What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-02-24 · 334 added, 160 removed, 691 unchanged (42% of the section changed)

3 unchanged sentences

Consolidated Statements of Comprehensive Income for Each of the Three Years Ended December 31, 2023

Consolidated Statements of Changes in Stockholders’ Deficit for Each of the Three Years Ended December 31, 2022

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for Each of the Three Years Ended December 31, 2023

Consolidated Statements of Cash Flows for Each of the Three Years Ended December 31, 2023

2 unchanged sentences

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

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

To the Stockholders 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, 2022 and 2021, the related consolidated statements of comprehensive (loss) income, shareholders’ deficit and cash flows for each of the three years in the period ended December 31, 2022, 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, 2023 and 2022, the related consolidated statements of comprehensive income (loss), stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

12 unchanged sentences

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

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:

Critical Audit Matters

The critical audit matters communicated below are matters 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) 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 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.

The communication of a 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 matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Page 50 of 90

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

Determining the purchase price for the acquisition of Sprint

Description of the Matter

As described in Notes 1 and 2 to the consolidated financial statements, as of December 31, 2022, the Company has $345.1 million and $304.2 million of indefeasible right of use (IRU) finance lease assets, net, and liabilities, respectively, and recorded $107.9 million of IRU finance lease assets and liabilities additions during the year ended December 31, 2022.

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.

As discussed in Note 1 to the consolidated financial statements, on May 1, 2023, the Company acquired Sprint Communications and Subsidiaries (“Sprint Wireline”), for a purchase price of $1, subject to working capital adjustments, from T-Mobile US, Inc.

(the “Seller”).

Contemporaneously with the completion of the acquisition of Sprint Wireline, the Company entered into an agreement to provide IP Transit services to the Seller (the “Agreement”).

Determining the purchase price for the transaction was complex due to the fact that the accounting for the Agreement required judgment to determine if the stated contract price represented consideration for services to be delivered and did not represent revenue from a contract with a customer, because the Agreement was entered into contemporaneously with the acquisition of Sprint Wireline.

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 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 and the Company’s experience as a lessee of IRU leases, in estimating the economic life of optical fiber, compared to those assumptions selected by management.

We tested the Company's controls over its accounting for the Agreement, including the evaluation of key terms and determination regarding the commercial substance of the Agreement.

To test the Company’s accounting for the Agreement we evaluated the applicable guidance, which included evaluating the commercial substance of the Agreement.

We involved subject matter resources to assist in the evaluation of the Agreement.

Valuation of certain property & equipment assets for the acquisition of Sprint

Description of the Matter

As discussed in Note 1 to the consolidated financial statements, on May 1, 2023, the Company acquired the Sprint Communications Subsidiaries (“Sprint Wireline”), for a purchase price of $1, subject to working capital adjustments, from T-Mobile US, Inc.

(the “Seller”).

The transaction was accounted for as a business combination.

Auditing the Company's accounting for its acquisition of Sprint Wireline was complex due to the estimation uncertainty in determining the $369.2 million fair value of the acquired optical fiber assets.

The estimation uncertainty was primarily due to the lack of active market data and the wide range of possible values that could be used by market participants.

The significant assumptions used to estimate the value of these assets included the replacement cost per mile of fiber and a factor to reflect the orderly liquidation value.

These assumptions are inherently subjective and market participants could have differing views on these assumptions, which could result in a materially different fair value of the optical fiber.

How We Addressed the Matter in Our Audit

We tested the Company's controls over its accounting for acquisitions, including controls over management’s review of the significant assumptions described above.

To test the estimated fair value of the optical fiber assets, we performed audit procedures that included, among others, testing the significant assumptions used in the model.

For example, we compared the replacement cost per mile estimated by management to data obtained from third party sources.

We involved our internal valuation specialists to assist with the evaluation of these assumptions.

/s/ Ernst & Young LLP

10 unchanged sentences

Accounts receivable, net of allowance for credit losses of $ 3,677 and $ 2,303 , respectively

Due from T-Mobile, IP Transit Services Agreement, current portion, net of discount of $ 24,898

Due from T-Mobile, Transition Services Agreement

Prepaid expenses and other current assets

7 unchanged sentences

Right-of-use leased assets

Intangible assets, net

Due from T-Mobile, IP Transit Services Agreement, net of discount of $ 27,916

Due from T-Mobile, Purchase Agreement, net of discount of $ 13,725

Deposits and other assets

3 unchanged sentences

Accrued and other current liabilities

Due to T-Mobile – Transition Services Agreement

Due to T-Mobile – Purchase Agreement

Current maturities, operating lease liabilities

Installment payment agreement, current portion, net of discount of $ 6

Finance lease obligations, current maturities

Total current liabilities

Senior unsecured 2024 notes, net of unamortized debt costs of $ 2,121 and net of discount of $ 772

Senior secured 2026 notes, net of unamortized debt costs of $ 645 and $ 905 , respectively, and discount of $ 857 and $ 1,203 , respectively

Senior unsecured 2027 notes, net of unamortized debt costs of $ 1,173 and discount of $ 2,456

Senior unsecured 2027 notes, net of unamortized debt costs of $ 941 and $ 1,173 , respectively, and discount of $ 1,970 and $ 2,456 , respectively

Operating lease liabilities, net of current maturities

Finance lease obligations, net of current maturities

Deferred income tax liabilities

Other long-term liabilities

1 unchanged sentence

Commitments and contingencies

Stockholders’ deficit:

Stockholders’ equity:

Common stock, $ 0.001 par value;

3 unchanged sentences

Accumulated other comprehensive loss

Accumulated deficit

Accumulated earnings (deficit)

( 1,074,588 )

Total stockholders’ deficit

Total liabilities and stockholders’ deficit

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

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

1 unchanged sentence

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2023

4 unchanged sentences

Selling, general, and administrative (including $ 25,855 , $ 23,886 and $ 24,301 of equity-based compensation expense, respectively)

Acquisition costs – Sprint (T-Mobile Wireline) (Note 1)

Acquisition costs – Sprint Business

Depreciation and amortization

Total operating expenses

Gains on equipment transactions

Gains (losses) on lease terminations

Operating income

Gain on lease terminations and other

Operating (loss) income

Interest expense

Change in valuation – interest rate swap

Realized foreign exchange gain on 2024 Notes

Foreign exchange gain (loss) on 2024 Notes

Loss on debt extinguishment and redemption – 2021 Notes

Foreign exchange gain on 2024 Notes

Loss on debt extinguishment and redemption – 2022 Notes

Loss on debt extinguishment and redemption – 2024 Notes

Gain on bargain purchase – Sprint Business

Interest income – IP Transit Services Agreement

Interest income – Purchase Agreement

Interest income and other

Income before income taxes

Income tax expense

Comprehensive (loss) income:

