3. Property and Equipment

A summary of property and equipment, net as of December 31, 2016 and 2015 is as follows (in thousands):



	December 31, 2016			December 31, 2015
Computer and other equipment	$	3,370		$	3,253
Software	3,130			3,130
Furniture and fixtures	110			106
Leasehold improvements	194			191
	6,804			6,680
Less: Accumulated depreciation and amortization	(6,359		)	(6,085		)
Property and equipment, net	$	445		$	595

Property and equipment are stated at cost. Depreciation is provided using the straight-line method as follows:


•	Computer equipment and related software, other equipment, and furniture and fixtures are depreciated over their estimated useful lives of two to five years; and


•	Certain telecommunications equipment is depreciated over its estimated useful life of 10 years.

Accounting for former San Jose headquarter buildings and improvements

In December 1999, the Company entered into a lease agreement with a real estate developer for its former corporate headquarters in San Jose, California. In October 2000, the Company entered into a second lease agreement with the same real estate developer for an additional building at its headquarters site. These leases were scheduled to expire in 2011 and 2013, respectively.

Effective June 2008, the building leases were amended resulting in an extension of the lease term for both buildings through March 2020. The extended leases required minimum lease payments through March 2020 totaling approximately $48.9 million. Both leases permitted the Company to exercise an option to extend the respective lease for 2 sequential 5-year terms. In addition, the amended leases eliminated the Company's requirement to provide the landlord with security deposits, which the Company had previously satisfied through the issuance of standby letters of credit (“LOCs”).

The Company historically accounted for the two buildings at its San Jose, California headquarters site under authoritative guidance pertaining to leases in which the Company is both involved in the construction of the lease assets and for which certain sale-leaseback criteria are not met. This results in the Company being the “deemed owner” of the two buildings for accounting purposes only. Accordingly, the leases associated with these facilities are accounted for as financing obligations.

The cost of buildings and improvements for the Company's former leased San Jose, California headquarters facilities, for which it was the “deemed owner” for accounting purposes only, included both the costs paid for directly by the Company and the costs paid for by the builder (lessor) from the period commencing with the start of construction through the lease commencement date for each building. These building assets and leasehold improvements were depreciated over the shorter of the remaining lease term or estimated useful lives.

For the December 1999 and October 2000 lease agreements, the Company initially recorded lease financing obligations of $12.0 million and $15.2 million, respectively, which corresponded to the building asset costs paid for by the lessor. As a result of the lease extension in June 2008, the Company increased the carrying amount of its lease financing obligations by approximately $12.5 million to approximately $27.6 million (an amount equal to the present value of the revised lease payments at the date of the lease extension), with a corresponding increase to the net carrying amount of the building assets. In addition, all of the accumulated depreciation on the building assets at the date of the lease extensions was eliminated with a corresponding decrease to the gross carrying amount of the building assets. As a result of the extension in lease terms, the Company also extended the estimated useful lives of the building assets and the leasehold improvements to equal the amended lease term.

As a result of the sale of the Grid business on September 30, 2014 (see Note 5 - Discontinued Operations), the Company made the decision to cease use of one building within its corporate headquarters and recharacterize the building as a rental property. Consequently, management performed an impairment analysis on this building and determined that its carrying value was not recoverable. In performing this analysis, management analyzed the expected cash flows from different sub-lease scenarios using then current lease data for similar facilities in the area including market activity, expected tenant improvements and commissions, and period of time between recharacterization and lease up. As a result of this analysis,the Company recorded a write down of the building of $4.4 million during the three months ended September 30, 2014.

During the quarter ended June 30, 2015, the Company terminated the lease agreements for its corporate headquarter facility in San Jose, California. In conjunction with the termination of these leases and associated financing obligations, in May 2015 the Company paid an up-front lease termination charge of $10.0 million, which allowed the Company to remove approximately $15.3 million of building related financing obligations from its balance sheet. At the same time, the Company entered into a short-term lease for one of the two buildings for the remainder of 2015. As a result of the lease termination, the Company wrote the carrying value of the buildings and leasehold improvements down to its fair value, which was equal to the present value of the remaining lease payments under the short-term lease. The net effect of the lease termination transaction was a charge of $3.3 million during the quarter ended June 30, 2015.

For the years ended December 31, 2015, and 2014, the Company recorded depreciation expense associated with the former San Jose headquarter building assets of $1.1 million and $1.9 million, respectively. As of December 31, 2015, the net book value of the building assets was $0.

Under the lease agreements, a portion of the total lease payments was accounted for as an operating lease of land and recorded as expense on a straight-line basis over the term of the lease. The remaining portions of the monthly lease payments were considered to be payments of principal and interest on the lease financing obligations. For the years ended December 31, 2015, and 2014, land lease expense was $617,000 and $741,000, respectively. For the years ended December 31, 2015, and 2014, principal reductions on the lease financing obligations were $11.3 million and $2.2 million, respectively; and interest expense was $387,000 and $1.1 million, respectively.

Impairment of certain long-lived assets of the Grid business

During 2014, in light of the facts mentioned in Note 5 - Discontinued Operations and Note 10 - Goodwill and Intangible Assets, prior to assessing the goodwill for impairment, the Company evaluated whether the long-lived assets of the Grid business were impaired. As the Company had not yet made a final decision between the two likely scenarios for the Grid business as of June 30, 2014, the Company assessed the realizability of long-lived assets using cash flows associated with two scenarios for this reporting unit (i.e. sale or wind down of the Grid business). The Company applied a probability weighting of two potential scenarios: cashflows from a wind down of the business versus cashflows from a potential sale of the Grid business. The wind down scenario also included an assessment of the residual value of the Grid business’ long-lived assets. The results of this analysis showed that the carrying value of the Grid business’ long-lived assets exceeded their fair value and accordingly the Company recorded a write down of property, equipment and other assets of $687,000 during the quarter ended June 30, 2014. This impairment charge has been reported as part of the discontinued operations for the year ended December 31, 2014.