(2) Business Acquisitions On June 8, 2018, SMART Global Holdings entered into an Agreement and Plan of Merger (the Penguin Merger Agreement), by and among SMART Global Holdings, Glacier Acquisition Sub, Inc., a Delaware corporation and a wholly-owned indirect subsidiary of the SMART Global Holdings (Merger Sub), Penguin Computing, Inc., a California corporation (Penguin) and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the representative of the holders of the securities of Penguin. Pursuant to the Penguin Merger Agreement, on June 8, 2018, Merger Sub was merged with and into Penguin, with Penguin surviving as a wholly-owned indirect subsidiary of SMART Global Holdings (the Penguin Merger). SMART Global Holdings through one or more subsidiaries, paid the Penguin equityholders approximately $45 million at closing and assumed approximately $32.3 million of Penguins outstanding indebtedness. SMART Global Holdings financed the acquisition with net proceeds of $60.0 million from the Incremental Amendment (as defined in Note 7). Pursuant to the Penguin Merger Agreement, the former equityholders of Penguin were also entitled to cash earn-out payments of up to $25.0 million based on Penguins achievement of specified gross profit levels through December 31, 2018. SMART Global Holdings deposited $6.0 million of the purchase price into escrow as security for Penguins indemnification obligations during the escrow period of one year. SMART Global Holdings also deposited $2.0 million of the purchase price into escrow as security for customary post-closing adjustments to the purchase price. Under the acquisition method of accounting, the assets acquired and liabilities assumed of Penguin were recorded as of the acquisition date at their respective fair values. The reported consolidated financial condition after completion of the acquisition reflects these fair values. Penguins results of operations are included in the consolidated financial statements from the date of acquisition. The initial fair value of contingent consideration was estimated at the date of acquisition to be $3.0 million , which was recorded as a current liability. The Company determined the fair value of the obligations to pay contingent consideration using a real options technique which incorporates various estimates, including projected gross profit for the period, a volatility factor applied to gross profit based on year-on-year growth in gross profit of comparable companies, discount rates and the estimated amount of time until final payment is made. This fair value measurement is based on significant inputs not observable in the market, which ASU 820-10-35 refers to as Level 3 inputs. The resulting probability-weighted cash flows were discounted using the US Information Technology B Corporate Bond Yields of 4.06%, which is representative of a market participant assumption. Subsequent to the acquisition date, the Company adjusted the contingent consideration to its current fair value with such changes recognized in income from operations. Changes in fair values reflect new information about the probability and timing of meeting the conditions of the gross profit target. As of November 30, 2018 and August 31, 2018 , the fair value of the contingent consideration was $0. 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 &lt; 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 2 018 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. Unaudited Pro Forma Information The results of operations related to the Penguin acquisition have been included in our consolidated income statements from the acquisition date. The following unaudited pro forma financial information presents our combined results of operations for the three months ended November 24, 2017 as if the acquisition of Penguin and entering into the Incremental Amendment had occurred on August 27, 2016. The unaudited pro forma financial information is not necessarily indicative of what our consolidated results of operations actually would have been had the acquisition been completed on August 27, 2016. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company. The actual results may differ significantly from the pro forma results presented here due to many factors. Three Months Ended (In thousands, except per share data) November 24, 2017 Total net sales $ 321,410 Net income $ 21,083 Earnings per share: Basic $ 0.97 Diluted $ 0.93 The unaudited pro forma financial information above reflects the following material adjustments:  Incremental amortization expense related to the estimated fair value of identifiable intangible assets from the purchase price allocation.  Incremental interest expense and amortization of debt issuance costs related to our Incremental Amendment.  The adjustments to income tax expense as a result of the consolidation and pro forma adjustments.