Simply Good Foods Co 10-Q/A

Item 1. Financial Statements (Unaudited) The Simply Good Foods Company and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited, dollars in thousands, except share and per share data) February 27, 2021 August 29, 2020 (As Restated, see Note 2) Assets Current assets: Cash and cash equivalents $ 91,307 $ 95,847 Accounts receivable, net 97,329 89,740 Inventories 82,771 59,085 Prepaid expenses 4,894 3,644 Other current assets 12,833 11,947 Total current assets 289,134 260,263 Long-term assets: Property and equipment, net 11,092 11,850 Intangible assets, net 1,146,039 1,158,768 Goodwill 543,134 544,774 Other long-term assets 32,119 32,790 Total assets $ 2,021,518 $ 2,008,445 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 43,585 $ 32,240 Accrued interest 384 960 Accrued expenses and other current liabilities 36,313 38,007 Current maturities of long-term debt 278 271 Total current liabilities 80,560 71,478 Long-term liabilities: Long-term debt, less current maturities 548,884 596,879 Deferred income taxes 92,536 84,352 Warrant liability 118,519 93,638 Other long-term liabilities 20,880 22,765 Total liabilities 861,379 869,112 See commitments and contingencies (Note 11) Stockholders’ equity: Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued — — Common stock, $0.01 par value, 600,000,000 shares authorized, 95,856,715 and 95,751,845 shares issued at February 27, 2021 and August 29, 2020, respectively 959 958 Treasury stock, 98,234 and 98,234 shares at cost at February 27, 2021 and August 29, 2020, respectively ( 2,145 ) ( 2,145 ) Additional paid-in-capital 1,080,340 1,076,472 Retained earnings 81,666 64,927 Accumulated other comprehensive loss ( 681 ) ( 879 ) Total stockholders’ equity 1,160,139 1,139,333 Total liabilities and stockholders’ equity $ 2,021,518 $ 2,008,445 See accompanying notes to the unaudited condensed consolidated financial statements. 5 Table of Contents The Simply Good Foods Company and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited, dollars in thousands, except share and per share data) Thirteen Weeks Ended Twenty-Six Weeks Ended February 27, 2021 February 29, 2020 February 27, 2021 February 29, 2020 (As Restated, see Note 2) (As Restated, see Note 2) Net sales $ 230,607 $ 227,101 $ 461,759 $ 379,254 Cost of goods sold 140,342 141,707 277,453 231,654 Gross profit 90,265 85,394 184,306 147,600 Operating expenses: Selling and marketing 26,150 27,041 51,345 45,475 General and administrative 26,562 28,103 51,977 46,248 Depreciation and amortization 4,212 4,287 8,456 6,740 Business transaction costs — 694 — 26,853 Total operating expenses 56,924 60,125 111,778 125,316 Income from operations 33,341 25,269 72,528 22,284 Other income (expense): Interest income — 85 3 1,464 Interest expense ( 7,995 ) ( 10,589 ) ( 16,367 ) ( 15,558 ) (Loss) gain in fair value change of warrant liability ( 45,334 ) 37,644 ( 24,881 ) 50,952 Gain (loss) on foreign currency transactions 975 ( 194 ) 984 ( 178 ) Other income 112 8 159 45 Total other (expense) income ( 52,242 ) 26,954 ( 40,102 ) 36,725 (Loss) income before income taxes ( 18,901 ) 52,223 32,426 59,009 Income tax expense 7,313 3,922 15,687 2,193 Net (loss) income $ ( 26,214 ) $ 48,301 $ 16,739 $ 56,816 Other comprehensive income: Foreign currency translation adjustments 243 ( 141 ) 198 ( 141 ) Comprehensive (loss) income $ ( 25,971 ) $ 48,160 $ 16,937 $ 56,675 (Loss) earnings per share from net (loss) income: Basic $ ( 0.27 ) $ 0.51 $ 0.17 $ 0.61 Diluted $ ( 0.27 ) $ 0.11 $ 0.17 $ 0.06 Weighted average shares outstanding: Basic 95,734,591 95,339,489 95,712,057 92,524,061 Diluted 95,734,591 100,336,571 96,997,012 97,597,614 See accompanying notes to the unaudited condensed consolidated financial statements. 6 Table of Contents The Simply Good Foods Company and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited, dollars in thousands) Twenty-Six Weeks Ended February 27, 2021 February 29, 2020 (As Restated, see Note 2) Operating activities Net income $ 16,739 $ 56,816 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 9,021 7,119 Amortization of deferred financing costs and debt discount 2,108 1,569 Stock compensation expense 3,594 3,795 Loss (gain) in fair value change of warrant liability 24,881 ( 50,952 ) Unrealized loss (gain) on foreign currency transactions ( 985 ) 178 Deferred income taxes 8,119 2,485 Amortization of operating lease right-of-use asset 2,253 1,652 Loss on operating lease right-of-use asset impairment 681 — Gain on lease termination ( 154 ) — Other 216 789 Changes in operating assets and liabilities, net of acquisition: Accounts receivable, net ( 7,015 ) ( 19,062 ) Inventories ( 24,502 ) 768 Prepaid expenses ( 1,191 ) ( 873 ) Other current assets ( 674 ) ( 5,808 ) Accounts payable 10,275 ( 2,953 ) Accrued interest ( 577 ) 175 Accrued expenses and other current liabilities ( 1,881 ) ( 8,760 ) Other assets and liabilities ( 1,144 ) ( 1,824 ) Net cash provided by (used in) operating activities 39,764 ( 14,886 ) Investing activities Purchases of property and equipment ( 449 ) ( 481 ) Issuance of note receivable — ( 1,250 ) Acquisition of business, net of cash acquired — ( 984,201 ) Proceeds from sale of business 5,800 — Investments in intangible assets ( 114 ) — Net cash provided by (used in) investing activities 5,237 ( 985,932 ) Financing activities Proceeds from option exercises 527 931 Tax payments related to issuance of restricted stock units ( 252 ) ( 80 ) Payments on finance lease obligations ( 168 ) ( 157 ) Principal payments of long-term debt ( 50,000 ) ( 21,000 ) Proceeds from issuance of common stock — 352,542 Equity issuance costs — ( 3,323 ) Proceeds from issuance of long-term debt — 460,000 Deferred financing costs — ( 8,208 ) Net cash (used in) provided by financing activities ( 49,893 ) 780,705 Cash and cash equivalents Net decrease in cash ( 4,892 ) ( 220,113 ) Effect of exchange rate on cash 352 ( 113 ) Cash at beginning of period 95,847 266,341 Cash and cash equivalents at end of period $ 91,307 $ 46,115 7 Table of Contents Twenty-Six Weeks Ended February 27, 2021 February 29, 2020 (As Restated, see Note 2) Supplemental disclosures of cash flow information Cash paid for interest $ 14,835 $ 13,814 Cash paid for taxes $ 10,023 $ 4,345 Non-cash investing and financing transactions Non-cash proceeds from sale of business $ 3,000 $ — Operating lease right-of-use assets recognized at ASU No 2016-02 transition $ — $ 5,102 Finance lease right-of-use assets recognized at ASU No 2016-02 transition $ — $ 1,185 Operating lease right-of-use assets recognized after ASU No 2016-02 transition $ 316 $ 2,733 See accompanying notes to the unaudited condensed consolidated financial statements. 