Property and equipment:

6 Months Ended

Jun. 30, 2015

Property and equipment:

Property and equipment:

2. Property and equipment:

Depreciation and amortization expense related to property and equipment and capital leases was $17.4 million $34.8 million, $17.3 million and $34.5 million for the three and six months ended June 30, 2015 and 2014, respectively. The Company capitalized salaries and related benefits of employees working directly on the construction and build-out of its network of $2.1 million, $4.3 million, $1.9 million and $3.9 million for the three and six months ended June 30, 2015 and 2014, respectively.

Exchange agreement

In the three and six months ended June 30, 2015 and 2014, the Company exchanged certain used network equipment for new network equipment and cash consideration. The fair value of the equipment received was estimated to be $1.7 million, $8.3 million, $5.6 million and $10.3 million, respectively, and resulted in gains of $0.7 million, $2.3 million, $2.7 million and $4.9 million, respectively. The estimated fair value of the equipment received was based upon the cash consideration price the Company pays for the new network equipment on a standalone basis (Level 3).

Purchase and installment payment agreements

In January 2015, the Company entered into a purchase agreement with a vendor. Under the purchase agreement the Company is required to purchase a total of $28.9 million of network equipment during the eighteen month term.  As of June 30, 2015, the Company was required to make an additional $19.5 million of purchases under the purchase agreement. In March 2015, the Company entered into an installment payment agreement (“IPA”) with this vendor.  Under the IPA the Company may purchase up to $25.0 million of network equipment through July 2015 in exchange for interest free note obligations each with a twenty-four month term.  There are 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 June 30, 2015, the Company had entered into $5.6 million of note obligations under the IPA.  The Company recorded the net present value of the note obligation utilizing an imputed interest rate.  The resulting discount totaling $0.3 million as of June 30, 2015, under the note obligations is being amortized over the note term using the effective interest rate method.

Gain on capital lease termination

In March 2015 the Company elected to terminate certain IRU capital lease obligations in Spain with a vendor.  The Company obtained alternative fiber to serve its customers in Spain. Under its estimate of the termination provisions of the related contracts the Company has recorded an estimated termination liability of $8.1 million included in accrued and other current liabilities.  The difference between the remaining carrying amount of the related IRU capital lease ($29.9 million), liabilities the remaining net book value of the IRU assets ($10.0 million) and the termination liability and amounts due through the termination date has been recorded as a gain on capital lease termination of $10.1 million.