What changed in this filing

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Item 1A. Risk Factors

2023-02-24 compared with 2022-02-25 · 124 added, 71 removed, 277 unchanged (41% of the section changed)

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Such future uncertain and unpredictable developments include the ultimate duration and scope of the pandemic, the rise and spread of new COVID-19 variants, the availability and efficacy of vaccines and therapeutic treatments and the willingness of the public to accept such vaccines and treatments, governmental actions that have been taken, or may be taken in the future, in response to the pandemic, and global economic conditions during and after the pandemic.

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Approximately 57.1% of our revenue for the year ended December 31, 2022 was from our corporate customers.

Corporate customers are located in multi-tenant office buildings, almost exclusively in the United States and Canada.

Corporate customers are located in MTOBs, almost exclusively in the United States and Canada.

Authorities in many of these markets implemented numerous measures in response to the pandemic, such as travel bans and restrictions, quarantines, curfews, shelter-in-place and stay-at-home orders and business shutdowns and closures, and also implemented multi-step polices with the goal of re-opening these markets.

These measures have impacted, and continue to impact, us and our employees, customers, suppliers and other third parties with whom we do business.

The geographic areas in which we operate are in varying stages of restrictions or re-opening.

Many jurisdictions have re-opened, while other jurisdictions began re-opening only to return to restrictions in the face of increases in new COVID-19 cases.

Considerable uncertainty exists regarding how current and future health and safety measures implemented in response to the pandemic will impact our business, including whether such measures will result in further changes in demand for our services, impair our ability to access buildings to install our services or maintain our network or impact our supply chain.

The continuing impact of existing or new mandates, restrictions, laws or regulations could have a material adverse impact on our operations and the operations of our customers or others with whom we do business.

While many of these measures have been lifted, the business shutdowns and closures due to the COVID-19 pandemic and the accompanying shift to remote or hybrid work schedules continues to have an impact on business activity in the central business districts in which many of our MTOBs are located.

This lingering impact and the impact of any new mandates, restrictions, laws or regulations could have a material adverse impact on our operations and the operations of our customers or others with whom we do business.

In addition, a significant number of our corporate customers have continued remote work policies instituted at the beginning of the COVID-19 pandemic, slowed the pace of opening new offices and closed offices due to global economic conditions.

We believe the rapid spread of the Delta and Omicron variants during 2021 further exacerbated the unwillingness of corporate customers to end their remote work policies.

We believe the rapid spread of the Delta and Omicron variants during 2021 influenced corporate customers to delay or rescind their plans to end their remote work policies.

In addition, the prevalence of hybrid or fully remote work environments during the pandemic has caused some companies to transition to such environments on a permanent basis, and we do not know what impact this may have on demand for commercial office space and for our services.

As a result, through much of 2021, we saw corporate customers take a cautious approach to adding new services and upgrading existing services as well as reduced demand for connecting smaller satellite offices.

As a result, through much of 2022, we saw corporate customers continue to take a cautious approach to adding new services and upgrading existing services as well as reduced demand for connecting smaller satellite offices.

Since the beginning of the pandemic, we have experienced a deteriorating real estate market in the buildings we serve.

Vacancy rates for many of our multi-tenant office buildings have risen as a result of many tenants terminating leases and exiting buildings and as a result of lower new leasing activity.

Vacancy rates for many of our MTOBs have risen as a result of many tenants terminating leases and exiting buildings and as a result

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of lower new leasing activity.

The impact of this greater level of vacancy rates was more pronounced in Northern cities and in the California market and less impactful in our Southern markets.

Where permitted, we will require our employees to return to the office on a full-time basis.

We have taken measures to protect our workforce and minimize their exposure to COVID-19, such as requiring our entire workforce to get vaccinated and wear masks in the office, establishing safety procedures in the event an employee tests positive for COVID-19 and severely curtailing all business travel.

In addition to the associated costs incurred, these measures may be insufficient in protecting our employees.

If a significant percentage of our workforce is unable to work due to the impact of COVID-19, our operations will be negatively impacted.

In December 2021, with the rapid spread of the Omicron variant, a number of our offices were required to close by local order and we voluntarily shifted a majority of our workforce to fully remote status.

