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EXCHANGE TRANSACTION
6 Months Ended
Jan. 31, 2024
Related Party Transactions [Abstract]  
EXCHANGE TRANSACTION EXCHANGE TRANSACTION
Steel Partners and Steel Connect Exchange Transaction

On April 30, 2023, the Company and Steel Holdings executed a series of agreements, in which the Steel Partners Group transferred an aggregate of 3,597,744 shares of common stock, par value $0.10 per share, of Aerojet Rocketdyne Holdings, Inc. ("Aerojet") held by the Steel Partners Group to the Company in exchange for 3.5 million shares of the Company's newly created Series E Convertible Preferred Stock (the “Series E Convertible Preferred Stock” and such transfer and related transactions, the "Exchange Transaction"). Following the approval by the Company's stockholders on June 6, 2023, pursuant to the rules of The Nasdaq Stock Market LLC, the Series E Convertible Preferred Stock is convertible into an aggregate of 19.8 million shares of the Company's common stock, par value $0.01 per share (the “common stock” or “Common Stock”), and votes together with the Company's common stock and participates in any dividends paid on the Company's common stock, in each case on an as-converted basis. Upon conversion of the Series E Convertible Preferred Stock, when combined with the Steel Connect common stock, the 7.50% Convertible Senior Note, if converted, and the Steel Connect Series C Convertible Preferred Stock, also if converted, owned by Steel Holdings, would result in Steel Holdings holding approximately 85.0% of the outstanding equity interests of the Company as of May 1, 2023.

The Exchange Transaction closed on May 1, 2023, the date that the consideration was exchanged between the Company and Steel Holdings, and as of that date the Company became a consolidated subsidiary of Steel Holdings for financial statement purposes. The Company is not consolidated by Steel Holdings for Federal income tax purposes because Steel Holdings' ownership in the Company is dispersed between different federal tax consolidation groups. The Company's assets and liabilities have been included in Steel Holdings' consolidated balance sheet, with a related noncontrolling interest of 15.0% of the Company's common stock. Prior to May 1, 2023, Steel Holdings held a 49.6% ownership interest in the Company and accounted for its investment in the Company in accordance with the equity method of accounting. As of the date of the Exchange Transaction, Steel Holdings remeasured the previously held equity method investment to its fair value based upon a valuation of the Company. The Exchange Transaction accomplishes Steel Holdings' objective, which is to increase ownership in the Company in order to benefit from future earnings and growth and strengthens the Company's balance sheet to permit it to do acquisitions.

The Exchange Transaction was accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, and, accordingly, the Company's results of operations were consolidated in Steel Holdings' financial statements on the date of the Exchange Transaction. Steel Holdings recorded a preliminary allocation of the Exchange Transaction to assets acquired and liabilities assumed based on their estimated fair values as of May 1, 2023. Steel Holdings final Exchange Transaction allocation was finalized as of December 31, 2023, with no significant changes to preliminary amounts. As discussed in Note 2 - "Basis of Presentation", the Company elected pushdown accounting in which it uses Steel Holdings' basis of accounting, which reflects the fair market value of the Company’s assets and liabilities at the date of the Exchange Transaction.

The following table summarizes the total Exchange Transaction consideration:

(in thousands)May 1, 2023
Fair value of Aerojet common stock$202,733 
Fair value of previously held interest in Steel Connect and noncontrolling interest111,816 
Less: cash acquired from Steel Connect(65,896)
Total estimated consideration, less cash acquired$248,653 

The following represents the final calculation of goodwill and fair value amounts recognized. The Company notes that there were no measurement period adjustments made in the current period that would result in an updated preliminary fair value allocation.
(in thousands)May 1, 2023
Assets
Accounts receivable, trade$36,900 
Inventories, net6,900
Prepaid expenses and other current assets4,957
Other intangible assets35,500 
Other assets3,900 
Property and equipment, net3,400 
Operating lease right-of-use assets29,250 
Investments202,733 
Estimated fair value of total assets acquired by Steel Holdings323,540 
Liabilities
Accounts payable26,300 
Accrued expenses29,100 
Current lease obligations7,994 
Other current liabilities7,236 
Long-term lease obligations21,300 
Other long-term liabilities5,742 
Estimated fair value of total liabilities assumed by Steel Holdings97,672 
Fair value of identifiable net assets225,868
Goodwill attributable to Steel Connect$22,785 

In connection with the application of pushdown accounting, the Company calculated the amount of goodwill recognized based on the excess of the Exchange Transaction consideration over the fair value of net identifiable assets acquired and liabilities assumed. Goodwill is primarily attributable to expected synergies and the assembled workforce of the Company. The goodwill recognized will not be deductible for income tax purposes.

Identifiable intangible assets were recognized at their estimated fair value as of the date of the Exchange Transaction. The fair value of the trade name asset was determined using the relief-from-royalty method and the fair value of the customer relationships asset was determined using the excess earnings method. These income-based approaches included assumptions such as the amount and timing of projected cash flows, growth rates, customer attrition rates, discount rates, and the assessment of the asset’s life cycle. The estimated fair value and estimated remaining useful lives of identifiable intangible assets as of the Exchange Transaction date were as follows:

(in thousands)Useful Life (Years)Amount
Customer relationships7$25,000 
Trade nameIndefinite10,500 
Estimated fair value of identifiable intangible assets$35,500