##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended
May 26, 2006
 OR
 o
    
    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 000-51771
 
 SMART MODULAR TECHNOLOGIES (WWH), INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Cayman Islands
    
    20-2509518(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)4211 Starboard DriveFremont, CA
    
    94538(Address of Principal Executive Offices)
    
    (Zip code)
 (510) 623-1231
Registrants Telephone Number, Including Area Code
 
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  o þ




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##### 



SMART MODULAR TECHNOLOGIES (WWH), INC.
 INDEX TO QUARTERLY REPORT
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    28PART II. OTHER INFORMATION
    
    
    29Item 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 6. Exhibits
    
    
    29SIGNATURES
    
    
    30EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 May 31,
    
    
    August 31,2006
    
    
    2005(In thousands)ASSETSCash and cash equivalents
    
    $
    96,660
    
    
    $
    75,970Short term investments
    
    
    
    
    
    
    5,071Accounts receivable, net of allowances of $2,477 and $2,629 as of
May 31, 2006 and August 31, 2005, respectively
    
    
    175,460
    
    
    
    144,760Inventories
    
    
    63,324
    
    
    
    53,122Prepaid expenses and other current assets
    
    
    13,911
    
    
    
    9,459Total current assets
    
    
    349,355
    
    
    
    288,382Property and equipment, net
    
    
    25,958
    
    
    
    11,309Goodwill
    
    
    3,198
    
    
    
    2,248Intangible assets, net
    
    
    6,427
    
    
    
    9,142Other non-current assets
    
    
    9,654
    
    
    
    9,980Total assets
    
    $
    394,592
    
    
    $
    321,061LIABILITIES AND SHAREHOLDERS EQUITYAccounts payable
    
    $
    155,679
    
    
    $
    125,305Accrued expenses and other current liabilities
    
    
    24,240
    
    
    
    29,912Advance from customer
    
    
    
    
    
    
    1,000Total current liabilities
    
    
    179,919
    
    
    
    156,217Long-term debt
    
    
    81,250
    
    
    
    125,000Other long-term liabilities
    
    
    855
    
    
    
    961Total liabilities
    
    
    262,024
    
    
    
    282,178Shareholders equity:Ordinary shares
    
    
    10
    
    
    
    8Additional paid-in capital
    
    
    84,766
    
    
    
    9,490Deferred stock-based compensation
    
    
    (653
    )
    
    
    (1,126
    )Accumulated other comprehensive income
    
    
    2,249
    
    
    
    900Retained earnings
    
    
    46,196
    
    
    
    29,611Total shareholders equity
    
    
    132,568
    
    
    
    38,883Total liabilities and shareholders equity
    
    $
    394,592
    
    
    $
    321,061
  3




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##### Table of Contents



SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands, except per share data)Net sales
    
    $
    188,459
    
    
    $
    146,784
    
    
    $
    510,453
    
    
    $
    465,691Cost of sales*
    
    
    155,711
    
    
    
    121,441
    
    
    
    417,359
    
    
    
    394,178Gross profit
    
    
    32,748
    
    
    
    25,343
    
    
    
    93,094
    
    
    
    71,513Research and development*
    
    
    4,173
    
    
    
    2,097
    
    
    
    11,553
    
    
    
    6,925Selling, general and administrative*
    
    
    14,194
    
    
    
    11,172
    
    
    
    39,958
    
    
    
    33,436Advisory service agreements fees
    
    
    
    
    
    
    625
    
    
    
    10,303
    
    
    
    1,875Restructuring and impairment costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    880Total operating expenses
    
    
    18,367
    
    
    
    13,894
    
    
    
    61,814
    
    
    
    43,116Income from operations
    
    
    14,381
    
    
    
    11,449
    
    
    
    31,280
    
    
    
    28,397Interest expense, net
    
    
    (7,577
    )
    
    
    (3,176
    )
    
    
    (13,450
    )
    
    
    (4,281
    )Other income, net
    
    
    1,999
    
    
    
    295
    
    
    
    2,376
    
    
    
    456Total other expense, net
    
    
    (5,578
    )
    
    
    (2,881
    )
    
    
    (11,074
    )
    
    
    (3,825
    )Income before provision for income taxes
    
    
    8,803
    
    
    
    8,568
    
    
    
    20,206
    
    
    
    24,572Provision for income taxes
    
    
    2,347
    
    
    
    2,983
    
    
    
    3,621
    
    
    
    7,021Net income
    
    $
    6,456
    
    
    $
    5,585
    
    
    $
    16,585
    
    
    $
    17,551Net income per ordinary share, basic
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.31
    
    
    $
    0.36Shares used in computing basic net
income per ordinary share
    
    
    58,335
    
    
    
    48,872
    
    
    
    52,991
    
    
    
    48,872Net income per ordinary share, diluted
    
    $
    0.10
    
    
    $
    0.10
    
    
    $
    0.29
    
    
    $
    0.33Shares used in computing diluted net
income per ordinary share
    
    
    63,444
    
    
    
    53,793
    
    
    
    57,927
    
    
    
    53,472
 
 * Stock-based compensation by category:Cost of sales
    
    $
    51
    
    
    $
    
    
    
    $
    122
    
    
    $
    Research and development
    
    
    160
    
    
    
    
    
    
    
    383
    
    
    
    Selling, general and administrative
    
    
    291
    
    
    
    
    
    
    
    881
    
    
    
    
  4




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SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (Unaudited)
 Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedMay 31,
    
    
    May 31,
    
    
    May 31,
    
    
    May 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Net income
    
    $
    6,456
    
    
    $
    5,585
    
    
    $
    16,585
    
    
    $
    17,551Other comprehensive income, net of tax:Changes in fair value of derivative
instruments
    
    
    (1,366
    )
    
    
    (871
    )
    
    
    (12
    )
    
    
    (871
    )Foreign currency translation adjustments
    
    
    898
    
    
    
    170
    
    
    
    1,361
    
    
    
    611Comprehensive income
    
    $
    5,988
    
    
    $
    4,884
    
    
    $
    17,934
    
    
    $
    17,291
  5




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##### Table of Contents



SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedMay 31,
    
    
    May 31,2006
    
    
    2005(In thousands)Cash flows from operating activities:Net cash provided by operating activities
    
    $
    8,208
    
    
    $
    72,771Cash flows from investing activities:Capital expenditures
    
    
    (17,817
    )
    
    
    (5,056
    )Sale of short term investments
    
    
    5,071
    
    
    
    Cash paid for acquisition of businesses, net of cash acquired
    
    
    (680
    )
    
    
    (2,260
    )Proceeds from sale of assets
    
    
    130
    
    
    
    96Other, net
    
    
    
    
    
    
    220Net cash used in investing activities
    
    
    (13,296
    )
    
    
    (7,000
    )Cash flows from financing activities:Net repayment on revolving line of credit
    
    
    
    
    
    
    (52,827
    )Redemption of long term debt
    
    
    (48,138
    )
    
    
    Net repayments on other debt
    
    
    
    
    
    
    (1,524
    )Repayment of customer advance
    
    
    (1,000
    )
    
    
    Payment to repurchase preferred shares
    
    
    
    
    
    
    (65,140
    )Proceeds from issuance of ordinary shares from stock option exercises
    
    
    95
    
    
    
    Proceeds from issuance of long term debt, net of debt issuance costs
    
    
    
    
    
    
    120,817Proceeds from issuance of ordinary shares in an initial public
offering, net of underwriters commissions and offering expenses
paid
    
    
    74,860
    
    
    
    Net cash provided by financing activities
    
    
    25,817
    
    
    
    1,326Effect of exchange rate changes on cash and cash equivalents
    
    
    (39
    )
    
    
    62Net increase in cash and cash equivalents
    
    
    20,690
    
    
    