We intend to return to full-time, in-office status when permitted and when we deem it to be safe.

As we consider this return, the impact of COVID-19, our response to the pandemic, and compliance with governmental measures imposed in response to COVID-19 has caused, and will continue to cause us to incur additional costs and any inability to comply with such measures may subject us to restrictions on our business activities, fines, and other penalties, any of which may adversely affect our business.

In addition, the shift of our workforce to working remotely has amplified certain risks to our business, including increased demand on our information technology resources and systems, increased phishing and other cybersecurity attacks as cybercriminals try to exploit the uncertainty surrounding the COVID-19 pandemic, and an increase in the number of points of potential attack, such as laptops and mobile devices (both of which are now being used in increased numbers), to be secured.

In addition, the shift of our office workers working remotely at certain times during the past few years has amplified certain risks to our business, including increased demand on our information technology resources and systems, increased phishing and other cybersecurity attacks as cybercriminals try to exploit the uncertainty surrounding the COVID-19 pandemic, and an increase in the number of points of potential attack, such as laptops and mobile devices (both of which are now being used in increased numbers), to be secured.

Any failure to effectively manage these risks, including to timely identify and appropriately respond to any cyberattacks, may adversely affect our business.

We may find it difficult to retain existing employees or to hire new employees because we have required all employees in the United States to receive the COVID-19 vaccine and boosters and to return to the office on a full-time basis.

In August 2021, we notified our employees in the United States that they would be required to return to the office on a full-time basis beginning in September 2021 and that they would be required to attest that they were fully vaccinated against the COVID-19 virus unless they received a medical or religious exemption.

Fully vaccinated employees in the United States began returning to our offices on a full-time basis in early September 2021.

Employees had until October 11, 2021 to provide their vaccine self-attestation.

In October 2021, we opened most of our non-US offices for employees to return on a voluntary basis and in November 2021, wherever permitted by local law, we required our employees outside of the United States to return to full-time, in-office work.

Where permitted by, and subject to, local laws, we will require employees outside of the United States to be fully vaccinated against the COVID-19 virus.

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The spread of the Omicron variant around the world in December 2021 caused us to further modify our office environment.

First, we mandated that all U.S.

We may find it difficult to retain existing employees or to hire new employees because we have required all employees to return to the office on a full-time basis and in the United States to receive the COVID-19 vaccine and boosters.

In the second half of 2021, we notified our employees worldwide that they would be required to return to the office on a full-time basis when permitted by local regulations.

For employees in the United States, our return to office began in September 2021.

As other countries relaxed their COVID regulations, our employees in those countries returned to the office as well.

Except for a brief period at the beginning of 2022 when we temporarily shifted a portion of our workforce to remote work, by the end of the spring of 2022, the overwhelming majority of all employees were working full-time in our offices.

In August 2021, we also notified employees in the United States that they would be required to attest that they were fully vaccinated against the COVID-19 virus unless they received a medical or religious exemption.

We subsequently mandated that all U.S.

employees receive a COVID-19 booster vaccine no later than six weeks after first becoming eligible for such vaccine.

Second, we mandated that all U.S.

employees provide proof of vaccination to us.

Third, for offices around the world that had not been closed by government order, we shifted much of our workforce to fully remote status on a temporary basis at the end of 2021 in order to reduce the density of our offices.

Sales representatives with less than 12 months tenure, sales representative on performance improvement plans and their managers are currently still working in our offices on a full-time basis, as we believe that the training and coaching required by new sales representatives is significantly more effective when provided in an in-office environment.

Our employees have largely complied with our vaccine mandate in the United States and Canada.

However, we experienced an increase in employee departures, particularly within our sales department in the third and fourth quarters of 2021.

We believe that this rise in departures was attributable in part to the unwillingness of some employees to be vaccinated and/or to return to a full-time, in-office environment.

If we continue to mandate COVID-19 vaccinations and require employees to return to our offices on a full-time basis, we may find it difficult to retain existing employees or hire new employees.

Our employees have largely complied with our vaccine mandate in the United States.

However, we experienced an increase in employee departures, particularly within our sales department, beginning in the second half of 2021 and continuing into 2022.

