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Item 7. Management’s Discussion and Analysis

2024-10-24 compared with 2023-10-20 · 164 added, 140 removed, 218 unchanged (58% of the section changed)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and notes for the year ended August 30, 2024.

This discussion contains forward looking statements that involve risks and uncertainties.

Our actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this report.

See also “Cautionary Note Regarding Forward-Looking Statements.”

This discussion contains forward looking statements that involve risks, uncertainties and other factors.

Our actual results could differ materially from those contained in these forward-looking statements due to a number of risks, uncertainties and other factors, including those discussed below and elsewhere in this report.

See also “Cautionary Note Regarding Forward-Looking Statements” and “PART I – Item 1A.

Risk Factors.”

Our fiscal year is the 52- or 53-week period ending on the last Friday in August.

Fiscal years 2023, 2022 and 2021 each contained 52 weeks.

Fiscal years 2024, 2023 and 2022 contained 53, 52 and 52 weeks, respectively.

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.

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

In connection with the completion of the divestiture of an 81% interest in SMART Brazil, we ceased consolidating the operations of SMART Brazil in our financial statements as of the November 29, 2023 disposal date.

As a result, financial information for the first quarter of 2024 includes the four-month period for the SMART Brazil operations from August 1, 2023 to November 29, 2023.

All tabular amounts are in thousands.

For an overview of our business, see “PART I – Item 1.

Acquisition of Stratus Technologies

On August 29, 2022, we completed the acquisition of Storm Private Holdings I Ltd., a Cayman Islands exempted company (“Stratus Holding Company” and together with its subsidiaries, “Stratus Technologies”).

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

In addition, the seller has the right to receive, and SGH is obligated to pay, contingent consideration of up to $50 million (the “Stratus Earnout”) based on the gross profit performance of the Stratus business during the first full 12 fiscal months of Stratus following the closing of the acquisition.

The Stratus Earnout is payable in cash, ordinary shares of SGH, or a mix of cash and SGH Shares, at SGH’s election.

On June 28, 2023, we provided notice to the Stratus Seller of our election to settle the Stratus Earnout in cash.

As of August 25, 2023, current liabilities include $50.0 million for the amount payable for the Stratus Earnout.

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.

Stratus operates as part of SGH’s IPS segment.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Business Acquisitions – Stratus Technologies.”

Divestiture of SMART Brazil

On June 13, 2023, we entered into an agreement to sell an 81% interest in SMART Modular Technologies Brasil – Indústria e Comercio de Componentes Ltda.

(“SMART Brazil”) to Lexar Europe B.V., an affiliate of Shenzhen Longsys Electronics Co.

for approximately $205 million.

The transaction is expected to close at the end of calendar year 2023 or beginning of calendar year 2024, subject to required regulatory approvals and satisfaction of customary closing conditions.

SMART Brazil operates as a stand-alone business which assembles and tests modules for electronics manufacturers that sell devices to Brazilian consumers.

In line with our strategic priorities, the majority divestiture of our standards-based, commodity module business in Brazil will enable us to focus on our strategy of delivering high-performance, high availability solutions to our enterprise customers.

This transaction also strengthens our financial position, enabling us to increase our strategic investments into domestic research and development and U.S.-based production of advanced technologies.

On November 29, 2023, we completed the divestiture of an 81% interest in SMART Brazil to Lexar Europe B.V., an affiliate of Shenzhen Longsys Electronics Co.

Presentation of SMART Brazil as Discontinued Operations :

In accordance with authoritative guidance under U.S.

GAAP, we concluded that our SMART Brazil operations met held-for-sale and discontinued operations accounting criteria as of the end of fiscal year 2023.

Accordingly, we have presented the balance sheets, results of operations and cash flows of SMART Brazil operations in this Annual Report on Form 10-K, including in the accompanying consolidated financial statements and notes, as discontinued operations for all periods presented.

Our SMART Brazil operations were previously reported as part of our Memory Solutions segment.

Unless otherwise noted, discussion within this Annual Report on Form 10-K relates solely to our continuing operations and excludes our SMART Brazil operations.

GAAP, we have presented the balance sheets, results of operations and cash flows of SMART Brazil operations in this Annual Report, including in the accompanying consolidated financial statements and notes, as discontinued operations for all periods presented.

The SMART Brazil operations were previously reported as part of our Integrated Memory segment.

Unless otherwise noted, discussion within this Annual Report relates solely to our continuing operations and excludes the SMART Brazil operations.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Divestiture of SMART Brazil.”

Acquisition of Stratus Technologies

On August 29, 2022, we completed the acquisition of Stratus Technologies.

At the closing, we paid a cash purchase price of $225.0 million, subject to certain adjustments.

In addition, the seller had the right to receive the Stratus Earnout based on the gross profit performance of the Stratus Technologies business during the first full 12 fiscal months following the closing.

Throughout 2023, we adjusted the fair value of the Stratus Earnout by an aggregate of $29.0 million and, as of August 25, 2023, current liabilities included $50.0 million for the amount payable in connection with the Stratus Earnout.

In the second quarter of 2024, we paid in full $50.0 million related to the Stratus Earnout.

See “PART II – Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Business Acquisitions – Stratus Technologies.”

Factors Affecting Our Operating Performance

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Our business segments each have their own unique set of demand factors.

Demand in our Memory Solutions group is driven by end-market demand from OEMs for customer-specific solutions in vertical markets such as industrial, government, networking, high-performance compute and enterprise storage, as well as from OEMs for memory modules used in desktop and notebook computers, smartphones, IoT and SSD products in Brazil.

In addition, macro-economic factors specific to the Brazil economy affect this segment, given our sales and operations in that market.

Our IPS business is driven by demand for high compute solutions across AI and machine learning initiatives, as well as traditional workload optimization and efficiency applications.

Finally, demand for our LED products is derived from targeted end-market applications, such as general high-power and mid-power lighting and specialty lighting, such as video and horticulture applications.

We believe our diversified business segments may provide a natural hedge against downturns in any particular industry although broader macro-economic trends, such as the COVID-19 pandemic, can adversely affect all three segments concurrently.

