10-Q
SMART GLOBAL HOLDINGS, INC. filed this Form 10-Q on 01/08/2019
Entire Document
 

 

A reconciliation of net cash exchanged in accordance with the purchase agreement to the total purchase price as of the closing date of the merger, June 8, 2018, is presented below (in thousands):

 

Net cash for merger

$

42,316

 

Cash and cash equivalents acquired

 

2,769

 

Upfront payment in accordance with agreement

 

45,085

 

Post-closing adjustments in accordance with agreement

 

(3,479

)

Total consideration

 

41,606

 

Estimated fair value of contingent consideration

 

3,000

 

Total purchase price

$

44,606

 

 

The assets acquired and liabilities assumed at the acquisition date are based upon their respective fair values summarized below (in thousands):

 

Tangible assets acquired

$

84,707

 

Liabilities assumed

 

(72,226

)

Identifiable intangible assets

 

27,550

 

Goodwill

 

4,575

 

Total net assets acquired

$

44,606

 

 

Asset categories acquired included working capital, fixed assets, and identified intangible assets. The intangible assets are as follows (in thousands):

 

 

Amount

 

 

Estimated

Useful Life

(in years)

Customer relationships

$

14,700

 

 

7 years

Trade name

 

12,200

 

 

7 years

Technology

 

250

 

 

4 years

Existing order backlog

 

400

 

 

< 1 year

 

$

27,550

 

 

 

 

The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. The Company does not expect any portion of this goodwill to be deductible for tax purposes. The goodwill attributable to the Penguin Merger has been recorded as a noncurrent asset and is not amortized, but is subject to an annual review for impairment. Factors that contributed to the recognition of goodwill include the broader reach and capabilities of the Company into new technologies, markets and channels that leverage its existing products and services. Penguin brings an outstanding customer base, solid products and strong supplier relationships to the Company in the specialty compute, storage and networking markets. Penguin will have substantially improved access to capital to drive additional investment in, and further development and growth of its products and services.

As part of the Penguin Merger, the Company recorded a net deferred tax liability of $1.6 million. This amount was primarily comprised of $7.9 million related to non-goodwill intangible assets and other fair market value adjustments, offset by net deferred tax assets including acquired net operating losses and research credit carryovers totaling $6.3 million.

The total purchase consideration has been allocated to the tangible and intangible assets acquired and liabilities assumed based on a preliminary valuation analysis. These preliminary values may change in future reporting periods upon finalization of the valuation and net working capital adjustment, which will occur no later than the third quarter of fiscal 2019. During fiscal 2018 the Company incurred certain costs related to the merger, which are included in selling, general and administrative expense in the consolidated income statements. Merger-related costs include the following (in thousands):

 

 

August 31, 2018

 

Professional fees

$

2,496

 

Employee retention bonuses

 

1,181

 

 

$

3,677

 

 

For the period of June 8, 2018 (date of acquisition) to August 31, 2018, total revenues and net loss for Penguin amounted to $52.5 million and $0.7 million, respectively.

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