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 31, 2019

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary shares, $0.03 par value per share	SGH	The NASDAQ Stock Market LLC (NASDAQ Global Select Market)

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 every Interactive Data File required to be submitted 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 such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	☐	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 31, 2019, the registrant had 23,081,158 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 Income Statements	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Condensed Consolidated Statement of Equity	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
PART II.	OTHER INFORMATION	44
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 6.	Exhibits	46
Signatures		47

1

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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 31, 2018, and in this report, and in Item 2 of Part I – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. 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.

2

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 31,			August 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	126,099		$	31,375
Accounts receivable, net of allowances of $200 and $225 as of May 31, 2019    and August 31, 2018, respectively		230,177			237,212
Inventories		132,816			221,419
Prepaid expenses and other current assets		31,052			32,043
Total current assets		520,144			522,049
Property and equipment, net		67,135			56,615
Other noncurrent assets		14,603			22,449
Intangible assets, net		23,326			26,255
Goodwill		44,805			45,394
Total assets	$	670,013		$	672,762
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	177,519		$	223,186
Accrued liabilities		36,059			45,190
Current portion of long-term debt		19,087			27,409
Total current liabilities		232,665			295,785
Long-term debt		188,428			184,190
Other long-term liabilities		6,840			5,659
Total liabilities	$	427,933		$	485,634
Commitments and contingencies (see Note 10)
Shareholders’ equity:
Ordinary shares, $0.03 par value. Authorized 200,000 shares; issued and    outstanding 23,081 and 22,480 as of May 31, 2019 and August 31, 2018,    respectively		696			678
Additional paid-in capital		268,652			250,191
Accumulated other comprehensive loss		(186,263	)		(175,995	)
Retained earnings		158,995			112,254
Total shareholders’ equity		242,080			187,128
Total liabilities and shareholders’ equity	$	670,013		$	672,762

See accompanying notes to unaudited condensed consolidated financial statements.

3

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Income Statements

(In thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	May 31,			May 25,			May 31,			May 25,
	2019			2018			2019			2018
Net sales (1)	$	235,657		$	335,477		$	933,599		$	914,851
Cost of sales		192,622			257,423			748,364			705,944
Gross profit		43,035			78,054			185,235			208,907
Operating expenses:
Research and development		11,330			9,763			34,384			28,165
Selling, general, and administrative		24,306			19,597			73,202			55,502
Total operating expenses		35,636			29,360			107,586			83,667
Income from operations		7,399			48,694			77,649			125,240
Interest expense, net		(5,001	)		(4,098	)		(16,149	)		(12,927	)
Other income (expense), net		97			(7,145	)		(2,980	)		(7,312	)
Total other expense		(4,904	)		(11,243	)		(19,129	)		(20,239	)
Income before income taxes		2,495			37,451			58,520			105,001
Provision for income taxes		550			5,505			12,813			15,256
Net income	$	1,945		$	31,946		$	45,707		$	89,745
Earnings per share:
Basic	$	0.08		$	1.44		$	2.00		$	4.09
Diluted	$	0.08		$	1.37		$	1.96		$	3.90
Shares used in computing earnings per share:
Basic		23,005			22,206			22,824			21,932
Diluted		23,330			23,306			23,374			23,020

(1) Includes sales to affiliates of $26,427 and $94,641 in the three and nine months ended May 31, 2019, respectively, and $39,665 and $100,737 for the corresponding periods of fiscal 2018.   (see Note 3).

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 31,			May 25,			May 31,			May 25,
	2019			2018			2019			2018
Net income	$	1,945		$	31,946		$	45,707		$	89,745
Other comprehensive income (loss):
Foreign currency translation		(16,209	)		(17,974	)		(10,268	)		(18,740	)
Comprehensive income (loss)	$	(14,264	)	$	13,972		$	35,439		$	71,005

See accompanying notes to unaudited condensed consolidated financial statements.

5

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statement of Equity

(In thousands)

(Unaudited)

								Accumulated			Retained
					Additional			other			earnings			Total
	Ordinary shares				paid-in			comprehensive			(accumulated			shareholders’
	Shares		Amount		capital			loss			deficit)			equity
Balances as of August 25, 2017		21,666	$	653	$	232,162		$	(143,210	)	$	(7,209	)	$	82,396
Stock-based compensation expense		—		—		1,605			—			—			1,605
Issuance of ordinary shares from exercises		81		3		919			—			—			922
Issuance of ordinary shares from release of    restricted stock units		4		—		—			—			—			—
Foreign currency translation		—		—		—			(7,177	)		—			(7,177	)
Net income		—		—		—			—			21,005			21,005
Balance as of November 24, 2017		21,751		656		234,686			(150,387	)		13,796			98,751
Stock-based compensation expense		—		—		1,697			—			—			1,697
Issuance of ordinary shares from exercises		300		9		3,246			—			—			3,255
Issuance of ordinary shares from release of    restricted stock units		55		1		(1	)		—			—			—
Foreign currency translation		—		—		—			6,411			—			6,411
Net income		—		—		—			—			36,794			36,794
Balance as of February 23, 2018		22,106		666		239,628			(143,976	)		50,590			146,908
Stock-based compensation expense		—		—		3,297			—			—			3,297
Issuance of ordinary shares from exercises		202		6		2,172			—			—			2,178
Foreign currency translation		—		—		—			(17,974	)		—			(17,974	)
Net income		—		—		—			—			31,946			31,946
Balance as of May 25, 2018		22,308	$	672	$	245,097		$	(161,950	)	$	82,536		$	166,355

See accompanying notes to unaudited condensed consolidated financial statements.

6

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statement of Equity (continued)

(In thousands)

(Unaudited)

									Accumulated
						Additional			other					Total
	Ordinary shares					paid-in			comprehensive			Retained		shareholders’
	Shares			Amount		capital			loss			earnings		equity
Balances as of August 31, 2018		22,480		$	678	$	250,191		$	(175,995	)	$	112,254	$	187,128
Stock-based compensation expense		—			—		4,055			—			—		4,055
Issuance of ordinary shares from exercises		210			6		2,396			—			—		2,402
Issuance of ordinary shares from release of    restricted stock units		55			2		(2	)		—			—		—
Issuance of ordinary shares from    employee share purchase plan		36			1		967			—			—		968
Effect of adopting ASC 606		—			—		—			—			1,034		1,034
Foreign currency translation		—			—		—			3,102			—		3,102
Net income		—			—		—			—			30,976		30,976
Balance as of November 30, 2018		22,781			687		257,607			(172,893	)		144,264		229,665
Stock-based compensation expense		—			—		4,148			—			—		4,148
Issuance of ordinary shares from exercises		87			3		1,068			—			—		1,071
Issuance of ordinary shares from release of    restricted stock units		67			1		(1	)		—			—		—
Withholding tax on restricted stock units		(8	)		—		(219	)		—			—		(219	)
Foreign currency translation		—			—		—			2,839			—		2,839
Net income		—			—		—			—			12,786		12,786
Balance as of March 1, 2019		22,927			691		262,603			(170,054	)		157,050		250,290
Stock-based compensation expense		—			—		4,433			—			—		4,433
Issuance of ordinary shares from exercises		28			1		296			—			—		297
Issuance of ordinary shares from release of    restricted stock units		52			2		(2	)		—			—		—
Issuance of ordinary shares from    employee share purchase plan		74			2		1,333			—			—		1,335
Withholding tax on restricted stock units		—			—		(11	)		—			—		(11	)
Foreign currency translation		—			—		—			(16,209	)		—		(16,209	)
Net income		—			—		—			—			1,945		1,945
Balance as of May 31, 2019		23,081		$	696	$	268,652		$	(186,263	)	$	158,995	$	242,080

See accompanying notes to unaudited condensed consolidated financial statements.

7

SMART Global Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	May 31,			May 25,
	2019			2018
Cash flows from operating activities:
Net income	$	45,707		$	89,745
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		20,152			18,656
Share-based compensation		12,636			6,599
Provision for doubtful accounts receivable and sales returns		(24	)		(13	)
Deferred income tax benefit		430			(1,376	)
(Gain) loss on disposal of property and equipment		21			230
Write off of long-term asset		—			250
Amortization of debt discounts and issuance costs		2,085			2,165
Changes in operating assets and liabilities:
Accounts receivable		7,658			(86,706	)
Inventories		82,771			(27,940	)
Prepaid expenses and other assets		1,787			(3,495	)
Accounts payable		(44,885	)		83,879
Accrued expenses and other liabilities		(7,622	)		(4,703	)
Net cash provided by operating activities		120,716			77,291
Cash flows from investing activities:
Capital expenditures and deposits on equipment		(30,112	)		(18,251	)
Proceeds from sale of property and equipment		71			101
Acquisition of business, net of cash acquired		(148	)		—
Net cash used in investing activities		(30,189	)		(18,150	)
Cash flows from financing activities:
Fees paid for revolving line of credit financing		—			(768	)
Long-term debt payment		(5,073	)		(18,402	)
Payment of costs related to initial public offering (IPO)		—			(1,591	)
Proceeds from borrowings under revolving line of credit		235,500			277,500
Repayments of borrowings under revolving line of credit		(235,500	)		(277,500	)
Proceeds from issuance of ordinary shares from share option exercises		3,770			6,170
Proceeds from issuance of ordinary shares from employee share purchase plan		2,303			—
Withholding tax on restricted stock units		(230	)		—
Net cash provided by (used in) financing activities		770			(14,591	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash *		(2,432	)		(3,198	)
Net increase in cash, cash equivalents and restricted cash *		88,865			41,352
Cash, cash equivalents and restricted cash at beginning of period *		37,234			29,463
Cash, cash equivalents and restricted cash at end of period *	$	126,099		$	70,815
Supplemental disclosures of cash flow information:
Cash paid during the period:
Cash paid for interest	$	14,888		$	11,048
Cash paid for income taxes, net of refunds		13,817			17,085
Noncash activities information:
Capital expenditures included in accounts payable at period end		2,455			2,905
Unpaid debt fees related to term loan and revolver		—			469
Proceeds receivable from the exercise of stock options		—			(198	)
* Cash balance was adjusted to include restricted cash upon adoption of ASU 2016-18 in fiscal 2019.

See accompanying notes to unaudited condensed consolidated financial statements.

8

Smart Global Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note1. 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 data compute and storage products and solutions sold primarily to original equipment manufacturers (OEMs) as well as end customers for enterprise applications. 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. headquarters 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 and nine months ended May 31, 2019 and May 25, 2018 were both 13-week and 39-week fiscal periods, respectively.

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

The Company’s revenues include products and services. The Company’s product revenues are predominantly derived from the sale of memory modules, Flash memory cards and storage products, which the Company designs and manufactures. The Company’s service revenues are derived from procurement, logistics, inventory management, temporary warehousing, kitting and packaging services. Also, a small portion of the Company’s product sales include extended warranty and on-site services, subscriptions to the Company’s high performance computing environment, professional services, software and related support.

9

The Company determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied.

The Company’s contracts are executed through a combination of written agreements along with purchase orders with all customers including certain general terms and conditions. Generally, purchase orders entail products, quantities and prices, which define the performance obligations of each party and are approved and accepted by the Company. The Company’s contracts with customers do not include extended payment terms. Payment terms vary by contract type and type of customer and generally range from 30 to 45 days from invoice. Additionally, taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer and deposited with the relevant government authority, are excluded from revenue.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer adjusted for estimated variable consideration.  Variable consideration may include discounts, rights of return, refunds, and other similar obligations. The Company allocates the transaction price to each distinct product and service based on its relative standalone selling price. The standalone selling price for products primarily involves the cost to produce the deliverable plus the anticipated margin and for services is estimated based on the Company’s approved list price.

In the normal course of business, the Company does not accept product returns unless the items are defective as manufactured. The Company establishes provisions for estimated returns and warranties. In addition, the Company does not typically provide customers with the right to a refund and does not transact for noncash consideration.

Standard Products

The Company’s main performance obligations are to deliver the requested goods to customers according to the agreed-upon shipping terms. The Company recognizes revenue when control transfers to the customer (i.e., when the Company’s performance obligation is satisfied). The Company invoices the customer and recognizes revenues for such delivery when control transfers based on shipping terms.

Customized Products

For customized product sales with terms that require the customer to purchase 100% of all parts built to fulfill the customers forecast, the Company recognizes revenue when control of the underlying assets passes to the customer, as the customer is able to both direct the use of, and obtain substantially all of the remaining benefit from the assets; the customer has the significant risks and rewards associated with ownership of the assets; and the Company has a present right to payment. For these sales, control passes when the Company has made these products available to the customer and under the terms of the agreement cannot repurpose them without the customer’s express consent.  Accordingly, the Company will recognize revenue at the point in time when products made to the customer’s order or forecast are completed and made available to the customer.

Non-cancellable nonrefundable, or NCNR, customized product sales are recognized over time on a cost incurred basis. The customer obtains control and benefits from the services as they are performed over the period based on the cost input measure in the production process for the NCNR customized product. The terms within the NCNR sales orders provide the Company with a legally enforceable right to receive payment including a reasonable profit margin upon customer cancellation for performance completed to date. Accordingly, the Company recognizes revenue over time as customized products listed within the NCNR orders are completed.

Computing Products and Services

A small portion of the Company’s product sales includes extended warranty and on-site services, subscriptions to the Company’s high performance computing environment, professional consulting services including installation and other services, and hardware and software related support. Each contract may contain multiple performance obligations, which requires the transaction price to be allocated to each performance obligation. The Company allocates the consideration to each performance obligation based on the relative selling price. The Company uses best-estimated selling price, determined as the best estimate of the price at which the Company would transact if it sold the deliverable regularly on a stand-alone basis.

For services provided to the customers over a period of time, such revenues are recognized over time in line with when the customer receives and consumes the benefit of the services. Extended warranty and on-site services, hardware support, software support, and subscription revenue for access to the Company’s high performance computing environment is deferred and recognized ratably over the contractual period as the Company transfers control as it satisfies its performance obligations over time as the services are rendered.  Subscription revenue for certain customers is recognized based on the contractual fee to use the high-performance-computing environment.  Professional consulting services revenue is recognized as the service is performed and the customer obtains control and benefits from the services as they are performed over the period.  The methods of recognizing revenue for each of these products and services were selected because they reflect a faithful depiction of the transfer of control.

10

Agency Services

The Company has service performance obligations for agency related services such as procurement, logistics, inventory management, temporary warehousing, kitting and packaging services for certain agency basis customers. The agency services are also known as supply chain services and the performance obligations for these services consist of customized, integrated supply chain services management to assist customers in the planning, execution and overall management of the procurement processes.

For these customers that are accounted for on an agency basis, 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 has separate agent performance obligations as follows: (a) procurement, logistics, and inventory management, (b) temporary warehousing, and (c) 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 (i.e. fee as a percentage of the associated material being procured, warehoused, kitted or packaged). The Company recognizes revenue for procurement, logistics and inventory management upon the completion of the services or performance obligation, typically upon shipment of the product, as the criteria for over time recognition is not met.  For temporary warehousing, kitting and packaging services, revenue is recognized over time, but the period of performance is typically very short in duration. There are no obligations subsequent to shipment of the product under the agency arrangements.

Contract Costs

As a practical expedient, the Company recognizes the incremental costs of obtaining a contract, specifically commission expenses that have an amortization period of less than twelve months, as an expense when incurred. Additionally, the Company has adopted an accounting policy to recognize shipping costs that occur after control transfers, if any, to the customer as a fulfillment activity. The Company records shipping and handling costs related to revenue transactions within cost of sales as a period cost.

Gross Billings and Net Sales

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 31,		May 25,		May 31,		May 25,
	2019		2018 (2)		2019		2018 (2)
Service revenue, net	$	9,692	$	11,270	$	35,343	$	30,746
Cost of purchased materials - service (1)		206,097		258,098		802,630		714,883
Gross billings for services		215,789		269,368		837,973		745,629
Product net sales		225,965		324,207		898,256		884,105
Gross billings to customers	$	441,754	$	593,575	$	1,736,229	$	1,629,734
Product net sales	$	225,965	$	324,207	$	898,256	$	884,105
Service revenue, net		9,692		11,270		35,343		30,746
Net sales	$	235,657	$	335,477	$	933,599	$	914,851

(1) Represents material procurement costs of products provided as an agent reported on a net basis.

(2) Amounts for fiscal 2018 are accounted for under ASC 605 (refer to Note 1(u)).

Gross billings to customers in the table above represents total amounts invoiced to customers during the period and is the sum of net sales plus material procurement costs of products the Company provides as an agent. The amount invoiced to customers for agency related services is the total of the related material procurement costs and fees for providing its services. Gross billings to customers are reflected in accounts receivable for unpaid invoices as of the end of the period. Additionally, material procurement costs of products the Company manages as an agent on behalf of its customers on hand as of the end of the period are reflected in inventory.  Both the amounts in accounts receivable and inventory impact the determination of net cash provided by (or used in) operations.

11

Contract Balances

The Company records accounts receivable when it has an unconditional right to consideration. Contract assets represent amounts recognized as revenue for which the Company does not have the unconditional right to consideration. All contract assets represent amounts related to invoices expected to be issued during the next 12-month period and are recorded as prepaid expenses and other current assets. Contract liabilities are recorded when cash payments are received or due in advance of performance. Contract liabilities consist of advance payments and deferred revenue, where the Company has unsatisfied performance obligations. Contract liabilities are classified as deferred revenue and are allocated between accrued liabilities and other long-term liabilities on our condensed consolidated balance sheet based on the timing of when the customer takes control of the asset or receives the benefit of the service. Payment terms vary by customer. The time between invoicing and when payment is due is not significant. Changes in the accounts receivable, contract assets and the deferred revenues balances during the nine months ended May 31, 2019 are as follows (in thousands):

	May 31,		September 1,
	2019		2018		$ Change
Accounts receivable	$	230,177	$	240,098	$	(9,921	)
Contract assets	$	—	$	1,136	$	(1,136	)
Deferred revenue	$	13,635	$	11,750	$	1,885

The decrease in contract assets of $1.1 million from September 1, 2018 to $0 as of May 31, 2019 was primarily driven by an increase in billing of amounts that had been recognized as revenue in prior periods and recorded as contract assets because they had not been billed. The increase in deferred revenue from $11.8 million to $13.6 million was due to additional funds collected for hosting and support contracts signed during the quarter in which billing occurred in advance of revenue recognition. During the nine months ended May 31, 2019, $5.3 million of revenue recognized was included in the deferred revenue balance at the beginning of the period, which was offset by additional deferrals during the period.

Disaggregation of Revenue

The Company disaggregates revenue by source of revenue and geography; no other level of disaggregation is required considering the type of products, customer, markets, contracts, duration of contracts, timing of transfer of control, and sales channels. The revenue by geography is disclosed in Note 11, and revenue by source is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	May 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Brazil	$	100,982	$	232,742	$	447,372	$	599,225
Specialty Memory		98,755		102,735		354,312		315,626
Specialty Compute and Storage Solutions		35,920		—		131,915		—
Total net sales	$	235,657	$	335,477	$	933,599	$	914,851

Revenue Allocated to Remaining Performance Obligations

The Company’s performance obligations related to product sales have a contractual duration of less than one year. The Company elected to apply the optional exemption practical expedient provided in ASC 606 and, therefore, is not required to disclose the aggregate amount of the transaction price allocated to those performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

Remaining performance obligations represent contracted revenue related to support services that have not yet been recognized. The Company expects to recognize revenue on the remaining performance obligations as follows (in thousands):

	May 31, 2019
Within 1 year	$	9,294
2-3 years		4,117
Thereafter		224
	$	13,635

12

(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 equivalents. 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. Due to the adoption of ASU 2016-18 in fiscal 2019, the presentation of the Statement of Cash Flows has been updated with the inclusion of restricted cash – refer to Note 1(u) for details.

(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) Derivative Financial Instrument

The Company records the assets or liabilities associated with derivative instruments at fair value based on Level 2 inputs in other current assets or other current liabilities, respectively, in the condensed consolidated balance sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting. See Note 4 for further details.

(h) Inventories

Inventories are valued at the lower of actual cost or net realizable 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 net realizable 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.

13

As of  May 31, 2019, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$33.9 million (or $8.6 million), of which (i) R$7.6 million (or $1.9 million) are fully vested ICMS credits, classified as prepaid and other current assets and R$24.3 million (or $6.1 million) are fully vested ICMS credits, classified as other noncurrent assets, and (ii) R$2.0 million (or $0.6 million) are ICMS credits subject to vesting in 48 equal monthly amounts, classified as prepaid expenses and other current assets (R$0.6 million or $0.2 million) and other noncurrent assets (R$1.4 million or $0.4 million). As of August 31, 2018, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$45.3 million (or $12.1 million), of which (i) R$16.6 million (or $4.4 million) are fully vested ICMS credits, classified as prepaid and other current assets and R$25.4 million (or $6.8 million) are fully vested ICMS credits, 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$0.6 million or $0.2 million) and other noncurrent assets (R$2.7 million or $0.7 million). It is expected that the excess ICMS credits will continue to be recovered in fiscal 2019 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 $8.0 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 agreement 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.  

In the first quarter of fiscal 2019, the Company sold R$17.7 million (or $4.5 million) of its ICMS credits that had been approved to be sold in December 2017. The payments are to be received in 22 installments starting in the second quarter of fiscal 2019 through fiscal 2020. The Company received a total of R$8.0 million (or $2.0 million) of the monthly installments during the nine months ended May 31, 2019.

(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*	2 to 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 31, 2019 and August 31, 2018, the carrying value of goodwill on the Company’s condensed consolidated balance sheet was $44.8 million and $45.4 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 carrying value. If the fair value of the reporting unit is determined to be more than its carrying 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 $44.8 million carrying value of goodwill on the Company’s condensed consolidated balance sheet as of May 31, 2019 is associated with the Company’s three reporting units (Specialty Memory, Brazil and Penguin). No impairment of goodwill was recognized through May 31, 2019.

14

The changes in the carrying amount of goodwill during the nine months ended May 31, 2019 and fiscal 2018 are as follows (in thousands):

	Total
Balance as of August 25, 2017	$	46,022
Addition from business acquisition (see Note 2)		4,575
Translation adjustments		(5,203	)
Balance as of August 31, 2018		45,394
Provisional adjustments from business acquisition    (see Note 2)		671
Translation adjustments		(1,260	)
Balance as of May 31, 2019	$	44,805

(l) Intangible Assets, Net

The following table summarizes the gross amounts and accumulated amortization of intangible assets by type as of May 31, 2019 and August 31, 2018 (dollars in thousands):

			May 31, 2019							August 31, 2018
	Weighted		Gross							Gross
	avg.		Carrying		Accumulated					Carrying		Accumulated
	life (yrs)		amount		amortization			Net		amount		amortization			Net
Customer relationships	5 - 7		$	14,700	$	(2,056	)	$	12,644	$	37,187	$	(22,968	)	$	14,219
Trademarks/tradename		7		12,200		(1,707	)		10,493		12,200		(400	)		11,800
Technology		4		250		(61	)		189		5,150		(4,914	)		236
Backlog	< 1			400		(400	)		—		400		(400	)		—
Total			$	27,550	$	(4,224	)	$	23,326	$	54,937	$	(28,682	)	$	26,255

Amortization expense related to intangible assets for the three and nine months ended May 31, 2019 totaled approximately $1.0 million and $3.0 million, respectively, and $1.2 million and $3.7 million, respectively for the corresponding periods of fiscal 2018. 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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Amortization of intangible assets classification    (in thousands):
Cost of sales	$	16	$	—	$	130	$	—
Research and development		—		245		—		735
Selling, general and administrative		960		976		2,882		2,992
Total	$	976	$	1,221	$	3,012	$	3,727

As of May 31, 2019, estimated amortization expenses of these intangible assets for the next five fiscal years and all years thereafter are as follows (in thousands):

Fiscal year ending August:	Amount
Remainder of fiscal 2019	$	976
2020		3,905
2021		3,905
2022		3,891
2023		3,843
2024 and thereafter		6,806
Total	$	23,326

15

(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 three and nine months ended May 31, 2019.

(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 income statements.

During the three and nine months ended May 31, 2019, the Company recorded $144 thousand and $3.5 million, respectively, and $6.9 million and $7.3 million, respectively, for the corresponding periods of 2018, of foreign exchange losses primarily related to its Brazilian operating subsidiaries.

16

(q) Share-Based Compensation

The Company accounts for share-based compensation under ASC 718, Compensation—Stock Compensation, which requires companies to recognize in their income statement 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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Share-based compensation expense by category    (in thousands):
Cost of sales	$	651	$	414	$	1,803	$	859
Research and development		673		325		1,967		887
Selling, general and administrative		3,109		2,558		8,866		4,853
Total	$	4,433	$	3,297	$	12,636	$	6,599

(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 revenue and related accounts receivable reflect a concentration of activity with certain customers (see Note 12). 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 three suppliers for the majority of its raw materials. At May 31, 2019 and August 31, 2018, the Company owed these three suppliers $113.5 million and $138.4 million, respectively, which was recorded as accounts payable and accrued liabilities. The inventory purchases from these suppliers during the three and nine months ended May 31, 2019 were $0.2 billion and $1.0 billion, respectively, and $0.4 billion and $1.1 billion, respectively for the corresponding periods of fiscal 2018.

(u) New Accounting Pronouncements

In October 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-16, Derivatives and Hedging (Topic 815) Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This standard amends ASC 815, Derivatives and Hedges, and permits the SOFR OIS rate as an approved rate to be used in valuing derivative instruments. ASU 2018-16 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018, on a prospective basis. The Company will not adopt this standard before the fiscal year in which it becomes effective. At this time, this standard is not expected to have a material impact on the Company’s consolidated financial statements.

17

In August 2018, the Securities and Exchange Commission (“SEC”) adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. The amendments became effective on November 5, 2018. The SEC staff subsequently indicated that it would not object if a filer’s first presentation of changes in shareholders’ equity is included in its Form 10-Q for the quarter that begins after the final rule’s effective date. Among the amendments is the requirement to present the changes in shareholders’ equity in the interim financial statements (either in a separate statement or footnote) in quarterly reports on Form 10-Q. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a consolidated income statement is required to be filed. The Company has implemented this requirement as of the secondquarter for fiscal 2019.

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 standard 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 November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies the inclusion and presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. The Company adopted ASU 2016-18 in fiscal 2019 on a retrospective basis.

The following table provides a reconciliation of cash and cash equivalents as previously reported within the Condensed Consolidated Statements of Cash Flows to cash, cash equivalents and restricted cash as currently reported in the Condensed Consolidated Statements of Cash Flows (in thousands):

	August 31, 2018		May 25, 2018		August 25, 2017
Cash, cash equivalents as previously reported in the    Condensed Consolidated Statements of Cash Flows	$	31,375	$	64,495	$	22,436
Restricted cash (Other noncurrent assets)		5,859		6,320		7,027
Cash, cash equivalents as currently reported in the    Condensed Consolidated Statements of Cash Flows	$	37,234	$	70,815	$	29,463

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 Company adopted ASU 2016-15 in fiscal 2019 on a retrospective basis. The adoption of this standard did not have a material impact on its consolidated financial statements.

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.  In July 2018, the FASB issued ASU 2018-11, “Leases (topic 842): Targeted Improvements”, which permits an entity to elect an additional transition method to the existing modified retrospective transition requirements. Under the new transition method, an entity could adopt the provisions of ASU No. 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with the previous lease guidance in ASC Topic 840. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.The Company currently expects to adopt the new standard using this optional transition method. However, as disclosed in Note 10(a), the Company has over $40.1 million in lease commitments at May 31, 2019 and believes that the adoption will have a material impact to the consolidated financial statements.

18

In May 2014, the FASB issued a new standard, ASU No. 2014-09, Revenue from Contracts with Customers, as amended, which supersedes nearly all existing revenue recognition guidance. The FASB has 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.The Company has adopted the new standard effective September 1, 2018 using the modified retrospective approach applied to all contracts that are not completed contracts at the date of initial adoption (i.e. September 1, 2018).

The Company has completed its assessment and implemented policies, processes, and controls to support the standard measurement and disclosure requirements. Under ASC 606, the Company recognized a change to the timing of revenue recognition in two areas. The first relates to customized product sales orders deemed NCNR. Under previous accounting standards, the Company recognized revenue and costs related to these sales when products were 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 including a reasonable profit margin upon customer cancellation 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 second change for the Company under ASC 606 relates to the timing of revenue recognition for customized product sales with terms that require the customer to purchase 100% of all parts built to fulfill the customers forecast. Under previous accounting standards, the Company recognized revenue and costs related to these sales when products are shipped or delivered to the end-customers based on the terms of the purchase orders and sales agreements. Under ASC 606, the Company recognizes revenue when control of the underlying assets passes to the customer, as the customer is able to both direct the use of, and obtain substantially all of the remaining benefit from the assets; the customer has the significant risks and rewards associated with ownership of the assets; and the Company has a present right to payment. For these sales, control passes when the Company has made these products available to the customer and under the terms of the agreement cannot repurpose them without the customer’s express consent.  Accordingly, the Company will recognize revenue at the point in time when products made to the customer’s forecast are completed and made available to the customer.

Results for reporting periods beginning after September 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the prior accounting under ASC 605. As a result of these changes, the Company recorded a net increase to opening retained earnings of $1.0 million as of September 1, 2018 due to the cumulative impact of adopting ASC 606, with a corresponding increase of $2.9 million in accounts receivables, $1.1 million in contract assets and a decrease of $3.0 million in inventory. Effective September 1, 2018, the Company recognized revenue on NCNR customized product sales over time and customized product sales where control has deemed to pass before shipment at the time that those products are made available to the customer as opposed to at the time of shipment.

The following tables summarize the impacts of ASC 606 adoption on the Company's condensed consolidated financial statements as of and for the periods ended May 31, 2019 (in thousands).

