What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-02-28 · 152 added, 165 removed, 673 unchanged (32% of the section changed)

33 unchanged sentences

Description of the Matter

As described in Notes 1, 2 and 6 to the consolidated financial statements, as of December 31, 2019, the Company has recorded $408.2 million and $169.8 million of indefeasible right of use (IRU) finance lease assets and liabilities, respectively.

The Company makes certain judgments and estimates to determine the initial carrying amount of the asset and lease liabilities at the lease commencement date, which include, among others, the lease term and the incremental borrowing rate.

Auditing the initial carrying amount of IRU lease assets and liabilities involved subjectivity due to the application of judgment in management’s determination of the lease term and the incremental borrowing rate.

As described in Notes 1, 2 and 6 to the consolidated financial statements, as of December 31, 2020, the Company has recorded $254.3 million and $219.1 million of indefeasible right of use (IRU) finance lease assets, net, and liabilities, respectively and recorded $71.6 million of finance lease assets and liabilities additions during the year ended December 31, 2020.

Auditing the initial carrying amount of IRU lease assets and liabilities involved subjectivity due to the application of judgment in management’s determination of the lease term.

For example, management’s determination of the lease term included assumptions related to the useful life of IRUs and the expectations regarding exercise or non-exercise of renewal options contained in certain IRU lease agreements.

Management’s determination of the interest rate used in determining the present value of the aggregate future minimum lease payments is based on the Company’s estimated incremental borrowing rate at the lease inception date.

Changes in those assumptions may have a material effect on the initial carrying amount of the right-of-use asset or lease liabilities due to the volume of the IRU agreements executed each period.

Changes in this assumption may have a material effect on the initial carrying amount of the right-of-use assets or lease liabilities due to the volume of the IRU agreements executed each period.

How We Addressed the Matter in Our Audit

We tested the design and operating effectiveness of the Company’s controls over the process to determine the carrying amount of its IRU leases.

This included testing controls related to management’s assumptions regarding the lease term and the incremental borrowing rate.

To test the initial carrying amount of right-of-use assets and lease liabilities, our audit procedures included among others, assessing the Company’s historical lease option renewals compared to management’s assumptions, evaluating industry practice in estimating useful lives compared to those selected by management, and comparing market information to the estimated incremental borrowing rates.

This included testing controls related to management’s assumptions regarding the lease term.

To test the initial carrying amount of right-of-use assets and lease liabilities, our audit procedures included among others, assessing the Company’s historical lease option renewals compared to management’s assumptions and evaluating industry practice in estimating useful lives compared to those selected by management.

/s/ Ernst & Young LLP

7 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 1,771 and $ 1,263 , respectively

Accounts receivable, net of allowance for credit losses of $ 1,921 and $ 1,771 , respectively

Prepaid expenses and other current assets

3 unchanged sentences

Accumulated depreciation and amortization

( 1,085,532 )

Total property and equipment, net

Right-of-use leased assets

Deferred tax assets

Deposits and other assets

7 unchanged sentences

Total current liabilities

Senior unsecured 2024 Euro notes, net of unamortized debt costs of $ 1,410

Senior unsecured 2024 Euro notes, net of unamortized debt costs of $ 2,961 and $ 1,410 , respectively and net of discount of $ 1,142 and $ 0 , respectively

Senior secured 2022 notes, net of unamortized debt costs of $ 1,052 and $ 1,897 respectively and including premium of $ 544 and $ 985 , respectively

Senior unsecured 2021 notes, net of unamortized debt costs of $ 857 and $ 1,476 , respectively

Senior unsecured 2021 notes, net of unamortized debt costs of $ 857

Operating lease liabilities, net of current maturities

8 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Accumulated deficit

13 unchanged sentences

Gains on equipment transactions

Losses on lease terminations

Operating income

Interest income and other

Interest expense

Realized foreign exchange gain on 2024 Euro Notes

Unrealized foreign exchange (loss) gain on 2024 Euro Notes

Loss on debt extinguishment and redemption - 2021 Notes

Interest income and other

Income before income taxes

18 unchanged sentences

Balance at December 31, 2017

Cumulative effect adjustment from adoption of ASC 606

Forfeitures of shares granted to employees

6 unchanged sentences

Balance at December 31, 2018

Cumulative effect adjustment from adoption of ASC 606

Forfeitures of shares granted to employees

3 unchanged sentences

Exercises of options

Common stock purchases and retirement

Dividends paid

5 unchanged sentences

Exercises of options

Common stock purchases and retirement

Dividends paid

9 unchanged sentences

Equity-based compensation expense (net of amounts capitalized)

Unrealized foreign currency exchange gain on 2024 Euro notes

Unrealized foreign currency exchange loss (gain) on 2024 Euro Notes

Realized foreign currency exchange gain on 2024 Euro Notes

Loss on extinguishment of 2021 notes

Gains—equipment transactions and other, net

10 unchanged sentences

Cash flows from financing activities:

Net proceeds from issuance of senior unsecured 2024 Euro notes — net of debt costs of $ 1,556

Net proceeds from issuance of 2022 secured notes-net of debt costs of $ 1,364

Net proceeds from issuance of senior 2024 Euro Notes, net of debt costs of $ 2,137 and $ 1,556 , respectively

Net proceeds from issuance of 2022 Notes, net of debt costs of $ 1,364

Redemption and extinguishment of 2021 Notes

Dividends paid

3 unchanged sentences

Proceeds from exercises of common stock options

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of year

19 unchanged sentences

and its subsidiaries.

