating income (loss) | 40.0 |
| | 28.9 |
| | (17.3 | ) | | 16.3 |
|
Interest expense | 39.5 |
| | 41.2 |
| | 2.5 |
| | 41.8 |
|
Other income | — |
| | (0.1 | ) | | — |
| | — |
|
Loss on extinguishment of debt | 13.6 |
| | 1.3 |
| | — |
| | — |
|
Net loss before income taxes | (13.1 | ) | | (13.5 | ) | | (19.8 | ) | | (25.5 | ) |
Income tax (expense) benefit | (1.4 | ) | | (1.9 | ) | | (0.4 | ) | | 5.1 |
|
(Loss) gain on sale of real estate improvements | — |
| | (0.2 | ) | | — |
| | 0.1 |
|
Net loss | (14.5 | ) | | $ | (15.6 | ) | | $ | (20.2 | ) | | $ | (20.3 | ) |
Noncontrolling interest in net loss | (6.7 | ) | | (10.3 | ) | | | | |
Net loss attributed to common shareholders | $ | (7.8 | ) | | $ | (5.3 | ) | | | | |
Basic weighted average common shares outstanding
| 29.2 |
| | 20.9 |
| | | | |
Diluted weighted average common shares outstanding | 29.2 |
| | 20.9 |
| | | | |
Loss per share - basic and diluted | $ | (0.30 | ) | | $ | (0.28 | ) | | | | |
The accompanying notes are an integral part of the consolidated and combined financial statements
CyrusOne Inc.
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in millions)
|
| | | | | | | | | | | | | | | |
| Successor | | Predecessor |
| Year Ended December 31, 2014 | | January 24, 2013 to December 31, 2013 | | January 1, 2013 to January 23, 2013 | | Year Ended December 31, 2012 |
Net loss | $ | (14.5 | ) | | $ | (15.6 | ) | | $ | (20.2 | ) | | $ | (20.3 | ) |
Other comprehensive loss: | | | | | | | |
Foreign currency translation adjustments | (0.3 | ) | | — |
| | — |
| | — |
|
Comprehensive loss | (14.8 | ) | | (15.6 | ) | | (20.2 | ) | | (20.3 | ) |
Comprehensive loss attributable to noncontrolling interests | (0.1 | ) | | — |
| | — |
| | — |
|
Comprehensive loss attributable to CyrusOne Inc. | $ | (14.7 | ) | | $ | (15.6 | ) | | $ | (20.2 | ) | | $ | (20.3 | ) |
CyrusOne Inc.
CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
(amounts in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock Issued | | | | | | | | | | | | | | | | |
| Shares | Amount | | Accum Deficit | | Paid-In Capital | | Partnership Capital | | Divisional Control | | Accum Other Comprehensive Loss | | Total Shareholder’s Equity/ Parent’s Net Investment | | Non Controlling Interest | | Total Equity |
Balance as of January 1, 2012 | — |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 311.5 |
| | $ | — |
| | $ | 311.5 |
| | $ | — |
| | $ | — |
|
Divisional control transfer | — |
| — |
| | — |
| | — |
| | 311.5 |
| | (311.5 | ) | | — |
| | — |
| | — |
| | — |
|
Net loss | — |
| — |
| | — |
| | — |
| | (20.3 | ) | | — |
| | — |
| | (20.3 | ) | | — |
| | — |
|
Issuance of common stock (100 shares at $ .01 par value) | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Issuance of partnership units | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Contributions from Parent related to settlement of intercompany balances | — |
| — |
| | — |
| | 7.1 |
| | 196.4 |
| | — |
| | — |
| | 203.5 |
| | — |
| | — |
|
Other contributions from Parent, net | — |
| — |
| | — |
| | — |
| | 5.4 |
| | — |
| | — |
| | 5.4 |
| | — |
| | — |
|
Balance as of December 31, 2012 | — |
| $ | — |
| | $ | — |
| | $ | 7.1 |
| | $ | 493.0 |
| | $ | — |
| | $ | — |
| | $ | 500.1 |
| | $ | — |
| | $ | 500.1 |
|
Net loss – January 1, 2013 to January 23, 2013 | — |
| — |
| | — |
| | — |
| | (20.2 | ) | | — |
| | — |
| | (20.2 | ) | | — |
| | (20.2 | ) |
Other contributions from Parent | — |
| — |
| | — |
| | — |
| | 1.3 |
| | — |
| | — |
| | 1.3 |
| | — |
| | 1.3 |
|
Contributions from Parent–transaction compensation expense reimbursement | — |
| — |
| | — |
| | — |
| | 19.6 |
| | — |
| | — |
| | 19.6 |
| | — |
| | 19.6 |
|
Noncontrolling interest effective January 24, 2013 | — |
| — |
| | — |
| | (7.1 | ) | | (493.7 | ) | | — |
| | — |
| | (500.8 | ) | | 500.8 |
| | — |
|
Common stock issued | 19.0 |
| 0.2 |
| | — |
| | 336.9 |
| | — |
| | — |
| | — |
| | 337.1 |
| | — |
| | 337.1 |
|
Common stock issued to CBI in exchange for operating partnership units | 1.5 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Common stock issued to CBI in exchange for settlement of IPO costs paid by CBI | 0.4 |
| — |
| | — |
| | 7.1 |
| | — |
| | — |
| | — |
| | 7.1 |
| | (7.1 | ) | | — |
|
IPO costs | — |
| — |
| | — |
| | (9.5 | ) | | — |
| | — |
| | — |
| | (9.5 | ) | | — |
| | (9.5 | ) |
Restricted shares issued | 1.1 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Net loss – January 24, 2013 to December 31, 2013 | — |
| — |
| | (15.6 | ) | | — |
| | — |
| | — |
| | — |
| | (15.6 | ) | | — |
| | (15.6 | ) |
Noncontrolling interest allocated net loss | — |
| — |
| | 10.3 |
| | — |
| | — |
| | — |
| | — |
| | 10.3 |
| | (10.3 | ) | | — |
|
Stock based compensation | — |
| — |
| | — |
| | 6.2 |
| | — |
| | — |
| | — |
| | 6.2 |
| | — |
| | 6.2 |
|
Dividends declared, $0.64 per share | — |
| — |
| | (13.6 | ) | | — |
| | — |
| | — |
| | — |
| | (13.6 | ) | | (27.8 | ) | | (41.4 | ) |
Balance as of December 31, 2013 | 22.0 |
| $ | 0.2 |
| | $ | (18.9 | ) | | $ | 340.7 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 322.0 |
| | $ | 455.6 |
| | $ | 777.6 |
|
Net Loss | — |
| — |
| | (14.5 | ) | | — |
| | — |
| | — |
| | — |
| | (14.5 | ) | | — |
| | (14.5 | ) |
Noncontrolling interest allocated net loss | — |
| — |
| | 6.7 |
| | — |
| | — |
| | — |
| | — |
| | 6.7 |
| | (6.7 | ) | | — |
|
Stock issuance costs | — |
| — |
| | — |
| | (1.3 | ) | | — |
| | — |
| | — |
| | (1.3 | ) | | — |
| | (1.3 | ) |
Foreign currency translation adjustments | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | (0.3 | ) | | (0.3 | ) | | — |
