Simply Good Foods Co 10-K/A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included in Item 8 of this Amendment. Amounts throughout this discussion and analysis have been restated as discussed above. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data, of this Amendment for additional information. In addition to historical information, the following discussion contains forward-looking statements, including, but not limited to, statements regarding the Company’s expectation for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ materially from the Company's expectations. The Company's actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described in “Cautionary Note Regarding Forward-Looking Statements,” and in Item 1A “Risk Factors” of this Report. The Company assumes no obligation to update any of these forward-looking statements. Our fiscal year ends the last Saturday in August. Our fiscal years 2020 and 2018 ended August 29, 2020 and August 25, 2018, respectively, and were each fifty-two week periods. Our fiscal year 2019 ended August 31, 2019 was a fifty-three week period. Our fiscal quarters are comprised of thirteen weeks each, except for fifty-three week fiscal periods for the which the fourth quarter is comprised of fourteen weeks, and end on the thirteenth Saturday of each quarter (fourteenth Saturday of the fourth quarter, when applicable). Our fiscal quarters for fiscal 2020 ended on November 30, 2019, February 29, 2020, May 30, 2020 and August 29, 2020. Unless the context requires otherwise in this Report, the terms “we,” “us,” “our,” the “Company” and “Simply Good Foods” refer to The Simply Good Foods Company and its subsidiaries. Overview The Simply Good Foods Company is a consumer packaged food and beverage company that aims to lead the nutritious snacking movement with trusted brands that offer a variety of convenient, innovative, great-tasting, better-for-you snacks and meal replacements. Our nutritious snacking platform consists of the following core brands that specialize in providing products for consumers that follow certain nutritional philosophies, dietary approaches and/or health-and-wellness trends: Atkins® for those following a low-carb lifestyle; and Quest® for consumers seeking to partner with a brand that makes the foods they crave work for them, not against them, through a variety of protein-rich foods and beverages that also limit sugars and simple carbs. We distribute our products in major retail channels, primarily in North America, including grocery, club and mass merchandise, as well as through e-commerce, convenience, specialty and other channels. Our portfolio of nutritious snacking brands gives us a strong platform with which to introduce new products, expand distribution, and attract new consumers to our products. Our platform also positions us to continue to selectively pursue acquisition opportunities of brands in the nutritious snacking category. To that end, in November 2019, we completed the acquisition of Quest Nutrition, LLC (“Quest”), a healthy lifestyle food company, for a cash purchase price of approximately $1.0 billion (subject to customary adjustments) (the “Acquisition of Quest”). For more information, please see “Liquidity and Capital Resources-Acquisition of Quest.” Effective September 24, 2020, we sold the assets exclusively related to our SimplyProtein® brand of products for approximately $8.8 million of consideration, including cash of $5.8 million and a note receivable for $3.0 million, to a newly formed entity led by our Canadian-based management team who had been responsible for this brand prior to the sale transaction. In addition to purchasing these assets, the buyer assumed certain liabilities related to the SimplyProtein brand’s business. The transaction enables management to focus its full time and our resources on its core Atkins® and Quest® branded businesses and other strategic initiatives. Effects of COVID-19 In December 2019, a novel coronavirus disease, or COVID-19, was reported and in January 2020, the World Health Organization, or WHO, declared it a Public Health Emergency of International Concern. On February 28, 2020, the WHO raised its assessment of the COVID-19 threat from high to very high at a global level due to the continued increase in the number of cases and affected countries, and on March 11, 2020, the WHO characterized COVID-19 as a pandemic. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act provided a substantial stimulus and assistance package intended to address the effect of the COVID-19 pandemic, including tax relief and government loans, grants and investments. Additionally, various federal, state and local government-imposed movement restrictions and initiatives have been implemented to reduce the global transmission of COVID-19, including reduced or eliminated food services, the closure of retailing establishments, the promotion of social distancing and the adoption of remote working policies. During the third quarter of 2020, we actively engaged with the various elements of our value chain, including our customers, contract manufacturers, and logistics and transportation providers, to meet demand for our products and to remain informed of any challenges within our value chain. Given the unpredictable nature of the COVID-19 pandemic and the initial surge in consumption, we 25 increased finished goods inventory of some of our key products. Based on information available to us as of the end of our fiscal year, we believe we will be able to deliver our products to meet customer orders on a timely basis, and therefore, we expect our products will continue to be available for purchase to meet consumer meal replacement and snacking needs for the foreseeable future. We continue to monitor customer and consumer demand, and intend to adapt our plans as needed to continue to drive our business and meet our obligations during the evolving COVID-19 situation. Additionally, in March 2020, we borrowed $25.0 million under our $75.0 million revolving credit facility, as a precautionary measure to ensure ample financial flexibility in light of the spread of COVID-19 and the initial surge in demand. The Company used the proceeds of the Revolving Credit Facility to meet initial elevated customer orders, build finished goods inventory of some of our high velocity items, to support working capital and to support general corporate purposes. Based on that assessment of our sources of liquidity and capital, which included strong realized cash flow from operations and no material collectability concerns regarding our customers' ability to pay, the $25.0 million borrowing under the revolving credit facility was fully repaid in June 2020. We implemented remote work arrangements and restricted business travel in mid-March, and to date, these arrangements have not materially affected our ability to maintain our business operations, including the operation of financial reporting systems, internal control over financial reporting, and disclosure controls and procedures. We believe our lean infrastructure, which allows for significant flexibility, speed-to-market and minimal capital investment, has enabled us to adjust our expenditures to maintain cash flow until the more fulsome reopening of the U.S. economy and the associated return of shopping behavior to more normal patterns and our brand benefits of active nutrition and weight management drive more better-for-you snacking and meal replacement usage occasions. Our consolidated results of operations for the full fiscal year ended August 29, 2020 were affected by changes in consumer shopping and consumption behavior due to COVID-19. After the brief pantry loading period in mid-March 2020, the nutritional snacking category saw a marked decrease in shopping trips (particularly in the mass channel) and fewer usage occasions. This affected our portable and convenient on-the-go products, especially the nutrition and protein bar portion of our business for both our Atkins and Quest brands. As home confinement restrictions began to ease, shopping trips steadily improved from their lowest point and consumer interest in weight