Shifts in the Mix of Our Revenue.

Shifts in the mix of revenue from our operating segments, which can vary significantly from period to period, can impact our business and operating results, including gross and operating margins.

For example, our Memory Solutions group, while not party to long-term fixed purchasing commitments, has nonetheless historically seen relatively stable demand and margins.

By contrast, our IPS group has shown solid growth, but is subject to greater variability in its sales and margin profile from period to period, as recognition of revenue is tied to customer decisions as to the completion of delivery and system go-live events, and margin is driven by the extent to which higher margin software and managed services comprise IPS sales.

In addition, while we have experienced favorable demand and overall margin uplift compared to the rest of our businesses from our LED Solutions group to date, this group is the newest segment of our business, and we may be subject to unforeseen changes in its business and operating results.

Our Advanced Computing business is driven by demand for high-performance compute solutions across AI and machine learning initiatives, as well as traditional workload optimization and efficiency applications.

Demand in our Integrated Memory segment is driven by end-market demand from OEMs for customer-specific solutions in vertical markets such as industrial, government, networking, high-performance compute and enterprise storage,

as well as emerging demand for higher density and greater bandwidth solutions for AI deployments.

Finally, demand for our Optimized LED products is derived from targeted end-market applications, such as general high-power and mid-power lighting and specialty lighting, including video display and horticulture applications.

We believe our diversified business segments may sometimes provide a natural hedge against downturns in any particular industry.

However, broader macro-economic trends can adversely affect all three segments concurrently.

Shifts in the Mix and Timing of Our Revenue.

Shifts in the mix of revenue from our operating segments, and in the timing of revenue, which can vary significantly from period to period, can impact our business and operating results, including gross and operating margins.

For example, our Advanced Computing segment has shown solid growth, but is subject to variability in its sales and margin profile from period to period for reasons such as:

recognition of revenue is sometimes tied to customer decisions as to the completion of delivery and system go-live events, sales can be affected by the timing of customer deployments or customer budget considerations and margin is driven by the extent to which higher margin software and managed services comprise Advanced Computing sales.

Our resource commitments and planning for each segment are relatively fixed in the short term, and as such, variability in expected revenue mix will have direct implications for our operating income and margins.

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Within our existing segments, we plan to pursue acquisitions to expand features and functionality, expand into adjacent businesses and grow our customer base and geographic footprint.

From time to time, we may seek to expand our addressable market by entering new business segments where, as we did with our LED business and our recently acquired Stratus Technologies business, we identify a business opportunity at scale with a path to being accretive to our overall operations in the near term.

From time to time, we may seek to expand our addressable market by entering new business segments where, as we did with our Cree LED and Stratus Technologies acquisitions, we identify a business opportunity at scale with a path to being accretive to our overall operations in the near term.

If we are unable to identify and complete attractive acquisitions, we may not be successful in growing our revenue and/or expanding our margins.

Any acquisitions we do complete may require us to raise debt or equity financing or may subject us to unforeseen liabilities or operational challenges that in turn impede our ability to realize the expected returns on our investment.

Any acquisitions we do complete may require us to incur debt or raise capital through equity financings or may subject us to unforeseen liabilities or costs, or operational challenges, that in turn impede our ability to realize the expected returns on our investment.

Disruptions in Our Supply Chain May Adversely Affect Our Businesses.

We depend on third-party suppliers for key components of our products, such as commodity DRAM components from offshore foundries that we use in our specialty memory products and third-party wafers that we use in our memory and LED businesses.

We have adopted this “Fab-Light” business model to reduce our capital expenditures and operating expenses, while affording greater flexibility in adapting to shifts in demand and other market trends.

Our Fab-Light business model has contributed significantly to margin expansion in our overall business.

We depend on third-party suppliers for key components of our products, such as commodity DRAM components from offshore foundries that we use in our specialty memory products, third-party wafers that we use in our memory and LED businesses and HPC and AI components for our Advanced Computing business.

In our memory and LED businesses, we have adopted a “Fab-Light” business model to reduce our capital expenditures and operating expenses, while affording greater flexibility in adapting to shifts in demand and other market trends.

Our Fab-Light business model contributed to margin expansion in our overall business.

However, our reliance on third-party manufacturers exposes us to risk of supply chain disruption and lost business.

For example, the current global semiconductor shortage has adversely affected our operating results.

In addition, the recent high demand for, and limited supply of, AI components globally, is affecting our sourcing of these components.

If such disruptions worsen or are prolonged, or if there is meaningful disruption in our supply arrangement with any of our third-party suppliers, our operating results and financial condition could be adversely affected.

For example, the recent global semiconductor shortage has adversely affected our operating results.

In addition, in our Advanced Computing business, where we source components from third parties, the high demand for and limited supply of AI components globally, as well as any delays in the production of such components, continues to affect our sourcing of these components and the timing of deployments.

In particular, we continue to experience extended lead times for certain components that are incorporated into our overall solutions, which impacts how quickly we are able to ramp existing and new customer projects.

Results of Operations

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2022 % of net

Memory Solutions $ 443,264 30.8 % $ 551,705 39.5 % $ 486,205 46.1 %

Intelligent Platform Solutions 749,708 52.0 % 440,986 31.6 % 344,757 32.7 %

LED Solutions 248,278 17.2 % 403,185 28.9 % 224,567 21.3 %

Advanced Computing $ 554,552 47.4 % $ 749,708 52.0 % $ 440,986 31.6 %

Integrated Memory 356,426 30.4 % 443,264 30.8 % 551,705 39.5 %

Optimized LED 259,818 22.2 % 248,278 17.2 % 403,185 28.9 %

Total net sales 1,170,796 100.0 % 1,441,250 100.0 % 1,395,876 100.0 %

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Net income attributable to noncontrolling interest 2,539 0.2 % 1,832 0.1 % 2,035 0.1 %

Net income (loss) attributable to SGH $ (187,526) (13.0) % $ 66,557 4.8 % $ 21,310 2.0 %

Net income (loss) attributable to Penguin Solutions $ (52,472) (4.5) % $ (187,526) (13.0) % $ 66,557 4.8 %

(1) Summations of percentages may not compute precisely due to rounding.

