C.BUSINESS COMBINATIONS

CBR Acquisition

On August 17, 2015, we acquired CBR Holdings, at which time CBR Holdings became a wholly-owned subsidiary of AMAG. CBR Holdings, through its wholly-owned subsidiary, Cbr Systems, Inc., operated CBR, a privately held umbilical cord blood stem cell and cord tissue collection, processing and storage company, which we purchased for $700.0 million in cash consideration, subject to estimated working capital, indebtedness and other adjustments. We believe CBR is a strong strategic fit for our growing business and offers a unique opportunity to reach a broader population of expectant mothers who may benefit from our product offerings in the maternal health space, including Makena.

The following table summarizes the components of the estimated total purchase price for CBR, subject to finalization of the net working capital, indebtedness and other adjustments as of the CBR Acquisition Date (in thousands):



Cash consideration	$	700,000
Estimated working capital, indebtedness and other adjustments		(17,837)
Purchase price paid at closing		682,163
Plus: Estimated purchase price payable to sellers		188
Total purchase price	$	682,351

The net working capital and other adjustments were estimated to be $17.8 million at closing, which included $7.2 million for the excess of the payable to former CBR shareholders over the restricted cash balance at closing. Subsequent to the closing, we estimated that the net working capital and other adjustments will be approximately $17.6 million, resulting in an increase to the cash consideration paid for CBR of approximately $0.2 million. Accordingly, we recorded a $0.2 million reduction to other amounts due from the sellers recorded in prepaid expenses and other current assets in the condensed consolidated balance sheet at September 30, 2015.

We accounted for the acquisition of CBR as a business combination using the acquisition method of accounting. Under the acquisition method of accounting, the total purchase price of an acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition. We have made a preliminary allocation of the purchase price to the net tangible and intangible assets acquired and liabilities assumed, based on available information and various assumptions we believe are reasonable, with the remaining purchase price recorded as goodwill. Due to the close proximity of the acquisition date to the quarter ended September 30, 2015, we were unable to complete our analysis of fair value.

The following table summarizes the preliminary fair values assigned to the CBR assets acquired and the liabilities assumed by us along with the resulting goodwill at the CBR Acquisition Date (in thousands):


Accounts receivable	$	9,509
Inventories		4,443
Prepaid and other current assets		8,487
Restricted cash - short-term		30,752
Property, plant and equipment		29,669
Customer relationships		297,000
Trade name and trademarks		65,000
Favorable lease		423
Deferred income tax assets		4,555
Other long-term assets		198
Accounts payable		(2,853)
Accrued expenses		(13,575)
Deferred revenues		(3,100)
Payable to former CBR shareholders		(37,947)
Deferred income tax liabilities		(149,497)
Total estimated identifiable net assets	$	243,064
Goodwill		439,287
Total	$	682,351

The values assigned to the assets and liabilities presented in the table above are preliminary and subject to change as additional information becomes available concerning the acquisition date fair value and tax basis of the assets acquired and liabilities assumed in the transaction. Any adjustments to the preliminary fair value of these acquired assets and liabilities assumed will be made as soon as practicable but not later than one year from the CBR Acquisition Date.

The gross contractual amount of accounts receivable at the CBR Acquisition Date was $11.6 million. The fair value amounts for CBR’s customer relationships, trade names and trademarks were determined based on assumptions that market participants would use in pricing an asset, based on the most advantageous market for the assets (i.e., its highest and best use). The final fair value determination for the identifiable intangible assets may differ from the preliminary estimates, and such differences could be material. We determined the fair value of the customer relationships, using an income approach, which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining life. Some of the more significant assumptions used in the income approach from the perspective of a market participant include the estimated net cash flows for each year for the identifiable intangible asset (including service revenues, cost of services, research and development costs, selling general and administrative costs and working capital/contributory asset charges), the discount rate that measures the risk inherent in each cash flow stream, as well as other factors. The fair value of the trade names and trademarks was determined using the relief from royalty method which is an income approach. No assurances can be given that the underlying assumptions used to determine the fair value of the customer relationships, trade names and trademarks will not change. For this and other reasons, actual results may vary significantly from the estimated results. We believe the fair values assigned to the CBR customer relationships, and the trade names and trademarks are based upon reasonable estimates and assumptions given available facts and circumstances as of the CBR Acquisition Date. If these assets are not successful, sales and profitability may be adversely affected in future periods, and as a result, the value of the assets may become impaired.

