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Item 8. Financial Statements and Supplementary Data

2022-02-25 compared with 2021-02-26 · 192 added, 173 removed, 652 unchanged (36% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

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Notes to Consolidated Financial Statements

Page 35 of 70

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Cogent Communications Holdings, Inc.

To the Shareholders and the Board of Directors of Cogent Communications Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Cogent Communications Holdings, Inc.

and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income (loss), changes in stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”).

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income, shareholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 25, 2022 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Determining the Initial Carrying Amount for Indefeasible Right of Use Lease Assets and Liabilities

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Determining the presentation and disclosure requirements for Indefeasible Right of Use Lease Assets and Liabilities

Description of the Matter

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.

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.

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.

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.

As described in Notes 1 and 2 to the consolidated financial statements, as of December 31, 2021, the Company has $275.4 million and $245.9 million of indefeasible right of use (IRU) finance lease assets, net, and liabilities, respectively, and recorded $50.8 million of IRU finance lease assets and liabilities additions during the year ended December 31, 2021.

The Company makes certain judgments and estimates to determine whether a lease is classified as an operating lease versus a financing lease at the lease commencement date.

Auditing the classification of IRU lease agreements involved subjectivity due to the application of judgment in management’s determination of the economic life of the underlying asset (the optical fiber) because there is relatively limited publicly available information about the optical fiber market on which to base those judgements.

Changes in this assumption may have a material effect on the presentation and disclosure of the Company’s leasing activities within the financial statements due to the volume of the IRU lease 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.

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.

We tested the design and operating effectiveness of the Company’s controls over the process to determine the economic life of the underlying asset (the optical fiber) of the IRU leases.

To test the classification of IRU lease agreements, our audit procedures included among others, assessing the Company’s assumptions by evaluating industry practices in estimating the economic life of optical fiber, compared to those assumptions selected by management.

/s/ Ernst & Young LLP

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February 25, 2022

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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

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Cash and cash equivalents

Restricted cash

Accounts receivable, net of allowance for credit losses of $ 1,510 and $ 1,921 , respectively

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( 1,161,635 )

( 1,085,532 )

Total property and equipment, net

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Total current liabilities

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

Senior unsecured 2024 Euro notes, net of unamortized debt costs of $ 2,121 and $ 2,961 , respectively and net of discount of $ 772 and $ 1,142 , 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

Senior unsecured 2026 notes, net of unamortized debt costs of $ 1,156 and discount of $ 1,536

Operating lease liabilities, net of current maturities

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Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Accumulated deficit

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The accompanying notes are an integral part of these consolidated balance sheets.

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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

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Gains on equipment transactions

Losses on lease terminations

Gains (losses) on lease terminations

Operating income

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Realized foreign exchange gain on 2024 Euro Notes

Unrealized foreign exchange (loss) gain on 2024 Euro Notes

Unrealized foreign exchange gain (loss) on 2024 Euro Notes

Loss on debt extinguishment and redemption – 2021 Notes

Loss on debt extinguishment and redemption – 2022 Notes

Interest income and other

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The accompanying notes are an integral part of these consolidated statements.

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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

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Balance at December 31, 2018

Cumulative effect adjustment from adoption of ASC 606

Forfeitures of shares granted to employees

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Exercises of options

Common stock purchases and retirement

Dividends paid

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Exercises of options

Common stock purchases and retirement

Dividends paid

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Balance at December 31, 2021

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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

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Realized foreign currency exchange gain on 2024 Euro Notes

Loss on extinguishment of 2021 notes

Loss on extinguishment & redemption of 2022 notes

Loss on extinguishment & redemption of 2021 notes

Gain – lease termination

Gains—equipment transactions and other, net

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Cash flows from financing activities:

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 2026 Notes, net of debt costs of $ 1,317

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

Redemption and extinguishment of 2022 Notes

Redemption and extinguishment of 2021 Notes

Dividends paid

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Effect of exchange rate changes on cash

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Net (decrease) increase in cash and cash equivalents & restricted cash

Cash and cash equivalents & restricted cash, beginning of year

Cash and cash equivalents & restricted cash, end of year

Supplemental disclosures of cash flow information:

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Non-cash component of network equipment obtained in exchange transactions

The accompanying notes are an integral part of these consolidated statements.

