2. Discontinued operations

On August 1, 2016, the Company completed the spin-off of Aptevo through the distribution of 100% of the outstanding shares of common stock of Aptevo to the Company's shareholders (the "Distribution"). The Distribution was made to the Company's shareholders of record as of the close of business on July 22, 2016 (the "Record Date"), who received one share of Aptevo common stock for every two shares of Emergent common stock held as of the Record Date. The Distribution was intended to qualify as a tax-free distribution for federal income tax purposes in the United States. In the aggregate, approximately 20.2 million shares of Aptevo common stock were distributed to the Company's shareholders of record as of the Record Date in the Distribution. After the Distribution, the Company no longer holds shares of Aptevo's common stock. In addition, on August 1, 2016, the Company entered into a non-negotiable, unsecured promissory note with Aptevo to provide an additional $20 million in funding within six to twelve months following the Distribution.

The historical balance sheet and statements of operations of Aptevo have been presented as discontinued operations in the consolidated financial statements and prior periods have been restated. Discontinued operations include results of Aptevo's business except for certain allocated corporate overhead costs and certain costs associated with transition services provided by the Company to Aptevo. These allocated costs remain part of continuing operations. Due to differences between the basis of presentation for discontinued operations and the basis of presentation as a stand-alone company, the financial results of Aptevo included within discontinued operations for the Company may not be indicative of actual financial results of Aptevo.

In conjunction with the spin-off, the Company entered into a Separation and Distribution Agreement with Aptevo to effect the separation of Aptevo from the Company (the "Separation"). The Company also entered into various other agreements to provide a framework for its relationship with Aptevo after the Separation, including a manufacturing services agreement, transition services agreement, a tax matters agreement and an employee matters agreement.

The Separation and Distribution Agreement with Aptevo sets forth, among other things, the assets that were transferred, the liabilities assumed, and the contracts that were assigned to each of Aptevo and the Company as part of the Separation of the Company into two companies, and provided for when and how these transfers, assumptions and assignments were to occur.

Under the terms of the manufacturing services agreement, the Company agreed to provide contract manufacturing services for certain of Aptevo's products commencing on the date of the Distribution. The contract has a term of ten years. For the three and nine months ended September 30, 2016, there has been no revenue under this agreement.

Under the terms of the transition services agreement, the Company agreed to provide on an interim, transitional basis, various services, including, but not limited to, accounts payable administration, information technology services, regulatory and clinical support, general administrative services and other support services commencing on the date of the Distribution and terminating up to two years following the date of the Distribution. During the three and nine months ended September 30, 2016, approximately $0.5 million of transition services revenue associated with the provision of services to Aptevo.

The tax matters agreement governs the respective rights, responsibilities and obligations of Aptevo and the Company with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the Distribution and certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, tax returns, tax proceedings and certain other tax matters.

The employee matters agreement governs certain compensation and employee benefit obligations and allocates liabilities and responsibilities relating to employment matters, employee compensation and benefit plans and programs and other related matters, including the transfer or assignment of employees from the Company to Aptevo.

The following table represents the carrying value of Aptevo's assets and liabilities distributed as part of the Separation on August 1, 2016:

(in thousands)	August 1, 2016

Assets:
Cash and cash equivalents	$	45,000
Accounts receivable, net		4,465
Inventories		11,959
Other current assets		4,870
Current assets of discontinued operations		66,294

Property, plant and equipment, net		6,128
In-process research and development		41,800
Intangible assets, net		15,402
Goodwill		13,902
Non-current assets of discontinued operations		77,232
Total assets of discontinued operations	$	143,526

Liabilities:
Accounts payable	$	6,285
Accrued expenses and other current liabilities		64
Accrued compensation		2,456
Contingent consideration		191
Provisions for chargebacks		2,341
Deferred revenue, current portion		433
Current liabilities of discontinued operations		11,770

Deferred revenue, net of current portion		3,232
Other liabilities		91
Non-current liabilities of discontinued operations		3,323
Total liabilities of discontinued operations	$	15,093

The following table represents Aptevo's assets and liabilities presented as discontinued operations and classified as held-for-disposition as of December 31, 2015:

(in thousands)	December 31, 2015

Assets:
Cash and cash equivalents	$	4,492
Accounts receivable, net		6,861
Inventories		16,049
Prepaid expenses and other current assets		1,880
Current assets of discontinued operations		29,282

Property, plant and equipment, net		4,046
In-process research and development		41,800
Intangible assets, net		16,617
Goodwill		13,902
Non-current assets of discontinued operations		76,365
Total assets of discontinued operations	$	105,647

Liabilities:
Accounts payable	$	8,134
Accrued expenses and other current liabilities		22
Accrued compensation		2,684
Contingent consideration, current portion		306
Provisions for chargebacks		2,238
Deferred revenue, current portion		3,964
Current liabilities of discontinued operations		17,348

Deferred revenue, net of current portion		3,163
Other liabilities		71
Non-current liabilities of discontinued operations		3,234
Total liabilities of discontinued operations	$	20,582

The following table summarizes results from discontinued operations of Aptevo included in the consolidated statements of operations:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2016			2015			2016			2015

Revenues:
Product sales	$	3,019		$	6,441		$	21,183		$	19,704
Collaborations		68			121			187			5,434
Total revenues		3,087			6,562			21,370			25,138

Operating expense:
Cost of product sales		907			3,270			11,556			11,442
Research and development		2,509			7,689			18,024			27,678
Selling, general and administrative		7,499			5,756			23,792			16,239
Loss from operations		(7,828	)		(10,153	)		(32,002	)		(30,221	)

Other income (expense), net:		(116	)		83			(41	)		(464	)

Loss from discontinued operations before benefit from income taxes		(7,944	)		(10,070	)		(32,043	)		(30,685	)
Benefit from income taxes		(8,896	)		(4,925	)		(16,189	)		(11,283	)
Net loss from discontinued operations	$	952		$	(5,145	)	$	(15,854	)	$	(19,402	)

The following table summarizes the cash flows of Aptevo included in the September 30, 2016 and 2015 consolidated statements of cash flows:

	Nine Months Ended September 30,
(in thousands)	2016			2015
Net cash (used in) provided by operating activities	$	(17,813	)	$	1,414
Net cash used in investing activities		(1,925	)		(970	)
Net cash provided by (used in) financing activities		15,247			(679	)

Net increase (decrease) in cash and cash equivalents	$	(4,491	)	$	(235	)