What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-10-14 compared with 2021-10-25 · 501 added, 344 removed, 672 unchanged (56% of the section changed)

7 unchanged sentences

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

SMART Global Holdings, Inc.

1 unchanged sentence

(In thousands, except par value amount)

As of August 26,

2022 August 27,

Cash and cash equivalents $ 363,065 $ 222,986

Accounts receivable, net (1)

410,323 313,393

Inventories 323,084 363,601

Other current assets 55,393 50,838

3 unchanged sentences

Intangible assets, net 77,812 101,073

Goodwill 74,009 74,255

Other noncurrent assets 37,044 21,517

Total assets $ 1,572,064 $ 1,344,798

Liabilities and Equity

Accounts payable and accrued expenses $ 413,354 $ 484,107

Current debt 12,025 25,354

Other current liabilities 90,161 74,337

1 unchanged sentence

Long-term debt 591,389 340,484

Acquisition-related contingent consideration

Noncurrent operating lease liabilities 71,754 32,419

Acquisition-related contingent consideration — 60,500

Other noncurrent liabilities 14,835 8,673

4 unchanged sentences

authorized 200,000 shares;

25,770 issued and 24,368 outstanding as of August 27, 2021;

24,568 issued and 24,419 outstanding as of August 28, 2020

52,880 shares issued and 48,604 outstanding as of August 26, 2022;

50,138 shares issued and 48,736 outstanding as of August 27, 2021

Additional paid-in-capital 448,112 396,120

Retained earnings 251,344 184,787

Treasury shares, 1,402 and 149 shares held as of August 27, 2021

and August 28, 2020, respectively

Treasury shares, 4,276 and 1,402 shares held as of August 26, 2022 and August 27, 2021, respectively

( 107,776 ) ( 50,545 )

Accumulated other comprehensive income (loss) ( 221,655 ) ( 221,615 )

1 unchanged sentence

Noncontrolling interest in subsidiary 6,935 8,673

Total equity 378,546 318,924

Total liabilities and equity $ 1,572,064 $ 1,344,798

Receivables from related parties were $ 14,057 and $ 6,546 as of August 27, 2021 and August 28, 2020, respectively.

(1) Receivables from related parties were de minimis and $ 14,057 as of August 26, 2022 and August 27, 2021, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(In thousands, except per share amounts)

Year ended August 26,

2022 August 27,

2021 August 28,

Net sales (1)

$ 1,819,352 $ 1,501,142 $ 1,122,377

Cost of sales 1,366,132 1,192,762 905,981

Gross profit 453,220 308,380 216,396

Operating expenses:

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Change in fair value of contingent consideration 41,324 32,400 —

Other operating (income) expense

Total operating expenses 338,711 253,183 175,066

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Other non-operating (income) expense 4,837 ( 375 ) 16,970

Total other non-operating expense

Total non-operating (income) expense 26,006 17,225 31,970

Income before taxes 88,503 37,972 9,360

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Earnings (loss) per share:

Basic $ 1.35 $ 0.44 $ ( 0.02 )

Diluted $ 1.22 $ 0.41 $ ( 0.02 )

Shares used in per share calculations:

Sales to related parties were $ 76,488 , $ 75,837 and $ 117,403 in 2021, 2020 and 2019, respectively.

Basic 49,467 48,558 47,988

Diluted 54,443 51,584 47,988

(1) Sales to related parties were de minimis, $ 76,488 and $ 75,837 in 2022, 2021 and 2020, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(In thousands)

Year ended August 26,

2022 August 27,

2021 August 28,

Net income (loss) $ 68,592 $ 22,506 $ ( 1,143 )

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(In thousands)

Amount Additional

Paid-in-capital

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As of August 30, 2019 47,355 $ 1,421 $ 286,568 $ 164,620 $ ( 1,283 ) $ ( 177,866 ) $ 273,460 $ — $ 273,460

Other comprehensive loss

Net income (loss) — — — ( 1,143 ) — — ( 1,143 ) — ( 1,143 )

Other comprehensive income (loss) — — — — — ( 50,375 ) ( 50,375 ) — ( 50,375 )

Shares issued under equity plans 1,525 45 5,434 — — — 5,479 — 5,479

Repurchase of ordinary shares ( 27 ) ( 1 ) 1 — ( 749 ) — ( 749 ) — ( 749 )

Shares issued or issuable in connection with acquisition of Inforce

Shares issued in connection with acquisition of Inforce 135 4 ( 4 ) — — — — — —

Share-based compensation expense — — 18,716 — — — 18,716 — 18,716

Cumulative effect from adoption of ASC 606

Reclassification of Capped Calls to equity — — ( 14,106 ) — — — ( 14,106 ) — ( 14,106 )

Issuance of convertible notes — — 50,822 — — — 50,822 — 50,822

As of August 28, 2020 48,988 1,469 347,431 163,477 ( 2,032 ) ( 228,241 ) 282,104 — 282,104

Other comprehensive loss

Net income — — — 21,310 — — 21,310 1,196 22,506

Other comprehensive income (loss) — — — — — 6,626 6,626 — 6,626

Shares issued under equity plans 2,403 72 14,851 — — — 14,923 — 14,923

Repurchase of ordinary shares ( 1,253 ) ( 37 ) 37 — ( 48,513 ) — ( 48,513 ) — ( 48,513 )

Shares issued in connection with acquisition of Inforce

Share-based compensation expense — — 33,801 — — — 33,801 — 33,801

Reclassification of Capped Calls to equity

Issuance of convertible notes

Acquisition of noncontrolling interest — — — — — — — 7,477 7,477

As of August 27, 2021 50,138 1,504 396,120 184,787 ( 50,545 ) ( 221,615 ) 310,251 8,673 318,924

Other comprehensive income

Net income — — — 66,557 — — 66,557 2,035 68,592

Other comprehensive income (loss) — — — — — ( 40 ) ( 40 ) — ( 40 )

Shares issued under equity plans 2,797 84 12,056 — — — 12,140 — 12,140

1 unchanged sentence

Share-based compensation expense — — 39,934 — — — 39,934 — 39,934

Acquisition of LED Business

Distribution to noncontrolling interest — — — — — — — ( 3,773 ) ( 3,773 )

As of August 26, 2022 52,880 $ 1,586 $ 448,112 $ 251,344 $ ( 107,776 ) $ ( 221,655 ) $ 371,611 $ 6,935 $ 378,546

3 unchanged sentences

(In thousands)

Year Ended August 26,

2022 August 27,

2021 August 28,

Cash flows from operating activities:

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Depreciation expense and amortization of intangible assets 64,907 49,111 36,430

Amortization of debt discounts and issuance costs

Amortization of debt discount and issuance costs 10,263 8,798 5,866

Share-based compensation expense 40,119 33,877 18,716

Loss (gain) from change in fair value of contingent consideration

Amortization of operating lease right-of-use assets

Change in fair value of contingent consideration 41,324 32,400 —

Loss on remeasurement of Capped Calls — — 7,719

Loss on extinguishment of debt 653 — 6,822

Other 695 829 2,471

Changes in operating assets and liabilities:

Accounts receivable ( 97,509 ) ( 51,440 ) ( 12,348 )

Other current assets

Accounts payable and accrued expenses

Operating lease liabilities

Inventories 39,667 ( 137,889 ) ( 51,840 )

Other assets ( 1,353 ) ( 9,943 ) 10,820

Accounts payable and accrued expenses and other liabilities ( 61,738 ) 208,108 65,807

Deferred income taxes, net ( 689 ) ( 3,007 ) ( 2,115 )

2 unchanged sentences

Capital expenditures and deposits on equipment ( 38,153 ) ( 47,580 ) ( 32,445 )

Acquisitions of businesses, net of cash acquired

Acquisition of business, net of cash acquired — ( 35,677 ) —

Other ( 817 ) ( 921 ) 404

Net cash used for investing activities ( 38,970 ) ( 84,178 ) ( 32,041 )

Cash flows from financing activities:

Proceeds from debt 278,657 11,439 243,125

Proceeds from borrowing under line of credit 84,000 172,500 103,000

Proceeds from issuance of ordinary shares 12,140 14,923 5,479

Proceeds from issuance of debt

Repayments of debt ( 127,073 ) — ( 213,436 )

Repayments of borrowings under line of credit ( 109,000 ) ( 147,500 ) ( 103,000 )

Payments to acquire ordinary shares ( 57,231 ) ( 48,513 ) ( 749 )

Repayments of debt

Distribution to noncontrolling interest ( 3,773 ) — —

Purchase of Capped Calls — — ( 21,825 )

Other ( 3,841 ) — —

Net cash provided by financing activities 73,879 2,849 12,594

3 unchanged sentences

Cash and cash equivalents at end of period $ 363,065 $ 222,986 $ 150,811

Supplement disclosures:

Supplemental disclosures:

Interest paid, net of amounts capitalized $ 12,798 $ 8,029 $ 12,983

7 unchanged sentences

Since our inception over 30 years ago, SMART Global Holdings, Inc.

(“SGH” or “Company”) has grown into a diversified group of businesses focused on the design and manufacture of specialty solutions for the computing, memory and LED markets.

(“SGH” or the “Company”) has grown into a diversified group of businesses focused on the design and manufacture of specialty solutions for the computing, memory and LED markets.

Our success is based on a customer-focused approach characterized by a commitment to quality, advanced technical expertise, quick time-to-market, build-to-order flexibility and excellence in customer service.

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Reclassifications :

Certain reclassifications have been made to prior period amounts to conform to current period presentation, including, among others, presenting:

(i) treasury shares separate from additional paid-in-capital in the consolidated balance sheets and consolidated statements of shareholders’ equity;

(ii) components of accounts payable and accrued expenses in the consolidated balance sheet and footnotes;

(iii) components of property and equipment in the footnotes;

and (iv) the operating cash flow impacts of reclassifications in consolidated statements of cash flows.

Certain reclassifications have been made to prior period amounts to conform to current period presentation.

Fiscal Year :

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All period references are to our fiscal periods unless otherwise indicated.

All financial information for our subsidiaries in Brazil is included in our consolidated financial statements on a one-month lag because their fiscal years end on July 31 of each year.

Out-of-Period Adjustment :

During the second quarter of 2021, we 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, $ 0.8 million increase in interest expense and $ 1.7 million benefit for income taxes.

The adjustment was not considered material to the interim or annual consolidated financial statements for the year ended August 27, 2021 nor to any previously issued interim or annual consolidated financial statements.

Financial information for our subsidiaries in Brazil is included in our consolidated financial statements on a one-month lag because their fiscal years end on July 31 of each year.

Cash and Cash Equivalents

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Fair Value Measurements

We measure and report certain financial assets and liabilities at fair value on a recurring basis.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.

We measure and report certain financial assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.

GAAP has established a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

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Our primary functional currency is the U.S.

Gains and losses from the remeasurement of non-functional currency balances are recorded in non-operating (income) expense.

The functional currency of our subsidiaries in Brazil is the Brazilian real.

Gains and losses from the remeasurement of non-functional currency balances are recorded in other non-operating (income) expense.

The functional currency of our subsidiaries in Brazil is the

Brazilian real.

Assets and liabilities of our Brazil subsidiaries are translated into U.S.

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Incentives related to specific operating activities are recorded against the related expense in the period the expense is incurred.

Government incentives received prior to being earned are included in other current liabilities, whereas government incentives earned prior to being received are included in other current assets.

Government incentives received prior to being earned are included in other current liabilities, whereas government incentives earned prior to being received are included in other current or noncurrent assets.

Cash received from government incentives related to operating expenses is included as an operating activity in the consolidated statement of cash flows.

6 unchanged sentences

Intangible Assets

Intangible assets are stated at cost and amortized on a straight-line basis over their estimated useful lives of generally four to eight years for technology, four to eight years for customer relationships, five to seven years for trademarks/tradenames and less than one year for order backlog.

Intangible assets are stated at cost and amortized on a straight-line basis over their estimated useful lives of generally four to eight years for technology, four to eight years for customer relationships and five to seven years for trademarks/trade names.

Intangible assets are retired in the period they become fully amortized.

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We have operating leases through which we acquire or utilize facilities, offices and equipment in our manufacturing operations, research and development activities and selling, general and administrative functions.

In determining the lease term, we assess whether it is reasonably certain we will exercise options to renew or terminate a lease, and when or whether we would exercise an option to purchase the right-of-use asset.

In determining the lease

term, we assess whether it is reasonably certain we will exercise options to renew or terminate a lease, and when or whether we would exercise an option to purchase the right-of-use asset.

Measuring the present value of the initial lease liability requires exercising judgment to determine the discount rate, which we base on interest rates for similar borrowings issued by entities with credit ratings similar to ours.