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COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

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

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

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

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.

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 services.

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 400 gigabits per second.

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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.

Access customers include access networks comprised of other Internet Service Providers (“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 the Company’s own 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.

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All intercompany balances and transactions have been eliminated in consolidation.

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Use of estimates

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Actual results may differ from these estimates.

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

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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.

The Company uses third-party collection services to continue to seek collection for it’s written off accounts receivable.

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.

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.

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The current-period provision for expected credit losses is net of bad debt recoveries of $ 2.2 million, $ 1.2 million and $ 1.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description of the business and summary of significant accounting policies:

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In February 2016, the FASB issued ASU No.

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The Company has made an accounting policy election to not apply the recognition requirements of ASU 2016-02 to its short-term leases — leases with a term of one year or less.

The Company has also elected to apply certain practical expedients under ASU 2016-02 including not separating lease and nonlease components on its finance and operating leases, not reassessing whether any existing contracts contained leases, not reconsidering lease classification, not reassessing initial direct costs and using hindsight in determining the lease reasonably certain term of its leases.

The Company has also elected to apply certain practical expedients under ASU 2016-02 including not separating lease and non-lease components on its finance and operating leases, not reassessing whether any existing contracts contained leases, not reconsidering lease classification, not reassessing initial direct costs and using hindsight in determining the lease reasonably certain term of its leases.

December 31, 2021

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Weighted average discount rate — operating leases

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description of the business and summary of significant accounting policies:

Finance leases—fiber lease agreements

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The interest rate used in determining the present value of the aggregate future minimum lease payments is the Company’s incremental borrowing rate for the reasonably certain lease term.

The determination of the Company's incremental borrowing rate requires judgment.

The Company determines its incremental borrowing rate for each lease using its current borrowing rate, adjusted for various factors including level of collateralization and term to align with the term of the lease.

The determination of the Company’s incremental borrowing rate requires some judgment.

Finance lease assets are included in property and equipment in the Company’s consolidated balance sheets.

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These obligations begin when the related fiber is accepted, which is generally expected to occur in the next 12 months.

The future minimum payments (principal and interest) under these finance leases are as follows (in thousands):

For the Twelve Months Ending December 31,

Total minimum finance lease obligations

Less—amounts representing interest

Present value of minimum finance lease obligations

Current maturities

Finance 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:

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Operating leases

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The implicit rates within the Company’s operating leases are generally not determinable and the Company uses its incremental borrowing rate at the lease commencement date to determine the present value of its lease payments.

The determination of the Company’s incremental borrowing rate requires judgment.

The determination of the Company's incremental borrowing rate requires judgment.

The determination of the Company’s incremental borrowing rate requires some judgment.

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Lease expense for lease payments is recognized on a straight-line basis over the term of the lease.

The future minimum payments under these operating lease agreements are as follows (in thousands):

The future minimum payments under these operating lease and finance lease agreements are as follows (in thousands):

For the twelve months ending December 31,

Total minimum operating lease obligations

Total minimum lease obligations

Less—amounts representing interest

Present value of minimum operating lease obligations

Present value of minimum lease obligations

Current maturities

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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.

Management assesses these costs for impairment at least quarterly and as "triggering"

events occur that indicate it is more likely than not that an impairment exists.

Management assesses these costs for impairment at least quarterly and as “triggering” events occur that indicate it is more likely than not that an impairment exists.

These contract costs were $ 21.4 million as of December 31, 2021 and were $ 20.6 million as of December 31, 2020.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description of the business and summary of significant accounting policies:

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

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4) Allocation of the transaction price to the performance obligations in the contract

5) Recognition of revenue when, or as, we satisfy a performance obligation

5) Recognition of revenue when, or as, the Company satisfies a performance obligation

Fees billed in connection with customer installations are deferred (as deferred revenue) and recognized as noted above.

To the extent a customer contract is terminated prior to its contractual end the customer is subject to termination fees.

The Company vigorously seeks payment of these amounts.

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

The Company vigorously seeks payment of termination fees.

The Company recognizes revenue for termination fees as they are collected.