Cogent Communications, Inc.

is wholly owned by Group and the vast majority of Cogent's assets, contractual arrangements, and operations are executed by Cogent Communications, Inc.

Description of business

The Company is a facilities-based provider of low-cost, high-speed Internet access, private network services, and data center colocation space.

The Company’s network is specifically designed and optimized to transmit packet switched data.

The Company delivers its services primarily to small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations in 47 countries across North America, Europe, Asia, South America, Australia and Africa.

The Company is a Delaware corporation and is headquartered in Washington, DC.

The Company is a facilities-based provider of low-cost, high-speed Internet access services, private network services and data center colocation space.

The Company’s network is specifically designed and optimized to transmit packet routed data.

The Company delivers its services primarily to small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations in North America, Europe, Asia, Latin America and Australia.

The Company offers on-net Internet access and private network services exclusively through its own facilities, which run from its network to its customers’ premises.

The Company is not dependent on local telephone companies or cable TV companies to serve its customers for its on-net Internet access services because of its integrated network architecture.

The Company offers on-net Internet access services exclusively through its own facilities, which run from its network to its customers’ premises.

The Company offers its on-net services to customers located in buildings that are physically connected to its network.

The Company’s on-net service consists of high-speed Internet access and private network services offered at speeds ranging from 100 megabits per second to 100 gigabits per second of bandwidth.

The Company provides its on-net Internet access services and private network services to its corporate and net-centric customers.

The Company’s corporate customers are located in multi-tenant office buildings and typically include law firms, financial services firms, advertising and marketing firms and other professional services businesses.

The Company’s net-centric customers include bandwidth-intensive users such as other Internet service providers, telephone companies, cable television companies, web hosting companies, content delivery network companies and commercial content and application service providers.

These net-centric customers obtain the Company’s services in colocation facilities and in the Company’s data centers.

As a result, the Company is not dependent on local telephone companies or cable TV companies to serve its customers for its on-net Internet access and private network service.

The Company’s on- net service consists of high-speed Internet access and private network services offered at speeds ranging from 100 megabits per second to 100 gigabits per second.

The Company provides its on-net Internet access and private network services to its corporate and net-centric customers.

The Company’s corporate customers are located in multi-tenant office buildings and typically include law firms, financial services firms, advertising and marketing firms, as well as health care providers, educational institutions and other professional services businesses.

The Company’s net-centric customers include bandwidth-intensive users that leverage its network to either deliver content to end users or to provide access to residential or commercial internet users.

Content delivery customers include over the top (“OTT”) media service providers, content delivery networks, web hosting companies, and commercial content and application software providers.

Access customers include access networks comprised of other ISPs, telephone companies, mobile phone operators and cable television companies that collectively provide internet access to a substantial number of broadband subscribers and mobile phone subscribers across the world.

These net-centric customers generally receive the Company’s services in carrier neutral colocation facilities and in its data centers.

The Company operates data centers throughout North America and Europe that allow its customers to collocate their equipment and access the Company’s network.

In addition to providing its on-net services, the Company provides Internet connectivity and private network services to customers that are not located in buildings directly connected to its network.

The Company provides this off-net service primarily to corporate customers using other carriers’ facilities to provide the “last mile” portion of the link from the customers’ premises to the Company’s network.

In addition to providing on-net services, the Company provides Internet access and private network services to customers that are not located in buildings directly connected to its network.

The Company provides these off-net services primarily to corporate customers using other carriers’ circuits to provide the “last mile” portion of the link from the customers’ premises to the Company’s network.

The Company also provides certain non-core services that resulted from acquisitions.

3 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description of the business and summary of significant accounting policies:

Use of estimates

1 unchanged sentence

Actual results may differ from these estimates.

Allowance for doubtful accounts

The Company establishes an allowance for doubtful accounts and other sales credit adjustments related to its trade receivables.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description of the business and summary of significant accounting policies:

Allowance for credit losses

The Company establishes an allowance for credit losses and other sales credit adjustments related to its trade receivables.

Trade receivables are recorded at the invoiced amount and can bear interest.

Allowances for sales credits are established through a reduction of revenue, while allowances for doubtful accounts are established through a charge to selling, general, and administrative expenses as bad debt expense.

Allowances for sales credits are established through a reduction of revenue, while allowances for credit losses are established through a charge to selling, general, and administrative expenses as bad debt expense.

The Company assesses the adequacy of these reserves by evaluating factors, such as the length of time individual receivables are past due, historical collection experience, and changes in the credit worthiness of its customers.

1 unchanged sentence

If circumstances relating to specific customers change or economic conditions change such that the Company’s past collection experience and assessment of the economic environment are no longer appropriate, the Company’s estimate of the recoverability of its trade receivables could be impacted.

Accounts receivable balances are written-off against the allowance for doubtful accounts after all means of internal collection activities have been exhausted and the potential for recovery is considered remote.

The Company recognized bad debt expense, net of recoveries, of $ 4.1 million, $ 3.3 million and $ 3.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Accounts receivable balances are written-off against the allowance for credit losses after all means of internal collection activities have been exhausted and the potential for recovery is considered remote.

