UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 29, 2020

~~For the quarterly period ended November 25, 2017~~

OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission File Number: 001-38115

___________________________________________________________________________________________________________

The Simply Good Foods Company

(Exact name of registrant as specified in its charter)



Delaware		82-1038121
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~1050~~1225 17th Street, Suite ~~1500~~1000

Denver, CO ~~80265~~80202

(Address of principal executive offices and zip code)

~~(303)~~ (303) 633-2840

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	SMPL	Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Website, if any,~~ every Interactive Date File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐☒	Accelerated filer	☐
Non-accelerated filer	ý ~~(Do not check if a smaller reporting company)~~ ☐	Smaller reporting company	☐
		Emerging growth company	ý☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.ý☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of ~~January 8, 2018,~~April 3, 2020, there were ~~70,582,573~~95,378,514 shares of common stock, par value $0.01 per share, issued and outstanding.

~~The Simply Good Foods Company and Subsidiaries~~

THE SIMPLY GOOD FOODS COMPANY AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED ~~NOVEMBER 25, 2017~~FEBRUARY 29, 2020

INDEX



		Page
PART ~~I -~~I. Financial Information
Item 1.	Financial Statements (Unaudited):	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Income	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Statements of Stockholders’ Equity	7
	Notes to Unaudited Condensed Consolidated Financial Statements	68
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1824
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2935
Item 4.	Controls and Procedures	2935
PART ~~II -~~II. Other Information
Item 1.	Legal Proceedings	3036
Item 1A.	Risk Factors	3036
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3036
Item 3.	Defaults Upon Senior Securities	3136
Item 4.	Mine Safety Disclosures	3136
Item 5.	Other Information	3136
Item 6.	Exhibits	3137
	Signatures	3238

~~Part~~PART I. Financial Information

Item 1. Financial Statements (Unaudited)

The Simply Good Foods Company and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited, dollars in thousands, except share data)


	November 25, 2017			August 26, 2017			February 29, 2020			August 31, 2019
Assets	(Successor)			(Successor)
Current assets:
Cash and cash equivalents	$	62,875		$	56,501		$	46,115		$	266,341
Accounts receivable, net	43,583			37,181			89,966			44,240
Inventories	31,665			29,062			79,552			38,085
Prepaid expenses	3,338			2,904			5,183			2,882
Other current assets	8,918			8,263			14,818			6,059
Total current assets	150,379			133,911			235,634			357,607

Long-term assets:
Property and equipment, net	2,457			2,105			12,008			2,456
Intangible assets, net	317,522			319,148			1,149,410			306,139
Goodwill	466,787			465,030			570,716			471,427
Other long-term assets	2,294			2,294			33,580			4,021
Total assets	$	939,439		$	922,488		$	2,001,348		$	1,141,650

Liabilities and stockholders' equity
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	17,455		$	14,859		$	38,018		$	15,730
Accrued interest	531			561			1,868			1,693
Accrued expenses and other current liabilities	14,524			15,042			34,139			29,933
Current portion of TRA liability	2,611			2,548
Current maturities of long-term debt	711			234			264			676
Total current liabilities	35,832			33,244			74,289			48,032

Long-term liabilities:
Long-term debt, less current maturities	191,701			191,856			624,076			190,259
Long-term portion of TRA liability	23,706			23,127
Deferred income taxes	78,680			75,559			77,683			65,383
Other long-term liabilities							28,267			532
Total liabilities	329,919			323,786			804,315			304,206
See commitments and contingencies (Note 8)
See commitments and contingencies (Note 10)

Stockholders' equity:
Stockholders’ equity:
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued	—			—			—			—
Common stock, $0.01 par value, 600,000,000 shares authorized, 70,582,573 and 70,562,477 issued and outstanding, respectively	706			706
Common stock, $0.01 par value, 600,000,000 shares authorized, 95,476,537 and 81,973,284 issued at February 29, 2020 and August 31, 2019, respectively							955			820
Treasury stock, 98,234 and 98,234 shares at cost at February 29, 2020 and August 31, 2019, respectively							(2,145		)	(2,145		)
Additional paid-in-capital	611,437			610,138			1,087,506			733,775
Accumulated deficit	(1,943		)	(12,161		)
Accumulated other comprehensive (loss) income	(680		)	19
Total stockholders' equity	609,520			598,702
Total liabilities and stockholders' equity	$	939,439		$	922,488
Retained earnings							111,694			105,830
Accumulated other comprehensive loss							(977		)	(836)
Total stockholders’ equity							1,197,033			837,444
Total liabilities and stockholders’ equity							$	2,001,348		$	1,141,650

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

The Simply Good Foods Company and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

(Unaudited, dollars in thousands, except share and per share data)


	Thirteen Weeks Ended			Thirteen Weeks Ended
	November 25, 2017			November 26, 2016			Thirteen Weeks Ended						Twenty-Six Weeks Ended
	(Successor)			(Predecessor)			February 29, 2020			February 23, 2019			February 29, 2020			February 23, 2019
Net sales	$	106,587		$	99,803		$	227,101		$	123,800		$	379,254		$	244,731
Cost of goods sold	53,830			51,091			141,707			74,145			231,654			143,156
Gross profit	52,757			48,712			85,394			49,655			147,600			101,575

Operating Expenses:
Distribution	4,817			4,369
Selling	3,903			4,293
Marketing	9,850			9,206
Operating expenses:
Selling and marketing							27,041			14,729			45,475			30,048
General and administrative	12,079			9,931			28,103			13,732			46,248			25,730
Depreciation and amortization	1,934			2,453			4,287			1,902			6,740			3,751
Change in fair value of contingent consideration - TRA liability	642			—
Other expense	246			—
Business transaction costs							694			290			26,853			1,329
Loss in fair value change of contingent consideration - TRA liability							—			—			—			533
Total operating expenses	33,471			30,252			60,125			30,653			125,316			61,391

Income from operations	19,286			18,460			25,269			19,002			22,284			40,184

Other income (expense):
Change in warrant liabilities	—			722
Other (expense) income:
Interest income							85			884			1,464			1,665
Interest expense	(3,019		)	(7,063		)	(10,589		)	(3,344		)	(15,558		)	(6,605		)
Gain on settlement of TRA liability							—			—			—			1,534
Gain (loss) on foreign currency transactions	355			(610		)	(194		)	130			(178		)	(268		)
Other income	86			177			8			77			45			121
Total other expense	(2,578		)	(6,774		)	(10,690		)	(2,253		)	(14,227		)	(3,553		)

Income before income taxes	16,708			11,686			14,579			16,749			8,057			36,631
Income tax expense	6,490			4,899			3,922			4,027			2,193			8,652
Net income	$	10,218		$	6,787		$	10,657		$	12,722		$	5,864		$	27,979

Other comprehensive income:
Foreign currency translation adjustments	(699		)	303			(141		)	(179		)	(141		)	(37		)
Comprehensive income	$	9,519		$	7,090		$	10,516		$	12,543		$	5,723		$	27,942

Earnings per share from net income:
Basic	$	0.14					$	0.11		$	0.16		$	0.06		$	0.35
Diluted	$	0.14					$	0.11		$	0.15		$	0.06		$	0.33
Weighted average shares outstanding:
Basic	70,571,008						95,339,489			81,900,352			92,524,061			79,595,330
Diluted	71,240,590						100,336,571			85,350,196			97,597,614			84,062,479

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

The Simply Good Foods Company and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)


	Thirteen Weeks Ended			Thirteen Weeks Ended
	November 25, 2017			November 26, 2016			Twenty-Six Weeks Ended
	(Successor)			(Predecessor)			February 29, 2020			February 23, 2019
Operating activities
Net income	$	10,218		$	6,787		$	5,864		$	27,979
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,934			2,453			7,119			3,825
Amortization of deferred financing costs and debt discount	322			491			1,569			668
Stock compensation expense	1,068			526			3,795			2,478
Change in warrant liabilities	—			(722		)
Change in fair value of contingent consideration - TRA liability	642			—
Loss on fair value change of contingent consideration - TRA liability							—			533
Gain on settlement of TRA liability							—			(1,534		)
Unrealized (gain) loss on foreign currency transactions	(355		)	610			178			268
Deferred income taxes	3,125			4,712			2,485			8,463
Changes in operating assets and liabilities:
Loss on disposal of property and equipment							—			6
Amortization of operating lease right-of-use asset							1,652			—
Other							789			—
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable, net	(6,985		)	6,910			(19,062		)	(8,774		)
Inventories	(2,688		)	3,908			768			(15,855		)
Prepaid expenses	(375		)	(815		)	(873		)	(384		)
Other current assets	53			(3,692		)	(5,808		)	(2,092		)
Accounts payable	2,627			(7,143		)	(2,953		)	6,143
Accrued interest	(30		)	205			175			1,949
Accrued expenses and other current liabilities	(767		)	(5,628		)	(8,760		)	(1,810		)
Other	44			33
Net cash provided by operating activities	8,833			8,635
Other assets and liabilities							(1,824		)	(32		)
Net cash (used in) provided by operating activities							(14,886		)	21,831

Investing activities
Purchases of property and equipment	(661		)	(41		)	(481		)	(887		)
Issuance of note receivable							(1,250		)	—
Acquisition of business, net of cash acquired	(1,757		)	—			(984,201		)	—
Cash withdrawn from trust account	—			—
Net cash used in investing activities	(2,418		)	(41		)
Net cash (used in) investing activities							(985,932		)	(887		)

Financing activities
Proceeds from option exercises	—			109			931			361
Tax payments related to issuance of restricted stock units							(80		)	(5		)
Payments on finance lease obligations							(157		)	—
Cash received from warrant exercises							—			113,464
Repurchase of common stock							—			(127		)
Settlement of TRA liability							—			(26,468		)
Principal payments of long-term debt							(21,000		)	(1,000		)
Proceeds from issuance of common stock							352,542			—
Equity issuance costs							(3,323		)	—
Proceeds from issuance of long term debt							460,000			—
Deferred financing costs							(8,208		)	—
Net cash provided by financing activities	—			109			780,705			86,225

Cash and cash equivalents
Net increase in cash	6,415			8,703
Net (decrease) increase in cash							(220,113		)	107,169
Effect of exchange rate on cash	(41		)	(205		)	(113		)	(243		)

Cash at beginning of period	56,501			78,492			266,341			111,971
Cash and cash equivalents at end of period	$	62,875		$	86,990		$	46,115		$	218,897

Supplemental disclosures of cash flow information
Cash paid for interest $ 2,727
$ 6,282
Cash paid for taxes $ 341
$ 5
5

Table of Contents



	Twenty-Six Weeks Ended
	February 29, 2020		February 23, 2019
Supplemental disclosures of cash flow information
Cash paid for interest	$	13,814	$	3,988
Cash paid for taxes	$	4,345	$	420
Non-cash investing and financing transaction
Operating lease right-of-use assets recognized at ASU No 2016-02 transition	$	5,102	$	—
Finance lease right-of-use assets recognized at ASU No 2016-02 transition	$	1,185	$	—
Operating lease right-of-use assets recognized after ASU No 2016-02 transition	$	2,733	$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

The Simply Good Foods Company and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited, dollars in thousands, except share data)



	Common Stock			Treasury Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Shares	Amount		Shares	Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at August 31, 2019	81,973,284	$	820	98,234	$	(2,145	)	$	733,775		$	105,830		$	(836	)	$	837,444
Net loss	—	—		—	—			—			(4,793		)	—			(4,793		)
Stock-based compensation	—	—		—	—			1,673			—			—			1,673
Foreign currency translation adjustments	—	—		—	—			—			—			—			—
Public equity offering	13,379,205	134		—	—			349,085			—			—			349,219
Shares issued upon vesting of Restricted Stock Units	46,911	—		—	—			(70		)	—			—			(70		)
Exercise of options to purchase common stock	17,372	—		—	—			208			—			—			208
Balance at November 30, 2019	95,416,772	$	954	98,234	$	(2,145	)	$	1,084,671		$	101,037		$	(836	)	$	1,183,681
Net income	—	—		—	—			—			10,657			—			10,657
Stock-based compensation	—	—		—	—			2,122			—			—			2,122
Foreign currency translation adjustments	—	—		—	—			—			—			(141		)	(141		)
Shares issued upon vesting of Restricted Stock Units	771	—		—	—			(10		)	—			—			(10		)
Exercise of options to purchase common stock	58,994	1		—	—			723			—			—			724
Balance at February 29, 2020	95,476,537	$	955	98,234	$	(2,145	)	$	1,087,506		$	111,694		$	(977	)	$	1,197,033



	Common Stock			Treasury Stock				Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
	Shares	Amount		Shares	Amount			Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
Balance at August 25, 2018	70,605,675	$	706	—	$	—		$	614,399		$	58,294	$	(798	)	$	672,601
Net income	—	—		—	—			—			15,257		—			15,257
Stock-based compensation	—	—		—	—			1,061			—		—			1,061
Foreign currency translation adjustments	—	—		—	—			—			—		142			142
Shares issued upon vesting of Restricted Stock Units	67,500	1		—	—			(1		)	—		—			—
Exercise of options to purchase common stock	4,444	—		—	—			53			—		—			53
Warrant Conversion	11,200,299	112		—	—			113,352			—		—			113,464
Balance at November 24, 2018	81,877,918	$	819	—	$	—		$	728,864		$	73,551	$	(656	)	$	802,578
Net income	—	—		—	—			—			12,722		—			12,722
Stock-based compensation	—	—		—	—			1,417			—		—			1,417
Repurchase of common stock	—	—		6,729	(127		)	—			—		—			(127		)
Foreign currency translation adjustments	—	—		—	—			—			—		(179		)	(179		)
Shares issued upon vesting of Restricted Stock Units	505	—		—	—			(5		)	—		—			(5		)
Exercise of options to purchase common stock	36,790	—		—	—			308			—		—			308
Balance at February 23, 2019	81,915,213	$	819	6,729	$	(127	)	$	730,584		$	86,273	$	(835	)	$	816,714

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Notes to Unaudited Condensed Consolidated ~~Interim~~ Financial Statements

(Unaudited, dollars in thousands, except for ~~shares~~share and per share data)

1. Nature of Operations and Principles of Consolidation

Conyers Park Acquisition Corp (“Conyers Park”) was formed on April 20, 2016, as a special purpose acquisition company (“SPAC”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

The Simply Good Foods Company (“Simply Good Foods”), was formed by Conyers Park Acquisition Corp. (“Conyers Park”) on March 30, 2017. On April 10, 2017, Conyers Park and NCP-ATK Holdings, Inc. ~~(“Atkins”) announced that they~~, among others, entered into a definitive merger agreement (the “Merger Agreement”)~~. On~~, pursuant to which on July 7, 2017, ~~(the “Closing Date”), pursuant to the Merger Agreement,~~ Conyers Park merged into Simply Good Foods ~~which acquired Atkins. As~~and as a result ~~both entities became wholly-owned subsidiaries~~acquired the companies which conducted the Atkins® brand business (the “Acquisition of ~~Simply Good Foods. Simply Good Foods was listed on the NASDAQ~~Atkins”). The common stock ~~exchange under the symbol “SMPL” upon the consummation~~ of ~~the transaction (the “Business Combination”). Atkins was formerly owned by Roark Capital Management, LLC (“Roark”).~~

~~The Business Combination resulted in Conyers Park controlling the board of directors of the combined entity. As a result, for accounting purposes,~~ Simply Good Foods is listed on the ~~Business Combination acquirer~~Nasdaq Capital Market under the symbol “SMPL.”

On August 21, 2019, our wholly owned subsidiary Atkins Nutritionals, Inc. (“Atkins”) entered into a Stock and Unit Purchase Agreement (the "Purchase Agreement") to acquire Quest Nutrition, LLC ("Quest"), a healthy lifestyle food company (the "Acquisition of Quest"). On November 7, 2019, pursuant to the ~~accounting “successor” while~~Purchase Agreement, Atkins iscompleted the ~~acquiree~~Acquisition of Quest, via Atkins’ direct or indirect acquisition of 100% of the equity interests of Voyage Holdings, LLC (“Voyage Holdings”), and ~~accounting “predecessor”~~VMG Quest Blocker, Inc. (“Voyage Blocker” and, together with Voyage Holdings, the “Target Companies”) for a cash purchase price of approximately $1.0 billion (subject to customary adjustments for the Target Companies’ levels of cash, indebtedness, net working capital and transaction expenses as of the closing date). ~~Our financial statement presentation includes the~~

The unaudited condensed consolidated financial statements ~~of Atkins as “predecessor” for all periods prior to~~include the ~~Closing Date and~~accounts of Simply Good Foods ~~including the consolidation of Atkins, for periods after the Closing Date, see Note 3 for a detailed discussion of the Business Combination.~~

and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Unless the context otherwise requires, “we,” “us,” “our” and the “Company” refer ~~for periods prior to the completion of the Business Combination, to Atkins and its subsidiaries, and, for periods upon or after the completion of the Business Combination,~~ to Simply Good Foods and its subsidiaries.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in the consolidated financial statements. The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company maintains its accounting records on a 52/53-week fiscal year, ending on the last Saturday in August of each year.

AsDescription of Business

The Simply Good Foods Company is a ~~result~~consumer packaged food and beverage company that aims to lead the nutritious snacking movement with trusted brands that offer a variety of convenient, innovative, great-tasting, better-for-you snacks and meal replacements. The Company’s nutritious snacking platform consists of 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; 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; and SimplyProtein® for consumers looking for protein-enhanced snacks made with fewer, simple ingredients. 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 and broader health-and-wellness food space.

Reclassification of Prior Year Amounts

Certain prior year amounts have been reclassified to conform to the current year presentation including (i) Selling and Marketing expenses, which have been combined as Selling and marketing on the Consolidated Statements of Operations and Comprehensive Income and (ii) other operating expense, which has been combined with General and administrative expense on the Consolidated Statements of Operations and Comprehensive Income.

Unaudited Interim Condensed Consolidated Financial Statements

The interim condensed consolidated financial statements and related notes of the ~~Business Combination, the financial information presented within the~~Company and its subsidiaries are unaudited. The unaudited interim condensed consolidated financial statements have been prepared ~~pursuant to~~in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The ~~accompanying~~unaudited interim condensed consolidated financial statements include condensed consolidated balance sheet information for the successor entity ended November 25, 2017 and August 26, 2017. The remaining financial statements include the successor thirteen week period ended November 25, 2017 and the predecessor thirteen week period ended November 26, 2016.

~~Description of Business~~

Simply Good Foods operates in the healthy snacking category. The Atkins brand focuses on an approach to eating that advocates reduced levels of refined carbohydrates and refined sugars, and encourages the consumption of lean protein, fiber, fruits, vegetables, and good fats. The Company sells a variety of nutrition bars, RTD shakes, snacks and confectionery products designed around the nutrition principles of the Atkins eating approach. In addition to snacking products we have a license arrangement for frozen meals sold in the United States.

~~Seasonality~~

The Company has experienced in the past, and expects to continue to experience, seasonal fluctuations in sales as a result of consumer spending patterns. Historically, sales have been greatest in the first calendar quarter as the Company sells product to retail locations, which sell to consumers in the second fiscal quarter, primarily driven by the post-holiday resolution season. The Company has also seen minimal seasonality in the summer and back-to-school shopping seasons in the third and fourth fiscal quarters, respectively. The period of the lowest sales has historically been the fourth fiscal quarter. The Company believes these consumer spending patterns are driven primarily by the predisposition of consumers to adjust their approach to nutrition at certain times of the year as well as the timing of the Company’s advertising linked with key customer promotion windows.