Service revenue recognized from amounts in deferred revenue (contract liabilities) at the beginning of the period during the years ended December 31, 2021, 2020 and 2019 was $ 4.6 million, $ 4.4 million and $ 4.4 million, respectively.

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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

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The Company determines the appropriate classification of its investments at the time of purchase and evaluates such designation at each balance sheet date.

At December 31, 2020 and December 31, 2019, the carrying amount of cash and cash equivalents, accounts receivable, prepaid and other current assets, accounts payable, and accrued expenses approximated fair value because of the short-term nature of these instruments.

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, 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.

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At December 31, 2021 and December 31, 2020, the carrying amount of cash and cash equivalents, restricted cash, accounts receivable, prepaid and other current assets, accounts payable, and accrued expenses approximated fair value because of the short-term nature of these instruments.

The Company measures its cash equivalents and restricted cash 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, 2021 the fair value of the Company’s $ 500.0 million senior secured notes due 2026 was $ 508.1 million, the fair value of the Company’s € 350.0 million ($ 397.0 million) senior unsecured notes due 2024 was $ 402.0 million and the estimated fair value of the Company’s interest rate swap agreement was $ 9.0 million.

Restricted cash and interest rate swap agreement

Restricted cash represents amounts held in segregated bank accounts by our clearing broker as margin in support of our interest rate swap agreement as discussed in Note 4 and was $ 9.0 million as of December 31, 2021.

Additional cash may be further restricted to maintain our interest rate swap instrument as interest rates fluctuate and margin requirements change.

The Company does not use derivative financial instruments for trading purposes.

Concentrations of credit risk

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Assets and liabilities under finance leases are recorded at the lesser of the present value of the aggregate future minimum lease payments or the fair value of the assets under lease.

Leasehold improvements include costs associated with building improvements.

Leasehold improvements include costs associated with building improvements and customer installation costs.

The Company determines the number of renewal option periods, if any, included in the lease term for purposes of amortizing leasehold improvements and the lease term of its finance leases based upon its assessment at the inception of the lease for which the failure to renew the lease imposes a penalty on the Company in such amount that a renewal appears to be reasonably assured.

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5 to 10 years

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description of the business and summary of significant accounting policies:

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Long-lived assets

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Diluted EPS is based on the weighted-average number of shares of common stock outstanding during each period, adjusted for the effect of dilutive common stock equivalents.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Description of the business and summary of significant accounting policies:

Shares of restricted stock are included in the computation of basic EPS as they vest and are included in diluted EPS, to the extent they are dilutive, determined using the treasury stock method.

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Weighted average common shares—diluted

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The following details unvested shares of restricted common stock as well as the anti-dilutive effects of stock options and restricted stock awards outstanding:

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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 and 2019 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 $ 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 fair value of the new network equipment received was estimated to be $ 1.1 million and $ 3.3 million, respectively, resulting in gains of $ 0.3 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).

There were no exchange transactions in 2021.

Installment payment agreement

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The Company recorded the assets purchased and the present value of the note obligation utilizing an imputed interest rate.

The resulting discounts totaling $ 0.1 million and $ 0.4 million as of December 31, 2020 and December 31, 2019, respectively, under the note obligations are being amortized over the note term using the effective interest rate method.

The resulting discounts under the note obligations are being amortized over the note term using the effective interest rate method.

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Accrued and other liabilities:

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Long-term debt:

As of December 31, 2021, the Company had outstanding $ 500.0 million aggregate principal amount of Senior Secured Notes due 2026 (the “2026 Notes”) and € 350.0 million ($ 397.0 million USD) aggregate principal amount of Senior Unsecured Euro Notes due 2024 (the “2024 Notes”).

The 2026 Notes are due on May 1, 2026 and bear interest at a rate of 3.50 % per year.

Interest on the 2026 Notes is paid semi-annually on May 1 and November 1 of each year.

The 2024 Notes are due on June 30, 2024 and bear interest at a rate of 4.375 % per year.

Interest on the 2024 Notes is paid semi-annually on June 30 and December 30 of each year.