Selected Consolidated Balance Sheet Line Items:

	As of May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Accounts receivable	$	230,177	$	(7,464	)	$	222,713
Inventories	$	132,816	$	5,990		$	138,806
Prepaid expenses and other current assets	$	31,052	$	(6	)	$	31,046
Retained earnings	$	158,995	$	(1,480	)	$	157,515

19

Selected Consolidated Statement of Comprehensive Income Line Items:

	Three Months Ended May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Net sales	$	235,657	$	8,177		$	243,834
Cost of sales	$	192,622	$	6,315		$	198,937
Gross profit	$	43,035	$	1,862		$	44,897
Provision for income taxes	$	550	$	56		$	606
Net income	$	1,945	$	1,806		$	3,751
	Nine Months Ended May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Net sales	$	933,599	$	(3,441	)	$	930,158
Cost of sales	$	748,364	$	(3,001	)	$	745,363
Gross profit	$	185,235	$	(440	)	$	184,795
Provision for income taxes	$	12,813	$	6		$	12,819
Net income	$	45,707	$	(446	)	$	45,261

Selected Consolidated Statement of Cash Flows Line Items:

	Nine Months Ended May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Net income	$	45,707	$	(446	)	$	45,261
Adjustment to reconcile net income to    net cash provided by operating activities:
Changes in operating assets and liabilities
Accounts receivable	$	7,658	$	4,577		$	12,235
Inventories	$	82,771	$	(3,001	)	$	79,770
Prepaid expenses and other assets	$	1,787	$	(1,130	)	$	657
Net cash provided by operating activities	$	120,716	$	—		$	120,716

(2) Business Acquisitions

Penguin Computing

On June 8, 2018, SMART Global Holdings entered into an Agreement and Plan of Merger (the Penguin Merger Agreement), by and among SMART Global Holdings, Glacier Acquisition Sub, Inc., a Delaware corporation and a wholly-owned indirect subsidiary of the SMART Global Holdings (Merger Sub), Penguin Computing, Inc., a California corporation (Penguin) and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the representative of the holders of the securities of Penguin. Pursuant to the Penguin 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 Global Holdings (the Penguin Merger). SMART Global Holdings through one or more subsidiaries, paid the Penguin equityholders approximately $45 million at closing and assumed approximately $32.3 million of Penguin’s outstanding indebtedness. SMART Global Holdings financed the acquisition with net proceeds of $60.0 million from the Incremental Amendment (as defined in Note 7). Pursuant to the Penguin Merger Agreement, the former equityholders of Penguin were also entitled to cash earn-out payments of up to $25.0 million based on Penguin’s achievement of specified gross profit levels through December 31, 2018. SMART Global Holdings 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 Global Holdings also deposited $2.0 million of the purchase price into escrow as security for customary post-closing adjustments to the purchase price.

Under the acquisition method of accounting, the assets acquired and liabilities assumed of Penguin were recorded as of the acquisition date at their respective fair values. The reported consolidated financial condition after completion of the acquisition reflects these fair values. Penguin’s results of operations are included in the consolidated financial statements from the date of acquisition.

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The initial fair value of contingent consideration was estimated at the date of acquisition to be $3.0 million, which was recorded as a current liability. The Company determined the fair value of the obligations to pay contingent consideration using a real options technique which incorporates various estimates, including projected gross profit for the period, a volatility factor applied to gross profit based on year-on-year growth in gross profit of comparable companies, discount rates and the estimated amount of time until final payment is made. This fair value measurement is based on significant inputs not observable in the market, which ASU 820-10-35 refers to as Level 3 inputs. The resulting probability-weighted cash flows were discounted using the US Information Technology B Corporate Bond Yields of 4.06%, which is representative of a market participant assumption.

Subsequent to the acquisition date, the Company adjusted the contingent consideration to its current fair value with such changes recognized in income from operations. Changes in fair values reflect new information about the probability and timing of meeting the conditions of the gross profit target. As of December 31, 2018 and August 31, 2018, the fair value of the contingent consideration was $0.

A reconciliation of net cash exchanged in accordance with the Penguin Merger Agreement to the total purchase price as of the closing date of the merger, June 8, 2018, is presented below (in thousands):

Net cash for merger	$	42,316
Cash and cash equivalents acquired		2,769
Upfront payment in accordance with agreement		45,085
Post-closing adjustments in accordance with agreement		(3,479	)
Total consideration		41,606
Estimated fair value of contingent consideration		3,000
Total purchase price	$	44,606

The total purchase consideration has been allocated to the tangible and intangible assets acquired and liabilities assumed. The assets acquired and liabilities assumed at the acquisition date are based upon their respective fair values summarized below (in thousands):

	Previously Reported			Purchase Price Allocation Measurement period adjustment			As Adjusted
Tangible assets acquired	$	84,707		$	(671	)	$	84,036
Liabilities assumed		(72,226	)					(72,226	)
Identifiable intangible assets		27,550						27,550
Goodwill		4,575			671			5,246
Total net assets acquired	$	44,606		$	—		$	44,606

The provisional amounts presented in the table above pertained to the preliminary purchase price allocation reported in our Form 10-K for the fiscal year ended August 31, 2018. The measurement period adjustment, as recognized in the third quarter, is related to the reduction of inventory originally represented by the sellers as held by vendors for repairs. Upon further analysis, the Company confirmed with the vendors that the stated inventory or an obligation by the vendors to refund the Company did not exist as of June 8, 2018, the acquisition date.

We do not believe that the measurement period adjustments had a material impact on our consolidated statements of operations, balance sheets or cash flows in any periods previously reported. The final determination of the fair values were completed within the measurement period of up to one year from the acquisition date, and adjustments to provisional amounts that were identified during the measurement period were recorded in the reporting period in which the adjustment was determined.

Asset categories acquired included working capital, fixed assets, and identified intangible assets. The intangible assets are as follows (in thousands):

	Amount		Estimated Useful Life (in years)
Customer relationships	$	14,700	7 years
Trade name		12,200	7 years
Technology		250	4 years
Existing order backlog		400	< 1 year
	$	27,550

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The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. The Company does not expect any portion of this goodwill to be deductible for tax purposes. The goodwill attributable to the Penguin Merger has been recorded as a noncurrent asset and is not amortized, but is subject to an annual review for impairment. Factors that contributed to the recognition of goodwill include the broader reach and capabilities of the Company into new technologies, markets and channels that leverage its existing products and services. Penguin brings an outstanding customer base, solid products and strong supplier relationships to the Company in the specialty compute, storage and networking markets. Penguin will have substantially improved access to capital to drive additional investment in, and further development and growth of its products and services.

As part of the Penguin Merger, the Company recorded a net deferred tax liability of $1.6 million. This amount was primarily comprised of $7.9 million related to non-goodwill intangible assets and other fair market value adjustments, offset by net deferred tax assets including acquired net operating losses and research credit carryovers totaling $6.3 million.

During fiscal 2018 the Company incurred certain costs related to the merger, which are included in selling, general and administrative expense in the consolidated income statements. Merger-related costs include the following (in thousands):

	August 31, 2018
Professional fees	$	2,496
Employee retention bonuses		1,181
	$	3,677

For the period of June 8, 2018 (date of acquisition) to August 31, 2018, total revenues and net loss for Penguin amounted to $52.5 million and $0.7 million, respectively.

Unaudited Pro Forma Information

The results of operations related to the Penguin acquisition have been included in our consolidated income statements from the acquisition date. The following unaudited pro forma financial information presents our combined results of operations for the three and nine months ended May 25, 2018 as if the acquisition of Penguin and entering into the Incremental Amendment had occurred on August 27, 2016. The unaudited pro forma financial information is not necessarily indicative of what our consolidated results of operations actually would have been had the acquisition been completed on August 27, 2016. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company. The actual results may differ significantly from the pro forma results presented here due to many factors.

	Three Months Ended		Nine Months Ended
(In thousands, except per share data)	May 25, 2018		May 25, 2018
Total net sales	$	383,927	$	1,063,994
Net income	$	32,468	$	91,002
Earnings per share:
Basic	$	1.46	$	4.15
Diluted	$	1.39	$	3.95

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

• Incremental amortization expense related to the estimated fair value of identifiable intangible assets from the purchase price allocation.

• Incremental interest expense and amortization of debt issuance costs related to our Incremental Amendment.

• The adjustments to income tax expense as a result of the consolidation and pro forma adjustments.

Premiere Logistics

In February 2019, the Company acquired all of the outstanding shares of Premiere Customs Brokers, Inc. and Premiere Logistics, Inc., both privately-held California corporations, collectively Premiere Logistics. The primary purpose of this acquisition is to provide SMART with cost savings solutions in support of its own freight and logistics requirements. In connection with the acquisition, the Company paid upfront cash consideration of $192,000. Per the terms of the Stock Purchase Agreement, both parties have until July 31, 2019 to finalize the purchase price, which may be adjusted to reflect additional indebtedness and to finalize records presented at closing which may be adjusted to reflect changes to assets acquired or liabilities assumed by the Company.

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The assets acquired and liabilities assumed at the acquisition date are based on their respective fair values summarized below (in thousands):

Tangible assets acquired	$	277
Liabilities assumed		(168	)
Identified intangible assets		83
Total net assets acquired	$	192

Results of operations of the business acquired have been included in the Company’s consolidated financial statements subsequent to the date of acquisition. Pro forma financial information presented in these financial statements do not include any impact from Premiere Logistics because the impact is not material to the Company’s consolidated income statement. The revenue and net income earned by the businesses acquired following the acquisition are not material to our consolidated results of operations.

(3) 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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Affiliates:
Net sales	$	26,427	$	39,665	$	94,641	$	100,737

As of May 31, 2019 and August 31, 2018, amounts due from these affiliates were $10.5 million and $11.7 million, respectively.

(4) Foreign Currency Exchange Contracts

The Company transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company utilizes foreign exchange forward contracts to mitigate foreign currency exchange rate risk associated with foreign-currency-denominated assets and liabilities, primarily third party payables.  The Company does not use foreign currency contracts for speculative or trading purposes.

Foreign exchange forward contracts outstanding at May 31, 2019 are not designated as hedging instruments for hedge accounting purposes. Accordingly, any gains or losses resulting from changes in the fair value of the non-designated forward contracts are reported in other income (expense) in the condensed consolidated income statements. The gains and losses on these forward contracts generally offset the gains and losses associated with the underlying foreign-currency-denominated balances, which are also reported in other income (expense).  

As of May 31, 2019, the Company’s non-designated forward contacts resulted in a $0.6 million derivative asset. For the three and nine months ended May 31, 2019, the Company recognized realized losses in the amount of $0.5 million and $2.5 million, respectively, and net unrealized gains on the change in the fair value of the non-designated forward contracts in the amount of $2.1 million and $0.6 million, respectively.

(5) Balance Sheet Details

Inventories

Inventories consisted of the following (in thousands):

	May 31,		August 31,
	2019		2018
Raw materials	$	76,913	$	105,017
Work in process		12,234		35,977
Finished goods		43,669		80,425
Total inventories*	$	132,816	$	221,419

* As of May 31, 2019 and August 31, 2018, 22% and 22%, respectively, of total inventories represented inventory held under the Company's supply chain services.

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Prepaid Expenses and Other Current Assets

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

	May 31,		August 31,
	2019		2018
Indemnification claims receivable*	$	8,036	$	8,000
Unbilled service receivables		5,782		5,361
Prepaid R&D expense		3,830		2,590
Prepaid ICMS taxes in Brazil**		2,132		4,593
Prepaid income taxes		1,977		1,697
Revolver debt fees		952		952
Supplier advances		900		—
Derivative assets***		585		—
Prepayment for VAT and other transaction taxes		534		2,557
Other prepaid expenses and other current assets		6,324		6,293
Total prepaid expenses and other current assets	$	31,052	$	32,043

* See Note 2.

** See Note 1(i).

*** See Note 4.

Property and Equipment, Net

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

	May 31,		August 31,
	2019		2018
Office furniture, software, computers and equipment	$	22,708	$	21,267
Manufacturing equipment		117,269		97,192
Leasehold improvements*		26,173		24,011
		166,150		142,470
Less accumulated depreciation and amortization		99,015		85,855
Net property and equipment	$	67,135	$	56,615

* 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 31, 2019 was approximately $5.8 million and $17.1 million, respectively, and $4.8 million and $14.9 million, respectively for the corresponding periods of fiscal 2018.

Other Noncurrent Assets

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

	May 31,		August 31,
	2019		2018
Prepaid ICMS taxes in Brazil*	$	6,529	$	7,483
Deferred tax assets		1,999		2,430
Prepaid R&D expense		1,649		2,218
Tax receivable		1,621		1,237
Revolver debt fees		669		1,383
Restricted cash**		—		5,859
Other		2,136		1,839
Total other noncurrent assets	$	14,603	$	22,449

* See Note 1(i).

** See Note 7.

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Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	May 31,		August 31,
	2019		2018
Accrued employee compensation	$	9,663	$	19,501
Deferred revenue		9,294		8,292
Indemnification claims liability		4,521		4,521
Customer deposits		3,196		1,334
VAT and other transaction taxes payable		2,378		3,037
Accrued interest payable		1,872		2,457
Accrued warranty reserve		1,696		856
Income taxes payable		831		2,242
Accrued credits payable to customers		—		379
Other accrued liabilities		2,608		2,571
Total accrued liabilities	$	36,059	$	45,190

(6) 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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Provision for income taxes	$	550	$	5,505	$	12,813	$	15,256

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 31, 2019 decreased by $5.0 million and $2.4 million, respectively, as compared to the same periods in the prior year, primarily due to lower profits in certain non-U.S. jurisdictions subject to tax, partially offset by expiration of certain tax incentives.  

As of May 31, 2019, 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.

(7) Long-Term Debt

Amended Credit Agreement

On August 9, 2017, SMART Worldwide, SMART Modular Technologies (Global), Inc. (Global), and SMART Modular Technologies, Inc. (SMART Modular) entered into a Second Amended and Restated Credit Agreement (together with all related loan documents, as amended from time to time including as amended by the Incremental Amendment as defined below, 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 including Penguin, are collectively referred to as the Loan Parties and together with SMART Modular Technologies Sdn. Bhd. (SMART Malaysia), the Credit Group. The Amended Credit Agreement provides for a $165 million of initial term loans (the Initial Term Loan) with a maturity date of August 9, 2022, and $50 million 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.

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On June 8, 2018, SMART Worldwide, Global and SMART Modular entered into an Incremental Facility Agreement (the Incremental Amendment) which provided for incremental term loans under the Amended Credit Agreement in the aggregate amount of $60 million (the Incremental Term Loans) which Incremental Term Loans are on substantially identical terms as the Initial Term Loans. Pursuant to the Incremental Amendment, the borrowers agreed to pay the structuring advisor a $0.6 million fee pursuant to a separate agreement.

On October 2, 2018, SMART Worldwide, Global and SMART Modular entered into the Second Amendment to the Amended Credit Agreement (the Second Amendment) which did not become effective until October 25, 2018. As a result of the Second Amendment, the borrowers were granted a holiday from the obligation to make quarterly repayments of principal under the Initial Term Loans and the Incremental Term Loans at any time with respect to fiscal 2019. In addition, the borrowers were granted a holiday from the obligation to repay any loans as a result of excess cash flow that would otherwise be due with respect to any period of fiscal 2019.

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 Penguin) 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. The Incremental Amendment required the Credit Group to repay the Penguin Credit Facility, as defined below, and to pledge as collateral, all of the capital stock of and substantially all of the assets of Penguin within 60 days after the closing of the Penguin acquisition.

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 Initial Term Loans and Incremental Term Loans was 8.79% and 8.86% as of May 31, 2019, respectively.

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 ranging from 3.75% to 4.00% and the applicable margin for revolving loans with respect to base rate borrowings ranging from 2.75% to 3.00%.

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 Initial Term Loans equal to 2.5% of $165 million, or $4.1 million per fiscal quarter and, commencing on November 30, 2018, quarterly repayments of principal under the Incremental Term Loans equal to 2.5% of $60 million, or $1.5 million per fiscal quarter.  As a result of the Second Amendment, the borrowers were granted a holiday in fiscal 2019 from the obligation to make quarterly repayments of principal under the Initial Term Loans and the Incremental Term Loans. During the three and nine months ended May 31, 2019, the borrowers made scheduled principal payments of $0 million, and $4.1 million and $12.4 million respectively, for the corresponding periods of fiscal 2018.

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.

26

As a result of the Second Amendment, the borrowers were granted a holiday from the obligation to repay any loans as a result of excess cash flow that would otherwise be due with respect to any period of fiscal 2019. No mandatory prepayments were required for thethree months ended May 31, 2019 or for fiscal 2018.

On June 2, 2017, SMART Global Holdings contributed to Global $61.0 million from the proceeds of the initial public offering (IPO) closed in May 2017. Global in turn used the proceeds to pay down the original term loans under the Original Credit Agreement, as required under the ARCA, which 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 ARCA, the Credit Group entered into the Amended Credit Agreement with new term loans in the aggregate principal amount of $165 million with different lenders. 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 31, 2019 and August 31, 2018, the outstanding principal balance of all term loans under the Amended Credit Agreement was $208.5 million and there were no outstanding revolving loans. The fair value of the term loans as of May 31, 2019 and August 31, 2018 was estimated to be approximately $207.5 million. Since the Company used broker quotes from inactive markets and there were no unobservable inputs, this was treated as a Level 2 financial instrument.

Penguin Credit Agreement

On June 8, 2018 in connection with the Penguin acquisition, the Company assumed the outstanding balances due under that certain credit agreement dated January 8, 2018 between Penguin and Wells Fargo Capital Finance, LLC (the Penguin Credit Facility) which had an outstanding balance of $32.3 million as of June 8, 2018. In addition, on June 8, 2018, SMART Global Holdings entered into a guarantee with Wells Fargo Capital Finance, LLC (WFCF) whereby SMART Global Holdings guaranteed the repayment and full performance of Penguin under the Penguin Credit Facility. As required under the Incremental Amendment, the Company paid off the outstanding balance and terminated the agreement under the Penguin Credit Facility in August 2018.

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 $12.8 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. Prior to July 2018, SMART Brazil’s obligations under the BNDES 2013 Credit Agreement were guaranteed by Banco Itaú BBA S.A., or Itaú Bank, which guarantee was in turn secured by a guarantee from SMART Brazil and SMART do Brazil in favor of Itaú Bank 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 $1.6 million), which is shown on the Company’s condensed consolidated balance sheets as restricted cash in other noncurrent assets as of August 31, 2018.

Approximately half of the available debt under the BNDES 2013 Credit Agreement accrues interest at a fixed rate while the other half accrues interest at a floating rate. 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.

As of May 31, 2019, SMART Brazil’s outstanding debt under the BNDES 2013 Credit Agreement was R$3.2 million (or $0.8 million), of which R$1.6 million (or $0.4 million) accrues interest at the fixed rate of 3.5% and R$1.7 million (or $0.4 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 31, 2018, SMART Brazil’s outstanding debt under the BNDES 2013 Credit Agreement was R$12.9 million (or $3.4 million), of which R$6.3 million (or $1.7 million) accrues interest at the fixed rate of 3.5% and R$6.6 million (or $1.7 million) of the debt accrues interest at the floating rate of BZTJLP (5.0%), combined corresponding to an overall effective interest rate of 5.5% per annum.

27

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 Credit Agreements. Under the BNDES 2014 Credit Agreement, a total of R$52.8 million (or $13.4 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.

Prior to July 2018, SMART Brazil’s obligations under the BNDES 2014 Credit Agreement were also guaranteed by Itaú Bank, which guarantee was in turn secured by a guarantee from SMART Brazil and SMART do Brazil in favor of Itaú Bank 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 $4.3 million) of required cash balances, which is shown on the Company’s condensed consolidated balance sheets as restricted cash in other noncurrent assets as of August 31, 2018.

In July 2018, SMART Brazil entered into guarantee arrangements with Banco Votorantim S.A. which bank in turn replaced the guarantees of the BNDES Credit Agreements previously issued by Itaú Bank.  As a result, the guarantees with Itaú Bank were cancelled and Itaú Bank returned R$22.0 million (or $5.9 million) of committed balances to SMART Brazil in the first quarter of fiscal 2019. As such, the Company no longer has any restricted cash on its condensed consolidated balance sheets as of May 31, 2019.

The available 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 31, 2019 and August 31, 2018, SMART Brazil’s outstanding debt under the BNDES 2014 Credit Agreement was R$16.5 million (or $4.2 million) and R$26.4 million (or $7.0 million), respectively.

While the BNDES Credit 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 Credit Agreements as of May 31, 2019 and August 31, 2018 were estimated to be approximately $4.7 million and $9.4 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 Credit Agreements are classified as follows in the accompanying consolidating balance sheets (in thousands):

	May 31,			August 31,
	2019			2018
Term loans	$	208,500		$	208,500
BNDES 2013 principal balance		814			3,422
BNDES 2014 principal balance		4,182			7,030
Unamortized debt discount		(2,050	)		(2,520	)
Unamortized debt issuance costs		(3,931	)		(4,833	)
Net amount		207,515			211,599
Current portion of long-term debt		(19,087	)		(27,409	)
Long-term debt	$	188,428		$	184,190

The future minimum principal payments under the Amended Credit Agreement and the BNDES Credit Agreements as of May 31, 2019 are (in thousands):

	Amended Credit Agreement		BNDES		TOTAL
Fiscal year ending August:
Remainder of fiscal 2019	$	—	$	1,651	$	1,651
2020		22,500		3,345		25,845
2021		22,500		—		22,500
2022		163,500		—		163,500
Total	$	208,500	$	4,996	$	213,496

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(8) 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 funds held in general checking accounts, savings accounts and 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 assets and liabilities include the term loans under the Amended Credit Agreement and the BNDES Credit Agreements that are classified as long-term debt, and derivative financial instruments.

• 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’s Level 3 liability includes the contingent consideration related to Penguin acquisition (see Note 2), which had a fair value of $0 as of August 31, 2018. The Company did not have any financial instruments measured under Level 3 as of May 31, 2019.

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 31, 2019:
Assets
Cash and cash equivalents	$	126.1	$	—	$	—	$	126.1
Derivative financial instruments(2)		—		0.6		—		0.6
Total assets measured at fair value	$	126.1	$	0.6	$	—	$	126.7
Liabilities
Term loans(1)	$	—	$	207.5	$	—	$	207.5
BNDES Credit Agreements(1)		—		4.7		—		4.7
Total liabilities measured at fair value	$	—	$	212.2	$	—	$	212.2
Balances as of August 31, 2018:
Assets
Cash and cash equivalents	$	31.4	$	—	$	—	$	31.4
Restricted cash(3)		5.9		—		—		5.9
Total assets measured at fair value	$	37.3	$	—	$	—	$	37.3
Liabilities
Term loans	$	—	$	207.5	$	—	$	207.5
BNDES Credit Agreements		—		9.4		—		9.4
Acquisition-related contingent consideration		—		—		—		—
Total liabilities measured at fair value(1)	$	—	$	216.9	$	—	$	216.9

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

(2) Included in prepaid expenses and other current assets on the Company's condensed consolidated balance sheets – see Note 5.

(3) Included in other noncurrent assets on the Company’s condensed consolidated balance sheets – see Note 5.

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(9) 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 was amended and restated as of May 18, 2017 to be known as the SMART Global Holdings, Inc. Amended and Restated 2017 Share Incentive Plan. On January 29, 2019, the shareholders approved an amendment to the SMART Global Holdings, Inc. Amended and Restated 2017 Share Incentive Plan (as amended, the SGH Plan) which amendment increased the reserve under the SGH Plan by 1,500,000 shares effective as of February 1, 2019. The SGH Plan provides for grants of equity awards to employees, directors and consultants of SMART Global Holdings and its subsidiaries. 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 and restricted share units (RSUs) generally vest over a four-year period beginning on the grant date and generally have a ten-year term. Options granted after August 26, 2011 and before September 23, 2014 have an eight year term. As of May 31, 2019, there were 4,956,243 ordinary shares reserved for issuance under the SGH Plan, of which 1,555,969 ordinary shares were available for grant. As of August 31, 2018, there were 3,385,550 ordinary shares reserved for issuance under the SGH Plan, of which 251,965 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.

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 31,		May 25,			May 31,		May 25,
	2019		2018			2019		2018
Stock options:
Expected term (years)		—		6.25			6.25		6.25
Expected volatility		—		41.77	%	41.68% - 45.76%		41.77% - 46.27%
Risk-free interest rate		—		2.82	%	2.62% - 2.88%		2.15% - 2.82%
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 31, 2018		2,414		$	28.75		7.88	$	20,459
Options granted		321			21.90
Options exercised		(325	)		11.60
Options cancelled		(47	)		32.54
Options outstanding at May 31, 2019		2,363		$	30.11		7.54	$	2,266
Options exercisable at May 31, 2019		691		$	22.27		6.75	$	1,797
Options vested and expected to vest at May 31, 2019		2,363		$	30.11		7.54	$	2,266

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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 31, 2019 was $0 and $9.83 per share, respectively, and $18.31 and $18.22 per share, respectively for the corresponding periods of fiscal 2018. The total intrinsic value of employee stock options exercised in the three and nine months ended May 31, 2019 was $0.3 million and $6.1 million, respectively, and $7.4 million and $16.6 million, respectively for the corresponding periods of fiscal 2018. As of May 31, 2019, there was approximately $19.6 million of unrecognized compensation costs related to stock options under the SGH Plan, which will be recognized over a weighted average period of 2.57 years.

SGH Plan—Restricted Share Awards (RSAs), Restricted Share Units (RSUs) and Performance Share Units (PSUs)

A summary of the changes in RSAs, RSUs and PSUs 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 31, 2018		720		$	27.50	$	23,753
Awards granted		535			22.97
Awards vested and paid out		(175	)		21.24
Awards forfeited and cancelled		(43	)		31.42
Awards outstanding at May 31, 2019		1,037		$	26.06	$	17,666

The share-based compensation expense related to RSAs, RSUs and PSUs during the three and nine months ended May 31, 2019 was approximately $1.8 million and $4.9 million, respectively, and $0.7 million and $1.4 million, respectively, for the corresponding periods of fiscal 2018. The total fair value of shares vested during the three and nine months ended May 31, 2019 was approximately $1.2 million and $4.5 million, respectively, and $0 and $2.2 million for the corresponding periods of fiscal 2018.

In May 2019, the Company granted a performance-based restricted share unit award (PSU) which has both service and performance conditions. As of May 31, 2019, while the Company deemed it probable that the service condition would be met, the likelihood of meeting either of the two performance conditions for this award is not probable.  As such, there was no share-based compensation expense recognized for this award during the three and nine months ended May 31, 2019.  

Employee Share Purchase Plan

In January 2018, the Company’s shareholders approved the SGH 2018 Employee Share Purchase Plan (the Purchase Plan) under which an aggregate of 650,000 ordinary shares were available for purchase to eligible employees as of September 2018. 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. As of May 31, 2019, 109,910 ordinary shares have been purchased under the Purchase Plan and 540,090 ordinary shares are reserved for future purchases by eligible employees.

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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 from time-to-time, out of the funds of SMART Global Holdings lawfully available therefor.

Substantially 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. 5, 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 31, 2019 were approximately $0.6 million and $1.4 million, respectively, and $0.4 million and $0.9 million, respectively for the corresponding periods of fiscal 2018.

(10) 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 31, 2019 was $1.2 million and $3.5 million, respectively, and $0.8 million and $2.2 million, respectively, for the corresponding periods of fiscal 2018.

Future minimum lease payments under all leases as of May 31, 2019 are as follows (in thousands):

	Amount
Fiscal year ending August:
Remainder of fiscal 2019	$	895
2020		4,000
2021		3,501
2022		2,886
2023		2,871
Thereafter		25,923
Total	$	40,076

(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 31,			May 25,			May 31,			May 25,
	2019			2018			2019			2018
Beginning accrued warranty reserve	$	1,194		$	200		$	856		$	275
Warranty claims		(224	)		(193	)		(930	)		(458	)
Provision for product warranties		726			270			1,770			460
Ending accrued warranty reserve	$	1,696		$	277		$	1,696		$	277

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

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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 on 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.

Indemnification Claims by SanDisk

In August 2013, the Company completed the sale (the Sale) of substantially all of the business unit which was focused on solid state drives, to SanDisk Corporation (now a part of Western Digital). In connection with the Sale the sale agreement (Sale Agreement) contained certain indemnification obligations, including, among others, for losses arising from breaches of representations and warranties relating to the Sale. These indemnification obligations are subject to a number of limitations, including certain deductibles and caps and limited time periods for making indemnification claims. At the closing of the Sale, $30.5 million of the purchase price was placed into a third party escrow to secure certain of the Company’s indemnification obligations. The escrow was due to terminate on August 22, 2014 in the event that SanDisk did not timely submit a claim for indemnification. On August 21, 2014, SanDisk made a claim against the Company under the indemnification provisions of the Sale Agreement in connection with a lawsuit filed by Netlist, Inc. (Netlist) against SanDisk alleging that certain products sold in the Sale infringe various Netlist patents, which SanDisk in turn alleges would, if true, constitute a breach of representations and warranties under the Sale Agreement. Under the Sale Agreement, the Company’s indemnification obligation in respect of intellectual property matters, such as those claimed by SanDisk, is subject to a deductible of approximately $1.8 million and a cap of $60.9 million. As required in the Sale Agreement, the SanDisk claim purported to include a preliminary good faith estimate of SanDisk’s alleged indemnifiable losses, which estimate was greater than the Sale Agreement cap for intellectual property matters. The Company believes that the allegations giving rise to the indemnification claim are without merit and the Company is disputing SanDisk’s claim for indemnification. In addition, there may be other grounds for the Company to dispute the indemnification claim and/or the amounts of any indemnifiable losses of SanDisk. On December 4, 2014, SanDisk and the Company agreed to release from escrow the funds held in connection with this indemnification claim, however, the agreement to release the funds from escrow does not relieve the Company of its indemnification obligations to SanDisk, and SanDisk has not amended or reduced the amount of its indemnification claim.

