sgh-20241129

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 November 29, 2024

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

For the transition period from to

Commission File Number 001-38102

PENGUIN SOLUTIONS, 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 Walkers Corporate Limited
190 Elgin Avenue
George Town, Grand Cayman
Cayman Islands			KY1-9008
(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	PENG	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 January 2, 2025, the registrant had 53,290,750 ordinary shares outstanding.

Table of Contents


		Page

PART I. Financial Information
Item 1	Financial Statements	4
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4	Controls and Procedures	33

PART II. Other Information
Item 1	Legal Proceedings	34
Item 1A	Risk Factors	34
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3	Defaults Upon Senior Securities	34
Item 4	Mine Safety Disclosures	35
Item 5	Other Information	35
Item 6	Exhibits	35

Signatures		37


2

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains “forward-looking statements” that are not historical in nature, that are predictive or that depend upon or refer to future events or conditions. These statements may include, but are not limited to, statements regarding future events or our future financial or operating performance, the extent and timing of, and expectations regarding, our future revenues and expenses and customer demand, statements regarding the deployment of our products and services, statements regarding our reliance on third parties, statements regarding our rebranding initiatives and strategy, and statements using words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “plan,” “potential,” “should” and similar words and the negatives thereof constitute forward-looking statements. These forward-looking statements are based on our current expectations or forecasts of future events, circumstances, results or aspirations and are subject to a number of significant risks, uncertainties and other factors, many of which are outside of our control, including but not limited to, global business and economic conditions and growth trends in technology industries (including trends and markets related to artificial intelligence (“AI”)), our customer markets and various geographic regions; uncertainties in the geopolitical environment; our ability to manage our cost structure; disruptions in our operations or supply chain as a result of global pandemics or otherwise; changes in trade regulations or adverse developments in international trade relations and agreements; changes in currency exchange rates; overall information technology spending; appropriations for government spending; the success of our strategic initiatives including our rebranding and related strategy, any potential collaborations, and additional investments in new products and additional capacity; acquisitions of companies or technologies and the failure to successfully integrate and operate them or customers’ negative reactions to them; issues, delays or complications in integrating the operations of Stratus Technologies; the failure to achieve the intended benefits of the sale of SMART Brazil and its business; limitations on or changes in the availability of supply of materials and components; fluctuations in material costs; the temporary or volatile nature of pricing trends in memory or elsewhere; deterioration in customer relationships; our dependence on a select number of customers and the timing and volume of customer orders; production or manufacturing difficulties; competitive factors; technological changes; difficulties with, or delays in, the introduction of new products; slowing or contraction of growth in the memory market, LED market or other markets in which we participate; changes to applicable tax regimes or rates; changes to the valuation allowance for our deferred tax assets, including any potential inability to realize these assets in the future; prices for the end products of our customers; strikes or labor disputes; deterioration in or loss of relations with any of our limited number of key vendors; the inability to maintain or expand government business; and the continuing availability of borrowings under term loans and revolving lines of credit and our ability to raise capital through debt or equity financings. These and other risks, uncertainties and factors are described in greater detail under the sections titled “Risk Factors,” “Critical Accounting Estimates,” “Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and “Liquidity and Capital Resources” contained in our Annual Report on Form 10-K for the fiscal year ended August 30, 2024, this Quarterly Report and the risks discussed in our other Securities and Exchange Commission (“SEC”) filings. Such risks, uncertainties and factors as outlined above and in such filings do not constitute all risks, uncertainties and factors that could cause actual results of Penguin Solutions to be materially different from such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on any forward-looking statements.

The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. We do not intend, and have no obligation, to update or revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this Quarterly Report, except as required by law.

About This Quarterly Report

As used herein, unless the context indicates otherwise, the terms “Penguin Solutions,” “Company,” “Registrant,” “we,” “our,” “us” or similar terms refer to Penguin Solutions, Inc. and its consolidated subsidiaries. Our fiscal year is the 52- or 53-week period ending on the last Friday in August. Fiscal years 2025 and 2024 contain 52 weeks and 53 weeks, respectively. All period references are to our fiscal periods unless otherwise indicated.

Penguin Solutions, Penguin Computing, Penguin Edge, the Penguin Solutions logo, SMART Modular Technologies, SMART, Cree LED, Stratus, Stratus Technologies and our other trademarks or service marks appearing in this Quarterly Report are our trademarks or registered trademarks. Trade names, trademarks and service marks of other companies appearing in this Quarterly Report are the property of their respective holders.