Interest rate swap agreement

As of December 31, 2021, the Company was party to an interest rate swap agreement (the “Swap Agreement”) that has the economic effect of modifying the fixed interest rate obligation associated with its 2026 Notes to a variable interest rate obligation based on the Secured Overnight Financing Rate (“SOFR”) so that the interest payable on the 2026 Notes effectively became variable based on overnight SOFR.

The critical terms of the Swap Agreement match the terms of the 2026 Notes, including the notional amount and the optional redemption date on February 1, 2026.

The Company did not elect hedge accounting for the Swap Agreement.

The Swap Agreement is recorded at its fair value at each reporting period, and the Company incurs gains and losses due to changes in market interest rates.

By entering into the Swap Agreement, the Company has assumed the risk associated with variable interest rates.

Changes in interest rates affect the interest expense that the Company recognizes in its consolidated statements of comprehensive income.

The values that the Company reports for the Swap Agreement as of each reporting date are recognized as interest expense with the corresponding amounts included in assets or liabilities in the Company’s consolidated balance sheets.

As of December 31, 2021 the fair value of the Swap Agreement was a net liability of $ 9.0 million of which $ 1.6 million is presented with prepaid expenses and $ 10.6 million is presented with other long-term liabilities.

The Company recorded an unrealized loss related to the Swap Agreement of $ 9.0 million in 2021, which is presented in interest expense on the statement of comprehensive income.

The Company has made a $ 20.0 million deposit with the counterparty to the Swap Agreement.

If the fair value of the Swap Agreement exceeds a net liability of $ 20.0 million the Company will be required to deposit additional funds with the counterparty equal to the net liability fair value in excess of $ 20.0 million.

As of December 31, 2021, $ 9.0 million of the $ 20.0 million deposit was restricted and $ 11.0 million was unrestricted.

Issuance of the 2026 Notes

On May 7, 2021 (the “Closing Date”), Group completed an offering of $ 500.0 million aggregate principal amount of its 2026 Notes for issuance in a private placement exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).

The 2026 Notes were offered and sold only to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S.

persons in transactions outside the United States in compliance with Regulation S under the Securities Act.

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The net proceeds from the 2026 Notes offering were $ 496.9 million after deducting the $ 1.8 million discount and $ 1.3 million of offering expenses.

In May 2021 and prior to the consummation of the offering of the 2026 Notes, Group completed the redemption of $ 45.0 million of its 5.375 % Senior Secured Notes due 2022 (the “2022 Notes”), following which $ 284.1 million of its 2022 Notes remained outstanding.

On the Closing Date, Group issued a notice of full redemption to holders of its remaining 2022 Notes, specifying December 1, 2021 as the redemption date.

On the Closing Date, Group used the net proceeds from the offering of the 2026 Notes to satisfy and discharge its obligations under the remaining 2022 Notes by depositing with the trustee the funds necessary to pay the $ 284.1 million aggregate principal amount and $ 11.5 million of interest due on the 2022 Notes through December 1, 2021.

Under the indenture governing the 2022 Notes (the “2022 Notes Indenture”), Group could redeem the 2022 Notes, in whole or in part, at a price equal to 100 % of the principal amount of the 2022 Notes, plus accrued and unpaid interest beginning on December 1, 2021.

Prior to December 1, 2021, any redemption of the 2022 Notes would have included a “make-whole” premium as set forth in the 2022 Notes Indenture.

The Company expects to use the remaining net proceeds from the 2026 Notes offering 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 2026 Notes were issued pursuant to, and are governed by, an indenture (the “2026 Notes Indenture”), dated the Closing Date by and among Group, Holdings, the other guarantors named therein, the trustee and the collateral agent.

The 2026 Notes are guaranteed on a senior secured basis, jointly and severally, by Group’s material domestic subsidiaries, subject to certain exceptions (the “Subsidiary Guarantors”).

In addition, the 2026 Notes are guaranteed on a senior unsecured basis by Holdings (together with the Subsidiary Guarantors, the “Guarantors”).

Under certain circumstances, the Guarantors may be released from these guarantees without the consent of the holders of the 2026 Notes.

