Company: PENG
Filing Date: 2025-06-27
Form Type: CORRESP
Source: 0001193125-25-151564
Chunk: 2

Company: Penguin Solutions, Inc.
Filing Date: 2025-06-27
Form: CORRESP
Chunk 2
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 assumption was the business’s estimated remaining free cash flows, which included operating income from sales of inventory, through the end of fiscal 2025 pursuant to existing contracts and future orders, as described in more detail
below.

The fair value of the Penguin Edge business was determined in accordance with ASC 820, which refers to the price that would be received to sell
the reporting unit as a whole in an orderly transaction between market participants at the measurement date. As noted in the June 18, 2025 Response Letter, for purposes of its discounted cash flow model used in determining fair value, the
Company assumed that market participants would value the Penguin Edge business based on expected future cash flows to be received through the expected completion of the wind down of the Penguin Edge business. The Company calculated its expected
remaining cash flows based on existing contracts, future expected orders based on historical order volumes, and future expected orders identified through customer engagements for last-time buy planning, which were expected to fully consume all
inventory on hand. Net estimated discounted cash flows were calculated by taking the total proceeds expected from sales, minus cash outflows for costs associated with fulfilling customer contracts, operating expenses, collection of receivables
recognized as of February 28, 2025, and costs associated with the wind down of the Penguin Edge business. The Company assumed no capital expenditures because it is no longer investing in the business.

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Using this valuation model, as of February 28, 2025, the fair value of the Penguin Edge business,
excluding cash held by the reporting unit, was determined to be $20.3 million, which resulted in an impairment charge of $6.1 million for that period in order to adjust the carrying amount to the fair value. To expand upon the last
sentence of our June 18, 2025 Response Letter: as Penguin Edge fulfills customer orders through the remainder of calendar 2025 and consumes its inventory, the fair value associated with net cash flows, which previously supported the continued
recognition of the goodwill as of February 28, 2025, will be converted into cash. Additionally, as inventory is sold, the expected future cash flows of the Penguin Edge business will simultaneously decline from current levels, resulting in the
Company converting any remaining inventory with its associated operating margin into cash. As a result, the fair value of the reporting unit (excluding any cash on hand) will decrease without a corresponding decrease to goodwill. The Company’s
remaining goodwill, however, will become impaired as the carrying