COMMITMENTS, CONTINGENCIES AND LITIGATION

9 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS, CONTINGENCIES AND LITIGATION

5.           COMMITMENTS, CONTINGENCIES AND LITIGATION

Asset Retirement Obligation

During the three months ended September 30, 2014, we recorded an asset retirement obligation (“ARO”) related to future removal costs of leasehold improvements for one of our data center leases that expires in December 2016, as we can now reasonably estimate the liability.  We then obtained third-party proposals to arrive at an estimated obligation of $1.6 million. We recorded the ARO, and the corresponding asset retirement cost, in our data center services segment at its fair value of $1.3 million, which we calculated by discounting the estimated obligation amount to present value using the current two-year Treasury bill rate adjusted for our credit non-performance risk. As the estimated payment date is December 2016, we have included the ARO in “Other long-term liabilities” in the consolidated balance sheet as of September 30, 2014. We will depreciate the asset retirement cost, included in “Property and equipment, net” in the consolidated balance sheet as of September 30, 2014, using the straight-line method over the remaining term of the related lease, which is 27 months.

We have other capital lease property agreements that include general decommissioning exit clauses that we have not yet recorded an ARO.  Due to the uncertainty of specific requirements and related costs, an ARO is not reasonably estimable for these properties and we have not recorded a liability at this time.

Capital Leases

Sale-leaseback transactions.  During the three months ended September 30, 2014, we completed sale-leaseback transactions with third-parties for a total of $2.6 million of cash proceeds. We recognized a deferred gain of $0.7 million on these transactions, which we will amortize over the life of the related lease, of which $0.1 million is included in “Current other liabilities” and $0.6 million is included in “Other long-term liabilities” in the accompanying consolidated balance sheet. Also, as a result of these transactions, we recorded capital lease obligations of $1.5 million.

Other capital lease transactions.  During the three months ended March 31, 2014, we exercised a renewal option of an existing operating lease for company-controlled data center properties in Montreal. The lease extension, for accounting purposes, triggered a new lease which expires in 2032, with the new terms resulting in capital lease treatment. We recorded property of $6.0 million, net of the deferred rent balance on the previous operating lease, and a capital lease obligation of $7.4 million. In addition, we fully amortized the related intangible asset from the previous operating lease, beneficial lease interest, with a net book value of $0.8 million.

Total capital lease obligations.  As of September 30, 2014, future minimum capital lease payments and the present value of the minimum lease payments for all capital leases are as follows (in thousands):

2014	$	2,868
2015		11,757
2016		10,713
2017		10,186
2018		10,355
Thereafter		47,341
Remaining capital lease payments		93,220
Less: amounts representing imputed interest		(33,009	)
Present value of minimum lease payments		60,211
Less: current portion		(6,573	)
	$	53,638

Litigation

We are subject to legal proceedings, claims and litigation arising in the ordinary course of business. Although the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse impact on our financial condition, results of operations or cash flows.