2 unchanged sentences

For operating leases of buildings, we account for non-lease components, such as common area maintenance, as a component of the lease and include the components in the initial measurement of our right-of-use assets and corresponding liabilities.

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

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

Property and Equipment

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Supply chain services includes procurement, logistics, inventory management, temporary warehousing, kitting and packaging.

Professional services include solution design, system installation, software automation and managed support services related to high performance computing (“HPC”) and storage systems.

Professional services include solution design, system installation, software automation and managed support services

related to high performance computing (“HPC”) and storage systems.

A portion of our product sales include extended warranty and on-site services, subscriptions to our HPC environment, professional services, software and related support.

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We allocate the consideration to each performance obligation based on the relative selling price, determined as the best estimate of the price at which we would transact if it sold the deliverable regularly on a stand-alone basis.

Contract C osts :

Contract Costs :

As a practical expedient, we recognize the incremental costs of obtaining a contract, specifically commission expenses that have an amortization period of less than twelve months , as an expense when incurred.

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Actual results could differ from the estimates made by management.

Subsequent Events

Acquisition of Stratus Technologies

On August 29, 2022, SGH completed its previously announced acquisition of all of the outstanding shares of Storm Private Holdings I Ltd., a Cayman Islands exempted company (“Stratus Holding Company” and together with its subsidiaries, “Stratus Technologies”), pursuant to a Share Purchase Agreement (the “Purchase Agreement”), dated as of June 28, 2022.

At the closing of the transaction, SGH paid to the seller a cash purchase price of $ 225 million, subject to certain adjustments.

In addition, the seller has the right to receive, and SGH will be obligated to pay, contingent consideration (if

any) of up to $ 50 million (the “Earnout”) based on the gross profit performance of the Stratus business during the first full 12 fiscal months of Stratus following the closing.

The Earnout, if any, will be payable in cash, ordinary shares of SGH or a mix of cash and SGH Shares, at SGH’s election.

Stratus is a global leader in simplified, protected, and autonomous computing platforms and services in the data center and at the Edge.

For more than 40 years, Stratus has provided high-availability, fault-tolerant computing to Fortune 500 companies and small-to-medium sized businesses enabling them to securely and remotely run critical applications with minimal downtime.

First Supplemental Indenture to Indenture Governing 2.25% Convertible Senior Notes Due 2026

On August 26, 2022, SGH entered into the First Supplemental Indenture (the “First Supplemental Indenture”) to the Indenture, dated February 11, 2020 (the “Indenture”), between SGH and U.S.

Bank National Association, as trustee, governing SGH’s outstanding 2.25 % Convertible Senior Notes due 2026 (the “2026 Notes”).

The First Supplemental Indenture became effective on August 27, 2022.

Pursuant to the First Supplemental Indenture, SGH irrevocably elected (i) to eliminate SGH’s option to elect Physical Settlement (as defined in the Indenture) on any conversion of 2026 Notes that occurs on or after the date of the First Supplemental Indenture and (ii) that, with respect to any Combination Settlement (as defined in the Indenture) for a conversion of the 2026 Notes, the Specified Dollar Amount (as defined in the Indenture) that will be settled in cash per $ 1,000 principal amount of the 2026 Notes shall be no lower than $ 1,000 .

As a result of our election, upon any conversion of our 2026 Notes, we will be required to pay cash in an amount at least equal to the principal portion while continuing to have the option to settle any amount in excess of the principal portion in cash and/or ordinary shares.

Following the election, only the amounts expected to be settled in excess of the principal portion are considered dilutive in calculating earnings per share under the if-converted method.

Amended Credit Facility

On August 29, 2022, SGH and SMART Modular Technologies, Inc.

entered into an incremental amendment to the Credit Agreement (the “Incremental Amendment,” and together with the Credit Agreement, the “Amended Credit Agreement”).

The Incremental Amendment (i) provides for incremental term loans in an aggregate amount of $ 300 million (the “Incremental 2027 TLA”), which Incremental 2027 TLA is on the same terms as the 2027 TLA , (ii) increases the maximum First Lien Leverage Ratio (as defined in the Amended Credit Agreement) financial covenant from 3.00 :1.00 to 3.25 :1.00 and (iii) increases the aggregate amount of unrestricted cash and permitted investments netted from the definitions of Consolidated First Lien Debt and Consolidated Net Debt under the Amended Credit Agreement from $ 100 million to $ 125 million.

The 2027 TLA, the Incremental 2027 TLA and the 2027 Revolver are referred to together as the “Amended Credit Facility.” The Amended Credit Facility matures on February 7, 2027.

Prepayment of Earnout Note

On August 29, 2022, substantially simultaneously with entering into the Incremental Amendment, we repaid in full the $ 101.8 million outstanding under the Earnout Note.

See “Business Acquisition – LED Business – Contingent Consideration.”

Share Dividend

On January 3, 2022, our Board of Directors declared a share dividend of one ordinary share, $ 0.03 par value per share, for every one outstanding ordinary share owned to shareholders of record as of January 25, 2022.

The dividend was paid on February 1, 2022.

The accompanying consolidated financial statements and notes have been restated and adjusted for the impact of the share dividend.

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13 – Measurement of Credit Losses on Financial Instruments , which requires a financial asset (or a group of financial assets) measured on the basis of amortized cost to be presented at the net amount expected to be collected.

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08 – Business Combinations:

Accounting for Contract Asset and Contract Liabilities from Contracts with Customers , to require that an acquirer recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers .

We adopted ASU 2021-08 in the third quarter of 2022 and the adoption had no impact on our financial statements.

In December 2019, the FASB issued ASU 2019-12 – Income Taxes:

Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of, and simplify GAAP for, other areas of Topic 740 by clarifying and amending existing guidance.

We adopted ASU 2019-12 in the first quarter of 2022 on a prospective basis.

The adoption of this ASU did not have a significant impact on our financial statements.

In June 2016, the FASB issued ASU 2016-13 – Financial Instruments – Credit Losses:

Measurement of Credit Losses on Financial Instruments , which requires a financial asset (or a group of financial assets) measured on the basis of amortized cost to be presented at the net amount expected to be collected.

This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the increases or decreases of expected credit losses that have taken place during the period.

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The adoption of this ASU did not have a significant impact on our financial statements .

In February 2016, the Financial Accounting Standards Board issued ASU 2016-02 – Leases (“ASC 842”), which amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding lease liability, measured at the present value of lease payments.

We adopted this ASU in the first quarter of 2020 under the modified retrospective method and elected to not recast prior periods.

We elected the practical expedients available under the transition guidance, including but not limited to, not reassessing past lease accounting or using hindsight to evaluate lease term.

In addition, we elected to not separate lease and non-lease components for leases.

In connection with our adoption of ASC 842, we recognized $ 24.3 million for operating lease right-of-use assets and $ 25.0 million for operating lease liabilities.

The difference between the operating lease right-of-use assets and operating lease liabilities primarily related to deferred rent.

Recently Issued Accounting Standards

In August 2020, the FASB issued ASU 2020-06 – Debt – Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in Entity’s Own Equity , which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract.

In August 2020, the FASB issued ASU 2020-06 – Debt – Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in Entity’s Own Equity:

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract.

This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives.

This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments.

This ASU is effective for us in the first quarter of 2023, with early adoption permitted beginning in the first quarter of 2022, and permits the use of either the modified retrospective or fully retrospective method of transition.

We are evaluating the timing and effects of adoption of this ASU on our financial statements.

In December 2019, the FASB issued ASU 2019-12 – Income Taxes – Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

ASU 2019-12 is effective for us in the first quarter of 2022.

We expect to adopt this ASU on a prospective basis and do not expect the adoption to have a significant impact on our financial statements.

Business Acquisitions

On March 1, 2021, pursuant to the previously announced Asset Purchase Agreement dated October 18, 2020 , as amended by the Amendment to Asset Purchase Agreement dated March 1, 2021 (as amended, the “CreeLED Purchase Agreement”), (i) we acquired the LED business of Cree, Inc.

(“Cree”), including (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 51 % ownership interest in Cree Venture LED Company Limited (“Cree Joint Venture”), Cree’s joint venture with San’an Optoelectronics Co., Ltd.

This ASU is effective for us in the first quarter of 2023 and permits the use of either the modified retrospective or fully retrospective method of transition.

We adopted ASU 2020-06 in the first quarter of 2023 under the modified retrospective method.

Upon adoption of ASU 2020-06, the previously separated equity component and associated issuance costs for our outstanding 2026 Notes were reclassified from additional capital to long-term debt, thereby eliminating future amortization of the debt discount as interest expense.

Amortization of the debt discount as interest expense was $ 8.1 million, $ 7.5 million and $ 3.9 million in 2022, 2021 and 2020, respectively.

The following table summarizes the effects of adopting ASU 2020-06:

Ending Balance as of Beginning Balance as of

2022 Adoption of ASU 2020-06 August 27,

Long-term debt $ 591,389 $ 32,183 $ 623,572

Additional paid-in-capital 448,112 ( 50,822 ) 397,290

Retained earnings 251,344 18,639 269,983

On August 26, 2022, we made an irrevocable election, effective August 27, 2022, under the indenture to require the principal portion of our 2026 Notes to be settled in cash and any conversion consideration in excess of the principal portion in cash and/or ordinary shares at our option upon conversion.

Following the irrevocable election, only the amounts expected to be settled in excess of the principal portion are considered dilutive in calculating earnings per share under the if-converted method.

See “Subsequent Events – First Supplemental Indenture to Indenture Governing 2.25 % Convertible Senior Notes Due 2026.”

Business Acquisition

On March 1, 2021, pursuant to the previously announced Asset Purchase Agreement, dated October 18, 2020, as amended by the Amendment to Asset Purchase Agreement, dated March 1, 2021 (as amended, the “CreeLED Purchase Agreement”), (i) we acquired the LED business of Cree, Inc., a corporation now known as Wolfspeed, Inc.

(c) Cree’s 51.0 % ownership interest in Cree Venture LED Company Limited (“Cree Joint Venture”), Cree’s joint venture with San’an Optoelectronics Co., Ltd.

(“San’an”) and (ii) we assumed certain liabilities related to the LED business (collectively, (i) and (ii), the “LED Business”).

In connection with the transaction, Cree retained certain assets used in and pre-closing liabilities associated with its LED products segment.

In connection with this transaction, Cree and the Company 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.

Under the acquisition method of accounting, the assets acquired and liabilities assumed of the LED Business were recorded as of the acquisition date at their respective fair values.

The LED Business’s results of operations are included in the consolidated financial statements from the date of acquisition.

The acquisition of the LED Business, a global industry leader, further enhances our growth and diversification strategy and fits well with our other specialty businesses in computing and memory.

The LED Business comprises a broad portfolio of highly efficient LED chips and high-performance LED components within the industry, including general lighting, specialty lighting, large-format video screens and outdoor and architectural lighting.

The LED Business will operate as our LED Solutions segment.

The LED Business operates as our LED Solutions segment.

Purchase Price :

The purchase price for the LED Business consisted of (i) a payment of $ 50.0 million in cash, subject to customary adjustments, (ii) an unsecured promissory note issued to Cree by the Company in the amount of $ 125.0 million(“LED Purchase Price Note”), (iii) an earn-out payment of up to $ 125.0 million based on the revenue and gross profit performance of the LED Business in Cree’s first four full fiscal quarters following the closing (“Earnout Period”), with a minimum payment of $ 2.5 million, payable in the form of an unsecured promissory note to be issued by us (“Earnout Note”) and (iv) the assumption of certain liabilities.

The LED Purchase Price Note bears interest at LIBOR plus 3.0 % and is due on August 15, 2023 .

The Earnout Note will begin to bear interest upon completion of the Earnout Period at LIBOR plus 3.0 % and is due on March 27, 2025 .

The purchase price was as follows:

The aggregate purchase price was as follows:

Cash $ 50,000

Additional payment for net working capital adjustment (1) 22,398

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Contingent Consideration :

The Earnout Note is accounted for as contingent consideration.

The Earnout Note was accounted for as contingent consideration.

The fair value of the Earnout Note was estimated as of the date of acquisition to be $ 28.1 million and was valued using a Monte Carlo simulation analysis in a risk-neutral framework with assumptions for volatility, market price of risk adjustment, risk-free rate and cost of debt.

The fair value measurement was based on significant inputs not observable in the market.

The Earnout Note is revalued each quarter and changes in valuation are reflected in results of operations.

In the second half of 2021, we recorded charges of $ 32.4 million to adjust the value of the Earnout Note to the fair value as of August 27, 2021.

The change in fair value reflected new information about the probability and timing of meeting the conditions of the revenue and gross profit targets of the LED Business.

As of August 27, 2021, the fair value of the Earnout Note was $ 60.5 million.

We estimated the fair value of the assets and liabilities of the LED Business as of March 1, 2021 , the acquisition date.