The 2026 Notes and the guarantees of the Subsidiary Guarantors (the “subsidiary guarantees”) are Group’s and the Subsidiary Guarantors’ senior obligations, secured by a first priority lien on substantially all of Group’s and the Subsidiary Guarantors’ assets, subject to certain exceptions, limitations and permitted liens.

The 2026 Notes and the subsidiary guarantees are effectively senior to any of Group’s and the Subsidiary Guarantors’ existing and future senior unsecured indebtedness and future indebtedness secured by liens on the collateral securing the 2026 Notes that are junior to the liens on the collateral securing the 2026 Notes, in each case, to the extent of the value of the collateral securing the 2026 Notes.

The 2026 Notes and the subsidiary guarantees rank pari passu in right of payment with Group’s and the Subsidiary Guarantors’ existing and future indebtedness that is not subordinated in right of payment to the 2026 Notes or the subsidiary guarantees.

The 2026 Notes and the subsidiary guarantees are effectively subordinated to any of Group’s and the Subsidiary Guarantors’ indebtedness that is secured by assets that do not constitute collateral or that is secured by liens on the collateral securing the 2026 Notes that are senior to the liens securing the 2026 Notes, in each case, to the extent of the value of the collateral securing such indebtedness.

In addition, the 2026 Notes and the subsidiary guarantees thereof rank contractually senior in right of payment to all of Group’s and the Subsidiary Guarantors’ future subordinated indebtedness and are structurally subordinated to the liabilities of the non-guarantor subsidiaries.

Holdings’ guarantee is its senior unsecured obligation, and ranks equally in right of payment with all of Holdings’ existing and future senior indebtedness and senior in right of payment to all of Holdings’ future subordinated indebtedness.

Holdings’ guarantee is effectively subordinated to its secured indebtedness to the extent of the value of the collateral securing such indebtedness.

The 2026 Notes bear interest at a rate of 3.50 % per annum.

Interest began to accrue on the 2026 Notes on May 7, 2021 and is paid semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2021.

Unless earlier redeemed or repurchased, the 2026 Notes will mature on May 1, 2026.

Group may redeem some or all of the 2026 Notes at any time prior to February 1, 2026 at a price equal to 100 % of the principal amount of the 2026 Notes, plus a “make-whole” premium as set forth in the 2026 Notes Indenture, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.

Thereafter, Group may redeem the 2026 Notes, in whole or in part, at a price equal to 100 % of the principal amount of the 2026 Notes, plus accrued and unpaid interest, if any, to, but not including, the date of redemption.

Debt extinguishment and redemption of 2022 Notes

In March 2021, Group redeemed $ 115.9 million aggregate principal amount of its 2022 Notes at an average price of 103.2 % of the principal amount plus $ 0.4 million of accrued and unpaid interest.

As a result of this transaction, the Company incurred a loss on debt extinguishment and redemption of $ 3.9 million from the premium payment above par value, the amortization of the remaining unamortized notes cost and certain transaction expenses.

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On April 6, 2021, Group issued a notice of conditional partial redemption for $ 45.0 million of its 2022 Notes.

Group redeemed the $ 45.0 million aggregate principal amount of its 2022 Notes on May 6, 2021 at par plus the “make-whole amount” as defined in the 2022 Notes Indenture of $ 1.9 million ($ 41.41533 per $1,000 aggregate principal amount) plus accrued interest to, but excluding, the redemption date of $ 0.4 million ($ 9.70486 per $1,000 aggregate principal amount).

Following this $ 45.0 million redemption there was $ 284.1 million aggregate principal amount of 2022 Notes remaining.

On the Closing Date of the issuance of the 2026 Notes, Group used the net proceeds from the offering of the 2026 Notes to satisfy and discharge its remaining obligations under its 2022 Notes.

As a result of these transactions, the Company incurred a loss on debt extinguishment and redemption of $ 10.8 million from the payment of $ 11.5 million of interest on the 2022 Notes through December 1, 2021 and the amortization of the remaining unamortized notes costs and debt premium.

Issuance of 2024 Notes

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

In June 2020, Group completed an offering of € 215.0 million 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.

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

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

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Under certain circumstances, the Guarantors may be released from these Guarantees without the consent of the holders of the 2024 Notes.