The CBR customer relationships will be amortized to selling, general and administrative expenses based on an economic consumption model over an expected useful life of approximately 20 years. The trade names and trademark intangible asset is deemed to be an indefinite-lived asset, which is not amortized but will be subject to periodic assessments of impairment.

Based on the preliminary fair value adjustments primarily related to deferred revenue and identifiable intangible assets acquired, we recorded a net deferred tax liability of $144.9 million in our condensed consolidated balance sheet as of September 30, 2015 using a combined federal and state statutory income tax rate of 37%. The net deferred tax liability represents the $149.5 million of deferred tax liabilities recorded in acquisition accounting (primarily related to the fair value adjustments to CBR’s deferred revenue and identifiable intangible assets) offset by $4.6 million of deferred tax assets acquired from CBR.

These tax estimates are preliminary and subject to change based on, among other things, management’s final determination of the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed by jurisdiction, the deductibility of acquisition-related costs and other costs deducted by CBR prior to the acquisition, and management’s assessment of the combined company’s ability to utilize the future benefits from acquired and legacy deferred tax assets.

Acquisition-related costs are not included as a component of consideration transferred and are expensed as incurred. We incurred approximately $8.5 million and $11.2 million of acquisition-related costs in the three and nine months ended September 30, 2015, respectively, related to the CBR acquisition. These costs primarily represented financial advisory fees, legal fees, due diligence and other costs and expenses.

During the post-closing period in the three months ended September 30, 2015, CBR generated approximately $7.2 million of revenue. We determined that separate disclosure of CBR’s earnings for the post acquisition period in the three and nine months ended September 30, 2015 is not practicable due to the integration of CBR’s operations into our business upon acquisition.

Lumara Health Acquisition

On November 12, 2014, we acquired Lumara Health at which time Lumara Health became our wholly-owned subsidiary. By virtue of the acquisition, we acquired Lumara Health’s existing commercial product, Makena. Under the terms of the acquisition agreement, we acquired 100% of the equity ownership of Lumara Health, excluding the assets and liabilities of the Women’s Health Division and certain other assets and liabilities, which were divested by Lumara Health prior to closing, for $600.0 million in cash, subject to certain net working capital, net debt and transaction expense adjustments, and issued approximately 3.2 million shares of our common stock, par value $0.01 per share, having a value of approximately $112.0 million at the time of closing, to the holders of common stock of Lumara Health.

We have agreed to pay additional merger consideration, up to a maximum of $350.0 million, based upon the achievement of certain net sales milestones of Makena for the period from December 1, 2014 through December 31, 2019. This contingent consideration is recorded as a liability and measured at fair value based upon significant unobservable inputs. See Note E, “Fair Value Measurements,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and Note C, “Business Combinations,” to the Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2014 for additional information.

The following table summarizes the components of the total purchase price paid for Lumara Health, as adjusted for the final net working capital and other adjustments (in thousands):



Cash consideration	$	600,000
Fair value of AMAG common stock issued		111,964
Fair value of contingent milestone payments		205,000
Estimated working capital and other adjustments		821
Purchase price paid at closing		917,785
Less:
Cash received on finalization of the net working capital and other adjustments		(562)
Cash acquired from Lumara Health		(5,219)
Total purchase price	$	912,004

In June 2015, we received $0.6 million from the former stockholders of Lumara Health in connection with the final settlement of the net working capital, net debt and transaction expenses as of the Lumara Acquisition Date. In addition, during the nine months ended September 30, 2015, we adjusted the preliminary fair values assigned to the assets acquired and the liabilities assumed by us at the Lumara Acquisition Date, as discussed in Note H, “Goodwill, IPR&D and Other Intangible Assets, Net.” These measurement period adjustments have been reflected as a current period adjustment to these balances during the nine months ended September 30, 2015 in accordance with the guidance in Accounting Standards Update (“ASU”) 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”), which we adopted early.