The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based on these valuation analyses.

The Earnout Note was revalued each quarter and changes in valuation were reflected in results of operations.

In 2022 and in the second half of 2021, we recorded charges of $ 41.3 million and $ 32.4 million, respectively, to adjust the value of the Earnout Note to its fair value.

The changes in fair value reflected new information about the probability and timing of meeting the conditions of the revenue and gross profit targets of the LED Business.

Based on the revenue and gross profit performance of the LED Business in Cree’s first four full fiscal quarters following the closing, the final calculated value of the contingent consideration was $ 101.8 million and, in the fourth quarter of 2022, we issued the Earnout Note to Cree for this amount.

On August 29, 2022, subsequent to the end of 2022, we repaid in full the amount outstanding under that Earnout Note.

The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on these valuation analyses.

The valuation of the LED Business assets acquired and liabilities assumed, noncontrolling interest in subsidiary and consideration was as follows:

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Accounts receivable 45,608

Inventories 60,423

Other current assets 5,204

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The fair values and useful lives of the intangible asset acquired was as follows:

Trademarks/tradenames

Amount Estimated

Technology $ 49,800 7 - 8

Trademarks/trade names 6,100 5

Customer relationships 5,200 7 - 8

Order backlog

Order backlog 3,400 less than 1

• Technology intangible assets were valued using the multi-period excess earnings method based on the discounted cash flow and technology obsolescence rate.

The discounted cash flow requires the use of significant assumptions, including projected revenue, expenses, capital expenditures and other costs and discount rates calculated based on the cost of equity adjusted for various risks, including the size of the acquiree, industry risk and other risk factors.

Trademarks/tradenames intangible assets were valued using the relief from royalty method, which is the discounted cash flow savings accruing to the owner by virtue of the fact that the owner is not required to license the tradenames/trademarks from a third party.

Key assumptions included attributable revenue expected from the tradenames/trademarks, royalty rates and assumed asset life.

• Trademarks/trade names intangible assets were valued using the relief from royalty method, which is the discounted cash flow savings accruing to the owner by virtue of the fact that the owner is not required to license the trade names/trademarks from a third party.

Key assumptions included attributable revenue expected from the trade names/trademarks, royalty rates and assumed asset life.

• Customer relationships intangible assets were valued using the multi-period excess earnings method, which is the present value of the projected cash flows expected to be generated by the existing intangible asset after reduction by an estimated fair rate of return on contributory assets required to generate the customer relationship revenues.

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The following unaudited pro forma financial information presents our combined results of operations as if the acquisition of the LED Business had occurred on August 31, 2019.

The unaudited pro forma financial information is based on various adjustments and assumptions and is not necessarily indicative of what our results of operations actually would have been had the acquisition been completed as of August 31, 2019 or will be for any future periods.

any future periods.

Furthermore, the pro forma financial information does not include adjustments to reflect any potential revenue, synergies or dis-synergies or cost savings that may be achievable in connection with the acquisition, or the associated costs that may be necessary to achieve such revenues, synergies or cost savings.

The unaudited pro forma financial information for the year ended August 27, 2021 combines our results of operations for the year ended August 27, 2021 (which include the results of the LED Business beginning on the March 1, 2021 acquisition date) and the results of operations of the LED Business for the six months ended December 27, 2020.

The unaudited pro forma financial information for the year ended August 27, 2021 combines our results of operations for the year ended August 27, 2021 (which include the results of the LED Business from the March 1, 2021 acquisition date) and the results of operations of the LED Business for the six months ended December 27, 2020.

The unaudited pro forma financial information for the year ended August 28, 2020 combines our results of operations for the year ended August 28, 2020 and the results of operations of the LED Business for the year ended June 28, 2020.

Year ended August 27,

2021 August 28,

Net sales $ 1,705,366 $ 1,555,689

Net loss attributable to SGH ( 142,319 ) ( 95,926 )

Earnings (loss) per share:

Basic $ ( 2.93 ) $ ( 2.00 )

Diluted $ ( 2.93 ) $ ( 2.00 )

The unaudited pro forma financial information above reflects the following adjustments:

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From March 1, 2021, the acquisition date, to August 27, 2021, revenues for the LED Business were $ 224.6 million and, for the same period, net income for the LED Business was $ 16.3 million, which excludes any expenses recognized to adjust the Earnout Note to its fair value.

In July 2019, we acquired Artesyn Embedded Computing, Inc.

(“Artesyn”), which we subsequently renamed SMART Embedded Computing, Inc.

(“SMART EC”), for $ 77.4 million.

The purchase price consisted of (i) cash paid at closing, subject to customary adjustments and (ii) an earn-out payment of up to $ 10 million based on Artesyn’s achievement of specific gross revenue levels through December 31, 2019 plus additional earn-out payments of $ 0.10 for each dollar of gross revenue through December 31, 2019 over an agreed upon achievement level.

The earn-out was payable, at our option in either cash or ordinary shares of SGH.

No earn-out was achieved by Artesyn.

The operations of SMART EC are part of our Intelligent Platforms Solutions segment.

The purchase price was as follows:

Fair value of contingent consideration

The initial fair value of the contingent consideration was estimated using a real options technique which incorporated 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 was due.

Under the acquisition method of accounting, the assets acquired and liabilities assumed were recorded as of the acquisition date at their respective fair values.

Assets acquired and liabilities assumed were as follows:

Tangible assets acquired

Intangible assets

Liabilities assumed

Total net assets acquired

The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents goodwill resulting from the acquisition.

The goodwill is not deductible for tax purposes.

The estimated fair values and useful lives of the intangible assets acquired included customer relationship assets with a fair value of $ 31.8 million and estimated useful lives of 4 - 6 years and technology assets with a fair value of $ 10.1 million and estimated useful lives of 4 years.

In 2020 and 2019, we incurred costs related to the acquisition of $ 0.6 million and $ 1.0 million, respectively, which were are included in selling, general and administrative expense.

SMART EC’s results of operations are included in the condensed consolidated financial statements from the date of acquisition.

SMART Wireless

In July 2019, we acquired Inforce Computing, Inc.

(“Inforce”), which we subsequently renamed SMART Wireless Computing, Inc.

(“SMART Wireless”), for $ 14.6 million.

The purchase price consisted of (i) a payment of $ 3.2 million in cash paid at closing, subject to customary adjustments, (ii) 382,788 ordinary shares of SGH valued at $ 9.2 million and (iii) amounts retained by us as security for the sellers’ indemnification obligations as well as any post-closing adjustments to the purchase price consisting of $ 0.7 million in cash and 67,550 ordinary shares of SGH valued at $ 1.6 million.

In 2020, we paid $ 0.4 million of the retained cash and issued all the retained shares.

The operations of SMART Wireless are part of our Intelligent Platforms Solutions segment.

The purchase price was as follows:

Fair value of shares issued at closing

Cash initially retained and paid in 2020

Fair value of shares initially retained and issued in 2020

Cash paid for post-closing adjustments

Under the acquisition method of accounting, the assets acquired and liabilities assumed were recorded as of the acquisition date at their respective fair values.

Assets acquired and liabilities assumed were as follows:

Tangible assets acquired

Intangible assets

Liabilities assumed

Total net assets acquired

The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents goodwill resulting from the acquisition.

The goodwill is not deductible for tax purposes.

The estimated fair values and useful lives of the intangible assets acquired included customer relationship assets with a fair value of $ 5.8 million and estimated useful lives of 5 years and technology assets with a fair value of $ 0.9 million and estimated useful lives of 5 years.

In 2020 and 2019, we incurred costs related to the acquisition of $ 0.2 million and $ 0.5 million, respectively, which were are included in selling, general and administrative expense.

SMART Wireless’ results of operations are included in the consolidated financial statements from the date of acquisition.

At the time of the acquisition, Inforce’s selling shareholders included our CEO and two members of our Board of Directors.

In connection with the acquisition, these individuals received an aggregate of 397,407 ordinary shares of SGH valued at $ 9.5 million, consisting of 337,692 shares issued upon closing and the balance issuable upon satisfaction of certain post-closing criteria.

The remaining shares were issued in the fourth quarter of 2020.

As of August 26,

2022 August 27,

Raw materials $ 150,913 $ 163,610

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Finished goods 133,547 107,090

As of August 27, 2021 and August 28, 2020, 11 % and 17 %, respectively, of total inventories were inventories owned and held under our supply chain services.

$ 323,084 $ 363,601

As of August 26, 2022 and August 27, 2021, 6 % and 11 %, respectively, of total inventories were inventories owned and held under our logistics services.

Property and Equipment

As of August 26,

2022 August 27,

Equipment $ 204,805 $ 182,493

Buildings and building improvements 59,047 53,502

Furniture, fixtures and software 38,715 32,114

Land 16,126 16,126

318,693 284,235

Accumulated depreciation ( 164,758 ) ( 127,969 )

$ 153,935 $ 156,266

Depreciation expense for property and equipment was $ 41.1 million, $ 28.9 million and $ 22.8 million in 2022, 2021 and 2020, respectively.

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Intangible assets:

Technology $ 61,594 $ ( 18,473 ) $ 61,307 $ ( 9,142 )

Customer relationships 57,500 ( 32,238 ) 57,500 ( 22,393 )

Trademarks/tradenames

Trademarks/trade names 19,200 ( 9,771 ) 19,200 ( 6,628 )

Order backlog — — 3,800 ( 2,571 )

$ 138,294 $ ( 60,482 ) $ 141,807 $ ( 40,734 )

Goodwill by segment:

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Memory Solutions 33,608 33,854

In 2021 and 2019, we capitalized $ 65.7 million and $ 48.6 million, respectively, for intangible assets, primarily acquired in connection with business acquisitions, with weighted-average useful lives of 6.7 years and 4.8 years, respectively.

$ 74,009 $ 74,255

In 2022, and 2021, we capitalized $ 1.4 million and $ 65.7 million, respectively, for intangible assets, with weighted-average useful lives of 17.8 years and 6.7 years, respectively.

Amortization expense for intangible assets was $ 23.8 million, $ 20.3 million and $ 13.7 million in 2022, 2021 and 2020, respectively.

Amortization expense is expected to be $ 23.9 million for 2022, $ 21.9 million for 2023, $ 18.1 million for 2024, $ 15.3 million for 2025 and $ 8.3 million for 2026 and $ 13.6 million thereafter.

Goodwill of our Memory Solutions segment increased in 2021 by $ 0.3 million from translation adjustments.

Goodwill of our Memory Solutions segment decreased in 2020 by $ 7.2 million from translation adjustments and, for our Intelligent Platforms Solutions, by $ 0.3 million from adjustments to the purchase price allocation of business acquisitions.

Amortization expense is expected to be $ 21.8 million for 2023, $ 17.8 million for 2024, $ 15.3 million for 2025, $ 8.5 million for 2026, $ 7.7 million for 2027 and $ 6.6 million thereafter.

Goodwill of our Memory Solutions segment decreased in 2022 by $ 0.2 million and increased in 2021 by $ 0.3 million from translation adjustments.

Accounts Payable and Accrued Expenses

As of August 26,

2022 August 27,

Accounts payable (1)

$ 345,063 $ 429,640

Salaries, wages and benefits 45,189 37,795

Income and other taxes 17,961 14,319

Other 5,141 2,353

$ 413,354 $ 484,107

(1) Includes accounts payable for property and equipment of $ 3.5 million and $ 3.1 million as of August 26, 2022 and August 27, 2021, respectively.

As of August 26,

2022 August 27,

2027 TLA $ 269,304 $ —

Convertible Senior Notes 213,023 203,992

LED Earnout Note 101,824 —

LED Purchase Price Note — 125,000

ABL Credit Agreement — 25,000

Other 19,263 11,846

603,414 365,838

Less current debt ( 12,025 ) ( 25,354 )

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In July 2017, the Financial Conduct Authority (which regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR in derivatives and other financial contracts.

On March 5, 2021, the Financial Conduct Authority confirmed a partial extension of this deadline announcing that it will cease the publication of the one-week and two-month USD LIBOR settings immediately following December 31, 2021.

As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the SOFR as its preferred alternative to LIBOR in derivatives and other financial contracts.

As of January 1, 2022, the Financial Conduct Authority ceased the publication of the one-week and two-month USD LIBOR settings.

The remaining U.S.

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For each of our debt instruments that provide for interest based on LIBOR, the SOFR, as published by the Federal Reserve Bank of New York, is listed as the alternative index to replace LIBOR if a different alternative index is not agreed to prior such cessation of the LIBOR rate.