Income tax benefit (expense)

Comprehensive income (loss):

Foreign currency translation adjustment

Comprehensive (loss) income

Comprehensive income (loss)

Basic net income per common share

6 unchanged sentences

COGENT COMMUNICATIONS HOLDINGS, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2023

2 unchanged sentences

Stockholder’s

Income (Loss)

Earnings (Deficit)

Equity (Deficit)

Balance at December 31, 2020

4 unchanged sentences

Exercises of options

Common stock purchases and retirement

Dividends paid

7 unchanged sentences

Balance at December 31, 2022

( 1,074,588 )

Forfeitures of shares granted to employees

5 unchanged sentences

Balance at December 31, 2023

( 1,074,588 )

Page 54 of 90

6 unchanged sentences

Depreciation and amortization

Amortization of debt discount and premium

Amortization of debt discounts and premium

Amortization of discounts, due from T-Mobile, IP Transit Services & Purchase Agreements

Equity-based compensation expense (net of amounts capitalized)

Foreign currency exchange (gain) loss on 2024 Notes

Realized foreign currency exchange gain on 2024 Notes

Loss on extinguishment & redemption of 2024 notes

Gain on bargain purchase – Sprint Business

( 1,406,435 )

Foreign currency exchange gain on 2024 Notes

Loss on extinguishment & redemption of 2024 notes

7 unchanged sentences

Change in valuation – interest rate swap agreement

Due to T-Mobile – Transition Services Agreement

Due from T-Mobile – Transition Services Agreement

Deposits and other assets

Unfavorable lease liabilities

Accounts payable, accrued liabilities and other long-term liabilities

1 unchanged sentence

Cash flows from investing activities:

Cash receipts - IP Transit Services Agreement – T-Mobile

Acquisition of Sprint Business, net of $ 47.1 million of cash acquired

Purchases of property and equipment

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

1 unchanged sentence

Net proceeds from issuance of 2026 Notes, net of debt costs of $ 1,317

Net proceeds from issuance of 2024 Notes, net of debt costs of $ 2,137

Redemption and extinguishment of 2024 Notes

Redemption and extinguishment of 2022 Notes

Redemption and extinguishment of 2021 Notes

Dividends paid

1 unchanged sentence

Principal payments of installment payment agreement

Purchases of common stock

Proceeds from exercises of common stock options

9 unchanged sentences

Finance lease obligations incurred

PP&E obtained for installment payment agreement

Fair value of equipment acquired in leases

Non-cash component of network equipment obtained in exchange transactions

Page 55 of 90

11 unchanged sentences

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.

The Company delivers its services primarily to small and medium-sized businesses, communications service providers and other bandwidth-intensive organizations in 51 countries across North America, Europe, Asia, South America, Oceania and Africa.

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

The Company delivers its services primarily to businesses, large and small, communications service providers and other bandwidth-intensive organizations in 54 countries across North America, Europe, South America, Oceania and Africa.

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

3 unchanged sentences

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.

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

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

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

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

Access customers include access networks comprised of other 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.

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

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

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

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

The Company’s net-centric customers include access networks comprised of other Internet Service Providers, 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.

2 unchanged sentences

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

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

The Company also provides certain non-core services that resulted from acquisitions, including the acquisition of Sprint Communications (as discussed below).

The Company continues to support but does not actively sell these non-core services.

In connection with the Company’s Sprint acquisition (discussed below), the Company will begin to provide optical wavelength services over the Company’s fiber network.

The Company will sell these wavelength services to its existing customers, Sprint customers and to new customers who require dedicated optical transport connectivity without the capital and ongoing expenses associated with owning and operating network infrastructure.

In connection with the Company’s acquisition of Sprint Communications (as discussed below), the Company began to provide optical wavelength services and optical transport services over its fiber network.

The Company is selling these wavelength services to its existing customers, customers of Sprint Communications and to new customers who require dedicated optical transport connectivity without the capital and ongoing expenses associated with owning and operating network infrastructure.

Additionally, the Sprint Business customers include a number of companies larger than the Company’s historical customer base.

In connection with the acquisition of Sprint Communications, the Company expanded selling services to these larger “Enterprise” customers.

Page 56 of 90

Recently Adopted Accounting Standards

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”).

ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Revenue from Contracts with Customers (Topic 606), as if the acquirer had originated the contracts at the date of the business combination.

ASU 2021-08 is effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years.

Early adoption is permitted.

The Company adopted ASU 2021-08 in connection with its acquisition of Sprint Communications (as discussed below), at which time it became applicable to the Company and was applied in the accounting for the acquisition.

The adoption did not have a material impact on the provisional opening balance sheet recorded and there was no retrospective impact to the Company’s consolidated financial statements as a result of the adoption.

Acquisition of Sprint Communications

On September 6, 2022, Cogent Infrastructure, Inc., a Delaware corporation (the “Buyer”) and a wholly owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Sprint Communications LLC, a Kansas limited liability company (“Sprint Communications”) and an indirect wholly owned subsidiary of T-Mobile US, Inc., a Delaware corporation (“T-Mobile”), and Sprint LLC, a Delaware limited liability company and a direct wholly owned subsidiary of T-Mobile (the “Seller”), pursuant to which the Company will acquire the U.S.

On September 6, 2022, Cogent Infrastructure, Inc., a Delaware corporation (the “Buyer”) and a direct wholly owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Sprint Communications LLC, a Kansas limited liability company (“Sprint Communications”) and an indirect wholly owned subsidiary of T-Mobile US, Inc., a Delaware corporation (“T-Mobile”), and Sprint LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of T-Mobile (the “Seller”), pursuant to which the Company acquired the U.S.

long-haul fiber network (including the non-U.S.

extensions thereof) of Sprint Communications and its subsidiaries (the “Wireline Business”).

The Purchase Agreement provides that, upon the terms and conditions set forth therein, the Company will purchase from the Seller all of the issued and outstanding membership interests (the “Purchased Interests”) of a Delaware limited liability company that holds Sprint Communications’ assets and liabilities relating to the Wireline Business (such transactions contemplated by the Purchase Agreement, collectively, the “Transaction”).

The parties have agreed to a $ 1 purchase price in consideration for the Purchased Interests, subject to customary adjustments set forth in the Purchase Agreement.