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Long-term debt:

The 2024 Notes and the Guarantees are Group’s and the Guarantors’ senior unsecured obligations.

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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 and will be paid semi-annually in arrears on June 30 and December 30 of each year.

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

As of December 31, 2019, the Company’s € 135.0 million of 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 Company’s € 350.0 million of 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.

As of December 31, 2021, the Company’s € 350.0 million of 2024 Notes were valued at $ 397.0 million resulting in an unrealized gain on foreign exchange of $ 32.5 million for the year ended December 31, 2021.

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.

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This redemption would be at 100 % of the principal amount of the 2024 Notes to be redeemed (plus any accrued interest and additional amounts then payable with respect to the 2024 Notes to, but not including, the redemption date).

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If Group undergoes specific kinds of change in control accompanied by certain ratings events, it will be required to offer to repurchase the 2024 Notes from holders at a price equal to 101 % of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

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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.

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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 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.

The Company received net proceeds of $ 124.3 million after deducting offering costs.

In August 2018, the Company issued an additional $ 70.0 million par value of its 2022 Notes at a premium of 101.75 % of par value.

The Company received net proceeds of $ 69.9 million after deducting offering costs.

The premium and offering costs are amortized to interest expense to the maturity date using the effective interest rate method.

The net proceeds from these offerings are intended to be used for general corporate purposes.

The 2022 Notes were sold in private offerings for resale to qualified institutional buyers pursuant to SEC Rule 144A and mature on March 1, 2022.

Interest accrues at 5.375% and is paid semi-annually in arrears on March 1 and September 1 of each year.

The indenture governing the 2022 Notes provides that the Company and each of the Company’s existing domestic subsidiaries and future material domestic subsidiaries guarantee the 2022 Notes, subject to certain exceptions and permitted liens.

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, 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.

Holdings is also a guarantor of the 2022 Notes;

however Holdings’ guarantee is unsecured and thus its guarantee is not secured by any of Holdings assets.

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

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.

The 2022 Notes were sold in private offerings for resale to qualified institutional buyers pursuant to SEC Rule 144A and were scheduled to mature on March 1, 2022.

Interest accrued at 5.375% and was paid semi-annually in arrears on March 1 and September 1 of each year.

The 2022 Notes were redeemable 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.

The make-whole premium is the excess of (1) the net present value, on the redemption date, of the principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption) that would have been payable if such redemption had not been made, over (2) the aggregate principal amount of the notes being redeemed or paid.

Net present value shall be determined by discounting, on a semi-annual basis, such principal and interest at the reinvestment rate (as determined in the indenture governing the 2022 Notes) from the respective dates on which such principal and interest would have been payable if such redemption had not been made.

In addition, at any time on or after December 1, 2021 (three months prior to the maturity date of the 2022 Notes), the Issuer may redeem the 2022 Notes, in whole and or in part, at a redemption price equal to 100 % of the principal amount of the 2022 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date.

In May 2021, Group redeemed the 2022 Notes as noted above.

Senior unsecured notes—$189.2 million 2021 Notes

On April 9, 2014, Cogent Communications Finance, Inc.

( “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, accrued interest at a rate of 5.625% and were to mature on April 15, 2021.

( “Cogent Finance”), a newly formed financing subsidiary of Group, completed an offering at par of $ 200.0 million 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, accrued interest at a rate of 5.625 % and were scheduled to mature on April 15, 2021.

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

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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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Long-term debt:

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.

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

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

The indenture governing the 2024 Notes (the “2024 Notes Indenture”) and the 2026 Notes Indenture, among other things, limit the Company’s ability to incur indebtedness;

to pay dividends or make other distributions;

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to create liens;

consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;

to consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;

to incur restrictions on the ability of a subsidiary to pay dividends or make other payments;

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.

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.

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 .

A certain amount of such unrestricted payments is permitted notwithstanding this prohibition.

The unrestricted payment amount may be increased by the Company’s consolidated cash flow, as defined in the indentures, as long as the Company’s consolidated leverage ratio is less than 4.25 .