Credit Facility

On February 7, 2022, SGH and SMART Modular Technologies, Inc.

entered into a credit agreement (the “Credit Agreement”) with a syndicate of banks that provides for (i) a term loan credit facility in an aggregate principal amount of $ 275.0 million (the “2027 TLA”) and (ii) a revolving credit facility in an aggregate principal amount of $ 250.0 million (the “2027 Revolver,” and together with the 2027 TLA, the “Credit Facility”), in each case, maturing on February 7, 2027 (subject to certain earlier “springing maturity” dates upon certain conditions specified in the Credit Agreement).

The Credit Agreement provides that up to $ 35.0 million of the 2027 Revolver is available for issuances of letters of credit.

Issuance costs incurred in connection with the Credit Facility were $ 9.1 million and were allocated to the 2027 TLA and 2027 Revolver on a pro rata basis.

Unamortized issuances costs allocated to the 2027 TLA are amortized using the effective interest method and are included as a reduction of the principal amount of the 2027 TLA within debt.

Unamortized issuances costs allocated to the 2027 Revolver are amortized using the straight-line method and are included in other current and noncurrent assets.

Principal payments under the 2027 TLA are due quarterly equal to 2.5 % per annum of the initial aggregate principal amount for the first four quarters beginning in May 2022, with such per annum percentage equal to 5.0 %, 5.0 %, 5.0 % and 7.5 % per annum in years two through five, respectively, with the balance due at maturity.

Interest and fees :

Loans under the Credit Agreement bear interest at a rate per annum equal to either, at our option, a term SOFR or a base rate, in each case plus an applicable margin.

The applicable margin for 2027 TLA is 2.00 % per annum with respect to term SOFR borrowings, and 1.00 % per annum with respect to base rate borrowings.

As of August 26, 2022, the interest rate applicable to the principal amount outstanding under the 2027 TLA was 3.55 % per annum.

As of August 26, 2022, there was $ 273.3 million of 2027 TLA

principal amount outstanding and unamortized issuance costs were $ 4.0 million and, as of August 26, 2022, the 2027 TLA had an effective interest rate of 3.99 %.

2027 Revolver :

The applicable margin for revolving loans varies based on our Total Leverage Ratio (as defined in the Credit Agreement) and ranges from 1.25 % to 3.00 % per annum with respect to term SOFR borrowings and from 0.25 % to 2.00 % per annum with respect to base rate borrowings.

In addition, we are required to pay a quarterly unused commitment fee at an initial rate of 0.25 %, which may increase up to a rate of 0.35 % based on certain Total Leverage Ratio levels specified in the Credit Agreement.

As of August 26, 2022, there were no amounts outstanding under the 2027 Revolver and unamortized issuance costs were $ 4.1 million.

The Credit Agreement is jointly and severally guaranteed on a senior basis by certain subsidiaries of SGH organized in the United States and Cayman Islands.

In addition, the Credit Agreement is secured by a pledge of the capital stock of, or equity interests in, certain subsidiaries of SGH organized in the United States and the Cayman Islands and by substantially all of the assets of certain subsidiaries of SGH organized in the United States and the Cayman Islands.

The Credit Agreement contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of our subsidiaries to:

incur additional indebtedness;

create liens on assets;

engage in mergers or consolidations;

pay dividends;

make distributions or repurchase capital stock;

make investments, loans or advances;

repay or repurchase certain subordinated debt (except as scheduled or at maturity);

create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries;

make certain acquisitions;

engage in certain transactions with affiliates;

amend material agreements governing our subordinated debt and fundamentally change our business.

The Credit Agreement also includes the following financial maintenance covenants tested on the final day of each fiscal quarter:

a First Lien Leverage Ratio (as defined in the Credit Agreement) of 3.00 to 1.00;

a Total Leverage Ratio of 5.00 to 1.00;

provided, that commencing after the eighth full fiscal quarter after the Effective Date, such Total Leverage Ratio level will instead be 4.50 to 1.00;

provided further, that commencing after the eighth full fiscal quarter after the Effective Date, in connection with any Material Acquisition (as defined in the Credit Agreement), at the election of the Borrowers, the maximum Total Leverage Ratio for the next four testing periods after such Material Acquisition has been consummated will be automatically increased by 0.50 to 1.00 above the otherwise permitted Total Leverage Ratio for the applicable fiscal quarter (not to exceed 5.00 to 1.00 in any event);

provided further, that (x) no more than two such elections may be made during the term of the Credit Agreement and (y) following the first such election, no subsequent election may be made unless the Total Leverage Ratio has been less than or equal to 5.00 to 1.00 as of the last day of at least two consecutive Test Periods (as defined in the Credit Agreement) following the expiration of the first increase;

an Interest Coverage Ratio (as defined in the Credit Agreement) of 3.00 to 1.00.

For purposes of calculating the First Lien Leverage Ratio and the Total Leverage Ratio, the consolidated debt of the Company and its Restricted Subsidiaries (as defined in the Credit Agreement) is reduced by up to $ 100 million of the aggregate amount of unrestricted cash and Permitted Investments (as defined in the Credit Agreement) of the Company and its Restricted Subsidiaries.

Substantially simultaneously with entering into the Credit Agreement, we used a portion of the proceeds of the Credit Facility to pay in full all borrowings and terminated all commitments under (i) our ABL Credit Agreement, dated as of December 23, 2020, (ii) our Amended Credit Agreement, dated as of March 6, 2020 and (iii) the LED Purchase Price Note, dated as of March 1, 2021.

In connection therewith, we used an aggregate of $ 160.4 million to pay principal and interest outstanding under these agreements and recorded charges of $ 0.7 million in other non-operating expense to write off certain unamortized issuance costs.

Convertible Senior Notes

In February 2020, we issued $ 250.0 million in aggregate principal amount of 2.25 % convertible senior notes due 2026 (the “2026 Notes”).

The 2026 Notes are general unsecured obligations, bear interest at an annual rate of 2.25 % per year, payable semi-annually on February 15 and August 15, and mature on February 15, 2026 , unless earlier converted, redeemed or repurchased.

redeemed or repurchased.

The 2026 Notes are governed by an indenture (the “Indenture”) between us and U.S.

Bank National Association, as trustee.

The initial conversion rate of the 2026 Notes is 24.6252 ordinary shares per $ 1,000 principal amount of notes, which represents an initial conversion price of approximately $ 40.61 per ordinary share.

After the effect of the share dividend paid in the second quarter of 2022, the conversion rate of the 2026 Notes is 49.2504 ordinary shares per $ 1,000 principal amount of notes, which represents a conversion price of approximately $ 20.30 per ordinary share.

The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the Indenture.

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Upon conversion, we will pay or deliver, as applicable, cash, ordinary shares or a combination of cash and ordinary shares at our election.

Our intent is to settle in cash the principal amount of our convertible notes upon conversion and may, at our option, settle any excess of the conversion value over the principal amount in cash, ordinary shares or any combination thereof.

Through 2022, it was our intent to settle the principal amount of the 2026 Notes in cash upon any conversion.

As a result, only the amounts payable in excess of the principal amounts upon conversion of the 2026 Notes are considered in diluted earnings per share under the treasury stock method.

Following the irrevocable election, only the amounts expected to be settled in excess of the principal portion are considered dilutive in calculating earnings per share under the if-converted method.

See “Subsequent Events – First Supplemental Indenture to Indenture Governing 2.25 % Convertible Senior Notes Due 2026.”

Upon the occurrence of a “make-whole fundamental change” (as defined in the Indenture), we will in certain circumstances increase the conversion rate for a specified period of time.

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Transaction costs attributable to the equity component were $ 1.7 million and are netted with the equity component in additional paid-in-capital.

Interest expense for the 2026 Notes consisted of 2.25% contractual stated interest of $ 5.6 million and $ 3.1 million in 2021 and 2020, respectively, and amortization of discount and issuance costs of $ 8.4 million and $ 4.4 million in 2021 and 2020, respectively, resulting in an effective interest rate of 7.06 %.

Unamortized debt discount and issuance costs are amortized over the term of the 2026 Notes using the effective interest rate method.

As of August 26, 2022 and August 27, 2021, the effective interest rate was 7.06 %.

Interest expense for the 2026 Notes consisted of 2.25 % contractual stated interest and amortization of discount and issuance costs and included of the following:

Year ended August 26,

2022 August 27,

2021 August 28,

Contractual stated interest $ 5,609 $ 5,609 $ 3,078

Amortization of discount and issuance costs 9,031 8,419 4,385

$ 14,640 $ 14,028 $ 7,463

As of both August 26, 2022 and August 27, 2021, the carrying amount of the equity components of the 2026 Notes, which are included in additional paid-in-capital, was $ 50.8 million.

As of the beginning of the first quarter of 2023, we adopted ASU 2020-06.

In connection therewith, we reclassified $ 50.8 million from additional paid-in-capital to long-term debt.

See “Recently Issued Accounting Standards.”

LED Earnout Note

Part of our consideration for the acquisition of the LED Business in March 2021 was the possibility of 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, with a minimum payment of $ 2.5 million.

In the third quarter of 2022, we issued an unsecured promissory note to Cree for this earnout in the amount of $ 101.8 million.

The Earnout Note bore interest at LIBOR plus 3.0 %, payable quarterly, and was scheduled to mature on March 27, 2025.

On August 29, 2022, subsequent to the end of our fiscal year 2022, we repaid in full the amount outstanding under that Earnout Note.

LED Purchase Price Note

In connection with the acquisition of the LED Business in March 2021, we issued an unsecured promissory note to Cree in the amount of $ 125 million.

The LED Purchase Price Note bears interest at LIBOR plus 3.0 %, payable quarterly, and is due on August 15, 2023.

The LED Purchase Price Note requires that we maintain a secured leverage ratio not in excess of 3.50 :1.00 as of the end of each fiscal quarter.

See “Business Acquisitions – LED Business.”

The LED Purchase Price Note bore interest at LIBOR plus 3.0 %, payable quarterly, and was due on August 15, 2023.

In the second quarter of 2022, we repaid in full the LED Purchase Price Note.

Asset-Based Lending Credit Agreement

In December 2020, our subsidiaries, SMART Modular, SMART EC and Penguin Computing, Inc.

(collectively the “ABL Borrowers”), and certain other U.S.

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

subsidiaries, together with the ABL Borrowers, collectively the “ABL Loan Parties”) entered into a Loan, Guaranty and Security Agreement (the “ABL Credit Agreement”), which provides for a senior secured asset-based revolving credit facility in an aggregate principal amount of up to $ 100 million.

Under the ABL Credit Agreement, we have the option to increase the total amount available to $ 150 million, subject to certain conditions, including obtaining commitments from one or more lenders.

The ABL Credit Agreement, which expires on December 23, 2023 , provides that up to $ 30 million of revolving credit facility is available for issuances of letters of credit, and allows for swingline loans in an amount not to exceed $ 15 million.

There are no requirements to make any scheduled amortization payments of drawn amounts.

Borrowings under the ABL Credit Agreement are available based upon monthly (or, in certain cases, weekly) borrowing base certifications valuing eligible inventory and eligible accounts receivable, as reduced by certain reserves in effect from time to time.

Interest and Fees :

The ABL Credit Agreement bears interest at a rate per annum equal to either, at the ABL Borrowers’ option, a LIBOR rate or a base rate, in each case plus an applicable margin.

The applicable margin is (i) 1.75 % per annum with respect to LIBOR borrowings, and 0.75 % per annum with respect to base rate borrowings when average daily Availability, as defined in the ABL Credit Agreement, is equal to or greater than $ 50 million, (ii) 2.00 % per annum with respect to LIBOR borrowings, and 1.00 % per annum with respect to base rate borrowings when average daily Availability is less than $ 50 million and greater than or equal to $ 35 million and (iii) 2.25 % per annum with respect to LIBOR borrowings, and 1.25 % per annum with respect to base rate borrowings when average daily Availability is less than $ 35 million.

We are subject to a monthly unused facility fee (i) 0.35 %, if average daily Revolver Usage (as defined in the ABL Credit Agreement) was less than 50 % of the Commitments (as defined in the ABL Credit Agreement) during the preceding calendar month, or (ii) 0.25 %, if average daily Revolver Usage was equal to or greater than 50 % of the Commitments during such month.

The ABL Credit Agreement contains customary affirmative and negative covenants and restrictions typical for a financing of this nature that, among other things, restrict the ABL Loan Parties’ ability to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, enter into certain transactions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates and transfer and sell material assets and merge or consolidate.

In the event that certain minimum availability thresholds are not met on the last day of any period of four fiscal quarters, the ABL Borrowers will be required to maintain (i) a minimum Borrower Fixed Charge Coverage Ratio (as defined in the ABL Credit Agreement) of not less than 1.0 to 1.0 and (ii) a minimum Global Fixed Charge Coverage Ratio (as defined in the ABL Credit Agreement) of not less than 1.0 to 1.0, in each case, as of such last day of any period of four fiscal quarters.

