On March 15, 2018, the Company entered into a definitive merger agreement (the “Merger Agreement”) to acquire 100% of the outstanding stock of Spinal Kinetics Inc. (“Spinal Kinetics”), a privately held developer and manufacturer of artificial cervical and lumbar discs, to strengthen the Company’s product portfolio and fill a strategic gap in the Spinal Implants business. On April 30, 2018 (the “Acquisition Date”), the Company completed the acquisition and all outstanding shares of Spinal Kinetics’ capital stock were converted into the right to receive at the closing an aggregate of $45.0 million in net cash, subject to certain adjustments, plus potential milestone payments of up to $60.0 million in cash. The Company made the closing payments from cash on hand on April 30, 2018.

The fair value of the consideration transferred was $76.6 million, which consisted of the following:

(U.S. Dollars, in thousands)	As of April 30, 2018		Adjustments		As of December 31, 2018
Fair value of consideration transferred
Cash paid	$	50,564	$	545	$	51,109
Contingent consideration		25,491		—		25,491
Total fair value of consideration transferred	$	76,055	$	545	$	76,600

The contingent consideration consists of potential future milestone payments of up to $60.0 million in cash. The milestone payments include (i) up to $15.0 million if the U.S. Food and Drug Administration (the “FDA”) grants approval of Spinal Kinetics’ M6-C artificial cervical disc (the “FDA Milestone”) and (ii) revenue-based milestone payments of up to $45.0 million in connection with future sales of the M6-C artificial cervical disc and the M6-L artificial lumbar disc. Milestones must be achieved within five years of the Acquisition Date to trigger applicable payments. The fair value of the contingent consideration arrangement at the Acquisition Date was $25.5 million and increased to $28.6 million as of December 31, 2018; however, the actual amount ultimately paid could be higher or lower than the fair value of the contingent consideration. The increase in fair value of $3.1 million was recorded in changes in fair value of contingent consideration. For additional discussion regarding the valuation of the contingent consideration, see Note 11.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed. A final determination of the allocation of the purchase price to assets acquired and liabilities assumed has not been made and the following should be considered preliminary. The final determination is subject to completion of the Company’s valuation of the acquired deferred income taxes and tax attributes, including net operating loss carryforwards, which is expected to be completed within one year from the Acquisition Date.

(U.S. Dollars, in thousands)	As of April 30, 2018		Adjustments			As of December 31, 2018		Assigned Useful Life
Assets acquired
Cash and cash equivalents	$	6,785	$	—		$	6,785
Restricted cash		30		—			30
Accounts receivable		1,705		—			1,705
Inventories		8,175		—			8,175
Prepaid expenses and other current assets		315		—			315
Property, plant and equipment		2,285		—			2,285
Other long-term assets		320		—			320
Developed technology		12,400		—			12,400	10 years
In-process research and development ("IPR&D")		26,800		—			26,800	Indefinite
Tradename		100		—			100	2 years
Deferred income taxes		3,483		(1,109	)		2,374
Total identifiable assets acquired	$	62,398	$	(1,109	)	$	61,289

Liabilities assumed
Accounts payable	$	351	$	—		$	351
Other current liabilities		2,873		—			2,873
Other long-term liabilities		301		—			301
Total liabilities assumed		3,525		—			3,525
Goodwill		17,182		1,654			18,836
Total fair value of consideration transferred	$	76,055	$	545		$	76,600

The purchase price exceeded the fair value of the net tangible and identifiable intangible assets acquired from Spinal Kinetics. As a result, the Company recorded goodwill in connection with the acquisition. Specifically, the goodwill includes the assembled workforce and synergies associated with the combined entity and is not expected to be deductible for tax purposes. The $18.8 million of goodwill recognized was assigned to the Spinal Implants reporting segment.

The IPR&D intangible asset is considered an indefinite-lived asset until the completion or abandonment of the associated research and development efforts. Accordingly, during the development period after the acquisition, this asset is not amortized but, instead, is subject to impairment review and testing provisions. Upon completion of the IPR&D project, which occurred on February 6, 2019, the Company began to amortize this intangible.

The Company recognized $3.3 million and $0.8 million of acquisition related costs that were expensed during the years ended December 31, 2018 and 2017, respectively. These costs are included in the consolidated statements of income and comprehensive income within general and administrative expenses. The results of operations for Spinal Kinetics have been included in the Company’s financial results since the Acquisition Date and included $8.7 million of revenue and a net loss of $5.8 million for the year ended December 31, 2018 in the consolidated statement of income and comprehensive income.

The following table presents the unaudited pro forma results for the years ended December 31, 2018 and 2017, which combines the historical results of operations of the Company and Spinal Kinetics as though the companies had been combined as of January 1, 2017. The unaudited pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at such time.