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

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

There are certain exceptions to the limitations on the Company’s ability to incur indebtedness under the 2024 Notes Indenture and the 2026 Notes Indenture, including IRU agreements incurred in the normal course of business and any additional indebtedness if (i) under the 2024 Notes Indenture, the Company’s consolidated leverage ratio, as defined in the 2024 Notes Indenture, is less than 6.0 to 1.0 and (ii) under the 2026 Notes Indenture, either the Company’s consolidated leverage ratio, as defined in the 2026 Notes Indenture, is less than 6.0 to 1.0 or the Company’s fixed charge coverage ratio, as defined in the 2026 Notes Indenture, is greater than 2.0 to 1.0 .

The Company can also incur unlimited liens (which can be used, together with capacity under the debt covenant, to incur additional secured indebtedness) if the Company’s consolidated secured leverage ratio, as defined in each of the 2024 Notes Indenture and the 2026 Notes Indenture, is less than 4.0 to 1.0 .

The 2024 Notes Indenture permits restricted payments, such as dividends and stock purchases, using accumulated consolidated cash flow, as defined in the 2024 Notes Indenture, when the Company’s consolidated leverage ratio, as defined by the 2024 Notes Indenture, is less than 4.25 to 1.00 .

Under the 2026 Notes Indenture, such accumulated consolidated cash flow, as defined therein, can be used to make such restricted payments if the Company is able to incur $ 1 of debt, as defined (i.e., either its consolidated leverage ratio is less than 6.0 to 1.0 or its fixed charge coverage ratio is greater than 2.0 to 1.0 ).

The Company’s consolidated leverage ratio was above 4.25 as of December 31, 2021, and the Company’s fixed charge coverage ratio was above 2.0 as of December 31, 2021.

As of December 31, 2021, a total of $ 185.5 million was unrestricted and permitted for restricted payments including dividends and stock purchases.

The aggregate future contractual maturities of long-term debt were as follows as of December 31, 2021 (in thousands):

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Total income before income taxes

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income taxes:

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

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As of December 31, 2021, the Company has combined net operating loss carry-forwards of $ 1.0 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.

This amount includes federal net operating loss carry-forwards in the United States of $ 39.5 million, net operating loss carry-forwards related to its European operations of $ 967.9 million and $ 7.3 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.

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

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income taxes:

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In the normal course of business the Company takes positions on its tax returns that may be challenged by taxing authorities.

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The Company has taken certain positions related to its obligations for leased circuits for which it is reasonably possible could result in a loss of up to $ 3.6 million in excess of the amount accrued at December 31, 2021.

The Company is engaged in an arbitration proceeding in Spain in which a former provider of optical fiber to the Company is seeking approximately $ 9.0 million for Company’s early termination of the optical fiber leases, which amount the Company accrued in 2015.

The Company has counterclaimed for damages and is contesting its obligation to pay the termination liability.

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

The Company is also engaged in litigation in Virginia in which a former provider of transoceanic capacity to the Company is seeking approximately $0.6 million for alleged unpaid fees and the Company’s early termination of the arrangement.

The complaint was filed in December 2021 in the Circuit Court of Fairfax County, Virginia.

The Company is contesting its obligation to pay these amounts.

The Company was engaged in an arbitration proceeding in Spain in which a former provider of optical fiber to the Company was seeking approximately $ 9 million for the Company’s early termination of the optical fiber leases, which amount the Company accrued in 2015.

The Company counterclaimed for damages and contested its obligation to pay the termination liability.

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

On October 25, 2021, CIMA issued its decision, awarding the former provider approximately $ 0.7 million and rejecting the Company’s counterclaims.

Both parties had until (i) November 4, 2021 to request clarifications from CIMA regarding clerical or mathematical errors, unaddressed claims or other minor issues and (ii) two months from the later of the date of the award or a subsequent clarifying order from CIMA to file a court action before the High Court of Justice of Madrid to annul the award.

The Company’s policy is to not record the impact of legal proceedings until all appeals have been exhausted or legal counsel has advised that any further appeal will likely not change the outcome of the matter.

The appeal period has lapsed and the Company decided to pay the provider the $ 0.7 million award amount in the first quarter of 2022.

As a result, the Company recorded a gain on lease termination of $ 7.4 million in the year ended December 31, 2021.