Subject to the Intercreditor Agreement (as defined below), non-compliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the ABL Credit Agreement becoming immediately due and payable and termination of the commitments available thereunder.

The ABL Credit Agreement is jointly and severally guaranteed on a senior basis by the ABL Loan Parties.

In addition, the ABL Credit Agreement is secured by a pledge of the capital stock of, or equity interests in, the ABL Loan Parties and by substantially all of the assets of the ABL Loan Parties subject to customary exceptions.

In connection with the ABL Credit Agreement, the ABL Loan Parties entered into a customary intercreditor agreement (the “Intercreditor Agreement”) which governs how the collateral securing the respective obligations under the ABL Credit Agreement and the Amended Credit Agreement will be treated among the secured parties.

Pursuant to the ABL Credit Agreement and Intercreditor Agreement, the obligations under the ABL Credit Agreement are secured by ( i ) a first-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 ( ii ) a second-priority security interest, subject to certain customary exceptions, in substantially all other present and future tangible and intangible assets held by the ABL Loan Parties and proceeds of the foregoing;

and the obligations under the Amended Credit Agreement are secured by ( i ) 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 ( ii ) 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.

Amended Credit Agreement

In March 2020, three of our subsidiaries, SMART Worldwide Holdings, Inc.

(“SMART Worldwide”);

SMART Modular Technologies (Global), Inc.

(“SMART Global”);

and SMART Modular Technologies, Inc.

(“SMART Modular”) (collectively, “Borrowers”) entered into a third amended and restated credit agreement (“Amended Credit Agreement”), which provides for $ 50 million of revolving loans with a maturity date of March 6, 2025 .

Amounts outstanding under the Amended Credit Agreement bear interest at a rate of:

When the First Lien Leverage Ratio, as defined in the Amended Credit Agreement, is greater than 2.25 to 1.00:

3.75 % per annum with respect to LIBOR borrowings and

2.75 % per annum with respect to base rate borrowings

When the First Lien Leverage Ratio is less than or equal to 2.25 to 1.00:

3.50 % per annum with respect to LIBOR borrowings and

2.50 % per annum with respect to base rate borrowings.

The Amended Credit Agreement contains various representations and warranties and affirmative and negative covenants that are usual and customary for loans of this nature including, among other things, limitations on the Credit Group’s ability to incur debt and liens, issue preferred equity, engage in certain transactions, make investments, dispose of assets, pay dividends and engage in certain transactions with affiliates.

The Amended Credit Agreement also requires the financial maintenance covenant included therein to be set at a First Lien Leverage Ratio of 3.50 to 1.00 and to be applicable only if drawn revolving loans (plus issued letters of credit in excess of $ 10 million) outstanding as of the last day of any quarter exceed 30 % of the aggregate revolving commitments available under the Amended Credit Agreement.

The Amended Credit Agreement is jointly and severally guaranteed on a senior basis by certain subsidiaries of Global (excluding, among other subsidiaries, SMART Modular Technologies Sdn.

(“SMART Malaysia”)).

In addition, the Amended Credit Agreement is secured by a pledge of the capital stock of, or equity interests in, most of the subsidiaries of SMART Worldwide (including, without limitation, SMART Malaysia, Penguin Computing;

SMART EC and SMART Wireless) and by substantially all of the assets of the subsidiaries of SMART Worldwide, excluding the assets of SMART Malaysia and certain other subsidiaries.

In the second quarter of 2022, we used a portion of the proceeds of the Credit Facility to pay in full all borrowings and terminated all commitments under our ABL Credit Agreement, dated as of December 23, 2020.

Through one of our Brazil subsidiaries, we are party to a credit facility with the Funding Authority for Studies and Projects (“FINEP”), an organization of the Brazilian federal government under the Ministry of Science, Technology and Innovation devoted to funding science and technology in Brazil.

5 unchanged sentences

Amounts borrowed under the agreement are due in monthly installments of principal and interest beginning in June 2022, with the final payment due in December 2027.

On December 30, 2020, we borrowed R$ 60.7 million (or $ 11.9 million) under the agreement and, as of August 27, 2021, the outstanding balance was $ 11.8 million.

On December 30, 2020 and July 19, 2022, we borrowed R$ 61.3 million (or $ 11.8 million) and R$ 40.9 million (or $ 7.9 million), respectively, under the agreement and, as of August 26, 2022, the outstanding balance was $ 19.3 million.

Maturities of Debt

As of August 26, 2022, maturities of debt were as follows:

2023 $ 12,150

2028 and thereafter 1,482

Less unamortized discount and issuance costs ( 40,955 )

Maturities in the table above exclude amounts drawn under our ABL Credit Agreement, which expires in December 2023.

As of August 27, 2021, there was $ 25.0 million included in current debt for amounts drawn under this facility.

As of August 26, 2022 and August 27, 2021, we had operating leases through which we utilize facilities, offices and equipment in our manufacturing operations, research and development activities and selling, general and administrative functions.

Sublease income was not significant in 2021 or 2020.

Operating lease expense in 2019, prior to our adoption of ASC 842, was $ 5.0 million.

Sublease income was not significant in any period presented.

The components of operating lease expense were as follows:

Year ended August 26,

2022 August 27,

2021 August 28,

Fixed lease cost $ 13,511 $ 9,377 $ 6,743

1 unchanged sentence

Short-term lease cost 466 288 295

Cash flows used for operating activities in 2021 and 2020 included payments for operating leases of $ 7.5 million and $ 5.1 million, respectively.

Noncash acquisitions of right-of-use assets were $ 24.5 million and $ 8.8 million in 2021 and 2020, respectively.

$ 15,511 $ 11,110 $ 7,880

Cash flows used for operating activities in 2022, 2021 and 2020 included payments for operating leases of $ 10.0 million, $ 7.5 million and $ 5.1 million, respectively.

Noncash acquisitions of right-of-use assets were $ 47.6 million, $ 24.5 million and $ 8.8 million in 2022, 2021 and 2020, respectively.

As of August 26, 2022 and August 27, 2021, the weighted-average remaining lease term for our operating leases was 10.9 years and 6.1 years, respectively.

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Minimum payments of lease liabilities as of August 26, 2022 were as follows:

2023 $ 11,365

2028 and thereafter 65,868

1 unchanged sentence

Present value of total lease liabilities $ 80,368

The table above excludes lease liabilities for leases that have been executed but not yet commenced.

As of August 27, 2021, we had such lease commitments relating to operating lease payment obligations of $ 51.8 million for a building lease with a term of 16 years.

We will recognize a right-of-use asset and an associated lease liability at the time such asset becomes available for our use .

Such lease is currently expected to commence in the second half of calendar 2022.

Commitments and Contingencies

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SGH Shareholders’ Equity

Ordinary Share Repurchases

In January 2021, we repurchased an aggregate of 1.1 million of our ordinary shares 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.

Share Dividend

The dividend was paid on February 1, 2022.

Share Repurchase Authorization

On April 4, 2022, our Board of Directors approved a $ 75 million share repurchase authorization, under which we may repurchase our outstanding ordinary shares from time to time through open market purchases, privately-negotiated transactions or otherwise.

The share repurchase authorization has no expiration date but may be suspended or terminated by the Board of Directors at any time.

In 2022, we repurchased an aggregate of 2.6 million shares for $ 50.0 million under the repurchase authorization.

As of August 26, 2022, these repurchased shares were held in treasury.

Other Share Repurchases

We repurchased 241 thousand, 153 thousand and 28 thousand ordinary shares as payment of withholding taxes for $ 7.2 million, $ 4.2 million and $ 0.7 million in 2022, 2021 and 2020, respectively.

As of August 26, 2022, these repurchased shares were held in treasury.

In addition, in January 2021, we repurchased an aggregate of 1.1 million ordinary shares for $ 44.3 million 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 an aggregate amount of $ 44.3 million in a privately negotiated transaction.

The repurchased shares were recorded as treasury shares.

Ordinary shares withheld as payment of withholding taxes and exercise prices in connection with the vesting or exercise of equity awards are also treated as ordinary share repurchases.

An aggregate of 153 thousand, 28 thousand and 18 thousand shares were acquired for $ 4.2 million, $ 0.7 million and $ 0.5 million in 2021, 2020 and 2019, respectively.

in a privately negotiated transaction.

The transaction closed on January 15, 2021.

As of August 26, 2022, these repurchased shares were held in treasury.

In connection with the offering of the our 2026 Notes in February 2020, we entered into capped call transactions (“Capped Calls”), at arms-length, which have initial strike prices of approximately $ 20.30 per share, subject to certain adjustments, corresponding to the initial conversion price of the 2026 Notes, and initial cap prices of $ 27.07 per share, which are subject to certain adjustments.

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The Cree Joint Venture has a manufacturing agreement pursuant to which San’an supplies it with mid-power LED products and we and the Cree Joint Venture have a sales agent agreement pursuant to which we are the independent sales representative of the Cree Joint Venture.

The Cree Joint Venture produces and delivers to market high performing, mid-power lighting class LEDs in an exclusive arrangement serving the expanding markets of North and South America, Europe and Japan, and serves China markets and the rest of the world on a non-exclusive basis.

The Cree Joint Venture produces and delivers to market high performing, mid-power lighting class LEDs in an exclusive arrangement serving the markets of North and South America, Europe and Japan, and serves China markets and the rest of the world on a non-exclusive basis.

The 49 % ownership interest held by San’an is classified as noncontrolling interest.

Subsequent to the acquisition of the LED Business, noncontrolling interest increased by an aggregate of $ 1.2 million in 2021 for San’an’s share of net income from the Cree Joint Venture.

Cash and other assets of the Cree Joint Venture are generally not available for use by us in our other operations.

In the second quarter of 2022, the Cree Joint Venture distributed an aggregate of $ 7.7 million to its partners, including $ 3.9 million to SGH and $ 3.8 million to San’an.

Noncontrolling interest increased by $ 2.0 million and $ 1.2 million in 2022 and 2021, respectively, for San’an’s share of net income from the Cree Joint Venture.

Remaining cash and other assets of the Cree Joint Venture are generally not available for use by us in our other operations.

Government Incentives

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Through our Brazil subsidiaries, we participate in two programs (“Brazil Incentive Programs”), pursuant to which the Brazilian government incentivizes the manufacture and sale of certain information technology and consumer electronics products within Brazil.

The programs include 1) Lei da Informática – Processo Produtivo Básico Program (aka Informatics Law – Basic Productive Process Program) (“PPB/IT”) and 2) Programa de Incentivo ao Setor de Semicondutores (aka Program of Incentives for the Semiconductor Sector) (“PADIS”).

The financial credits available through PADIS are currently set to expire in January 2022.

The Brazil Incentive Programs provide for reduced import and other transaction-related taxes for certain procurement, manufacturing and sales activities.

In exchange, we must invest in certain research and development activities related to semiconductors and displays in aggregate amounts that exceed a specified percentage of our gross revenues recognized in connection with sales in Brazil.

The programs include 1) Lei da Informática – Processo Produtivo Básico Program (also known as Informatics Law – Basic Productive Process Program) (“IT Law/PPB”) and 2) Programa de Apoio ao Desenvolvimento Tecnológico da Indústria de Semicondutores (also known as Program of Support of the Development of the Semiconductor Industry) (“PADIS”).

In January 2022, the Brazilian government approved an extension to PADIS.

The financial credits available through PADIS are set to expire in December 2026, while the financial credits through IT Law/PPB are set to expire in December 2029.

The Brazil Incentive Programs provide for reduced import and other transaction-related taxes for certain

procurement, manufacturing and sales activities.

In exchange, we must invest in certain research and development activities related to semiconductors and IT solutions in aggregate amounts that exceed a specified percentage of our gross revenues recognized in connection with sales in Brazil, excluding exports and sales to customers located at the Manaus Free Trade Zone.

Accordingly, financial credits earned in connection with the Brazil Incentive Programs are reflected as a reduction of research and development expense.

Financial credits available under the Brazil Incentive Programs are subject to limitations, which range from approximately 11 % to 14 % of gross revenues recognized for sales in Brazil.

Pursuant to the Brazil Incentive Programs, we recognized aggregate financial credits, reflected as a reduction of research and development expense, of $ 30.0 million and $ 6.4 million in 2021 and 2020, respectively.

Pursuant to the Brazil Incentive Programs, we recognized aggregate financial credits, reflected as a reduction of research and development expense, of $ 17.3 million, $ 30.0 million and $ 6.4 million in 2022, 2021 and 2020, respectively.

Financial credits earned under the Brazil Incentive Programs may be refunded in cash or used to offset liabilities for Brazil federal taxes.

As of August 27, 2021 and August 28, 2020, earned but unused financial credits of $ 19.8 million and $ 6.4 million, respectively, were included in other current assets.

