What changed in this filing

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Item 1. Financial Statements

2021-04-06 compared with 2021-01-05 · 200 added, 127 removed, 1007 unchanged (25% of the section changed)

6 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowances of $ 89 and $ 101 as of November 27, 2020

Accounts receivable, net of allowances of $ 98 and $ 101 as of February 26, 2021

and August 28, 2020, respectively

18 unchanged sentences

Authorized 200,000 shares;

outstanding 24,759 and 24,419 as of November 27, 2020 and August 28, 2020,

outstanding 23,841 and 24,419 as of February 26, 2021 and August 28, 2020,

Additional paid-in capital

9 unchanged sentences

Three Months Ended

Six Months Ended

Net sales (1)

6 unchanged sentences

Interest expense, net

Other income (expense), net

Other expense, net

Total other expense

Income before income taxes

Income (loss) before income taxes

Provision for income taxes

Net income (loss)

Earnings per share:

Shares used in computing earnings per share:

Includes sales to affiliates of $ 14,975 and $ 16,956 in the three months ended November 27, 2020 and November 29, 2019, respectively (see Note 3).

Includes sales to affiliates of $ 18,173 and $ 33,148 in the three and six months ended February 26, 2021 and $ 18,597 and $ 35,553 for the same periods ended February 28, 2020, respectively (see Note 3).

See accompanying notes to unaudited condensed consolidated financial statements.

1 unchanged sentence

and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

Three Months Ended

Other comprehensive loss:

Six Months Ended

Net income (loss)

Other comprehensive income (loss):

Foreign currency translation

Comprehensive loss

Comprehensive income (loss)

See accompanying notes to unaudited condensed consolidated financial statements.

11 unchanged sentences

Issuance of ordinary shares from employee share purchase plan (ESPP)

Effect of adopting ASC 606

Withholding tax on restricted stock units (RSUs)

Foreign currency translation

Balances as of November 29, 2019

Share-based compensation expense

Issuance of ordinary shares from exercises

Issuance of ordinary shares from release of RSUs

Withholding tax on RSUs

Equity component of convertible notes due 2026, net

Foreign currency translation

Balances as of February 28, 2020

Ordinary shares

9 unchanged sentences

Balances as of November 27, 2020

Share-based compensation expense

Issuance of ordinary shares from exercises

Issuance of ordinary shares from release of RSUs

Withholding tax on RSUs

Repurchase of ordinary shares

Foreign currency translation

Balances as of February 26, 2021

See accompanying notes to unaudited condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

2 unchanged sentences

Deferred income tax benefit

Gain on disposal of property and equipment

(Gain) loss on disposal of property and equipment

Loss on mark-to-market adjustment of the capped call

Loss on extinguishment of debt

Amortization of debt discounts and issuance costs

12 unchanged sentences

Cash flows from financing activities:

Long-term debt payments - BNDES

Repurchase of ordinary shares

Proceeds from FINEP loan

Proceeds from borrowings under revolving line of credit

3 unchanged sentences

Tax payments due upon issuance of ordinary shares for release of RSUs

Net cash used in financing activities

Long-term debt payments - Term Loan

Long-term debt payments - BNDES

Purchase of capped call

Proceeds from convertible notes due 2026, net of discount

Payment for extinguishment of long-term debt

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

6 unchanged sentences

Capital expenditures included in accounts payable at period end

Unpaid debt fees related to convertible notes due 2026

See accompanying notes to unaudited condensed consolidated financial statements.

13 unchanged sentences

Specialty Memory Products, Brazil Products and Specialty Compute and Storage Solutions, or SCSS.

SMART Global Holding is domiciled in the Cayman Islands and has U.S.

SMART Global Holdings is domiciled in the Cayman Islands and has U.S.

headquarters in Newark, California.

4 unchanged sentences

The Company uses a 52- to 53-week fiscal year ending on the last Friday in August.

The three months ended November 27, 2020 and November 29, 2019 were both 13-week fiscal periods.

The three and six months ended February 26, 2021 and February 28, 2020 were both 13-week and 26-week fiscal periods, respectively.

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with U.S.

12 unchanged sentences

Actual results could differ from the estimates made by management.

Significant items subject to such estimates and assumptions include the evaluation of the fair value of the Company's reporting units (as part of the Company’s goodwill impairment), accounting for the allocation of convertible debt between equity and debt, the useful lives of long-lived assets, the valuation of deferred tax assets, inventory and contingent consideration in business acquisitions, share-based compensation, the estimated net realizable value of Brazilian tax and financial credits, income tax uncertainties and other contingencies.

Significant items subject to such estimates and assumptions include the evaluation of the fair value of the Company's reporting units (as part of the Company’s goodwill impairment), accounting for the allocation of convertible debt between equity and debt, the useful lives of long-lived assets, the valuation of deferred tax assets, inventory, share-based compensation, the estimated net realizable value of Brazilian tax and financial credits, income tax uncertainties and other contingencies.

The Company’s revenues include products and services.

63 unchanged sentences

Three Months Ended

Six Months Ended

Service revenue, net

20 unchanged sentences

The time between invoicing and when payment is due is not significant.

Changes in the accounts receivable, contract assets and the deferred revenues balances during the three months ended November 27, 2020 are as follows (in thousands):

Changes in the accounts receivable, contract assets and the deferred revenues balances during the six months ended February 26, 2021 are as follows (in thousands):

Accounts receivable

1 unchanged sentence

Deferred revenue

The decrease in contract assets from $ 5.1 million as of August 28, 2020 to $ 1.4 million as of November 27, 2020 was primarily driven by billing amounts previously recorded as contract assets as of August 28, 2020.

During the three months ended November 27, 2020, $ 6.1 million of revenue recognized was included in the deferred revenue balance at the beginning of the period, which was partially offset by additional deferrals during the period.

The decrease in contract assets from $ 5.1 million as of August 28, 2020 to $ 1.6 million as of February 26, 2021 was primarily driven by billing amounts previously recorded as contract assets as of August 28, 2020.

During the six months ended February 26, 2021, $ 11.0 million of revenue recognized was included in the deferred revenue balance at the beginning of the period, which was partially offset by additional deferrals during the period.

Disaggregation of Revenue

37 unchanged sentences

Under the current law, the financial credits are available for PADIS companies through January 2022 and for other PPB/IT Program participants through December 2029.

For the three months ended November 27, 2020 and November 29, 2019, the Company recognized financial credits under PADIS totaling $ 7.9 million and $ 0 , respectively, which are reported under research and development as a reduction of expense on the condensed consolidated statements of operations.