| | (0.3 | ) |
Stock-based compensation | 0.7 |
| — |
| | — |
| | 10.3 |
| | — |
| | — |
| | — |
| | 10.3 |
| | — |
| | 10.3 |
|
Issuance of common stock | 16.0 |
| 0.2 |
| | — |
| | 355.8 |
| | — |
| | — |
| | — |
| | 356.0 |
| | — |
| | 356.0 |
|
Redemption of noncontrolling interest | — |
| — |
| | — |
| | (189.0 | ) | | — |
| | — |
| | — |
| | (189.0 | ) | | (166.9 | ) | | (355.9 | ) |
Dividends declared, $0.84 per share | — |
| — |
| | (29.2 | ) | | — |
| | — |
| | — |
| | — |
| | (29.2 | ) | | (25.7 | ) | | (54.9 | ) |
Balance as of December 31, 2014 | 38.7 |
| $ | 0.4 |
| | $ | (55.9 | ) | | $ | 516.5 |
| | $ | — |
| | $ | — |
| | $ | (0.3 | ) | | $ | 460.7 |
| | $ | 256.3 |
| | $ | 717.0 |
|
The accompanying notes are an integral part of the consolidated and combined financial statements
CyrusOne Inc.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(amounts in millions)
|
| | | | | | | | | | | | | | | |
| Successor | | Predecessor |
| Year Ended December 31, 2014 | | January 24, 2013 to December 31, 2013 | | January 1, 2013 to January 23, 2013 | | Year Ended December 31, 2012 |
Cash flows from operating activities: | | | | | | | |
Net loss | $ | (14.5 | ) | | $ | (15.6 | ) | | $ | (20.2 | ) | | $ | (20.3 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | 118.0 |
| | 89.9 |
| | 5.3 |
| | 73.4 |
|
Loss on sale of receivables and other assets | — |
| | — |
| | — |
| | 3.0 |
|
Provision for bad debt write off | 0.8 |
| | 0.4 |
| | — |
| | 0.1 |
|
Asset impairments | — |
| | 2.8 |
| | — |
| | 13.3 |
|
Loss on extinguishment of debt | 13.6 |
| | 1.3 |
| | — |
| | — |
|
Noncash interest expense | 3.4 |
| | 4.0 |
| | 0.1 |
| | 0.3 |
|
Deferred income tax expense (benefit), including valuation allowance change | — |
| | 0.6 |
| | 0.3 |
| | (4.5 | ) |
Stock-based compensation expense | 10.3 |
| | 6.0 |
|
| 0.2 |
| | — |
|
Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | | | |
Increase in receivables and other assets | (37.0 | ) | | (15.7 | ) | | (9.6 | ) | | (24.0 | ) |
Increase (decrease) in accounts payable and accrued expenses | 6.9 |
| | (14.6 | ) | | 20.5 |
| | (0.6 | ) |
Increase (decrease) in deferred revenues | 9.8 |
| | (0.1 | ) | | 3.2 |
| | 3.8 |
|
(Decrease) increase in payables to related parties | (0.2 | ) | | 18.4 |
| | 1.5 |
| | — |
|
Other | — |
| | — |
| | 0.7 |
| | — |
|
Net cash provided by operating activities | 111.1 |
| | 77.4 |
| | 2.0 |
| | 44.5 |
|
Cash flows from investing activities: | | | | | | | |
Capital expenditures – acquisitions of real estate | — |
| | (48.0 | ) | | — |
| | (25.4 | ) |
Capital expenditures – other | (284.2 | ) | | (172.9 | ) | | (7.7 | ) | | (202.9 | ) |
Proceeds from the sale of assets | — |
| | — |
| | — |
| | 0.2 |
|
Increase in restricted cash | — |
| | — |
| | — |
| | (11.1 | ) |
Release of restricted cash | — |
| | 4.4 |
| | 1.9 |
| | 4.8 |
|
Advances to affiliates | — |
| | — |
| | — |
| | (18.3 | ) |
Other | — |
| | (0.2 | ) | | — |
| | 0.1 |
|
Net cash used in investing activities | (284.2 | ) | | (216.7 | ) | | (5.8 | ) | | (252.6 | ) |
Cash flows from financing activities: | | | | | | | |
Issuance of common stock | 356.0 |
| | 360.5 |
| | — |
| | — |
|
Stock issuance costs | (1.3 | ) | | — |
| | — |
| | — |
|
IPO costs | — |
| | (26.6 | ) | | — |
| | — |
|
Acquisition of operating partnership units | (355.9 | ) | | — |
| | — |
| | — |
|
Dividends paid | (50.9 | ) | | (31.0 | ) | | — |
| | — |
|
Borrowings from revolving credit agreement | 315.0 |
| | — |
| | — |
| | — |
|
Borrowings from affiliates, net | — |
| | — |
| | — |
| | 119.8 |
|
Payments on revolving credit facility | (30.0 | ) | | — |
| | — |
| | — |
|
Payments on senior notes | (150.2 | ) | | — |
| | — |
| | — |
|
|
| | | | | | | | | | | | | | | |
Repayment of related party note | — |
| | — |
| | — |
| | (400.0 | ) |
Proceeds from issuance of debt | — |
| | — |
| | — |
| | 525.0 |
|
Payments on capital lease obligations | (3.0 | ) | | (5.3 | ) | | (0.6 | ) | | (9.0 | ) |
Payments on financing obligations | (0.9 | ) | | (0.7 | ) | | — |
| | — |
|
Payment to buyout capital leases | — |
| | (9.6 | ) | | — |
| | — |
|
Payment to buyout other financing arrangements | — |
| | (10.2 | ) | | — |
| | — |
|
Debt issuance costs | (5.2 | ) | | (1.3 | ) | | — |
| | (17.2 | ) |
Payment of debt extinguishment costs | (12.8 | ) | | — |
| | — |
| | — |
|
Contributions from/(distributions to) parent, net | — |
| | — |
| | 0.2 |
| | 5.4 |
|
Net cash provided by (used in) by financing activities | 60.8 |
| | 275.8 |
| | (0.4 | ) | | 224.0 |
|
Net (decrease) increase in cash and cash equivalents | (112.3 | ) | | 136.5 |
| | (4.2 | ) | | 15.9 |
|
Cash and cash equivalents at beginning of period | 148.8 |
| | 12.3 |
| | 16.5 |
| | 0.6 |
|
Cash and cash equivalents at end of period | $ | 36.5 |
| | $ | 148.8 |
| | $ | 12.3 |
| | $ | 16.5 |
|
| | | | | | | |
Supplemental disclosures | | | | | | | |
Cash paid for interest, net of amount capitalized | $ | 41.3 |
| | $ | 40.7 |
| | $ | 0.3 |
| | $ | 42.4 |
|
Cash paid for income taxes | 0.4 |
| | — |
| | — |
| | — |
|
Capitalized interest | 4.6 |
| | 1.6 |
| | — |
| | 2.7 |
|
Noncash investing and financing transactions: | | | | | | | |
Acquisition of property in accounts payable and other liabilities | 26.8 |
| | 35.8 |
| | 15.7 |
| | 7.7 |
|
Acquisition of property by assuming capital lease obligations and other financing arrangements | — |
| | — |
| | — |
| | 11.6 |
|
Assets transferred by parent | — |
| | — |
| | — |
| | 2.0 |
|
Divisional control contribution funded by settlement of intercompany balances due to Parent | — |
| | — |
| | — |
| | 203.5 |