Netlist

On September 10, 2012, SMART Modular filed a complaint in the Eastern District of California (the EDCA) 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.

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 EDCA case. Netlist later amended its complaint to add additional parties, including SMART Worldwide. 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 EDCA.

In January 2019 the parties entered into stipulated settlements to dismiss with prejudice, all claims and counterclaims in both actions with no amounts for damages being paid by either party and with each party to bear their own costs.

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(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 $29.7 million) (the First Assessment). The First 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 $1.5 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. 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 required that the tax authorities appeal the decision to CARF. The appeal on the Second Assessment was heard on December 11, 2018 and the Company received a unanimous favorable ruling rejecting the position of the tax authorities. The tax authorities did not file any request for clarification or appeal and, as a result, the Second Assessment was extinguished in May 2019.

On December 12, 2013, SMART Brazil received another notice of assessment in the amount of R$3.6 million (or $0.9 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 decisions in favor of SMART Brazil on the First Assessment and the Second Assessment were published.

The amount claimed by the tax authorities on the Third Assessment is subject to increases for interest and other charges, which resulted in a balance of approximately R$5.5 million (or $1.4 million) as of May 31, 2019. The amount claimed by the tax authorities on the Second Assessment and the Third Assessment were subject to increases for interest and other charges, which resulted in a combined assessment balance of approximately R$15.1 million (or $4.0 million) as August 31, 2018.

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

(11) 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.

34

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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Geographic Net Sales:
U.S.	$	79,483	$	32,448	$	250,140	$	114,304
Brazil		101,035		232,845		447,549		599,520
Asia		37,136		56,722		176,208		160,539
Europe		9,001		6,638		32,524		20,135
Other Americas		9,002		6,824		27,178		20,353
Total	$	235,657	$	335,477	$	933,599	$	914,851

	May 31,		August 31,
	2019		2018
Property and Equipment, Net:
U.S.	$	8,275	$	7,805
Brazil		51,317		41,611
Malaysia		5,463		4,749
Other		2,080		2,450
Total	$	67,135	$	56,615

(12) 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 31, 2019					May 25, 2018					May 31, 2019					May 25, 2018
	Amount		Percentage of net sales			Amount		Percentage of net sales			Amount		Percentage of net sales			Amount		Percentage of net sales
Customer A	$	47,889		20	%	$	140,628		42	%	$	186,315		20	%	$	331,854		36	%
Customer B		26,154		11	%		37,947		11	%		—		0	%		97,106		11	%
Customer C		23,917		10	%		39,277		12	%		112,149		12	%		106,282		12	%
Customer D		—		0	%		—		0	%		137,414		15	%		97,845		11	%
	$	97,960		41	%	$	217,852		65	%	$	435,878		47	%	$	633,087		70	%

As of May 31, 2019, four direct customers that represented less than 10% of net sales, Customers E, F G and H, accounted for approximately 18%, 15%, 13% and 12% of accounts receivable, respectively. As of August 31, 2018, four direct customers that represented less than 10% of net sales, Customers E, F, G and H, accounted for approximately 15%, 11%, 17% and 19% of accounts receivable, respectively.

(13) 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.

35

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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Numerator:
Net income	$	1,945	$	31,946	$	45,707	$	89,745
Denominator:
Weighted average shares outstanding:
Basic		23,005		22,206		22,824		21,932
Diluted		23,330		23,306		23,374		23,020
Earnings per share:
Basic	$	0.08	$	1.44	$	2.00	$	4.09
Diluted	$	0.08	$	1.37	$	1.96	$	3.90
Anti-dilutive weighted shares excluded from the    computation of diluted earnings per share		1,775		1,008		1,510		349

(14) 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 31,			May 25,			May 31,			May 25,
	2019			2018			2019			2018
Foreign currency gains (losses)	$	(144	)	$	(6,932	)	$	(3,481	)	$	(7,259	)
Other		241			(213	)		501			(53	)
Total other income (expense), net	$	97		$	(7,145	)	$	(2,980	)	$	(7,312	)

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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 31, 2018 (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. We have a leading market position worldwide, as measured by revenue, in specialty memory where we work closely with OEM customers to develop solutions, which incorporate customer-specific requirements. Our products are designed-in by OEMs in the networking, enterprise storage, telecom, industrial and other such vertical markets. In addition, as part of our global business, we have established a leading market position, as measured by market share, in Brazil as the largest in-country manufacturer of memory for desktops, notebooks and servers, as well as mobile memory for smartphones. As a result of our acquisition of Penguin Computing, Inc. (“Penguin”) in June 2018 and the creation of a new business unit, SMART Specialty Compute & Storage Solutions (“SCSS”), we have expanded our serviceable markets into areas requiring specialized computing platforms in artificial intelligence and machine learning, advanced modeling and high performance computing serving a broad base of enterprise and government customers. We believe our customers rely on us as a strategic supplier due to our application-specific products, quality and technical support, our global footprint and, in Brazil, our ability to provide locally manufactured products. We also provide customized, integrated supply chain services to certain OEM customers to assist them in the management and execution of their procurement processes.

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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 31, 2019 and May 25, 2018:

	Three Months Ended												Nine Months Ended
	May 31, 2019			% of sales*			May 25, 2018**			% of sales*			May 31, 2019			% of sales*			May 25, 2018**			% of sales*
	(in thousands, other than percentages and per share data)
Consolidated Income Statements:
Net sales	$	235,657			100	%	$	335,477			100	%	$	933,599			100	%	$	914,851			100	%
Cost of sales (1)(2)		192,622			82	%		257,423			77	%		748,364			80	%		705,944			77	%
Gross profit		43,035			18	%		78,054			23	%		185,235			20	%		208,907			23	%
Operating expenses:
Research and development (1) (2)		11,330			5	%		9,763			3	%		34,384			4	%		28,165			3	%
Selling, general and administrative (1) (2)		24,306			10	%		19,597			6	%		73,202			8	%		55,502			6	%
Total operating expenses		35,636			15	%		29,360			9	%		107,586			12	%		83,667			9	%
Income from operations		7,399			3	%		48,694			15	%		77,649			8	%		125,240			14	%
Other income (expense):
Interest expense, net		(5,001	)		(2	%)		(4,098	)		(1	%)		(16,149	)		(2	%)		(12,927	)		(1	%)
Other income (expense), net		97			0	%		(7,145	)		(2	%)		(2,980	)		0	%		(7,312	)		(1	%)
Total other expense		(4,904	)		(2	%)		(11,243	)		(3	%)		(19,129	)		(2	%)		(20,239	)		(2	%)
Income before income taxes		2,495			1	%		37,451			11	%		58,520			6	%		105,001			11	%
Provision for income taxes		550			0	%		5,505			2	%		12,813			1	%		15,256			2	%
Net income	$	1,945			1	%	$	31,946			10	%	$	45,707			5	%	$	89,745			10	%
Earnings per share:
Basic	$	0.08					$	1.44					$	2.00					$	4.09
Diluted	$	0.08					$	1.37					$	1.96					$	3.90
Shares used in computing earnings per share:
Basic		23,005						22,206						22,824						21,932
Diluted		23,330						23,306						23,374						23,020
* Summations may not compute precisely due to rounding.
(1) Includes share-based compensation expense as follows:
Cost of sales	$	651					$	414					$	1,803					$	859
Research and development		673						325						1,967						887
Selling, general and administrative		3,109						2,558						8,866						4,853
(2) Includes amortization of intangible assets expense as follows:
Cost of sales	$	16					$	—					$	130					$	—
Research and development		—						245						—						735
Selling, general and administrative		960						976						2,882						2,992

** Amounts for fiscal 2018 are accounted for under ASC 605 (refer to Note 1(u)).

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Three and NineMonths Ended May 31, 2019 as Compared to the Three and NineMonths Ended May 25, 2018

Net Sales

Net sales decreased by $99.8 million, or 29.8%, during the three months ended May 31, 2019 compared to the same period in the prior year, and increased by $18.7 million, or 2.0%, during the nine months ended May 31, 2019 compared to the same period in the prior year. Net sales were negatively impacted by lower mobile memory and DRAM sales in Brazil of $130.7 million, or a decline of 57.8%, and $143.1 million, or a decline of 24.7%, for the three and nine-month periods, respectively. These decreases were mainly due to lower customer demand for mobile memory product of 43% and 31% for the three and nine-month periods, respectively, as well as lower average selling prices for both mobile memory and DRAM products of 40% and 42% for the three-month period, respectively.The decreases in Brazil were partially offset by additional revenue from our new SCSS business, which was acquired in June 2018, of $35.9 million and $131.9 million for the three and nine-month periods, respectively. For the nine-month period, the decrease was also offset in part by higher Specialty DRAM and Flash sales, increasing by 12% and 13%, and higher average selling prices of 16% and 24%, respectively, due to product mix, as well as sales of new products and increased customer penetration.

Cost of Sales

Cost of sales decreased by $64.8 million, or 25.2%, during the three months ended May 31, 2019 compared to the same period in the prior year, and increased by $42.4 million, or 6.0%, during the nine months ended May 31, 2019 compared to the same period in the prior year.  The decrease for the three-month period was primarily due to a decrease of 29% in the cost of materials for the lower level of sales. The increase for the nine-month period was primarily due to higher production costs and a 4% increase in the cost of materials related to the increased revenue and additional costs for the new SCSS business. Included in the cost of sales increases were favorable foreign exchange impacts of $1.6 million and $6.4 million for the three and nine-month periods, respectively, due to locally sourced cost of sales in Brazil.

Gross Profit

Gross margin decreased to 18.3% and 19.8% during the three and nine months ended May 31, 2019 compared to 23.3% and 22.8% for the same periods in the prior year, respectively, primarily due to higher cost of sales for SCSS, as well as higher fixed manufacturing costs for Brazil.

Research and Development Expense

Research and development (“R&D”) expense increased by $1.6 million and $6.2 million, or 16.1% and 22.1%, during the three and nine months ended May 31, 2019, respectively, compared to the same periods in the prior year. The increases were primarily due to $2.2 million and $5.9 million higher costs from our new SCSS business for the three and nine-month periods, respectively. Included in the R&D expense increases were favorable foreign exchange impacts of $0.6 million and $2.2 million for the three and nine-month periods, respectively.  

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense increased by $4.7 million and $17.7 million, or 24.0% and 31.9%, during the three and nine months ended May 31, 2019, respectively, compared to the same periods in the prior year. The increases were primarily due to $9.2 million and $24.0 million higher costs from our new SCSS business for the three and nine-month periods, respectively, partially offset by lower intangible amortization expenses as some intangible assets became fully amortized, as well as by lower personnel-related expenses.Included in the SG&A expense increases were favorable foreign exchange impacts of $0.4 million and $1.4 million for the three and nine-month periods, respectively.  

Other Income (Expense)

Interest expense, net increased $0.9 million and $3.2 million, or 22.0% and 24.9%, during the three and nine months ended May 31, 2019, respectively, compared to the same period in the prior year, primarily due to higher interest expense from an incremental loan in connection with the Penguin acquisition. Other expense, net decreased by $7.2 million and $4.3 million for the three and nine-month periods, respectively, primarily due to foreign currency gains/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 SMART, 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 31, 2019 decreased by $5.0 million and $2.4 million, respectively, as compared to the same periods in the prior year, due to lower profits in certain non-U.S. jurisdictions subject to tax, partially offset by expiration of certain tax incentives.  

As of May 31, 2019, SMART 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. SMART 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.

Liquidity and Capital Resources

	Nine Months Ended
	May 31, 2019			May 25, 2018
	(in thousands)
Cash provided by operating activities	$	120,716		$	77,291
Cash used in investing activities		(30,189	)		(18,150	)
Cash provided by (used in) financing activities		770			(14,591	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash *		(2,432	)		(3,198	)
Net increase in cash, cash equivalents and restricted cash *	$	88,865		$	41,352
* Cash balance was adjusted to include restricted cash upon adoption of ASU 2016-18 in fiscal 2019.

At May 31, 2019, we had cash and cash equivalents of $126.1 million, of which $99.7 million was held outside of the United States.

In June 2018, we acquired Penguin for a purchase price of approximately $45 million and assumed approximately $32.3 million of Penguin’s outstanding indebtedness. We financed the acquisition with net proceeds from the $60 million Incremental Amendment as defined in Note 7.

In October 2018, we entered into the Second Amendment to the Amended Credit Agreement (as defined in Note 7). As a result of the Second Amendment, we were granted a holiday from the obligation to make quarterly repayments of principal under the Initial Term Loans and the Incremental Term Loans (as defined in Note 7) at any time with respect to fiscal 2019. In addition, we were granted a holiday from the obligation to repay any loans as a result of excess cash flow that would otherwise be due with respect to any period of fiscal 2019.

We expect that our existing cash and cash equivalents, line of credit 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 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 31, 2019, cash provided by operating activities was $120.7 million. The primary factors affecting our cash flows during this period were $45.7 million of net income, $36.2 million of non-cash related expenses and a $38.8 million change in our net operating assets and liabilities. The $38.8 million change in net operating assets and liabilities consisted of decreases of $7.7 million in accounts receivable, $82.8 million inventory and $0.9 million in prepaid expenses and other assets, offset by decreases of $44.9 million in accounts payable, $7.6 million in accrued expense and other liabilities. The decreases in inventory and accounts payable were primarily due to the reduction of inventory along all business areas as product lead times and average selling prices reduced.

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 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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Net cash used in investing activities during the nine months ended May 31, 2019 was $30.2million consisting primarily of purchases of property and equipment. 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 provided by financing activities during the nine months ended May 31, 2019 was $0.8 million, consisting primarily of $6.1 million proceeds from issuance of ordinary shares from share option exercises and employee share purchase plans, partially offset by $5.1 million long-term debt payments for the BNDES Credit Agreements and $0.2 million for withholding tax on restricted stock units. 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 initial public offering 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..

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 2. 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 U.S. dollars, increases in the value of the U.S. 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 Brazil reais. In addition, we have certain costs that are denominated in foreign currencies, and increases 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. Beginning in the first quarter of fiscal 2019, we entered into forward contracts to hedge a portion of our foreign exchange risk in Brazil.

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 Brazil reais. Approximately 48% and 66% of our net sales during the nine months ended May 31, 2019 and May 25, 2018, 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 income statements is primarily due 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 income statements are also impacted by foreign currency gains and losses recorded in Other 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 31, 2019 and May 25, 2018, we recorded $3.5 million and $7.3 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 $208.5 million aggregate balance under the term loans under the Amended Credit Agreement, the R$3.2 million (or $0.8 million) balance under the BNDES 2013 Credit Agreement and the R$16.5 million (or $4.2 million) balance under the BNDES 2014 Credit Agreement, in each case as of May 31, 2019. Although we did not have any revolving balances outstanding as of May 31, 2019, 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 revolving loans under the Amended Credit Agreement were 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 $2.6 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.

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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 31, 2019, 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.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information with respect to this item may be found in Note 10, 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 31, 2018, and in Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for our fiscal quarter ended November 30, 2018, except as set forth below.  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.

Our success in Brazil depends in part on Brazilian laws establishing local manufacturing requirements for electronics products. The elimination of or a reduction in the local manufacturing requirements, or our inability to secure the benefits of these regulations, could significantly reduce the demand for, and the profit margins on, our products in Brazil.

Successive Brazilian governmental administrations have adopted economic policies intended to foster innovation and investment in local production, stimulate job growth, provide stimulus to exports and defend local manufacturers in various industries. In recent decades, the Brazilian government identified the design and manufacture of ICs as a priority and established tax incentives and local content requirements intended to promote the development of the local IT industry. These incentives include the Lei da Informática—Processo Produtivo Básico (PPB/IT Program), the Support Program for the Technological Development of the Semiconductor and Display Industries (PADIS) and Lei do Bem. The PPB/IT program is intended to promote local manufacturing by allowing qualified companies to sell specified IT products, including desktops, notebooks, servers, SmartTVs and mobile products, with a reduced Brazilian federal excise tax rate, or the IPI, as compared to the rate that is required to be collected by non-qualified suppliers. The PPB/IT Program provides an incentive for certain customers to purchase products from us because they are not required to pay the regular level of IPI on their purchases. Under the PPB/IT Program, the percentage of local content required in specified IT products has increased significantly from 2006 to present, and the law that provides the PPB/IT Program benefits is currently legislated to remain in force through the end of 2029. For example, under the PPB/IT Program, from 2006 to present the total requirement of DRAM modules made with locally packaged DRAM ICs for notebook computers has increased from 0% to 80%. In order to receive the intended treatment as a PPB/IT Program supplier, our subsidiary, SMART do Brazil, is required to invest in research and development activities in an amount equal to 4% of its gross annual sales revenues reduced by the following: the cost of raw materials qualified as products eligible for the PPB/IT Program, including the ICs that are purchased from our other Brazilian subsidiary, SMART Brazil, and that are used to make memory modules; applicable sales taxes; the value of products exported out of Brazil; and the value of products shipped to the Manaus Free Trade Zone. Brazil’s local content requirements for the IT industry have been subject to criticism by other governments and international organizations.

In 2013, the European Union (EU), later joined by Japan, requested the establishment of a panel within the World Trade Organization (WTO) to determine whether certain measures enacted by the Brazilian government concerning tax incentives and local content requirements for the automotive and several other industries including the IT industry and including PADIS, the PPB/IT Program and Lei do Bem, are inconsistent with WTO rules. On August 30, 2017 the WTO panel released a report in which the panel concluded, among other things, that the tax exemptions, reductions and suspensions granted for the automotive, IT and other industries amount to subsidies that are inconsistent with the principles of the various WTO agreements, and the panel recommended that Brazil withdraw these subsidies. The parties all filed appeals to the report’s findings and hearings on the appeals were held in June 2018. On December 13, 2018, the appellate body of the WTO released its decision in which it upheld some of the panel’s findings that certain of the incentives available to us in Brazil are contrary to certain of the principles of the WTO agreements, and the appellate body reversed certain of the panel’s findings including the panel’s findings with respect to the time frame for Brazil to remediate the ways in which certain of the Brazil policies were considered to be contrary to the principles of the WTO agreements. The appellate body noted that it would not contravene the principles of the WTO agreements for Brazil to establish local manufacturing processes as a condition to benefit from incentives granted by the government, provided that such benefits do not impose a less favorable treatment on imported goods compared with locally manufactured goods. As an initial response to the WTO report, government authorities in Brazil released an ordinance in June 2019 which revoked 14 ordinances that established requirements under the PPB/IT Program, many of which were related to our local business. The revocation will become effective June 30, 2019 and it is expected that the authorities will revoke more ordinances related to the PPB/IT Program in the future. Government officials in Brazil have continued to

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express their intent to restructure the incentives to be consistent with the WTO principles in order to continue to support local industry. The June 2019 ordinance that revoked 14 prior ordinancesalso provided that the Ministry of Science, Technology, Innovation and Communication and the Ministry of Economics are requiredto enact replacement rules for the revoked PPB/IT Program ordinances by June 30, 2019. Based upon a number of public consultations published by the government, we expect that the replacement ordinances will provide a similar level of support for our business as was in place previously. On June 24, 2019, the authorities published the first of what we expect will be a series of new ordinances that provide a structure for revised support for local manufacturing. There can be no assurance, however, that the replacement ordinances  and programs will ultimately be restructured and implemented in a way or, if implemented, whether the restructured programs will provide the same or similar level of support and benefit to our business as is currently the case. 

While we cannot predict the outcome of the actions to be taken by the government of Brazil, the decision of the WTO could result in significant adverse changes to the local content rules and incentives available to us and our customers in Brazil. Any further revocations, suspensions, early terminations or other adverse changes in the local content requirements could significantly reduce the demand for, and the profit margins on, our products in Brazil, and would have a material adverse effect on our business, results of operations, cash flows and financial condition.

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 7, 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 is incorporated herein by reference.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 6. Exhibits

Exhibit No.	Exhibit Title
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.
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.
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.

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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 27, 2019	By:	/s/ AJAY SHAH
	Name:	Ajay Shah
	Title:	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)

Date: June 27, 2019	By:	/s/ JACK PACHECO
	Name:	Jack Pacheco
	Title:	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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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, 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 27, 2019	By:	/s/ AJAY SHAH
		Name:Ajay Shah
		Title: Chairman of the Board, President and 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 27, 2019	By:	/s/ JACK PACHECO
		Name: Jack Pacheco
		Title: Executive Vice President and Chief Financial Officer (Principal Financial and Accounting 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 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ajay Shah, Chairman of the Board, President and 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 27, 2019	By:	/s/ AJAY SHAH
		Name:Ajay Shah
		Title: Chairman of the Board, President and 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 31, 2019 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 27, 2019	By:	/s/ JACK PACHECO
		Name: Jack Pacheco
		Title: Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Document and Entity Information Document	9 Months Ended
	May 31, 2019 shares
Document And Entity Information [Abstract]
Entity Registrant Name	SMART GLOBAL HOLDINGS, INC.
Entity Central Index Key	0001616533
Entity Current Reporting Status	Yes
Current Fiscal Year End Date	--08-30
Entity Filer Category	Accelerated Filer
Entity Shell Company	false
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Address, Country	Cayman Islands
Document Type	10-Q
Trading Symbol	SGH
Document Period End Date	May 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding	23,081,158

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands		May 31, 2019	Aug. 31, 2018
Current assets:
Cash and cash equivalents		$ 126,099	$ 31,375
Accounts receivable, net of allowances of $200 and $225 as of May 31, 2019 and August 31, 2018, respectively		230,177	237,212
Inventories	[1]	132,816	221,419
Prepaid expenses and other current assets		31,052	32,043
Total current assets		520,144	522,049
Property and equipment, net		67,135	56,615
Other noncurrent assets		14,603	22,449
Intangible assets, net		23,326	26,255
Goodwill		44,805	45,394
Total assets		670,013	672,762
Current liabilities:
Accounts payable		177,519	223,186
Accrued liabilities		36,059	45,190
Current portion of long-term debt		19,087	27,409
Total current liabilities		232,665	295,785
Long-term debt		188,428	184,190
Other long-term liabilities		6,840	5,659
Total liabilities		427,933	485,634
Commitments and contingencies (see Note 10)
Shareholders’ equity:
Ordinary shares, $0.03 par value. Authorized 200,000 shares; issued and outstanding 23,081 and 22,480 as of May 31, 2019 and August 31, 2018, respectively		696	678
Additional paid-in capital		268,652	250,191
Accumulated other comprehensive loss		(186,263)	(175,995)
Retained earnings		158,995	112,254
Total shareholders’ equity		242,080	187,128
Total liabilities and shareholders’ equity		$ 670,013	$ 672,762

[1] As of May 31, 2019 and August 31, 2018, 22% and 22%, 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 31, 2019	Aug. 31, 2018
Statement Of Financial Position [Abstract]
Accounts receivable, net of allowances	$ 200	$ 225
Ordinary shares, par value	$ 0.03	$ 0.03
Ordinary shares, authorized	200,000,000	200,000,000
Ordinary shares, issued	23,081,000	22,480,000
Ordinary shares, outstanding	23,081,000	22,480,000

XML

Condensed Consolidated Income Statements (Unaudited) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended			9 Months Ended
		May 31, 2019	May 25, 2018		May 31, 2019	May 25, 2018
Income Statement [Abstract]
Net sales	[1]	$ 235,657	$ 335,477	[2]	$ 933,599	$ 914,851	[2]
Cost of sales		192,622	257,423		748,364	705,944
Gross profit		43,035	78,054		185,235	208,907
Operating expenses:
Research and development		11,330	9,763		34,384	28,165
Selling, general, and administrative		24,306	19,597		73,202	55,502
Total operating expenses		35,636	29,360		107,586	83,667
Income from operations		7,399	48,694		77,649	125,240
Interest expense, net		(5,001)	(4,098)		(16,149)	(12,927)
Other income (expense), net		97	(7,145)		(2,980)	(7,312)
Total other expense		(4,904)	(11,243)		(19,129)	(20,239)
Income before income taxes		2,495	37,451		58,520	105,001
Provision for income taxes		550	5,505		12,813	15,256
Net income		$ 1,945	$ 31,946		$ 45,707	$ 89,745
Earnings per share:
Basic		$ 0.08	$ 1.44		$ 2.00	$ 4.09
Diluted		$ 0.08	$ 1.37		$ 1.96	$ 3.90
Shares used in computing earnings per share:
Basic		23,005	22,206		22,824	21,932
Diluted		23,330	23,306		23,374	23,020

[1] Includes sales to affiliates of $26,427 and $94,641 in the three and nine months ended May 31, 2019, respectively, and $39,665 and $100,737 for the corresponding periods of fiscal 2018.   (see Note 3).

[2] Amounts for fiscal 2018 are accounted for under ASC 605 (refer to Note 1(u))

XML

Condensed Consolidated Income Statements (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2019	May 25, 2018	May 31, 2019	May 25, 2018
Income Statement [Abstract]
Sales to affiliates	$ 26,427	$ 94,641	$ 39,665	$ 100,737

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2019	May 25, 2018	May 31, 2019	May 25, 2018
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 1,945	$ 31,946	$ 45,707	$ 89,745
Other comprehensive income (loss):
Foreign currency translation	(16,209)	(17,974)	(10,268)	(18,740)
Comprehensive income (loss)	$ (14,264)	$ 13,972	$ 35,439	$ 71,005

XML

Condensed Consolidated Statement of Equity - USD ($) shares in Thousands, $ in Thousands	Total	Ordinary shares	Additional paid-in capital	Accumulated other comprehensive loss	Retained earnings (accumulated deficit)
Balances at Aug. 25, 2017	$ 82,396	$ 653	$ 232,162	$ (143,210)	$ (7,209)
Balances, Shares at Aug. 25, 2017		21,666
Stock-based compensation expense	1,605		1,605
Issuance of ordinary shares from exercises	922	$ 3	919
Issuance of ordinary shares from exercises, Shares		81
Issuance of ordinary shares from release of restricted stock units, Shares		4
Foreign currency translation	(7,177)			(7,177)
Net income	21,005				21,005
Balances at Nov. 24, 2017	98,751	$ 656	234,686	(150,387)	13,796
Balances, Shares at Nov. 24, 2017		21,751
Balances at Aug. 25, 2017	82,396	$ 653	232,162	(143,210)	(7,209)
Balances, Shares at Aug. 25, 2017		21,666
Foreign currency translation	(18,740)
Net income	89,745
Balances at May. 25, 2018	166,355	$ 672	245,097	(161,950)	82,536
Balances, Shares at May. 25, 2018		22,308
Balances at Nov. 24, 2017	98,751	$ 656	234,686	(150,387)	13,796
Balances, Shares at Nov. 24, 2017		21,751
Stock-based compensation expense	1,697		1,697
Issuance of ordinary shares from exercises	3,255	$ 9	3,246
Issuance of ordinary shares from exercises, Shares		300
Issuance of ordinary shares from release of restricted stock units		$ 1	(1)
Issuance of ordinary shares from release of restricted stock units, Shares		55
Foreign currency translation	6,411			6,411
Net income	36,794				36,794
Balances at Feb. 23, 2018	146,908	$ 666	239,628	(143,976)	50,590
Balances, Shares at Feb. 23, 2018		22,106
Stock-based compensation expense	3,297		3,297
Issuance of ordinary shares from exercises	2,178	$ 6	2,172
Issuance of ordinary shares from exercises, Shares		202
Foreign currency translation	(17,974)			(17,974)
Net income	31,946				31,946
Balances at May. 25, 2018	166,355	$ 672	245,097	(161,950)	82,536
Balances, Shares at May. 25, 2018		22,308
Balances at Aug. 31, 2018	187,128	$ 678	250,191	(175,995)	112,254
Balances, Shares at Aug. 31, 2018		22,480
Stock-based compensation expense	4,055		4,055
Issuance of ordinary shares from exercises	2,402	$ 6	2,396
Issuance of ordinary shares from exercises, Shares		210
Issuance of ordinary shares from release of restricted stock units		$ 2	(2)
Issuance of ordinary shares from release of restricted stock units, Shares		55
Issuance of ordinary shares from employee share purchase plan	968	$ 1	967
Issuance of ordinary shares from employee share purchase plan, Shares		36
Effect of adopting ASC 606	1,034				1,034
Foreign currency translation	3,102			3,102
Net income	30,976				30,976
Balances at Nov. 30, 2018	229,665	$ 687	257,607	(172,893)	144,264
Balances, Shares at Nov. 30, 2018		22,781
Balances at Aug. 31, 2018	187,128	$ 678	250,191	(175,995)	112,254
Balances, Shares at Aug. 31, 2018		22,480
Foreign currency translation	(10,268)
Net income	45,707
Balances at May. 31, 2019	242,080	$ 696	268,652	(186,263)	158,995
Balances, Shares at May. 31, 2019		23,081
Balances at Nov. 30, 2018	229,665	$ 687	257,607	(172,893)	144,264
Balances, Shares at Nov. 30, 2018		22,781
Stock-based compensation expense	4,148		4,148
Issuance of ordinary shares from exercises	1,071	$ 3	1,068
Issuance of ordinary shares from exercises, Shares		87
Issuance of ordinary shares from release of restricted stock units		$ 1	(1)
Issuance of ordinary shares from release of restricted stock units, Shares		67
Withholding tax on restricted stock units	(219)		(219)
Withholding tax on restricted stock units, Shares		(8)
Foreign currency translation	2,839			2,839
Net income	12,786				12,786
Balances at Mar. 01, 2019	250,290	$ 691	262,603	(170,054)	157,050
Balances, Shares at Mar. 01, 2019		22,927
Stock-based compensation expense	4,433		4,433
Issuance of ordinary shares from exercises	297	$ 1	296
Issuance of ordinary shares from exercises, Shares		28
Issuance of ordinary shares from release of restricted stock units		$ 2	(2)
Issuance of ordinary shares from release of restricted stock units, Shares		52
Issuance of ordinary shares from employee share purchase plan	1,335	$ 2	1,333
Issuance of ordinary shares from employee share purchase plan, Shares		74
Withholding tax on restricted stock units	(11)		(11)
Foreign currency translation	(16,209)			(16,209)
Net income	1,945				1,945
Balances at May. 31, 2019	$ 242,080	$ 696	$ 268,652	$ (186,263)	$ 158,995
Balances, Shares at May. 31, 2019		23,081

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands		9 Months Ended
		May 31, 2019	May 25, 2018
Cash flows from operating activities:
Net income		$ 45,707	$ 89,745
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		20,152	18,656
Share-based compensation		12,636	6,599
Provision for doubtful accounts receivable and sales returns		(24)	(13)
Deferred income tax benefit		430	(1,376)
(Gain) loss on disposal of property and equipment		21	230
Write off of long-term asset			250
Amortization of debt discounts and issuance costs		2,085	2,165
Changes in operating assets and liabilities:
Accounts receivable		7,658	(86,706)
Inventories		82,771	(27,940)
Prepaid expenses and other assets		1,787	(3,495)
Accounts payable		(44,885)	83,879
Accrued expenses and other liabilities		(7,622)	(4,703)
Net cash provided by operating activities		120,716	77,291
Cash flows from investing activities:
Capital expenditures and deposits on equipment		(30,112)	(18,251)
Proceeds from sale of property and equipment		71	101
Acquisition of business, net of cash acquired		(148)
Net cash used in investing activities		(30,189)	(18,150)
Cash flows from financing activities:
Fees paid for revolving line of credit financing			(768)
Long-term debt payment		(5,073)	(18,402)
Payment of costs related to initial public offering (IPO)			(1,591)
Proceeds from borrowings under revolving line of credit		235,500	277,500
Repayments of borrowings under revolving line of credit		(235,500)	(277,500)
Proceeds from issuance of ordinary shares from share option exercises		3,770	6,170
Proceeds from issuance of ordinary shares from employee share purchase plan		2,303
Withholding tax on restricted stock units		(230)
Net cash provided by (used in) financing activities		770	(14,591)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	[1]	(2,432)	(3,198)
Net increase in cash, cash equivalents and restricted cash	[1]	88,865	41,352
Cash, cash equivalents and restricted cash at beginning of period	[1]	37,234	29,463
Cash, cash equivalents and restricted cash at end of period	[1]	126,099	70,815
Cash paid during the period:
Cash paid for interest		14,888	11,048
Cash paid for income taxes, net of refunds		13,817	17,085
Noncash activities information:
Capital expenditures included in accounts payable at period end		$ 2,455	2,905
Unpaid debt fees related to term loan and revolver			469
Proceeds receivable from the exercise of stock options			$ (198)

[1] Cash balance was adjusted to include restricted cash upon adoption of ASU 2016-18 in fiscal 2019.