~~Table of Contents~~

~~Unaudited Interim Condensed Consolidated Financial Statements~~

~~The interim Condensed Consolidated Financial Statements and related notes (“interim statements”) of the Company and its subsidiaries are unaudited. In the opinion of management,~~reflect all adjustments ~~(including normal recurring adjustments)~~ and disclosures which are, in our opinion, necessary for a fair presentation of ~~these interim statements have been included.~~the results of operations, financial position and cash flows for the indicated periods. All such adjustments were of a normal and recurring nature unless otherwise disclosed. The results reported in these unaudited interim condensed consolidated financial statements are not necessarily indicative of the results that may be reported for the entire ~~year. These interim statements~~fiscal year and should be read in conjunction with ~~the Company's Consolidated Financial Statements~~our consolidated financial statements for the fiscal year ended August ~~26, 2017,~~31, 2019, included in our Annual Report on Form 10-K(“Annual Report”), filed with the SEC on ~~November 9, 2017.~~October 30, 2019. The year-end balance sheet data was derived from the audited financial statements and, in accordance with the instructions to Form 10-Q, certain information and footnote disclosures required by ~~United States (“U.S.”) generally accepted accounting principles (“GAAP”)~~GAAP have been condensed or omitted.

Table of Contents

2. Summary of Significant Accounting Policies

Refer to Note 2, Summary of Significant Accounting Policies, to ~~the Consolidated Financial Statements for the fiscal year ended August 26, 2017,~~our consolidated financial statements included in our Annual Report for a description of ~~critical~~significant accounting policies. ~~There have been no significant changes~~

Change in Accounting Principle

During the fourth quarter ended August 31, 2019, the Company changed its accounting principle related to ~~our critical~~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. The Company now presents these expenses within Cost of goods sold in the Consolidated Statements of Operations and Comprehensive Income. In connection with the change in accounting ~~policies since August 26, 2017.~~principle, the Company also changed its 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, the Company only included delivery costs in Distribution. The effect of the adjustment is as follows:



Thirteen Weeks Ended February 23, 2019	As Reported		Change in Accounting Principle and Presentation		Other Operating Expense	As Adjusted
Cost of goods sold	$	66,166	7,979		—	$	74,145
Distribution	$	5,797	(5,797	)	—	$	—
General and administrative	$	15,855	(2,145	)	22	$	13,732
Depreciation and amortization	$	1,939	(37	)	—	$	1,902

Twenty-Six Weeks Ended February 23, 2019	As Reported		Change in Accounting Principle and Presentation		Other Operating Expense	As Adjusted
Cost of goods sold	$	127,986	15,170		—	$	143,156
Distribution	$	11,081	(11,081	)	—	$	—
General and administrative	$	29,724	(4,016	)	22	$	25,730
Depreciation and amortization	$	3,825	(74	)	—	$	3,751

Recently Issued and Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

In ~~May 2014, the~~June 2016, The Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. ~~2014-09,~~ ~~Revenue from Contracts~~2016-13, Financial Instruments—Credit Losses (Topic 326), which modifies disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. This ASU is effective for annual periods beginning after December 15, 2019, with ~~Customers~~.early adoption permitted. The ~~objective~~amendments of this ASU should be applied on a retrospective basis to all periods presented. The Company is currently evaluating the effects adoption of this guidance will have on the consolidated financial statements.

In August 2018, the FASB issued ASU No. ~~2014-09~~2018-13, Fair Value Measurement (Topic 820), which modifies disclosure requirements on fair value measurements of Accounting Standards Codification (“ASC”) 820. This ASU is ~~to outline a new, single comprehensive model to use in accounting~~effective for ~~revenue arising from contracts with customers. The new revenue recognition model provides a five-step analysis~~all entities for determining when and how revenue is recognized, depicting the transfer of promised goods or services to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services. On July 9, 2015, the FASB voted to delay the implementation of ASU No. 2014-09 by one year to fiscal ~~years and interim periods within those~~ years beginning after December 15, ~~2017. An entity may elect~~2019, including interim periods therein. Early adoption is permitted including in any interim period for which financial statements have not yet been issued. Entities are permitted to early adopt ~~as of~~ the ~~original effective date, fiscal years and interim periods within those years beginning after December 15, 2016. In April 2016, the FASB issued ASU No. 2016-10,~~ ~~Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing~~ ~~which provides additional clarification regarding identifying performance obligations and licensing. In December 2016, the FASB issued ASU No. 2016-19, 2016-20,~~ ~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers~~. These ASUs will replace most existing revenue recognition guidance in GAAP and, due to the Business Combination, will be effective for the Company beginning in fiscal 2019. The standard permits the use of either the retrospectiveeliminated or modified ~~retrospective (cumulative effect) transition method~~disclosure requirements and delay the ~~Company has not yet selected which transition method to apply.~~

adoption new disclosure requirements until their effective date. The Company is currently evaluating ~~recently issued guidance on practical expedients as part of~~ the transition decision. Upon initial evaluation, the Company believes the key changes in the standard that impact revenue recognition relate to the recognition of customer programs and incentive offerings, including special pricing agreements, price protection, promotion, and other volume-based incentives. The Company is still in the process of evaluating these impacts.

~~In January 2016, the FASB issued ASU No. 2016-01,~~ ~~Financial Instruments-Overall (Subtopic 825-10).~~ ~~This new standard enhances the reporting model for financial instruments regarding certain aspects of recognition, measurement, presentation, and disclosure. The provisions~~effects adoption of this ~~ASU are effective for annual reporting periods beginning after December 15, 2017,~~guidance will have on the consolidated financial statements and interim reporting periods within those annual periods. This ASU is to be applied using a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. This ASU is effective for the Company’s August 2018 fiscal year end. The Company does not anticipate adoption of this ASU will ~~have a~~be material ~~impact~~ to its consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The amendments of this ASU should be applied on a prospective basis. The Company is currently evaluating the effects adoption of this guidance will have on the consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. In July 2018, the

Table of Contents

FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. ASU 2018-11 provides entities another option for transition, allowing entities to not apply the new standard in the comparative periods they present in their financial statements in the year of adoption. The ~~new guidance is effective~~amendments provide the option for the ~~Company beginning in fiscal 2019. The amendments should~~ASU to be applied at the beginning of the ~~earliest~~ period ~~presented~~adopted using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. ~~The Company is currently evaluating~~

On September 1, 2019, we adopted ASU No. 2016-02, Leases (“Topic 842”) using the ~~effects~~alternative transition method under ASU No. 2018-11, which permits application of the new guidance at the beginning of the period of adoption, with comparative periods continuing to be reporting under Topic 840. Upon adoption of ~~this~~the new standard as of the first day of fiscal 2020, the Company recorded the following within the Condensed Consolidated Balance Sheet: operating lease right of use assets of$5.1 million included within Other long-term assets, current operating lease liabilities of $2.0 million included within Accrued expenses and other current liabilities, long-term operating lease liabilities of $3.8 million included within Other long-term liabilities, finance lease right of use assets of $1.2 million included within Property and equipment, net, current finance lease liabilities of $0.2 million included within Current maturities of long term debt, and long-term finance lease liabilities of $1.0 million included within Long-term debt less current maturities. Following the Acquisition of Quest, the Company recorded the following amounts in the Condensed Consolidated Balance Sheet as of the closing date: operating lease right of use assets of $21.1 million included within Other long-term assets, current operating lease liabilities of $2.0 million included within Accrued expenses and other current liabilities, and long-term operating lease liabilities of $18.9 million included within Other long-term liabilities. The adoption of these ASUs did not result in a cumulative-effect adjustment to the opening balance of retained earnings.

The guidance ~~will have~~provides a number of optional practical expedients in adoption. We elected to adopt the package of practical expedients permitted under the transition guidance within the standard, which among other things, permits us to not reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use-of-hindsight practical expedient or the practical expedient pertaining to land easements, the latter not being applicable to us. In addition, we elected an accounting policy to include both lease and non-lease components as a single component for all asset classes where we are the lessee. For additional information on ~~its consolidated financial statements.~~our leases, see Note 9.

In ~~August 2016,~~June 2018, the FASB issued ASU No. ~~2016-15,Statement of Cash Flows~~2018-07, Compensation – Stock Compensation (Topic ~~230): Classification of Certain Cash Receipts and Cash Payments.~~ ~~The new guidance~~718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to ~~eliminate diversity in practice in how certain cash receipts and cash payments are presented and classified in~~simplify aspects of share-based compensation issued to non-employees by making the ~~statement of cash flows.~~guidance consistent with the accounting for employee share-based compensation. The ~~new standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted~~

~~Table of Contents~~

~~for all entities, provided that all~~Company adopted this ASU as of the ~~amendments are adopted in the same period. The guidance requires application using a retrospective transition method. This ASU is effective for the Company’s August 2019~~first day of fiscal ~~year end.~~ 2020. The ~~Company does not anticipate~~ adoption of this ASU ~~will~~did not have a material ~~impact~~effect on ~~its~~the consolidated ~~statements of cash flows.~~financial statements.

In ~~January 2017,~~August 2018, the FASB issued ASU No. ~~2017-04,~~ ~~Intangibles – Goodwill~~2018-15, Intangibles-Goodwill and ~~other (Topic 350): Simplifying~~Other-Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which aligns the ~~Test~~requirements for ~~Goodwill Impairment~~.capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The ~~standard simplifies how an entity tests goodwill by eliminating Step 2~~Company adopted this ASU as of the ~~goodwill impairment test. The amended standard also modifies the concept~~first day of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. The new guidance is effective for the Company beginning in fiscal 2020. ~~Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.~~ The ~~Company is currently evaluating the impact of the new guidance on its goodwill impairment testing.~~

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805)~~, to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The provisions of this ASU provide a more robust framework to use in determining when a set of assets and activities is a business by clarifying the requirements related to inputs, processes, and outputs. These provisions are to be applied prospectively and are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual periods. This ASU is effective for the Company’s 2019 fiscal year end. The Company does not anticipate adoption of this ASU ~~to be~~did not have a material ~~to its~~effect on the consolidated financial statements.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.~~ The amended standard specifies the modification accounting applicable to any entity which changes the terms or conditions of a share-based payment award. The new guidance is effective for all entities after December 2017. Early adoption is permitted. The Company does not anticipate adoption of this ASU to be material to its consolidated financial statements.

3. Business ~~Combinations~~Combination

On August 21, 2019, Atkins entered into the Purchase Agreement with the Target Companies, VMG Voyage Holdings, LLC, VMG Tax-Exempt II, L.P., Voyage Employee Holdings, LLC, and other sellers defined in the Purchase Agreement. On November 7, 2019, pursuant to the Purchase Agreement, Atkins completed the Acquisition of ~~Atkins~~Quest for a cash purchase price at closing of $988.9 million subject to customary post closing adjustments.

~~Upon~~

Atkins acquired Quest as a part of our vision to lead the ~~consummation~~nutritious snacking movement with trusted brands that offer a variety of convenient, innovative, great-tasting, better-for-you snacks and meal replacements. Quest is a healthy lifestyle food company offering a variety of bars, cookies, chips, ready-to-drink shakes and pizzas that compete in many of the ~~Business Combination,~~attractive, fast growing sub-segments within the nutritional snacking category. Quest has a loyal following and through a number of sub-mergers discussed in Note 1 above, Conyers Park merged into Simply Good Foods which subsequently acquired, and obtained control over Atkins. As a result of the Business Combination, Simply Good Foods is the acquirer for accounting purposes, and Atkins is the acquiree and accounting predecessor. The Company’s financial statement presentation distinguishes a “Predecessor” for Atkins for periods prior to the Closing Date. The Company is the “Successor” for periods after the Closing Date, which includes consolidation of Atkins subsequent to the Business Combination. The Merger was accounted for as a business combination using the acquisition method of accounting, and the Successor financial statements reflect a new basis of accounting that is based on the fair value of the net assets acquired. The historical financial information of Conyers Park, prior to the Business Combination, are not reflected in the Predecessor financial statements as those amounts are considered de-minimus. The financial statements of Conyers Park are included in the post-merger Successor entity, which includes balance sheet and equity items of Conyers Park assumed by Simply Good Foods through the transaction. As a result of the application of the acquisition method of accounting as of the Closing Date, the financial statements for the Predecessor period and for the Successor period are presented on a different basis of accounting and are therefore not comparable.strong appeal among consumers 18-44 years.

The ~~Business Combination is~~Acquisition of Quest was accounted for using the acquisition method of accounting in accordance with ASC 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. ASC 805 requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values, as determined in accordance with ASC 820, Fair Value Measurements, as of the ~~Business Combination~~closing date. ~~Consistent with the acquisition method of accounting, the assets acquired and liabilities assumed from Atkins have been recorded at their respective fair values and added to those of Conyers Park.~~ ASC 805 establishes a measurement period to provide the Company 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.

The ~~Business Combination~~Acquisition of Quest was funded by ~~Conyers Park~~the Company through a combination of cash, ~~stock,~~equity and debt financing. Total consideration paid on the closing date was $988.9 million. Cash sources of funding included ~~$404.0~~$195.3 million of cash ~~held in Conyers Park’s trust account, $100.0~~on hand, net proceeds of approximately $350.0 million from ~~private placement equity issuance, $200.0~~an underwritten public offering of common stock, and $443.6 million in new term loan ~~debt,~~debt. A total of $26.9 million is included within the Business transaction costs line item of the Consolidated Statements of Operations and ~~$0.2~~Comprehensive Income for twenty-six weeks ended February 29, 2020 including $14.5 million of ~~cash on hand at Conyers Park. Upon~~transaction advisory fees related to the ~~close~~Acquisition of ~~the transaction, a total~~Quest, $3.2 million of ~~$8.1~~

Table of Contents

banker commitment fees, $6.1 million ~~was paid in~~of non-deferrable debt issuance costs related to the ~~new~~incremental term loan, ~~$8.1~~and $3.1 million ~~was~~of other costs including legal, due diligence, and accounting fees.

Included in the transaction advisory fees paid ~~in deferred equity issuance costs related~~for the Acquisition of Quest is $12.0 million paid to Centerview Partners LLC, an investment banking firm that served as the lead financial advisor to the ~~original IPO~~Company for this transaction. Three members of the Company’s Board of Directors, Messrs. Kilts, West, and Ratzan, have business relationships with certain partners of Centerview Partners LLC (including relating to Centerview Capital Consumer, a private equity firm and affiliate of Conyers Park ~~$3.0 million was paid~~Sponsor LLC), but they are not themselves partners, executives or employees of Centerview Partners LLC and Centerview Partners LLC is not a related ~~to the private placement equity issuance costs, and $12.4 million of cash was paid in acquisition-related transaction costs incurred by Conyers Park. As an integrated part~~party of the ~~closing~~Company pursuant to applicable rules and policies. The advisory fee paid to Centerview Partners LLC represents approximately 1.2% of the ~~Business Combination, $284.0 million of~~total cash ~~was~~purchase price paid ~~to retire~~by the ~~predecessor~~

~~Table of Contents~~

long-term debt of Atkins. The acquisition-related transaction costs incurred by Conyers Park are reflected within the opening accumulated deficit within the Simply Good Foods consolidated statement of stockholder’s equity. In the first quarter of fiscal 2018, per the terms of the Merger Agreement, Simply Good Foods paid a working capital adjustment of $1.8 million to the former owners of Atkins which resulted in an increase to the previously recognized Goodwill.

~~In connection with this change in control, the assets and liabilities of Atkins were recorded at their respective fair value~~Company on the closing date ~~by application~~ of the ~~acquisition method~~Acquisition of accounting as prescribed by ASC 805 and ASC 820. The selling equity holders of Atkins, primarily Roark, received approximately $817.0 million in total consideration, inclusive of 10.2 million shares of common stock of Simply Good Foods valued at $11.47 per share or $117.6 million in equity consideration at fair value. The selling equity owners are also entitled to future cash payments pursuantQuest. All transaction advisory fees relating to the ~~Tax Receivable Agreement (the “TRA”) which had an estimated fair value~~Acquisition of ~~$25.7 million as~~Quest were approved by the Company’s Audit Committee.

The following table sets forth the preliminary purchase price of the ~~close~~Acquisition of ~~the Business Combination. The TRA obligation was recorded at its acquisition-date fair value and classified as a liability. The TRA generally provides for the payment by Simply Good Foods~~Quest to the Atkins’ selling equity holders for certain federal, state, local and non-U.S. tax benefits deemed realized in post-closing taxable periods by Simply Good Foods, Conyers Park, Atkins and Atkins’ eligible subsidiaries from the use of up to $100 million of the following tax attributes: (i) net operating losses available to be carried forward as of the closing of the Business Combination; (ii) certain deductions generated by the consummation of the business transaction; and (iii) remaining depreciable tax basis from the 2003 acquisition of Atkins Nutritionals, Inc. The TRA is contingent consideration and subsequent changes in fair value of the contingent liability will be recognized in earnings. As of November 25, 2017, the estimated fair value of ~~these contingent payments is $25.7 million which has been recorded as a liability and represents 100%~~the net assets acquired at the date of ~~the value of the recorded tax attributes (refer~~acquisition, subject to ~~Note 7, Income Taxes, for additional discussion on the TRA).~~

As disclosed in the Annual Report, the predecessor financial statements of historical Atkins’ included business combination related seller costs of $2.0 million related to legal costs, $8.6 million of contingent success fees to an investment banker providing advisory services triggered by the transaction, and $13.8 million of contingent change-in-control bonuses. These seller costs were incurred during the fourth quarter of fiscal 2017 and were recorded within ~~business combination transaction costs~~ ~~within the Statements of Operations and Comprehensive Income as disclosed in the Annual Report.~~

~~The following summarizes the preliminary estimated fair value of the Business Combination, pending~~ finalization per the terms of the ~~Merger~~Purchase Agreement.

(In thousands)
Cash paid $ 673,763
Equity consideration paid to selling equity holders (1) 117,567
Total cash and equity consideration 791,330
TRA payable to selling equity holders 25,675
Total consideration $ 817,005

~~(1) Equity consideration paid is summarized below:~~

(In thousands, except equity per share data)
Shares of Simply Good Foods paid to former equity holders of Atkins 10,250
Fair Value of SMPL equity per share $ 11.47
Equity consideration paid $ 117,567

The ~~fair value of these units was determined~~preliminary purchase price allocation may be adjusted as ~~follows:~~

~~Per share price based on the market price on the day of the close $ 11.47~~

~~Table of Contents~~

~~The Company has recorded~~ a ~~preliminary allocation~~result of the finalization of our purchase price allocation procedures related to ~~Predecessor’s tangible and identified intangible~~the assets acquired and liabilities ~~assumed, based on their fair values as of the closing date. The purchase price allocation is preliminary, may change, and will be completed prior to the measurement period prescribed by ASC 805.~~assumed. The preliminary ~~July~~November 7, ~~2017~~2019 fair value is as ~~follows (in thousands):~~follows:



(In thousands)
Assets acquired:
Cash and cash equivalents	$	4,745
Accounts receivable, net	26,537
Inventories	43,091
Prepaid assets	1,214
Other current assets	3,821
Property and equipment, net⁽¹⁾	10,363
Intangible assets, net⁽²⁾	848,375
Other long-term assets	20,997
Liabilities assumed:
Accounts payable	25,200
Other current liabilities	11,237
Deferred income taxes⁽³⁾	14,158
Other long-term liabilities	18,891
Total identifiable net assets	889,657
Goodwill⁽⁴⁾	99,289
Total assets acquired and liabilities assumed	$	988,946

Assets acquired:
Cash and cash equivalents $ 71,181
Accounts receivable, net 31,507
Inventories 33,023
Prepaid assets 1,781
Other current assets 13,466
Property and equipment, net 1,793
Intangible assets, net ⁽¹⁾
320,000
Other long-term assets 2,224
Liabilities assumed:
Accounts payable (12,187 )
Other current liabilities (36,498 )
Deferred income taxes⁽²⁾
(76,072 )
Total identifiable net assets 350,218
Goodwill⁽¹⁾⁽³⁾
466,787
Total assets acquired and liabilities assumed $ 817,005

(1) Property and equipment, net primarily consists of leasehold improvements for the Quest headquarters of $6.9 million, furniture and fixtures of $2.2 million, and equipment of $1.3 million. The Quest headquarters lease ends in April 2029. The useful lives of the leasehold improvements, furniture and fixtures, and equipment is consistent with the Company's accounting policies.

