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Item 7. Management’s Discussion and Analysis

2021-10-26 compared with 2020-10-28 · 225 added, 334 removed, 172 unchanged (76% of the section changed)

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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.

The product portfolio we develop, market and sell consists primarily of protein bars, ready-to-drink (“RTD”) shakes, sweet and salty snacks and confectionery products marketed under the Atkins®, Atkins Endulge®, and Quest® brand names.

We believe Simply Good Foods is poised to expand its wellness platform through innovation and organic growth along with acquisition opportunities in the nutritional snacking space.

Our nutritious snacking platform consists of brands that specialize in providing products for consumers that follow certain nutritional philosophies and health-and-wellness trends:

Atkins® for those following a low-carb lifestyle and Quest® for consumers seeking 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.

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 “Quest Acquisition”).

For more information, please see “Liquidity and Capital Resources—Quest Acquisition.”

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 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.

Our consolidated results of operations for the fiscal year ended August 28, 2021 continued to be affected by the significant changes in consumer shopping and consumption behavior patterns due to COVID-19 which had begun during our third quarter in fiscal 2020.

Our business did improve during the course of fiscal year 2021, driven by increasing consumer mobility and improving shopper traffic in brick and mortar retailers versus the prior periods that were pressured by COVID-19 movement restrictions.

We believe there is a high correlation of consumer mobility to the consumption of our products.

As shopper traffic within brick and mortar retailers improves, particularly in the mass and convenience store channels, and as consumers spend more time away from home, our business, particularly bars, performs well.

There is still uncertainty related to the sustainability of improving consumer mobility and shopping trips observed in the second half of fiscal year 2021.

While our Quest brand has outperformed its portion of the nutritious snacking segment, the performance of our Atkins brand, which is part of the weight management portion of the market, has improved at a slower rate.

However, the Atkins brand performance for the fifty-two weeks ended August 28, 2021 has improved during the course of fiscal year 2021, primarily due to increasing consumer mobility and improving shopper traffic in brick and mortar retailers.

During fiscal year 2022, we expect our business performance will continue to be correlated primarily to the level of consumer mobility, which includes the rate at which consumers return to working outside the home.

Beginning in the third quarter of 2020, we actively engaged with the various elements of our value chain, including our retail 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.

In the fourth quarter of 2020 and continuing into fiscal year 2021, consumer consumption habits became steadier, however inventory levels remain variable.

Based on information available to us as of the date of this Report, 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 along with our logistics capabilities to deliver products to our retail customers on a timely and consistent basis, and intend to adapt our plans as needed to continue to drive our business and meet our obligations during the continuing and evolving COVID-19 situation.

We remain uncertain of the ultimate effect COVID-19 could have on our business notwithstanding the distribution of several U.S.

government approved vaccines and the easing of movement restrictions.

This uncertainty stems from the potential for, among other things, (i) the presence of current mutations of COVID-19 which have resulted in increased rates of reported cases for which currently approved vaccines are not as effective along with the possibility of future mutations occurring for which current approved vaccines are less effective, (ii) unexpected supply chain disruptions, including disruptions resulting from labor shortages or other human capital challenges, (iii) changes to customer operations, (iv) a reversal in recently improving consumer purchasing and consumption behavior, and (v) the closure of customer establishments.

Please also see the information under Item 1A.

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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.

In May 2020, we announced certain restructuring activities in conjunction with the implementation of our future-state organization design, which created a fully integrated organization with our completed Quest Acquisition.

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.

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.

These restructuring plans primarily include workforce reductions, changes in management structure, and the relocation of business activities from one location to another.

For the fifty-two weeks ended August 28, 2021 and August 29, 2020, we incurred a total of $4.3 million and $5.5 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 (Loss).

Since the restructuring activities were announced in May 2020, we have incurred aggregate restructuring and restructuring-related costs of $9.8 million.

Overall, we expect to incur a total of approximately $10.1 million in restructuring and restructuring-related costs, including the $9.8 million previously incurred, and the balance of which will be paid through the second quarter of fiscal year 2022.

As of August 28, 2021, the outstanding restructuring liability was $0.9 million.

Refer to Note 17, 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.

We now present these expenses within Cost of goods sold in the Consolidated Statements of Operations and Comprehensive Income.

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 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 2 , Change in Accounting Principle , of our Consolidated Financial Statements included herein for additional information on the accounting principle change.

SimplyProtein Sale

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 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.

The transaction has enabled our management to focus its full time and resources on our core Atkins® and Quest® branded businesses and other strategic initiatives.

We expect higher raw material and freight costs in fiscal year 2022.

In June 2021, management notified our customers of our plans to institute a price increase effective in September 2021, the first month of our fiscal year 2022.

Management believes the price increase and productivity initiatives will enable us to continue to invest in projects that drive growth.