XML

Basis of Presentation and Principles of Consolidation

9 Months Ended

May 31, 2019

Accounting Policies [Abstract]

Basis of Presentation and Principles of Consolidation

Note1. 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 data compute and storage products and solutions sold primarily to original equipment manufacturers (OEMs) as well as end customers for enterprise applications. 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. headquarters 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 and nine months ended May 31, 2019 and May 25, 2018 were both 13-week and 39-week fiscal periods, respectively.

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

The Company’s revenues include products and services. The Company’s product revenues are predominantly derived from the sale of memory modules, Flash memory cards and storage products, which the Company designs and manufactures. The Company’s service revenues are derived from procurement, logistics, inventory management, temporary warehousing, kitting and packaging services. Also, a small portion of the Company’s product sales include extended warranty and on-site services, subscriptions to the Company’s high performance computing environment, professional services, software and related support.

The Company determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied.

The Company’s contracts are executed through a combination of written agreements along with purchase orders with all customers including certain general terms and conditions. Generally, purchase orders entail products, quantities and prices, which define the performance obligations of each party and are approved and accepted by the Company. The Company’s contracts with customers do not include extended payment terms. Payment terms vary by contract type and type of customer and generally range from 30 to 45 days from invoice. Additionally, taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer and deposited with the relevant government authority, are excluded from revenue.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer adjusted for estimated variable consideration.  Variable consideration may include discounts, rights of return, refunds, and other similar obligations. The Company allocates the transaction price to each distinct product and service based on its relative standalone selling price. The standalone selling price for products primarily involves the cost to produce the deliverable plus the anticipated margin and for services is estimated based on the Company’s approved list price.

In the normal course of business, the Company does not accept product returns unless the items are defective as manufactured. The Company establishes provisions for estimated returns and warranties. In addition, the Company does not typically provide customers with the right to a refund and does not transact for noncash consideration.

Standard Products

The Company’s main performance obligations are to deliver the requested goods to customers according to the agreed-upon shipping terms. The Company recognizes revenue when control transfers to the customer (i.e., when the Company’s performance obligation is satisfied). The Company invoices the customer and recognizes revenues for such delivery when control transfers based on shipping terms.

Customized Products

For customized product sales with terms that require the customer to purchase 100% of all parts built to fulfill the customers forecast, the Company recognizes revenue when control of the underlying assets passes to the customer, as the customer is able to both direct the use of, and obtain substantially all of the remaining benefit from the assets; the customer has the significant risks and rewards associated with ownership of the assets; and the Company has a present right to payment. For these sales, control passes when the Company has made these products available to the customer and under the terms of the agreement cannot repurpose them without the customer’s express consent.  Accordingly, the Company will recognize revenue at the point in time when products made to the customer’s order or forecast are completed and made available to the customer.

Non-cancellable nonrefundable, or NCNR, customized product sales are recognized over time on a cost incurred basis. The customer obtains control and benefits from the services as they are performed over the period based on the cost input measure in the production process for the NCNR customized product. The terms within the NCNR sales orders provide the Company with a legally enforceable right to receive payment including a reasonable profit margin upon customer cancellation for performance completed to date. Accordingly, the Company recognizes revenue over time as customized products listed within the NCNR orders are completed.

Computing Products and Services

A small portion of the Company’s product sales includes extended warranty and on-site services, subscriptions to the Company’s high performance computing environment, professional consulting services including installation and other services, and hardware and software related support. Each contract may contain multiple performance obligations, which requires the transaction price to be allocated to each performance obligation. The Company allocates the consideration to each performance obligation based on the relative selling price. The Company uses best-estimated selling price, determined as the best estimate of the price at which the Company would transact if it sold the deliverable regularly on a stand-alone basis.

For services provided to the customers over a period of time, such revenues are recognized over time in line with when the customer receives and consumes the benefit of the services. Extended warranty and on-site services, hardware support, software support, and subscription revenue for access to the Company’s high performance computing environment is deferred and recognized ratably over the contractual period as the Company transfers control as it satisfies its performance obligations over time as the services are rendered.  Subscription revenue for certain customers is recognized based on the contractual fee to use the high-performance-computing environment.  Professional consulting services revenue is recognized as the service is performed and the customer obtains control and benefits from the services as they are performed over the period.  The methods of recognizing revenue for each of these products and services were selected because they reflect a faithful depiction of the transfer of control.

Agency Services

The Company has service performance obligations for agency related services such as procurement, logistics, inventory management, temporary warehousing, kitting and packaging services for certain agency basis customers. The agency services are also known as supply chain services and the performance obligations for these services consist of customized, integrated supply chain services management to assist customers in the planning, execution and overall management of the procurement processes.

For these customers that are accounted for on an agency basis, 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 has separate agent performance obligations as follows: (a) procurement, logistics, and inventory management, (b) temporary warehousing, and (c) 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 (i.e. fee as a percentage of the associated material being procured, warehoused, kitted or packaged). The Company recognizes revenue for procurement, logistics and inventory management upon the completion of the services or performance obligation, typically upon shipment of the product, as the criteria for over time recognition is not met.  For temporary warehousing, kitting and packaging services, revenue is recognized over time, but the period of performance is typically very short in duration. There are no obligations subsequent to shipment of the product under the agency arrangements.

Contract Costs

As a practical expedient, the Company recognizes the incremental costs of obtaining a contract, specifically commission expenses that have an amortization period of less than twelve months, as an expense when incurred. Additionally, the Company has adopted an accounting policy to recognize shipping costs that occur after control transfers, if any, to the customer as a fulfillment activity. The Company records shipping and handling costs related to revenue transactions within cost of sales as a period cost.

Gross Billings and Net Sales

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 31,		May 25,		May 31,		May 25,
	2019		2018 (2)		2019		2018 (2)
Service revenue, net	$	9,692	$	11,270	$	35,343	$	30,746
Cost of purchased materials - service (1)		206,097		258,098		802,630		714,883
Gross billings for services		215,789		269,368		837,973		745,629
Product net sales		225,965		324,207		898,256		884,105
Gross billings to customers	$	441,754	$	593,575	$	1,736,229	$	1,629,734
Product net sales	$	225,965	$	324,207	$	898,256	$	884,105
Service revenue, net		9,692		11,270		35,343		30,746
Net sales	$	235,657	$	335,477	$	933,599	$	914,851

(1) Represents material procurement costs of products provided as an agent reported on a net basis.

(2) Amounts for fiscal 2018 are accounted for under ASC 605 (refer to Note 1(u)).

Gross billings to customers in the table above represents total amounts invoiced to customers during the period and is the sum of net sales plus material procurement costs of products the Company provides as an agent. The amount invoiced to customers for agency related services is the total of the related material procurement costs and fees for providing its services. Gross billings to customers are reflected in accounts receivable for unpaid invoices as of the end of the period. Additionally, material procurement costs of products the Company manages as an agent on behalf of its customers on hand as of the end of the period are reflected in inventory.  Both the amounts in accounts receivable and inventory impact the determination of net cash provided by (or used in) operations.

Contract Balances

The Company records accounts receivable when it has an unconditional right to consideration. Contract assets represent amounts recognized as revenue for which the Company does not have the unconditional right to consideration. All contract assets represent amounts related to invoices expected to be issued during the next 12-month period and are recorded as prepaid expenses and other current assets. Contract liabilities are recorded when cash payments are received or due in advance of performance. Contract liabilities consist of advance payments and deferred revenue, where the Company has unsatisfied performance obligations. Contract liabilities are classified as deferred revenue and are allocated between accrued liabilities and other long-term liabilities on our condensed consolidated balance sheet based on the timing of when the customer takes control of the asset or receives the benefit of the service. Payment terms vary by customer. The time between invoicing and when payment is due is not significant. Changes in the accounts receivable, contract assets and the deferred revenues balances during the nine months ended May 31, 2019 are as follows (in thousands):

	May 31,		September 1,
	2019		2018		$ Change
Accounts receivable	$	230,177	$	240,098	$	(9,921	)
Contract assets	$	—	$	1,136	$	(1,136	)
Deferred revenue	$	13,635	$	11,750	$	1,885

The decrease in contract assets of $1.1 million from September 1, 2018 to $0 as of May 31, 2019 was primarily driven by an increase in billing of amounts that had been recognized as revenue in prior periods and recorded as contract assets because they had not been billed. The increase in deferred revenue from $11.8 million to $13.6 million was due to additional funds collected for hosting and support contracts signed during the quarter in which billing occurred in advance of revenue recognition. During the nine months ended May 31, 2019, $5.3 million of revenue recognized was included in the deferred revenue balance at the beginning of the period, which was offset by additional deferrals during the period.

Disaggregation of Revenue

The Company disaggregates revenue by source of revenue and geography; no other level of disaggregation is required considering the type of products, customer, markets, contracts, duration of contracts, timing of transfer of control, and sales channels. The revenue by geography is disclosed in Note 11, and revenue by source is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	May 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Brazil	$	100,982	$	232,742	$	447,372	$	599,225
Specialty Memory		98,755		102,735		354,312		315,626
Specialty Compute and Storage Solutions		35,920		—		131,915		—
Total net sales	$	235,657	$	335,477	$	933,599	$	914,851

Revenue Allocated to Remaining Performance Obligations

The Company’s performance obligations related to product sales have a contractual duration of less than one year. The Company elected to apply the optional exemption practical expedient provided in ASC 606 and, therefore, is not required to disclose the aggregate amount of the transaction price allocated to those performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

Remaining performance obligations represent contracted revenue related to support services that have not yet been recognized. The Company expects to recognize revenue on the remaining performance obligations as follows (in thousands):

	May 31, 2019
Within 1 year	$	9,294
2-3 years		4,117
Thereafter		224
	$	13,635

(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 equivalents. 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. Due to the adoption of ASU 2016-18 in fiscal 2019, the presentation of the Statement of Cash Flows has been updated with the inclusion of restricted cash – refer to Note 1(u) for details.

(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) Derivative Financial Instrument

The Company records the assets or liabilities associated with derivative instruments at fair value based on Level 2 inputs in other current assets or other current liabilities, respectively, in the condensed consolidated balance sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting. See Note 4 for further details.

(h) Inventories

Inventories are valued at the lower of actual cost or net realizable 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 net realizable 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 31, 2019, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$33.9 million (or $8.6 million), of which (i) R$7.6 million (or $1.9 million) are fully vested ICMS credits, classified as prepaid and other current assets and R$24.3 million (or $6.1 million) are fully vested ICMS credits, classified as other noncurrent assets, and (ii) R$2.0 million (or $0.6 million) are ICMS credits subject to vesting in 48 equal monthly amounts, classified as prepaid expenses and other current assets (R$0.6 million or $0.2 million) and other noncurrent assets (R$1.4 million or $0.4 million). As of August 31, 2018, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$45.3 million (or $12.1 million), of which (i) R$16.6 million (or $4.4 million) are fully vested ICMS credits, classified as prepaid and other current assets and R$25.4 million (or $6.8 million) are fully vested ICMS credits, 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$0.6 million or $0.2 million) and other noncurrent assets (R$2.7 million or $0.7 million). It is expected that the excess ICMS credits will continue to be recovered in fiscal 2019 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 $8.0 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 agreement 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.  

In the first quarter of fiscal 2019, the Company sold R$17.7 million (or $4.5 million) of its ICMS credits that had been approved to be sold in December 2017. The payments are to be received in 22 installments starting in the second quarter of fiscal 2019 through fiscal 2020. The Company received a total of R$8.0 million (or $2.0 million) of the monthly installments during the nine months ended May 31, 2019.

(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*	2 to 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 31, 2019 and August 31, 2018, the carrying value of goodwill on the Company’s condensed consolidated balance sheet was $44.8 million and $45.4 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 carrying value. If the fair value of the reporting unit is determined to be more than its carrying 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 $44.8 million carrying value of goodwill on the Company’s condensed consolidated balance sheet as of May 31, 2019 is associated with the Company’s three reporting units (Specialty Memory, Brazil and Penguin). No impairment of goodwill was recognized through May 31, 2019.

The changes in the carrying amount of goodwill during the nine months ended May 31, 2019 and fiscal 2018 are as follows (in thousands):

	Total
Balance as of August 25, 2017	$	46,022
Addition from business acquisition (see Note 2)		4,575
Translation adjustments		(5,203	)
Balance as of August 31, 2018		45,394
Provisional adjustments from business acquisition    (see Note 2)		671
Translation adjustments		(1,260	)
Balance as of May 31, 2019	$	44,805

(l) Intangible Assets, Net

The following table summarizes the gross amounts and accumulated amortization of intangible assets by type as of May 31, 2019 and August 31, 2018 (dollars in thousands):

			May 31, 2019							August 31, 2018
	Weighted		Gross							Gross
	avg.		Carrying		Accumulated					Carrying		Accumulated
	life (yrs)		amount		amortization			Net		amount		amortization			Net
Customer relationships	5 - 7		$	14,700	$	(2,056	)	$	12,644	$	37,187	$	(22,968	)	$	14,219
Trademarks/tradename		7		12,200		(1,707	)		10,493		12,200		(400	)		11,800
Technology		4		250		(61	)		189		5,150		(4,914	)		236
Backlog	< 1			400		(400	)		—		400		(400	)		—
Total			$	27,550	$	(4,224	)	$	23,326	$	54,937	$	(28,682	)	$	26,255

Amortization expense related to intangible assets for the three and nine months ended May 31, 2019 totaled approximately $1.0 million and $3.0 million, respectively, and $1.2 million and $3.7 million, respectively for the corresponding periods of fiscal 2018. 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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Amortization of intangible assets classification    (in thousands):
Cost of sales	$	16	$	—	$	130	$	—
Research and development		—		245		—		735
Selling, general and administrative		960		976		2,882		2,992
Total	$	976	$	1,221	$	3,012	$	3,727

As of May 31, 2019, estimated amortization expenses of these intangible assets for the next five fiscal years and all years thereafter are as follows (in thousands):

Fiscal year ending August:	Amount
Remainder of fiscal 2019	$	976
2020		3,905
2021		3,905
2022		3,891
2023		3,843
2024 and thereafter		6,806
Total	$	23,326

(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 three and nine months ended May 31, 2019.

(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 income statements.

During the three and nine months ended May 31, 2019, the Company recorded $144 thousand and $3.5 million, respectively, and $6.9 million and $7.3 million, respectively, for the corresponding periods of 2018, 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 income statement 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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Share-based compensation expense by category    (in thousands):
Cost of sales	$	651	$	414	$	1,803	$	859
Research and development		673		325		1,967		887
Selling, general and administrative		3,109		2,558		8,866		4,853
Total	$	4,433	$	3,297	$	12,636	$	6,599

(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 revenue and related accounts receivable reflect a concentration of activity with certain customers (see Note 12). 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 three suppliers for the majority of its raw materials. At May 31, 2019 and August 31, 2018, the Company owed these three suppliers $113.5 million and $138.4 million, respectively, which was recorded as accounts payable and accrued liabilities. The inventory purchases from these suppliers during the three and nine months ended May 31, 2019 were $0.2 billion and $1.0 billion, respectively, and $0.4 billion and $1.1 billion, respectively for the corresponding periods of fiscal 2018.

(u) New Accounting Pronouncements

In October 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-16, Derivatives and Hedging (Topic 815) Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This standard amends ASC 815, Derivatives and Hedges, and permits the SOFR OIS rate as an approved rate to be used in valuing derivative instruments. ASU 2018-16 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018, on a prospective basis. The Company will not adopt this standard before the fiscal year in which it becomes effective. At this time, this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2018, the Securities and Exchange Commission (“SEC”) adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. The amendments became effective on November 5, 2018. The SEC staff subsequently indicated that it would not object if a filer’s first presentation of changes in shareholders’ equity is included in its Form 10-Q for the quarter that begins after the final rule’s effective date. Among the amendments is the requirement to present the changes in shareholders’ equity in the interim financial statements (either in a separate statement or footnote) in quarterly reports on Form 10-Q. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a consolidated income statement is required to be filed. The Company has implemented this requirement as of the second quarter for fiscal 2019.

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 standard 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 November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies the inclusion and presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. The Company adopted ASU 2016-18 in fiscal 2019 on a retrospective basis.

The following table provides a reconciliation of cash and cash equivalents as previously reported within the Condensed Consolidated Statements of Cash Flows to cash, cash equivalents and restricted cash as currently reported in the Condensed Consolidated Statements of Cash Flows (in thousands):

	August 31, 2018		May 25, 2018		August 25, 2017
Cash, cash equivalents as previously reported in the    Condensed Consolidated Statements of Cash Flows	$	31,375	$	64,495	$	22,436
Restricted cash (Other noncurrent assets)		5,859		6,320		7,027
Cash, cash equivalents as currently reported in the    Condensed Consolidated Statements of Cash Flows	$	37,234	$	70,815	$	29,463

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 Company adopted ASU 2016-15 in fiscal 2019 on a retrospective basis. The adoption of this standard did not have a material impact on its consolidated financial statements.

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.  In July 2018, the FASB issued ASU 2018-11, “Leases (topic 842): Targeted Improvements”, which permits an entity to elect an additional transition method to the existing modified retrospective transition requirements. Under the new transition method, an entity could adopt the provisions of ASU No. 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with the previous lease guidance in ASC Topic 840. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.The Company currently expects to adopt the new standard using this optional transition method. However, as disclosed in Note 10(a), the Company has over $40.1 million in lease commitments at May 31, 2019 and believes that the adoption will have a material impact to the consolidated financial statements.

In May 2014, the FASB issued a new standard, ASU No. 2014-09, Revenue from Contracts with Customers, as amended, which supersedes nearly all existing revenue recognition guidance. The FASB has 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. The Company has adopted the new standard effective September 1, 2018 using the modified retrospective approach applied to all contracts that are not completed contracts at the date of initial adoption (i.e. September 1, 2018).

The Company has completed its assessment and implemented policies, processes, and controls to support the standard measurement and disclosure requirements. Under ASC 606, the Company recognized a change to the timing of revenue recognition in two areas. The first relates to customized product sales orders deemed NCNR. Under previous accounting standards, the Company recognized revenue and costs related to these sales when products were 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 including a reasonable profit margin upon customer cancellation 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 second change for the Company under ASC 606 relates to the timing of revenue recognition for customized product sales with terms that require the customer to purchase 100% of all parts built to fulfill the customers forecast. Under previous accounting standards, the Company recognized revenue and costs related to these sales when products are shipped or delivered to the end-customers based on the terms of the purchase orders and sales agreements. Under ASC 606, the Company recognizes revenue when control of the underlying assets passes to the customer, as the customer is able to both direct the use of, and obtain substantially all of the remaining benefit from the assets; the customer has the significant risks and rewards associated with ownership of the assets; and the Company has a present right to payment. For these sales, control passes when the Company has made these products available to the customer and under the terms of the agreement cannot repurpose them without the customer’s express consent.  Accordingly, the Company will recognize revenue at the point in time when products made to the customer’s forecast are completed and made available to the customer.

Results for reporting periods beginning after September 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the prior accounting under ASC 605. As a result of these changes, the Company recorded a net increase to opening retained earnings of $1.0 million as of September 1, 2018 due to the cumulative impact of adopting ASC 606, with a corresponding increase of $2.9 million in accounts receivables, $1.1 million in contract assets and a decrease of $3.0 million in inventory. Effective September 1, 2018, the Company recognized revenue on NCNR customized product sales over time and customized product sales where control has deemed to pass before shipment at the time that those products are made available to the customer as opposed to at the time of shipment.

The following tables summarize the impacts of ASC 606 adoption on the Company's condensed consolidated financial statements as of and for the periods ended May 31, 2019 (in thousands).

Selected Consolidated Balance Sheet Line Items:

	As of May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Accounts receivable	$	230,177	$	(7,464	)	$	222,713
Inventories	$	132,816	$	5,990		$	138,806
Prepaid expenses and other current assets	$	31,052	$	(6	)	$	31,046
Retained earnings	$	158,995	$	(1,480	)	$	157,515

Selected Consolidated Statement of Comprehensive Income Line Items:

	Three Months Ended May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Net sales	$	235,657	$	8,177		$	243,834
Cost of sales	$	192,622	$	6,315		$	198,937
Gross profit	$	43,035	$	1,862		$	44,897
Provision for income taxes	$	550	$	56		$	606
Net income	$	1,945	$	1,806		$	3,751
	Nine Months Ended May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Net sales	$	933,599	$	(3,441	)	$	930,158
Cost of sales	$	748,364	$	(3,001	)	$	745,363
Gross profit	$	185,235	$	(440	)	$	184,795
Provision for income taxes	$	12,813	$	6		$	12,819
Net income	$	45,707	$	(446	)	$	45,261

Selected Consolidated Statement of Cash Flows Line Items:

	Nine Months Ended May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Net income	$	45,707	$	(446	)	$	45,261
Adjustment to reconcile net income to    net cash provided by operating activities:
Changes in operating assets and liabilities
Accounts receivable	$	7,658	$	4,577		$	12,235
Inventories	$	82,771	$	(3,001	)	$	79,770
Prepaid expenses and other assets	$	1,787	$	(1,130	)	$	657
Net cash provided by operating activities	$	120,716	$	—		$	120,716

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Business Acquisitions

9 Months Ended

May 31, 2019

Business Combinations [Abstract]

Business Acquisitions

(2) Business Acquisitions

Penguin Computing

On June 8, 2018, SMART Global Holdings entered into an Agreement and Plan of Merger (the Penguin Merger Agreement), by and among SMART Global Holdings, Glacier Acquisition Sub, Inc., a Delaware corporation and a wholly-owned indirect subsidiary of the SMART Global Holdings (Merger Sub), Penguin Computing, Inc., a California corporation (Penguin) and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the representative of the holders of the securities of Penguin. Pursuant to the Penguin 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 Global Holdings (the Penguin Merger). SMART Global Holdings through one or more subsidiaries, paid the Penguin equityholders approximately $45 million at closing and assumed approximately $32.3 million of Penguin’s outstanding indebtedness. SMART Global Holdings financed the acquisition with net proceeds of $60.0 million from the Incremental Amendment (as defined in Note 7). Pursuant to the Penguin Merger Agreement, the former equityholders of Penguin were also entitled to cash earn-out payments of up to $25.0 million based on Penguin’s achievement of specified gross profit levels through December 31, 2018. SMART Global Holdings 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 Global Holdings also deposited $2.0 million of the purchase price into escrow as security for customary post-closing adjustments to the purchase price.

Under the acquisition method of accounting, the assets acquired and liabilities assumed of Penguin were recorded as of the acquisition date at their respective fair values. The reported consolidated financial condition after completion of the acquisition reflects these fair values. Penguin’s results of operations are included in the consolidated financial statements from the date of acquisition.

The initial fair value of contingent consideration was estimated at the date of acquisition to be $3.0 million, which was recorded as a current liability. The Company determined the fair value of the obligations to pay contingent consideration using a real options technique which incorporates various estimates, including projected gross profit for the period, a volatility factor applied to gross profit based on year-on-year growth in gross profit of comparable companies, discount rates and the estimated amount of time until final payment is made. This fair value measurement is based on significant inputs not observable in the market, which ASU 820-10-35 refers to as Level 3 inputs. The resulting probability-weighted cash flows were discounted using the US Information Technology B Corporate Bond Yields of 4.06%, which is representative of a market participant assumption.

Subsequent to the acquisition date, the Company adjusted the contingent consideration to its current fair value with such changes recognized in income from operations. Changes in fair values reflect new information about the probability and timing of meeting the conditions of the gross profit target. As of December 31, 2018 and August 31, 2018, the fair value of the contingent consideration was $0.

A reconciliation of net cash exchanged in accordance with the Penguin Merger Agreement to the total purchase price as of the closing date of the merger, June 8, 2018, is presented below (in thousands):

Net cash for merger	$	42,316
Cash and cash equivalents acquired		2,769
Upfront payment in accordance with agreement		45,085
Post-closing adjustments in accordance with agreement		(3,479	)
Total consideration		41,606
Estimated fair value of contingent consideration		3,000
Total purchase price	$	44,606

The total purchase consideration has been allocated to the tangible and intangible assets acquired and liabilities assumed. The assets acquired and liabilities assumed at the acquisition date are based upon their respective fair values summarized below (in thousands):

	Previously Reported			Purchase Price Allocation Measurement period adjustment			As Adjusted
Tangible assets acquired	$	84,707		$	(671	)	$	84,036
Liabilities assumed		(72,226	)					(72,226	)
Identifiable intangible assets		27,550						27,550
Goodwill		4,575			671			5,246
Total net assets acquired	$	44,606		$	—		$	44,606

The provisional amounts presented in the table above pertained to the preliminary purchase price allocation reported in our Form 10-K for the fiscal year ended August 31, 2018. The measurement period adjustment, as recognized in the third quarter, is related to the reduction of inventory originally represented by the sellers as held by vendors for repairs. Upon further analysis, the Company confirmed with the vendors that the stated inventory or an obligation by the vendors to refund the Company did not exist as of June 8, 2018, the acquisition date.

We do not believe that the measurement period adjustments had a material impact on our consolidated statements of operations, balance sheets or cash flows in any periods previously reported. The final determination of the fair values were completed within the measurement period of up to one year from the acquisition date, and adjustments to provisional amounts that were identified during the measurement period were recorded in the reporting period in which the adjustment was determined.

Asset categories acquired included working capital, fixed assets, and identified intangible assets. The intangible assets are as follows (in thousands):

	Amount		Estimated Useful Life (in years)
Customer relationships	$	14,700	7 years
Trade name		12,200	7 years
Technology		250	4 years
Existing order backlog		400	< 1 year
	$	27,550

The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. The Company does not expect any portion of this goodwill to be deductible for tax purposes. The goodwill attributable to the Penguin Merger has been recorded as a noncurrent asset and is not amortized, but is subject to an annual review for impairment. Factors that contributed to the recognition of goodwill include the broader reach and capabilities of the Company into new technologies, markets and channels that leverage its existing products and services. Penguin brings an outstanding customer base, solid products and strong supplier relationships to the Company in the specialty compute, storage and networking markets. Penguin will have substantially improved access to capital to drive additional investment in, and further development and growth of its products and services.

As part of the Penguin Merger, the Company recorded a net deferred tax liability of $1.6 million. This amount was primarily comprised of $7.9 million related to non-goodwill intangible assets and other fair market value adjustments, offset by net deferred tax assets including acquired net operating losses and research credit carryovers totaling $6.3 million.

During fiscal 2018 the Company incurred certain costs related to the merger, which are included in selling, general and administrative expense in the consolidated income statements. Merger-related costs include the following (in thousands):

	August 31, 2018
Professional fees	$	2,496
Employee retention bonuses		1,181
	$	3,677

For the period of June 8, 2018 (date of acquisition) to August 31, 2018, total revenues and net loss for Penguin amounted to $52.5 million and $0.7 million, respectively.