management and active nutrition began to improve. During the fourth fiscal quarter of 2020, the improvement in category trends plateaued. While our Quest brand has outperformed its portion of the nutritious snaking segment, the performance of our Atkins brand, which is part of the weight management portion of the market, has remained slower due to the temporary softer interest in weight management for consumers, fewer on-the-go usage occasions and weakness in the mass channel that has experienced reduced shopper traffic during the pandemic. Based on the duration and severity of economic effects from the COVID-19 pandemic, including but not limited to stock market volatility, the potential for (i) continued increased rates of reported cases of COVID-19, (ii) unexpected supply chain disruptions, (iii) changes to customer operations, (iv) continued or additional changes in consumer purchasing and consumption behavior beyond those evidenced to date, and (v) the closure of customer establishments, we remain uncertain of the ultimate effect COVID-19 could have on our business. We also believe the COVID-19 uncertainty will continue during our 2021 fiscal year. Please also see the information under Item 1A. “Risk Factors” for additional information regarding the risks of pandemics, such as COVID-19. Restructuring and Related Charges In May 2020, we announced certain restructuring activities in conjunction with the implementation of our future-state organization design, which creates a fully integrated organization with our completed Acquisition of Quest. The new organization design became effective on August 31, 2020. These restructuring plans primarily include workforce reductions and changes in management structure. For the fifty-two week period ended August 29, 2020, we incurred $5.5 million of costs for these restructuring activities which have been included within General and administrative on the Consolidated Statements of Operations and Comprehensive Income (Loss). Overall, we expect to incur a total of approximately $8.1 million in restructuring costs, including the $5.5 million referenced above. The one-time termination benefits and employee severance costs are to be paid throughout fiscal 2021 and the first quarter of fiscal 2022. As of August 29, 2020, the outstanding restructuring liability was $4.1 million. Refer to Note 19, Restructuring and Related Charges, of our Consolidated Financial Statements included herein for additional information regarding restructuring activities. Change in Accounting Principle During the fourth quarter ended August 31, 2019, we changed our accounting principle related to the presentation of third-party delivery costs associated with shipping and handling activities previously included as operating expenses in Distribution in the Consolidated Statements of Operations and Comprehensive Income (Loss). We now present these expenses within Cost of goods sold in the Consolidated Statements of Operations and Comprehensive Income (Loss). 26 In connection with the change in accounting principle, we also changed our definition of shipping and handling costs to include costs paid to third-party warehouse operators associated with delivering product to a customer, previously included in General and administrative , and Depreciation and amortization of the assets at the third-party warehouse, previously included in Depreciation and amortization . Under the previous definition of shipping and handling costs, we only included delivery costs in Distribution . The accounting policy change was applied retrospectively to all periods presented and the Consolidated Statements of Operations and Comprehensive Income (Loss) reflect the effect of this accounting principle change for all periods presented. Specifically, amounts presented for the fifty-two week period ended August 25, 2018 have been adjusted in accordance with this accounting principle change. Refer to Note 3, Change in Accounting Principle, of our Consolidated Financial Statements included herein for additional information on the accounting principle change. Change in Fair Value of Warrant Liability During the fifty-two week period ended August 29, 2020, the fifty-three week period ended August 31, 2019, and the fifty-two week period ended August 25, 2018, there were fluctuations in the fair value of our liability-classified private warrants (“Private Warrants”). These fluctuations created significant gains and losses on the remeasurement of our Private Warrants which are recognized as a liability measured at fair value on our Consolidated Balance Sheets. These remeasurements are recognized as Gain (loss) in fair value change of warrant liability on our Consolidated Statements of Operations and Comprehensive Income (Loss). Our Reportable Segment Following the Acquisition of Quest, our operations are organized into two operating segments, Atkins and Quest, which are aggregated into one reporting segment, due to similar financial, economic and operating characteristics. The operating segments are also similar in the following areas: (a) the nature of the products; (b) the nature of the production processes; (c) the methods used to distribute products to customers, (d) the type of customer for the products, and (e) the nature of the regulatory environment. The recently announced restructuring and new organization design creates an efficient and fully integrated organization that will continue to support and build multi-category nutritional snacking brands. Key Financial Definitions Net sales. Net sales consists primarily of product sales less the cost of promotional activities, slotting fees and other sales credits and adjustments, including product returns. Cost of goods sold. Cost of goods sold consists primarily of the costs we pay to our contract manufacturing partners to produce the products sold. These costs include the purchase of raw ingredients, packaging, shipping and handling, warehousing, depreciation of warehouse equipment, and a tolling charge for the contract manufacturer. Cost of goods sold includes products provided at no charge as part of promotions and the non-food materials provided with customer orders. Operating expenses. Operating expenses consist primarily of selling and marketing, general and administrative, depreciation and amortization, and business transaction costs. The following is a brief description of the components of operating expenses: • Selling and marketing. Selling and marketing expenses are comprised of broker commissions, customer marketing, media and other marketing costs. • General and administrative. General and administrative expenses are comprised of expenses associated with corporate and administrative functions that support our business, including employee salaries, professional services, integration costs, restructuring costs, insurance and other general corporate expenses. • Depreciation and amortization. Depreciation and amortization costs consist of costs associated with the depreciation of fixed assets and capitalized leasehold improvements and amortization of intangible assets. • Business transaction costs. Business transaction costs are comprised of legal, due diligence, consulting and accounting firm expenses associated with the process of actively pursuing potential and completed business combinations, including the Acquisition of Quest. • Loss on impairment . Loss on impairment consist of impairment charges related to our brand intangible asset. • Loss (gain) in fair value change of contingent consideration - TRA liability . Loss or gain in fair value change of contingent consideration - TRA liability charges relate to fair value adjustments of the Tax Receivable Agreement (the “TRA”) liability. 