Net Sales, Cost of Sales and Gross Profit

Net sales increased by $45.4 million, or 3.3%, in 2023 compared to the prior year, due to strong performance in our IPS business, partially offset by weakness in both our Memory and LED Solutions businesses.

IPS net sales increased by $308.7 million, or 70.0%, primarily due to $172.7 million of revenue from our Stratus acquisition in August 2022, as well as higher volumes of sales in our Penguin Computing business.

LED Solutions net sales decreased by $154.9 million, or 38.4%, primarily due to continued demand challenges in China.

Memory Solutions sales decreased by $108.4 million, or 19.7%, primarily due to lower sales volume and pricing of DRAM products.

Net sales increased by $340.3 million, or 32.2%, in 2022 compared to the prior year, due to an increase of $178.6 million of revenue from our acquisition of the LED Business in March 2021 and to strong performance in our IPS and Memory Solutions businesses.

IPS net sales increased by $96.2 million, or 27.9%, primarily due to higher volumes of sales in our Penguin Computing business.

Memory Solutions sales increased by $65.5 million, or 13.5%, primarily due to a higher sales volume of DRAM products.

Cost of sales increased by $21.2 million, or 2.1%, in 2023 and by $187.3 million, or 22.9%, in 2022 compared to the prior respective years, primarily due to our acquisition of the Stratus Business and from higher costs of materials and production costs due to higher sales for our IPS segment.

Gross margin increased to 28.8% in 2023 compared to 28.0% in 2022 primarily due to inclusion of higher margin Stratus products, as well as process and efficiency improvements in the Memory Solutions and IPS segments compared to the prior year.

Gross margin increased to 28.0% in 2022, compared to 22.5% in 2021 primarily due to the inclusion of higher margin LED Solutions products.

Net sales decreased by $270.5 million, or 18.8%, in 2024 compared to the prior year, primarily due to lower sales and weakness in our Advanced Computing and Integrated Memory segments, partially offset by moderate growth in our Optimized LED segment.

Advanced Computing net sales decreased by $195.2 million, or 26.0%, primarily related to lower hardware sales year over year due to the unpredictable nature of large project engagements, which may not occur with the same frequency or scale each year.

Integrated Memory net sales decreased by $86.8 million, or 19.6%, primarily due to lower sales volumes of Flash and DRAM products to our OEM customers, driven by macroeconomic environment challenges.

Optimized LED net sales increased by $11.5 million, or 4.6%, primarily due to higher demand as channel partners addressed low inventory carrying levels .

Net sales increased by $45.4 million, or 3.3%, in 2023 compared to the prior year, due to strong performance in our Advanced Computing business, partially offset by weakness in both our Integrated Memory and Optimized LED segments.

Advanced Computing net sales increased by $308.7 million, or 70.0%, primarily due to $172.7 million of revenue from our Stratus Technologies acquisition in August 2022, as well as higher volumes of sales in our Penguin Computing business.

Optimized LED net sales decreased by $154.9 million, or 38.4%, primarily due to continued demand challenges in China.

Integrated Memory sales decreased by $108.4 million, or 19.7%, primarily due to lower sales volume and pricing of DRAM products.

Cost of sales decreased by $196.1 million, or 19.1%, in 2024 compared to the prior year, primarily due to our Advanced Computing and Integrated Memory segments, which had lower material and production costs from lower sales, as well as lower personnel-related expenses mainly driven by cost reduction efforts.

Cost of sales increased by $21.2 million, or 2.1%, in 2023 compared to the prior year, primarily due to the Stratus Technologies

acquisition and from higher costs of materials and production costs due to higher sales for our Advanced Computing segment.

Gross margin increased to 29.1% in 2024 compared to 28.8% in 2023 primarily due to favorable mix from higher service revenue in our Advanced Computing segment.

Gross margin increased to 28.8% in 2023 compared to 28.0% in 2022 primarily due to the inclusion of higher margin Stratus products, as well as process and efficiency improvements in the Integrated Memory and Advanced Computing segments compared to the prior year.

Non-GAAP Measure of Segment Operating Income

Below is a table of our operating income, measured on a non-GAAP basis, which SGH management uses to supplement SGH’s financial results under GAAP to analyze its operations and make decisions as to future operational plans and believes that this supplemental non-GAAP information is useful to investors in analyzing and assessing the company’s past and future operating performance.

These non-GAAP measures exclude certain items, such as share-based compensation expense, amortization of acquisition-related intangible assets (consisting of amortization of developed technology, customer relationships, trademarks/trade names and backlog acquired in connection with business combinations), acquisition-related inventory adjustments, acquisition-related expenses, restructure charges and integration expenses, changes in the fair value of contingent consideration and other infrequent or unusual items.

Below is a table of our operating income, measured on a non-GAAP basis, which Penguin Solutions management uses to supplement Penguin Solutions’ financial results under GAAP to analyze its operations and make decisions as to future operational plans and believes that this supplemental non-GAAP information is useful to investors in analyzing and assessing the company’s past and future operating performance.

These non-GAAP measures exclude certain items, such as share-based compensation expense;

amortization of acquisition-related intangible assets (consisting of amortization of developed technology, customer relationships, trademarks/trade names and backlog acquired in connection with business combinations);

acquisition-related inventory adjustments;

diligence, acquisition and integration expense;

restructure charges;

impairment of goodwill;

changes in the fair value of contingent consideration;

and other infrequent or unusual items.

While amortization of acquisition-related intangible assets is excluded, the revenues from acquired companies is reflected in our non-GAAP measures and these intangible assets contribute to revenue generation.