    67,159Cash and cash equivalents at beginning of period
    
    
    75,970
    
    
    
    36,747Cash and cash equivalents at end of period
    
    $
    96,660
    
    
    $
    103,906Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    12,806
    
    
    $
    1,428Income taxes
    
    
    2,219
    
    
    
    1,095
  6




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##### Table of Contents



SMART MODULAR TECHNOLOGIES (WWH), INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 NOTE 1  Basis of Presentation and Principles of Consolidation
 Basis of Presentation
    Product and Service Revenue
 Revenue Recognition
 Reporting Revenue Gross as a Principal versus Net as an Agent
 7




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Recent Accounting Pronouncements
 Inventory Costs, an amendment of ARB No. 43, Chapter
4
 Accounting for Conditional Asset Retirement
Obligations Accounting for Asset Retirement Obligations
 Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 NOTE 2  Initial Public Offering
  NOTE 3  Stock-Based Compensation
 Change in Accounting Principle
 Share-Based
Payment Accounting for Stock Issued to Employees
 Accounting for Stock-Based Compensation
 8




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##### Table of Contents



Plan Description
  Summary of Assumptions and Activity
 Share-Based Payment
 Nine MonthsEndedMay 31, 2006Stock options:Expected term (years)
    
    
    6.25Expected volatility
    
    
    81
    %Risk-free interest rate
    
    
    4.78
    %Expected dividends
    
    
    
  WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateExercise
    
    
    Term
    
    
    IntrinsicShares
    
    
    Price
    
    
    (Years)
    
    
    ValueOptions outstanding at September 1, 2005
    
    
    5,478
    
    
    $
    0.29Options granted
    
    
    1,953
    
    
    
    4.85Options exercised
    
    
    (439
    )
    
    
    (0.22
    )Options forfeited
    
    
    (215
    )
    
    
    (1.07
    )Options outstanding at May 31, 2006
    
    
    6,777
    
    
    
    1.59
    
    
    
    8.5
    
    
    $
    47,539Options exercisable at May 31, 2006
    
    
    2,249
    
    
    $
    0.51
    
    
    
    8.2
    
    
    $
    18,200Options vested and expected to vest at May 31, 2006
    
    
    6,279
    
    
    $
    1.54
    
    
    
    8.5
    
    
    $
    44,311
  9




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##### Table of Contents



Weighted AverageGrant Date FairShares
    
    
    Value Per ShareNon-vested stock options at September 1, 2005
    
    
    4,202
    
    
    $
    0.36Non-vested stock options granted
    
    
    1,953
    
    
    
    4.32Vested stock options
    
    
    (1,412
    )
    
    
    (0.81
    )Forfeited stock options
    
    
    (215
    )
    
    
    (1.49
    )Non-vested stock options at May 31, 2006
    
    
    4,528
    
    
    $
    1.84
   NOTE 4  Net Income Per Share
   Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded May
    
    
    Ended May
    
    
    Ended May
    
    
    Ended May31, 2006
    
    
    31, 2005
    
    
    31, 2006
    
    
    31, 2005Numerator:Net income
    
    $
    6,456
    
    
    $
    5,585
    
    
    $
    16,585
    
    
    $
    17,551Denominator:Weighted average ordinary shares
    
    
    58,335
    
    
    
    48,872
    
    
    
    52,991
    
    
    
    48,872Effect of dilutive securities:Stock options
    
    
    5,109
    
    
    
    4,921
    
    
    
    4,936
    
    
    
    4,600Total ordinary shares, diluted
    
    
    63,444
    
    
    
    53,793
    
    
    
    57,927
    
    
    
    53,472Net income per ordinary share, basic
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.31
    
    
    $
    0.36Net income per ordinary share, diluted
    
    $
    0.10
    
    
    $
    0.10
    
    
    $
    0.29
    
    
    $
    0.33
  10




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##### Table of Contents



NOTE 5  Acquisitions
    NOTE 6  Intangible Assets
  May 31,
    
    
    August 31,Life
    
    
    2006
    
    
    2005Customer relationships
    
    
    5
    
    
    $
    11,797
    
    
    $
    11,797Technology
    
    
    3
    
    
    