Recent accounting pronouncements— adopted

Effective January 1, 2020, the Company adopted Accounting Standards Update ("ASU") No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13") later codified as Accounting Standards Codification ("ASC") 326 ("ASC 326"), using the modified retrospective transition approach.

This guidance introduces a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses.

As of January 1, 2020, the Company maintained an allowance for credit losses to cover its current expected credit losses on its trade receivables arising from the failure of customers to make contractual payments.

The Company estimates credit losses expected over the life of its trade receivables based on historical information combined with current conditions that may affect a customer's ability to pay and reasonable and supportable forecasts.

While the Company uses various credit quality metrics, it primarily monitors collectability by reviewing the duration of collection pursuits on its delinquent trade receivables.

Based on the Company's experience, the customer's delinquency status is the strongest indicator of the credit quality of the underlying trade receivables, which is analyzed monthly.

Adoption of ASU 2016-13 did not have a material impact on the Company's consolidated financial statements and related disclosures, and no cumulative adjustment was recorded.

Current-period

Provision for

Expected Credit

Charged Against

Allowance for credit losses (deducted from accounts receivable)

Year ending December 31, 2020

Year ending December 31, 2019

Year ending December 31, 2018

The current-period provision for expected credit losses is net of bad debt recoveries of $ 1.2 million, $ 1.9 million and $ 0.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

1 unchanged sentence

Description of the business and summary of significant accounting policies:

Recent Accounting Pronouncements— Adopted

In February 2016, the FASB issued ASU No.

4 unchanged sentences

These leases were previously treated as operating leases.

The Company adopted ASU 2016-02 using the optional transition method whereby the new lease requirements under ASU 2016-02 were recorded through a cumulative-effect adjustment, which after completing the implementation analysis, resulted in no adjustment to the Company's January 1, 2019 beginning retained earnings balance.

The Company adopted ASU 2016-02 using the optional transition method whereby the new lease requirements under ASU 2016-02 were recorded through a cumulative-effect adjustment, which after completing the implementation analysis, did not result in an adjustment to the Company's January 1, 2019 beginning retained earnings balance.

The effect of ASU 2016-02 was to record a cumulative-effect adjustment on January 1, 2019 as a right-of-use asset and an operating lease liability totaling $ 97.3 million.

3 unchanged sentences

December 31, 2020

December 31, 2019

Finance lease cost amortization of right-of-use assets

61 unchanged sentences

Lease obligations, net of current maturities

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description of the business and summary of significant accounting policies:

Revenue recognition

3 unchanged sentences

The Company believes that the installation fee does not give rise to a material right as defined by ASC 606 for contracts with terms longer than month-to-month.

The Company recognizes revenue over the estimated average customer life for installation fees associated with month-to-month contracts, because the fee represents a material right as defined by ASC 606.

The Company recognizes revenue over the estimated average customer life for installation fees associated with month-to-month contracts, because the installation fee represents a material right as defined by ASC 606.

The Company capitalizes certain contract acquisition costs that relate directly to a customer contract, including commissions paid to its sales team and sales agents and amortizes these costs on straight-line basis over the period the services are transferred to the customer for commissions paid to its sales team (estimated customer life) and over the remaining original contract term for agent commissions.

2 unchanged sentences

These contract costs were $ 20.6 million as of December 31, 2020 and were $ 18.7 million as of December 31, 2019.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description of the business and summary of significant accounting policies:

The Company’s service offerings consist of on-net and off-net telecommunications services.

15 unchanged sentences

The Company recognizes revenue for these amounts as they are collected.

Service revenue recognized from amounts in deferred revenue (contract liabilities) at the beginning of the period during the year ended December 31, 2019 was $ 4.4 million and during the year ended December 31, 2018 was $ 5.0 million.

Amortization expense for contract costs was $ 17.3 million for the year ended December 31, 2019 and $ 16.8 million for the year ended December 31, 2018.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description of the business and summary of significant accounting policies:

Service revenue recognized from amounts in deferred revenue (contract liabilities) at the beginning of the period during the years ended December 31, 2020, 2019 and 2018 was $ 4.4 million, $ 4.4 million and $ 5.0 million, respectively.

Amortization expense for contract costs for the years ended December 31, 2020, 2019 and 2018 was $ 17.1 million, $ 17.3 million and $ 16.8 million , respectively.

Gross receipts taxes, universal service fund and other surcharges

15 unchanged sentences

The Company’s foreign exchange transaction gains (losses) are included within interest income and other on the consolidated statements of comprehensive income.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description of the business and summary of significant accounting policies:

Financial instruments

3 unchanged sentences

The Company measures its cash equivalents at amortized cost, which approximates fair value based upon quoted market prices (Level 1).

Based upon recent trading prices (Level 2—market approach) at December 31, 2019 the fair value of the Company’s $ 189.2 million senior unsecured notes was $ 191.8 million , the fair value of the Company's $ 445.0 million senior secured notes was $ 466.1 million and the fair value of the Company’s € 135.0 million ($ 151.4 million) senior unsecured notes was $ 155.4 million.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description of the business and summary of significant accounting policies:

Based upon recent trading prices (Level 2—market approach) at December 31, 2020 the fair value of the Company's $ 445.0 million senior secured notes due 2022 was $ 458.4 million and the fair value of the Company’s € 350.0 million ($ 429.3 million) senior unsecured notes due 2024 was $ 437.8 million.

