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




Cash and cash equivalents acquired




Upfront payment in accordance with agreement




Post-closing adjustments in accordance with agreement




Total consideration




Estimated fair value of contingent consideration




Total purchase price





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


Tangible assets acquired




Liabilities assumed




Identifiable intangible assets








Total net assets acquired





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







Useful Life

(in years)

Customer relationships





7 years

Trade name





7 years






4 years

Existing order backlog





< 1 year








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




Employee retention bonuses









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.