Unaudited Pro Forma Information

The results of operations related to the Penguin acquisition have been included in our consolidated income statements from the acquisition date. The following unaudited pro forma financial information presents our combined results of operations for the three and nine months ended May 25, 2018 as if the acquisition of Penguin and entering into the Incremental Amendment had occurred on August 27, 2016. The unaudited pro forma financial information is not necessarily indicative of what our consolidated results of operations actually would have been had the acquisition been completed on August 27, 2016. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company. The actual results may differ significantly from the pro forma results presented here due to many factors.

	Three Months Ended		Nine Months Ended
(In thousands, except per share data)	May 25, 2018		May 25, 2018
Total net sales	$	383,927	$	1,063,994
Net income	$	32,468	$	91,002
Earnings per share:
Basic	$	1.46	$	4.15
Diluted	$	1.39	$	3.95

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

• Incremental amortization expense related to the estimated fair value of identifiable intangible assets from the purchase price allocation.

• Incremental interest expense and amortization of debt issuance costs related to our Incremental Amendment.

• The adjustments to income tax expense as a result of the consolidation and pro forma adjustments.

Premiere Logistics

In February 2019, the Company acquired all of the outstanding shares of Premiere Customs Brokers, Inc. and Premiere Logistics, Inc., both privately-held California corporations, collectively Premiere Logistics. The primary purpose of this acquisition is to provide SMART with cost savings solutions in support of its own freight and logistics requirements. In connection with the acquisition, the Company paid upfront cash consideration of $192,000. Per the terms of the Stock Purchase Agreement, both parties have until July 31, 2019 to finalize the purchase price, which may be adjusted to reflect additional indebtedness and to finalize records presented at closing which may be adjusted to reflect changes to assets acquired or liabilities assumed by the Company.

The assets acquired and liabilities assumed at the acquisition date are based on their respective fair values summarized below (in thousands):

Tangible assets acquired	$	277
Liabilities assumed		(168	)
Identified intangible assets		83
Total net assets acquired	$	192

Results of operations of the business acquired have been included in the Company’s consolidated financial statements subsequent to the date of acquisition. Pro forma financial information presented in these financial statements do not include any impact from Premiere Logistics because the impact is not material to the Company’s consolidated income statement. The revenue and net income earned by the businesses acquired following the acquisition are not material to our consolidated results of operations.

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Related Party Transactions

9 Months Ended

May 31, 2019

Related Party Transactions [Abstract]

Related Party Transactions

(3) 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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Affiliates:
Net sales	$	26,427	$	39,665	$	94,641	$	100,737

As of May 31, 2019 and August 31, 2018, amounts due from these affiliates were $10.5 million and $11.7 million, respectively.

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Foreign Currency Exchange Contracts

9 Months Ended

May 31, 2019

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Foreign Currency Exchange Contracts

(4) Foreign Currency Exchange Contracts

The Company transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company utilizes foreign exchange forward contracts to mitigate foreign currency exchange rate risk associated with foreign-currency-denominated assets and liabilities, primarily third party payables.  The Company does not use foreign currency contracts for speculative or trading purposes.

Foreign exchange forward contracts outstanding at May 31, 2019 are not designated as hedging instruments for hedge accounting purposes. Accordingly, any gains or losses resulting from changes in the fair value of the non-designated forward contracts are reported in other income (expense) in the condensed consolidated income statements. The gains and losses on these forward contracts generally offset the gains and losses associated with the underlying foreign-currency-denominated balances, which are also reported in other income (expense).  

As of May 31, 2019, the Company’s non-designated forward contacts resulted in a $0.6 million derivative asset. For the three and nine months ended May 31, 2019, the Company recognized realized losses in the amount of $0.5 million and $2.5 million, respectively, and net unrealized gains on the change in the fair value of the non-designated forward contracts in the amount of $2.1 million and $0.6 million, respectively.

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Balance Sheet Details

9 Months Ended

May 31, 2019

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Details

(5) Balance Sheet Details

Inventories

Inventories consisted of the following (in thousands):

	May 31,		August 31,
	2019		2018
Raw materials	$	76,913	$	105,017
Work in process		12,234		35,977
Finished goods		43,669		80,425
Total inventories*	$	132,816	$	221,419

* As of May 31, 2019 and August 31, 2018, 22% and 22%, 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 31,		August 31,
	2019		2018
Indemnification claims receivable*	$	8,036	$	8,000
Unbilled service receivables		5,782		5,361
Prepaid R&D expense		3,830		2,590
Prepaid ICMS taxes in Brazil**		2,132		4,593
Prepaid income taxes		1,977		1,697
Revolver debt fees		952		952
Supplier advances		900		—
Derivative assets***		585		—
Prepayment for VAT and other transaction taxes		534		2,557
Other prepaid expenses and other current assets		6,324		6,293
Total prepaid expenses and other current assets	$	31,052	$	32,043

* See Note 2.

** See Note 1(i).

*** See Note 4.

Property and Equipment, Net

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

	May 31,		August 31,
	2019		2018
Office furniture, software, computers and equipment	$	22,708	$	21,267
Manufacturing equipment		117,269		97,192
Leasehold improvements*		26,173		24,011
		166,150		142,470
Less accumulated depreciation and amortization		99,015		85,855
Net property and equipment	$	67,135	$	56,615

* 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 31, 2019 was approximately $5.8 million and $17.1 million, respectively, and $4.8 million and $14.9 million, respectively for the corresponding periods of fiscal 2018.

Other Noncurrent Assets

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

	May 31,		August 31,
	2019		2018
Prepaid ICMS taxes in Brazil*	$	6,529	$	7,483
Deferred tax assets		1,999		2,430
Prepaid R&D expense		1,649		2,218
Tax receivable		1,621		1,237
Revolver debt fees		669		1,383
Restricted cash**		—		5,859
Other		2,136		1,839
Total other noncurrent assets	$	14,603	$	22,449

* See Note 1(i).

** See Note 7.

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	May 31,		August 31,
	2019		2018
Accrued employee compensation	$	9,663	$	19,501
Deferred revenue		9,294		8,292
Indemnification claims liability		4,521		4,521
Customer deposits		3,196		1,334
VAT and other transaction taxes payable		2,378		3,037
Accrued interest payable		1,872		2,457
Accrued warranty reserve		1,696		856
Income taxes payable		831		2,242
Accrued credits payable to customers		—		379
Other accrued liabilities		2,608		2,571
Total accrued liabilities	$	36,059	$	45,190

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Income Taxes

9 Months Ended

May 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

(6) 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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Provision for income taxes	$	550	$	5,505	$	12,813	$	15,256

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 31, 2019 decreased by $5.0 million and $2.4 million, respectively, as compared to the same periods in the prior year, primarily due to lower profits in certain non-U.S. jurisdictions subject to tax, partially offset by expiration of certain tax incentives.  

As of May 31, 2019, 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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Long-Term Debt

9 Months Ended

May 31, 2019

Debt Disclosure [Abstract]

Long-Term Debt

(7) Long-Term Debt

Amended Credit Agreement

On August 9, 2017, SMART Worldwide, SMART Modular Technologies (Global), Inc. (Global), and SMART Modular Technologies, Inc. (SMART Modular) entered into a Second Amended and Restated Credit Agreement (together with all related loan documents, as amended from time to time including as amended by the Incremental Amendment as defined below, 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 including Penguin, are collectively referred to as the Loan Parties and together with SMART Modular Technologies Sdn. Bhd. (SMART Malaysia), the Credit Group. The Amended Credit Agreement provides for a $165 million of initial term loans (the Initial Term Loan) with a maturity date of August 9, 2022, and $50 million 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.

On June 8, 2018, SMART Worldwide, Global and SMART Modular entered into an Incremental Facility Agreement (the Incremental Amendment) which provided for incremental term loans under the Amended Credit Agreement in the aggregate amount of $60 million (the Incremental Term Loans) which Incremental Term Loans are on substantially identical terms as the Initial Term Loans. Pursuant to the Incremental Amendment, the borrowers agreed to pay the structuring advisor a $0.6 million fee pursuant to a separate agreement.

On October 2, 2018, SMART Worldwide, Global and SMART Modular entered into the Second Amendment to the Amended Credit Agreement (the Second Amendment) which did not become effective until October 25, 2018. As a result of the Second Amendment, the borrowers were granted a holiday from the obligation to make quarterly repayments of principal under the Initial Term Loans and the Incremental Term Loans at any time with respect to fiscal 2019. In addition, the borrowers were granted a holiday from the obligation to repay any loans as a result of excess cash flow that would otherwise be due with respect to any period of fiscal 2019.

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 Penguin) 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. The Incremental Amendment required the Credit Group to repay the Penguin Credit Facility, as defined below, and to pledge as collateral, all of the capital stock of and substantially all of the assets of Penguin within 60 days after the closing of the Penguin acquisition.

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 Initial Term Loans and Incremental Term Loans was 8.79% and 8.86% as of May 31, 2019, respectively.

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 ranging from 3.75% to 4.00% and the applicable margin for revolving loans with respect to base rate borrowings ranging from 2.75% to 3.00%.

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 Initial Term Loans equal to 2.5% of $165 million, or $4.1 million per fiscal quarter and, commencing on November 30, 2018, quarterly repayments of principal under the Incremental Term Loans equal to 2.5% of $60 million, or $1.5 million per fiscal quarter.  As a result of the Second Amendment, the borrowers were granted a holiday in fiscal 2019 from the obligation to make quarterly repayments of principal under the Initial Term Loans and the Incremental Term Loans. During the three and nine months ended May 31, 2019, the borrowers made scheduled principal payments of $0 million, and $4.1 million and $12.4 million respectively, for the corresponding periods of fiscal 2018.

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.

As a result of the Second Amendment, the borrowers were granted a holiday from the obligation to repay any loans as a result of excess cash flow that would otherwise be due with respect to any period of fiscal 2019. No mandatory prepayments were required for the three months ended May 31, 2019 or for fiscal 2018.

On June 2, 2017, SMART Global Holdings contributed to Global $61.0 million from the proceeds of the initial public offering (IPO) closed in May 2017. Global in turn used the proceeds to pay down the original term loans under the Original Credit Agreement, as required under the ARCA, which 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 ARCA, the Credit Group entered into the Amended Credit Agreement with new term loans in the aggregate principal amount of $165 million with different lenders. 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 31, 2019 and August 31, 2018, the outstanding principal balance of all term loans under the Amended Credit Agreement was $208.5 million and there were no outstanding revolving loans. The fair value of the term loans as of May 31, 2019 and August 31, 2018 was estimated to be approximately $207.5 million. Since the Company used broker quotes from inactive markets and there were no unobservable inputs, this was treated as a Level 2 financial instrument.

Penguin Credit Agreement

On June 8, 2018 in connection with the Penguin acquisition, the Company assumed the outstanding balances due under that certain credit agreement dated January 8, 2018 between Penguin and Wells Fargo Capital Finance, LLC (the Penguin Credit Facility) which had an outstanding balance of $32.3 million as of June 8, 2018. In addition, on June 8, 2018, SMART Global Holdings entered into a guarantee with Wells Fargo Capital Finance, LLC (WFCF) whereby SMART Global Holdings guaranteed the repayment and full performance of Penguin under the Penguin Credit Facility. As required under the Incremental Amendment, the Company paid off the outstanding balance and terminated the agreement under the Penguin Credit Facility in August 2018.

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 $12.8 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. Prior to July 2018, SMART Brazil’s obligations under the BNDES 2013 Credit Agreement were guaranteed by Banco Itaú BBA S.A., or Itaú Bank, which guarantee was in turn secured by a guarantee from SMART Brazil and SMART do Brazil in favor of Itaú Bank 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 $1.6 million), which is shown on the Company’s condensed consolidated balance sheets as restricted cash in other noncurrent assets as of August 31, 2018.

Approximately half of the available debt under the BNDES 2013 Credit Agreement accrues interest at a fixed rate while the other half accrues interest at a floating rate. 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.

As of May 31, 2019, SMART Brazil’s outstanding debt under the BNDES 2013 Credit Agreement was R$3.2 million (or $0.8 million), of which R$1.6 million (or $0.4 million) accrues interest at the fixed rate of 3.5% and R$1.7 million (or $0.4 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 31, 2018, SMART Brazil’s outstanding debt under the BNDES 2013 Credit Agreement was R$12.9 million (or $3.4 million), of which R$6.3 million (or $1.7 million) accrues interest at the fixed rate of 3.5% and R$6.6 million (or $1.7 million) of the debt accrues interest at the floating rate of BZTJLP (5.0%), combined corresponding to an overall effective interest rate of 5.5% per annum.

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 Credit Agreements. Under the BNDES 2014 Credit Agreement, a total of R$52.8 million (or $13.4 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.

Prior to July 2018, SMART Brazil’s obligations under the BNDES 2014 Credit Agreement were also guaranteed by Itaú Bank, which guarantee was in turn secured by a guarantee from SMART Brazil and SMART do Brazil in favor of Itaú Bank 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 $4.3 million) of required cash balances, which is shown on the Company’s condensed consolidated balance sheets as restricted cash in other noncurrent assets as of August 31, 2018.

In July 2018, SMART Brazil entered into guarantee arrangements with Banco Votorantim S.A. which bank in turn replaced the guarantees of the BNDES Credit Agreements previously issued by Itaú Bank.  As a result, the guarantees with Itaú Bank were cancelled and Itaú Bank returned R$22.0 million (or $5.9 million) of committed balances to SMART Brazil in the first quarter of fiscal 2019. As such, the Company no longer has any restricted cash on its condensed consolidated balance sheets as of May 31, 2019.

The available 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 31, 2019 and August 31, 2018, SMART Brazil’s outstanding debt under the BNDES 2014 Credit Agreement was R$16.5 million (or $4.2 million) and R$26.4 million (or $7.0 million), respectively.

While the BNDES Credit 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 Credit Agreements as of May 31, 2019 and August 31, 2018 were estimated to be approximately $4.7 million and $9.4 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 Credit Agreements are classified as follows in the accompanying consolidating balance sheets (in thousands):

	May 31,			August 31,
	2019			2018
Term loans	$	208,500		$	208,500
BNDES 2013 principal balance		814			3,422
BNDES 2014 principal balance		4,182			7,030
Unamortized debt discount		(2,050	)		(2,520	)
Unamortized debt issuance costs		(3,931	)		(4,833	)
Net amount		207,515			211,599
Current portion of long-term debt		(19,087	)		(27,409	)
Long-term debt	$	188,428		$	184,190

The future minimum principal payments under the Amended Credit Agreement and the BNDES Credit Agreements as of May 31, 2019 are (in thousands):

	Amended Credit Agreement		BNDES		TOTAL
Fiscal year ending August:
Remainder of fiscal 2019	$	—	$	1,651	$	1,651
2020		22,500		3,345		25,845
2021		22,500		—		22,500
2022		163,500		—		163,500
Total	$	208,500	$	4,996	$	213,496

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Financial Instruments

9 Months Ended

May 31, 2019

Fair Value Disclosures [Abstract]

Financial Instruments

(8) 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 funds held in general checking accounts, savings accounts and 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 assets and liabilities include the term loans under the Amended Credit Agreement and the BNDES Credit Agreements that are classified as long-term debt, and derivative financial instruments.

• 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’s Level 3 liability includes the contingent consideration related to Penguin acquisition (see Note 2), which had a fair value of $0 as of August 31, 2018. The Company did not have any financial instruments measured under Level 3 as of May 31, 2019.

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 31, 2019:
Assets
Cash and cash equivalents	$	126.1	$	—	$	—	$	126.1
Derivative financial instruments(2)		—		0.6		—		0.6
Total assets measured at fair value	$	126.1	$	0.6	$	—	$	126.7
Liabilities
Term loans(1)	$	—	$	207.5	$	—	$	207.5
BNDES Credit Agreements(1)		—		4.7		—		4.7
Total liabilities measured at fair value	$	—	$	212.2	$	—	$	212.2
Balances as of August 31, 2018:
Assets
Cash and cash equivalents	$	31.4	$	—	$	—	$	31.4
Restricted cash(3)		5.9		—		—		5.9
Total assets measured at fair value	$	37.3	$	—	$	—	$	37.3
Liabilities
Term loans	$	—	$	207.5	$	—	$	207.5
BNDES Credit Agreements		—		9.4		—		9.4
Acquisition-related contingent consideration		—		—		—		—
Total liabilities measured at fair value(1)	$	—	$	216.9	$	—	$	216.9

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

(2) Included in prepaid expenses and other current assets on the Company's condensed consolidated balance sheets – see Note 5.

(3) Included in other noncurrent assets on the Company’s condensed consolidated balance sheets – see Note 5.

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Share-Based Compensation and Employee Benefit Plans

9 Months Ended

May 31, 2019

Compensation And Retirement Disclosure [Abstract]

Share-Based Compensation and Employee Benefit Plans

(9) 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 was amended and restated as of May 18, 2017 to be known as the SMART Global Holdings, Inc. Amended and Restated 2017 Share Incentive Plan. On January 29, 2019, the shareholders approved an amendment to the SMART Global Holdings, Inc. Amended and Restated 2017 Share Incentive Plan (as amended, the SGH Plan) which amendment increased the reserve under the SGH Plan by 1,500,000 shares effective as of February 1, 2019. The SGH Plan provides for grants of equity awards to employees, directors and consultants of SMART Global Holdings and its subsidiaries. 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 and restricted share units (RSUs) generally vest over a four-year period beginning on the grant date and generally have a ten-year term. Options granted after August 26, 2011 and before September 23, 2014 have an eight year term. As of May 31, 2019, there were 4,956,243 ordinary shares reserved for issuance under the SGH Plan, of which 1,555,969 ordinary shares were available for grant. As of August 31, 2018, there were 3,385,550 ordinary shares reserved for issuance under the SGH Plan, of which 251,965 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.

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 31,		May 25,			May 31,		May 25,
	2019		2018			2019		2018
Stock options:
Expected term (years)		—		6.25			6.25		6.25
Expected volatility		—		41.77	%	41.68% - 45.76%		41.77% - 46.27%
Risk-free interest rate		—		2.82	%	2.62% - 2.88%		2.15% - 2.82%
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 31, 2018		2,414		$	28.75		7.88	$	20,459
Options granted		321			21.90
Options exercised		(325	)		11.60
Options cancelled		(47	)		32.54
Options outstanding at May 31, 2019		2,363		$	30.11		7.54	$	2,266
Options exercisable at May 31, 2019		691		$	22.27		6.75	$	1,797
Options vested and expected to vest at May 31, 2019		2,363		$	30.11		7.54	$	2,266

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 31, 2019 was $0 and $9.83 per share, respectively, and $18.31 and $18.22 per share, respectively for the corresponding periods of fiscal 2018. The total intrinsic value of employee stock options exercised in the three and nine months ended May 31, 2019 was $0.3 million and $6.1 million, respectively, and $7.4 million and $16.6 million, respectively for the corresponding periods of fiscal 2018. As of May 31, 2019, there was approximately $19.6 million of unrecognized compensation costs related to stock options under the SGH Plan, which will be recognized over a weighted average period of 2.57 years.

SGH Plan—Restricted Share Awards (RSAs), Restricted Share Units (RSUs) and Performance Share Units (PSUs)

A summary of the changes in RSAs, RSUs and PSUs 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 31, 2018		720		$	27.50	$	23,753
Awards granted		535			22.97
Awards vested and paid out		(175	)		21.24
Awards forfeited and cancelled		(43	)		31.42
Awards outstanding at May 31, 2019		1,037		$	26.06	$	17,666

The share-based compensation expense related to RSAs, RSUs and PSUs during the three and nine months ended May 31, 2019 was approximately $1.8 million and $4.9 million, respectively, and $0.7 million and $1.4 million, respectively, for the corresponding periods of fiscal 2018. The total fair value of shares vested during the three and nine months ended May 31, 2019 was approximately $1.2 million and $4.5 million, respectively, and $0 and $2.2 million for the corresponding periods of fiscal 2018.

In May 2019, the Company granted a performance-based restricted share unit award (PSU) which has both service and performance conditions. As of May 31, 2019, while the Company deemed it probable that the service condition would be met, the likelihood of meeting either of the two performance conditions for this award is not probable.  As such, there was no share-based compensation expense recognized for this award during the three and nine months ended May 31, 2019.  

Employee Share Purchase Plan

In January 2018, the Company’s shareholders approved the SGH 2018 Employee Share Purchase Plan (the Purchase Plan) under which an aggregate of 650,000 ordinary shares were available for purchase to eligible employees as of September 2018. 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. As of May 31, 2019, 109,910 ordinary shares have been purchased under the Purchase Plan and 540,090 ordinary shares are reserved for future purchases by eligible employees.

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 from time-to-time, out of the funds of SMART Global Holdings lawfully available therefor.

Substantially 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. 5, 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 31, 2019 were approximately $0.6 million and $1.4 million, respectively, and $0.4 million and $0.9 million, respectively for the corresponding periods of fiscal 2018.

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Commitments and Contingencies

9 Months Ended

May 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

(10) 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 31, 2019 was $1.2 million and $3.5 million, respectively, and $0.8 million and $2.2 million, respectively, for the corresponding periods of fiscal 2018.

Future minimum lease payments under all leases as of May 31, 2019 are as follows (in thousands):

	Amount
Fiscal year ending August:
Remainder of fiscal 2019	$	895
2020		4,000
2021		3,501
2022		2,886
2023		2,871
Thereafter		25,923
Total	$	40,076

(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 31,			May 25,			May 31,			May 25,
	2019			2018			2019			2018
Beginning accrued warranty reserve	$	1,194		$	200		$	856		$	275
Warranty claims		(224	)		(193	)		(930	)		(458	)
Provision for product warranties		726			270			1,770			460
Ending accrued warranty reserve	$	1,696		$	277		$	1,696		$	277

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 on 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.

Indemnification Claims by SanDisk

In August 2013, the Company completed the sale (the Sale) of substantially all of the business unit which was focused on solid state drives, to SanDisk Corporation (now a part of Western Digital). In connection with the Sale the sale agreement (Sale Agreement) contained certain indemnification obligations, including, among others, for losses arising from breaches of representations and warranties relating to the Sale. These indemnification obligations are subject to a number of limitations, including certain deductibles and caps and limited time periods for making indemnification claims. At the closing of the Sale, $30.5 million of the purchase price was placed into a third party escrow to secure certain of the Company’s indemnification obligations. The escrow was due to terminate on August 22, 2014 in the event that SanDisk did not timely submit a claim for indemnification. On August 21, 2014, SanDisk made a claim against the Company under the indemnification provisions of the Sale Agreement in connection with a lawsuit filed by Netlist, Inc. (Netlist) against SanDisk alleging that certain products sold in the Sale infringe various Netlist patents, which SanDisk in turn alleges would, if true, constitute a breach of representations and warranties under the Sale Agreement. Under the Sale Agreement, the Company’s indemnification obligation in respect of intellectual property matters, such as those claimed by SanDisk, is subject to a deductible of approximately $1.8 million and a cap of $60.9 million. As required in the Sale Agreement, the SanDisk claim purported to include a preliminary good faith estimate of SanDisk’s alleged indemnifiable losses, which estimate was greater than the Sale Agreement cap for intellectual property matters. The Company believes that the allegations giving rise to the indemnification claim are without merit and the Company is disputing SanDisk’s claim for indemnification. In addition, there may be other grounds for the Company to dispute the indemnification claim and/or the amounts of any indemnifiable losses of SanDisk. On December 4, 2014, SanDisk and the Company agreed to release from escrow the funds held in connection with this indemnification claim, however, the agreement to release the funds from escrow does not relieve the Company of its indemnification obligations to SanDisk, and SanDisk has not amended or reduced the amount of its indemnification claim.

Netlist

On September 10, 2012, SMART Modular filed a complaint in the Eastern District of California (the EDCA) 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.

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 EDCA case. Netlist later amended its complaint to add additional parties, including SMART Worldwide. 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 EDCA.

In January 2019 the parties entered into stipulated settlements to dismiss with prejudice, all claims and counterclaims in both actions with no amounts for damages being paid by either party and with each party to bear their own costs.

(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 $29.7 million) (the First Assessment). The First 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 $1.5 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. 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 required that the tax authorities appeal the decision to CARF. The appeal on the Second Assessment was heard on December 11, 2018 and the Company received a unanimous favorable ruling rejecting the position of the tax authorities. The tax authorities did not file any request for clarification or appeal and, as a result, the Second Assessment was extinguished in May 2019.

On December 12, 2013, SMART Brazil received another notice of assessment in the amount of R$3.6 million (or $0.9 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 decisions in favor of SMART Brazil on the First Assessment and the Second Assessment were published.

The amount claimed by the tax authorities on the Third Assessment is subject to increases for interest and other charges, which resulted in a balance of approximately R$5.5 million (or $1.4 million) as of May 31, 2019. The amount claimed by the tax authorities on the Second Assessment and the Third Assessment were subject to increases for interest and other charges, which resulted in a combined assessment balance of approximately R$15.1 million (or $4.0 million) as August 31, 2018.

As a result of the CARF decisions in favor of SMART Brazil on the First Assessment and the Second Assessment, the Company believes that the probability of any material charges as a result of the Third Assessment is remote and the Company does not expect the resolution of this disputed assessment to have a material impact on its consolidated financial position, results of operations or cash flows. While the Company believes that the Third Assessment is 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 31, 2019

Segment Reporting [Abstract]

Segment and Geographic Information

(11) 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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Geographic Net Sales:
U.S.	$	79,483	$	32,448	$	250,140	$	114,304
Brazil		101,035		232,845		447,549		599,520
Asia		37,136		56,722		176,208		160,539
Europe		9,001		6,638		32,524		20,135
Other Americas		9,002		6,824		27,178		20,353
Total	$	235,657	$	335,477	$	933,599	$	914,851

	May 31,		August 31,
	2019		2018
Property and Equipment, Net:
U.S.	$	8,275	$	7,805
Brazil		51,317		41,611
Malaysia		5,463		4,749
Other		2,080		2,450
Total	$	67,135	$	56,615

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Major Customers

9 Months Ended

May 31, 2019

Risks And Uncertainties [Abstract]

Major Customers

(12) 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 31, 2019					May 25, 2018					May 31, 2019					May 25, 2018
	Amount		Percentage of net sales			Amount		Percentage of net sales			Amount		Percentage of net sales			Amount		Percentage of net sales
Customer A	$	47,889		20	%	$	140,628		42	%	$	186,315		20	%	$	331,854		36	%
Customer B		26,154		11	%		37,947		11	%		—		0	%		97,106		11	%
Customer C		23,917		10	%		39,277		12	%		112,149		12	%		106,282		12	%
Customer D		—		0	%		—		0	%		137,414		15	%		97,845		11	%
	$	97,960		41	%	$	217,852		65	%	$	435,878		47	%	$	633,087		70	%

As of May 31, 2019, four direct customers that represented less than 10% of net sales, Customers E, F G and H, accounted for approximately 18%, 15%, 13% and 12% of accounts receivable, respectively. As of August 31, 2018, four direct customers that represented less than 10% of net sales, Customers E, F, G and H, accounted for approximately 15%, 11%, 17% and 19% of accounts receivable, respectively.

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Earnings Per Share

9 Months Ended

May 31, 2019

Earnings Per Share [Abstract]

Earnings Per Share

(13) 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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Numerator:
Net income	$	1,945	$	31,946	$	45,707	$	89,745
Denominator:
Weighted average shares outstanding:
Basic		23,005		22,206		22,824		21,932
Diluted		23,330		23,306		23,374		23,020
Earnings per share:
Basic	$	0.08	$	1.44	$	2.00	$	4.09
Diluted	$	0.08	$	1.37	$	1.96	$	3.90
Anti-dilutive weighted shares excluded from the    computation of diluted earnings per share		1,775		1,008		1,510		349

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Other Income (Expense), Net

9 Months Ended

May 31, 2019

Other Income And Expenses [Abstract]

Other Income (Expense), Net

(14) 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 31,			May 25,			May 31,			May 25,
	2019			2018			2019			2018
Foreign currency gains (losses)	$	(144	)	$	(6,932	)	$	(3,481	)	$	(7,259	)
Other		241			(213	)		501			(53	)
Total other income (expense), net	$	97		$	(7,145	)	$	(2,980	)	$	(7,312	)

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Basis of Presentation and Principles of Consolidation (Policies)

9 Months Ended

May 31, 2019

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 and nine months ended May 31, 2019 and May 25, 2018 were both 13-week and 39-week fiscal periods, respectively.

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

(d) Revenue

The Company’s revenues include products and services. The Company’s product revenues are predominantly derived from the sale of memory modules, Flash memory cards and storage products, which the Company designs and manufactures. The Company’s service revenues are derived from procurement, logistics, inventory management, temporary warehousing, kitting and packaging services. Also, a small portion of the Company’s product sales include extended warranty and on-site services, subscriptions to the Company’s high performance computing environment, professional services, software and related support.

The Company determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied.

The Company’s contracts are executed through a combination of written agreements along with purchase orders with all customers including certain general terms and conditions. Generally, purchase orders entail products, quantities and prices, which define the performance obligations of each party and are approved and accepted by the Company. The Company’s contracts with customers do not include extended payment terms. Payment terms vary by contract type and type of customer and generally range from 30 to 45 days from invoice. Additionally, taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer and deposited with the relevant government authority, are excluded from revenue.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer adjusted for estimated variable consideration.  Variable consideration may include discounts, rights of return, refunds, and other similar obligations. The Company allocates the transaction price to each distinct product and service based on its relative standalone selling price. The standalone selling price for products primarily involves the cost to produce the deliverable plus the anticipated margin and for services is estimated based on the Company’s approved list price.

In the normal course of business, the Company does not accept product returns unless the items are defective as manufactured. The Company establishes provisions for estimated returns and warranties. In addition, the Company does not typically provide customers with the right to a refund and does not transact for noncash consideration.