We believe that this rise in departures was attributable, in part, to the unwillingness of some employees to work in a full-time, in-office environment.

In the United States, we believe the rise in departures was also attributable to the unwillingness of some employees to be vaccinated.

If we continue to require employees to work in the office on a full-time basis and/or to mandate COVID-19 vaccinations in the United States, we may find it difficult to retain existing employees or hire new employees.

Further, a resurgence of COVID-19 due to immunity-resistant variants may cause employees to be more reluctant to continue in, or make new employees more reluctant to accept, a full-time, in-office position due to concerns about COVID-19.

If this occurs, this may impact our revenue growth and profitability.

We will require also that the employees of the Wireline Business also attest that they are fully vaccinated against the COVID-19 virus unless they received a medical or religious exemption.

Certain of these employees are not vaccinated against the COVID-19 virus and as a result, may elect not to join our organization.

We are experiencing delays in the delivery of networking equipment and other services from certain of our vendors.

We have seen a slowdown in the delivery of network equipment and delays in the projected delivery time of network equipment orders.

In addition, vendors who supply us with dark fiber or lit circuits are being impacted by the spread of COVID-19 in their workforce, and this may slow the delivery of services from these vendors to us.

During the pandemic we experienced a slowdown in the delivery of network equipment and delays in the projected delivery time of network equipment orders, and those delays have continued to the present.

In addition, we have experienced delays in the delivery of services from vendors who supply us with dark fiber or lit circuits.

We believe these delays are caused by supply chain issues due to component shortages and scarcity of raw materials as well as labor shortages, and that these supply chain issues have their origin in the responses to the COVID-19 pandemic.

While we believe that we can adequately manage the operation, maintenance, upgrading and growth of our network, a worsening or prolonged slowdown of the delivery of network equipment, dark fiber and lit circuits may impact our ability to expand and augment our network and service offerings.

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Our net-centric business would be particularly impacted by a decline in the development of new applications and businesses that make use of the Internet.

Our corporate business would be particularly impacted by an increase in vacancy rates in the multi-tenant office buildings that we serve.

Our corporate business would be particularly impacted by an increase in vacancy rates in the MTOBs that we serve.

Our total revenue growth is predicated on growth in the use of the Internet that makes up for the declining prices of Internet service.

An economic downturn could impact the Internet business more significantly than other businesses that are less dependent on new applications and growth in the use of those applications and an increase in office vacancy rates because of the retrenchment by consumers and businesses that typically occurs in an economic downturn.

Our historical reductions in our prices are expected to continue in an inflationary economy.

An economic downturn could impact the Internet business more significantly than other businesses that are less dependent on new applications and growth in the use of those applications and less susceptible to increases in office vacancy rates resulting from the retrenchment by consumers and businesses that typically occurs in an economic downturn.

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Our historical reductions in our prices are expected to continue in an inflationary economy even as our costs may increase.

Many of the regions in which we operate are experiencing an increase in inflation rates.

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We expect that our historical pricing patterns will continue for the foreseeable future.

These historical pricing patterns are occurring against the backdrop of a general increase in prices due to inflation.

In particular, the cost of electricity has increased greatly in all countries where we purchase power.

While we have negotiated contracts that cap price increases due to inflation or that have fixed the price of electricity, we may experience increases in the costs of electricity and other services that we cannot pass on to our customers or may only be able to pass on partially to our customers.

If these price increases continue, this may impact our profitability.

Events beyond our control may impact our ability to provide our services to our customers or increase the costs or reduce the profitability of providing our services.

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We are particularly vulnerable to acts of terrorism because our largest customer concentration is located in New York, our headquarters is located in Washington, D.C., and we have significant operations in Paris, Madrid and London, cities that have historically been targets for terrorist attacks and vulnerable to pandemics.

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If these or any other of our key facilities were destroyed or seriously damaged, a significant amount of our network traffic could be disrupted.

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If such a disruption occurs, our reputation could be negatively impacted which may cause us to lose customers and adversely affect our ability to attract new customers, resulting in an adverse effect on our business and operating results.

Risks Relating to Our Proposed Acquisition of the Wireline Business of Sprint Communications

Regulatory approvals necessary for our acquisition of the Wireline Business of Sprint Communications may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following closing of the Transaction.