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

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

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Commitments and contingencies:

Network equipment sites and data center facilities

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Unconditional purchase obligations for equipment and services totaled $ 19.4 million at December 31, 2021.

As of December 31, 2020, the Company had also committed to additional dark fiber IRU capital and operating lease agreements totaling $ 21.0 million in future payments to be paid over periods of up to 20 years .

As of December 31, 2021, the Company had also committed to additional dark fiber IRU finance and operating lease agreements totaling $ 24.7 million in future payments to be paid over periods of up to 20 years .

These obligations begin when the related fiber is accepted, which is generally expected to occur in 2022.

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At December 31, 2021, there was $ 30.4 million remaining for purchases under the Buyback Program.

During 2020 and 2018 the Company purchased 79,056 and 147,995 shares of its common stock for $ 4.5 million and $ 6.6 million, respectively.

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:

During 2020 the Company purchased 79,056 shares of its common stock for $ 4.5 million.

These shares of common stock were subsequently retired.There were no purchases of common stock in 2021 or 2019.

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Dividends on common stock

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Certain option and share grants provide for accelerated vesting if there is a change in control, as defined.

For grants of restricted stock, when an employee terminates prior to full vesting the employee retains their vested shares and the employees’ unvested shares are returned to the plan.

For grants of options for common stock, when an employee terminates prior to full vesting, the employee may elect to exercise their vested options for a period of ninety days and any unvested options are returned to the plan.

For grants of restricted stock, when an employee terminates prior to full vesting the employee retains their vested shares and the employees’ unvested shares are returned to the Award Plan.

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

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 vesting of certain shares granted to the Company’s executives is subject to certain performance conditions determined by the Company’s Board of Directors.

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, the Company’s growth rate in revenue and the Company’s growth rate in cash flow from operating activities, with each portion of the CEO’s 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.

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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 $ 12.22 in 2021, $ 13.21 in 2020 and $ 8.92 in 2019.

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Expected life of the option term (in years)

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Stock option activity under the Company’s Award Plan during the year ended December 31, 2021, was as follows:

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Valuations were obtained to determine the fair value for the shares granted to the Company’s CEO that are subject to the total shareholder return of the Company’s common stock compared to the total shareholder return of the Nasdaq Telecommunications Index.

The fair value of shares of restricted stock vested in 2020, 2019 and 2018 was $ 25.4 million, $ 20.8 million and $ 19.1 million, respectively.

Equity-based compensation expense related to stock options and restricted stock was $ 23.5 million, $ 18.5 million, and $ 17.7 million for 2020, 2019, and 2018, respectively.

The income tax benefit related to stock options and restricted stock was $ 4.2 million, $ 3.0 million, and $ 1.8 million for 2020, 2019, and 2018, respectively.

The Company capitalized compensation expense related to stock options and restricted stock for 2020, 2019, and 2018 of $ 2.3 million, $ 1.8 million and $ 1.7 million, respectively.

Additional Award Plan Information – Related to Stock Options & Restricted Stock (thousands)

Equity-based compensation expense

Income tax benefit related to stock options and restricted stock

Capitalized compensation expense related to stock options and restricted stock

Intrinsic value of stock options exercised

Fair value of shares of restricted stock vested

As of December 31, 2021, there was $ 39.4 million of total unrecognized compensation cost related to non-vested equity-based compensation awards.

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)

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Related party transactions:

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Europe and other

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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Quarterly financial information (unaudited):

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Operating income

Net income (2)

Net income per common share—basic and diluted

Net income ( loss) (2)

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

(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.

(1) Included in net income (loss) for the three months ended March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021 are unrealized gains (losses) on foreign exchange on the Company’s 2024 Notes of $ 18.9 million, ($ 5.3 ) million, $ 10.2 million and $ 8.8 million, respectively.

Included in net income (loss) for the three months ended March 31, 2021 and June 30, 2021, are losses on debt extinguishment and redemption on the Company’s 2022 Notes of $ 3.9 million and $ 10.8 million, respectively.

Included in net income for the three months ended December 31, 2021 is a gain on lease termination of $ 7.4 million.

(2) 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 (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:

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This estimated $ 39.7 million dividend payment is expected to be made on March 25, 2022.

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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