27 Results of Operations In assessing the performance of our business, we consider a number of key performance indicators used by management and typically used by our competitors, including the non-GAAP measures of Adjusted EBITDA and Adjusted Diluted Earnings Per Share. Because not all companies use identical calculations, this presentation of Adjusted EBITDA and Adjusted Diluted Earnings Per Share may not be comparable to other similarly titled measures of other companies. See “Reconciliation of Adjusted EBITDA” below for a reconciliation of Adjusted EBITDA to net income for each applicable period. See “Reconciliation of Adjusted Diluted Earnings Per Share” below for a reconciliation of Adjusted Diluted Earnings Per Share to diluted earnings per share for each applicable period. Comparison of Results for the Fifty-Two Weeks Ended August 29, 2020 and the Fifty-Three Weeks Ended August 31, 2019 The following table presents, for the periods indicated, selected information from our consolidated financial results, including information presented as a percentage of net sales: (As Restated) 53-Weeks Ended % of Sales 52-Weeks Ended % of Sales (In thousands) August 29, 2020 August 31, 2019 Net sales $ 816,641 100.0 % $ 523,758 100.0 % Cost of goods sold 492,313 60.3 % 306,075 58.4 % Gross profit 324,328 39.7 % 217,683 41.6 % Operating expenses: Selling and marketing 94,469 11.6 % 67,694 12.9 % General and administrative 106,251 13.0 % 62,180 11.9 % Depreciation and amortization 15,259 1.9 % 7,496 1.4 % Business transaction costs 27,125 3.3 % 7,107 1.4 % Loss on impairment 3,000 0.4 % — — % Loss in fair value change of contingent consideration - TRA liability — — % 533 0.1 % Total operating expenses 246,104 30.1 % 145,010 27.7 % Income from operations 78,224 9.6 % 72,673 13.9 % Other income (expense): Interest income 1,516 0.2 % 3,826 0.7 % Interest expense (32,813) (4.0) % (13,627) (2.6) % Gain (loss) in fair value change of warrant liability 30,938 3.8 % (72,673) (13.9) % Gain on settlement of TRA liability — — % 1,534 0.3 % Gain (loss) on foreign currency transactions 658 0.1 % (452) (0.1) % Other income 441 0.1 % 196 — % Total other income (expense) 740 0.1 % (81,196) (15.5) % Income (loss) before income taxes 78,964 9.7 % (8,523) (1.6) % Income tax expense 13,326 1.6 % 16,711 3.2 % Net income (loss) $ 65,638 8.0 % $ (25,234) (4.8) % Other financial data: Adjusted EBITDA (1) $ 153,912 18.8 % $ 98,583 18.8 % (1) Adjusted EBITDA is a non-GAAP financial metric. See “Reconciliation of Adjusted EBITDA” below for a reconciliation of Adjusted EBITDA to net income for each applicable period. Net sales. Net sales of $816.6 million represented an increase of $292.9 million, or 55.9%, for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019. The net sales increase of 55.9% was primarily attributable to the Acquisition of Quest, which drove 54.8% of the increase. Atkins brand net sales increased 1.2% driven by solid e- 28 commerce sales growth, partially offset by higher trade promotions, the approximately 2.0% of additional contribution to full year sales growth related to the fifty-third week in the prior year period, and the effects of COVID-19 related movement restrictions and stay-at-home orders which resulted in lower on-the-go and away-from-home usage occasions for our products. Cost of goods sold. Cost of goods sold increased $186.2 million, or 60.8%, for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019. The cost of goods sold increase was driven by sales volume growth primarily attributable to the Acquisition of Quest, and the effect of the non-cash $7.5 million inventory step-up charge related to the Acquisition of Quest. Gross profit. Gross profit increased $106.6 million, or 49.0%, for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019. Gross profit decreased 190 basis points from 41.6% of net sales for the fifty-three week period ended August 31, 2019 to 39.7% of net sales for the fifty-two week period ended August 29, 2020. The decrease in gross margin was primarily the result of the non-cash $7.5 million inventory step-up charge and slightly lower gross profit margins of the Quest business. Operating expenses. Operating expenses increased $101.1 million, or 69.7%, for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019 due to the following: • Selling and marketing . Selling and marketing expenses increased $26.8 million, or 39.6%, for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019. The increase was primarily related to the Acquisition of Quest of $25.9 million and an increase in e-commerce marketing investments of $1.3 million. • General and administrative . General and administrative expenses increased $44.1 million, or 70.9%, for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019. The increase was primarily attributable to the Acquisition of Quest of $40.8 million, Quest integration related costs of $10.7 million, restructuring charges of $5.5 million, and an increase in stock-based compensation expense of $2.1 million. These increases were partially offset by reduced Atkins brand general and administrative expenses primarily due to lower incentive compensation. • Depreciation and amortization . Depreciation and amortization expenses increased $7.8 million for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019. The increase was primarily due to amortization for the intangible assets recognized in the Acquisition of Quest of $6.9 million. • Business transaction costs . Business transaction costs increased $20.0 million for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019. The $27.1 million incurred in the fifty-two week period ended August 29, 2020 was comprised of expenses related to the Acquisition of Quest. The $7.1 million recorded in the fifty-three week period ended August 31, 2019 was comprised of both expenses relating to the Acquisition of Quest and other business development activities. • Loss on impairment . During the fourth quarter of fiscal 2020, we determined there were indicators of impairment related to the SimplyProtein brand intangible asset. After performing a quantitative assessment of the brand intangible asset, which indicated its fair value exceeded its carrying value, we recorded a loss on impairment of $3.0 million in the fifty-two week period ended August 29, 2020. • Loss in fair value change of contingent consideration - TRA liability . The fifty-three week period ended August 31, 2019 included a loss in fair value change of contingent consideration of $0.5 million. The Income Tax Receivable Agreement (the “TRA”) liability was settled in full in the first quarter of fiscal 2019. Interest income. Interest income decreased $2.3 million for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019 primarily due to $195.3 million of cash on hand being utilized for the Acquisition of Quest in the first quarter of fiscal year 2020. Interest expense. Interest expense increased $19.2 million for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019 primarily due to first quarter term loan funding of $460.0 million to partially finance the Acquisition of Quest. Gain (loss) in fair value change of warrant liability . During the fifty-two week period ended August 29, 2020 and the fifty-three week period ended August 31, 2019, we recorded a $30.9 million gain and a $72.7 million loss, respectively, related to the change in fair value of our liability-classified Private Warrants, primarily due to movements in our stock price. 29 Gain on settlement of TRA liability. We recorded a $1.5 million gain in connection with the settlement of the TRA liability in the fifty-three week period ended August 31, 2019. The TRA settlement is discussed in Note 11, Income Taxes, of our Consolidated Financial Statements included in this Amendment. Gain (loss) on foreign currency transactions. A gain of $0.7 million in foreign currency transactions was recorded for the fifty-two week period ended August 29, 2020 compared to a foreign currency loss of $0.5 million for the fifty-three week period ended August 31, 2019. The variance relates to changes in foreign currency rates related to our international operations. Income tax expense. Income tax expense decreased $3.4 million for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019. The decrease in our income tax expense was primarily driven by lower pre-tax book income, offset by the tax effects of foreign earnings and the one-time tax effect of the settlement of the TRA liability during the fifty-three week period ended August 31, 2019, and other permanent differences. Net income (loss). Net income was $65.6 million for the fifty-two week period ended August 29, 2020, an increase of $90.9 million, compared to a net loss of $25.2 million for the fifty-three week period ended August 31, 2019. Adjusted EBITDA. Adjusted EBITDA increased $55.3 million, or 56.1%, for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019. The increase was primarily due to the Acquisition of Quest and modest volume growth on the Atkins brand. For a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, see “Reconciliation of Adjusted EBITDA” below. 