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Cost of sales-related restructure 2,136 6,813 —

Acquisition and integration expenses 20,869 7,090 5,314

Diligence, acquisition and integration expense 8,772 20,869 7,090

Impairment of goodwill — 19,092 —

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Non-GAAP operating income by segment:

Memory Solutions $ 73,639 $ 78,869 $ 19,530

Intelligent Platform Solutions 110,975 49,450 29,658

LED Solutions (4,820) 49,142 34,296

Advanced Computing $ 95,291 $ 110,975 $ 49,450

Integrated Memory 22,413 73,639 78,869

Optimized LED 2,553 (4,820) 49,142

Total non-GAAP operating income by segment $ 120,257 $ 179,794 $ 177,461

Memory Solutions operating income decreased by $5.2 million, or 6.6%, in 2023 compared to the prior year primarily due to lower sales, partially offset by a favorable product mix and lower personnel-related costs driven in part by cost containment actions.

Memory Solutions operating income increased by $59.3 million, or 303.8%, in 2022 compared to the prior year primarily due to strong revenue growth and gross margin improvement driven by a favorable product mix, as well as lower personnel-related costs.

IPS operating income increased by $61.5 million, or 124.4%, in 2023 compared to the prior year primarily due to higher sales mainly due to the Stratus acquisition and gross margin expansion, partially offset by higher operating expenses due to the Stratus acquisition as well as personnel-related expenses due in part to increased headcount to support the revenue growth.

IPS operating income increased by $19.8 million, or 66.7%, in 2022 compared to the prior year primarily due to strong revenue growth from Penguin Computing and gross margin improvement, partially offset by higher operating expenses mainly driven by personnel-related expenses due to increased headcount to support the revenue growth.

LED Solutions operating income decreased by $54.0 million, or 109.8%, in 2023 compared to the prior year primarily due to lower sales from demand challenges in China, partially offset by lower personnel-related costs driven in part by cost reduction actions.

LED Solutions operating income increased by $14.8 million, or 43.3%, in 2022 compared to the prior year as 2022 included a full year of operations compared to half a year in 2021.

Advanced Computing operating income decreased by $15.7 million, or 14.1%, in 2024 compared to the prior year primarily due to lower sales from our Penguin Computing business, partially offset by lower operating expenses, mainly driven by personnel-related expenses due to lower headcount and lower subcontract services.

Advanced Computing operating income increased by $61.5 million, or 124.4%, in 2023 compared to the prior year primarily due to higher sales mainly due to the Stratus Technologies acquisition and gross margin expansion, partially offset by higher operating expenses due to the Stratus Technologies acquisition as well as personnel-related expenses due in part to increased headcount to support the revenue growth.

Integrated Memory operating income decreased by $51.2 million, or 69.6%, in 2024 compared to the prior year primarily due to lower sales and gross profit due to lower sales volumes of Flash and DRAM products.

Memory operating income decreased by $5.2 million, or 6.6%, in 2023 compared to the prior year primarily due to lower sales, partially offset by a favorable product mix and lower personnel-related costs driven in part by cost containment actions.

Optimized LED operating loss improved by $7.4 million, or 153.0%, in 2024 primarily due to higher revenue from increased demand, better factory leverage and product mix and lower personnel-related expenses due to headcount reductions.

Optimized LED operating income decreased by $54.0 million, or 109.8%, in 2023 compared to the prior year primarily due to lower sales from demand challenges in China, partially offset by lower personnel-related costs driven in part by cost reduction actions.

Operating and Non-operating (Income) Expense

Research and Development

Research and development expense increased by $13.1 million, or 16.9%, in 2023 compared to the prior year, primarily due to additional costs from the Stratus acquisition, offset by lower personnel-related expenses mainly driven by bonus and headcount reductions.

Research and development expense increased by $17.5 million, or 29.3%, in 2022 compared to the prior year, primarily due to additional costs from the acquisition of the LED Business, which had a full year of operations compared to a half a year in 2021, as well as higher personnel-related expenses and depreciation.

Research and development expense decreased by $9.0 million, or 10.0%, in 2024 compared to the prior year, primarily due to lower personnel-related expenses mainly driven by headcount reductions, as well as lower subcontract services mainly driven by Advanced Computing.

Research and development expense increased by $13.1 million, or 16.9%, in 2023 compared to the prior year, primarily due to additional costs from the Stratus Technologies acquisition, offset by lower personnel-related expenses mainly driven by bonus and headcount reductions.

Selling, General and Administrative

Selling, general and administrative expense increased by $55.9 million, or 27.3%, in 2023 compared to the prior year, primarily due to additional costs from the Stratus acquisition as well as higher acquisition and integration expenses, partially offset by lower personnel-related expenses driven by bonus and headcount reductions.

Selling, general and administrative expense increased by $46.7 million, or 29.5%, in 2022 compared to the prior year, primarily due to additional costs from the acquisition of the LED Business which had a full year of operations compared to a half a year in 2021, as well as higher personnel-related expenses, professional services and acquisition expenses.

Selling, general and administrative expense decreased by $26.8 million, or 10.3%, in 2024 compared to the prior year, primarily due to lower diligence, acquisition and integration expense, lower personnel-related expenses, mainly driven by headcount reductions, and lower amortization expense of intangible assets.

Selling, general and administrative expense increased by $55.9 million, or 27.3%, in 2023 compared to the prior year, primarily due to additional costs from the Stratus Technologies acquisition as well as higher diligence, acquisition and integration expense, partially offset by lower personnel-related expenses driven by bonus and headcount reductions.

Impairment of Goodwill

During the second quarter of 2023, we initiated a plan pursuant to which we intend to wind down manufacturing and discontinue the sale of certain legacy products offered through our Penguin Edge business by approximately the end of calendar 2024.

We recorded impairment charges of $17.6 million and $1.5 million in the second and fourth quarters of 2023, respectively, to impair the carrying value of Penguin Edge goodwill.

In the second quarter of 2023, we initiated a plan pursuant to which we intend to wind down manufacturing and discontinue the sale of certain legacy products offered through our Penguin Edge business by approximately the end of 2025.

We recorded impairment charges of $19.1 million in 2023 to impair the carrying value of Penguin Edge goodwill.

We currently anticipate that the remaining goodwill of the Penguin Edge reporting unit of $16.1 million as of August 30, 2024 may become further impaired in future periods.

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Change in Fair Value of Contingent Consideration

Our acquisitions of Stratus Technologies in the first quarter of 2023 and our LED Business in the third quarter of 2021 each included contingent consideration.