In September 2022, we announced our acquisition of the Wireline Business of Sprint Communications.

Subject to the satisfaction of the required closing conditions, we expect the Transaction to close in 2023.

Any failure to close or an extended delay in closing the Transaction may have an adverse effect on us.

Our acquisition of the Wireline Business of Sprint Communications requires us to obtain certain regulatory approvals, waivers or consents.

Regulators may impose conditions on these approvals.

Such conditions could have the effect of delaying or preventing the completion of the Transaction, causing us to incur additional costs or limiting the competitive position of the combined company following the Transaction.

Any of these conditions may have an adverse effect on the combined company following the Transaction.

Additionally, any delay in closing the Transaction may adversely affect our business, the business of Sprint Communications or the business of the combined company, including an adverse effect on Sprint Communications’ ability to retain key employees during the transition period or on Sprint Communications’ relationship with its customers or vendors if such parties attempt to terminate, or negotiate changes in, their existing business relationships, consider entering into business relationships with competitors of Sprint Communications or otherwise delay or defer decisions concerning their business with Sprint Communications.

We may not realize the anticipated benefits of the acquisition of the Wireline Business of Sprint Communications, and the integration of the Wireline Business of Sprint Communications may disrupt our business and management.

The success of our acquisition of the Wireline Business of Sprint Communications, including the realization of anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine our business and the Wireline Business.

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integration may be more difficult, costly or time consuming than expected.

The integration process involves numerous risks.

These risks include:

● inability to achieve the financial and strategic goals for the Wireline Business and the combined businesses;

● inability to achieve the projected cost savings for the Wireline Business and the combined businesses and the resulting impact on profitability;

● difficulty in, and the cost of, effectively integrating the operations, technologies, products or services, and personnel of the Wireline Business;

● entry into markets in which we have minimal prior experience and where competitors in such markets have stronger market positions;

● disruption of our ongoing business and distraction of our management and other employees from other opportunities and challenges;

● inability to retain personnel of the Wireline Business;

● inability to retain key customers, vendors and other business partners of the Wireline Business or to migrate customers from legacy services;

● any non-occurrence of anticipated tax benefits;

● incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;

● elevated delinquency or bad debt write-offs related to receivables of the Wireline Business we assume;

● difficulty in maintaining internal controls, procedures and policies during the transition and integration;

● impairment of our relationships with employees, customers, partners, distributors or third-party providers of our technologies, products or services;

● failure of our due diligence processes to identify significant problems, liabilities or other challenges of the Wireline Business or technology;

● exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, the Transaction, such as claims from terminated employees, customers, or other third parties;

● inability to conclude that our internal control over financial reporting is effective;

● delay in customer purchasing decisions due to uncertainty about the direction of our product and service offerings;

● increased accounts receivables collection times and working capital requirements associated with business models of the Wireline Business;

● incompatibility of business cultures.

If we experience difficulties during the integration process and are unable to integrate the Wireline Business successfully or in a timely manner, we may not realize the benefits of the Transaction to the extent anticipated.

These integration matters could have an adverse effect on us during the transition period and on the combined company for an undetermined period after completion of the Transaction.

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Business Risks

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A migration of a few very large Internet users to their own networks, or to special networks that may be offered by major telephone and cable providers of last mile broadband connections to consumers, or the loss or reduced purchases from several significant customers could impair our growth, cash flow and profitability.

The customers of the Wireline Business include a number of large enterprise customers, a type of customer that we have not traditionally served.

We may encounter difficulties retaining such customers or in converting such customers from their legacy services to newer technologies.

Our inability to retain such customers or are unable to convert them to our services, could impair our growth, cash flow and profitability.

We have customers who depend on the U.S.

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A substantial and long-term shift to remote work may impact our ability to add new customers and to retain existing customers.

Through much of 2021, we saw corporate customers continue their remote work policies and take a cautious approach to new services and upgrades, as well as a reduced demand for connecting smaller satellite offices.

Through much of 2021 and 2022, we saw corporate customers continue their remote work policies and take a cautious approach to new services and upgrades, as well as a reduced demand for connecting smaller satellite offices.

