10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 25, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38102

SMART GLOBAL HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

Cayman Islands	98-1013909
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
c/o Maples Corporate Services Limited P.O. Box 309 Ugland House Grand Cayman, Cayman Islands	KY1-1104
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (510) 623-1231

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒  (Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of May 25, 2018, the registrant had 22,307,512 ordinary shares outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signatures		38

i

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes a number of forward-looking statements that involve many risks and uncertainties. Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,” “expect,” “believe,” “should,” “anticipate,” “if,” “future,” “intend,” “plan,” “estimate,” “potential,” “target,” “seek,” or “continue” and similar words and phrases, including the negatives of these terms, or other variations of these terms, that denote future events. These statements reflect our current views with respect to future events and our potential financial performance and are subject to risks and uncertainties that could cause our actual results and financial position to differ materially and adversely from what is projected or implied in any forward-looking statements included in this report. These factors include, but are not limited to, the risks described under the caption “Risk Factors” in the documents we file from time to time with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for our fiscal year ended August 25, 2017 and in our Quarterly Reports on Form 10-Q that have been and will be filed by us in our fiscal year 2018, which runs from August 26, 2017 to August 31, 2018. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. We make these forward-looking statements based upon information available on the date of this report, and we expressly disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information or otherwise, except as required by law.

ii

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

SMART Global Holdings, Inc.

and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

	May 25,			August 25,
	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	64,495		$	22,436
Accounts receivable, net of allowances of $298 and $314 as of May 25, 2018    and August 25, 2017, respectively		262,101			183,303
Inventories		147,948			127,135
Prepaid expenses and other current assets		20,219			14,115
Total current assets		494,763			346,989
Property and equipment, net		53,051			55,182
Other noncurrent assets		21,193			26,728
Intangible assets, net		1,173			5,107
Goodwill		42,872			46,022
Total assets	$	613,052		$	480,028
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	264,954		$	189,717
Accrued liabilities		20,816			27,316
Current portion of long-term debt		22,073			22,841
Total current liabilities		307,843			239,874
Long-term debt		136,606			154,450
Deferred tax liabilities		351			1,439
Other long-term liabilities		1,897			1,869
Total liabilities	$	446,697		$	397,632
Commitments and contingencies (see Note 9)
Shareholders’ equity:
Ordinary shares, $0.03 par value. Authorized 200,000 shares; issued and    outstanding 22,308 and 21,666 as of May 25, 2018 and August 25, 2017,    respectively		672			653
Additional paid-in capital		245,097			232,162
Accumulated other comprehensive loss		(161,950	)		(143,210	)
Retained earnings		82,536			(7,209	)
Total shareholders’ equity		166,355			82,396
Total liabilities and shareholders’ equity	$	613,052		$	480,028

See accompanying notes to unaudited condensed consolidated financial statements.

3

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	May 25,			May 26,			May 25,			May 26,
	2018			2017			2018			2017
Net sales (1)	$	335,477		$	206,974		$	914,851		$	538,272
Cost of sales		257,423			159,599			705,944			424,030
Gross profit		78,054			47,375			208,907			114,242
Operating expenses:
Research and development		9,763			8,797			28,165			28,442
Selling, general, and administrative		19,597			17,193			55,502			49,037
Management advisory fees		—			1,000			—			3,000
Restructuring charge		—			—			—			457
Total operating expenses		29,360			26,990			83,667			80,936
Income from operations		48,694			20,385			125,240			33,306
Interest expense, net		(4,098	)		(8,294	)		(12,927	)		(23,072	)
Other income (expense), net		(7,145	)		(762	)		(7,312	)		(1,664	)
Total other expense		(11,243	)		(9,056	)		(20,239	)		(24,736	)
Income before income taxes		37,451			11,329			105,001			8,570
Provision for income taxes		5,505			3,371			15,256			6,156
Net income	$	31,946		$	7,958		$	89,745		$	2,414
Earnings per share:
Basic	$	1.44		$	0.57		$	4.09		$	0.17
Diluted	$	1.37		$	0.50		$	3.90		$	0.16
Shares used in computing earnings per share:
Basic		22,206			13,986			21,932			13,909
Diluted		23,306			15,955			23,020			15,230

(1) Includes sales to affiliates of $39,665 and $100,737 in the three and nine months ended May 25, 2018, respectively, and $21,554 and $48,242, respectively, for the corresponding periods of fiscal 2017 (see Note 2).

See accompanying notes to unaudited condensed consolidated financial statements.

4

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	May 25,			May 26,			May 25,			May 26,
	2018			2017			2018			2017
Net income	$	31,946		$	7,958		$	89,745		$	2,414
Other comprehensive income (loss):
Foreign currency translation		(17,974	)		(3,021	)		(18,740	)		983
Other comprehensive income (loss)		(17,974	)		(3,021	)		(18,740	)		983
Comprehensive income	$	13,972		$	4,937		$	71,005		$	3,397

See accompanying notes to unaudited condensed consolidated financial statements.

5

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	May 25,			May 26,
	2018			2017
Cash flows from operating activities:
Net income	$	89,745		$	2,414
Adjustments to reconcile net income to net cash provided by    (used in) operating activities:
Depreciation and amortization		18,656			25,399
Share-based compensation		6,599			3,533
Provision for doubtful accounts receivable and sales returns		(13	)		31
Deferred income tax benefit		(1,376	)		(1,195	)
Loss on disposal of property and equipment		230			129
Extinguishment loss on long-term debt		—			1,386
Write off of long-term asset		250			—
Amortization of debt discounts and issuance costs		2,165			6,424
Changes in operating assets and liabilities:
Accounts receivable		(86,706	)		(33,516	)
Inventories		(27,940	)		(31,184	)
Prepaid expenses and other assets		(3,495	)		741
Accounts payable		83,879			11,799
Accrued expenses and other liabilities		(4,703	)		7,097
Net cash provided by (used in) operating activities		77,291			(6,942	)
Cash flows from investing activities:
Capital expenditures and deposits on equipment		(18,251	)		(11,179	)
Proceeds from sale of property and equipment		101			467
Net cash used in investing activities		(18,150	)		(10,712	)
Cash flows from financing activities:
Fees paid for revolving line of credit financing		(768	)		—
Long-term debt payment		(18,402	)		(17,689	)
Payment for extinguishment of long-term debt		—			(938	)
Payment of costs related to initial public offering (IPO)		(1,591	)		(200	)
Proceeds from borrowings under revolving line of credit		277,500			338,250
Repayments of borrowings under revolving line of credit		(277,500	)		(338,250	)
Proceeds from issuance of ordinary shares from share option exercises		6,170			348
Net cash used in financing activities		(14,591	)		(18,479	)
Effect of exchange rate changes on cash and cash equivalents		(2,491	)		(160	)
Net increase (decrease) in cash and cash equivalents		42,059			(36,293	)
Cash and cash equivalents at beginning of period		22,436			58,634
Cash and cash equivalents at end of period	$	64,495		$	22,341
Supplemental disclosures of cash flow information:
Cash paid during the period:
Cash paid for interest	$	11,048		$	17,215
Cash paid for income taxes, net of refunds		17,085			5,293
Noncash activities information:
Capital expenditures included in accounts payable at period end		614			275
IPO costs included in accounts payable and accrued liabilities at period end		—			1,990
Proceeds receivable from the exercise of stock options		(185	)		—
Warrants issued in connection with debt		—			21,341

See accompanying notes to unaudited condensed consolidated financial statements.

6

Smart Global Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Basis of Presentation and Principles of Consolidation

(a) Overview

On August 26, 2011, SMART Global Holdings, Inc., formerly known as Saleen Holdings, Inc., a Cayman Islands exempted company (SMART Global Holdings, and together with its subsidiaries, the Company), consummated a transaction with SMART Worldwide Holdings, Inc., formerly known as SMART Modular Technologies (WWH), Inc. (SMART Worldwide), pursuant to an Agreement and Plan of Merger whereby, through a series of transactions, SMART Global Holdings acquired substantially all of the equity interests of SMART Worldwide with SMART Worldwide surviving as an indirect wholly owned subsidiary of SMART Global Holdings (the Acquisition). SMART Global Holdings is an entity that was formed by investment funds affiliated with Silver Lake Partners and Silver Lake Sumeru (collectively Silver Lake). As a result of the Acquisition, since there was a change of control resulting in Silver Lake as the controlling shareholder group, the Company applied the acquisition method of accounting and established a new basis of accounting.

The Company, through its subsidiaries, provides specialty memory solutions sold primarily to original equipment manufacturers (OEMs). The Company offers these solutions to customers worldwide and also offers custom supply chain services including procurement, logistics, inventory management, temporary warehousing, kitting and packaging services.  

SMART Global Holdings is domiciled in the Cayman Islands and has its U.S. offices in Newark, California. The Company has operations in the United States, Brazil, Malaysia, Taiwan, Hong Kong, Scotland, Singapore and South Korea.

(b) Basis of Presentation

The accompanying condensed consolidated financial statements comprise SMART Global Holdings and its wholly owned subsidiaries. Intercompany transactions have been eliminated in the condensed consolidated financial statements.

The Company uses a 52- to 53-week fiscal year ending on the last Friday in August. The three months ended May 25, 2018 and May 26, 2017 were both 13 week fiscal periods.

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and in conformity with the rules and regulations of the Securities and Exchange Commission (SEC) applicable to interim financial information. As such, certain information and footnote disclosures normally included in complete annual financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to the interim periods are unaudited.

All financial information for two of the Company’s subsidiaries, SMART Modular Technologies Indústria de Componentes Eletrônicos Ltda. (SMART Brazil) and SMART Modular Technologies do Brasil Indústria e Comércio de Componentes Ltda. (SMART do Brazil), is included in the Company’s condensed consolidated financial statements on a one-month lag because their fiscal years begin August 1 and end July 31.

(c) Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ from the estimates made by management. Significant items subject to such estimates and assumptions include the useful lives of long-lived assets, the valuation of deferred tax assets and inventory, share-based compensation, the estimated net realizable value of Brazilian tax credits, income tax uncertainties and other contingencies.

(d) Revenue Recognition

Product revenue is recognized when there is persuasive evidence of an arrangement, product delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Product revenue typically is recognized at the time of shipment or when the customer takes title to the goods. All amounts billed to a customer related to shipping and handling are classified as revenue, while all costs incurred by the Company for shipping and handling are classified as cost of sales. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales in the condensed consolidated statements of operations.

7

In addition, the Company has classes of transactions with customers that are accounted for on an agency basis (i.e., the Company recognizes as revenue the amount billed less the material procurement costs of products serviced as an agent with the cost of providing these services embedded with the cost of sales). The Company provides procurement, logistics, inventory management, temporary warehousing, kitting and packaging services for these customers. Revenue from these arrangements is recognized as service revenue and is determined by a fee for services based on material procurement costs. The Company recognizes service revenue upon the completion of the services, typically upon shipment of the product. There are no obligations subsequent to shipment of the product under the agency arrangements.

The following is a summary of the Company’s gross billings to customers and net sales for services and products (in thousands):

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Service revenue, net	$	11,270	$	9,869	$	30,746	$	27,853
Cost of purchased materials - service (1)		258,098		246,498		714,883		648,886
Gross billings for services		269,368		256,367		745,629		676,739
Product net sales		324,207		197,105		884,105		510,419
Gross billings to customers	$	593,575	$	453,472	$	1,629,734	$	1,187,158
Product net sales	$	324,207	$	197,105	$	884,105	$	510,419
Service revenue, net		11,270		9,869		30,746		27,853
Net sales	$	335,477	$	206,974	$	914,851	$	538,272

(1)Represents cost of sales associated with service revenue reported on a net basis.

(e) Cash and Cash Equivalents

All highly liquid investments with maturities of 90 days or less from original dates of purchase are carried at cost, which approximates fair value, and are considered to be cash. Cash and cash equivalents include cash on hand, cash deposited in checking and saving accounts, money market accounts, and securities with maturities of less than 90 days at the time of purchase.

(f) Allowance for Doubtful Accounts

The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, the Company records a specific allowance against amounts due and, thereby, reduces the net recognized receivable to the amount management reasonably believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on a combination of factors including the length of time the receivables are outstanding, industry and geographic concentrations, the current business environment and historical experience.

(g) Sales of Receivables

Designated subsidiaries of the Company may, from time to time, sell certain of their receivables to third parties. Sales of receivables are recognized at the point in which the receivables sold are transferred beyond the reach of the Company and its creditors, the purchaser has the right to pledge or exchange the receivables and the subsidiaries have surrendered control over the transferred receivables. See Note 3 for further details.

(h) Inventories

Inventories are valued at the lower of actual cost or market value. Inventory value is determined on a specific identification basis for material and an allocation of labor and manufacturing overhead. At each balance sheet date, the Company evaluates the ending inventories for excess quantities and obsolescence. This evaluation includes an analysis of sales levels by product family and considers historical demand and forecasted demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles. The Company adjusts carrying value to the lower of its cost or market value. Inventory write-downs are not reversed and create a new cost basis.

(i) Prepaid State Value-Added Taxes (ICMS)

Since 2004, the Sao Paulo State tax authorities have granted SMART Brazil a tax benefit to defer and eventually eliminate the payment of ICMS levied on certain imports from independent suppliers. This benefit, known as an ICMS Special Regime, is subject to renewal every two years. When the then current ICMS Special Tax Regime expired on March 31, 2010, SMART Brazil timely applied for a renewal of the benefit, however, the renewal was not granted until August 4, 2010.

8

On June 22, 2010, the Sao Paulo authorities published a regulation allowing companies that applied for a timely renewal of an ICMS Special Regime to continue utilizing the benefit until a final conclusion on the renewal request was rendered. As a result of this publication, SMART Brazil was temporarily allowed to utilize the benefit while it waited for its renewal. From April 1, 2010, when the ICMS benefit lapsed, through June 22, 2010 when the regulation referred to above was published, SMART Brazil was required to pay the ICMS taxes on imports, which payments result in ICMS credits that may be used to offset ICMS obligations generated from sales by SMART Brazil of its products; however, the vast majority of SMART Brazil’s sales in Sao Paulo were either subject to a lower ICMS rate or were made to customers that were entitled to other ICMS benefits that enabled them to eliminate the ICMS levied on their purchases of products from SMART Brazil. As a result, from April 1, 2010 through June 22, 2010, SMART Brazil did not have sufficient ICMS collections against which to apply the credits and the credit balance increased significantly.

Effective February 1, 2011, in connection with its participation in a Brazilian government incentive program known as Support Program for the Technological Development of the Semiconductor and Display Industries Laws, or PADIS, SMART Brazil spun off the module manufacturing operations into SMART do Brazil, a separate subsidiary of the Company. In connection with this spin off, SMART do Brazil applied for a tax benefit from the State of Sao Paulo in order to obtain a deferral of state ICMS. This tax benefit is referred to as State PPB, or CAT 14. The CAT 14 approval was not obtained until July 21, 2011, and from February 1, 2011 until the CAT 14 approval was granted, SMART do Brazil did not have sufficient ICMS collections against which to apply the credits accrued upon payment of the ICMS on SMART do Brazil’s imports and inputs locally acquired, and therefore, it generated additional excess ICMS credits.

As of  May 25, 2018, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$44.4 million (or $12.8 million), of which (i) R$16.6 million (or $4.8 million) are fully vested ICMS credits, classified as prepaid and other current assets and R$24.5 million (or $7.0 million) classified as other noncurrent assets, and (ii) R$3.3 million (or $0.9 million) are ICMS credits subject to vesting in 48 equal monthly amounts, classified as prepaid expenses and other current assets (R$1.1 million or $0.3 million) and other noncurrent assets (R$2.2 million or $0.6 million). As of August 25, 2017, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$40.9 million (or $13.1 million), of which (i) R$38.4 million (or $12.3 million) are fully vested ICMS credits, classified as other noncurrent assets, and (ii) R$2.5 million (or $0.8 million) are ICMS credits subject to vesting in 48 equal monthly amounts, classified as other noncurrent assets (R$0.6 million or $0.2 million) and prepaid expenses and other current assets (R$1.9 million or $0.6 million). It is expected that the excess ICMS credits will continue to be recovered in fiscal 2018 through fiscal 2022. The Company updates its forecast of the recoverability of the ICMS credits quarterly, considering the following key variables in Brazil: timing of government approvals of automated credit utilization, the total amount of sales, the product mix and the inter and intra state mix of sales. If these estimates or the mix of products or regions vary, it could take longer or shorter than expected to recover the accumulated ICMS credits, resulting in a reclassification of ICMS credits from current to noncurrent, or vice versa.

In April and June 2016, the Company filed cases with the State of Sao Paulo tax authorities to seek approval to sell excess ICMS credits. In December 2017, the Company obtained approval to sell R$31.6 million (or $9.1 million) of its ICMS credits.  Once approved, sales of ICMS credits usually take three to six months to complete and typically incur a discount to the face amount of the credits sold, as well as fees for the arrangers of these sales which together aggregate 10% to 15% of the face amount of the credits being sold. Once the sale is complete, the tax authorities usually approve the transfer of credits in monthly installments and the proceeds resulting from the sale of the aforementioned credits shall be received by the Company accordingly. The Company has recorded valuation adjustments for the estimated discount and fees that the Company will need to offer in order to sell the ICMS credits to other companies.  

(j) Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are computed based on the shorter of the estimated useful lives or the related lease terms, using the straight-line method. Estimated useful lives are presented below:

	Period
Asset:
Manufacturing equipment	2 to 5 years
Office furniture, software, computers and equipment	2 to 5 years
Leasehold improvements*	2to 60 years

* Includes the land lease for the Penang facility with a term expiring in 2070.

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(k) Goodwill

The Company performs a goodwill impairment test annually during the fourth quarter of its fiscal year and more frequently if events or circumstances indicate that impairment may have occurred. Such events or circumstances may, among others, include significant adverse changes in the general business climate. As of May 25, 2018 and August 25, 2017, the carrying value of goodwill on the Company’s condensed consolidated balance sheet was $42.9 million and $46.0 million, respectively.

When conducting the annual impairment test for goodwill, the Company compares the estimated fair value of a reporting unit containing goodwill to its book value. The estimated fair value is computed using two approaches: the income approach, which is the present value of expected cash flows, discounted at a risk-adjusted weighted average cost of capital; and the market approach, which is based on using market multiples of companies in similar lines of business. If the fair value of the reporting unit is determined to be more than its book value, no goodwill impairment is recognized. The excess of the fair value of the reporting unit over the fair value of assets less liabilities is the implied value of goodwill and is used to determine the amount of impairment.

All of the $42.9 million carrying value of goodwill on the Company’s condensed consolidated balance sheet as of May 25, 2018 is associated with the Company’s single reporting unit. No impairment of goodwill was recognized through May 25, 2018.

The changes in the carrying amount of goodwill during the nine months ended May 25, 2018 and fiscal 2017 are as follows (in thousands):

	Total
Balance as of August 26, 2016	$	44,976
Translation adjustments		1,046
Balance as of August 25, 2017		46,022
Translation adjustments		(3,150	)
Balance as of May 25, 2018	$	42,872

(l) Intangible Assets, Net

The following table summarizes the gross amounts and accumulated amortization of intangible assets from the Acquisition by type as of May 25, 2018 and August 25, 2017 (dollars in thousands):

			May 25, 2018							August 25, 2017
	Weighted		Gross							Gross
	avg.		Carrying		Accumulated					Carrying		Accumulated
	life (yrs)		amount		amortization			Net		amount		amortization			Net
Customer relationships		5	$	24,256	$	(23,328	)	$	928	$	26,971	$	(22,844	)	$	4,127
Technology		4		4,900		(4,655	)		245		4,900		(3,920	)		980
Total			$	29,156	$	(27,983	)	$	1,173	$	31,871	$	(26,764	)	$	5,107

Amortization expense related to intangible assets for the three and nine months ended May 25, 2018 totaled approximately $1.2 million and $3.7 million, respectively, and $3.0 million and $9.0 million, respectively, for the corresponding periods of fiscal 2017. Acquired intangibles are amortized on a straight-line basis over the remaining estimated economic life of the underlying intangible assets.

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Amortization of intangible assets (in thousands):
Research and development	$	245	$	1,224	$	735	$	3,672
Selling, general and administrative		976		1,774		2,992		5,296
Total	$	1,221	$	2,998	$	3,727	$	8,968

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(m) Long-Lived Assets

Long-lived assets, excluding goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to the future undiscounted cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed are reported at the lower of the carrying amount or fair value, less cost to sell. No impairment of long-lived assets was recognized during the nine months ended May 25, 2018 and May 26, 2017.

(n) Research and Development Expense

Research and development expenditures are expensed in the period incurred.

(o) Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and credit carryforwards. When necessary, a valuation allowance is recorded to reduce tax assets to amounts expected to be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (or loss) in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in tax expense.

(p) Foreign Currency Translation

For foreign subsidiaries using the local currency as their functional currency, assets and liabilities are translated at exchange rates in effect at the balance sheet date and income and expenses are translated at average exchange rates during the period. The effect of this translation is reported in other comprehensive income (loss). Exchange gains and losses arising from transactions denominated in a currency other than the functional currency of the respective foreign subsidiaries are included in results of operations.

For foreign subsidiaries using the U.S. dollar as their functional currency, the financial statements of these foreign subsidiaries are remeasured into U.S. dollars using the historical exchange rate for property and equipment and certain other nonmonetary assets and liabilities and related depreciation and amortization on these assets and liabilities. The Company uses the exchange rate at the balance sheet date for the remaining assets and liabilities, including deferred taxes. A weighted average exchange rate is used for each period for revenues and expenses.

All foreign subsidiaries and branch offices, except those in Brazil and South Korea, use the U.S. dollar as their functional currency. The gains or losses resulting from the remeasurement process are recorded in other income (expense) in the accompanying condensed consolidated statements of operations.

During the three and nine months ended May 25, 2018 and May 26, 2017, the Company recorded $6.9 million and $7.3 million, respectively, and $1.0 million and $0.7 million, respectively, for the corresponding periods of fiscal 2017, of foreign exchange losses primarily related to its Brazilian operating subsidiaries.

(q) Share-Based Compensation

The Company accounts for share-based compensation under ASC 718, Compensation—Stock Compensation, which requires companies to recognize in their statement of operations all share-based payments, including grants of share options and other types of equity awards, based on the grant-date fair value of such share-based awards.

	Three Months Ended					Nine Months Ended
	May 25,		May 26,			May 25,		May 26,
	2018		2017			2018		2017
Share-based compensation expense (in thousands):
Cost of sales	$	414	$	176		$	859	$	444
Research and development		325		(22	)		887		423
Selling, general and administrative		2,558		1,235			4,853		2,666
Total	$	3,297	$	1,389		$	6,599	$	3,533

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(r) Loss Contingencies

The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. The Company considers the likelihood of a loss and the ability to reasonably estimate the amount of loss in determining the necessity for and amount of any loss contingencies. Estimated loss contingencies are accrued when it is probable that a liability has been incurred or an asset impaired and the amount of loss can be reasonably estimated. The Company regularly evaluates the most current information available to determine whether any such accruals should be recorded or adjusted.

(s) Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting shareholders’ equity that, under U.S. GAAP are excluded from net income (loss). The Company’s other comprehensive income (loss) generally consists of foreign currency translation adjustments.

(t) Concentration of Credit and Supplier Risk

The Company’s concentration of credit risk consists principally of cash and cash equivalents and accounts receivable. The Company’s revenues and related accounts receivable reflect a concentration of activity with five customers (see Note 11). The Company does not require collateral or other security to support accounts receivable. The Company performs periodic credit evaluations of its customers to minimize collection risk on accounts receivable and maintains allowances for potentially uncollectible accounts.

The Company relies on five suppliers for the majority of its raw materials. At May 25, 2018 and August 25, 2017, the Company owed these five suppliers $218.4 million and $153.7 million, respectively, which was recorded as accounts payable. The inventory purchases from these suppliers during the three and nine months ended May 25, 2018 were $0.4 billion and $1.2 billion, respectively, and $0.3 billion, and $0.9 billion, respectively for the corresponding periods of fiscal 2017.

(u) New Accounting Pronouncements

In March 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This standard amends ASC 740, Income Taxes, to provide guidance on accounting for tax effects of the Tax cuts and Jobs Act (the “Tax Act”) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Company has applied the guidance in ASU 2018-05, see Note 5, Income Taxes, for further disclosure.  

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Comprehensive Income. The new guidance allows companies to reclassify stranded tax effects resulting from the Tax Act, from accumulated other comprehensive income to retained earnings. The guidance also requires certain new disclosures regardless of the election.  The Company is required to adopt the guidance in the first quarter of fiscal 2020. Early adoption is permitted. The Company is currently evaluating the timing and the impact of these amendments to its consolidated financial statements

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplified the accounting for goodwill impairment by eliminating step 2 from the goodwill impairment test. ASU 2017-04 will be effective for the Company beginning on December 15, 2019 and early adoption is permitted. The Company adopted this ASU in fiscal 2017 and it did not have a material impact on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies the presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 will be effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The changes in restricted cash and restricted cash equivalents during the period will be included in the beginning and ending cash and cash equivalents balance reconciliation on the statement of cash flows. The Company has $6.3 million of restricted cash at May 25, 2018, which is classified as noncurrent assets in the accompanying condensed consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Cash Flow Statements, Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to address the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The guidance addresses eight specific cash flow classification issues with the objective of reducing diversity in practice. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments should be applied using a retrospective transition period to each period presented. The Company does not believe the adoption of ASU 2016-15 will have a material impact on its consolidated financial statements.

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In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplified certain aspects of the accounting for share-based payment transactions, including income taxes, forfeitures and classification of awards and classification in the statement of cash flows. In the first quarter of fiscal 2018, the Company adopted the applicable provisions of this standard as follows:

• The guidance requires excess tax benefits and tax deficiencies to be recorded as income tax benefit or expense in the statement of operations when the awards vest are settled, and eliminates the requirement to reclassify cash flows related to excess tax benefits from financing activities to operating activities on the statement of cash flows. The Company adopted the guidance prospectively effective August 26, 2017, and there was no impact to its consolidated financial statements.  

• The guidance eliminates the requirement that excess tax benefits must be realized (through a reduction in income taxes payable) before companies can recognize them.  The Company applied the modified retrospective transition method upon adoption.  The previously unrecognized excess tax effects were recorded as a deferred tax asset in the amount of $0.9 million, which was fully offset by a valuation allowance of the same amount as of August 26, 2017, resulting no impact to opening retained earnings.  

• In accordance with the guidance, the Company has elected to make an entity-wide accounting policy change to account for forfeitures when they occur.  There is no cumulative-effect on opening retained earnings.  

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02 will be effective for the Company beginning on September 1, 2019 and early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.  Although the Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements and related disclosures, as disclosed in Note 9(a), the Company has over $16.4 million in lease commitments at May 25, 2018 and believes that the adoption will have a material impact to the consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 will be effective for the Company beginning on September 1, 2017 with early application permitted as of the beginning of any interim or annual reporting period. The Company early adopted this ASU in fiscal 2017 and it did not have a material impact on its consolidated financial statements.

In May 2014, the FASB issued a new standard, ASU No. 2014-09, Revenue from Contracts with Customers, as amended, which will supersede nearly all existing revenue recognition guidance. Under ASU 2014-09, an entity is required to recognize revenue upon transfer of promised goods or services to customers in an amount that reflects the expected consideration received in exchange for those goods or services. ASU No. 2014-09 defines a five-step process in order to achieve this core principle, which may require the use of judgment and estimates, and also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and estimates used. The FASB has recently issued several amendments to the new standard, including clarification on identifying performance obligations. The amendments include ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606)—Principal versus Agent Considerations, which was issued in March 2016, and clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09. The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. The new standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. The Company does not plan to early adopt, and accordingly, will adopt the new standard effective September 1, 2018. The Company currently plans to adopt using the modified retrospective approach. Upon adoption on September 1, 2018, the Company will record a cumulative effect adjustment to retained earnings related to the difference in timing of revenue recognition required under the new standards.  

A change for the Company under ASC 606 relates to the timing of revenue recognition for customized product sales orders deemed not cancellable and nonrefundable (NCNR). Under current accounting standards, the Company recognizes revenue and costs related to these sales when products are shipped or delivered to the customers based on the terms of the purchase orders and sales agreements. Under ASC 606, the terms within the NCNR sales orders that provide the Company with a legally enforceable right to receive payment for performance completed to date will affect the timing of revenue recognition. Accordingly, the Company will recognize revenue over time as customized products listed within the NCNR orders are completed.

The Company is in the process of finalizing its assessment and implemented policies, processes, and controls to support the standard measurement and disclosure requirements.

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(v) Subsequent Events

Acquisition of Penguin Computing, Inc.

On June 8, 2018, SMART Global Holdings entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the SMART Global Holdings, Glacier Acquisition Sub, Inc., a wholly-owned indirect subsidiary of SMART Global Holdings (“Merger Sub”), Penguin Computing, Inc., (“Penguin”) and Fortis Advisors LLC, solely in its capacity as the representative of the holders of the securities of Penguin. Pursuant to the Merger Agreement, on June 8, 2018, Merger Sub was merged with and into Penguin, with Penguin surviving as a wholly-owned indirect subsidiary of the SMART Global Holdings (the “Merger”).

The aggregate consideration payable by the Company for the Merger is up to $85 million, which includes up to $25.0 million of potential cash earn-out payments based on Penguin’s achievement of specified gross profit levels through December 31, 2018, pursuant to the provisions of the Merger Agreement. The Company paid $60 million at closing (subject to certain adjustments as provided in the Merger Agreement), which included the assumption by the Company of Penguin’s outstanding indebtedness.

At the closing of the Merger, the Company deposited $6.0 million of the purchase price into escrow as security for Penguin’s indemnification obligations during the escrow period of one year. The Company also deposited $2.0 million of the purchase price into escrow as security for customary post-closing adjustments to the purchase price. The Merger Agreement contains customary representations and warranties of the Company and Penguin. The parties have agreed to indemnify each other for certain breaches of representations, warranties and covenants.

Incremental Facility Amendment

On June 8, 2018, the parties to the Amended Credit Agreement (as defined in Note 6) entered into an Incremental Facility Amendment (the “Incremental Facility Amendment”) which provides for, among other things, an incremental $60.0 million term loan facility (the “Additional Term B Loan”). On June 8, 2018, SMART Modular Technologies (Global), Inc. (“Global”) borrowed pursuant to the Incremental Facility Amendment, $60.0 million in aggregate principal amount of Additional Term B Loan under the Amended Credit Agreement, a portion of which was used to fund the cash purchase price of the Merger. The terms and provisions of the Additional Term B Loan are, in all material respects, substantially consistent with the terms and provisions of the other term loans currently outstanding under the Amended Credit Agreement.

(2) Related Party Transactions

In the normal course of business, the Company had transactions with its affiliates as follows (in thousands):

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Affiliates:
Net sales	$	39,665	$	21,554	$	100,737	$	48,242
Expenses:
Management advisory fees	$	—	$	1,000	$	—	$	3,000

As of May 25, 2018 and August 25, 2017, amounts due from these affiliates were $8.7 million and $8.7 million, respectively.

Management advisory fees represent fees paid to entities affiliated with Silver Lake pursuant to a management agreement (the Management Agreement) that was terminated upon closing of the Company’s initial public offering (IPO) on May 30, 2017.  There were no amounts due under this agreement as of May 25, 2018 and August 25, 2017.

(3) Accounts Receivable Purchasing Facility

In May 2012, SMART Modular Technologies, Inc. (SMART Modular) and SMART Modular Technologies (Europe) Limited (collectively, for this footnote only, Sellers), both wholly owned subsidiaries of the Company, entered into a Receivables Purchasing Agreement (as amended, the RPA) with Wells Fargo Bank, N.A. (Wells Fargo). Under the RPA, the Sellers can offer to sell to Wells Fargo certain Eligible Receivables (as defined in the RPA) due from certain designated customers, and Wells Fargo has the right to purchase Eligible Receivables offered for sale by Sellers. The maximum amount of Eligible Receivables that Wells Fargo can purchase is capped based upon the aggregate outstanding balances of purchased receivables which maximum is set at $50 million with sublimits assigned to each of Sellers’ customers that are approved for the program. Wells Fargo has no obligation to purchase any Eligible Receivables under the RPA. All purchases of Eligible Receivables are at a discount equal to a 2-month LIBOR plus 2.75% annual discount margin, calculated on a daily basis for the number of days between the payment of the purchase price by Wells Fargo to the Sellers and the actual collection of the Eligible Receivables by Wells Fargo from the account debtor. Purchases are also subject to a 95% advance rate with the 5% being reimbursed to the Sellers upon collection by Wells Fargo from the account debtor. Under the

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terms of the RPA, Sellers retain limited recourse for product warranties and commercial disputes and Wells Fargo bears the full risk of insolvency and collectability. Sellers are appointed as the agent of Wells Fargo to perform collection services. The RPA has standard representations and warranties, including for the validity and collectability of the Eligible Receivables, and various negative and affirmative covenants that are typical for arrangements of this nature. The obligations of the Sellers are jointly and severally guaranteed by SMART Worldwide and its subsidiary Global. Financing under this receivables purchase program qualifies for off-balance sheet financing as the transfer of receivables to Wells Fargo represents a true-sale. The RPA was terminated effective June 30, 2017.