3

PART I. Financial Information

Item 1. Financial Statements

INDEX TO FINANCIAL STATEMENTS


			Page

Consolidated Balance Sheets			5
Consolidated Statements of Operations			6
Consolidated Statements of Comprehensive Income (Loss)			7
Consolidated Statements of Shareholders’ Equity			8
Consolidated Statements of Cash Flows			9
Notes to Consolidated Financial Statements			10


4

Penguin Solutions, Inc.

Consolidated Balance Sheets

(In thousands, except par value amount)

(Unaudited)


As of	November 29, 2024		August 30, 2024
Assets
Cash and cash equivalents	$	370,295	$	383,147
Short-term investments	23,430		6,337
Accounts receivable, net	275,629		251,743
Inventories	246,952		151,213
Other current assets	79,273		75,264

Total current assets	995,579		867,704
Property and equipment, net	100,239		106,548
Operating lease right-of-use assets	58,317		60,349
Intangible assets, net	111,926		121,454
Goodwill	161,958		161,958
Deferred tax assets	84,934		85,078
Other noncurrent assets	70,062		71,415
Total assets	$	1,583,015	$	1,474,506

Liabilities and Equity
Accounts payable and accrued expenses	$	284,636	$	219,090

Deferred revenue	41,326		63,954

Other current liabilities	100,924		44,552

Total current liabilities	426,886		327,596
Long-term debt	658,070		657,347
Noncurrent operating lease liabilities	58,611		60,542
Other noncurrent liabilities	30,499		29,813
Total liabilities	1,174,066		1,075,298

Commitments and contingencies

Penguin Solutions shareholders’ equity:
Preferred shares, $0.03 par value; authorized 30,000 shares; none issued or outstanding	—		—
Ordinary shares, $0.03 par value; authorized 200,000 shares; 61,067 shares issued and 53,438 outstanding as of November 29, 2024; 60,226 shares issued and 53,277 outstanding as of August 30, 2024	1,832		1,807
Additional paid-in capital	528,201		513,335
Retained earnings	35,202		29,985
Treasury shares, 7,629 and 6,949 shares held as of November 29, 2024 and August 30, 2024, respectively	(164,879)		(153,756)
Accumulated other comprehensive income (loss)	19		10
Total Penguin Solutions shareholders’ equity	400,375		391,381
Noncontrolling interest in subsidiary	8,574		7,827
Total equity	408,949		399,208
Total liabilities and equity	$	1,583,015	$	1,474,506

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


5

Penguin Solutions, Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended
	November 29, 2024		December 1, 2023
Net sales:
Products	$	270,260	$	206,430
Services	70,842		67,817
Total net sales	341,102		274,247
Cost of sales:
Products	215,149		163,413
Services	28,141		27,984
Total cost of sales	243,290		191,397
Gross profit	97,812		82,850

Operating expenses:
Research and development	19,811		21,389
Selling, general and administrative	60,536		57,217


Other operating (income) expense	109		2,939
Total operating expenses	80,456		81,545
Operating income	17,356		1,305

Non-operating (income) expense:
Interest expense, net	4,396		9,559
Other non-operating (income) expense	636		(576)
Total non-operating (income) expense	5,032		8,983
Income (loss) before taxes	12,324		(7,678)

Income tax provision	6,360		3,534
Net income (loss) from continuing operations	5,964		(11,212)
Net loss from discontinued operations	—		(8,148)
Net income (loss)	5,964		(19,360)
Net income attributable to noncontrolling interest	747		561
Net income (loss) attributable to Penguin Solutions	$	5,217	$	(19,921)

Basic earnings (loss) per share:
Continuing operations	$	0.10	$	(0.23)
Discontinued operations	—		(0.15)
	$	0.10	$	(0.38)
Diluted earnings (loss) per share:
Continuing operations	$	0.10	$	(0.23)
Discontinued operations	—		(0.15)
	$	0.10	$	(0.38)
Shares used in per share calculations:
Basic	53,482		52,068
Diluted	54,312		52,068

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


6

Penguin Solutions, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)


	Three Months Ended
	November 29, 2024		December 1, 2023
Net income (loss)	$	5,964	$	(19,360)
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment	—		(6,142)
Cumulative translation adjustment reclassified to net income (loss)	—		212,397

Gain (loss) on investments	9		12
Comprehensive income	5,973		186,907
Comprehensive income attributable to noncontrolling interest	747		561
Comprehensive income attributable to Penguin Solutions	$	5,226	$	186,346

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


7

Penguin Solutions, Inc.