Concentrations of credit risk

2 unchanged sentences

The Company places its cash equivalents in instruments that meet high-quality credit standards as specified in the Company's investment policy guidelines.

Accounts receivable are due from customers located in major metropolitan areas in the United States, Europe, Canada, Mexico, Asia, Latin America and Australia.

Accounts receivable are due from customers located in major metropolitan areas in the United States, Europe, Canada, Mexico, Asia, South America, Australia and Africa.

Receivables from the Company's net-centric (wholesale) customers are generally subject to a higher degree of credit risk than the Company's corporate customers.

60 unchanged sentences

Anti-dilutive shares of restricted common stock

Recent Accounting Pronouncements—to be Adopted

In June 2016, the FASB issued ASU No.

2016-13, “ Financial Instruments—Credit Losses:

Measurement of Credit Losses on Financial Instruments.

” This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses.

This new standard is effective for annual and interim reporting periods beginning after December 15, 2019 and early adoption is permitted.

The Company has determined that the impact of ASU No.

2016-13 will not have a material impact on its financial statements or disclosures.

Property and equipment:

9 unchanged sentences

Property and equipment, net

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property and equipment:

Depreciation and amortization expense related to property and equipment and finance leases was $ 83.5 million, $ 80.2 million and $ 81.2 million, for 2020, 2019 and 2018, respectively.

2 unchanged sentences

These amounts are included in system infrastructure costs.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property and equipment:

Exchange agreement

In 2020, 2019 and 2018 the Company exchanged certain used network equipment and cash consideration for new network equipment.

The fair value of the new network equipment received was estimated to be $ 3.3 million, $ 3.2 million and $ 9.1 million resulting in gains of $ 1.0 million, $ 1.0 million and $ 3.9 million respectively.

The fair value of the new network equipment received was estimated to be $ 1.1 million, $ 3.3 million and $ 3.2 million, respectively, resulting in gains of $ 0.3 million, $ 1.0 million and $ 1.0 million, respectively.

The estimated fair value of the equipment received was based upon the cash consideration price the Company pays for the new network equipment on a standalone basis (Level 3).

1 unchanged sentence

The Company has entered into an installment payment agreement (“IPA”) with a vendor.

Under the IPA the Company may purchase network equipment in exchange for interest free note obligations each with a twenty-four month term.

Under the IPA the Company was able to purchase network equipment in exchange for interest free note obligations each with a twenty-four month term.

There are no payments under each note obligation for the first six months followed by eighteen equal installment payments for the remaining eighteen month term.

10 unchanged sentences

Issuance of 2024 Notes

On June 25, 2019, Group completed an offering of € 135.0 million aggregate principal amount of 4.375 % senior unsecured notes ("The 2024 Notes") due on June 30, 2024.

The net proceeds from the offering, after deducting offering expenses, were approximately $ 152.1 million.

The Company expects to use the proceeds for general corporate purposes and/or to repurchase the Company’s common stock or for special or recurring dividends to the Company’s stockholders.

In June 2020, Group completed an offering of € 215.0 million aggregate principal amount of 4.375 % senior unsecured notes due 2024 ("2024 Notes").

The net proceeds from the June 2020 offering, after deducting offering expenses, were $ 240.3 million.

In June 2019, Group completed an offering of € 135.0 million aggregate principal amount of 2024 Notes.

The net proceeds from the June 2019 offering, after deducting offering expenses, were $ 152.1 million.

The Company expects to use the proceeds from these offerings for general corporate purposes , to repay debt obligations, to repurchase the Company’s common stock or for special or recurring dividends to the Company’s stockholders.

The 2024 Notes are guaranteed (the “Guarantees”) on a senior unsecured basis, jointly and severally, by the Company’s material domestic subsidiaries, subject to certain exceptions, and by the Company (collectively, the “Guarantors”).

12 unchanged sentences

however, there can be no assurance that the listing will be maintained.

The 2024 Notes bear interest at a rate of 4.375 % per annum.

Interest began to accrue on the 2024 Notes on June 25, 2019 and will be paid semi-annually in arrears on June 30 and December 30 of each year, commencing on December 30, 2019.

The 2024 Notes bear interest at a rate of 4.375 % per annum and will be paid semi-annually in arrears on June 30 and December 30 of each year.

Unless earlier redeemed, the 2024 Notes will mature on June 30, 2024.

The 2024 Notes were issued by Group, a subsidiary with a US dollar functional currency, and issued at par for € 135.0 million ($ 153.7 million) on June 25, 2019.

The 2024 Notes were issued in Euros and are reported in the Company’s reporting currency — US Dollars.

As of December 31, 2019, the 2024 Notes were valued at $ 151.4 million resulting in an unrealized gain on foreign exchange of $ 2.3 million for the year ended December 31, 2019.

As of December 31, 2020, the 2024 Notes were valued at $ 429.3 million resulting in an unrealized loss on foreign exchange of $ 37.0 million for the year ended December 31, 2020.

Group may redeem some or all of the 2024 Notes at any time prior to June 30, 2021 at a price equal to 100 % of the principal amount of the 2024 Notes, plus a “make-whole” premium as set forth in the indenture, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.