As of August 26, 2022 and August 27, 2021, earned but unused financial credits were $ 18.7 million and $ 19.8 million, respectively.

Financial credits earned but unused as of August 26, 2022 can be utilized through August 2026.

Fair Value Measurements

Cash and cash equivalents as of August 27, 2021 included money market funds of $ 2.7 million which were valued based on Level 1 measurements using quoted prices in active markets for identical assets.

Cash and cash equivalents as of August 26, 2022 and August 27, 2021 included money market funds of $ 13.8 million and $ 2.7 million, respectively, which were valued based on Level 1 measurements using quoted prices in active markets for identical assets.

Fair value measurements of other assets and liabilities were as follows:

As of August 27, 2021

As of August 28, 2020

As of August 26, 2022 As of August 27, 2021

Fair Value Carrying Value Fair Value Carrying Value

Derivative financial instrument assets $ — $ — $ 883 $ 883

Derivative financial instrument liabilities $ 605 $ 605 $ 50 $ 50

2027 TLA 273,281 269,304 — —

Convertible Senior Notes 290,223 213,023 335,668 203,992

LED Earnout Note 96,412 101,824 — —

LED Purchase Price Note — — 125,000 125,000

ABL Credit Agreement — — 25,000 25,000

Debt – other 17,855 19,263 10,702 11,846

Acquisition-related contingent consideration — — 60,500 60,500

The fair values of our derivative financial instruments, as measured on a recurring basis, were based Level 2 measurements, including market-based observable inputs of currency exchange spot and forward rates, interest rates and credit-risk spreads.

The fair values of our derivative financial instruments, as measured on a recurring basis, were based on Level 2 measurements, including market-based observable inputs of currency exchange spot and forward rates, interest rates and credit-risk spreads.

The fair value of our Convertible Senior Notes (excluding the value of the equity component of our convertible notes), as measured on a non-recurring basis, was determined based on Level 2 measurements, including the trading price of the convertible notes.

The fair values of our LED Purchase Price Note, ABL Credit Agreement and other debt, as measured on a non-recurring basis, were estimated based on Level 2 measurements, including discounted cash flows and interest rates based on similar debt issued by parties with credit ratings similar to ours.

Acquisition-related contingent consideration relates to our acquisition of the LED Business and is included in other noncurrent liabilities.

The fair value, as measured on a recurring basis, was based on Level 3 measurements, which includes significant inputs not observable in the market.

The fair values of our 2027 TLA, LED Earnout Note, LED Purchase Price Note, ABL Credit Agreement and other debt, as measured on a non-recurring basis, were estimated based on Level 2 measurements, including discounted cash flows and interest rates based on similar debt issued by parties with credit ratings similar to ours.

Acquisition-related contingent consideration related to our acquisition of the LED Business and was included in noncurrent liabilities.

The fair value as of August 27, 2021, measured on a recurring basis, was based on Level 3 measurements, which included significant inputs not observable in the market.

The fair value was estimated using a Monte Carlo simulation analysis in a risk-neutral framework with assumptions for volatility, market price of risk adjustment, risk-free rate and cost of debt.

Assumptions used in the determination of fair value also included estimates of future revenue and gross profit of the LED Business in Cree’s first four full fiscal quarters following the closing of the acquisition.

Generally, changes in the assumptions for projected future revenue, gross profit and volatility would be accompanied by a directionally similar change in the fair value measurement.

Conversely, changes in the discount rate would be accompanied by a directionally opposite change in the related fair value measurement.

However, due to the contingent consideration having a maximum payout amount, changes in these assumptions would not affect the fair value of the contingent consideration if they increase (decrease) beyond certain amounts.

Subsequent to the acquisition date, at each reporting date, the contingent consideration liability is remeasured to fair value with changes recorded in our results of operations.

See “Business Acquisition – LED Business.”

Assumptions used in the determination of fair value also included estimates of future revenue and gross profit of the LED Business.

Derivative Instruments

We use currency forward contracts to mitigate our exposure of certain monetary assets and liabilities from changes in currency exchange rates.

Realized and unrealized gains and losses on derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating (income) expense.

For derivative instruments without hedge accounting designation, in 2021, we recognized net realized losses of $ 2.3 million and net unrealized gains on the change in the fair value of the non-designated forward contracts of $ 2.1 million.

In 2020, we recognized realized gains of $ 11.1 million and net unrealized gains on the change in the fair value of the non-designated forward contracts of $ 0.3 million.

In 2019, we recognized net realized losses in the amount of $ 2.6 million and net unrealized losses on the change in the fair value of the non-designated forward contracts in the amount of $ 0.1 million.

Realized and unrealized gains and losses from derivative instruments without hedge accounting designation as well as the changes in the underlying monetary assets and liabilities from changes in currency exchange rates are included in other non-operating (income) expense.

In 2022 and 2021, we recognized net realized losses of $ 2.4 million and $ 3.4 million, respectively, and in 2020, we recognized net realized gains of $ 11.3 million from changes in the fair value of non-designated forward contracts.

In 2022, we recognized net unrealized losses of $ 0.8 million, and in 2021 and 2020, we recognized net unrealized gains of $ 1.9 million and $ 0.1 million, respectively, from changes in the fair value of non-designated forward contracts.

Our Amended and Restated 2017 Share Incentive Plan (as amended, the “2017 Plan”) provides for the issuance of equity awards to our employees, directors and consultants.

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As of August 26, 2022, 1.9 million of our ordinary shares were available for issuance under the ESPP.

Options granted under the SGH Plans have an exercise price not less than the fair market value of a share of our common stock on the date of grant.

Options and RSUs generally vest over a period of four years , and options generally have a ten-year term, though options granted after August 26, 2011 and before Sept.

23, 2014 have an eight-year term.

Options and RSUs generally vest over a period of four years , and options generally have a ten -year term.

Restricted Share Awards and Restricted Share Units Awards (“Restricted Awards”)

Shares Weighted

Outstanding as of August 27, 2021 5,637 $ 18.08 $ 134,425

Granted 1,642 $ 25.73

Vested ( 2,057 ) $ 18.10

Forfeited and cancelled ( 344 ) $ 20.54

Outstanding as of August 26, 2022 4,878 $ 20.47 $ 94,052

Aggregate Restricted Award activity and assumptions were as follows:

Year ended August 26,

2022 August 27,

2021 August 28,

Awards granted 1,642 4,651 1,680

1 unchanged sentence

Aggregate vesting-date fair value of shares vested $ 49,821 $ 21,381 $ 12,464

In May 2020, we granted a PRSA that had both service and performance conditions.

Restricted Awards include grants with service, performance and/or market conditions with restrictions that generally lapse after a three - to four-year service period.

Awards with market conditions are based on either the Company’s share price or

the Company’s total shareholder return (“TSR”) relative to companies included in a market index.

For awards with market conditions, the number of shares that will vest will vary between 0 % and 200 % of target amounts, depending upon the Company’s achievement level over the specified performance period.

The fair value of awards with market conditions were fixed at the grant date using a Monte Carlo simulation analysis and were based on significant inputs not observable in the market.

In May 2020, we granted a PSRA that had both service and performance conditions.

As of August 28, 2020, we deemed it was probable that the service condition would be met and the attainment of the performance condition for this award was probable.

1 unchanged sentence

These modifications resulted in additional share-based compensation expense in the first quarter of 2021 of $ 5.8 million.

As of August 27, 2021, total aggregate unrecognized compensation costs for unvested Restricted Awards was $ 87.6 million, which was expected to be recognized over a weighted average period of 3.02 years.

As of August 26, 2022, total unrecognized compensation costs for unvested Restricted Awards was $ 88.6 million, which was expected to be recognized over a weighted average period of 2.55 years.

Share Options

2 unchanged sentences

The total intrinsic value for options exercised was $ 6.3 million, $ 8.6 million and $ 3.0 million in 2022, 2021 and 2020, respectively.

Shares Weighted

Exercise Price

2 unchanged sentences

Outstanding as of August 27, 2021 3,778 $ 14.95 6.33 $ 33,602

Granted — $ —

Exercised ( 443 ) $ 12.75

Forfeited and cancelled ( 61 ) $ 11.04

1 unchanged sentence

Exercisable as of August 26, 2022 2,776 $ 15.97 4.77 $ 10,673

S hare option activity and assumptions were as follows:

Year ended August 27,

2021 August 28,

Share options granted 500 1,926

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If the target price is not achieved by the end of 4th or 7th anniversary of the respective grant date, the options will expire.

The fair value of Market-Based Options was determined by using a Monte Carlo valuation model, using the following assumptions:

The fair value of Market-Based Options was determined by using a Monte Carlo simulation analysis with the following assumptions:

expected term of 1.10 - 4.00 years, expected volatility of 46.29 %, risk-free interest rate of 2.75 % and no expected dividends.

1 unchanged sentence

In August 2020, we modified the terms of the remaining Market-Based Option to remove one of the service conditions to allow the continuation of vesting of the unvested options subject to the remaining service condition.

The modification resulted in an updated fair value using the Monte Carlo valuation model, with the following assumptions:

The modification resulted in an updated fair value using a Monte Carlo simulation analysis with the following assumptions:

expected volatility of 56.07 % and risk-free interest rate of 0.34 %.

3 unchanged sentences

Employee Share Purchase Plan has been offered to substantially all employees since April 2018 and generally permits eligible employees to purchase our ordinary shares through payroll deductions of up to 15 % of their eligible compensation, subject to certain limitations.

The purchase price of the shares under the ESPP equals 85 % of the lower of the fair market value of our ordinary shares on either the first or last day of each offering period, which is generally six months.

The purchase price of shares under the ESPP equals 85 % of the lower of the fair market value of our ordinary shares on either the first or last day of each offering period, which is generally six months.

Compensation expense is calculated as of the beginning of the offering period as the fair value of the employees’ purchase rights utilizing the Black-Scholes option valuation model and is recognized over the offering period.

Under the ESPP, employees purchased 0.2 million ordinary shares for $ 3.6 million in 2021, 0.2 million shares for $ 3.0 million in 2020 and 0.1 million shares for $ 2.3 million in 2019.

Share- B ased Compensation Expense

Under the ESPP, employees purchased 307 thousand ordinary shares for $ 6.5 million in 2022, 353 thousand shares for $ 3.6 million in 2021 and 314 thousand shares for $ 3.0 million in 2020.

Share-Based Compensation Expense

Year ended August 26,

2022 August 27,

2021 August 28,

Share-based compensation expense by caption:

2 unchanged sentences

Selling, general and administrative 27,002 24,855 12,625

$ 40,119 $ 33,877 $ 18,716

Income tax benefits related to the tax deductions for share-based awards are recognized only upon the settlement of the related share-based awards.

Share-based compensation expense in 2021, 2020 and 2019 reflects de minimis income tax benefits, which is consistent with our treatment of income or loss from our U.S.

Income tax benefits for share-based awards were $ 1.3 million in 2022 and were de minimis in 2021 and 2020.

Employee Savings and Retirement Plan

We have a 401(k) retirement plan under which U.S.

employees may contribute up to 60 % of their eligible pay, subject to Internal Revenue Service annual contribution limits, to various savings alternatives, none of which include direct investment in the Company’s shares.

employees may make contributions subject to Internal Revenue Service annual contribution limits, to various savings alternatives, none of which include direct investment in the Company’s ordinary shares.

We may make matching contributions, which vest immediately, at our discretion.

Contribution expense for the 401(k) plan was $ 3.4 million, $ 2.3 million and $ 2.0 million in 2021, 2020 and 2019, respectively.

Contribution expense for our 401(k) plan was $ 4.4 million, $ 3.4 million and $ 2.3 million in 2022, 2021 and 2020, respectively.

Revenue and Customer Contract Balances

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Net Sales and Gross Billings

Net sales by products and services and gross amounts billed for services, including those services in which we act as an agent for our customers, were as follows:

Gross billings in connection with services:

Net sales by products and services and gross amounts billed for services, including logistics services in which we act as an agent for our customers, were as follows:

Year ended August 26,

2022 August 27,

2021 August 28,

Products and professional services $ 1,755,883 $ 1,465,765 $ 1,090,173

Logistics services 63,469 35,377 32,204

$ 1,819,352 $ 1,501,142 $ 1,122,377

Gross billings in connection with logistics services:

Logistics services $ 63,469 $ 35,377 $ 32,204

Cost of materials (1)

Included in gross billings in connection with services are amounts billed to customers for the cost of materials procured in an agent capacity in connection with our procurement, logistics, inventory management, temporary warehousing, kitting and packaging services.

1,601,289 751,985 604,698

$ 1,664,758 $ 787,362 $ 636,902

(1) Included in gross billings are amounts billed to customers for the cost of materials procured in an agent capacity in connection with our logistics services business, which includes procurement, logistics, inventory management, temporary warehousing, kitting and/or packaging services.