8 Table of Contents The Simply Good Foods Company and Subsidiaries Condensed Consolidated Statements of Stockholders’ Equity (Unaudited, dollars in thousands, except share data) (As Restated, see Note 2) (As Restated, see Note 2) (As Restated, see Note 2) Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shares Amount Shares Amount Balance at August 29, 2020 95,751,845 $ 958 98,234 $ ( 2,145 ) $ 1,076,472 $ 64,927 $ ( 879 ) $ 1,139,333 Net income — — — — — 42,953 — 42,953 Stock-based compensation — — — — 1,110 — — 1,110 Foreign currency translation adjustments — — — — — — ( 45 ) ( 45 ) Shares issued upon vesting of restricted stock units 53,908 — — — ( 201 ) — — ( 201 ) Exercise of options to purchase common stock 13,118 — — — 157 — — 157 Balance at November 28, 2020 95,818,871 $ 958 98,234 $ ( 2,145 ) $ 1,077,538 $ 107,880 $ ( 924 ) $ 1,183,307 Net income — — — — — ( 26,214 ) — ( 26,214 ) Stock-based compensation — — — — 2,484 — — 2,484 Foreign currency translation adjustments — — — — — — 243 243 Shares issued upon vesting of restricted stock units 7,034 — — — ( 51 ) — — ( 51 ) Exercise of options to purchase common stock 30,810 1 — — 369 — — 370 Balance at February 27, 2021 95,856,715 $ 959 98,234 $ ( 2,145 ) $ 1,080,340 $ 81,666 $ ( 681 ) $ 1,160,139 Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shares Amount Shares Amount Balance at August 31, 2019 81,973,284 $ 820 98,234 $ ( 2,145 ) $ 715,740 $ ( 711 ) $ ( 836 ) $ 712,868 Net loss — — — — — 8,515 — 8,515 Stock-based compensation — — — — 1,673 — — 1,673 Public equity offering 13,379,205 134 — — 349,085 — — 349,219 Shares issued upon vesting of restricted stock units 46,911 — — — ( 70 ) — — ( 70 ) Exercise of options to purchase common stock 17,372 — — — 208 — — 208 Balance at November 30, 2019 95,416,772 $ 954 98,234 $ ( 2,145 ) $ 1,066,636 $ 7,804 $ ( 836 ) $ 1,072,413 Net income — — — — — 48,301 — 48,301 Stock-based compensation — — — — 2,122 — — 2,122 Foreign currency translation adjustments — — — — — — ( 141 ) ( 141 ) Shares issued upon vesting of restricted stock units 771 — — — ( 10 ) — — ( 10 ) Exercise of options to purchase common stock 58,994 1 — — 723 — — 724 Balance at February 29, 2020 95,476,537 $ 955 98,234 $ ( 2,145 ) $ 1,069,471 $ 56,105 $ ( 977 ) $ 1,123,409 See accompanying notes to the unaudited condensed consolidated financial statements. 9 Table of Contents Notes to Unaudited Condensed Consolidated Financial Statements (Unaudited, dollars in thousands, except for share and per share data) 1. Nature of Operations and Principles of Consolidation Description of Business The Simply Good Foods Company (“Simply Good Foods” or the “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. The Company’s 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. The Company distributes its 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. The Company’s portfolio of nutritious snacking brands gives it a strong platform with which to introduce new products, expand distribution, and attract new consumers to its products. The Company’s platform also positions it to continue to selectively pursue acquisition opportunities of brands in the nutritious snacking category. The common stock of Simply Good Foods is listed on the Nasdaq Capital Market under the symbol “SMPL.” Unaudited Interim Condensed Consolidated Financial Statements The unaudited interim condensed consolidated financial statements include the accounts of Simply Good Foods and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Unless the context otherwise requires, “we,” “us,” “our” and the “Company” refer to Simply Good Foods and its subsidiaries. The Company maintains its accounting records on a 52/53-week fiscal year, ending on the last Saturday in August of each year. The interim condensed consolidated financial statements and related notes of the Company and its subsidiaries are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited interim condensed consolidated financial statements reflect all adjustments and disclosures which are, in the Company's opinion, necessary for a fair presentation of the results of operations, financial position and cash flows for the indicated periods. All such adjustments were of a normal and recurring nature unless otherwise disclosed. The year-end balance sheet data was derived from the audited financial statements and, in accordance with the instructions to Form 10-Q, certain information and footnote disclosures required by GAAP have been condensed or omitted. The results reported in these unaudited interim condensed consolidated financial statements are not necessarily indicative of the results that may be reported for the entire fiscal year and should be read in conjunction with the Company’s consolidated financial statements for the fiscal year ended August 29, 2020, included in Amendment No. 1 to Form 10-K (“Form 10-K/A”) filed with the SEC on June 30, 2021. As discussed in Note 2, Restatement of Previously Issued Financial Statements, the consolidated financial statements have been restated to reflect certain warrants as liabilities rather than equity. The Company remains uncertain of the ultimate effect COVID-19 could have on its business notwithstanding the distribution of several U.S. government approved vaccines and various federal, state and local governments having begun to ease the movement restrictions and public health initiatives while continuing to adhere to enhanced safety measures, such as physical distancing and face mask protocols. This uncertainty as to the duration and severity of economic effects from the COVID-19 pandemic stems from the potential for, among other things, (i) continued rates of reported cases of COVID-19 and the potential for mutations of COVID-19 to result in increased rates of reported cases for which currently approved vaccines are not effective, (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. 2. Restatement of Previously Issued Financial Statements On April 12, 2021, the SEC issued a statement (the “SEC Statement”) on the accounting and reporting considerations for warrants issued by special purpose acquisition companies (“SPAC”). The SEC Statement discussed certain features of warrants issued in SPAC transactions that may be common across many entities. 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. Following consideration of the guidance in the SEC Statement, the Company concluded that its private warrants should be classified as a liability and measured at fair value at each reporting period, rather than as equity awards. Management concluded the effect of this error on the 10 Table of Contents Company’s previously reported condensed consolidated financial statements is material and, as such, the accompanying condensed consolidated financial statements as of February 27, 2021, and the thirteen and twenty-six weeks ended February 27, 2021, and accompanying notes thereto have been restated from the amounts previously reported to give effect to the correction of this error (the “Restatement”). Effects of the Restatement on the Consolidated Balance Sheets as of August 29, 2020, and the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen and twenty-six weeks ended February 29, 2020, are presented in the Company’s Amendment No. 1 to Form 10-K (“Form 10-K/A”) for the fiscal year ended August 29, 2020 filed with the SEC on June 30, 2021. Additionally, see Note 13, Earnings (Loss) Per Share, for restated earnings (loss) per share amounts. As a result of the Restatement, the Company’s private warrants (the “Private Warrants”) are now reflected as a liability measured at fair value on the Company’s Condensed Consolidated Balance Sheets, and the change in the fair value of this liability in each period is recognized as a gain or loss in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The effect of the Restatement on the Condensed Consolidated Balance Sheets as of February 27, 2021, and Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) and Condensed Consolidated Statements of Cash Flows for the thirteen and twenty-six weeks ended February 27, 2021, are presented below. Regarding the Condensed Consolidated Statements of Cash Flows, the adjustments below to net income were offset by adjustments to non-cash operating activities within cash flow provided by operations. The Restatement had no effect on total net cash flows from operating, investing or financing activities. The effect of the Restatement on the February 27, 2021 stockholders’ equity balances is presented in the Condensed Consolidated Statements of Stockholders’ Equity below. Condensed Consolidated Balance Sheet February 27, 2021 (In thousands) As Previously Reported Restatement Adjustment As Restated Warrant liability $ — 118,519 $ 118,519 Total liabilities 742,860 118,519 861,379 Additional paid-in-capital 1,098,375 ( 18,035 ) 1,080,340 Retained earnings 182,150 ( 100,484 ) 81,666 Total stockholders’ equity 1,278,658 ( 118,519 ) 1,160,139 Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) Thirteen Weeks Ended February 27, 2021 (In thousands) As Previously Reported Restatement Adjustment As Restated Loss in fair value change of warrant liability — ( 45,334 ) ( 45,334 ) Total other expense ( 6,908 ) ( 45,334 ) ( 52,242 ) Income (loss) before income taxes 26,433 ( 45,334 ) ( 18,901 ) Net income (loss) 19,120 ( 45,334 ) ( 26,214 ) Comprehensive income (loss) $ 19,363 $ ( 45,334 ) $ ( 25,971 ) As a result of the Restatement adjustments, basic earnings per share decreased $ 0.47 , from earnings of $ 0.2 0 per share to a loss of $ 0.27 per share, and diluted earnings per share decreased $ 0.46 , from earnings of $ 0.19 per share to a loss of $ 0.27 per share. Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) Twenty-Six Weeks Ended February 27, 2021 (In thousands) As Previously Reported Restatement Adjustment As Restated Loss in fair value change of warrant liability — ( 24,881 ) ( 24,881 ) Total other expense ( 15,221 ) ( 24,881 ) ( 40,102 ) Income before income taxes 57,307 ( 24,881 ) 32,426 Net income 41,620 ( 24,881 ) 16,739 Comprehensive income $ 41,818 $ ( 24,881 ) $ 16,937 As a result of the Restatement adjustments, basic earnings per share decreased $ 0.26 , from earnings of $ 0.43 per share to $ 0.17 per share, and diluted earnings per share decreased $ 0.24 , from earnings of $ 0.41 per share to $ 0.17 per share. 11 Table of Contents Twenty-Six Weeks Ended Condensed Consolidated Statement of Cash Flows February 27, 2021 (In thousands) As Previously Reported Restatement Adjustment As Restated Operating activities Net income $ 41,620 $ ( 24,881 ) $ 16,739 Adjustments to reconcile net income to net cash provided by operating activities: Loss in fair value change of warrant liability — 24,881 24,881 Net cash provided by operating activities $ 39,764 $ — $ 39,764 Condensed Consolidated Statement of Stockholders’ Equity February 27, 2021 (In thousands) As Previously Reported Restatement Adjustment As Restated Additional paid-in-capital $ 1,098,375 $ ( 18,035 ) $ 1,080,340 Net income 41,620 ( 24,881 ) 16,739 Retained earnings 182,150 ( 100,484 ) 81,666 Total stockholders’ equity $ 1,278,658 $ ( 118,519 ) $ 1,160,139 3. Summary of Significant Accounting Policies Refer to Note 4, Summary of Significant Accounting Policies , to the consolidated financial statements included in the Company’s Form 10-K/A for a description of significant accounting policies. Recently Issued and Adopted Accounting Pronouncements Recently Issued Accounting Pronouncements Not Yet Adopted In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which amends the existing guidance relating to the accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of U.S. GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the effects adoption of this guidance will have on the consolidated financial statements and does not expect that the adoption of this ASU will be material to its consolidated financial statements. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. The amendments in this ASU are effective for all entities and can be applied to contract modifications due to rate reform and eligible existing and new hedging relationships entered into between March 12, 2020 through December 31, 2022. The amendments of this ASU should be applied on a prospective basis. The Company will continue to monitor the effects of rate reform, if any, on its contracts and the effects of adoption of this ASU through December 31, 2022. The Company does not anticipate the amendments in this ASU to be material to its consolidated financial statements. In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements, which provides updates for technical corrections, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements across various areas of accounting within U.S. GAAP. This ASU is effective for all entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The amendments of this ASU should be applied retrospectively. The Company is currently evaluating the effects adoption of this guidance will have on the consolidated financial statements and does not anticipate the adoption of this ASU will be material to its consolidated financial statements. 12 Table of Contents Recently Adopted Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), which modified the measurement of expected credit losses of certain financial instruments. The Company adopted this ASU as of the first day of fiscal 2021. As a result of adopting this ASU, the Company changed its method of estimating its allowance for doubtful accounts for trade receivables to be based upon the Company’s historical credit loss experience adjusted for asset-specific risk characteristics, current economic conditions, and reasonable forecasts. The change in estimating the allowance for doubtful accounts did not have a material effect on the Company’s consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), which modified disclosure requirements on fair value measurements of Accounting Standards Codification (“ASC”) 820. The Company adopted this ASU as of the first day of fiscal 2021. The adoption of this ASU did not have a material effect on the consolidated financial statements or the related disclosures. 4. Business Combination On August 21, 2019, the Company’s 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”) to acquire Quest Nutrition, LLC (“Quest”), a healthy lifestyle food company (the “Acquisition of Quest”). On November 7, 2019, Simply Good USA completed the Acquisition of Quest, via Simply Good USA’s direct or indirect acquisition of 100% of the equity interests of Voyage Holdings, LLC and VMG Quest Blocker, Inc. (the “Target Companies”) for a cash purchase price at closing of $ 988.9 million subject to customary post-closing adjustments for the Target Companies’ levels of cash, indebtedness, net working capital and transaction expenses as of the closing date. Simply Good USA acquired Quest as a part of the Company’s vision 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. Quest is a healthy lifestyle food company offering a variety of bars, cookies, chips, ready-to-drink shakes and pizzas that compete in many of the attractive, fast growing sub-segments within the nutritional snacking category. The Acquisition of Quest was funded by the Company 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, the Company 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 February 27, 2021. For the twenty-six weeks ended February 29, 2020, Business transaction costs within the Consolidated Statements of Operations and Comprehensive Income were $ 26.9 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 $ 3.1 million of other costs, including legal, due diligence, and accounting fees. Included in the transaction advisory fees was $ 12.0 million paid to Centerview Partners LLC, an investment banking firm that served as the lead financial advisor to the Company for this transaction. Three members of the Company’s Board of Directors, Messrs. Kilts, West, and Ratzan, have business relationships with certain partners of Centerview Partners LLC (including relating to Centerview Capital Consumer, a private equity firm and affiliate of Conyers Park Sponsor LLC), but they are not themselves partners, executives or employees of Centerview Partners LLC, and Centerview Partners LLC is not a related party of the Company pursuant to applicable rules and policies. The advisory fee paid to Centerview Partners LLC represented approximately 1.2% of the total cash purchase price paid by the Company on the closing date of the Acquisition of Quest. All transaction advisory fees relating to the Acquisition of Quest were approved by the Company’s Audit Committee. 13 Table of Contents The following table sets forth the final purchase price allocation of the Acquisition of Quest to the estimated fair value of the net assets acquired at the date of acquisition, in thousands: Assets acquired: Cash and cash equivalents $ 4,745 Accounts receivable, net 25,359 Inventories 44,032 Prepaid assets 1,214 Other current assets 3,812 Property and equipment, net (1) 9,843 Intangible assets, net (2) 868,375 Other long-term assets 20,997 Liabilities assumed: Accounts payable 25,200 Other current liabilities 11,237 Deferred income taxes (3) 10,754 Other long-term liabilities 18,891 Total identifiable net assets 912,295 Goodwill (4) 74,525 Total assets acquired and liabilities assumed $ 986,820 (1) Property and equipment, net primarily consisted of leasehold improvements for the Quest headquarters of $ 6.9 million, furniture and fixtures of $ 2.2 million, and equipment of $ 0.7 million. The Quest headquarters lease ends in April 2029. The useful lives of the leasehold improvements, furniture and fixtures, and equipment are consistent with the Company’s accounting policies. (2) Intangible assets were recorded at fair value consistent with ASC 820 as a result of the Acquisition of Quest. Intangible assets consisted of $ 750.0 million of indefinite brands and trademarks, $ 115.0 million of amortizable customer relationships, and $ 3.4 million of internally developed software. The useful lives of the intangible assets are disclosed in Note 6 of the consolidated financial statements. The fair value measurement of the assets and liabilities was based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy. Level 3 fair market values were determined using a variety of information, including estimated future cash flows and market comparable data and companies. The fair values of the intangible assets were estimated using inputs primarily from the income approach and the with/without method, which estimates the value using the cash flow impact in a hypothetical scenario where the customer relationships are not in place. The significant assumptions used in estimating the fair value of the intangible assets include the estimated life the asset will contribute to cash flows, profitability, and the estimated discount rate. (3) Primarily as a result of the fair value attributable to the identifiable intangible assets, the deferred income tax liability was $ 10.8 million. (4) Goodwill was recorded at fair value consistent with ASC 820 as a result of the Acquisition of Quest. Amounts recorded for goodwill created in an acquisition structured as a stock purchase for tax are generally not expected to be deductible for tax purposes. Amounts recorded for goodwill resulting in a tax basis step-up are generally expected to be deductible for tax purposes. Tax deductible Goodwill was estimated to be $ 67.7 million. Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The Company completed its final assessment of purchase price allocation for the Acquisition of Quest to the estimated fair value of the net assets acquired at the date of acquisition during the first quarter of fiscal 2021. Since the initial preliminary estimates reported in the first fiscal quarter of 2020, the Company updated certain amounts reflected in the final purchase price allocation, as summarized in the fair values of assets acquired and liabilities assumed as set forth above. Specifically, the carrying amount of the intangible assets, net were increased by $ 20.0 million as a result of valuation adjustments related to the Company’s finalization of tax attributes, which also resulted in a decrease to deferred income taxes of $ 3.2 million. Additionally, accounts receivable, net decreased $ 4.3 million and inventories increased $ 0.9 million due to fair value measurement period adjustments, and the carrying amount of property and equipment, net decreased by $ 0.5 million to reflect its estimated fair value. As a result of these adjustments and the change in total net consideration paid of approximately $ 2.1 million related to net working capital adjustments discussed above, goodwill decreased $ 21.5 million. Measurement period adjustments were recognized in the reporting period in which the adjustments were determined and calculated as if the accounting had been completed at the acquisition date. 14 Table of Contents The results of Quest’s operations have been included in the Company’s Consolidated Financial Statements since November 7, 2019, the date of acquisition. The following table provides net sales from the acquired Quest business included in the Company’s results: Thirteen Weeks Ended Twenty-Six Weeks Ended (in thousands) February 27, 2021 February 29, 2020 February 27, 2021 February 29, 2020 Net sales (1) $ 105,025 $ 88,305 $ 200,794 $ 105,387 (1) Net sales for the thirteen and twenty-six weeks ended February 27, 2021 excludes immaterial international net sales. Unaudited Pro Forma Financial Information Pro forma financial information is not intended to represent or be indicative of the actual results of operations of the combined business that would have been reported had the Acquisition of Quest been completed at the beginning of the fiscal year 2019, nor is it representative of future operating results of the Company. The pro forma combined financial information includes the fair value adjustments of the liability-classified Private Warrants. The following unaudited pro forma financial information presents the combined results of the Company and Quest as if the Acquisition of Quest has occurred at the beginning of fiscal 2019: Thirteen Weeks Ended Twenty-Six Weeks Ended (in thousands) February 29, 2020 February 29, 2020 Revenue $ 227,101 $ 447,657 Gross profit $ 90,479 $ 178,667 Net income $ 52,693 $ 81,649 5. Revenue Recognition Revenues from transactions with external customers for each of the Company’s products would be impracticable to disclose and management does not view its business by product line. The following is a summary of revenue disaggregated by geographic area and core brands: Thirteen Weeks Ended Twenty-Six Weeks Ended (In thousands) February 27, 2021 February 29, 2020 February 27, 2021 February 29, 2020 North America Atkins $ 114,155 $ 131,435 $ 236,916 $ 259,247 Quest (2) 105,025 88,305 200,794 105,387 Total North America (1) 219,180 219,740 437,710 364,634 International 11,427 7,361 24,049 14,620 Total net sales $ 230,607 $ 227,101 $ 461,759 $ 379,254 (1) The North America geographic area consists of net sales substantially related to the United States and there is no individual foreign country to which more than 10% of Company’s net sales are attributed or that is otherwise deemed individually material. The North America geographic area includes the divested SimplyProtein brand. (2) Quest net sales are primarily in North America. Charges related to credit loss on accounts receivables from transactions with external customers were nominal for each of the thirteen and twenty-six weeks ended February 27, 2021 and were approximately $ 0.1 million for each of the thirteen and twenty-six weeks ended February 29, 2020. As of February 27, 2021 and August 29, 2020, the allowance for doubtful accounts related to these accounts receivable was $ 0.6 million and $ 0.5 million, respectively. 15 Table of Contents 6. Goodwill and Intangibles Changes to Goodwill during the thirteen week period ended February 27, 2021 were as follows: (in thousands) Goodwill Balance as of August 29, 2020 $ 544,774 Acquisition of business, measurement period adjustment 1,178 Sale of business ( 2,818 ) Balance as of February 27, 2021 $ 543,134 The change in Goodwill attributed to the acquisition of a business during the twenty-six weeks ended February 27, 2021 was the result of measurement period adjustments made to finalize the acquisition method of accounting for the Acquisition of Quest as described in Note 4. Additionally, effective September 24, 2020, the Company sold the assets exclusively related to its 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 the Company’s former Canadian-based management team who had been responsible for this brand prior to the sale transaction (the “SimplyProtein Sale”). In addition to purchasing these assets, the buyer assumed certain liabilities related to the SimplyProtein brand’s business. There was no gain or loss recognized as a result of the SimplyProtein Sale. In conjunction with the SimplyProtein Sale, the Company disposed of $2.8 million of goodwill associated with the SimplyProtein business. There were no impairment charges related to goodwill during the thirteen and twenty-six weeks ended February 27, 2021 or since the inception of the Company. Intangible assets, net in the Consolidated Balance Sheets consist of the following: February 27, 2021 (In thousands) Useful life Gross carrying amount Accumulated amortization Net carrying amount Intangible assets with indefinite life: Brands and trademarks Indefinite life $ 974,000 $ — $ 974,000 Intangible assets with finite lives: Customer relationships 15 years 174,000 24,303 149,697 Proprietary recipes and formulas 7 years 7,000 3,631 3,369 Licensing agreements 14 years 22,000 5,706 16,294 Software and website development costs 3 - 5 years 5,302 2,678 2,624 Intangible assets in progress 3 - 5 years 55 — 55 $ 1,182,357 $ 36,318 $ 1,146,039 August 29, 2020 (In thousands) Useful life Gross carrying amount Accumulated amortization Net carrying amount Intangible assets with indefinite life: Brands and trademarks Indefinite life $ 979,000 $ — $ 979,000 Intangible assets with finite lives: Customer relationships 15 years 174,000 18,503 155,497 Proprietary recipes and formulas 7 years 7,000 3,131 3,869 Licensing agreements 14 years 22,000 4,920 17,080 Software and website development costs 3 - 5 years 5,967 2,645 3,322 $ 1,187,967 $ 29,199 $ 1,158,768 Changes in Intangible assets, net during the twenty-six weeks ended February 27, 2021 were primarily related to the SimplyProtein Sale and recurring amortization expense. In conjunction with the SimplyProtein Sale, the Company sold its SimplyProtein brand intangible asset, which had a carrying value of approximately $ 5.0 million as of the date of the sale. Amortization expense related to intangible assets during each of the thirteen weeks ended February 27, 2021 and February 29, 2020 was $ 3.9 million, respectively. Amortization expense related to intangible assets during the twenty-six weeks ended February 27, 2021 and February 29, 2020 was $ 7.7 million and $ 6.2 million, respectively. There were no impairment charges related to intangible assets during the thirteen and twenty-six weeks ended February 27, 2021 and February 29, 2020. 16 Table of Contents Estimated future amortization for each of the next five fiscal years and thereafter is as follows: (In thousands) Amortization Remainder of 2021 $ 7,674 2022 15,224 2023 14,938 2024 14,257 2025 13,171 2026 and thereafter 106,720 Total $ 171,984 7. Long-Term Debt and Line of Credit On July 7, 2017, the Company 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 the Term Loan or (y) 2.00 % margin for the 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, the Company has pledged certain equity interests in its subsidiaries. On March 16, 2018 (the “Amendment Date”), the Company 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 the Company’s 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 the Company’s consolidated net leverage ratio as of the last financial statements delivered to the administrative agent. No additional debt was incurred, or any proceeds received, by the Company 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, the Company 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 the Company’s 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 Credit Agreement contains certain financial and other covenants that limit the Company’s 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 and after the third anniversary of the closing date of the Credit Agreement) 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 February 27, 2021 and August 29, 2020, respectively. 17 Table of Contents Long-term debt consists of the following: (In thousands) February 27, 2021 August 29, 2020 Term Facility (effective rate of 4.8% at February 27, 2021) $ 556,500 $ 606,500 Finance lease liabilities (effective rate of 5.6% at February 27, 2021) 826 922 Less: Deferred financing fees 8,164 10,272 Total debt 549,162 597,150 Less: Current finance lease liabilities 278 271 Long-term debt, net of deferred financing fees $ 548,884 $ 596,879 The Company is no t required to make principal payments on the Term Facility over the twelve months following the period ended February 27, 2021. The outstanding balance of the Term Facility is due upon its maturity in July 2024. Additionally, as of February 27, 2021 and August 29, 2020, there were no amounts drawn against the Revolving Credit Facility. As of February 27, 2021, the Company had letters of credit in the amount of $ 4.2 million outstanding. These letters of credit offset against the availability of the Revolving Credit Facility and exist to support three of the Company’s leased buildings and insurance programs relating to workers’ compensation. No amounts were drawn against these letters of credit at February 27, 2021. The Company utilizes market approaches to estimate the fair value of certain outstanding borrowings by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates. The Company carries debt at historical cost and discloses fair value. As of February 27, 2021 and August 29, 2020, the book value of the Company’s debt approximated fair value. The estimated fair value of the Term Loan is valued based on observable inputs and classified as Level 2 in the fair value hierarchy. 8. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows: Level 1 – Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 – Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 – Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximated fair value as of February 27, 2021 and August 29, 2020 due to the relatively short maturity of these instruments. Level 3 Measurements The Company has outstanding liability-classified Private Warrants that allow holders to purchase 6,700,000 shares of the Company’s common stock. Such Private Warrants are held by Conyers Park Sponsor, LLC, a related party. 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, the Company 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. 18 Table of Contents There were 6,700,000 Private Warrants outstanding as of November 28, 2020 and November 30, 2019. The table below summarizes the inputs used to calculate the fair value of the warrant liability at each of the dates indicated below: February 27, 2021 February 29, 2020 Exercise Price $ 11.50 $ 11.50 Stock Price $ 29.17 $ 22.06 Dividend Yield — % — % Expected Term (in Years) 1.35 2.35 Risk-Free Interest Rate 0.10 % 0.85 % Expected Volatility 28.00 % 29.10 % Per Share Value of Warrants $ 17.69 $ 10.99 The periodic remeasurement of the warrant liability is reflected in (Loss) gain in fair value change of warrant liability within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The adjustments for the thirteen and twenty-six weeks ended February 27, 2021 were a loss of $ 45.3 million and $ 24.9 million, respectively. The adjustments for the thirteen and twenty-six weeks ended February 29, 2020 were a gain of $ 37.6 million and $ 51.0 million, respectively. The adjustments resulted in a total warrant liability at February 27, 2021 and February 29, 2020 of $ 118.5 million and $ 73.6 million, respectively. 9. Income Taxes The tax expense and the effective tax rate resulting from operations were as follows: Twenty-Six Weeks Ended (In thousands) February 27, 2021 February 29, 2020 (Loss) income before income taxes $ 32,426 $ 59,009 Income tax expense $ 15,687 $ 2,193 Effective tax rate 48.4 % 3.7 % The effective tax rate for the twenty-six weeks ended February 27, 2021 was 44.7 % greater than the effective tax rate for the twenty-six weeks ended February 29, 2020, which was primarily driven by the non-cash change in the fair value of the warrant liability and other permanent differences. 10. Leases The components of lease expense were as follows: Thirteen Weeks Ended Twenty-Six Weeks Ended (In thousands) Statement of Operations Caption February 27, 2021 February 29, 2020 February 27, 2021 February 29, 2020 Operating lease cost: Lease cost Cost of goods sold and General and administrative $ 1,496 $ 1,441 $ 2,994 $ 2,247 Variable lease cost (1) Cost of goods sold and General and administrative 378 426 776 736 Operating lease cost 1,874 1,867 3,770 2,983 Short term lease cost General and administrative — 18 — 24 Finance lease cost: Amortization of right-of-use assets Cost of goods sold 68 66 136 136 Interest on lease liabilities Interest expense 12 16 25 32 Total finance lease cost 80 82 161 168 Total lease cost $ 1,954 $ 1,967 $ 3,931 $ 3,175 19 Table of Contents (1) Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs. In conjunction with the Company’s restructuring activities as discussed in Note 14, the Company incurred impairment charges of $ 0.3 million and $ 0.7 million in the thirteen and twenty-six weeks ended February 27, 2021, respectively, related to its operating lease right-of-use assets for leases in Toronto, Ontario and the Netherlands. Additionally, the Company terminated the lease in Toronto, Ontario, which resulted in a gain on lease termination of $ 0.2 million in the thirteen and twenty-six weeks ended February 27, 2021. The effect of these restructuring activities has been included within General and administrative on the Consolidated Statements of Operations and Comprehensive Income. Refer to Note 14, Restructuring and Related Charges, for additional information regarding restructuring activities. The gross amounts of assets and liabilities related to both operating and finance leases are as follows: (In thousands) Balance Sheet Caption February 27, 2021 August 29, 2020 Assets Operating lease right-of-use assets Other long-term assets $ 23,089 $ 25,703 Finance lease right-of-use assets Property and equipment, net 776 912 Total lease assets $ 23,865 $ 26,615 Liabilities Current: Operating lease liabilities Accrued expenses and other current liabilities $ 4,235 $ 4,329 Finance lease liabilities Current maturities of long-term debt 278 271 Long-term: Operating lease liabilities Other long-term liabilities 20,880 22,764 Finance lease liabilities Long-term debt, less current maturities 548 651 Total lease liabilities $ 25,941 $ 28,015 Future maturities of lease liabilities as of February 27, 2021 were as follows: (In thousands) Operating Leases Finance Leases Fiscal year ending: Remainder of 2021 $ 2,935 $ 157 2022 4,607 313 2023 4,071 278 2024 4,232 145 2025 3,838 — Thereafter 11,050 — Total lease payments 30,733 893 Less: Interest ( 5,618 ) ( 67 ) Present value of lease liabilities $ 25,115 $ 826 As of February 27, 2021, the Company 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, and as a result it is not recorded on the Consolidated Balance Sheets. The Company expects the lease to commence in fiscal year 2021, and the Company has the option to renew the lease for an additional 5.0 years or 10.0 years after the minimum lease term. The weighted-average remaining lease term and weighted-average discount rate for operating and finance leases were as follows: February 27, 2021 August 29, 2020 Weighted-average remaining lease term (in years) Operating leases 6.76 6.97 Finance leases 2.92 3.41 Weighted-average discount rate Operating leases 5.8 % 5.7 % Finance leases 5.6 % 5.6 % 20 Table of Contents Supplemental and other information related to leases was as follows: Twenty-Six Weeks Ended (In thousands) February 27, 2021 February 29, 2020 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 3,689 $ 2,817 Operating cash flows from finance leases 12 9 Financing cash flows from finance leases $ 157 $ 157 11. Commitments and Contingencies Litigation The Company is a party to certain litigation and claims that are considered normal to the operations of the business. From time to time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of business. The Company is not presently a party to any litigation that it believes to be material, and the Company is not aware of any pending or threatened litigation against it that its management believes could have a material adverse effect on its business, operating result, financial condition or cash flows. During the fiscal year ended August 31, 2019, the Company reserved $ 3.5 million for the potential settlement of class action litigation concerning certain product label claims. During the twenty-six weeks ended February 29, 2020, the Company reserved an additional $ 0.3 million. The reserve was included within General and administrative in the Consolidated Statements of Operations and Comprehensive Income, and the reserve was fully paid into escrow and settled during the fiscal year ended August 29, 2020. As of February 27, 2021 and August 29, 2020, the Company had $ 0.7 million and $ 1.3 million reserved for potential settlements, respectively. Other The Company has entered into endorsement contracts with certain celebrity figures and social media influencers to promote and endorse the Atkins and Quest brands and product lines. These contracts contain endorsement fees, which are expensed ratably over the life of the contract, and performance fees, that are recognized at the time of achievement. Based on the terms of the contracts in place and achievement of performance conditions as of February 27, 2021, the Company will be required to make payments of $ 2.8 million over the next year. 12. Stockholders’ Equity Public Equity Offering On October 9, 2019, the Company completed an underwritten public offering of 13,379,205 shares of common stock at a price to the public of $ 26.35 per share. The Company paid underwriting discounts and commissions of $ 0.19 per share resulting in net proceeds to the Company of $ 26.16 per share, or approximately $ 350.0 million (the “Offering”). The Company 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. Warrants to Purchase Common Stock Prior to the Acquisition of Atkins, Conyers Park issued 13,416,667 public warrants and 6,700,000 Private Warrants. The Company assumed the Conyers Park warrants to purchase common stock in connection with the Acquisition of Atkins. As a result of the Acquisition of Atkins, the warrants issued by Conyers Park were no longer exercisable for shares of Conyers Park common stock, but were instead exercisable for common stock of the Company. All other features of the warrants were unchanged. Each whole warrant entitles the holder to purchase one share of the Company’s common stock at a price of $ 11.50 per share. The warrants became exercisable 30 days after the completion of the Acquisition of Atkins in 2017 and expire five years after that date, or earlier upon redemption or liquidation, as applicable. From August 26, 2018 through October 5, 2018, public warrants to purchase an aggregate of 9,866,451 shares of the Company’s common stock were exercised for cash at an exercise price of $ 11.50 per share, resulting in aggregate gross proceeds to the Company of $ 113.5 million. 21 Table of Contents On October 4, 2018, the Company delivered a notice for the redemption (the “Redemption Notice”) of all of its 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 the Company’s 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 the Company’s 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. As of February 27, 2021, the Private Warrants to purchase 6,700,000 shares of the Company’s common stock remain outstanding, have not been transferred by Conyers Park Sponsor, LLC, a related party, and remain liability-classified. As discussed in Note 8, the liability-classified warrants are remeasured on a recurring basis, primarily based on observable market data while the related theoretical private warrant volatility assumption within the Black-Scholes model represents a Level 3 measurement within the fair value measurement hierarchy. The periodic remeasurement of the warrant liability is reflected in (Loss) gain in fair value change of warrant liability within the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Stock Repurchase Program On November 13, 2018, the Company announced that its Board of Directors had adopted a $ 50.0 million stock repurchase program. Under the stock repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated transactions. The stock repurchase program does not obligate the Company to acquire any specific number of shares or acquire shares over any specific period of time. The stock repurchase program may be suspended or discontinued at any time by the Company and does not have an expiration date. During the twenty-six weeks ended February 27, 2021 and February 29, 2020, the Company did not repurchase any shares of common stock. As of February 27, 2021, approximately $ 47.9 million remained available under the stock repurchase program. 13. Earnings (Loss) Per Share Basic earnings or loss per share is based on the weighted average number of common shares issued and outstanding. In computing diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all potentially dilutive securities. In periods in which the Company has a net loss, diluted earnings per share is based on the weighted average number of common shares issued and outstanding as the effect of including common stock equivalents outstanding would be antidilutive. The Company has outstanding liability-classified Private Warrants to purchase 6,700,000 shares of the Company’s common stock. During periods when the effect is dilutive, the Company assumes share settlement of the instruments as of the beginning of the reporting period and adjusts the numerator to remove the change in fair value of the warrant liability and adjusts the denominator to include the dilutive shares, calculated using the treasury stock method. During periods when the impact is antidilutive, the share settlement is excluded. 22 Table of Contents The following table reconciles the numerators and denominators used in the computations of both basic and diluted earnings per share: Thirteen Weeks Ended Twenty-Six Weeks Ended (In thousands, except per share data) February 27, 2021 February 29, 2020 February 27, 2021 February 29, 2020 Basic earnings per share computation: Numerator: Net (loss) income available to common stock stockholders $ ( 26,214 ) $ 48,301 $ 16,739 $ 56,816 Denominator: Weighted average common shares - basic 95,734,591 95,339,489 95,712,057 92,524,061 Basic (loss) earnings per share from net (loss) income $ ( 0.27 ) $ 0.51 $ 0.17 $ 0.61 Diluted earnings per share computation: Numerator: Net (loss) income available to common stock stockholders $ ( 26,214 ) $ 48,301 $ 16,739 $ 56,816 Gain in fair value change of warrant liability — ( 37,644 ) — ( 50,952 ) Numerator for diluted earnings per share $ ( 26,214 ) $ 10,657 $ 16,739 $ 5,864 Denominator: Weighted average common shares outstanding - basic 95,734,591 95,339,489 95,712,057 92,524,061 Private Warrants — 3,706,986 — 3,766,141 Employee stock options — 1,173,631 1,056,707 1,194,968 Non-vested shares — 116,465 228,248 112,444 Weighted average common shares - diluted 95,734,591 100,336,571 96,997,012 97,597,614 Diluted (loss) earnings per share from net income $ ( 0.27 ) $ 0.11 $ 0.17 $ 0.06 Diluted earnings per share calculations for the thirteen weeks ended February 27, 2021 and February 29, 2020 excluded 1.4 million and 0.4 million shares underlying stock options issuable upon exercise, respectively, that would have been anti-dilutive. Diluted earnings per share calculations for the thirteen weeks ended February 27, 2021 excluded 0.3 million number of non-vested shares and 3.9 million of Private Warrants that would have been anti-dilutive Diluted earnings per share calculations for the twenty-six weeks ended February 27, 2021 and February 29, 2020 excluded 0.6 million and 0.3 million shares underlying stock options issuable upon exercise, respectively, that would have been anti-dilutive. Diluted earnings per share for the twenty-six weeks ended February 27, 2021 excluded an immaterial number of non-vested shares and 3.6 million of Private Warrants that would have been anti-dilutive. 14. Omnibus Incentive Plan Stock-based compensation includes stock options, restricted stock units, performance stock unit awards and stock appreciation rights, which are awarded to employees, directors, and consultants of the Company. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period of the award based on their grant date fair value. Stock-based compensation expense is included within General and administrative expense, which is the same financial statement caption where the recipient’s other compensation is reported. The Company recorded stock-based compensation expense of $ 2.5 million and $ 2.1 million in the thirteen weeks ended February 27, 2021 and February 29, 2020, respectively, and $ 3.6 million and $ 3.8 million in the twenty-six weeks ended February 27, 2021 and February 29, 2020, respectively. 23 Table of Contents Stock Options The following table summarizes stock option activity for the twenty-six weeks ended February 27, 2021: Shares Underlying Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Outstanding as of August 29, 2020 2,615,899 $ 14.33 Granted 289,555 20.47 Exercised ( 43,928 ) 12.00 Forfeited ( 39,575 ) 23.08 Outstanding as of February 27, 2021 2,821,951 $ 14.88 7.11 Vested and expected to vest as of February 27, 2021 2,821,951 $ 14.88 7.11 Exercisable as of February 27, 2021 2,197,655 $ 13.24 6.61 As of February 27, 2021, the Company had $ 3.5 million of total unrecognized compensation cost related to stock option plans that will be recognized over a weighted average period of 1.9 years. During the twenty-six weeks ended February 27, 2021 and February 29, 2020, the Company received $ 0.5 million and $ 0.9 million in cash from stock option exercises, respectively. Restricted Stock Units The following table summarizes restricted stock unit activity for the twenty-six weeks ended February 27, 2021: Restricted Stock Units Weighted average grant-date fair value Non-vested as of August 29, 2020 208,023 $ 22.82 Granted 311,873 21.57 Vested ( 72,568 ) 25.89 Forfeited ( 15,706 ) 22.99 Non-vested as of February 27, 2021 431,622 $ 21.39 As of February 27, 2021, the Company had $ 7.6 million of total unrecognized compensation cost related to restricted stock units that will be recognized over a weighted average period of 2.2 years. Performance Stock Units During the twenty-six weeks ended February 27, 2021, the Board of Directors granted performance stock units under the Company’s equity compensation plan. Performance stock units vest in a range between 0 % and 200 % based upon certain performance criteria in a three -year period. Performance stock units were valued using a Monte-Carlo simulation. The following table summarizes performance stock unit activity for the twenty-six weeks ended February 27, 2021: Performance Stock Units Weighted average grant-date fair value Non-vested as of August 29, 2020 295,256 $ 17.93 Granted 116,309 23.59 Vested — — Forfeited ( 26,400 ) 22.06 Non-vested as of February 27, 2021 385,165 $ 19.35 As of February 27, 2021, the Company had $ 4.4 million of total unrecognized compensation cost related to performance stock units that will be recognized over a weighted average period of 1.6 years. 24 Table of Contents Stock Appreciation Rights Stock appreciation rights (“SARs”) permit the holder to participate in the appreciation of the Company’s common stock price. The Company’s SARs settle in shares of its common stock once the applicable vesting criteria has been met. SARs cliff vest 3 years from the date of grant and must be exercised within 10 years. The following table summarizes SARs activity for the twenty-six weeks ended February 27, 2021: Shares Underlying SARs Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Outstanding as of August 29, 2020 150,000 $ 24.20 Granted — — Exercised — — Forfeited — — Outstanding as of February 27, 2021 150,000 $ 24.20 8.68 Vested and expected to vest as of February 27, 2021 150,000 $ 24.20 8.68 Exercisable as of February 27, 2021 — $ — 0.00 As of February 27, 2021, the Company had $ 0.2 million of total unrecognized compensation cost related to its SARs that will be recognized over a weighted average period of 1.7 years. 14. Restructuring and Related Charges In May 2020, the Company announced certain restructuring activities in conjunction with the implementation of the Company’s future-state organization design, which created a fully integrated organization with its completed Acquisition of Quest. The new organization design became effective on August 31, 2020. These restructuring plans primarily include workforce reductions, changes in management structure, and the relocation of business activities from one location to another. The one-time termination benefits and employee severance costs to be incurred in relation to these restructuring activities are accounted for in accordance with ASC Topic 420, Exit or Disposal Cost Obligations, and ASC Topic 712, Compensation-Nonretirement Postemployment Benefits, respectively. The Company recognizes a liability and the related expense for these restructuring costs when the liability is incurred and can be measured. Restructuring accruals are based upon management estimates at the time and can change depending upon changes in facts and circumstances subsequent to the date the original liability was recorded. Changes to the restructuring liability during the twenty-six weeks ended February 27, 2021 were as follows: (in thousands) Termination benefits and severance Other Restructuring Liability Balance as of August 29, 2020 $ 4,139 $ — $ 4,139 Charges 3,118 144 3,262 Cash payments ( 6,146 ) ( 144 ) ( 6,290 ) Non-cash settlements or adjustments — — — Balance as of February 27, 2021 $ 1,111 $ — $ 1,111 In addition to the restructuring costs shown above, the Company incurred impairment charges of $ 0.3 million and $ 0.7 million in the thirteen and twenty-six weeks ended February 27, 2021, respectively, related to its operating lease right-of-use assets for leases in Toronto, Ontario and the Netherlands. Additionally, the Company terminated the lease in Toronto, Ontario, which resulted in a gain on lease termination of $ 0.2 million in the thirteen and twenty-six weeks ended February 27, 2021. As a result, for the thirteen and twenty-six weeks ended February 27, 2021, the Company incurred a total of $ 1.3 million and $ 3.8 million in restructuring and restructuring related costs, respectively, which have been included within General and administrative on the Consolidated Statements of Operations and Comprehensive Income. As of February 27, 2021, the Company has incurred aggregate restructuring and restructuring-related costs of $ 9.3 million since May 2020. Overall, the Company expects to incur a total of approximately $ 10.0 million in restructuring and restructuring related costs, which are to be paid throughout fiscal 2021 and the first quarter of fiscal 2022. 25