6 unchanged sentences

In connection with any offer to purchase all or any of the 2024 Notes (including a change of control offer, asset sale offer or any tender offer), if holders of no less than 90 % of the aggregate principal amount of the 2024 Notes validly tender their 2024 Notes, Group or a third party is entitled to redeem any remaining 2024 Notes at the price offered to each holder.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Long-term debt:

The 2024 Notes indenture includes covenants that restrict Group and its restricted subsidiaries’ ability to, among other things:

10 unchanged sentences

and S&P Global Ratings and so long as no default or event of default under the Indenture has occurred and is continuing.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Long-term debt:

The principal amount of the 2024 Notes would become immediately due and payable upon the occurrence of certain bankruptcy or insolvency events involving Group or certain of its subsidiaries, and may be declared immediately due and payable by the trustee or the holders of at least 25% of the aggregate principal amount of the then-outstanding 2024 Notes upon the occurrence of certain events of default under the indenture.

1 unchanged sentence

In February 2015, Group issued $ 250.0 million of 5.375 % senior secured notes due 2022 (the “2022 Notes”).

The net proceeds from the offering were $ 248.6 million after deducting discounts and commissions and offering expenses.

The net proceeds from the offering were $ 248.6 million after deducting discounts and offering costs.

In December 2016, the Company issued an additional $ 125.0 million par value of its 2022 Notes at a premium of 100.375 % of par value.

8 unchanged sentences

The 2022 Notes are also secured by a pledge of all of the equity interests in Group’s domestic subsidiaries and 65 % of the equity interests in Group’s first-tier foreign subsidiaries.

The 2022 Notes and the subsidiary guarantees will be the Company’s and the subsidiary guarantors’ senior indebtedness and will rank pari passu in right of payment with all of the Company’s and the subsidiary guarantors’ existing and future senior indebtedness, effectively senior to Group’s senior unsecured indebtedness to the extent of the value of the collateral securing the 2022 Notes and the subsidiary guarantees, including Group’s 2021 Notes that were issued on April 9, 2014, described below, and senior to any of the Company’s and the subsidiary guarantors’ future subordinated indebtedness.

The 2022 Notes and the subsidiary guarantees will be the Company’s and the subsidiary guarantors’ senior indebtedness and will rank pari passu in right of payment with all of the Company’s and the subsidiary guarantors’ existing and future senior indebtedness, effectively senior to Group’s senior unsecured indebtedness to the extent of the value of the collateral securing the 2022 Notes and the subsidiary guarantees, and senior to any of the Company’s and the subsidiary guarantors’ future subordinated indebtedness.

The 2022 Notes are structurally subordinated to the liabilities of the non-guarantor subsidiaries and are effectively subordinated to the Company’s and the subsidiary guarantors’ secured indebtedness to the extent of the value of the collateral securing such indebtedness on a basis senior to the 2022 Notes and the subsidiary guarantees.

2 unchanged sentences

Holdings is also not subject to the covenants under the indenture governing the 2022 Notes.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Long-term debt:

The 2022 Notes may be redeemed prior to December 1, 2021 (three months prior to the maturity date of the Notes) in whole or from time to time in part, at a redemption price equal to the sum of (1) 100 % of the principal amount plus accrued and unpaid interest, if any, to, but not including, the redemption date, and (2) a make-whole premium, if any.

5 unchanged sentences

( “Cogent Finance”), a newly formed financing subsidiary of Group, completed an offering at par of $ 200.0 million in aggregate principal amount of 5.625 % Senior Notes due 2021 (the “2021 Notes”).

The 2021 Notes were sold in private offerings for resale to qualified institutional buyers pursuant to SEC Rule 144A and will mature on April 15, 2021.

Interest is paid semi-annually on April 15 and October 15.

The 2021 Notes were sold in private offerings for resale to qualified institutional buyers pursuant to SEC Rule 144A, accrued interest at a rate of 5.625% and were to mature on April 15, 2021.

Interest was paid semi-annually on April 15 and October 15.

Cogent Finance merged with Group, with Group continuing as the surviving corporation (the “Finance Merger”).

At the time of consummation of the Finance Merger, Group assumed the obligations of Cogent Finance under the 2021 Notes and the indenture governing the 2021 Notes (the “Indenture”) and Group and each of Group’s domestic subsidiaries became party to the Indenture pursuant to a supplemental indenture to the Indenture and the obligations under the Indenture became obligations solely of Group and each of Group’s domestic subsidiaries.

Holdings also provided a guarantee of the 2021 Notes but Holdings is not subject to the covenants under the Indenture.

The net proceeds from the offering were $ 195.8 million after deducting commissions and offering expenses.

The net proceeds from the offering are intended to be used for general corporate purposes.

In the second quarter of 2016, the Company paid $ 10.9 million for the purchase of $ 10.8 million of par value and accrued interest on its 2021 Notes reducing the principal amount to $ 189.2 million and resulting in a loss on extinguishment of $ 0.2 million.

The loss resulted from the write off of the remaining unamortized debt issuance costs related to the purchased notes.

The 2021 Notes bear interest at a rate of 5.625 % per year and will mature on April 15, 2021.

Interest is paid semi-annually on April 15 and October 15.

The 2021 Notes are senior unsecured obligations of Group and are guaranteed on a senior unsecured basis by Holdings.

The 2021 Notes are effectively subordinated in right of payment to all of Group’s and each guarantor’s secured indebtedness and future secured indebtedness, if any, to the extent of the value of the assets securing such indebtedness.