|
Contribution receivable from Parent related to transaction-related compensation | — |
| | — |
| | 19.6 |
| | — |
|
Dividend payable | 14.3 |
| | 10.4 |
| | — |
| | — |
|
Deferred IPO costs | — |
| | — |
| | 1.7 |
| | — |
|
Deferred IPO costs reclassified to additional paid in capital | — |
| | 9.5 |
| | — |
| | — |
|
Reclass of equipment to held for sale | — |
| | 0.3 |
| | — |
| | — |
|
Noncash additions to fixed assets through other financing arrangements | — |
| | 4.0 |
| | — |
| | — |
|
The accompanying notes are an integral part of the consolidated and combined financial statements
CyrusOne LP
CONSOLIDATED BALANCE SHEETS
(amounts in millions)
|
| | | | | | | |
| Successor | | Successor |
| As of
December 31, 2014 | | As of
December 31, 2013 |
Assets | | | |
Investment in real estate: | | | |
Land | $ | 89.7 |
| | $ | 89.3 |
|
Buildings and improvements | 812.6 |
| | 783.7 |
|
Equipment | 349.1 |
| | 190.2 |
|
Construction in progress | 127.0 |
| | 57.3 |
|
Subtotal | 1,378.4 |
| | 1,120.5 |
|
Accumulated depreciation | (327.0 | ) | | (236.7 | ) |
Net investment in real estate | 1,051.4 |
| | 883.8 |
|
Cash and cash equivalents | 36.5 |
| | 148.8 |
|
Rent and other receivables, net of allowance for doubtful accounts of $1.0 and $0.5 as of December 31, 2014 and December 31, 2013, respectively | 60.9 |
| | 41.2 |
|
Goodwill | 276.2 |
| | 276.2 |
|
Intangible assets, net of accumulated amortization of $72.1 and $55.1 as of December 31, 2014 and December 31, 2013, respectively | 68.9 |
| | 85.9 |
|
Due from affiliates | 0.8 |
| | 0.6 |
|
Other assets | 91.8 |
| | 70.3 |
|
Total assets | $ | 1,586.5 |
| | $ | 1,506.8 |
|
Liabilities and parent’s net investment | | | |
Accounts payable and accrued expenses | $ | 69.9 |
| | $ | 66.8 |
|
Deferred revenue | 65.7 |
| | 55.9 |
|
Due to affiliates | 7.3 |
| | 8.5 |
|
Capital lease obligations | 13.4 |
| | 16.7 |
|
Long-term debt | 659.8 |
| | 525.0 |
|
Other financing arrangements | 53.4 |
| | 56.3 |
|
Total liabilities | 869.5 |
| | 729.2 |
|
Commitment and contingencies |
| |
|
Parent’s net investment: | | | |
Partnership capital | 717.0 |
| | 777.6 |
|
Total liabilities and partnership capital | $ | 1,586.5 |
| | $ | 1,506.8 |
|
The accompanying notes are an integral part of the consolidated and combined financial statements
CyrusOne LP
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(amounts in millions)
|
| | | | | | | | | | | | | | | |
| Successor | | Predecessor |
| Year Ended December 31, 2014 | | January 24, 2013 to December 31, 2013 | | January 1, 2013 to January 23, 2013 | | Year Ended December 31, 2012 |
Revenue | $ | 330.9 |
| | $ | 248.4 |
| | $ | 15.1 |
| | $ | 220.8 |
|
Costs and expenses: | | | | | | | |
Property operating expenses | 124.5 |
| | 88.4 |
| | 4.8 |
| | 76.0 |
|
Sales and marketing | 12.8 |
| | 9.9 |
| | 0.7 |
| | 9.7 |
|
General and administrative | 34.6 |
| | 26.5 |
| | 1.5 |
| | 20.7 |
|
Depreciation and amortization | 118.0 |
| | 89.9 |
| | 5.3 |
| | 73.4 |
|
Restructuring charges | — |
| | 0.7 |
| | — |
| | — |
|
Transaction costs | 1.0 |
| | 1.3 |
| | 0.1 |
| | 5.7 |
|
Transaction-related compensation | — |
| | — |
| | 20.0 |
| | — |
|
Management fees charged by CBI | — |
| | — |
| | — |
| | 2.5 |
|
Loss on sale of receivables to an affiliate | — |
| | — |
| | — |
| | 3.2 |
|
Asset impairments | — |
| | 2.8 |
| | — |
| | 13.3 |
|
Total costs and expenses | 290.9 |
| | 219.5 |
| | 32.4 |
| | 204.5 |
|
Operating income (loss) | 40.0 |
| | 28.9 |
| | (17.3 | ) | | 16.3 |
|
Interest expense | 39.5 |
| | 41.2 |
| | 2.5 |
| | 41.8 |
|
Other income | — |
| | (0.1 | ) | | — |
| | — |
|
Loss on extinguishment of debt | 13.6 |
| | 1.3 |
| | — |
| | — |
|
Net loss before income taxes | (13.1 | ) | | (13.5 | ) | | (19.8 | ) | | (25.5 | ) |
Income tax (expense) benefit | (1.4 | ) | | (1.9 | ) | | (0.4 | ) | | 5.1 |
|
(Loss) gain on sale of real estate improvements | — |
| | (0.2 | ) | | — |
| | 0.1 |
|
Net loss | $ | (14.5 | ) | | $ | (15.6 | ) | | $ | (20.2 | ) | | $ | (20.3 | ) |
The accompanying notes are an integral part of the consolidated and combined financial statements
CyrusOne LP
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in millions)
|
| | | | | | | | | | | | | | | |
| Successor | | Predecessor |
| Year Ended December 31, 2014 | | January 24, 2013 to December 31, 2013 | | January 1, 2013 to January 23, 2013 | | Year Ended December 31, 2012 |
Net loss | $ | (14.5 | ) | | $ | (15.6 | ) | | $ | (20.2 | ) | | $ | (20.3 | ) |
Other comprehensive loss: | | | | | | | |
Foreign currency translation adjustments | (0.3 | ) | | — |
| | — |
| | — |
|
Comprehensive loss | $ | (14.8 | ) | | $ | (15.6 | ) | | $ | (20.2 | ) | | $ | (20.3 | ) |
CyrusOne LP
CONSOLIDATED AND COMBINED STATEMENTS OF PARTNERSHIP CAPITAL
(amounts in millions)
|
| | | | | | | | | | |
| Partnership Units |
| Partnership Capital | | Divisional Control |
Balance January 1, 2012 | — |
| | $ | — |
| | $ | 311.5 |
|
Divisional control transfer from CBI | — |
| | 311.5 |
| | (311.5 | ) |
Net Loss | — |
| | (20.3 | ) | | — |
|
Issuance of Partnership units | 123.6 |
| | — |
| | — |
|
Contributions from CBI related to settlement of intercompany balances | — |
| | 196.4 |
| | — |
|
Other contributions from Parent, net | — |
| | 5.4 |
| | — |
|
Balance December 31, 2012 | 123.6 |
| | $ | 493.0 |
| | $ | — |
|
Net loss—January 1, 2013, to January 23, 2013 | — |
| | (20.2 | ) | | — |
|
Contributions from Parent—transaction-compensation expense reimbursement | — |
| | 19.6 |
| | — |
|
Other contributions from Parent | — |
| | 1.3 |
| | — |
|
Distribution to CyrusOne Inc.