⁽¹⁾ ~~Goodwill and intangible~~(2) Intangible assets were recorded at fair value consistent with ASC 820 as a result of the ~~Business Combination.~~Acquisition of Quest. Intangible assets consist of $730.0 million of indefinite brands and trademarks, $115.0 million of amortizable customer relationships, ~~proprietary recipes~~ and ~~formulas and licensing agreements.~~$3.4 million of internally developed software. The useful lives of the intangible assets are disclosed in Note 4.5 of the consolidated financial statements. The fair value measurement of the assets and liabilities was based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy. Level 3 fair market values were determined using a variety of information, including estimated future cash flows ~~appraisals,~~ and market comparable data and companies.

⁽²⁾(3) As a result of the increase in the fair value of the identifiable intangible asset, the deferred income ~~taxes were stepped-up~~tax liability was increased by ~~$50.7~~$14.2 million.

⁽³⁾(4) Goodwill was recorded at fair value consistent with ASC 820 as a result of the Acquisition of Quest. Amounts recorded for goodwill created in an acquisition structured as a stock purchase for tax are generally not expected to be deductible for tax purposes. Amounts recorded for goodwill resulting in a tax basis step-up are generally expected to be deductible for tax purposes. Tax deductible Goodwill is estimated to be $79.7 million. Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.

The purchase price is pending finalization ~~for~~per the ~~completion~~terms of the ~~assessment of the accounting and valuation of the TRA.~~Purchase Agreement. The final determination of the fair value of the assets acquired and liabilities assumed is expected to be completed as soon as practicable after completion of the ~~Business Combination,~~Acquisition of Quest, including a period of time to finalize working capital ~~adjustments.~~adjustments and tax attributes. During the thirteen weeks ended February 29, 2020, a fair value measurement period adjustment of $3.3 million was recorded primarily related to accounts receivable, net. The final ~~determinations~~fair value determination of the assets acquired and liabilities assumed will ~~not~~ be ~~in excess of~~completed prior to one year offrom the ~~time of the~~ transaction completion, consistent with ASC 805.

Table of Contents

The results of Quest's operations have been included in the Simply Good Foods' Consolidated Financial Statements since November 7, 2019, the date of acquisition. The following table provides net sales from the acquired Quest business included in the Company's results:



	Thirteen Weeks Ended		Twenty-Six Weeks Ended
	February 29, 2020		February 29, 2020
Net sales	$	88,305	$	105,387

Unaudited Pro Forma Financial Information

~~The following unaudited pro forma combined financial information presents combined results of Conyers Park and Atkins as if the Business Combination had occurred at the beginning of fiscal year 2017:~~

13-weeks ended
November 26, 2016
Revenue $ 99,803
Gross profit $ 48,712
Net income $ 9,019

These pro forma combined results include certain adjustments, primarily due to decreases in amortization expense due to the changes in useful lives of intangible assets and decreases in interest expense due to the refinancing of Atkins debt. The proPro forma financial information is not intended to represent or be indicative of the actual results of operations of the combined ~~entity~~business that would have been reported had the ~~Business Combination~~Acquisition of Quest been completed at the beginning of the fiscal year ~~2017,~~2019, nor is it representative of future operating results of the Company.

This unaudited pro forma combined financial information is prepared based on Article 11 of Regulation S-X period end guidance. The Company and the legacy Quest entity have different fiscal year ends, with Simply Good Foods’ fiscal year being the last Saturday of August while the legacy Quest business fiscal year end was December 31. Because the year ends differ by more than 93 days, Quest's financial information is required to be adjusted to a period within 93 days of Simply Good Foods’ fiscal period end. For the purposes of preparing the unaudited pro forma combined financial information for the thirteen weeks ended February 23, 2019, Quest’s unaudited consolidated statement of operations for the three months ended December 31, 2018 was derived by deducting the historical unaudited consolidated statement of operations for the nine months ended September 30, 2018, from the unaudited consolidated statement of operations for the fiscal year ended December 31, 2018. For the purposes of preparing the unaudited pro forma combined financial information for the twenty-six weeks ended February 23, 2019, Quest’s unaudited consolidated statement of operations for the six months ended December 31, 2018 was derived by deducting the historical unaudited consolidated statement of operations for the six months ended June 30, 2018, from the unaudited consolidated statement of operations for the fiscal year ended December 31, 2018.

In addition to the above period end adjustments, the pro forma results include certain adjustments, as required under ASC 805, which are different than Article 11 pro forma requirements. ASC 805 requires pro forma adjustments to reflect the effects of fair value adjustments, transaction costs, capital structure changes, the tax effects of such adjustments, and also requires nonrecurring adjustments be prepared as though the Acquisition of Quest had occurred as of the beginning of the earliest period presented. The adjustments to the historical Quest financial results include the exclusion of legacy derivatives and interest expense that were settled in the execution of the Acquisition of Quest. Additional adjustments include non recurring transaction costs and the portion of the inventory fair value adjustment recorded by the Company during the thirteen weeks ended and twenty-six weeks ended February 29, 2020. Both periods were further adjusted to reflect a full period of (a) fair value adjustments related to inventory and incremental customer relationship amortization, (b) interest expense with the higher principal and interest rates associated with the Company's new term loan debt incurred to finance, in part, the Acquisition of Quest, and (c) the effects of the adjustments on income taxes and net income.

The following unaudited pro forma combined financial information presents combined results of the Company and Quest as if the Acquisition of Quest has occurred at the beginning of fiscal 2019:



	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	February 29, 2020		February 23, 2019		February 29, 2020		February 23, 2019
Revenue	$	227,101	$	202,802	$	447,657	$	392,747
Gross profit	$	90,479	$	75,361	$	178,667	$	136,948
Net income (loss)	$	15,049	$	11,837	$	30,697	$	(7,246	)

4. Revenue Recognition

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The singular performance obligation of our customer contracts is determined by each individual purchase order and the products ordered, with revenue being recognized at a point-in-time when the obligation under the terms of the agreement is satisfied and product control is transferred to the customer. Specifically, control transfers to our customers when the product is delivered to or picked up by our customers based on applicable shipping terms. The performance obligations of our customer contracts are generally satisfied within 30 days.

Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilled product orders, including estimates of variable consideration. The most common forms of variable consideration include trade programs, consumer incentives, coupon redemptions, allowances for unsaleable products, and any additional amounts where a distinct good or service cannot be identified or the value cannot be reasonably estimated. Estimates of variable consideration are made using various information including historical data on performance of

Table of Contents

similar trade promotional activities, as well as the Company’s best estimate of current activity. We review these estimates regularly and make revisions as necessary. Revisions can include changes for consideration paid to customers that lack sufficient evidence to support a distinct good or service assertion, or for which a reasonably estimable fair value cannot be determined, primarily related to our assessments of cooperative advertising programs. Uncertainties related to the estimate of variable consideration are resolved in a short time frame and do not require any additional constraint on variable consideration. Adjustments to variable consideration are recognized in the period the adjustments are identified and have historically been insignificant. Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.

We provide standard assurance type warranties that our products will comply with all agreed-upon specifications. No services beyond an assurance type warranty are provided to our customers. While customers generally have a right to return defective or non-conforming products, past experience has demonstrated that product returns have been immaterial. Customer remedies for defective or non-conforming products may include a refund or exchange. As a result, the right of return is estimated and recorded as a reduction in revenue, if necessary.

Our customer contracts identify product quantity, price and payment terms. Payment terms are granted consistent with industry standards. Although some payment terms may be more extended, the majority of our payment terms are less than 60 days. As a result, we do not adjust our revenues for the effects of a significant financing component. Amounts billed and due from our customers are classified as accounts receivable on the condensed consolidated balance sheets.

The Company utilizes third-party contract manufacturers for the manufacture of its products. The Company has evaluated whether the Company is the principal or agent in these relationships. The Company has determined that it is the principal in all cases, as it maintains the responsibility for fulfillment, risk of loss and establishes the price.

The Company has elected the following practical expedients in accordance with ASC Topic 606:


•	Shipping and handling costs—We have elected to account for shipping and handling costs incurred to deliver products to customers as fulfillment activities, rather than a promised service. As such, fulfillment costs are included in Cost of goods sold in our Condensed Consolidated Statements of Operations and Comprehensive Income.


•	Costs of obtaining a contract—We have elected to expense costs of obtaining a contract because the amortization period would be less than one year.

Revenues from transactions with external customers for each of Simply Good Foods’ products would be impracticable to disclose and management does not view its business by product line. The following table presents our revenue disaggregated by geographic area and brand.



	Thirteen Weeks Ended				Twenty-Six Weeks Ended
(In thousands)	February 29, 2020		February 23, 2019		February 29, 2020		February 23, 2019
Net sales
North America	$	131,435	$	117,946	$	259,247	$	232,552
International	7,361		5,854		14,620		12,179
Total Atkins	138,796		123,800		273,867		244,731

Quest⁽¹⁾	88,305		—		105,387		—

Total	$	227,101	$	123,800	$	379,254	$	244,731

(1) Quest net sales are primarily in North America.

Table of Contents

4.5. Goodwill and Intangibles

~~The following table presents the changes in~~ ~~goodwill~~:

Total
Balance, August 26, 2017 (Successor) 465,030
Goodwill working capital adjustment 1,757
Balance, November 25, 2017 (Successor) $ 466,787

Changes to goodwill during the twenty-six weeks ended February 29, 2020 were as follows:



	Total
Balance as of August 31, 2019	$	471,427
Acquisition of business	99,289
Balance as of February 29, 2020	$	570,716

The change in ~~fair value of~~ the ~~Company’s~~Company's Goodwill from August ~~26, 2017~~31, 2019 to ~~November 25, 2017 resulted from~~February 29, 2020 is the ~~acquisitions and application~~result of the acquisition method of accounting related to the Acquisition of Quest, as described in Note ~~3 above.~~3. There were no0 impairment charges related to goodwill during ~~these periods~~this period or since the inception of the Company.

Intangible assets, net in our Condensed Consolidated Balance Sheets consist of the following:


Successor		November 25, 2017
	Useful Life	Gross carrying amount		Accumulated amortization		Net carrying amount					February 29, 2020
(In thousands)								Useful life			Gross carrying amount		Accumulated amortization		Net carrying amount
Intangible assets with indefinite life:
Brands and trademarks	Indefinite life	$	232,000	$	—	$	232,000	Indefinite life			$	962,000	$	—	$	962,000
Intangible assets with finite lives:
Customer relationships	15 years	59,000		1,498		57,502		15 years			174,000		12,703		161,297
Proprietary recipes and formulas	7 years	7,000		381		6,619		7 years			7,000		2,631		4,369
Licensing agreements	14 years	22,000		599		21,401		14 years			22,000		4,134		17,866
Software and website development costs								3	-	5 years	5,612		1,940		3,672
Intangible assets in progress								3	-	5 years	206		—		206
		$	320,000	$	2,478	$	317,522				$	1,170,818	$	21,408	$	1,149,410


Successor		August 26, 2017
	Useful Life	Gross carrying amount		Accumulated amortization		Net carrying amount			August 31, 2019
(In thousands)								Useful life	Gross carrying amount		Accumulated amortization		Net carrying amount
Intangible assets with indefinite life:
Brands and trademarks	Indefinite life	$	232,000	$	—	$	232,000	Indefinite life	$	232,000	$	—	$	232,000
Intangible assets with finite lives:
Customer relationships	15 years	59,000		515		58,485		15 years	59,000		8,382		50,618
Proprietary recipes and formulas	7 years	7,000		131		6,869		7 years	7,000		2,131		4,869
Licensing agreements	14 years	22,000		206		21,794		14 years	22,000		3,348		18,652
		$	320,000	$	852	$	319,148		$	320,000	$	13,861	$	306,139

Intangible assets, net changed due to ~~regular~~ amortization ~~expense.~~expense and the Acquisition of Quest. Amortization ~~expenses~~expense related to intangible assets during the thirteen weeks ended ~~November 25, 2017~~February 29, 2020 and ~~November 26, 2016~~February 23, 2019 were $3.9 million and $1.6 million, respectively. Amortization expense related to intangible assets during the twenty-six weeks ended February 29, 2020 and ~~$2.2~~February 23, 2019 were $6.2 million and $3.3 million, respectively.

Estimated future amortization for each of the next five fiscal years and thereafter is as follows:



(In thousands by fiscal year)
Remainder of 2020	$	7,782
2021	15,327
2022	15,094
2023	14,829
2024	14,281
2025 and thereafter	119,891
Total	$	187,204

(In thousands by fiscal year)
2018 $ 4,879
2019 6,505
2020 6,505
2021 6,505
2022 6,505
2023 and thereafter 54,623

1114

Table of Contents

5.6. Long-Term Debt and Line of Credit

On July 7, 2017, the Company entered into a ~~Credit Agreement~~credit agreement with Barclays Bank PLC and other ~~parties.~~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 ~~loan~~credit facility of up to $75.0 million (the “Revolving Credit Facility”) with a five year ~~maturity, in each case under the new first lien senior secured loan facilities (the “New Credit Facilities”).~~maturity. Substantially concurrent with the consummation of the ~~Business Combination,~~Acquisition of Atkins, the full $200.0 million of the ~~first lien term loan~~Term Facility (the “Term Loan”) was ~~drawn, and no revolving loans were~~ drawn. The interest rate per annum iswas based on either (i) a base rate equaling the higher of (a) the “prime rate”, (b) the federal funds effective rate plus 0.50% and (c) the Euro-currency rate applicable for an interest period of one month plus 1.00% plus (x) 3.00% margin for the Term Loan or (y) 2.00% margin for the Revolving Credit Facility, or (ii) London Interbank Offered Rate (“LIBOR”) adjusted for statutory reserve requirements, plus (x) 4.00% margin for the Term Loan ~~and is~~ subject to a floor of 1.00% or (y) 3.00% margin for the Revolving Credit Facility. The applicable margin for Revolving Credit Facility will be adjusted after the completion of the Company’s first full fiscal quarter after the closing of the Business Combination based upon the Company’s consolidated first lien net leverage ratio. As security for the payment or performance of its debt, the Company has pledged certain equity interests in its subsidiaries.

~~The New~~

On March 16, 2018 (the “Amendment Date”), the Company entered into an amendment (the “Repricing Amendment”) to the Credit ~~Facilities are subject to mandatory prepayments based~~Agreement. As a result of the Repricing Amendment, the interest rate on ~~contractual terms. With respect to~~ the Term Loan ~~prior~~was reduced and, as of the Amendment Date, such loans had an interest rate equal to, at the Company’s option, either LIBOR plus an applicable margin of 3.50% or a base rate plus an applicable margin of 2.50%. The Repricing Amendment did not change the interest rate on the Revolving Credit Facility. The Revolving Credit Facility continued to bear interest based upon the Company's consolidated net leverage ratio as of the last financial statements delivered to the ~~six-month anniversary of the Closing Date, a 1.00% prepayment premium is payable~~administrative agent. No additional debt was incurred, or any proceeds received, by the Company in connection with ~~certain repricing events.~~the Repricing Amendment. The incremental fees paid to the administrative agent are reflected as additional debt discount and are amortized over the terms of the long-term financing agreements using the effective-interest method.

On November 7, 2019, the Company ~~may also voluntarily prepay outstanding loans~~entered into an amendment (the “Incremental Facility Amendment”) to the Credit Agreement to increase the principal borrowed on the Term Facility by $460.0 million. The Term Facility together with the incremental borrowing make up the Initial Term Loans (as defined in the Incremental Facility Amendment) and as of the Amendment No. 2 Effective Date (as defined in the Incremental Facility Amendment), the Initial Term Loans bear interest at ~~any time.~~a rate equal to, at the Company's option, either LIBOR plus an applicable margin of 3.75% or a base rate plus an applicable margin of 2.75%. The Incremental Facility Amendment was executed to partially finance the Acquisition of Quest. No amounts under the Term Facility were repaid as a result of the execution of the Incremental Facility Amendment.

The ~~credit facilities governing our debt arrangements contain~~Credit Agreement contains certain financial and other covenants. The revolving credit facility has a maximum total net leverage ratio equal to or less than 6.25:1.00 (with a reduction to 6.00:1.00 on and after the third anniversary of the closing date of the credit facilities) contingent on credit extensions in excess of 30% of the total amount of commitments available under the revolving credit facility, and limitations oncovenants 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 and after the third anniversary of the closing date of the Credit Agreement) contingent on credit extensions in excess of 30% of the total amount of commitments available under the Revolving Credit Facility. Any failure to comply with the restrictions of the ~~credit facilities~~Credit Agreement may result in an event of default. The credit facilities governing our debt arrangements bear interest at variable rates. If market interest rates increase, variable rate debt will create higher debt service requirements, which could adversely affect our cash flow. AsCompany was in compliance with all financial covenants under the ~~Company has not drawn on the revolving credit facility~~Credit Agreement as of ~~November 25, 2017,~~February 29, 2020 and August ~~26, 2017, no debt covenants were applicable as of the period then ended.~~31, 2019.

~~As of November 25, 2017, the Company’s only outstanding long-term debt is the Term Loan maturing on July 7, 2024.~~

At ~~November 25, 2017~~February 29, 2020 and August ~~26, 2017,~~31, 2019, there were no0 cash amounts drawn against the Revolving Credit ~~Facility or lines of credit, and long-term~~Facility. Long-term debt consists of the following:



(In thousands)	February 29, 2020		August 31, 2019
Term Loan (effective rate of 5.4% at February 29, 2020)	$	635,500	$	196,500
Finance lease liabilities (effective rate of 5.6% at February 29, 2020)	1,050		—
Less: Deferred financing fees	12,210		5,565
Total debt	624,340		190,935
Less: Current maturities, net of deferred financing fees of $0.0 million at February 29, 2020 and $1.3 million at August 31, 2019	—		676
Current finance lease liabilities	264		—
Long-term debt, net of deferred financing fees	$	624,076	$	190,259

November 25, 2017 August 26, 2017
(Successor) (Successor)
Term loan $ 200,000
$ 200,000
Less: deferred financing fees 7,588
7,910
Total debt 192,412
192,090
Less: current maturities, net of deferred financing fees of $1.3 million at November 25, 2017 and August 26, 2017, respectively 711
234
Long-term debt, net of deferred financing fees $ 191,701
$ 191,856

The Company is 0t required to make principal payments over the twelve months following the period ended February 29, 2020.

As of February 29, 2020, the Company had letters of credit in the amount of $5.0 million outstanding. Our letters of credit offset against the availability of the Revolving Credit Facility. These letters of credit exist to support two of the Company's leased buildings and insurance programs relating to workers' compensation. No amounts were drawn against these letters of credit at February 29, 2020.

The Company utilizes market approaches to estimate the fair value of certain outstanding borrowings by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates. The Company

Table of Contents

carries debt at historical cost and discloses fair value. As of February 29, 2020 and August ~~26, 2017 and November 25, 2017,~~31, 2019, the book value of the Company’s debt approximated fair value. ~~All term debt~~The estimated fair value of the Term Loan is ~~valued~~ based on ~~significant~~ observable inputs and classified as Level 2 in the fair value hierarchy.