We have begun to see logistics challenges, which we believe have contributed to lower retail and e-commerce sales of our products due to out-of-stock situations, delayed recognition of sales and higher than historical inventory levels.

In addition, we could experience additional lost sale opportunities at our retail and e-commerce customers if our products are not available for purchase as a result of disruptions in our supply chain relating to an inability to obtain ingredients or packaging, labor challenges at our logistics providers or our contract manufacturers, or if our customers experience delays in stocking our products.

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.

Following the Quest Acquisition, 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:

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(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 consists primarily of product sales less the cost of promotional activities, slotting fees and other sales credits and adjustments, including product returns.

Net sales consist 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.

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• Selling and marketing.

Selling and marketing expenses are comprised of broker commissions, customer marketing, media and other marketing costs.

Selling and marketing expenses comprise 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.

General and administrative expenses comprise expenses associated with corporate and administrative functions that support our business, including employee compensation, stock-based compensation, professional services, integration costs, restructuring costs, insurance and other general corporate expenses.

• Depreciation and amortization.

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• 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.

Business transaction costs comprise legal, due diligence, consulting and accounting firm expenses associated with the process of actively pursuing potential and completed business combinations, including the Quest Acquisition.

• 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.

Loss on impairment consists of impairment charges related to our brand intangible asset.

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

Sales and earnings growth improved during fiscal year 2021 as compared to fiscal year 2020 primarily as a result of increased consumer mobility in fiscal year 2021 as compared to the prior fiscal year, which experienced stricter COVID-19 movement restrictions, performance of new products and product forms released during fiscal year 2021 as well as Quest’s full-year inclusion in our results of operations in fiscal year 2021 as compared to Quest’s partial inclusion in our results of operations in the prior fiscal year due to the timing of the Quest Acquisition closing.

As consumer foot traffic within brick and mortar retailers improved during fiscal year 2021, particularly in the mass and convenience store channels, our business did well.

Strong sales growth and cost controls around general and administrative costs more than offset higher marketing and employee-related costs.

Because not all companies use identical calculations, this presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.

See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of Adjusted EBITDA to net income for each applicable period.

A discussion regarding our financial condition and results of operations for the fifty-two weeks ended August 28, 2021 compared to the fifty-two weeks ended August 29, 2020 is presented below.

A discussion regarding our financial condition and results of operations for the fifty-two weeks ended August 29, 2020 compared to the fifty-three weeks ended August 31, 2019 can be found under Item 7 of our Annual Report on Form 10-K/A for the fiscal year ended August 29, 2020, filed with the SEC on June 30, 2021.

Comparison of Results for the Fifty-Two Weeks Ended August 28, 2021 and the Fifty-Two Weeks Ended August 29, 2020

The following table presents, for the periods indicated, selected information from our consolidated financial results, including information presented as a percentage of net sales:

53-Weeks Ended

52-Weeks Ended

(In thousands)

August 29, 2020

August 31, 2019

Cost of goods sold

Operating expenses:

Selling and marketing

General and administrative

Depreciation and amortization

Business transaction costs

Loss on impairment

Loss in fair value change of contingent consideration - TRA liability

Total operating expenses

Income from operations

Other income (expense):

Interest income

Interest expense

Gain on settlement of TRA liability

Gain (loss) on foreign currency transactions

Total other expense

Income before income taxes

Income tax expense

Other financial data:

Adjusted EBITDA (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 of $816.6 million represented an increase of $293.3 million , or 56.0% , 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 56.0% 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-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.

52-Weeks Ended % of Net Sales 52-Weeks Ended % of Net Sales

(In thousands) August 28, 2021 August 29, 2020

Net sales $ 1,005,613 100.0 % $ 816,641 100.0 %

Cost of goods sold 595,847 59.3 % 492,313 60.3 %

Cost of goods sold increased $186.3 million , or 60.9% , 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 409,766 40.7 % 324,328 39.7 %

Gross profit increased $106.9 million , or 49.2% , for the fifty-two week period ended August 29, 2020 compared to the fifty-three week period ended August 31, 2019 .

Gross profit decreased 180 basis points from 41.5% 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 $101.5 million , or 70.2% , 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 112,928 11.2 % 94,469 11.6 %

Selling and marketing expenses increase d $27.0 million , or 40.0% , 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 106,181 10.6 % 106,251 13.0 %

General and administrative expenses increase d $44.3 million , or 71.5% , 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 16,982 1.7 % 15,259 1.9 %

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 — — % 27,125 3.3 %

Business transaction costs increase d $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 — — % 3,000 0.4 %

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-two week period ended August 29, 2020 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 increase d $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 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 10 , Income Taxes , of our Consolidated Financial Statements included in this Report.