During the nine months ended May 25, 2018 and May 26, 2017, the Sellers sold $0 and $153.6 million of accounts receivables under the RPA respectively. The outstanding balance of receivables sold and not yet collected was $0 as of both May 25, 2018 and August 25, 2017. Total interest expense paid during both the three and nine months ended May 25, 2018 were $0, and $0.2 million and $0.6 million, respectively, for the corresponding periods of fiscal 2017.

(4) Balance Sheet Details

Inventories

Inventories consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Raw materials	$	72,839	$	42,255
Work in process		27,406		22,965
Finished goods		47,703		61,915
Total inventories*	$	147,948	$	127,135

* As of May 25, 2018 and August 25, 2017, 27% and 34%, respectively, of total inventories represented inventory held under the Company's supply chain services.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Prepaid ICMS taxes in Brazil*	$	5,084	$	—
Unbilled service receivables		3,131		4,280
Prepaid income taxes		1,587		1,023
Prepayment for VAT and other transaction taxes		1,485		1,890
Revolver debt fees		970		970
Other prepaid expenses and other current assets		7,962		5,952
Total prepaid expenses and other current assets	$	20,219	$	14,115
* See Note 1(i)

Property and Equipment, Net

Property and equipment consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Office furniture, software, computers and equipment	$	18,376	$	17,134
Manufacturing equipment		99,031		96,318
Leasehold improvements*		23,505		24,302
		140,912		137,754
Less accumulated depreciation and amortization		87,861		82,572
Net property and equipment	$	53,051	$	55,182

* Includes Penang facility, which is situated on leased land.

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Depreciation and amortization expense for property and equipment during the three and nine months ended May 25, 2018 was approximately $4.8 million and $14.9 million, respectively, and $4.8 million and $16.4 million, respectively, for the corresponding periods of fiscal 2017.

Other Noncurrent Assets

Other noncurrent assets consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Prepaid ICMS taxes in Brazil*	$	7,667	$	12,253
Restricted cash		6,320		7,027
Deferred tax assets		2,387		2,098
Revolver debt fees		1,621		2,334
Tax receivable		1,319		1,223
Other		1,879		1,793
Total other noncurrent assets	$	21,193	$	26,728

* See Note 1(i)

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Accrued employee compensation	$	14,672	$	17,426
Income taxes payable		1,795		2,459
VAT and other transaction taxes payable		887		1,314
Accrued warranty reserve		277		275
Accrued credits payable to customers		—		2,296
Other accrued liabilities		3,185		3,546
Total accrued liabilities	$	20,816	$	27,316

(5) Income Taxes

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

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Provision for Income Taxes	$	5,505	$	3,371	$	15,256	$	6,156

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

Provision for income taxes for the three and nine months ended May 25, 2018 increased by $2.1 million and $9.1 million, respectively, as compared to the same period in the prior year, primarily due to higher income in non-U.S. jurisdictions subject to tax.  

As of May 25, 2018, the Company has a full valuation allowance for its net deferred tax assets associated with its U.S. operations.  The amount of the deferred tax asset considered realizable could be adjusted if significant positive evidence increases.

Determining the consolidated provision for income tax expense, income tax liabilities, and deferred tax assets and liabilities involves judgment. The Company calculates and provides for income taxes in each of the tax jurisdictions in which it operates, which involves estimating current tax exposures, as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction.  The estimates used could differ from actual results, which may have a significant impact on operating results in future periods.

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On December 22, 2017, new U.S. federal tax legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law.  Certain key changes introduced by the Tax Act that would impact the Company in the current fiscal year include the reduction of the U.S. federal corporate tax rate from 35% to 21%, acceleration of expensing of certain business assets, and the elimination of the alternative minimum tax system for corporations. This rate reduction will reduce the gross value of the Company’s U.S. net deferred tax assets and liabilities with a correlative adjustment to the Company’s valuation allowance, therefore, there is no expected material impact to the Company’s quarterly and annual consolidated financial statements for the fiscal year ending August 31, 2018, subject to a continued valuation allowance. Prospectively, the Company will be subject to other provisions of the Tax Act, including, but not limited to, changes to the interest deduction and the repeal of certain exceptions under IRC 162(m), which may limit the Company’s deductibility of such items. These items are dependent on factors including future profits, the timing of payment and the exercises and release of equity awards.

(6) Long-Term Debt

Amended Credit Agreement

On August 9, 2017, SMART Worldwide, Global, and SMART Modular entered into a Second Amended and Restated Credit Agreement (together with all related loan documents, and as amended from time to time, the Amended Credit Agreement) with certain lenders which amended and restated that certain Amended and Restated Credit Agreement dated as of November 5, 2016 (the ARCA), which had amended and restated that certain Credit Agreement dated as of August 26, 2011 (the Original Credit Agreement). The Company’s subsidiaries named as borrowers in the Amended Credit Agreement and certain other subsidiaries that entered into a guarantee with respect to the Amended Credit Agreement, are collectively referred to as the Loan Parties and together with SMART Malaysia, the Credit Group. The Amended Credit Agreement provides for a $165 million of term loans with a maturity date of August 9, 2022 and $50million of revolving loans with a maturity date of February 9, 2021 (the Initial Revolver Maturity Date) which revolving loan maturity date automatically extends to February 9, 2022 if the total leverage ratio of the Credit Group is less than 3.0:1.0 on the Initial Revolver Maturity Date. SMART Global Holding is not a party to the Amended Credit Agreement.

The Amended Credit Agreement is jointly and severally guaranteed on a senior basis by certain subsidiaries of Global (excluding, among other subsidiaries, SMART Malaysia). In addition, the Amended Credit Agreement is secured by a pledge of the capital stock of, or equity interests in, most of the subsidiaries of SMART Worldwide (including, without limitation, SMART Malaysia) and by substantially all of the assets of the subsidiaries of SMART Worldwide, excluding the assets of SMART Malaysia and certain other subsidiaries.

Covenants. The Amended Credit Agreement contains various representations and warranties and affirmative and negative covenants that are usual and customary for loans of this nature including, among other things, limitations on the Credit Group’s ability to engage in certain transactions, incur debt, pay dividends, and make investments. The Amended Credit Agreement also requires that the Credit Group maintain a Secured Leverage Ratio not in excess of 3.5:1.0 as of the end of each fiscal quarter (commencing with the fiscal quarter ending November 24, 2017) and puts restrictions on the Credit Group’s ability to retain cash proceeds from the sale of certain assets with net proceeds in excess of $2 million, subject to customary six-month reinvestment rights.

Interest and Interest Rates. Loans under the Amended Credit Agreement accrue interest at a rate per annum equal to an applicable margin plus, at the borrowers’ option, either a LIBOR rate, or a base rate. The applicable margin for term loans with respect to LIBOR borrowings is 6.25% and with respect to base rate borrowings is 5.25%. The interest rate on the term loans was 8.62% as of May 25, 2018.

The applicable margin for revolving loans adjusts every quarter based on the Secured Leverage Ratio for the most recent fiscal quarter with the applicable margin for revolving loans with respect to LIBOR borrowings ranges from 3.75% to 4.00% and the applicable margin for revolving loans with respect to base rate borrowings ranges from 2.75% to 3.00%. Prior to November 5, 2016, the effective date of the ARCA, the applicable margin was pegged to the Secured Net Leverage Ratio.

Interest on base rate loans is payable on the last day of each calendar quarter. Interest on LIBOR-based loans is payable every one, two, three, six or twelve months after the date of each borrowing, depending on the particular interest rate period selected with respect to such borrowing.

Principal Payments. The Amended Credit Agreement requires quarterly repayments of principal under the term loans equal to 2.5% of $165 million, or $4.1 million per fiscal quarter.  During the three and nine months ended May 25, 2018 the borrowers made scheduled principal payments of $4.1 million and $12.4 million, respectively, and $3.9 million and $11.6 million, respectively, for the corresponding periods of fiscal 2017.

Prepayments. The borrowers have the right at any time to make optional prepayments of the principal amounts outstanding under the Amended Credit Agreement provided that prepayments of principal which are voluntary or are made in connection with certain transactions will be subject to prepayment premiums of 3%, 2%, and 1% during the first, second and third years, respectively, after the effective date of the Amended Credit Agreement.

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The Amended Credit Agreement also requires certain mandatory prepayments of principal whereby the borrowers must prepay outstanding loans, subject to certain exceptions, which includes, among other things:

• 75% of excess cash flow on a semi-annual basis if the total leverage ratio is greater than 1.5:1.0; 50% of excess cash flow on a semi-annual basis if the total leverage ratio is greater than 1.0:1.0 but less than or equal to 1.5:1.0; and 25% of excess cash flow on an annual basis if the total leverage ratio is less than or equal to 1.0:1.0, which amounts will be reduced by any permitted voluntary prepayments of principal made in the applicable fiscal year;

• 100% of the net proceeds of certain asset sales or other dispositions of property of Global or any restricted subsidiary, subject to the limited rights to reinvest the proceeds within six months; and

• 100% of the net cash proceeds of incurrence of certain debt by Global or any of its restricted subsidiaries, other than proceeds from certain debt to be incurred under the Amended Credit Agreement.

No mandatory prepayments were required for three months ended May 25, 2018 or for fiscal 2017.

On November 29, 2016, the Credit Group received all required approvals from the lenders and entered into Amendment No. 4 to the Credit Agreement (Amendment 4) dated as of November 5, 2016 (the Amendment 4 Effective Date) which, among other things, adopted the ARCA. Pursuant to Amendment 4, the borrowers agreed to pay the Administrative Agent a fee in the amount of $1 million pursuant to a separate agreement and to pay a fee in the form of an additional term loan, in the amount of $5 million for the ratable account of the term lenders party to Amendment 4. Additionally, SMART Global Holdings was obligated to make an aggregate equity investment of at least $9.9 million in cash in Global, and SMART Global Holdings was obligated to issue 3,467,571 warrants (the Lender Warrants) to purchase ordinary shares of SMART Global Holdings, to the term lenders party to Amendment 4, which Lender Warrants were exercisable at $0.03 per share, with 1,541,143 warrants (the First Tranche Warrants) exercisable immediately and 1,926,428 warrants (the Second Tranche Warrants), exercisable only if there were balances outstanding under the original term loans at the one year anniversary of the Amendment 4 Effective Date. The relative fair value of the Lender Warrants and the fees payable to the lenders in connection with the ARCA were recorded as debt discount and resulted in additional interest expense over the then amended term of the loan using the effective interest method following debt modification accounting.

Under the terms of the ARCA, the quarterly scheduled principal payments of term loans were increased to $3.9 million per quarter to be paid on the last day of each fiscal quarter starting November 25, 2016 and early mandatory repayments of principle were applied in the reverse order of maturity.

On June 2, 2017, SMART Global Holdings contributed $61.0 million from the proceeds of the IPO, to Global which proceeds Global in turn used to pay down the original term loans as required under the ARCA, resulted in a $6.7 million loss on early repayment of long-term debt. As of August 9, 2017, prior to the one year anniversary of the Amendment 4 Effective Date, the Credit Group entered into the Amended Credit Agreement with new term loans in the aggregate principal amount of $165 million with different lenders and the Second Tranche Warrants were terminated. The proceeds from the Amended Credit Agreement were used to fully repay and refinance the term loans under the ARCA in the principal amount of $151.0 million, which resulted in a write off of $15.2 million of original issue discount and debt issuance costs as an extinguishment loss.

Term loans under the Amended Credit Agreement were issued at a discount of 2.0% of the then outstanding principal amount of $165 million, for a discount of $3.3 million. The Company incurred $8.7 million in debt issuance costs upon entering into the Amended Credit Agreement, of which $5.3 million was attributable to the term loans and recorded as a direct reduction to the face amount of the term loans, and $3.4 million was allocated to the revolving line of credit and recorded as a separate asset on the balance sheet. Debt issuance costs and debt discount related to term loans are being amortized to interest expense based on the effective interest rate method over the life of the term loans. Those fees allocated to the revolving line of credit are being amortized to interest expense ratably over the life of the revolving line of credit.

As of May 25, 2018, the outstanding principal balance of term loans under the Amended Credit Agreement was $152.6 million and there were no outstanding revolving loans. As of August 25, 2017, the outstanding principal balance of term loans under the Amended Credit Agreement was $165.0 million and there were no outstanding revolving loans. The fair value of the term loans as of May 25, 2018 and August 25, 2017 was estimated to be approximately $151.9 million and $164.2 million, respectively. Since the Company used broker quotes from inactive markets and there were no unobservable inputs, this was treated as a Level 2 financial instrument.

BNDES Credit Agreements

In December 2013, SMART Brazil, entered into a credit facility with the Brazilian Development Bank, or BNDES, referred to as the BNDES 2013 Credit Agreement. Under the BNDES 2013 Credit Agreement, a total of R$50.6 million (or $14.5 million) was made available to SMART Brazil for investments in infrastructure, research and development conducted in Brazil and acquisitions of equipment not otherwise available in the Brazilian domestic market. SMART Brazil’s obligations under the BNDES 2013 Credit Agreement are guaranteed by Banco Itaú BBA S.A., or Itaú Bank, which guarantee is in turn secured by a guarantee from SMART

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Brazil and SMART do Brazil and a commitment by SMART Brazil to maintain minimum cash balances with Itaú Bank equal to 11.85% of the maximum aggregate balance of principal, interest and fees outstanding under the BNDES 2013 Credit Agreement. The committed amount was R$6.0 million (or $1.7 million), which is shown on the Company’s condensed consolidated balance sheets as restricted cash in other noncurrent assets.

As of May 25, 2018, SMART Brazil’s outstanding debt under the BNDES 2013 Credit Agreement was R$16.1 million (or $4.6 million), of which R$7.9 million (or $2.3 million) accrues interest at the fixed rate of 3.5% and R$8.2 million (or $2.3 million) of the debt accrues interest at the floating rate of 0.5% above the TJLP rate published by the Central Bank of Brazil, or BZTJLP (5.0%), combined corresponding to an overall effective interest rate of 5.5% per annum. As of August 25, 2017, SMART Brazil’s outstanding debt under the BNDES 2013 Credit Agreement was R$25.6 million (or $8.2 million), of which R$12.6 million (or $4.0 million) accrues interest at the fixed rate of 3.5% and R$13.0 million (or $4.2 million) of the debt accrues interest at the floating rate of 0.5% above the TJLP rate published by the Central Bank of Brazil, or BZTJLP (5.0%), combined corresponding to an overall effective interest rate of 5.5% per annum.

The facility under the BNDES 2013 Credit Agreement is a term loan fully amortizing in 48 equal monthly installments beginning on August 15, 2015 with the final principal payment being due on July 15, 2019.

In December 2014, SMART Brazil, entered into a second credit facility with BNDES, referred to as the BNDES 2014 Credit Agreement. The BNDES 2013 Credit Agreement and the BNDES 2014 Credit Agreement are collectively referred to as the BNDES Agreements. Under the BNDES 2014 Credit Agreement, a total of R$52.8 million (or $15.2 million) was made available to SMART Brazil for research and development conducted in Brazil related to integrated circuit (IC) packaging and for acquisitions of equipment not otherwise available in the Brazilian domestic market.

SMART Brazil’s obligations under the BNDES 2014 Credit Agreement are also guaranteed by Itaú Bank, which guarantee is in turn secured by a guarantee from SMART Brazil and SMART do Brazil and a commitment by SMART Brazil to maintain minimum cash balances with Itaú Bank equal to 30.31% of the maximum aggregate balance of principal, interest and fees outstanding under the BNDES 2014 Credit Agreement, or approximately R$16.0 million (or $4.6 million) of required cash balances, which is shown on the Company’s condensed consolidated balance sheets as restricted cash in other noncurrent assets.

The outstanding debt under the BNDES 2014 Credit Agreement accrues interest at a fixed rate of 4% per annum. The BNDES 2014 Credit Agreement is a term loan fully amortizing in 48 equal monthly installments beginning on August 15, 2016 with the final principal payment being due on July 15, 2020.

As of May 25, 2018 and August 25, 2017, SMART Brazil’s outstanding debt under the BNDES 2014 Credit Agreement was R$29.7 million (or $8.5 million) and R$39.6 million (or $12.6 million), respectively.

While the BNDES Agreements do not include any financial covenants, they contain affirmative and negative covenants customary for loans of this nature, including, among other things, an obligation to comply with all laws and regulations; a right for BNDES to terminate the loan in the event of a change of effective control; and a prohibition against the disposition or encumbrance, without BNDES consent, of intellectual property developed with the funds from the loans. The BNDES 2013 Credit Agreement includes an obligation to draw down the entire loan within specified periods of time or pay unused commitment fees of 0.1%. The BNDES 2014 Credit Agreement required a loan fee of 0.3% of the total face amount of the loan facility.

The fair value of amounts outstanding under the BNDES Agreements as of May 25, 2018 and August 25, 2017 were estimated to be approximately $11.6 million and $16.9 million, respectively. Since the Company used broker quotes from inactive markets and there were no unobservable inputs, this was treated as a Level 2 financial instrument.

The Amended Credit Agreement and the BNDES Agreements are classified as follows in the accompanying consolidating balance sheets (in thousands):

	May 25,			August 25,
	2018			2017
Term loan	$	152,625		$	165,000
BNDES 2013 principal balance		4,614			8,185
BNDES 2014 principal balance		8,531			12,647
Unamortized debt discount		(2,713	)		(3,267	)
Unamortized debt issuance costs		(4,378	)		(5,274	)
Net amount		158,679			177,291
Current portion of long-term debt		(22,073	)		(22,841	)
Long-term debt	$	136,606		$	154,450

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The future minimum principal payments under the ARCA and the BNDES Agreements as of May 25, 2018 are (in thousands):

	ARCA		BNDES		TOTAL
Fiscal year ending August:
2018	$	4,125	$	1,871	$	5,996
2019		16,500		7,482		23,982
2020		16,500		3,792		20,292
2021		16,500		—		16,500
2022		99,000		—		99,000
Total	$	152,625	$	13,145	$	165,770

(7) Financial Instruments

Fair Value of Financial Instruments

The fair value of the Company’s cash, cash equivalents, accounts receivable and accounts payable approximates the carrying amount due to the relatively short maturity of these items. Cash and cash equivalents consist of funds held in general checking and savings accounts, money market accounts, and securities with maturities of less than 90 days at the time of purchase. The Company does not have investments in variable rate demand notes or auction rate securities.

The FASB guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets to identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

• Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. The Company’s Level 1 assets include money market funds that are classified as cash equivalents and restricted cash which is classified under long-term assets.

• Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets and liabilities. The Company’s Level 2 liabilities include the term loans under the Amended Credit Agreement and the BNDES Credit Agreements that are classified as long-term debt.

• Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company did not have any financial instruments measured under Level 3 as of May 25, 2018 and August 25, 2017.

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Assets and liabilities measured at fair value on a recurring basis include the following (in millions):

	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Observable/ Unobservable Inputs Corroborated by Market Data (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Balances as of May 25, 2018:
Assets
Cash and cash equivalents	$	64.5	$	—	$	—	$	64.5
Restricted cash(1)		6.3		—		—		6.3
Total assets measured at fair value	$	70.8	$	—	$	—	$	70.8
Liabilities
Term loan	$	—	$	151.9	$	—	$	151.9
BNDES Credit Agreements		—		11.6		—		11.6
Total liabilities measured at fair value(2)	$	—	$	163.5	$	—	$	163.5
Balances as of August 25, 2017:
Assets
Cash and cash equivalents	$	22.4	$	—	$	—	$	22.4
Restricted cash(1)		7.0		—		—		7.0
Total assets measured at fair value	$	29.4	$	—	$	—	$	29.4
Liabilities
Term loan	$	—	$	164.2	$	—	$	164.2
BNDES Credit Agreements		—		16.9		—		16.9
Total liabilities measured at fair value(2)	$	—	$	181.1	$	—	$	181.1

(1) Included in other noncurrent assets on the Company's condensed consolidated balance sheets - see Note 4.

(2) Included under long-term debt on the Company's condensed consolidated balance sheets.

(8) Share-Based Compensation and Employee Benefit Plans

(a) Share-Based Compensation

Equity Awards

On August 26, 2011, the board of directors adopted the Saleen Holdings, Inc. 2011 Stock Incentive Plan which has been amended and restated and is now known as the SMART Global Holdings, Inc. Amended and Restated 2017 Share Incentive Plan (the SGH Plan). The SGH Plan provides for grants of equity awards to employees, directors and consultants of the Company. Options granted under the SGH Plan provide the option to purchase SMART Global Holdings’ ordinary shares at the fair value of such shares on the grant date. The options generally vest over a four-year period beginning on the grant date with either a one-year or two-year cliff and then monthly thereafter, and generally have a ten-year term. Options granted after August 26, 2011 and before September 23, 2014, and performance-based options granted in March 2018 have an eight year term. As of May 25, 2018, there were 3,563,975 ordinary shares reserved for issuance under the SGH Plan, of which 571,694 ordinary shares were available for grant. As of August 25, 2017, there were 3,657,761 ordinary shares reserved for issuance under the SGH Plan, of which 1,491,266 ordinary shares were available for grant.

Summary of Assumptions and Activity

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Prior to the Company’s initial public offering on May 30, 2017, the fair value of the ordinary shares underlying the Company’s equity awards had historically been determined by the Company’s board of directors. Because there had been no public market for the Company’s ordinary shares and in the absence of recent arm’s-length cash sales transactions of the Company’s ordinary shares with independent third parties, the Company’s board of directors had determined the fair value of the Company’s ordinary shares by considering at the time of grant a number of objective and subjective factors, including the following: the value of tangible and intangible assets of the Company, the present value of anticipated future cash flows of the Company, the market value of stock or equity interests in similar corporations and other entities engaged in businesses substantially similar to those engaged in by the Company, the Company’s current financial condition and anticipated expenses, control discounts for the lack of marketability, the Company’s need for additional capital, current and potential strategic relationships and competitive developments and periodic valuations from an independent third-party valuation firm.

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The expected volatility is based on the historical volatilities of the common stock of comparable publicly traded companies. The expected term of options granted represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the historical exercise patterns. The risk-free interest rate for the expected term of the option is based on the average U.S. Treasury yield curve at the end of the quarter in which the option was granted.

The following assumptions were used to value the Company’s stock options:

	Three Months Ended						Nine Months Ended
	May 25,			May 26,			May 25,		May 26,
	2018			2017			2018		2017
Stock options:
Expected term (years)		6.25			6.25			6.25		6.25
Expected volatility		41.77	%		46.03	%	41.77% - 46.27%		54.41% - 55.75%
Risk-free interest rate		2.82	%		2.03	%	2.15% - 2.82%		1.96% - 2.03%
Expected dividends		—			—			—		—

SGH Plan—Options

A summary of option activity for the SGH Plan is presented below (dollars and shares in thousands, except per share data):

						Weighted
				Weighted		average
				average		remaining
				per share		contractual		Aggregate
				exercise		term		intrinsic
	Shares			price		(years)		value
Options outstanding at    August 25, 2017		1,788		$	12.66		7.61	$	11,174
Options granted		1,241			40.45
Options exercised		(581	)		10.92
Options cancelled		(22	)		23.60
Options outstanding at    May 25, 2018		2,426		$	27.20		7.98	$	44,404
Options exercisable at    May 25, 2018		788		$	12.61		7.00	$	25,933
Options vested and expected to    vest at May 25, 2018		2,426		$	27.20		7.98	$	44,404

In March 2018, the Company granted two performance-based stock options that contained a stock market index as a benchmark for performance (Market-Based Options). The share-based compensation expense for these options is recognized over the requisite service period by tranche. The exercisability of Market-Based Options will depend upon the 30-trading day rolling average closing price of Company’s ordinary shares. If the target price is not achieved by the end of 4^th or 7^th anniversary of the respective grant date, the options will expire. The fair value of Market-Based Options is determined by using a Monte Carlo valuation model, using the following assumptions:

	Three Months Ended
	May 25,
	2018
Stock options:
Expected term (years)	1.10 - 4.00
Expected volatility		46.29	%
Risk-free interest rate		2.75	%
Expected dividends		—

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The Black-Scholes weighted average fair value of options granted under the SGH Plan during the three and nine months ended May 25, 2018 was $18.31 and $18.22 per share, respectively, and $7.16 and $7.03 per share, respectively, for the corresponding periods of fiscal 2017. The total intrinsic value of employee stock options exercised in the three and nine months ended May 25, 2018 was $7.4 million and $16.6 million, respectively, and $0.7 million for both the corresponding periods of fiscal 2017. As of May 25, 2018, there was approximately $23.9 million of unrecognized compensation costs related to stock options under the SGH Plan, which will be recognized over a weighted average period of 3.19 years.

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

A summary of the changes in RSAs and RSUs outstanding is presented below (dollars and shares in thousands, except per share data):

				Weighted
				average
				grant date		Aggregate
				fair value		intrinsic
	Shares			per share		value
Awards outstanding at August 25, 2017		378		$	7.91	$	6,956
Awards granted		251			41.80
Awards vested and paid out		(59	)		8.28
Awards forfeited and cancelled		(9	)		7.74
Awards outstanding at May 25, 2018		561		$	23.04	$	25,514

The share-based compensation expense related to RSAs and RSUs during the three and nine months ended May 25, 2018 was approximately $0.7 million and $1.4 million, respectively, and $0.3 million and $0.4 million, respectively, for the corresponding periods of fiscal 2017. The total fair value of shares vested during the three and nine months ended May 25, 2018 was approximately $0 and $2.2 million, and $0 and $13 thousand, respectively, for the corresponding periods of fiscal 2017.

Employee Stock Purchase Plan

In January 2018, the Company’s shareholders approved the SGH Employee Share Purchase Plan (the Purchase Plan) under which an aggregate of 350,000 of ordinary shares have been approved for issuance to eligible employees. The Purchase Plan generally permits employees to purchase ordinary shares at 85% of the lower of the fair market value of the ordinary shares at the beginning or at the end of each purchase period, which is generally six months. Rights to purchase ordinary shares are granted during the first and third quarter of each fiscal year.  The Purchase Plan terminates in January 2028. No ordinary shares have been issued under the Purchase Plan to date.  As of May 25, 2018, the number of ordinary shares reserved for future purchases by eligible employees was 350,000.

Equity Rights and Restrictions

The holders of ordinary shares of SMART Global Holdings are entitled to such dividends and other distributions as may be declared by the board of directors of SMART Global Holdings from time-to-time, out of the funds of SMART Global Holdings lawfully available therefor.

All SMART Global Holdings shares owned by employees, by certain former lenders of the Company, and all shares underlying the SMART Global Holdings options and RSUs are subject to either the Employee Investors Shareholders Agreement dated August 26, 2011 (the Employee Investors Shareholders Agreement) or the Amended and Restated Investors Shareholders Agreement dated as of November 5, 2016 (as amended by Amendment No. 4, Amendment No. 3, Amendment No. 2 and subsequent amendments, the Amended and Restated Investors Shareholders Agreement; the Employee Investors Shareholders Agreement and the Amended and Restated Investors Shareholders Agreement are collectively referred to as the Shareholders Agreements). Under the terms of the Shareholders Agreements, such shares are subject to certain restrictions on sale and could become subject to lock-up restrictions in the event of any future registered public offerings by the Company.

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(b) Savings and Retirement Program

The Company offers a 401(k) Plan to U.S. employees, which provides for tax-deferred salary deductions for eligible U.S. employees. Employees may contribute up to 60% of their annual eligible compensation to this plan, limited by an annual maximum amount determined by the U.S. Internal Revenue Service. The Company may also make discretionary matching contributions, which vest immediately, as periodically determined by management. The matching contributions made by the Company during the three and nine months ended May 25, 2018 were approximately $0.4 million and $0.9 million, respectively, and $0.3 million and $0.8 million, respectively, for the corresponding periods of fiscal 2017.

(9) Commitments and Contingencies

(a) Commitments

Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Rent expense for operating leases during the three and nine months ended May 25, 2018 was $0.8 million and $2.2 million, respectively, and $0.7 million and $2.1 million, respectively, for the corresponding periods of fiscal 2017.

Future minimum lease payments under all leases as of May 25, 2018 are as follows (in thousands):

	Amount
Fiscal year ending August:
Remainder of fiscal 2018	$	714
2019		2,969
2020		2,903
2021		2,747
2022		2,107
Thereafter		4,978
Total	$	16,418

(b) Product Warranty and Indemnities

Product warranty reserves are established in the same period that revenue from the sale of the related products is recognized, or in the period that a specific issue arises as to the functionality of a Company’s product. The amounts of the reserves are based on established terms and the Company’s best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date.

The following table reconciles the changes in the Company’s accrued warranty (in thousands):

	Three Months Ended						Nine Months Ended
	May 25,			May 26,			May 25,			May 26,
	2018			2017			2018			2017
Beginning accrued warranty reserve	$	200		$	303		$	275		$	266
Warranty claims		(193	)		(58	)		(458	)		(302	)
Provision for product warranties		270			57			460			338
Ending accrued warranty reserve	$	277		$	302		$	277		$	302

Product warranty reserves are recorded in accrued liabilities in the accompanying condensed consolidated balance sheets.

In addition to potential liability for warranties related to defective products, the Company currently has in effect a number of agreements in which it has agreed to defend, indemnify and hold harmless its customers and suppliers from damages and costs, which may arise from product defects as well as from any alleged infringement by its products of third-party patents, trademarks or other proprietary rights. The Company believes its internal development processes and other policies and practices limit its exposure related to such indemnities. Maximum potential future payments cannot be estimated because many of these agreements do not have a maximum stated liability. However, to date, the Company has not had to reimburse any of its customers or suppliers for any losses related to these indemnities. The Company has not recorded any liability in its financial statements for such indemnities.

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(c) Legal Matters

From time to time, the Company is involved in legal matters that arise in the normal course of business. Litigation in general and intellectual property, employment and shareholder litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. The Company believes that it has defenses to the cases pending, including those set forth below. Except as noted below, the Company is not currently able to estimate, with reasonable certainty, the possible loss, or range of loss, if any, from such legal matters, and accordingly, no provision for any potential loss, which may result from the resolution of these matters, has been recorded in the accompanying condensed consolidated financial statements.  

Netlist

On September 10, 2012, SMART Modular filed a complaint in the Eastern District of California against Netlist alleging infringement of certain claims of SMART Modular’s U.S. Patent No. 8,250,295 (the ‘295 patent) and seeking, among other things, a preliminary injunction. Netlist filed certain counterclaims alleging, among other things, attempted monopolization, collusion, unfair competition, fraud on the U.S. Patent and Trademark Office (the USPTO) and sham litigation, and asserting that the ‘295 patent is invalid. The counterclaims do not specify the amount of damages. Netlist also filed a request for reexamination of the ‘295 patent in the USPTO. On May 30, 2013, the court denied SMART Modular’s motion for a preliminary injunction and granted a stay in the proceedings pending the outcome of the reexamination. In April 2014, the USPTO issued a non-final Action Closing Prosecution (ACP) confirming the patentability of the original claims of SMART Modular’s ‘295 patent and rejecting certain claims added during the reexamination process. In May 2014, after the ACP, SMART Modular filed comments requesting that all of the original claims and certain of the added claims be confirmed as patentable. In June 2014, Netlist filed comments challenging SMART Modular’s comments to the ACP. In August 2015, the USPTO rejected Netlist’s challenges and affirmed its previous decision confirming the patentability of the original claims of SMART Modular’s ‘295 patent. In September 2015, Netlist filed an appeal of the USPTO examiner’s decision to the Patent Trial and Appeals Board (the PTAB). In February 2016, the USPTO answered the Netlist appeal favorably to SMART Modular by answering that no new determination was made to not make the proposed rejection, and in September 2016, the court granted SMART Modular’s motion to lift the stay in the Eastern District of California case. In November 2016, the PTAB reversed the examiner’s decision to confirm certain claims of SMART Modular’s ‘295 patent and reversed the examiner’s decision to determine that certain newly added claims are patentable. In January 2017, SMART Modular filed a request to reopen the prosecution to add evidence to rebut the PTAB’s grounds for the decision reversing the examiner’s decision. In February 2017, Netlist filed comments on SMART Modular’s request to reopen prosecution. In April 2017, the PTAB issued an Order remanding the reexamination and reopening prosecution. In February 2017, Netlist filed a motion to reinstate the stay in the court proceedings pending the outcome of the USPTO proceedings. SMART Modular filed an opposition to this motion and the Netlist motion to reinstate the stay was denied. In May 2017, the USPTO examiner issued a decision on remand, rejecting certain claims of the ‘295 patent. In June 2017, SMART Modular filed in the USPTO its response to the examiner’s May 2017 decision and Netlist filed comments in response to the examiner’s May 2017 decision. In August 2017, the examiner issued a communication indicating that SMART Modular’s and Netlist’s comments had been entered and that the proceeding was forwarded to the PTAB for issuance of a new decision.  In December 2017, PTAB issued a decision declaring the original claims of SMART Modular’s ‘295 patent, as well as the newly added claims, to be invalid. The Company has appealed the decision of the PTAB to the Federal Circuit Court of Appeals. In March 2018, SMART Modular and Netlist entered a stipulation staying the court proceedings pending the completion of the reexamination of SMART Modular’s ‘295 patent.

In July 2013, Netlist filed a lawsuit in the Central District of California against SMART Modular alleging claims very similar to Netlist’s counterclaims set forth in the Eastern District case. Netlist later amended its complaint to add additional parties, including SMART Worldwide Holdings. Netlist has sought compensatory damages for the harm it claims to have suffered, as well as an award of treble damages and attorneys’ fees. The claims against SMART Modular and SMART Worldwide were transferred to the Eastern District of California.

The Company believes that there are valid defenses to all of the claims and counterclaims made by Netlist and that the claims are without merit. SMART Modular and SMART Worldwide intends to vigorously fight the claims and counterclaims. The Company believes that the likelihood of any material charge resulting from these claims is remote.

(d) Contingencies

Import Duty Tax assessment in Brazil

On February 23, 2012, SMART Brazil was served with a notice of a tax assessment for approximately R$117 million (or $36.6 million) (the First Assessment). The assessment was from the federal tax authorities of Brazil and related to four taxes in connection with importation processes. The tax authorities claimed that SMART Brazil categorized its imports of unmounted integrated circuits in the format of wafers under an incorrect product classification code, which carries an import duty of 0%. The authorities alleged that a different classification code should have been used that would require an 8% import duty and the authorities were seeking to recover these duties, as well as other related taxes, for the five calendar years of 2007 through and including 2011.

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Subsequent to the initial assessment, SMART Brazil received a second notice of an additional administrative penalty of approximately R$6.0 million (or $1.9 million) directly related to the same issue and which has been imposed exclusively for the alleged usage of an inappropriate import tax code (the Second Assessment).

In March 2012, SMART Brazil filed defenses to the First Assessment and the Second Assessment. On May 2, 2013, the first level administrative tax court issued a ruling in favor of the tax assessor and against SMART Brazil on the First Assessment. On May 31, 2013, SMART Brazil filed an appeal to the second level tax court known as CARF. The appeal was heard on November 26, 2013 and the Company received a unanimous favorable ruling rejecting the position of the tax authorities. This ruling was published by the tax authorities and made official in February 2014. Subsequently, the tax authorities filed a request for clarification and on September 17, 2014, the Company received a unanimous ruling rejecting the request from the tax authorities for clarification. On November 7, 2014, the tax authorities notified CARF that they would not be appealing the CARF decision, and the First Assessment has been extinguished. On February 6, 2018, the first level administrative court unanimously ruled in favor of SMART Brazil with respect to the Second Assessment. Due to the size of the Second Assessment, Brazil law requires that the tax authorities appeal the decision to CARF.

On December 12, 2013, SMART Brazil received another notice of assessment in the amount of R$3.6 million (or $1.1 million) with respect to the same import-related tax issues and penalties discussed above for 2012 and 2013 (the Third Assessment). The Third Assessment does not seek import duties and related taxes on Dynamic Random Access Memory (“DRAM”) products and only seeks import duties and related taxes on Flash unmounted components with respect to the months of January 2012 to June 2012. This is because SMART Brazil’s imports of DRAM unmounted components were subject to 0%, and, after June 2012, SMART Brazil’s imports of Flash unmounted components also became subject to 0%, import duties and related taxes, both as a result of PADIS. Even with this 0%, if SMART Brazil is found to have used the incorrect product classification code, SMART Brazil will be subject to an administrative penalty equal to 1% of the value of the imports. SMART Brazil has filed defenses to the Third Assessment. The Company believes that SMART Brazil used the correct product code on its imports and that the Third Assessment is incorrect. SMART Brazil intends to vigorously fight this matter. Although SMART Brazil did not receive the Third Assessment until December 12, 2013, the Third Assessment was issued before the CARF decision in favor of SMART Brazil on the First Assessment as discussed above was published.

The amounts claimed by the tax authorities on the Second Assessment and on the Third Assessment are subject to increases for interest and other charges, which resulted in a combined assessment balance of approximately R$14.9 million (or $4.3 million) and R$14.4 million (or $4.6 million) as of May 25, 2018 and August 25, 2017, respectively.

As a result of the CARF decision in favor of SMART Brazil on the First Assessment and the decision in favor of SMART Brazil at the first level administrative court on the Second Assessment, the Company believes that the probability of any material charges as a result of the Second Assessment and the Third Assessment is remote and the Company does not expect the resolution of these disputed assessments to have a material impact on its consolidated financial position, results of operations or cash flows. While the Company believes that the Second Assessment and the Third Assessment are incorrect, there can be no assurance that SMART Brazil will prevail in the disputes.

(10) Segment and Geographic Information

The Company operates in one reportable segment: the design, manufacture and sale of specialty memory solutions and services to the electronics industry. The Company’s chief operating decision-maker, the President and CEO, evaluates financial performance on a company-wide basis.

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

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Geographic Net Sales:
U.S.	$	32,448	$	36,595	$	114,304	$	106,211
Brazil		232,845		109,288		599,521		263,550
Asia		56,722		48,306		160,539		131,275
Europe		6,638		6,575		20,134		21,554
Other Americas		6,824		6,210		20,353		15,682
Total	$	335,477	$	206,974	$	914,851	$	538,272

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	May 25,		August 25,
	2018		2017
Property and Equipment, Net:
U.S.	$	3,707	$	3,110
Brazil		42,639		44,180
Malaysia		4,278		5,049
Other		2,427		2,843
Total	$	53,051	$	55,182

(11) Major Customers

A majority of the Company’s net sales are attributable to customers operating in the information technology industry. Net sales to significant end user customers, including sales to their manufacturing subcontractors, defined as net sales in excess of 10% of total net sales, are as follows (dollars in thousands):

	Three Months Ended										Nine Months Ended
	May 25, 2018					May 26, 2017					May 25, 2018					May 26, 2017
	Amount		Percentage of net sales			Amount		Percentage of net sales			Amount		Percentage of net sales			Amount		Percentage of net sales
	(unaudited)										(unaudited)
Customer A	$	140,628		42	%	$	41,992		20	%	$	331,854		36	%	$	101,453		19	%
Customer B		39,277		12	%		34,353		17	%		106,282		12	%		84,328		16	%
Customer C		37,947		11	%		21,237		10	%		97,106		11	%		—		—
Customer D		—		—			—		—			97,845		11	%		—		—
	$	217,852		65	%	$	97,582		47	%	$	633,087		70	%	$	185,781		35	%

As of May 25, 2018, customer A accounted for 20% of accounts receivable. As of May 25, 2018, four direct customers that represented less than 10% of net sales, Customers E, F, G and H, accounted for approximately 22%, 14%, 13% and 11% of accounts receivable, respectively. As of August 25, 2017, four direct customers that represented less than 10% of net sales, Customers E, F, G and H, accounted for approximately 24%, 11%, 14% and 18% of accounts receivable, respectively.  

(12) Earnings Per Share

Basic earnings per share is calculated by dividing net income (loss) by the weighted average of ordinary shares outstanding during the period. Diluted earnings per share is calculated by dividing the net income (loss) by the weighted average of ordinary shares and dilutive potential ordinary shares outstanding during the period. Dilutive potential ordinary shares consist of dilutive shares issuable upon the exercise of outstanding stock options and vesting of RSUs computed using the treasury stock method. The dilutive weighted shares are excluded from the computation of diluted net loss per share when a net loss is recorded for the period as their effect would be anti-dilutive.

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The following table sets forth for all periods presented the computation of basic and diluted earnings per share, including the reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share (dollars and shares in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Numerator:
Net income	$	31,946	$	7,958	$	89,745	$	2,414
Denominator:
Weighted average shares outstanding:
Basic		22,206		13,986		21,932		13,909
Diluted		23,306		15,955		23,020		15,230
Earnings per share:
Basic	$	1.44	$	0.57	$	4.09	$	0.17
Diluted	$	1.37	$	0.50	$	3.90	$	0.16
Anti-dilutive weighted shares excluded from the    computation of diluted earnings per share		1,008		1,359		349		1,226

(13) Other Income (Expense), Net

The following table provides the detail of other income (expense), net as follows (in thousands):

	Three Months Ended						Nine Months Ended
	May 25,			May 26,			May 25,			May 26,
	2018			2017			2018			2017
Foreign currency losses	$	(6,932	)	$	(1,009	)	$	(7,259	)	$	(747	)
Loss on extinguishment of debt		—			—			—			(1,386	)
Other		(213	)		247			(53	)		469
Total other income (expense), net	$	(7,145	)	$	(762	)	$	(7,312	)	$	(1,664	)

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Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, and with the condensed consolidated financial statements and management’s discussion and analysis of our financial condition and results of operations in our Annual Report on Form 10-K for our fiscal year ended August 25, 2017 (our “Annual Report”). This discussion contains forward looking statements that involve risks and uncertainties. Our actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed under the caption “Risk Factors” in our Annual Report and elsewhere in this report. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.

Overview

SMART Global Holdings, Inc. (“SMART”) is a global leader in specialty memory solutions, serving the electronics industry for over 25 years. SMART delivers components, modules and solutions to a broad original equipment manufacturer (“OEM”) customer base, in computing, networking, communications, storage, mobile and industrial markets. Customers rely on SMART as a strategic supplier offering extensive customer specific design capabilities and quality products with value added testing services, technical support, a global footprint and the ability to provide locally manufactured memory products in multiple geographies. SMART’s global, diversified customer base of over 250 customers includes some of the most well-recognized names in the technology industry. Its strategic presence in the United States, Europe, Asia and Latin America enables SMART to provide customized, integrated supply chain services assisting OEM customers in the management and execution of their procurement processes and asset management on a worldwide basis. In Brazil, SMART has established itself as a market leader as the largest in-country manufacturer of mobile memory products for smartphones, and the largest in-country manufacturer of memory components and modules for desktops, notebooks and servers. We believe SMART’s close collaboration with customers while providing custom designs, extended life cycle solutions and proprietary supply chain services, creates significant customer engagements and loyalty.

On June 8, 2018, SMART entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among SMART, Glacier Acquisition Sub, Inc., a wholly-owned indirect subsidiary of SMART (“Merger Sub”), Penguin Computing, Inc., (“Penguin”) and Fortis Advisors LLC, solely in its capacity as the representative of the holders of the securities of Penguin. Pursuant to the Merger Agreement, on June 8, 2018, Merger Sub was merged with and into Penguin, with Penguin surviving as a wholly-owned indirect subsidiary of SMART (the “Merger”). The aggregate consideration payable by SMART for the Merger is up to $85 million, which includes up to $25.0 million of potential cash earn-out payments based on Penguin’s achievement of specified gross profit levels through December 31, 2018, pursuant to the provisions of the Merger Agreement. SMART paid $60 million at closing (subject to certain adjustments as provided in the Merger Agreement), which included the assumption by SMART of Penguin’s outstanding indebtedness. At the closing of the Merger, SMART deposited $6.0 million of the purchase price into escrow as security for Penguin’s indemnification obligations during the escrow period of one year. SMART also deposited $2.0 million of the purchase price into escrow as security for customary post-closing adjustments to the purchase price.

On June 8, 2018, certain wholly-owned subsidiaries of SMART entered into an Incremental Facility Amendment (the “Incremental Facility Amendment”) which provides for, among other things, an incremental $60.0 million term loan facility (the “Additional Term B Loan”). On June 8, 2018, Global borrowed pursuant to the Incremental Facility Amendment, $60.0 million in aggregate principal amount of Additional Term B Loan under the Second Amended and Restated Credit Agreement dated August 9, 2017 (the “Amended Credit Agreement”), a portion of which was used to fund the cash purchase price of the Merger. The terms and provisions of the Additional Term B Loan are, in all material respects, substantially consistent with the terms and provisions of the other term loans currently outstanding under the Amended Credit Agreement.

Additional information regarding the Merger and Incremental Facility Amendment can be found in our Current Report on Form 8-K dated June 11, 2018.

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Results of Operations

The following is a summary of our results of operations for the three and nine months ended May 25, 2018 and May 2017 (in thousands):

	Three Months Ended												Nine Months Ended
	May 25, 2018			% of sales*			May 26, 2017			% of sales*			May 25, 2018			% of sales*			May 26, 2017			% of sales*
	(in thousands, other than per share data)
Consolidated Statement of Operations    Data:
Net sales	$	335,477			100	%	$	206,974			100	%	$	914,851			100	%	$	538,272			100	%
Cost of sales (1)		257,423			77	%		159,599			77	%		705,944			77	%		424,030			79	%
Gross profit		78,054			23	%		47,375			23	%		208,907			23	%		114,242			21	%
Operating expenses:
Research and development (1) (2)		9,763			3	%		8,797			4	%		28,165			3	%		28,442			5	%
Selling, general and administrative (1) (2)		19,597			6	%		17,193			8	%		55,502			6	%		49,037			9	%
Management advisory fees		—			—			1,000			0	%		—			—			3,000			1	%
Restructuring		—			—			—			—			—			—			457			0	%
Total operating expenses		29,360			9	%		26,990			13	%		83,667			9	%		80,936			15	%
Income from operations		48,694			15	%		20,385			10	%		125,240			14	%		33,306			6	%
Other income (expense):
Interest expense, net		(4,098	)		(1	%)		(8,294	)		(4	%)		(12,927	)		(1	%)		(23,072	)		(4	%)
Other income (expense), net		(7,145	)		(2	%)		(762	)		0	%		(7,312	)		(1	%)		(1,664	)		0	%
Total other expense		(11,243	)		(3	%)		(9,056	)		(4	%)		(20,239	)		(2	%)		(24,736	)		(5	%)
Income before income taxes		37,451			11	%		11,329			5	%		105,001			11	%		8,570			2	%
Provision for income taxes		5,505			2	%		3,371			2	%		15,256			2	%		6,156			1	%
Net income	$	31,946			10	%	$	7,958			4	%	$	89,745			10	%	$	2,414			0	%
Earnings per share:
Basic	$	1.44					$	0.57					$	4.09					$	0.17
Diluted	$	1.37					$	0.50					$	3.90					$	0.16
Shares used in computing earnings per share:
Basic		22,206						13,986						21,932						13,909
Diluted		23,306						15,955						23,020						15,230
* Summations may not compute precisely due to rounding.
(1) Includes share-based compensation expense as follows:
Cost of sales	$	414					$	176					$	859					$	444
Research and development		325						(22	)					887						423
Selling, general and administrative		2,558						1,235						4,853						2,666
(2) Includes amortization of intangible assets expense as follows:
Research and development	$	245					$	1,224					$	735					$	3,672
Selling, general and administrative		976						1,774						2,992						5,296

Three and Nine Months Ended May 25, 2018 as Compared to the Three and Nine Months Ended May 26, 2017

Net Sales

Net sales increased by $128.5 million, or 62.1%, during the three months ended May 25, 2018 compared to the same period in the prior year, and by $376.6 million, or 70%, during the nine months ended May 25, 2018 compared to the same period in the prior year. The increase was primarily due to 127% and 130% higher sales volume of mobile memory products in Brazil, for the three and nine-month periods, respectively, which was driven in part by new product introductions of higher density embedded multi-chip package (“eMCP”) products and a 31% and 52% increase in the average selling prices of mobile memory products due to increasing memory density, for the three and nine-month periods, respectively, as well as an increase in local content requirements from 30% to 50% for mobile memory products for smartphones effective January 1, 2018. Strategic investments to increase production capacity in prior periods helped enable us to meet the increased demand in the Brazil mobile memory market. Our Brazil DRAM sales also increased as consumer IC and server demand grew, leading to 72% and 99% higher volumes in the three and nine-month periods,

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respectively. Product mix also positively impacted our average selling prices as they increased by 42% and 74% in the three and nine-month periods, respectively. The increase in Brazil DRAM was also positively impacted by strength in the server, networking and communications markets.  

Cost of Sales

Cost of sales increased by $97.8 million, or 61.3%, during the three months ended May 25, 2018 compared to the same period in the prior year, and by $281.9 million, or 66.5%, during the nine months ended May 25, 2018 compared to the same period in the prior year.  The increase was primarily due to an increase of 68% and 75% in the cost of materials for the higher level of sales for the three and nine-month periods, respectively, as well as higher production costs related to the increased revenue. Included in the cost of sales increase was an unfavorable foreign exchange impact of $0.7 million and $0.3 million for the three and nine-month periods, respectively, on locally sourced cost of sales in Brazil.

Gross Profit

Gross margin increased to 23.3% and 22.8% during the three and nine months ended May 25, 2018 compared to 22.9% and 21.2% for the same periods in the prior year, respectively, primarily due to higher revenue in Brazil mobile memory and specialty DRAM while the cost of sales associated with higher density memory products increased at a lower rate.

Research and Development Expense

Research and development (“R&D”) expense increased by $1.0 million, or 11.0%, during the three months ended May 25, 2018 compared to the same period in the prior year, and decreased by $0.3 million, or 1.0%, during the nine months ended May 25, 2018 compared to the same period in the prior year. The increase in the three-month period was primarily due to higher test materials and outside services, partially offset by $1.0M lower intangible amortization expense as some intangible assets became fully amortized. The decrease in the nine-month period was primarily due to $2.9 million lower intangible amortization expense as some intangible assets became fully amortized and lower depreciation, partially offset by higher personnel-related costs, test materials and outside services. Included in R&D expense increase/decrease was an unfavorable foreign exchange impact of $0.3 million and $0.2 million for the three and nine-month periods, respectively.  

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense increased by $2.4 million, or 14.0%, during the three months ended May 25, 2018 compared to the same period in the prior year, and by $6.5 million, or 13.2%, during the nine months ended May 25, 2018 compared to the same period in the prior year. The increases were primarily due to higher personnel-related expenses such as bonus and stock compensation, as well as public company expenses and acquisition-related costs, partially offset by lower intangible amortization expense as some intangible assets became fully amortized. Included in the SG&A expense increase was an unfavorable foreign exchange impact of $0.3 million and $0.2 million for the three and nine-month periods, respectively.  

Management Advisory Fees

Management advisory fees were nil during the three and nine months ended May 25, 2018 compared to $1.0 million and $3.0 million in the same periods in the prior year, respectively, as the Management Agreement with Silver Lake was terminated upon the closing of the initial public offering (“IPO”) on May 30, 2017.

Other Income (Expense)

Interest expense, net decreased $4.2 million, or 50.6%, during the three months ended May 25, 2018 compared to the same period in the prior year, and $10.1 million, or 44.0%, during the nine months ended May 25, 2018 compared to the same period in the prior year, primarily due to reduced borrowings resulting from the pay down of debt after the IPO and lower interest rates resulting from our debt refinancing in the fourth quarter of fiscal 2017. Other income (expense), net decreased by $6.4 million and $5.6 million for the three and nine-month periods, respectively, primarily due to foreign currency losses.

Provision for Income Taxes

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

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Provision for income taxes for the three and nine months ended May 25, 2018 increased by $2.1 million and $9.1 million, respectively, as compared to the same periods in the prior year primarily due to higher income in non-U.S. jurisdictions subject to tax.  

As of May 25, 2018, the Company has a full valuation allowance for our net deferred tax assets associated with our U.S. operations.  The amount of the deferred tax asset considered realizable could be adjusted if significant positive evidence increases.

Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment. The Company calculates and provides for income taxes in each of the tax jurisdictions in which it operates, which involves estimating current tax exposures as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction. The estimates used could differ from actual results, which may have a significant impact on operating results in future periods.

On December 22, 2017, new U.S. federal tax legislation commonly known as the Tax Cuts and Jobs Act (the "Tax Act") was signed into law. Certain key changes introduced by the Tax Act that would impact the Company in the current fiscal year include the reduction of the U.S. federal corporate income tax rate from 35% to 21%, accelerate the expensing of certain business assets, and the elimination of the alternative minimum tax system for corporations. This rate reduction will reduce the gross value of the Company’s U.S. net deferred tax assets and liabilities with a correlative adjustment to the Company’s valuation allowance, therefore, there is no expected material impact to the Company's quarterly and annual consolidated financial statements for the fiscal year ending August 31, 2018, subject to a continued valuation allowance.  Prospectively, the Company will be subject to other provisions of the Tax Act including, but not limited to, changes to the interest deduction limitation and the repeal of certain exceptions under IRC 162(m), which may limit the Company’s deductibility of such items.  These items are dependent on factors including future profits, the timing of payments and the exercises and releases of equity awards.  

Liquidity and Capital Resources

	Nine Months Ended
	May 25, 2018			May 26, 2017
	(in thousands)
Cash provided by (used in) operating activities	$	77,291		$	(6,942	)
Cash used in investing activities		(18,150	)		(10,712	)
Cash used in financing activities		(14,591	)		(18,479	)
Effect of exchange rate changes on cash and cash equivalents		(2,491	)		(160	)
Net increase (decrease) in cash and cash equivalents	$	42,059		$	(36,293	)

At May 25, 2018, we had cash and cash equivalents of $64.5 million, of which approximately $56.2 million was held outside of the United States.

On May 30, 2017, we completed our IPO and raised proceeds, net of underwriting commissions and discounts and other offering costs, of approximately $61.1 million. On June 2, 2017, we used these net proceeds to make a mandatory prepayment of $61.1 million aggregate principal amount of our outstanding term loans under the Original Credit Agreement.

On June 8, 2018, certain wholly-owned subsidiaries of SMART entered into an Incremental Facility Amendment which provides for, among other things, an incremental $60.0 million term loan facility. On June 8, 2018, Global borrowed pursuant to the Incremental Facility Amendment, $60.0 million in aggregate principal amount of Additional Term B Loan under the Amended Credit Agreement, a portion of which was used to fund the cash purchase price of the Merger. The terms and provisions of the Additional Term B Loan are, in all material respects, substantially consistent with the terms and provisions of the other term loans currently outstanding under the Amended Credit Agreement.

We expect that our existing cash and cash equivalents and cash generated by operating activities will be sufficient to fund our operations for at least the next twelve months. Our principal uses of cash and capital resources are debt service requirements as described below, capital expenditures, R&D expenditures and working capital requirements. We expect that future capital expenditures will focus on expanding capacity of our Brazil operations, expanding our R&D activities, manufacturing equipment upgrades and/or acquisitions and IT infrastructure and software upgrades. Cash and cash equivalents consist of funds held in demand deposit accounts and money market funds. We do not enter into investments for trading or speculative purposes.

During the nine months ended May 25, 2018, cash provided by operating activities was $77.3 million. The primary factors affecting our cash flows during this period were an $89.7 million net income and $26.5 million of non-cash related expenses, partially offset by a $38.9 million change in our net operating assets and liabilities. The $38.9 million change in net operating assets and liabilities consisted of increases of $86.7 million in accounts receivable, $27.9 million in inventory, $3.5 million in prepaid expenses and other assets and a decrease of $4.7 million in accrued expenses and other liabilities, offset by an increase of $83.9 million in accounts payable. The increases in accounts receivable, inventory and accounts payable were primarily due to higher gross sales.

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During the nine months ended May 26, 2017, cash used in operating activities was $6.9 million. The primary factors affecting our cash flows during this period were a $45.0 million change in our net operating assets and liabilities, partially offset by $35.7 million of non-cash related expenses and $2.4 million net income. The $45.0 million change in net operating assets and liabilities consisted of increases of $33.5 million in accounts receivable and $31.2 million in inventory, offset by increases of $11.8 million in accounts payable and $7.1 million in accrued expenses and other liabilities, and a decrease of $0.7 million prepaid expenses and other assets. The increases in accounts receivable, inventory and accounts payable were primarily due to higher gross sales.

Net cash used in investing activities during the nine months ended May 25, 2018 was $18.2 million consisting primarily of purchases of property and equipment. Net cash used in investing activities during the nine months ended May 26, 2017 was $10.7 million consisting primarily of purchases of property and equipment.  

Net cash used in financing activities during the nine months ended May 25, 2018 was $14.6 million, consisting primarily of $18.4 million long-term debt payments for both the Amended Credit Agreement and the BNDES Credit Agreements, $1.6 million payment of expenses related to our IPO and $0.8 million payment of fees for our revolving line of credit financing, partially offset by $6.2 million proceeds from issuance of ordinary shares from share option exercises. Net cash used in financing activities during the nine months ended May 26, 2017 was $18.5 million consisting primarily of $17.7 million long-term debt payments and $0.9 million payment for extinguishment of long-term debt.

There have been no material changes to contractual obligations previously disclosed in our Annual Report.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial conditions, net sales or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Recent Accounting Pronouncements

See Note 1 of our Notes to Unaudited Condensed Consolidated Financial Statements for information regarding the effect of recent accounting pronouncements on our financial statements.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those listed below. We base our estimates on historical facts and various other assumptions that we believe to be reasonable at the time the estimates are made. Actual results could differ from those estimates.

Our critical accounting policies are as follows:

• Revenue recognition;

• Inventory valuation;

• Income taxes;

• Impairment of long-lived assets and long-lived assets to be disposed; and

• Share-based compensation.

Our critical accounting policies are important to the portrayal of our financial condition and results of operations, and require us to make judgments and estimates about matters that are inherently uncertain. There have been no material changes to our critical accounting policies and estimates disclosed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and Note 1, Overview, Basis of Presentation and Significant Accounting Policies, in each case in our Annual Report.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market rate risk includes risk of foreign currency exchange rate fluctuations, changes in interest rates and translation risk.

Foreign Exchange Risks

We are subject to inherent risks attributed to operating in a global economy. Our international sales and our operations in foreign countries subject us to risks associated with fluctuating currency values and exchange rates. Because a portion of our sales are denominated in United States dollars, increases in the value of the United States dollar could increase the price of our products so that they become relatively more expensive to customers in a particular country, possibly leading to a reduction in sales and profitability in that country. A significant portion of the sales of our products are denominated in reais. In addition, we have certain costs that are denominated in foreign currencies, and decreases in the value of the U.S. dollar could result in increases in such costs that could have a material adverse effect on our results of operations. We do not currently purchase financial instruments to hedge foreign exchange risk, but may do so in the future.

As a result of our international operations, we generate a portion of our net sales and incur a portion of our expenses in currencies other than the U.S. dollar, particularly the reais. Approximately 66% and 49% of our net sales during the nine months ended May 25, 2018 and May 26, 2017, respectively, originated in reais. We present our combined financial statements in U.S. dollars, and we must translate the assets, liabilities, net sales and expenses of a substantial portion of our foreign operations into U.S. dollars at applicable exchange rates. Consequently, increases or decreases in the value of the U.S. dollar may affect the value of these items with respect to our non-U.S. dollar businesses in our combined financial statements, even if their value has not changed in their local currency. Our customer pricing and material cost of sales are based on U.S. dollars, as is the global market for memory products. Accordingly, the impact of currency fluctuations to our consolidated statement of operations is primarily to our other costs of sales (i.e., non-material components) and our operating expenses as those items are typically denominated in local currency. Our consolidated statement of operations is also impacted by foreign currency gains and losses recorded in Other Income (Expense) arising from transactions denominated in a currency other than the functional currency of the respective subsidiary. These translations could significantly affect the comparability of our results between financial periods or result in significant changes to the carrying value of our assets, liabilities and equity. As a result, changes in foreign currency exchange rates impact our reported results.

During the nine months ended May 25, 2018 and May 26, 2017, we recorded $7.3 million and $0.7 million, respectively, of foreign exchange losses.

Interest Rate Risk

We are subject to interest rate risk in connection with our long-term and short-term debt, including the $152.6 million aggregate balance under the term loans under the Amended Credit Agreement, R$16.1 million (or $4.6 million) balance under the BNDES 2013 Credit Agreement and R$29.70 million (or $8.5 million) balance under the BNDES 2014 Credit Agreement, in each case as of May 25, 2018. Although we did not have any revolving balances outstanding as of May 25, 2018, the revolving facility under the Amended Credit Agreement provides for borrowings of up to $50 million that would also bear interest at variable rates. Assuming that we will satisfy the financial covenants required to borrow and that the Amended Credit Agreement is fully drawn and other variables are held constant, each 1.0% increase in interest rates on our variable rate borrowings would result in an increase in annual interest expense and a decrease in our cash flow and income before taxes of $2.1 million per year.

Item 4. Controls and Procedures

Limitation on Effectiveness of Controls

Any control system, no matter how well designed and operated, can provide only reasonable assurance as to the tested objectives. The design of any control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. The inherent limitations in any control system include the realities that judgments related to decision-making can be faulty, and that reduced effectiveness in controls can occur because of simple errors or mistakes. Due to the inherent limitations in a cost-effective control system, misstatements due to error may occur and may not be detected.

34

Evaluation of Disclosure Controls and Procedures

Management is required to evaluate our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Disclosure controls and procedures are controls and other procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at a reasonable assurance level as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended May 25, 2018, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

35

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information with respect to this item may be found in Note 9, Commitments and Contingencies, in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference. 

Item 1A. Risk Factors  

There have been no material changes to the risks described in Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for our fiscal year ended August 25, 2017 as updated and supplemented by our Quarterly Report on From 10-Q for our fiscal quarter ended November 27, 2017 and for our fiscal quarter ended February 23, 2018.  These risk factors could materially and adversely affect our business, financial condition and results of operations, and the market price of our ordinary shares could decline. These risk factors do not identify all risks that we face – our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Amended Credit Agreement

We are subject to certain restrictions with respect to the use of our working capital and our ability to pay dividends under our Amended Credit Agreement, as described in Note 6, Long-Term Debt—Amended Credit Agreement, in our Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q, which information in incorporated herein by reference.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Executive Officer Transition

On June 20, 2018, in connection with the executive officer transition previously announced by the Company in its Current Reports on Form 8-K filed on March 14, 2018, Mr. Iain MacKenzie resigned from his position as the Company’s President and Co-Chief Executive Officer, effective June 22, 2018. Upon the effectiveness of Mr. MacKenzie’s resignation, Ajay Shah, the Company’s Co-Chief Executive Officer, will become the Company’s President and sole Chief Executive Officer. Mr. MacKenzie will remain on the Company’s board of directors following the effectiveness of his resignation.

Mr. MacKenzie will be entitled to receive a payment in the amount of his accrued and unpaid salary through the effective date of his resignation in accordance with his employment agreement with the Company. In addition, the board of directors of the Company has determined to provide Mr. MacKenzie with a separation payment equal to approximately $360,000, which the Company’s board of directors has determined represents Mr. MacKenzie’s unpaid bonus under the Company’s non-equity incentive compensation plan for fiscal 2018, pro rated through the Company’s third quarter of fiscal 2018. The foregoing payments to Mr. MacKenzie are subject to Mr. MacKenzie’s execution and delivery to the Company of a release of claims.

Amendment to Investors Shareholders Agreement

As of June 20, 2018, SMART Global Holdings and entities associated with Silver Lake entered into an amendment (the “Amendment”) to that certain Amended and Restated Investors Shareholders Agreement, dated as of November 5, 2016, by and among the SMART Global Holdings, entities associated with Silver Lake, the Management Investors named therein and the Warrant Investors named therein (as previously amended, the “Investors Shareholders Agreement”). Pursuant to the Amendment, the Investors Shareholders Agreement was amended to remove Iain MacKenzie as a Key Management Investor (as defined in the Investors Shareholders Agreement) in connection with Mr. MacKenzie’s resignation as the Company’s President and Co-Chief Executive Officer described above.  The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.

36

Item 6. Exhibits

Exhibit No.	Exhibit Title
10.1*	Amendment to Investors Shareholders Agreement dated as of June19, 2018, by and among SMART Global Holdings, Inc., Silver Lake Partners III Cayman (AIV III), L.P., Silver Lake Technology Investors III Cayman, L.P., Silver Lake Sumeru Fund Cayman, L.P.,Silver Lake Technology Investors Sumeru Cayman, L.P., the Management Investors (as defined in the A&R Investors Shareholders Agreement) and the Warrant Investors
31.1*	Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.3*	Certification of Co-Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer pursuant 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Principal Financial Officer pursuant 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3**	Certification of Co-Principal Executive Officer pursuant 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

* Filed herewith.

** Furnished herewith.

37

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			SMART GLOBAL HOLDINGS, INC.
Date: June 21, 2018	By:		/s/ IAIN MACKENZIE
			Name:	Iain MacKenzie
			Title:	President and Co-Chief Executive Officer  (Principal Executive Officer)
Date: June 21, 2018	By:	/s/ AJAY SHAH
		Name:		Ajay Shah
		Title:		Co-Chief Executive Officer  (Principal Executive Officer)

Date: June 21, 2018	By:	/s/ JACK PACHECO
		Name:	Jack Pacheco
		Title:	Executive Vice President and Chief Financial Officer  (Principal Financial and Accounting Officer)

38

EX-10.1

Exhibit 10.1

SMART GLOBAL HOLDINGS, INC.

AMENDMENT NO. 5 TO

INVESTORS SHAREHOLDERS AGREEMENT

Dated as of June 20, 2018

SMART GLOBAL HOLDINGS, INC.

AMENDMENT NO. 5 TO INVESTORS SHAREHOLDERS AGREEMENT

This AMENDMENT NO. 5 TO INVESTORS SHAREHOLDERS AGREEMENT (this “Amendment”), dated as of June 20, 2018, amends the Amended and Restated Investors Shareholders Agreement, dated as of November 5, 2016 (the “Original A&R Investors Shareholders Agreement”) and as amended by Amendment No. 2 to Investors Shareholders Agreement dated as of May 30, 2017, and Amendment No. 3 to Investors Shareholders Agreement dated as of October 17, 2017 and amended by Amendment No. 4 to Investors Shareholders Agreement dated as of January 22, 2018 (as previously amended, the “A&R Investors Shareholders Agreement” and, together with this Amendment, this “Agreement”), by and among SMART Global Holdings, Inc. (f/k/a Saleen Holdings, Inc.), a Cayman Islands exempted company (together with its successors and assigns, the “Company”), Silver Lake Partners III Cayman (AIV III), L.P., a Cayman Islands exempted limited partnership (the “SLP Investor”), Silver Lake Technology Investors III Cayman, L.P., a Cayman Islands exempted limited partnership (the “SLP Co-Investor”), Silver Lake Sumeru Fund Cayman, L.P., a Cayman Islands exempted limited partnership (the “SLS Investor”), Silver Lake Technology Investors Sumeru Cayman, L.P., a Cayman Islands exempted limited partnership (the “SLS Co-Investor”), the Management Investors (as defined in the A&R Investors Shareholders Agreement) and the Warrant Investors (as defined in the A&R Investors Shareholders Agreement).

WHEREAS, the Company, the SLP Investor, the SLP Co-Investor, the SLS Investor, the SLS Co-Investor and the initial Management Investors named therein entered into that certain Management Investors Shareholders Agreement, dated as of August 26, 2011 (the “Initial Agreement”), in order to set forth certain rights and other terms in connection with ownership of ordinary shares of the Company;

WHEREAS, the Company, the SLP Investor, the SLP Co-Investor, the SLS Investor and the SLS Co-Investor entered into the Original A&R Investors Shareholders Agreement to amend and restate the Initial Agreement in connection with the Amended Credit Agreement (as defined in the Original A&R Investors Shareholders Agreement) in order to set forth certain rights and obligations of the Warrant Investors with respect to the ownership of equity securities of the Company by the Warrant Investors, and the Management Investors and the Warrant Investors became parties thereto; and

WHEREAS, the Company, the SLP Investor, the SLP Co-Investor, the SLS Investor and the SLS Co-Investor desire to amend certain sections A&R Investors Shareholders Agreement.

NOW, THEREFORE, in consideration of the agreements and obligations set forth in this Agreement and for other good and valuable consideration, the receipt of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

1

Article IDEFINITIONS

Section 1.1.Definitions. Capitalized terms that are defined in the preamble or the recitals hereto shall have such meanings throughout this Amendment. Capitalized terms used but not defined in this Amendment shall have the meanings assigned thereto in the A&R Investors Shareholders Agreement. The meanings assigned to all defined terms used in this Amendment shall be equally applicable to both the singular and plural forms of such defined terms.

Article II

Amendments

Section 2.1.Amendment to Exhibit C of the A&R Investors Shareholders Agreement. Exhibit C to the A&R Investors Shareholders Agreement is deleted in its entirety and replaced with Exhibit C attached hereto.

Article III

MISCELLANEOUS

Section 3.1.The A&R Investors Shareholders Agreement.  Except as provided herein, all terms and conditions of the A&R Investors Shareholders Agreement remain in full force and effect.

Section 3.2.Governing Law.  This Agreement and all claims or causes of action (whether in tort, contract or otherwise) that may be based upon, arise out of or relate to this Agreement or the negotiation, execution or performance of this Agreement (including any claim or cause of action based upon, arising out of or related to any representation or warranty made in or in connection with this Agreement) shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws, except that Cayman Islands law shall apply in respect of any fiduciary duty or any mandatory provision of Cayman Islands corporate law.

Section 3.3.Severability.  If any portion of this Agreement shall be declared void or unenforceable by any court or administrative body of competent jurisdiction, such portion shall be deemed severable from the remainder of this Agreement, which shall continue in all respects valid and enforceable.

Section 3.4.Counterparts.  This Agreement may be executed in any number of counterparts (which delivery may be by electronic transmission), each of which shall be deemed an original, but all of which together shall constitute a single instrument.

[The remainder of this page intentionally left blank.]

2

IN WITNESS WHEREOF, each of the undersigned has executed this AmendmentNo. 5 to Investors Shareholders Agreement or caused this Amendment No. 5 to Investors Shareholders Agreement to be signed by its officer thereunto duly authorized as a deed as of the date first written above.

COMPANY:

SMART GLOBAL HOLDINGS, INC.		In the presence of:
By:	/s/ Jack Pacheco	/s/ Debbie Borden
	Name: Jack Pacheco	Signature of Witness
	Title: Executive Vice President, Chief Operating Officer and Chief Financial Officer	Name of Witness: Debbie Borden

[Signature Pages Follow]

[Signature Page for Amendment No. 5 to Investors Shareholders Agreement]

SLP INVESTOR:

SILVER LAKE PARTNERS III CAYMAN
(AIV III), L.P.

By: Silver Lake Technology Associates III
Cayman, L.P., its General Partner

By: Silver Lake (Offshore) AIV GP III, Ltd.,
its General Partner

		In the presence of:
By:	/s/ Kenneth Hao	/s/ Phuong Kwan
	Name: Kenneth Hao	Signature of Witness
	Title: Director	Name of Witness: Phuong Kwan

SLP CO-INVESTOR:

Silver Lake Technology Investors
III Cayman, L.P.

By: Silver Lake Technology Associates III
Cayman, L.P., its General Partner

By: Silver Lake (Offshore) AIV GP III, Ltd.,
its General Partner

		In the presence of:
By:	/s/ Kenneth Hao	/s/ Phuong Kwan
	Name: Kenneth Hao	Signature of Witness
	Title: Director	Name of Witness: Phuong Kwan

[Signature Page Follows]

[Signature Page for Amendment No. 5 to Investors Shareholders Agreement]

SLS INVESTOR:

SILVER LAKE SUMERU FUND CAYMAN, L.P.

By: Silver Lake Technology Associates Sumeru
Cayman, L.P., its General Partner

By: SLTA Sumeru (GP) Cayman, L.P., its
General Partner

By: Silver Lake Sumeru (Offshore) AIV GP,
Ltd., its General Partner

		In the presence of:
By:	/s/ Paul Mercadante	/s/ Christine Ordesta
	Name:  Paul Mercadante	Signature of Witness
	Title: Director	Name of Witness: Christine Ordesta

SLS CO-INVESTOR:

Silver Lake Technology Investors
Sumeru Cayman, L.P.

By: Silver Lake Technology Associates Sumeru
Cayman, L.P., its General Partner

By: SLTA Sumeru (GP) Cayman, L.P., its
General Partner

By: Silver Lake Sumeru (Offshore) AIV GP,
Ltd., its General Partner

		In the presence of:
By:	/s/ Paul Mercadante	/s/ Christine Ordesta
	Name:  Paul Mercadante	Signature of Witness
	Title: Director	Name of Witness: Christine Ordesta

[Signature Page for Amendment No. 5 to Investors Shareholders Agreement]

EXHIBIT C

KEY MANAGEMENT INVESTORS

None

[Amendment No. 5 to Investors Shareholders Agreement]

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Iain MacKenzie, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SMART Global Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: June 21, 2018	By:	/s/ IAIN MACKENZIE
		Name:Iain MacKenzie
		Title: President and Co-Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jack Pacheco, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SMART Global Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: June 21, 2018	By:	/s/ JACK PACHECO
		Name: Jack Pacheco
		Title: Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

EX-31.3

Exhibit 31.3

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ajay Shah, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SMART Global Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: June 21, 2018	By:	/s/ AJAY SHAH
		Name:Ajay Shah
		Title: Co-Chief Executive Officer (Principal Executive Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of SMART Global Holdings, Inc. (the “Company”) on Form 10-Q for the period ending May 25, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Iain MacKenzie, President and Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: June 21, 2018	By:	/s/ IAIN MACKENZIE
		Name:Iain MacKenzie
		Title: President and Co-Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of SMART Global Holdings, Inc. (the “Company”) on Form 10-Q for the period ending May 25, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jack Pacheco, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: June 21, 2018	By:	/s/ JACK PACHECO
		Name: Jack Pacheco
		Title: Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.3

Exhibit 32.3

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of SMART Global Holdings, Inc. (the “Company”) on Form 10-Q for the period ending May 25, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ajay Shah, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: June 21, 2018	By:	/s/ AJAY SHAH
		Name:Ajay Shah
		Title: Co-Chief Executive Officer (Principal Executive Officer)

XML

Document and Entity Information Document	9 Months Ended
	May 25, 2018 shares
Document And Entity Information [Abstract]
Entity Registrant Name	SMART GLOBAL HOLDINGS, INC.
Entity Central Index Key	0001616533
Current Fiscal Year End Date	--08-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Trading Symbol	SGH
Document Period End Date	May 25, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding	22,307,512

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands		May 25, 2018	Aug. 25, 2017
Current assets:
Cash and cash equivalents		$ 64,495	$ 22,436
Accounts receivable, net of allowances of $298 and $314 as of May 25, 2018 and August 25, 2017, respectively		262,101	183,303
Inventories	[1]	147,948	127,135
Prepaid expenses and other current assets		20,219	14,115
Total current assets		494,763	346,989
Property and equipment, net		53,051	55,182
Other noncurrent assets		21,193	26,728
Intangible assets, net		1,173	5,107
Goodwill		42,872	46,022
Total assets		613,052	480,028
Current liabilities:
Accounts payable		264,954	189,717
Accrued liabilities		20,816	27,316
Current portion of long-term debt		22,073	22,841
Total current liabilities		307,843	239,874
Long-term debt		136,606	154,450
Deferred tax liabilities		351	1,439
Other long-term liabilities		1,897	1,869
Total liabilities		446,697	397,632
Commitments and contingencies (see Note 9)
Shareholders’ equity:
Ordinary shares, $0.03 par value. Authorized 200,000 shares; issued and outstanding 22,308 and 21,666 as of May 25, 2018 and August 25, 2017, respectively		672	653
Additional paid-in capital		245,097	232,162
Accumulated other comprehensive loss		(161,950)	(143,210)
Retained earnings		82,536	(7,209)
Total shareholders’ equity		166,355	82,396
Total liabilities and shareholders’ equity		$ 613,052	$ 480,028

[1] As of May 25, 2018 and August 25, 2017, 27% and 34%, respectively, of total inventories represented inventory held under the Company's supply chain services.

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	May 25, 2018	Aug. 25, 2017
Statement Of Financial Position [Abstract]
Accounts receivable, net of allowances	$ 298	$ 314
Ordinary shares, par value	$ 0.03	$ 0.03
Ordinary shares, authorized	200,000,000	200,000,000
Ordinary shares, issued	22,308,000	21,666,000
Ordinary shares, outstanding	22,308,000	21,666,000

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended		9 Months Ended
		May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Income Statement [Abstract]
Net sales	[1]	$ 335,477	$ 206,974	$ 914,851	$ 538,272
Cost of sales		257,423	159,599	705,944	424,030
Gross profit		78,054	47,375	208,907	114,242
Operating expenses:
Research and development		9,763	8,797	28,165	28,442
Selling, general, and administrative		19,597	17,193	55,502	49,037
Management advisory fees			1,000		3,000
Restructuring charge					457
Total operating expenses		29,360	26,990	83,667	80,936
Income from operations		48,694	20,385	125,240	33,306
Interest expense, net		(4,098)	(8,294)	(12,927)	(23,072)
Other income (expense), net		(7,145)	(762)	(7,312)	(1,664)
Total other expense		(11,243)	(9,056)	(20,239)	(24,736)
Income before income taxes		37,451	11,329	105,001	8,570
Provision for income taxes		5,505	3,371	15,256	6,156
Net income		$ 31,946	$ 7,958	$ 89,745	$ 2,414
Earnings per share:
Basic		$ 1.44	$ 0.57	$ 4.09	$ 0.17
Diluted		$ 1.37	$ 0.50	$ 3.90	$ 0.16
Shares used in computing earnings per share:
Basic		22,206	13,986	21,932	13,909
Diluted		23,306	15,955	23,020	15,230

[1] Includes sales to affiliates of $39,665 and $100,737 in the three and nine months ended May 25, 2018, respectively, and $21,554 and $48,242, respectively, for the corresponding periods of fiscal 2017 (see Note 2).

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Condensed Consolidated Statements of Operations (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Income Statement [Abstract]
Sales to affiliates	$ 39,665	$ 21,554	$ 100,737	$ 48,242

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Condensed Consolidated Statements Of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 31,946	$ 7,958	$ 89,745	$ 2,414
Other comprehensive income (loss):
Foreign currency translation	(17,974)	(3,021)	(18,740)	983
Other comprehensive income (loss)	(17,974)	(3,021)	(18,740)	983
Comprehensive income	$ 13,972	$ 4,937	$ 71,005	$ 3,397

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	May 25, 2018	May 26, 2017
Cash flows from operating activities:
Net income	$ 89,745	$ 2,414
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	18,656	25,399
Share-based compensation	6,599	3,533
Provision for doubtful accounts receivable and sales returns	(13)	31
Deferred income tax benefit	(1,376)	(1,195)
Loss on disposal of property and equipment	230	129
Extinguishment loss on long-term debt		1,386
Write off of long-term asset	250
Amortization of debt discounts and issuance costs	2,165	6,424
Changes in operating assets and liabilities:
Accounts receivable	(86,706)	(33,516)
Inventories	(27,940)	(31,184)
Prepaid expenses and other assets	(3,495)	741
Accounts payable	83,879	11,799
Accrued expenses and other liabilities	(4,703)	7,097
Net cash provided by (used in) operating activities	77,291	(6,942)
Cash flows from investing activities:
Capital expenditures and deposits on equipment	(18,251)	(11,179)
Proceeds from sale of property and equipment	101	467
Net cash used in investing activities	(18,150)	(10,712)
Cash flows from financing activities:
Fees paid for revolving line of credit financing	(768)
Long-term debt payment	(18,402)	(17,689)
Payment for extinguishment of long-term debt		(938)
Payment of costs related to initial public offering (IPO)	(1,591)	(200)
Proceeds from borrowings under revolving line of credit	277,500	338,250
Repayments of borrowings under revolving line of credit	(277,500)	(338,250)
Proceeds from issuance of ordinary shares from share option exercises	6,170	348
Net cash used in financing activities	(14,591)	(18,479)
Effect of exchange rate changes on cash and cash equivalents	(2,491)	(160)
Net increase (decrease) in cash and cash equivalents	42,059	(36,293)
Cash and cash equivalents at beginning of period	22,436	58,634
Cash and cash equivalents at end of period	64,495	22,341
Cash paid during the period:
Cash paid for interest	11,048	17,215
Cash paid for income taxes, net of refunds	17,085	5,293
Noncash activities information:
Capital expenditures included in accounts payable at period end	614	275
IPO costs included in accounts payable and accrued liabilities at period end		1,990
Proceeds receivable from the exercise of stock options	$ (185)
Warrants issued in connection with debt		$ 21,341

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Basis of Presentation and Principles of Consolidation

9 Months Ended

May 25, 2018

Accounting Policies [Abstract]

Basis of Presentation and Principles of Consolidation

Note 1. Basis of Presentation and Principles of Consolidation

(a) Overview

On August 26, 2011, SMART Global Holdings, Inc., formerly known as Saleen Holdings, Inc., a Cayman Islands exempted company (SMART Global Holdings, and together with its subsidiaries, the Company), consummated a transaction with SMART Worldwide Holdings, Inc., formerly known as SMART Modular Technologies (WWH), Inc. (SMART Worldwide), pursuant to an Agreement and Plan of Merger whereby, through a series of transactions, SMART Global Holdings acquired substantially all of the equity interests of SMART Worldwide with SMART Worldwide surviving as an indirect wholly owned subsidiary of SMART Global Holdings (the Acquisition). SMART Global Holdings is an entity that was formed by investment funds affiliated with Silver Lake Partners and Silver Lake Sumeru (collectively Silver Lake). As a result of the Acquisition, since there was a change of control resulting in Silver Lake as the controlling shareholder group, the Company applied the acquisition method of accounting and established a new basis of accounting.

The Company, through its subsidiaries, provides specialty memory solutions sold primarily to original equipment manufacturers (OEMs). The Company offers these solutions to customers worldwide and also offers custom supply chain services including procurement, logistics, inventory management, temporary warehousing, kitting and packaging services.  

SMART Global Holdings is domiciled in the Cayman Islands and has its U.S. offices in Newark, California. The Company has operations in the United States, Brazil, Malaysia, Taiwan, Hong Kong, Scotland, Singapore and South Korea.

(b) Basis of Presentation

The accompanying condensed consolidated financial statements comprise SMART Global Holdings and its wholly owned subsidiaries. Intercompany transactions have been eliminated in the condensed consolidated financial statements.

The Company uses a 52- to 53-week fiscal year ending on the last Friday in August. The three months ended May 25, 2018 and May 26, 2017 were both 13 week fiscal periods.

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and in conformity with the rules and regulations of the Securities and Exchange Commission (SEC) applicable to interim financial information. As such, certain information and footnote disclosures normally included in complete annual financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to the interim periods are unaudited.

All financial information for two of the Company’s subsidiaries, SMART Modular Technologies Indústria de Componentes Eletrônicos Ltda. (SMART Brazil) and SMART Modular Technologies do Brasil Indústria e Comércio de Componentes Ltda. (SMART do Brazil), is included in the Company’s condensed consolidated financial statements on a one-month lag because their fiscal years begin August 1 and end July 31.

(c) Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ from the estimates made by management. Significant items subject to such estimates and assumptions include the useful lives of long-lived assets, the valuation of deferred tax assets and inventory, share-based compensation, the estimated net realizable value of Brazilian tax credits, income tax uncertainties and other contingencies.

(d) Revenue Recognition

Product revenue is recognized when there is persuasive evidence of an arrangement, product delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Product revenue typically is recognized at the time of shipment or when the customer takes title to the goods. All amounts billed to a customer related to shipping and handling are classified as revenue, while all costs incurred by the Company for shipping and handling are classified as cost of sales. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales in the condensed consolidated statements of operations.

In addition, the Company has classes of transactions with customers that are accounted for on an agency basis (i.e., the Company recognizes as revenue the amount billed less the material procurement costs of products serviced as an agent with the cost of providing these services embedded with the cost of sales). The Company provides procurement, logistics, inventory management, temporary warehousing, kitting and packaging services for these customers. Revenue from these arrangements is recognized as service revenue and is determined by a fee for services based on material procurement costs. The Company recognizes service revenue upon the completion of the services, typically upon shipment of the product. There are no obligations subsequent to shipment of the product under the agency arrangements.

The following is a summary of the Company’s gross billings to customers and net sales for services and products (in thousands):

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Service revenue, net	$	11,270	$	9,869	$	30,746	$	27,853
Cost of purchased materials - service (1)		258,098		246,498		714,883		648,886
Gross billings for services		269,368		256,367		745,629		676,739
Product net sales		324,207		197,105		884,105		510,419
Gross billings to customers	$	593,575	$	453,472	$	1,629,734	$	1,187,158
Product net sales	$	324,207	$	197,105	$	884,105	$	510,419
Service revenue, net		11,270		9,869		30,746		27,853
Net sales	$	335,477	$	206,974	$	914,851	$	538,272

(1)Represents cost of sales associated with service revenue reported on a net basis.

(e) Cash and Cash Equivalents

All highly liquid investments with maturities of 90 days or less from original dates of purchase are carried at cost, which approximates fair value, and are considered to be cash. Cash and cash equivalents include cash on hand, cash deposited in checking and saving accounts, money market accounts, and securities with maturities of less than 90 days at the time of purchase.

(f) Allowance for Doubtful Accounts

The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, the Company records a specific allowance against amounts due and, thereby, reduces the net recognized receivable to the amount management reasonably believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on a combination of factors including the length of time the receivables are outstanding, industry and geographic concentrations, the current business environment and historical experience.

(g) Sales of Receivables

Designated subsidiaries of the Company may, from time to time, sell certain of their receivables to third parties. Sales of receivables are recognized at the point in which the receivables sold are transferred beyond the reach of the Company and its creditors, the purchaser has the right to pledge or exchange the receivables and the subsidiaries have surrendered control over the transferred receivables. See Note 3 for further details.

(h) Inventories

Inventories are valued at the lower of actual cost or market value. Inventory value is determined on a specific identification basis for material and an allocation of labor and manufacturing overhead. At each balance sheet date, the Company evaluates the ending inventories for excess quantities and obsolescence. This evaluation includes an analysis of sales levels by product family and considers historical demand and forecasted demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles. The Company adjusts carrying value to the lower of its cost or market value. Inventory write-downs are not reversed and create a new cost basis.

(i) Prepaid State Value-Added Taxes (ICMS)

Since 2004, the Sao Paulo State tax authorities have granted SMART Brazil a tax benefit to defer and eventually eliminate the payment of ICMS levied on certain imports from independent suppliers. This benefit, known as an ICMS Special Regime, is subject to renewal every two years. When the then current ICMS Special Tax Regime expired on March 31, 2010, SMART Brazil timely applied for a renewal of the benefit, however, the renewal was not granted until August 4, 2010.

On June 22, 2010, the Sao Paulo authorities published a regulation allowing companies that applied for a timely renewal of an ICMS Special Regime to continue utilizing the benefit until a final conclusion on the renewal request was rendered. As a result of this publication, SMART Brazil was temporarily allowed to utilize the benefit while it waited for its renewal. From April 1, 2010, when the ICMS benefit lapsed, through June 22, 2010 when the regulation referred to above was published, SMART Brazil was required to pay the ICMS taxes on imports, which payments result in ICMS credits that may be used to offset ICMS obligations generated from sales by SMART Brazil of its products; however, the vast majority of SMART Brazil’s sales in Sao Paulo were either subject to a lower ICMS rate or were made to customers that were entitled to other ICMS benefits that enabled them to eliminate the ICMS levied on their purchases of products from SMART Brazil. As a result, from April 1, 2010 through June 22, 2010, SMART Brazil did not have sufficient ICMS collections against which to apply the credits and the credit balance increased significantly.

Effective February 1, 2011, in connection with its participation in a Brazilian government incentive program known as Support Program for the Technological Development of the Semiconductor and Display Industries Laws, or PADIS, SMART Brazil spun off the module manufacturing operations into SMART do Brazil, a separate subsidiary of the Company. In connection with this spin off, SMART do Brazil applied for a tax benefit from the State of Sao Paulo in order to obtain a deferral of state ICMS. This tax benefit is referred to as State PPB, or CAT 14. The CAT 14 approval was not obtained until July 21, 2011, and from February 1, 2011 until the CAT 14 approval was granted, SMART do Brazil did not have sufficient ICMS collections against which to apply the credits accrued upon payment of the ICMS on SMART do Brazil’s imports and inputs locally acquired, and therefore, it generated additional excess ICMS credits.

As of  May 25, 2018, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$44.4 million (or $12.8 million), of which (i) R$16.6 million (or $4.8 million) are fully vested ICMS credits, classified as prepaid and other current assets and R$24.5 million (or $7.0 million) classified as other noncurrent assets, and (ii) R$3.3 million (or $0.9 million) are ICMS credits subject to vesting in 48 equal monthly amounts, classified as prepaid expenses and other current assets (R$1.1 million or $0.3 million) and other noncurrent assets (R$2.2 million or $0.6 million). As of August 25, 2017, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$40.9 million (or $13.1 million), of which (i) R$38.4 million (or $12.3 million) are fully vested ICMS credits, classified as other noncurrent assets, and (ii) R$2.5 million (or $0.8 million) are ICMS credits subject to vesting in 48 equal monthly amounts, classified as other noncurrent assets (R$0.6 million or $0.2 million) and prepaid expenses and other current assets (R$1.9 million or $0.6 million). It is expected that the excess ICMS credits will continue to be recovered in fiscal 2018 through fiscal 2022. The Company updates its forecast of the recoverability of the ICMS credits quarterly, considering the following key variables in Brazil: timing of government approvals of automated credit utilization, the total amount of sales, the product mix and the inter and intra state mix of sales. If these estimates or the mix of products or regions vary, it could take longer or shorter than expected to recover the accumulated ICMS credits, resulting in a reclassification of ICMS credits from current to noncurrent, or vice versa.

In April and June 2016, the Company filed cases with the State of Sao Paulo tax authorities to seek approval to sell excess ICMS credits. In December 2017, the Company obtained approval to sell R$31.6 million (or $9.1 million) of its ICMS credits.  Once approved, sales of ICMS credits usually take three to six months to complete and typically incur a discount to the face amount of the credits sold, as well as fees for the arrangers of these sales which together aggregate 10% to 15% of the face amount of the credits being sold. Once the sale is complete, the tax authorities usually approve the transfer of credits in monthly installments and the proceeds resulting from the sale of the aforementioned credits shall be received by the Company accordingly. The Company has recorded valuation adjustments for the estimated discount and fees that the Company will need to offer in order to sell the ICMS credits to other companies.  

(j) Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are computed based on the shorter of the estimated useful lives or the related lease terms, using the straight-line method. Estimated useful lives are presented below:

	Period
Asset:
Manufacturing equipment	2 to 5 years
Office furniture, software, computers and equipment	2 to 5 years
Leasehold improvements*	2to 60 years

* Includes the land lease for the Penang facility with a term expiring in 2070.

(k) Goodwill

The Company performs a goodwill impairment test annually during the fourth quarter of its fiscal year and more frequently if events or circumstances indicate that impairment may have occurred. Such events or circumstances may, among others, include significant adverse changes in the general business climate. As of May 25, 2018 and August 25, 2017, the carrying value of goodwill on the Company’s condensed consolidated balance sheet was $42.9 million and $46.0 million, respectively.

When conducting the annual impairment test for goodwill, the Company compares the estimated fair value of a reporting unit containing goodwill to its book value. The estimated fair value is computed using two approaches: the income approach, which is the present value of expected cash flows, discounted at a risk-adjusted weighted average cost of capital; and the market approach, which is based on using market multiples of companies in similar lines of business. If the fair value of the reporting unit is determined to be more than its book value, no goodwill impairment is recognized. The excess of the fair value of the reporting unit over the fair value of assets less liabilities is the implied value of goodwill and is used to determine the amount of impairment.

All of the $42.9 million carrying value of goodwill on the Company’s condensed consolidated balance sheet as of May 25, 2018 is associated with the Company’s single reporting unit. No impairment of goodwill was recognized through May 25, 2018.

The changes in the carrying amount of goodwill during the nine months ended May 25, 2018 and fiscal 2017 are as follows (in thousands):

	Total
Balance as of August 26, 2016	$	44,976
Translation adjustments		1,046
Balance as of August 25, 2017		46,022
Translation adjustments		(3,150	)
Balance as of May 25, 2018	$	42,872

(l) Intangible Assets, Net

The following table summarizes the gross amounts and accumulated amortization of intangible assets from the Acquisition by type as of May 25, 2018 and August 25, 2017 (dollars in thousands):

			May 25, 2018							August 25, 2017
	Weighted		Gross							Gross
	avg.		Carrying		Accumulated					Carrying		Accumulated
	life (yrs)		amount		amortization			Net		amount		amortization			Net
Customer relationships		5	$	24,256	$	(23,328	)	$	928	$	26,971	$	(22,844	)	$	4,127
Technology		4		4,900		(4,655	)		245		4,900		(3,920	)		980
Total			$	29,156	$	(27,983	)	$	1,173	$	31,871	$	(26,764	)	$	5,107

Amortization expense related to intangible assets for the three and nine months ended May 25, 2018 totaled approximately $1.2 million and $3.7 million, respectively, and $3.0 million and $9.0 million, respectively, for the corresponding periods of fiscal 2017. Acquired intangibles are amortized on a straight-line basis over the remaining estimated economic life of the underlying intangible assets.

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Amortization of intangible assets (in thousands):
Research and development	$	245	$	1,224	$	735	$	3,672
Selling, general and administrative		976		1,774		2,992		5,296
Total	$	1,221	$	2,998	$	3,727	$	8,968

(m) Long-Lived Assets

Long-lived assets, excluding goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to the future undiscounted cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed are reported at the lower of the carrying amount or fair value, less cost to sell. No impairment of long-lived assets was recognized during the nine months ended May 25, 2018 and May 26, 2017.

(n) Research and Development Expense

Research and development expenditures are expensed in the period incurred.

(o) Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and credit carryforwards. When necessary, a valuation allowance is recorded to reduce tax assets to amounts expected to be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (or loss) in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in tax expense.

(p) Foreign Currency Translation

For foreign subsidiaries using the local currency as their functional currency, assets and liabilities are translated at exchange rates in effect at the balance sheet date and income and expenses are translated at average exchange rates during the period. The effect of this translation is reported in other comprehensive income (loss). Exchange gains and losses arising from transactions denominated in a currency other than the functional currency of the respective foreign subsidiaries are included in results of operations.

For foreign subsidiaries using the U.S. dollar as their functional currency, the financial statements of these foreign subsidiaries are remeasured into U.S. dollars using the historical exchange rate for property and equipment and certain other nonmonetary assets and liabilities and related depreciation and amortization on these assets and liabilities. The Company uses the exchange rate at the balance sheet date for the remaining assets and liabilities, including deferred taxes. A weighted average exchange rate is used for each period for revenues and expenses.

All foreign subsidiaries and branch offices, except those in Brazil and South Korea, use the U.S. dollar as their functional currency. The gains or losses resulting from the remeasurement process are recorded in other income (expense) in the accompanying condensed consolidated statements of operations.

During the three and nine months ended May 25, 2018 and May 26, 2017, the Company recorded $6.9 million and $7.3 million, respectively, and $1.0 million and $0.7 million, respectively, for the corresponding periods of fiscal 2017, of foreign exchange losses primarily related to its Brazilian operating subsidiaries.

(q) Share-Based Compensation

The Company accounts for share-based compensation under ASC 718, Compensation—Stock Compensation, which requires companies to recognize in their statement of operations all share-based payments, including grants of share options and other types of equity awards, based on the grant-date fair value of such share-based awards.

	Three Months Ended					Nine Months Ended
	May 25,		May 26,			May 25,		May 26,
	2018		2017			2018		2017
Share-based compensation expense (in thousands):
Cost of sales	$	414	$	176		$	859	$	444
Research and development		325		(22	)		887		423
Selling, general and administrative		2,558		1,235			4,853		2,666
Total	$	3,297	$	1,389		$	6,599	$	3,533

(r) Loss Contingencies

The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. The Company considers the likelihood of a loss and the ability to reasonably estimate the amount of loss in determining the necessity for and amount of any loss contingencies. Estimated loss contingencies are accrued when it is probable that a liability has been incurred or an asset impaired and the amount of loss can be reasonably estimated. The Company regularly evaluates the most current information available to determine whether any such accruals should be recorded or adjusted.

(s) Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting shareholders’ equity that, under U.S. GAAP are excluded from net income (loss). The Company’s other comprehensive income (loss) generally consists of foreign currency translation adjustments.

(t) Concentration of Credit and Supplier Risk

The Company’s concentration of credit risk consists principally of cash and cash equivalents and accounts receivable. The Company’s revenues and related accounts receivable reflect a concentration of activity with five customers (see Note 11). The Company does not require collateral or other security to support accounts receivable. The Company performs periodic credit evaluations of its customers to minimize collection risk on accounts receivable and maintains allowances for potentially uncollectible accounts.

The Company relies on five suppliers for the majority of its raw materials. At May 25, 2018 and August 25, 2017, the Company owed these five suppliers $218.4 million and $153.7 million, respectively, which was recorded as accounts payable. The inventory purchases from these suppliers during the three and nine months ended May 25, 2018 were $0.4 billion and $1.2 billion, respectively, and $0.3 billion, and $0.9 billion, respectively for the corresponding periods of fiscal 2017.

(u) New Accounting Pronouncements

In March 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This standard amends ASC 740, Income Taxes, to provide guidance on accounting for tax effects of the Tax cuts and Jobs Act (the “Tax Act”) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Company has applied the guidance in ASU 2018-05, see Note 5, Income Taxes, for further disclosure.  

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Comprehensive Income. The new guidance allows companies to reclassify stranded tax effects resulting from the Tax Act, from accumulated other comprehensive income to retained earnings. The guidance also requires certain new disclosures regardless of the election.  The Company is required to adopt the guidance in the first quarter of fiscal 2020. Early adoption is permitted. The Company is currently evaluating the timing and the impact of these amendments to its consolidated financial statements

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplified the accounting for goodwill impairment by eliminating step 2 from the goodwill impairment test. ASU 2017-04 will be effective for the Company beginning on December 15, 2019 and early adoption is permitted. The Company adopted this ASU in fiscal 2017 and it did not have a material impact on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies the presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 will be effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The changes in restricted cash and restricted cash equivalents during the period will be included in the beginning and ending cash and cash equivalents balance reconciliation on the statement of cash flows. The Company has $6.3 million of restricted cash at May 25, 2018, which is classified as noncurrent assets in the accompanying condensed consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Cash Flow Statements, Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to address the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The guidance addresses eight specific cash flow classification issues with the objective of reducing diversity in practice. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments should be applied using a retrospective transition period to each period presented. The Company does not believe the adoption of ASU 2016-15 will have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplified certain aspects of the accounting for share-based payment transactions, including income taxes, forfeitures and classification of awards and classification in the statement of cash flows. In the first quarter of fiscal 2018, the Company adopted the applicable provisions of this standard as follows:

• The guidance requires excess tax benefits and tax deficiencies to be recorded as income tax benefit or expense in the statement of operations when the awards vest are settled, and eliminates the requirement to reclassify cash flows related to excess tax benefits from financing activities to operating activities on the statement of cash flows. The Company adopted the guidance prospectively effective August 26, 2017, and there was no impact to its consolidated financial statements.  

• The guidance eliminates the requirement that excess tax benefits must be realized (through a reduction in income taxes payable) before companies can recognize them.  The Company applied the modified retrospective transition method upon adoption.  The previously unrecognized excess tax effects were recorded as a deferred tax asset in the amount of $0.9 million, which was fully offset by a valuation allowance of the same amount as of August 26, 2017, resulting no impact to opening retained earnings.  

• In accordance with the guidance, the Company has elected to make an entity-wide accounting policy change to account for forfeitures when they occur.  There is no cumulative-effect on opening retained earnings.  

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02 will be effective for the Company beginning on September 1, 2019 and early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.  Although the Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements and related disclosures, as disclosed in Note 9(a), the Company has over $16.4 million in lease commitments at May 25, 2018 and believes that the adoption will have a material impact to the consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 will be effective for the Company beginning on September 1, 2017 with early application permitted as of the beginning of any interim or annual reporting period. The Company early adopted this ASU in fiscal 2017 and it did not have a material impact on its consolidated financial statements.

In May 2014, the FASB issued a new standard, ASU No. 2014-09, Revenue from Contracts with Customers, as amended, which will supersede nearly all existing revenue recognition guidance. Under ASU 2014-09, an entity is required to recognize revenue upon transfer of promised goods or services to customers in an amount that reflects the expected consideration received in exchange for those goods or services. ASU No. 2014-09 defines a five-step process in order to achieve this core principle, which may require the use of judgment and estimates, and also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and estimates used. The FASB has recently issued several amendments to the new standard, including clarification on identifying performance obligations. The amendments include ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606)—Principal versus Agent Considerations, which was issued in March 2016, and clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09. The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. The new standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. The Company does not plan to early adopt, and accordingly, will adopt the new standard effective September 1, 2018. The Company currently plans to adopt using the modified retrospective approach. Upon adoption on September 1, 2018, the Company will record a cumulative effect adjustment to retained earnings related to the difference in timing of revenue recognition required under the new standards.  

A change for the Company under ASC 606 relates to the timing of revenue recognition for customized product sales orders deemed not cancellable and nonrefundable (NCNR). Under current accounting standards, the Company recognizes revenue and costs related to these sales when products are shipped or delivered to the customers based on the terms of the purchase orders and sales agreements. Under ASC 606, the terms within the NCNR sales orders that provide the Company with a legally enforceable right to receive payment for performance completed to date will affect the timing of revenue recognition. Accordingly, the Company will recognize revenue over time as customized products listed within the NCNR orders are completed.

The Company is in the process of finalizing its assessment and implemented policies, processes, and controls to support the standard measurement and disclosure requirements.

(v) Subsequent Events

Acquisition of Penguin Computing, Inc.

On June 8, 2018, SMART Global Holdings entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the SMART Global Holdings, Glacier Acquisition Sub, Inc., a wholly-owned indirect subsidiary of SMART Global Holdings (“Merger Sub”), Penguin Computing, Inc., (“Penguin”) and Fortis Advisors LLC, solely in its capacity as the representative of the holders of the securities of Penguin. Pursuant to the Merger Agreement, on June 8, 2018, Merger Sub was merged with and into Penguin, with Penguin surviving as a wholly-owned indirect subsidiary of the SMART Global Holdings (the “Merger”).

The aggregate consideration payable by the Company for the Merger is up to $85 million, which includes up to $25.0 million of potential cash earn-out payments based on Penguin’s achievement of specified gross profit levels through December 31, 2018, pursuant to the provisions of the Merger Agreement. The Company paid $60 million at closing (subject to certain adjustments as provided in the Merger Agreement), which included the assumption by the Company of Penguin’s outstanding indebtedness.

At the closing of the Merger, the Company deposited $6.0 million of the purchase price into escrow as security for Penguin’s indemnification obligations during the escrow period of one year. The Company also deposited $2.0 million of the purchase price into escrow as security for customary post-closing adjustments to the purchase price. The Merger Agreement contains customary representations and warranties of the Company and Penguin. The parties have agreed to indemnify each other for certain breaches of representations, warranties and covenants.

Incremental Facility Amendment

On June 8, 2018, the parties to the Amended Credit Agreement (as defined in Note 6) entered into an Incremental Facility Amendment (the “Incremental Facility Amendment”) which provides for, among other things, an incremental $60.0 million term loan facility (the “Additional Term B Loan”). On June 8, 2018, SMART Modular Technologies (Global), Inc. (“Global”) borrowed pursuant to the Incremental Facility Amendment, $60.0 million in aggregate principal amount of Additional Term B Loan under the Amended Credit Agreement, a portion of which was used to fund the cash purchase price of the Merger. The terms and provisions of the Additional Term B Loan are, in all material respects, substantially consistent with the terms and provisions of the other term loans currently outstanding under the Amended Credit Agreement.

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Related Party Transactions

9 Months Ended

May 25, 2018

Related Party Transactions [Abstract]

Related Party Transactions

(2) Related Party Transactions

In the normal course of business, the Company had transactions with its affiliates as follows (in thousands):

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Affiliates:
Net sales	$	39,665	$	21,554	$	100,737	$	48,242
Expenses:
Management advisory fees	$	—	$	1,000	$	—	$	3,000

As of May 25, 2018 and August 25, 2017, amounts due from these affiliates were $8.7 million and $8.7 million, respectively.

Management advisory fees represent fees paid to entities affiliated with Silver Lake pursuant to a management agreement (the Management Agreement) that was terminated upon closing of the Company’s initial public offering (IPO) on May 30, 2017.  There were no amounts due under this agreement as of May 25, 2018 and August 25, 2017.

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Accounts Receivable Purchasing Facility

9 Months Ended

May 25, 2018

Receivables [Abstract]

Accounts Receivable Purchasing Facility

(3) Accounts Receivable Purchasing Facility

In May 2012, SMART Modular Technologies, Inc. (SMART Modular) and SMART Modular Technologies (Europe) Limited (collectively, for this footnote only, Sellers), both wholly owned subsidiaries of the Company, entered into a Receivables Purchasing Agreement (as amended, the RPA) with Wells Fargo Bank, N.A. (Wells Fargo). Under the RPA, the Sellers can offer to sell to Wells Fargo certain Eligible Receivables (as defined in the RPA) due from certain designated customers, and Wells Fargo has the right to purchase Eligible Receivables offered for sale by Sellers. The maximum amount of Eligible Receivables that Wells Fargo can purchase is capped based upon the aggregate outstanding balances of purchased receivables which maximum is set at $50 million with sublimits assigned to each of Sellers’ customers that are approved for the program. Wells Fargo has no obligation to purchase any Eligible Receivables under the RPA. All purchases of Eligible Receivables are at a discount equal to a 2-month LIBOR plus 2.75% annual discount margin, calculated on a daily basis for the number of days between the payment of the purchase price by Wells Fargo to the Sellers and the actual collection of the Eligible Receivables by Wells Fargo from the account debtor. Purchases are also subject to a 95% advance rate with the 5% being reimbursed to the Sellers upon collection by Wells Fargo from the account debtor. Under the terms of the RPA, Sellers retain limited recourse for product warranties and commercial disputes and Wells Fargo bears the full risk of insolvency and collectability. Sellers are appointed as the agent of Wells Fargo to perform collection services. The RPA has standard representations and warranties, including for the validity and collectability of the Eligible Receivables, and various negative and affirmative covenants that are typical for arrangements of this nature. The obligations of the Sellers are jointly and severally guaranteed by SMART Worldwide and its subsidiary Global. Financing under this receivables purchase program qualifies for off-balance sheet financing as the transfer of receivables to Wells Fargo represents a true-sale. The RPA was terminated effective June 30, 2017.

During the nine months ended May 25, 2018 and May 26, 2017, the Sellers sold $0 and $153.6 million of accounts receivables under the RPA respectively. The outstanding balance of receivables sold and not yet collected was $0 as of both May 25, 2018 and August 25, 2017. Total interest expense paid during both the three and nine months ended May 25, 2018 were $0, and $0.2 million and $0.6 million, respectively, for the corresponding periods of fiscal 2017.

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Balance Sheet Details

9 Months Ended

May 25, 2018

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Details

(4) Balance Sheet Details

Inventories

Inventories consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Raw materials	$	72,839	$	42,255
Work in process		27,406		22,965
Finished goods		47,703		61,915
Total inventories*	$	147,948	$	127,135

* As of May 25, 2018 and August 25, 2017, 27% and 34%, respectively, of total inventories represented inventory held under the Company's supply chain services.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Prepaid ICMS taxes in Brazil*	$	5,084	$	—
Unbilled service receivables		3,131		4,280
Prepaid income taxes		1,587		1,023
Prepayment for VAT and other transaction taxes		1,485		1,890
Revolver debt fees		970		970
Other prepaid expenses and other current assets		7,962		5,952
Total prepaid expenses and other current assets	$	20,219	$	14,115
* See Note 1(i)

Property and Equipment, Net

Property and equipment consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Office furniture, software, computers and equipment	$	18,376	$	17,134
Manufacturing equipment		99,031		96,318
Leasehold improvements*		23,505		24,302
		140,912		137,754
Less accumulated depreciation and amortization		87,861		82,572
Net property and equipment	$	53,051	$	55,182

* Includes Penang facility, which is situated on leased land.

Depreciation and amortization expense for property and equipment during the three and nine months ended May 25, 2018 was approximately $4.8 million and $14.9 million, respectively, and $4.8 million and $16.4 million, respectively, for the corresponding periods of fiscal 2017.

Other Noncurrent Assets

Other noncurrent assets consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Prepaid ICMS taxes in Brazil*	$	7,667	$	12,253
Restricted cash		6,320		7,027
Deferred tax assets		2,387		2,098
Revolver debt fees		1,621		2,334
Tax receivable		1,319		1,223
Other		1,879		1,793
Total other noncurrent assets	$	21,193	$	26,728

* See Note 1(i)

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Accrued employee compensation	$	14,672	$	17,426
Income taxes payable		1,795		2,459
VAT and other transaction taxes payable		887		1,314
Accrued warranty reserve		277		275
Accrued credits payable to customers		—		2,296
Other accrued liabilities		3,185		3,546
Total accrued liabilities	$	20,816	$	27,316

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Income Taxes

9 Months Ended

May 25, 2018

Income Tax Disclosure [Abstract]

Income Taxes

(5) Income Taxes

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

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Provision for Income Taxes	$	5,505	$	3,371	$	15,256	$	6,156

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

Provision for income taxes for the three and nine months ended May 25, 2018 increased by $2.1 million and $9.1 million, respectively, as compared to the same period in the prior year, primarily due to higher income in non-U.S. jurisdictions subject to tax.  

As of May 25, 2018, the Company has a full valuation allowance for its net deferred tax assets associated with its U.S. operations.  The amount of the deferred tax asset considered realizable could be adjusted if significant positive evidence increases.

Determining the consolidated provision for income tax expense, income tax liabilities, and deferred tax assets and liabilities involves judgment. The Company calculates and provides for income taxes in each of the tax jurisdictions in which it operates, which involves estimating current tax exposures, as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction.  The estimates used could differ from actual results, which may have a significant impact on operating results in future periods.

On December 22, 2017, new U.S. federal tax legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law.  Certain key changes introduced by the Tax Act that would impact the Company in the current fiscal year include the reduction of the U.S. federal corporate tax rate from 35% to 21%, acceleration of expensing of certain business assets, and the elimination of the alternative minimum tax system for corporations. This rate reduction will reduce the gross value of the Company’s U.S. net deferred tax assets and liabilities with a correlative adjustment to the Company’s valuation allowance, therefore, there is no expected material impact to the Company’s quarterly and annual consolidated financial statements for the fiscal year ending August 31, 2018, subject to a continued valuation allowance. Prospectively, the Company will be subject to other provisions of the Tax Act, including, but not limited to, changes to the interest deduction and the repeal of certain exceptions under IRC 162(m), which may limit the Company’s deductibility of such items. These items are dependent on factors including future profits, the timing of payment and the exercises and release of equity awards.

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Long-Term Debt

9 Months Ended

May 25, 2018

Debt Disclosure [Abstract]

Long-Term Debt

(6) Long-Term Debt

Amended Credit Agreement

On August 9, 2017, SMART Worldwide, Global, and SMART Modular entered into a Second Amended and Restated Credit Agreement (together with all related loan documents, and as amended from time to time, the Amended Credit Agreement) with certain lenders which amended and restated that certain Amended and Restated Credit Agreement dated as of November 5, 2016 (the ARCA), which had amended and restated that certain Credit Agreement dated as of August 26, 2011 (the Original Credit Agreement). The Company’s subsidiaries named as borrowers in the Amended Credit Agreement and certain other subsidiaries that entered into a guarantee with respect to the Amended Credit Agreement, are collectively referred to as the Loan Parties and together with SMART Malaysia, the Credit Group. The Amended Credit Agreement provides for a $165 million of term loans with a maturity date of August 9, 2022 and $50million of revolving loans with a maturity date of February 9, 2021 (the Initial Revolver Maturity Date) which revolving loan maturity date automatically extends to February 9, 2022 if the total leverage ratio of the Credit Group is less than 3.0:1.0 on the Initial Revolver Maturity Date. SMART Global Holding is not a party to the Amended Credit Agreement.

The Amended Credit Agreement is jointly and severally guaranteed on a senior basis by certain subsidiaries of Global (excluding, among other subsidiaries, SMART Malaysia). In addition, the Amended Credit Agreement is secured by a pledge of the capital stock of, or equity interests in, most of the subsidiaries of SMART Worldwide (including, without limitation, SMART Malaysia) and by substantially all of the assets of the subsidiaries of SMART Worldwide, excluding the assets of SMART Malaysia and certain other subsidiaries.

Covenants. The Amended Credit Agreement contains various representations and warranties and affirmative and negative covenants that are usual and customary for loans of this nature including, among other things, limitations on the Credit Group’s ability to engage in certain transactions, incur debt, pay dividends, and make investments. The Amended Credit Agreement also requires that the Credit Group maintain a Secured Leverage Ratio not in excess of 3.5:1.0 as of the end of each fiscal quarter (commencing with the fiscal quarter ending November 24, 2017) and puts restrictions on the Credit Group’s ability to retain cash proceeds from the sale of certain assets with net proceeds in excess of $2 million, subject to customary six-month reinvestment rights.

Interest and Interest Rates. Loans under the Amended Credit Agreement accrue interest at a rate per annum equal to an applicable margin plus, at the borrowers’ option, either a LIBOR rate, or a base rate. The applicable margin for term loans with respect to LIBOR borrowings is 6.25% and with respect to base rate borrowings is 5.25%. The interest rate on the term loans was 8.62% as of May 25, 2018.

The applicable margin for revolving loans adjusts every quarter based on the Secured Leverage Ratio for the most recent fiscal quarter with the applicable margin for revolving loans with respect to LIBOR borrowings ranges from 3.75% to 4.00% and the applicable margin for revolving loans with respect to base rate borrowings ranges from 2.75% to 3.00%. Prior to November 5, 2016, the effective date of the ARCA, the applicable margin was pegged to the Secured Net Leverage Ratio.

Interest on base rate loans is payable on the last day of each calendar quarter. Interest on LIBOR-based loans is payable every one, two, three, six or twelve months after the date of each borrowing, depending on the particular interest rate period selected with respect to such borrowing.

Principal Payments. The Amended Credit Agreement requires quarterly repayments of principal under the term loans equal to 2.5% of $165 million, or $4.1 million per fiscal quarter.  During the three and nine months ended May 25, 2018 the borrowers made scheduled principal payments of $4.1 million and $12.4 million, respectively, and $3.9 million and $11.6 million, respectively, for the corresponding periods of fiscal 2017.

Prepayments. The borrowers have the right at any time to make optional prepayments of the principal amounts outstanding under the Amended Credit Agreement provided that prepayments of principal which are voluntary or are made in connection with certain transactions will be subject to prepayment premiums of 3%, 2%, and 1% during the first, second and third years, respectively, after the effective date of the Amended Credit Agreement.

The Amended Credit Agreement also requires certain mandatory prepayments of principal whereby the borrowers must prepay outstanding loans, subject to certain exceptions, which includes, among other things:

• 75% of excess cash flow on a semi-annual basis if the total leverage ratio is greater than 1.5:1.0; 50% of excess cash flow on a semi-annual basis if the total leverage ratio is greater than 1.0:1.0 but less than or equal to 1.5:1.0; and 25% of excess cash flow on an annual basis if the total leverage ratio is less than or equal to 1.0:1.0, which amounts will be reduced by any permitted voluntary prepayments of principal made in the applicable fiscal year;

• 100% of the net proceeds of certain asset sales or other dispositions of property of Global or any restricted subsidiary, subject to the limited rights to reinvest the proceeds within six months; and

• 100% of the net cash proceeds of incurrence of certain debt by Global or any of its restricted subsidiaries, other than proceeds from certain debt to be incurred under the Amended Credit Agreement.

No mandatory prepayments were required for three months ended May 25, 2018 or for fiscal 2017.

On November 29, 2016, the Credit Group received all required approvals from the lenders and entered into Amendment No. 4 to the Credit Agreement (Amendment 4) dated as of November 5, 2016 (the Amendment 4 Effective Date) which, among other things, adopted the ARCA. Pursuant to Amendment 4, the borrowers agreed to pay the Administrative Agent a fee in the amount of $1 million pursuant to a separate agreement and to pay a fee in the form of an additional term loan, in the amount of $5 million for the ratable account of the term lenders party to Amendment 4. Additionally, SMART Global Holdings was obligated to make an aggregate equity investment of at least $9.9 million in cash in Global, and SMART Global Holdings was obligated to issue 3,467,571 warrants (the Lender Warrants) to purchase ordinary shares of SMART Global Holdings, to the term lenders party to Amendment 4, which Lender Warrants were exercisable at $0.03 per share, with 1,541,143 warrants (the First Tranche Warrants) exercisable immediately and 1,926,428 warrants (the Second Tranche Warrants), exercisable only if there were balances outstanding under the original term loans at the one year anniversary of the Amendment 4 Effective Date. The relative fair value of the Lender Warrants and the fees payable to the lenders in connection with the ARCA were recorded as debt discount and resulted in additional interest expense over the then amended term of the loan using the effective interest method following debt modification accounting.

Under the terms of the ARCA, the quarterly scheduled principal payments of term loans were increased to $3.9 million per quarter to be paid on the last day of each fiscal quarter starting November 25, 2016 and early mandatory repayments of principle were applied in the reverse order of maturity.

On June 2, 2017, SMART Global Holdings contributed $61.0 million from the proceeds of the IPO, to Global which proceeds Global in turn used to pay down the original term loans as required under the ARCA, resulted in a $6.7 million loss on early repayment of long-term debt. As of August 9, 2017, prior to the one year anniversary of the Amendment 4 Effective Date, the Credit Group entered into the Amended Credit Agreement with new term loans in the aggregate principal amount of $165 million with different lenders and the Second Tranche Warrants were terminated. The proceeds from the Amended Credit Agreement were used to fully repay and refinance the term loans under the ARCA in the principal amount of $151.0 million, which resulted in a write off of $15.2 million of original issue discount and debt issuance costs as an extinguishment loss.

Term loans under the Amended Credit Agreement were issued at a discount of 2.0% of the then outstanding principal amount of $165 million, for a discount of $3.3 million. The Company incurred $8.7 million in debt issuance costs upon entering into the Amended Credit Agreement, of which $5.3 million was attributable to the term loans and recorded as a direct reduction to the face amount of the term loans, and $3.4 million was allocated to the revolving line of credit and recorded as a separate asset on the balance sheet. Debt issuance costs and debt discount related to term loans are being amortized to interest expense based on the effective interest rate method over the life of the term loans. Those fees allocated to the revolving line of credit are being amortized to interest expense ratably over the life of the revolving line of credit.

As of May 25, 2018, the outstanding principal balance of term loans under the Amended Credit Agreement was $152.6 million and there were no outstanding revolving loans. As of August 25, 2017, the outstanding principal balance of term loans under the Amended Credit Agreement was $165.0 million and there were no outstanding revolving loans. The fair value of the term loans as of May 25, 2018 and August 25, 2017 was estimated to be approximately $151.9 million and $164.2 million, respectively. Since the Company used broker quotes from inactive markets and there were no unobservable inputs, this was treated as a Level 2 financial instrument.

BNDES Credit Agreements

In December 2013, SMART Brazil, entered into a credit facility with the Brazilian Development Bank, or BNDES, referred to as the BNDES 2013 Credit Agreement. Under the BNDES 2013 Credit Agreement, a total of R$50.6 million (or $14.5 million) was made available to SMART Brazil for investments in infrastructure, research and development conducted in Brazil and acquisitions of equipment not otherwise available in the Brazilian domestic market. SMART Brazil’s obligations under the BNDES 2013 Credit Agreement are guaranteed by Banco Itaú BBA S.A., or Itaú Bank, which guarantee is in turn secured by a guarantee from SMART Brazil and SMART do Brazil and a commitment by SMART Brazil to maintain minimum cash balances with Itaú Bank equal to 11.85% of the maximum aggregate balance of principal, interest and fees outstanding under the BNDES 2013 Credit Agreement. The committed amount was R$6.0 million (or $1.7 million), which is shown on the Company’s condensed consolidated balance sheets as restricted cash in other noncurrent assets.

As of May 25, 2018, SMART Brazil’s outstanding debt under the BNDES 2013 Credit Agreement was R$16.1 million (or $4.6 million), of which R$7.9 million (or $2.3 million) accrues interest at the fixed rate of 3.5% and R$8.2 million (or $2.3 million) of the debt accrues interest at the floating rate of 0.5% above the TJLP rate published by the Central Bank of Brazil, or BZTJLP (5.0%), combined corresponding to an overall effective interest rate of 5.5% per annum. As of August 25, 2017, SMART Brazil’s outstanding debt under the BNDES 2013 Credit Agreement was R$25.6 million (or $8.2 million), of which R$12.6 million (or $4.0 million) accrues interest at the fixed rate of 3.5% and R$13.0 million (or $4.2 million) of the debt accrues interest at the floating rate of 0.5% above the TJLP rate published by the Central Bank of Brazil, or BZTJLP (5.0%), combined corresponding to an overall effective interest rate of 5.5% per annum.

The facility under the BNDES 2013 Credit Agreement is a term loan fully amortizing in 48 equal monthly installments beginning on August 15, 2015 with the final principal payment being due on July 15, 2019.

In December 2014, SMART Brazil, entered into a second credit facility with BNDES, referred to as the BNDES 2014 Credit Agreement. The BNDES 2013 Credit Agreement and the BNDES 2014 Credit Agreement are collectively referred to as the BNDES Agreements. Under the BNDES 2014 Credit Agreement, a total of R$52.8 million (or $15.2 million) was made available to SMART Brazil for research and development conducted in Brazil related to integrated circuit (IC) packaging and for acquisitions of equipment not otherwise available in the Brazilian domestic market.

SMART Brazil’s obligations under the BNDES 2014 Credit Agreement are also guaranteed by Itaú Bank, which guarantee is in turn secured by a guarantee from SMART Brazil and SMART do Brazil and a commitment by SMART Brazil to maintain minimum cash balances with Itaú Bank equal to 30.31% of the maximum aggregate balance of principal, interest and fees outstanding under the BNDES 2014 Credit Agreement, or approximately R$16.0 million (or $4.6 million) of required cash balances, which is shown on the Company’s condensed consolidated balance sheets as restricted cash in other noncurrent assets.

The outstanding debt under the BNDES 2014 Credit Agreement accrues interest at a fixed rate of 4% per annum. The BNDES 2014 Credit Agreement is a term loan fully amortizing in 48 equal monthly installments beginning on August 15, 2016 with the final principal payment being due on July 15, 2020.

As of May 25, 2018 and August 25, 2017, SMART Brazil’s outstanding debt under the BNDES 2014 Credit Agreement was R$29.7 million (or $8.5 million) and R$39.6 million (or $12.6 million), respectively.

While the BNDES Agreements do not include any financial covenants, they contain affirmative and negative covenants customary for loans of this nature, including, among other things, an obligation to comply with all laws and regulations; a right for BNDES to terminate the loan in the event of a change of effective control; and a prohibition against the disposition or encumbrance, without BNDES consent, of intellectual property developed with the funds from the loans. The BNDES 2013 Credit Agreement includes an obligation to draw down the entire loan within specified periods of time or pay unused commitment fees of 0.1%. The BNDES 2014 Credit Agreement required a loan fee of 0.3% of the total face amount of the loan facility.

The fair value of amounts outstanding under the BNDES Agreements as of May 25, 2018 and August 25, 2017 were estimated to be approximately $11.6 million and $16.9 million, respectively. Since the Company used broker quotes from inactive markets and there were no unobservable inputs, this was treated as a Level 2 financial instrument.

The Amended Credit Agreement and the BNDES Agreements are classified as follows in the accompanying consolidating balance sheets (in thousands):

	May 25,			August 25,
	2018			2017
Term loan	$	152,625		$	165,000
BNDES 2013 principal balance		4,614			8,185
BNDES 2014 principal balance		8,531			12,647
Unamortized debt discount		(2,713	)		(3,267	)
Unamortized debt issuance costs		(4,378	)		(5,274	)
Net amount		158,679			177,291
Current portion of long-term debt		(22,073	)		(22,841	)
Long-term debt	$	136,606		$	154,450

The future minimum principal payments under the ARCA and the BNDES Agreements as of May 25, 2018 are (in thousands):

	ARCA		BNDES		TOTAL
Fiscal year ending August:
2018	$	4,125	$	1,871	$	5,996
2019		16,500		7,482		23,982
2020		16,500		3,792		20,292
2021		16,500		—		16,500
2022		99,000		—		99,000
Total	$	152,625	$	13,145	$	165,770

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Financial Instruments

9 Months Ended

May 25, 2018

Fair Value Disclosures [Abstract]

Financial Instruments

(7) Financial Instruments

Fair Value of Financial Instruments

The fair value of the Company’s cash, cash equivalents, accounts receivable and accounts payable approximates the carrying amount due to the relatively short maturity of these items. Cash and cash equivalents consist of funds held in general checking and savings accounts, money market accounts, and securities with maturities of less than 90 days at the time of purchase. The Company does not have investments in variable rate demand notes or auction rate securities.

The FASB guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets to identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

• Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. The Company’s Level 1 assets include money market funds that are classified as cash equivalents and restricted cash which is classified under long-term assets.

• Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets and liabilities. The Company’s Level 2 liabilities include the term loans under the Amended Credit Agreement and the BNDES Credit Agreements that are classified as long-term debt.

• Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company did not have any financial instruments measured under Level 3 as of May 25, 2018 and August 25, 2017.

Assets and liabilities measured at fair value on a recurring basis include the following (in millions):

	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Observable/ Unobservable Inputs Corroborated by Market Data (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Balances as of May 25, 2018:
Assets
Cash and cash equivalents	$	64.5	$	—	$	—	$	64.5
Restricted cash(1)		6.3		—		—		6.3
Total assets measured at fair value	$	70.8	$	—	$	—	$	70.8
Liabilities
Term loan	$	—	$	151.9	$	—	$	151.9
BNDES Credit Agreements		—		11.6		—		11.6
Total liabilities measured at fair value(2)	$	—	$	163.5	$	—	$	163.5
Balances as of August 25, 2017:
Assets
Cash and cash equivalents	$	22.4	$	—	$	—	$	22.4
Restricted cash(1)		7.0		—		—		7.0
Total assets measured at fair value	$	29.4	$	—	$	—	$	29.4
Liabilities
Term loan	$	—	$	164.2	$	—	$	164.2
BNDES Credit Agreements		—		16.9		—		16.9
Total liabilities measured at fair value(2)	$	—	$	181.1	$	—	$	181.1

(1) Included in other noncurrent assets on the Company's condensed consolidated balance sheets - see Note 4.

(2) Included under long-term debt on the Company's condensed consolidated balance sheets.

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Share-Based Compensation and Employee Benefit Plans

9 Months Ended

May 25, 2018

Compensation And Retirement Disclosure [Abstract]

Share-Based Compensation and Employee Benefit Plans

(8) Share-Based Compensation and Employee Benefit Plans

(a) Share-Based Compensation

Equity Awards

On August 26, 2011, the board of directors adopted the Saleen Holdings, Inc. 2011 Stock Incentive Plan which has been amended and restated and is now known as the SMART Global Holdings, Inc. Amended and Restated 2017 Share Incentive Plan (the SGH Plan). The SGH Plan provides for grants of equity awards to employees, directors and consultants of the Company. Options granted under the SGH Plan provide the option to purchase SMART Global Holdings’ ordinary shares at the fair value of such shares on the grant date. The options generally vest over a four-year period beginning on the grant date with either a one-year or two-year cliff and then monthly thereafter, and generally have a ten-year term. Options granted after August 26, 2011 and before September 23, 2014, and performance-based options granted in March 2018 have an eight year term. As of May 25, 2018, there were 3,563,975 ordinary shares reserved for issuance under the SGH Plan, of which 571,694 ordinary shares were available for grant. As of August 25, 2017, there were 3,657,761 ordinary shares reserved for issuance under the SGH Plan, of which 1,491,266 ordinary shares were available for grant.

Summary of Assumptions and Activity

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Prior to the Company’s initial public offering on May 30, 2017, the fair value of the ordinary shares underlying the Company’s equity awards had historically been determined by the Company’s board of directors. Because there had been no public market for the Company’s ordinary shares and in the absence of recent arm’s-length cash sales transactions of the Company’s ordinary shares with independent third parties, the Company’s board of directors had determined the fair value of the Company’s ordinary shares by considering at the time of grant a number of objective and subjective factors, including the following: the value of tangible and intangible assets of the Company, the present value of anticipated future cash flows of the Company, the market value of stock or equity interests in similar corporations and other entities engaged in businesses substantially similar to those engaged in by the Company, the Company’s current financial condition and anticipated expenses, control discounts for the lack of marketability, the Company’s need for additional capital, current and potential strategic relationships and competitive developments and periodic valuations from an independent third-party valuation firm.

The expected volatility is based on the historical volatilities of the common stock of comparable publicly traded companies. The expected term of options granted represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the historical exercise patterns. The risk-free interest rate for the expected term of the option is based on the average U.S. Treasury yield curve at the end of the quarter in which the option was granted.

The following assumptions were used to value the Company’s stock options:

	Three Months Ended						Nine Months Ended
	May 25,			May 26,			May 25,		May 26,
	2018			2017			2018		2017
Stock options:
Expected term (years)		6.25			6.25			6.25		6.25
Expected volatility		41.77	%		46.03	%	41.77% - 46.27%		54.41% - 55.75%
Risk-free interest rate		2.82	%		2.03	%	2.15% - 2.82%		1.96% - 2.03%
Expected dividends		—			—			—		—

SGH Plan—Options

A summary of option activity for the SGH Plan is presented below (dollars and shares in thousands, except per share data):

						Weighted
				Weighted		average
				average		remaining
				per share		contractual		Aggregate
				exercise		term		intrinsic
	Shares			price		(years)		value
Options outstanding at    August 25, 2017		1,788		$	12.66		7.61	$	11,174
Options granted		1,241			40.45
Options exercised		(581	)		10.92
Options cancelled		(22	)		23.60
Options outstanding at    May 25, 2018		2,426		$	27.20		7.98	$	44,404
Options exercisable at    May 25, 2018		788		$	12.61		7.00	$	25,933
Options vested and expected to    vest at May 25, 2018		2,426		$	27.20		7.98	$	44,404

In March 2018, the Company granted two performance-based stock options that contained a stock market index as a benchmark for performance (Market-Based Options). The share-based compensation expense for these options is recognized over the requisite service period by tranche. The exercisability of Market-Based Options will depend upon the 30-trading day rolling average closing price of Company’s ordinary shares. If the target price is not achieved by the end of 4^th or 7^th anniversary of the respective grant date, the options will expire. The fair value of Market-Based Options is determined by using a Monte Carlo valuation model, using the following assumptions:

	Three Months Ended
	May 25,
	2018
Stock options:
Expected term (years)	1.10 - 4.00
Expected volatility		46.29	%
Risk-free interest rate		2.75	%
Expected dividends		—

The Black-Scholes weighted average fair value of options granted under the SGH Plan during the three and nine months ended May 25, 2018 was $18.31 and $18.22 per share, respectively, and $7.16 and $7.03 per share, respectively, for the corresponding periods of fiscal 2017. The total intrinsic value of employee stock options exercised in the three and nine months ended May 25, 2018 was $7.4 million and $16.6 million, respectively, and $0.7 million for both the corresponding periods of fiscal 2017. As of May 25, 2018, there was approximately $23.9 million of unrecognized compensation costs related to stock options under the SGH Plan, which will be recognized over a weighted average period of 3.19 years.

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

A summary of the changes in RSAs and RSUs outstanding is presented below (dollars and shares in thousands, except per share data):

				Weighted
				average
				grant date		Aggregate
				fair value		intrinsic
	Shares			per share		value
Awards outstanding at August 25, 2017		378		$	7.91	$	6,956
Awards granted		251			41.80
Awards vested and paid out		(59	)		8.28
Awards forfeited and cancelled		(9	)		7.74
Awards outstanding at May 25, 2018		561		$	23.04	$	25,514

The share-based compensation expense related to RSAs and RSUs during the three and nine months ended May 25, 2018 was approximately $0.7 million and $1.4 million, respectively, and $0.3 million and $0.4 million, respectively, for the corresponding periods of fiscal 2017. The total fair value of shares vested during the three and nine months ended May 25, 2018 was approximately $0 and $2.2 million, and $0 and $13 thousand, respectively, for the corresponding periods of fiscal 2017.

Employee Stock Purchase Plan

In January 2018, the Company’s shareholders approved the SGH Employee Share Purchase Plan (the Purchase Plan) under which an aggregate of 350,000 of ordinary shares have been approved for issuance to eligible employees. The Purchase Plan generally permits employees to purchase ordinary shares at 85% of the lower of the fair market value of the ordinary shares at the beginning or at the end of each purchase period, which is generally six months. Rights to purchase ordinary shares are granted during the first and third quarter of each fiscal year.  The Purchase Plan terminates in January 2028. No ordinary shares have been issued under the Purchase Plan to date.  As of May 25, 2018, the number of ordinary shares reserved for future purchases by eligible employees was 350,000.

Equity Rights and Restrictions

The holders of ordinary shares of SMART Global Holdings are entitled to such dividends and other distributions as may be declared by the board of directors of SMART Global Holdings from time-to-time, out of the funds of SMART Global Holdings lawfully available therefor.

All SMART Global Holdings shares owned by employees, by certain former lenders of the Company, and all shares underlying the SMART Global Holdings options and RSUs are subject to either the Employee Investors Shareholders Agreement dated August 26, 2011 (the Employee Investors Shareholders Agreement) or the Amended and Restated Investors Shareholders Agreement dated as of November 5, 2016 (as amended by Amendment No. 4, Amendment No. 3, Amendment No. 2 and subsequent amendments, the Amended and Restated Investors Shareholders Agreement; the Employee Investors Shareholders Agreement and the Amended and Restated Investors Shareholders Agreement are collectively referred to as the Shareholders Agreements). Under the terms of the Shareholders Agreements, such shares are subject to certain restrictions on sale and could become subject to lock-up restrictions in the event of any future registered public offerings by the Company.

(b) Savings and Retirement Program

The Company offers a 401(k) Plan to U.S. employees, which provides for tax-deferred salary deductions for eligible U.S. employees. Employees may contribute up to 60% of their annual eligible compensation to this plan, limited by an annual maximum amount determined by the U.S. Internal Revenue Service. The Company may also make discretionary matching contributions, which vest immediately, as periodically determined by management. The matching contributions made by the Company during the three and nine months ended May 25, 2018 were approximately $0.4 million and $0.9 million, respectively, and $0.3 million and $0.8 million, respectively, for the corresponding periods of fiscal 2017.

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Commitments and Contingencies

9 Months Ended

May 25, 2018

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

(9) Commitments and Contingencies

(a) Commitments

Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Rent expense for operating leases during the three and nine months ended May 25, 2018 was $0.8 million and $2.2 million, respectively, and $0.7 million and $2.1 million, respectively, for the corresponding periods of fiscal 2017.

Future minimum lease payments under all leases as of May 25, 2018 are as follows (in thousands):

	Amount
Fiscal year ending August:
Remainder of fiscal 2018	$	714
2019		2,969
2020		2,903
2021		2,747
2022		2,107
Thereafter		4,978
Total	$	16,418

(b) Product Warranty and Indemnities

Product warranty reserves are established in the same period that revenue from the sale of the related products is recognized, or in the period that a specific issue arises as to the functionality of a Company’s product. The amounts of the reserves are based on established terms and the Company’s best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date.

The following table reconciles the changes in the Company’s accrued warranty (in thousands):

	Three Months Ended						Nine Months Ended
	May 25,			May 26,			May 25,			May 26,
	2018			2017			2018			2017
Beginning accrued warranty reserve	$	200		$	303		$	275		$	266
Warranty claims		(193	)		(58	)		(458	)		(302	)
Provision for product warranties		270			57			460			338
Ending accrued warranty reserve	$	277		$	302		$	277		$	302

Product warranty reserves are recorded in accrued liabilities in the accompanying condensed consolidated balance sheets.

In addition to potential liability for warranties related to defective products, the Company currently has in effect a number of agreements in which it has agreed to defend, indemnify and hold harmless its customers and suppliers from damages and costs, which may arise from product defects as well as from any alleged infringement by its products of third-party patents, trademarks or other proprietary rights. The Company believes its internal development processes and other policies and practices limit its exposure related to such indemnities. Maximum potential future payments cannot be estimated because many of these agreements do not have a maximum stated liability. However, to date, the Company has not had to reimburse any of its customers or suppliers for any losses related to these indemnities. The Company has not recorded any liability in its financial statements for such indemnities.

(c) Legal Matters

From time to time, the Company is involved in legal matters that arise in the normal course of business. Litigation in general and intellectual property, employment and shareholder litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. The Company believes that it has defenses to the cases pending, including those set forth below. Except as noted below, the Company is not currently able to estimate, with reasonable certainty, the possible loss, or range of loss, if any, from such legal matters, and accordingly, no provision for any potential loss, which may result from the resolution of these matters, has been recorded in the accompanying condensed consolidated financial statements.

Netlist

On September 10, 2012, SMART Modular filed a complaint in the Eastern District of California against Netlist alleging infringement of certain claims of SMART Modular’s U.S. Patent No. 8,250,295 (the ‘295 patent) and seeking, among other things, a preliminary injunction. Netlist filed certain counterclaims alleging, among other things, attempted monopolization, collusion, unfair competition, fraud on the U.S. Patent and Trademark Office (the USPTO) and sham litigation, and asserting that the ‘295 patent is invalid. The counterclaims do not specify the amount of damages. Netlist also filed a request for reexamination of the ‘295 patent in the USPTO. On May 30, 2013, the court denied SMART Modular’s motion for a preliminary injunction and granted a stay in the proceedings pending the outcome of the reexamination. In April 2014, the USPTO issued a non-final Action Closing Prosecution (ACP) confirming the patentability of the original claims of SMART Modular’s ‘295 patent and rejecting certain claims added during the reexamination process. In May 2014, after the ACP, SMART Modular filed comments requesting that all of the original claims and certain of the added claims be confirmed as patentable. In June 2014, Netlist filed comments challenging SMART Modular’s comments to the ACP. In August 2015, the USPTO rejected Netlist’s challenges and affirmed its previous decision confirming the patentability of the original claims of SMART Modular’s ‘295 patent. In September 2015, Netlist filed an appeal of the USPTO examiner’s decision to the Patent Trial and Appeals Board (the PTAB). In February 2016, the USPTO answered the Netlist appeal favorably to SMART Modular by answering that no new determination was made to not make the proposed rejection, and in September 2016, the court granted SMART Modular’s motion to lift the stay in the Eastern District of California case. In November 2016, the PTAB reversed the examiner’s decision to confirm certain claims of SMART Modular’s ‘295 patent and reversed the examiner’s decision to determine that certain newly added claims are patentable. In January 2017, SMART Modular filed a request to reopen the prosecution to add evidence to rebut the PTAB’s grounds for the decision reversing the examiner’s decision. In February 2017, Netlist filed comments on SMART Modular’s request to reopen prosecution. In April 2017, the PTAB issued an Order remanding the reexamination and reopening prosecution. In February 2017, Netlist filed a motion to reinstate the stay in the court proceedings pending the outcome of the USPTO proceedings. SMART Modular filed an opposition to this motion and the Netlist motion to reinstate the stay was denied. In May 2017, the USPTO examiner issued a decision on remand, rejecting certain claims of the ‘295 patent. In June 2017, SMART Modular filed in the USPTO its response to the examiner’s May 2017 decision and Netlist filed comments in response to the examiner’s May 2017 decision. In August 2017, the examiner issued a communication indicating that SMART Modular’s and Netlist’s comments had been entered and that the proceeding was forwarded to the PTAB for issuance of a new decision.  In December 2017, PTAB issued a decision declaring the original claims of SMART Modular’s ‘295 patent, as well as the newly added claims, to be invalid. The Company has appealed the decision of the PTAB to the Federal Circuit Court of Appeals. In March 2018, SMART Modular and Netlist entered a stipulation staying the court proceedings pending the completion of the reexamination of SMART Modular’s ‘295 patent.

In July 2013, Netlist filed a lawsuit in the Central District of California against SMART Modular alleging claims very similar to Netlist’s counterclaims set forth in the Eastern District case. Netlist later amended its complaint to add additional parties, including SMART Worldwide Holdings. Netlist has sought compensatory damages for the harm it claims to have suffered, as well as an award of treble damages and attorneys’ fees. The claims against SMART Modular and SMART Worldwide were transferred to the Eastern District of California.

The Company believes that there are valid defenses to all of the claims and counterclaims made by Netlist and that the claims are without merit. SMART Modular and SMART Worldwide intends to vigorously fight the claims and counterclaims. The Company believes that the likelihood of any material charge resulting from these claims is remote.

(d) Contingencies

Import Duty Tax assessment in Brazil

On February 23, 2012, SMART Brazil was served with a notice of a tax assessment for approximately R$117 million (or $36.6 million) (the First Assessment). The assessment was from the federal tax authorities of Brazil and related to four taxes in connection with importation processes. The tax authorities claimed that SMART Brazil categorized its imports of unmounted integrated circuits in the format of wafers under an incorrect product classification code, which carries an import duty of 0%. The authorities alleged that a different classification code should have been used that would require an 8% import duty and the authorities were seeking to recover these duties, as well as other related taxes, for the five calendar years of 2007 through and including 2011. Subsequent to the initial assessment, SMART Brazil received a second notice of an additional administrative penalty of approximately R$6.0 million (or $1.9 million) directly related to the same issue and which has been imposed exclusively for the alleged usage of an inappropriate import tax code (the Second Assessment).

In March 2012, SMART Brazil filed defenses to the First Assessment and the Second Assessment. On May 2, 2013, the first level administrative tax court issued a ruling in favor of the tax assessor and against SMART Brazil on the First Assessment. On May 31, 2013, SMART Brazil filed an appeal to the second level tax court known as CARF. The appeal was heard on November 26, 2013 and the Company received a unanimous favorable ruling rejecting the position of the tax authorities. This ruling was published by the tax authorities and made official in February 2014. Subsequently, the tax authorities filed a request for clarification and on September 17, 2014, the Company received a unanimous ruling rejecting the request from the tax authorities for clarification. On November 7, 2014, the tax authorities notified CARF that they would not be appealing the CARF decision, and the First Assessment has been extinguished. On February 6, 2018, the first level administrative court unanimously ruled in favor of SMART Brazil with respect to the Second Assessment. Due to the size of the Second Assessment, Brazil law requires that the tax authorities appeal the decision to CARF.

On December 12, 2013, SMART Brazil received another notice of assessment in the amount of R$3.6 million (or $1.1 million) with respect to the same import-related tax issues and penalties discussed above for 2012 and 2013 (the Third Assessment). The Third Assessment does not seek import duties and related taxes on Dynamic Random Access Memory (“DRAM”) products and only seeks import duties and related taxes on Flash unmounted components with respect to the months of January 2012 to June 2012. This is because SMART Brazil’s imports of DRAM unmounted components were subject to 0%, and, after June 2012, SMART Brazil’s imports of Flash unmounted components also became subject to 0%, import duties and related taxes, both as a result of PADIS. Even with this 0%, if SMART Brazil is found to have used the incorrect product classification code, SMART Brazil will be subject to an administrative penalty equal to 1% of the value of the imports. SMART Brazil has filed defenses to the Third Assessment. The Company believes that SMART Brazil used the correct product code on its imports and that the Third Assessment is incorrect. SMART Brazil intends to vigorously fight this matter. Although SMART Brazil did not receive the Third Assessment until December 12, 2013, the Third Assessment was issued before the CARF decision in favor of SMART Brazil on the First Assessment as discussed above was published.

The amounts claimed by the tax authorities on the Second Assessment and on the Third Assessment are subject to increases for interest and other charges, which resulted in a combined assessment balance of approximately R$14.9 million (or $4.3 million) and R$14.4 million (or $4.6 million) as of May 25, 2018 and August 25, 2017, respectively.

As a result of the CARF decision in favor of SMART Brazil on the First Assessment and the decision in favor of SMART Brazil at the first level administrative court on the Second Assessment, the Company believes that the probability of any material charges as a result of the Second Assessment and the Third Assessment is remote and the Company does not expect the resolution of these disputed assessments to have a material impact on its consolidated financial position, results of operations or cash flows. While the Company believes that the Second Assessment and the Third Assessment are incorrect, there can be no assurance that SMART Brazil will prevail in the disputes.

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Segment and Geographic Information

9 Months Ended

May 25, 2018

Segment Reporting [Abstract]

Segment and Geographic Information

(10) Segment and Geographic Information

The Company operates in one reportable segment: the design, manufacture and sale of specialty memory solutions and services to the electronics industry. The Company’s chief operating decision-maker, the President and CEO, evaluates financial performance on a company-wide basis.

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

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Geographic Net Sales:
U.S.	$	32,448	$	36,595	$	114,304	$	106,211
Brazil		232,845		109,288		599,521		263,550
Asia		56,722		48,306		160,539		131,275
Europe		6,638		6,575		20,134		21,554
Other Americas		6,824		6,210		20,353		15,682
Total	$	335,477	$	206,974	$	914,851	$	538,272

	May 25,		August 25,
	2018		2017
Property and Equipment, Net:
U.S.	$	3,707	$	3,110
Brazil		42,639		44,180
Malaysia		4,278		5,049
Other		2,427		2,843
Total	$	53,051	$	55,182

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Major Customers

9 Months Ended

May 25, 2018

Risks And Uncertainties [Abstract]

Major Customers

(11) Major Customers

A majority of the Company’s net sales are attributable to customers operating in the information technology industry. Net sales to significant end user customers, including sales to their manufacturing subcontractors, defined as net sales in excess of 10% of total net sales, are as follows (dollars in thousands):

	Three Months Ended										Nine Months Ended
	May 25, 2018					May 26, 2017					May 25, 2018					May 26, 2017
	Amount		Percentage of net sales			Amount		Percentage of net sales			Amount		Percentage of net sales			Amount		Percentage of net sales
	(unaudited)										(unaudited)
Customer A	$	140,628		42	%	$	41,992		20	%	$	331,854		36	%	$	101,453		19	%
Customer B		39,277		12	%		34,353		17	%		106,282		12	%		84,328		16	%
Customer C		37,947		11	%		21,237		10	%		97,106		11	%		—		—
Customer D		—		—			—		—			97,845		11	%		—		—
	$	217,852		65	%	$	97,582		47	%	$	633,087		70	%	$	185,781		35	%

As of May 25, 2018, customer A accounted for 20% of accounts receivable. As of May 25, 2018, four direct customers that represented less than 10% of net sales, Customers E, F, G and H, accounted for approximately 22%, 14%, 13% and 11% of accounts receivable, respectively. As of August 25, 2017, four direct customers that represented less than 10% of net sales, Customers E, F, G and H, accounted for approximately 24%, 11%, 14% and 18% of accounts receivable, respectively.

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Earnings Per Share

9 Months Ended

May 25, 2018

Earnings Per Share [Abstract]

Earnings Per Share

(12) Earnings Per Share

Basic earnings per share is calculated by dividing net income (loss) by the weighted average of ordinary shares outstanding during the period. Diluted earnings per share is calculated by dividing the net income (loss) by the weighted average of ordinary shares and dilutive potential ordinary shares outstanding during the period. Dilutive potential ordinary shares consist of dilutive shares issuable upon the exercise of outstanding stock options and vesting of RSUs computed using the treasury stock method. The dilutive weighted shares are excluded from the computation of diluted net loss per share when a net loss is recorded for the period as their effect would be anti-dilutive.

The following table sets forth for all periods presented the computation of basic and diluted earnings per share, including the reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share (dollars and shares in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Numerator:
Net income	$	31,946	$	7,958	$	89,745	$	2,414
Denominator:
Weighted average shares outstanding:
Basic		22,206		13,986		21,932		13,909
Diluted		23,306		15,955		23,020		15,230
Earnings per share:
Basic	$	1.44	$	0.57	$	4.09	$	0.17
Diluted	$	1.37	$	0.50	$	3.90	$	0.16
Anti-dilutive weighted shares excluded from the    computation of diluted earnings per share		1,008		1,359		349		1,226

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Other Income (Expense), Net

9 Months Ended

May 25, 2018

Other Income And Expenses [Abstract]

Other Income (Expense), Net

(13) Other Income (Expense), Net

The following table provides the detail of other income (expense), net as follows (in thousands):

	Three Months Ended						Nine Months Ended
	May 25,			May 26,			May 25,			May 26,
	2018			2017			2018			2017
Foreign currency losses	$	(6,932	)	$	(1,009	)	$	(7,259	)	$	(747	)
Loss on extinguishment of debt		—			—			—			(1,386	)
Other		(213	)		247			(53	)		469
Total other income (expense), net	$	(7,145	)	$	(762	)	$	(7,312	)	$	(1,664	)

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Basis of Presentation and Principles of Consolidation (Policies)

9 Months Ended

May 25, 2018

Accounting Policies [Abstract]

Basis of Presentation

(b) Basis of Presentation

The accompanying condensed consolidated financial statements comprise SMART Global Holdings and its wholly owned subsidiaries. Intercompany transactions have been eliminated in the condensed consolidated financial statements.

The Company uses a 52- to 53-week fiscal year ending on the last Friday in August. The three months ended May 25, 2018 and May 26, 2017 were both 13 week fiscal periods.

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and in conformity with the rules and regulations of the Securities and Exchange Commission (SEC) applicable to interim financial information. As such, certain information and footnote disclosures normally included in complete annual financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company and its results of operations and cash flows for the interim periods presented. The financial data and other information disclosed in these notes to the condensed consolidated financial statements related to the interim periods are unaudited.

All financial information for two of the Company’s subsidiaries, SMART Modular Technologies Indústria de Componentes Eletrônicos Ltda. (SMART Brazil) and SMART Modular Technologies do Brasil Indústria e Comércio de Componentes Ltda. (SMART do Brazil), is included in the Company’s condensed consolidated financial statements on a one-month lag because their fiscal years begin August 1 and end July 31.

Use of Estimates

(c) Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ from the estimates made by management. Significant items subject to such estimates and assumptions include the useful lives of long-lived assets, the valuation of deferred tax assets and inventory, share-based compensation, the estimated net realizable value of Brazilian tax credits, income tax uncertainties and other contingencies.

Revenue Recognition

(d) Revenue Recognition

Product revenue is recognized when there is persuasive evidence of an arrangement, product delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Product revenue typically is recognized at the time of shipment or when the customer takes title to the goods. All amounts billed to a customer related to shipping and handling are classified as revenue, while all costs incurred by the Company for shipping and handling are classified as cost of sales. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales in the condensed consolidated statements of operations.

In addition, the Company has classes of transactions with customers that are accounted for on an agency basis (i.e., the Company recognizes as revenue the amount billed less the material procurement costs of products serviced as an agent with the cost of providing these services embedded with the cost of sales). The Company provides procurement, logistics, inventory management, temporary warehousing, kitting and packaging services for these customers. Revenue from these arrangements is recognized as service revenue and is determined by a fee for services based on material procurement costs. The Company recognizes service revenue upon the completion of the services, typically upon shipment of the product. There are no obligations subsequent to shipment of the product under the agency arrangements.

The following is a summary of the Company’s gross billings to customers and net sales for services and products (in thousands):

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Service revenue, net	$	11,270	$	9,869	$	30,746	$	27,853
Cost of purchased materials - service (1)		258,098		246,498		714,883		648,886
Gross billings for services		269,368		256,367		745,629		676,739
Product net sales		324,207		197,105		884,105		510,419
Gross billings to customers	$	593,575	$	453,472	$	1,629,734	$	1,187,158
Product net sales	$	324,207	$	197,105	$	884,105	$	510,419
Service revenue, net		11,270		9,869		30,746		27,853
Net sales	$	335,477	$	206,974	$	914,851	$	538,272

(1)Represents cost of sales associated with service revenue reported on a net basis.

Cash and Cash Equivalents

(e) Cash and Cash Equivalents

All highly liquid investments with maturities of 90 days or less from original dates of purchase are carried at cost, which approximates fair value, and are considered to be cash. Cash and cash equivalents include cash on hand, cash deposited in checking and saving accounts, money market accounts, and securities with maturities of less than 90 days at the time of purchase.

Allowance for Doubtful Accounts

(f) Allowance for Doubtful Accounts

The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, the Company records a specific allowance against amounts due and, thereby, reduces the net recognized receivable to the amount management reasonably believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on a combination of factors including the length of time the receivables are outstanding, industry and geographic concentrations, the current business environment and historical experience.

Sale of Receivables

(g) Sales of Receivables

Designated subsidiaries of the Company may, from time to time, sell certain of their receivables to third parties. Sales of receivables are recognized at the point in which the receivables sold are transferred beyond the reach of the Company and its creditors, the purchaser has the right to pledge or exchange the receivables and the subsidiaries have surrendered control over the transferred receivables. See Note 3 for further details.

Inventories

(h) Inventories

Inventories are valued at the lower of actual cost or market value. Inventory value is determined on a specific identification basis for material and an allocation of labor and manufacturing overhead. At each balance sheet date, the Company evaluates the ending inventories for excess quantities and obsolescence. This evaluation includes an analysis of sales levels by product family and considers historical demand and forecasted demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles. The Company adjusts carrying value to the lower of its cost or market value. Inventory write-downs are not reversed and create a new cost basis.

Prepaid State Value-Added Taxes (ICMS)

(i) Prepaid State Value-Added Taxes (ICMS)

Since 2004, the Sao Paulo State tax authorities have granted SMART Brazil a tax benefit to defer and eventually eliminate the payment of ICMS levied on certain imports from independent suppliers. This benefit, known as an ICMS Special Regime, is subject to renewal every two years. When the then current ICMS Special Tax Regime expired on March 31, 2010, SMART Brazil timely applied for a renewal of the benefit, however, the renewal was not granted until August 4, 2010.

On June 22, 2010, the Sao Paulo authorities published a regulation allowing companies that applied for a timely renewal of an ICMS Special Regime to continue utilizing the benefit until a final conclusion on the renewal request was rendered. As a result of this publication, SMART Brazil was temporarily allowed to utilize the benefit while it waited for its renewal. From April 1, 2010, when the ICMS benefit lapsed, through June 22, 2010 when the regulation referred to above was published, SMART Brazil was required to pay the ICMS taxes on imports, which payments result in ICMS credits that may be used to offset ICMS obligations generated from sales by SMART Brazil of its products; however, the vast majority of SMART Brazil’s sales in Sao Paulo were either subject to a lower ICMS rate or were made to customers that were entitled to other ICMS benefits that enabled them to eliminate the ICMS levied on their purchases of products from SMART Brazil. As a result, from April 1, 2010 through June 22, 2010, SMART Brazil did not have sufficient ICMS collections against which to apply the credits and the credit balance increased significantly.

Effective February 1, 2011, in connection with its participation in a Brazilian government incentive program known as Support Program for the Technological Development of the Semiconductor and Display Industries Laws, or PADIS, SMART Brazil spun off the module manufacturing operations into SMART do Brazil, a separate subsidiary of the Company. In connection with this spin off, SMART do Brazil applied for a tax benefit from the State of Sao Paulo in order to obtain a deferral of state ICMS. This tax benefit is referred to as State PPB, or CAT 14. The CAT 14 approval was not obtained until July 21, 2011, and from February 1, 2011 until the CAT 14 approval was granted, SMART do Brazil did not have sufficient ICMS collections against which to apply the credits accrued upon payment of the ICMS on SMART do Brazil’s imports and inputs locally acquired, and therefore, it generated additional excess ICMS credits.

As of  May 25, 2018, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$44.4 million (or $12.8 million), of which (i) R$16.6 million (or $4.8 million) are fully vested ICMS credits, classified as prepaid and other current assets and R$24.5 million (or $7.0 million) classified as other noncurrent assets, and (ii) R$3.3 million (or $0.9 million) are ICMS credits subject to vesting in 48 equal monthly amounts, classified as prepaid expenses and other current assets (R$1.1 million or $0.3 million) and other noncurrent assets (R$2.2 million or $0.6 million). As of August 25, 2017, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$40.9 million (or $13.1 million), of which (i) R$38.4 million (or $12.3 million) are fully vested ICMS credits, classified as other noncurrent assets, and (ii) R$2.5 million (or $0.8 million) are ICMS credits subject to vesting in 48 equal monthly amounts, classified as other noncurrent assets (R$0.6 million or $0.2 million) and prepaid expenses and other current assets (R$1.9 million or $0.6 million). It is expected that the excess ICMS credits will continue to be recovered in fiscal 2018 through fiscal 2022. The Company updates its forecast of the recoverability of the ICMS credits quarterly, considering the following key variables in Brazil: timing of government approvals of automated credit utilization, the total amount of sales, the product mix and the inter and intra state mix of sales. If these estimates or the mix of products or regions vary, it could take longer or shorter than expected to recover the accumulated ICMS credits, resulting in a reclassification of ICMS credits from current to noncurrent, or vice versa.

In April and June 2016, the Company filed cases with the State of Sao Paulo tax authorities to seek approval to sell excess ICMS credits. In December 2017, the Company obtained approval to sell R$31.6 million (or $9.1 million) of its ICMS credits.  Once approved, sales of ICMS credits usually take three to six months to complete and typically incur a discount to the face amount of the credits sold, as well as fees for the arrangers of these sales which together aggregate 10% to 15% of the face amount of the credits being sold. Once the sale is complete, the tax authorities usually approve the transfer of credits in monthly installments and the proceeds resulting from the sale of the aforementioned credits shall be received by the Company accordingly. The Company has recorded valuation adjustments for the estimated discount and fees that the Company will need to offer in order to sell the ICMS credits to other companies.  

Property and Equipment

(j) Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are computed based on the shorter of the estimated useful lives or the related lease terms, using the straight-line method. Estimated useful lives are presented below:

	Period
Asset:
Manufacturing equipment	2 to 5 years
Office furniture, software, computers and equipment	2 to 5 years
Leasehold improvements*	2to 60 years

* Includes the land lease for the Penang facility with a term expiring in 2070.

Goodwill

(k) Goodwill

The Company performs a goodwill impairment test annually during the fourth quarter of its fiscal year and more frequently if events or circumstances indicate that impairment may have occurred. Such events or circumstances may, among others, include significant adverse changes in the general business climate. As of May 25, 2018 and August 25, 2017, the carrying value of goodwill on the Company’s condensed consolidated balance sheet was $42.9 million and $46.0 million, respectively.

When conducting the annual impairment test for goodwill, the Company compares the estimated fair value of a reporting unit containing goodwill to its book value. The estimated fair value is computed using two approaches: the income approach, which is the present value of expected cash flows, discounted at a risk-adjusted weighted average cost of capital; and the market approach, which is based on using market multiples of companies in similar lines of business. If the fair value of the reporting unit is determined to be more than its book value, no goodwill impairment is recognized. The excess of the fair value of the reporting unit over the fair value of assets less liabilities is the implied value of goodwill and is used to determine the amount of impairment.

All of the $42.9 million carrying value of goodwill on the Company’s condensed consolidated balance sheet as of May 25, 2018 is associated with the Company’s single reporting unit. No impairment of goodwill was recognized through May 25, 2018.

The changes in the carrying amount of goodwill during the nine months ended May 25, 2018 and fiscal 2017 are as follows (in thousands):

	Total
Balance as of August 26, 2016	$	44,976
Translation adjustments		1,046
Balance as of August 25, 2017		46,022
Translation adjustments		(3,150	)
Balance as of May 25, 2018	$	42,872

Intangible Assets, Net

(l) Intangible Assets, Net

The following table summarizes the gross amounts and accumulated amortization of intangible assets from the Acquisition by type as of May 25, 2018 and August 25, 2017 (dollars in thousands):

			May 25, 2018							August 25, 2017
	Weighted		Gross							Gross
	avg.		Carrying		Accumulated					Carrying		Accumulated
	life (yrs)		amount		amortization			Net		amount		amortization			Net
Customer relationships		5	$	24,256	$	(23,328	)	$	928	$	26,971	$	(22,844	)	$	4,127
Technology		4		4,900		(4,655	)		245		4,900		(3,920	)		980
Total			$	29,156	$	(27,983	)	$	1,173	$	31,871	$	(26,764	)	$	5,107

Amortization expense related to intangible assets for the three and nine months ended May 25, 2018 totaled approximately $1.2 million and $3.7 million, respectively, and $3.0 million and $9.0 million, respectively, for the corresponding periods of fiscal 2017. Acquired intangibles are amortized on a straight-line basis over the remaining estimated economic life of the underlying intangible assets.

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Amortization of intangible assets (in thousands):
Research and development	$	245	$	1,224	$	735	$	3,672
Selling, general and administrative		976		1,774		2,992		5,296
Total	$	1,221	$	2,998	$	3,727	$	8,968

Long-Lived Assets

(m) Long-Lived Assets

Long-lived assets, excluding goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to the future undiscounted cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed are reported at the lower of the carrying amount or fair value, less cost to sell. No impairment of long-lived assets was recognized during the nine months ended May 25, 2018 and May 26, 2017.

Research and Development Expense

(n) Research and Development Expense

Research and development expenditures are expensed in the period incurred.

Income Taxes

(o) Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and net operating loss and credit carryforwards. When necessary, a valuation allowance is recorded to reduce tax assets to amounts expected to be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (or loss) in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in tax expense.

Foreign Currency Translation

(p) Foreign Currency Translation

For foreign subsidiaries using the local currency as their functional currency, assets and liabilities are translated at exchange rates in effect at the balance sheet date and income and expenses are translated at average exchange rates during the period. The effect of this translation is reported in other comprehensive income (loss). Exchange gains and losses arising from transactions denominated in a currency other than the functional currency of the respective foreign subsidiaries are included in results of operations.

For foreign subsidiaries using the U.S. dollar as their functional currency, the financial statements of these foreign subsidiaries are remeasured into U.S. dollars using the historical exchange rate for property and equipment and certain other nonmonetary assets and liabilities and related depreciation and amortization on these assets and liabilities. The Company uses the exchange rate at the balance sheet date for the remaining assets and liabilities, including deferred taxes. A weighted average exchange rate is used for each period for revenues and expenses.

All foreign subsidiaries and branch offices, except those in Brazil and South Korea, use the U.S. dollar as their functional currency. The gains or losses resulting from the remeasurement process are recorded in other income (expense) in the accompanying condensed consolidated statements of operations.

During the three and nine months ended May 25, 2018 and May 26, 2017, the Company recorded $6.9 million and $7.3 million, respectively, and $1.0 million and $0.7 million, respectively, for the corresponding periods of fiscal 2017, of foreign exchange losses primarily related to its Brazilian operating subsidiaries.

Share-Based Compensation

(q) Share-Based Compensation

The Company accounts for share-based compensation under ASC 718, Compensation—Stock Compensation, which requires companies to recognize in their statement of operations all share-based payments, including grants of share options and other types of equity awards, based on the grant-date fair value of such share-based awards.

	Three Months Ended					Nine Months Ended
	May 25,		May 26,			May 25,		May 26,
	2018		2017			2018		2017
Share-based compensation expense (in thousands):
Cost of sales	$	414	$	176		$	859	$	444
Research and development		325		(22	)		887		423
Selling, general and administrative		2,558		1,235			4,853		2,666
Total	$	3,297	$	1,389		$	6,599	$	3,533

Loss Contingencies

(r) Loss Contingencies

The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. The Company considers the likelihood of a loss and the ability to reasonably estimate the amount of loss in determining the necessity for and amount of any loss contingencies. Estimated loss contingencies are accrued when it is probable that a liability has been incurred or an asset impaired and the amount of loss can be reasonably estimated. The Company regularly evaluates the most current information available to determine whether any such accruals should be recorded or adjusted.

Comprehensive Income (Loss)

(s) Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting shareholders’ equity that, under U.S. GAAP are excluded from net income (loss). The Company’s other comprehensive income (loss) generally consists of foreign currency translation adjustments.

Concentration of Credit and Supplier Risk

(t) Concentration of Credit and Supplier Risk

The Company’s concentration of credit risk consists principally of cash and cash equivalents and accounts receivable. The Company’s revenues and related accounts receivable reflect a concentration of activity with five customers (see Note 11). The Company does not require collateral or other security to support accounts receivable. The Company performs periodic credit evaluations of its customers to minimize collection risk on accounts receivable and maintains allowances for potentially uncollectible accounts.

The Company relies on five suppliers for the majority of its raw materials. At May 25, 2018 and August 25, 2017, the Company owed these five suppliers $218.4 million and $153.7 million, respectively, which was recorded as accounts payable. The inventory purchases from these suppliers during the three and nine months ended May 25, 2018 were $0.4 billion and $1.2 billion, respectively, and $0.3 billion, and $0.9 billion, respectively for the corresponding periods of fiscal 2017.

New Accounting Pronouncements

(u) New Accounting Pronouncements

In March 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This standard amends ASC 740, Income Taxes, to provide guidance on accounting for tax effects of the Tax cuts and Jobs Act (the “Tax Act”) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. The Company has applied the guidance in ASU 2018-05, see Note 5, Income Taxes, for further disclosure.  

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Comprehensive Income. The new guidance allows companies to reclassify stranded tax effects resulting from the Tax Act, from accumulated other comprehensive income to retained earnings. The guidance also requires certain new disclosures regardless of the election.  The Company is required to adopt the guidance in the first quarter of fiscal 2020. Early adoption is permitted. The Company is currently evaluating the timing and the impact of these amendments to its consolidated financial statements

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplified the accounting for goodwill impairment by eliminating step 2 from the goodwill impairment test. ASU 2017-04 will be effective for the Company beginning on December 15, 2019 and early adoption is permitted. The Company adopted this ASU in fiscal 2017 and it did not have a material impact on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies the presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 will be effective for the Company in the first quarter of fiscal 2019 and early adoption is permitted. The changes in restricted cash and restricted cash equivalents during the period will be included in the beginning and ending cash and cash equivalents balance reconciliation on the statement of cash flows. The Company has $6.3 million of restricted cash at May 25, 2018, which is classified as noncurrent assets in the accompanying condensed consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Cash Flow Statements, Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to address the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The guidance addresses eight specific cash flow classification issues with the objective of reducing diversity in practice. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments should be applied using a retrospective transition period to each period presented. The Company does not believe the adoption of ASU 2016-15 will have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplified certain aspects of the accounting for share-based payment transactions, including income taxes, forfeitures and classification of awards and classification in the statement of cash flows. In the first quarter of fiscal 2018, the Company adopted the applicable provisions of this standard as follows:

• The guidance requires excess tax benefits and tax deficiencies to be recorded as income tax benefit or expense in the statement of operations when the awards vest are settled, and eliminates the requirement to reclassify cash flows related to excess tax benefits from financing activities to operating activities on the statement of cash flows. The Company adopted the guidance prospectively effective August 26, 2017, and there was no impact to its consolidated financial statements.  

• The guidance eliminates the requirement that excess tax benefits must be realized (through a reduction in income taxes payable) before companies can recognize them.  The Company applied the modified retrospective transition method upon adoption.  The previously unrecognized excess tax effects were recorded as a deferred tax asset in the amount of $0.9 million, which was fully offset by a valuation allowance of the same amount as of August 26, 2017, resulting no impact to opening retained earnings.  

• In accordance with the guidance, the Company has elected to make an entity-wide accounting policy change to account for forfeitures when they occur.  There is no cumulative-effect on opening retained earnings.  

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02 will be effective for the Company beginning on September 1, 2019 and early adoption is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.  Although the Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements and related disclosures, as disclosed in Note 9(a), the Company has over $16.4 million in lease commitments at May 25, 2018 and believes that the adoption will have a material impact to the consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes by requiring that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 will be effective for the Company beginning on September 1, 2017 with early application permitted as of the beginning of any interim or annual reporting period. The Company early adopted this ASU in fiscal 2017 and it did not have a material impact on its consolidated financial statements.

In May 2014, the FASB issued a new standard, ASU No. 2014-09, Revenue from Contracts with Customers, as amended, which will supersede nearly all existing revenue recognition guidance. Under ASU 2014-09, an entity is required to recognize revenue upon transfer of promised goods or services to customers in an amount that reflects the expected consideration received in exchange for those goods or services. ASU No. 2014-09 defines a five-step process in order to achieve this core principle, which may require the use of judgment and estimates, and also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and estimates used. The FASB has recently issued several amendments to the new standard, including clarification on identifying performance obligations. The amendments include ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606)—Principal versus Agent Considerations, which was issued in March 2016, and clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09. The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. The new standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. The Company does not plan to early adopt, and accordingly, will adopt the new standard effective September 1, 2018. The Company currently plans to adopt using the modified retrospective approach. Upon adoption on September 1, 2018, the Company will record a cumulative effect adjustment to retained earnings related to the difference in timing of revenue recognition required under the new standards.  

A change for the Company under ASC 606 relates to the timing of revenue recognition for customized product sales orders deemed not cancellable and nonrefundable (NCNR). Under current accounting standards, the Company recognizes revenue and costs related to these sales when products are shipped or delivered to the customers based on the terms of the purchase orders and sales agreements. Under ASC 606, the terms within the NCNR sales orders that provide the Company with a legally enforceable right to receive payment for performance completed to date will affect the timing of revenue recognition. Accordingly, the Company will recognize revenue over time as customized products listed within the NCNR orders are completed.

The Company is in the process of finalizing its assessment and implemented policies, processes, and controls to support the standard measurement and disclosure requirements.

Subsequent Events

(v) Subsequent Events

Acquisition of Penguin Computing, Inc.

On June 8, 2018, SMART Global Holdings entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the SMART Global Holdings, Glacier Acquisition Sub, Inc., a wholly-owned indirect subsidiary of SMART Global Holdings (“Merger Sub”), Penguin Computing, Inc., (“Penguin”) and Fortis Advisors LLC, solely in its capacity as the representative of the holders of the securities of Penguin. Pursuant to the Merger Agreement, on June 8, 2018, Merger Sub was merged with and into Penguin, with Penguin surviving as a wholly-owned indirect subsidiary of the SMART Global Holdings (the “Merger”).

The aggregate consideration payable by the Company for the Merger is up to $85 million, which includes up to $25.0 million of potential cash earn-out payments based on Penguin’s achievement of specified gross profit levels through December 31, 2018, pursuant to the provisions of the Merger Agreement. The Company paid $60 million at closing (subject to certain adjustments as provided in the Merger Agreement), which included the assumption by the Company of Penguin’s outstanding indebtedness.

At the closing of the Merger, the Company deposited $6.0 million of the purchase price into escrow as security for Penguin’s indemnification obligations during the escrow period of one year. The Company also deposited $2.0 million of the purchase price into escrow as security for customary post-closing adjustments to the purchase price. The Merger Agreement contains customary representations and warranties of the Company and Penguin. The parties have agreed to indemnify each other for certain breaches of representations, warranties and covenants.

Incremental Facility Amendment

On June 8, 2018, the parties to the Amended Credit Agreement (as defined in Note 6) entered into an Incremental Facility Amendment (the “Incremental Facility Amendment”) which provides for, among other things, an incremental $60.0 million term loan facility (the “Additional Term B Loan”). On June 8, 2018, SMART Modular Technologies (Global), Inc. (“Global”) borrowed pursuant to the Incremental Facility Amendment, $60.0 million in aggregate principal amount of Additional Term B Loan under the Amended Credit Agreement, a portion of which was used to fund the cash purchase price of the Merger. The terms and provisions of the Additional Term B Loan are, in all material respects, substantially consistent with the terms and provisions of the other term loans currently outstanding under the Amended Credit Agreement.

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Basis of Presentation and Principles of Consolidation (Tables)

9 Months Ended

May 25, 2018

Accounting Policies [Abstract]

Summary of Gross Billings to Customers and Net Sales for Services and Products

The following is a summary of the Company’s gross billings to customers and net sales for services and products (in thousands):

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Service revenue, net	$	11,270	$	9,869	$	30,746	$	27,853
Cost of purchased materials - service (1)		258,098		246,498		714,883		648,886
Gross billings for services		269,368		256,367		745,629		676,739
Product net sales		324,207		197,105		884,105		510,419
Gross billings to customers	$	593,575	$	453,472	$	1,629,734	$	1,187,158
Product net sales	$	324,207	$	197,105	$	884,105	$	510,419
Service revenue, net		11,270		9,869		30,746		27,853
Net sales	$	335,477	$	206,974	$	914,851	$	538,272

(1)Represents cost of sales associated with service revenue reported on a net basis.

Estimated Useful Lives

Estimated useful lives are presented below:

	Period
Asset:
Manufacturing equipment	2 to 5 years
Office furniture, software, computers and equipment	2 to 5 years
Leasehold improvements*	2to 60 years

* Includes the land lease for the Penang facility with a term expiring in 2070.

Changes in Carrying Amount of Goodwill

The changes in the carrying amount of goodwill during the nine months ended May 25, 2018 and fiscal 2017 are as follows (in thousands):

	Total
Balance as of August 26, 2016	$	44,976
Translation adjustments		1,046
Balance as of August 25, 2017		46,022
Translation adjustments		(3,150	)
Balance as of May 25, 2018	$	42,872

Summary of Gross Amounts and Accumulated Amortization of Intangible Assets from Acquisition by Type

The following table summarizes the gross amounts and accumulated amortization of intangible assets from the Acquisition by type as of May 25, 2018 and August 25, 2017 (dollars in thousands):

			May 25, 2018							August 25, 2017
	Weighted		Gross							Gross
	avg.		Carrying		Accumulated					Carrying		Accumulated
	life (yrs)		amount		amortization			Net		amount		amortization			Net
Customer relationships		5	$	24,256	$	(23,328	)	$	928	$	26,971	$	(22,844	)	$	4,127
Technology		4		4,900		(4,655	)		245		4,900		(3,920	)		980
Total			$	29,156	$	(27,983	)	$	1,173	$	31,871	$	(26,764	)	$	5,107

Amortization of Intangible Assets Classification

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Amortization of intangible assets (in thousands):
Research and development	$	245	$	1,224	$	735	$	3,672
Selling, general and administrative		976		1,774		2,992		5,296
Total	$	1,221	$	2,998	$	3,727	$	8,968

Share-Based Compensation Expense by Category

	Three Months Ended					Nine Months Ended
	May 25,		May 26,			May 25,		May 26,
	2018		2017			2018		2017
Share-based compensation expense (in thousands):
Cost of sales	$	414	$	176		$	859	$	444
Research and development		325		(22	)		887		423
Selling, general and administrative		2,558		1,235			4,853		2,666
Total	$	3,297	$	1,389		$	6,599	$	3,533

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Related Party Transactions (Tables)

9 Months Ended

May 25, 2018

Related Party Transactions [Abstract]

Schedule of Related Party Transactions With Affiliates

In the normal course of business, the Company had transactions with its affiliates as follows (in thousands):

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Affiliates:
Net sales	$	39,665	$	21,554	$	100,737	$	48,242
Expenses:
Management advisory fees	$	—	$	1,000	$	—	$	3,000

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Balance Sheet Details (Tables)

9 Months Ended

May 25, 2018

Balance Sheet Related Disclosures [Abstract]

Schedule of Inventories

Inventories consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Raw materials	$	72,839	$	42,255
Work in process		27,406		22,965
Finished goods		47,703		61,915
Total inventories*	$	147,948	$	127,135

* As of May 25, 2018 and August 25, 2017, 27% and 34%, respectively, of total inventories represented inventory held under the Company's supply chain services.

Schedule of Prepaid Expenses and Other Current Assets

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Prepaid ICMS taxes in Brazil*	$	5,084	$	—
Unbilled service receivables		3,131		4,280
Prepaid income taxes		1,587		1,023
Prepayment for VAT and other transaction taxes		1,485		1,890
Revolver debt fees		970		970
Other prepaid expenses and other current assets		7,962		5,952
Total prepaid expenses and other current assets	$	20,219	$	14,115
* See Note 1(i)

Schedule of Property and Equipment

Property and equipment consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Office furniture, software, computers and equipment	$	18,376	$	17,134
Manufacturing equipment		99,031		96,318
Leasehold improvements*		23,505		24,302
		140,912		137,754
Less accumulated depreciation and amortization		87,861		82,572
Net property and equipment	$	53,051	$	55,182

* Includes Penang facility, which is situated on leased land.

Schedule of Other Noncurrent Assets

Other noncurrent assets consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Prepaid ICMS taxes in Brazil*	$	7,667	$	12,253
Restricted cash		6,320		7,027
Deferred tax assets		2,387		2,098
Revolver debt fees		1,621		2,334
Tax receivable		1,319		1,223
Other		1,879		1,793
Total other noncurrent assets	$	21,193	$	26,728

* See Note 1(i)

Schedule of Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	May 25,		August 25,
	2018		2017
Accrued employee compensation	$	14,672	$	17,426
Income taxes payable		1,795		2,459
VAT and other transaction taxes payable		887		1,314
Accrued warranty reserve		277		275
Accrued credits payable to customers		—		2,296
Other accrued liabilities		3,185		3,546
Total accrued liabilities	$	20,816	$	27,316

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Income Taxes (Tables)

9 Months Ended

May 25, 2018

Income Tax Disclosure [Abstract]

Provision for Income Taxes

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

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Provision for Income Taxes	$	5,505	$	3,371	$	15,256	$	6,156

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Long-Term Debt (Tables)

9 Months Ended

May 25, 2018

Debt Disclosure [Abstract]

Summary of Amended Credit Agreement and BNDES Agreements

The Amended Credit Agreement and the BNDES Agreements are classified as follows in the accompanying consolidating balance sheets (in thousands):

	May 25,			August 25,
	2018			2017
Term loan	$	152,625		$	165,000
BNDES 2013 principal balance		4,614			8,185
BNDES 2014 principal balance		8,531			12,647
Unamortized debt discount		(2,713	)		(3,267	)
Unamortized debt issuance costs		(4,378	)		(5,274	)
Net amount		158,679			177,291
Current portion of long-term debt		(22,073	)		(22,841	)
Long-term debt	$	136,606		$	154,450

Summary of Future Minimum Principal Payments

The future minimum principal payments under the ARCA and the BNDES Agreements as of May 25, 2018 are (in thousands):

	ARCA		BNDES		TOTAL
Fiscal year ending August:
2018	$	4,125	$	1,871	$	5,996
2019		16,500		7,482		23,982
2020		16,500		3,792		20,292
2021		16,500		—		16,500
2022		99,000		—		99,000
Total	$	152,625	$	13,145	$	165,770

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Financial Instruments (Tables)

9 Months Ended

May 25, 2018

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured at Fair Value on Recurring Basis

Assets and liabilities measured at fair value on a recurring basis include the following (in millions):

	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Observable/ Unobservable Inputs Corroborated by Market Data (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Balances as of May 25, 2018:
Assets
Cash and cash equivalents	$	64.5	$	—	$	—	$	64.5
Restricted cash(1)		6.3		—		—		6.3
Total assets measured at fair value	$	70.8	$	—	$	—	$	70.8
Liabilities
Term loan	$	—	$	151.9	$	—	$	151.9
BNDES Credit Agreements		—		11.6		—		11.6
Total liabilities measured at fair value(2)	$	—	$	163.5	$	—	$	163.5
Balances as of August 25, 2017:
Assets
Cash and cash equivalents	$	22.4	$	—	$	—	$	22.4
Restricted cash(1)		7.0		—		—		7.0
Total assets measured at fair value	$	29.4	$	—	$	—	$	29.4
Liabilities
Term loan	$	—	$	164.2	$	—	$	164.2
BNDES Credit Agreements		—		16.9		—		16.9
Total liabilities measured at fair value(2)	$	—	$	181.1	$	—	$	181.1

(1) Included in other noncurrent assets on the Company's condensed consolidated balance sheets - see Note 4.

(2) Included under long-term debt on the Company's condensed consolidated balance sheets.

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Share-Based Compensation and Employee Benefit Plans (Tables)

9 Months Ended

May 25, 2018

Share Based Compensation Arrangement By Share Based Payment Award [Line Items]

Assumptions Used to Value Stock Options

The following assumptions were used to value the Company’s stock options:

	Three Months Ended						Nine Months Ended
	May 25,			May 26,			May 25,		May 26,
	2018			2017			2018		2017
Stock options:
Expected term (years)		6.25			6.25			6.25		6.25
Expected volatility		41.77	%		46.03	%	41.77% - 46.27%		54.41% - 55.75%
Risk-free interest rate		2.82	%		2.03	%	2.15% - 2.82%		1.96% - 2.03%
Expected dividends		—			—			—		—

Performance Based Stock Options

Share Based Compensation Arrangement By Share Based Payment Award [Line Items]

Assumptions Used to Value Stock Options

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

	Three Months Ended
	May 25,
	2018
Stock options:
Expected term (years)	1.10 - 4.00
Expected volatility		46.29	%
Risk-free interest rate		2.75	%
Expected dividends		—

Amended and Restated 2017 Share Incentive Plan (SGH Plan)

Share Based Compensation Arrangement By Share Based Payment Award [Line Items]

Summary of Options Activity

A summary of option activity for the SGH Plan is presented below (dollars and shares in thousands, except per share data):

						Weighted
				Weighted		average
				average		remaining
				per share		contractual		Aggregate
				exercise		term		intrinsic
	Shares			price		(years)		value
Options outstanding at    August 25, 2017		1,788		$	12.66		7.61	$	11,174
Options granted		1,241			40.45
Options exercised		(581	)		10.92
Options cancelled		(22	)		23.60
Options outstanding at    May 25, 2018		2,426		$	27.20		7.98	$	44,404
Options exercisable at    May 25, 2018		788		$	12.61		7.00	$	25,933
Options vested and expected to    vest at May 25, 2018		2,426		$	27.20		7.98	$	44,404

Summary of Changes in RSAs and RSUs Outstanding

A summary of the changes in RSAs and RSUs outstanding is presented below (dollars and shares in thousands, except per share data):

				Weighted
				average
				grant date		Aggregate
				fair value		intrinsic
	Shares			per share		value
Awards outstanding at August 25, 2017		378		$	7.91	$	6,956
Awards granted		251			41.80
Awards vested and paid out		(59	)		8.28
Awards forfeited and cancelled		(9	)		7.74
Awards outstanding at May 25, 2018		561		$	23.04	$	25,514

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Commitments and Contingencies (Tables)

9 Months Ended

May 25, 2018

Commitments And Contingencies Disclosure [Abstract]

Future Minimum Lease Payments Under All Leases

Future minimum lease payments under all leases as of May 25, 2018 are as follows (in thousands):

	Amount
Fiscal year ending August:
Remainder of fiscal 2018	$	714
2019		2,969
2020		2,903
2021		2,747
2022		2,107
Thereafter		4,978
Total	$	16,418

Reconcile Changes in Accrued Warranty

The following table reconciles the changes in the Company’s accrued warranty (in thousands):

	Three Months Ended						Nine Months Ended
	May 25,			May 26,			May 25,			May 26,
	2018			2017			2018			2017
Beginning accrued warranty reserve	$	200		$	303		$	275		$	266
Warranty claims		(193	)		(58	)		(458	)		(302	)
Provision for product warranties		270			57			460			338
Ending accrued warranty reserve	$	277		$	302		$	277		$	302

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Segment and Geographic Information (Tables)

9 Months Ended

May 25, 2018

Segment Reporting [Abstract]

Summary of Net Sales and Property and Equipment by Geographic Area

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

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Geographic Net Sales:
U.S.	$	32,448	$	36,595	$	114,304	$	106,211
Brazil		232,845		109,288		599,521		263,550
Asia		56,722		48,306		160,539		131,275
Europe		6,638		6,575		20,134		21,554
Other Americas		6,824		6,210		20,353		15,682
Total	$	335,477	$	206,974	$	914,851	$	538,272

	May 25,		August 25,
	2018		2017
Property and Equipment, Net:
U.S.	$	3,707	$	3,110
Brazil		42,639		44,180
Malaysia		4,278		5,049
Other		2,427		2,843
Total	$	53,051	$	55,182

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Major Customers (Tables)

9 Months Ended

May 25, 2018

Risks And Uncertainties [Abstract]

Summary of Net Sales to Major Customer

A majority of the Company’s net sales are attributable to customers operating in the information technology industry. Net sales to significant end user customers, including sales to their manufacturing subcontractors, defined as net sales in excess of 10% of total net sales, are as follows (dollars in thousands):

	Three Months Ended										Nine Months Ended
	May 25, 2018					May 26, 2017					May 25, 2018					May 26, 2017
	Amount		Percentage of net sales			Amount		Percentage of net sales			Amount		Percentage of net sales			Amount		Percentage of net sales
	(unaudited)										(unaudited)
Customer A	$	140,628		42	%	$	41,992		20	%	$	331,854		36	%	$	101,453		19	%
Customer B		39,277		12	%		34,353		17	%		106,282		12	%		84,328		16	%
Customer C		37,947		11	%		21,237		10	%		97,106		11	%		—		—
Customer D		—		—			—		—			97,845		11	%		—		—
	$	217,852		65	%	$	97,582		47	%	$	633,087		70	%	$	185,781		35	%

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Earnings Per Share (Tables)

9 Months Ended

May 25, 2018

Earnings Per Share [Abstract]

Schedule of Basic and Diluted Earnings Per Share

The following table sets forth for all periods presented the computation of basic and diluted earnings per share, including the reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share (dollars and shares in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	May 25,		May 26,		May 25,		May 26,
	2018		2017		2018		2017
Numerator:
Net income	$	31,946	$	7,958	$	89,745	$	2,414
Denominator:
Weighted average shares outstanding:
Basic		22,206		13,986		21,932		13,909
Diluted		23,306		15,955		23,020		15,230
Earnings per share:
Basic	$	1.44	$	0.57	$	4.09	$	0.17
Diluted	$	1.37	$	0.50	$	3.90	$	0.16
Anti-dilutive weighted shares excluded from the    computation of diluted earnings per share		1,008		1,359		349		1,226

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Other Income (Expense), Net (Tables)

9 Months Ended

May 25, 2018

Other Income And Expenses [Abstract]

Detail of Other Income (Expense), Net

The following table provides the detail of other income (expense), net as follows (in thousands):

	Three Months Ended						Nine Months Ended
	May 25,			May 26,			May 25,			May 26,
	2018			2017			2018			2017
Foreign currency losses	$	(6,932	)	$	(1,009	)	$	(7,259	)	$	(747	)
Loss on extinguishment of debt		—			—			—			(1,386	)
Other		(213	)		247			(53	)		469
Total other income (expense), net	$	(7,145	)	$	(762	)	$	(7,312	)	$	(1,664	)

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Basis of Presentation and Principles of Consolidation - Summary of Gross Billings to Customers and Net Sales for Services and Products (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Disaggregation Of Revenue [Line Items]
Net sales	[1]	$ 335,477	$ 206,974	$ 914,851	$ 538,272
Cost of purchased materials - service	[2]	258,098	246,498	714,883	648,886
Gross billings for services		269,368	256,367	745,629	676,739
Gross billings to customers		593,575	453,472	1,629,734	1,187,158
Service Revenue, Net
Disaggregation Of Revenue [Line Items]
Net sales		11,270	9,869	30,746	27,853
Product Net Sales
Disaggregation Of Revenue [Line Items]
Net sales		$ 324,207	$ 197,105	$ 884,105	$ 510,419

[1] Includes sales to affiliates of $39,665 and $100,737 in the three and nine months ended May 25, 2018, respectively, and $21,554 and $48,242, respectively, for the corresponding periods of fiscal 2017 (see Note 2).

[2] Represents cost of sales associated with service revenue reported on a net basis.

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Basis of Presentation and Principles of Consolidation - Additional Information (Details) R$ in Millions		1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Jun. 08, 2018 USD ($)	Apr. 30, 2016	May 25, 2018 USD ($) Customer Supplier	May 26, 2017 USD ($)	May 25, 2018 USD ($) Customer Supplier	May 26, 2017 USD ($)	Aug. 25, 2017 USD ($)	May 25, 2018 BRL (R$) Customer Supplier	Dec. 21, 2017 USD ($)	Dec. 21, 2017 BRL (R$)	Aug. 26, 2017 USD ($)	Aug. 25, 2017 BRL (R$)	Aug. 26, 2016 USD ($)
Basis Of Presentation And Principles Of Consolidation [Line Items]
Goodwill			$ 42,872,000		$ 42,872,000		$ 46,022,000						$ 44,976,000
Goodwill impairment					0
Amortization expense related to intangible assets			1,221,000	$ 2,998,000	3,727,000	$ 8,968,000
Impairment of long-lived assets					0	0
Foreign exchange gains (losses)			(6,932,000)	(1,009,000)	(7,259,000)	(747,000)
Restricted cash			$ 6,320,000		$ 6,320,000		7,027,000
Subsequent Events | Incremental Facility Amendment | Additional Term B Loan
Basis Of Presentation And Principles Of Consolidation [Line Items]
Additional borrowing capacity	$ 60,000,000
Aggregate prinicipal amount	$ 60,000,000
Subsequent Events | Penguin Computing, Inc.
Basis Of Presentation And Principles Of Consolidation [Line Items]
Date of acquisition	Jun. 08, 2018
Aggregate consideration	$ 85,000,000
Potential cash earn-out payments	25,000,000
Cash paid related to acquisition	$ 60,000,000
Escrow deposit maturity, description	At the closing of the Merger, the Company deposited $6.0 million of the purchase price into escrow as security for Penguin’s indemnification obligations during the escrow period of one year.
Subsequent Events | Penguin Computing, Inc. | Indemnification Obligations
Basis Of Presentation And Principles Of Consolidation [Line Items]
Escrow Deposit	$ 6,000,000
Subsequent Events | Penguin Computing, Inc. | Customary Post-Closing Adjustments
Basis Of Presentation And Principles Of Consolidation [Line Items]
Escrow Deposit	$ 2,000,000
ASU No. 2016-09
Basis Of Presentation And Principles Of Consolidation [Line Items]
Deferred tax asset fully offset by valuation allowance											$ 900,000
Credit Concentration Risk
Basis Of Presentation And Principles Of Consolidation [Line Items]
Number of customers | Customer			5		5			5
Supplier Concentration Risk
Basis Of Presentation And Principles Of Consolidation [Line Items]
Number of suppliers | Supplier			5		5			5
Accounts payable and accrued liabilities			$ 218,400,000		$ 218,400,000		153,700,000
Inventory purchases			400,000,000	300,000,000	$ 1,200,000,000	900,000,000
Minimum
Basis Of Presentation And Principles Of Consolidation [Line Items]
Percentage of income tax positions likely to be realized					50.00%
Lease commitments			16,400,000		$ 16,400,000
ICMS
Basis Of Presentation And Principles Of Consolidation [Line Items]
Tax credits			12,800,000		12,800,000		13,100,000	R$ 44.4				R$ 40.9
Tax credits, subject to vesting			900,000		$ 900,000		$ 800,000	3.3				2.5
Tax credits, vesting period					48 months		48 months
ICMS | Sao Paulo Tax Authorities
Basis Of Presentation And Principles Of Consolidation [Line Items]
Sale of excess tax credit approved amount									$ 9,100,000	R$ 31.6
ICMS | Sao Paulo Tax Authorities | Minimum
Basis Of Presentation And Principles Of Consolidation [Line Items]
Percentage of discount to face amount and fees for arrangers on excess credits sold		10.00%
ICMS | Sao Paulo Tax Authorities | Maximum
Basis Of Presentation And Principles Of Consolidation [Line Items]
Percentage of discount to face amount and fees for arrangers on excess credits sold		15.00%
ICMS | Earliest Tax Year
Basis Of Presentation And Principles Of Consolidation [Line Items]
Excess credits to be recovered, year					2018
ICMS | Latest Tax Year
Basis Of Presentation And Principles Of Consolidation [Line Items]
Excess credits to be recovered, year					2022
ICMS | Other Noncurrent Assets
Basis Of Presentation And Principles Of Consolidation [Line Items]
Tax credits, vested			7,000,000		$ 7,000,000		$ 12,300,000	24.5				38.4
Tax credits, subject to vesting			600,000		600,000		200,000	2.2				0.6
ICMS | Prepaid Expenses and Other Current Assets
Basis Of Presentation And Principles Of Consolidation [Line Items]
Tax credits, vested			4,800,000		4,800,000			16.6
Tax credits, subject to vesting			300,000		$ 300,000		$ 600,000	R$ 1.1				R$ 1.9
SMART Brazil | ICMS
Basis Of Presentation And Principles Of Consolidation [Line Items]
Tax benefit, renewal period					2 years
Brazilian Operating Subsidiaries
Basis Of Presentation And Principles Of Consolidation [Line Items]
Foreign exchange gains (losses)			$ 6,900,000	$ 1,000,000	$ 7,300,000	$ 700,000

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Basis of Presentation and Principles of Consolidation - Estimated Useful Lives (Details)	9 Months Ended
	May 25, 2018
Manufacturing Equipment | Minimum
Property Plant And Equipment [Line Items]
Property and equipment, estimated useful lives	2 years
Manufacturing Equipment | Maximum
Property Plant And Equipment [Line Items]
Property and equipment, estimated useful lives	5 years
Office Furniture, Software, Computers and Equipment | Minimum
Property Plant And Equipment [Line Items]
Property and equipment, estimated useful lives	2 years
Office Furniture, Software, Computers and Equipment | Maximum
Property Plant And Equipment [Line Items]
Property and equipment, estimated useful lives	5 years
Leasehold Improvements | Minimum
Property Plant And Equipment [Line Items]
Property and equipment, estimated useful lives	2 years	[1]
Leasehold Improvements | Maximum
Property Plant And Equipment [Line Items]
Property and equipment, estimated useful lives	60 years	[1]

[1] Includes the land lease for the Penang facility with a term expiring in 2070.