We also witnessed a deteriorating real estate market in and around the buildings we service, with rising vacancy levels and falling lease initiations or renewals resulting in fewer sales opportunities for our salesforce.

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● maintain the quality of our operations and our service offerings;

● maintain and enhance our system of internal controls to ensure timely and accurate compliance with our financial and regulatory reporting requirements;

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● maintain and enhance our system of internal controls to ensure timely and accurate compliance with our financial and regulatory reporting requirements;

● expand our accounting and operational information systems in order to support our growth.

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In the fall of 2021, we began to implement an in-office work policy designed to return the vast majority of our employees to an in-office work environment.

Except for a brief return to remote work at the beginning of 2022 for a portion of our workforce, we have maintained our requirement that all employees work in our offices wherever possible.

A small minority of our workforce declined to return to full-time in-office employment and left our employment.

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Increasing demands to work in a hybrid work style may reduce our ability to attract and retain employees, in particular attracting and retaining salespeople.

We may not successfully make or integrate acquisitions or enter into strategic alliances.

As part of our growth strategy, we may pursue selected acquisitions and strategic alliances.

To date, we have completed 13 significant acquisitions, not including our pending acquisition of the Wireline Business.

However, we are very selective with respect to such acquisitions and alliances and, prior to the acquisition of the Wireline Business, we had not undertaken either for more than 17 years.

We compete with other companies for acquisition opportunities and we cannot assure you that we will be able to execute future acquisitions or strategic alliances on commercially reasonable terms, or at all.

Even if we enter into these transactions, we may experience:

● delays in realizing or a failure to realize the benefits we anticipate;

● difficulties or higher-than-anticipated costs associated with integrating any acquired companies, products or services into our existing business;

● attrition of key personnel from acquired businesses;

● unexpected costs or charges;

● unforeseen operating difficulties that require significant financial and managerial resources that would otherwise be available for the ongoing development or expansion of our existing operations.

In the past, our acquisitions have often included assets, service offerings and financial obligations that are not compatible with our core business strategy.

We have expended management attention and other resources to the divestiture of assets, modification of products and systems as well as restructuring financial obligations of acquired operations.

In most acquisitions, we have been successful in renegotiating the agreements that we have acquired.

If we are unable to satisfactorily renegotiate such agreements in the future or with respect to future acquisitions, we may be exposed to large claims for payment for services and facilities we do not need.

Consummating these transactions could also result in the incurrence of additional debt and related interest expense, as well as unforeseen contingent liabilities, all of which could have a material adverse effect on our business, financial condition and results of operations.

Because we have typically purchased financially distressed companies or their assets, and may continue to do so in the future, we have not had, and may not have, the opportunity to perform extensive due diligence or obtain contractual protections and indemnifications that are customarily provided in acquisitions.

As a result, we may face unexpected contingent liabilities arising from these acquisitions.

We may also issue additional equity in connection with these transactions, which would dilute our existing shareholders.

Following an acquisition, we have experienced a decline in revenue attributable to acquired customers as these customers’ contracts have expired and they have entered into our standard customer contracts at generally lower rates or have chosen not to renew service with us.

We anticipate that we would experience similar revenue declines with respect to customers we may acquire in the future.

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Competitive Risks

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Our competitors may also upgrade their existing services or introduce new technologies or services, such as satellite-based Internet or 5G services that could make our services less attractive to potential customers.

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Our business could suffer because telephone companies and cable companies may provide better delivery of certain Internet content, including content originating on their own networks, than content on the public Internet.

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We also do not know the extent to which the providers of broadband Internet access to consumers may favor certain content or providers in ways that may disadvantage us.

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Operational Risks

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Such failures or delays could result in increased capital expenditures, customer and vendor dissatisfaction, loss of business or the inability to add new customers or additional services, and the inability to prepare accurate and timely financial statements all of which would adversely affect our business and results of operations.

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Network Augmentation and Maintenance Risks

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and (iv) the buildings that we serve and the associated optical fiber connecting those buildings.

We lease our optical fiber and obtain access to the buildings on our network, both carrier neutral data centers and multi-tenant office buildings, from a number of vendors.