    1,826
    
    
    
    1,826Trademark
    
    
    7
    
    
    
    4,680
    
    
    
    4,680Total
    
    
    
    
    
    
    18,303
    
    
    
    18,303Accumulated amortization
    
    
    
    
    
    
    (5,586
    )
    
    
    (3,774
    )Other deductions
    
    
    
    
    
    
    (6,290
    )
    
    
    (5,387
    )Carrying value
    
    
    
    
    
    $
    6,427
    
    
    $
    9,142
   NOTE 7  Related Party Information
  11




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NOTE 8  Inventories
  May 31, 2006
    
    
    August 31, 2005Raw materials
    
    $
    26,732
    
    
    $
    23,765Work-in process
    
    
    8,196
    
    
    
    5,680Finished goods
    
    
    28,396
    
    
    
    23,677$
    63,324
    
    
    $
    53,122
  NOTE 9  Income Taxes
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedMay 31, 2006
    
    
    May 31, 2005
    
    
    May 31, 2006
    
    
    May 31, 2005Current
    
    $
    2,169
    
    
    $
    1,604
    
    
    $
    3,685
    
    
    $
    5,815Deferred
    
    
    178
    
    
    
    1,379
    
    
    
    (64
    )
    
    
    1,206Total
    
    $
    2,347
    
    
    $
    2,983
    
    
    $
    3,621
    
    
    $
    7,021
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedMay 31, 2006
    
    
    May 31, 2005
    
    
    May 31, 2006
    
    
    May 31, 2005U.S. income
    
    $
    2,757
    
    
    $
    1,703
    
    
    $
    1,432
    
    
    $
    7,090Non-U.S. income
    
    
    6,046
    
    
    
    6,865
    
    
    
    18,774
    
    
    
    17,482Total
    
    $
    8,803
    
    
    $
    8,568
    
    
    $
    20,206
    
    
    $
    24,572
 12




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##### Table of Contents



NOTE 10  Long-Term Debt
 Senior Secured Floating Rate Notes
     Revolving Line of Credit
   13




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##### Table of Contents



NOTE 11  Financial Instruments
 Fair Value of Financial Instruments
  Derivative Instruments
    Accounting for Derivative Instruments and Hedging
Activities
 NOTE 12  Commitments and Contingencies
 Product Warranty
   Nine MonthsEndedMay 31, 2006Balance of accrual at August 31, 2005
    
    $
    1,044Warranty claims
    
    
    (1,160
    )Warranty provision
    
    
    557Balance of accrual at May 31, 2006
    
    $
    441
 14




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Legal Matters
  NOTE 13  Restructuring and Impairment
  Nine MonthsEndedMay 31, 2005Impairment of equipment
    
    $
    65Severance and benefit costs
    
    
    420Exit costs
    
    
    340Other
    
    
    55Total
    
    $
    880
  Restructuring Accrual
  SeveranceandBenefits
    
    
    Other
    
    
    TotalBalance of accrual at August 31, 2005
    
    $
    99
    
    
    $
    108
    
    
    $
    207Cash payments
    
    
    (99
    )
    
    
    
    
    
    
    (99
    )Balance of accrual at May 31, 2006
    
    $
    
    
    
    $
    108
    
    
    $
    108
  15




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NOTE 14  Segment and Geographic Information
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedMay 31, 2006
    
    
    May 31, 2005
    
    
    May 31, 2006
    
    
    May 31, 2005Geographic net sales:U.S.A.
    