Our acquisitions of Stratus Technologies in the first quarter of 2023 and our Optimized LED business in the third quarter of 2021 each included contingent consideration.

We estimate the fair value of the contingent consideration as of the date of acquisition and subsequently recognize changes in the fair value in results of operations.

During 2023, we recorded charges of $29.0 million to adjust the fair value of the contingent consideration from our Stratus acquisition.

During 2022 and the second half of 2021, we recorded charges of $41.3 million and $32.4 million, respectively, to adjust the value of the contingent consideration from our LED acquisition.

During 2023 and 2022, we recorded charges of $29.0 million and $41.3 million, respectively, to adjust the fair value of the contingent consideration.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Business Acquisitions.”

Other Operating (Income) Expense

Other operating expense in 2023 included restructure charges of $7.0 million primarily for employee severance costs and other benefits resulting from workforce reductions, the elimination of certain projects across our businesses and other costs associated with the wind down of our Penguin Edge business.

Other operating expense in 2024 and 2023 included restructure charges of $7.1 million and $7.0 million, respectively, primarily for employee severance costs and other benefits resulting from workforce reductions, the elimination of certain projects across our businesses and other costs associated with the wind down of our Penguin Edge business.

We anticipate that such activities will continue into future quarters and anticipate recording additional restructure charges.

Interest Expense, Net

Net interest expense decreased by $8.0 million, or 22.1%, in 2024 compared to the prior year, primarily due to higher interest income resulting from higher cash and investment balances, partially offset by higher interest expense from the Amended 2027 TLA (as defined below).

Net interest expense increased by $12.1 million, or 49.6%, in 2023 compared to the prior year, primarily due to higher interest expense from the Amended 2027 TLA, partially offset by higher interest income resulting from higher cash and investment balances.

Other Non-operating (Income) Expense

Other non-operating (income) expense in 2023 included losses of $15.9 million from the extinguishment of debt, partially offset by net gains of $3.0 million from the disposition of assets.

Other non-operating (income) expense in 2024 and 2023 included losses of $22.8 million and $15.9 million, respectively, from the extinguishment or prepayment of debt.

Other non-operating (income) expense in 2023 also included net gains of $3.0 million from the disposition of assets.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt.”

Income Tax Provision (Benefit)

Our provision for income taxes increased by $59.8 million in 2024, or 121.6%, compared to the prior year primarily due to a decrease in tax benefit for the 2023 U.S.

federal and state valuation allowance release.

Our provision for income taxes decreased by $67.3 million in 2023, or 372.2%, compared to the prior year primarily due to the tax benefit on the release of the U.S.

federal and state valuation allowance in 2023 partially offset by tax addbacks for nondeductible goodwill impairment in 2023 and additional uncertain tax positions recorded in 2023.

Our provision for income taxes increased by $8.4 million in 2022, or 86.5%, compared to the prior year primarily due to higher income in non-

jurisdictions subject to tax and nondeductible expenses, partially offset by recording less valuation allowance expense in 2022 due to more income in the U.S.

jurisdiction.

In 2023, our tax benefit of $49.2 million and effective tax rate of 124.5% was different from the U.S.

federal and state valuation allowance in 2023, partially offset by tax add backs for nondeductible goodwill impairment in 2023 and additional uncertain tax positions recorded in 2023.

In 2024, our tax expense of $10.6 million and effective tax rate of (34.1)%, which was different from the U.S.

statutory tax rate primarily due to losses, generated in a jurisdiction where no tax benefit can be recognized, and foreign withholding taxes, partially offset by benefits associated with decreases in reserves for uncertain tax provisions and U.S.

federal and state tax credits.

In 2023, our tax benefit of $49.2 million and effective tax rate of 124.5%, which was different from the U.S.

statutory tax rate primarily due to a release of the U.S.

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statutory tax rate, increases in reserves for uncertain tax provisions, foreign withholding taxes and goodwill impairment for financial reporting purposes with no tax basis.

In 2022, our tax expense of $18.1 million and effective tax rate of 42.5% was different from the U.S.

In 2022, our tax expense of $18.1 million and effective tax rate of 42.5%, which was different from the U.S.

statutory tax rate primarily due to losses generated in jurisdictions with rates lower than the U.S.

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federal and state deferred tax assets.

In 2021, our tax expense of $9.7 million and effective tax rate of (30.0)% was different from the U.S.

statutory tax rate primarily due to losses generated in jurisdictions with rates lower than the U.S.

statutory tax rate and additional valuation allowance recorded against US federal and state deferred tax assets.

We have operations in Malaysia, where we have tax incentive arrangements for our pioneer status activities and our global supply chain operations.

The statutory tax rate for Malaysia is 24%.

These Malaysia arrangements are scheduled to expire in August 2028 and are subject to certain conditions, for which we have complied in 2023, 2022 and 2021.

In general, these future tax holidays will have tax rates greater than our prior approved tax holidays, and therefore we expect that our effective income tax rate in the future may be higher depending on a combination of our overall and jurisdictional profitability.

These arrangements are scheduled to expire in August 2028 and are subject to certain conditions, with which we have partially complied in 2024 and fully complied in 2023 and 2022.

The impact of partial compliance is reflected within the 2024 income tax provision.

Our effective income tax rate in the future may be higher depending on a combination of our overall and jurisdictional profitability, the expectation that future tax holidays will have tax rates greater than our prior approved tax holidays and the impact of the OECD’s Pillar Two model rules, which aims to implement a global minimum tax rate of 15%.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Income Taxes.”

Net Income (Loss) From Discontinued Operations

As discussed above, we have presented the results of our SMART Brazil activities as discontinued operations in our consolidated statements of operations for all periods presented.

As of August 25, 2023, our SMART Brazil operations were classified as held for sale.

Accordingly, we evaluated the carrying value of the net assets of our SMART Brazil operations (including $206.3 million recognized within shareholder’s equity related to the cumulative translation adjustment from our SMART Brazil operations), estimated costs to sell and expected proceeds and concluded the net assets were impaired.

As a result, we recognized an impairment charge of $153.0 million in 2023 to write down the carrying value of the net assets of our SMART Brazil operations.

As discussed above, we have presented the results of SMART Brazil as discontinued operations in our consolidated statements of operations for all periods presented.

As of August 25, 2023, SMART Brazil was classified as held for sale.

Accordingly, in 2023 we evaluated the carrying value of the net assets of SMART Brazil (including $206.3 million recognized within shareholder’s equity related to the cumulative translation adjustment from SMART Brazil), estimated costs to sell and expected proceeds and concluded the net assets were impaired.

As a result, we recognized an impairment charge of $153.0 million in 2023 to write down the carrying value of the net assets of SMART Brazil.

In addition, we concluded that the outside basis of SMART Brazil inclusive of any withholding taxes should be recognized upon the classification as held for sale as of August 25, 2023.

Accordingly, we recognized withholding taxes on the expected capital gain and deferred tax liabilities of $28.6

million in 2023.

In the first quarter of 2024, we completed the divestiture, and in connection therewith, recognized an additional loss of $8.9 million.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Divestiture of SMART Brazil.”

Liquidity and Capital Resources

As of August 25, 2023, we had cash, cash equivalents and short-term investments of $390.8 million, of which $82.5 million was held outside of the United States.

Our principal uses of cash and capital resources have been acquisitions, debt service requirements as described below, capital expenditures, research and development expenditures and working capital requirements.

We expect that future capital expenditures will focus on expanding capacity of our operations, expanding our research and development activities, manufacturing equipment upgrades, acquisitions and IT infrastructure and software upgrades.

Cash and cash equivalents consist of funds held in demand deposit accounts and money market funds.

As of August 30, 2024, we had cash, cash equivalents and short-term investments of $389.5 million, of which $299.1 million was held by subsidiaries outside of the United States.

Our principal uses of cash and capital resources have been acquisitions, debt service requirements, capital expenditures, research and development expenditures and working capital requirements.

We expect that future capital expenditures will focus on expanding our research and development activities, manufacturing equipment upgrades, acquisitions and IT infrastructure and software upgrades.

Cash and cash equivalents generally consist of funds held in demand deposit accounts, money market funds and time deposits.

We do not acquire investments for trading or speculative purposes.

We expect that our existing cash and cash equivalents, short-term investment, borrowings available under our credit facilities and cash generated by operating activities will be sufficient to fund our operations for at least the next twelve months.

We may from time to time seek additional equity or debt financing.

Any future equity financing may be dilutive to our existing investors, and any future debt financing may include debt service requirements and financial and other restrictive covenants that may constrain our operations and growth strategies.

Any future equity or debt financing may be dilutive to our existing investors and may include debt service requirements and financial and other restrictive covenants that may constrain our operations and growth strategies.

In the event that we seek additional financing, we may not be able to raise such financing on terms acceptable to us or at all.

If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in continued product innovation, we may not be able to compete successfully, which would harm our business, operations and financial condition.

The transaction to sell an 81% interest in SMART Brazil is expected to close at the end of calendar 2023 or early 2024.

Upon completion of the transaction, the purchaser will pay to us (i) an up front cash payment of $137.7 million on a cash-free, debt-free basis and subject to certain customary adjustments as set forth in the purchase agreement and (ii) a deferred

cash purchase price of $28.4 million eighteen months following the closing.

We expect to use the proceeds from the sale for general corporate purposes.

We expect that our existing cash and cash equivalents, short-term investments, borrowings available under our credit facilities and cash generated by operating activities will be sufficient to fund our operations for at least the next 12 months.

Credit Facility

On August 29, 2022, we amended our credit facility and borrowed an additional $300 million, which amount was added to our existing term loan.

The incremental term loans are on the same terms as the term loans incurred under the original credit agreement.

In addition, we amended certain covenants under the amended credit agreement.

In the first quarter of 2023, we applied a portion of the proceeds of the incremental term loans to (i) finance a portion of the purchase price of the acquisition of Stratus Technologies and (ii) pay in full the $101.8 million outstanding under the LED Earnout Note.

On February 7, 2022, Penguin Solutions and SMART Modular Technologies, Inc.

(collectively, the “Borrowers”) entered into a credit agreement (the “Original Credit Agreement”) with a syndicate of banks and Citizens Bank, N.A., as administrative agent that provided 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”), in each case, maturing on February 7, 2027.

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

The Original Credit Agreement has subsequently been amended to, among other things, provide for incremental term loans in an aggregate amount of $300.0 million (together with the 2027 TLA, the “Amended 2027 TLA”), amend the First Lien Leverage Ratio (as defined in the Amended Credit Agreement) and increase the aggregate amount of unrestricted cash and permitted investments netted from the definitions of Consolidated First Lien Debt and Consolidated Net Debt.

As of August 30, 2024, there was $300.0 million of aggregate principal amount outstanding under the Amended 2027 TLA and there were no amounts outstanding under the 2027 Revolver.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Debt – Credit Facility.”

Divestiture of SMART Brazil

In November 2023, we completed the divestiture of SMART Brazil.

In connection with the divestiture, we sold an 81% interest and retained a 19% interest in SMART Brazil.

At the closing of the transaction, we received cash of $143.0 million, net of tax, from the sale.

In addition, we have the right to receive a deferred payment of $28.4 million in May 2025.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Divestiture of SMART Brazil.”

Preferred Share Investment

In July 2024, we entered into the SKT Purchase Agreement for the Investment, pursuant to which we agreed to sell to SK the CPS.

The CPS will be convertible into ordinary shares at a conversion price of $32.81 per preferred share, subject to adjustment upon the occurrence of certain events, will have an initial liquidation preference of 1x and will only be redeemable at our option, subject to certain conditions.

The holder of the CPS may convert such holder’s CPS into ordinary shares at any time, provided that the CPS may, at our option, automatically be converted into ordinary shares on any date following the second anniversary of the closing upon certain conditions.

The CPS will entitle the holder to receive dividends of six percent per annum, cumulative, and payable quarterly in-kind or in cash at our option.

The SKT Purchase Agreement may be terminated by either SK or us if the closing has not occurred by April 14, 2025, subject to extension to July 14, 2025 in the event certain approvals have not been obtained.

The Investment is expected to close by the end of calendar 2024 or early in calendar 2025.

Because the transaction is subject to regulatory clearances and approvals, there can be no assurance that the transaction will close in calendar 2024 or 2025, or at all.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Preferred Share Investment.”

Contractual Obligations

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Effect of changes in currency exchange rates (1,256) 4,765 239

Net increase in cash and cash equivalents $ 46,999 $ 140,079 $ 72,175

Net increase (decrease) in cash, cash equivalents and restricted cash $ (26,587) $ 46,999 $ 140,079

Operating Activities :

Cash flows from operating activities reflects net income, adjusted for certain non-cash items, including depreciation and amortization expense, share-based compensation, adjustments for changes in the fair value of contingent consideration, gains and losses from investing or financing activities and from the effects of changes in operating assets and liabilities.

Cash flows from operating activities reflects net income, adjusted for certain non-cash items, including depreciation and amortization expense, share-based compensation, changes in the fair value of contingent consideration, gains and losses from investing or financing activities and from the effects of changes in operating assets and liabilities.

Net cash provided by operating activities from continuing operations in 2024 was $105.5 million, comprised primarily of a net loss of $41.8 million, adjusted for non-cash items of $121.6 million.

Operating cash flows were favorably affected by a $25.7 million net change in our operating assets and liabilities, primarily from the effects of an increase of $54.3 million in accounts payable and accrued expenses and other liabilities and a decrease of $23.8 million inventories, partially offset by an increase of accounts receivable of $32.5 million and the payment of $29.0 million of contingent consideration, which related to our 2023 acquisition of Stratus Technologies.

The increase in accounts payable and accrued expenses and other liabilities was primarily due to timing of payments, as well as higher deferred revenue resulting from amounts received from customers in advance of satisfying performance obligations.

Net cash provided by operating activities from continuing operations in 2023 was $63.7 million, comprised primarily of a net income of $9.7 million, adjusted for non-cash items of $119.3 million.

Operating cash flows were adversely affected by a $65.4 million net change in our operating assets and liabilities, primarily from the effects of decreases of $256.1 million in accounts payable and accrued expenses and other liabilities and the payment of $73.7 million of contingent consideration related to our 2021 acquisition of the LED business, partially offset by the effect of decreases of $162.5 million in accounts receivable and $95.2 million in inventories.

The decreases in both accounts payable and accrued expenses and inventories were primarily due to lower inventories in our Memory Solutions and IPS businesses.

The decrease in accounts receivable was primarily due to lower gross sales in our Memory Solutions businesses.

Operating cash flows were adversely affected by a $65.4 million net change in our operating assets and liabilities, primarily from the effects of decreases of $256.1 million in accounts payable and accrued expenses and other liabilities and the payment of $73.7 million of contingent consideration, which related to our 2021 acquisition of the Optimized LED business, partially offset by the effect of decreases of $162.5 million in accounts receivable and $95.2 million in inventories.

The decreases in both accounts payable and accrued expenses and inventories were primarily due to lower inventories in our Integrated Memory and Advanced Computing segments.

The decrease in accounts receivable was primarily due to lower gross sales in our Integrated Memory segment.

Net cash provided by operating activities from continuing operations in 2022 was $38.9 million, resulting primarily from net income of $24.4 million, adjusted for non-cash items of $136.8 million.

Operating cash flows were adversely affected by a $122.3 million net change in our operating assets and liabilities, primarily from the effects of an increase of $97.8 million in accounts receivable and a decrease of $44.9 million in accounts payable and accrued expenses and other liabilities, partially offset by a decrease of $30.7 million in inventories.

The increase in accounts receivable was primarily due to higher gross sales, primarily in our Memory Solutions and IPS segments.

The decreases in both accounts payable and accrued expenses and in inventories were primarily due to lower inventories in our Memory Solutions and IPS businesses.

Net cash provided by operating activities from continuing operations in 2021 was $122.8 million, comprised of a net loss of $42.0 million, adjusted for non-cash items of $104.5 million.

Operating cash flows also benefited from a $60.3 million net change in our operating assets and liabilities, primarily from the effects of an increase of $192.5 million in accounts payable and accrued expenses and other liabilities and a decrease of $15.4 million in other assets, partially offset by increases of $99.9 million in inventories and $47.8 million in accounts receivable.

The increases in accounts payable and accrued

expenses and in inventories were primarily due to higher inventories among all business areas.

The increase in accounts receivable was primarily due to higher gross sales primarily in our Memory Solutions and IPS segments.

in accounts receivable was primarily due to higher gross sales primarily in our Integrated Memory and Advanced Computing segments.

The decreases in both accounts payable and accrued expenses and in inventories were primarily due to lower inventories in our Integrated Memory and Advanced Computing segments.

Investing Activities :

Net cash used in investing activities from continuing operations in 2023 was $281.2 million, consisting primarily of $213.1 million net cash used for the acquisition of Stratus, $39.4 million used for capital expenditures and deposits on equipment and $25.0 million used for the purchases of investment securities.

Net cash used in investing activities from continuing operations in 2022 consisted primarily of $20.4 million used for capital expenditures and deposits on equipment.

Net cash used in investing activities from continuing operations in 2021 consisted primarily of $35.7 million net cash used for the acquisition of the LED Business and $16.7 million used for capital expenditures and deposits on equipment.

Net cash used for investing activities from continuing operations in 2024 consisted primarily of $19.4 million used for capital expenditures and deposits on equipment and $11.0 million of purchases of non-marketable investment securities, partially offset by net maturities of marketable investment securities of $19.9 million.

Net cash used for investing activities from continuing operations in 2023 was $281.2 million, consisted primarily of $213.1 million net cash used for the acquisition of Stratus Technologies, $39.4 million used for capital expenditures and deposits on equipment and $25.0 million used for the purchases of marketable investment securities.

Net cash used for investing activities from continuing operations in 2022 consisted primarily of $20.4 million used for capital expenditures and deposits on equipment.

Financing Activities :

Net cash provided by financing activities from continuing operations in 2023 was $237.2 million, consisting primarily of $295.3 million in net proceeds from issuance of a term loan and $43.0 million in proceeds from the issuance of ordinary shares from our equity plans, partially offset by $28.1 million payment of contingent consideration related to our 2021 acquisition of our LED business, $24.7 million of payments to acquire ordinary shares (including $13.8 million under our share repurchase program and convertible note exchange), $21.6 million in principal repayment of debt and $14.1 million payment in premium in connection with our convertible note exchange.

Net cash provided by financing activities from continuing operations in 2022 was $60.6 million, consisting primarily of $270.8 million in net proceeds from issuance of a term loan and $12.1 million in proceeds from the issuance of ordinary shares from our equity plans, partially offset by $126.7 million in principal repayment of debt, primarily the LED Purchase Price Note, $57.2 million of payments to acquire ordinary shares (including $50.0 million under our share repurchase program) and $25.0 million in net repayments of borrowings under our line of credit.

Net cash used in financing activities from continuing operations in 2021 was $14.7 million, consisting primarily of $48.5 million used to repurchase our ordinary shares, partially offset by $25.0 million in net proceeds from borrowings under our line of credit and $14.9 million in proceeds from the issuance of ordinary shares.

Net cash used for financing activities from continuing operations in 2024 was $209.5 million, consisting primarily of $351.3 million in principal repayment of debt, $21.3 million of payments to acquire ordinary shares, $21.0 million payment of contingent consideration related to our 2023 acquisition of Stratus Technologies and $16.3 million of payments to acquire capped calls in connection with the issuance of our 2030 Notes, partially offset by $192.7 million in net proceeds from the issuance of our 2030 Notes and $9.8 million in proceeds from the issuance of ordinary shares from our equity plans.

Net cash provided by financing activities from continuing operations in 2023 was $237.2 million, consisting primarily of $295.3 million in net proceeds from our term loan and $43.0 million in proceeds from the issuance of ordinary shares from our equity plans, partially offset by a $28.1 million payment of contingent consideration related to our 2021 acquisition of our Optimized LED business, $24.7 million of payments to acquire ordinary shares, $21.6 million in principal repayment of debt and $14.1 million payment of premium in connection with our convertible note exchange.

Net cash provided by financing activities from continuing operations in 2022 was $60.6 million, consisting primarily of $270.8 million in net proceeds from issuance of a term loan and $12.1 million in proceeds from the issuance of ordinary shares from our equity plans, partially offset by $126.7 million in principal repayment of debt, primarily the LED Purchase Price Note, $57.2 million of payments to acquire ordinary shares and $25.0 million in net repayments of borrowings under our line of credit.

Critical Accounting Estimates

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• Property, plant and equipment, including determination of values in a continued-use model;

• Debt and other liabilities, including discount rate and timing of payments;

• Intangible assets, including valuation methodology, estimates of future revenues and costs, profit allocation rates attributable to the acquired technology and discount rates;

• Debt and other liabilities, including discount rate and timing of payments;

• Deferred taxes, including projections of future taxable income and tax rates.

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Inventories are stated at the lower of cost or net realizable value.

In our LED segment, cost is determined on a first-in, first-out method or average cost method.

In our Optimized LED segment, cost is determined on a first-in, first-out basis.

For all other segments, inventory value is determined on a specific identification basis for material and an allocation of labor and manufacturing overhead.

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These estimates and assumptions include revenue growth rates, forecasted manufacturing costs, budgets and other expenses developed as part of our long-range planning process.

We test the reasonableness of the output of our long-range planning process by calculating an implied value per share and comparing that to current share prices, analysts’ consensus pricing and management’s expectations.

We test the reasonableness

of the output of our long-range planning process by calculating an implied value per share and comparing that to current share prices, analysts’ consensus pricing and management’s expectations.

These estimates and assumptions are used to calculate projected future cash flows for the reporting unit, which are discounted using a risk-adjusted rate to estimate a fair value.

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

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

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.

Service revenue also includes extended warranty, on-site services and subscriptions to our HPC environment.

Agent Services :

We provide certain supply chain services on an agent basis, whereby we procure materials and services on behalf of our customers and then resell such materials or services to our customers.

Gross amounts invoiced to customers in connection with these agent services include amounts related to the services performed by us in addition to the cost of the materials and services procured.

We provide certain services on an agent basis, whereby we procure product, materials and services on behalf of our customers and then resell such product, materials or services to our customers.

Gross amounts invoiced to customers in connection with these agent services include amounts related to the services performed by us in addition to the cost of the product, materials and services procured.

However, only the amount related to the agent component is recognized as revenue in our results of operations.

We generally recognize revenue for these procurement, logistics and inventory management services upon the completion of such services, which typically occurs at the time of shipment of product to the customer.

Amounts we invoice to customers for the cost of materials and services performed, which remain unpaid as of the end of a reporting period, are included in accounts receivable.

Additionally, the cost of materials procured for customers under these agent services, but which remain on hand as of the end of a reporting period, are included in inventories.

Amounts in accounts receivable and inventories impact the determination of net cash provided by (used in) operations.

We generally recognize revenue for these procurement, logistics and inventory management services upon the completion and/or acceptance of such services, which typically occurs at the time of shipment of product to the customer.

we invoice to customers for the cost of product, materials and services performed, which remain unpaid as of the end of a reporting period, are included in accounts receivable.

Additionally, the cost of product and materials procured for customers under these agent services, which remain on hand as of the end of a reporting period, are included in inventories.

Amounts in accounts receivable and inventories impact the determination of cash flows from operating activities.

Determining whether we are the principal or agent in these transactions requires significant judgement.

10 unchanged sentences

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.

As a practical expedient, we recognize the incremental costs of obtaining a contract, specifically commission expenses, that have an amortization period of less than 12 months, as an expense when incurred.

Additionally, we account for shipping and handling costs, if any, that occur after control transfers to the customer as a fulfillment activity.

1 unchanged sentence

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 7. Management’s Discussion and Analysis