In addition, at the consummation of the Transaction (the “Closing”), a T-Mobile affiliate will enter into an agreement for IP transit services, pursuant to which T-Mobile will pay the Company an aggregate of $ 700 million, consisting of (i) $ 350 million in equal monthly installments during the first year after the Closing and (ii) $ 350 million in equal monthly installments over the subsequent 42 months.

The Purchase Agreement includes customary representations, warranties, indemnities and covenants, including regarding the conduct of the Wireline Business prior to the Closing.

In addition, the Closing is subject to customary closing conditions, including as to the receipt of certain required regulatory approvals and consents.

Subject to the satisfaction or waiver of certain conditions and the other terms and conditions of the Purchase Agreement, the Transaction is expected to close in 2023.

The Purchase Agreement contains certain termination rights for the Buyer and Seller, including that, subject to certain limitations, either the Buyer or the Seller may terminate the Purchase Agreement if the Transaction is not consummated by September 6, 2023, subject to two automatic six-month extensions if certain regulatory approvals have not been obtained.

The Purchase Agreement also provides that each party may specifically enforce the other party’s obligations under the Purchase Agreement.

extensions thereof) of Sprint Communications and its subsidiaries (the “Sprint Business”).

The Purchase Agreement provides that, upon the terms and conditions set forth therein, the Company purchased from the Seller all of the issued and outstanding membership interests (the “Purchased Interests”) of Wireline Network Holdings LLC, a Delaware limited liability company that, following an internal restructuring and divisive merger, holds Sprint Communications’ assets and liabilities relating to the Sprint Business (such transactions contemplated by the Purchase Agreement, collectively, the “Transaction”).

The Purchase Agreement includes customary representations, warranties, indemnities and covenants, including regarding the conduct of the Sprint Business prior to the closing of the Transaction (the “Closing”).

In addition, the Closing was subject to customary closing conditions, including as to the receipt of certain required regulatory approvals and consents, all of which have been received.

The Company has agreed to guarantee the obligations of the Buyer under the Purchase Agreement pursuant to the terms of a Guaranty, dated as of September 6, 2022, by and between the Company and the Seller (the “Parent Guaranty”).

The Parent Guaranty contains customary representations, warranties and covenants of the Company and the Seller.

The Company believes it is in a unique position to monetize the Sprint Business and its network and management expects to achieve significant cost reduction synergies and revenue synergies from the Transaction.

Revenue and pre-tax loss for the Sprint Business included in the Company’s condensed consolidated statements of comprehensive income for the year ended December 31, 2023 were $ 283.3 million and $ 234.5 million, respectively.

Purchase Price

The Transaction closed on May 1, 2023 (the “Closing Date”).

On the Closing Date, the Buyer consummated the Transaction pursuant to the terms of the Purchase Agreement, providing a purchase price of $ 1 payable to the Seller for the Purchased Interests, subject to customary adjustments, including working capital (the “Working Capital Adjustment”), as set forth in the Purchase Agreement.

As consideration for the Purchased Interests, the Working Capital Adjustment (primarily related to acquired cash and cash equivalents of an estimated $ 43.4 million at the Closing Date in order to fund the international operations of the Sprint Business) resulted in the Buyer making a payment to the Seller of $ 61.1 million on the Closing Date.

During the third quarter of 2023, an additional Working Capital Adjustment of $ 5.0 million was accrued due to the Seller.

The Purchase Agreement also includes an estimated payment of $ 52.3 million from Seller to Buyer related to acquired short-term lease obligations (the “Short-term Lease Payment”).

The Short-term Lease Payment will be paid from the Seller to the Company in four equal payments in months 55 to 58 after the Closing Date.

The Short-term Lease Payment was recorded at its present value resulting in a discount of $ 15.6 million.

The interest rate used in determining the present value was derived considering rates on similar issued debt instruments with comparable durations, amongst other market factors.

The determination of the discount rate requires some judgment.

The amortization of the discount resulted in interest income of $ 1.9 million for the year ended December 31, 2023.

The Seller is disputing approximately $ 24.2 million of the Short-term Lease Payment amount.

The Purchase Agreement also includes reimbursement from Seller to Buyer for qualifying severance expenses incurred, which were $ 16.2 million in 2023.

A final determination of the Working Capital Adjustment and the Short-term Lease Payment is expected by the end of the first quarter of 2024.

Page 57 of 90

IP Transit Services Agreement

On the Closing Date, Cogent Communications, Inc.

and T-Mobile USA, Inc., a Delaware corporation and direct subsidiary of T-Mobile (“TMUSA”), entered into an agreement for IP transit services (“IP Transit Services Agreement”), pursuant to which TMUSA will pay an affiliate of the Company an aggregate of $ 700.0 million, consisting of (i) $ 350.0 million in equal monthly installments of $ 29.2 million per month during the first year after the Closing Date and (ii) $ 350.0 million in equal monthly installments of $ 8.3 million per month over the subsequent 42 months.

During the year ended December 31, 2023, TMUSA paid the Company $ 204.2 million under the IP Transit Agreement.

The Company accounted for the Transaction as a business combination under ASC Topic 805 Business Combinations (“ASC 805”).

The Company evaluated what elements are part of the business combination and the consideration exchanged to complete the acquisition.

Under ASC 805, the Company has concluded that the $ 700.0 million of payments to be made represent consideration received from T-Mobile to complete the acquisition of a distressed business.

The Company also evaluated whether the IP Transit Services Agreement was in the scope of ASU No.

2014-09 Revenue from Contracts with Customers (“ASC 606”).

The Company has concluded that T-Mobile did not represent a “customer” as defined by ASC 606, the stated contract price did not represent consideration for services to be delivered, and the transaction did not satisfy the definition of revenue, which excluded this arrangement from the scope of ASC 606.

As a result, and considering statements made by T-Mobile, the IP Transit Services Agreement was recorded in connection with the Transaction at its discounted present value resulting in a discount of $ 79.6 million.

The interest rate used in determining the present value was derived considering rates on similar issued debt instruments with comparable durations, amongst other market factors.

The determination of the discount rate requires some judgment.

The amortization of the discount resulted in interest income of $ 26.8 million for the year ended December 31, 2023.

Transition Services Agreement

On the Closing Date, the Buyer entered into a transition services agreement (the “TSA”) with the Seller, pursuant to which the Seller will provide to the Buyer, and the Buyer will provide to the Seller on an interim basis following the Closing Date, certain specified services (the “Transition Services”) to ensure an orderly transition following the separation of the Sprint Business from Sprint Communications.