The 2021 Notes are equal in right of payment with Group’s and each guarantor’s unsecured indebtedness that is not subordinated in right of payment to the 2021 Notes.

The 2021 Notes rank senior in right of payment to Group’s and each guarantor’s future subordinated debt, if any;

and are structurally subordinated in right of payment to all indebtedness and other liabilities of any of the Group’s subsidiaries that are not guarantors, which only consist of immaterial subsidiaries and foreign subsidiaries that do not guarantee other indebtedness of Group.

Holdings also provided a guarantee of the 2021 Notes but Holdings was not subject to the covenants under the Indenture.

In the second quarter of 2016, the Company paid $ 10.9 million for the purchase of $ 10.8 million of par value and accrued interest on its 2021 Notes reducing the principal amount to $ 189.2 million.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

1 unchanged sentence

Long-term debt:

Group may also redeem the 2021 Notes, in whole or in part, at any time on or after April 15, 2017 at the applicable redemption prices specified under the indenture governing the 2021 Notes plus accrued and unpaid interest, if any, to the date of redemption.

The redemption prices (expressed as a percentage of the principal amount) are 104.219 % during the 12-month period beginning on April 15, 2017, 102.813 % during the 12-month period beginning on April 15, 2018, 101.406 % during the 12-month period beginning on April 15, 2019 and 100.0 % during the 12-month period beginning on April 15, 2020 and thereafter.

If Group experiences specific kinds of changes of control, Group must offer to repurchase all of the 2021 Notes at a purchase price of 101.0 % of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.

Debt extinguishment and redemption 2021 Notes

In June 2020, Group redeemed the 2021 Notes with the proceeds from its June 2020 issuance of 2024 Notes.

The Company redeemed the entire outstanding amount of the 2021 Notes at a redemption price of 100.00 % of the $ 189.2 million principal amount plus $ 1.6 million of accrued interest.

As a result of this transaction, the Company incurred a loss on debt extinguishment and redemption of $ 0.6 million from the amortization of the remaining unamortized notes cost and certain transaction expenses.

Limitations under the indentures

The indentures governing the 2024 Notes, 2022 Notes and 2021 Notes, among other things, limit the Company’s ability to incur indebtedness;

The indentures governing the 2024 Notes and 2022 Notes, among other things, limit the Company’s ability to incur indebtedness;

to pay dividends or make other distributions;

4 unchanged sentences

and to enter into certain transactions with its affiliates.

Limitations on the ability to incur additional indebtedness (excluding IRU agreements incurred in the normal course of business) include a restriction on incurring additional indebtedness if the Company’s consolidated leverage ratio, as defined in the indentures, is greater than 6.0 for the 2024 Notes and greater than 5.0 for the 2022 Notes and 2021 Notes.

Limitations on the ability to incur additional secured indebtedness include a restriction on incurring additional secured indebtedness if the Company’s consolidated secured leverage ratio, as defined in the indentures, is greater than 4.0 for the 2024 Notes and greater than 3.5 for the 2022 Notes and 2021 Notes.

The indentures prohibit certain payments, such as dividends and stock purchases, when the Company’s consolidated leverage ratio, as defined by the indentures, is greater than 4.25 .

2 unchanged sentences

The Company’s consolidated leverage ratio was above 4.25 as of December 31, 2020.

As of December 31, 2019, a total of $ 110.3 million (primarily held by Holdings in cash and cash equivalents) was permitted for investment payments including dividends and stock purchases.

As of December 31, 2020, a total of $ 94.0 million was permitted for investment payments including dividends and stock purchases.

Long-term debt maturities

1 unchanged sentence

For the year ending December 31,

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income taxes:

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "TCJA").

The TCJA amended the Internal Revenue Code and reduced the corporate tax rate from a maximum of 35 % to a flat 21 % rate.

The rate reduction was effective on January 1, 2018.

The Company's net deferred tax assets represent a decrease in corporate taxes expected to be paid in the future.

Under generally accepted accounting principles deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Company's net deferred tax asset was determined based on the current enacted federal tax rate of 35 % prior to the passage of the Act.

As a result of the reduction in the corporate income tax rate from 35 % to 21 % and other provisions under the TCJA, the Company made reasonable estimates of the effects of the TCJA and revalued its net deferred tax asset at December 31, 2017 resulting in a reduction in the value of its net deferred tax asset of approximately $ 9.0 million and recorded a transition tax of $2.3 million related to its foreign operations for a total of $ 11.3 million, which was recorded as additional noncash income tax expense in the year ended December 31, 2017.

As of December 31, 2018, the Company had collected all of the necessary data to complete its analysis of the effect of the TCJA on its underlying deferred income taxes and recorded a $ 0.1 million reduction in the value to its net deferred tax asset.

The TCJA subjects a U.S.

shareholder to current tax on global intangible low-taxed income earned by certain foreign subsidiaries.

FASB Staff Q&A, Topic 740, No.

5, "Accounting for Global Intangible Low-Taxed Income", states that the Company is permitted to make an accounting policy election to either recognize deferred income taxes for temporary basis differences expected to reverse as global intangible low-taxed income in future years or provide for the income tax expense related to such income in the year the income tax is incurred.

The Company has made an accounting policy to record these income taxes as a period cost in the year the income tax in incurred.