Consolidated Statements of Shareholders’ Equity

(In thousands)

(Unaudited)


	Shares Issued	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Total Penguin Solutions Shareholders’ Equity		Non- controlling Interest in Subsidiary		Total Equity
As of August 30, 2024	60,226	$	1,807	$	513,335	$	29,985	$	(153,756)	$	10	$	391,381	$	7,827	$	399,208
Net income	—	—		—		5,217		—		—		5,217		747		5,964
Other comprehensive income (loss)	—	—		—		—		—		9		9		—		9
Shares issued under equity plans	841	25		3,335		—		—		—		3,360		—		3,360
Repurchase of shares	—	—		—		—		(11,123)		—		(11,123)		—		(11,123)
Share-based compensation expense	—	—		11,531		—		—		—		11,531		—		11,531

As of November 29, 2024	61,067	$	1,832	$	528,201	$	35,202	$	(164,879)	$	19	$	400,375	$	8,574	$	408,949


	Shares Issued	Amount		Additional Paid-in Capital		Retained Earnings		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Total Penguin Solutions Shareholders’ Equity		Non- controlling Interest in Subsidiary		Total Equity
As of August 25, 2023	57,542	$	1,726	$	476,703	$	82,457	$	(132,447)	$	(205,964)	$	222,475	$	6,758	$	229,233
Net income (loss)	—	—		—		(19,921)		—		—		(19,921)		561		(19,360)
Other comprehensive income (loss)	—	—		—		—		—		206,267		206,267		—		206,267
Shares issued under equity plans	905	27		3,428		—		—		—		3,455		—		3,455
Repurchase of shares	—	—		—		—		(13,130)		—		(13,130)		—		(13,130)
Share-based compensation expense	—	—		11,014		—		—		—		11,014		—		11,014
Distribution to noncontrolling interest	—	—		—		—		—		—		—		(1,470)		(1,470)
As of December 1, 2023	58,447	$	1,753	$	491,145	$	62,536	$	(145,577)	$	303	$	410,160	$	5,849	$	416,009

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


8

Penguin Solutions, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


Three Months Ended	November 29, 2024		December 1, 2023
Cash flows from operating activities
Net income (loss)	$	5,964	$	(19,360)
Net loss from discontinued operations	—		(8,148)
Net income (loss) from continuing operations	5,964		(11,212)
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:
Depreciation expense and amortization of intangible assets	14,961		17,654
Amortization of debt issuance costs	953		1,042
Share-based compensation expense	11,531		10,970



Deferred income taxes, net	211		(282)
Other	(712)		664
Changes in operating assets and liabilities:
Accounts receivable	(23,885)		48,658
Inventories	(93,380)		(33,464)
Other assets	705		2,102
Accounts payable and accrued expenses and other liabilities	97,471		23,581

Net cash provided by operating activities from continuing operations	13,819		59,713
Net cash used for operating activities from discontinued operations	—		(28,235)
Net cash provided by operating activities	13,819		31,478

Cash flows from investing activities
Capital expenditures and deposits on equipment	(1,836)		(4,648)
Proceeds from maturities of investment securities	3,780		9,665
Purchases of held-to-maturity investment securities	(20,723)		(8,469)


Other	(143)		(188)
Net cash used for investing activities from continuing operations	(18,922)		(3,640)
Net cash provided by investing activities from discontinued operations	—		118,938
Net cash provided by (used for) investing activities	(18,922)		115,298

Cash flows from financing activities
Repayments of debt	—		(14,423)

Payments to acquire ordinary shares	(11,123)		(13,130)
Distribution to noncontrolling interest	—		(1,470)
Proceeds from issuance of ordinary shares	3,360		3,455



Other	—		(582)
Net cash used for financing activities from continuing operations	(7,763)		(26,150)
Net cash used for financing activities from discontinued operations	—		(606)
Net cash used for financing activities	(7,763)		(26,756)

Effect of changes in currency exchange rates	—		(1,025)
Net increase (decrease) in cash, cash equivalents and restricted cash	(12,866)		118,995
Cash, cash equivalents and restricted cash at beginning of period	383,477		410,064
Cash, cash equivalents and restricted cash at end of period	$	370,611	$	529,059

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


9

Penguin Solutions, Inc.