The services to be provided by the Seller to the Buyer include, among others, information technology support, back office and finance, real estate and facilities, vendor and supply chain management, the payment and processing of vendor invoices for the Company and human resources.

The services to be provided by the Buyer to the Seller include, among others, information technology and network support, finance and back office and other wireless business support.

The Transition Services are generally intended to be provided for a period of up to two years following the Closing Date, although such period may be extended for an additional one-year term by either party upon 30 days ’ prior written notice.

The fees for the Transition Services are calculated using either a per service monthly fee or an hourly rate for the employees allocated to provide such services.

Any third-party costs incurred in providing the Transition Services are passed on to the party receiving such services at cost for the two-year period.

Amounts paid for the Sprint Business by T-Mobile are reimbursed at cost.

Either party to the TSA may terminate the agreement (i) with respect to any individual service in full for convenience upon 30 days ’ prior written notice for certain services and reduced for other services after a 90-day period.

The TSA may be terminated in its entirety if the other party has failed to perform any of its material obligations and such failure is not cured within 30 days.

The TSA provides for customary indemnification and limits on liability.

Amounts billed under the TSA are due 30 days from receipt of the related invoice.

During the year ended December 31, 2023 the Company was billed $ 284.1 million as due to the Seller under the TSA, respectively, primarily for reimbursement at cost of payments to vendors of the Sprint Business.

During the year ended December 31, 2023 the Company paid $ 217.2 million to the Seller under the TSA.

As of December 31, 2023, the Company owed $ 66.9 million to the Seller and the Seller owed $ 4.5 million to the Buyer under the TSA agreement.

The amounts due to the Seller are primarily reimbursements for payments to Sprint Business vendors paid by the Seller for the Company until these vendors are fully transitioned to the Company.

The amounts due from the Seller are primarily reimbursements for severance costs related to Sprint Business employees and services provided by the Company for the Seller.

Other Services Provided to Seller

In addition, on the Closing Date, the Buyer and TMUSA entered into a commercial agreement (“Commercial Agreement”) for colocation and connectivity services, pursuant to which the Company will provide such services to TMUSA for a per service monthly fee plus certain third-party costs incurred in providing the services.

During the year ended December 31, 2023, the Company recorded $ 23.9 million from TMUSA as service revenue under the Commercial Agreement.

As of December 31, 2023, TMUSA owed $ 1.6 million to the Company under the Commercial Agreement.

These amounts are included in accounts receivable.

Page 58 of 90

Acquisition-Related Costs

In connection with the Transaction and negotiation of the Purchase Agreement, the Company incurred $ 2.2 million of professional fees in the year ended December 31, 2022.

In connection with the Transaction and negotiation of the Purchase Agreement, the Company has incurred professional fees and $ 16.2 million of reimbursed severance costs, in the year ended December 31, 2023, with such professional fees and reimbursed severance costs totaling $ 18.5 million and $ 2.2 million for the years ended December 31, 2023 and 2022, respectively.

Consideration

The acquisition-date fair value of consideration to be received from the Transaction totaled $ 607.2 million and comprised of the following:

(In thousands)

Estimated working capital payments made to the Seller, net of severance reimbursements (a)

Estimated Purchase Agreement payment to be received from the Seller, net of discount of $ 15,614 (b)

Amounts due from the Seller – IP Transit Services Agreement, net of discount of $ 79,610 (c)

Total to be received from the Seller

Total net consideration to be received from the Seller (d)

(a) Includes $ 61.1 million paid to the Seller on the Closing Date and an accrual of $ 5.0 million due to the Seller.

During the third quarter of 2023, the Working Capital Adjustment was increased by $ 1.5 million.

Includes an offsetting $ 16.2 million in severance reimbursement payments received from the Seller recorded as a measurement period adjustment during the fourth quarter.

A final determination of the Working Capital Adjustment is expected by the end of the first quarter of 2024.

(b) Under the Purchase Agreement, 50 % of the assumed short-term operating lease liabilities totaling $ 52.3 million is to be paid to the Company from the Seller in four equal installments in months 55 - 58 from the Closing Date and is recorded at its present value resulting in a discount of $ 15.6 million.

During the third quarter of 2023, the Short-term Lease Payment was reduced by $ 4.8 million.

A final determination of the Short-term Lease Payment is expected by the end of the first quarter of 2024.

(c) The IP Transit Services Agreement payments totaling $ 700.0 million are recorded at their present value resulting in a discount of $ 79.6 million.

The $ 700.0 million is to be paid to the Company from the Seller in equal monthly payments of $ 29.2 million in months 1-12 and $ 8.3 million in months 13-54.

(d) Cash consideration was $ 1

Fair Value of Assets Acquired and Liabilities Assumed and Gain on Bargain Purchase

The Company accounted for the Transaction as a business combination under ASC 805.

Under ASC 805, the identifiable assets acquired and liabilities assumed were recorded at their fair values as of the Closing Date.

Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgment regarding estimates and assumptions.

For the fair values of the assets acquired and liabilities assumed, the Company used the cost, income and market approaches, including market participant assumptions.

The fair value of the identifiable assets acquired (including amounts due under the IP Transit Services Agreement) were in excess of the liabilities assumed and the net consideration to be paid resulting in a gain on bargain purchase of $ 1.4 billion.

During the third quarter of 2023, the Company recorded a measurement period adjustment to reclassify $ 24.9 million from right-of-use leased assets (net of related unfavorable lease liability amount) to finance lease assets (presented within property and equipment) and a measurement period adjustment to reclassify $ 160.9 million from operating lease liabilities to finance lease liability.

During the fourth quarter of 2023, the Company recorded the following measurement period adjustments resulting in an increase to the gain on bargain purchase of $ 254.0 million.

Excluding the impact to the bargain purchase gain, the corresponding impact from these adjustments to the condensed consolidated statements of comprehensive loss for the three-month period ended September 30, 2023 and for the period from May 1, 2023 to December 31, 2023 was not material.

● An intangible asset totaling $ 458.0 million for acquired IPv4 addresses.

This asset was recorded once management determined both the quantity of IPv4 addresses for which title was transferred and the valuation approach.

Because of the novel nature of this asset and that the Transaction has resulted in a material bargain purchase gain, management recorded the asset after appropriate consideration of the valuation approach, in the context of a distressed business.

Page 59 of 90

● A reduction to an intangible asset, acquired customer relationships, totaling $ 41.0 million from revisions to certain assumptions.