The components of income (loss) before income taxes consist of the following (in thousands):

The components of income before income taxes consist of the following (in thousands):

Years Ended December 31,

Total income before income taxes

The income tax expense is comprised of the following (in thousands):

Years Ended December 31,

Total income tax expense

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

1 unchanged sentence

Income taxes:

The income tax expense is comprised of the following (in thousands):

Years Ended December 31,

Total income tax expense

Our consolidated temporary differences comprising our net deferred tax assets are as follows (in thousands):

10 unchanged sentences

Gross deferred tax liabilities

Net deferred tax (liabilities) assets

Net deferred tax liabilities

At each balance sheet date, the Company assesses the likelihood that it will be able to realize its deferred tax assets.

The Company considers all available positive and negative evidence in assessing the need for a valuation allowance.

The Company maintains a full valuation allowance against certain of its deferred tax assets consisting primarily of net operating loss carryforwards related to its foreign operations in Canada, Europe, Asia, Latin America and Australia and net operating losses in the United States that are limited for use under Section 382 of the Internal Revenue Code.

As of December 31, 2019, the Company has combined net operating loss carry-forwards of $ 994.0 million.

This amount includes federal net operating loss carry-forwards in the United States of $ 97.6 million, net operating loss carry-forwards related to its European, Mexican, Canadian and Asian operations of $ 890.1 million, $ 3.3 million, $ 1.8 million and $ 1.0 million, respectively.

The Company maintains a full valuation allowance against certain of its deferred tax assets consisting primarily of net operating loss carryforwards related to its foreign operations in Europe, Asia, South America, Australia and Africa and net operating losses in the United States that are limited for use under Section 382 of the Internal Revenue Code.

As of December 31, 2020, the Company has combined net operating loss carry-forwards of $ 1.1 billion.

This amount includes federal net operating loss carry-forwards in the United States of $ 60.3 million, net operating loss carry-forwards related to its European operations of $ 1.0 billion and $ 5.3 million related to its other international operations.

Section 382 of the Internal Revenue Code in the United States limits the utilization of net operating losses when ownership changes, as defined by that section, occur.

1 unchanged sentence

Of the net operating losses available at December 31, 2020 in the United States $ 32.0 million are limited for use under Section 382.

Net operating loss carryforwards outside of the United States totaling $ 896.4 million are not subject to limitations similar to Section 382.

Net operating loss carryforwards outside of the United States totaling $ 1.0 billion are not subject to limitations similar to Section 382.

The net operating loss carryforwards in the United States will expire, if unused, between 2025 and 2036.

The net operating loss carry-forwards related to the Company's Mexican, Asian and Canadian operations will expire if unused, between 2020 and 2029.

The net operating loss carry-forwards related to the Company's European operations include $ 870.0 million that do not expire and $ 153.9 million that expire between 2021 and 2036.

Other than the $ 2.3 million transition tax recorded in the year ended December 31, 2017 as a result of its foreign earnings the Company has not provided for United States deferred income taxes or foreign withholding taxes on its undistributed earnings for certain non-US subsidiaries earnings or cumulative translation adjustments because these earnings and adjustments are intended to be permanently reinvested in operations outside the United States.

The Company has not provided for United States deferred income taxes or foreign withholding taxes on its undistributed earnings for certain non-US subsidiaries earnings or cumulative translation adjustments because these earnings and adjustments are intended to be permanently reinvested in operations outside the United States.

It is not practical to determine the amount of the unrecognized deferred tax liability on such undistributed earnings or cumulative translation adjustments.

5 unchanged sentences

If the Company determines that the tax position is not more likely than not to be sustained, the Company records a liability for the amount of the benefit that is not more likely than not to be realized when the tax position is settled.

The Company does not have a liability for uncertain tax positions at December 31, 2019 and does not expect that its liability for uncertain tax positions will materially increase during the twelve months ended December 31, 2020, however, actual changes in the liability for uncertain tax positions could be different than currently expected.

The Company does not have a material liability for uncertain tax positions at December 31, 2020 and does not expect that its liability for uncertain tax positions will materially increase during the twelve months ended December 31, 2021, however, actual changes in the liability for uncertain tax positions could be different than currently expected.

If recognized, changes in the Company's total unrecognized tax benefits would impact the Company's effective income tax rate.

8 unchanged sentences

Non-deductible expenses

Federal tax rate change

Tax effect of TCJA from foreign earnings

10 unchanged sentences

The arbitration is being conducted by the Civil and Commercial Arbitration Court (CIMA) in Madrid, Spain.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Commitments and contingencies:

In the ordinary course of business the Company is involved in other legal activities and claims.

3 unchanged sentences

Actual results may differ from these estimates under different assumptions or conditions and such differences could be material.

The Company enters into leases for network equipment sites and data center facilities.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Commitments and contingencies:

Network equipment sites and data center facilities

The Company enters into leases for network equipment sites and for space in data center facilities.

Future minimum annual payments under these arrangements are as follows (in thousands):

1 unchanged sentence

Expenses related to these arrangements were $ 21.0 million in 2020, $ 20.6 million in 2019 and $ 20.8 million in 2018.

Short-term lease expense as required to be disclosed under ASU 2016-02 was $ 0.9 million for the year ended December 31, 2019.