30 Comparison of Results for the Fifty-Three Weeks Ended August 31, 2019 and the Fifty-Two Weeks Ended August 25, 2018 The following table presents, for the periods indicated, selected information from our consolidated financial results, including information presented as a percentage of net sales: (As Restated) 52-Weeks Ended % of Sales 52-Weeks Ended % of Sales (In thousands) August 31, 2019 August 25, 2018 Net sales $ 523,758 100.0 % $ 437,854 100.0 % Cost of goods sold (1) 306,075 58.4 % 254,966 58.2 % Gross profit 217,683 41.6 % 182,888 41.8 % Operating expenses: Selling and marketing (2) 67,694 12.9 % 59,186 13.5 % General and administrative (1) 62,180 11.9 % 49,427 11.3 % Depreciation and amortization (1) 7,496 1.4 % 7,498 1.7 % Business transaction costs 7,107 1.4 % 2,259 0.5 % Loss (gain) in fair value change of contingent consideration - TRA liability 533 0.1 % (2,848) (0.7) % Total operating expenses 145,010 27.7 % 115,522 26.4 % Income from operations 72,673 13.9 % 67,366 15.4 % Other income (expense): Interest income 3,826 0.7 % — — % Interest expense (13,627) (2.6) % (12,551) (2.9) % Gain (loss) in fair value change of warrant liability (72,673) (13.9) % (34,391) (7.9) % Gain on settlement of TRA liability 1,534 0.3 % — — % (Loss) gain on foreign currency transactions (452) (0.1) % 97 — % Other income 196 — % 815 0.2 % Total other expense (81,196) (15.5) % (46,030) (10.5) % (Loss) income before income taxes (8,523) (1.6) % 21,336 4.9 % Income tax expense (benefit) 16,711 3.2 % (16,050) (3.7) % Net (loss) income $ (25,234) (4.8) % $ 37,386 8.5 % Other financial data: Adjusted EBITDA (3) $ 98,583 18.8 % $ 81,238 18.6 % (1) During the fifty-three weeks ended August 31, 2019, certain reclassifications were made to previously reported amounts to conform to the current presentation. On the consolidated statement of operations, outbound freight previously included in Distribution, distribution center expenses previously included in General and administrative , and depreciation for equipment used in warehouse operations were reclassified to Cost of goods sold . Fiscal year 2018 reflects adjusted amounts in accordance with this accounting principle change. See Note 3 to the consolidated financial statements included herein for additional information on the accounting principle change. (2) During the fifty-three weeks ended August 31, 2019, the Company combined Selling and Marketing within one financial statement line. Fiscal year 2018 reflects adjusted amounts. (3) Adjusted EBITDA is a non-GAAP financial metric. See “Reconciliation of Adjusted EBITDA” below for a reconciliation of Adjusted EBITDA to net income for each applicable period. Net sales. Net sales for the fifty-three week period ended August 31, 2019 were $523.8 million compared to $437.9 million for the fifty-two week period ended August 25, 2018. The net sales increase of 19.6% was driven by volume growth. Net price realization was a slight benefit, partially offset by a shift in non-price related customer activity. The fifty-third week of fiscal 2019 was a 1.8% contribution to full year sales growth. Cost of goods sold. Cost of goods sold for the fifty-three week period ended August 31, 2019 were $306.1 million compared to $255.0 million for the fifty-two week period ended August 25, 2018. The cost of goods sold increase was driven by sales volume growth and increased distribution center expenses. These increases were partially offset by logistics efficiencies. 31 Gross profit. Gross profit decreased 20 basis points from 41.8% of net sales for the fifty-two week period ended August 25, 2018 to 41.6% of net sales for the fifty-three week period ended August 31, 2019. Gross margin was affected by non-price related customer activity that was a shift from selling and marketing expenses. Operating expenses. Operating expenses for the fifty-three week period ended August 31, 2019 were $145.0 million, or 27.7% of net sales, compared to $115.5 million, or 26.4% of net sales, for the fifty-two week period ended August 25, 2018 due to the following: • Selling and marketing . Selling and marketing expenses increased $8.5 million, or 14.4%, for the fifty-three week period ended August 31, 2019 compared to the fifty-two week period ended August 25, 2018. The increase was primarily due to an increase in television media and e-commerce investments, offset by a shift in non-price related customer activity. • General and administrative . General and administrative expenses increased $12.8 million, or 25.8%, for the fifty-three week period ended August 31, 2019 compared to the fifty-two week period ended August 25, 2018. The increase was primarily due to higher incentive compensation of $5.3 million, internal resource investments of $3.3 million, and a legal settlement of $3.5 million. • Depreciation and amortization . Depreciation and amortization expenses for the fifty-three week period ended August 31, 2019 were flat compared to the fifty-two week period ended August 25, 2018. • Business transaction costs . Business transaction costs increased $4.8 million for the fifty-three week period ended August 31, 2019 compared to the fifty-two week period ended August 25, 2018. The increase was primarily due to the Acquisition of Quest, which was pending at the end of the fifty-three week period ended August 31, 2019. The $2.3 million recorded in the fifty-two week period ended August 25, 2018 was comprised of expenses related to business development activities. • Loss (gain) in fair value change of contingent consideration - TRA liability . The fifty-three week period ended August 31, 2019 included a loss in fair value change of contingent consideration of $0.5 million. The $2.8 million gain in the fifty-two week period ended August 25, 2018 reflected the effect of the change in tax law in the prior year. Interest income. Interest income increased $3.8 million for the fifty-three week period ended August 31, 2019 compared to the fifty-two week period ended August 25, 2018 due to our increased cash balance resulting from warrant exercises during the fifty-three week period ended August 31, 2019 and an increase in market interest rates. Interest expense. Interest expense for the fifty-three week period ended August 31, 2019 was $13.6 million compared to $12.6 million for the fifty-two week period ended August 25, 2018, and the increase was due to the changes in market interest rates. Gain (loss) in fair value change of warrant liability . During the fifty-three week period ended August 31, 2019 and the fifty-two week period ended August 25, 2018, we recorded a $72.7 million loss and a $34.4 million loss, respectively, related to the change in fair value of our liability-classified Private Warrants. (Loss) gain on foreign currency transactions. A loss of $0.5 million in foreign currency transactions was recorded for the fifty-two week period ended August 25, 2018 compared to a foreign currency gain of $0.1 million for the fifty-two week period ended August 25, 2018. The change relates to changes in foreign currency rates related to international operations. Income tax expense (benefit). Income tax expense for the fifty-three week period ended August 31, 2019 was $16.7 million compared to income tax benefit of $16.1 million for the fifty-two week period ended August 25, 2018. The increase in our income tax expense is primarily attributed to the one-time benefit of $29.0 million related to the tax law change and remeasurement of deferred tax liabilities recorded in the fifty-two week period ended August 25, 2018, which did not apply for the fifty-three week period ended August 31, 2019. Net (loss) income. Net loss was $25.2 million for the fifty-three week period ended August 31, 2019, a decrease of $62.6 million, or 167.5%, compared to net income of $37.4 million for the fifty-two week period ended August 25, 2018. Adjusted EBITDA. Adjusted EBITDA for the fifty-three week period ended August 31, 2019 was $98.6 million compared to $81.2 million for the fifty-two week period ended August 25, 2018. For a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, see “Reconciliation of Adjusted EBITDA” below. 