Standard Products

The Company’s main performance obligations are to deliver the requested goods to customers according to the agreed-upon shipping terms. The Company recognizes revenue when control transfers to the customer (i.e., when the Company’s performance obligation is satisfied). The Company invoices the customer and recognizes revenues for such delivery when control transfers based on shipping terms.

Customized Products

For customized product sales with terms that require the customer to purchase 100% of all parts built to fulfill the customers forecast, the Company recognizes revenue when control of the underlying assets passes to the customer, as the customer is able to both direct the use of, and obtain substantially all of the remaining benefit from the assets; the customer has the significant risks and rewards associated with ownership of the assets; and the Company has a present right to payment. For these sales, control passes when the Company has made these products available to the customer and under the terms of the agreement cannot repurpose them without the customer’s express consent.  Accordingly, the Company will recognize revenue at the point in time when products made to the customer’s order or forecast are completed and made available to the customer.

Non-cancellable nonrefundable, or NCNR, customized product sales are recognized over time on a cost incurred basis. The customer obtains control and benefits from the services as they are performed over the period based on the cost input measure in the production process for the NCNR customized product. The terms within the NCNR sales orders provide the Company with a legally enforceable right to receive payment including a reasonable profit margin upon customer cancellation for performance completed to date. Accordingly, the Company recognizes revenue over time as customized products listed within the NCNR orders are completed.

Computing Products and Services

A small portion of the Company’s product sales includes extended warranty and on-site services, subscriptions to the Company’s high performance computing environment, professional consulting services including installation and other services, and hardware and software related support. Each contract may contain multiple performance obligations, which requires the transaction price to be allocated to each performance obligation. The Company allocates the consideration to each performance obligation based on the relative selling price. The Company uses best-estimated selling price, determined as the best estimate of the price at which the Company would transact if it sold the deliverable regularly on a stand-alone basis.

For services provided to the customers over a period of time, such revenues are recognized over time in line with when the customer receives and consumes the benefit of the services. Extended warranty and on-site services, hardware support, software support, and subscription revenue for access to the Company’s high performance computing environment is deferred and recognized ratably over the contractual period as the Company transfers control as it satisfies its performance obligations over time as the services are rendered.  Subscription revenue for certain customers is recognized based on the contractual fee to use the high-performance-computing environment.  Professional consulting services revenue is recognized as the service is performed and the customer obtains control and benefits from the services as they are performed over the period.  The methods of recognizing revenue for each of these products and services were selected because they reflect a faithful depiction of the transfer of control.

Agency Services

The Company has service performance obligations for agency related services such as procurement, logistics, inventory management, temporary warehousing, kitting and packaging services for certain agency basis customers. The agency services are also known as supply chain services and the performance obligations for these services consist of customized, integrated supply chain services management to assist customers in the planning, execution and overall management of the procurement processes.

For these customers that are accounted for on an agency basis, 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 has separate agent performance obligations as follows: (a) procurement, logistics, and inventory management, (b) temporary warehousing, and (c) 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 (i.e. fee as a percentage of the associated material being procured, warehoused, kitted or packaged). The Company recognizes revenue for procurement, logistics and inventory management upon the completion of the services or performance obligation, typically upon shipment of the product, as the criteria for over time recognition is not met.  For temporary warehousing, kitting and packaging services, revenue is recognized over time, but the period of performance is typically very short in duration. There are no obligations subsequent to shipment of the product under the agency arrangements.

Contract Costs

As a practical expedient, the Company recognizes the incremental costs of obtaining a contract, specifically commission expenses that have an amortization period of less than twelve months, as an expense when incurred. Additionally, the Company has adopted an accounting policy to recognize shipping costs that occur after control transfers, if any, to the customer as a fulfillment activity. The Company records shipping and handling costs related to revenue transactions within cost of sales as a period cost.

Gross Billings and Net Sales

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 31,		May 25,		May 31,		May 25,
	2019		2018 (2)		2019		2018 (2)
Service revenue, net	$	9,692	$	11,270	$	35,343	$	30,746
Cost of purchased materials - service (1)		206,097		258,098		802,630		714,883
Gross billings for services		215,789		269,368		837,973		745,629
Product net sales		225,965		324,207		898,256		884,105
Gross billings to customers	$	441,754	$	593,575	$	1,736,229	$	1,629,734
Product net sales	$	225,965	$	324,207	$	898,256	$	884,105
Service revenue, net		9,692		11,270		35,343		30,746
Net sales	$	235,657	$	335,477	$	933,599	$	914,851

(1) Represents material procurement costs of products provided as an agent reported on a net basis.

(2) Amounts for fiscal 2018 are accounted for under ASC 605 (refer to Note 1(u)).

Gross billings to customers in the table above represents total amounts invoiced to customers during the period and is the sum of net sales plus material procurement costs of products the Company provides as an agent. The amount invoiced to customers for agency related services is the total of the related material procurement costs and fees for providing its services. Gross billings to customers are reflected in accounts receivable for unpaid invoices as of the end of the period. Additionally, material procurement costs of products the Company manages as an agent on behalf of its customers on hand as of the end of the period are reflected in inventory.  Both the amounts in accounts receivable and inventory impact the determination of net cash provided by (or used in) operations.

Contract Balances

The Company records accounts receivable when it has an unconditional right to consideration. Contract assets represent amounts recognized as revenue for which the Company does not have the unconditional right to consideration. All contract assets represent amounts related to invoices expected to be issued during the next 12-month period and are recorded as prepaid expenses and other current assets. Contract liabilities are recorded when cash payments are received or due in advance of performance. Contract liabilities consist of advance payments and deferred revenue, where the Company has unsatisfied performance obligations. Contract liabilities are classified as deferred revenue and are allocated between accrued liabilities and other long-term liabilities on our condensed consolidated balance sheet based on the timing of when the customer takes control of the asset or receives the benefit of the service. Payment terms vary by customer. The time between invoicing and when payment is due is not significant. Changes in the accounts receivable, contract assets and the deferred revenues balances during the nine months ended May 31, 2019 are as follows (in thousands):

	May 31,		September 1,
	2019		2018		$ Change
Accounts receivable	$	230,177	$	240,098	$	(9,921	)
Contract assets	$	—	$	1,136	$	(1,136	)
Deferred revenue	$	13,635	$	11,750	$	1,885

The decrease in contract assets of $1.1 million from September 1, 2018 to $0 as of May 31, 2019 was primarily driven by an increase in billing of amounts that had been recognized as revenue in prior periods and recorded as contract assets because they had not been billed. The increase in deferred revenue from $11.8 million to $13.6 million was due to additional funds collected for hosting and support contracts signed during the quarter in which billing occurred in advance of revenue recognition. During the nine months ended May 31, 2019, $5.3 million of revenue recognized was included in the deferred revenue balance at the beginning of the period, which was offset by additional deferrals during the period.

Disaggregation of Revenue

The Company disaggregates revenue by source of revenue and geography; no other level of disaggregation is required considering the type of products, customer, markets, contracts, duration of contracts, timing of transfer of control, and sales channels. The revenue by geography is disclosed in Note 11, and revenue by source is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	May 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Brazil	$	100,982	$	232,742	$	447,372	$	599,225
Specialty Memory		98,755		102,735		354,312		315,626
Specialty Compute and Storage Solutions		35,920		—		131,915		—
Total net sales	$	235,657	$	335,477	$	933,599	$	914,851

Revenue Allocated to Remaining Performance Obligations

The Company’s performance obligations related to product sales have a contractual duration of less than one year. The Company elected to apply the optional exemption practical expedient provided in ASC 606 and, therefore, is not required to disclose the aggregate amount of the transaction price allocated to those performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

Remaining performance obligations represent contracted revenue related to support services that have not yet been recognized. The Company expects to recognize revenue on the remaining performance obligations as follows (in thousands):

	May 31, 2019
Within 1 year	$	9,294
2-3 years		4,117
Thereafter		224
	$	13,635

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 equivalents. 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. Due to the adoption of ASU 2016-18 in fiscal 2019, the presentation of the Statement of Cash Flows has been updated with the inclusion of restricted cash – refer to Note 1(u) for details.

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.

Derivative Financial Instrument

(g) Derivative Financial Instrument

The Company records the assets or liabilities associated with derivative instruments at fair value based on Level 2 inputs in other current assets or other current liabilities, respectively, in the condensed consolidated balance sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting. See Note 4 for further details.

Inventories

(h) Inventories

Inventories are valued at the lower of actual cost or net realizable 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 net realizable 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 31, 2019, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$33.9 million (or $8.6 million), of which (i) R$7.6 million (or $1.9 million) are fully vested ICMS credits, classified as prepaid and other current assets and R$24.3 million (or $6.1 million) are fully vested ICMS credits, classified as other noncurrent assets, and (ii) R$2.0 million (or $0.6 million) are ICMS credits subject to vesting in 48 equal monthly amounts, classified as prepaid expenses and other current assets (R$0.6 million or $0.2 million) and other noncurrent assets (R$1.4 million or $0.4 million). As of August 31, 2018, the total ICMS tax credits reported on the Company’s accompanying condensed consolidated balance sheet are R$45.3 million (or $12.1 million), of which (i) R$16.6 million (or $4.4 million) are fully vested ICMS credits, classified as prepaid and other current assets and R$25.4 million (or $6.8 million) are fully vested ICMS credits, 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$0.6 million or $0.2 million) and other noncurrent assets (R$2.7 million or $0.7 million). It is expected that the excess ICMS credits will continue to be recovered in fiscal 2019 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 $8.0 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 agreement 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.  

In the first quarter of fiscal 2019, the Company sold R$17.7 million (or $4.5 million) of its ICMS credits that had been approved to be sold in December 2017. The payments are to be received in 22 installments starting in the second quarter of fiscal 2019 through fiscal 2020. The Company received a total of R$8.0 million (or $2.0 million) of the monthly installments during the nine months ended May 31, 2019.

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*	2 to 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 31, 2019 and August 31, 2018, the carrying value of goodwill on the Company’s condensed consolidated balance sheet was $44.8 million and $45.4 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 carrying value. If the fair value of the reporting unit is determined to be more than its carrying 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 $44.8 million carrying value of goodwill on the Company’s condensed consolidated balance sheet as of May 31, 2019 is associated with the Company’s three reporting units (Specialty Memory, Brazil and Penguin). No impairment of goodwill was recognized through May 31, 2019.

The changes in the carrying amount of goodwill during the nine months ended May 31, 2019 and fiscal 2018 are as follows (in thousands):

	Total
Balance as of August 25, 2017	$	46,022
Addition from business acquisition (see Note 2)		4,575
Translation adjustments		(5,203	)
Balance as of August 31, 2018		45,394
Provisional adjustments from business acquisition    (see Note 2)		671
Translation adjustments		(1,260	)
Balance as of May 31, 2019	$	44,805

Intangible Assets, Net

(l) Intangible Assets, Net

The following table summarizes the gross amounts and accumulated amortization of intangible assets by type as of May 31, 2019 and August 31, 2018 (dollars in thousands):

			May 31, 2019							August 31, 2018
	Weighted		Gross							Gross
	avg.		Carrying		Accumulated					Carrying		Accumulated
	life (yrs)		amount		amortization			Net		amount		amortization			Net
Customer relationships	5 - 7		$	14,700	$	(2,056	)	$	12,644	$	37,187	$	(22,968	)	$	14,219
Trademarks/tradename		7		12,200		(1,707	)		10,493		12,200		(400	)		11,800
Technology		4		250		(61	)		189		5,150		(4,914	)		236
Backlog	< 1			400		(400	)		—		400		(400	)		—
Total			$	27,550	$	(4,224	)	$	23,326	$	54,937	$	(28,682	)	$	26,255

Amortization expense related to intangible assets for the three and nine months ended May 31, 2019 totaled approximately $1.0 million and $3.0 million, respectively, and $1.2 million and $3.7 million, respectively for the corresponding periods of fiscal 2018. 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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Amortization of intangible assets classification    (in thousands):
Cost of sales	$	16	$	—	$	130	$	—
Research and development		—		245		—		735
Selling, general and administrative		960		976		2,882		2,992
Total	$	976	$	1,221	$	3,012	$	3,727

As of May 31, 2019, estimated amortization expenses of these intangible assets for the next five fiscal years and all years thereafter are as follows (in thousands):

Fiscal year ending August:	Amount
Remainder of fiscal 2019	$	976
2020		3,905
2021		3,905
2022		3,891
2023		3,843
2024 and thereafter		6,806
Total	$	23,326

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 three and nine months ended May 31, 2019.

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 income statements.

During the three and nine months ended May 31, 2019, the Company recorded $144 thousand and $3.5 million, respectively, and $6.9 million and $7.3 million, respectively, for the corresponding periods of 2018, 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 income statement 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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Share-based compensation expense by category    (in thousands):
Cost of sales	$	651	$	414	$	1,803	$	859
Research and development		673		325		1,967		887
Selling, general and administrative		3,109		2,558		8,866		4,853
Total	$	4,433	$	3,297	$	12,636	$	6,599

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 revenue and related accounts receivable reflect a concentration of activity with certain customers (see Note 12). 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 three suppliers for the majority of its raw materials. At May 31, 2019 and August 31, 2018, the Company owed these three suppliers $113.5 million and $138.4 million, respectively, which was recorded as accounts payable and accrued liabilities. The inventory purchases from these suppliers during the three and nine months ended May 31, 2019 were $0.2 billion and $1.0 billion, respectively, and $0.4 billion and $1.1 billion, respectively for the corresponding periods of fiscal 2018.

New Accounting Pronouncements

(u) New Accounting Pronouncements

In October 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-16, Derivatives and Hedging (Topic 815) Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This standard amends ASC 815, Derivatives and Hedges, and permits the SOFR OIS rate as an approved rate to be used in valuing derivative instruments. ASU 2018-16 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018, on a prospective basis. The Company will not adopt this standard before the fiscal year in which it becomes effective. At this time, this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2018, the Securities and Exchange Commission (“SEC”) adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. The amendments became effective on November 5, 2018. The SEC staff subsequently indicated that it would not object if a filer’s first presentation of changes in shareholders’ equity is included in its Form 10-Q for the quarter that begins after the final rule’s effective date. Among the amendments is the requirement to present the changes in shareholders’ equity in the interim financial statements (either in a separate statement or footnote) in quarterly reports on Form 10-Q. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a consolidated income statement is required to be filed. The Company has implemented this requirement as of the second quarter for fiscal 2019.

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 standard 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 November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies the inclusion and presentation of changes in restricted cash and restricted cash equivalents in the statement of cash flows. The Company adopted ASU 2016-18 in fiscal 2019 on a retrospective basis.

The following table provides a reconciliation of cash and cash equivalents as previously reported within the Condensed Consolidated Statements of Cash Flows to cash, cash equivalents and restricted cash as currently reported in the Condensed Consolidated Statements of Cash Flows (in thousands):

	August 31, 2018		May 25, 2018		August 25, 2017
Cash, cash equivalents as previously reported in the    Condensed Consolidated Statements of Cash Flows	$	31,375	$	64,495	$	22,436
Restricted cash (Other noncurrent assets)		5,859		6,320		7,027
Cash, cash equivalents as currently reported in the    Condensed Consolidated Statements of Cash Flows	$	37,234	$	70,815	$	29,463

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 Company adopted ASU 2016-15 in fiscal 2019 on a retrospective basis. The adoption of this standard did not have a material impact on its consolidated financial statements.

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.  In July 2018, the FASB issued ASU 2018-11, “Leases (topic 842): Targeted Improvements”, which permits an entity to elect an additional transition method to the existing modified retrospective transition requirements. Under the new transition method, an entity could adopt the provisions of ASU No. 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with the previous lease guidance in ASC Topic 840. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.The Company currently expects to adopt the new standard using this optional transition method. However, as disclosed in Note 10(a), the Company has over $40.1 million in lease commitments at May 31, 2019 and believes that the adoption will have a material impact to the consolidated financial statements.

In May 2014, the FASB issued a new standard, ASU No. 2014-09, Revenue from Contracts with Customers, as amended, which supersedes nearly all existing revenue recognition guidance. The FASB has 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. The Company has adopted the new standard effective September 1, 2018 using the modified retrospective approach applied to all contracts that are not completed contracts at the date of initial adoption (i.e. September 1, 2018).

The Company has completed its assessment and implemented policies, processes, and controls to support the standard measurement and disclosure requirements. Under ASC 606, the Company recognized a change to the timing of revenue recognition in two areas. The first relates to customized product sales orders deemed NCNR. Under previous accounting standards, the Company recognized revenue and costs related to these sales when products were 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 including a reasonable profit margin upon customer cancellation 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 second change for the Company under ASC 606 relates to the timing of revenue recognition for customized product sales with terms that require the customer to purchase 100% of all parts built to fulfill the customers forecast. Under previous accounting standards, the Company recognized revenue and costs related to these sales when products are shipped or delivered to the end-customers based on the terms of the purchase orders and sales agreements. Under ASC 606, the Company recognizes revenue when control of the underlying assets passes to the customer, as the customer is able to both direct the use of, and obtain substantially all of the remaining benefit from the assets; the customer has the significant risks and rewards associated with ownership of the assets; and the Company has a present right to payment. For these sales, control passes when the Company has made these products available to the customer and under the terms of the agreement cannot repurpose them without the customer’s express consent.  Accordingly, the Company will recognize revenue at the point in time when products made to the customer’s forecast are completed and made available to the customer.

Results for reporting periods beginning after September 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the prior accounting under ASC 605. As a result of these changes, the Company recorded a net increase to opening retained earnings of $1.0 million as of September 1, 2018 due to the cumulative impact of adopting ASC 606, with a corresponding increase of $2.9 million in accounts receivables, $1.1 million in contract assets and a decrease of $3.0 million in inventory. Effective September 1, 2018, the Company recognized revenue on NCNR customized product sales over time and customized product sales where control has deemed to pass before shipment at the time that those products are made available to the customer as opposed to at the time of shipment.

The following tables summarize the impacts of ASC 606 adoption on the Company's condensed consolidated financial statements as of and for the periods ended May 31, 2019 (in thousands).

Selected Consolidated Balance Sheet Line Items:

	As of May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Accounts receivable	$	230,177	$	(7,464	)	$	222,713
Inventories	$	132,816	$	5,990		$	138,806
Prepaid expenses and other current assets	$	31,052	$	(6	)	$	31,046
Retained earnings	$	158,995	$	(1,480	)	$	157,515

Selected Consolidated Statement of Comprehensive Income Line Items:

	Three Months Ended May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Net sales	$	235,657	$	8,177		$	243,834
Cost of sales	$	192,622	$	6,315		$	198,937
Gross profit	$	43,035	$	1,862		$	44,897
Provision for income taxes	$	550	$	56		$	606
Net income	$	1,945	$	1,806		$	3,751
	Nine Months Ended May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Net sales	$	933,599	$	(3,441	)	$	930,158
Cost of sales	$	748,364	$	(3,001	)	$	745,363
Gross profit	$	185,235	$	(440	)	$	184,795
Provision for income taxes	$	12,813	$	6		$	12,819
Net income	$	45,707	$	(446	)	$	45,261

Selected Consolidated Statement of Cash Flows Line Items:

	Nine Months Ended May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Net income	$	45,707	$	(446	)	$	45,261
Adjustment to reconcile net income to    net cash provided by operating activities:
Changes in operating assets and liabilities
Accounts receivable	$	7,658	$	4,577		$	12,235
Inventories	$	82,771	$	(3,001	)	$	79,770
Prepaid expenses and other assets	$	1,787	$	(1,130	)	$	657
Net cash provided by operating activities	$	120,716	$	—		$	120,716

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Basis of Presentation and Principles of Consolidation (Tables)

9 Months Ended

May 31, 2019

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

Gross Billings and Net Sales

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 31,		May 25,		May 31,		May 25,
	2019		2018 (2)		2019		2018 (2)
Service revenue, net	$	9,692	$	11,270	$	35,343	$	30,746
Cost of purchased materials - service (1)		206,097		258,098		802,630		714,883
Gross billings for services		215,789		269,368		837,973		745,629
Product net sales		225,965		324,207		898,256		884,105
Gross billings to customers	$	441,754	$	593,575	$	1,736,229	$	1,629,734
Product net sales	$	225,965	$	324,207	$	898,256	$	884,105
Service revenue, net		9,692		11,270		35,343		30,746
Net sales	$	235,657	$	335,477	$	933,599	$	914,851

(1) Represents material procurement costs of products provided as an agent reported on a net basis.

(2) Amounts for fiscal 2018 are accounted for under ASC 605 (refer to Note 1(u)).

Schedule of Change in Accounting Receivable, Contract Assets and Deferred Revenues Balances

Changes in the accounts receivable, contract assets and the deferred revenues balances during the nine months ended May 31, 2019 are as follows (in thousands):

	May 31,		September 1,
	2019		2018		$ Change
Accounts receivable	$	230,177	$	240,098	$	(9,921	)
Contract assets	$	—	$	1,136	$	(1,136	)
Deferred revenue	$	13,635	$	11,750	$	1,885

Summary of Revenue Disaggregates by Source of Revenue and Geography

The Company disaggregates revenue by source of revenue and geography; no other level of disaggregation is required considering the type of products, customer, markets, contracts, duration of contracts, timing of transfer of control, and sales channels. The revenue by geography is disclosed in Note 11, and revenue by source is as follows (in thousands):

	Three Months Ended				Nine Months Ended
	May 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Brazil	$	100,982	$	232,742	$	447,372	$	599,225
Specialty Memory		98,755		102,735		354,312		315,626
Specialty Compute and Storage Solutions		35,920		—		131,915		—
Total net sales	$	235,657	$	335,477	$	933,599	$	914,851

Summary of Revenue Recognize on Remaining Performance Obligations

The Company expects to recognize revenue on the remaining performance obligations as follows (in thousands):

	May 31, 2019
Within 1 year	$	9,294
2-3 years		4,117
Thereafter		224
	$	13,635

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*	2 to 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 31, 2019 and fiscal 2018 are as follows (in thousands):

	Total
Balance as of August 25, 2017	$	46,022
Addition from business acquisition (see Note 2)		4,575
Translation adjustments		(5,203	)
Balance as of August 31, 2018		45,394
Provisional adjustments from business acquisition    (see Note 2)		671
Translation adjustments		(1,260	)
Balance as of May 31, 2019	$	44,805

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 by type as of May 31, 2019 and August 31, 2018 (dollars in thousands):

			May 31, 2019							August 31, 2018
	Weighted		Gross							Gross
	avg.		Carrying		Accumulated					Carrying		Accumulated
	life (yrs)		amount		amortization			Net		amount		amortization			Net
Customer relationships	5 - 7		$	14,700	$	(2,056	)	$	12,644	$	37,187	$	(22,968	)	$	14,219
Trademarks/tradename		7		12,200		(1,707	)		10,493		12,200		(400	)		11,800
Technology		4		250		(61	)		189		5,150		(4,914	)		236
Backlog	< 1			400		(400	)		—		400		(400	)		—
Total			$	27,550	$	(4,224	)	$	23,326	$	54,937	$	(28,682	)	$	26,255

Amortization of Intangible Assets Classification

	Three Months Ended				Nine Months Ended
	May 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Amortization of intangible assets classification    (in thousands):
Cost of sales	$	16	$	—	$	130	$	—
Research and development		—		245		—		735
Selling, general and administrative		960		976		2,882		2,992
Total	$	976	$	1,221	$	3,012	$	3,727

Summary of Estimated Amortization Expenses of Intangible Assets

As of May 31, 2019, estimated amortization expenses of these intangible assets for the next five fiscal years and all years thereafter are as follows (in thousands):

Fiscal year ending August:	Amount
Remainder of fiscal 2019	$	976
2020		3,905
2021		3,905
2022		3,891
2023		3,843
2024 and thereafter		6,806
Total	$	23,326

Share-Based Compensation Expense by Category

	Three Months Ended				Nine Months Ended
	May 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Share-based compensation expense by category    (in thousands):
Cost of sales	$	651	$	414	$	1,803	$	859
Research and development		673		325		1,967		887
Selling, general and administrative		3,109		2,558		8,866		4,853
Total	$	4,433	$	3,297	$	12,636	$	6,599

Reconciliation of Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash and cash equivalents as previously reported within the Condensed Consolidated Statements of Cash Flows to cash, cash equivalents and restricted cash as currently reported in the Condensed Consolidated Statements of Cash Flows (in thousands):

	August 31, 2018		May 25, 2018		August 25, 2017
Cash, cash equivalents as previously reported in the    Condensed Consolidated Statements of Cash Flows	$	31,375	$	64,495	$	22,436
Restricted cash (Other noncurrent assets)		5,859		6,320		7,027
Cash, cash equivalents as currently reported in the    Condensed Consolidated Statements of Cash Flows	$	37,234	$	70,815	$	29,463

ASU No. 2014-09

Summary of Impacts of ASC 606 Adoption on Condensed Consolidated Financial Statements

The following tables summarize the impacts of ASC 606 adoption on the Company's condensed consolidated financial statements as of and for the periods ended May 31, 2019 (in thousands).

Selected Consolidated Balance Sheet Line Items:

	As of May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Accounts receivable	$	230,177	$	(7,464	)	$	222,713
Inventories	$	132,816	$	5,990		$	138,806
Prepaid expenses and other current assets	$	31,052	$	(6	)	$	31,046
Retained earnings	$	158,995	$	(1,480	)	$	157,515

Selected Consolidated Statement of Comprehensive Income Line Items:

	Three Months Ended May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Net sales	$	235,657	$	8,177		$	243,834
Cost of sales	$	192,622	$	6,315		$	198,937
Gross profit	$	43,035	$	1,862		$	44,897
Provision for income taxes	$	550	$	56		$	606
Net income	$	1,945	$	1,806		$	3,751
	Nine Months Ended May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Net sales	$	933,599	$	(3,441	)	$	930,158
Cost of sales	$	748,364	$	(3,001	)	$	745,363
Gross profit	$	185,235	$	(440	)	$	184,795
Provision for income taxes	$	12,813	$	6		$	12,819
Net income	$	45,707	$	(446	)	$	45,261

Selected Consolidated Statement of Cash Flows Line Items:

	Nine Months Ended May 31, 2019
	As Reported		Adjustment			Balances Without Adoption
Net income	$	45,707	$	(446	)	$	45,261
Adjustment to reconcile net income to    net cash provided by operating activities:
Changes in operating assets and liabilities
Accounts receivable	$	7,658	$	4,577		$	12,235
Inventories	$	82,771	$	(3,001	)	$	79,770
Prepaid expenses and other assets	$	1,787	$	(1,130	)	$	657
Net cash provided by operating activities	$	120,716	$	—		$	120,716

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Business Acquisitions (Tables)

9 Months Ended

May 31, 2019

Reconciliation of Net Cash Exchanged in Accordance with the Purchase Agreement to the Total Purchase Price

A reconciliation of net cash exchanged in accordance with the Penguin Merger Agreement to the total purchase price as of the closing date of the merger, June 8, 2018, is presented below (in thousands):

Net cash for merger	$	42,316
Cash and cash equivalents acquired		2,769
Upfront payment in accordance with agreement		45,085
Post-closing adjustments in accordance with agreement		(3,479	)
Total consideration		41,606
Estimated fair value of contingent consideration		3,000
Total purchase price	$	44,606

Summary of Intangible Assets

Asset categories acquired included working capital, fixed assets, and identified intangible assets. The intangible assets are as follows (in thousands):

	Amount		Estimated Useful Life (in years)
Customer relationships	$	14,700	7 years
Trade name		12,200	7 years
Technology		250	4 years
Existing order backlog		400	< 1 year
	$	27,550

Summary of Merger-Related Costs

During fiscal 2018 the Company incurred certain costs related to the merger, which are included in selling, general and administrative expense in the consolidated income statements. Merger-related costs include the following (in thousands):

	August 31, 2018
Professional fees	$	2,496
Employee retention bonuses		1,181
	$	3,677

Summary of Unaudited Pro Forma Financial Information

The results of operations related to the Penguin acquisition have been included in our consolidated income statements from the acquisition date. The following unaudited pro forma financial information presents our combined results of operations for the three and nine months ended May 25, 2018 as if the acquisition of Penguin and entering into the Incremental Amendment had occurred on August 27, 2016. The unaudited pro forma financial information is not necessarily indicative of what our consolidated results of operations actually would have been had the acquisition been completed on August 27, 2016. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company. The actual results may differ significantly from the pro forma results presented here due to many factors.

	Three Months Ended		Nine Months Ended
(In thousands, except per share data)	May 25, 2018		May 25, 2018
Total net sales	$	383,927	$	1,063,994
Net income	$	32,468	$	91,002
Earnings per share:
Basic	$	1.46	$	4.15
Diluted	$	1.39	$	3.95

Penguin Computing, Inc.

Summary of Assets Acquired and Liabilities Assumed at the Acquisition Date

The total purchase consideration has been allocated to the tangible and intangible assets acquired and liabilities assumed. The assets acquired and liabilities assumed at the acquisition date are based upon their respective fair values summarized below (in thousands):

	Previously Reported			Purchase Price Allocation Measurement period adjustment			As Adjusted
Tangible assets acquired	$	84,707		$	(671	)	$	84,036
Liabilities assumed		(72,226	)					(72,226	)
Identifiable intangible assets		27,550						27,550
Goodwill		4,575			671			5,246
Total net assets acquired	$	44,606		$	—		$	44,606

Premiere Logistics

Summary of Assets Acquired and Liabilities Assumed at the Acquisition Date

The assets acquired and liabilities assumed at the acquisition date are based on their respective fair values summarized below (in thousands):

Tangible assets acquired	$	277
Liabilities assumed		(168	)
Identified intangible assets		83
Total net assets acquired	$	192

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Related Party Transactions (Tables)

9 Months Ended

May 31, 2019

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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Affiliates:
Net sales	$	26,427	$	39,665	$	94,641	$	100,737

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Balance Sheet Details (Tables)

9 Months Ended

May 31, 2019

Balance Sheet Related Disclosures [Abstract]

Schedule of Inventories

Inventories consisted of the following (in thousands):

	May 31,		August 31,
	2019		2018
Raw materials	$	76,913	$	105,017
Work in process		12,234		35,977
Finished goods		43,669		80,425
Total inventories*	$	132,816	$	221,419

* As of May 31, 2019 and August 31, 2018, 22% and 22%, 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 31,		August 31,
	2019		2018
Indemnification claims receivable*	$	8,036	$	8,000
Unbilled service receivables		5,782		5,361
Prepaid R&D expense		3,830		2,590
Prepaid ICMS taxes in Brazil**		2,132		4,593
Prepaid income taxes		1,977		1,697
Revolver debt fees		952		952
Supplier advances		900		—
Derivative assets***		585		—
Prepayment for VAT and other transaction taxes		534		2,557
Other prepaid expenses and other current assets		6,324		6,293
Total prepaid expenses and other current assets	$	31,052	$	32,043

* See Note 2.