While we take title to inventory under such arrangements, control of such inventory does not transfer to us as we do not, at any point, have the ability to direct the use, and thereby obtain the benefits of, the inventory.

Customer Contract Balances

As of August 26,

2022 August 27,

Contract assets (1)

$ 1,322 $ 4,247

Contract liabilities:

Deferred revenue (3)

$ 39,676 $ 19,271

Customer advances 24,125 15,835

$ 63,801 $ 35,106

(1) Contract assets are included in other current assets.

(2) Contract liabilities are included in other current liabilities and noncurrent liabilities based on the timing of when our customer is expected to take control of the asset or receive the benefit of the service.

(3) Deferred revenue includes $ 23.3 million and $ 0.4 million as of August 26, 2022 and August 27, 2021, respectively, related to contracts that contain termination rights.

Contract assets represent amounts recognized as revenue for which we do not have the unconditional right to consideration.

Contract assets as of August 26, 2022 related to amounts expected to be invoiced during the next 12 months.

Contract assets of $ 5.1 million as of August 28, 2020 were invoiced during 2021.

As of August 26,2022, there were no contract assets remaining to be invoiced from August 27, 2021.

Deferred revenue related to amounts received from customers in advance of satisfying performance obligations.

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In 2022, we recognized revenue of $ 14.1 million from satisfying performance obligations related to amounts included in deferred revenue as of August 27, 2021.

Customer advances represent amounts received from customers for advance payments to secure product and services within the next 12 months.

As of August 27, 2021, other current liabilities included $ 24.9 million for estimates of consideration payable to customers, including estimates for pricing adjustments and returns.

Other Operating (Income) Expense

In the fourth quarter of 2021, we initiated plans that included workforce reductions and the elimination of certain projects in our Intelligent Platforms Solutions segment.

In connection therewith, we recorded restructure charges of $ 2.1 million, primarily for employee severance costs and other benefits.

We do not expect additional costs to be incurred in connection with these restructure actions and, as of August 27, 2021, $ 0.5 million remained unpaid.

In the fourth quarter of 2020, we initiated plans to cease manufacturing and selling our battery product line.

In connection therewith, we recorded restructure charges in our Memory Solutions segment of $ 3.5 million, including $ 2.7 million of asset impairment, $ 0.4 million of receivables for value-added taxes and $ 0.4 million for contract termination costs.

We do not expect additional costs to be incurred in connection with these restructure actions and, as of August 27, 2021, no amounts remained outstanding or unpaid.

Customer advances represent amounts received from customers for advance payments to secure product and services.

In 2022, we recognized revenue of $ 5.2 million from satisfying performance obligations related to amounts included in customer advances as of August 27, 2021.

As of August 26, 2022 and August 27, 2021, other current liabilities included $ 15.4 million and $ 24.9 million, respectively, for estimates of consideration payable to customers, including estimates for pricing adjustments and returns.

Other Non-operating (Income) Expense

Foreign currency (gains) losses

Loss from remeasurement of Capped Calls

Year ended August 26,

2022 August 27,

2021 August 28,

Foreign currency losses $ 4,728 $ 719 $ 3,408

Loss on extinguishment of debt 653 — 6,822

Foreign currency (gains) and losses relate primarily to our Brazil operating subsidiaries.

The loss from remeasurement of our Capped Calls resulted from the reclassification of the Capped Calls from a noncurrent derivative asset to additional paid in capital in an amount equal to their fair value as of March 30, 2020.

See “Equity.”

In February 2020, we used $ 208.7 million from the net proceeds from the offering of the 2026 Notes to repay in full our then-outstanding term loans under our Amended Credit Agreement, including the payment of accrued interest, premiums, related fees and expenses.

Loss from remeasurement of Capped Calls — — 7,719

Other ( 544 ) ( 1,094 ) ( 979 )

$ 4,837 $ ( 375 ) $ 16,970

Foreign currency losses relate primarily to our Brazil operating subsidiaries.

In the second quarter of 2020, we used $ 208.7 million from the net proceeds from the offering of the 2026 Notes to repay in full our then-outstanding term loans, including the payment of accrued interest, premiums, related fees and expenses.

Related unamortized debt discounts and issuance costs of $ 4.6 million were charged to operations in connection with the extinguishment.

As a result, we recognized a loss on the extinguishment of debt of $ 6.6 million.

In the third quarter of 2020, we restructured our Amendment Credit Agreement and recognized debt extinguishment losses of $ 0.2 million.

In the third quarter of 2020, we restructured a credit agreement and recognized debt extinguishment losses of $ 0.2 million.

See “Equity.”

Our income tax provision (benefit) consisted of the following:

Year ended August 26,

2022 August 27,

2021 August 28,

Income (loss) before income taxes:

$ 12,405 $ ( 28,326 ) $ ( 13,120 )

Foreign 76,098 66,298 22,480

$ 88,503 $ 37,972 $ 9,360

Income tax provision (benefit):

Federal $ 1,100 $ — $ —

State 1,772 623 143

Foreign 18,588 18,022 12,164

21,460 18,645 12,307

Federal 259 ( 13 ) 258

State 43 3 37

Foreign ( 1,851 ) ( 3,169 ) ( 2,099 )

( 1,549 ) ( 3,179 ) ( 1,804 )

Income tax provision $ 19,911 $ 15,466 $ 10,503

In applying the statutory tax rate in the effective income tax rate reconciliation, we used the U.S.

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The table below reconciles our tax provision (benefit) based on the U.S.

federal statutory rate to our effective rate:

federal statutory rate to our effective tax rate:

Year ended August 26,

2022 August 27,

2021 August 28,

Statutory tax rate 21.0 % 21.0 % 21.0 %

1 unchanged sentence

State income tax, net of federal benefit 3.7 % 5.5 % 8.9 %

Tax on uncertain tax positions

Change in valuation allowance 3.5 % 26.9 % 23.5 %

Non-deductible expenses (non-taxable income) ( 1.3 ) % ( 5.7 ) % 19.1 %

Brazil financial credit incentive

Effective income tax rate

Foreign tax incentives ( 11.1 ) % ( 26.9 ) % ( 14.0 ) %

Foreign withholding tax 2.7 % 3.9 % 3.7 %

Tax credits ( 3.3 ) % ( 5.4 ) % ( 7.3 ) %

Other 0.5 % 1.5 % ( 1.2 ) %

Effective tax rate 22.5 % 40.7 % 112.2 %

Deferred income taxes reflect the net tax effects of temporary differences between the bases of assets and liabilities for financial reporting and income tax purposes as well as carryforwards.

Net deferred tax assets are included in other noncurrent assets and consisted of the following:

As of August 26,

2022 August 27,

Deferred tax assets:

2 unchanged sentences

Research and other tax credit carryforwards 9,686 8,971

Property and equipment

Operating lease liability

Operating lease liabilities 13,405 7,721

Tax amortizable goodwill 17,561 7,086

1 unchanged sentence

Gross deferred tax assets 92,906 84,822

Less valuation allowance

Valuation allowance ( 52,267 ) ( 49,154 )

Deferred tax assets, net of valuation allowance 40,639 35,668

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Federal net operating loss carryforwards of $ 71.2 million will expire in 2028 through 2038, if not utilized, and the remaining $ 15.7 million is indefinite lived.

The state net operating loss carryforwards will expire in 2023 through 2039 , both in varying amounts.

In addition, we have U.S.

federal and state tax credit carryforwards of $ 7.3 million and $ 0.9 million, respectively.

The state net operating loss carryforwards will expire in 2024 through 2040.

In addition, as of August 26, 2022, we have U.S.

federal and state research and development credit carryforwards of $ 7.4 million and $ 1.1 million, respectively, and $ 1.4 million of foreign tax credit carryforwards.

Federal and state carryforwards prior to 2018 are subject to an annual limitation, under the provisions of Section 382 of the Internal Revenue Code of 1986.

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Any unused annual limitation is carried forward and added to the limitation in the subsequent year.

We have foreign net operating loss carryforwards of $ 16.2 million which will expire in 2022 through 2025 .

We have foreign net operating loss carryforwards of $ 20.0 million, of which $ 16.2 million will expire in 2024 through 2025 and the remaining $ 3.8 million is indefinite lived.

Activity related to our deferred tax valuation allowance was as follows:

Balance at Beginning

Charged (Credited)

to Operations

Charged to Other Accounts

End of Period

Balance at Beginning of Year Charged (Credited)

to Operations Charged to Other Accounts Balance at End of Year

Deferred tax valuation allowance:

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Year ended August 28, 2020 36,722 2,199 — 38,921

In connection with our acquisition of SMART EC in 2019, we recognized a deferred tax asset valuation allowance of $ 7.6 million.

See “Business Acquisitions – SMART EC.”

Our valuation allowance on deferred tax assets primarily relates to our U.S.

net operating loss carryforwards and tax credit carryforwards and Netherlands net operating loss carryforwards.

The increase in valuation allowance of $ 10.2 million is primarily attributable to the valuation allowance on deferred tax assets related to the LED Business subsequent to the date of acquisition.

We intend to maintain a valuation allowance until sufficient positive evidence exists to support the realizations of such deferred tax assets.

net operating loss carryforwards and tax credit carryforwards and Netherlands tax loss carryforward.

The increase in valuation allowance of $ 3.1 million in 2022 is primarily attributable to the valuation allowance on deferred tax assets related to the LED Business subsequent to the date of acquisition.

We intend to maintain a valuation allowance until sufficient positive evidence exists to support the realization of such deferred tax assets.

Provisions have been made for deferred income taxes on undistributed earnings of foreign subsidiaries to the extent that dividend payments by such foreign subsidiaries are expected to result in additional tax liability.

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These arrangements are scheduled to expire in August 2028 and are subject to certain conditions, for which we have complied in 2022, 2021 and 2020.

The effect of these tax incentive arrangements reduced our income tax provision, as compared to the statutory rates of Malaysia and Brazil, by $ 15.6 million (benefiting our diluted earnings per share by $ 0.65 ) in 2021, $ 13.5 million ($ 0.56 per diluted share) in 2020 and $ 16.3 million ($ 0.70 per diluted share) in 2019.

Below is a reconciliation of the beginning and ending amount of our unrecognized tax benefits:

The effect of the tax incentive arrangements noted above reduced our income tax provision by $ 15.6 million (benefiting our diluted earnings per share by $ 0.29 ) in 2022, $ 15.7 million ($ 0.30 per diluted share) in 2021 and $ 13.5 million ($ 0.28 per diluted share) in 2020.

Below is a reconciliation of the beginning and ending amounts of our unrecognized tax benefits:

Year ended August 26,

2022 August 27,

2021 August 28,

Beginning unrecognized tax benefits $ 17,454 $ 16,514 $ 15,037

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subsidiaries, including Malaysia, Brazil, Luxembourg, United Kingdom, Hong Kong and China, vary by country.

We believe that adequate amounts of taxes and related interest and penalties have been provided, and any adjustments as a result of examinations are not expected to materially adversely affect our business, results of operations or financial condition.

believe that adequate amounts of taxes and related interest and penalties have been provided, and any adjustments as a result of examinations are not expected to materially adversely affect our business, results of operations or financial condition.

Earnings Per Share

Year ended August 26,

2022 August 27,

2021 August 28,

Net income (loss) attributable to SGH – Basic and Diluted $ 66,557 $ 21,310 $ ( 1,143 )

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Earnings (loss) per share:

Below are potentially dilutive shares, as of the end of the periods shown, that were not included in the computation of diluted earnings per share because to do so would have been antidilutive:

Basic $ 1.35 $ 0.44 $ ( 0.02 )

Diluted $ 1.22 $ 0.41 $ ( 0.02 )

Below are unweighted potentially dilutive shares that were not included in the computation of diluted earnings per share because to do so would have been antidilutive:

As of August 26,

2022 August 27,

2021 August 28,

Equity plans 329 5,380 9,369

Convertible notes — — 12,313

We have the option to pay cash, issue shares, or any combination thereof for the aggregate amount due upon any conversion of our 2026 Notes.

It is our intent to settle the principal amount of the 2026 Notes in cash upon any conversion.

As a result, only the amounts payable in excess if the principal amounts upon conversion of the 2026 Notes are considered in diluted earnings per share under the treasury stock method.

As a result, the 2026 Notes would be dilutive when the average share price of the Company’s ordinary shares for a reporting period exceeds the conversion price of the 2026 Notes of $ 40.61 per share.

See “Debt – Convertible Senior Notes.”

329 5,380 21,682

We have the option to pay cash, issue shares or a combination thereof for the aggregate amount due upon any conversion of our 2026 Notes.

Through 2022, it was our intent to settle the principal amount of the 2026 Notes in cash upon any conversion.