As of November 27, 2020, unused financial credits totaling $ 13.4 million are reported under prepaid expenses and other current assets, and are expected to be applied against future taxes.

For the three and six months ended February 26, 2021, the Company recognized financial credits under PADIS totaling $ 6.2 million and $ 14.0 million, respectively, and $ 0 for both of the corresponding periods of 2020, which are reported under research and development as a reduction of expense on the condensed consolidated statements of operations.

As of February 26, 2021, unused financial credits totaling R$ 110.4 million (or $ 20.2 million) are reported under prepaid expenses and other current assets, and are expected to be applied against future taxes.

Although PADIS participants were entitled to financial credits since April 2, 2020, the effective utilization of such credits depended on a federal decree ruling the amendments to PADIS, which was not enacted until February 1, 2021.

The Company obtained the recognition of the financial credits based on the R&D disbursements that were made from April 1, 2020 until December 31, 2020 on February 12, 2021.

Given that financial credits can be applied for by PADIS participants on a quarterly basis, the Company expects to report and obtain the recognition of the financial credits related to the R&D disbursements that were made in the first quarter of calendar 2021 in April 2021.

Prepaid State Value-Added Taxes (ICMS)

11 unchanged sentences

The CAT 14 approval was not obtained until July 21, 2011, and from February 1, 2011 until the CAT 14 approval was granted, SMART do Brazil did not have sufficient ICMS collections against which to apply the credits accrued upon payment of the ICMS on SMART do Brazil’s imports and inputs locally acquired, and therefore, it generated additional excess ICMS credits.

As of November 27, 2020, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$ 17.6 million (or $ 3.0 million), of which (i) R$ 0.4 million (or $ 0.1 million) are fully vested ICMS credits, classified as prepaid and other current assets and R$ 17.1 million (or $ 3.0 million) are fully vested ICMS credits, classified as other noncurrent assets and (ii) R$ 0.1 million (or $ 0 ) are ICMS credits subject to vesting in 48 equal monthly amounts, classified as prepaid expenses and other current assets.

In January 2021, the Company purchased fixed assets for use in the Manufacturing process, but these were subsequently transferred out of the Manufacturing department to Research and Development, due to the delay of the uFS product process development.

The production and sales of this product is now expected to commence in fiscal 2022.

This transaction resulted in the reversal of R$ 8.4 million (or $ 1.5 million) of the ICMS credits.

As a result, as of February 26, 2021, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$ 12.5 million (or $ 2.3 million) are fully vested ICMS credits, classified as other noncurrent assets.

As of August 28, 2020, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$ 21.2 million (or $ 4.1 million), of which (i) R$ 19.6 million (or $ 3.8 million) are fully vested ICMS credits, classified as other noncurrent assets and (ii) R$ 1.6 million (or $ 0.3 million) are ICMS credits subject to vesting in 48 equal monthly amounts, classified as prepaid expenses and other current assets (R$ 0.7 million or $ 0.1 million) and other noncurrent assets (R$ 0.9 million or $ 0.2 million).

10 unchanged sentences

In the first quarter of fiscal 2021, the Company further adjusted the discount rate to 26 %, resulting in a charge of R$ 1.2 million (or $ 0.2 million).

In the second quarter of fiscal 2021, the Company further adjusted the discount rate to 27 %.

Due to the reversal of part of the ICMS in January 2021, there was a reduction of R$ 2.5 million (or $ 0.5 million) in the calculated discount amount.

In the first quarter of fiscal 2019, the Company sold R$ 17.7 million (or $ 3.2 million) of its ICMS credits that had been approved to be sold in December 2017.

The payments were received in 22 installments starting in the second quarter of fiscal 2019 through fiscal 2020, or R$ 10.0 million (or $ 1.8 million) and R$ 7.7 million (or $ 1.4 million) in fiscal 2019 and 2020, respectively, thus finalizing the receipt of all installments of the contract.

Import Taxes – Out-of-Period Adjustment

During the second quarter of fiscal 2021, the Company recorded an out-of-period adjustment to correct errors originating in previous periods related to understated import tax costs, which resulted in a $ 4.3 million increase in cost of sales and $ 0.8 million increase in interest expense, net.

The tax impact of $ 1.7 million benefit for income taxes related to this adjustment is reflected in the Company’s annual effective tax rate for fiscal year ended August 27, 2021.

The adjustment was not considered material to these interim financial statements for the three and six months ended February 26, 2021 nor to any previously issued interim or annual consolidated financial statements.

Property and Equipment

9 unchanged sentences

Such events or circumstances may, among others, include significant adverse changes in the general business climate.

There were no events which required additional impairment in the three months ended November 27, 2020.

There were no events which required additional impairment in the six months ended February 26, 2021.

When conducting the annual impairment test for goodwill, the Company compares the estimated fair value of a reporting unit containing goodwill to its carrying value.

1 unchanged sentence

The Company determines the fair value of the Company's reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as the market approach which includes the guideline company method.

No impairment of goodwill was recognized through November 27, 2020.

The changes in the carrying amount of goodwill during the three months ended November 27, 2020 and fiscal 2020 are as follows (in thousands):

No impairment of goodwill was recognized through February 26, 2021.

The changes in the carrying amount of goodwill during the six months ended February 26, 2021 and fiscal 2020 are as follows (in thousands):

Balance as of August 30, 2019

3 unchanged sentences

Translation adjustments

Balance as of November 27, 2020

Balance as of February 26, 2021

Intangible Assets, Net

The following table summarizes the gross amounts and accumulated amortization of intangible assets by type as of November 27, 2020 and August 28, 2020 (dollars in thousands):

November 27, 2020

The following table summarizes the gross amounts and accumulated amortization of intangible assets by type as of February 26, 2021 and August 28, 2020 (dollars in thousands):

February 26, 2021

August 28, 2020

1 unchanged sentence

Trademarks/tradename

Amortization expense related to intangible assets totaled approximately $ 3.4 million for both the three months ended November 27, 2020 and November 29, 2019.

Amortization expense related to intangible assets is detailed in the table below.

Acquired intangibles are amortized on a straight-line basis over the remaining estimated economic life of the underlying intangible assets.

Three Months Ended

Six Months Ended

Amortization of intangible assets classification

3 unchanged sentences

Estimated amortization expense of these intangible assets for the next five fiscal years and all years thereafter are as follows (in thousands):

Fiscal year ending November:

Fiscal year ending August:

Remainder of fiscal 2021

5 unchanged sentences

Assets to be disposed are reported at the lower of the carrying amount or fair value, less cost to sell.

No impairment of long-lived assets was recognized during the three months ended November 27, 2020 and November 29, 2019.

No impairment of long-lived assets was recognized during the six months ended February 26, 2021 and February 28, 2020.

Research and Development Expense

16 unchanged sentences

dollars using the historical exchange rate for property and equipment and certain other nonmonetary assets and liabilities and related depreciation and amortization on these assets and liabilities.

The Company uses the exchange rate at the balance sheet date for the remaining assets and liabilities, including deferred taxes.

The Company uses the exchange rate at the

balance sheet date for the remaining assets and liabilities, including deferred taxes.

A weighted average exchange rate is used for each period for revenues and expenses.

1 unchanged sentence

dollar as their functional currency.

The gains or losses resulting from the remeasurement process are recorded in other income (expense) in the accompanying condensed consolidated statements of operations.

During the three months ended November 27, 2020 and November 29, 2019, the Company recorded $ 0.6 million and ($ 0.9 ) million, respectively, of foreign exchange gains (losses) primarily related to its Brazilian operating subsidiaries.

The gains or losses resulting from the remeasurement process are recorded in other expense, net in the accompanying condensed consolidated statements of operations.

During the three and six months ended February 26, 2021 the Company recorded $ 0.8 million and $ 0.2 million, respectively, and $ 1.2 million and $ 2.1 million, respectively for the corresponding periods of 2020, of foreign exchange losses primarily related to its Brazilian operating subsidiaries.

Share-Based Compensation

1 unchanged sentence

Three Months Ended

Six Months Ended

Share-based compensation expense by category

17 unchanged sentences

The Company performs periodic credit evaluations of its customers to minimize collection risk on accounts receivable and maintains allowances for potentially uncollectible accounts.

The Company relies on three suppliers for the majority of its raw materials.

At November 27, 2020 and August 28, 2020, the Company owed these three suppliers $ 127.2 million and $ 133.3 million, respectively, which was recorded as accounts payable and accrued liabilities.

The inventory purchases from these suppliers during both the three months ended November 27, 2020 and November 29, 2019 were $ 0.2 billion.

The Company relies on four suppliers for the majority of its raw materials.

At February 26, 2021 and August 28, 2020, the Company owed these four suppliers $ 148.7 million and $ 139.5 million, respectively, which was recorded as accounts payable and accrued liabilities.

The inventory purchases from these suppliers during the three and six months ended February 26, 2021 were $ 0.3 billion and $0.5 billion, respectively, and $ 0.2 billion and $ 0.5 billion, respectively for the corresponding periods of fiscal 2020.

New Accounting Pronouncements

In August 2020, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting

for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature.

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for convertible instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2)

convertible instruments with a beneficial conversion feature.

As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost.

1 unchanged sentence

Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available.

The new guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020.

The Board decided to allow entities to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition.

The new guidance is effective for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning af ter December 15, 2020.

The FASB decided to allow entities to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition.

In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted.

34 unchanged sentences

During fiscal 2020, the Company recorded restructuring charges amounting to $ 3.5 million, composed of $ 2.7 million of asset impairment, $ 0.4 million of deferred ICMS taxes related to impaired assets, and $ 0.4 million accrued for contract termination costs.

As of November 27, 2020, $ 0.4 million of contract termination costs have yet to be paid.

As of February 26, 2021, $ 0.4 million of contract termination costs have yet to be paid.

The Company does not expect additional costs to be incurred before completion of the restructuring efforts.

The Company anticipates completion of these restructuring efforts, including payment on all outstanding amounts to be complete by January 2021.

The Company anticipates completion of these restructuring efforts, including payment on all outstanding amounts to be complete by April 2021.

Business Acquisitions

2 unchanged sentences

(SGH-CreeLED)

On October 18, 2020 , SMART Global Holdings and CreeLED, Inc.

(formerly known as Chili Acquisition, Inc.), a wholly owned subsidiary of SMART Global Holdings (collectively with SMART Global Holdings and other subsidiaries of SMART Global Holdings that may receive some assets in connection with this transaction, SGH-CreeLED), entered into an Asset Purchase Agreement (the CreeLED Purchase Agreement) with Cree, Inc., a North Carolina corporation (Cree).

As of November 27, 2020, the transaction, which was approved by both SMART Global Holdings’ Board of Directors and Cree’s Board of Directors, is targeted to close in the next 65 to 95 days, subject to customary closing conditions.

Pursuant to the CreeLED Purchase Agreement, Cree will sell to SGH-CreeLED, and SGH-CreeLED will (i) purchase from Cree, (a) certain equipment, inventory, intellectual property rights, contracts, and real estate comprising Cree’s LED Products business, which consists of LED chips and LED components, (b) all of the issued and outstanding equity interests of Cree Huizhou Solid State Lighting Company Limited, a limited liability company organized under the laws of the People’s Republic of China and an indirect wholly owned subsidiary of Cree, and (c) Cree’s ownership interest in Cree Venture LED Company Limited, Cree’s joint venture with San’an Optoelectronics Co., Ltd.

(collectively, the LED Business);

and (ii) assume certain liabilities related to the LED Business (collectively (i) and (ii), the Transaction).

Cree will retain certain assets used in and pre-closing liabilities associated with the LED Business.

The purchase price for the LED Business consists of (i) a payment of $ 50 million in cash, subject to customary adjustments, (ii) an unsecured promissory note issued to Cree by SMART Global Holdings in the amount of $ 125 million (the Purchase Price Note), (iii) the potential to receive an earn-out payment of up to $ 125 million based on the revenue and gross profit performance of the LED Business in Cree’s first four full fiscal quarters following the closing (the Earnout Period), also payable in the form of an unsecured promissory note issued by SMART Global Holdings (the Earnout Note), and (iv) the assumption of certain liabilities.

On March 1, 2021, pursuant to the previously announced Asset Purchase Agreement (the “APA”), dated October 18, 2020 , as amended by the Amendment to Asset Purchase Agreement dated March 1, 2021 (the “Amendment”;

and together with the APA, the “Purchase Agreement”) between Cree, Inc.

(“Cree”), SMART Global Holdings, Inc., a Cayman Islands exempted company (“SGH”), and CreeLED, Inc.

(formerly known as Chili Acquisition, Inc., “CreeLED”;

CreeLED and SGH are collectively referred to as “SGH-CreeLED”), a Delaware corporation and wholly owned subsidiary of SGH (collectively with SGH, “SMART”), (i) Cree completed the sale to SMART of (a) certain equipment, inventory, intellectual property rights, contracts, and real estate comprising Cree’s LED Products segment, (b) all of the issued and outstanding equity interests of Cree Huizhou Solid State Lighting Company Limited, a limited liability company organized under the laws of the People’s Republic of China and an indirect wholly owned subsidiary of Cree, and (c) Cree’s ownership interest in Cree Venture LED Company Limited, Cree’s joint venture with San’an Optoelectronics Co., Ltd.

(collectively, the “LED Business”), and (ii) SMART assumed certain liabilities related to the LED Business (collectively, (i) and (ii), the “LED Business Divestiture”).

In connection with the LED Business Divestiture, Cree will retain certain assets used in and pre-closing liabilities associated with the LED Products segment.

The purchase price for the LED Business consisted of (i) a payment of $ 50 million in cash, subject to customary adjustments, (ii) an unsecured promissory note issued to Cree by SMART Global Holdings in the amount of $ 125 million (the Purchase Price Note), (iii) the potential to receive an earn-out payment of up to $ 125 million based on the revenue and gross profit performance of the LED Business in Cree’s first four full fiscal quarters following the closing (the Earnout Period), with a minimum payment of $ 2.5 million also payable in the form of an unsecured promissory note issued by SMART Global Holdings (the Earnout Note), and (iv) the assumption of certain liabilities.

The Purchase Price Note and the Earnout Note, if earned and issued, will accrue interest at a rate of three-month LIBOR plus 3.0 % payable interest only every three months with one bullet payment of principal and all accrued and unpaid interest payable on each note’s maturity date.

The Purchase Price Note will mature on August 15, 2023 , and the Earnout Note, if issued, will mature on the third anniversary of the completion of the Earnout Period.

In connection with the Transaction, Cree and SGH-CreeLED will also enter into certain ancillary and related agreements, including (i) an Intellectual Property Assignment and License Agreement, (ii) a Transition Services Agreement, (iii) a Wafer Supply and Fabrication Services Agreement, and (iv) a Real Estate License Agreement.

The CreeLED Purchase Agreement contains customary representations, warranties and covenants, including covenants to cooperate in seeking regulatory approvals.

The Purchase Agreement also requires each of Cree and SGH-CreeLED to indemnify the other party for certain damages that the indemnified party may suffer following the closing of the Transaction.

The Transaction is subject to the satisfaction or waiver of a number of customary closing conditions.

The CreeLED Purchase Agreement provides for customary termination rights and also provides that, in the event the CreeLED Purchase Agreement is terminated in connection with certain specified regulatory-related circumstances, SMART Global Holdings may be required to pay Cree a termination fee of $ 4 million.

The Purchase Price Note will mature on August 15, 2023 , and the Earnout Note, if issued, will mature on March 27, 2025 .

In connection with this transaction, Cree and SGH-CreeLED also entered into certain ancillary and related agreements, including (i) an Intellectual Property Assignment and License Agreement, (ii) a Transition Services Agreement, (iii) a Wafer Supply and Fabrication Services Agreement, and (iv) a Real Estate License Agreement.

The Purchase Agreement requires each of Cree and SGH-CreeLED to indemnify the other party for certain damages that the indemnified party may suffer following the closing of the transaction.

Fiscal Year 2019

12 unchanged sentences

The initial fair value of contingent consideration was estimated at the date of acquisition to be $ 2.7 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 revenue for the period, a volatility factor applied to gross revenue based on year-on-year growth in gross revenue of comparable companies, discount rates and the estimated amount of time until final payment is made.

revenue based on year-on-year growth in gross revenue 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.

2 unchanged sentences

Changes in fair values reflect new information about the probability and timing of meeting the conditions of the gross revenue target.

As of November 27, 2020 and August 28, 2020, the fair value of the contingent consideration was $ 0 .

As of February 26, 2021 and August 28, 2020, the fair value of the contingent consideration was $ 0 .

A reconciliation of net cash exchanged in accordance with the Artesyn SPA to the total purchase price as of the closing date of the transaction, July 8, 2019, is presented below (in thousands):

27 unchanged sentences

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.

SMART EC brings an outstanding customer base, solid products and strong supplier relationships to the Company in the defense, industrial IoT (IIoT), edge computing, and communications OEM markets.

brings an outstanding customer base, solid products and strong supplier relationships to the Company in the defense, industrial IoT (IIoT), edge computing, and communications OEM markets.

SMART EC will have substantially improved access to capital to drive additional investment in, and further development and growth of its products and services .

63 unchanged sentences

Three Months Ended

As of November 27, 2020 and August 28, 2020, amounts due from these affiliates were $ 5.0 million and $ 6.5 million, respectively.

Six Months Ended

As of February 26, 2021 and August 28, 2020, amounts due from these affiliates were $ 6.6 million and $ 6.5 million, respectively.

On July 9, 2019, SMART Wireless became a wholly-owned subsidiary of the Company (see Note 2).

4 unchanged sentences

The Company does not use foreign currency contracts for speculative or trading purposes.

Foreign exchange forward contracts outstanding at November 27, 2020 are not designated as hedging instruments for hedge accounting purposes.

Foreign exchange forward contracts outstanding at February 26, 2021 are not designated as hedging instruments for hedge accounting purposes.

Accordingly, any gains or losses resulting from changes in the fair value of the non-designated forward contracts are reported in other income, net in the condensed consolidated statements of operations.

The gains and losses on these forward contracts generally offset the gains and losses associated with the underlying foreign-currency-denominated balances, which are also reported in other income, net.

As of November 27, 2020, the Company’s non-designated forward contacts resulted in a $ 2.1 million derivative asset.

As of February 26, 2021, the Company’s non-designated forward contacts resulted in a $ 2.3 million derivative asset.

As of August 28, 2020, the Company’s non-designated forward contracts resulted in a $ 0.1 million derivative asset and a $ 0.9 million derivative liability.

For the three months ended November 27, 2020, the Company recognized realized gains in the amount of $ 2.4 million, and net unrealized gains on the change in the fair value of the non-designated forward contracts in the amount of $ 2.9 million .

For the three months ended November 29, 2019, the Company recognized realized losses in the a mount of $ 0.8 million, and net unrealized losses on the change in the fair value of the non-designated forward contracts in the amount of $ 0.8 million.

For the three and six months ended February 26, 2021, the Company recognized realized gains in the amount of $ 2.7 million and $ 0.3 million, respectively, and net unrealized gains on the change in the fair value of the non-designated forward contracts in the amount of $ 0.1 million and $ 3.0 million, respectively .