    $
    120,917
    
    
    $
    104,135
    
    
    $
    325,401
    
    
    $
    324,604Other North and Latin America
    
    
    24,414
    
    
    
    10,935
    
    
    
    57,676
    
    
    
    45,236Europe
    
    
    13,727
    
    
    
    9,426
    
    
    
    44,637
    
    
    
    32,291Asia
    
    
    29,401
    
    
    
    22,288
    
    
    
    82,739
    
    
    
    63,560$
    188,459
    
    
    $
    146,784
    
    
    $
    510,453
    
    
    $
    465,691
 May 31, 2006
    
    
    August 31, 2005Property and equipment:U.S.A.
    
    $
    5,079
    
    
    $
    4,240Brazil
    
    
    15,160
    
    
    
    1,494Other North and Latin America
    
    
    684
    
    
    
    658Europe
    
    
    40
    
    
    
    36Malaysia
    
    
    4,122
    
    
    
    4,117Other Asia
    
    
    873
    
    
    
    764$
    25,958
    
    
    $
    11,309
 NOTE 15  Major Customers
  Three Months
    
    Three Months
    
    Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Ended
    
    EndedMay 31, 2006
    
    May 31, 2005
    
    May 31, 2006
    
    May 31, 2005Customer A
    
    
    46
    %
    
    
    46
    %
    
    
    45
    %
    
    
    44
    %Customer B
    
    
    14
    %
    
    
    19
    %
    
    
    15
    %
    
    
    18
    %
  NOTE 16  Interest Expense, Net
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedMay 31, 2006
    
    
    May 31, 2005
    
    
    May 31, 2006
    
    
    May 31, 2005Interest income
    
    $
    770
    
    
    $
    270
    
    
    $
    1,473
    
    
    $
    473Interest expense
    
    
    (8,347
    )
    
    
    (3,446
    )
    
    
    (14,923
    )
    
    
    (4,754
    )Interest expense, net
    
    $
    (7,577
    )
    
    $
    (3,176
    )
    
    $
    (13,450
    )
    
    $
    (4,281
    )
 16




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NOTE 17  Subsidiary Guarantors
  17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Executive Overview
     18




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##### Table of Contents



Key Business Metrics
  Net Sales
  Cost of Sales
  Research and Development Expenses
  Selling, General and Administrative Expenses
  Critical Accounting Policies
   19




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##### Table of Contents



Revenue Recognition
  Reporting Revenue Gross as a
Principal versus Net as an Agent
  Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Product net sales
    
    $
    177,188
    
    
    $
    137,449
    
    
    $
    477,153
    
    
    $
    436,832Service revenue
    
    
    11,271
    
    
    
    9,335
    
    
    
    33,300
    
    
    
    28,859Net sales
    
    
    188,459
    
    
    
    146,784
    
    
    
    510,453
    
    
    
    465,691Plus: Cost of sales(1)
    
    
    196,024
    
    
    
    173,229
    
    
    
    545,486
    
    
    
    571,194Gross billing to customers
    
    $
    384,483
    
    
    $
    320,013
    
    
    $
    1,055,939
    
    
    $
    1,036,885
 
 (1)
    
    Represents cost of sales associated with service revenue accounted for on an agency basis. Accounts Receivable
  Inventory Valuation
  20




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##### Table of Contents



Restructuring Charges
  Income Taxes
  Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
  Stock-Based Compensation
 Share-Based Payment
 Results of Operations
  Three Months Ended
    
    
    Nine Months EndedMay 31,
    
    
    May 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    188.5
    
    
    $
    146.8
    
    
    $
    510.5
    
    
    $
    465.7Cost of sales
    
    
    155.7
    
    
    
    121.4
    
    
    
    417.4
    
    
    
    394.2Gross profit(1)
    
    
    32.7
    
    
    
    25.3
    
    
    
    93.1
    
    
    
    71.5Research and development
    
    
    4.2
    
    
    
    2.1
    
    
    
    11.6
    
    
    
    6.9Selling, general and administrative
    
    
    14.2
    
    
    
    11.2
    
    
    
    40.0
    
    
    
    33.4Advisory service agreements fees
    
    
    
    
    
    
    0.6
    
    
    
    10.3
    
    
    
    1.9Restructuring and impairment costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Total operating expenses(1)
    