Notes to Consolidated Financial Statements

(Tabular amounts in thousands, except per share amounts)

(Unaudited)

Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Penguin Solutions, Inc. (“Penguin Solutions,” “we,” “us,” “our,” the “Company” or similar terms) and its consolidated subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) consistent in all material respects with those applied in our Annual Report on Form 10-K for the fiscal year ended August 30, 2024 and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of our management, the accompanying unaudited consolidated financial statements contain all necessary adjustments, consisting of a normal recurring nature, to fairly state the financial information set forth herein. These consolidated interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended August 30, 2024.

Presentation of SMART Brazil as Discontinued Operations: On June 13, 2023, we entered into an agreement to divest of an 81% interest in SMART Modular Technologies do Brasil – Indústria e Comercio de Componentes Ltda. (“SMART Brazil”). We concluded that, as of August 25, 2023, (i) the net assets of SMART Brazil met the criteria for classification as held for sale and (ii) the proposed sale represented a strategic shift that was expected to have a major effect on our operations and financial results. On November 29, 2023, we completed the divestiture. The balance sheets, results of operations and cash flows of SMART Brazil have been presented as discontinued operations for all periods presented. SMART Brazil was previously included within our Integrated Memory segment. See “Divestiture of SMART Brazil.”

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

Fiscal Year: Our fiscal year is the 52- or 53-week period ending on the last Friday in August. Fiscal years 2025 and 2024 contain 52 weeks and 53 weeks, respectively. All period references are to our fiscal periods unless otherwise indicated.

Financial information for our subsidiaries in Brazil was included in our consolidated financial statements on a one-month lag because their fiscal years ended on July 31 of each year. In connection with the completion of the divestiture of an 81% interest in SMART Brazil, we ceased consolidating the operations of SMART Brazil in our financial statements as of the November 29, 2023 disposal date. As a result, financial information for the first quarter of 2024 includes the four-month period for our SMART Brazil operations from August 1, 2023 to November 29, 2023.

Preferred Share Investment

On December 13, 2024, we closed the Investment (as defined below) by SK Telecom Co., Ltd. (“SKT”). Pursuant to the terms of the Securities Purchase Agreement by and between Penguin Solutions and SKT (the “SKT Purchase Agreement”), we sold to Astra AI Infra LLC (“Astra AI Infra”), an affiliate of SKT, 200,000 convertible preferred shares, par value $0.03 per share, of Penguin Solutions (the “CPS”), at a price of $1,000 per share or an aggregate price of $200 million (the “Investment”). The CPS have an initial liquidation preference of 1x and are only redeemable at our option in one installment upon notice, provided that no such notice shall be sent until at least five years after the date of the closing of the Investment. The CPS vote together with the ordinary shares, par value $0.03 per share, of Penguin Solutions, on an as-converted basis, and entitle the holder to receive


10

dividends of six percent per annum, cumulative, payable quarterly in-kind or in cash at our option, subject to certain conditions.

The holder of the CPS may convert the CPS into ordinary shares at any time, provided that the CPS may, at our option, automatically be converted into ordinary shares on any date following the second anniversary of the closing of the Investment upon which the volume-weighted average price of the ordinary shares for any 15 consecutive trading day period equals or exceeds 150% of the then-applicable conversion price. The CPS are convertible into ordinary shares at a conversion price of $32.81 per preferred share, subject to adjustment upon the occurrence of certain events. Holders of the CPS are also entitled to certain protective provisions.

Additionally, on the closing date of the Investment, we and Astra AI Infra entered into an Investor Agreement, and the Certificate of Designation relating to the CPS (the “Certificate of Designation”) became effective. The Investor Agreement and the Certificate of Designation provide for certain rights and restrictions relating to the Investment, including but not limited to board representation rights, pro rata rights, registration rights and consent rights, and standstill provisions, disposition restrictions and voting obligations.