● A reduction to acquired owned property totaling $ 86.4 million from revisions to certain assumptions.

● Severance reimbursement payments received from the Seller Includes totaling $ 16.2 million recorded as a measurement period adjustment during the fourth quarter.

● Other less significant adjustments.

● An increase to the net deferred tax liability totaling $ 89.5 million from the impact of the adjustments noted above.

The Transaction is considered an asset purchase for income tax purposes.

The tax basis of the acquired business is the consideration paid ($ 1 ) plus the tax basis of certain liabilities assumed, with adjustments for cash acquired in excess of the purchase price.

Deferred income taxes are recorded based upon the difference between the book and tax basis of the acquired assets and assumed liabilities at the Company’s marginal effective income tax rate on the Closing Date.

The following table summarizes the fair values for each major class of assets acquired and liabilities assumed at the Closing Date.

The Company retained the services of certified valuation specialists to assist with assigning values to certain acquired assets and assumed liabilities.

The amounts presented are provisional and are subject to change as the Company refines the estimates and inputs used in the calculations of the assets acquired and liabilities assumed.

The Company believes that estimates that are potentially subject to change include the valuations of IPv4 addresses, property and equipment, right-of-use leased assets, operating lease liabilities and the related income tax effects from such estimate revisions.

Current assets:

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current assets

Total current assets

Total property and equipment

Right-of-use leased assets

Intangible assets

Deposits and other assets

Current liabilities:

Accounts payable

Accrued and other current liabilities

Current maturities, operating lease liabilities

Current maturities, finance lease liabilities

Total current liabilities

Operating lease liabilities, net of current maturities

Finance lease liabilities, net of current maturities

Deferred income tax liabilities

Other long-term liabilities

Total liabilities

Fair value of net assets acquired

Gain on bargain purchase

Fair value of net assets acquired

Total net consideration to be received from the Seller, net of discounts - see table above

Gain on bargain purchase

Page 60 of 90

Acquired Property & Equipment

The Company acquired property and equipment of $ 965.7 million.

This is primarily comprised of the legacy Sprint network and consists of optical fiber, related equipment, and owned real estate which were valued using a combination of the cost and market approaches.

Management intends to operate the acquired business;

however, management valued these assets using factors which represent an orderly liquidation value, to approximate the highest and best use of assets acquired in a distressed business.

The estimated fair value of the optical fiber on the Transaction date is $ 369.2 million.

The valuation requires the estimation of the total replacement cost per mile of fiber and a factor to reflect the orderly liquidation value.

There is not active market data for these assumptions and these assumptions are inherently subjective.

Market participants could have differing views on these assumptions, which could result in a materially different fair value of the optical fiber.

Acquired Leases

The Company acquired a portfolio of lease arrangements for the lease of dark fiber, rights-of-way and facilities.

In accordance with ASC 805 and ASC 842, the acquired leases are accounted for as if the leases are new at the acquisition date however, the Company will retain the lease classification from the Seller.

The Company followed its historical policies with respect to evaluating the renewal periods of the acquired leases and estimating the incremental borrowing rate.

The Company also evaluated the leases for unfavorable terms and recorded an adjustment for unfavorable market terms of $ 151.1 million, was valued using the income approach, and which is presented net of the corresponding right of use assets.

Acquired Intangible Assets

Intangible assets acquired include $ 458.0 million of IPv4 address intangible assets and $ 16.0 million of acquired customer relationships.

The fair value measurement of the IPv4 addresses was based on recent auction prices and a factor to incorporate the uncertainty for how the market for IPv4 addresses will function in the future.

The Company believes that these IPv4 addresses have an indefinite useful live and are not being amortized.

The Company evaluates these assets for impairment on the first day of the fourth quarter.

There was no impairment recorded during the period from May 1, 2023 through December 31, 2023.

The acquired customer relationships have an estimated useful life of nine years and the estimated fair value was determined using a market based income approach.

Amortization expense for the year ended December 31, 2023 was $ 1.3 million.

Future amortization expense of the customer relationships is $ 1.8 million per year for eight years .

Acquired Asset Retirement Obligations

In connection with the Transaction, the Company assumed $ 32.0 million of asset retirement obligations primarily related to restoration obligations for acquired leases which was valued using the income approach.

The obligations and corresponding asset retirement assets are being accreted and amortized over approximately four years .

Accretion of the asset retirement obligations (recorded as an increase to network operations expenses) and amortization of the asset retirement assets (recorded as depreciation and amortization expenses) for the year ended December 31, 2023 were $ 1.7 million and $ 5.1 million, respectively.

In accordance with ASC 410, the Company has not recorded an asset retirement obligation related to the removal of the acquired optical fiber because a settlement date for which to remove the fiber is indeterminable and therefore a reasonable estimation of fair value cannot be made.

Reassessment of Bargain Purchase Gain

Because the fair value of the identifiable assets acquired and liabilities assumed exceeded the fair value of the consideration transferred, the Company recorded a material bargain purchase gain.

Consequently, the Company reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed in accordance with ASC 805-30-25-4 and concluded that all acquired assets and assumed liabilities were recognized and that the valuation procedures and resulting measures were appropriate.

Page 61 of 90

Pro Forma Information

The following unaudited pro forma financial information gives effect to the Transaction as if it had been completed on January 1, 2022.

The pro forma adjustments are based on historically reported transactions by the respective companies.

The pro forma results do not include anticipated synergies or other expected benefits of the acquisition.

The pro forma results for the year ended December 31, 2023 include the historical results of the Sprint Business through April 30, 2023 and the combined results of the Company and the Sprint Business for the eight months ended December 31, 2023.

The unaudited pro forma information is based upon available information and certain assumptions that the Company believes are reasonable under the circumstances.

Actual results may differ materially from the assumptions within the accompanying unaudited pro forma financial information.

The purchase adjustments are preliminary and subject to change as additional analyses are performed and finalized.

The selected unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations would have been had the Transaction actually occurred on January 1, 2022, nor do they purport to project the future consolidated results of operations.

(In thousands) (unaudited)

December 31, 2023

December 31, 2022

Service revenue

Operating loss from continuing operations

The pro forma results for the year ended December 31, 2022 include estimates for the gain on bargain purchase related to the Transaction of $ 1.4 billion, interest income from the amortization of the discount recorded under the IP Transit Services Agreement of $ 36.2 million, a net increase to historical depreciation expense based on the fair value of property and equipment and the impact of the finance lease adjustment discussed above, of $ 58.0 million, amortization expense related to the customer relationship intangible assets of $ 1.8 million, the elimination of amounts charged from the parent company to the Sprint Business as autonomous entity expense adjustments of $ 45.7 million, amortization of unfavorable lease liabilities of $ 3.0 million, a reduction to network operations expense of $ 50.4 million and an increase to interest expense of $ 10.9 million from the impact of the finance lease adjustment discussed above, and the impact to income tax expense from the pro-forma and autonomous entity adjustments of $ 17.2 million.