** See Note 1(i).

*** See Note 4.

Schedule of Property and Equipment

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

	May 31,		August 31,
	2019		2018
Office furniture, software, computers and equipment	$	22,708	$	21,267
Manufacturing equipment		117,269		97,192
Leasehold improvements*		26,173		24,011
		166,150		142,470
Less accumulated depreciation and amortization		99,015		85,855
Net property and equipment	$	67,135	$	56,615

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

Schedule of Other Noncurrent Assets

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

	May 31,		August 31,
	2019		2018
Prepaid ICMS taxes in Brazil*	$	6,529	$	7,483
Deferred tax assets		1,999		2,430
Prepaid R&D expense		1,649		2,218
Tax receivable		1,621		1,237
Revolver debt fees		669		1,383
Restricted cash**		—		5,859
Other		2,136		1,839
Total other noncurrent assets	$	14,603	$	22,449

* See Note 1(i).

** See Note 7.

Schedule of Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	May 31,		August 31,
	2019		2018
Accrued employee compensation	$	9,663	$	19,501
Deferred revenue		9,294		8,292
Indemnification claims liability		4,521		4,521
Customer deposits		3,196		1,334
VAT and other transaction taxes payable		2,378		3,037
Accrued interest payable		1,872		2,457
Accrued warranty reserve		1,696		856
Income taxes payable		831		2,242
Accrued credits payable to customers		—		379
Other accrued liabilities		2,608		2,571
Total accrued liabilities	$	36,059	$	45,190

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Income Taxes (Tables)

9 Months Ended

May 31, 2019

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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Provision for income taxes	$	550	$	5,505	$	12,813	$	15,256

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Long-Term Debt (Tables)

9 Months Ended

May 31, 2019

Debt Disclosure [Abstract]

Summary of Amended Credit Agreement and BNDES Agreements

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

	May 31,			August 31,
	2019			2018
Term loans	$	208,500		$	208,500
BNDES 2013 principal balance		814			3,422
BNDES 2014 principal balance		4,182			7,030
Unamortized debt discount		(2,050	)		(2,520	)
Unamortized debt issuance costs		(3,931	)		(4,833	)
Net amount		207,515			211,599
Current portion of long-term debt		(19,087	)		(27,409	)
Long-term debt	$	188,428		$	184,190

Summary of Future Minimum Principal Payments

The future minimum principal payments under the Amended Credit Agreement and the BNDES Credit Agreements as of May 31, 2019 are (in thousands):

	Amended Credit Agreement		BNDES		TOTAL
Fiscal year ending August:
Remainder of fiscal 2019	$	—	$	1,651	$	1,651
2020		22,500		3,345		25,845
2021		22,500		—		22,500
2022		163,500		—		163,500
Total	$	208,500	$	4,996	$	213,496

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Financial Instruments (Tables)

9 Months Ended

May 31, 2019

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 31, 2019:
Assets
Cash and cash equivalents	$	126.1	$	—	$	—	$	126.1
Derivative financial instruments(2)		—		0.6		—		0.6
Total assets measured at fair value	$	126.1	$	0.6	$	—	$	126.7
Liabilities
Term loans(1)	$	—	$	207.5	$	—	$	207.5
BNDES Credit Agreements(1)		—		4.7		—		4.7
Total liabilities measured at fair value	$	—	$	212.2	$	—	$	212.2
Balances as of August 31, 2018:
Assets
Cash and cash equivalents	$	31.4	$	—	$	—	$	31.4
Restricted cash(3)		5.9		—		—		5.9
Total assets measured at fair value	$	37.3	$	—	$	—	$	37.3
Liabilities
Term loans	$	—	$	207.5	$	—	$	207.5
BNDES Credit Agreements		—		9.4		—		9.4
Acquisition-related contingent consideration		—		—		—		—
Total liabilities measured at fair value(1)	$	—	$	216.9	$	—	$	216.9

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

(2) Included in prepaid expenses and other current assets on the Company's condensed consolidated balance sheets – see Note 5.

(3) Included in other noncurrent assets on the Company’s condensed consolidated balance sheets – see Note 5.

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Share-Based Compensation and Employee Benefit Plans (Tables)

9 Months Ended

May 31, 2019

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 31,		May 25,			May 31,		May 25,
	2019		2018			2019		2018
Stock options:
Expected term (years)		—		6.25			6.25		6.25
Expected volatility		—		41.77	%	41.68% - 45.76%		41.77% - 46.27%
Risk-free interest rate		—		2.82	%	2.62% - 2.88%		2.15% - 2.82%
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		—

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 31, 2018		2,414		$	28.75		7.88	$	20,459
Options granted		321			21.90
Options exercised		(325	)		11.60
Options cancelled		(47	)		32.54
Options outstanding at May 31, 2019		2,363		$	30.11		7.54	$	2,266
Options exercisable at May 31, 2019		691		$	22.27		6.75	$	1,797
Options vested and expected to vest at May 31, 2019		2,363		$	30.11		7.54	$	2,266

Summary of Changes in RSAs, RSUs and PSUs Outstanding

A summary of the changes in RSAs, RSUs and PSUs 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 31, 2018		720		$	27.50	$	23,753
Awards granted		535			22.97
Awards vested and paid out		(175	)		21.24
Awards forfeited and cancelled		(43	)		31.42
Awards outstanding at May 31, 2019		1,037		$	26.06	$	17,666

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Commitments and Contingencies (Tables)

9 Months Ended

May 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Future Minimum Lease Payments Under All Leases

Future minimum lease payments under all leases as of May 31, 2019 are as follows (in thousands):

	Amount
Fiscal year ending August:
Remainder of fiscal 2019	$	895
2020		4,000
2021		3,501
2022		2,886
2023		2,871
Thereafter		25,923
Total	$	40,076

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 31,			May 25,			May 31,			May 25,
	2019			2018			2019			2018
Beginning accrued warranty reserve	$	1,194		$	200		$	856		$	275
Warranty claims		(224	)		(193	)		(930	)		(458	)
Provision for product warranties		726			270			1,770			460
Ending accrued warranty reserve	$	1,696		$	277		$	1,696		$	277

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Segment and Geographic Information (Tables)

9 Months Ended

May 31, 2019

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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Geographic Net Sales:
U.S.	$	79,483	$	32,448	$	250,140	$	114,304
Brazil		101,035		232,845		447,549		599,520
Asia		37,136		56,722		176,208		160,539
Europe		9,001		6,638		32,524		20,135
Other Americas		9,002		6,824		27,178		20,353
Total	$	235,657	$	335,477	$	933,599	$	914,851

	May 31,		August 31,
	2019		2018
Property and Equipment, Net:
U.S.	$	8,275	$	7,805
Brazil		51,317		41,611
Malaysia		5,463		4,749
Other		2,080		2,450
Total	$	67,135	$	56,615

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Major Customers (Tables)

9 Months Ended

May 31, 2019

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 31, 2019					May 25, 2018					May 31, 2019					May 25, 2018
	Amount		Percentage of net sales			Amount		Percentage of net sales			Amount		Percentage of net sales			Amount		Percentage of net sales
Customer A	$	47,889		20	%	$	140,628		42	%	$	186,315		20	%	$	331,854		36	%
Customer B		26,154		11	%		37,947		11	%		—		0	%		97,106		11	%
Customer C		23,917		10	%		39,277		12	%		112,149		12	%		106,282		12	%
Customer D		—		0	%		—		0	%		137,414		15	%		97,845		11	%
	$	97,960		41	%	$	217,852		65	%	$	435,878		47	%	$	633,087		70	%

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Earnings Per Share (Tables)

9 Months Ended

May 31, 2019

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 31,		May 25,		May 31,		May 25,
	2019		2018		2019		2018
Numerator:
Net income	$	1,945	$	31,946	$	45,707	$	89,745
Denominator:
Weighted average shares outstanding:
Basic		23,005		22,206		22,824		21,932
Diluted		23,330		23,306		23,374		23,020
Earnings per share:
Basic	$	0.08	$	1.44	$	2.00	$	4.09
Diluted	$	0.08	$	1.37	$	1.96	$	3.90
Anti-dilutive weighted shares excluded from the    computation of diluted earnings per share		1,775		1,008		1,510		349

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Other Income (Expense), Net (Tables)

9 Months Ended

May 31, 2019

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 31,			May 25,			May 31,			May 25,
	2019			2018			2019			2018
Foreign currency gains (losses)	$	(144	)	$	(6,932	)	$	(3,481	)	$	(7,259	)
Other		241			(213	)		501			(53	)
Total other income (expense), net	$	97		$	(7,145	)	$	(2,980	)	$	(7,312	)

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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
		Apr. 30, 2016	May 31, 2019 USD ($) Supplier	Nov. 30, 2018 USD ($) Installment	May 25, 2018 USD ($)	May 31, 2019 USD ($) Supplier	May 31, 2019 BRL (R$)	May 25, 2018 USD ($)	Aug. 31, 2018 USD ($)	May 31, 2019 BRL (R$) Supplier	Nov. 30, 2018 BRL (R$)	Sep. 01, 2018 USD ($)	Aug. 31, 2018 BRL (R$)	Dec. 21, 2017 USD ($)	Dec. 21, 2017 BRL (R$)	Aug. 25, 2017 USD ($)
Basis Of Presentation And Principles Of Consolidation [Line Items]
Amortization period						12 months	12 months
Revenue recognized						$ 5,300,000
Goodwill			$ 44,805,000			44,805,000			$ 45,394,000							$ 46,022,000
Goodwill impairment						0
Amortization expense related to intangible assets			976,000		$ 1,221,000	3,012,000		$ 3,727,000
Impairment of long-lived assets			0			0
Foreign exchange losses			144,000		6,932,000	3,481,000		7,259,000
Retained earnings			158,995,000			158,995,000			112,254,000
Accounts receivable			230,177,000			230,177,000			237,212,000
Inventories	[1]		$ 132,816,000			$ 132,816,000			221,419,000
Supplier Concentration Risk
Basis Of Presentation And Principles Of Consolidation [Line Items]
Number of suppliers | Supplier			3			3				3
Accounts payable and accrued liabilities			$ 113,500,000			$ 113,500,000			138,400,000
Inventory purchases			200,000,000		400,000,000	$ 1,000,000,000		1,100,000,000
Minimum
Basis Of Presentation And Principles Of Consolidation [Line Items]
Percentage of income tax positions likely to be realized						50.00%	50.00%
Lease commitments			40,100,000			$ 40,100,000
ICMS
Basis Of Presentation And Principles Of Consolidation [Line Items]
Tax credits			8,600,000			8,600,000			12,100,000	R$ 33.9			R$ 45.3
Tax credits, subject to vesting			600,000			$ 600,000			$ 900,000	2.0			3.3
Tax credits, vesting period						48 months	48 months		48 months
Number of installments for sale of credits | Installment				22
Sale of excess tax credit				$ 4,500,000							R$ 17.7
Excess tax credit received through monthly installments						$ 2,000,000	R$ 8.0
ICMS | Sao Paulo Tax Authorities
Basis Of Presentation And Principles Of Consolidation [Line Items]
Sale of excess tax credit approved amount														$ 8,000,000	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%
Period of sale of tax credit		3 months
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%
Period of sale of tax credit		6 months
ICMS | Earliest Tax Year
Basis Of Presentation And Principles Of Consolidation [Line Items]
Excess credits to be recovered, year						2019	2019
ICMS | Latest Tax Year
Basis Of Presentation And Principles Of Consolidation [Line Items]
Excess credits to be recovered, year						2022	2022
SMART Brazil | ICMS
Basis Of Presentation And Principles Of Consolidation [Line Items]
Tax benefit, renewal period						2 years	2 years
Brazilian Operating Subsidiaries
Basis Of Presentation And Principles Of Consolidation [Line Items]
Foreign exchange losses			144,000		$ 6,900,000	$ 3,500,000		$ 7,300,000
Contract Assets
Basis Of Presentation And Principles Of Consolidation [Line Items]
Contract assets			0			0						$ 1,136,000
Deferred Revenue
Basis Of Presentation And Principles Of Consolidation [Line Items]
Deferred revenue			13,635,000			13,635,000						11,750,000
Other Noncurrent Assets | ICMS
Basis Of Presentation And Principles Of Consolidation [Line Items]
Tax credits, vested			6,100,000			6,100,000			$ 6,800,000	24.3			25.4
Tax credits, subject to vesting			400,000			400,000			700,000	1.4			2.7
Prepaid Expenses and Other Current Assets | ICMS
Basis Of Presentation And Principles Of Consolidation [Line Items]
Tax credits, vested			1,900,000			1,900,000			4,400,000	7.6			16.6
Tax credits, subject to vesting			200,000			$ 200,000			$ 200,000	R$ 0.6			R$ 0.6
ASU No. 2014-09
Basis Of Presentation And Principles Of Consolidation [Line Items]
Percentage of customer purchase to fulfill customers forecast						100.00%	100.00%
ASU No. 2014-09 | Difference between Revenue Guidance in Effect before and after Topic 606 [Member]
Basis Of Presentation And Principles Of Consolidation [Line Items]
Contract assets												1,100,000
Retained earnings			(1,480,000)			$ (1,480,000)						1,000,000
Accounts receivable			(7,464,000)			(7,464,000)						2,900,000
Inventories			$ 5,990,000			$ 5,990,000						$ (3,000,000)

[1] As of May 31, 2019 and August 31, 2018, 22% and 22%, respectively, of total inventories represented inventory held under the Company's supply chain services.

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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 31, 2019	May 25, 2018	[2]	May 31, 2019	May 25, 2018	[2]
Disaggregation Of Revenue [Line Items]
Net sales	[1]	$ 235,657	$ 335,477		$ 933,599	$ 914,851
Cost of purchased materials - service	[3]	206,097	258,098		802,630	714,883
Gross billings for services		215,789	269,368		837,973	745,629
Gross billings to customers		441,754	593,575		1,736,229	1,629,734
Service Revenue, Net
Disaggregation Of Revenue [Line Items]
Net sales		9,692	11,270		35,343	30,746
Product Net Sales
Disaggregation Of Revenue [Line Items]
Net sales		$ 225,965	$ 324,207		$ 898,256	$ 884,105

[1] Includes sales to affiliates of $26,427 and $94,641 in the three and nine months ended May 31, 2019, respectively, and $39,665 and $100,737 for the corresponding periods of fiscal 2018.   (see Note 3).

[2] Amounts for fiscal 2018 are accounted for under ASC 605 (refer to Note 1(u))

[3] Represents material procurement costs of products provided as an agent reported on a net basis.

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Basis of Presentation and Principles of Consolidation - Schedule of Changes in Accounts Receivable, Contract Assets and Deferred Revenues Balances (Details) - USD ($)	9 Months Ended
	May 31, 2019	Sep. 01, 2018
Accounts Receivable
Revenue Initial Application Period Cumulative Effect Transition [Line Items]
Contract with customer asset	$ 230,177,000	$ 240,098,000
Change in contract with customer asset	(9,921,000)
Contract Assets
Revenue Initial Application Period Cumulative Effect Transition [Line Items]
Contract with customer asset	0	1,136,000
Change in contract with customer asset	(1,136,000)
Deferred Revenue
Revenue Initial Application Period Cumulative Effect Transition [Line Items]
Contract with customer liability	13,635,000	$ 11,750,000
Change in contract with customer liability	$ 1,885,000

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Basis of Presentation and Principles of Consolidation - Summary of Revenue Disaggregates by Source of Revenue and Geography (Details) - USD ($) $ in Thousands		3 Months Ended			9 Months Ended
		May 31, 2019	May 25, 2018		May 31, 2019	May 25, 2018
Disaggregation Of Revenue [Line Items]
Total net sales	[1]	$ 235,657	$ 335,477	[2]	$ 933,599	$ 914,851	[2]
Specialty Memory
Disaggregation Of Revenue [Line Items]
Total net sales		98,755	102,735		354,312	315,626
Specialty Compute and Storage Solutions
Disaggregation Of Revenue [Line Items]
Total net sales		35,920			131,915
Brazil
Disaggregation Of Revenue [Line Items]
Total net sales		$ 100,982	$ 232,742		$ 447,372	$ 599,225

[1] Includes sales to affiliates of $26,427 and $94,641 in the three and nine months ended May 31, 2019, respectively, and $39,665 and $100,737 for the corresponding periods of fiscal 2018.   (see Note 3).

[2] Amounts for fiscal 2018 are accounted for under ASC 605 (refer to Note 1(u))

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Basis of Presentation and Principles of Consolidation - Summary of Revenue Recognize on Remaining Performance Obligations (Details) $ in Thousands	May 31, 2019 USD ($)
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]
Expected revenue recognized on remaining performance obligations	$ 13,635
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2019-06-01
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]
Expected revenue recognized on remaining performance obligations	$ 9,294
Revenue, remaining performance obligation, expected timing of satisfaction, period	3 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2019-08-31
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]
Expected revenue recognized on remaining performance obligations	$ 4,117
Revenue, remaining performance obligation, expected timing of satisfaction, period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2021-08-28
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]
Expected revenue recognized on remaining performance obligations	$ 224
Revenue, remaining performance obligation, expected timing of satisfaction, period

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Basis of Presentation and Principles of Consolidation - Summary of Revenue Recognize on Remaining Performance Obligations (Details 1) $ in Thousands	May 31, 2019 USD ($)
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]
Expected revenue recognized on remaining performance obligations	$ 13,635

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Basis of Presentation and Principles of Consolidation - Estimated Useful Lives (Details)	9 Months Ended
	May 31, 2019
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 31, 2019
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 31, 2019	Aug. 31, 2018
Goodwill And Intangible Assets Disclosure [Abstract]
Beginning balance	$ 45,394	$ 46,022
Addition from business acquisition (see Note 2)		4,575
Provisional Adjustments from business acquisition (see Note 2)	671
Translation adjustments	(1,260)	(5,203)
Ending balance	$ 44,805	$ 45,394

XML

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 31, 2019	Aug. 31, 2018
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	$ 27,550	$ 54,937
Accumulated amortization	(4,224)	(28,682)
Net	23,326	26,255
Customer Relationships
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	14,700	37,187
Accumulated amortization	(2,056)	(22,968)
Net	$ 12,644	14,219
Customer Relationships | Minimum
Finite Lived Intangible Assets [Line Items]
Weighted avg.life (yrs)	5 years
Customer Relationships | Maximum
Finite Lived Intangible Assets [Line Items]
Weighted avg.life (yrs)	7 years
Trademarks/Tradename
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	$ 12,200	12,200
Accumulated amortization	(1,707)	(400)
Net	$ 10,493	11,800
Weighted avg.life (yrs)	7 years
Technology
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	$ 250	5,150
Accumulated amortization	(61)	(4,914)
Net	$ 189	236
Weighted avg.life (yrs)	4 years
Backlog
Finite Lived Intangible Assets [Line Items]
Gross carrying amount	$ 400	400
Accumulated amortization	$ (400)	$ (400)
Backlog | Maximum
Finite Lived Intangible Assets [Line Items]
Weighted avg.life (yrs)	1 year

XML

Basis of Presentation and Principles of Consolidation - Amortization of Intangible Assets Classification (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2019	May 25, 2018	May 31, 2019	May 25, 2018
Finite Lived Intangible Assets [Line Items]
Amortization of intangible assets	$ 976	$ 1,221	$ 3,012	$ 3,727
Cost of Sales
Finite Lived Intangible Assets [Line Items]
Amortization of intangible assets	16		130
Research and Development
Finite Lived Intangible Assets [Line Items]
Amortization of intangible assets		245		735
Selling, General and Administrative
Finite Lived Intangible Assets [Line Items]
Amortization of intangible assets	$ 960	$ 976	$ 2,882	$ 2,992

XML

Basis of Presentation and Principles of Consolidation - Summary of Estimated Amortization Expenses of Intangible Assets (Details) - USD ($) $ in Thousands	May 31, 2019	Aug. 31, 2018
Goodwill And Intangible Assets Disclosure [Abstract]
Remainder of fiscal 2019	$ 976
2020	3,905
2021	3,905
2022	3,891
2023	3,843
2024 and thereafter	6,806
Net	$ 23,326	$ 26,255

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 31, 2019	May 25, 2018	May 31, 2019	May 25, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation expense	$ 4,433	$ 3,297	$ 12,636	$ 6,599
Cost of Sales
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation expense	651	414	1,803	859
Research and Development
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation expense	673	325	1,967	887
Selling, General and Administrative
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation expense	$ 3,109	$ 2,558	$ 8,866	$ 4,853

XML

Basis of Presentation and Principles of Consolidation - Reconciliation of Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands		May 31, 2019	Aug. 31, 2018	May 25, 2018	Aug. 25, 2017
Accounting Policies [Abstract]
Cash and cash equivalents		$ 126,099	$ 31,375	$ 64,495	$ 22,436
Restricted cash (Other noncurrent assets)			5,859	6,320	7,027
Cash, cash equivalents as currently reported in the Condensed Consolidated Statements of Cash Flows	[1]	$ 126,099	$ 37,234	$ 70,815	$ 29,463

[1] Cash balance was adjusted to include restricted cash upon adoption of ASU 2016-18 in fiscal 2019.

XML

Basis of Presentation and Principles of Consolidation - Summary of Impacts of ASC 606 Adoption on Condensed Consolidated Balance Sheet (Details) - USD ($) $ in Thousands		May 31, 2019	Sep. 01, 2018	Aug. 31, 2018
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Accounts receivable		$ 230,177		$ 237,212
Inventories	[1]	132,816		221,419
Prepaid expenses and other current assets		31,052		32,043
Retained earnings		158,995		$ 112,254
ASU No. 2014-09 | Adjustment
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Accounts receivable		(7,464)	$ 2,900
Inventories		5,990	(3,000)
Prepaid expenses and other current assets		(6)
Retained earnings		(1,480)	$ 1,000
ASU No. 2014-09 | Balances Without Adoption
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Accounts receivable		222,713
Inventories		138,806
Prepaid expenses and other current assets		31,046
Retained earnings		$ 157,515

[1] As of May 31, 2019 and August 31, 2018, 22% and 22%, respectively, of total inventories represented inventory held under the Company's supply chain services.

XML

Basis of Presentation and Principles of Consolidation - Summary of Impacts of ASC 606 Adoption on Condensed Consolidated Statement of Comprehensive Income (Details) - USD ($) $ in Thousands		3 Months Ended							9 Months Ended
		May 31, 2019	Mar. 01, 2019	Nov. 30, 2018	May 25, 2018		Feb. 23, 2018	Nov. 24, 2017	May 31, 2019	May 25, 2018
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Net sales	[1]	$ 235,657			$ 335,477	[2]			$ 933,599	$ 914,851	[2]
Cost of sales		192,622			257,423				748,364	705,944
Gross profit		43,035			78,054				185,235	208,907
Provision for income taxes		550			5,505				12,813	15,256
Net income		1,945	$ 12,786	$ 30,976	$ 31,946		$ 36,794	$ 21,005	45,707	$ 89,745
ASU No. 2014-09 | Adjustment
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Net sales		8,177							(3,441)
Cost of sales		6,315							(3,001)
Gross profit		1,862							(440)
Provision for income taxes		56							6
Net income		1,806							(446)
ASU No. 2014-09 | Balances Without Adoption
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Net sales		243,834							930,158
Cost of sales		198,937							745,363
Gross profit		44,897							184,795
Provision for income taxes		606							12,819
Net income		$ 3,751							$ 45,261

[1] Includes sales to affiliates of $26,427 and $94,641 in the three and nine months ended May 31, 2019, respectively, and $39,665 and $100,737 for the corresponding periods of fiscal 2018.   (see Note 3).

[2] Amounts for fiscal 2018 are accounted for under ASC 605 (refer to Note 1(u))

XML

Basis of Presentation and Principles of Consolidation - Summary of Impacts of ASC 606 Adoption on Condensed Consolidated Statement of Cash Flows (Details) - USD ($) $ in Thousands	9 Months Ended
	May 31, 2019	May 25, 2018
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Net income	$ 45,707
Changes in operating assets and liabilities:
Accounts receivable	7,658	$ (86,706)
Inventories	82,771	(27,940)
Prepaid expenses and other assets	1,787	(3,495)
Net cash provided by operating activities	120,716	$ 77,291
ASU No. 2014-09 | Adjustment
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Net income	(446)
Changes in operating assets and liabilities:
Accounts receivable	4,577
Inventories	(3,001)
Prepaid expenses and other assets	(1,130)
ASU No. 2014-09 | Balances Without Adoption
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Net income	45,261
Changes in operating assets and liabilities:
Accounts receivable	12,235
Inventories	79,770
Prepaid expenses and other assets	657
Net cash provided by operating activities	$ 120,716

XML

Business Acquisitions - Additional Information (Details)		1 Months Ended	3 Months Ended							9 Months Ended
	Jun. 08, 2018 USD ($)	Feb. 28, 2019 USD ($)	May 31, 2019 USD ($)	Mar. 01, 2019 USD ($)	Nov. 30, 2018 USD ($)	Aug. 31, 2018 USD ($)	May 25, 2018 USD ($)	Feb. 23, 2018 USD ($)	Nov. 24, 2017 USD ($)	May 31, 2019 USD ($)	May 25, 2018 USD ($)	Dec. 31, 2018 USD ($)
Business Acquisition [Line Items]
Net income (loss)			$ 1,945,000	$ 12,786,000	$ 30,976,000		$ 31,946,000	$ 36,794,000	$ 21,005,000	$ 45,707,000	$ 89,745,000
Incremental Term Loan Facility
Business Acquisition [Line Items]
Net proceeds from incremental term loan facility	$ 60,000,000
Penguin Computing, Inc.
Business Acquisition [Line Items]
Date of acquisition	Jun. 08, 2018
Cash payment to acquire business	$ 45,085,000
Assumed outstanding indebtedness	32,300,000
Cash earn-out payments	25,000,000
Estimated initial fair value of contingent consideration	$ 3,000,000
Business Combination, Contingent Consideration, Liability, Valuation Technique [Extensible List]	us-gaap:ValuationTechniqueDiscountedCashFlowMember
Business Combination, Contingent Consideration, Liability, Measurement Input [Extensible List]	us-gaap:MeasurementInputDiscountRateMember
Fair value of contingent consideration						$ 0						$ 0
Net deferred tax liability			1,600,000							1,600,000
Deferred tax liability, non-goodwill intangible assets			7,900,000							7,900,000
Net deferred tax assets, net operating losses and research credit carryovers			$ 6,300,000							$ 6,300,000
Revenues						52,500,000
Net income (loss)						$ 700,000
Penguin Computing, Inc. | Level 3
Business Acquisition [Line Items]
Contingent consideration, liability, measurement input	0.0406
Premiere Logistics
Business Acquisition [Line Items]
Cash payment to acquire business		$ 192,000
Indemnification Obligations | Penguin Computing, Inc.
Business Acquisition [Line Items]
Escrow Deposit	$ 6,000,000
Customary Post-Closing Adjustments | Penguin Computing, Inc.
Business Acquisition [Line Items]
Escrow Deposit	$ 2,000,000

XML

Business Acquisitions - Reconciliation of Net Cash Exchanged in Accordance with the Merger Agreement to the Total Purchase Price (Details) - USD ($) $ in Thousands		9 Months Ended
	Jun. 08, 2018	May 31, 2019
Business Acquisition [Line Items]
Net cash for merger		$ 148
Penguin Computing, Inc.
Business Acquisition [Line Items]
Net cash for merger	$ 42,316
Cash and cash equivalents acquired	2,769
Upfront payment in accordance with agreement	45,085
Post-closing adjustments in accordance with agreement	(3,479)
Total consideration	41,606
Estimated fair value of contingent consideration	3,000
Total purchase price	$ 44,606

XML

Business Acquisitions - Summary of Assets Acquired and Liabilities Assumed at the Acquisition Date (Details) - USD ($) $ in Thousands	May 31, 2019	Feb. 28, 2019	Aug. 31, 2018	Jun. 08, 2018	Aug. 25, 2017
Business Acquisition [Line Items]
Goodwill	$ 44,805		$ 45,394		$ 46,022
Penguin Computing, Inc.
Business Acquisition [Line Items]
Tangible assets acquired				$ 84,036
Liabilities assumed				(72,226)
Identifiable intangible assets				27,550
Goodwill				5,246
Total net assets acquired				44,606
Penguin Computing, Inc. | Previously Reported
Business Acquisition [Line Items]
Tangible assets acquired				84,707
Liabilities assumed				(72,226)
Identifiable intangible assets				27,550
Goodwill				4,575
Total net assets acquired				44,606
Penguin Computing, Inc. | Purchase Price Allocation Measurement Period Adjustment
Business Acquisition [Line Items]
Tangible assets acquired				(671)
Goodwill				$ 671
Premiere Logistics
Business Acquisition [Line Items]
Tangible assets acquired		$ 277
Liabilities assumed		(168)
Identifiable intangible assets		83
Total net assets acquired		$ 192

XML

Business Acquisitions - Summary of Intangible Assets (Details) - USD ($) $ in Thousands		9 Months Ended
	Jun. 08, 2018	May 31, 2019
Customer Relationships | Maximum
Business Acquisition [Line Items]
Estimated Useful Life (in years)		7 years
Customer Relationships | Minimum
Business Acquisition [Line Items]
Estimated Useful Life (in years)		5 years
Technology
Business Acquisition [Line Items]
Estimated Useful Life (in years)		4 years
Existing Order Backlog | Maximum
Business Acquisition [Line Items]
Estimated Useful Life (in years)		1 year
Penguin Computing, Inc.
Business Acquisition [Line Items]
Identifiable intangible assets	$ 27,550
Penguin Computing, Inc. | Customer Relationships
Business Acquisition [Line Items]
Identifiable intangible assets	$ 14,700
Estimated Useful Life (in years)	7 years
Penguin Computing, Inc. | Trade Name
Business Acquisition [Line Items]
Identifiable intangible assets	$ 12,200
Estimated Useful Life (in years)	7 years
Penguin Computing, Inc. | Technology
Business Acquisition [Line Items]
Identifiable intangible assets	$ 250
Estimated Useful Life (in years)	4 years
Penguin Computing, Inc. | Existing Order Backlog
Business Acquisition [Line Items]
Identifiable intangible assets	$ 400
Penguin Computing, Inc. | Existing Order Backlog | Maximum
Business Acquisition [Line Items]
Estimated Useful Life (in years)	1 year

XML

Business Acquisitions - Summary of Merger-Related Costs (Details) - Penguin Computing, Inc. - Selling, General and Administrative Expense $ in Thousands	12 Months Ended
	Aug. 31, 2018 USD ($)
Business Acquisition [Line Items]
Professional fees	$ 2,496
Employee retention bonuses	1,181
Merger-related costs	$ 3,677

XML

Business Acquisitions - Summary of Unaudited Pro Forma Financial Information (Details) - Penguin Computing, Inc. - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	9 Months Ended
	May 25, 2018	May 25, 2018
Business Acquisition [Line Items]
Total net sales	$ 383,927	$ 1,063,994
Net income	$ 32,468	$ 91,002
Earnings per share:
Basic	$ 1.46	$ 4.15
Diluted	$ 1.39	$ 3.95

XML

Related Party Transactions - Schedule of Related Party Transactions With Affiliates (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2019	May 25, 2018	May 31, 2019	May 25, 2018
Related Party Transaction [Line Items]
Net sales	$ 26,427	$ 94,641	$ 39,665	$ 100,737
Affiliates
Related Party Transaction [Line Items]
Net sales	$ 26,427	$ 39,665	$ 94,641	$ 100,737

XML

Related Party Transactions - Additional Information (Details) - USD ($) $ in Millions	May 31, 2019	Aug. 31, 2018
Related Party Transactions [Abstract]
Due from affiliates	$ 10.5	$ 11.7

XML

Foreign Currency Exchange Contracts - Additional Information (Details) - Forward Contracts $ in Millions	3 Months Ended	9 Months Ended
	May 31, 2019 USD ($)	May 31, 2019 USD ($)
Derivative Instruments Gain Loss [Line Items]
Non-designated forward contracts resulted in derivative asset	$ 0.6	$ 0.6
Recognized realized losses	0.5	2.5
Non-designated
Derivative Instruments Gain Loss [Line Items]
Net unrealized gains on change in fair value	$ 2.1	$ 0.6

XML

Balance Sheet Details -Schedule of Inventories (Details) - USD ($) $ in Thousands		May 31, 2019	Aug. 31, 2018
Inventory Disclosure [Abstract]
Raw materials		$ 76,913	$ 105,017
Work in process		12,234	35,977
Finished goods		43,669	80,425
Total inventories	[1]	$ 132,816	$ 221,419

[1] As of May 31, 2019 and August 31, 2018, 22% and 22%, respectively, of total inventories represented inventory held under the Company's supply chain services.