6.7. Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

~~Table of Contents~~

Level 1 – Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 – Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

~~The following tables set forth the Company’s liabilities measured at fair value. The fair value and fair value inputs~~

A loss of ~~the TRA is discussed in Note 7.~~

~~Fair value at November 25, 2017 is summarized as follows:~~

Successor Level 1 Level 2 Level 3 Total
Liabilities
TRA liability $ —
$ —
$ 26,317
$ 26,317

~~Fair value at August 26, 2017 is summarized as follows:~~

Successor Level 1 Level 2 Level 3 Total
Liabilities
TRA liability $ —
$ —
$ 25,675
$ 25,675

~~For the thirteen week period ended November 25, 2017, $0.6~~$0.5 million was charged to the ~~Change~~Loss in fair value change of contingent consideration - TRA liability for the twenty-six weeks ended February 23, 2019. The Company settled the Income Tax Receivable Agreement (the “TRA”) during the twenty-six weeks ended February 23, 2019, which resulted in a $1.5 million gain. Following the ~~accompanying Condensed Consolidated Statements~~settlement of ~~Operations~~the TRA liability, the Company did not have any Level 3 financial assets or liabilities.

The carrying amounts of cash and ~~Comprehensive Income.~~cash equivalents, accounts receivable and accounts payable approximated fair value as of February 29, 2020 and August 31, 2019 due to the relatively short maturity of these instruments.

7.8. Income Taxes

Effective Tax Rate

The following table shows the tax expense and the effective tax rate for the ~~thirteen~~twenty-six weeks ended ~~November 25, 2017~~February 29, 2020 and ~~November 26, 2016~~February 23, 2019 resulting from operations:



	Twenty-Six Weeks Ended
(In thousands)	February 29, 2020			February 23, 2019
Income before income taxes	$	8,057		$	36,631
Provision for income taxes	$	2,193		$	8,652
Effective tax rate	27.2		%	23.6		%

November 25, 2017 November 26, 2016
(Successor) (Predecessor)
Income before income taxes $ 16,708
$ 11,686
Provision for income taxes $ 6,490
$ 4,899
Effective tax rate 38.8 % 41.9 %

The effective tax rate for the ~~thirteen weeks~~twenty-six week period ended ~~November 25, 2017~~February 29, 2020 is ~~lower~~higher than the effective tax rate for the ~~thirteen weeks~~twenty-six week period ended ~~thirteen weeks ended November 26, 2016~~February 23, 2019 by ~~3.1%~~3.6%, which is primarily driven by ~~a greater pre-tax income combined with lower~~non-deductible transaction costs, the one-time tax impact of the settlement of the TRA liability during the twenty-six week period ended February 23, 2019, and other permanent differences.

~~Tax Receivable Agreement~~

9. Leases

~~Concurrent~~

On September 1, 2019, we adopted ASU No. 2016-02, Leases (“Topic 842”) using the modified retrospective approach under ASU No. 2018-11, which permits application of the new guidance at the beginning of the period of adoption, with comparative periods continuing to be reported under Topic 840.

Leases are classified as either finance leases or operating leases based on criteria in ASC 842. The Company’s operating leases are generally comprised of real estate and certain equipment used in warehousing our products. The Company’s finance leases are generally comprised of warehouse equipment.

Right-of-use assets and lease liabilities are recognized at the ~~Business Combination, the Company entered into the TRA with the historical shareholders of Atkins. The TRA entered into by the Company in consideration for the Business Combination is valued~~lease commencement date based on the ~~future expected~~present value of lease payments ~~under~~over the ~~terms~~lease term. The majority of the agreement (see Note 3). As more fully described in the TRA, the TRA generally provides for the payment by Simply Good Foods to the Atkins’ selling equity holders for certain federal, state, local and non-U.S. tax benefits deemed realized in post-closing taxable periods by Simply Good Foods, Conyers Park, Atkins and Atkins’ eligible subsidiaries from the use of up to $100 million of the following tax attributes: (i) net operating losses available to be carried forward as of the closing of the Business Combination; (ii) certain deductions generated by the consummation of the business transaction; and (iii) remaining depreciable tax basis from the 2003 acquisition of Atkins Nutritionals, Inc. In addition, Simply Good Foods will pay the Atkins selling equity holders for the use of 75% of up to $7.6 million of alternative minimum tax credit carryforwards. The TRA is contingent consideration and subsequent changes in fair value of the contingent liability will be recognized in earnings. As of November 25, 2017, the estimated fair value of these contingent payments is $26.3 million, which has been recorded as a liability and represents 100% of the value of the recorded tax attributes.

Estimating the amount of payments that may be made under the TRA is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. The actual increase in tax basis and deductions, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, including:

~~The amount and timing of the Company’s income - The Company is required to pay 100% of the deemed benefits as and when deemed realized. As such,~~Company's leases do not provide an implicit rate; therefore, the Company is generally not required to make payments under the TRA until and unless a tax benefit is actually realized on a filed return. Without income against which specified TRA attributes are deductible, the benefit of such deduction is not deemed to be realized, resulting in no payment under the TRA. The utilization of such tax attributes and recognition of benefit against Company income will result in payments under the TRA.

The amount and timing of deductions - Similar to the above, the timing of the recognition of deductions and attributes included in the TRA will impact the ultimate timing of payments under the TRA. In turn, the fair value of the TRA payments will fluctuate over time; and

~~Future tax rates of jurisdictions in which the Company has tax liability, including the impact of the Tax Cuts and Jobs Act as more fully described in Note 14, Subsequent Events .~~

~~Significant inputs used to preliminarily estimate the future expected payments include a tax savings~~uses its secured incremental borrowing rate ~~of approximately 37% and an imputed interest rate of approximately 10%. The TRA assumptions will be re-measured for subsequent inputs~~ based on the ~~enacted tax~~information available at the lease commencement date in determining the present value of future payments for those leases. Our incremental borrowing rate for a lease is the rate of interest we would pay to borrow on a collateralized basis over a similar term to the lease in a similar economic environment. The Company applied incremental borrowing rates ~~under~~using a portfolio approach. Right-of-use assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the ~~Tax Cuts~~

Table of Contents

lease when it is reasonably certain that the Company will exercise that option. The Company has elected not to recognize right-of-use assets and ~~Jobs Act singed into law on December 22, 2017, further discussed within Note 14. TRA fair value inputs~~lease liabilities for short-term operating leases that have a term of 1 year or less.

The components of lease expense were as follows:



		Thirteen Weeks Ended		Twenty-Six Weeks Ended
(in thousands)	Statement of Operations Caption	February 29, 2020		February 29, 2020
Operating lease cost:
Lease cost	Cost of goods sold and General and administrative	$	1,441	$	2,247
Variable lease cost ⁽¹⁾	Cost of goods sold and General and administrative	426		736
Operating lease cost		1,867		2,983

Short term lease cost	General and administrative	18		24

Finance lease cost:
Amortization of right-of use assets	Cost of goods sold	66		136
Interest on lease liabilities	Interest expense	16		32
Total finance lease cost		82		168

Total lease cost		$	1,967	$	3,175

(1) Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs.

The gross amounts of assets and liabilities related to ~~the fair value disclosures included in Note 6 are the above discount rate, book income projections, timing of expected adjustments to calculate taxable income,~~both operating and ~~the projected rate of use for attributes defined in the TRA. The TRA fair value requires significant judgment and is considered a level 3 hierarchy assessment.~~

Payments made under the TRA are generally due within 90 days following the filing of Simply Good Foods U.S. federal and state income tax returns, and may include the tax returns that reflect activity as early as the taxable year ended August 26, 2017. Payments under the TRA will be based on the tax reporting positions that Simply Good Foods will determine. The term of the TRA generally will continue until all applicable tax benefit payments have been made to the seller’s representative under the agreement.

~~As of November 25, 2017, the undiscounted future expected payments under the TRA~~finance leases are as follows:



(in thousands)	Balance Sheet Caption	February 29, 2020
Assets
Operating lease right of use assets	Other long-term assets	$	27,072
Finance lease right of use assets	Property and equipment, net	1,049
Total lease assets		$	28,121

Liabilities
Current:
Operating lease liabilities	Accrued expenses and other current liabilities	$	3,947
Finance lease liabilities	Current maturities of long-term debt	264
Long-term:
Operating lease liabilities	Other long-term liabilities	23,842
Finance lease liabilities	Long-term debt, less current maturities	786
Total lease liabilities		$	28,839

Future maturities of lease liabilities were as follows:



	Operating Leases			Finance Leases
Fiscal year ending:
Remainder of 2020	$	2,772		$	157
2021	5,028			313
2022	4,643			313
2023	3,995			278
2024	3,882			145
Thereafter	14,706			—
Total lease payments	35,026			1,206
Less: Interest	(7,237		)	(156		)
Present value of lease liabilities	$	27,789		$	1,050

Table of Contents

(In thousands by fiscal year)
Estimated
future payments
2018 $ 2,812
2019 9,195
2020 5,271
2021 4,075
2022 3,482
2023 and thereafter 15,001
$ 39,836

As of February 29, 2020, we have entered into a lease that has not yet commenced with total future lease payments of $1.5 million over the term of the lease that are not yet recorded on our Consolidated Balance Sheets. The lease will commence in 2020 with a term of 7.3 years.

~~8. Commitments and Contingencies~~

~~Leases~~

The ~~Company has non-cancellable~~weighted-average remaining lease term and weighted-average discount rate for operating and finance leases at February 29, 2020 is as follows:

Supplemental and other information related to leases was as follows:



	Twenty-Six Weeks Ended
	February 29, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,817
Operating cash flows from finance leases	9
Financing cash flows from finance leases	157

Comparative Information as Reported Under Previous Accounting Standards

The following comparative information is reported based upon previous accounting standards in effect for ~~nine buildings.~~ the periods presented.

Future minimum payments under lease arrangements with a remaining term in excess of one year were as follows as of August 31, 2019:



(in thousands)	August 31, 2019
2020	$	2,546
2021	1,947
2022	1,677
2023	1,093
2024	87
Thereafter	56
Total	$	7,406

For the thirteen weeks ended ~~November 25, 2017~~February 23, 2019 rent expense for operating leases were $0.5 million. For the twenty-six weeks ended February 23, 2019 rent expense for operating leases were $1.1 million.

10. Commitments and ~~November 26, 2016, rent expenses for the successor entity were $0.6 million and for the predecessor entity were $0.6 million, respectively.~~Contingencies

Litigation

The Company is a party to certain litigation and claims that are considered normal to the operations of the business. ~~Management is~~From time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of ~~the opinion~~our business. We are not presently a party to any litigation that ~~the outcome~~we believe to be material, and we are not aware of ~~these actions will not~~any pending or threatened litigation against us that we believe could have a material adverse effect onof our business, operating result, financial condition or cash flows.

During the ~~Company’s consolidated financial statements.~~fifty-three week period ended August 31, 2019, the Company reserved $3.5 million for the potential settlement of class action litigation concerning certain product label claims. During the twenty-six weeks ended February 29, 2020, the Company reserved an additional $0.3 million. The reserve is included within General and administrative in the Consolidated Statements of Operations and Comprehensive Income.

1418

Table of Contents

~~Tax Receivable Agreement~~

~~Refer to Note 7 for detail on the TRA, which was contingent consideration at the time of the Business Combination.~~

Other

The Company has entered into endorsement contracts with certain celebrity figures and social media influencers to promote and endorse the Atkins ~~brand~~ and ~~line of products.~~Quest brands and product lines. These contracts contain endorsement fees, which are expensed ratably over the life of the contract, and performance fees, that are recognized at the time of achievement. Based on the terms of the contracts in place and achievement of performance conditions as of ~~November 25, 2017~~February 29, 2020, the Company will be required to make payments of ~~$1.8~~$3.0 million over the next ~~year.~~twelve months.

~~9. Stockholders'~~11. Stockholders’ Equity

~~Successor Stock~~

~~The Company is authorized to issue 600,000,000~~Public Equity Offering

On October 9, 2019, we completed an underwritten public offering of 13,379,205 shares of common stock, par value $0.01 per share, of which 70,562,477 shares of Simply Good Foods were issued at the time of the Business Combination transaction and at August 26, 2017. The number of outstanding shares as of August 26, 2017 was previously reported to be 70,628,322 due to the improper inclusion of 65,845 restricted stock units that were not outstanding shares ofour common stock at ~~August 26, 2017.~~a price to the public of $26.35 per share. The ~~disclosure~~Company paid underwriting discounts and commissions of ~~shares outstanding at August 26, 2017 has been updated~~$0.19 per share resulting in ~~this report~~net proceeds to ~~reflect~~us of $26.16 per share, or approximately $350.0 million (the “Offering”). The Company paid $0.8 million for legal, accounting and registrations fees related to the ~~actual number~~Offering. The net proceeds were used to pay a portion of ~~shares outstanding.~~the purchase price and related fees and expenses for the Acquisition of Quest.

During the thirteen week period ended November 25, 2017, equity warrants were converted for 20,096 shares of common stock and 70,582,573 shares of common stock were issued and outstanding at November 25, 2017. Please refer to Note 11 regarding the treatment of stock-based compensation and restricted stock units.

~~Successor~~ Equity Warrants

Prior to the ~~Business Combination,~~Acquisition of Atkins, Conyers Park issued ~~13,416,667 public warrants and~~ 6,700,000 private placement warrants. ~~Simply Good Foods~~The Company assumed these private placement warrants in connection with the ~~Conyers Park equity warrants upon the change~~Acquisition of ~~control event.~~Atkins. As a result of the ~~Business Combination,~~Acquisition of Atkins, the warrants issued by Conyers Park ~~are~~were no longer exercisable for shares of Conyers Park common stock, but were instead ~~are~~ exercisable for common stock of ~~Simply Good Foods.~~the Company. All other features of the warrants ~~remain~~were unchanged.

~~Each whole warrant entitles the holder~~ The private placement warrants to purchase one whole share of the Company's common stock at a price of $11.50 per share, subject to adjustment as discussed below. The public warrants became exercisable 30 days after the completion of the Business Combination and expire five years after that date, or earlier upon redemption or liquidation. The private warrants do not expire.

The Company may call the public warrants for redemption, in whole and not in part, at a price of $0.01 per warrant upon not less than 30 days prior written notice of redemption to each warrant holder if the reported last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ended three business days before the Company sends the notice of redemption to the warrant holders.

~~If the number of outstanding~~6,700,000 shares of the Company’s common stock ~~is increased~~remain outstanding.

Stock Repurchase Program

On November 13, 2018, the Company announced that its Board of Directors had adopted a $50.0 million stock repurchase program. Under the stock repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated transactions. The stock repurchase program does not obligate the Company to acquire any specific number of shares or acquire shares over any specific period of time. The stock repurchase program may be suspended or discontinued at any time by ~~a stock dividend payable in~~the Company, and does not have an expiration date.

During the twenty-six weeks ended February 29, 2020, the Company did not repurchase any shares of common stock. As of February 29, 2020, approximately $47.9 million remained available under the stock or by a split-up of shares of common stock or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the number of shares of common stock issuable on exercise of each warrant will be increased in proportion to such increase in the outstanding shares of common stock.repurchase program.

If the number of outstanding shares of the Company’s common stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of common stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of common stock issuable on exercise of each warrant will be decreased in proportion to such decrease in outstanding shares of common stock.

~~Due to the conversion of 20,096 warrants during the thirteen weeks ended November 25, 2017, the Company had 20,096,571 warrants outstanding as of November 25, 2017.~~

~~Table of Contents~~

~~Predecessor Warrant Liabilities of Atkins~~

Atkins, the predecessor company, had outstanding warrants prior to the transaction forming Simply Good Foods. These Warrants were settled as a part of the Business Combination. Refer to Note 3 for additional details on the Business Combination.

~~Historically, the value of the predecessor warrants were reflected as a liability in the accompanying consolidated financial statements and adjusted to fair value each reporting period through~~ ~~change in warrant liabilities~~ ~~in the accompanying Consolidated Statements of Operations and Comprehensive Income. For the predecessor entity, other income (expenses) of $0.7 million was included in the~~ ~~changes in warrant liabilities~~ ~~in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income for the thirteen weeks ended November 26, 2016.~~

~~10.~~12. Earnings Per Share

Basic earnings per share is based on the weighted average number of common shares issued and ~~outstanding for~~outstanding. In periods in which the ~~Successor period. Diluted~~Company has net income, diluted earnings per share is based on the weighted average number of common shares issued and outstanding and the effect of all dilutive common stock equivalents outstanding during each period.

In periods in which the Company has a net loss, diluted earnings per share is based on the weighted average number of common shares issued and outstanding. The effect of including common stock equivalents outstanding is considered anti-dilutive.

Table of Contents

The following table reconciles the numerators and denominators used in the computations of both basic and diluted earnings per share:



	Thirteen Weeks Ended				Twenty-Six Weeks Ended
(In thousands, except per share data)	February 29, 2020		February 23, 2019		February 29, 2020		February 23, 2019
Basic earnings per share computation:
Numerator:
Net income	$	10,657	$	12,722	$	5,864	$	27,979
Denominator:
Weighted average common shares - basic	95,339,489		81,900,352		92,524,061		79,595,330
Basic earnings per share from net income	$	0.11	$	0.16	$	0.06	$	0.35
Diluted earnings per share computation:
Numerator:
Net income	$	10,657	$	12,722	$	5,864	$	27,979
Denominator:
Weighted average common shares outstanding - basic	95,339,489		81,900,352		92,524,061		79,595,330
Public and Private Warrants	3,706,986		2,745,135		3,766,141		3,818,870
Employee stock options	1,173,631		664,950		1,194,968		612,304
Non-vested shares	116,465		39,759		112,444		35,975
Weighted average common shares - diluted	100,336,571		85,350,196		97,597,614		84,062,479
Diluted earnings per share from net income	$	0.11	$	0.15	$	0.06	$	0.33

Thirteen Weeks Ended
November 25, 2017
(In thousands, except share data) (Successor)
Basic earnings per share computation:
Numerator:
Net income available to common stock shareholders $ 10,218
Denominator:
Weighted average common shares - basic 70,571,008
Basic earnings per share from net income $ 0.14
Diluted earnings per share computation:
Numerator:
Net income available to common stock shareholders $ 10,218
Denominator:
Weighted average common shares outstanding - basic 70,571,008
Warrant conversion 659,301
Restricted stock units 10,281
Weighted average common shares - diluted ⁽¹⁾
71,240,590
Diluted earnings per share from net income $ 0.14
⁽¹⁾Excludes the effect of non-qualified stock options as the strike price exceeds the average market price for the period

Earnings per share calculations for the thirteen weeks ended February 29, 2020 and February 23, 2019 excluded 0.4 million and 0.4 million shares of stock options issuable upon exercise, respectively, that would have been anti-dilutive. Earnings per share calculations for the thirteen weeks ended February 23, 2019 excluded 0.1 million non-vested shares that would have been anti-dilutive.

Earnings per share calculations for the twenty-six weeks ended February 29, 2020 and February 23, 2019 excluded 0.3 million and 0.3 million shares of stock options issuable upon exercise, respectively, that would have been anti-dilutive. Earnings per share calculations for the twenty-six weeks ended February 23, 2019 excluded 0.1 million non-vested shares that would have been anti-dilutive.

~~11. Stock Option~~13. Omnibus Incentive Plan

Stock-based compensation includes stock options, ~~and~~ restricted stock unit, performance stock unit awards and stock appreciation rights, which are awarded to employees, directors, and consultants of the Company. Stock-based compensation expense is recognized ~~for equity awards~~on a straight-line basis over the ~~vesting~~requisite service period of the award based on their ~~grant-date~~grant date fair value. Stock-based compensation expense is included withinGeneral and administrative expense, which is the same financial statement caption where the recipient’s other compensation is reported.