For the three and six months ended February 28, 2020, the Company recognized realized losses in the amount of $ 70 thousand and $ 0.9 million, respectively, and net unrealized losses on the change in the fair value of the non-designated forward contracts in the amount of $ 2.0 million and $ 1.1 million, respectively.

Balance Sheet Details

4 unchanged sentences

Total inventories*

As of November 27, 2020 and August 28, 2020, 11 % and 17 %, respectively, of total inventories represented inventory held under the Company's supply chain services.

As of February 26, 2021 and August 28, 2020, 12 % and 17 %, respectively, of total inventories represented inventory held under the Company's supply chain services.

Prepaid Expenses and Other Current Assets

3 unchanged sentences

Unbilled service receivables

Contract assets**

Prepaid income taxes

Prepaid R&D expenses

Derivative assets**

Contract assets***

Other prepaid expenses and other current assets

10 unchanged sentences

Includes Penang facility, which is situated on leased land.

Depreciation and amortization expense for property and equipment during the three months ended November 27, 2020 and November 29, 2019 was approximately $ 5.0 million and $ 6.1 million, respectively,

Depreciation and amortization expense for property and equipment during the three and six months ended February 26, 2021 was approximately $ 5.4 million and $ 10.3 million, respectively and $ 6.0 million and $ 12.2 million, respectively for the corresponding periods of fiscal 2020.

Other Noncurrent Assets

1 unchanged sentence

Deposits on equipment

Prepaid ICMS taxes in Brazil*

Deferred tax asset

Prepaid ICMS taxes in Brazil*

Prepaid R&D expense

3 unchanged sentences

Accrued liabilities consisted of the following (in thousands):

Accrued employee compensation

Deferred revenue

Current portion of lease liabilities

Accrued employee compensation

VAT and other transaction taxes payable

Current portion of lease liabilities

Income taxes payable

7 unchanged sentences

Operating lease assets are amortized on a straight-line basis in operating expenses over the lease term.

The Company does not have financing leases as of November 27, 2020.

The Company does not have financing leases as of February 26, 2021.

The Company’s lease liabilities are recognized based on the present value of the remaining fixed lease payments, over the lease term, using a discount rate of similarly secured borrowings available to us.

9 unchanged sentences

Three Months Ended

November 27, 2020

November 29, 2019

Six Months Ended

Operating lease cost

4 unchanged sentences

Weighted-average discount rate

Future minimum undiscounted payments under the Company’s non-cancelable operating leases were as follows as of November 27, 2020 (in thousands):

Future minimum undiscounted payments under the Company’s non-cancelable operating leases were as follows as of February 26, 2021 (in thousands):

Fiscal year ending August:

4 unchanged sentences

Present value of total lease liabilities

As of November 27, 2020, the Company has additional operating lease commitments of approximately $ 5.8 million on an undiscounted basis for an office building lease that has not yet commenced.

As of February 26, 2021, the Company has additional operating lease commitments of approximately $ 5.8 million on an undiscounted basis for an office building lease that has not yet commenced.

This operating lease is expected to commence in April 2021 with a lease term of 10.4 years.

Right-of-use assets obtained in exchange for new operating lease liabilities for the three months ended November 27, 2020 and November 29, 2019 amounted to $ 0.1 million and $ 4.7 million, respectively.

Provision for income taxes for the three month periods presented consisted of the following (in thousands):

Right-of-use assets obtained in exchange for new operating lease liabilities for the three and six months ended February 26, 2021 were $ 3.2 million and $ 3.3 million, respectively, and $ 3.1 million and $ 8.0 million, respectively for the corresponding periods in fiscal 2020.

Provision for income taxes for the three and six month periods presented consisted of the following (in thousands):

Three Months Ended

Six Months Ended

Provision for income taxes

Income tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to the Company and its subsidiaries, adjusted for certain discrete items which are fully recognized in the period they occur.

Provision for income taxes for the three months ended November 27, 2020 increased by $ 3.0 million as compared to the same period in the prior year, primarily due to the profits and related taxes in non-U.S.

Provision for income taxes for the three and six months ended February 26, 2021 decreased by $ 0.1 million and increased by $ 2.8 million, respectively, as compared to the same period in the prior year, primarily due to the profits and related taxes in non-U.S.

jurisdictions.

As of November 27, 2020, the Company has a full valuation allowance for its net deferred tax assets associated with its U.S.

As of February 26, 2021, the Company has a full valuation allowance for its net deferred tax assets associated with its U.S.

The amount of the deferred tax asset considered realizable could be adjusted if significant positive evidence increases.

13 unchanged sentences

The holders of the Notes may convert their Notes at their option in the following circumstances:

during any fiscal quarter commencing after the fiscal quarter ending on November 27, 2020 (and only during such fiscal quarter), if the last reported sale price per ordinary share exceeds 130 % of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter;

during any fiscal quarter commencing after the fiscal quarter ending on February 26, 2021 (and only during such fiscal quarter), if the last reported sale price per ordinary share exceeds 130 % of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter;

during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the measurement period) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per ordinary share on such trading day and the conversion rate on such trading day;

13 unchanged sentences

The equity component of the Notes is included in additional paid-in capital in the condensed consolidated balance sheet and is not remeasured as long as it continues to meet the conditions for equity classification, which the Company will reassess every reporting period.

The difference between the principal amount of the Notes and the liability component (the debt discount) is amortized to interest expense using the effective interest method over the term of the Notes.

The difference between the principal

amount of the Notes and the liability component (the debt discount) is amortized to interest expense using the effective interest method over the term of the Notes.

Debt issuance costs for the issuance of the Notes were approximately $ 8.0 million, consisting of initial purchasers' discount and other issuance costs.

6 unchanged sentences

Net carrying amount

As of November 27, 2020, the remaining life of the Notes was approximately 63 months.

As of February 26, 2021, the remaining life of the Notes was approximately 60 months.

The unamortized debt discounts and unamortized debt issuance cost are amortized over the remaining useful life, using an effective interest rate of 7.06 %.

As of November 27, 2020, the carrying value of the equity component was $ 50.8 million, net of the issuance costs of $ 1.7 million.

As of February 26, 2021 the carrying value of the equity component was $ 50.8 million, net of the issuance costs of $ 1.7 million.

The following table sets forth the total interest expense recognized related to the Notes (in thousands):

Three Months Ended

November 27, 2020

Six Months Ended

Contractual interest expenses

2 unchanged sentences

Total interest cost recognized

As of November 27, 2020 and August 28, 2020, t he total estimated fair value for the Notes was determined to be $ 243.8 million and $ 221.5 million, respectively based on the closing trading price per $ 100 of the Notes as of the last day of trading for the period.