We lease our optical fiber and obtain access to the buildings on our network, both CNDCs and MTOBs, from a number of vendors.

A number of our leases, both for fiber and building access, are up for renewal in any given year.

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While we believe that this fiber will remain usable beyond the projected end date, we face the risk that portions of our network may need to be replaced in the future.

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We expect to enter additional agreements with carriers and operators to obtain additional facilities, whether optical fiber or buildings, for our network in order to add capacity to our network and to expand our addressable market.

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Any such disruption could increase our costs, decrease our operating efficiencies and have an adverse effect on our business, results of operations and financial condition.

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Cisco may also be subject to litigation with respect to the technology on which we depend, including litigation involving claims of patent infringement.

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There can be no assurance that such non-infringing technology or licenses will be available on acceptable terms and conditions, if at all.

In 2023, we entered into an agreement to purchase routers and transmission equipment used in our network from Ciena Corporation that will begin to diversify the suppliers of our network equipment.

The Wireline Business also includes additional equipment vendors.

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International Operations Risks

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Our international operations involve a number of risks, including:

● fluctuations in currency exchange rates, particularly those involving the Euro as we are required to fund certain of our cash flow requirements of our operations outside of the United States and our €350.0 million senior unsecured notes in Euros;

● exposure to additional regulatory and legal requirements, including import restrictions and controls, exchange controls, tariffs and other trade barriers and privacy and data protection regulations;

● fluctuations in currency exchange rates, particularly those involving the Euro as we are required to fund certain of our cash flow requirements of our operations outside of the United States;

● exposure to additional regulatory and legal requirements, including laws that may make it difficult or costly to enforce our contracts, import restrictions and controls, exchange controls, tariffs and other trade barriers and privacy and data protection regulations;

● compliance with laws regarding corruption and bribery, including the United States Foreign Corrupt Practices Act;

● difficulties in staffing and managing our foreign operations;

● changes in political and economic conditions, and

● changes in political and economic conditions;

● exposure to additional and potentially adverse tax regimes.

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As the applicability of privacy regulations to the types of services we provide remains unsettled, we may be required to adopt additional measures in the future.

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Privacy regulations, such as the General Data Protection Regulation (“GDPR”) in the European Union and the California Consumer Privacy Act (“CCPA”) in California vary in scope and in the obligations they impose on us.

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Moreover, for our customers who collect personal information, increased regulation of the collection, processing and use of personal data may impact their business and their use of services in unknown ways.

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Changes in laws, rules, and enforcement could adversely affect us.

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For example, a possible repeal or curtailing of Section 230 of the Communications Decency Act in the United States could have an adverse impact on our customers and, consequently, on us.

While our top 25 customers represented less than 6.0% of our revenue for the year ended December 31, 2021, several large net-centric customers are or may be the subject of increased regulatory scrutiny, which may impact their businesses and, consequently, their use of our services in unknown ways.

While our top 25 customers represented approximately 6.0% of our revenue for the year ended December 31, 2022, several large net-centric customers are or may be the subject of increased regulatory scrutiny, which may impact their businesses and, consequently, their use of our services in unknown ways.

We may be required to censor content on the Internet, which we may find difficult to do and which may impact our ability to provide our services in some countries as well as impact the growth of Internet usage, upon which we depend.

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Finally, the cumulative effect of these taxes levied on Internet services could discourage potential customers from using Internet services to replace traditional telecommunication services and negatively impact our ability to grow our business.

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Our private network services, such as our VPN services, are subject to taxes and fees in various jurisdictions including the Universal Service Contribution tax in the US.

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These may result in the assessment of amounts due that are material and therefore would have an adverse effect on us.

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The utilization of certain of our net operating loss carryforwards is limited and depending upon the amount of our taxable income we may be subject to paying income taxes earlier than planned.

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We have substantial debt which we may not be able to repay when due.

Our total indebtedness, at par, at December 31, 2021 was $1.1 billion and includes $500.0 million of our 3.50% senior secured notes and €350.0 million of our 4.375% senior unsecured notes.

Our $500.0 million senior secured notes are due in May 2026 and require annual interest payments of $17.5 million per year - paid semi-annually.