The historical results of the Sprint Business for the year ended December 31, 2022 include a loss on impairment of $ 477.3 million and a gain on the sale of IP addresses of $ 120.8 million.

The pro forma results for the year ended December 31, 2023 include the gain on bargain purchase related to the Transaction of $ 1.4 billion, interest income from the amortization of the discount recorded under the IP Transit Services Agreement of $ 14.7 million, a net increase to historical depreciation expense based on the fair value of property and equipment and the impact of the finance lease adjustment discussed above of $ 28.3 million, amortization expense related to the customer relationship intangible assets of $ 0.6 million, amortization of unfavorable lease liabilities of $ 1.0 million, a reduction to network operations expense of $ 16.8 million and an increase to interest expense of $ 3.9 million from the impact of the finance lease adjustment discussed above, and the impact to income tax expense from the pro-forma adjustments of $ 0.2 million.

Principles of consolidation

14 unchanged sentences

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.

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

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

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

1 unchanged sentence

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

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

Current-period

7 unchanged sentences

The current-period provision for expected credit losses is net of bad debt recoveries of $ 1.9 million, $ 1.9 million and $ 2.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Page 63 of 90

In February 2016, the FASB issued ASU No.

1 unchanged sentence

ASU 2016-02 replaced most existing lease accounting guidance.

In July 2018, the FASB approved an Accounting Standards Update which, among other changes, allowed a company to elect to adopt ASU 2016-02 using the modified retrospective method applying the transition provisions at the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in these financial statements.

ASU 2016-02 was effective for the Company beginning on January 1, 2019 and required the Company to record a right-of-use asset and a lease liability for most of its facilities leases.

These leases were previously treated as operating leases.

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

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

The operating lease liability is not considered a liability under the consolidated leverage ratio calculations in the indentures governing the Company’s senior unsecured and senior secured note obligations.

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 non-lease components on its finance and operating leases,

Page 49 of 75

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 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 reasonably certain term of its leases.

December 31, 2023

26 unchanged sentences

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

Page 64 of 90

Operating leases

The Company leases office space and certain data center facilities under operating leases.

In certain cases the Company also enters into short-term operating leases for dark fiber.

The Company leases office space, rights-of-way, dark fiber and certain data center facilities under operating leases.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments under the lease.

9 unchanged sentences

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

Page 50 of 75

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

20 unchanged sentences

The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services.

The Company has adopted the practical expedient related to certain performance obligation disclosures since it has a right to consideration from its customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date.

The Company has adopted the practical expedient related to certain performance obligation disclosures since it has a right to consideration

Page 65 of 90

from its customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date.

To achieve this core principle, the Company follows the following five steps:

4 unchanged sentences

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

Page 51 of 75

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

24 unchanged sentences

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

Page 66 of 90

At December 31, 2023 and December 31, 2022, 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.

5 unchanged sentences

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

Page 52 of 75

Concentrations of credit risk

2 unchanged sentences

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

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

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

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

The Company relies upon an equipment vendor for the majority of its network equipment and is also dependent upon many third-party fiber providers for providing its services to its customers.

The Company relies upon a limited number of equipment vendors for the majority of its network equipment and is also dependent upon many third-party fiber providers for providing its services to its customers.

Property and equipment

16 unchanged sentences

Owned buildings

16 to 40 years

Office and other equipment

Asset retirement obligations

System infrastructure

2 to 14 years

Page 67 of 90

Long-lived assets

8 unchanged sentences

Equity-based compensation expense is recognized in the statements of comprehensive income in a manner consistent with the classification of the employee’s salary and other compensation.

Page 53 of 75

The Company’s deferred tax assets or liabilities are computed based upon the differences between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate.

12 unchanged sentences

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.

Page 68 of 90

The following details the determination of the diluted weighted average shares:

7 unchanged sentences

Anti-dilutive shares of restricted common stock

Page 54 of 75

Property and equipment:

5 unchanged sentences

Office and other equipment

Buildings and improvements

Asset retirement obligations

Less—Accumulated depreciation and amortization

( 1,124,385 )

Assets under finance leases:

1 unchanged sentence

Property and equipment, net

Depreciation and amortization expense related to property and equipment and finance leases was $ 92.2 million, $89.2 million and $83.5 million, for 2022, 2021 and 2020, respectively.

Depreciation and amortization expense related to property and equipment and finance leases was $229.9 million, $ 92.2 million and $ 89.2 million, for the years ended December 31, 2023, 2022 and 2021, respectively.

The Company capitalizes the compensation cost of employees directly involved with its construction activities.

In 2022, 2021 and 2020, the Company capitalized compensation costs of $ 12.6 million, $ 13.4 million and $ 12.1 million, respectively.

In the years ended December 31, 2023, 2022 and 2021, the Company capitalized compensation costs of $ 35.5 million, $ 12.6 million and $ 13.4 million, respectively.

These amounts are included in system infrastructure costs.

Installment payment agreement

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

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

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

As of December 31, 2021, there was $ 0.8 million of note obligations outstanding under the IPA, secured by the related equipment.

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

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

The IPA was fully repaid in 2022.

Page 69 of 90

Accrued and other liabilities:

5 unchanged sentences

Taxes—non-income based

Page 55 of 75

Long-term debt:

20 unchanged sentences

The 2024 Notes were issued in Euros and were reported in the Company’s reporting currency, US dollars, until they were extinguished and redeemed.

Prior to the redemption of the 2024 Notes, the gain (loss) on foreign exchange on the 2024 Notes from converting Euros into US dollars was $ 31.6 million, $ 32.5 million and ($ 37.0 ) million for 2022, 2021 and 2020, respectively.

Prior to the redemption of the 2024 Notes, the gains on foreign exchange on the 2024 Notes from converting Euros into US dollars were $ 31.6 million and $ 32.5 million for 2022 and 2021, respectively.

Unless earlier redeemed or repurchased, the 2027 Notes will mature on June 15, 2027.