As of February 26, 2021 and August 28, 2020, t he total estimated fair value for the Notes was determined to be $ 339.3 million and $ 221.5 million, respectively based on the closing trading price per $ 100 of the Notes as of the last day of trading for the period.

The Company considers the fair value of the Notes to be a Level 2 measurement due to the limited trading activity.

There are no future minimum principal payments made under the Notes as of November 27, 2020, the full amount of $ 250.0 million is due in fiscal 2026.

There are no future minimum principal payments made under the Notes as of February 26, 2021, the full amount of $ 250.0 million is due in fiscal 2026.

In connection with the offering of the Notes, the Company entered into privately-negotiated capped call transactions, at arms-length, with certain counterparties (the “capped calls”).

21 unchanged sentences

The Amended Credit Agreement provides for $ 165 million of initial term loans (the Initial Term Loan) with a maturity date of August 9, 2022 , and $ 50 million of revolving loans with a maturity date of February 9, 2021 (the Initial Revolver Maturity Date) which revolving loan maturity date automatically extends to February 9, 2022 if the total leverage ratio of the Credit Group is less than 3.0 :1.0 on the Initial Revolver Maturity Date.

SMART Global Holding is not a party to the Amended Credit Agreement.

SMART Global Holdings is not a party to the Amended Credit Agreement.

On June 8, 2018, SMART Worldwide, Global and SMART Modular entered into an Incremental Facility Agreement (the Incremental Amendment) which provided for incremental term loans under the Amended Credit Agreement in the aggregate amount of $ 60 million (the Incremental Term Loans) which Incremental Term Loans are on substantially identical terms as the Initial Term Loans.

18 unchanged sentences

As a result of the Second Amendment, the borrowers were granted a holiday in fiscal 2019 from the obligation to make quarterly repayments of principal under the Initial Term Loans and the Incremental Term Loans.

During the three months ended November 27, 2020 and November 29, 2019, the borrowers made scheduled principal payments of $ 0 and $ 5.6 million, respectively.

During the three and six months ended February 26, 2021 and February 28, 2020, the borrowers made scheduled principal payments of $ 0 , $ 0 , $ 0 and $ 5.6 million, respectively.

Prepayments .

5 unchanged sentences

As a result of the Second Amendment, the borrowers were granted a holiday from the obligation to repay any loans as a result of excess cash flow that would otherwise be due with respect to any period of fiscal 2019.

No mandatory prepayments were required for the three months ended November 27, 2020 or for fiscal 2019.

No mandatory prepayments were required for the three months ended February 26, 2021 or for fiscal 2020.

On June 2, 2017, SMART Global Holdings contributed to Global $ 61.0 million from the proceeds of the IPO closed in May 2017.

10 unchanged sentences

As a result of the early repayment of the term loans the Company recognized a loss on extinguishment of debt in other expense, net of $ 6.6 million.

As of November 27, 2020 and August 28, 2020, the outstanding principal balance of all term loans under the Amended Credit Agreement was $ 0 and there were no outstanding revolving loans.

As of February 26, 2021 and August 28, 2020, the outstanding principal balance of all term loans under the Amended Credit Agreement was $ 0 and there were no outstanding revolving loans.

On March 6, 2020, SMART Worldwide, Global and SMART Modular entered into a third amended and restated credit agreement (the Third Amended and Restated Credit Agreement) which amended and restated the Amended Credit Agreement and the Second Amendment.

11 unchanged sentences

ABL Credit Agreement

On December 23, 2020, subsequent to the date of the balance sheet, SMART Modular, SMART EC, Penguin (Penguin together with SMART Modular and SMART EC, collectively the ABL Borrowers), certain other U.S.

On December 23, 2020, SMART Modular, SMART EC, Penguin (Penguin together with SMART Modular and SMART EC, collectively the ABL Borrowers), certain other U.S.

subsidiaries of the Company party thereto as guarantors (such other U.S.

17 unchanged sentences

and the obligations under the Third Amended and Restated Credit Agreement are secured by (1) a second-priority security interest, subject to certain customary exceptions, in assets held by the ABL Loan Parties consisting of accounts receivable, inventory and intangible assets to the extent attached to the foregoing, books and records related to the foregoing and the proceeds thereof, and (2) a first-priority security interest in, subject to certain customary exceptions, substantially all other present and future tangible and intangible assets held by the Loan Parties and proceeds of the foregoing.

As of February 26, 2021 and August 28, 2020, outstanding principal balance of the ABL Credit Agreement was $ 0 .

FINEP Credit Agreement

In December 2020, subsequent to the date of the balance sheet, SMART Brazil entered into a credit facility with the Funding Authority for Studies and Projects, or FINEP, referred to as the FINEP Credit Agreement.

In December 2020, SMART Brazil entered into a credit facility with the Funding Authority for Studies and Projects, or FINEP, referred to as the FINEP Credit Agreement.

FINEP is an organization of the Brazilian federal government under the Ministry of Science, Technology and Innovation, devoted to funding science and technology in the country.

2 unchanged sentences

The agreement also includes an initial administration fee of 1.09 %, which is deducted from each advance of funds under the loan agreement.

The FINEP Credit Agreement is a term loan payable interest only for the first 18 months then fully amortizing in 67 equal monthly installments of principal and interest beginning in August 2022 with the final payment of principal and all accrued and unpaid interest being due in January 2028 .

The FINEP Credit Agreement is a term loan payable interest only for the first 18 months then fully amortizing in 67 equal monthly installments of principal and interest beginning in June 2022 with the final payment of principal and all accrued and unpaid interest being due in December 2027 .

Banco Votorantim S.A.

8 unchanged sentences

The first advance in the amount of R$ 60.7 million (or $ 11.7 million) was received on December 30, 2020.

As of February 26, 2021 and August 28, 2020, outstanding principal balance of the FINEP Credit Agreement was $R 60.7 million (or $ 11.1 million) and $ 0 , respectively.

The fair value of amounts outstanding under the FINEP Credit Agreements as of February 26, 2021 and August 28, 2020 were estimated to be approximately $ 9.9 million and $ 0 , respectively.

Since the Company used broker quotes from inactive markets and there were no unobservable inputs, this was treated as a Level 2 financial instrument.

BNDES Credit Agreements

9 unchanged sentences

The BNDES 2014 Credit Agreement is a term loan fully amortizing in 48 equal monthly installments beginning on August 15, 2016 with the final principal paid on July 15, 2020 .