    
    18.4
    
    
    
    13.9
    
    
    
    61.8
    
    
    
    43.1Income from operations(1)
    
    
    14.4
    
    
    
    11.4
    
    
    
    31.3
    
    
    
    28.4Interest expense, net
    
    
    (7.6
    )
    
    
    (3.2
    )
    
    
    (13.5
    )
    
    
    (4.3
    )Other income, net
    
    
    2.0
    
    
    
    0.3
    
    
    
    2.4
    
    
    
    0.5Total other expense, net
    
    
    (5.6
    )
    
    
    (2.9
    )
    
    
    (11.1
    )
    
    
    (3.8
    )Income before provision for income taxes(1)
    
    
    8.8
    
    
    
    8.6
    
    
    
    20.2
    
    
    
    24.6Provision for income taxes
    
    
    2.3
    
    
    
    3.0
    
    
    
    3.6
    
    
    
    7.0Net income
    
    $
    6.5
    
    
    $
    5.6
    
    
    $
    16.6
    
    
    $
    17.6
 
 (1)
    
    Summations may not compute precisely due to rounding. 21




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##### Table of Contents



Three and Nine Months Ended May 31, 2006 as Compared to the Three and Nine Months Ended May 31,
2005
 Net Sales
   Cost of Sales
   Gross Profit
  22




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##### Table of Contents



Research and Development Expenses
   Selling, General and Administrative Expenses
   Advisory Service Agreements Fees
   23




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##### Table of Contents



Restructuring and Impairment Costs
  Interest Expense, Net
   Other Income, Net
 Accounting for Derivative Instruments and Hedging Activities
 Provision for Income Taxes
  Liquidity and Capital Resources
  24




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##### Table of Contents



Debt Service
  Senior Secured Credit Facility
 Senior Secured Floating Rate Exchange Notes Due April 2012
  Capital Expenditures
  Sources of Funds
   25




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##### Table of Contents



Historical Trends
  Cash Flows from Operating Activities
 Cash Flows from Investing Activities
 Cash Flows from Financing Activities
 Contractual Obligations
  Payments Due by Period
 Less Than
    
    
    
    
    
    
    
    
    
    
    After 51 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    Years
    
    
    Total(In millions)Total debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    81.3
    
    
    $
    81.3Interest expense cash obligations
in connection with long-term debt
(1)
    
    
    8.5
    
    
    
    25.5
    
    
    
    15.6
    
    
    
    
    
    
    
    49.6Operating leases
    
    
    2.0
    
    
    
    4.1
    
    
    
    1.2
    
    
    
    
    
    
    
    7.3Total contractual cash obligations
    
    $
    10.5
    
    
    $
    29.6
    
    
    $
    16.8
    
    
    $
    81.3
    
    
    $
    138.2
 
 (1)
    
    Interest expense cash obligations are estimated based on the current interest rates in effect
for our long-term debt as of May 31, 2006. 26




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##### Table of Contents



Off-Balance Sheet Arrangements
  Inflation
  Recent Accounting Pronouncements
 Inventory Costs, an amendment of ARB No. 43, Chapter
4
 Accounting for Conditional Asset Retirement
Obligations Accounting for Asset Retirement Obligations
 APB No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Foreign Exchange Risks
  27




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##### Table of Contents



Interest Rate Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
 Changes in Internal Control Over Financial Reporting
 28




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
  Exhibit No.
    
    Exhibit Title31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200232
    
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 29




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##### Table of Contents



SMART MODULAR TECHNOLOGIES (WWH), INC.
 
 SIGNATURES
  SMART MODULAR TECHNOLOGIES (WWH), INC.By:
    /s/ IAIN MACKENZIEName:
    Iain MacKenzieTitle:
    President and Chief Executive OfficerBy:
    /s/ JACK A. PACHECOName:
    Jack A. PachecoTitle:
    Vice President and Chief Financial Officer  30




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Exhibit Title31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 200232
    
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002