The Company issued stock options to purchase 67,400 shares of common stock convertible at $12.00 per share during the thirteen week period ended November 25, 2017 for a total of 2,645,092 stock options outstanding as of November 25, 2017. The Company also awarded additional 67,500 restricted stock units at a fair value of $11.91 per share during the thirteen week period ended November 25, 2017 for a total of 133,345 outstanding restricted stock units as of November 25, 2017. The Company recorded ~~$1.1~~$2.1 million and $1.4 million of stock-based compensation expense ~~during~~in the thirteen ~~week successor period~~weeks ended ~~November 25, 2017 compared to $0.5~~February 29, 2020 and February 23, 2019, respectively. The Company recorded $3.8 million and $2.5 million of stock-based compensation expense ~~recorded during~~in the ~~thirteen week predecessor period~~twenty-six weeks ended ~~November 26, 2016.~~February 29, 2020 and February 23, 2019, respectively.

1620

Table of Contents

Stock Options

The following table summarizes stock option activity for the twenty-six weeks ended February 29, 2020:



	Shares		Weighted average exercise price		Weighted average remaining contractual life (in years)
Outstanding as of August 31, 2019	2,748,735		$	13.35
Granted	194,014		24.20
Exercised	(76,366	)	12.20
Forfeited	—		—
Outstanding as of February 29, 2020	2,866,383		$	14.11	7.77

Vested and expected to vest as of February 29, 2020	2,866,383		$	14.11	7.77

Exercisable as of February 29, 2020	1,520,073		$	12.69	7.50

As of ~~August 26, 2017, 65,845 shares~~February 29, 2020, the Company had $4.3 million of total unrecognized compensation cost related to stock option plans that will be recognized over a weighted average period of 1.08 years. During the twenty-six week period ended February 29, 2020, the Company received $0.9 million in cash from stock option exercises.

Restricted Stock Units

The following table summarizes restricted stock unit activity for the twenty-six weeks ended February 29, 2020:



	Units		Weighted average grant-date fair value
Non-vested as of August��31, 2019	92,400		$	17.50
Granted	132,633		25.49
Vested	(50,927	)	18.20
Forfeited	(2,284	)	15.87
Non-vested as of February 29, 2020	171,822		$	23.49

As of February 29, 2020, the Company had $3.2 million of total unrecognized compensation cost related to restricted stock units that will be recognized over a weighted average period of 1.96 years.

Performance Stock Units

During the twenty-six weeks ended February 29, 2020, the board of directors granted performance stock units under the Company’s equity compensation plan. Performance stock units vest in a range between 0% and 200% based upon certain performance criteria in a three-year period. Performance stock units were ~~outstanding which~~valued using a Monte-Carlo simulation.

The following table summarizes performance stock unit activity for the twenty-six weeks ended February 29, 2020:



	Units		Weighted average grant-date fair value
Non-vested as of August 31, 2019	192,389		$	11.93
Granted	121,288		27.39
Vested	—		—
Forfeited	(1,443	)	15.74
Non-vested as of February 29, 2020	312,234		$	17.92

As of February 29, 2020, the Company had ~~not fully vested and are not included~~$4.3 million of total unrecognized compensation cost related to performance stock units that will be recognized over a weighted average period of 2.08 years.

Table of Contents

Stock Appreciation Rights

Stock appreciation rights ("SARs") permit the holder to participate in the ~~outstanding common stock included~~appreciation of the Company's Common Stock price. The Company's SARs settle in shares of Common Stock once the applicable vesting criteria has been met. Stock appreciation rights cliff vest 3 years from the date of grant and must be exercised within 10 years.

The following table summarizes SARs activity for the ~~Condensed Consolidated Balance Sheets.~~twenty-six weeks ended February 29, 2020:



	Shares	Weighted average exercise price		Weighted average remaining contractual life (in years)
Outstanding as of August 31, 2019	—	$	—
Granted	150,000	24.20
Exercised	—	—
Forfeited	—	—
Outstanding as of February 29, 2020	150,000	$	24.20	9.67

Vested and expected to vest as of February 29, 2020	150,000	$	24.20	9.67

Exercisable as of February 29, 2020	—	$	—	0.00

As of February 29, 2020, the Company had $0.4 million of total unrecognized compensation cost related to its SARs that will be recognized over a weighted average period of 2.67 years.

~~12. Related Party Transactions~~

~~Successor~~

~~Tax Receivable Agreement~~

The TRA provides for the effective payment to the former equity holders of Atkins for cash savings, if any, in U.S. federal, state and local income tax, or franchise tax that is actually realized as a result of the Business Combination discussed in Note 7.

~~Predecessor~~

Pursuant to an arrangement with the former majority stockholder of Atkins, the Predecessor Company was obligated to pay a management fee of the greater of $0.9 million or an amount equal to 2% of consolidated adjusted earnings before interest, tax, depreciation and amortization (EBITDA), as defined by the First Lien and Second Lien, which can be prorated upon a fiscal year-end change. Annual reimbursements for out-of-pocket expenses were limited to $0.2 million.

~~For the thirteen week predecessor period ended November 26, 2016, the management fee expense was $0.4 million.~~

~~13.~~14. Segment and Customer Information

Following the Acquisition of Quest, the Company's operations are organized into two operating segments; Atkins and Quest, which are aggregated into 1 reporting segment, due to similar financial, economic and operating characteristics. The ~~Company has organized its operations into one~~ operating ~~segment that sells its branded nutritional foods and snacking products designed around~~segments are also similar in the ~~nutrition principles~~following areas: (a) the nature of the ~~Atkins eating approach.~~products; (b) the nature of the production processes; (c) the methods used to distribute products to customers, (d) the type of customer for the products, and (e) the nature of the regulatory environment. The results of the operating ~~segment~~segments are reviewed by the Company’s chief operating decision maker, our Chief Executive Officer, to make decisions about resource expenditures and assessing financial performance. ~~This~~These operating ~~segment is~~segments are therefore aggregated into the Company’s only reportable segment.

~~14. Subsequent Events~~

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into law. The change in the tax law will be partially effective in the current 2018 fiscal year and fully effective in the 2019 fiscal year. The primary impacts to the Company include repeal of the alternative minimum tax regime, decrease of the corporate income tax rate structure, and net operating loss limitations. These changes will have a material impact to the value of deferred tax assets and liabilities, the value of the Company’s TRA, and the Company’s future taxable income and effective tax rate.

Additionally, we currently anticipate the enacted changes in the corporate tax rate and calculation of taxable income will have a favorable effect on our financial condition, profitability, and/or cash flows. The Company is analyzing the Tax Cuts and Jobs Act with its professional advisers. Until such analysis is complete, the full impact of the new tax law on the Company in future periods is uncertain, and no assurances can be made by the Company on any potential impacts.

1722

Table of Contents

15. Subsequent Event

In December 2019, a novel coronavirus disease (“COVID-19”) was reported and in January 2020, the World Health Organization (“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.

As our fiscal second quarter 2020 ended on February 29, 2020, many of the initial economic effects of the early stages of the COVID-19 outbreak in the United States and the federal, state and local government-imposed movement restrictions designed to slow the pace of the outbreak occurred after the close of the quarter. In recent weeks, we have engaged actively with the various elements of our value chain, including our customers, contract manufactures, and logistics and transportation providers to meet demands for our products and to remain informed of any challenges within our value chain. 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 to meet consumer needs. We continue to monitor customer and consumer demands, and intend to adapt our plans as needed to continue to drive our business and meet our obligations during the COVID-19 situation.

We have implemented remote work arrangements and restricted business travel effective 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.

In March 2020, the Company drew $25.0 million against the Revolving Credit Facility to build up inventory and as a precautionary measure to ensure it maintains ample financial flexibility in light of the spread of COVID-19. The Company intends to use the proceeds of the Revolving Credit Facility to meet near-term elevated customer orders in response to COVID-19 as well as to increase finished goods inventory of some of its high velocity items, support working capital and support general corporate purposes. The Company may repay borrowings under the Revolving Credit Facility at any time without penalty.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements. When used anywhere in this Report, the words “expect,” “believe,” “anticipate,” “estimate,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements. These statements relate to future events or our future financial or operational performance and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. These statements include, but are not limited to, the effect of the novel coronavirus (COVID-19) on our business, financial condition and results of operations. We disclaim any undertaking to publicly update or revise any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. These statements reflect our current views with respect to future events and are based on assumptions ~~and~~ subject to risks and uncertainties. Such risks and uncertainties include those related to our ability to sell our products.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our ~~Consolidated Financial Statements~~consolidated financial statements and related notes included in ~~Item 8 of~~ our Annual Report on Form 10-K for the fiscal year ended August ~~26, 2017 ("~~31, 2019 (“Annual ~~Report"~~Report”). and our unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this Report. In addition to historical information, the following discussion contains forward-looking statements, such as statements regarding the Company’s expectation for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ materially from the Company’s expectations. The Company’s actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified in Item 1A. “Risk Factors” of this Report below and in Item 1A1A. “Risk Factors” of our Annual ~~Report on Form 10-K for the 2017 fiscal year.~~Report. The Company assumes no obligation to update any of these forward-looking statements.

Unless the context requires otherwise in this Report, the terms “we,” “us,” ~~“our” and~~“our,” the “Company” and “Simply Good Foods” refer to The Simply Good Foods ~~Inc.~~Company and its subsidiaries.

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Report. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including, without limitation, the disclosures in our Annual Report.

Overview

Simply Good Foods is a developer, marketer and seller of branded nutritional foods and snacking products. Our highly-focused product portfolio consists primarily of nutrition bars, RTD shakes, snacks and confectionery products marketed under the Atkins®, SimplyProtein®, Atkins Harvest Trail, and Atkins Endulge® brand names. Over the past 45 years, Atkins has become an iconic American brand that for many consumers stands for “low carb,” “low sugar” and “protein rich” nutrition. In our core snacking business, we strive to offer a complete line of nutrition bars, RTD shakes and confections that satisfy hunger while providing consumers with a convenient, “better-for-you” snacking alternative. In addition to snacking products, we have a license arrangement for frozen meals sold in the United States by Bellisio Foods, Inc.

We are a leading brand in nutritional snacking with a broad and growing consumer base. Our sales, marketing and R&D capabilities enable us to distribute products to a national customer base across the mass merchandiser, grocery and drug channels. We believe that our broad brand recognition, depth of management talent and strong cash generation position us to continue to innovate in the Atkins brand and acquire other brands, and thereby become an industry leading snacking platform. To that end, in December 2016, we completed the acquisition of Wellness Foods, Inc., a Canada-based developer, marketer and seller of the SimplyProtein® brand that is focused on protein-rich and low-sugar products, which management believes has significant opportunity for expansion in the U.S.

~~Seasonality~~

~~We have experienced in the past, and expect to continue to experience, seasonal fluctuations in our retail sales as a result of consumer spending patterns~~. Historically, the months of January to May result in the greatest retail sales due to renewed consumer focus during the resolution season following New Year’s Day, as well as significant customer merchandising around that time.We believe these consumer spending patterns are driven primarily by the predisposition of consumers to adjust their approach to nutrition at certain times of the year as well as the timing of our advertising linked with key customer promotion windows.

~~Matters Affecting Comparability~~

~~Our results of operations for the periods presented in this section were affected by the following:~~

~~Acquisition of Atkins~~

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. The Company’s nutritious snacking platform consists of 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; 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; and SimplyProtein® for consumers looking for protein-enhanced snacks made with fewer, simple ingredients. 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.

To that end, in November 2019, we completed the acquisition of Quest Nutrition, LLC (“~~Simply Good Foods”~~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.”

Preliminary Observations on the Effects of COVID-19

In December 2019, a novel coronavirus disease (“COVID-19”) was ~~formed~~reported and in January 2020, the World Health Organization (“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 ~~30, 2017 to consummate~~11, 2020, the WHO characterized COVID-19 as a ~~business combination with NCP-ATK Holdings, Inc. (“Atkins”) and Conyers Park Acquisition Corp (“Conyers Park”). Conyers Park, a special purpose acquisition company (“SPAC”), was formed~~pandemic.

As our fiscal second quarter 2020 ended on ~~April 20, 2016 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.~~

~~On April 10, 2017, Conyers Park and Atkins entered into a definitive agreement (the “Merger Agreement”). Under the terms~~February 29, 2020, many of the ~~agreement, Conyers Park and Atkins combined under a new holding company, Simply Good Foods, which is listed on the NASDAQ Capital Market under the symbol “SMPL” as of closing~~initial economic effects of the ~~Business Combination.~~

~~On July 7, 2017, Simply Good Foods completed the business combination (the “Business Combination”) with Conyers Park and Atkins. As a result Simply Good Foods owns all~~early stages of the ~~equity~~COVID-19 outbreak in ~~Atkins.~~

Asthe United States and the federal, state and local government-imposed movement restrictions designed to slow the pace of the outbreak occurred after the close of the quarter. Retail takeaway for our products during the first half of March 2020 increased significantly in connection with a surge in consumer demand for shelf stable food products. However, retail takeaway for our products slowed noticeably in the second half of March, underscoring the unpredictable nature of current consumer purchasing behavior we believe is a result of the ~~Business Combination, Simply Good Foods~~current COVID-19 movement restrictions. In contrast to the volatile consumer purchasing patters at retail, ecommerce sales have been strong overall. We believe the severity and duration of the COVID-19 pandemic is uncertain and such uncertainty will likely continue during the ~~acquirer~~second half of our fiscal year. We also believe there will likely continue to be volatility in third party reported retail takeaway data for ~~accounting~~our products due to the ongoing COVID-19 outbreak.

In recent weeks, we have engaged actively 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, during March 2020 we began to increase finished goods inventory of some of our high velocity products. 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, and intend to adapt our plans as needed to continue to drive our business and meet our obligations during the evolving COVID-19 situation.

In conjunction with our decision to increase finished goods inventory of some of our high velocity products, as well as for other working capital and general corporate purposes, we drew down $25 million on our revolving credit facility which had $75 million of availability. With our cash and ~~the successor while Atkins is the acquiree and accounting predecessor. Our financial statement presentation~~cash equivalents as of March 28, 2020 of approximately $78.7 million, which includes the proceeds from the $25.0 million revolving credit facility draw, and expected cash flow from operations, 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.

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 ~~statements~~reporting systems, internal control over financial reporting, and disclosure controls and procedures.

Our current preliminary observations on the effects of ~~Atkins as “Predecessor” for periods prior~~COVID-19 assumes there is not a material change to customer operations, consumer purchasing behavior, or unexpected changes to our supply chain over the remainder of the year due to the ~~Closing Date and of Simply Good Foods for periods after~~COVID-19 situation. See the ~~Closing Date, including the consolidation of Atkins. Following the consummation of the Business Combination, we are obligated to make payments~~important information in Item 1A. Risk Factors below, under the ~~Tax Receivable Agreement (the “TRA”). For convenience, we have also included supplemental pro forma information for~~caption Pandemics, epidemics or disease outbreaks, such as the first thirteen weeks ended in fiscal 2017 that gives effect to the Business Combination as if such transaction had been consummated on August 30, 2015. References in this Quarterly Report to information provided on a pro forma basis refer to such supplemental pro formanovel coronavirus (“COVID-19”), may disrupt our business, including, among other things, consumption and trade patterns, our supply chain and production processes, each of which could materially affect our operations, liquidity, financial ~~information.~~condition and results of operations.”

Our Reportable Segment

~~Our business is~~

Following the Acquisition of Quest, the Company's operations are organized ~~around~~into two operating segments; Atkins and Quest, which are aggregated into one ~~reportable~~reporting segment, ~~based on our go-to-market strategies,~~due to similar financial, economic and operating characteristics. The operating segments are also similar in the ~~objectives~~following areas: (a) the nature of the ~~business~~products; (b) the nature of the production processes; (c) the methods used to distribute products to customers, (d) the type of customer for the products, and ~~how our~~(e) the nature of the regulatory environment. The results of the operating segments are reviewed by the Company’s chief operating decision maker, our ~~CEO, monitors~~Chief Executive Officer, to make decisions about resource expenditures and assessing financial performance. These operating ~~performance and allocates resources.~~segments are therefore aggregated into the Company’s only reportable segment.

Key Financial Definitions

Net ~~sales~~. sales.Net sales consists primarily of product sales less the cost of promotional activities, slotting fees and other sales credits and adjustments, including product returns. ~~The Company~~We also ~~includes~~include licensing revenue from the frozen meals business in net sales.

Cost of goods ~~sold~~. sold.Cost of goods sold consists primarily of the costs we pay to ~~its~~our contract manufacturing partners to produce the products sold. These costs include the purchase of raw ingredients, packaging, shipping and handling, warehousing, depreciation of warehouse equipment, and a tolling charge for the contract manufacturer. Cost of goods sold includes products provided at no charge as part of promotions and the non-food materials provided with customer orders.

Operating ~~expenses~~. expenses.Operating expenses consist primarily of selling and marketing, ~~distribution ,~~ general and administrative, depreciation and amortization, and ~~other expenses~~. business transaction costs. The following is a brief description of the components of operating expenses:


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

~~Distribution.~~ ~~Distribution is principally freight associated with shipping and handling of products to the customer.~~


•	General and administrative. General and administrative expenses are comprised of expenses associated with corporate and administrative functions that support our business, including fees for employee salaries, professional services, insurance and other general corporate expenses.


•	Depreciation and amortization. Depreciation and amortization costs consist of costs associated with the depreciation of fixed assets and capitalized leasehold improvements and amortization of intangible assets.


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

~~Selling.~~ ~~Selling expenses are comprised of broker commissions and co-op advertising costs.~~


•	Loss in fair value change of contingent consideration - TRA liability. Loss in fair value change of contingent consideration - TRA liability charges relate to fair value adjustments of the Income Tax Receivable Agreement (the “TRA”) liability.

~~Marketing. Marketing expenses are comprised of 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 fees for employee salaries, professional services, insurance and other general corporate expenses. ~~We expect our general and administrative fees to increase as we incur additional legal, accounting, insurance and other expenses associated with being a public company.~~

~~Depreciation and amortization.~~ ~~Depreciation and amortization costs consist of costs associated with the depreciation of fixed assets and capitalized leasehold improvements and amortization of intangible assets.~~

~~Other expense.~~ ~~Other expense is principally one-time costs of restructuring consisting of severance and related expenses.~~

Results of Operations

Simply Good Foods second quarter results exceeded our expectations with strong performance from both the legacy Atkins and Quest brands. Atkins net sales increased 12.1% driven by point of sales growth in measured and non-measured channels and a slight seasonal inventory build. Combined with good cost controls, legacy Atkins margins and profit were up nicely. As expected, Quest net sales growth was strong, up double digits on a percentage basis versus the comparable year ago period resulting in margin improvement.

Atkins® brand retail takeaway performance for the thirteen weeks ended February 29, 2020 increased 6.1% in the U.S. measured channels despite a very difficult comparison in the same period a year ago. Additionally, our non-measured e-commerce business momentum

continued and contributed to our second quarter net sales growth. Quest® brand retail takeaway in measured channels continued to be strong and increased 27.1% in the quarter. As a result total Simply Good Foods retail takeaway in U.S. measured channels increased 11.8%, outpacing nutritional snacking category growth.

Overall, the first half of fiscal 2020 performance exceeded our expectations with no material impact from COVID-19. Also, the Quest integration is on track as well as our timeline to achieve the identified $20 million in synergies.

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 ~~EBITDA.~~Diluted Earnings Per Share. Because not all companies use identical calculations, this presentation of Adjusted EBITDA and Adjusted ~~EBITDA~~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 ~~EBITA and~~ Adjusted EBITDA to net ~~income.~~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.