1 unchanged sentence

Thereafter, Group may redeem the 2027 Notes, in whole or in part, at a redemption price ranging from 103.5 % of the aggregate principal amount of the 2027 Notes redeemed to par (depending on the year), in each case, as set forth in the 2027 Notes Indenture, plus accrued and unpaid interest, if any.

Page 70 of 90

On the Redemption Date, Group redeemed its € 350.0 million of 2024 Notes at a price of 101.094 % (€ 353.8 million or $ 375.2 million) of the principal amount (the “Premium”) plus € 7.7 million ($ 8.1 million) of interest paid through June 30, 2022, the Redemption Date where the Premium reduced to 101.094 %, for a total payment of € 361.5 million ($ 383.4 million).

6 unchanged sentences

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

The 2026 Notes were issued pursuant to, and are governed by, an indenture (the “2026 Notes Indenture”), dated the 2026 Notes Closing Date by

Page 56 of 75

and among Group, Holdings, the other guarantors named therein, the trustee and the collateral agent.

The 2026 Notes were issued pursuant to, and are governed by, an indenture (the “2026 Notes Indenture”), dated the 2026 Notes 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”).

21 unchanged sentences

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

As of December 31, 2020, the Company’s € 350.0 million of 2024 Notes were valued at $ 429.3 million resulting in a loss on foreign exchange of $ 37.0 million for the year ended December 31, 2020.

As of December 31, 2020, the Company’s € 350.0 million of 2024 Notes were valued at $ 429.3 million.

As of December 31, 2021, the 2024 Notes were valued at $ 397.0 million, resulting in a gain on foreign exchange of $ 32.5 million for the year ended December 31, 2021.

In June 2022, Group redeemed the 2024 Notes, as noted above.

Page 71 of 90

Senior secured notes - $445.0 million 2022 Notes

5 unchanged sentences

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

Page 57 of 75

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 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 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.

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

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

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

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

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

13 unchanged sentences

For the year ending December 31,

Page 58 of 75

Interest rate swap agreement

2 unchanged sentences

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.

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

Page 72 of 90

market interest rates.

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

2 unchanged sentences

As of December 31, 2023 the fair value of the Swap Agreement was a net liability of $ 38.7 million of which $ 21.6 million is presented with accrued and other current liabilities and $ 17.1 million is presented with other long-term liabilities.

In 2022 and 2021, the Company recorded an unrealized loss related to the Swap Agreement of $ 43.1 million and $ 9.0 million, respectively.

As of December 31, 2022 the fair value of the Swap Agreement was a net liability of $ 52.1 million of which $ 20.3 million is presented with accrued and other current liabilities and $ 31.9 million is presented with other long-term liabilities.

In the years ended December 31, 2023, 2022 and 2021, the Company recorded gains (losses) related to the Swap Agreement of $ 13.4 million, ($ 43.1 ) million and ($ 9.0 ) million, respectively.

The Company has made a $ 38.8 million deposit with the counterparty to the Swap Agreement.

6 unchanged sentences

Under the settlement payment made in November 2022, the Company made a payment of $ 3.4 million to the counterparty for a net cash interest cost of $ 3.4 million for the period from May 1, 2022 to October 31, 2022.

Under the settlement payment made in May 2023, the Company made a payment of $ 9.5 million to the counterparty for a net cash interest cost of $ 9.5 million for the period from November 1, 2022 to April 30, 2023.

Under the settlement payment made in November 2023, the Company made a payment of $ 12.0 million to the counterparty for a net cash interest cost of $ 12.0 million for the period from May 1, 2023 to October 31, 2023.

Income taxes:

4 unchanged sentences

Years Ended December 31,

Total income tax expense

Total income tax benefit (expense)

Page 73 of 90

2 unchanged sentences

Net operating loss carry-forwards

Equity-based compensation

Interest expense limitation

Accrued liabilities and other

Operating leases

2 unchanged sentences

Deferred Tax Liabilities:

Depreciation and amortization

Accrued liabilities and other

Property & equipment

Deferred consideration – IP Transit Services Agreement

Investment in foreign subsidiaries

Right-of-use assets

1 unchanged sentence

Net deferred tax liabilities

The acquisition of Sprint was an asset acquisition for tax purposes.

The Company recorded a net, deferred tax liability of $ 494 million which represents the difference in book basis and tax basis of the assets acquired and liabilities assumed.

The Seller indemnified the Company for historical tax exposures and the estimated indemnification asset is not material.

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

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

The Company maintains a full valuation allowance against certain of its deferred tax assets consisting primarily of net operating loss carryforwards related to its foreign operations in Europe, Asia, South America, Oceania and Africa.

As of December 31, 2022, the Company has combined net operating loss carry-forwards of $ 943.0 million.

As of December 31, 2023, 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 $ 23.5 million, net operating loss carry-forwards related to its European operations of $ 960.4 million and $ 19.5 million related to its other international operations.

12 unchanged sentences

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

Page 74 of 90

The Company or one of its subsidiaries files income tax returns in the US federal jurisdiction and various state and foreign jurisdictions.

1 unchanged sentence

The Company is subject to tax examinations in its foreign jurisdictions generally for years 2005 to 2023.

Page 60 of 75

The following is a reconciliation of the Federal statutory income taxes to the amounts reported in the financial statements (in thousands).

4 unchanged sentences

Non-deductible expenses

Bargain purchase gain - Sprint Business acquisition

Tax effect of TCJA from foreign earnings

Changes in valuation allowance

Income tax expense

Income tax benefit (expense)

Commitments and contingencies:

4 unchanged sentences

The Company has taken certain positions related to its obligations for leased circuits for which it is reasonably possible to result in a loss of up to $ 4.1 million in excess of the amount accrued at December 31, 2023.

The Company was engaged in litigation in Virginia in which a former provider of transoceanic capacity to the Company was 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 trial took place in July 2022, and in August 2022, the Circuit Court issued an order requiring the Company to pay approximately $ 0.4 million in damages, inclusive of attorneys’ fees.

The Company paid a final payment of approximately $ 0.4 million, reflecting accumulated interest and additional attorneys’ fees, in October 2022.

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

4 unchanged sentences

Network equipment sites and data center facilities

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

The Company enters into service agreements related to network equipment sites and for data center facilities.

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

1 unchanged sentence

Expenses related to these arrangements were $ 29.1 million in 2023, $ 21.8 million in 2022 and $ 22.0 million in 2021.

Short - term lease expense was $ 9.8 million for 2023.

Page 75 of 90

3 unchanged sentences

These obligations begin when the related fiber is accepted, which is generally expected to occur in 2024.