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 was $34.7 million for the fifty-two week period ended August 29, 2020 , a decrease of $12.8 million , or 27.0% , compared to net income of $47.5 million for the fifty-three week period ended August 31, 2019 .

Adjusted EBITDA.

Adjusted EBITDA increased $55.2 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 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.

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:

52-Weeks Ended

(In thousands)

August 31, 2019

August 25, 2018

Cost of goods sold (1)

Operating expenses:

Selling and marketing (2)

General and administrative (1)

Depreciation and amortization (1)

Business transaction costs

Loss (gain) in fair value change of contingent consideration - TRA liability

Total operating expenses 236,091 23.5 % 246,104 30.1 %

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Interest expense (31,557) (3.1) % (32,813) (4.0) %

Gain on settlement of TRA liability

(Loss) gain in fair value change of warrant liability (66,197) (6.6) % 30,938 3.8 %

Gain on legal settlement 5,000 0.5 % — — %

(Loss) gain on foreign currency transactions (5) — % 658 0.1 %

Total other expense

Other (expense) income (140) — % 441 0.1 %

Total other (expense) income (92,815) (9.2) % 740 0.1 %

Income before income taxes 80,860 8.0 % 78,964 9.7 %

Income tax expense (benefit)

Income tax expense 39,980 4.0 % 13,326 1.6 %

Net income $ 40,880 4.1 % $ 65,638 8.0 %

Other financial data:

Adjusted EBITDA (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 2 to the consolidated financial statements included herein for additional information on the accounting principle change.

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.

$ 207,273 20.6 % $ 153,912 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 for the fifty-three week period ended August 31, 2019 were $523.4 million compared to $431.4 million for the fifty-two week period ended August 25, 2018 .

The net sales increase of 21.3% 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.

See “Reconciliation of EBITDA and Adjusted EBITDA” below for a reconciliation of Adjusted EBITDA to net income for each applicable period.

Net sales of $1,005.6 million represented an increase of $189.0 million, or 23.1%, for the fifty-two weeks ended August 28, 2021 compared to the fifty-two weeks ended August 29, 2020.

This increase was primarily attributable to the Quest brand, which increased our North America net sales by 20.4% due to Quest’s full-year inclusion in our results of operations in fiscal year 2021 as compared to Quest’s partial inclusion in our results of operations in the prior fiscal year due to the timing of the Quest Acquisition closing as well as post-acquisition Quest brand sales volume growth.

The remaining increase in net sales was attributed to sales volume growth in our Atkins brand, which was driven by increased consumer mobility in fiscal year 2021 as compared to the prior fiscal year 2020 related to COVID-19 movement restrictions, and international sales.

The increase in net sales was partially offset by decreased sales volume of approximately 1.5% related to the SimplyProtein Sale and the restructuring-related business activities in Europe in fiscal year 2021.

Cost of goods sold.

Cost of goods sold for the fifty-three week period ended August 31, 2019 were $306.0 million compared to $251.1 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.

Cost of goods sold increased $103.5 million, or 21.0%, for the fifty-two weeks ended August 28, 2021 compared to the fifty-two weeks ended August 29, 2020.

The increase in cost of goods sold was driven by sales volume growth primarily attributable to the Quest brand as discussed above, partially offset by the effect of the $7.5 million non-cash inventory step-up related to the Quest Acquisition recorded in fiscal year 2020.

As previously discussed above in “Supply Chain,” we expect to have higher raw material and freight costs in fiscal year 2022, and as such management notified our customers in June 2021 of our plans to institute a price increase effective in September 2021, the first month of our fiscal year 2022.

Management believes the price increase and productivity initiatives will enable us to continue to invest in projects that drive growth.

Gross profit.

Gross profit decreased 30 basis points from 41.8% of net sales for the fifty-two week period ended August 25, 2018 to 41.5% of net sales for the fifty-three week period ended August 31, 2019 .

Gross margin was effected by non-price related customer activity that was a shift from selling and marketing expenses.

Gross profit increased $85.4 million, or 26.3%, for the fifty-two weeks ended August 28, 2021 compared to the fifty-two weeks ended August 29, 2020, which was primarily driven by the sales volume growth attributable to the Quest brand as discussed above and the $7.5 million non-cash inventory step-up related to the Quest Acquisition in fiscal year 2020.

Gross profit of $409.8 million, or 40.7% of net sales, for fiscal year 2021 increased 100 basis points from gross profit of $324.3 million, or 39.7% of net sales, for fiscal year 2020.

The increase in gross profit as a percentage of net sales was primarily the result of the $7.5 million non-cash inventory step-up related to the Quest Acquisition in fiscal year 2020.

Operating expenses.

