Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of August 27, 2021, our disclosure controls and procedures were effective to ensure the information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Internal control over financial reporting includes maintaining records that, in reasonable detail, accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on the consolidated financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our consolidated financial statements would be prevented or detected.
In March 2021, we completed the acquisition of Cree Inc.’s LED business. For further discussion of this acquisition, refer to “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Business Acquisitions – LED Business.” The SEC permits companies to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition, and our management has elected to exclude the LED Business from its assessment as of August 27, 2021. The LED Business (excluding acquired intangible assets) constituted 22% and 15% of our consolidated total assets and consolidated net sales, respectively, as of and for the year ended August 27, 2021.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of August 27, 2021. The effectiveness of our internal control over financial reporting as of August 27, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is included in this Annual Report on Form 10-K.
96
Changes in Internal Control Over Financial Reporting
Remediation : Following the identification of a material weakness in prior periods as previously disclosed related to non-timely accounting for import taxes and correctness of import tax codes on legacy products (being those products introduced or commencing importation prior to 2015), management commenced the development and execution of a remediation plan. The following remediation steps were completed:
•
Engaged an independent technical consultant to review the import tax codes assigned to our legacy products (being those products introduced or commencing importation prior to the process change adopted in 2015). The review has been completed, which identified an incorrect import tax code that was corrected in the second quarter of fiscal 2021. The underreported import tax and related interest has been paid, and was not considered material.
•
Strengthened the controls and procedures for the identification, review and approval of import tax codes.
•
Enhanced training for responsible personnel involved in determining import tax codes.
As of the date of this Annual Report on Form 10-K, we have remediated such material weakness.
Other than the remediation actions described above, during the fourth quarter of fiscal 2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
97
REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of SMART Global Holdings, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of SMART Global Holdings, Inc. and subsidiaries (the “Company”) as of August 27, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 27, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended August 27, 2021, of the Company and our report dated October 25, 2021, expressed an unqualified opinion on those financial statements and included an explanatory paragraph relating to the Company’s adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842) .
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at the LED business acquired from Cree Inc. (LED business), which was acquired on March 1, 2021, and whose financial statements (excluding acquired intangible assets) constitute 22% of assets and 15% of net sales of the consolidated financial statement amounts as of and for the year ended August 27, 2021. Accordingly, our audit did not include the internal control over financial reporting at the LED business.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
October 25, 2021
98
I tem 9B. O ther Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
99
PART III
The information required by Items 10, 11, 12, 13 and 14 is incorporated herein by reference to our 2021 Proxy Statement for our next Annual General Meeting to be filed with the SEC within 120 days after August 27, 2021.
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
100
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed as part of this report:
1.
Financial Statements. See “Item 8. Financial Statements and Supplementary Data.”
2.
Certain Financial Statement Schedules have been omitted since they are either not required, not applicable or the information is otherwise included.
3.
Exhibits. See “Index to Exhibits” within Item 15 below.
101
INDEX TO EXHIBITS
Incorporated by Reference
Exhibit
No.
Description
Filed
Herewith
Form
File No.
Exhibit
Filing
Date
2.1
Agreement and Plan of Merger, dated as of June 8, 2018, by and among SMART Global Holdings, Inc., Glacier Acquisition Sub, Inc., Penguin Computing, Inc. and Fortis Advisors LLC
8-K
001-38102
2.1
06/11/2018
2.2
Stock Purchase Agreement, dated as of July 8, 2019, by and among Artesyn Embedded Computing, Inc., Pontus Intermediate Holdings II, LLC, Pontus Holdings, LLC and SMART Global Holdings, Inc.
8-K
001-38102
2.1
07/12/2019
2.3**
Asset Purchase Agreement dated October 18, 2020, between Cree, Inc., SMART Global Holdings, Inc. and CreeLED, Inc. (formerly known as Chili Acquisition, Inc.)
8-K
001-38102
2.2
03/03/2021
2.4**
Amendment to Asset Purchase Agreement dated March 1, 2021, between Cree, Inc., SMART Global Holdings, Inc. and CreeLED, Inc.
8-K
001-38102
2.2
03/03/2021
3.1
Second Amended and Restated Memorandum and Articles of Association of SMART Global Holdings, Inc.