Unconditional purchase obligations

6 unchanged sentences

The Company matching payments were paid in cash and were $ 0.9 million for 2020, $ 0.8 million for 2019 and $ 0.8 million for 2018.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stockholders’ equity:

7 unchanged sentences

These shares of common stock were subsequently retired.There were no purchases of common stock in 2019.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stockholders’ equity:

Dividends on common stock

1 unchanged sentence

Dividends on unvested restricted shares of common stock are paid as the awards vest.

The Company’s initial quarterly dividend payment was made in the third quarter of 2012.

The payment of any future dividends and any other returns of capital, including stock buybacks, will be at the discretion of the Company’s Board of Directors and may be reduced, eliminated or increased and will be dependent upon the Company’s financial position, results of operations, available cash, cash flow, capital requirements, limitations under the Company’s debt indentures and other factors deemed relevant by the Company’s Board of Directors.

12 unchanged sentences

Shares issued to satisfy awards are provided from the Company’s authorized shares.

The vesting of certain shares granted to the Company’s executives in 2017,2018 and 2019 as defined under the award agreements are subject to certain performance conditions and the vesting of certain shares granted to the Company’s CEO in 2017,2018 and 2019 is subject to the total shareholder return of the Company’s common stock compared to the total shareholder return of the Nasdaq Telecommunications Index.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock option and award plan:

The vesting of certain shares granted to the Company’s executives is subject to certain performance conditions and the vesting of certain shares granted to the Company’s CEO is subject to the total shareholder return of the Company’s common stock compared to the total shareholder return of the Nasdaq Telecommunications Index and, for the shares granted to the Company's CEO in 2020, equal portions of the shares are also subject to the Company's growth rate in revenue and the Company's growth rate in cash flow from operating activities, with each portion of the performance-based equity award subject to a cap and no shares earned if performance with respect to a target is less than zero.

The accounting for equity-based compensation expense requires the Company to make estimates and judgments that affect its financial statements.

5 unchanged sentences

Forfeiture Rates—The Company estimates its forfeiture rate based on historical data with further consideration given to the class of employees to whom the options or shares were granted.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock option and award plan:

The weighted-average per share grant date fair value of options was $ 13.21 in 2020, $ 8.92 in 2019 and $ 8.45 in 2018.

15 unchanged sentences

Expected to vest—$ 1.6 million intrinsic value and 6.7 years weighted-average remaining contractual term

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock option and award plan:

A summary of the Company’s non-vested restricted stock awards as of December 31, 2020 and the changes during the year ended December 31, 2020 are as follows:

12 unchanged sentences

That cost is expected to be recognized over a weighted average period of 2.0 years.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Related party transactions:

3 unchanged sentences

In February 2020 the lease term was extended to May 2025.

The lease is cancellable by the Company upon 60 days ’ notice.

The lease is cancellable at no cost by the Company upon 60 days ’ notice.

The Company’s audit committee reviews and approves all transactions with related parties.

The Company paid $ 1.7 million in 2020, $ 1.7 million in 2019 and $ 1.7 million in 2018 for rent and related costs (including taxes and utilities) for this lease.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Geographic information:

3 unchanged sentences

Below are the Company’s service revenues and long lived assets by geographic region (in thousands):

Year Ended December 31, 2019 Revenues

Year Ended December 31, 2020

North America

Latin America

Year Ended December 31, 2018 Revenues

South America

Year Ended December 31, 2019

North America

Latin America

Year Ended December 31, 2017 Revenues

South America

Year Ended December 31, 2018

North America

South America

Long lived assets, net

1 unchanged sentence

Europe and other

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Quarterly financial information (unaudited):

4 unchanged sentences

Network operations, including equity-based compensation expense

Gains on equipment transactions

Operating income

Net income (1)

Net income per common share—basic and diluted

Net income (loss) (1)

Net income (loss) per common share - basic

Net income (loss) per common share - diluted

Weighted-average number of common shares—basic

Weighted-average number of common shares—diluted

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Quarterly financial information (unaudited):

Three months ended

3 unchanged sentences

Network operations, including equity-based compensation expense

Gains on equipment transactions

Operating income

Net income (2)

Net income per common share—basic and diluted

1 unchanged sentence

Weighted-average number of common shares—diluted

(1) Included in net income for the three months ended September 30, 2019 and December 31, 2019 are an unrealized gain and (loss) on foreign exchange on the Company’s 2024 Notes of $ 6.1 million and ($ 4.0 ) million, respectively.

(1) Included in net income (loss) for the three months ended March 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020 are unrealized gains and (losses) on foreign exchange on the Company's 2024 Notes of $ 2.9 million, ($ 3.4 ) million, ($ 17.3 ) million and $( 19.2 ) million, respectively.

Included in net income for the three months ended June 30, 2020 was a realized gain on foreign exchange on the Company’s 2024 Notes of $ 2.5 million.

(2) Included in net income for the three months ended September 30, 2019 and December 31, 2019 are an unrealized gain (loss) on foreign exchange on the Company’s 2024 Notes of $ 6.1 million and ($ 4.0 ) million, respectively.

Subsequent Events:

On February 26,2020, the Company’s Board of Directors approved the payment of its quarterly dividend of $ 0.66 per common share.

On February 24, 2021, the Company’s Board of Directors approved the payment of a quarterly dividend of $ 0.755 per common share.

The dividend for the first quarter of 2021 will be paid to holders of record on March 12, 2021.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data