Discontinued Operations

6 Months Ended

Jun. 30, 2016

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Assets Held for Sale

During the fourth quarter of 2015, the Company entered into an agreement to sell a parcel of land in San Jose, California and reported the San Jose land parcel as an asset held for sale in the accompanying consolidated balance sheet as of December 31, 2015. The sale was completed in February 2016.

In order to obtain the approval of the European Commission for the acquisition of TelecityGroup, the Company and TelecityGroup agreed to divest certain data centers, including the Company’s LD2 data center and certain data centers of TelecityGroup in the United Kingdom, Netherlands and Germany. The assets and liabilities of LD2, which were included within the EMEA operating segment, were classified as held for sale in the fourth quarter of 2015 and, therefore, the corresponding depreciation and amortization expense was ceased at that time. This divestiture was not presented as discontinued operations in the consolidated statements of operations, because it did not represent a strategic shift in the Company's business, as the Company continued operating similar businesses after the acquisition. During the three months ended June 30, 2016 and 2015, LD2 generated revenue of $2,950,000 and $4,746,000, respectively. Net income generated by LD2 during the three months ended June 30, 2016 was insignificant. Net income generated by LD2 during the three months ended June 30, 2015 was $2,006,000. During the six months ended June 30, 2016 and 2015, LD2 generated revenue of $6,116,000 and $9,429,000, respectively. Net income generated by LD2 during the six months ended June 30, 2016 and 2015 was $2,327,000 and $3,880,000, respectively.

The acquisition of TelecityGroup closed on January 15, 2016. Accordingly, the assets and liabilities of the TelecityGroup data centers that were divested were included in assets and liabilities held for sale in the condensed consolidated balance sheet as of June 30, 2016. The results of operations for the TelecityGroup data centers that were divested were classified as discontinued operations from January 15, 2016, the date the acquisition closed, through June 30, 2016. This divestiture transaction closed on July 5, 2016 (see Note 13).

In June 2016, the Company approved the divestiture of the solar power assets of Bit-isle. The assets and liabilities of the solar power assets that will be divested were included in assets and liabilities held for sale in the condensed consolidated balance sheet as of June 30, 2016. During the three and six months ended June 30, 2016, the revenues and net income generated from solar power assets were insignificant.

When an asset is classified as held for sale, the asset's book value is evaluated and adjusted to the lower of its carrying amount or fair value less cost to sell. The determination of fair value for assets is dependent upon, among other factors, the potential sales transaction, composition of assets in the disposal group, the comparability of the disposal group to market transactions and negotiations with third party purchasers, etc. Such factors impact the range of potential fair values and the selection of the best estimates. As of June 30, 2016 and December 31, 2015, the Company determined that assets held for sale had not been impaired.

The following table summarizes assets and liabilities that were classified in assets and liabilities held for sale as of June 30, 2016 and December 31, 2015 (in thousands):

	June 30, 2016			December 31, 2015
Cash	$	25,111		$	—
Accounts receivable	15,470			2,222
Other current assets	78,013			408
Property, plant and equipment	238,742			23,533
Goodwill	461,558			5,000
Intangible assets	199,062			784
Other assets	6,710			1,310
Total assets held for sale	1,024,666			$	33,257
Accounts payable, accrued expenses and estimated costs to sell	$	(46,355	)	$	(654	)
Accrued property, plant and equipment	(13,151		)	(816		)
Current portion of capital lease and other financing obligation	(36,835		)	—
Other current liabilities	(27,167		)	(435		)
Capital lease and other financing obligations, less current portion	(18,561		)	—
Other liabilities	(10,055		)	(1,630		)
Total liabilities held for sale	$	(152,124	)	$	(3,535	)

Discontinued Operations

In order to obtain the approval of the European Commission for the acquisition of TelecityGroup, the Company and TelecityGroup agreed to divest certain data centers of TelecityGroup in the United Kingdom, Netherlands and Germany. Accounting guidance requires a business activity that, on acquisition, meets the criteria to be classified as held for sale be reported as a discontinued operation. Accordingly, the results of operations for these data centers that were divested have been reported as net income from discontinued operations, net of tax, from January 15, 2016, the date of the acquisition, through June 30, 2016 in the Company's condensed consolidated statement of operations. This divestiture transaction closed on July 5, 2016 (see Note 13).

The following table presents the financial results of the discontinued operations:

	Three months ended June 30,			Six months ended June 30,
Revenues	$	30,401		$	50,982
Costs and operating expenses:
Cost of revenues	13,490			25,100
Sales and marketing	979			1,196
General and administrative	6,920			7,303
Total costs and operating expenses	21,389			33,599
Income from operations of discontinued operations	9,012			17,383
Interest and other, net	(708		)	(1,177		)
Income from discontinued operations before income taxes	8,304			16,206
Income tax expense	(2,895		)	(4,581		)
Income from discontinued operations, net of income taxes	$	5,409		$	11,625

Net cash used in operating activities for discontinued operations was $2,955,000 and net cash used in investing activities for discontinued operations was $35,701,000 for the period ended June 30, 2016.

No gain or loss on the disposition of the assets and liabilities of these data centers has been recognized in the condensed consolidated financial statements.