| — |
| | (2.4 | ) | | — |
|
Partnership reverse unit split 2.8 to 1 | (79.5 | ) | | — |
| | — |
|
Partnership units exchanged by CBI for common stock in CyrusOne Inc. | (1.5 | ) | | — |
| | — |
|
Partnership units issued to CyrusOne Inc. | 22.0 |
| | 337.1 |
| | — |
|
Compensation expense of CyrusOne Inc. allocated to Partnership | — |
| | 6.2 |
| | — |
|
Net loss—January 24, 2013, to December 31, 2013 | — |
| | (15.6 | ) | | — |
|
Partnership distributions declared | — |
| | (41.4 | ) | | — |
|
Balance at December 31, 2013 | 64.6 |
| | $ | 777.6 |
| | $ | — |
|
Net loss | — |
| | (14.5 | ) | | — |
|
Compensation expense of CyrusOne Inc. allocated to operating partnership | — |
| | 10.3 |
| | — |
|
Foreign currency translation adjustments | — |
| | (0.3 | ) | | — |
|
Partnership units issued to CyrusOne Inc. | 0.7 |
| | — |
| | — |
|
Partnership units purchased by CyrusOne Inc. | 16.0 |
| | 356.0 |
| | — |
|
Partnership units sold by CBI | (16.0 | ) | | (355.9 | ) | | — |
|
Distributions to CyrusOne Inc. | — |
| | (1.3 | ) | | — |
|
Partnership distributions | — |
| | (54.9 | ) | | — |
|
Balance at December 31, 2014 | 65.3 |
| | $ | 717.0 |
| | $ | — |
|
The accompanying notes are an integral part of the consolidated and combined financial statements
CyrusOne LP
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(amounts in millions)
|
| | | | | | | | | | | | | | | |
| Successor | | Predecessor |
| Year Ended December 31, 2014 | | January 24, 2013 to December 31, 2013 | | January 1, 2013 to January 23, 2013 | | Year Ended December 31, 2012 |
Cash flows from operating activities: | | | | | | | |
Net loss | $ | (14.5 | ) | | $ | (15.6 | ) | | $ | (20.2 | ) | | $ | (20.3 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | 118.0 |
| | 89.9 |
| | 5.3 |
| | 73.4 |
|
Loss on sale of receivables and other assets | — |
| | — |
| | — |
| | 3.0 |
|
Provision for bad debt write off | 0.8 |
| | 0.4 |
| | — |
| | 0.1 |
|
Asset impairments | — |
| | 2.8 |
| | — |
| | 13.3 |
|
Loss on extinguishment of debt | 13.6 |
| | 1.3 |
| | — |
| | — |
|
Noncash interest expense | 3.4 |
| | 4.0 |
| | 0.1 |
| | 0.3 |
|
Deferred income tax expense (benefit), including valuation allowance change | — |
| | 0.6 |
| | 0.3 |
| | (4.5 | ) |
Stock-based compensation expense | 10.3 |
| | 6.0 |
| | 0.2 |
| | — |
|
Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | | | |
Increase in receivables and other assets | (37.0 | ) | | (15.7 | ) | | (9.6 | ) | | (16.1 | ) |
Increase (decrease) in accounts payable and accrued expenses | 6.9 |
| | (14.6 | ) | | 20.5 |
| | (1.4 | ) |
Increase (decrease) in deferred revenues | 9.8 |
| | (0.1 | ) | | 3.2 |
| | 3.8 |
|
(Decrease) increase in payables to related parties | (0.2 | ) | | 18.4 |
| | 1.5 |
| | — |
|
Other | — |
| | — |
| | 0.7 |
| | — |
|
Net cash provided by operating activities | 111.1 |
| | 77.4 |
| | 2.0 |
| | 51.6 |
|
Cash flows from investing activities: | | | | | | | |
Capital expenditures – acquisitions of real estate | — |
| | (48.0 | ) | | — |
| | (25.4 | ) |
Capital expenditures – other | (284.2 | ) | | (172.9 | ) | | (7.7 | ) | | (202.9 | ) |
Proceeds from the sale of assets | — |
| | — |
| | — |
| | 0.2 |
|
Increase in restricted cash | — |
| | — |
| | — |
| | (11.1 | ) |
Release of restricted cash | — |
| | 4.4 |
| | 1.9 |
| | 4.8 |
|
Advances to affiliates | — |
| | — |
| | — |
| | (18.3 | ) |
Other | — |
| | (0.2 | ) | | — |
| | 0.1 |
|
Net cash used in investing activities | (284.2 | ) | | (216.7 | ) | | (5.8 | ) | | (252.6 | ) |
Cash flows from financing activities: | | | | | | | |
Issuance of partnership units | 0.1 |
| | 333.9 |
| | — |
| | — |
|
Distributions paid | (50.9 | ) | | (31.0 | ) | | — |
| | — |
|
Borrowings from revolving credit agreement | 315.0 |
| | — |
| | — |
| | — |
|
Borrowings from affiliates, net | — |
| | — |
| | — |
| | 119.8 |
|
Payments on revolving credit facility | (30.0 | ) | | — |
| | — |
| | — |
|
Payments on senior notes | (150.2 | ) | | — |
| | — |
| | — |
|
Repayment of related party note | — |
| | — |
| | — |
| | (400.0 | ) |
Proceeds from issuance of debt | — |
| | — |
| | — |
| | 525.0 |
|
Payments on capital lease obligations | (3.0 | ) | | (5.3 | ) | | (0.6 | ) | | (9.0 | ) |
|
| | | | | | | | | | | | | | | |
Payments on financing obligations | (0.9 | ) | | (0.7 | ) | | — |
| | — |
|
Payments to buyout capital leases | — |
| | (9.6 | ) | | — |
| | — |
|
Payment to buyout other financing arrangements | — |
| | (10.2 | ) | | — |
| | — |
|
Debt issuance costs | (5.2 | ) | | (1.3 | ) | | — |
| | (17.2 | ) |
Payment of debt extinguishment costs | (12.8 | ) | | — |
| | — |
| | — |
|
Contributions to/(distributions from) parent, net | (1.3 | ) | | — |
| | 0.2 |
| | (1.7 | ) |
Other | — |
| | — |
| | — |
| | — |
|
Net cash provided by (used in) by financing activities | 60.8 |
| | 275.8 |
| | (0.4 | ) | | 216.9 |
|
Net (decrease) increase in cash and cash equivalents | (112.3 | ) | | 136.5 |
| | (4.2 | ) | | 15.9 |
|
Cash and cash equivalents at beginning of period | 148.8 |
| | 12.3 |
| | 16.5 |
| | 0.6 |
|
Cash and cash equivalents at end of period | $ | 36.5 |
| | $ | 148.8 |
| | $ | 12.3 |
| | $ | 16.5 |
|
| | | | | | | |
Supplemental disclosures | | | | | | | |
Cash paid for interest, net of amount capitalized | $ | 41.3 |