As a result, only the amounts payable in excess of the principal amounts upon conversion of the 2026 Notes are considered in diluted earnings per share under the treasury stock method.

Following the irrevocable election, only the amounts expected to be settled in excess of the principal portion are considered dilutive in calculating earnings per share under the if-converted method.

See “Subsequent Events – First Supplemental Indenture to Indenture Governing 2.25 % Convertible Senior Notes Due 2026.” The 2026 Notes are dilutive when the average share price of the Company’s ordinary shares for a reporting period exceeds the conversion price of the 2026 Notes of $ 20.30 per share.

Segment and Other Information

Segment information presented below is consistent with how our chief operating decision maker evaluates operating results to make decisions about allocating resources and assessing performance.

In the fourth quarter of 2021, we reorganized SGH into three business units:

Memory Solutions, Intelligent Platforms Solutions and LED Solutions.

Two of our previous segments, specialty memory products and Brazil products, have been combined to become Memory Solutions.

Intelligent Platform Solutions was formerly referred to as specialty compute and storage solutions.

All prior year information in the tables below has been revised to reflect the change to our three reportable segments.

We have the following three business units, which are our reportable segments:

• Memory Solutions :

Our Memory Solutions group provides high performance and reliable memory solutions through the design, development and advanced packaging of leading-edge to extended lifecycle products.

Our Memory Solutions group, under our SMART Modular brand, provides high performance and reliable memory solutions through the design, development and advanced packaging of leading-edge to extended lifecycle products.

These specialty products are tailored to meet customer-specific requirements across networking and communications, enterprise storage, computing, including desktop, notebook and server applications, smartphones and other vertical markets.

These products are marketed to OEMs and to commercial and government customers.

The Memory Solutions group also offers SMART Supply Chain Services, which provides customized, integrated supply chain services to enable our customers to better manage supply chain planning and execution, reduce costs and increase productivity.

The Memory Solutions group also offers SMART Supply Chain Services, which provides

customized, integrated supply chain services to enable our customers to better manage supply chain planning and execution, reduce costs and increase productivity.

• Intelligent Platform Solutions (“IPS”) :

Our IPS group consists of Penguin Computing and Penguin Edge.

Our IPS group, under our Penguin Solutions brand, consists of two major product lines – Penguin Computing and Penguin Edge.

Penguin Computing offers specialized platform solutions for high-performance computing, artificial intelligence, machine learning and advanced modeling for technology research.

We provide these leading-edge solutions to customers in the government, hyper-scale, energy, financial services and education markets.

Penguin Edge encompasses the operations of SMART EC and SMART Wireless and offers solutions for embedded and wireless applications, specializing in high-reliability products for a wide range of customers in government, telecommunications, health care, smart city, network edge and industrial applications.

We provide these leading-edge solutions to customers in the government, hyperscale, energy, financial services and education markets.

Penguin Edge offers solutions for embedded and wireless applications, specializing in high-reliability products for a wide range of customers in government, telecommunications, health care, smart city, network edge and industrial applications.

• LED Solutions :

Our LED Solutions group offers a broad portfolio of application-optimized LEDs focused on improving on lumen density, intensity, efficacy, optical control and reliability.

Backed by expert design assistance and superior sales support, our LED products enable our customers to develop and market LED-based products for lighting, video screens and specialty lighting applications.

Our LED Solutions group, under our Cree LED brand, offers a broad portfolio of application-optimized LEDs focused on improving on lumen density, intensity, efficacy, optical control and reliability.

Backed by expert design assistance and superior sales support, our LED products enable our customers to develop and market LED-based products for general lighting, video screens and specialty lighting applications.

Our LED Solutions is comprised of the LED Business we acquired from Cree, Inc.

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We do not allocate interest, other non-operating (income) expense or taxes to segments.

Year ended August 26,

2022 August 27,

2021 August 28,

Memory Solutions $ 975,181 $ 931,818 $ 857,237

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LED Solutions 403,185 224,567 —

Total net sales $ 1,819,352 $ 1,501,142 $ 1,122,377

Segment operating income:

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Total segment operating income 227,629 160,794 84,229

Share-based compensation

Change in fair value of contingent consideration

Amortization of intangible assets

Share-based compensation expense ( 40,119 ) ( 33,877 ) ( 18,716 )

Amortization of acquisition-related intangibles ( 23,729 ) ( 20,255 ) ( 13,654 )

Flow through of inventory step up — ( 7,090 ) —

Restructure and integration expense

Out of period import tax expense (1)

— ( 4,345 ) —

Acquisition and integration expenses ( 7,090 ) ( 5,314 ) ( 5,532 )

Change in fair value of contingent consideration ( 41,324 ) ( 32,400 ) —

Other ( 858 ) ( 2,316 ) ( 4,997 )

Total unallocated ( 113,120 ) ( 105,597 ) ( 42,899 )

Consolidated operating income $ 114,509 $ 55,197 $ 41,330

(1) During the second quarter of 2021, we 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, $ 0.7 million increase in interest expense and a $ 1.7 million benefit to income taxes.

Depreciation included in segment operating income was as follows:

Year ended August 26,

2022 August 27,

2021 August 28,

Memory Solutions $ 23,710 $ 19,547 $ 19,117

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LED Solutions 12,736 6,034 —

$ 41,110 $ 28,856 $ 22,776

Concentrations

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A significant portion of our net sales is concentrated with a select number of customers.

In 2021, 2020 and 2019, sales to our ten largest customers were 65 %, 66 % and 73 %, respectively, of total net sales.

As of August 27, 2021, three customers accounted for 16 %, 10 % and 10 %, respectively, of accounts receivable.

Net sales to a number of customers exceed 10% of our total net sales in the past three years.

Sales to our ten largest customers in 2022, 2021 and 2020 were 65 %, 65 % and 66 %, respectively, of total net sales.

As of August 26, 2022, two customers accounted for 22 % and 17 %, respectively, of accounts receivable.

Net sales to a number of customers each exceeded 10% of our total net sales in the past three years.

Net sales to a Memory Solutions customer were 11 %, 12 % and 17 % of total net sales in 2022, 2021 and 2020, respectively.

Net sales to an IPS customer were 10 % of total net sales in 2021.

Net sales to an IPS customer were 15 % and 10 % of total net sales in 2022 and 2021, respectively.

Additionally, net sales to another Memory Solutions customer were 11 % of total net sales in 2020.

and net sales to two additional Memory Solutions customers were 13 % and 11 % of total net sales in 2019.

No other customers accounted for more than 10% of our total net sales in 2021, 2020 or 2019.

We rely on four suppliers for a significant portion of our raw materials.

Purchases from these suppliers in 2021, 2020 and 2019 were $ 1.3 billion, $ 1.0 billion and $ 1.2 billion, respectively.

At August 27, 2021 and August 28, 2020, accounts payable and accrued expenses included $ 190.2 million and $ 139.5 million, respectively, for amounts owed to these suppliers.

No other customers accounted for more than 10% of our total net sales in 2022, 2021 and 2020.

We rely on a limited number of suppliers for a significant portion of our raw materials.

Purchases from our three largest suppliers in 2022, 2021 and 2020 were $ 1.5 billion, $ 1.1 billion and $ 0.9 billion, respectively.

As of August 26, 2022 and August 27, 2021, accounts payable and accrued expenses included $ 170.1 million and $ 148.4 million, respectively, for amounts owed to our largest three suppliers for 2022 and 2021, respectively.

Geographic Information

Net sales by geographic area, based on customer ship-to location, were as follows:

Year ended August 26,

2022 August 27,

2021 August 28,

United States $ 705,540 $ 601,728 $ 477,975

Brazil 424,933 447,249 390,021

China 309,175 213,989 90,705

Europe 116,278 84,216 37,758

Other 263,426 153,960 125,918

$ 1,819,352 $ 1,501,142 $ 1,122,377

Long-lived assets by geographic area, including property and equipment and right-of-use assets, were as follows:

As of August 26,

2022 August 27,

Brazil $ 62,803 $ 63,858

China 52,201 61,405

United States 102,907 56,746

RE PORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Malaysia 10,778 11,329

Other 2,645 3,797

$ 231,334 $ 197,135

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of SMART Global Holdings, Inc.

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of August 26, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 14, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in the notes to the financial statements, the Company has changed its method of accounting for leases in the year ended August 28, 2020 due to the adoption of Accounting Standards Update No.

2016-02, Leases (Topic 842) , using the modified retrospective approach.

Basis for Opinion

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Business Acquisitions — Refer to the notes to the financial statements

Revenue Recognition — Refer to the Significant Accounting Policies and Revenue and Customer Contract Balances notes to the financial statements

Critical Audit Matter Description

On March 1, 2021, the Company acquired certain net assets of the LED business of Cree, Inc.

(“Cree”) for $225.5 million, which includes an earn-out payment of up to $125 million based on the revenue and gross profit performance of the LED business.

The Company allocated the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values.

The Company estimated the fair value of identifiable intangible assets to be $64.5 million, including $49.8 million related to developed technology.

The estimated fair value of the contingent consideration liability on the date of the acquisition was $28.1 million.

The contingent consideration liability is revalued each quarter to fair value.

During the year ended August 27, 2021, the Company adjusted the fair value of the contingent consideration liability to the fair value as of year end of $60.5 million.

There was a high degree of auditor judgment and subjectivity in applying audit procedures relating to the fair value measurement of intangible assets acquired, specifically the developed technology, and the fair value measurement of contingent consideration liability due to the significant amount of judgment by management when developing its estimates.

Significant audit effort was required in performing procedures and evaluating the significant assumptions relating to the estimates and the audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from these procedures.

The Company had $1.8 billion of revenue for the year ended August 26, 2022 of which $441 million related to the Intelligent Platform Solutions segment (“IPS”).

A portion of the Company’s revenue is derived from the sale of customized products.

In certain cases, the Company recognizes revenue when control of the underlying assets pass to the customer when the customer is able to direct the use of, and obtain substantially all of the remaining benefit from, the assets;

the customer has the significant risks and rewards associated with ownership of the assets;

and the Company has a present right to payment.

Under the terms of these arrangements, the Company cannot repurpose products without the customer’s consent and accordingly, the Company recognizes revenue at the point in time when products are completed and made available to the customer.

A portion of the Company’s service revenue is from professional consulting services, including installation and other services and hardware and software related support.

Each contract may contain multiple performance obligations, which requires the transaction price to be allocated to each performance obligation.

The Company allocates the consideration to each performance obligation based on the relative selling price, determined as the best estimate of the price at which the Company would transact if it sold the deliverable regularly on a stand-alone basis.

We identified both the evaluation of performance obligations and the determination of the timing of recognition as performance obligations are satisfied in certain contracts within the IPS segment to be a critical audit matter.

This required a high degree of auditor judgment and an increased extent of audit effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimates of the fair value of the developed technology intangible assets and the contingent consideration liability included the following, among others:

We tested the effectiveness of internal controls over business combinations including (i) the controls over the valuation of the acquired intangible assets and contingent consideration liability and (ii) controls over the forecasted financial information including assumptions of projected revenue and gross margin and discount rates selected by management.

With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodologies and (2) discount rates, including testing the underlying source information, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management;

We evaluated the reasonableness of management’s forecasts of revenue growth rates and gross margin by comparing to:

Historical net sales for the LED business.

Underlying inputs to the estimates including but not limited to backlog, customer purchase order information, and contractual terms with customers.

Analyst reports for the Company and the LED business, as well as industry reports, and comparison of historical rates to companies in the peer group.

Inquiries with appropriate individuals within the Company’s operations, engineering and finance departments regarding the forecasts of revenue growth rates and gross margin.

We evaluated whether the audit evidence obtained through these procedures was consistent with evidence obtained in other areas of the audit.

Our audit procedures related to the Company's identification of performance obligations and the recognition of revenue as performance obligations are satisfied for the IPS segment included the following, among others:

– We tested the effectiveness of internal controls related to revenue for the IPS segment including those related to the identification of the performance obligations and the recognition of revenue as performance obligations were satisfied.

– We evaluated management's significant accounting policies related to revenue recognition for compliance with generally accepted accounting principles.

– We selected a sample of contract documents for customers in the IPS segment and performed the following procedures:

• Obtained and read the arrangement with the customer for each selection, including the contract, amendments, purchase order, and other documents (together the “contractual documents”) that were part of the arrangement, each as applicable.

• Held inquiries with management outside of accounting, as needed, to identify the performance obligations in the contract and assist in evaluating when performance obligations are satisfied.

• Assessed the terms and conditions in the contractual documents and evaluated the appropriateness of management's application of their accounting policies in the evaluation of performance obligations and the recognition of revenue as performance obligations are satisfied.

/s/ DELOITTE & TOUCHE LLP

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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-K

Item 8. Financial Statements and Supplementary Data