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Basis of Presentation and Principles of Consolidation - Estimated Useful Lives (Parenthetical) (Details)	9 Months Ended
	May 25, 2018
Land | Penang
Property Plant And Equipment [Line Items]
Lease term, expiration year	2070

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Basis of Presentation and Principles of Consolidation - Changes in Carrying Amount of Goodwill (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	May 25, 2018	Aug. 25, 2017
Goodwill And Intangible Assets Disclosure [Abstract]
Beginning balance	$ 46,022	$ 44,976
Translation adjustments	(3,150)	1,046
Ending balance	$ 42,872	$ 46,022

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Basis of Presentation and Principles of Consolidation - Summary of Gross Amounts and Accumulated Amortization of Intangible Assets from Acquisition by Type (Details) - USD ($) $ in Thousands	9 Months Ended
	May 25, 2018	Aug. 25, 2017
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	$ 29,156	$ 31,871
Accumulated amortization	(27,983)	(26,764)
Net	1,173	5,107
Customer Relationships
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	24,256	26,971
Accumulated amortization	(23,328)	(22,844)
Net	$ 928	4,127
Weighted avg.life (yrs)	5 years
Technology
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	$ 4,900	4,900
Accumulated amortization	(4,655)	(3,920)
Net	$ 245	$ 980
Weighted avg.life (yrs)	4 years

XML

Basis of Presentation and Principles of Consolidation - Amortization of Intangible Assets Classification (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Finite Lived Intangible Assets [Line Items]
Amortization of intangible assets	$ 1,221	$ 2,998	$ 3,727	$ 8,968
Research and Development
Finite Lived Intangible Assets [Line Items]
Amortization of intangible assets	245	1,224	735	3,672
Selling, General and Administrative
Finite Lived Intangible Assets [Line Items]
Amortization of intangible assets	$ 976	$ 1,774	$ 2,992	$ 5,296

XML

Basis of Presentation and Principles of Consolidation - Share-Based Compensation Expense by Category (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation expense	$ 3,297	$ 1,389	$ 6,599	$ 3,533
Cost of Sales
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation expense	414	176	859	444
Research and Development
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation expense	325	(22)	887	423
Selling, General and Administrative
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation expense	$ 2,558	$ 1,235	$ 4,853	$ 2,666

XML

Related Party Transactions - Schedule of Related Party Transactions With Affiliates (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Related Party Transaction [Line Items]
Net sales	$ 39,665	$ 21,554	$ 100,737	$ 48,242
Expenses:
Management advisory fees		1,000		3,000
Affiliates
Related Party Transaction [Line Items]
Net sales	$ 39,665	21,554	$ 100,737	48,242
Expenses:
Management advisory fees		$ 1,000		$ 3,000

XML

Related Party Transactions - Additional Information (Details) - USD ($)	May 25, 2018	Aug. 25, 2017
Related Party Transaction [Line Items]
Due from affiliates	$ 8,700,000	$ 8,700,000
Management Agreement | Silver Lake
Related Party Transaction [Line Items]
Amounts payable to managers	$ 0	$ 0

XML

Accounts Receivable Purchasing Facility - Additional Information (Details) - USD ($)	1 Months Ended	3 Months Ended		9 Months Ended
	May 31, 2012	May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017	Aug. 25, 2017
Accounts Notes And Loans Receivable [Line Items]
Receivables purchasing agreement description				All purchases of Eligible Receivables are at a discount equal to a 2-month LIBOR plus 2.75% annual discount margin, calculated on a daily basis for the number of days between the payment of the purchase price by Wells Fargo to the Sellers and the actual collection of the Eligible Receivables by Wells Fargo from the account debtor. Purchases are also subject to a 95% advance rate with the 5% being reimbursed to the Sellers upon collection by Wells Fargo from the account debtor.
Receivables purchase agreement termination date				Jun. 30, 2017
Receivables Purchasing Agreement
Accounts Notes And Loans Receivable [Line Items]
Receivable purchase advance percentage	95.00%
Receivable purchase reimbursement percentage	5.00%
Sale of accounts receivable				$ 0	$ 153,600,000
Outstanding balance of receivables sold and not yet collected		$ 0		0		$ 0
Interest expense		$ 0	$ 200,000	$ 0	$ 600,000
2-Month LIBOR | Receivables Purchasing Agreement
Accounts Notes And Loans Receivable [Line Items]
Annual discount margin percentage	2.75%
Maximum | Receivables Purchasing Agreement
Accounts Notes And Loans Receivable [Line Items]
Aggregate outstanding balance of purchased receivable	$ 50,000,000

XML

Balance Sheet Details -Schedule of Inventories (Details) - USD ($) $ in Thousands		May 25, 2018	Aug. 25, 2017
Inventory Disclosure [Abstract]
Raw materials		$ 72,839	$ 42,255
Work in process		27,406	22,965
Finished goods		47,703	61,915
Total inventories	[1]	$ 147,948	$ 127,135

[1] As of May 25, 2018 and August 25, 2017, 27% and 34%, respectively, of total inventories represented inventory held under the Company's supply chain services.

XML

Balance Sheet Details -Schedule of Inventories (Parenthetical) (Details)	May 25, 2018	Aug. 25, 2017
Inventory Disclosure [Abstract]
Percentage of inventories	27.00%	34.00%

XML

Balance Sheet Details - Schedule of Prepaid Expenses and Other Current Assets (Details) - USD ($) $ in Thousands		May 25, 2018	Aug. 25, 2017
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]
Prepaid ICMS taxes in Brazil	[1]	$ 5,084
Unbilled service receivables		3,131	$ 4,280
Prepaid income taxes		1,587	1,023
Prepayment for VAT and other transaction taxes		1,485	1,890
Revolver debt fees		970	970
Other prepaid expenses and other current assets		7,962	5,952
Total prepaid expenses and other current assets		$ 20,219	$ 14,115

[1] See Note 1(i)

XML

Balance Sheet Details - Schedule of Property and Equipment (Details) - USD ($) $ in Thousands		May 25, 2018	Aug. 25, 2017
Property Plant And Equipment [Line Items]
Property and equipment, gross		$ 140,912	$ 137,754
Less accumulated depreciation and amortization		87,861	82,572
Net property and equipment		53,051	55,182
Office Furniture, Software, Computers and Equipment
Property Plant And Equipment [Line Items]
Property and equipment, gross		18,376	17,134
Manufacturing Equipment
Property Plant And Equipment [Line Items]
Property and equipment, gross		99,031	96,318
Leasehold Improvements
Property Plant And Equipment [Line Items]
Property and equipment, gross	[1]	$ 23,505	$ 24,302

[1] Includes Penang facility, which is situated on leased land.

XML

Balance Sheet Details - Property and Equipment, Net - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Property Plant And Equipment [Abstract]
Depreciation and amortization expense	$ 4.8	$ 4.8	$ 14.9	$ 16.4

XML

Balance Sheet Details - Schedule of Other Noncurrent Assets (Details) - USD ($) $ in Thousands		May 25, 2018	Aug. 25, 2017
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]
Prepaid ICMS taxes in Brazil	[1]	$ 7,667	$ 12,253
Restricted cash		6,320	7,027
Deferred tax assets		2,387	2,098
Revolver debt fees		1,621	2,334
Tax receivable		1,319	1,223
Other		1,879	1,793
Total other noncurrent assets		$ 21,193	$ 26,728

[1] See Note 1(i)

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Balance Sheet Details - Schedule of Accrued Liabilities (Details) - USD ($) $ in Thousands	May 25, 2018	Aug. 25, 2017
Payables And Accruals [Abstract]
Accrued employee compensation	$ 14,672	$ 17,426
Income taxes payable	1,795	2,459
VAT and other transaction taxes payable	887	1,314
Accrued warranty reserve	277	275
Accrued credits payable to customers		2,296
Other accrued liabilities	3,185	3,546
Total accrued liabilities	$ 20,816	$ 27,316

XML

Income Taxes - Provision for Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Income Tax Disclosure [Abstract]
Provision for Income Taxes	$ 5,505	$ 3,371	$ 15,256	$ 6,156

XML

Income Taxes - Additional Information (Details) - USD ($) $ in Millions		3 Months Ended	5 Months Ended	9 Months Ended
	Dec. 21, 2017	May 25, 2018	May 25, 2018	May 25, 2018
Income Tax Disclosure [Abstract]
Increase in provision for income taxes.		$ 2.1		$ 9.1
Effective US federal corporate tax rate	35.00%		21.00%

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Long-Term Debt - Amended Credit Agreement - Additional Information (Details)				3 Months Ended		6 Months Ended	9 Months Ended
	Aug. 09, 2017 USD ($)	Jun. 02, 2017 USD ($)	Nov. 29, 2016 USD ($) $ / shares shares	May 25, 2018 USD ($)	May 26, 2017 USD ($)	May 25, 2018 USD ($)	May 25, 2018 USD ($)	May 26, 2017 USD ($)	Aug. 25, 2017 USD ($)
Debt Instrument [Line Items]
Administrative agent fee amount			$ 1,000,000
Additional term loan paid to term lender			$ 5,000,000
Number of lender warrants obligated to issue | shares			3,467,571
Warrants exercisable per share | $ / shares			$ 0.03
Debt instrument outstanding amount				$ 165,770,000		$ 165,770,000	$ 165,770,000
Debt Instrument, unamortized discount				$ 2,713,000		$ 2,713,000	$ 2,713,000		$ 3,267,000
First Tranche Warrants
Debt Instrument [Line Items]
Number of warrants equivalent to shares exercisable immediately | shares			1,541,143
Second Tranche Warrants
Debt Instrument [Line Items]
Number of warrants equivalent to outstanding shares exercisable | shares			1,926,428
Minimum
Debt Instrument [Line Items]
Aggregate equity investment in cash			$ 9,900,000
Term Loan
Debt Instrument [Line Items]
Interest rate at the end of period				8.62%		8.62%	8.62%
Term Loan | Estimate of Fair Value Measurement
Debt Instrument [Line Items]
Debt instrument, estimated fair value				$ 151,900,000		$ 151,900,000	$ 151,900,000		164,200,000
Amended Credit Agreement
Debt Instrument [Line Items]
Customary reinvestment rights						6 months
Percentage of net proceeds of certain asset sales or other dispositions of property	100.00%
Percentage of net cash proceeds of incurrence of certain debt	100.00%
Proceeds from IPO		$ 61,000,000
Loss on early repayment of long-term debt		6,700,000
Amended Credit Agreement | 75% of Excess Cash Flow
Debt Instrument [Line Items]
Percentage of excess cash flow for mandatory prepayments	75.00%
Amended Credit Agreement | 50% of Excess Cash Flow
Debt Instrument [Line Items]
Percentage of excess cash flow for mandatory prepayments	50.00%
Amended Credit Agreement | 25% of Excess Cash Flow
Debt Instrument [Line Items]
Percentage of excess cash flow for mandatory prepayments	25.00%
Amended Credit Agreement | LIBOR
Debt Instrument [Line Items]
Frequency of periodic interest payments							Every one, two, three, six or twelve months after the date of each borrowing
Amended Credit Agreement | Base Rate
Debt Instrument [Line Items]
Frequency of periodic interest payments							Last day of each calendar quarter
Amended Credit Agreement | Maximum
Debt Instrument [Line Items]
Secured leverage ratio						3.50%
Amended Credit Agreement | Maximum | 50% of Excess Cash Flow
Debt Instrument [Line Items]
Leverage ratio	1.5
Amended Credit Agreement | Maximum | 25% of Excess Cash Flow
Debt Instrument [Line Items]
Leverage ratio	1.0
Amended Credit Agreement | Minimum
Debt Instrument [Line Items]
Retained cash proceeds from sale of assets						$ 2,000,000
Amended Credit Agreement | Minimum | 75% of Excess Cash Flow
Debt Instrument [Line Items]
Leverage ratio	1.5
Amended Credit Agreement | Minimum | 50% of Excess Cash Flow
Debt Instrument [Line Items]
Leverage ratio	1.0
Amended Credit Agreement | Term loans
Debt Instrument [Line Items]
Debt instrument, face amount	$ 165,000,000
Debt instrument, maturity date	Aug. 09, 2022
Amended Credit Agreement | Revolving Loans
Debt Instrument [Line Items]
Debt instrument, face amount	$ 50,000,000
Debt instrument, maturity date	Feb. 09, 2021
Amended Credit Agreement | Initial Revolver Maturity Date
Debt Instrument [Line Items]
Debt instrument extended maturity date	Feb. 09, 2022
Amended Credit Agreement | Initial Revolver Maturity Date | Maximum
Debt Instrument [Line Items]
Secured net leverage ratio	3.0
Amended Credit Agreement | Term Loan
Debt Instrument [Line Items]
Debt instrument, face amount				165,000,000		$ 165,000,000	$ 165,000,000
Frequency of periodic principal payments							Quarterly
Frequency of periodic principal payments, percentage	2.50%
Quarterly principal repayments	$ 4,100,000
Scheduled principal payments				$ 4,100,000	$ 3,900,000		$ 12,400,000	$ 11,600,000
Amended Credit Agreement | Term Loan | First Year
Debt Instrument [Line Items]
Principal prepayment premium percentage				3.00%		3.00%	3.00%
Amended Credit Agreement | Term Loan | Second Year
Debt Instrument [Line Items]
Principal prepayment premium percentage				2.00%		2.00%	2.00%
Amended Credit Agreement | Term Loan | Third Year
Debt Instrument [Line Items]
Principal prepayment premium percentage				1.00%		1.00%	1.00%
Amended Credit Agreement | Revolving Facility | Maximum | LIBOR
Debt Instrument [Line Items]
Additional spread on variable rate	4.00%
Amended Credit Agreement | Revolving Facility | Maximum | Base Rate
Debt Instrument [Line Items]
Additional spread on variable rate	3.00%
Amended Credit Agreement | Revolving Facility | Minimum | LIBOR
Debt Instrument [Line Items]
Additional spread on variable rate	3.75%
Amended Credit Agreement | Revolving Facility | Minimum | Base Rate
Debt Instrument [Line Items]
Additional spread on variable rate	2.75%
Amended Credit Agreement | New Term Loan
Debt Instrument [Line Items]
Debt instrument, face amount	$ 165,000,000
Debt instrument outstanding amount	151,000,000
Write off of original issue discount and debt issuance costs as an extinguishment loss		$ 15,200,000
Amended Credit Agreement
Debt Instrument [Line Items]
Debt issuance costs	8,700,000
Amended Credit Agreement | Term Loan
Debt Instrument [Line Items]
Debt instrument outstanding amount	$ 165,000,000			$ 152,625,000		$ 152,625,000	$ 152,625,000		165,000,000
Debt instrument issue discount percentage	2.00%
Debt Instrument, unamortized discount	$ 3,300,000
Debt issuance costs	$ 5,300,000
Amended Credit Agreement | Term Loan | LIBOR
Debt Instrument [Line Items]
Additional spread on variable rate	6.25%
Amended Credit Agreement | Term Loan | Base Rate
Debt Instrument [Line Items]
Additional spread on variable rate	5.25%
Amended Credit Agreement | Revolving Facility
Debt Instrument [Line Items]
Debt instrument outstanding amount				0		0	0		$ 0
Debt issuance costs	$ 3,400,000
ARCA
Debt Instrument [Line Items]
Debt instrument outstanding amount				$ 152,625,000		$ 152,625,000	$ 152,625,000
ARCA | Term Loan
Debt Instrument [Line Items]
Increase in debt instrument periodic principal payment			$ 3,900,000
Amended period quarterly payment date			Nov. 25, 2016

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Long-Term Debt - BNDES Credit Agreements - Additional Information (Details) $ in Thousands, R$ in Millions	9 Months Ended
	May 25, 2018 USD ($)	May 25, 2018 BRL (R$)	Aug. 25, 2017 USD ($)	Aug. 25, 2017 BRL (R$)	Dec. 31, 2014 USD ($)	Dec. 31, 2014 BRL (R$)	Dec. 31, 2013 USD ($)	Dec. 31, 2013 BRL (R$)
Debt Instrument [Line Items]
Debt instrument outstanding amount	$ 165,770
BNDES 2013 Credit Agreement
Debt Instrument [Line Items]
Debt instrument, face amount							$ 14,500	R$ 50.6
Minimum cash balances of maximum aggregate balances of principal, interest and fees outstanding							11.85%	11.85%
Restricted cash	1,700	R$ 6.0
Debt instrument outstanding amount	4,614	16.1	$ 8,185	R$ 25.6
Debt instrument outstanding amount with fixed interest rate	$ 2,300	R$ 7.9	$ 4,000	R$ 12.6
Debt instrument fixed interest rate	3.50%	3.50%	3.50%	3.50%
Debt instrument outstanding amount with floating interest rate	$ 2,300	R$ 8.2	$ 4,200	R$ 13.0
Debt instrument target interest rate	(5.00%)	(5.00%)	(5.00%)	(5.00%)
Debt instrument effective interest rate	5.50%	5.50%	5.50%	5.50%
Frequency of periodic principal payments	48 equal monthly installments
Debt instrument payment term, beginning	Aug. 15, 2015
Debt instrument payment term, ending	Jul. 15, 2019
Percentage of unused commitment fees	0.10%
BNDES 2013 Credit Agreement | Minimum
Debt Instrument [Line Items]
Debt instrument floating interest rate	0.50%	0.50%	0.50%	0.50%
BNDES 2014 Credit Agreement
Debt Instrument [Line Items]
Debt instrument, face amount					$ 15,200	R$ 52.8
Minimum cash balances of maximum aggregate balances of principal, interest and fees outstanding	30.31%	30.31%
Restricted cash	$ 4,600	R$ 16.0
Debt instrument outstanding amount	$ 8,531	R$ 29.7	$ 12,647	R$ 39.6
Debt instrument fixed interest rate	4.00%	4.00%
Frequency of periodic principal payments	48 equal monthly installments
Debt instrument payment term, beginning	Aug. 15, 2016
Debt instrument payment term, ending	Jul. 15, 2020
Percentage of face amount of loan facility required for loan fee	0.30%	0.30%
BNDES Credit Agreements
Debt Instrument [Line Items]
Debt instrument outstanding amount	$ 13,145
Fair value of debt amount outstanding	$ 11,600		$ 16,900

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Long-Term Debt - Summary of Amended Credit Agreement and BNDES Agreements (Details) $ in Thousands, R$ in Millions	May 25, 2018 USD ($)	May 25, 2018 BRL (R$)	Aug. 25, 2017 USD ($)	Aug. 25, 2017 BRL (R$)	Aug. 09, 2017 USD ($)
Debt Instrument [Line Items]
Long-term debt, gross	$ 165,770
Unamortized debt discount	(2,713)		$ (3,267)
Unamortized debt issuance costs	(4,378)		(5,274)
Net amount	158,679		177,291
Current portion of long-term debt	(22,073)		(22,841)
Long-term debt	136,606		154,450
Amended Credit Agreement | Term Loan
Debt Instrument [Line Items]
Long-term debt, gross	152,625		165,000		$ 165,000
Unamortized debt discount					$ (3,300)
BNDES 2013 Credit Agreement
Debt Instrument [Line Items]
Long-term debt, gross	4,614	R$ 16.1	8,185	R$ 25.6
BNDES 2014 Credit Agreement
Debt Instrument [Line Items]
Long-term debt, gross	$ 8,531	R$ 29.7	$ 12,647	R$ 39.6

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Long-Term Debt - Summary of Future Minimum Principal Payments (Details) $ in Thousands	May 25, 2018 USD ($)
Debt Instrument [Line Items]
2018	$ 5,996
2019	23,982
2020	20,292
2021	16,500
2022	99,000
Total	165,770
ARCA
Debt Instrument [Line Items]
2018	4,125
2019	16,500
2020	16,500
2021	16,500
2022	99,000
Total	152,625
BNDES Credit Agreements
Debt Instrument [Line Items]
2018	1,871
2019	7,482
2020	3,792
Total	$ 13,145

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Financial Instruments - Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - Fair Value, Measurements, Recurring Basis - USD ($) $ in Millions		May 25, 2018	Aug. 25, 2017
Assets
Assets measured at fair value		$ 70.8	$ 29.4
Liabilities
Liabilities measured at fair value	[1]	163.5	181.1
Cash and Cash Equivalents
Assets
Assets measured at fair value		64.5	22.4
Restricted Cash
Assets
Assets measured at fair value	[2]	6.3	7.0
Senior Secured Credit Agreement | Term Loan
Liabilities
Liabilities measured at fair value		151.9	164.2
BNDES Credit Agreements
Liabilities
Liabilities measured at fair value		11.6	16.9
Level 1
Assets
Assets measured at fair value		70.8	29.4
Level 1 | Cash and Cash Equivalents
Assets
Assets measured at fair value		64.5	22.4
Level 1 | Restricted Cash
Assets
Assets measured at fair value	[2]	6.3	7.0
Level 2
Liabilities
Liabilities measured at fair value	[1]	163.5	181.1
Level 2 | Senior Secured Credit Agreement | Term Loan
Liabilities
Liabilities measured at fair value		151.9	164.2
Level 2 | BNDES Credit Agreements
Liabilities
Liabilities measured at fair value		$ 11.6	$ 16.9

[1] Included under long-term debt on the Company's condensed consolidated balance sheets.

[2] Included in other noncurrent assets on the Company's condensed consolidated balance sheets - see Note 4.

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Share-Based Compensation and Employee Benefit Plans - Additional Information (Details) $ / shares in Units, $ in Thousands		1 Months Ended		3 Months Ended		9 Months Ended		37 Months Ended
	Aug. 26, 2011	Mar. 31, 2018 StockOption TradingDay	Jan. 31, 2018 shares	May 25, 2018 USD ($) $ / shares shares	May 26, 2017 USD ($) $ / shares	May 25, 2018 USD ($) $ / shares shares	May 26, 2017 USD ($) $ / shares	Sep. 23, 2014	Aug. 25, 2017 shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Employees maximum contribution for annual eligible compensation under 401(k) plan						60.00%
Contribution made by company under 401(k) plan | $				$ 400	$ 300	$ 900	$ 800
Employee Stock Purchase Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Ordinary shares reserved for issuance | shares				350,000		350,000
Number of shares authorized | shares			350,000
Fair market value percentage of ordinary share			85.00%
Purchase plan termination period			2028-01
Share issued under purchase plan | shares			0
Performance Based Stock Options
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of Performance-based stock options granted | StockOption		2
Share based compensation threshold trading days | TradingDay		30
Amended and Restated 2017 Share Incentive Plan (SGH Plan)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Ordinary shares reserved for issuance | shares				3,563,975		3,563,975			3,657,761
Ordinary shares available for grant | shares				571,694		571,694			1,491,266
Weighted average fair value of options granted | $ / shares				$ 18.31	$ 7.16	$ 18.22	$ 7.03
Total intrinsic value of employee stock options exercised | $				$ 7,400	$ 700	$ 16,600	$ 700
Unrecognized compensation costs related to stock options | $				23,900		$ 23,900
Amended and Restated 2017 Share Incentive Plan (SGH Plan) | Options
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period	4 years
Cliff period						one-year or two-year cliff and then monthly thereafter
Expiration term						10 years
Unrecognized compensation costs recognition period						3 years 2 months 8 days
Amended and Restated 2017 Share Incentive Plan (SGH Plan) | Options | After August 26, 2011 and Before September 23, 2014
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expiration term								8 years
Amended and Restated 2017 Share Incentive Plan (SGH Plan) | Performance Based Stock Options | March 2018
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expiration term		8 years
Amended and Restated 2017 Share Incentive Plan (SGH Plan) | RSAs and RSUs
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share-based compensation expense | $				700	300	$ 1,400	400
Total fair value of shares vested | $				$ 0	$ 0	$ 2,200	$ 13

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Share-Based Compensation and Employee Benefit Plans - Assumptions Used to Value Stock Options (Details)	3 Months Ended		9 Months Ended
	May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Stock options:
Expected term (years)	6 years 3 months	6 years 3 months	6 years 3 months	6 years 3 months
Expected volatility	41.77%	46.03%
Expected volatility, minimum			41.77%	54.41%
Expected volatility, maximum			46.27%	55.75%
Risk-free interest rate	2.82%	2.03%
Risk-free interest rate, minimum			2.15%	1.96%
Risk-free interest rate, maximum			2.82%	2.03%
Expected dividends	0.00%	0.00%	0.00%	0.00%
Performance Based Stock Options
Stock options:
Expected volatility	46.29%
Risk-free interest rate	2.75%
Expected dividends	0.00%
Performance Based Stock Options | Minimum
Stock options:
Expected term (years)	1 year 1 month 6 days
Performance Based Stock Options | Maximum
Stock options:
Expected term (years)	4 years

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Share-Based Compensation and Employee Benefit Plans - Summary of Options Activity (Details) - Amended and Restated 2017 Share Incentive Plan (SGH Plan) - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended	12 Months Ended
	May 25, 2018	Aug. 25, 2017
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options outstanding, Shares, Beginning Balance	1,788,000
Options granted, Shares	1,241,000
Options exercised, Shares	(581,000)
Options cancelled, Shares	(22,000)
Options outstanding, Shares, Ending Balance	2,426,000	1,788,000
Options exercisable, Shares	788,000
Options vested and expected to vest, Shares	2,426,000
Options outstanding, Weighted average per share exercise price, Beginning Balance	$ 12.66
Options granted, Weighted average per share exercise price	40.45
Options exercised, Weighted average per share exercise price	10.92
Options cancelled, Weighted average per share exercise price	23.60
Options outstanding, Weighted average per share exercise price, Ending Balance	27.20	$ 12.66
Options exercisable, Weighted average per share exercise price	12.61
Options vested and expected to vest, Weighted average per share exercise price	$ 27.20
Options outstanding, Weighted average remaining contractual term (years)	7 years 11 months 23 days	7 years 7 months 9 days
Options exercisable, Weighted average remaining contractual term (years)	7 years
Options vested and expected to vest, Weighted average remaining contractual term (years)	7 years 11 months 23 days
Options outstanding, Aggregate intrinsic value	$ 44,404	$ 11,174
Options exercisable, Aggregate intrinsic value	25,933
Options vested and expected to vest, Aggregate intrinsic value	$ 44,404

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Share-Based Compensation and Employee Benefit Plans - Summary of Changes in RSAs and RSUs Outstanding (Details) - Amended and Restated 2017 Share Incentive Plan (SGH Plan) - RSAs and RSUs - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended
	May 25, 2018	Aug. 25, 2017
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Awards outstanding, Shares, Beginning Balance	378,000
Awards granted, Shares	251,000
Awards vested and paid out, Shares	(59,000)
Awards forfeited and cancelled, Shares	(9,000)
Awards outstanding, Shares, Ending Balance	561,000
Awards outstanding, Weighted average grant date fair value per share, Beginning Balance	$ 7.91
Awards granted, Weighted average grant date fair value per share	41.80
Awards vested and paid out, Weighted average grant date fair value per share	8.28
Awards forfeited and cancelled, Weighted average grant date fair value per share	7.74
Awards outstanding, Weighted average grant date fair value per share	$ 23.04
Awards outstanding, Aggregate intrinsic value	$ 25,514	$ 6,956

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Commitments and Contingencies - Additional Information (Details) R$ in Millions	3 Months Ended		9 Months Ended
	May 25, 2018 USD ($)	May 26, 2017 USD ($)	May 25, 2018 USD ($)	May 26, 2017 USD ($)	May 25, 2018 BRL (R$)	Aug. 25, 2017 USD ($)	Aug. 25, 2017 BRL (R$)	Dec. 12, 2013 USD ($)	Dec. 12, 2013 BRL (R$)	Feb. 23, 2012 USD ($)	Feb. 23, 2012 BRL (R$)
Loss Contingencies [Line Items]
Rental expense	$ 800,000	$ 700,000	$ 2,200,000	$ 2,100,000
Provision for any potential loss	0		0
SMART Brazil
Loss Contingencies [Line Items]
Tax assessment amount	$ 4,300,000		$ 4,300,000		R$ 14.9	$ 4,600,000	R$ 14.4	$ 1,100,000	R$ 3.6	$ 36,600,000	R$ 117.0
Incorrect product classification code, import duty										0.00%	0.00%
Percentage of recovery of import duty on product classification										8.00%	8.00%
Administrative penalty amount										$ 1,900,000	R$ 6.0
Percentage of administrative penalty								1.00%	1.00%
SMART Brazil | DRAM
Loss Contingencies [Line Items]
Percentage of import duty on product classification								0.00%	0.00%
SMART Brazil | Flash
Loss Contingencies [Line Items]
Percentage of import duty on product classification								0.00%	0.00%

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Commitments and Contingencies - Future Minimum Lease Payments Under All Leases (Details) $ in Thousands	May 25, 2018 USD ($)
Commitments And Contingencies Disclosure [Abstract]
Remainder of fiscal 2018	$ 714
2019	2,969
2020	2,903
2021	2,747
2022	2,107
Thereafter	4,978
Total	$ 16,418

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Commitments and Contingencies - Reconcile Changes in Accrued Warranty (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Commitments And Contingencies Disclosure [Abstract]
Beginning accrued warranty reserve	$ 200	$ 303	$ 275	$ 266
Warranty claims	(193)	(58)	(458)	(302)
Provision for product warranties	270	57	460	338
Ending accrued warranty reserve	$ 277	$ 302	$ 277	$ 302

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Segment and Geographic Information - Additional Information (Details)	9 Months Ended
	May 25, 2018 segment
Segment Reporting [Abstract]
Number of reportable segments	1

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Segment and Geographic Information - Summary of Net Sales and Property and Equipment by Geographic Area (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017	Aug. 25, 2017
Segment Reporting Information [Line Items]
Geographic Net Sales	[1]	$ 335,477	$ 206,974	$ 914,851	$ 538,272
Property and equipment, net		53,051		53,051		$ 55,182
U.S.
Segment Reporting Information [Line Items]
Geographic Net Sales		32,448	36,595	114,304	106,211
Property and equipment, net		3,707		3,707		3,110
Brazil
Segment Reporting Information [Line Items]
Geographic Net Sales		232,845	109,288	599,521	263,550
Property and equipment, net		42,639		42,639		44,180
Asia
Segment Reporting Information [Line Items]
Geographic Net Sales		56,722	48,306	160,539	131,275
Europe
Segment Reporting Information [Line Items]
Geographic Net Sales		6,638	6,575	20,134	21,554
Other Americas
Segment Reporting Information [Line Items]
Geographic Net Sales		6,824	$ 6,210	20,353	$ 15,682
Malaysia
Segment Reporting Information [Line Items]
Property and equipment, net		4,278		4,278		5,049
Other
Segment Reporting Information [Line Items]
Property and equipment, net		$ 2,427		$ 2,427		$ 2,843

[1] Includes sales to affiliates of $39,665 and $100,737 in the three and nine months ended May 25, 2018, respectively, and $21,554 and $48,242, respectively, for the corresponding periods of fiscal 2017 (see Note 2).

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Major Customers - Summary of Net Sales to Major Customer (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Concentration Risk [Line Items]
Net sales	[1]	$ 335,477	$ 206,974	$ 914,851	$ 538,272
Net sales | Customer Concentration Risk
Concentration Risk [Line Items]
Net sales		$ 217,852	$ 97,582	$ 633,087	$ 185,781
Percentage of net sales		65.00%	47.00%	70.00%	35.00%
Customer A | Net sales | Customer Concentration Risk
Concentration Risk [Line Items]
Net sales		$ 140,628	$ 41,992	$ 331,854	$ 101,453
Percentage of net sales		42.00%	20.00%	36.00%	19.00%
Customer B | Net sales | Customer Concentration Risk
Concentration Risk [Line Items]
Net sales		$ 39,277	$ 34,353	$ 106,282	$ 84,328
Percentage of net sales		12.00%	17.00%	12.00%	16.00%
Customer C | Net sales | Customer Concentration Risk
Concentration Risk [Line Items]
Net sales		$ 37,947	$ 21,237	$ 97,106
Percentage of net sales		11.00%	10.00%	11.00%
Customer D | Net sales | Customer Concentration Risk
Concentration Risk [Line Items]
Net sales				$ 97,845
Percentage of net sales				11.00%

[1] Includes sales to affiliates of $39,665 and $100,737 in the three and nine months ended May 25, 2018, respectively, and $21,554 and $48,242, respectively, for the corresponding periods of fiscal 2017 (see Note 2).

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Major Customers - Additional Information (Details) - Accounts Receivable - Customer Concentration Risk	9 Months Ended	12 Months Ended
	May 25, 2018	Aug. 25, 2017
Customer A
Concentration Risk [Line Items]
Concentration Risk, Percentage	20.00%
Customer E
Concentration Risk [Line Items]
Concentration Risk, Percentage	22.00%	24.00%
Customer F
Concentration Risk [Line Items]
Concentration Risk, Percentage	14.00%	11.00%
Customer G
Concentration Risk [Line Items]
Concentration Risk, Percentage	13.00%	14.00%
Customer H
Concentration Risk [Line Items]
Concentration Risk, Percentage	11.00%	18.00%

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Earnings Per Share - Schedule of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Numerator:
Net income	$ 31,946	$ 7,958	$ 89,745	$ 2,414
Weighted average shares outstanding:
Basic	22,206	13,986	21,932	13,909
Diluted	23,306	15,955	23,020	15,230
Earnings per share:
Basic	$ 1.44	$ 0.57	$ 4.09	$ 0.17
Diluted	$ 1.37	$ 0.50	$ 3.90	$ 0.16
Anti-dilutive weighted shares excluded from the computation of diluted earnings per share	1,008	1,359	349	1,226

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Other Income (Expense), Net - Detail of Other Income (Expense), Net (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 25, 2018	May 26, 2017	May 25, 2018	May 26, 2017
Other Income And Expenses [Abstract]
Foreign currency losses	$ (6,932)	$ (1,009)	$ (7,259)	$ (747)
Loss on extinguishment of debt				(1,386)
Other	(213)	247	(53)	469
Total other income (expense), net	$ (7,145)	$ (762)	$ (7,312)	$ (1,664)