| | $ | 40.7 |
| | $ | 0.3 |
| | $ | 42.4 |
|
Cash paid for income taxes | 0.4 |
| | — |
| | — |
| | — |
|
Capitalized interest | 4.6 |
| | 1.6 |
| | — |
| | 2.7 |
|
Noncash investing and financing transactions: | | | | | | | |
Acquisition of property in accounts payable and other liabilities | 26.8 |
| | 35.8 |
| | 15.7 |
| | 7.7 |
|
Acquisitions of property by assuming capital lease obligations and other financing arrangements | — |
| | — |
| | — |
| | 11.6 |
|
Contribution receivable from Parent related to transaction-related compensation | — |
| | — |
| | 19.6 |
| | — |
|
Distribution payable | 14.3 |
| | 10.4 |
| | — |
| | — |
|
Other contributions from Parent | — |
| | 1.3 |
| | 1.7 |
| | — |
|
Non-cash distribution to CyrusOne Inc. | — |
| | 2.4 |
| | — |
| | — |
|
Assets transferred to Parent | — |
| | — |
| | — |
| | 2.0 |
|
Divisional control contribution funded by settlement of intercompany balances due to Parent | — |
| | — |
| | — |
| | 196.4 |
|
Reclass of equipment to held for sale | — |
| | 0.3 |
| | — |
| | — |
|
Noncash additions to fixed assets through other financing arrangements | — |
| | 4.0 |
| | — |
| | — |
|
The accompanying notes are an integral part of the consolidated and combined financial statements
CyrusOne Inc. and CyrusOne LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. Description of Business
CyrusOne Inc., together with CyrusOne GP, a wholly-owned subsidiary of CyrusOne Inc., through which CyrusOne Inc. holds a controlling interest in CyrusOne LP (the “operating partnership”) and the subsidiaries of the operating partnership (collectively, “CyrusOne”, “we”, “us”, “our”, and the “Company”) is an owner, operator and developer of enterprise-class, carrier-neutral multi-tenant data center properties. Our customers operate in a number of industries, including energy, oil and gas, mining, medical, technology, finance and consumer goods and services. We currently operate approximately 25 data centers located in the United States, United Kingdom and Singapore.
2. Formation
Prior to November 20, 2012, CyrusOne was not an operative legal entity or a combination of legal entities. The accompanying combined financial statements of CyrusOne for such periods represent the data center assets and operations owned by Cincinnati Bell Inc. (“CBI”) and, unless the context otherwise requires, its consolidated subsidiaries which historically have been maintained in various legal entities, some of which had significant unrelated business activities. The accompanying financial statements for such periods have been “carved out” of CBI’s consolidated financial statements and reflect significant assumptions and allocations. The combined financial statements do not fully reflect what the financial position, results of operations and cash flows would have been had these operations been a stand-alone company during the periods presented. As a result, historical financial information is not necessarily indicative of CyrusOne’s future results of operations, financial position and cash flows.
On November 20, 2012, the operating partnership received a contribution of interests in real estate properties and the assumption of debt and other specified liabilities from CBI in exchange for the issuance of 123.7 million operating partnership units to CBI.
On January 24, 2013, CyrusOne Inc. completed its initial public offering (“IPO”) of common stock, issuing approximately 19 million shares for $337.1 million, net of underwriting discounts. At that time the operating partnership executed a 2.8 to 1.0 reverse unit split, resulting in CBI owning 44.1 million operating partnership units. In addition, CBI exchanged approximately 1.5 million of its operating partnership units for 1.5 million shares of CyrusOne Inc. common stock, and CBI was issued 0.4 million shares of CyrusOne Inc. common stock in repayment for transaction costs paid by CBI. CyrusOne Inc. also issued approximately 1.1 million shares of restricted stock to its directors and employees. In addition, on January 24, 2013, CyrusOne Inc., together with CyrusOne GP, purchased approximately 21.9 million, or 33.9% of the operating partnership’s units for $337.1 million and through CyrusOne GP assumed the controlling interest in the operating partnership. CBI retained a noncontrolling interest in the operating partnership of 66.1%.
On June 25, 2014, CyrusOne Inc. completed a public offering of 16 million shares of its common stock, including 2.1 million shares of common stock issued upon the exercise in full by the underwriters of their option to purchase additional shares, at a price to the public of $23.25 per share, or $371.7 million. CyrusOne Inc. used the proceeds of $355.9 million, net of underwriting discounts of $15.8 million, to acquire 16 million common units of limited partnership interests in the operating partnership from a subsidiary of CBI.
As of December 31, 2014, the total number of outstanding partnership units was 65.3 million and CBI holds a 40.8% noncontrolling interest in the operating partnership. CBI effectively owns approximately 43.7% of CyrusOne through its interest in outstanding shares of common stock of CyrusOne Inc. and its interest in the operating partnership units of CyrusOne LP.