32 Reconciliation of Adjusted EBITDA Adjusted EBITDA . Adjusted EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net income as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP). Simply Good Foods defines Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) as net income before interest income, interest expense, income tax expense, depreciation and amortization with further adjustments to exclude the following items: business transaction costs, stock-based compensation expense, inventory step-up, integration costs, restructuring costs, non-core legal costs, loss in fair value change of contingent consideration - TRA liability, gain or loss in fair value change of warrant liability, gain on settlement of TRA liability and other non-core expenses. The Company believes that the inclusion of these supplementary adjustments in presenting Adjusted EBITDA, when used in conjunction with net income, are appropriate to provide additional information to investors, and management of the Company uses Adjusted EBITDA to supplement net income because it reflects more accurately operating results of the on-going operations, enhances the overall understanding of past financial performance and future prospects and allows for greater transparency with respect to the key metrics the Company uses in its financial and operational decision making. The Company also believes that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in its industry . Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in the non-GAAP calculation . The following unaudited tables below provide a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, which is net income, for the fifty-two week period ended August 29, 2020, the fifty-three week period ended August 31, 2019, and the fifty-two week period ended August 25, 2018: (As Restated) Adjusted EBITDA Reconciliation: 52-Weeks Ended 53-Weeks Ended 52-Weeks Ended (In thousands) August 29, 2020 August 31, 2019 August 25, 2018 Net income (loss) $ 65,638 $ ( 25,234 ) $ 37,386 Interest expense 32,813 13,627 12,551 Interest income (1,516) (3,826) (301) Income tax expense (benefit) 13,326 16,711 (16,050) Depreciation and amortization 16,007 7,644 7,672 EBITDA 126,268 8,922 41,258 Business transaction costs 27,125 7,107 2,259 Stock-based compensation expense 7,636 5,501 4,029 Inventory step-up 7,522 — — Integration of Quest 10,742 — — Restructuring 5,527 22 631 Non-core legal costs 718 4,851 1,314 Loss (gain) in fair value change of contingent consideration - TRA liability — 533 ( 2,848 ) (Gain) loss in fair value change of warrant liability (30,938) 72,673 34,391 Gain on settlement of TRA liability — (1,534) — Frozen licensing media — — — Other (1) (688) 508 204 Adjusted EBITDA $ 153,912 $ 98,583 $ 81,238 (1) Other items consist principally of exchange impact of foreign currency transactions, frozen licensing media and other expenses. Liquidity and Capital Resources Overview We have historically funded our operations with cash flow from operations and, when needed, with borrowings under our credit facilities. Our principal uses of cash have been debt service, working capital and the Acquisition of Quest. We had $95.8 million in cash and cash equivalents as of August 29, 2020. We believe our sources of liquidity and capital will be sufficient to finance our continued operations, growth strategy and additional expenses we expect to incur for at least the next twelve months. As circumstances warrant, we may issue debt and/or equity securities from time to time on an opportunistic basis, dependent upon market conditions and available pricing. We make no assurance that we can issue and sell such securities on acceptable terms or at all. 33 Debt and Credit Facilities On July 7, 2017, we entered into a credit agreement with Barclays Bank PLC and other parties (as amended to date, the "Credit Agreement"). The Credit Agreement provides for (i) a term facility of $200.0 million (“Term Facility”) with a seven-year maturity and (ii) a revolving credit facility of up to $75.0 million (the “Revolving Credit Facility”) with a five-year maturity. Substantially concurrent with the consummation of the Acquisition of Atkins, the full $200.0 million of the Term Facility (the “Term Loan”) was drawn. The interest rate per annum is based on either (i) a base rate equaling the higher of (a) the “prime rate”, (b) the federal funds effective rate plus 0.50% and (c) the Euro-currency rate applicable for an interest period of one month plus 1.00% plus (x) 3.00% margin for Term Loan or (y) 2.00% margin for Revolving Credit Facility, or (ii) London Interbank Offered Rate (“LIBOR”) adjusted for statutory reserve requirements, plus (x) 4.00% margin for the Term Loan subject to a floor of 1.00% or (y) 3.00% margin for the Revolving Credit Facility. As security for the payment or performance of its debt, we have pledged certain equity interests in its subsidiaries. On March 16, 2018 (the “Amendment Date”), we entered into an amendment (the “Repricing Amendment”) to the Credit Agreement. As a result of the Repricing Amendment, the interest rate on the Term Loan was reduced and, as of the Amendment Date, such loans had an interest rate equal to, at our option, either LIBOR plus an applicable margin of 3.50% or a base rate plus an applicable margin of 2.50%. The Repricing Amendment did not change the interest rate on the Revolving Credit Facility. The Revolving Credit Facility continued to bear interest based upon our consolidated net leverage ratio as of the last financial statements delivered to the administrative agent. No additional debt was incurred, or any proceeds received, in connection with the Repricing Amendment. The incremental fees paid to the administrative agent are reflected as additional debt discount and are amortized over the terms of the long-term financing agreements using the effective-interest method. On November 7, 2019, we entered into an amendment (the “Incremental Facility Amendment”) to the Credit Agreement to increase the principal borrowed on the Term Facility by $460.0 million. The Term Facility together with the incremental borrowing make up the Initial Term Loans (as defined in the Incremental Facility Amendment) and as of the Amendment No. 2 Effective Date (as defined in the Incremental Facility Amendment), the Initial Term Loans bear interest at a rate equal to, at our option, either LIBOR plus an applicable margin of 3.75% or a base rate plus an applicable margin of 2.75%. The Incremental Facility Amendment was executed to partially finance the Acquisition of Quest. No amounts under the Term Facility were repaid as a result of the execution of the Incremental Facility Amendment. The Applicable Rate per annum applicable to the loans under the Credit Agreement Amendment is, with respect to any Initial Term Loan that is an ABR Loan (as defined in the Credit Agreement), 2.75% per annum, and with respect to any Initial Term Loan that is a Eurodollar Loan, 3.75% per annum. The incremental term loans will mature on the maturity date applicable to the Initial Term Loans, which date is July 7, 2024. The Credit Agreement contains certain financial and other covenants that limit our ability to, among other things, incur and/or undertake asset sales and other dispositions, liens, indebtedness, certain acquisitions and investments, consolidations, mergers, reorganizations and other fundamental changes, payment of dividends and other distributions to equity and warrant holders, and prepayments of material subordinated debt, in each case, subject to customary exceptions materially consistent with credit facilities of such type and size. The Revolving