Future minimum payments under these obligations are $ 6.2 million, $ 4.1 million, $ 2.8 million, $ 2.8 million and $ 3.2 million for the years ending December 31, 2023 to December 31, 2027, respectively, and $ 51.2 million, thereafter.

Future minimum payments under these dark fiber IRU obligations are $ 28.9 million, $ 12.7 million, $ 11.0 million, $ 11.0 million and $ 11.0 million for the years ending December 31, 2024 to December 31, 2028, respectively, and $ 168.2 million, thereafter.

Defined contribution plan

7 unchanged sentences

The Company’s Board of Directors has approved $ 50.0 million for purchases of the Company’s common stock under a buyback program (the “Buyback Program”).

At December 31, 2022, there was $ 30.4 million remaining for purchases under the Buyback Program.

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 2022 or 2021.

At December 31, 2023, there was $ 30.4 million remaining for purchases under the Buyback Program.There were no purchases of common stock in 2023, 2022 or 2021.

Dividends on common stock

60 unchanged sentences

Related party transactions:

Office leases

The Company’s headquarters is located in an office building owned by Sodium LLC whose owner is the Company’s Chief Executive Officer.

The Audit Committee of the Company’s Board of Directors (the “Audit Committee”) reviews and approves all transactions with related parties.

The Company’s headquarters is located in an office building owned by Sodium LLC whose owner is the Company’s Chief Executive Officer, David Schaeffer.

The fixed annual rent for the headquarters building is $ 1.0 million per year plus an allocation of taxes and utilities.

2 unchanged sentences

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

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

The Company paid $ 1.7 million in 2022, $ 1.7 million in 2021 and $ 1.7 million in 2020 for rent and related costs (including taxes and utilities) for this lease.

On January 6, 2023, the Company entered into two lease agreements (the “New Leases”), one with Thorium LLC (‘Thorium”) and one with Germanium LLC (“Germanium”), entities owned by the Company’s Chief Executive Officer, David Schaeffer.The first of the New Leases is with Thorium for 54,803 square feet of office space, which serves as office space for the Company replacing a

Page 78 of 90

On January 6, 2023, the Company entered into two lease agreements (the “New Leases”), one with Thorium LLC and one with Germanium LLC, entities owned by the Company’s Chief Executive Officer, David Schaeffer.

The Company’s Audit Committee, which is responsible for reviewing any related party transactions, reviewed and approved the Company’s entry into the New Leases.

The first of the New Leases is with Thorium LLC for approximately 54,803 square feet of office space, which will serve as office space for the Company replacing a portion of its current office space in the Northern Virginia area (“Office Lease”).

The second of the New Leases is with Germanium LLC for approximately 1,587 square feet of technical space, in the building which will serve as network operations space for the Company (“Network Operations Lease”).

The term for each of the New Leases is five years beginning March 1, 2023 (or an actual later date of occupancy).

portion of its office space in the Northern Virginia area (“Office Lease”).

The second of the New Leases is with Germanium LLC for 1,587 square feet of technical space which serves as network operations space for the Company (“Network Operations Lease”).

The term for each of the New Leases is five years beginning on April 1, 2023.

Both of the New Leases are cancellable by the Company without penalty upon 60 days written notice.

The amount of fixed annual rent during the term of the Office Lease will be $ 1.2 million, and the Company is also responsible for paying its proportionate share of the building’s operating expenses that exceed a 2023 base year.

The amount of fixed annual rent during the term of the Network Operations Lease will be $ 34,914 , and the Company is also responsible for paying its metered utility costs and a proportionate share of the building’s other operating expenses that exceed a 2023 base year.

The Company took occupancy of the office space and network operations space in April 2023.

The amount of fixed annual rent during the term of the Office Lease is $ 1.2 million, and the Company is responsible for paying its proportionate share of the building’s operating expenses that exceed a 2023 base year.

The amount of fixed annual rent for the Network Operations Lease is $ 34,914 , and the Company is also responsible for paying its metered utility costs and a proportionate share of the building’s other operating expenses that exceed a 2023 base year.

On July 25, 2023 the Company entered into a Second Amendment to the lease agreement (the “Amendment”), with Germanium which amends the Network Operations Lease to lease an additional 7,369 square feet on the first floor of the building, beginning on August 1, 2023, in connection with the planned expansion of the technical space.

This includes 4,987 square feet for an auditorium suitable for training and 2,382 square feet for the data center in the building.

The amended Network Operations Lease remains cancellable by the Company without penalty upon 60 days written notice.

The Amendment provides for $ 162,118 of additional fixed annual rent during the term of the Network Operations Lease, plus a proportionate share of real estate taxes and operating expenses and separately metered utilities expense.

The Company paid $ 2.8 million in 2023, $ 1.7 million in 2022 and $ 1.7 million in 2021 for rent and related costs (including taxes and utilities) for this lease for these leases.

Geographic information:

22 unchanged sentences

Network operations, including equity-based compensation expense

Operating income

Operating income (loss)

Net income (loss) (1)

14 unchanged sentences

Weighted-average number of common shares—diluted

(1) Included in net income for the three months ended June 30, 2023, September 30, 2023 and December 31, 2023 are gains (losses) on the bargain purchase of the Sprint Business of $ 1.2 billon, ( $ 3.3 )million, and $ 254.0 million, respectively.

Included in net income (loss) for the three months ended March 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023 are non - cash (charges) benefits from changes in the valuation of the Swap Agreement of $ 1.8 million, ( $ 1.3 ) million, ( $ 4.8 ) million and $ 17.7 million, respectively.

(2) Included in net income for the three months ended March 31, 2022 and June 30, 2022, are unrealized gains on foreign exchange on the 2024 Notes of $ 8.0 million and $ 23.5 million, respectively.

1 unchanged sentence

Included in net income (loss) for the three months ended March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022 are non-cash charges (benefit) from changes in the valuation of the Swap Agreement of $ 21.3 million, $ 7.5 million, $ 16.9 million and ( $ 2.6 ) million, respectively.

(2) 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 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 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.

Included in net income for the three months ended September 30, 2021 and December 31, 2021 are non-c ash charges from changes in the valuation of the Swap Agreement of $ 3.1 million and $ 5.9 million, respectively.

Subsequent Events:

1 unchanged sentence

The dividend for the first quarter of 2024 will be paid to holders of record on March 15, 2024.

This estimated $ 43.3 million dividend payment is expected to be made on March 24, 2023.

This estimated $ 45.7 million dividend payment is expected to be made on April 9, 2024.

Page 80 of 90

1 unchanged sentence

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