As of November 27, 2020 and August 28, 2020, SMART Brazil had no outstanding debt under both the BNDES 2013 and 2014 Credit Agreements.

As of February 26, 2021 and August 28, 2020, SMART Brazil had no outstanding debt under both the BNDES 2013 and 2014 Credit Agreements.

While the BNDES Credit Agreements did not include any financial covenants, they contained affirmative and negative covenants customary for loans of this nature, including, among other things, an obligation to comply with all laws and regulations;

22 unchanged sentences

Inputs (Level 3)

Balances as of November 27, 2020:

Balances as of February 26, 2021:

Cash and cash equivalents

21 unchanged sentences

Options granted after August 26, 2011 and before September 23, 2014 have an eight year term.

As of November 27, 2020, there were 5,173,251 ordinary shares reserved for issuance under the SGH Plan, of which 1,394,395 ordinary shares were available for grant.

As of February 26, 2021, there were 7,991,358 ordinary shares reserved for issuance under the Company’s equity incentive plans, of which 4,285,831 ordinary shares were available for grant.

As of August 28, 2020, there were 4,545,631 ordinary shares reserved for issuance under the SGH Plan, of which 1,432,721 ordinary shares were available for grant.

7 unchanged sentences

Three Months Ended

Six Months Ended

Stock options:

9 unchanged sentences

Options cancelled

Options outstanding at November 27, 2020

Options exercisable at November 27, 2020

Options outstanding at February 26, 2021

Options exercisable at February 26, 2021

In March 2018, the Company granted two performance-based stock options that contained a stock market index as a benchmark for performance (Market-Based Options).

9 unchanged sentences

The modification of this option, as well as a time-based option also granted in March 2018, led to a reversal of $ 2.3 million share-based compensation expense in the fourth quarter of fiscal 2020.

The Black-Scholes weighted average fair value of options granted under the SGH Plan during the three months ended November 27, 2020 and November 29, 2019 was $ 13.30 and $ 11.85 per share, respectively.

The total intrinsic value of employee stock options exercised in the three months ended November 27, 2020 and November 29, 2019 was $ 0.4 million and $ 1.3 million, respectively.

As of November 27, 2020, there was approximately $ 11.7 million of unrecognized compensation costs related to stock options under the SGH Plan, which will be recognized over a weighted average period of 2.14 years.

The Black-Scholes weighted average fair value of options granted under the SGH Plan during the three and six months ended February 26, 2021 was $ 0 and $ 13.30 per share, respectively, and $ 0 and $ 11.85 per share, respectively for the corresponding periods of fiscal 2020.

The total intrinsic value of employee stock options exercised in the three and six months ended February 26, 2021 was $ 2.0 million and $ 2.4 million, respectively and $ 1.1 million and $ 2.5 million, respectively for the corresponding periods of fiscal 2020.

As of February 26, 2021, there was approximately $ 9.7 million of unrecognized compensation costs related to stock options under the SGH Plan, which will be recognized over a weighted average period of 1.94 years.

SGH Plan—Restricted Stock Awards (RSAs) , Restricted Stock Units (RSUs) and Performance Stock Units (PSUs)

4 unchanged sentences

Awards forfeited and cancelled

Awards outstanding at November 27, 2020

Awards outstanding at February 26, 2021

In May 2020, the Company granted a performance-based restricted share award (RSA) which has both service and performance conditions.

In October 2020, the Company modified this RSA, as well as another time-based RSA, to immediately vest and release;

this resulted in an additional $ 5.8 million share-based compensation expense in the three months ended November 27, 2020.

this resulted in an additional $ 5.8 million share-based compensation expense in the three months ended November 27, 2020 and the six months ended February 26, 2021.

In May 2019, the Company granted a performance-based restricted share unit award (PSU) which has both service and performance conditions.

As of November 29, 2019, the Company deemed it probable that the service condition would be met, however, since the attainment of the performance condition for this award changed to not probable, there was $ 0.8 million of share-based compensation expense reversed for this award in the three months ended November 29, 2019.

The share-based compensation expense related to RSAs, RSUs and PSUs during the three months ended November 27, 2020 and November 29, 2019 was approximately $ 9.0 million and $ 1.9 million, respectively.

The total fair value of shares vested during the three months ended November 27, 2020 and November 29, 2019 was approximately $ 8.4 million and $ 2.1 million, respectively.

As of November 27, 2020 , there was approximately $ 30.8 million of unrecognized compensation costs related to awards under the SGH Plan, which will be recognized over a weighted average period of 2.75 years.

The share-based compensation expense related to RSAs, RSUs and PSUs during the three and six months ended February 26, 2021 was approximately $ 3.2 million and $ 12.2 million, respectively, and $ 2.5 million and $ 4.4 million for the corresponding period in fiscal 2020.

The total fair value of shares vested during the three and six months ended February 26, 2021 was approximately $ 3.0 million and $ 11.4 million, respectively, and $ 3.8 million and $ 5.9 million, respectively for the corresponding periods of fiscal 2020.

As of February 26, 2021, there was approximately $ 33.3 million of unrecognized compensation costs related to awards under the SGH Plan, which will be recognized over a weighted average period of 2.71 years.

Employee Stock Purchase Plan

3 unchanged sentences

The Purchase Plan terminates in January 2028 .

As of November 27, 2020, 353,334 ordinary shares have been purchased under the Purchase Plan and 896,666 ordinary shares are reserved for future purchases by eligible employees.

As of February 26, 2021, 353,334 ordinary shares have been purchased under the Purchase Plan and 896,666 ordinary shares are reserved for future purchases by eligible employees.

As of August 28, 2020, 266,816 ordinary shares have been purchased under the Purchase Plan and 683,184 ordinary shares are reserved for future purchases by eligible employees.

8 unchanged sentences

Under the terms of the Shareholders Agreements, such shares are subject to certain restrictions on sale and could become subject to lock-up restrictions in the event of any future registered public offerings by the Company.

On January 7, 2021, the Company agreed to repurchase an aggregate of 1,100,000 of its ordinary shares, $ 0.03 par value per share from Silver Lake Partners III Cayman (AIV III), L.P., Silver Lake Technology Investors III Cayman, L.P., Silver Lake Sumeru Fund Cayman, L.P.

and Silver Lake Technology Investors Sumeru Cayman, L.P.

at a purchase price of $ 40.30 per share for aggregate consideration of approximately $ 44.3 million, in a privately negotiated transaction.

The transaction closed on January 15, 2021 .