Divestiture of SMART Brazil

Overview of Transaction

On November 29, 2023, we completed the divestiture of SMART Brazil pursuant to the terms of that certain Stock Purchase Agreement (the “Brazil Purchase Agreement”), by and among SMART Modular Technologies (LX) S.à r.l., a société à responsabilité limitée governed by the laws of Grand Duchy of Luxembourg and a wholly owned subsidiary of Penguin Solutions (the “Brazil Seller”), Lexar Europe B.V., a company organized under the laws of The Netherlands (the “Brazil Purchaser”), Shenzhen Longsys Electronics Co., Ltd., a company limited by shares governed by the laws of the People’s Republic of China (“Longsys”), solely with respect to certain provisions therein, Shanghai Intelligent Memory Semiconductor Co., Ltd., a limited liability company governed by the laws of the People’s Republic of China and, solely with respect to certain provisions therein, Penguin Solutions.

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

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

Pursuant to the Brazil Purchase Agreement, at the closing, SMART Brazil, Brazil Seller, Brazil Purchaser and Longsys entered into a Quotaholders Agreement, which provides Brazil Seller with a put option to sell the Retained Interest in SMART Brazil to Brazil Purchaser (the “Put Option”) during three exercise windows following SMART Brazil’s fiscal years ending December 31, 2026, December 31, 2027 or December 31, 2028 (the “Exercise Windows”), with such Exercise Windows beginning on June 15, 2027 and ending on July 15, 2027, beginning on June 15, 2028 and ending on July 15, 2028 and beginning on June 15, 2029 and ending on July 15, 2029, respectively. A call option has also been granted to Brazil Purchaser to require Brazil Seller to sell the Retained Interest to Brazil Purchaser during the Exercise Windows (together with the Put Option, the “Put/Call Option”). The price for the Put/Call Option is based on a 100% enterprise value of 7.5x net income for SMART Brazil for the preceding fiscal year at the time of exercise.

Total consideration in exchange for the sale of an 81% interest in SMART Brazil amounted to $194.1 million which included cash at closing of $164.9 million, a deferred payment with fair value of $25.4 million and a deferred cash adjustment with a fair value of $3.7 million. The deferred payment, comprised of a notional amount of $28.4 million, discounted at 7.5% due May 2025. The deferred payment is included in other current assets in the accompanying consolidated balance sheets. The fair value of the deferred cash adjustment, comprised of a notional amount of $4.8 million discounted at 7.5%, equal to 19% of the amount of SMART Brazil’s net cash as of the closing (as calculated pursuant to the Brazil Purchase Agreement). The deferred cash adjustment, which is accounted for as a derivative financial instrument, is due at the time of exercise of the Put/Call Option and was included in other noncurrent assets in the accompanying consolidated balance sheet.


11

Presentation of SMART Brazil Operations

As of August 25, 2023, we concluded that the net assets of SMART Brazil met the criteria for classification as held for sale. In addition, the divestiture of SMART Brazil was expected to have a major effect on our operations and financial results. As a result, we have presented the results of operations, cash flows and financial position of SMART Brazil as discontinued operations in the accompanying consolidated financial statements and notes for all periods presented.

A disposal group classified as held for sale is measured at the lower of its carrying amount or fair value less costs to sell. Accordingly, we evaluated the carrying value of the net assets of SMART Brazil (including $206.3 million recognized within shareholders’ equity related to the cumulative translation adjustment from SMART Brazil), estimated costs to sell and expected proceeds and concluded the net assets were impaired as of August 25, 2023. As a result, we recognized an impairment charge of $153.0 million in the fourth quarter of 2023 to write down the carrying value of the net assets of SMART Brazil. In addition, we concluded that the outside basis of SMART Brazil inclusive of any withholding taxes should be recognized upon the classification as held for sale as of August 25, 2023. Accordingly, we recognized withholding taxes on the expected capital gain and deferred tax liabilities of $28.6 million in 2023.

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


As of	November 29, 2023
Cash and cash equivalents	$	40,927
Accounts receivable, net	16,482
Inventories	26,103
Other current assets	17,800
Total current assets	101,312
Property and equipment, net	66,870
Operating lease right-of-use assets	6,912
Goodwill	19,856
Other noncurrent assets	27,490
Total assets	222,440
Impairment of SMART Brazil assets	(153,036)
Total assets, net of impairment	$	69,404

Accounts payable and accrued expenses	$	20,576
Current debt	3,872
Other current liabilities	1,023
Total current liabilities	25,471
Long-term debt	11,938
Noncurrent operating lease liabilities	5,686
Noncurrent deferred tax liabilities	28,564
Other noncurrent liabilities	93
Total liabilities	$	71,752

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


12

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

SEC Form 10-Q filed by Penguin Solutions Inc.