Credit Facility has a maximum total net leverage ratio equal to or less than 6.25:1.00 (with a reduction to 6.00:1.00 on the third anniversary of the closing date of the credit facilities) contingent on credit extensions in excess of 30% of the total amount of commitments available under the Revolving Credit Facility. Any failure to comply with the restrictions of the credit facilities may result in an event of default. The Company was in compliance with all financial covenants as of August 29, 2020 and August 31, 2019, respectively. As of August 29, 2020, the outstanding balances of the Term Facility was $606.5 million. We are not required to make principal payments on the Term Facility over the twelve months following the period ended August 29, 2020. During the third fiscal quarter of 2020, we borrowed $25.0 million under the Revolving Credit Facility. This was a precautionary measure to preserve financial flexibility and to maintain liquidity in response to the spread of COVID-19 and uncertainty around consumer behavior. We used the proceeds of the Revolving Credit Facility to meet initial elevated customer orders in response to COVID-19, build finished goods inventory of some of its high velocity items, support working capital and support general corporate purposes. In the fourth fiscal quarter of 2020, we repaid the $25.0 million borrowing under the Revolving Credit Facility. The Company may repay borrowings under the Revolving Credit Facility at any time without penalty. As of August 29, 2020, there were no amounts drawn against the Revolving Credit Facility. Public Equity Offering On October 9, 2019, we completed an underwritten public offering of 13,379,205 shares of our common stock at a price to the public of $26.35 per share. We paid underwriting discounts and commissions of $0.19 per share resulting in net proceeds to us of $26.16 per share, or approximately $350.0 million (the “Offering”). We paid $0.8 million for legal, accounting and registrations fees related to the Offering. The net proceeds were used to pay a portion of the purchase price and related fees and expenses for the Acquisition of Quest. 34 Acquisition of Quest On August 21, 2019, our wholly-owned subsidiary Simply Good Foods USA, Inc., formerly known as Atkins Nutritionals, Inc. (“Simply Good USA”) entered into a Stock and Unit Purchase Agreement (the "Purchase Agreement") with VMG Voyage Holdings, LLC, VMG Tax-Exempt II, L.P., Voyage Employee Holdings, LLC, and other sellers, as defined in the Purchase Agreement, to acquire Quest, a healthy lifestyle food company. On November 7, 2019, pursuant to the Purchase Agreement, Simply Good USA completed the Acquisition of Quest, for a cash purchase price of approximately $1.0 billion, subject to customary post-closing adjustments. The Acquisition of Quest was funded through a combination of cash, equity and debt financing. Total consideration paid on the closing date was $988.9 million. Cash sources of funding included $195.3 million of cash on hand, net proceeds of approximately $350.0 million from an underwritten public offering of common stock, and $443.6 million in new term loan debt. In the third fiscal quarter of 2020, we received a post-closing release from escrow of approximately $2.1 million related to net working capital adjustments, resulting in a total net consideration paid of $986.8 million as of August 29, 2020. Business transaction costs within the Consolidated Statements of Operations and Comprehensive Income (Loss) for fifty-two week period ended August 29, 2020 was $27.1 million, which included $14.5 million of transaction advisory fees related to the Acquisition of Quest, $3.2 million of banker commitment fees, $6.1 million of non-deferrable debt issuance costs related to the incremental term loan, and $3.3 million of other costs, including legal, due diligence, and accounting fees. Public Warrants to Purchase Common Stock From August 26, 2018 through October 5, 2018, public warrants to purchase an aggregate of 9,866,451 shares of common stock were exercised for cash at an exercise price of $11.50 per share, resulting in aggregate gross proceeds of $113.5 million. On October 4, 2018, we delivered a notice for the redemption (the “Redemption Notice”) of all of our public warrants that remained unexercised immediately after November 5, 2018. Exercises of public warrants following the Redemption Notice were required to be done on a cashless basis. Accordingly, holders were no longer permitted to exercise public warrants in exchange for payment in cash of $11.50 per share. Instead, a holder exercising a public warrant was deemed to have paid the $11.50 per share exercise price by the surrender of 0.61885 of a share of common stock that the holder would have been entitled to receive upon a cash exercise of each public warrant. Exercising holders received 0.38115 of a share of common stock for each public warrant surrendered for exercise. Following the Redemption Notice, 3,499,639 public warrants were exercised on a cashless basis. An aggregate of 1,333,848 shares of common stock were issued in connection with these exercises of the public warrants. All remaining public warrants were redeemed as of November 5, 2018 for an immaterial amount. Private Warrants to Purchase Common Stock As of August 29, 2020, our Private Warrants to purchase 6,700,000 shares of common stock remain outstanding, are held by Conyers Park Sponsor, LLC, a related party, and remain liability-classified. If all Private Warrants are exercised at the $11.50 exercise price per warrant, our cash would increase by $77.1 million. Cash Flows The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands): 53-Weeks Ended 52-Weeks Ended 52-Weeks Ended (in thousands) August 29, 2020 August 31, 2019 August 25, 2018 Net cash provided by operating activities $ 58,921 $ 73,042 $ 61,038 Net cash used in investing activities $ (983,994) $ (1,787) $ (3,513) Net cash provided by (used in) financing activities $ 754,652 $ 83,376 $ (1,587) Operating activities. Our net cash provided by operating activities decreased $14.1 million to $58.9 million for the fifty-two week period ended August 29, 2020 compared to $73.0 million for the fifty-three week period ended August 31, 2019. The decrease in cash provided by operating activities was primarily driven by the Acquisition of Quest, including cash outlays and changes in working capital related to significant business transaction costs of $27.1 million, integration costs of $10.7 million, restructuring costs of $5.5 million, and increased cash paid for interest on outstanding term loan balances of $18.9 million in the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019. The decrease was partially offset by increased operating cash generated by the Acquisition of Quest of approximately $49.0 million. Our net cash provided by operating activities was $73.0 million for the fifty-three week period ended August 31, 2019, an increase of $12.0 million compared to net cash used in operating activities of $61.0 million for the fifty-two week period ended August 25, 2018. The increase was primarily driven by higher income before taxes. 35 Investing activities. Our net cash used in investing activities increased to $984.0 million for the fifty-two week period ended August 29, 2020 compared to $1.8 million of net cash used in investing activities for the fifty-three week period ended August 31, 2019. The increase in cash used in investing activities was primarily due to the Acquisition of Quest of $982.1 million, net of cash acquired. Our net cash used in investing activities was $1.8 million for the fifty-three week period ended August 31, 2019, which was a decrease of $1.7 million compared to the investing activities for the fifty-two week period ended August 25, 2018. The decrease in cash used in investing activities was primarily the result of a payment for a working capital adjustment of $1.8 million to the former owners of Atkins in the prior period. Financing activities. Our net cash provided by financing activities was $754.7 million for the fifty-two week period ended August 29, 2020 compared to $83.4 million for the fifty-three week period ended August 31, 2019. Net cash provided by financing activities for the fifty-two week period ended August 29, 2020 includes gross proceeds of $352.5 million from the Offering offset by issuance costs of $3.3 million, proceeds of $460.0 million from the Term Facility borrowing related to the Incremental Facility Amendment offset by issuance costs of $8.2 million, and $25.0 million of proceeds from the borrowing under the Revolving Credit Facility. The cash provided by financing activities for the fifty-two week period ended August 29, 2020 was offset by $50.0 million of principal payments on the Term Facility, an increase of $48.0 million compared to the prior year, and $25.0 million of repayments of the Revolving Credit Facility. Our net cash provided by financing activities for the fifty-three week period ended August 31, 2019 also included $113.5 million of cash received from warrant exercises, and was partially offset by the payment of the TRA liability of $26.5 million and debt principal payments of $2.0 million on the Term Facility Our net cash provided by financing activities was $83.4 million for the fifty-three week period ended August 31, 2019, compared to net cash used in financing activities of $1.6 million for the fifty-two week period ended August 25, 2018. Net cash provided by financing activities for the fifty-three week period ended August 31, 2019 included $113.5 million of cash received from warrant exercises, and was partially offset by the payment of the TRA liability of $26.5 million, repurchases of common stock of $2.1 million and debt principal payments of $2.0 million. Debt principal payments for the fifty-two week period ended August 25, 2018 were $1.5 million. Off-Balance Sheet Arrangements As of August 29, 2020, we had no material off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, income or expenses, results of operations, liquidity, capital expenditures or capital resources. Contractual Obligations The Company's contractual obligations are related to its Credit Agreement and its finance and operating leases. On November 7, 2019, the Company entered the Incremental Facility Amendment to increase the principal borrowed under the Term Facility by $460.0 million. As a result of the Acquisition of Quest, the Company obtained additional lease obligations. Our expected contractual obligations related to our debt and leases as of August 29, 2020 are included in the table below. Payments due by period (In thousands) Total Year 1 Years 2-3 Years 4-5 Thereafter Long-term debt obligations $ 606,500 $ — $ — $ 606,500 $ — Interest 130,609 33,789 67,486 29,334 — Operating leases (1) 33,455 5,697 8,763 7,981 11,014 Finance leases (2) 1,049 313 591 145 — Total $ 771,613 $ 39,799 $ 76,840 $ 643,960 $ 11,014 _______________ (1) As of August 29, 2020, we had entered into a lease with estimated total minimum future lease payments of $32.2 million over a 10.0-year minimum lease term that had not yet commenced. Because the lease has not yet commenced, it is excluded from the contractual obligations above. We expect the lease to commence in fiscal year 2021. (2) Finance lease payments include both the principal and interest portions of the payments. 36 Critical Accounting Policies, Judgments and Estimates General Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. While the majority of our revenue, expenses, assets and liabilities are not based on estimates, there are certain accounting principles that requires management to make estimates regarding matters that are uncertain and susceptible to change. Critical accounting policies are defined as those policies that are reflective of significant judgments, estimates and uncertainties, which could potentially result in materially different results under different assumptions and conditions. Management regularly reviews the estimates and assumptions used in the preparation of the financial statements for reasonableness and adequacy. Our significant accounting policies are discussed in Note 4, Summary of Significant Accounting Policies , of our Consolidated Financial Statements in this filing; however, the following discussion pertains to accounting policies we believe are most critical to the portrayal of its financial condition and results of operations and that require significant, difficult, subjective or complex judgments. Other companies in similar businesses may use different estimation policies and methodologies, which may affect the comparability of our financial condition, results of operations and cash flows to those of other companies. Revenue Recognition We recognize revenue when performance obligations under the terms of a contract with its customer are satisfied. We have determined that fulfilling and delivering products is a single performance obligation. Revenue is recognized at the point in time when we have satisfied our performance obligation and the customer has obtained control of the products. This generally occurs when the product is delivered to or picked up by our customer based on applicable shipping terms, which is typically within 30 days. Revenue is measured as the amount of consideration expected to be received in exchange for fulfilled product orders, including estimates of variable consideration. The most common forms of variable consideration include trade promotions, such as consumer incentives, coupon redemptions and other marketing activities, allowances for unsaleable product, and any additional amounts where a distinct good or service cannot be identified or the value cannot be reasonably estimated. Estimates of variable consideration are made using various information including historical data on performance of similar trade promotional activities, market data from IRI, and our best estimate of current activity. Revisions can include changes for consideration paid to customers that lack sufficient evidence to support a distinct good or service assertion, or for which a reasonably estimable fair value cannot be determined, primarily related to our assessments of cooperative advertising programs. We review these estimates regularly and makes revisions as necessary. Uncertainties related to the estimate of variable consideration are resolved in a short time frame and do not require any additional constraint on variable consideration. Adjustments to variable consideration have historically been insignificant. Although some payment terms may be more extended, the majority of our payment terms are less than 60 days. As a result, we do not have any material significant payments terms as payment is received shortly after the time of sale. While our revenue recognition does not involve significant judgment, it represents a key accounting policy. Trade Promotions We offer trade promotions through various programs to customers and consumers. Trade promotions include discounts, rebates, slotting and other marketing activities. Trade promotions are recorded as a reduction to net sales with a corresponding reduction to accounts receivable at the time of revenue recognition for the underlying sale. The recognition of trade promotions requires management to make estimates regarding the volume of incentive that will be redeemed and their total cost. These estimates are made using various information including historical data on performance of similar trade promotional activities, market data from IRI, and the Company's best estimates of current activity. Our consolidated financial statements could be materially affected if the actual promotion rates are different from the estimated rates. As of August 29, 2020 and August 31, 2019, the allowance for trade promotions was $25.2 million and $10.3 million, respectively. Differences between estimated expense and actual redemptions are recognized as a change in management estimate in a subsequent period. These differences have historically been insignificant. Business Combination On November 7, 2019, pursuant to the Purchase Agreement, we completed the Acquisition of Quest for a cash purchase price of approximately $1.0 billion, subject to customary post-closing adjustments. The Acquisition of Quest was accounted for using the acquisition method of accounting prescribed by Accounting Standard Codification ("ASC") Topic 805, Business Combinations (“ASC 805”), whereby the results of operations, including the revenues and earnings of Quest, are included in the financial statements from the date of acquisition. Additionally, assets acquired and liabilities assumed were recognized at their fair values based on widely accepted 37 valuation techniques in accordance with ASC Topic 820, Fair Value Measurements, as of the closing date. Significant judgment is required to determine the fair value of certain tangible and intangible assets. The process for estimating fair values requires the use of significant estimates, assumptions and judgments, including determining the timing and estimates of future cash flows and developing appropriate discount rates. ASC 805 establishes a measurement period to provide companies with a reasonable amount of time to obtain the information necessary to identify and measure various items in a business combination and cannot extend beyond one year from the acquisition date. Measurement period adjustments are recognized in the reporting period in which the adjustments are determined and calculated as if the accounting had been completed as of acquisition date. We expect to complete the final fair value determination of the assets acquired and liabilities assumed as soon as practicable within the measurement period, but not to exceed one year from the acquisition date. Goodwill and Other Intangible Assets Goodwill and indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually, or more frequently if indicators of impairment exist. We conduct our annual impairment tests at the beginning of the fourth fiscal quarter. The process of evaluating goodwill and indefinite lived intangibles for impairment is subjective and requires significant judgment at many points during the analysis. We assess goodwill and indefinite-lived intangible assets using either a qualitative or quantitative approach to determine whether it is more likely than not that the fair values of the reporting units are less than their carrying amounts. The qualitative assessment evaluates factors including macro-economic conditions, industry-specific and company-specific considerations, legal and regulatory environments, and historical performance. If we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed. Otherwise, no further assessment is required. The quantitative approach compares the estimated fair value of the reporting unit to its carrying amount, including goodwill. Impairment is indicated if the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, and an impairment charge is recognized for the differential. For fiscal year 2020, we elected to perform both qualitative and quantitative assessments of goodwill and indefinite-lived intangible assets. The inputs and assumptions used require considerable management judgment and are based on expectations of future operating performance. During the fourth quarter of fiscal 2020, we determined there were indicators of impairment related to the SimplyProtein brand intangible asset. Therefore, we performed a quantitative assessment of our brand intangible asset, which indicated the fair value exceeded the carrying value, resulting in a loss on impairment of $3.0 million in the fifty-two week period ended August 29, 2020. There were no impairment charges related to goodwill in the fifty-two week period ended August 29, 2020. Additionally, for fiscal year 2019, we elected to perform quantitative assessments of goodwill and indefinite-lived intangible assets. No impairment charges related to goodwill or indefinite-lived intangibles were recognized in the fifty-three week period ended August 31, 2019. We performed qualitative assessments of goodwill and indefinite-lived intangible assets for fiscal year 2018. The qualitative assessments determined that it was more likely than not the reporting unit, brands and trademarks had a fair value in excess of their carrying value. Accordingly, no further impairment assessment was necessary, and no impairment charges related to goodwill or indefinite-lived intangibles were recognized in the fifty-two week period ended August 25, 2018. We also have intangible assets that have determinable useful lives, consisting primarily of customer relationships, proprietary recipes and formulas, licensing agreements, and software and website development costs. Costs of these finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Finite-lived intangible assets are tested for impairment when events or circumstances indicated that the carrying amount may not be recoverable. For the fiscal years ended August 29, 2020, August 31, 2019 or August 25, 2018, there were no impairments recorded related to finite-lived intangible assets. Income Taxes We are subject to income taxes in the United States and numerous other jurisdictions. Significant judgment is required in determining our provision for income tax, including evaluating uncertainties in the application of accounting principles and complex tax laws. Income taxes include federal, state and foreign taxes currently payable and deferred taxes arising from temporary differences between income for financial reporting and income tax purposes. Deferred tax assets and liabilities are determined based on the differences between the financial statement balances and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized. Significant management judgment is required in determining the effective tax rate, evaluating tax positions and determining the net realizable value of deferred tax assets. 38 Warrant Liability In response to the SEC Statement, the Company re-evaluated the Private Warrants under ASC 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, and concluded that they do not meet the criteria to be classified in stockholders’ equity. Specifically, the SEC Statement focused in part on provisions in warrant agreements that provide for potential changes to the settlement amounts dependent upon the characteristics of the warrant holder. The SEC Statement indicated that, because the holder of a warrant is not an input into the pricing of a fixed-for-fixed option on equity shares, such provisions would preclude the warrant from being classified in equity and thus the warrant should be classified as a liability. Since the Private Warrants meet the definition of a derivative under ASC 815 and do not meet the scope exception for equity classification, we recorded these Private Warrants as a liability on the Consolidated Balance Sheets at fair value, with subsequent changes in the respective fair values recognized in the Consolidated Statements of Operations and Comprehensive Income (Loss) at each reporting date. The Company utilizes the Black-Scholes valuation model to estimate the fair value of the Private Warrants at each reporting date. The application of the Black-Scholes model utilizes significant assumptions, including volatility. Significant judgment is required in determining the expected volatility (the key assumption) of the Private Warrants. In order to determine the most accurate measure of this volatility, we measured expected volatility based on several inputs, including considering a peer group of publicly traded companies, the Company’s implied volatility based on traded options, the implied volatility of comparable SPAC warrants, and the implied volatility of any outstanding public warrants during the periods they were outstanding. As a result of the unobservable inputs that were used to determine the expected volatility of the Private Warrants, the fair value measurement of these warrants reflects a Level 3 measurement within the fair value measurement hierarchy. New Accounting Pronouncements The adoption of ASC Topic 842 resulted in a change to our lease accounting policy, as discussed in Note 12 of our Consolidated Financial Statements included herein. Refer to Note 4, Summary of Significant Accounting Policies , of our Consolidated Financial Statements in this Amendment for further information regarding recently issued accounting standards. 39