3. Basis of Presentation
The accompanying financial statements for the period ended January 23, 2013 and the year ended December 31, 2012, were prepared on a combined basis using CBI’s historical basis in the assets and liabilities of its data center business and are presented as the “Predecessor” financial statements. The Predecessor financial statements include all revenues, costs, assets and liabilities directly attributable to the data center business. In addition, certain expenses reflected in the Predecessor financial statements include allocations of corporate expenses from CBI, which in the opinion of management are reasonable but do not necessarily reflect what CyrusOne’s financial position, results of operations and cash flows would have been had CyrusOne been a stand-alone company during these respective periods. As a result, the Predecessor financial information is not necessarily indicative of CyrusOne’s future results of operations, financial position and cash flows. The financial statements as of December 31, 2014 and 2013 and for the period from January 24, 2013 to December 31, 2013, and the year ended December 31, 2014, are prepared on a consolidated basis and are presented as the “Successor” financial statements.
In addition, the accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All material intercompany transactions and balances have been eliminated in consolidation.
4. Significant Accounting Policies
Use of Estimates—Preparation of the consolidated and combined financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated and combined financial statements and accompanying notes. These estimates and assumptions are based on management’s knowledge of current events and actions that we may undertake in the future. Estimates are used in determining the fair value of leased real estate, the useful lives of real estate and other long-lived assets, future cash flows associated with goodwill and other long-lived asset impairment testing, deferred tax assets and liabilities and loss contingencies. Estimates were also utilized in the determination of historical allocations of shared employees’ payroll, benefits and incentives and management fees between CyrusOne and CBI. Actual results may differ from these estimates and assumptions.
Investments in Real Estate—Investments in real estate consist of land, buildings, improvements and integral equipment utilized in our data center operations. Real estate acquired from third parties has been recorded at its acquisition cost. Real estate acquired from CBI and its affiliates has been recorded at its historical cost basis. Additions and improvements which extend an asset’s useful life or increase its functionality are capitalized and depreciated over the asset’s remaining life. Maintenance and repairs are expensed as incurred.
When we are involved in the construction of structural improvements to leased property, we are deemed the accounting owner of the leased real estate. In these instances, we bear substantially all the construction period risk, including managing or funding construction. These transactions generally do not qualify for sale-leaseback accounting due to our continued involvement in these data center operations. At inception, the fair value of the real estate, which generally consists of a building shell and our associated obligation is recorded as construction in progress. As construction progresses the value of the asset and obligation increases by the fair value of the structural improvements. When construction is complete, the asset is placed in service and depreciation commences. Leased real estate is depreciated to the lesser of (i) its estimated fair value at the end of the term or (ii) the expected amount of the unamortized obligation at the end of the term.
When we are not deemed the accounting owner, we further evaluate leased real estate to determine whether the lease should be classified as a capital or operating lease. One of the following four characteristics must be present to classify a lease as a capital lease: (i) the lease transfers ownership of the property to the lessee by the end of the lease term, (ii) the lease contains a bargain purchase option, (iii) the lease term is equal to 75% or more of the estimated economic life of the leased property or (iv) the net present value of the lease payments are at least 90% of the fair value of the leased property.
Construction in progress includes direct and indirect expenditures for the construction and expansion of our data centers and is stated at its acquisition cost. Independent contractors perform substantially all of the construction and expansion efforts of our data centers. Construction in progress includes costs incurred under construction contracts including project management services, engineering and schematic design services, design development, construction services and other construction-related fees and services. Interest, property taxes and certain labor costs are also capitalized during the construction of an asset. Capitalized interest in 2014, 2013, and 2012 was $4.6 million, $1.6 million, and $2.7 million, respectively. These costs are depreciated over the estimated useful life of the related assets.
Depreciation is calculated using the straight-line method over the estimated useful life of the asset. Useful lives range from nine to forty-eight years years for buildings, three to twenty-five years for building improvements, and three to five years years or equipment. Leasehold improvements are amortized over the shorter of the asset’s useful life or the remaining lease term, including renewal options which are reasonably assured.
Management reviews the carrying value of long-lived assets, including intangible assets with finite lives, when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Examples of such indicators may include a significant adverse change in the extent to which or manner in which the property is being used, an accumulation of costs significantly in excess of the amount originally expected for acquisition or development, or a history of operating or cash flow losses. When such indicators exist, we review an estimate of the undiscounted future cash flows expected to result from the use of an asset (or group of assets) and its eventual disposition and compare such amount to its carrying amount. We consider factors such as future operating income, leasing demand, competition and other factors. If our undiscounted net cash flows indicate that we are unable to recover the carrying value of the asset, an impairment loss is recognized. An impairment loss is measured as the amount by which the asset’s carrying value exceeds its estimated fair value.
CyrusOne Inc. and CyrusOne LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (continued)
Impairment exists when the Company's net book value of real estate assets is greater than the estimated fair value. For the period ended December 31, 2013 and the year ended December 31, 2012, we recognized impairments of $2.8 million and $11.8 million, respectively. No such impairments were recognized in 2014.
Cash and Cash Equivalents—Cash and cash equivalents include all non-restricted cash held in financial institutions and other non-restricted highly liquid short-term investments with original maturities at acquisition of three months or less.
Goodwill—Goodwill represents the excess of the purchase price over the fair value of net assets acquired in connection with business acquisitions. We perform impairment testing of goodwill, at the reporting unit level, on an annual basis or more frequently if indicators of potential impairment exist.
The fair value of our reporting unit was determined using a combination of market-based valuation multiples for comparable businesses and discounted cash flow analysis based on internal financial forecasts incorporating market participant assumptions. There were no impairments recognized for the years ended December 31, 2014 or 2013.
Long-Lived and Intangible Assets—Intangible assets represent purchased assets that lack physical substance, but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged, either on its own or in combination with a related contract, asset, or liability. Intangible assets with finite lives consist of trademarks, customer relationships, and a favorable leasehold interest.
For the year ended December 31, 2012, we recognized an impairment of $1.5 million related to the impairment of customer relationships. There were no impairments recognized for the years ended December 31, 2014 or 2013.
Rent and Other Receivables—Receivables consist principally of trade receivables from customers and are generally unsecured and due within 30 to 120 days. Unbilled receivables arise from services rendered but not yet billed. Expected credit losses associated with trade receivables are recorded as an allowance for uncollectible accounts. The allowance for uncollectible accounts is estimated based upon historic patterns of credit losses for aged receivables as well as specific provisions for certain identifiable, potentially uncollectible balances. When internal collection efforts on accounts have been exhausted, the accounts are written-off and the associated allowance for uncollectible accounts is reduced. The Company has receivables with one customer that exceeds 10% of the Company’s outstanding accounts receivable balance at December 31, 2014 and 2013. In addition, our receivables include $8.7 million of receivables as of December 31, 2014 which has not been billed to the customer. The amount will be billed and payable in 36 monthly payments starting in April 2015 through March 2018.