The following table summarizes the fair values assigned to assets acquired and the liabilities assumed by us along with the resulting goodwill at the Lumara Health Acquisition Date, as adjusted for certain measurement period adjustments for Lumara Health recorded during the nine months ended September 30, 2015 (in thousands):


Accounts receivable	$	36,852
Inventories		30,300
Prepaid and other current assets		3,322
Deferred income tax assets		102,355
Property and equipment		60
Makena marketed product		797,100
IPR&D		79,100
Restricted cash - long term		1,997
Other long-term assets		3,412
Accounts payable		(3,807)
Accrued expenses		(36,561)
Deferred income tax liabilities		(295,676)
Other long-term liabilities		(4,563)
Total estimated identifiable net assets	$	713,891
Goodwill		198,113
Total	$	912,004

Unaudited Pro Forma Supplemental Information

The following supplemental unaudited pro forma information presents our revenue and net income (loss) on a pro forma combined basis, including Lumara Health and CBR, and assuming that the CBR acquisition occurred on January 1, 2014 and that the Lumara Health acquisition occurred on January 1, 2013. For purposes of preparing the following pro forma information, certain items recorded during the three and nine months ended September 30, 2015, such as the $8.5 million and $11.2 million of acquisition-related costs, the $10.4 million loss on debt extinguishment, $9.2 million of other one-time fees and expenses incurred in connection with the CBR acquisition financing are reflected in 2014 as if the CBR acquisition occurred on January 1, 2014. Certain items recorded in 2014, such as the $1.9 million of acquisition-related costs incurred in connection with the acquisition of Lumara Health have been excluded from 2014 as the pro forma results assume the Lumara Health acquisition occurred on January 1, 2013. The pro forma amounts do not include any expected cost savings or restructuring actions which may be achievable or which may occur subsequent to the acquisition of Lumara Health or CBR or the impact of any non-recurring activity. The following table presents unaudited pro forma consolidated results (in thousands, except per share data):


		Three Months Ended September 30,				Nine Months Ended September 30,
		2015		2014		2015		2014
Pro forma combined revenues	$	110,244	$	100,091	$	381,650	$	257,536
Pro forma combined net income (loss)	$	(5,116)	$	(983)	$	24,220	$	(52,043)
Pro forma net income (loss) per diluted share	$	(0.15)	$	(0.04)	$	0.69	$	(2.07)

The pro forma adjustments reflected in the pro forma combined net income (loss) in the above table primarily represent adjustments to historical amortization of intangible assets, adjustments to historical depreciation of property, plant and equipment and reductions to historical CBR revenues due to fair value adjustments in purchase accounting to intangible assets, property, plant and equipment and deferred revenue, respectively. In addition, the pro forma combined net income (loss) includes increased interest expense due to the increase in total term loan borrowings and the issuance of the 2023 Senior Notes in connection with the CBR acquisition. Income taxes for all periods were adjusted accordingly. This pro forma financial information is not necessarily indicative of our consolidated operating results that would have been reported had the transactions been completed as described herein, nor is such information necessarily indicative of our consolidated results for any future period.

Goodwill

Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair values of the net assets acquired and liabilities assumed. In connection with our August 2015 acquisition of CBR, we recognized $439.3 million of goodwill as of September 30, 2015, primarily due to deferred tax liabilities recorded on the fair value adjustments, primarily those adjustments relating to intangible assets and deferred revenue, and to the synergies expected from combining our operations with CBR. In connection with our November 2014 acquisition of Lumara Health, we recognized $198.1 million of goodwill as of September 30, 2015, primarily due to the net deferred tax liabilities recorded on the fair value adjustments to Lumara Health’s inventories and identifiable intangible asset. The $637.4 million of goodwill resulting from the CBR and Lumara Health acquisitions is not deductible for income tax purposes.