Savings and Retirement Program

4 unchanged sentences

The Company may also make discretionary matching contributions, which vest immediately, as periodically determined by management.

The matching contributions made by the Company during the three months ended November 27, 2020 and November 29, 2019 were approximately $ 0.7 million and $ 0.4 million, respectively.

The matching contributions made by the Company during the three and six months ended February 26, 2021 were approximately were approximately $ 0.6 million and $ 1.3 million, respectively and $ 0.6 million and $ 1.1 million, respectively for the corresponding periods of fiscal 2020.

Commitments and Contingencies

Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent.

Rent expense for operating leases during the three months ended November 27, 2020 and November 29, 2019 was $ 1.9 million and $ 1.8 million, respectively.

Rent expense for operating leases during the three and six months ended February 26, 2021 was $ 2.3 million and $ 4.1 million, respectively, and $ 1.9 million and $ 3.7 million, respectively for the corresponding periods of fiscal 2020.

(b) Product Warranty and Indemnities

3 unchanged sentences

Three Months Ended

Six Months Ended

Beginning accrued warranty reserve

20 unchanged sentences

(Netlist) against SanDisk alleging that certain products sold in the Sale infringe various Netlist patents, which SanDisk in turn alleges would, if true, constitute a breach of representations and warranties under the Sale Agreement.

Under the Sale Agreement, the Company’s

indemnification obligation in respect of intellectual property matters, such as those claimed by SanDisk, is subject to a deductible of approximately $ 1.8 million and a cap of $ 60.9 million.

Under the Sale Agreement, the Company’s indemnification obligation in respect of intellectual property matters, such as those claimed by SanDisk, is subject to a deductible of approximately $ 1.8 million and a cap of $ 60.9 million.

As required in the Sale Agreement, the SanDisk claim purported to include a preliminary good faith estimate of SanDisk’s alleged indemnifiable losses, which estimate was greater than the Sale Agreement cap for intellectual property matters.

25 unchanged sentences

Even with this 0%, if SMART Brazil is found to have used the incorrect product classification code, SMART Brazil will be subject to an administrative penalty equal to 1 % of the value of the imports.

SMART Brazil intends to vigorously fight this matter and has filed defenses to the Third Assessment.

SMART Brazil intends to vigorously fight this matter and has filed

defenses to the Third Assessment.

The Company believes that SMART Brazil used the correct product code on its imports and that the Third Assessment is incorrect.

Although SMART Brazil did not receive the Third Assessment until December 12, 2013, the Third Assessment was issued before the CARF decision in favor of SMART Brazil on the First Assessment as discussed above was published.

On September 8, 2020, the first level administrative court unanimously ruled in favor of SMART Brazil with respect to the Third Assessment.

On September 8, 2020, the first level administrative court unanimously ruled in favor o f SMART Brazil with respect to the Third Assessment.

Due to the size of the Third Assessment, Brazil law required that the tax authorities appeal the decision to CARF .

The amounts claimed by the tax authorities on the Third Assessment are subject to increases for interest and other charges, which resulted in a combined assessment balance of approximately R$ 5.7 million (or $ 1.0 million) as of November 27, 2020.

The amounts claimed by the tax authorities on the Third Assessment are subject to increases for interest and other charges, which resulted in a combined assessment balance of approximately R$ 5.8 million (or $ 1.1 million) as of February 26, 2021.

As a result of the CARF decisions in favor of SMART Brazil on the First Assessment and the Second Assessment, as well as the basis given by the tax authorities in favorable ruling on the Third Assessment, the Company believes that the probability of any material charges as a result of the Third Assessment is remote and the Company does not expect the resolution of this disputed assessment to have a material impact on its condensed consolidated financial position, results of operations or cash flows.

6 unchanged sentences

The accounting policies and basis of presentation of the reportable segments are the same as those described in Note 1 – “Basis of Presentation”.

The following table shows operating results net of inter-segment revenues, which for the respective three months ended, are not material to the financial statements (dollars in thousands):

The following table shows operating results net of inter-segment revenues, which for the respective three and six months ended, are not material to the financial statements (dollars in thousands):

Three Months Ended

November 27, 2020

November 29, 2019

Six Months Ended

February 26, 2021

Adjusted Gross Profit

Adjusted Gross Margin

Adjusted Gross Profit and Adjusted Gross Margin excludes share-based compensation (see Note 1(q)), intangible amortization (see Note 1(l)) and corporate expenses ($ 17 thousand and $ 45 thousand, for the three months ended November 27, 2020 and November 29, 2019, respectively).

Adjusted Gross Profit and Adjusted Gross Margin excludes share-based compensation (see Note 1(q)), intangible amortization (see Note 1(l)) and corporate expenses ($ 6 thousand and $ 23 thousand, respectively).

Three Months Ended

Six Months Ended

February 28, 2020

Adjusted Gross Profit

Adjusted Gross Margin

Adjusted Gross Profit and Adjusted Gross Margin excludes share-based compensation (see Note 1(q)), intangible amortization (see Note 1(l)) and corporate expenses ($ 57 thousand and $ 0.1 million, respectively).

A summary of the Company’s net sales by geographic area, based on the ship-to location of the customer, property and equipment by geographic area is as follows (in thousands):

Three Months Ended

Six Months Ended

Geographic Net Sales:

5 unchanged sentences

Three Months Ended

November 27, 2020

November 29, 2019

Six Months Ended

February 26, 2021

February 28, 2020

February 26, 2021

February 28, 2020

Customer A (1)

Customer B (2)

Brazil Products customer

As of November 27, 2020, three direct customer represented less than 10% of net sales, Customer B, C and D, accounted for approximately 14 %, 12 % and 12 % of accounts receivable, respectively.

As of August 28, 2020, two direct customers that represented less than 10% of net sales, Customers B and C, accounted for approximately 19 % and 15 % of accounts receivable, respectively.

Specialty Memory Products customer

As of February 26, 2021, three direct customers that represented less than 10% of net sales, Customer C, D and E, each accounted for approximately 13 % of accounts receivable, respectively.

As of August 28, 2020, two direct customers that represented less than 10% of net sales, Customers C and D, accounted for approximately and 19 % and 15 % of accounts receivable, respectively.

Earnings Per Share

10 unchanged sentences

Three Months Ended

Six Months Ended

Weighted average shares outstanding:

5 unchanged sentences

Three Months Ended

Foreign currency gains (losses)

Total other income (expense), net

Six Months Ended

Foreign currency losses

Loss on capped call mark-to-market adjustment

Loss on early extinguishment of debt

Total other expense, net

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements