What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-10-24 compared with 2023-10-20 · 434 added, 466 removed, 893 unchanged (50% of the section changed)

8 unchanged sentences

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

SMART Global Holdings, Inc.

Penguin Solutions, Inc.

Consolidated Balance Sheets

5 unchanged sentences

Accounts receivable, net 251,743 219,247

219,247 355,002

Inventories 151,213 174,977

8 unchanged sentences

Other noncurrent assets 71,415 15,150

Noncurrent assets of discontinued operations — 99,145

Total assets $ 1,474,506 $ 1,505,958

10 unchanged sentences

Other noncurrent liabilities 29,813 29,248

Noncurrent liabilities of discontinued operations — 20,471

Total liabilities 1,075,298 1,276,725

Commitments and contingencies

SMART Global Holdings shareholders’ equity:

Penguin Solutions shareholders’ equity:

Preferred shares, $ 0.03 par value;

authorized 30,000 shares;

none issued or outstanding

Ordinary shares, $ 0.03 par value;

7 unchanged sentences

Accumulated other comprehensive income (loss) 10 ( 205,964 )

Total SGH shareholders’ equity 222,475 371,611

Total Penguin Solutions shareholders’ equity 391,381 222,475

Noncontrolling interest in subsidiary 7,827 6,758

2 unchanged sentences

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

SMART Global Holdings, Inc.

Penguin Solutions, Inc.

Consolidated Statements of Operations

29 unchanged sentences

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

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

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

Basic earnings (loss) per share:

10 unchanged sentences

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

SMART Global Holdings, Inc.

Penguin Solutions, Inc.

Consolidated Statements of Comprehensive Income (Loss)

6 unchanged sentences

Cumulative translation adjustment ( 6,352 ) 15,686 ( 40 )

Gains (losses) on investments 5 — —

Cumulative translation adjustment reclassified to net income (loss) 212,321 — —

Gain (loss) on investments 5 5 —

Comprehensive income (loss) 156,041 ( 170,003 ) 68,552

Comprehensive income attributable to noncontrolling interest 2,539 1,832 2,035

Comprehensive income (loss) attributable to SGH $ ( 171,835 ) $ 66,517 $ 27,936

Comprehensive income (loss) attributable to Penguin Solutions $ 153,502 $ ( 171,835 ) $ 66,517

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

SMART Global Holdings, Inc.

Penguin Solutions, Inc.

Consolidated Statements of Shareholders’ Equity

4 unchanged sentences

Income (Loss)

Total Penguin

Shareholders’

3 unchanged sentences

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

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

Repurchase of shares ( 55 ) ( 2 ) 2 — ( 57,231 ) — ( 57,231 ) — ( 57,231 )

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

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

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

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

Net income (loss) — — — ( 187,526 ) — — ( 187,526 ) 1,832 ( 185,694 )

Other comprehensive income (loss) — — — — — 15,691 15,691 — 15,691

Shares issued under equity plans 4,662 140 42,904 — — — 43,044 — 43,044

Repurchase of ordinary shares ( 55 ) ( 2 ) 2 — ( 57,231 ) — ( 57,231 ) — ( 57,231 )

Repurchase of shares — — — — ( 24,671 ) — ( 24,671 ) — ( 24,671 )

Purchase of 2029 Capped Calls — — ( 15,090 ) — — — ( 15,090 ) — ( 15,090 )

Settlement of 2026 Capped Calls — — 10,786 — — — 10,786 — 10,786

Share-based compensation expense — — 40,813 — — — 40,813 — 40,813

Distribution to noncontrolling interest — — — — — — — ( 2,009 ) ( 2,009 )

Adoption of ASU 2020-06 — — ( 50,822 ) 18,639 — — ( 32,183 ) — ( 32,183 )

As of August 25, 2023 57,542 1,726 476,703 82,457 ( 132,447 ) ( 205,964 ) 222,475 6,758 229,233

2 unchanged sentences

Shares issued under equity plans 2,684 81 9,728 — — — 9,809 — 9,809

Repurchase of ordinary shares — — — — ( 24,671 ) — ( 24,671 ) — ( 24,671 )

Repurchase of shares — — — — ( 21,309 ) — ( 21,309 ) — ( 21,309 )

Purchase of 2030 Capped Calls — — ( 16,300 ) — — — ( 16,300 ) — ( 16,300 )

Settlement of Capped Calls — — 10,786 — — — 10,786 — 10,786

Share-based compensation expense — — 43,204 — — — 43,204 — 43,204

Distribution to noncontrolling interest — — — — — — — ( 1,470 ) ( 1,470 )

Adoption of ASU 2020-06 — — ( 50,822 ) 18,639 — — ( 32,183 ) — ( 32,183 )

As of August 30, 2024 60,226 $ 1,807 $ 513,335 $ 29,985 $ ( 153,756 ) $ 10 $ 391,381 $ 7,827 $ 399,208

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

SMART Global Holdings, Inc.

Penguin Solutions, Inc.

Consolidated Statements of Cash Flows

9 unchanged sentences

Depreciation expense and amortization of intangible assets 65,716 71,632 46,665

Amortization of debt discount and issuance costs 4,064 10,263 8,798

Amortization of debt issuance costs 3,724 4,064 10,263

Share-based compensation expense 43,160 39,228 37,284

1 unchanged sentence

Change in fair value of contingent consideration — 29,000 41,324

Loss on extinguishment of debt 15,924 653 —

Loss on extinguishment or prepayment of debt 22,763 15,924 653

Deferred income taxes, net ( 11,042 ) ( 63,603 ) ( 20 )

7 unchanged sentences

Net cash provided by operating activities from continuing operations 105,521 63,677 38,862

Net cash provided by operating activities from discontinued operations 40,710 66,069 30,510

Net cash provided by (used for) operating activities from discontinued operations ( 28,336 ) 40,710 66,069

Net cash provided by operating activities 77,185 104,387 104,931

1 unchanged sentence

Capital expenditures and deposits on equipment ( 19,424 ) ( 39,421 ) ( 20,359 )

Acquisition of business, net of cash acquired ( 213,073 ) — ( 35,677 )

Proceeds from maturities of investment securities 39,395 — —

Purchases of held-to-maturity investment securities ( 19,503 ) ( 25,015 ) —

( 25,015 ) — —

Purchases of non-marketable investments ( 11,000 ) ( 4,150 ) —

Acquisition of business, net of cash acquired — ( 213,073 ) —

Other ( 1,272 ) 475 ( 875 )

Net cash used for investing activities from continuing operations ( 11,804 ) ( 281,184 ) ( 21,234 )

Net cash used for investing activities from discontinued operations ( 17,385 ) ( 17,736 ) ( 30,711 )

Net cash used for investing activities ( 298,569 ) ( 38,970 ) ( 84,178 )

Net cash provided by (used for) investing activities from discontinued operations 119,389 ( 17,385 ) ( 17,736 )

Net cash provided by (used for) investing activities 107,585 ( 298,569 ) ( 38,970 )

Cash flows from financing activities

Proceeds from debt 295,287 270,775 —

Proceeds from issuance of ordinary shares 43,045 12,140 14,923

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

Payment of acquisition-related contingent consideration ( 28,100 ) — —

Payments to acquire ordinary shares ( 24,671 ) ( 57,231 ) ( 48,513 )

Repayments of debt ( 351,337 ) ( 21,634 ) ( 126,719 )

Payment of premium in connection with convertible note exchange ( 14,141 ) — —

Payments to acquire ordinary shares ( 21,309 ) ( 24,671 ) ( 57,231 )

Payment of acquisition-related contingent consideration ( 21,000 ) ( 28,100 ) —

Net cash paid for settlement and purchase of capped calls ( 16,300 ) ( 4,304 ) —

Distribution to noncontrolling interest ( 1,470 ) ( 2,009 ) ( 3,773 )

Proceeds from debt 192,694 295,287 270,775

Proceeds from issuance of ordinary shares 9,809 43,045 12,140

Payment of premium in connection with convertible note exchange — ( 14,141 ) —

Repayments of borrowings under line of credit — — ( 109,000 )

Proceeds from borrowing under line of credit — — 84,000

Other ( 582 ) ( 6,252 ) ( 9,547 )

1 unchanged sentence

Net cash provided by (used for) financing activities from discontinued operations ( 606 ) ( 805 ) 13,234

Net cash provided by financing activities 236,416 73,879 2,849

Net cash provided by (used for) financing activities ( 210,101 ) 236,416 73,879

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

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

Cash and cash equivalents at end of period $ 410,064 $ 363,065 $ 222,986

Cash and cash equivalents at end of period:

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

Cash, cash equivalents and restricted cash at beginning of period 410,064 363,065 222,986

Cash, cash equivalents and restricted cash at end of period $ 383,477 $ 410,064 $ 363,065

Cash, cash equivalents and restricted cash at end of period:

Continuing operations $ 383,477 $ 365,563 $ 313,328

2 unchanged sentences

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

SMART Global Holdings, Inc.

Penguin Solutions, Inc.

Notes to Consolidated Financial Statements

2 unchanged sentences

Basis of Presentation

The accompanying consolidated financial statements include SGH and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements include the accounts of Penguin Solutions, Inc.

(“Penguin Solutions,” “we,” “us,” “our,” the “Company” or similar terms) and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America.

Intercompany balances and transactions have been eliminated in consolidation.

Company Name Change :

On October 15, 2024, we changed our name from SMART Global Holdings, Inc.

to Penguin Solutions, Inc.

The change reflects our focus on key areas such as artificial intelligence infrastructure deployment, advanced memory enterprise solutions and high-performance computing.

Presentation of SMART Brazil as Discontinued Operations :

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

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

(“SMART Brazil”).

As a result, we have presented the balance sheets, results of operations and cash flows of SMART Brazil as discontinued operations for all periods presented.

SMART Brazil was previously included within our Memory Solutions segment.

We concluded that, as of August 25, 2023, (i) the net assets of SMART Brazil met the criteria for classification as held for sale and (ii) the proposed sale represented a strategic shift that was expected to have a major effect on our operations and financial results.

On November 29, 2023, we completed the divestiture.

The balance sheets, results of operations and cash flows of SMART Brazil have been presented as discontinued operations for all periods presented.

SMART Brazil was previously included within our Integrated Memory segment.

See “Divestiture of SMART Brazil.”

Unless otherwise noted, amounts and discussion within these notes to the consolidated financial statements relate to our continuing operations.

Prior period comparative information has been conformed to current period presentation for continuing operations.

Reclassifications :

2 unchanged sentences

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.

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, Cash Equivalents and Investments

Financial information for our subsidiaries in Brazil was 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 included the four-month period for our SMART Brazil operations from August 1, 2023 to November 29, 2023.

Cash, Cash Equivalents and Short-term Investments

Cash equivalents include highly liquid investments, readily convertible to known amounts of cash, with original maturities of three months or less.

Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments.

Cash paid for interest, net of amounts capitalized, for 2023, 2022 and 2021 was $ 41.8 million, $ 12.8 million and $ 8.0 million, respectively.

Income taxes paid, net of refunds, for 2023, 2022 and 2021 were $ 35.5 million, $ 13.8 million and $ 6.7 million, respectively.

Cash paid for interest, net of amounts capitalized, was $ 47.7 million, $ 41.8 million and $ 12.8 million for 2024, 2023 and 2022, respectively.

Income taxes paid, net of refunds, were $ 13.1 million, $ 35.5 million and $ 13.8 million for 2024, 2023 and 2022, respectively.

Derivative Instruments

13 unchanged sentences

Functional Currency

Our primary functional currency is the U.S.

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

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

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

dollars each period at the current exchange rate, while revenues and expenses are translated at the average exchange rate prevailing during the period.

Cumulative translation gains and losses are included in accumulated other comprehensive income (loss).

We test goodwill for impairment in the fourth quarter of each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of the reporting unit with goodwill is less than its carrying value.

Qualitative factors considered in this assessment include industry and market considerations, overall financial performance and other relevant events and factors affecting the fair value of the reporting unit.

The functional currency for all of our operations is the U.S.

Monetary balances recorded in currencies other than the U.S.

dollar are remeasured into U.S.

dollars at prevailing exchange rates in effect as of the end of each reporting period.

Gains or losses resulting from the remeasurement of monetary balances are recognized in other non-operating (income) expense.

We test goodwill for impairment in the fourth quarter of each year, or more frequently if indicators of an impairment exist, to determine whether it is more likely than not that the fair value of a reporting unit with goodwill is less than its carrying value.

In 2023, we recorded aggregate goodwill impairment charges of $ 19.1 million.

Other than this impairment charge in 2023, there has been no impairment of goodwill for any of our current reporting units.

See “Goodwill and Intangible Assets – Impairment of Penguin Edge Goodwill.”

Government Incentives

We receive incentives from governmental entities related to certain expenses and other activities.

These government incentives may require that we meet or maintain specified spending levels and other operational metrics and are recorded in the financial statements in accordance with their purpose.

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 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.

See “Intangible Assets and Goodwill.”

We recognize current and deferred income taxes based on reported income before income taxes.

Deferred income taxes reflect the effect of temporary differences and carryforwards recognized for financial reporting and income tax purposes.

Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, utilizing tax rates that are expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled.

We recognize valuation allowances to reduce deferred tax assets to the amount that we estimate, based on available evidence and management judgment, will more likely than not be realized.

Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, utilizing tax rates that are expected to apply in the years in which temporary differences are expected to be recovered or settled.

We recognize valuation allowances to reduce deferred tax assets to the amounts that we estimate, based on available evidence and management judgment, will more likely than not be realized.

We record a valuation allowance in the period the determination is made that all or part of the net deferred tax assets will not be realized.

1 unchanged sentence

Intangible Assets

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

Intangible assets are stated at cost and amortized on a straight-line basis over their estimated useful lives of generally 5 to 19 years for technology, 6 to 8 years for customer relationships and 5 to 10 years for trademarks/trade names.

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

2 unchanged sentences

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.

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

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

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

At each balance sheet date, we evaluate ending inventories for excess quantities and obsolescence, including analyses of sales levels by product family, historical demand and forecasted demand in relation to inventory on hand, competitiveness of product offerings, market conditions and product life cycles.

7 unchanged sentences

Property and Equipment

Property and equipment is stated at cost and depreciated using the straight-line method over estimated useful lives of generally two to eight years for equipment, five to forty years for buildings and building improvements and two to five years for furniture, fixtures and software.

Property and equipment is stated at cost and depreciated using the straight-line method over estimated useful lives of generally 2 to 8 years for equipment, 5 to 40 years for buildings and building improvements and 2 to 5 years for furniture, fixtures and software.

Land leases are amortized using the straight-line method over their lease terms, which expire from 2057 to 2082.

5 unchanged sentences

We recognize revenue based on the transfer of control of goods and services and apply the following five-step approach:

(1) identification of a contract with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract and (5) recognition of revenue as performance obligations are satisfied.

(1) identification of a contract with a customer, (2) identification of the performance obligations in the

contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract and (5) recognition of revenue as performance obligations are satisfied.

Product Revenue :

7 unchanged sentences

In connection with these arrangements, customers obtain control and benefit from products as they are completed.

The terms for these

arrangements provide us with a legally enforceable right to receive payment, including a reasonable profit margin upon customer cancellation, for performance completed to date.

The terms for these arrangements provide us with a legally enforceable right to receive payment, including a reasonable profit margin, upon customer cancellation for performance completed to date.

Accordingly, we recognize revenue over time as we complete the manufacture of these products.

8 unchanged sentences

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, 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.

Amounts 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.

Transaction Price :

2 unchanged sentences

The standalone selling price for products primarily involves the cost to produce the deliverable plus the anticipated margin and for services is estimated based on our approved list price.

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

A portion of our service revenue is from professional 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.

1 unchanged sentence

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.

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

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.

We record shipping and handling costs related to revenue transactions within cost of sales as a period cost.

8 unchanged sentences

Estimates and judgments are based on historical experience, forecasted events and various other assumptions.

Significant items subject to such estimates and assumptions include

business acquisitions and divestitures, income taxes, inventories, goodwill and intangible assets, property and equipment, revenue recognition and share-based compensation.

Significant items subject to such estimates and assumptions include business acquisitions and divestitures, income taxes, inventories, goodwill and intangible assets, property and equipment, revenue recognition and share-based compensation.

Actual results could differ from the estimates made by management.

Preferred Share Investment

On July 14, 2024, we entered into a Securities Purchase Agreement (the “SKT Purchase Agreement”) with SK Telecom Co., Ltd.

Pursuant to the SKT Purchase Agreement, we agreed to sell to SK 200,000 convertible preferred shares, par value $ 0.03 per share, of Penguin Solutions (the “CPS”), at a price of $ 1,000 per share or an aggregate price of $ 200 million (the “Investment”).

The CPS will have an initial liquidation preference of 1 x and will only be redeemable at our option.

The CPS will vote together with the ordinary shares, par value $ 0.03 per share, of Penguin Solutions, on an as-converted basis, and entitle the holder to receive dividends of six percent per annum, cumulative, and payable quarterly in-kind or in cash at Penguin Solutions’ 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 of the Investment upon which the volume-weighted average price of the ordinary shares for any 15 consecutive trading day period equals or exceeds 150 % of the then-applicable conversion price.

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.

Holders of the CPS are also entitled to certain protective provisions.

The SKT Purchase Agreement contains customary representations, warranties, covenants and conditions to the closing, including receipt of all approvals or the termination or expiration of all waiting periods required under applicable antitrust laws.

The SKT Purchase Agreement may be terminated by either Penguin Solutions or SK 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.

On the date of closing of the Investment, we and an affiliate of SK will enter into an Investor Agreement and the Certificate of Designation relating to the CPS (the “Certificate of Designation”) will become effective.

The Investor Agreement and the Certificate of Designation provide for certain rights and restrictions relating to the Investment.

Divestiture of SMART Brazil

Overview of Transaction

On June 13, 2023, we entered into a Stock Purchase Agreement (the “Brazil Purchase Agreement”), by and among SMART Modular Technologies (LX) S.à.r.l., a société à responsabilité limitée governed by the laws of Grand Duchy of Luxembourg and our wholly owned subsidiary (the “Brazil Seller”), Lexar Europe B.V., a company organized under the laws of The Netherlands (the “Brazil Purchaser”), Shenzhen Longsys Electronics Co., Ltd., a company limited by shares governed by the laws of the People’s Republic of China (“Longsys”), solely with respect to certain provisions therein, Shanghai Intelligent Memory Semiconductor Co., Ltd., a limited liability company governed by the laws of the People’s Republic of China (“Parent Funding Entity”), and solely with respect to certain provisions therein, SGH, for the intended sale of our standards-based modules assembly and test business in Brazil.

The transaction, which was approved by our Board of Directors and the Board of Directors of the Brazil Seller, is expected to close at the end of calendar 2023 or early 2024.

Pursuant to the Brazil Purchase Agreement, among other matters, and subject to the satisfaction or waiver of the conditions set forth therein, the Brazil Seller will sell to the Brazil Purchaser, and the Brazil Purchaser will purchase from the Brazil Seller, 81 % of the Brazil Seller’s right, title and interest in and to the outstanding quotas of SMART Modular Technologies do Brasil – Indústria e Comercio de Componentes Ltda., a sociedade limitada governed by the laws of Brazil (“SMART Brazil”), with the Brazil Seller retaining a 19 % interest in SMART Brazil (the “Retained Interest”).

Pursuant to the terms of, and subject to the conditions specified in, the Brazil Purchase Agreement, upon completion of the transaction, the Brazil Purchaser will pay to the Brazil Seller (based on a total enterprise value of $ 205.0 million for SMART Brazil) consideration consisting of (i) an up front cash purchase price of $ 137.7 million on a cash-free, debt-free basis and subject to certain customary adjustments as set forth in the Brazil Purchase Agreement, (ii) a deferred cash purchase price of $ 28.4 million eighteen months following the closing and (iii) subject to and at the time of exercise of the Put/Call Option (as defined below), an additional cash payment equal to 19 % of the amount of SMART Brazil’s cash at the closing (as calculated pursuant to the Brazil Purchase Agreement) minus the amount of SMART Brazil’s indebtedness at the closing (as calculated pursuant to the Brazil Purchase Agreement).

Pursuant to the Brazil Purchase Agreement, at closing, SMART Brazil, the Brazil Seller, the Brazil Purchaser and Longsys will enter into a Quotaholders Agreement, which will provide the Brazil Seller with a put option to sell the Retained Interest in SMART Brazil (the “Put Option”) during three exercise windows following its fiscal years 2026, 2027 or 2028 (the “Exercise Windows”).

A call option has also been granted to the Brazil Purchaser to require the Brazil Seller to sell the Retained Interest during the Exercise Windows (the “Call Option,” together with the Put Option, the “Put/Call Option”).

On November 29, 2023, we completed the divestiture of SMART Brazil pursuant to the terms of that certain Stock Purchase Agreement (the “Brazil Purchase Agreement”), by and among SMART Modular Technologies (LX) S.à

r.l., a société à responsabilité limitée governed by the laws of Grand Duchy of Luxembourg and a wholly owned subsidiary of Penguin Solutions (the “Brazil Seller”), Lexar Europe B.V., a company organized under the laws of The Netherlands (the “Brazil Purchaser”), Shenzhen Longsys Electronics Co., Ltd., a company limited by shares governed by the laws of the People’s Republic of China (“Longsys”), solely with respect to certain provisions therein, Shanghai Intelligent Memory Semiconductor Co., Ltd., a limited liability company governed by the laws of the People’s Republic of China and, solely with respect to certain provisions therein, Penguin Solutions.

Pursuant to the Brazil Purchase Agreement, Brazil Seller sold to Brazil Purchaser, and Brazil Purchaser purchased from Brazil Seller, 81 % of Brazil Seller’s right, title and interest in and to the outstanding quotas of SMART Brazil, with Brazil Seller retaining a 19 % interest in SMART Brazil (the “Retained Interest”) (the “Brazil Divestiture”).

At the closing of the Brazil Divestiture, Brazil Purchaser paid to Brazil Seller (based on a total enterprise value of $ 204.6 million for SMART Brazil) an upfront cash purchase price, subject to certain customary adjustments as set forth in the Brazil Purchase Agreement.

In addition, pursuant to the Brazil Purchase Agreement, Brazil Seller has a right to receive, and Brazil Purchaser is obligated to pay, (i) a deferred payment due 18 months following the closing and (ii) subject to and at the time of exercise of the Put/Call Option (as defined below), an additional deferred cash adjustment equal to 19 % of the amount of SMART Brazil’s net cash as of the closing (as calculated pursuant to the Brazil Purchase Agreement).

Put/Call Option :

Pursuant to the Brazil Purchase Agreement, at the closing, SMART Brazil, Brazil Seller, Brazil Purchaser and Longsys entered into a Quotaholders Agreement, which provides Brazil Seller with a put option to sell the Retained Interest in SMART Brazil to Brazil Purchaser (the “Put Option”) during three exercise windows following SMART Brazil’s fiscal years ending December 31, 2026, December 31, 2027 or December 31, 2028 (the “Exercise Windows”), with such Exercise Windows beginning on June 15, 2027 and ending on July 15, 2027, beginning on June 15, 2028 and ending on July 15, 2028 and beginning on June 15, 2029 and ending on July 15, 2029, respectively.

A call option has also been granted to Brazil Purchaser to require Brazil Seller to sell the Retained Interest to Brazil Purchaser during the Exercise Windows (together with the Put Option, the “Put/Call Option”).

The price for the Put/Call Option is based on a 100 % enterprise value of 7.5 x net income for SMART Brazil for the preceding fiscal year at the time of exercise.

The Quotaholders Agreement also provides, among other things, for certain governance and approval rights among the parties thereto.

The closing of the transaction is subject to customary conditions to closing, including, among others, (i) completion of filings for outbound direct investment with the Division of Development and Reform in the China (Shanghai) Pilot Free Trade Zone Lin-gang Special Area Administration and the Division of Finance and Trade Development in the China (Shanghai) Pilot Free Trade Zone Lin-gang Special Area Administration and completion of foreign exchange registration with a qualified bank authorized by the Municipal Administration of Foreign Exchange in Shanghai (the “China Outbound Approvals”) and (ii) approval of the transactions contemplated by the Brazil Purchase Agreement by Longsys’ shareholders (the “Longsys Shareholder Approval”).

The Brazil Purchase Agreement contains customary termination rights, including the right for the Brazil Seller or the Brazil Purchaser to terminate the Brazil Purchase Agreement if the closing shall not have occurred by January 31, 2024.

The Brazil Purchaser shall pay a $ 8.0 million termination fee to the Brazil Seller if the transaction is terminated due to a failure to obtain the China Outbound Approvals or the Longsys Shareholder Approval and other specified circumstances, which termination fee may be increased to $ 12.0 million over time.

Consideration :

The following is a summary of total consideration in exchange for the sale of an 81 % interest in SMART Brazil:

Cash received at closing (1)

Post-closing adjustment for net cash and net working capital (2)

Deferred payment (3)

Deferred cash adjustment (4)

Total consideration $ 194,092

(1) Included $ 26.8 million of cash received at closing for an estimated amount of net cash and an estimated net working capital amount (in excess of a minimum target amount) as of the closing.

(2) Represented the post-closing adjustment for net cash and net working capital, which was received in the third quarter of 2024 upon completion of the review of the final net cash and final working capital amounts.

(3) Represented the fair value of the deferred payment, comprised of a notional amount of $ 28.4 million, discounted at 7.5 % and due May 2025.

The deferred payment was included in other current assets in the accompanying consolidated balance sheet as of August 30, 2024 and in other noncurrent assets as of August 25, 2023.

(4) Represented the fair value of the deferred cash adjustment, comprised of a notional amount of $ 4.8 million, discounted at 7.5 %, equal to 19 % of the amount of SMART Brazil’s net cash as of the closing (as calculated pursuant to the Brazil Purchase Agreement).

The deferred cash adjustment, which is accounted for as a derivative financial instrument, is due at the time of exercise of the Put/Call Option and was included in other noncurrent assets in the accompanying consolidated balance sheet as of August 30, 2024.

Presentation of SMART Brazil Operations

In connection with the proposed sale of an 81 % interest in SMART Brazil, we concluded that the net assets of SMART Brazil met the criteria for classification as held for sale.

In addition, the proposed sale represents a strategic shift that will have a

major effect on our operations and financial results.

As of August 25, 2023, we concluded that the net assets of SMART Brazil met the criteria for classification as held for sale.

In addition, the divestiture of SMART Brazil was expected to have a major effect on our operations and financial results.

As a result, we have presented the results of operations, cash flows and financial position of SMART Brazil as discontinued operations in the accompanying consolidated financial statements and notes for all periods presented.

As of August 25, 2023, we expect the proposed sale of an 81 % interest in SMART Brazil to close within one year and, as a result, we have classified the total assets and total liabilities associated with our SMART Brazil operations as current in the accompany consolidated balance sheets as of August 25, 2023.

The following table presents the assets and liabilities of our SMART Brazil operations:

As of August 25,

A disposal group classified as held for sale is measured at the lower of its carrying amount or fair value less costs to sell.

Accordingly, we evaluated the carrying value of the net assets of SMART Brazil (including $ 206.3 million recognized within shareholders’ 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 of August 25, 2023.

As a result, we recognized an impairment charge of $ 153.0 million in the fourth quarter of 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.

Assets and liabilities of SMART Brazil as of the November 29, 2023 disposal date and as of August 25, 2023 were as follows:

As of November 29,

2023 August 25,

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Total assets 222,440 223,610

Impairment charge related to proposed divestiture of SMART Brazil ( 153,036 ) —

Impairment of SMART Brazil assets ( 153,036 ) ( 153,036 )

Total assets, net of impairment 69,404 70,574

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Noncurrent operating lease liabilities 5,686 4,614

Deferred tax liabilities 28,564 —

Noncurrent deferred tax liabilities 28,564 28,564

Other noncurrent liabilities 93 —

Total liabilities 71,752 77,770

Net assets of discontinued operations $ ( 7,196 ) $ 200,642

Net assets (liabilities) of discontinued operations $ ( 2,348 ) $ ( 7,196 )

Current assets of discontinued operations $ 70,574

Noncurrent assets of discontinued operations — 99,145

Total assets of discontinued operations 70,574 285,426

Current liabilities of discontinued operations 77,770

Noncurrent liabilities of discontinued operations — 20,471

Total liabilities of discontinued operations 77,770 84,784

Net assets of discontinued operations $ ( 7,196 ) $ 200,642

A disposal group classified as held for sale shall be measured at the lower of its carrying amount or fair value less costs to sell.

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

Accordingly, we recognized withholding taxes on the expected capital gain and deferred tax liabilities of $ 28.6 million in 2023.

The following table presents the results of our SMART Brazil operations, including the impairment charge recognized in 2023 related to the proposed divestiture of SMART Brazil:

Net assets (liabilities) of discontinued operations $ ( 7,196 )

The following table presents the results of operations for SMART Brazil:

Year ended August 30,

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Non-operating (income) expense:

Impairment charge related to proposed divestiture of SMART Brazil 153,036 — —

Loss from divestiture of 81% interest in SMART Brazil 10,888 153,036 —

Interest (income) expense, net ( 1,262 ) ( 4,174 ) ( 3,176 )

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Net income (loss) from discontinued operations $ ( 8,148 ) $ ( 195,384 ) $ 44,185

Loss from Divestiture of SMART Brazil

The following table presents the calculation of the loss from the divestiture of an 81 % interest in SMART Brazil:

Proceeds, less costs to sell and other expenses:

Consideration $ 194,092

Costs to sell and other expenses ( 4,150 )

Basis in 81% interest in SMART Brazil:

Net assets of SMART Brazil 145,194

Cumulative translation adjustment (1)

Gain on revalue of 19% Retained Interest in SMART Brazil (2)

Pre-tax loss on divestiture of 81% interest in SMART Brazil 163,924

Income tax provision 26,580

Loss on divestiture of 81% interest in SMART Brazil $ 190,504

(1) The sale of an 81 % interest in SMART Brazil resulted in the de-consolidation of SMART Brazil and, accordingly, the release of the related cumulative translation adjustment.

Included in the basis calculation above is the balance of cumulative translation adjustment for SMART Brazil as of the closing.

The release of the cumulative translation adjustment is included in net income (loss) from discontinued operations in the accompanying consolidated statement of operations.

(2) In connection with the transaction, we revalued our 19 % Retained Interest in SMART Brazil based on the implied value for 100 % of SMART Brazil, adjusted for lack of control premium.

As of August 30, 2024, the carrying value of our remaining 19 % interest in SMART Brazil was $ 37.8 million and was included in other noncurrent assets in the accompanying consolidated balance sheet as a non-marketable equity investment as of August 30, 2024.

Recognition Periods :

The loss from the divestiture of an 81 % interest in SMART Brazil was recognized as follows:

Three Months Ended

2023 August 25,

Pre-tax loss on divestiture of 81% interest in SMART Brazil $ 10,888 $ 153,036 $ 163,924

Income tax provision (benefit) ( 1,984 ) 28,564 26,580

Loss on divestiture of 81% interest in SMART Brazil $ 8,904 $ 181,600 $ 190,504

Recently Adopted Accounting Standards

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

Upon adoption, the previously separated equity component and associated issuance costs for our 2.25 % convertible senior notes due 2026 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 and $ 7.5 million in 2022 and 2021, respectively.

Amortization of the debt issuance costs as interest expense was $ 8.1 million in 2022.

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

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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.

As a result, only the amounts expected to be settled in excess of the principal portion are considered in calculating diluted earnings per share under the if-converted method.

See “Debt – Convertible Senior Notes – 2026 Notes.”

In October 2021, the FASB issued 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.

Recently Issued Accounting Standards

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

The amendments in this ASU are intended to increase transparency through improvements to annual disclosures primarily related to income tax rate reconciliation and income taxes paid.

The amendments in this ASU are effective for us in 2026 for annual reporting, with early adoption permitted.

The ASU may be applied on a prospective basis, although retrospective application is permitted.

We are evaluating the timing and effects of this ASU on our income tax disclosures.

In November 2023, the FASB issued ASU 2023-07 – Segment Reporting (Topic 280):

Improvements to Segment Reporting Disclosures , which will require an entity to provide more detailed information about its reportable segment expenses that are included within management’s measurement of profit and loss and will require certain annual disclosures to be provided on an interim basis.

The amendments in this ASU are effective for us in 2025 for annual reporting and in 2026 for interim reporting and are required to be applied using the full retrospective method of transition.

We are evaluating the effects of adoption of this ASU on our segment disclosures.

Business Acquisitions

Stratus Technologies

On August 29, 2022 (the “Stratus Acquisition Date”), 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”), pursuant to the terms of that certain Share Purchase Agreement (the “Stratus Purchase Agreement”), dated as of June 28, 2022, by and among SGH, Stratus Holding Company and Storm Private Investments LP, a Cayman Islands exempted limited partnership (the “Stratus Seller”).

Pursuant to the Stratus Purchase Agreement, among other matters, the Stratus Seller sold to SGH, and SGH purchased from the Stratus Seller, all of the Stratus Seller’s right, title and interest in and to the outstanding equity securities of Stratus Holding Company.

On August 29, 2022 (the “Stratus Acquisition Date”), 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”), pursuant to the terms of that certain Share Purchase Agreement (the “Stratus Purchase Agreement”), dated as of June 28, 2022, by and among Penguin Solutions, Stratus Holding Company and Storm Private Investments LP, a Cayman Islands exempted limited partnership (the “Stratus Seller”).

Pursuant to the Stratus Purchase Agreement, among other matters, the Stratus Seller sold to Penguin Solutions, and Penguin Solutions purchased from the Stratus Seller, all of the Stratus Seller’s right, title and interest in and to the outstanding equity securities of Stratus Holding Company.

Stratus Technologies 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 Technologies 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 Intelligent Platform Solutions (“IPS”) segment.

The acquisition of Stratus Technologies further enhances SGH’s growth and diversification strategy and complements and expands SGH’s IPS business in data center and edge environments.

Stratus Technologies operates as part of Penguin Solutions’ Advanced Computing segment.

The acquisition of Stratus Technologies further enhances Penguin Solutions’ growth and diversification strategy and complements and expands Penguin Solutions’ Advanced Computing business in data center and edge environments.

Purchase Price :

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

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

Pursuant to the terms of the Stratus Purchase Agreement, we had the option to settle the Stratus Earnout amount owed to the Stratus Seller in cash, ordinary shares of SGH, or a mix of cash and ordinary shares of SGH.

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

Based on the gross profit achieved by Stratus Technologies during the 12 fiscal months following the closing of the acquisition, as of August 25, 2023, current liabilities in the accompanying balance included $ 50.0 million for the expected amount payable for the Stratus Earnout.

In addition, the Stratus Seller had the right to receive, and we were obligated to pay, contingent consideration of up to $ 50.0 million (the “Stratus Earnout”) based on the gross profit performance of Stratus Technologies during the first full 12 fiscal months following the closing of the acquisition.

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

Cash paid was utilized, in part, to settle the outstanding debt of Stratus Technologies as of the closing of the transaction and was recognized as a component of consideration transferred.

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As of the Stratus Acquisition Date, the fair value of the Stratus Earnout was estimated to be $ 20.8 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, including forecasted

gross profit, comparable company volatility, discount rate and cost of debt.

The fair value measurement was based on significant inputs, not observable in the market, including forecasted gross profit, comparable company volatility, discount rate and cost of debt.

The fair value of the Stratus Earnout was estimated based on the Company’s evaluation of the probability and amount of the Stratus Earnout to be achieved based on the expected gross profit of Stratus Technologies, using an estimated gross profit volatility of 33.4 % and a discount rate of 7.3 % as of the Stratus Acquisition Date.

15 unchanged sentences

Total net assets acquired $ 263,046

The goodwill arising from the acquisition of Stratus Technologies was assigned to our IPS segment.

The goodwill arising from the acquisition of Stratus Technologies was assigned to our Advanced Computing segment.

None of the goodwill recognized is deductible for income tax purposes.

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IPR&D is indefinite-lived and will be reviewed for impairment at least annually.

Amortization will commence upon completion of research and development efforts.

IPR&D was valued based on discounted cash flow, which requires the use of significant unobservable inputs, including projected revenue, expenses, capital expenditures and other costs.

Unaudited Pro Forma Financial Information :

The following unaudited pro forma financial information presents SGH’s combined results of operations as if the acquisition of Stratus Technologies had occurred on August 28, 2021.

The unaudited pro forma financial information is based on various adjustments and assumptions and is not necessarily indicative of what SGH’s results of operations actually would have been had the acquisition been completed as of August 28, 2021 or will be for 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 following unaudited pro forma financial information for the year ended August 26, 2022 combines the historical results of continuing operations of SGH for the year ended August 26, 2022 and the historical results of operations of Stratus Technologies for the year ended May 29, 2022:

Year ended August 25,

Net income attributable to SGH

Earnings per share:

Acquisition-related transaction expenses are included within selling, general and administrative expenses and were $ 4.8 million and $ 4.6 million in 2023 and 2022, respectively.

For 2023, net sales for Stratus Technologies were $ 172.7 million and net loss was $ 1.2 million, excluding any charges recognized to adjust the Stratus Earnout to its carrying amount as of August 25, 2023.

On March 1, 2021, pursuant to the 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.

(“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 51.0 % 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.

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 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 (the “LED Purchase Price Note”), (iii) an earnout 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 (the “LED Earnout Period”), with a minimum payment of $ 2.5 million, payable in the form of an unsecured promissory note to be issued by us (the “LED Earnout Note”) and (iv) the assumption of certain liabilities.

The aggregate purchase price was as follows:

Cash $ 50,000

Additional payment for net working capital adjustment (1)

Fair value of LED Purchase Price Note 125,000

Fair value of LED Earnout 28,100

(1) Included $ 15.3 million paid at closing and $ 7.1 million paid in the fourth quarter of 2022 upon completion of the review of the net working capital assets acquired and liabilities assumed.

Contingent Consideration :

The LED Earnout Note was accounted for as contingent consideration.

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

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

Amortization of this technology over an estimated useful life of 10 years commenced in the second quarter of 2024 upon completion of research and development efforts.

On March 1, 2021, we completed the acquisition of the Optimized LED business of Cree, Inc., a corporation now known as Wolfspeed, Inc.

The purchase price for the Optimized LED business consisted of cash payments of $ 72.4 million, the issuance of an unsecured promissory note issued in the amount of $ 125.0 million (the “LED Purchase Price Note”) and the potential for Cree to receive an earn-out payment of up to $ 125.0 million based on the revenue and gross profit performance of the Optimized LED business in the 12-month period ended in March 2022, with a minimum payout of $ 2.5 million, payable in the form of an unsecured promissory note to be issued by us (the “LED Earnout Note”).

The LED Earnout Note was accounted for as contingent consideration and was revalued each quarter with changes in valuation reflected in results of operations.

In 2022, we recorded aggregate charges of $ 41.3 million to adjust the value of the LED 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.

1 unchanged sentence

In the first quarter of 2023, we repaid in full the amount outstanding under the LED Earnout Note.

The purchase price of the LED Business was based on these valuation analyses and was allocated to tangible and intangible assets acquired, liabilities assumed and noncontrolling interest as follows:

Cash and cash equivalents $ 36,721

Accounts receivable 45,608

Inventories 60,423

Other current assets 5,204

Property and equipment 70,116

Operating lease right-of-use assets 7,494

Intangible assets 64,500

Other noncurrent assets 26

Accounts payable and accrued expenses ( 23,673 )

Other current liabilities ( 27,509 )

Noncurrent operating lease liabilities ( 4,019 )

Other noncurrent liabilities ( 1,916 )

Total net assets acquired 232,975

Noncontrolling interest in subsidiary ( 7,477 )

Total net assets acquired $ 225,498

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

Amount Estimated

Technology $ 49,800 7 - 8

Trademarks/trade names 6,100 5

Customer relationships 5,200 7 - 8

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/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.

Key assumptions included discounted cash flow, estimated life cycle and customer attrition rates.

• Order backlog intangible assets represent the value of existing firm purchase orders in place at the time of acquisition and were valued using the discounted cash flow method, which accounts for the expected profit related to the purchase orders.

Cash and Investments

As of August 25, 2023, all of our debt securities, the fair values of which approximated their carrying values, were classified as held to maturity.

Cash, cash equivalents and investments were as follows:

August 25, 2023 As of

August 26, 2022

Cash and Cash Equivalents

As of August 30, 2024 and August 25, 2023, all of our debt securities, the fair values of which approximated their carrying values, were classified as held to maturity.

As of August 30, 2024, restricted cash, which is included in other noncurrent assets, was $ 0.3 million.

Cash, cash equivalents and short-term investments were as follows:

August 30, 2024 August 25, 2023

As of Cash and Cash Equivalents

Short-term Investments

Cash and Cash Equivalents

Cash and cash equivalents $ 321,937 $ — $ 299,509

Short-term Investments

Cash $ 354,037 $ — $ 321,937 $ —

Money market funds 29,110 — 43,626 —

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$ 383,147 $ 6,337 $ 365,563 $ 25,251

Non-marketable Equity Investments

As of August 30, 2024 and August 25, 2023, other noncurrent assets included $ 53.0 million and $ 4.2 million, respectively, of non-marketable equity investments, which are accounted for under the measurement alternative at cost less impairment, if any.

In the event an observable price change occurs in an orderly transaction for an identical or a similar investment, the carrying value of investments would be remeasured to fair value as of the date the observable transaction occurred, with any resulting gains or losses recorded in results of operations.

Accounts Receivable

In the third quarter of 2023, we entered into a trade accounts receivable sale program with a third-party financial institution to sell certain of our trade accounts receivable on a non-recourse basis pursuant to a factoring arrangement.

This program allows us to sell certain of our trade accounts receivables up to $ 60.0 million.

As of August 30, 2024, there have been no trade accounts receivable sold under this program.

As of August 30,

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$ 151,213 $ 174,977

As of August 25, 2023 and August 26, 2022, 8 % of total inventories were inventories owned and held under our logistics services.

As of August 30, 2024 and August 25, 2023, 14 % and 8 %, respectively, of total inventories were owned and held under our logistics services program.

Property and Equipment

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Depreciation expense for property and equipment was $ 25.7 million, $ 26.5 million and $ 22.9 million in 2024, 2023 and 2022, respectively.

Change in Accounting Estimate :

During the first quarter of 2023, we completed an assessment of the estimated useful lives of our manufacturing equipment.

Based on that assessment, we revised the estimated useful lives from five years to eight years as of the beginning of the first quarter of 2023.

The change reduced our non-cash depreciation expense for 2023 by $ 3.7 million, which resulted in aggregate reductions of $ 3.5 million in cost of sales and research and development expense and a reduction of $ 0.2 million in the cost of our inventories as of the end of 2023.

These reductions benefited net income for 2023 by $ 2.8 million, or $ 0.05 per share.

Intangible Assets and Goodwill

As of August 25, 2023

As of August 26, 2022

August 30, 2024

August 25, 2023

Intangible assets:

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Goodwill by segment:

Intelligent Platform Solutions $ 147,238 $ 40,401

Memory Solutions 14,720 14,720

Advanced Computing $ 147,238 $ 147,238

Integrated Memory 14,720 14,720

$ 161,958 $ 161,958

1 unchanged sentence

Amortization expense for intangible assets was $ 40.0 million, $ 45.1 million and $ 23.8 million in 2024, 2023 and 2022, respectively.

Amortization expense is expected to be $ 40.1 million for 2024, $ 35.6 million for 2025, $ 30.2 million for 2026, $ 29.5 million for 2027, $ 13.9 million for 2028 and $ 10.9 million thereafter.

Goodwill of our Intelligent Platform Solutions segment increased in 2023, primarily due to the addition of $ 125.9 million in connection with our acquisition of Stratus Technologies.

See “Business Acquisitions – Stratus Technologies.” During 2023, we assessed goodwill associated with our Penguin Edge business within our IPS segment and concluded it was partially impaired.

As a result, we recognized aggregate impairment charges of $ 19.1 million in 2023 to impair the carrying value of goodwill.

See “Impairment of Penguin Edge Goodwill.”

Impairment of Penguin Edge Goodwill

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

In connection therewith, we performed a quantitative assessment of the fair value of goodwill using an income approach with assumptions that are considered Level 3 measurements and concluded that the carrying value of the Penguin Edge reporting unit goodwill exceeded its fair value.

The fair value of the Penguin Edge reporting unit was determined primarily by discounting estimated future cash flows, which were determined based on revenue and expense assumptions over the next two years, at a weighted-average cost of capital of 14.5 %.

As a result, we recorded 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.

We concluded that long-lived assets other than goodwill, primarily consisting of customer relationship intangible assets, had fair values in excess of their carrying amounts, and accordingly, recorded no impairments of such assets.

These assets will continue to be amortized over their remaining useful lives through the date of our anticipated completion of wind-down activities.

At each reporting date through the end of the wind-down period, we will reassess the estimated remaining cash flows of the Penguin Edge business.

Amortization expense is expected to be $ 35.6 million for 2025, $ 30.2 million for 2026, $ 29.6 million for 2027, $ 9.9 million for 2028, $ 6.0 million for 2029 and $ 10.2 million for 2030 and thereafter.

In connection with our acquisition of Stratus Technologies, we capitalized $ 3.9 million of in-process research and development related to next generation fault tolerant architecture.

Amortization of this technology commenced in the second quarter of 2024.

In the second quarter of 2023, we initiated a plan within our Advanced Computing segment pursuant to which we intend to wind down manufacturing and discontinue the sale of legacy products offered through our Penguin Edge

business by approximately the end of 2025.

As a result, we recorded aggregate charges of $ 19.1 million in 2023 to impair the carrying value of Penguin Edge goodwill.

At each reporting date, we reassess the estimated remaining cash flows of the Penguin Edge business.

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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$ 219,090 $ 182,035

(1) Includes accounts payable for property and equipment of $ 5.2 million and $ 2.3 million as of August 25, 2023 and August 26, 2022, respectively.

(1) Included accounts payable for property and equipment of $ 0.4 million and $ 5.2 million as of August 30, 2024 and August 25, 2023, respectively.

As of August 30,

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2029 Notes 147,439 146,886

LED Earnout Note — 101,824

2026 Notes 19,833 98,609

657,347 790,438

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Credit Facility

On February 7, 2022, SGH 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 (the “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 (subject to certain earlier “springing maturity” dates upon certain conditions specified in the Original Credit Agreement).

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

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

Incremental Amendment :

On August 29, 2022, the Borrowers entered into the First Amendment (the “Incremental Amendment”;

the Original Credit Agreement as amended by the Incremental Amendment, the “Amended Credit Agreement”) with and among the lenders party thereto and the Administrative Agent.

The Incremental Amendment amended the Original Credit Agreement and (i) provides for incremental term loans under the Amended Credit Agreement in an aggregate amount of $ 300.0 million (the “Incremental Term Loans” and together with the 2027 TLA, the “Amended 2027 TLA”) which Incremental Term Loans are on the same terms as the term loans incurred under the Original Credit Agreement, (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.

Substantially simultaneously with entering into the Incremental Amendment, the Borrowers applied a portion of the proceeds of the Incremental Term Loans to (i) finance a portion of the purchase price for the acquisition of Stratus Technologies and (ii) prepay in full the $ 101.8 million outstanding under the LED Earnout Note.

On August 29, 2022, the Borrowers entered into an amendment (the Original Credit Agreement, as amended by this amendment and subsequent amendments, the “Amended Credit Agreement”) with and among the lenders party thereto and the Administrative Agent, which (i) provided for incremental term loans under the Amended Credit Agreement in an aggregate amount of $ 300.0 million (the “Incremental Term Loans” and together with the 2027 TLA, the “Amended 2027 TLA”), which Incremental Term Loans are on the same terms as the term loans incurred under the Original Credit Agreement, (ii) increased 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) increased 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 $ 100.0 million to $ 125.0 million.

Substantially simultaneously with amending the Original Credit Agreement, the Borrowers applied a portion of the proceeds of the Incremental Term Loans to (i) finance a portion of the purchase price for the acquisition of Stratus Technologies and (ii) prepay in full the $ 101.8 million outstanding under the LED Earnout Note.

In connection with our prepayment of the LED Earnout Note, we recognized a gain of $ 0.8 million in the first quarter of 2023, which is included in other non-operating (income) expense in the accompanying consolidated statements of operations.

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Loans under the Amended 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 our 2027 Revolver varies based on our Total Leverage Ratio (as defined in the Amended 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.

The applicable margin for our 2027 TLA and 2027 Revolver varies based on our Total Leverage Ratio (as defined in the Amended 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 Amended Credit Agreement.

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

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

The Amended 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:

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The Amended 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 Amended Credit Agreement) of 3.25 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 Amended 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 Amended 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 Amended Credit Agreement) following the expiration of the first increase;

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

a First Lien Leverage Ratio (as defined in the Amended Credit Agreement) of a maximum of 3.25 to 1.00

a Total Leverage Ratio of a maximum of 4.50 to 1.00;

provided that in connection with any Material Acquisition (as defined in the Amended 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 a maximum of 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 Amended 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 a maximum of 5.00 to 1.00 as of the last day of at least two consecutive Test Periods (as defined in the Amended Credit Agreement) following the expiration of the first increase;

an Interest Coverage Ratio (as defined in the Amended Credit Agreement) of at least 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 Amended Credit Agreement) is reduced by up to $ 125.0 million of the aggregate amount of unrestricted cash and Permitted Investments (as defined in the Amended Credit Agreement) of the Company and its Restricted Subsidiaries.

In 2024, we prepaid an aggregate of $ 230.0 million under the Amended 2027 TLA and, in connection therewith, wrote off $ 2.4 million of unamortized issuance costs.

As of August 30, 2024, there was $ 300.0 million of principal amount outstanding under the Amended 2027 TLA, unamortized issuance costs were $ 2.7 million and the effective interest rate was 8.62 %.

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Convertible Senior Notes

Repurchase of Convertible Senior Notes

On August 6, 2024, we repurchased $ 80.0 million aggregate principal amount of our 2026 Notes for $ 100.6 million cash (including payment for accrued interest) in privately-negotiated transactions.

The repurchase was accounted for as debt extinguishment.

Accordingly, we recognized a loss in the fourth quarter of 2024, included in other non-operating expense, of $ 20.4 million, consisting of $ 19.7 million premium paid to extinguish the 2026 Notes and $ 0.7 million for the write-off of unamortized issuance costs.

Convertible Senior Notes Exchange

On January 18, 2023, SGH entered into separate, privately negotiated exchange agreements with a limited number of holders of its 2.25 % Convertible Senior Notes due 2026 (the “2026 Notes”) to exchange $ 150.0 million principal amount of the 2026 Notes for (i) $ 150.0 million in aggregate principal amount of new 2.00 % Convertible Senior Notes due 2029 (the “2029 Notes”) and (ii) an aggregate of $ 15.6 million in cash, with such cash payment representing $ 14.1 million of premium paid for the 2026 Notes in excess of par value and $ 1.5 million of accrued and unpaid interest on the 2026 Notes (collectively, the “Exchange Transactions”).

On January 18, 2023, we entered into separate, privately-negotiated exchange agreements with a limited number of holders of our 2.25 % Convertible Senior Notes due 2026 (the “2026 Notes”) to exchange $ 150.0 million principal amount of the 2026 Notes for (i) $ 150.0 million in aggregate principal amount of new 2.00 % Convertible Senior Notes due 2029 (the “2029 Notes”) and (ii) an aggregate of $ 15.6 million in cash, with such cash payment representing $ 14.1 million of premium paid for the 2026 Notes in excess of par value and $ 1.5 million of accrued and unpaid interest on the 2026 Notes (collectively, the “Exchange Transactions”).

The 2029 Notes were issued pursuant to, and are governed by, an indenture (the “2029 Indenture”), dated as of January 23, 2023, between the Company and U.S.

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We concluded that the exchanged 2026 Notes and the 2029 Notes had substantially different terms, and accordingly, we accounted for the Exchange Transactions as the extinguishment of the 2026 Notes and the issuance of the 2029 Notes.

As a result, we recognized an extinguishment loss in the second quarter of 2023, included in other non-operating expense, of $ 16.7 million consisting of $ 14.1 million of premium paid to extinguish the 2026 Notes and $ 2.5 million for the write-off of unamortized issuance costs.

The 2029 Notes are senior, unsecured obligations of the Company and are equal in right of payment with our existing and future senior, unsecured indebtedness, senior in right of payment to our existing and future indebtedness that is expressly subordinated to the 2029 Notes and effectively subordinated to our existing and future senior, secured indebtedness, to the extent of the value of the collateral securing that indebtedness.

Our 2026 Notes and 2029 Notes are structurally subordinated to all other existing and future indebtedness and other liabilities, including trade payables and (to the extent the Company is not a holder thereof) preferred equity, if any, of our subsidiaries.

As a result, we recognized an extinguishment loss in the second quarter of 2023, included in other non-operating expense, of $ 16.7 million consisting of the premium paid to extinguish the 2026 Notes and $ 2.5 million for the write-off of unamortized issuance costs.

On August 6, 2024 and August 14, 2024, we issued $ 175.0 million and $ 25.0 million aggregate principal amount, respectively, of our 2.00 % Convertible Senior Notes due 2030 (collectively, the “2030 Notes”) pursuant to, and governed by, an indenture (the “2030 Indenture”), dated August 6, 2024, between us and U.S.

Bank Trust Company, National Association, as trustee.

The 2030 Notes bear interest at a rate of 2.00 % per annum on the principal amount thereof, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2025, to the noteholders of record of the 2030 Notes as of the close of business on the immediately preceding February 1 and August 1, respectively.

The 2030 Notes will mature on August 15, 2030 (the “2030 Maturity Date”), unless earlier converted, redeemed or repurchased.

The initial conversion rate of the 2030 Notes is 35.7034 ordinary shares per $1,000 principal amount of the 2030 Notes, which represents an initial conversion price of approximately $ 28.01 per ordinary share.

The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the 2030 Indenture.

Upon conversion, we are required to pay cash in an amount at least equal to the principal portion and have the option to settle any amount in excess of the principal portion in cash and/or ordinary shares.

Conversion Rights :

Holders of the 2030 Notes may convert them under the following circumstances:

during any fiscal quarter commencing after the fiscal quarter ended on November 29, 2024 (and only during such fiscal quarter) if the last reported sale price per ordinary share exceeds 130 % of the conversion price for at least 20 trading days, whether or not consecutive, in the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter;

during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “2030 Notes Measurement Period”) in which the trading price per $1,000 principal amount of notes for each trading day of the 2030 Notes Measurement Period was less than 98 % of the product of the last reported sale price per ordinary share on such trading day and the conversion rate on such trading day;

upon the occurrence of certain corporate events or distributions on our ordinary shares, as provided in the 2030 Indenture;

if we call the 2030 Notes for redemption;

on or after February 15, 2030 until the close of business on the second scheduled trading day immediately before the 2030 Maturity Date.

Cash Redemption at Our Option :

We have the right to redeem the 2030 Notes, in whole or in part, at our option at any time, and from time to time, on or after August 20, 2027 and on or before the 31st scheduled trading day immediately before the 2030 Maturity Date, at a cash redemption price equal to the principal amount of the 2030 Notes to be redeemed, plus accrued and unpaid interest, if any, but only if the 2030 Notes are “freely tradable” (as defined in the 2030 Indenture) and all accrued and unpaid additional interest, if any, has been paid in full as of the date we send the related redemption notice, and if the last reported per share sale price of our ordinary shares exceeds 130 % of the conversion price on (i) each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the trading day immediately before the redemption notice date for such redemption and (ii) the trading day immediately before the date we send such notice.

In addition, we have the right to redeem all, but not less than all, of the 2030 Notes if certain changes in tax law occur.

Calling any 2030 Note for redemption will constitute a make-whole fundamental change with respect to such note, in which case the conversion rate applicable to the conversion of such note will be increased in certain circumstances if it is converted after it is called for redemption.

The 2029 Notes bear interest at a rate of 2.00 % per annum on the principal amount thereof, payable semi-annually in arrears on February 1 and August 1 of each year, beginning on August 1, 2023, to the noteholders of record of the 2029 Notes as of the close of business on the immediately preceding January 15 and July 15, respectively.

The 2029 Notes will mature on February 1, 2029 (the “2029 Maturity Date”), unless earlier converted, redeemed or repurchased.

The 2029 Notes are convertible into cash or a combination of cash and the Company’s ordinary shares, $ 0.03 par value per share, at our election.

The initial conversion rate of the 2029 Notes is 47.1059 ordinary shares per $1,000 principal amount of the 2029 Notes, which represents an initial conversion price of approximately $ 21.23 per ordinary share.

The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the 2029 Indenture.

In connection with any conversion of the 2029 Notes, we are required to pay the principal amount in cash and have the option to settle any amount in excess of the principal portion in cash and/or ordinary shares.

Conversion Rights :

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on or after August 1, 2028 until the close of business on the second scheduled trading day immediately before the 2029 Maturity Date.

Upon the occurrence of a “make-whole fundamental change” (as defined in the 2029 Indenture), we will in certain circumstances increase the conversion rate for a specified period of time.

In addition, upon the occurrence of a “fundamental change” (as defined in the 2029 Indenture), holders of the 2029 Notes may require us to repurchase their 2029 Notes at a cash repurchase price equal to the principal amount of the 2029 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The definition of fundamental change

includes certain business combination transactions involving the Company and certain de-listing events with respect to our ordinary shares.

Cash Redemption at Our Option :

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In February 2020, we issued $ 250.0 million in aggregate principal amount of 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.

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 (the “2026 Maturity Date”), unless earlier converted, redeemed or repurchased.

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

Bank National Association, as trustee.

Bank Trust Company National Association, as trustee.

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.

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On January 18, 2023, we exchanged $ 150.0 million principal amount of 2026 Notes for $ 150.0 million principal amount of new 2029 Notes.

As a result, as of August 25, 2023, $ 100.0 million in aggregate principal amount of 2026 Notes remain outstanding.

See “Convertible Senior Notes Exchange.”

As a result, as of August 25, 2023, $ 100.0 million in aggregate principal amount of 2026 Notes were outstanding.

On August 6, 2024, we repurchased $ 80.0 million aggregate principal amount of our 2026 Notes for $ 100.6 million cash (including payment for accrued interest) in privately-negotiated transactions.

As of August 30, 2024, $ 20.0 million in aggregate principal amount of 2026 Notes were outstanding.

See “Repurchase of Convertible Senior Notes” and “Convertible Senior Notes Exchange.”

First Supplemental Indenture to Indenture Governing the 2026 Notes :

On August 26, 2022, SGH entered into the First Supplemental Indenture (the “2026 First Supplemental Indenture”) to the 2026 Indenture governing the 2026 Notes.

On August 26, 2022, Penguin Solutions entered into the First Supplemental Indenture (the “2026 First Supplemental Indenture”) to the 2026 Indenture governing the 2026 Notes.

The 2026 First Supplemental Indenture became effective on August 27, 2022.

Pursuant to the 2026 First Supplemental Indenture, SGH irrevocably elected (i) to eliminate SGH’s option to elect Physical Settlement (as defined in the 2026 Indenture) on any conversion of the 2026 Notes that occurs on or after the date of the 2026 First Supplemental Indenture and (ii) with respect to any Combination Settlement (as defined in the 2026 Indenture) for a conversion of the 2026 Notes, the Specified Dollar Amount (as defined in the 2026 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 the 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 irrevocable election, only the amounts expected to be settled in excess of the principal portion are considered in calculating diluted earnings per share under the if-converted method.

Pursuant to the 2026 First Supplemental Indenture, Penguin Solutions irrevocably elected (i) to eliminate Penguin Solutions’ option to elect Physical Settlement (as defined in the 2026 Indenture) on any conversion of the 2026 Notes that occurs on or after the date of the 2026 First Supplemental Indenture and (ii) with respect to any Combination Settlement (as defined in the 2026 Indenture) for a conversion of the 2026 Notes, the Specified Dollar Amount (as defined in the 2026 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 conversion, we are required to pay cash in an amount at least equal to the principal portion and have the option to settle any amount in excess of the principal portion in cash and/or ordinary shares.

Conversion Rights :

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during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “2026 Notes Measurement Period”) in which the trading price per $1,000 principal amount of notes for each trading day of the 2026 Notes Measurement Period was less than 98 % of the product of the last reported sale price per ordinary share on such trading day and the conversion rate on such trading day;

on or after August 15, 2025 until the close of business on the second scheduled trading day immediately before the maturity date;

upon the occurrence of certain corporate events or distributions on our ordinary shares, as provided in the 2026 Indenture;

the 2026 Notes are called for redemption.

if we call the 2026 Notes for redemption:

on or after August 15, 2025 until the close of business on the second scheduled trading day immediately before the 2026 Maturity Date.

Cash Redemption at Our Option :

We have the right to redeem the 2026 Notes, in whole or in part, at our option at any time, and from time to time, from February 21, 2023 through the 40th scheduled trading day immediately before the

maturity date, at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest.

However, the repurchase right is only applicable if the last reported per share sale price of our ordinary shares exceeds 130 % of the conversion price on each of at least twenty trading days during the thirty consecutive trading days ending on, and including, the trading day immediately before the redemption notice date for such redemption.

We have the right to redeem the 2026 Notes, in whole or in part, at our option at any time, and from time to time, on or after February 21, 2023 and on or before the 40th scheduled trading day immediately before the 2026 Maturity Date, at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest, if any.

However, the repurchase right is only applicable if the last reported per share sale price of our ordinary shares exceeds 130 % of the conversion price on each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the trading day immediately before the redemption notice date for such redemption.

In addition, we have the right to redeem all, but not less than all, of the 2026 Notes if certain changes in tax law occur.

Calling any 2026 Note for redemption will constitute a make-whole fundamental change with respect to such note, in which case the conversion rate applicable to the conversion of such note will be increased in certain circumstances if it is converted after it is called for redemption.

Our convertible notes are senior, unsecured obligations of the Company and are equal in right of payment with our existing and future senior, unsecured indebtedness, senior in right of payment to our existing and future indebtedness that is expressly subordinated to the respective notes and effectively subordinated to our existing and future senior, secured indebtedness, to the extent of the value of the collateral securing that indebtedness.

Our convertible notes are structurally subordinated to all other existing and future indebtedness and other liabilities, including trade payables and (to the extent the Company is not a holder thereof) preferred equity, if any, of our subsidiaries.

Make-Whole Fundamental Change

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

In addition, upon the occurrence of a “fundamental change” (as defined in each of our convertible note indentures), holders of the notes may require us to repurchase their notes at a cash repurchase price equal to the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

The definition of fundamental change includes certain business combination transactions and certain de-listing events with respect to our ordinary shares.

Convertible Senior Note Interest

Unamortized debt discount and issuance costs are amortized over the terms of our 2026 Notes and 2029 Notes using the effective interest method.

As of August 25, 2023 and August 26, 2022, the effective interest rate for our 2026 Notes was 2.83 % and 7.06 %, respectively.

Unamortized debt issuance costs are amortized over the terms of our 2026 Notes, 2029 Notes and 2030 Notes using the effective interest method.

As of August 30, 2024 and August 25, 2023, the effective interest rate for our 2026 Notes was 2.83 %.

As of August 30, 2024 and August 25, 2023, the effective interest rate for our 2029 Notes was 2.40 %.

As of August 30, 2024, the effective interest rate for our 2030 Notes was 2.65 %.

Aggregate interest expense for our convertible notes consisted of contractual stated interest and amortization of discount and issuance costs and included the following:

Aggregate interest expense for our convertible notes consisted of contractual stated interest and amortization of issuance costs and included the following:

Year ended August 30,

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Contractual stated interest $ 5,470 $ 5,397 $ 5,609

Amortization of discount and issuance costs 1,160 9,031 8,419

Amortization of debt issuance costs 1,167 1,160 9,031

$ 6,637 $ 6,557 $ 14,640

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LED Earnout Note

Part of our consideration for the acquisition of the LED Business in March 2021 was the possibility of an earnout 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.

Part of our consideration for the acquisition of the Optimized LED business was the possibility of an earnout payment of up to $ 125.0 million based on the revenue and gross profit performance of the Optimized 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 LED Earnout Note bore interest at LIBOR plus 3.0 %, payable quarterly, and was scheduled to mature on March 27, 2025.

In the first quarter of 2023, and substantially simultaneously with entering into the Incremental Amendment, we repaid in full the $ 101.8 million outstanding under the LED Earnout Note.

In the first quarter of 2023, and substantially simultaneously with entering into the First Amendment, we repaid in full the $ 101.8 million outstanding under the LED Earnout Note.

In connection with our prepayment of the LED Earnout Note, we recognized a gain of $ 0.8 million in the first quarter of 2023, which is included in other non-operating income in the accompanying consolidated statements of operations.

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.

In connection with the acquisition of the Optimized LED business, we issued an unsecured promissory note to Cree in the amount of $ 125.0 million.

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

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As of August 30, 2024, maturities of debt were as follows:

2024 $ 36,056

2030 and thereafter 200,000

Less unamortized discount and issuance costs ( 11,212 )

As of August 25, 2023 and August 26, 2022, 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.

Less unamortized debt issuance costs ( 12,668 )

We have 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 any period presented.

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$ 16,814 $ 20,226 $ 14,090

Cash flows used for operating activities in 2023, 2022 and 2021 included payments for operating leases of $ 7.7 million, $ 9.0 million and $ 6.5 million, respectively.

Cash flows used for operating activities included payments for operating leases of $ 9.0 million, $ 7.7 million and $ 9.0 million in 2024, 2023 and 2022, respectively.

Acquisitions of right-of-use assets were $ 2.3 million, $ 10.8 million and $ 47.6 million in 2024, 2023 and 2022, respectively.

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Maximum potential future payments cannot be estimated because many of these agreements do not have a maximum stated liability.

However, to date, we have not had to reimburse any of our customers or suppliers for any losses related to these indemnities.

However, to date, we have not had to reimburse any of our customers or suppliers for any significant losses related to these indemnities.

We have not recorded any liability for such indemnities.

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We regularly review contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made.

SGH Shareholders’ Equity

Penguin Solutions Shareholders’ Equity

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.

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

The dividend was paid on February 1, 2022.

Share Repurchase Authorization

On April 4, 2022, our Board of Directors approved a $ 75.0 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 2023 and 2022, we repurchased 0.5 million and 2.6 million shares, respectively, for $ 8.4 million and $ 50.0 million, respectively, under the repurchase authorization.

On April 4, 2022, our Board of Directors approved a $ 75.0 million share repurchase authorization (the “Initial Authorization”), under which we may repurchase our outstanding ordinary shares from time to time through open market repurchases, privately-negotiated transactions or otherwise.

On January 8, 2024, the Audit Committee of the Board of Directors approved an additional $ 75.0 million share repurchase authorization (the “Additional Authorization,” and together with the Initial Authorization, the “Current Authorization”).

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

In 2024, 2023 and 2022, we repurchased 0.9 million, 0.5 million and 2.6 million shares, respectively, for $ 13.9 million, $ 8.4 million and $ 50.0 million, respectively, under the Current Authorization.

As of August 30, 2024, an aggregate of $ 77.7 million remained available for the repurchase of our ordinary shares under the Current Authorization.

Certain of our agreements, including the Amended Credit Agreement and the Certificate of Designation, contain restrictions that limit our ability to repurchase our ordinary shares.

Other Share Repurchases

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

We repurchased 506 thousand, 240 thousand and 153 thousand ordinary shares as payment of withholding taxes for $ 10.9 million, $ 7.2 million and $ 4.2 million in 2023, 2022 and 2021, respectively.

In 2024, 2023 and 2022, we repurchased 377 thousand, 506 thousand and 240 thousand ordinary shares as payment of withholding taxes for $ 7.4 million, $ 10.9 million and $ 7.2 million, respectively.

In connection with the Exchange Transactions in the second quarter of 2023, we repurchased 326 thousand ordinary shares for $ 5.4 million.

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.

in a privately negotiated transaction.

The transaction closed on January 15, 2021.

2029 Capped Calls

On January 18, 2023, in connection with the offering of the 2029 Notes, we entered into privately negotiated capped call transactions (the “2029 Capped Calls”).

The 2029 Capped Calls cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2029 Notes, the aggregate number of ordinary shares that initially underlie the 2029 Notes and are expected generally to reduce potential dilution to our ordinary shares upon any conversion of the 2029 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2029 Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price.

The cap price of the 2029 Capped Calls is initially $ 29.1375 per share, which represented a premium of 75 % over the last reported sale price of our ordinary shares on January 18, 2023.

The cost of the 2029 Capped Calls, which are considered capital transactions, was $ 15.1 million and was recognized as a decrease to additional paid-in capital in the second quarter of 2023.

The 2029 Capped Calls are separate transactions, each between the Company and the counterparties to the 2029 Capped Calls, and are not part of the terms of the 2029 Notes and do not affect any holder’s rights under the 2029 Notes or the 2029 Indenture.

Holders of the 2029 Notes do not have any rights with respect to the 2029 Capped Calls.

2026 Capped Calls

In February 2020, in connection with the offering of the our 2026 Notes, we entered into capped call transactions (“2026 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.

The 2026 Capped Calls cover, subject to anti-dilution adjustments, approximately 12.3 million ordinary shares of the Company and are generally intended to reduce the potential economic dilution upon any conversion of 2026 Notes and/or offset any potential cash payments we may be required to make in excess of the principal amount of converted 2026 Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price.

The 2026 Capped Calls expire February 15, 2026 (the maturity date of the 2026 Notes), subject to earlier exercise.

The 2026 Capped Calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including mergers, tender offers and delistings involving the Company.

In addition, the 2026 Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the 2026 Capped Calls, including insolvency filings and hedging disruptions.

As part of the Exchange Transactions, we entered into agreements with a number of counterparties to settle a portion of the 2026 Capped Calls in a notional amount corresponding to the amount of the 2026 Notes that were exchanged.

The value received in connection with the settlement of a portion of the 2026 Capped Calls was $ 10.8 million and was recognized as an increase in additional paid-in capital in the second quarter of 2023.

See “Debt – Convertible Senior Notes – Convertible Senior Notes Exchange.”

In connection with our convertible notes, we have entered into privately-negotiated capped call transactions, which are intended to reduce the effect of potential dilution upon conversion of our convertible notes.

The capped calls provide for our receipt of cash or shares, at our election, from counterparties if the trading price of our ordinary shares is above the strike price on the expiration date.

The capped calls are subject to anti-dilution adjustments substantially similar to those applicable to the corresponding convertible notes.

The cost of capped calls, which are considered capital transactions, were recognized as decreases to additional paid-in capital.

Capped calls are separate transactions, each between the Company and the counterparties to the various capped calls, and are not part of the terms of any of the convertible notes and do not affect any holder’s rights under the convertible notes or related indentures.

Holders of any of the convertible notes do not have any rights with respect to any of the capped calls.

As of August 30, 2024, the dollar value of cash or ordinary shares that we would receive from our outstanding capped calls upon their expiration dates range from $ 0 , if the trading price of our ordinary shares is at or below the strike prices for each of the capped calls at expiration, to $ 158.4 million, if the trading price of our ordinary shares is at or above the cap prices for each of the capped calls.

Settlement of a capped call prior to its expiration date may be for an amount different than the value at expiration.

The following table presents information related to outstanding capped calls as of August 30, 2024:

Expiration Date Strike Price Cap Price Shares

Maximum Value at Expiration

2026 Capped Calls February 15, 2026 $ 20.3044 $ 27.0725 4,925 $ 33,333

2029 Capped Calls February 1, 2029 $ 21.2288 $ 29.1375 7,066 55,882

2030 Capped Calls August 15, 2030 $ 28.0085 $ 37.7038 7,141 69,231

19,132 $ 158,446

As part of the Exchange Transactions, we settled a portion of the 2026 Capped Calls in a notional amount of $ 150.0 million, equal to the amount of the 2026 Notes exchanged.

In connection therewith, we received cash of $ 10.8 million, which was recognized as an increase in additional paid-in capital in the second quarter of 2023.

Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) by component for 2023 was as follows:

Gains (Losses)

on Derivative

Changes in accumulated other comprehensive income (loss) by component for 2024 were as follows:

Gains (Losses)

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As of August 30, 2024 $ — $ 10 $ 10

In connection with our divestiture of an 81 % interest in SMART Brazil, we reclassified $ 212.4 million of cumulative translation adjustment related to SMART Brazil from other accumulated comprehensive income to results of operations in the first quarter of 2024.

See “Divestiture of SMART Brazil.”

Noncontrolling Interest in Subsidiary

In connection with our acquisition of the LED Business, we have a 51 % ownership interest in the Cree Joint Venture.

The remaining 49 % ownership interest is held by San’an.

We have a 51 % ownership interest in Cree Venture LED Company Limited (“Cree Joint Venture”), with the remaining 49 % ownership interest held by San’an Optoelectronics Co., Ltd (“San’an”).

The Cree Joint Venture has a five -member board of directors, three of which are designated by us and two of which are designated by San’an.

As a result of our majority voting interest, we consolidate the operations of the Cree Joint Venture and report its results of operations within our LED Solutions segment.

As a result of our majority voting interest, we consolidate the operations of the Cree Joint Venture and report its results of operations within our Optimized LED segment.

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.

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Fair Value Measurements

As of August 25, 2023 As of August 26, 2022

Fair Value Carrying Value Fair Value Carrying Value

August 30, 2024

August 25, 2023

As of Fair Value Carrying Value Fair Value Carrying Value

Derivative financial instruments $ 3,929 $ 3,929 $ — $ —

Amended 2027 TLA $ 300,015 $ 297,297 $ 551,648 $ 544,943

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2029 Notes 178,760 147,439 195,426 146,886

LED Earnout Note — — 96,412 101,824

The fair values of the Amended 2027 TLA and LED Earnout Note, 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.

The fair values of the 2029 Notes and the 2026 Notes, as measured on a non-recurring basis, was determined based on Level 2 measurements, including the trading prices of the 2029 Notes and the 2026 Notes.

As of August 25, 2023, the carrying value of the Stratus Earnout of $ 50.0 million approximated its fair value.

2026 Notes 23,918 19,833 131,864 98,609

Acquisition-related contingent consideration — — 50,000 50,000

The deferred cash adjustment resulting from the divestiture of an 81 % interest in SMART Brazil is accounted for as a derivative financial instrument and is revalued at the end of each reporting period.

The asset’s fair value, as measured on a recurring basis, was based on Level 2 measurements, including market-based observable inputs of interest rates and credit-risk spreads.

The fair value of the Amended 2027 TLA, as measured on a non-recurring basis, was 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.

The fair values of our convertible notes, as measured on a non-recurring basis, were determined based on Level 2 measurements, including the trading prices of the notes.

Acquisition-related contingent consideration in the table above related to our acquisition of Stratus Technologies.

The fair value as of August 25, 2023 was based on the gross profit performance of Stratus Technologies during the first full 12 fiscal months following the closing of the acquisition.

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

Such awards include both incentive and non-qualified options, share appreciation rights, restricted share awards (“RSAs”), restricted share units (“RSUs”) and performance-based awards, such as performance-based restricted stock awards (“PRSAs”) and performance-based restricted share units (“PSUs”).

Such awards include both incentive and non-qualified options, share appreciation rights, restricted share awards (“RSAs”), restricted share units (“RSUs”) and performance-based awards, such as performance-based restricted share awards (“PRSAs”) and performance-based restricted share units (“PSUs”).

As of August 30, 2024, 4.5 million of our ordinary shares were available for issuance under the 2017 Plan.

Our 2021 Share Inducement Plan (the “Inducement Plan” and together with the 2017 Plan, our “SGH Plans”) provides for the issuance of equity awards to provide inducements for certain individuals to enter into employment with us within the meaning of Rule 5635(c)(4) of the Nasdaq Marketplace Rules, and to motivate such persons to contribute to, and to enable them to share in, any long-term growth and financial success we may experience.

Our 2021 Share Inducement Plan (the “Inducement Plan” and together with the 2017 Plan, our “Penguin Solutions Plans”) provides for the issuance of equity awards to provide inducements for certain individuals to enter into employment with us within the meaning of Rule 5635(c)(4) of the Nasdaq Marketplace Rules, and to motivate such persons to contribute to, and to enable them to share in, any long-term growth and financial success we may experience.

Such awards include options, share appreciation rights, RSAs, RSUs and performance-based awards such as PRSAs and PSUs.

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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.

On October 20, 2020, we modified this award, as well as another time-based award, each for our former CEO, to accelerate the remaining service-based vesting requirements such that they became fully vested as of the acceleration date.

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

As of August 30, 2024, total unrecognized compensation costs for unvested Restricted Awards was $ 72.8 million, which was expected to be recognized over a weighted-average period of 2.3 years.

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Exercisable as of August 30, 2024 714 $ 12.71 4.30 $ 5,836

Share option activity was as follows (no share options were granted in 2023 or 2022):

Year ended August 27,

Share options granted 500

Weighted-average grant-date fair value per share $ 6.65

Average expected term in years 6.25

Weighted-average expected volatility 52.07 %

Weighted-average risk-free interest rate 0.49 %

Expected dividend yield — %

The fair value of share options is estimated on the date of grant using the Black-Scholes option pricing model.

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Employee Share Purchase Plan

The SMART Global Holdings, Inc.

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 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 our ESPP is equal to 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.

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$ 43,160 $ 39,228 $ 37,284

Income tax benefits for share-based awards were $ 6.7 million in 2023 and were de minimis in 2022 and 2021.

The increase in tax benefit recognized in 2023 was due to the release of the U.S.

federal and state valuation allowance on share-based compensation deferred tax assets.

Income tax benefits for share-based awards were $ 6.6 million, $ 6.7 million and de minimis in 2024, 2023 and 2022, respectively.

Employee Savings and Retirement Plan

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Net Sales and Gross Billings

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

Our materials logistics business includes procurement, logistics, inventory management, temporary warehousing, kitting and/or packaging services.

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.

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

The cost of materials and services invoiced to our customers under these arrangements, but not recognized as revenue or cost of sales in our results of operations, were as follows:

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.

As a result, we recognize only the amount related to the agent component as revenue in our results of operations.

The cost of products, materials and services invoiced to our customers under these arrangements, but not recognized as revenue or cost of sales in our results of operations, were as follows:

Year ended August 30,

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Cost of materials and services invoiced in connection with logistics services $ 518,685 $ 765,796 $ 1,601,289

Sales to related parties were de minimus in 2023 and 2022 and were $ 76.5 million in 2021 .

Customer Contract Balances

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Deferred revenue $ 76,178 $ 69,326

$ 69,326 $ 39,676

Customer advances 6,036 5,565

$ 82,214 $ 74,891

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

(2) Contract liabilities are included in other current 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 $ 10.9 million and $ 23.3 million as of August 25, 2023 and August 26, 2022, respectively, related to contracts that contain termination rights.

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

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

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

As of August 25, 2023, there were no contract assets remaining to be invoiced from August 26, 2022.

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

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In 2024, we recognized revenue of $ 51.7 million from satisfying performance obligations related to amounts included in deferred revenue as of August 25, 2023.

In addition, as of August 30, 2024, other current liabilities included $ 15.9 million that is not included in the above remaining performance obligations.

While this liability relates to amounts received from customers in connection with arrangements that are cancellable at the customer’s discretion, we have not had to refund any such amounts to our customers in the periods presented.

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

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Other Operating (Income) Expense

In 2023, we initiated plans that included workforce reductions and the elimination of certain projects across our businesses.

In connection therewith, we recorded restructure charges of $ 7.0 million in 2023, primarily for employee severance costs and other benefits as well as lease impairment charges.

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

In 2024 and 2023, we initiated plans that included workforce reductions and the elimination of certain projects across our businesses.

In connection therewith, we recorded restructure charges of $ 7.1 million and $ 7.0 million in 2024 and 2023, respectively, primarily for employee severance costs and other benefits.

We anticipate that

these activities will continue into future quarters and anticipate recording additional restructure charges.

As of August 30, 2024, $ 0.8 million remained unpaid, which is expected to be paid in 2025.

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2023 August 26,

Loss (gain) on extinguishment of debt $ 15,924 $ 653 $ —

Loss on extinguishment or prepayment of debt $ 22,763 $ 15,924 $ 653

Loss (gain) on disposition of assets 179 ( 2,986 ) 213

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$ 21,084 $ 11,837 $ 350

In the second quarter of 2023, we recognized a loss in connection with the extinguishment of $ 150.0 million of our 2026 Notes.

See “Debt – Convertible Senior Notes – Convertible Senior Notes Exchange.”

Income (loss) before provision for income taxes consisted of the following:

Year ended August 30,

2024 August 25,

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Income tax provision (benefit) consisted of the following:

Year ended August 30,

2024 August 25,

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Income tax provision (benefit) $ 10,618 $ ( 49,203 ) $ 18,074

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

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

statutory tax rate rather than the Cayman Islands zero percent tax rate.

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federal statutory rate to our effective tax rate:

Year ended August 25, 2023

August 26, 2022 August 27, 2021

Year ended August 30, 2024 August 25, 2023 August 26, 2022

Statutory tax rate $ ( 6,545 ) 21.0 % $ ( 8,298 ) 21.0 % $ 8,921 21.0 %

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Effective tax rate $ 10,618 ( 34.1 ) % $ ( 49,203 ) 124.5 % $ 18,074 42.5 %

For 2023, the primary difference between the statutory tax rate and the effective tax rate was due to a release of the U.S.

federal and state valuation allowance.

The effective tax rate benefit from the valuation allowance release is offset with detriments associated with losses generated in jurisdictions with rates lower than the U.S.

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

For 2024, the primary difference between the U.S.

federal statutory tax rate and the effective tax rate was due to losses in jurisdictions where no tax benefit can be recognized, non-deductible expenses and foreign withholding taxes, partially offset by benefits from decreases in reserves for uncertain tax provisions and U.S.

federal and state tax credits.

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 consisted of the following:

Deferred tax assets and liabilities consisted of the following:

As of August 30,

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Interest carryforward 21,873 22,355

Intangible assets 5,039 —

Loss carryforwards 11,908 10,474

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Property and equipment 10,717 11,846

Brazil capital gains tax 4,138 —

Intangible assets — 417

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Net deferred tax assets $ 80,592 $ 73,294

(1) As required by the 2017 Tax Cuts and Jobs Act, effective for the period ended August 25, 2023, our research and development expenditures were capitalized and amortized, which resulted in substantially higher cash taxes for 2023 with an equal amount of deferred tax benefit.

We regularly assess the recoverability of our deferred tax assets under ASC Topic 740.

We assess available positive and negative evidence to estimate whether we will generate sufficient future taxable income to use our existing deferred tax assets.

We have no carryback ability, and therefore we must rely on future taxable income, including tax planning strategies and future reversals of taxable temporary differences, to support their realizability.

In our assessment for the period ended August 25, 2023, we concluded that it was more likely than not that all deferred tax assets related to U.S.

federal ordinary income and states, with the exception of certain acquired state tax attributes, will be realizable.

In reaching the conclusion that deferred tax assets related to U.S.

federal and states will be realizable, we considered, among other things, three significant pieces of positive evidence occurring during the year ended August 25, 2023:

(1) achieving three-year cumulative earnings, (2) recent use of deferred tax assets including available tax attribute carryforwards and (3) forecasted growth and profitability.

Therefore, in the year ended August 25, 2023 we released $ 69.8 million of valuation allowance.

We continue to maintain a valuation allowance against certain state tax attributes due to expected annual limitations on utilization which causes uncertainty regarding the realizability of these deferred tax assets.

We assess positive and negative evidence for each jurisdiction to determine whether it is more likely than not existing deferred tax assets will be realized.

In 2024, we recorded $ 1.2 million of valuation allowance on certain U.S.

federal tax credits due to uncertainty regarding the realizability of these deferred tax assets.

We have a valuation allowance against certain acquired state tax attributes due to expected annual limitations on utilization.

We will continue to monitor the need for a valuation allowance against our remaining deferred tax assets.

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federal and state net operating loss carryforwards of $ 27.9 million and $ 41.0 million, respectively.

If not utilized, the federal net operating loss carryforwards will begin to expire in 2025 and the state net operating loss carryforwards will begin to expire in 2028.

If not utilized, the federal net operating loss carryforwards will begin to expire in 2025.

State net operating loss carryforwards of $ 40.8 million will begin to expire in 2029, while the remaining state net operating loss carryforwards do not expire.

In addition, we had U.S.

federal and state research and development credit carryforwards of $ 8.5 million and $ 6.1 million, respectively, and $ 1.2 million of foreign tax credit carryforwards.

If not utilized, the federal research and foreign tax credits will begin to expire in 2032.

If not utilized, $ 2.0 million of the state credits will begin to expire in 2029, while $ 3.4 million of state credits do not expire.

In addition, we had Section 163(j) interest expense carryforwards of $ 101.0 million from the acquisition of Stratus, which do not expire.

Lastly, we had net operating loss carryforwards in Hong Kong of $ 18.6 million which does not expire.

federal and state carryforwards are subject to an annual limitation under the provisions of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”).

If not utilized, the federal research and foreign tax credits will begin to expire in 2031 and 2032, respectively.

If not utilized, $ 2.1 million of state credits will begin to expire in 2029, while $ 4.0 million of state credits do not expire.

In addition, we had Section 163(j) interest expense carryforwards of $ 100.0 million from the acquisition of Stratus Technologies which do not expire.

Net operating loss carryforwards in Hong Kong of $ 33.9 million do not expire.

Federal and state tax attributes can be subject to an annual limitation under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and state tax laws.

Further, under Section 382 of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards to offset its post-change taxable income may be limited.

In general, an “ownership change” will occur if there is a cumulative change in our ownership by certain “5-percent shareholders” (including groups of shareholders) that exceeds 50 percentage points over a rolling three-year period.

In general, an “ownership change” will occur if there is a cumulative change in our ownership by certain “5-percent shareholders” (including

groups of shareholders) that exceeds 50 percentage points over a rolling three-year period.

Similar rules may apply under state tax laws.

Our net operating loss, tax credit and section 163(j) interest expense carryforwards are subject to limitations per Sections 382 and 383 of the Code.

We have experienced ownership changes in the past, and we may experience ownership changes in the future, as a result of future transactions in our ordinary shares, some changes of which may be outside our control.

As a result, our ability to use our pre-change net operating loss, tax credit and section 163(j) interest expense carryforwards to offset post-change U.S.

federal and state taxable income may be subject to additional limitations.

Legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act, (“Tax Act”), as modified in 2020 by the Coronavirus Aid, Relief, and the Economic Security Act (“CARES Act”) changed the federal rules governing net operating loss carryforwards.

Legislation enacted in 2017, titled the Tax Cuts and Jobs Act (“Tax Act”), as modified in 2020 by the Coronavirus Aid, Relief, and the Economic Security Act (“CARES Act”), changed the federal rules governing net operating loss carryforwards.

For net operating loss carryforwards arising in tax years beginning after December 31, 2017, the Tax Act limits a taxpayer’s ability to utilize such carryforwards to 80% of taxable income beginning after December 31, 2020.