As of December 31, 2014, receivables were $61.9 million, and the allowance for uncollectible accounts was $1.0 million. The December 31, 2013 receivables were $41.7 million, and the allowance for uncollectible accounts was $0.5 million.
Deferred Costs—Deferred costs include both deferred leasing costs and deferred financing costs. Deferred costs are presented with other assets in the accompanying consolidated and combined balance sheets. Leasing commissions incurred at the commencement of a new lease are capitalized and amortized to expense over the term of the customer lease. Amortization of deferred leasing costs is presented with depreciation and amortization in the accompanying consolidated and combined statements of operations. If a lease terminates prior to the expected term of the lease, the remaining unamortized cost is written off to amortization expense.
Deferred financing costs include costs incurred in connection with issuance of senior notes, term loans and revolving credit facilities. These financing costs are capitalized and amortized to expense over the term of the instrument and are included as a component of interest expense.
Other Financing Arrangements—Other financing arrangements represent leases of real estate where we are involved in the construction of structural improvements to develop buildings into data centers. When we bear substantially all the construction period risk, such as managing or funding construction, we are deemed to be the accounting owner of the leased property and, at the lease inception date, we are required to record at fair value the property and associated liability on our consolidated and combined balance sheet. These transactions generally do not qualify for sale-leaseback accounting due to our continued involvement in these data center operations.
CyrusOne Inc. and CyrusOne LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (continued)
Revenue Recognition—Colocation rentals are generally billed monthly in advance, and some contracts have escalating payments over the term of the contract. If rents escalate without the lessee gaining access to or control over additional leased space or power, and the lessee takes possession of, or controls the physical use of the property (including all contractually committed power) at the beginning of the lease term, the rental payments by the lessee are recognized as revenue on a straight-line basis over the term of the lease. If rents escalate because the lessee gains access to and control over additional leased space or power, revenue is recognized in proportion to the additional space or power in the periods that the lessee has control over the use of the additional space or power. The excess of revenue recognized over amounts contractually due is recognized in other assets in the accompanying consolidated and combined balance sheets. As of December 31, 2014 and 2013, straight-line rents receivable was $33.7 million and $25.5 million, respectively.
Some of our leases are structured on a full-service gross basis where the customer pays a fixed amount for both colocation rental and power. Other leases provide that the customer will be billed for power based upon their actual usage, which is separately metered, as well as an estimate of electricity used to power supporting infrastructure for the data center. In both cases, this revenue is presented on a gross basis in the accompanying consolidated and combined statement of operations. Power is generally billed one month in arrears and an estimate of this revenue is accrued in the month that the associated costs are incurred. We generally are not entitled to reimbursements for real estate taxes, insurance or other operating expenses.
Revenue is recognized for services or products that are deemed separate units of accounting. When a customer makes an advance payment or they are contractually obligated to pay any amounts in advance, which is not deemed a separate unit of accounting, deferred revenue is recorded. This revenue is recognized ratably over the expected term of the lease, unless the pattern of service suggests otherwise. As of December 31, 2014 and 2013, deferred revenue was $65.7 million and $55.9 million, respectively.
Certain customer contracts require specified levels of service or performance. If we fail to meet these service levels, our customers may be eligible to receive credits on their contractual billings. These credits are recognized against revenue when an event occurs that gives rise to such credits. Customer credits were immaterial for the years ended December 31, 2014 and 2013.
A provision for uncollectible accounts is recognized when the collection of contractual rent, straight-line rent or customer reimbursements are deemed to be uncollectible. The provision for uncollectible accounts was $1.0 million in 2014, $0.5 million in 2013 and $0.3 million in 2012.
Sales and Marketing Expense—Sales and marketing expense is comprised of compensation and benefits associated with sales and marketing personnel as well as advertising and marketing costs. Costs related to advertising are expensed as incurred and amounted to $2.9 million for the year ended December 31, 2014, $2.1 million for the period ended December 31, 2013, $0.1 million for the period ended January 23, 2013, and $2.9 million for the year ended December 31, 2012.
Depreciation and Amortization Expense—Depreciation expense is recognized over the estimated useful lives of real estate applying the straight-line method. The useful life of leased real estate and leasehold improvements is the lesser of the economic useful life of the asset or the term of the lease, including optional renewal periods if renewal of the lease is reasonably assured. The residual value of leased real estate is estimated as the lesser of (i) the expected fair value of the asset at the end of the lease term or (ii) the expected amount of the unamortized liability at the end of the lease term. Estimated useful lives are periodically reviewed. Depreciation expense was $95.8 million for the year ended December 31, 2014, $70.3 million for the period ended December 31, 2013, $4.1 million for the period ended January 23, 2013, and $54.5 million for the year ended December 31, 2012.
Amortization expense is recognized over the estimated useful lives of finite-lived intangibles. An accelerated method of amortization is utilized to amortize our customer relationship intangible, consistent with the benefit expected to be derived from this asset. We amortize trademarks, favorable leasehold interests, deferred leasing costs and deferred sales commissions over their estimated useful lives. The estimated useful life of trademarks and customer relationships is eight to fifteen years. In addition, we have a favorable leasehold interest related to a land lease that is being amortized over the lease term of fifty-six years. Deferred leasing costs are amortized over three to five years. Amortization expense was $22.2 million for the year ended December 31, 2014, $19.6 million for the period ended December 31, 2013, $1.2 million for the period ended January 23, 2013, and $18.9 million for the year ended December 31, 2012.
Transaction Costs—Transaction costs represent legal, accounting and professional fees incurred in connection with the formation transactions, our qualification as a real estate investment trust, or REIT, and potential business combinations. Transaction costs are expensed as incurred.
CyrusOne Inc. and CyrusOne LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (continued)
Transaction-Related Compensation—During the period ended January 23, 2013, the Company received an allocated compensation charge from CBI of $20.0 million for the settlement of its long-term incentive plan associated with the completion of the IPO. The amount was determined by CBI and allocated to CyrusOne Inc. on January 23, 2013, and reflected as expense and contributed capital in the respective period.
Income Taxes—CyrusOne Inc. was included in CBI’s consolidated tax returns in various jurisdictions for the Predecessor period and was included in the Successor period for Texas only until June 26, 2014 when CBI's ownership percentage in the operating partnership was reduced below 50%. In the accompanying financial statements, the Predecessor period and the Successor period (for Texas only until June 26, 2014) reflect income taxes as if the Company were a separate stand-alone company. The income tax provision consists of an amount for taxes currently payable and an amount for tax consequences deferred to future periods. CyrusOne Inc. elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with our initial taxable year ending December 31, 2013. Provided we continue to meet the various qualification tests mandated under the Code, we are generally not subject to corporate level federal income tax on the earnings distributed currently to our shareholders. If we fail to qualify as a REIT in any taxable year, our taxable income will be subject to federal income tax at regular corporate rates and any applicable alternative minimum tax.
