Assets Held for Sale

9 Months Ended

Sep. 30, 2016

Discontinued Operations and Disposal Groups [Abstract]

Assets Held for Sale

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 divestiture. The divestiture was completed on July 5, 2016 and the Company recognized a gain of $27,945,000 on the sale of the LD2 data center, which is included in gains on asset sales in the condensed consolidated statement of operations for the three and nine months ended September 30, 2016. The revenue and net income generated by LD2 during the three months ended September 30, 2016 were insignificant. During the three months ended September 30, 2015, LD2 generated revenue of $4,654,000 and net income of $2,040,000. During the nine months ended September 30, 2016, LD2 generated revenue of $6,116,000 and net income of $2,327,000. During the nine months ended September 30, 2015, LD2 generated revenue of $14,082,000 and net income of $5,920,000.

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 through July 5, 2016, the date the divestiture closed. The results of operations for the TelecityGroup data centers that were divested, as well as the gain on divestiture, were classified as discontinued operations from January 15, 2016, the date the acquisition closed, through July 5, 2016 (see Note 5).

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 September 30, 2016. The revenue and net income generated by the solar power assets of Bit-isle during the three and nine months ended September 30, 2016 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.

During the three months ended September 30, 2016, the Company evaluated the recoverability of the carrying value of its assets held for sale. Based on the analysis, it was determined that due to the sales agreement signed in October 2016 (see Note 14), the Company would not recover the carrying value of certain assets. Accordingly, the Company recorded an impairment charge on other current assets of $7,698,000 at September 30, 2016, reducing the carrying value of such assets from $79,459,000 to the estimated fair value of $71,761,000.

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

	September 30, 2016			December 31, 2015
Cash	$	3,755		$	—
Accounts receivable	784			2,222
Other current assets	71,761			408
Property, plant and equipment	17,819			23,533
Goodwill	—			5,000
Intangible assets	2,772			784
Other assets	32			1,310
Total assets held for sale	$	96,923		$	33,257
Accounts payable and accrued expenses	$	(11,567	)	$	(654	)
Accrued property, plant and equipment	—			(816		)
Current portion of capital lease and other financing obligation	—			—
Other current liabilities	(42		)	(435		)
Capital lease and other financing obligations, less current portion	—			—
Other liabilities	(3,051		)	(1,630		)
Total liabilities held for sale	$	(14,660	)	$	(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. On July 5, 2016, the Company completed the sale of these data centers and related assets to Digital Realty for approximately €304,564,000 and £376,171,000, or approximately $827,314,000 at the exchange rates in effect on July 5, 2016. The Company recognized a gain on sale of the TelecityGroup data centers in discontinued operations of $4,242,000. 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 July 5, 2016 in the Company's condensed consolidated statement of operations. The results of operations for these data centers during the three months ended September 30, 2016 were insignificant.

The following table presents the financial results of the Company's discontinued operations for the nine months ended September 30, 2016:

	Nine months ended September 30,
Revenues	$	48,782
Costs and operating expenses:
Cost of revenues	24,795
Sales and marketing	1,030
General and administrative	7,026
Total costs and operating expense	32,851
Income from operations of discontinued operations	15,931
Interest and other, net	(1,286		)
Income from discontinued operations before income taxes	14,645
Income tax expense	(4,581		)
Gain on sale of discontinued operations, net of income taxes	4,242
Income from discontinued operations, net of income taxes	$	14,306

Net cash used in operating activities for discontinued operations was $5,259,000 and net cash provided by investing activities for discontinued operations was $730,603,000 for the nine-months ended September 30, 2016, including proceeds from the sale of TelecityGroup data centers.