Our €350.0 million of senior unsecured notes are due in June 2024 and require annual interest payments of €15.3 million per year - paid semi-annually.

Our total indebtedness, at par, at December 31, 2022 was $1.3 billion and includes $500.0 million of our 3.50% senior secured notes due in May 2026 (“2026 Notes”) and $450.0 million of our 7.00% senior unsecured notes due in June 2027 (“2027 Notes”).

Our 2026 Notes require annual interest payments of $17.5 million per year and our 2027 Notes require interest payments of $31.5 million per year, each paid semi-annually.

All of our noteholders have the right to be paid the principal upon default and upon certain designated events, such as certain changes of control.

Our total indebtedness at December 31, 2021 included $245.9 million of finance lease obligations for dark fiber primarily under 15 — 20 year IRUs.

Our total indebtedness at December 31, 2021 excludes $124.0 million of operating lease liabilities which we were required to be recorded as right-to-use assets and operating lease liabilities in connection with the adoption of ASU No.

Our total indebtedness at December 31, 2022 included $304.2 million of finance lease obligations for dark fiber primarily under 15 to 44 year IRUs.

Our total indebtedness at December 31, 2022 excludes $106.6 million of operating lease liabilities which were required to be recorded as right-to-use assets and operating lease liabilities in connection with the adoption of ASU No.

2016-02 Leases on January 1, 2019.

The amount of our IRU finance lease obligations may be impacted due to our expansion activities, the timing of payments and fluctuations in foreign currency rates.

The amount of US dollars required to fund our interest and principal obligations for our Euro-denominated notes may be impacted due to fluctuations in the Euro to US Dollar exchange rate.

We may not have sufficient funds to pay the interest and principal related to these obligations at the time we are obligated to do so, which could result in bankruptcy, or we may only be able to raise the necessary funds on unfavorable terms.

We have assumed the risk associated with variable interest rates under our interest rate swap agreement.

We are party to an interest rate swap agreement (the “Swap Agreement”) that has the economic effect of modifying the fixed interest rate obligation associated with our 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.

Under the Swap Agreement, we pay the counterparty a semi-annual payment based upon overnight SOFR plus a contractual interest rate spread, and the counterparty pays us a semi-annual fixed 3.50% interest payment.

The settlement payment is made each November and May until the Swap Agreement expires in February 2026.

By entering into the Swap Agreement, we have assumed the risk associated with variable interest rates.

Changes in interest rates affect the valuation of the Swap Agreement that we recognize in our consolidated statements of comprehensive income.

Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our notes and our other indebtedness.

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● require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which will reduce funds available for other business purposes, including the growth of our operations, capital expenditures, dividends, purchases of our common stock and acquisitions;

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● place us at a competitive disadvantage compared with some of our competitors that may have less debt and better access to capital resources;

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Our business may not generate sufficient cash flow, and future financings may not be available to provide sufficient net proceeds, to meet these obligations or to successfully execute our business strategy.

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We have assumed the risk associated with variable interest rates under our interest rate swap agreement.

Beginning in August 2021 we used a derivative financial instrument to manage our interest rate risk on our 2026 Notes.

As of December 31, 2021, we were party to an interest rate swap agreement (the Swap Agreement”) that has the economic effect of modifying the fixed-interest rate obligation associated with our 2026 Notes to a variable interest rate obligation based on the Secured Overnight Financing Rate (“SOFR”).

The Swap Agreement is recorded at its fair value at each reporting period and we incur gains and losses due to changes in market interest rates.

We have a $20.0 million interest-bearing deposit with the counterparty to the Swap Agreement.

If the fair value of the Swap Agreement exceeds a net liability of $20.0 million, we 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, the fair value of the Swap Agreement was a net liability of $9.0 million and, as a result, $9.0 million of the $20.0 million deposit was restricted and $11.0 million was unrestricted.

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

By entering into this Swap Agreement, we have assumed the risk associated with variable interest rates based upon SOFR relate to our 2026 Notes.

We did not elect hedge accounting for our Swap Agreement.

We do not use derivative financial instruments for trading purposes.

Despite our leverage we may still be able to incur more debt.

31 unchanged sentences

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What changed 10-K

Item 1A. Risk Factors