In addition, net operating loss carryforwards arising in tax years ending after December 31, 2017 can be carried forward indefinitely, but carryback is generally prohibited, with the exception of carrybacks reinstated by the CARES Act.

Net operating loss carryforwards generated before January 1, 2018 will not be subject to the Tax Act’s taxable income limitation and will continue to have a twenty-year carryforward period.

Net operating loss carryforwards generated before January 1, 2018 are not subject to the Tax Act’s taxable income limitation and will continue to have a 20-year carryforward period.

Nevertheless, our net operating loss carryforwards and other tax assets could expire before utilization and could be subject to limitations.

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

Balance at Beginning of Period Charged (Credited)

to Operations Charged

Business Acquisitions Balance at

Year ended August 30,

Year ended August 26, 2022 49,154 3,113 — — 52,267

Year ended August 25, 2023 52,267 ( 69,789 ) ( 4,073 ) 24,258 2,663

(1) During the period ended August 25, 2023, SMART Embedded Computing B.V.

2024 August 25,

2023 August 26,

Balance at beginning of period $ 2,663 $ 52,267 $ 49,154

Charged (credited) to operations 1,111 ( 69,789 ) 3,113

Charged to other accounts (1)

— ( 4,073 ) —

Business acquisitions — 24,258 —

Balance at end of period $ 3,774 $ 2,663 $ 52,267

(1) In the period ended August 25, 2023, SMART Embedded Computing B.V.

entered liquidation, resulting in the existing Netherlands NOL carryforwards being considered to have a remote likelihood of being utilized.

Accordingly, a deferred tax asset of $ 4.1 million was written off and the related full valuation allowance was released.

Accordingly, a deferred tax asset of $ 4.1 million was written off and the related valuation allowance released.

We choose to maintain flexibility to pull excess cash from all jurisdictions where needed, except the U.S.

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The statutory rate for Malaysia is 24%.

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

The effect of the tax incentive arrangements noted above reduced our income tax provision by $ 10.4 million (benefiting our diluted earnings per share by $ 0.20 ) in 2023, $ 10.0 million ($ 0.18 per diluted share) in 2022 and $ 4.6 million ($ 0.10 per diluted share) in 2021.

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

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

The effect of the tax incentive arrangements noted above reduced our income tax provision by $ 1.2 million ($ 0.02 per diluted share) in 2024, $ 10.4 million ($ 0.20 per diluted share) in 2023 and $ 10.0 million ($ 0.18 per diluted share) in 2022.

Below is a reconciliation of our unrecognized tax benefits:

Year ended August 30,

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In addition, tax returns that remain open to examination in non-U.S.

subsidiaries, including Malaysia, Brazil, Luxembourg, Ireland, Japan, Hong Kong and China, vary by country.

subsidiaries, including Malaysia, Luxembourg, Ireland, 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.

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Net income (loss) from discontinued operations ( 8,148 ) ( 195,384 ) 44,185

Net income (loss) attributable to SGH – Basic and Diluted ( 187,526 ) 66,557 21,310

Net income (loss) attributable to Penguin Solutions – Basic and Diluted $ ( 52,472 ) $ ( 187,526 ) $ 66,557

Weighted-average shares outstanding – Basic 52,428 49,566 49,467

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$ ( 1.00 ) $ ( 3.65 ) $ 1.22

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 25,

2023 August 26,

2022 August 27,

Equity plans 2,238 329 5,380

Upon any conversion of our 2026 Notes or 2029 Notes, we will be required to pay cash in an amount at least equal to the principal portion and have the option to settle any amount in excess of the principal portion in cash and/or ordinary shares.

As a result, only the amounts settled in excess of the principal portion are considered in calculating diluted earnings per share.

Unweighted antidilutive employee share-based awards excluded from the computation of diluted earnings per share 5,184 2,238 329

Upon any conversion of our convertible notes, we will be required to pay cash in an amount at least equal to the principal portion and have the option to settle any amount in excess of the principal portion in cash and/or ordinary shares.

As a result, only the amounts expected to be settled in excess of the principal portion are considered in calculating diluted earnings per share under the if-converted method.

Segment and Other Information

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

• Memory Solutions :

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.

• Advanced Computing :

Our Advanced Computing group, under our Penguin Computing and Stratus brands, offers specialized platform solutions and services for high-performance computing, artificial intelligence, machine learning, advanced modeling and the internet of things that span the continuum of edge, core and cloud.

Our solutions are designed specifically for customers across multiple markets, including hyperscale, financial services, energy, government, education, healthcare and others.

• Integrated Memory :

Our Integrated Memory group, under our SMART Modular Technologies brand, provides high-performance and reliable integrated 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 and computing, including server applications 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.

• Intelligent Platform Solutions :

Our IPS group, under our Penguin Solutions and newly acquired Stratus Technologies brands, offers specialized platform solutions and services for high-performance computing, artificial intelligence, machine learning, advanced modeling and the internet of things that span the continuum of edge, core and cloud.

Our solutions are designed specifically for customers across multiple markets, including government, hyperscale, energy, financial services, health care, education and others.

• LED Solutions :

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

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.

These products are marketed to original equipment manufacturers and to commercial and government customers.

The Integrated Memory 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.

• Optimized LED :

Our Optimized LED group, under our Cree LED brand, offers a broad portfolio of application-optimized LEDs focused on improving lumen density, intensity, efficacy, optical control and/or 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 displays and specialty lighting applications.

Segments are determined based on sources of revenue, types of customers and operating performance.

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2023 August 26,

Memory Solutions $ 443,264 $ 551,705 $ 486,205

Intelligent Platform Solutions 749,708 440,986 344,757

LED Solutions 248,278 403,185 224,567

Advanced Computing $ 554,552 $ 749,708 $ 440,986

Integrated Memory 356,426 443,264 551,705

Optimized LED 259,818 248,278 403,185

Total net sales $ 1,170,796 $ 1,441,250 $ 1,395,876

Segment operating income:

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 segment operating income 120,257 179,794 177,461

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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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2023 August 26,

Memory Solutions $ 3,891 $ 5,468 $ 5,373

Intelligent Platform Solutions 9,196 4,664 3,275

LED Solutions 13,411 12,736 6,034

Advanced Computing $ 9,495 $ 9,196 $ 4,664

Integrated Memory 3,873 3,891 5,468

Optimized LED 12,352 13,411 12,736

$ 25,720 $ 26,498 $ 22,868

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

Sales to our ten largest customers in 2023, 2022 and 2021 were 60 %, 62 % and 59 %, respectively, of total net sales.

As of August 25, 2023, there were no customers that accounted for more than 10% of accounts receivable.

Sales to our ten largest customers were 58 %, 60 % and 62 % of total net sales in each of 2024, 2023 and 2022, respectively.

As of August 30, 2024, one Advanced Computing customer and one Integrated Memory customer each accounted for more than 10% 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 an IPS customer were 23 %, 20 % and 15 % of total net sales in 2023, 2022 and 2021, respectively.

Additionally, net sales to another IPS customer were 11 % of total net sales in 2022.

Net sales to a Memory Solutions customer were 11 % of total net sales in 2022.

Net sales to an Advanced Computing customer were 18 %, 23 % and 20 % of total net sales in 2024, 2023 and 2022, respectively.

Additionally, net sales to another Advanced Computing customer were 11 % of total net sales in 2022.

Net sales to an Integrated Memory customer were 11 % of total net sales in 2022.

No other customers accounted for more than 10% of our total net sales in 2024, 2023 and 2022.

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

Purchases from our three largest suppliers in 2023, 2022 and 2021 were $ 0.6 billion, $ 1.2 billion and $ 0.7 billion, respectively.

As of August 25, 2023 and August 26, 2022, accounts payable and accrued expenses included $ 29.5 million and $ 131.7 million, respectively, for amounts owed to our largest three suppliers for 2023 and 2022, respectively.

Purchases from our two largest suppliers were $ 0.4 billion, $ 0.5 billion and $ 0.9 billion in each of 2024, 2023 and 2022, respectively.

As of August 30, 2024 and August 25, 2023, accounts payable and accrued expenses included $ 63.4 million and $ 24.0 million, respectively, for amounts owed to our two largest suppliers in each of 2024 and 2023.

Geographic Information

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Quarterly Financial Data (Unaudited)

The table below sets forth selected quarterly consolidated financial data from our continuing operations for 2023 and 2022:

The table below sets forth selected quarterly financial data from our continuing operations:

Q4 FY24 Q3 FY24 Q2 FY24 Q1 FY24 Q4 FY23 Q3 FY23 Q2 FY23 Q1 FY23

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Operating income (loss) 8,791 11,511 ( 3,312 ) 1,305 ( 1,639 ) ( 2,386 ) ( 2,077 ) 14,847

Net income (loss) attributable to SGH 64,841 ( 19,648 ) ( 33,396 ) ( 3,939 ) 8,862 13,924 ( 6,602 ) 6,188

Net income (loss) attributable to Penguin Solutions ( 24,547 ) 5,616 ( 13,620 ) ( 11,773 ) 64,841 ( 19,648 ) ( 33,396 ) ( 3,939 )

Earnings (loss) per share:

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

To the Shareholders and the Board of Directors of Penguin Solutions, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of SMART Global Holdings, Inc.

and subsidiaries (the “Company”) as of August 25, 2023 and August 26, 2022, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended August 25, 2023, and the related notes, (collectively referred to as the “financial statements”).

We have audited the accompanying consolidated balance sheets of Penguin Solutions, Inc.

(formerly SMART Global Holdings, Inc.) and subsidiaries (the “Company”) as of August 30, 2024 and August 25, 2023, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended August 30, 2024, and the related notes, (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 30, 2024 and August 25, 2023, and the results of its operations and its cash flows for each of the three years in the period ended August 30, 2024, in conformity with accounting principles generally accepted in the United States of America.

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Critical Audit Matter Description

The Company had $1.44 billion of revenue for the year ended August 25, 2023 of which $750 million related to the Intelligent Platform Solutions segment (“IPS”).

The Company had $1.17 billion of revenue for the year ended August 30, 2024 of which $555 million related to the Advanced Computing segment.

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.

The Company recognizes revenue when control of the underlying assets passes to the customer, which is 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

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.

A portion of the Company’s service revenue is from professional services, including installation and other services as well as 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 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.

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

– We tested the effectiveness of internal controls related to revenue for the Advanced Computing 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:

– We selected a sample of contract documents for customers in the Advanced Computing 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.

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• 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.

Divestiture of SMART Brazil – Classification of the Assets and Liabilities as Held-For-Sale and Measurement of Impairment Loss - Refer to the Divestiture of SMART Brazil note to the financial statements

Critical Audit Matter Description

On June 13, 2023 the Company entered into an agreement with Shenzhen Longsys Electronics Co., Ltd.

(“Longsys”) for the sale of an 81% interest in SMART Brazil (the “disposal group”).

As of August 25, 2023 the completion of the transaction remains subject to various regulatory approvals and satisfaction of closing conditions.

In connection with the proposed sale, the net assets of the disposal group were classified as assets held-for-sale.

An impairment charge of $153 million was recorded to reduce the carrying amount of the disposal group to its estimated fair value less costs to sell.

We identified the assessment of whether the disposal group meets the criteria as an asset held-for-sale and the determination of the amount of the associated impairment charge as a critical audit matter, as these areas 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 the classification of the Brazil disposal group as held-for-sale and the determination of the impairment charge included the following, among others:

– We tested the effectiveness of internal controls the Company has in place for applying the appropriate technical accounting guidance to record the financial statement impacts of the proposed sale.

– With respect to the Company’s conclusion that the disposal group meets the criteria to be considered held-for-sale:

• We read the agreement entered into between the Company and Longsys on June 13, 2023 regarding the sale of an 81% interest in the disposal group.

• We reviewed management’s analysis of whether the criteria to classify the disposal group as held-for-sale were met as of August 25, 2023.

• In order to assess management’s assertion that it is probable that the disposal will be completed within one year, we made inquiries of relevant personnel in the company’s finance, legal and executive functions regarding the status of the transaction as well as the regulatory and other conditions that need to be met.

– With respect to the determination of the impairment charge:

• With the assistance of professionals in our firm having expertise in accounting for divestitures, we evaluated the appropriateness of the technical accounting guidance used by the Company to record the financial statement impacts of the proposed sale.

• We reviewed management’s determination of the impairment charge, and (i) agreed the carrying value of the disposal group, including amounts related to cumulative translation adjustments, used in such analysis to the underlying accounting records and (ii) assessed whether management’s determination of the estimated fair value of the disposal group was consistent with the terms of the June 13, 2023 agreement between the Company and Longsys.

/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