10-Q
001-38102
3.1
03/31/2020
4.1
Description of Securities Registered Under Section 12 of the Exchange Act
X
4.2
Indenture, dated as of February 11, 2020, between SMART Global Holdings, Inc. and US Bank National Association
8-K
001-38102
4.1
02/11/2020
4.3
Form of 2.25% Convertible Senior Notes due 2026 (included as Exhibit A to Exhibit 4.10)
8-K
001-38102
4.2
02/11/2020
10.1*
SMART Global Holdings, Inc. Amended and Restated 2017 Share Incentive Plan
10-Q
001-38102
10.1
06/29/2017
10.2*
Amendment to the SMART Global Holdings, Inc. Amended and Restated 2017 Share Incentive Plan
DEF
14A
001-38102
Exhibit A
12/14/2018
10.3*
Amendment to the SMART Global Holdings, Inc. Amended and Restated 2017 Share Incentive Plan
DEF
14A
001-38102
Exhibit A
12/21/2020
10.4*
SMART Global Holdings, Inc. 2021 Inducement Plan (effective as of February 15, 2021)
8-K
001-38102
99.1
01/22/2021
10.5*
Form of Restricted Share Unit Award Agreement Under the SMART Global Holdings, Inc. 2021 Inducement Plan
10-Q
001-38102
10.5
04/06/2021
10.6*
SMART Global Holdings, Inc. Employee Share Purchase Plan
S-8
333-249619
99.3
10/22/2020
10.7*
Offer Letter by and between the Registrant and Mark Adams, dated August 12, 2020
8-K
001-38102
10.1
08/13/2020
10.8*
Amended and Restated Employment Agreement between SMART Modular Technologies, Inc. and Jack Pacheco, dated December 19, 2017
10-Q
001-38102
10.2
03/22/2018
10.9*
Offer Letter by and between SMART Global Holdings, Inc. and Ken Rizvi, dated January 31, 2021
8-K
001-38102
10.1
02/02/2021
10.10*
Form of Indemnification Agreement entered into with each of the Registrant’s officers and directors
S-1/A
333-217539
10.1
05/11/2017
10.11
Third Amended and Restated Credit Agreement, dated as of March 6, 2020, among SMART Modular Technologies (Global Memory Holdings), Inc., SMART Modular Technologies (Global), Inc., SMART Modular Technologies, Inc., the Lender Parties thereto and Barclays Bank, PLC, as Administrative Agent
8-K
001-38102
10.1
03/11/2020
10.12
Master Guarantee Agreement, dated as of August 26, 2011, among SMART Modular Technologies (Global Memory Holdings), Inc., SMART Modular Technologies (Global), Inc., SMART Modular Technologies, Inc., the subsidiary guarantors identified therein and JPMorgan Chase Bank, N.A. as Administrative Agent
S-1
333-217539
10.11
04/28/2017
102
10. 13
Collateral Agreement, dated as of August 26, 2011, among SMART Modular Technologies, Inc., the other grantors party thereto and JPMorgan Chase Bank, N.A. as Administrative Agent
S-1
333-217539
10.12
04/28/2017
10.14
Form of Confirmation for the Base Capped Call Transactions
8-K
001-38102
99.1
02/11/2020
10.15
Form of Confirmation for the Additional Capped Call Transactions
8-K
001-38102
99.2
02/11/2020
10.16
Loan, Guaranty and Security Agreement dated as of December 23, 2020, among SMART Modular Technologies, Inc., SMART Embedded Computing, Inc., and Penguin Computing, Inc., as borrowers, the financial institutions party thereto as Lenders, and Bank of America, N.A. as the agent for the lenders
8-K
001-38102
10.1
12/29/2020
10.17
Promissory Note, dated March 1, 2021, made by SMART Global Holdings, Inc. in favor of CreeLED, Inc.
8-K
001-38102
10.1
03/03/2021
10.18
Form of Earnout Note
8-K
001-38102
10.2
03/03/2021
21.1
List of Subsidiaries of Registrant
X
23.1
Consent of Independent Registered Public Accounting Firm
X
24.1
Power of Attorney (contained in the signature page to this Annual Report on Form 10-K)
X
31.1
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
32.2
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document
X
101.SCH
Inline XBRL Taxonomy Extension Schema Document
X
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
X
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
X
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
X
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
X
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
X
*
Constitutes a management contract or compensatory plan or arrangement.
* *
Portions of this exhibit have been omitted pursuant to Rule 601(b)(2) of Regulation S-K. The omitted information is not material and would likely cause competitive harm to the registrant if publicly disclosed.
ITEM 16. Form 10-K Summary
Not applicable.
103
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: October 25, 2021
SMART Global Holdings, Inc.
By:
/s/ Mark Adams
Mark Adams
President and Chief Executive Officer
By:
/s/ Ken Rizvi
Ken Rizvi
Senior Vice President and Chief Financial Officer
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Mark Adams, Ken Rizvi and Anne Kuykendall, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
/s/ Mark Adams
President and Chief Executive Officer and Director
October 25, 2021
Mark Adams
(Principal Executive Officer)
/s/ Ken Rizvi
Senior Vice President and Chief Financial Officer
October 25, 2021
Ken Rizvi
(Principal Financial and Accounting Officer)
/s/ Ajay Shah
Chairman of the Board of Directors
October 25, 2021
Ajay Shah
/s/ Randy Furr
Director
October 25, 2021
Randy Furr
/s/ Penelope Herscher
Director
October 25, 2021
Penelope Herscher
/s/ Bryan Ingram
Director
October 25, 2021
Bryan Ingram
/s/ Sandeep Nayyar
Director
October 25, 2021
Sandeep Nayyar
/s/ Mukesh Patel
Director
October 25, 2021
Mukesh Patel
/s/ Maximiliane Straub
Director
October 25, 2021
Maximiliane Straub
/s/ Jason White
Director
October 25, 2021
Jason White
104