Table of Contents

Comparison of Unaudited Results for the ~~Successor Period for~~Thirteen Weeks Ended February 29, 2020 and the Thirteen Weeks Ended ~~November 25, 2017 and the Predecessor Period for the Thirteen Weeks Ended November 26, 2016.~~February 23, 2019

The following unaudited table presents, for the periods indicated, selected information from our ~~condensed consolidated financial results,~~Condensed Consolidated Statements of Operations and Comprehensive Income, including information presented as a percentage of net ~~sales (in thousands):~~sales:


	Successor					Predecessor					Thirteen Weeks Ended					Thirteen Weeks Ended
	unaudited					unaudited
	13-weeks ended					13-weeks ended
(in thousands)	November 25, 2017			% of Sales		November 26, 2016			% of Sales
(In thousands)											February 29, 2020			% of Sales		February 23, 2019			% of Sales
Net sales	$	106,587		100.0	%	$	99,803		100.0	%	$	227,101		100.0	%	$	123,800		100.0	%
Cost of goods sold	53,830			50.5	%	51,091			51.2	%	141,707			62.4	%	74,145			59.9	%
Gross profit	52,757			49.5	%	48,712			48.8	%	85,394			37.6	%	49,655			40.1	%

Operating Expenses:
Distribution	4,817			4.5	%	4,369			4.4	%
Selling	3,903			3.7	%	4,293			4.3	%
Marketing	9,850			9.2	%	9,206			9.2	%
Operating expenses:
Selling and marketing											27,041			11.9	%	14,729			11.9	%
General and administrative	12,079			11.3	%	9,931			10.0	%	28,103			12.4	%	13,732			11.1	%
Depreciation and amortization	1,934			1.8	%	2,453			2.5	%	4,287			1.9	%	1,902			1.5	%
Change in fair value of contingent consideration - TRA liability	642			0.6	%	—			—	%
Other Expense	246			0.2	%	—			—	%
Business transaction costs											694			0.3	%	290			0.2	%
Total operating expenses	33,471			31.4	%	30,252			30.3	%	60,125			26.5	%	30,653			24.8	%

Income from operations	19,286			18.1	%	18,460			18.5	%	25,269			11.1	%	19,002			15.3	%

Other income (expense):
Changes in warrant liabilities	—			—	%	722			0.7	%
Other (expense) income:
Interest income											85			—	%	884			0.7	%
Interest expense	(3,019		)	(2.8	)%	(7,063		)	(7.1	)%	(10,589		)	(4.7	)%	(3,344		)	(2.7	)%
Gain (loss) on foreign currency transactions	355			0.3	%	(610		)	(0.6	)%	(194		)	(0.1	)%	130			0.1	%
Other income	86			0.1	%	177			0.2	%	8			—	%	77			0.1	%
Total other expense	(2,578		)	(2.4	)%	(6,774		)	(6.8	)%	(10,690		)	(4.7	)%	(2,253		)	(1.8	)%

Income before income taxes	16,708			15.7	%	11,686			11.7	%	14,579			6.4	%	16,749			13.5	%
Income tax expense	6,490			6.1	%	4,899			4.9	%	3,922			1.7	%	4,027			3.3	%
Net income	$	10,218		9.6	%	$	6,787		6.8	%	$	10,657		4.7	%	$	12,722		10.3	%

Other financial data:
Adjusted EBITDA	$	23,710		22.2	%	$	22,251		22.3	%
Adjusted EBITDA⁽¹⁾											$	41,731		18.4	%	$	22,965		18.6	%

(1) Adjusted EBITDA is a non-GAAP financial metric. See “Reconciliation of Adjusted EBITDA” below for a reconciliation of Adjusted EBITDA to net income for each applicable period

Net sales. Net sales of ~~$106.6~~$227.1 million ~~increased $6.8~~represented an increase of $103.3 million, or ~~6.8%~~83.4%, for the thirteen weeks ended ~~November 25, 2017~~February 29, 2020 compared to the thirteen weeks ended ~~November 26, 2016.~~February 23, 2019. The net sales increase of 83.4% was driven by the acquired Quest business, which drove 71.3% of the increase, and legacy Atkins brand organic growth of 12.1%, primarily due to solid retail takeaway. The increase in net sales was ~~driven primarily~~slightly offset by ~~organic sales growth of $4.0 million driven by the U.S. and the addition of Wellness Foods of $2.8 million.~~higher trade promotions.

~~Table of Contents~~

Cost of goods sold. Cost of goods sold increased ~~$2.7~~$67.6 million, or ~~5.4%~~91.1%, for the thirteen weeks ended ~~November 25, 2017~~February 29, 2020 compared to the thirteen weeks ended ~~November 26, 2016.~~February 23, 2019. The cost of goods sold increase was ~~primarily due to~~driven by sales volume growth, the slightly lower gross profit margins of ~~$3.8~~the Quest business, and the effect of the non-cash $5.1 million ~~offset by product mix~~inventory step-up related to the Acquisition of ~~$0.8 million and a reduction in input costs of $0.3 million.~~Quest.

Gross profit. Gross profit increased ~~$4.0~~$35.7 million, or ~~8.3%~~72.0%, for the thirteen ~~week period~~weeks ended ~~November 25, 2017~~February 29, 2020 compared to the thirteen ~~week period~~weeks ended ~~November 26, 2016.~~February 23, 2019. Gross ~~margin~~profit of ~~$52.8~~$85.4 million, or ~~49.5%~~37.6% of net sales, for the thirteen weeks ended ~~November 25, 2017 improved 70 bps~~February 29, 2020 decreased 250 basis points from ~~48.8%~~40.1% of net sales for the thirteen weeks ended ~~November 26, 2016 due to favorable product mix~~February 23, 2019. The decrease in gross margin was primarily the result of the non-cash $5.1 million inventory step-up and ~~a reduction in input costs.~~slightly lower gross profit margins of the Quest business.

Table of Contents

Operating expenses. Operating expenses increased ~~$3.2~~$29.5 million, or ~~10.6%~~96.1%, for the thirteen ~~week period~~weeks ended ~~November 25, 2017~~February 29, 2020 compared to the thirteen ~~week period~~weeks ended ~~November 26, 2016~~February 23, 2019 due to the following:


•	Selling and marketing. Selling and marketingexpenses increased $12.3 million, or 83.6%, for the thirteen weeks ended February 29, 2020 compared to the thirteen weeks ended February 23, 2019. The increase was primarily related to the Acquisition of Quest of $8.9 million, and an increase in television media and marketing investments of $2.3 million.

~~Selling.~~ ~~Selling~~


•	General and administrative. General and administrative expenses increased $14.4 million, or 104.7%, for the thirteen weeks ended February 29, 2020 compared to the thirteen weeks ended February 23, 2019. The increase was due to the Acquisition of Quest of $10.3 million, Quest integration related costs of $3.7 million and stock based compensation of $0.7 million.


•	Depreciation and amortization. Depreciation and amortization expenses increased $2.4 million, or 125.4%, for the thirteen weeks ended February 29, 2020 compared to the thirteen weeks ended February 23, 2019. The increase was primarily due to amortization for the intangible assets recognized in the Acquisition of Quest of $2.1 million.


•	Business transaction costs. Business transaction costs increased $0.4 million for the thirteen weeks ended February 29, 2020 compared to the thirteen weeks ended February 23, 2019. The $0.7 million recorded in the thirteen weeks ended February 29, 2020 was comprised of expenses related to the Acquisition of Quest.

Interest income. Interest income decreased ~~$0.4~~$0.8 million ~~or 9.1%,~~ for the thirteen ~~week period~~weeks ended ~~November 25, 2017~~February 29, 2020 compared to the thirteen ~~week period~~weeks ended ~~November 26, 2016. The decrease was primarily driven by broker savings~~February 23, 2019, due to lower cash balances after the Acquisition of ~~$0.2~~Quest.

Interest expense. Interest expense increased $7.2 million ~~and other expenses of $0.2 million.~~

~~Marketing.~~ ~~Marketingexpenses increased $0.6 million, or 7.0%,~~ for the thirteen ~~week period~~weeks ended ~~November 25, 2017 compared to thirteen week period ended November 26, 2016. The increase in expense was primarily driven by an increase in media of $0.4 million and other expenses of $0.2 million.~~

~~Distribution.~~ ~~Distribution expenses increased $0.4 million, or 10.3%, for the thirteen week period ended November 25, 2017~~February 29, 2020 compared to the thirteen ~~week period~~weeks ended ~~November 26, 2016. The increase in distribution expenses was primarily driven by increased volume of $0.3 million and other costs of $0.1 million.~~

~~General and administrative.~~ General and administrative expenses increased $2.1 million for the thirteen week period ended November 25, 2017 compared to the thirteen week period ended November 26, 2016. The increase is related to the acquisition of Wellness Foods of $0.5 million, incremental costs associated with public company operations $0.9 million, and employee related costs of $0.7 million.

~~Depreciation and amortization.~~ Depreciation and amortization expenses decreased $0.5 million for the 13 week period ended November 25, 2017 compared to the thirteen week period ended November 26, 2016. The difference is related to the change in the basis of the amortizable intangible assets revalued at the time of the Business Combination.

~~Change in fair value of contingent consideration - TRA liability~~. The Company recorded $0.6 million in contingent consideration expense for the thirteen week period ended November 25, 2017 which represents the change in the fair value of the TRA resulting from the Business Combination in the prior year.

~~Change in warrant liabilities.~~ For the thirteen week period ended November 26, 2016, a gain of $0.7 million was recorded which related to the fair value change in the predecessor warrant liabilities. The predecessor warrant liabilities were settled in conjunction with the Business Combination in the prior year.

~~Interest expense~~. Interest expense decreased $4.0 million for the thirteen week period ended November 25, 2017 compared to the thirteen week period ended November 26, 2016 which is the result of favorable refinance terms and reduced outstanding principal balance of long-term debtFebruary 23, 2019, due to the ~~Business Combination in~~higher term loan principal amount of $435.5 million for amounts borrowed to partially finance the ~~prior year.~~Acquisition of Quest.

Gain (loss) on foreign currency ~~transactions.~~ transactions. A ~~gain~~loss of ~~$0.4~~$0.2 million in foreign currency transactions was recorded for the thirteen ~~week period~~weeks ended ~~November 25, 2017~~February 29, 2020 compared to a foreign currency ~~loss~~gain of ~~$0.6~~$0.1 million for the thirteen ~~week period~~weeks ended ~~November 26, 2016, representing a favorable~~February 23, 2019. The change ~~of $1.0 million.~~related to changes in foreign currency rates related to international operations.

Income tax ~~expense.~~ expense. Income tax expense decreased $0.1 million, for the thirteen weeks ended February 29, 2020 compared to the thirteen weeks ended February 23, 2019. The decrease in our income tax expense is primarily driven by lower pre-tax book income, offset by non-deductible transaction costs, and other permanent differences.

Adjusted EBITDA. Adjusted EBITDA increased ~~$1.6~~$18.8 million, or ~~32.5%~~81.7%, for the thirteen ~~week period~~weeks ended ~~November 25, 2017~~February 29, 2020 compared to the thirteen ~~week period~~weeks ended November 26, 2016. The difference is primarily due to greater pre-tax income offset by a lower effective tax rate due to lower permanent differences for the thirteen week period ended November 25, 2017 compared to the thirteen week period ended November 26, 2016.

~~Adjusted EBITDA.~~ ~~Adjusted EBITDA increased $1.5 million or 6.6% for the thirteen week period ended November 25, 2017 compared to the thirteen week period ended November 26, 2016.~~February 23, 2019. The increase iswas primarily due to higher gross profit from the organic growth of the Atkins brand and the Acquisition of Quest, partially offset by higher operating ~~expenses.~~expenses adjusted for business transaction costs and integration costs. For a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, see “~~Reconciliation~~“Reconciliation of Adjusted ~~EBITDA~~”.EBITDA” below.

2128

~~Supplemental Unaudited Pro Forma Combined Thirteen Week Period Ended November 26, 2016~~

The following unaudited pro forma financial information has been prepared from the perspective of Atkins and its thirteen week quarter ended November 26, 2016. The unaudited pro forma income statement presents the historical consolidated statement of operations of Atkins for the thirteen weeks ended November 26, 2016, giving effect to the Business Combination as if it had occurred on August 28, 2016.

The unaudited pro forma financial statements give effect to the Business Combination in accordance with the acquisition method of accounting for business combinations. The historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination, are factually supportable and are expected to have a continuing impact on the results of the combined company. The adjustments presented on the unaudited pro forma financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the Business Combination.

The unaudited pro forma financial information is for illustrative purposes only. The financial results may have been different if the Business Combination actually been completed sooner. You should not rely on the unaudited pro forma financial information as being indicative of the historical results that would have been achieved if the Business Combination been completed as of the beginning of fiscal 2017.

~~Unaudited Pro Forma Condensed Consolidated Statement of Operations~~

~~For the Pro Forma Thirteen Week period ended November 26, 2016~~

~~(In thousands)~~

Unaudited Historical (i) Pro Forma
(Predecessor) Unaudited
Thirteen Weeks Ended Pro Forma Adjustments Thirteen Weeks Ended
(in thousands) November 26, 2016 November 26, 2016
Net sales $ 99,803
$ —
$ 99,803
Cost of goods sold 51,091
—

51,091
Gross profit 48,712
—
48,712

Operating Expenses:
Distribution 4,369
—
4,369
Selling 4,293
—
4,293
Marketing 9,206
—
9,206
General and administrative 9,931
346
ii 10,277
Depreciation and amortization 2,453
(561 ) iii 1,892
Other expense —
—
—
Total operating expenses 30,252
(215 ) 30,037

Income from operations 18,460
215
18,675

Other income (expense):
Change in warrant liabilities 722
(722 ) iv —
Interest expense (7,063 ) 3,965
v (3,098 )
Gain (loss) on foreign currency transactions (610 ) —
(610 )
Other income 177
—
177
Total other expense (6,774 ) 3,243
(3,531 )

Income before income taxes 11,686
3,458
15,144
Income tax expense 4,899
1,098
vi 5,997
Net income $ 6,787
$ 2,360
$ 9,147

Other Financial Data (Unaudited):

Adjusted EBITDA (ix)
$ 22,251

$ 22,251



~~i. The amounts presented represent the Predecessor’s historical GAAP results of operations.~~
~~ii. The adjustment represents the incremental stock based compensation expense under the new Simply Good Foods omnibus incentive plan.~~
iii. The adjustment reflects the difference in the intangible asset amortization expense associated with the allocation of purchase price to intangible assets due to the Business Combination. The amortization expense decreased as more indefinite lived intangible assets were identified for the successor entity than the predecessor entity. The amount of amortizable intangible assets identified in the Business Combination decreased from $125.8 million to $88.0 million.
iv. The Simply Good Foods warrants are not liabilities and are accounted for as equity warrants. To make the periods comparable the adjustment represents the corresponding reversal of the predecessor fair value adjustment of expense.
v. The adjustment represents the expected interest expense associated with the new term loan and revolving debt facilities of Simply Good Foods. The predecessor entity had $337.2 million outstanding as of August 27, 2016 while the successor entity had $200.0 million outstanding. The long-term debt of the predecessor entity accrued interest at 6.25% on the first lien and 9.75% on the second lien while the successor debt accrues interest at 3 month LIBOR and 4%. The significant reduction in outstanding principal, and lower interest rates, drive significant expense savings.
~~vi. Represents the effective income tax rate of 39.6%~~
~~ix. Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation to its most directly comparable GAAP measure, see “Reconciliation of Adjusted EBITDA” within this section.~~

Comparison of Unaudited Results for the ~~Thirteen Week Period~~Twenty-Six Weeks Ended ~~November 25, 2017~~February 29, 2020 and the ~~Supplemental Pro Forma Thirteen Week Period~~Twenty-Six Weeks Ended ~~November 26, 2016~~February 23, 2019

For comparative purposes, we are presenting an unaudited statement of operations for the thirteen week period ended November 25, 2017, compared to unaudited supplemental pro forma statement of operations for the thirteen week period ended November 26, 2016. The following unaudited table presents, for the periods indicated, selected information from our ~~supplemented unaudited pro forma condensed consolidated financial results,~~Condensed Consolidated Statements of Operations and Comprehensive Income, including information presented as a percentage of net sales:


	Historical					Pro Forma					Twenty-Six Weeks Ended					Twenty-Six Weeks Ended
	Successor					Predecessor
	unaudited					unaudited
	13-weeks ended					13-weeks ended
(in thousands)	November 25, 2017			% of sales		November 26, 2016			% of sales
(In thousands)											February 29, 2020			% of Sales		February 23, 2019			% of Sales
Net sales	$	106,587		100.0	%	$	99,803		100.0	%	$	379,254		100.0	%	$	244,731		100.0	%
Cost of goods sold	53,830			50.5	%	51,091			51.2	%	231,654			61.1	%	143,156			58.5	%
Gross profit	52,757			49.5	%	48,712			48.8	%	147,600			38.9	%	101,575			41.5	%

Operating Expenses:
Distribution	4,817			4.5	%	4,369			4.4	%
Selling	3,903			3.7	%	4,293			4.3	%
Marketing	9,850			9.2	%	9,206			9.2	%
Operating expenses:
Selling and marketing											45,475			12.0	%	30,048			12.3	%
General and administrative	12,079			11.3	%	10,277			10.3	%	46,248			12.2	%	25,730			10.5	%
Depreciation and amortization	1,934			1.8	%	1,892			1.9	%	6,740			1.8	%	3,751			1.5	%
Change in fair value of contingent consideration - TRA liability	642			0.6	%	—			—	%
Other Expense	246			0.2	%	—			—	%
Business transaction costs											26,853			7.1	%	1,329			0.5	%
Loss in fair value change of contingent consideration - TRA liability											—			—	%	533			0.2	%
Total operating expenses	33,471			31.4	%	30,037			30.1	%	125,316			33.0	%	61,391			25.1	%

Income from operations	19,286			18.7	%	18,675			18.7	%	22,284			5.9	%	40,184			16.4	%

Other income (expense):
Changes in warrant liabilities	—			—	%	—			—	%
Other (expense) income:
Interest income											1,464			0.4	%	1,665			0.7	%
Interest expense	(3,019		)	(2.8	)%	(3,098		)	(3.1	)%	(15,558		)	(4.1	)%	(6,605		)	(2.7	)%
Gain (loss) on foreign currency transactions	355			0.3	%	(610		)	(0.6	)%
Gain on settlement of TRA liability											—			—	%	1,534			0.6	%
Loss on foreign currency transactions											(178		)	—	%	(268		)	(0.1	)%
Other income	86			0.1	%	177			0.2	%	45			—	%	121			—	%
Total other expense	(2,578		)	(2.4	)%	(3,531		)	(3.5	)%	(14,227		)	(3.8	)%	(3,553		)	(1.5	)%

Income before income taxes	16,708			15.7	%	15,144			15.2	%	8,057			2.1	%	36,631			15.0	%
Income tax expense	6,490			6.1	%	5,997			6.0	%	2,193			0.6	%	8,652			3.5	%
Net income	$	10,218		9.6	%	$	9,147		9.2	%	$	5,864		1.5	%	$	27,979		11.4	%

Other Financial Data (Unaudited):
Adjusted EBITDA	$	23,710		22.2	%	$	22,251		22.3	%
Other financial data:
Adjusted EBITDA⁽¹⁾											$	73,526		19.4	%	$	49,663		20.3	%

(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~~. sales. Net sales of ~~$106.6~~$379.3 million ~~increased $6.8~~represented an increase of $134.5 million, or ~~6.8%~~55.0%, for the ~~thirteen~~twenty-six weeks ended ~~November 25, 2017~~February 29, 2020 compared to the ~~pro forma thirteen~~twenty-six weeks ended ~~November 26, 2016.~~February 23, 2019. The net sales increase of 55.0% was driven by the acquired Quest business, which drove 43.1% of the increase, and legacy Atkins brand organic growth of 11.9%, primarily due to solid U.S. retail takeaway. The increase in net sales was ~~driven primarily~~slightly offset by ~~organic sales growth of $4.0 million driven by the U.S. and the addition of Wellness Foods of $2.8 million.~~higher trade promotions.

Cost of goods sold. Cost of goods sold increased ~~$2.7~~$88.5 million, or ~~5.4%~~61.8%, for the ~~thirteen~~twenty-six weeks ended ~~November 25, 2017~~February 29, 2020 compared to the ~~pro forma thirteen~~twenty-six weeks ended ~~November 26, 2016.The~~February 23, 2019. The cost of goods sold increase was ~~primarily due to~~driven by sales volume growth, the slightly lower gross profit margins of ~~$3.8~~the Quest business, and the effect of the non-cash $7.5 million ~~offset by product mix~~inventory step-up related to the Acquisition of ~~$0.8 million and a reduction in input costs of $0.3 million.~~Quest.

Gross ~~profit~~. profit. Gross profit increased ~~$4.0~~$46.0 million, or ~~8.3%~~45.3%, for the ~~thirteen week period~~twenty-six weeks ended ~~November 25, 2017~~February 29, 2020 compared to the ~~pro forma thirteen week period~~twenty-six weeks ended ~~November 26, 2016.~~February 23, 2019. Gross ~~margin~~profit of ~~$52.8~~$147.6 million, or ~~49.5%~~38.9% of net sales, for the ~~thirteen~~twenty-six weeks ended ~~November 25, 2017 improved 70 bps~~February 29, 2020 decreased 260 basis points from ~~48.8%~~41.5% of net sales for the ~~pro forma thirteen~~twenty-six weeks ended ~~November 26, 2016 due to favorable product mix~~February 23, 2019. The decrease in gross margin was primarily the result of the non-cash $7.5 million inventory step-up and ~~a reduction in input costs.~~slightly lower gross profit margins of the Quest business.

Operating expenses. Operating expenses increased ~~$3.4~~$63.9 million, or ~~11.4%~~104.1%, for the ~~thirteen week period~~twenty-six weeks ended ~~November 25, 2017~~February 29, 2020 compared to the ~~pro forma thirteen week period~~twenty-six weeks ended ~~November 26, 2016~~February 23, 2019 due to the following:


•	Selling and marketing. Selling and marketingexpenses increased $15.4 million, or 51.3%, for the twenty-six weeks ended February 29, 2020 compared to the twenty-six weeks ended February 23, 2019. The increase was primarily related to the Acquisition of Quest of $10.2 million, and an increase in television media and marketing investments of $2.9 million.

~~Selling.~~ ~~Selling~~


•	General and administrative. General and administrative expenses increased $20.5 million, or 79.7%, for the twenty-six weeks ended February 29, 2020 compared to the twenty-six weeks ended February 23, 2019. The increase was due to the Acquisition of Quest of $13.5 million, Quest integration related costs of $5.2 million, and stock based compensation of $1.3 million.


•	Depreciation and amortization. Depreciation and amortization expenses increased $3.0 million, or 79.7%, for the twenty-six weeks ended February 29, 2020 compared to the twenty-six weeks ended February 23, 2019. The increase was primarily due to amortization for the intangible assets recognized in the Acquisition of Quest of $2.6 million.


•	Business transaction costs. Business transaction costs increased $25.5 million for the twenty-six weeks ended February 29, 2020 compared to the twenty-six weeks ended February 23, 2019. The $26.9 million recorded in the twenty-six weeks ended February 29, 2020 was comprised of expenses related to the Acquisition of Quest.


•	Loss in fair value change of contingent consideration - TRA liability. The twenty-six weeks ended February 23, 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 the first quarter of fiscal 2019.

Interest income. Interest income decreased ~~$0.4~~$0.2 million ~~or 9.1%,~~ for the ~~thirteen week period~~twenty-six weeks ended ~~November 25, 2017~~February 29, 2020 compared to the ~~pro forma thirteen week period~~twenty-six weeks ended ~~November 26, 2016. The decrease was primarily driven by broker savings~~February 23, 2019, due to lower cash balances after the Acquisition of ~~$0.2~~Quest.

Interest expense. Interest expense increased $9.0 million ~~and other expenses of $0.2 million.~~

~~Marketing.~~ ~~Marketingexpenses increased $0.6 million, or 7.0%,~~ for the ~~thirteen week period~~twenty-six weeks ended ~~November 25, 2017~~February 29, 2020 compared to the ~~pro forma thirteen week period~~twenty-six weeks ended ~~November 26, 2016. The increase in expense was primarily driven by an increase in media of $0.4 million and other expenses of $0.2 million.~~

~~Distribution.~~ ~~Distribution expenses increased $0.4 million, or 10.3%, for the thirteen week period ended November 25, 2017 compared~~February 23, 2019, due to the ~~pro forma thirteen week period ended November 26, 2016. The increase in distribution expenses was primarily driven by increased volume~~higher term loan principal amount of ~~$0.3 million and other costs of $0.1 million.~~

~~General and administrative.~~ ~~General and administrative expenses increased $1.8 million~~ for the thirteen week period ended November 25, 2017 compared to the pro forma thirteen week period ended November 26, 2016. The increase is related to the acquisition of Wellness Foods of $0.5 million, incremental costs associated with public company operations of $0.9 million, and employee related costs of $0.4 million.

~~Depreciation and amortization.~~ Depreciation and amortization expenses remained consistent between the thirteen week period ended November 25, 2017 compared to the pro forma thirteen week period ended November 26, 2016. The pro forma thirteen week period ended November 26, 2016 is adjusted based on the change in the depreciable basis of intangible assets as if the Business Combination occurred at the beginninga portion of the ~~year.~~

year raised to help fund the Acquisition of Quest

~~Change in fair value~~Gain on settlement of ~~contingent consideration -~~ TRA ~~liability~~. liability. The Company recorded ~~$0.6~~a $1.5 million gain in ~~contingent consideration expense for~~connection with the ~~thirteen week period ended November 25, 2017 which represents~~settlement of the ~~fair value change~~TRA liability in the ~~TRA resulting from the Business Combination in the prior year.~~

twenty-six weeks ended February 23, 2019.

~~Interest expense.~~ Interest expense remained consistent between the thirteen week period ended November 25, 2017 and the the pro forma thirteen week period ended November 26, 2016. The pro forma thirteen week period ended November 26, 2016 is adjusted based of the long-term debt of the Company as if the Business Combination occurred at the beginning of the year.

Gain ~~(Loss)~~(loss) on foreign currency ~~transactions.~~transactions. A ~~gain~~loss of ~~$0.4~~$0.2 million in foreign currency transactions was recorded for the ~~thirteen week period~~twenty-six weeks ended ~~November 25, 2017~~February 29, 2020 compared to a foreign currency loss of ~~$0.6~~$0.3 million for the ~~pro forma thirteen~~twenty-six weeks ended February 23, 2019. The change relates to changes in foreign currency rates related to international operations.

Income tax expense. Income tax expense decreased $6.5 million, for the twenty-six weeks ended February 29, 2020 compared to the twenty-six weeks ended February 23, 2019. The decrease in our income tax expense was primarily driven by lower pre-tax book income, offset by non-deductible transaction costs, the one-time tax impact of the settlement of the TRA liability during the twenty-six week period ended ~~November 26, 2016, representing a favorable change of $1.0 million.~~February 23, 2019, and other permanent differences.

~~Income tax expense .~~ ~~Income tax expense remained consistent~~

Adjusted EBITDA. Adjusted EBITDA increased $23.9 million, or 48.0%, for the ~~thirteen week period~~twenty-six weeks ended ~~November 25, 2017~~February 29, 2020 compared to the ~~pro forma thirteen week period~~twenty-six weeks ended November 26, 2016. The anticipated effective tax rate assumed within the pro forma financial statements was 39.6% compared to an actual effective tax rate of 38.8% as discussed in Note 7 of the Condensed Consolidated Consolidated Financial Statements included in this Report.

~~Adjusted EBITDA.Adjusted EBITDA increased $1.5 million, or 6.6%, for the thirteen week period ended November 25, 2017 compared to the pro forma thirteen week period ended November 26, 2016.~~February 23, 2019. The increase iswas primarily due to higher gross profit from organic growth of the Atkins brand and the Acquisition of Quest, partially offset by higher operating ~~expenses.~~expenses adjusted for business transaction costs and integration costs. For a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, see “~~Reconciliation~~“Reconciliation of Adjusted ~~EBITDA~~”.EBITDA” below.

2530

Reconciliation of Adjusted EBITDA

Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net income as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP). Simply Good Foods defines Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) as net income ~~(loss)~~ 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 ~~and warrant~~ expense, ~~transaction costs and IPO readiness~~inventory step-up, integration costs, restructuring costs, ~~management fees, transactional exchange impact,~~ ~~change~~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~~. expenses. The Company believes that the inclusion of these supplementary adjustments in presenting Adjusted EBITDA, when used in conjunction with net income, are appropriate to provide additional information to investors, and management of the Company uses Adjusted EBITDA to supplement net income because it reflects more accurately operating results of the on-going operations, enhances the overall understanding of past financial performance and future prospects and allows for greater transparency with respect to the key metrics the Company uses in its financial and operational decision making. The Company also believes that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in its industry.Adjusted EBITDA may not be comparable to other similarly titled captions of other companies due to differences in the non-GAAP calculation.

The following unaudited tables below ~~provides~~provide a reconciliation of Adjusted EBITDA to its most directly comparable GAAP measure, which is net income, ~~(loss),~~ for the thirteen ~~week periods~~and twenty-six weeks ended ~~November 25, 2017 (Successor), November 26, 2016 (Predecessor),~~February 29, 2020 and ~~pro forma period ended November 26, 2016.~~February 23, 2019:

Adjusted EBITDA Reconciliation:
(in thousands)
Thirteen Weeks Ended Thirteen Weeks Ended Thirteen Weeks Ended
November 25, 2017 November 26, 2016 November 26, 2016
(Successor) (Predecessor) (Pro Forma)
Net income $ 10,218
$ 6,787
$ 9,147
Interest 3,019
7,063
3,098
Taxes 6,490
4,899
5,997
Depreciation/Amortization 1,934
2,453
1,892
EBITDA 21,661
21,202
20,134
Stock Option and Warrant Expense 1,068
(196 ) 872
Transaction Fees / IPO Readiness —
8
8
Restructuring 246
—
—
Roark Management Fee —
430
430
Frozen Licensing Media 63
—
—
Non-core legal costs 376
183
183
Change in fair value of contingent consideration - TRA liability 642
—
—
Other (1) (346 ) 624
624
Adjusted EBITDA $ 23,710
$ 22,251
$ 22,251
_____________________
Other items consist principally of exchange impact of foreign currency transactions as well as minor impacts of channel inventory returns



Adjusted EBITDA Reconciliation: (in thousands)	Thirteen Weeks Ended						Twenty-Six Weeks Ended
Adjusted EBITDA Reconciliation: (in thousands)	February 29, 2020			February 23, 2019			February 29, 2020			February 23, 2019
Net income	$	10,657		$	12,722		$	5,864		$	27,979
Interest income	(85		)	(884		)	(1,464		)	(1,665		)
Interest expense	10,589			3,344			15,558			6,605
Income tax expense	3,922			4,027			2,193			8,652
Depreciation and amortization	4,594			1,939			7,119			3,825
EBITDA	29,677			21,148			29,270			45,396
Business transaction costs	694			290			26,853			1,329
Stock-based compensation expense	2,122			1,417			3,795			2,478
Inventory step-up	5,085			—			7,522			—
Integration of Quest	3,903			—			5,341			—
Restructuring	—			22			—			22
Non-core legal costs	76			208			555			1,150
Loss in fair value change of contingent consideration - TRA liability	—			—			—			533
Gain on settlement of TRA liability	—			—			—			(1,534		)
Other ⁽¹⁾	174			(120		)	190			289
Adjusted EBITDA	$	41,731		$	22,965		$	73,526		$	49,663

⁽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. 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 thirteen and twenty-six weeks ended February 29, 2020 and February 23, 2019:



	Thirteen Weeks Ended					Twenty-Six Weeks Ended
	February 29, 2020			February 23, 2019		February 29, 2020	February 23, 2019
Diluted earnings per share	$	0.11		$	0.15	0.06	0.33

Depreciation and amortization	0.03			0.02		0.05	0.03
Business transaction costs	0.01			—		0.20	0.01
Stock-based compensation expense	0.02			0.01		0.03	0.02
Inventory step-up	0.04			—		0.06	—
Integration of Quest	0.03			—		0.04	—
Restructuring	—			—		—	—
Non-core legal costs	—			—		—	0.01
Loss (gain) in fair value change of contingent consideration - TRA liability	—			—		—	—
Gain on settlement of TRA liability	—			—		—	(0.01	)
Other ⁽¹⁾	—			—		—	—
Rounding ⁽²⁾	(0.01		)	—		0.01	—
Adjusted diluted earnings per share	$	0.23		$	0.18	0.45	0.39

⁽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.

Liquidity and Capital Resources

Overview

We have historically funded our operations with cash flow from operations and, when needed, with borrowings under our credit ~~facility.~~facilities. Our principal uses ~~for liquidity~~of cash have been debt service, working capital and ~~working capital.~~the Acquisition of Quest.

We had $46.1 million in cash and cash equivalents as of February 29, 2020. We believe our sources of liquidity and capital will be sufficient to finance our continued operations, growth strategy and additional expenses we expect to incur ~~as a public company~~ for at least the next twelve months.

Following the consummation of the Business Combination, we are obligated to make payments under the TRA. Although the actual timing and amount of any payments that may be made under the TRA will vary, the payments that we will be required to make could be significant. Any payments made by us under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us. See Note 7, Income Taxes, of the consolidated financial statements for additional information on the TRA.

2632

Debt and ~~credit facilities~~Credit Facilities

On July 7, 2017, the Company entered into a ~~Credit Agreement~~credit agreement with Barclays Bank PLC and other ~~parties.~~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 ~~loan~~credit facility of up to $75.0 million (the “Revolving Credit Facility”) with a five year ~~maturity, in each case under the new first lien senior secured loan facilities (the “New Credit Facilities”).~~maturity. Substantially ~~concurrently~~concurrent with the consummation of the ~~Business Combination,~~Acquisition of Atkins, the full $200.0 million of the ~~first lien term loan~~Term Facility (the “Term Loan”) ~~were drawn, and no revolving loans were~~was drawn. The interest rate per annum iswas 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 ~~Eurocurrency~~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 ~~and is~~ subject to a floor of 1.00% or (y) 3.00% margin for the Revolving Credit Facility. The applicable margin for Revolving Credit Facility will be adjusted after the completion of the Company’s first full fiscal quarter after the closing of the Business Combination based upon the Company’s consolidated first lien net leverage ratio. As security for the payment or performance of its debt, the Company has pledged certain equity interests in its subsidiaries.

~~The New~~On March 16, 2018 (the “Amendment Date”), the Company entered into an amendment (the “Repricing Amendment”) to the Credit ~~Facilities are subject to mandatory prepayments based~~Agreement. As a result of the Repricing Amendment, the interest rate on ~~contractual terms. With respect to~~ the Term Loan ~~prior~~was reduced and, as of the Amendment Date, such loans had an interest rate equal to, at the Company’s option, either LIBOR plus an applicable margin of 3.50% or a base rate plus an applicable margin of 2.50%. The Repricing Amendment did not change the interest rate on the Revolving Credit Facility. The Revolving Credit Facility continued to bear interest based upon the Company’s consolidated net leverage ratio as of the last financial statements delivered to the ~~six-month anniversary of the Closing Date as of July 7, 2017, a 1.00% prepayment premium is payable~~administrative agent. No additional debt was incurred, or any proceeds received, by the Company in connection with ~~certain repricing events.~~the Repricing Amendment. The incremental fees paid to the administrative agent are reflected as additional debt discount and are amortized over the terms of the long-term financing agreements using the effective-interest method.

On November 7, 2019, the Company ~~may also voluntarily prepay outstanding loans~~entered into an amendment (the “Incremental Facility Amendment”) to the Credit Agreement to increase the principal borrowed on the Term Facility by $460.0 million. The Term Facility together with the incremental borrowing make up the Initial Term Loans (as defined in the Incremental Facility Amendment) and as of the Amendment No. 2 Effective Date (as defined in the Incremental Facility Amendment), the Initial Term Loans bear interest at ~~any time.~~a rate equal to, at the Company's option, either LIBOR plus an applicable margin of 3.75% or a base rate plus an applicable margin of 2.75%. The Incremental Facility Amendment was executed to finance, in part, the Acquisition of Quest. No amounts under the Term Facility were repaid as a result of the execution of the Incremental Facility Amendment.

The ~~credit facilities governing our debt arrangements contain~~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. The revolving credit facility has a maximum total net leverage ratio equal to or less than 6.25:1.00 (with a reduction to 6.00:1.00 on and after the third anniversary of the closing date of the credit facilities) contingent on credit extensions in excess of 30% of the total amount of commitments available under the revolving credit facility, and limitations oncovenants 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 and after the third anniversary of the closing date of the Credit Agreement) contingent on credit extensions in excess of 30% of the total amount of commitments available under the Revolving Credit Facility. Any failure to comply with the restrictions of the ~~credit facilities~~Credit Agreement may result in an event of default. The credit facilities governing our debt arrangements bear interest at variable rates. If market interest rates increase, variable rate debt will create higher debt service requirements, which could adversely affect ourCompany was in compliance with all financial covenants under the Credit Agreement as of February 29, 2020 and August 31, 2019.

At February 29, 2020, the outstanding principal balance of the Term Loan was $635.5 million and there were no cash ~~flow. As~~amounts drawn against the Revolving Credit Facility. In March 2020, the Company ~~has not drawn~~drew $25.0 million against the Revolving Credit Facility to build up inventory and as a precautionary measure to ensure it maintains ample financial flexibility in light of the spread of COVID-19. The Company intends to use the proceeds of the Revolving Credit Facility to meet near-term elevated customer orders in response to COVID-19 as well as to increase finished goods inventory of some of its high velocity items, support working capital and support general corporate purposes. The Company may repay borrowings under the Revolving Credit Facility at any time without penalty.

Public Equity Offering

On October 9, 2019, we completed an underwritten public offering of 13,379,205 shares of our common stock at a price to the public of $26.35 per share. We paid underwriting discounts and commissions of $0.19 per share resulting in net proceeds to us of $26.16 per share, or approximately $350.0 million (the “Offering”). The Company paid $0.8 million for legal, accounting and registrations fees related to the Offering. The net proceeds were used to pay a portion of the purchase price and related fees and expenses for the Acquisition of Quest.

Acquisition of Quest

On August 21, 2019, Atkins entered into the Purchase Agreement with the Target Companies, VMG Voyage Holdings, LLC, VMG Tax-Exempt II, L.P., Voyage Employee Holdings, LLC, and other sellers defined in the Purchase Agreement. On November 7, 2019, pursuant to the Purchase Agreement, Atkins completed the Acquisition of Quest for a cash purchase price at closing of $988.9 million, subject to customary post closing adjustments.

The Acquisition of Quest was funded by the Company through a combination of cash, equity and debt financing. Total consideration paid on the ~~revolving credit facility as~~closing date was $988.9 million. Cash sources of ~~November 25, 2017, no~~funding included $195.3 million of cash on hand, net proceeds of approximately $350.0 million from the Offering, and $443.6 million of new term loan debt ~~covenants were applicable as~~from borrowings under the Incremental Facility Amendment. For the twenty-six weeks ended February 29, 2020 the Company incurred business transaction costs $26.9 million including $14.5 million of transaction advisory fees related to the ~~period then ended.~~Acquisition of Quest, $3.2 million of unused banker commitment fees, $6.1 million of non-deferrable debt issuance costs for the Incremental Facility Amendment, and $3.1 million of other costs including legal, due diligence, and accounting fees.

Equity Warrants

The Company’s private placement warrants to purchase 6,700,000 shares of common stock remain outstanding.

Cash Flows

The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):

Thirteen Weeks Ended Thirteen Weeks Ended
November 25, 2017 November 26, 2016
(Successor) (Predecessor)
Net cash provided by operating activities $ 8,833
$ 8,635
Net cash used in investing activities $ (2,418 ) $ (41 )
Net cash provided by financing activities $ —
$ 109



	Twenty-Six Weeks Ended
	February 29, 2020			February 23, 2019
Net cash (used in) provided by operating activities	$	(14,886	)	$	21,831
Net cash (used in) investing activities	$	(985,932	)	$	(887	)
Net cash provided by financing activities	$	780,705		$	86,225

Operating activities. Our net cash used in operating activities was ~~$8.8~~$14.9 million for the ~~successor~~ period ended ~~November 25, 2017, a decrease~~February 29, 2020, an increase in cash used of ~~$0.2~~$36.7 million, compared to net cash provided by operating activities of ~~$8.6~~$21.8 million for the ~~predecessor~~ period ended ~~November 26, 2016.~~February 23, 2019. The ~~Company has $62.9 million~~increase in cash ~~and cash equivalents as of November 25, 2017 which is sufficient to satisfy current liabilities, current maturities of long-term debt,~~used was primarily driven by significant business transaction costs, changes in working capital, and the ~~interest payments associated with them.~~Acquisition of Quest.

Investing activities. Our net cash used in investing activities was ~~$2.4~~$985.9 million for the ~~successor~~ period ended ~~November 25, 2017,~~February 29, 2020, which was an increase in cash used of ~~$2.4~~$985.0 million compared to ~~minimal~~ cash used in the investing activities for the ~~predecessor~~ period ended ~~November 26, 2016.~~February 23, 2019. The ~~change~~increase was primarily due to ~~a working capital adjustment paid in~~ the ~~current period related to the Business Combination and also an increase in purchases~~Acquisition of ~~property, plant and equipment.~~Quest of $984.2 million, net of cash acquired.

Financing activities. Our net cash provided by financing activities was ~~$0.0~~$780.7 million for the ~~successor~~ period ended ~~November 25, 2017,~~February 29, 2020, compared to net cash ~~proceeds from option exercises~~provided by financing activities of ~~$0.1~~$86.2 million for the ~~predecessor~~ period ended February 23, 2019. Net cash provided by financing activities for the period ended February 29, 2020 includes gross proceeds of $352.5 million from the Offering offset by issuance costs of $3.3 million and proceeds from the term loan borrowing of $460.0 million offset by issuance costs of $8.2 million.

Contractual Obligations

On November ~~26, 2016.~~

7, 2019, the Company entered the Incremental Facility Amendment to increase the principal borrowed under the Term Facility by $460.0 million. In addition, as a result of the Acquisition of Quest, the Company incurred additional lease obligations. The Company's contractual obligations relating to debt and leases at February 29, 2020 are included in the table below.



	Payments due by period
(in thousands)	Total		Year 1		Years 2-3		Years 4-5		Thereafter
Long-term debt obligations	$	635,500	$	—	$	118	$	635,382	$	—
Interest payments	154,276		35,405		70,809		48,062		—
Operating leases	35,028		5,376		9,149		7,745		12,758
Finance leases	1,206		313		621		272		—
Total	$	826,010	$	41,095	$	80,696	$	691,461	$	12,758

~~Table of Contents~~

Off-Balance Sheet Arrangements

As of ~~November 25, 2017,~~February 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 its financial condition, changes in financial condition, income or expenses, results of operations, liquidity, capital expenditures or capital resources.

~~Contractual Obligations~~

~~The following table summarizes our expected material contractual payment obligations as of November 25, 2017.~~

Payments due by period
Contractual Obligations
($ in thousands)
Total Less than 1 year 1-3 years 3-5 years More than 5 years
Long-term debt obligations $ 200,000
$ 2,000
$ 4,000
$ 4,000
$ 190,000
Operating leases (1) 10,085
2,571
4,347
2,734
433
Interest payments 71,350
10,712
22,884
20,671
17,083
Total $ 281,435
$ 15,283
$ 31,231
$ 27,405
$ 207,516

~~_______________~~

~~(1)~~

As of November 25, 2017, the Company is obligated under multiple non-cancelable operating leases, which continue through 2023. Rent expenses, inclusive of real estate taxes, utilities and maintenance incurred under operating leases, are included in general and administrative expenses in the Company’s consolidated statements of operations, were $0.6 million for the thirteen week successor period ended November 25, 2017 and $0.6 million for the thirteen week predecessor period from ended November 26, 2016 .

New Accounting Pronouncements

For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our consolidated financial statements, refer to our Annual Report. The adoption of ASC Topic 842 resulted in a change to our lease accounting policy, as discussed in Note 9 of our condensed consolidated financial statements in this Report. There have been no other significant changes to our critical accounting policies since August ~~26, 2017.~~31, 2019. Refer to Note ~~2. Summary of Significant Accounting Policies~~2 of our ~~Condensed Consolidated Financial Statements~~unaudited interim condensed consolidated financial statements in this ~~filing~~Report for further information regarding recently issued accounting standards.

~~Tax Cuts and Jobs Act~~

~~JOBS Act~~

Simply Good Foods qualifies as an “emerging growth company” pursuant to the provisions of the JOBS Act, enacted on April 5, 2012. Section 102 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, Simply Good Foods is choosing to “opt out” of such extended transition period, and as a result, Simply Good Foods will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Simply Good Foods’ decision to opt out of the extended transition period is irrevocable.

Subject to certain conditions set forth in the JOBS Act, Simply Good Foods is not required to, among other things, (1) provide an auditor’s attestation report on our systems of internal controls over financial reporting pursuant to Section 404, (2) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (3) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (4) disclose certain executive

2834

compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply until Simply Good Foods no longer meets the requirements of being an emerging growth company. Simply Good Foods will remain an emerging growth company until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the completion of Conyers Park’s initial public offering, which was July 20, 2016, (ii) in which Simply Good Foods has total annual gross revenue of at least $1.0 billion or (iii) in which Simply Good Foods is deemed to be a large accelerated filer, which means the market value of its common stock that is held by non-affiliates exceeds $700 million as of the last business day of its prior second fiscal quarter, and (b) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior 3-year period.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There were no material changes in our market risk exposure during the thirteen week period ended ~~November 25, 2017.~~February 29, 2020. For a discussion of our market risks, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosures.

Management, including the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation (pursuant to Rule 13a-15(b) under the Exchange Act) of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of February 29, 2020, the Company’s disclosure controls and procedures were effective.

As discussed above, on November 7, 2019, we completed the Acquisition of Quest. As such, the scope of our assessment of the effectiveness of our disclosure controls and procedures ~~were effective as~~did not include the internal control over financial reporting of ~~November 25, 2017. In designing~~Quest and ~~evaluating~~its affiliated entities. These exclusions are consistent with the SEC Staff’s guidance that an assessment of a recently acquired business may be omitted from the scope of our assessment of the effectiveness of disclosure controls and procedures ~~management recognized~~ that ~~disclosure controls~~are also part of internal control over financial reporting in the 12 months following the acquisition. Quest and ~~procedures, no matter how well conceived~~its affiliated entities accounted for 46.2% of our total assets and ~~operated, can provide only reasonable but not absolute assurance that~~27.8% of our net sales as of and for the objectives of the disclosure controls and procedures are met. The design of any disclosure control and procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.twenty-six weeks ended February 29, 2020.

Changes in Internal Control over Financial Reporting

~~The design~~As a result of the Acquisition of Quest, we have commenced a project to evaluate the processes and ~~implementation~~procedures of Quest’s internal control over financial reporting ~~for the Company post-Business Combination has required~~ and ~~will continue to require significant time and resources from management and other personnel. We were engaged in the process of the design and implementation of~~incorporate Quest’s internal control over financial reporting into our internal control over financial reporting inframework. In addition, as a ~~manner commensurate with~~result of the ~~scale~~Acquisition of ~~our operations post-Business Combination. Except~~Quest, we have implemented new processes and controls over accounting for an acquisition, including determining the ~~activities described above, there have been~~fair value of the assets acquired, liabilities assumed and adjustments to the fair value of contingent consideration.

There were no changes in our internal control over financial reporting during the ~~thirteen week period~~quarter ended ~~November 25, 2017~~February 29, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

2935

PART IIII. Other Information

Item 1. Legal Proceedings

From time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any litigation that we believe to be material and we are not aware of any pending or threatened litigation against us that we believe could have a material adverse effect on our business, operating results, financial condition or cash flows.

Item 1A. Risk Factors

~~You~~Readers should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report, which could materially affect our business, financial condition, cash flows or future results. Except as set forth below, there have been no material changes in our risk factors included in our Annual Report. The risks described in our Annual Report are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

~~We will be required to be compliant with~~

Pandemics, epidemics or disease outbreaks, such as the ~~Sarbanes-Oxley Act~~novel coronavirus (“COVID-19”), may disrupt our business, including, among other things, consumption and trade patterns, our supply chain and production processes, each of ~~2002 if we fail to continue to qualify as an emerging growth company,~~ which could ~~lead~~materially affect our operations, liquidity, financial condition and results of operations.

The actual or perceived effects of a disease outbreak, epidemic, pandemic or similar widespread public health concern, such as COVID-19, could negatively affect our operations, liquidity, financial condition and results of operations. While to ~~increased costs~~date we have experienced no material negative effects on our business and results of operations as a result of the current COVID-19 outbreak, the situation remains dynamic and subject to ~~comply with regulatory requirements.~~

~~For as long as we remain an emerging growth company, we~~rapid and possibly material change, including but not limited to changes that may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We may remain an emerging growth company until July 20, 2021, provided that prior to July 20, 2021, ifmaterially affect the ~~market value~~operations of our common stock that is held by non‑affiliates exceeds $700 million as of the end of our second fiscal quarter at any time or if we have annual gross revenues of $1.07 billion or more in any fiscal year, we would cease to be an emerging growth company as of the last Saturday in August of the applicable year. We also would cease to be an emerging growth company if we issue more than $1 billion of non‑convertible debt over a three‑year period.

Pursuant to Section 404 of the Sarbanes‑Oxley Act of 2002, or Section 404, public companies are required to furnish a report by management on its internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to documentcustomers and ~~evaluate our internal control over financial reporting,~~supply chain partners, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. In addition, if we lose our status as an emerging growth company sooner than anticipated, we may need to accelerate our efforts to comply with Section 404, which may lead to increased costs and resources to complete the process. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed time frame or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses in our internal control over financial reporting, itultimately could result in material negative effects on our business and results of operations.

COVID-19 and similar outbreaks may affect demand for our products because quarantines or other government restrictions on movements may cause erratic consumer purchase behavior. Governmental or societal impositions of restrictions on public gatherings, especially if prolonged in nature, may have adverse effects on in-person traffic to retail stores and, in turn, our business. Even the perceived risk of infection or health risk may adversely affect traffic to our store-based retail customers and, in turn, our business, liquidity, financial condition and results of operations, particularly if any self-imposed or government-imposed restrictions are in place for a significant amount of time.

The spread of pandemics, epidemics or disease outbreaks such as COVID-19 may also disrupt our third party business partners’ ability to meet their obligations to us, which may negatively affect our operations. These third parties include those who supply our ingredients, packaging, and other necessary operating materials, contract manufacturers, distributors, and logistics and transportation services providers. Ports and other channels of entry may be closed or operate at only a portion of capacity, as workers may be prohibited or otherwise unable to report to work, and means of transporting products within regions or countries may be limited for the same reason. As a result of the current COVID-19 outbreak, transport restrictions related to quarantines or travel bans have been put in place and global supply may become constrained, each of which may cause the price of certain ingredients and raw materials used in our products to increase and/or we may experience disruptions to our operations. Further, our contract manufacturers’ ability to manufacture our products may be impaired by any material disruption to their procurement, manufacturing, or warehousing capabilities as a result of COVID-19 or similar outbreaks.

Our results of operations depend on, among other things, our ability to maintain and increase sales volume with our existing customers, to attract new consumers and to provide products that appeal to consumers at prices they are willing and able to pay. Our ability to implement our innovation, advertising, display and promotion activities that are designed to maintain and increase our sales volumes on a timely basis may be negatively affected as a result of modifications to retailer shelf reset timing or retailer pullback on in-store display and promotional activities during the COVID-19 outbreak or similar situations. Retailers may also alter their normal inventory receiving and product restocking practices during pandemics, epidemics or disease outbreaks such as COVID-19, which may negatively impact our business

Workforce limitations and travel restrictions resulting from pandemics, epidemics or disease outbreaks such as COVID-19 and related government actions may affect many aspects of our business. If a significant percentage of our workforce is unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks, our operations may be negatively affected. In addition, pandemics or disease outbreaks could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect customers’ demand for our products.

Adverse and uncertain economic conditions, such as decreases in per capita income and level of disposable income, increased unemployment or a decline in consumer confidence as a result of the COVID-19 outbreak or similar situations, could have an adverse ~~reaction in the financial markets due~~effect on distributor, retailer and consumer demand for our products. Consumers may shift purchases to lower-priced or other perceived value offerings during economic downturns. Prolonged unfavorable economic conditions, including as a ~~loss~~result of ~~confidence in the reliability of our financial statements.~~

~~The recently passed Tax Cuts~~COVID-19 or similar outbreaks, and ~~Jobs Act~~any resulting recession or slowed economic growth, may have ~~a significant impact on our Company.~~

~~Additionally, we currently anticipate the enacted changes in the corporate tax rate and calculation of taxable income will have a favorable~~an adverse effect on our ~~financial condition, profitability, and/~~sales and profitability.

Our efforts to manage and mitigate these factors may be unsuccessful, and the effectiveness of these efforts depends on factors beyond our control, including the duration and severity of any pandemic, epidemic or ~~cash flows. The Company is analyzing the Tax Cuts~~disease outbreak, as well as third party actions taken to contain its spread and Jobs Act with its professional advisers. Until such analysis is complete, the full impact of the new tax law on the Company in future periods is uncertain, and no assurances can be made by the Company on any potential impacts.mitigate public health effects.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Table of Contents

Item 6. Exhibits



Exhibit No.		Document
3.1		Second Amended and Restated Certificate of Incorporation of The Simply Good Foods Company (incorporated by reference to Exhibit 3.1 toof our Current Report on Form 8-K filed on ~~July 13, 2017)~~January 27, 2020).
~~3.2~~		~~Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Form 8-K filed on July 13, 2017).~~
~~4.1~~		~~Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to Registration Statement on Form S-4 filed on June 12, 2017).~~
~~4.2~~		Warrant Agreement, dated July 14, 2016, between Conyers Park Acquisition Corp. and Continental Stock Transfer & Trust Company (incorporated by reference to Form 8-K filed by Conyers Park Acquisition Corp. on July 20, 2016).
~~4.3~~		~~Form of Warrant (incorporated by reference to Exhibit 4.1 to Form 8-K filed on July 13, 2017).~~
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101).

3137

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





		By:	THE SIMPLY GOOD FOODS COMPANY /s/ Timothy A. Matthews
Date:	~~January 9, 2018~~April 6, 2020	Name:	Timothy A. Matthews
		Title:	Vice President, Controller, and Chief Accounting Officer
			(Principal Accounting Officer)

3238



Supplemental disclosures of cash flow information
Cash paid for interest	$	2,727	$	6,282
Cash paid for taxes	$	341	$	5



(In thousands)
Cash paid	$	673,763
Equity consideration paid to selling equity holders (1)	117,567
Total cash and equity consideration	791,330
TRA payable to selling equity holders	25,675
Total consideration	$	817,005



(In thousands, except equity per share data)
Shares of Simply Good Foods paid to former equity holders of Atkins	10,250
Fair Value of SMPL equity per share	$	11.47
Equity consideration paid	$	117,567



Per share price based on the market price on the day of the close	$	11.47



Assets acquired:
Cash and cash equivalents	$	71,181
Accounts receivable, net	31,507
Inventories	33,023
Prepaid assets	1,781
Other current assets	13,466
Property and equipment, net	1,793
Intangible assets, net ⁽¹⁾	320,000
Other long-term assets	2,224
Liabilities assumed:
Accounts payable	(12,187		)
Other current liabilities	(36,498		)
Deferred income taxes⁽²⁾	(76,072		)
Total identifiable net assets	350,218
Goodwill⁽¹⁾⁽³⁾	466,787
Total assets acquired and liabilities assumed	$	817,005



	Total
Balance, August 26, 2017 (Successor)	465,030
Goodwill working capital adjustment	1,757
Balance, November 25, 2017 (Successor)	$	466,787



(In thousands by fiscal year)
2018	$	4,879
2019	6,505
2020	6,505
2021	6,505
2022	6,505
2023 and thereafter	54,623



Successor	Level 1		Level 2		Level 3		Total
Liabilities
TRA liability	$	—	$	—	$	26,317	$	26,317



(In thousands by fiscal year)	Estimated future payments
2018	$	2,812
2019	9,195
2020	5,271
2021	4,075
2022	3,482
2023 and thereafter	15,001
	$	39,836



	Thirteen Weeks Ended
	November 25, 2017
(In thousands, except share data)	(Successor)
Basic earnings per share computation:
Numerator:
Net income available to common stock shareholders	$	10,218
Denominator:
Weighted average common shares - basic	70,571,008
Basic earnings per share from net income	$	0.14
Diluted earnings per share computation:
Numerator:
Net income available to common stock shareholders	$	10,218
Denominator:
Weighted average common shares outstanding - basic	70,571,008
Warrant conversion	659,301
Restricted stock units	10,281
Weighted average common shares - diluted ⁽¹⁾	71,240,590
Diluted earnings per share from net income	$	0.14
⁽¹⁾Excludes the effect of non-qualified stock options as the strike price exceeds the average market price for the period



	Unaudited Historical (i)							Pro Forma
	(Predecessor)							Unaudited
	Thirteen Weeks Ended			Pro Forma Adjustments				Thirteen Weeks Ended
(in thousands)	November 26, 2016			Pro Forma Adjustments				November 26, 2016
Net sales	$	99,803		$	—			$	99,803
Cost of goods sold	51,091			—				51,091
Gross profit	48,712			—				48,712

Operating Expenses:
Distribution	4,369			—				4,369
Selling	4,293			—				4,293
Marketing	9,206			—				9,206
General and administrative	9,931			346			ii	10,277
Depreciation and amortization	2,453			(561		)	iii	1,892
Other expense	—			—				—
Total operating expenses	30,252			(215		)		30,037

Income from operations	18,460			215				18,675

Other income (expense):
Change in warrant liabilities	722			(722		)	iv	—
Interest expense	(7,063		)	3,965			v	(3,098		)
Gain (loss) on foreign currency transactions	(610		)	—				(610		)
Other income	177			—				177
Total other expense	(6,774		)	3,243				(3,531		)

Income before income taxes	11,686			3,458				15,144
Income tax expense	4,899			1,098			vi	5,997
Net income	$	6,787		$	2,360			$	9,147

Other Financial Data (Unaudited):
Adjusted EBITDA (ix)	$	22,251						$	22,251



	Payments due by period
Contractual Obligations ($ in thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term debt obligations	$	200,000	$	2,000	$	4,000	$	4,000	$	190,000
Operating leases (1)	10,085		2,571		4,347		2,734		433
Interest payments	71,350		10,712		22,884		20,671		17,083
Total	$	281,435	$	15,283	$	31,231	$	27,405	$	207,516

Operating Leases

Finance Leases

Weighted-average remaining lease term (in years)

Weighted-average discount rate