3. Acquisitions

Carpathia Acquisition

On June 16, 2015, the Company completed the acquisition of 100% of the outstanding stock of Carpathia Hosting, Inc., a Virginia-based colocation, cloud and managed services provider for approximately $371.4 million (based on the preliminary assessment of the fair value of assets acquired and liabilities assumed). Upon completion of this acquisition, the Company assumed all of the assets and liabilities of Carpathia Acquisition, Inc. Carpathia Acquisition, Inc. and its subsidiaries, including Carpathia, became indirect, wholly-owned subsidiaries of the Company. Carpathia was a provider of colocation, hybrid cloud and Infrastructure-as-a-Service (IaaS) servicing enterprise customers and federal agencies, with a customer base of approximately 230 customers as of June 16, 2015. Carpathia utilized eight domestic data centers located in Dulles, Virginia; Phoenix, Arizona; San Jose, California; Harrisonburg, Virginia and Ashburn, Virginia; and five international data centers located in Toronto, Canada; Amsterdam, Netherlands; London, United Kingdom; Hong Kong and Sydney, Australia.

The Company accounted for this acquisition in accordance with ASC 805, Business Combinations, as a business combination. The Company is generally valuing the assets acquired and liabilities assumed using Level 3 inputs.

The following table summarizes the consideration for the Carpathia acquisition and the preliminary allocation of the fair value of assets acquired and liabilities assumed at the acquisition date (in thousands). This allocation is subject to change pending the final valuation of these assets and liabilities:


	Adjusted Carpathia Allocation as of March 31, 2016	Original Allocation Reported as of June 30, 2015	Adjusted Fair Value
Land	$ 1,130	$ 1,130	$ -
Buildings and improvements	78,898	79,372	(474)
Construction in progress	12,127	12,127	-
Acquired intangibles (1)	108,100	89,847	18,253
Net working capital	3,839	2,569	1,270
Total identifiable assets acquired	204,094	185,045	19,049

Capital lease and lease financing obligations	43,832	43,832	-
Deferred income taxes	34,804	19,766	15,038
Acquired above market lease	2,453	-	2,453
Total liabilities assumed	81,089	63,598	17,491

Net identifiable assets acquired	123,005	121,447	1,558
Goodwill	171,679	173,237	(1,558)
Net assets acquired	$ 294,684	$ 294,684	$ -

(1)

In addition to $3.6 million of prior period fair value adjustments, during the three months ended March 31, 2016, a $14.7 million adjustment was recorded to increase acquired intangible assets following identified purchase price allocation adjustments, with a corresponding decrease to goodwill. An adjustment of $1.0 million to increase amortization expense related to this increase in acquired intangibles was recorded during the three months ended March 31, 2016, of which $0.7 million related to prior reporting periods.

Goodwill recognized in the transaction relates primarily to anticipated operating synergies, Carpathia’s in-place workforce and access to Carpathia’s customer base. For tax purposes, the Company acquired goodwill with a tax basis of $16.6 million, which is deductible in subsequent periods. Based on the preliminary purchase price allocation, amortization expenses relative to the intangible assets acquired are expected to be approximately $12.2 million, $12.2 million, $10.1 million, $8.0 million and $8.0 million for the years ended December 31, 2016 through December 31, 2020, respectively.

The following table represents the pro forma condensed consolidated statements of operations of the combined entities for the three-month period ended March 31, 2015 (in thousands):


	(Unaudited) Pro Forma Condensed Consolidated Statement of Operations
	Three Months Ended March 31, 2015
Revenue	$ 83,325
Net income	$ 3,973

These amounts have been calculated after applying the Company’s accounting policies, and give effect to the Carpathia acquisition. The purchase price allocation for this acquisition has been prepared on a preliminary basis. Accordingly, the purchase accounting adjustments made in connection with the development of the unaudited pro forma consolidated statements of operations are preliminary and subject to change.

The unaudited pro forma condensed consolidated financial information is for comparative purposes only and not necessarily indicative of what actual results of operations of the Company would have been had the transactions noted above been consummated on January 1, 2015, nor does it purport to represent the results of operations for future periods.