While CyrusOne Inc. and the operating partnership do not pay federal income taxes, we are still subject to foreign, state and local income taxes in the locations in which we conduct business. Our taxable REIT subsidiaries (each a “TRS”) are also subject to federal and state income taxes to the extent they earn taxable income.
Deferred income taxes are recognized in certain entities. Deferred income taxes are provided for temporary differences in the bases between financial statement and income tax assets and liabilities. Deferred income taxes are recalculated annually at rates then in effect. Valuation allowances are recorded to reduce deferred tax assets to amounts that are more likely than not to be realized. The ultimate realization of the deferred tax assets depends upon our ability to generate future taxable income during the periods in which basis differences and other deductions become deductible and prior to the expiration of the net operating loss carryforwards.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction as well as various foreign, state and local jurisdictions. The Company's previous tax filings are subject to normal reviews by regulatory agencies until the related statute of limitations expires. With a few exceptions, the Company is no longer subject to U. S. federal, state or local examinations for years prior to 2011, and we have no liabilities for uncertain tax positions as of December 31, 2014 or 2013.
Foreign Currency Translation and Transactions—The financial position of foreign subsidiaries is translated at the exchange rates in effect at the end of the period, while revenues and expenses are translated at average rates of exchange during the period. Gains or losses from translation of foreign operations where the local currency is the functional currency are included as components of other comprehensive (loss) income. Gains or losses from foreign currency transactions are included in determining net income.
Comprehensive Loss—Comprehensive loss represents the change in net assets of a company from transactions and other events from non-owner sources. Comprehensive loss comprises all components of net loss and all components of other comprehensive loss. Comprehensive loss was equal to $0.3 million in 2014. Comprehensive loss was equal to our net loss in 2013 and 2012.
Earnings Per Share—For all periods subsequent to January 23, 2013, we present earnings per share (“EPS”) data. Basic EPS includes only the weighted average number of common shares outstanding during the period. Diluted EPS includes the weighted average number of common shares and the dilutive effect of stock options, restricted stock and share unit awards and convertible subordinated notes outstanding during the period, when such instruments are dilutive.
All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are treated as participating in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted EPS must be applied.
Related Party Transactions—CBI provided us with a variety of services. Cost allocation methods which were employed to determine the costs to be recognized in the accompanying combined financial statements included the following:
•Specific identification—Applied when amounts were specifically identifiable to our operations.
•Reasonable allocation method—When amounts were not clearly or specifically identifiable to our operations,
management applied a reasonable allocation method.
CyrusOne Inc. and CyrusOne LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (continued)
Stock-Based Compensation—In conjunction with the IPO, our board of directors adopted the 2012 Long-Term Incentive Plan (“LTIP”). The LTIP is administered by the board of directors, or the plan administrator. Awards issuable under the LTIP include common stock, restricted stock, stock options and other incentive awards. The awards under the LTIP include the following:
Restricted Shares - On January 24, 2013, CyrusOne Inc. issued approximately 1 million restricted shares to its employees, officers and members of the Company's board of directors in conjunction with CyrusOne's IPO. These restricted shares generally vest over three years. The per share grant date price was $19.00. In addition, from time to time, new employees and members of our board of directors have been issued restricted shares. These restricted shares are issued at a price equal to our share price on the grant date.
Performance and Market Based Awards - On April 17, 2013, and February 7, 2014, the Company issued performance and market based awards in the form of options and/or restricted stock to certain employees and officers of the Company. Fifty percent of the restricted shares and stock options will vest annually based upon achieving certain performance criteria. The other fifty percent of the restricted shares and stock options will vest at the end of three years if certain market conditions are met. The fair value of these awards were determined using the Black-Scholes or Monte-Carlo model which use assumptions such as volatility, risk-free interest rate, and expected term of the awards. See Note 15 for additional details relating to these awards.
Compensation expense for these awards is recognized over the vesting periods.
Fair Value Measurements—Fair value measurements are utilized in accounting for business combinations and testing of goodwill and other long-lived assets for impairment and disclosures. Fair value of financial and non-financial assets and liabilities is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier hierarchy for inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for asset and liabilities, is as follows:
Level 1—Observable inputs for identical instruments such as quoted market prices;
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs); and
Level 3—Unobservable inputs that reflect our determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including our own data.
Business Segments—Business segments are components of an enterprise for which separate financial information is available and regularly viewed by the chief operating decision maker to assess performance and allocate resources. Our chief operating decision maker, the Company's Chief Executive Officer, reviews our financial information on an aggregate basis. Furthermore, our data centers have similar economic characteristics and customers across all geographic locations, our service offerings have similar production processes, deliver services in a similar manner and use the same types of facilities and similar technologies. As a result, we have concluded that we have one reportable operating segment.
5. Recently Issued Accounting Standards
In February 2013, the Financial Accounting Standards Board ("FASB") issued amendments to provide guidance on the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of obligation within the scope of this guidance is fixed at the reporting date, except for obligations addressed within existing guidance in GAAP. The amendments are effective for fiscal years and interim periods within those years, beginning after December 15, 2013. The Company adopted this guidance in the first quarter of 2014 and has properly reflected the impact in the guarantor financial statements.
In May 2014, the FASB issued guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This guidance requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures which are effective for interim and annual reporting periods in fiscal years that begin after December 15, 2016. We are currently evaluating the impact of the adoption of this guidance in our consolidated financial statements.
In June 2014, the FASB issued a guidance update for the presentation of stock compensation. This guidance requires an entity to treat performance targets that can be met after the requisite service period of a share based award has ended, as a performance condition that affects vesting which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015. We are currently evaluating the impact of the adoption of this guidance in our consolidated financial statements.
In August 2014, the FASB issued guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements. This guidance is effective for annual periods ending after December 15, 2016, and interim periods thereafter; early adoption is permitted. We are currently evaluating the full impact of the new standard.
In January 2015, the FASB issued guidance eliminating from U.S. GAAP the concept of an extraordinary item. An entity is no longer required to (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; and (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. This guidance does not affect the reporting and disclosure requirements for an event that is unusual in nature or that occurs infrequently.
CyrusOne Inc. and CyrusOne LP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (continued)
6. Investment in Real Estate
A schedule of our gross investment in real estate follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2014 | | December 31, 2013 |
(amounts in millions) | Land | | Building and Improvements | |