XML

Balance Sheet Details -Schedule of Inventories (Parenthetical) (Details)	May 31, 2019	Aug. 31, 2018
Inventory Disclosure [Abstract]
Percentage of inventories	22.00%	22.00%

XML

Balance Sheet Details - Schedule of Prepaid Expenses and Other Current Assets (Details) - USD ($) $ in Thousands		May 31, 2019	Aug. 31, 2018
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]
Indemnification claims receivable	[1]	$ 8,036	$ 8,000
Unbilled service receivables		5,782	5,361
Prepaid R&D expense		3,830	2,590
Prepaid ICMS taxes in Brazil	[2]	2,132	4,593
Prepaid income taxes		1,977	1,697
Revolver debt fees		952	952
Supplier advances		900
Derivative assets	[3]	585
Prepayment for VAT and other transaction taxes		534	2,557
Other prepaid expenses and other current assets		6,324	6,293
Total prepaid expenses and other current assets		$ 31,052	$ 32,043

[1] See Note 2.

[2] See Note 1(i).

[3] See Note 4

XML

Balance Sheet Details - Schedule of Property and Equipment (Details) - USD ($) $ in Thousands		May 31, 2019	Aug. 31, 2018
Property Plant And Equipment [Line Items]
Property and equipment, gross		$ 166,150	$ 142,470
Less accumulated depreciation and amortization		99,015	85,855
Net property and equipment		67,135	56,615
Office Furniture, Software, Computers and Equipment
Property Plant And Equipment [Line Items]
Property and equipment, gross		22,708	21,267
Manufacturing Equipment
Property Plant And Equipment [Line Items]
Property and equipment, gross		117,269	97,192
Leasehold Improvements
Property Plant And Equipment [Line Items]
Property and equipment, gross	[1]	$ 26,173	$ 24,011

[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 31, 2019	May 25, 2018	May 31, 2019	May 25, 2018
Property Plant And Equipment [Abstract]
Depreciation and amortization expense	$ 5.8	$ 4.8	$ 17.1	$ 14.9

XML

Balance Sheet Details - Schedule of Other Noncurrent Assets (Details) - USD ($) $ in Thousands		May 31, 2019	Aug. 31, 2018
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]
Prepaid ICMS taxes in Brazil	[1]	$ 6,529	$ 7,483
Deferred tax assets		1,999	2,430
Prepaid R&D expense		1,649	2,218
Tax receivable		1,621	1,237
Revolver debt fees		669	1,383
Restricted cash	[2]		5,859
Other		2,136	1,839
Total other noncurrent assets		$ 14,603	$ 22,449

[1] See Note 1(i).

[2] See Note 7

XML

Balance Sheet Details - Schedule of Accrued Liabilities (Details) - USD ($) $ in Thousands	May 31, 2019	Aug. 31, 2018
Payables And Accruals [Abstract]
Accrued employee compensation	$ 9,663	$ 19,501
Deferred revenue	9,294	8,292
Indemnification claims liability	4,521	4,521
Customer deposits	3,196	1,334
VAT and other transaction taxes payable	2,378	3,037
Accrued interest payable	1,872	2,457
Accrued warranty reserve	1,696	856
Income taxes payable	831	2,242
Accrued credits payable to customers		379
Other accrued liabilities	2,608	2,571
Total accrued liabilities	$ 36,059	$ 45,190

XML

Income Taxes - Provision for Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2019	May 25, 2018	May 31, 2019	May 25, 2018
Income Tax Disclosure [Abstract]
Provision for income taxes	$ 550	$ 5,505	$ 12,813	$ 15,256

XML

Income Taxes - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	May 31, 2019	May 31, 2019
Income Tax Disclosure [Abstract]
Increase in provision for income taxes.	$ (5.0)	$ (2.4)

XML

Long-Term Debt - Amended Credit Agreement - Additional Information (Details)				3 Months Ended		9 Months Ended
	Jun. 08, 2018 USD ($)	Aug. 09, 2017 USD ($)	Jun. 02, 2017 USD ($)	May 31, 2019 USD ($)	May 25, 2018 USD ($)	May 31, 2019 USD ($)	May 25, 2018 USD ($)	Aug. 31, 2018 USD ($)
Debt Instrument [Line Items]
Debt instrument outstanding amount				$ 213,496,000		$ 213,496,000
Debt Instrument, unamortized discount				$ 2,050,000		$ 2,050,000		$ 2,520,000
Term Loan
Debt Instrument [Line Items]
Interest rate at the end of period				8.79%		8.79%
Term Loan | Estimate of Fair Value Measurement
Debt Instrument [Line Items]
Debt instrument, estimated fair value				$ 207,500,000		$ 207,500,000		207,500,000
Incremental Term Loan Facility
Debt Instrument [Line Items]
Interest rate at the end of period				8.86%		8.86%
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 initial public offering			$ 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
Frequency of periodic principal payments						Quarterly
Frequency of periodic principal payments, percentage		2.50%
Quarterly principal repayments		$ 4,100,000
Scheduled principal payments				$ 0	$ 4,100,000	$ 0	$ 12,400,000
Amended Credit Agreement | Term Loan | First Year
Debt Instrument [Line Items]
Principal prepayment premium percentage				3.00%		3.00%
Amended Credit Agreement | Term Loan | Second Year
Debt Instrument [Line Items]
Principal prepayment premium percentage				2.00%		2.00%
Amended Credit Agreement | Term Loan | Third Year
Debt Instrument [Line Items]
Principal prepayment premium percentage				1.00%		1.00%
Amended Credit Agreement | Incremental Term Loan Facility
Debt Instrument [Line Items]
Debt instrument, face amount				$ 60,000,000		$ 60,000,000
Frequency of periodic principal payments						Quarterly
Frequency of periodic principal payments, percentage						2.50%
Quarterly principal repayments				1,500,000
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
Incremental Amendment
Debt Instrument [Line Items]
Advisor fee	$ 600,000
Incremental Amendment | Term Loan
Debt Instrument [Line Items]
Debt instrument, face amount	$ 60,000,000
Amended Credit Agreement
Debt Instrument [Line Items]
Debt instrument outstanding amount				208,500,000		$ 208,500,000
Debt issuance costs		8,700,000
Amended Credit Agreement | Term Loan
Debt Instrument [Line Items]
Debt instrument outstanding amount		$ 165,000,000		208,500,000		208,500,000		208,500,000
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
Debt issuance costs		$ 3,400,000

XML

Long-Term Debt - Penguin Credit Agreement - Additional Information (Details) - Penguin Credit Facility $ in Millions	Jun. 08, 2018 USD ($)
Debt Instrument [Line Items]
Date of acquisition	Jun. 08, 2018
Long-term debt outstanding balance amount	$ 32.3

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Long-Term Debt - BNDES Credit Agreements - Additional Information (Details) $ in Thousands, R$ in Millions	9 Months Ended
	May 31, 2019 USD ($)	May 31, 2019 BRL (R$)	Aug. 31, 2018 USD ($)	Aug. 31, 2018 BRL (R$)	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	$ 213,496
BNDES 2013 Credit Agreement
Debt Instrument [Line Items]
Debt instrument, face amount							$ 12,800	R$ 50.6
Minimum cash balances of maximum aggregate balances of principal, interest and fees outstanding							11.85%	11.85%
Restricted cash			$ 1,600	R$ 6.0
Debt instrument outstanding amount	814	R$ 3.2	3,422	12.9
Debt instrument outstanding amount with fixed interest rate	$ 400	R$ 1.6	$ 1,700	R$ 6.3
Debt instrument fixed interest rate	3.50%	3.50%	3.50%	3.50%
Debt instrument outstanding amount with floating interest rate	$ 400	R$ 1.7	$ 1,700	R$ 6.6
Debt instrument floating interest rate			5.00%	5.00%
Debt instrument target interest rate	(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%
BNDES 2014 Credit Agreement
Debt Instrument [Line Items]
Debt instrument, face amount					$ 13,400	R$ 52.8
Minimum cash balances of maximum aggregate balances of principal, interest and fees outstanding	30.31%	30.31%
Restricted cash	$ 4,300	R$ 16.0
Debt instrument outstanding amount	$ 4,182	R$ 16.5	$ 7,030	R$ 26.4
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	$ 4,996
Fair value of debt amount outstanding	4,700		$ 9,400
BNDES Credit Agreements | Banco Votorantim S.A. | SMART Brazil
Debt Instrument [Line Items]
Borrowings under guarantees agreements, committed balance	$ 5,900	R$ 22.0

XML

Long-Term Debt - Summary of Amended Credit Agreement and BNDES Agreements (Details) $ in Thousands, R$ in Millions	May 31, 2019 USD ($)	May 31, 2019 BRL (R$)	Aug. 31, 2018 USD ($)	Aug. 31, 2018 BRL (R$)	Aug. 09, 2017 USD ($)
Debt Instrument [Line Items]
Long-term debt, gross	$ 213,496
Unamortized debt discount	(2,050)		$ (2,520)
Unamortized debt issuance costs	(3,931)		(4,833)
Net amount	207,515		211,599
Current portion of long-term debt	(19,087)		(27,409)
Long-term debt	188,428		184,190
Amended Credit Agreement
Debt Instrument [Line Items]
Long-term debt, gross	208,500
Amended Credit Agreement | Term Loans
Debt Instrument [Line Items]
Long-term debt, gross	208,500		208,500		$ 165,000
Unamortized debt discount					$ (3,300)
BNDES 2013 Credit Agreement
Debt Instrument [Line Items]
Long-term debt, gross	814	R$ 3.2	3,422	R$ 12.9
BNDES 2014 Credit Agreement
Debt Instrument [Line Items]
Long-term debt, gross	$ 4,182	R$ 16.5	$ 7,030	R$ 26.4

XML

Long-Term Debt - Summary of Future Minimum Principal Payments (Details) $ in Thousands	May 31, 2019 USD ($)
Debt Instrument [Line Items]
Remainder of fiscal 2019	$ 1,651
2020	25,845
2021	22,500
2022	163,500
Total	213,496
Amended Credit Agreement
Debt Instrument [Line Items]
2020	22,500
2021	22,500
2022	163,500
Total	208,500
BNDES Credit Agreements
Debt Instrument [Line Items]
Remainder of fiscal 2019	1,651
2020	3,345
Total	$ 4,996

XML

Financial Instruments - Addtional Information (Details)	Aug. 31, 2018 USD ($)
Contingent Consideration Related to Penguin Acquisition | Level 3
Liabilities
Fair value of liabilities	$ 0

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Financial Instruments - Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - USD ($)		May 31, 2019		Aug. 31, 2018
Level 3 | Acquisition-related contingent consideration
Liabilities
Liabilities measured at fair value				$ 0
Fair Value, Measurements, Recurring Basis
Assets
Assets measured at fair value		$ 126,700,000		37,300,000
Liabilities
Liabilities measured at fair value		212,200,000		216,900,000	[1]
Fair Value, Measurements, Recurring Basis | Cash and Cash Equivalents
Assets
Assets measured at fair value		126,100,000		31,400,000
Fair Value, Measurements, Recurring Basis | Derivative Financial Instruments
Assets
Assets measured at fair value	[2]	600,000
Fair Value, Measurements, Recurring Basis | Restricted Cash
Assets
Assets measured at fair value	[3]			5,900,000
Fair Value, Measurements, Recurring Basis | Senior Secured Credit Agreement | Term Loan
Liabilities
Liabilities measured at fair value		207,500,000	[1]	207,500,000
Fair Value, Measurements, Recurring Basis | BNDES Credit Agreements
Liabilities
Liabilities measured at fair value		4,700,000	[1]	9,400,000
Fair Value, Measurements, Recurring Basis | Level 1
Assets
Assets measured at fair value		126,100,000		37,300,000
Fair Value, Measurements, Recurring Basis | Level 1 | Cash and Cash Equivalents
Assets
Assets measured at fair value		126,100,000		31,400,000
Fair Value, Measurements, Recurring Basis | Level 1 | Restricted Cash
Assets
Assets measured at fair value	[3]			5,900,000
Fair Value, Measurements, Recurring Basis | Level 2
Assets
Assets measured at fair value		600,000
Liabilities
Liabilities measured at fair value		212,200,000		216,900,000	[1]
Fair Value, Measurements, Recurring Basis | Level 2 | Derivative Financial Instruments
Assets
Assets measured at fair value	[2]	600,000
Fair Value, Measurements, Recurring Basis | Level 2 | Senior Secured Credit Agreement | Term Loan
Liabilities
Liabilities measured at fair value		207,500,000	[1]	207,500,000
Fair Value, Measurements, Recurring Basis | Level 2 | BNDES Credit Agreements
Liabilities
Liabilities measured at fair value		$ 4,700,000	[1]	$ 9,400,000

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

[2] Included in prepaid expenses and other current assets on the Company's condensed consolidated balance sheets – see Note 5.

[3] Included in other noncurrent assets on the Company’s condensed consolidated balance sheets – see Note 5.

XML

Share-Based Compensation and Employee Benefit Plans - Additional Information (Details)		1 Months Ended		3 Months Ended		9 Months Ended		37 Months Ended	50 Months Ended
	Aug. 26, 2011	Mar. 31, 2018 StockOption TradingDay	Jan. 31, 2018	May 31, 2019 USD ($) $ / shares shares	May 25, 2018 USD ($) $ / shares	May 31, 2019 USD ($) $ / shares shares	May 25, 2018 USD ($) $ / shares	Sep. 23, 2014	Nov. 30, 2018	Feb. 01, 2019 shares	Sep. 30, 2018 shares	Aug. 31, 2018 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				$ 600,000	$ 400,000	$ 1,400,000	$ 900,000
Employee Share Purchase Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Ordinary shares reserved for issuance | shares				540,090		540,090
Number of shares authorized | shares											650,000
Fair market value percentage of ordinary share			85.00%
Purchase plan termination period			2028-01
Share purchase under purchase plan | shares						109,910
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
Performance-based Restricted Share Unit Award (PSU)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share-based compensation expense				$ 0		$ 0
2017 Share Incentive Plan (SGH Plan)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Ordinary shares reserved for issuance | shares				4,956,243,000		4,956,243,000				1,500,000,000		3,385,550,000
Ordinary shares available for grant | shares				1,555,969,000		1,555,969,000						251,965,000
Weighted average fair value of options granted | $ / shares				$ 0	$ 18.31	$ 9.83	$ 18.22
Total intrinsic value of employee stock options exercised				$ 300,000	$ 7,400,000	$ 6,100,000	$ 16,600,000
Unrecognized compensation costs related to stock options				19,600,000		$ 19,600,000
2017 Share Incentive Plan (SGH Plan) | Options
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period	4 years
Expiration term									10 years
Unrecognized compensation costs recognition period						2 years 6 months 25 days
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
2017 Share Incentive Plan (SGH Plan) | RSUs
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period	4 years
Expiration term	10 years
2017 Share Incentive Plan (SGH Plan) | RSAs, RSUs and PSUs
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share-based compensation expense				1,800,000	700,000	$ 4,900,000	1,400,000
Total fair value of shares vested				$ 1,200,000	$ 2,200,000	$ 4,500,000	$ 2,200,000

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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 31, 2019	May 25, 2018	May 31, 2019	May 25, 2018
Stock options:
Expected term (years)		6 years 3 months	6 years 3 months	6 years 3 months
Expected volatility		41.77%
Expected volatility, minimum			41.68%	41.77%
Expected volatility, maximum			45.76%	46.27%
Risk-free interest rate		2.82%
Risk-free interest rate, minimum			2.62%	2.15%
Risk-free interest rate, maximum			2.88%	2.82%
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

XML

Share-Based Compensation and Employee Benefit Plans - Summary of Options Activity (Details) - 2017 Share Incentive Plan (SGH Plan) $ / shares in Units, $ in Thousands	9 Months Ended	12 Months Ended
	May 31, 2019 USD ($) $ / shares shares	Aug. 31, 2018 USD ($) $ / shares shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options outstanding, Shares, Beginning Balance | shares	2,414,000
Options granted, Shares | shares	321,000
Options exercised, Shares | shares	(325,000)
Options cancelled, Shares | shares	(47,000)
Options outstanding, Shares, Ending Balance | shares	2,363,000	2,414,000
Options exercisable, Shares | shares	691,000
Options vested and expected to vest, Shares | shares	2,363,000
Options outstanding, Weighted average per share exercise price, Beginning Balance | $ / shares	$ 28.75
Options granted, Weighted average per share exercise price | $ / shares	21.90
Options exercised, Weighted average per share exercise price | $ / shares	11.60
Options cancelled, Weighted average per share exercise price | $ / shares	32.54
Options outstanding, Weighted average per share exercise price, Ending Balance | $ / shares	30.11	$ 28.75
Options exercisable, Weighted average per share exercise price | $ / shares	22.27
Options vested and expected to vest, Weighted average per share exercise price | $ / shares	$ 30.11
Options outstanding, Weighted average remaining contractual term (years)	7 years 6 months 14 days	7 years 10 months 17 days
Options exercisable, Weighted average remaining contractual term (years)	6 years 9 months
Options vested and expected to vest, Weighted average remaining contractual term (years)	7 years 6 months 14 days
Options outstanding, Aggregate intrinsic value | $	$ 2,266	$ 20,459
Options exercisable, Aggregate intrinsic value | $	1,797
Options vested and expected to vest, Aggregate intrinsic value | $	$ 2,266

XML

Share-Based Compensation and Employee Benefit Plans - Summary of Changes in RSAs, RSUs and PSUs Outstanding (Details) - 2017 Share Incentive Plan (SGH Plan) - RSAs, RSUs and PSUs - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended
	May 31, 2019	Aug. 31, 2018
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Awards outstanding, Shares, Beginning Balance	720,000
Awards granted, Shares	535,000
Awards vested and paid out, Shares	(175,000)
Awards forfeited and cancelled, Shares	(43,000)
Awards outstanding, Shares, Ending Balance	1,037,000
Awards outstanding, Weighted average grant date fair value per share, Beginning Balance	$ 27.50
Awards granted, Weighted average grant date fair value per share	22.97
Awards vested and paid out, Weighted average grant date fair value per share	21.24
Awards forfeited and cancelled, Weighted average grant date fair value per share	31.42
Awards outstanding, Weighted average grant date fair value per share	$ 26.06
Awards outstanding, Aggregate intrinsic value	$ 17,666	$ 23,753

XML

Commitments and Contingencies - Additional Information (Details) R$ in Millions		1 Months Ended	3 Months Ended		9 Months Ended
	Aug. 21, 2013 USD ($)	Jan. 31, 2019 USD ($)	May 31, 2019 USD ($)	May 25, 2018 USD ($)	May 31, 2019 USD ($)	May 25, 2018 USD ($)	May 31, 2019 BRL (R$)	Aug. 31, 2018 USD ($)	Aug. 31, 2018 BRL (R$)	Dec. 12, 2013 USD ($)	Dec. 12, 2013 BRL (R$)	Aug. 30, 2013 USD ($)	Feb. 23, 2012 USD ($)	Feb. 23, 2012 BRL (R$)
Loss Contingencies [Line Items]
Rental expense			$ 1,200,000	$ 800,000	$ 3,500,000	$ 2,200,000
Provision for any potential loss			0		0
SMART Brazil
Loss Contingencies [Line Items]
Tax assessment amount			$ 1,400,000		$ 1,400,000		R$ 5.5	$ 4,000,000	R$ 15.1	$ 900,000	R$ 3.6		$ 29,700,000	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													$ 1,500,000	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%
SanDisk
Loss Contingencies [Line Items]
Indemnification obligations secured in escrow												$ 30,500,000
Escrow termination date					Aug. 22, 2014
Indemnification obligation deductible amount	$ 1,800,000
Indemnification obligation cap												$ 60,900,000
Netlist
Loss Contingencies [Line Items]
Amount paid for damages		$ 0

XML

Commitments and Contingencies - Future Minimum Lease Payments Under All Leases (Details) $ in Thousands	May 31, 2019 USD ($)
Commitments And Contingencies Disclosure [Abstract]
Remainder of fiscal 2019	$ 895
2020	4,000
2021	3,501
2022	2,886
2023	2,871
Thereafter	25,923
Total	$ 40,076

XML

Commitments and Contingencies - Reconcile Changes in Accrued Warranty (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	May 31, 2019	May 25, 2018	May 31, 2019	May 25, 2018
Commitments And Contingencies Disclosure [Abstract]
Beginning accrued warranty reserve	$ 1,194	$ 200	$ 856	$ 275
Warranty claims	(224)	(193)	(930)	(458)
Provision for product warranties	726	270	1,770	460
Ending accrued warranty reserve	$ 1,696	$ 277	$ 1,696	$ 277

XML

Segment and Geographic Information - Additional Information (Details)	9 Months Ended
	May 31, 2019 segment
Segment Reporting [Abstract]
Number of reportable segments	1

XML

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 31, 2019	May 25, 2018		May 31, 2019	May 25, 2018		Aug. 31, 2018
Segment Reporting Information [Line Items]
Geographic Net Sales	[1]	$ 235,657	$ 335,477	[2]	$ 933,599	$ 914,851	[2]
Property and equipment, net		67,135			67,135			$ 56,615
U.S.
Segment Reporting Information [Line Items]
Geographic Net Sales		79,483	32,448		250,140	114,304
Property and equipment, net		8,275			8,275			7,805
Ship-to-Regions Brazil
Segment Reporting Information [Line Items]
Geographic Net Sales		101,035	232,845		447,549	599,520
Asia
Segment Reporting Information [Line Items]
Geographic Net Sales		37,136	56,722		176,208	160,539
Europe
Segment Reporting Information [Line Items]
Geographic Net Sales		9,001	6,638		32,524	20,135
Other Americas
Segment Reporting Information [Line Items]
Geographic Net Sales		9,002	$ 6,824		27,178	$ 20,353
Brazil
Segment Reporting Information [Line Items]
Property and equipment, net		51,317			51,317			41,611
Malaysia
Segment Reporting Information [Line Items]
Property and equipment, net		5,463			5,463			4,749
Other
Segment Reporting Information [Line Items]
Property and equipment, net		$ 2,080			$ 2,080			$ 2,450

[1] Includes sales to affiliates of $26,427 and $94,641 in the three and nine months ended May 31, 2019, respectively, and $39,665 and $100,737 for the corresponding periods of fiscal 2018.   (see Note 3).

[2] Amounts for fiscal 2018 are accounted for under ASC 605 (refer to Note 1(u))

XML

Major Customers - Summary of Net Sales to Major Customer (Details) - USD ($) $ in Thousands		3 Months Ended			9 Months Ended
		May 31, 2019	May 25, 2018		May 31, 2019	May 25, 2018
Concentration Risk [Line Items]
Net sales	[1]	$ 235,657	$ 335,477	[2]	$ 933,599	$ 914,851	[2]
Net sales | Customer Concentration Risk
Concentration Risk [Line Items]
Net sales		$ 97,960	$ 217,852		$ 435,878	$ 633,087
Percentage of net sales		41.00%	65.00%		47.00%	70.00%
Customer A | Net sales | Customer Concentration Risk
Concentration Risk [Line Items]
Net sales		$ 47,889	$ 140,628		$ 186,315	$ 331,854
Percentage of net sales		20.00%	42.00%		20.00%	36.00%
Customer B | Net sales | Customer Concentration Risk
Concentration Risk [Line Items]
Net sales		$ 26,154	$ 37,947			$ 97,106
Percentage of net sales		11.00%	11.00%		0.00%	11.00%
Customer C | Net sales | Customer Concentration Risk
Concentration Risk [Line Items]
Net sales		$ 23,917	$ 39,277		$ 112,149	$ 106,282
Percentage of net sales		10.00%	12.00%		12.00%	12.00%
Customer D | Net sales | Customer Concentration Risk
Concentration Risk [Line Items]
Net sales					$ 137,414	$ 97,845
Percentage of net sales		0.00%	0.00%		15.00%	11.00%

[1] Includes sales to affiliates of $26,427 and $94,641 in the three and nine months ended May 31, 2019, respectively, and $39,665 and $100,737 for the corresponding periods of fiscal 2018.   (see Note 3).

[2] Amounts for fiscal 2018 are accounted for under ASC 605 (refer to Note 1(u))

XML

Major Customers - Additional Information (Details) - Accounts Receivable - Customer Concentration Risk	9 Months Ended	12 Months Ended
	May 31, 2019	Aug. 31, 2018
Customer E
Concentration Risk [Line Items]
Concentration Risk, Percentage	18.00%	15.00%
Customer F
Concentration Risk [Line Items]
Concentration Risk, Percentage	15.00%	11.00%
Customer G
Concentration Risk [Line Items]
Concentration Risk, Percentage	13.00%	17.00%
Customer H
Concentration Risk [Line Items]
Concentration Risk, Percentage	12.00%	19.00%

XML

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 31, 2019	Mar. 01, 2019	Nov. 30, 2018	May 25, 2018	Feb. 23, 2018	Nov. 24, 2017	May 31, 2019	May 25, 2018
Numerator:
Net income	$ 1,945	$ 12,786	$ 30,976	$ 31,946	$ 36,794	$ 21,005	$ 45,707	$ 89,745
Weighted average shares outstanding:
Basic	23,005			22,206			22,824	21,932
Diluted	23,330			23,306			23,374	23,020
Earnings per share:
Basic	$ 0.08			$ 1.44			$ 2.00	$ 4.09
Diluted	$ 0.08			$ 1.37			$ 1.96	$ 3.90
Anti-dilutive weighted shares excluded from the computation of diluted earnings per share	1,775			1,008			1,510	349

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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 31, 2019	May 25, 2018	May 31, 2019	May 25, 2018
Other Income And Expenses [Abstract]
Foreign currency gains (losses)	$ (144)	$ (6,932)	$ (3,481)	$ (7,259)
Other	241	(213)	501	(53)
Total other income (expense), net	$ 97	$ (7,145)	$ (2,980)	$ (7,312)