Operating expenses for the fifty-three week period ended August 31, 2019 were $144.6 million , or 27.6% of net sales, compared to $115.6 million , or 26.8% of net sales, for the fifty-two week period ended August 25, 2018 due to the following:

Operating expenses decreased $10.0 million, or 4.1%, for the fifty-two weeks ended August 28, 2021 compared to the fifty-two weeks ended August 29, 2020 due to the following:

• Selling and marketing .

Selling and marketing expenses increase d $8.4 million , or 14.2% , 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.

Selling and marketing expenses increased $18.5 million, or 19.5%, for the fifty-two weeks ended August 28, 2021 compared to the fifty-two weeks ended August 29, 2020.

The increase was primarily related to Quest’s full-year inclusion in our results of operations in fiscal year 2021 as compared to Quest’s partial inclusion in the prior fiscal year due to the timing of the Quest Acquisition closing.

Furthermore, there was higher selling and marketing spend related to additional brand building initiatives which occurred in fiscal year 2021 as compared to fiscal year 2020.

These increases were partially offset by decreased selling and marketing expenses related to the SimplyProtein Sale and the restructuring-related business activities in Europe.

• General and administrative .

General and administrative expenses increase d $12.3 million , or 24.9% , for the fifty-three week period ended August 31, 2019 compared to the fifty-two week period ended August 25, 2018 .

The increase was due to higher incentive compensation of $5.3 million, internal resource investments of $3.3 million, and a legal settlement of $3.5 million.

General and administrative expenses decreased $0.1 million, or 0.1%, for the fifty-two weeks ended August 28, 2021 compared to the fifty-two weeks ended August 29, 2020.

The decrease was primarily attributable to reductions in costs related to the integration of Quest of $7.8 million and restructuring charges of $1.2 million.

These decreases were offset by increased general and administrative expenses primarily related to Quest’s full-year inclusion in our results of operations in fiscal year 2021 as compared to Quest’s partial inclusion in the prior fiscal year due to the timing of the Quest Acquisition closing as well as increased stock-based compensation expense of $0.6 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 .

Depreciation and amortization expenses increased $1.7 million, or 11.3%, for the fifty-two weeks ended August 28, 2021 compared to the fifty-two weeks ended August 29, 2020.

The increase was primarily due to Quest’s full-year inclusion of amortization expense in fiscal year 2021 related to intangible assets recognized as part of the Quest Acquisition as compared to its partial inclusion in the prior fiscal year 2020.

• Business transaction costs .

Business transaction costs increase d $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.

There were no business transaction costs for the fifty-two weeks ended August 28, 2021.

Business transaction costs were $27.1 million for the fifty-two weeks ended August 29, 2020 and comprised expenses related to the Quest Acquisition.

• Loss on impairment .

There was no loss on impairment for the fifty-two weeks ended August 28, 2021.

Loss on impairment was $3.0 million in the fifty-two weeks ended August 29, 2020 and related to the impairment of the SimplyProtein brand intangible asset.

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 income decreased $1.4 million for the fifty-two weeks ended August 28, 2021 compared to the fifty-two weeks ended August 29, 2020 primarily due to $195.3 million of cash on hand being utilized for the Quest Acquisition in the first quarter of fiscal year 2020 and lower market 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.

Interest expense decreased $1.3 million for the fifty-two weeks ended August 28, 2021 compared to the fifty-two weeks ended August 29, 2020 primarily due to principal payments reducing the outstanding balance of the Term Facility (as defined below).

We funded the Term Facility in the amount of $460.0 million to partially finance the Quest Acquisition in the first quarter of fiscal 2020, and we made principal repayments of $50.0 million during fiscal year 2020.

In fiscal year 2021, we made additional principal payments of $150.0 million.

The decrease in interest expense was partially offset by a $1.1 million increase in amortization of deferred financing costs and debt discount, which was $4.6 million for the fifty-two weeks ended August 28, 2021 compared to $3.5 million for the fifty-two weeks ended August 29, 2020.

(Loss) gain in fair value change of warrant liability .

During the fifty-two weeks ended August 28, 2021 and the fifty-two weeks ended August 29, 2020, we recorded a non-cash loss of $66.2 million and a non-cash gain of $30.9 million, respectively, related to changes in valuation of our liability-classified warrants issued through a private placement (“Private Warrants”), which is primarily driven by movements in our stock price and volatility measurements.

Gain on legal settlement.

The Company recorded a $5.0 million gain on a legal settlement during the fifty-two weeks ended August 28, 2021.

(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 $16.8 million compared to income tax benefit of $17.4 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 income was $47.5 million for the fifty-three week period ended August 31, 2019 , a decrease of $22.9 million , or 32.5% , compared to net income of $70.5 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 $98.7 million compared to $78.6 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.

Reconciliation of Adjusted EBITDA

An immaterial loss on foreign currency transactions was recorded for the fifty-two weeks ended August 28, 2021 compared to a foreign currency gain of $0.7 million for the fifty-two weeks ended August 29, 2020.

The variance primarily relates to changes in foreign currency rates related to our international operations.

Income tax expense.

Income tax expense increased $26.7 million for the fifty-two weeks ended August 28, 2021 compared to the fifty-two weeks ended August 29, 2020.

The increase in our income tax expense is primarily driven by higher income from operations, partially offset by changes in permanent differences.

Net income (loss).

Net income was $40.9 million for the fifty-two weeks ended August 28, 2021, a decrease of $24.8 million, compared to net income of $65.6 million for the fifty-two weeks ended August 29, 2020.

The decrease in net income was primarily driven by the non-cash fair value loss in the current period compared to a fair value gain in the prior period related to the measurement of our liability-classified Private Warrants, and also the increase to our income tax expense for the fiscal year 2021 as compared to the fiscal year 2020, which was partially offset by increased income from operations as discussed above.

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 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.

Adjusted EBITDA increased $53.4 million, or 34.7%, for the fifty-two weeks ended August 28, 2021 compared to the fifty-two weeks ended August 29, 2020, driven primarily by sales volume growth for both brands and Quest’s full-year inclusion in our results of operations in fiscal year 2021 as compared to Quest’s partial inclusion in fiscal year 2020 as discussed above.

For a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, see “Reconciliation of EBITDA and Adjusted EBITDA” below.

Reconciliation of EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are non-GAAP financial measures commonly used in our industry and should not be construed as alternatives to net income as an indicator of operating performance or as alternatives to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP).

Simply Good Foods defines EBITDA as net income or loss before interest income, interest expense, income tax expense, depreciation and amortization, and Adjusted EBITDA as further adjusted to exclude the following items:

business transaction costs, stock-based compensation expense, inventory step-up, integration costs, restructuring costs, non-core legal costs, gain or loss in fair value change of warrant liability, gain or loss due to legal settlements, and other non-core expenses.

The Company believes that EBITDA and Adjusted EBITDA, when used in conjunction with net income, are useful to provide additional information to investors.

Management of the Company uses EBITDA and Adjusted EBITDA to supplement net income because these measures reflect operating results of the on-going operations, eliminate items that are not directly attributable to the Company’s underlying operating performance, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to the key metrics the Company’s management 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 :

Adjusted EBITDA Reconciliation:

52-Weeks Ended

53-Weeks Ended

52-Weeks Ended

(In thousands)

August 29, 2020

August 31, 2019

August 25, 2018

Interest expense

The following unaudited table provides a reconciliation of EBITDA and Adjusted EBITDA to its most directly comparable GAAP measure, which is net income, for the fifty-two weeks ended August 28, 2021 and the fifty-two weeks ended August 29, 2020:

52-Weeks Ended 52-Weeks Ended

(In thousands) August 28, 2021 August 29, 2020

Net income $ 40,880 $ 65,638

Interest income (84) (1,516)

Income tax expense (benefit)

Interest expense 31,557 32,813

Income tax expense 39,980 13,326

Depreciation and amortization 18,174 16,007

EBITDA 130,507 126,268

Business transaction costs — 27,125

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Non-core legal costs — 718

Loss (gain) in fair value change of contingent consideration - TRA liability

Gain on settlement of TRA

Loss (gain) in fair value change of warrant liability 66,197 (30,938)

Gain on legal settlement (5,000) —

Adjusted EBITDA $ 207,273 $ 153,912

(1) Other items consist principally of exchange impact of foreign currency transactions, frozen licensing media and other expenses.

Reconciliation of Adjusted Diluted Earnings Per Share

Adjusted Diluted Earnings Per Share .

Adjusted Diluted Earnings Per Share is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to diluted earnings per share as an indicator of operating performance.

Simply Good Foods defines Adjusted Diluted Earnings Per Share as diluted earnings per share before depreciation and amortization, business transaction costs, stock-based compensation expense, inventory step-up, integration costs, restructuring costs, non-core legal costs, change in fair value of contingent consideration - TRA liability, gain on settlement of TRA liability and other non-core expenses, on a theoretical tax effected basis of such adjustments at an assumed statutory rate and adjusting for the effects of the Tax Cuts and Job Act tax reform.

The Company believes that the inclusion of these supplementary adjustments in presenting Adjusted Diluted Earnings per Share, when used in conjunction with diluted earnings per share, are appropriate to provide additional information to investors, and management of the Company uses Adjusted Diluted Earnings Per Share to supplement diluted earnings per shares 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 Diluted Earnings per Share is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in its industry .

Adjusted Diluted Earnings per Share 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 Diluted Earnings Per Share to its most directly comparable GAAP measure, which is diluted earnings per share, 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 :

52-Weeks Ended

53-Weeks Ended

52-Weeks Ended

Adjusted Diluted Earnings Per Share Reconciliation:

August 29, 2020

August 31, 2019

August 25, 2018

Diluted earnings per share

Depreciation and amortization

Business transaction costs

Stock-based compensation expense

Inventory step-up

Integration of Quest

Restructuring

Non-core legal costs

Loss (gain) in fair value change of contingent consideration - TRA liability

Gain on settlement of TRA liability

Tax Cuts and Jobs Act tax benefit

Adjusted diluted earnings per share

(1) Other items consist principally of exchange impact of foreign currency transactions, frozen licensing media and other expenses.

(2) Adjusted Diluted Earnings Per Share amounts are computed independently for each quarter.

Therefore, the sum of the quarterly Adjusted Diluted Earnings Per Share amounts may not equal the year to date Adjusted Diluted Earnings Per Share amounts due to rounding.

(1) Other items consist principally of exchange impact of foreign currency transactions and other expenses.

Liquidity and Capital Resources

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 .

Our principal uses of cash have been working capital, debt service, and the Quest Acquisition.

We had $75.3 million in cash as of August 28, 2021.

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.

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We make no assurance that we can issue and sell such securities on acceptable terms or at all.

Our material future cash requirements from contractual and other obligations relate primarily to our principal and interest payments for our Term Facility, as discussed below, and our operating and finance leases.

Refer to Note 7, Long-Term Debt and Line of Credit, and Note 10, Leases, of the Consolidated Financial Statements included in Item 8 of this Report for additional information related to the expected timing and amount of payments related to our contractual and other obligations.

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.

The Credit Agreement at that time provided 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 Business Combination, 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%, or (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.

The Simply Good Foods Company is not a borrower under the Credit Agreement and has not provided a guarantee of the Credit Agreement.

Simply Good Foods USA, Inc., is the administrative borrower and certain other subsidiary holding companies are co-borrowers under the Credit Agreement.

Each of our domestic subsidiaries that is not a named borrower under the Credit Agreement has provided a guarantee on a secured basis.

As security for the payment or performance of the debt under the Credit Agreement, the borrowers and the guarantors have pledged certain equity interests in their respective subsidiaries and granted the lenders a security interest in substantially all of their domestic assets.

All guarantors other than Quest Nutrition, LLC are holding companies with no assets other than their investments in their respective subsidiaries.

On March 16, 2018 (the “Amendment Date”), we entered into an amendment (the “Repricing Amendment”) to the Credit Agreement.

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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 .

No additional debt was incurred or any proceeds received by us 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 a second 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.

The Incremental Facility Amendment was executed to partially finance the Quest Acquisition.

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.

The incremental term loans will mature on the maturity date applicable to the Initial Term Loans, which is July 7, 2024.

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 6.00:1.00 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 were in compliance with all financial covenants as of August 28, 2021 and August 29, 2020, respectively.

As of August 28, 2021, the outstanding balance of the Term Facility was $456.5 million.

We are not required to make principal payments on the Term Facility over the twelve months following the period ended August 28, 2021.

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.

The outstanding balance of the Term Facility is due upon its maturity in July 2024.

As of August 28, 2021, there were no amounts drawn against the Revolving Credit Facility.

3 unchanged sentences

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.

Acquisition of Quest

The net proceeds were used to pay a portion of the purchase price and related fees and expenses for the Quest Acquisition.

Quest Acquisition

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.

On November 7, 2019, pursuant to the Purchase Agreement, Simply Good USA completed the Quest Acquisition, for a cash purchase price of approximately $1.0 billion, subject to customary post-closing adjustments.

The Quest Acquisition 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 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.

Equity Warrants

Business transaction costs within the Consolidated Statements of Operations and Comprehensive Income (Loss) for the fifty-two weeks ended August 29, 2020 was $27.1 million, which included $14.5 million of transaction advisory fees related to the Quest Acquisition, $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.

Warrants to Purchase Common Stock

As a result of the Business Combination with Conyers Park Sponsor, LLC, we assumed 13,416,667 public warrants and 6,700,000 Private Warrants, exercisable for common stock of Simply Good Foods.

Refer to Note 12, Stockholders’ Equity of the Consolidated Financial Statements included in Item 8 of this Report for additional details regarding our public and Private Warrants.

As of August 28, 2021, 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.

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.

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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.

1 unchanged sentence

All remaining public warrants were redeemed as of November 5, 2018 for an immaterial amount.

As of August 29, 2020 , our private warrants to purchase 6,700,000 shares of common stock remain outstanding.

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

The following table sets forth the major sources and uses of cash for the fifty-two weeks ended August 28, 2021 and the fifty-two weeks ended August 29, 2020.

A discussion regarding the major sources and uses of cash for the fifty-three weeks ended August 31, 2019 can be found under Item 7 of our Annual Report on Form 10-K/A for the fiscal year ended August 29, 2020, filed with the SEC on June 30, 2021.

52-Weeks Ended 52-Weeks Ended

(In thousands)

August 29, 2020

August 31, 2019

August 25, 2018

August 28, 2021 August 29, 2020

Net cash provided by operating activities

$ 132,089 $ 58,921

Net cash used in investing activities

Net cash provided by (used in) financing activities

$ (2,506) $ (983,994)

Net cash (used in) provided by financing activities $ (150,049) $ 754,652

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 significant business transaction and integration costs as well as changes in working capital.

The decrease was partially offset by increased cash from operations related to the Acquisition of Quest.

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.

Our net cash provided by operating activities increased $73.2 million to $132.1 million for the fifty-two weeks ended August 28, 2021 compared to $58.9 million for the fifty-two weeks ended August 29, 2020.

The increase in cash provided by operating activities was primarily attributable to higher operating income driven by (i) the Quest® brand sales volume growth, which increased our North America net sales by 20.4% due to Quest’s full-year inclusion in our results of operations in fiscal year 2021 as compared to Quest’s partial inclusion in our results of operations in the prior fiscal year due to the timing of the Quest Acquisition as well as post-acquisition Quest brand sales volume growth and (ii) significant reductions in cash outlays and changes in working capital related to the Quest Acquisition, including decreased business transaction costs of $27.1 million and decreased integration costs of $7.8 million in the fifty-two weeks ended August 28, 2021 as compared to the fifty-two weeks ended August 29, 2020.

Additionally, in the fifty-two weeks ended August 28, 2021 we received $5.0 million related to a gain on legal settlement and reduced our cash paid for interest by $2.2 million as compared to the fifty-two weeks ended August 29, 2020 due to significant principal payments made to reduce the outstanding balance of the Term Facility, as discussed in Financing Activities below.

These increases in cash provided by operating activities were partially offset by (i) increased cash paid for taxes of $27.7 million in the fifty-two weeks ended August 28, 2021 as compared to the fifty-two weeks ended August 29, 2020 and (ii) an increase in $5.7 million cash payments made for restructuring-related costs, predominately composed of termination benefits and severance payments, in the fifty-two weeks ended August 28, 2021 as compared to the fifty-two weeks ended August 29, 2020.

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.

Our net cash used in investing activities decreased to $2.5 million for the fifty-two weeks ended August 28, 2021 compared to $984.0 million of net cash used in investing activities for the fifty-two weeks ended August 29, 2020.

Our net cash used in investing activities for the fifty-two weeks ended August 28, 2021 primarily comprised $5.9 million of purchases of property and equipment and the issuance of a $1.6 million note receivable, which was partially offset by the $5.8 million of cash proceeds received from the SimplyProtein Sale.

The $984.0 million of net cash used in investing activities for the fifty-two weeks ended August 29, 2020 primarily comprised the cash paid for the Quest Acquisition of $982.1 million, net of cash acquired.

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)

Long-term debt obligations

Operating leases (1)

Finance leases (2)

_______________

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.

Finance lease payments include both the principal and interest portions of the payments.

Our net cash used in financing activities was $150.0 million for the fifty-two weeks ended August 28, 2021 compared to net cash provided by financing activities of $754.7 million for the fifty-two weeks ended August 29, 2020.

Net cash used in financing activities for the fifty-two weeks ended August 28, 2021 primarily consisted of $150.0 million in principal payments on the Term Facility, an increase of $100.0 million compared to the prior year.

Our net cash provided by financing activities for the fifty-two weeks ended August 29, 2020 included 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 weeks ended August 29, 2020 was offset by $50.0 million of principal payments on the Term Facility and $25.0 million of repayments of the Revolving Credit Facility.

Critical Accounting Policies, Judgments and Estimates

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.

While the majority of our revenue, expenses, assets and liabilities are not based on estimates, there are certain accounting principles that require 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.

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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.

Although some payment terms may be longer, 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.

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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 valuation techniques in accordance with ASC Topic 820, Fair Value Measurements, as of the closing date.

On November 7, 2019, pursuant to the Purchase Agreement, we completed the Quest Acquisition for a cash purchase price of approximately $1.0 billion, subject to customary post-closing adjustments.

The Quest Acquisition was accounted for using the acquisition method of accounting prescribed by Accounting Standards 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 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.

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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.

We completed our final fair value determination of the assets acquired and liabilities assumed in the Quest Acquisition during the first quarter of fiscal 2021.

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.

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 perform our goodwill impairment assessment for each reporting unit that has goodwill, which for fiscal years 2021 and 2020 consists of both of our operating segments, Atkins and Quest.

In fiscal year 2019, we had one operating segment, Atkins.

Our brands and trademarks comprise our indefinite-lived intangibles.

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.

If we determine that it is more likely than not that the fair value of a reporting unit or an indefinite-lived intangible asset 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

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 .

The quantitative approach compares the estimated fair value of the reporting unit, including goodwill, or the indefinite-lived intangible asset to its carrying amount.

The material inputs and assumptions underlying the quantitative assessments of goodwill and intangible impairment are based on operational forecasts derived from expectations of future operating performance, which require considerable management judgment regarding matters that are uncertain and susceptible to change.

Impairment is indicated if the estimated fair value of the reporting unit or indefinite-lived intangible asset is less than the carrying amount, and an impairment charge is recognized for the differential.

For fiscal year 2021, we performed qualitative assessments of goodwill and indefinite-lived intangible assets.

The qualitative assessments did not identify indicators of impairment, and it was determined that it was more likely than not each reporting unit and indefinite-lived intangible had fair values in excess of their carrying values.

Additionally, we determined there was not a material risk for future possible impairments as of the date of the assessment.

For fiscal year 2020, we elected to bypass the qualitative assessment and proceed directly to performing the first step of the quantitative goodwill impairment assessment for each reporting unit.

We performed the first step of the quantitative goodwill impairment assessment by comparing the fair value of each of our reporting units, Atkins and Quest, to its carrying amount, including goodwill.

The estimated fair values of the Atkins and Quest reporting units substantially exceeded their carrying values.

We determined neither reporting unit was impaired, therefore, no impairment charges related to goodwill were recorded in the fifty-two weeks ended August 29, 2020.

Additionally, for fiscal year 2020, we elected to qualitatively assess for impairment the indefinite-lived intangible related to our Quest brand and trademark.

The qualitative assessment indicated that it was more likely than not that the Quest brand and trademark indefinite-lived intangible’s fair value exceeded its carrying amount, and as a result we did not perform a quantitative assessment.

For our indefinite-lived brand and trademark intangible related to our Atkins brand, we elected to bypass the qualitative assessment and proceed directly to performing the quantitative impairment assessment.

The estimated fair value of the Atkins brand and trademark indefinite-lived intangible substantially exceeded its carrying value.

During the fourth quarter of fiscal 2020, we determined there were indicators of impairment related to the SimplyProtein brand intangible asset, including but not limited to an offer to sell the SimplyProtein brand.

Therefore, we performed a quantitative assessment of our brand intangible asset, which indicated the fair value did not exceed the carrying value, resulting in a loss on impairment of $3.0 million in the fifty-two weeks ended August 29, 2020.

For fiscal year 2019, we elected to perform quantitative assessments of goodwill for the Atkins reporting unit and our indefinite-lived intangible assets, and the estimated fair values substantially exceeded their carrying values.

We determined neither reporting unit was impaired, therefore, no impairment charges related to goodwill or indefinite-lived intangibles were recognized in the fifty-three weeks ended August 31, 2019.

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.

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 28, 2021, August 29, 2020 and August 31, 2019, we did not identify indicators of impairment related to our finite-lived intangible assets, and as such there were no impairments recorded related to finite-lived intangible assets.

We also determined that there was no material risk for future possible intangible impairments related to our finite-lived intangible assets as of the dates of the assessments.

We are subject to income taxes in the United States and numerous other jurisdictions.

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Significant management judgment is required in determining the effective tax rate, evaluating tax positions and determining the net realizable value of deferred tax assets.

Warrant Liability

We account for our Private Warrants as a derivative warrant liability in accordance with ASC Topic 815-40, Derivatives and Hedging:

Contracts in Entity’s Own Equity.

Accordingly, we recognize the Private Warrants as a liability at fair value and adjust the Private Warrants to fair value at each reporting period through other income.

We utilize the Black-Scholes option-pricing valuation model (“Black-Scholes 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 expected volatility, the determination of which requires significant judgment.

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, Simply Good Foods’ implied volatility based on traded options, the implied volatility of comparable 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.

Historically, expected volatility has been a key assumption or input to the valuation of the Private Warrants.

However, as the Private Warrants approach their expiration, changes in the expected volatility assumption have less impact on the Black-Scholes model valuation.

As of August 28, 2021, changes in the expected volatility assumption of 10% insignificantly affected the estimated fair value of the Private Warrants.

New Accounting Pronouncements

The adoption of ASC Topic 842 resulted in a change to our lease accounting policy, as discussed in Note 11 of our Consolidated Financial Statements included herein.

Refer to Note 3 , Summary of Significant Accounting Policies , of our Consolidated Financial Statements in this Report for further information regarding recently issued accounting standards.

Refer to Note 2, Summary of Significant Accounting Policies, of our Consolidated Financial Statements in this Report for information regarding recently issued accounting standards.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis