Company Quick10K Filing
Simply Good Foods
Price114.44 EPS1
Shares86 P/E185
MCap9,838 P/FCF127
Net Debt-51 EBIT82
TEV9,787 TEV/EBIT119
TTM 2019-05-25, in MM, except price, ratios
10-Q 2020-02-29 Filed 2020-04-06
10-Q 2019-11-30 Filed 2020-01-09
10-K 2019-08-31 Filed 2019-10-30
10-Q 2019-05-25 Filed 2019-07-02
10-Q 2019-02-23 Filed 2019-04-04
10-Q 2018-11-24 Filed 2019-01-03
10-K 2018-08-25 Filed 2018-10-24
10-Q 2018-05-26 Filed 2018-07-10
10-Q 2018-02-24 Filed 2018-04-10
10-Q 2017-11-25 Filed 2018-01-09
10-K 2017-08-26 Filed 2017-11-09
10-Q 2017-05-27 Filed 2017-07-14
8-K 2020-04-06 Earnings, Other Events, Exhibits
8-K 2020-01-22 Shareholder Vote, Exhibits
8-K 2020-01-09 Earnings, Exhibits
8-K 2019-11-07 Enter Agreement, M&A, Off-BS Arrangement, Officers, Regulation FD, Exhibits
8-K 2019-10-29 Earnings, Exhibits
8-K 2019-10-16 Officers, Exhibits
8-K 2019-10-09 Enter Agreement, Exhibits
8-K 2019-10-08 Regulation FD, Other Events, Exhibits
8-K 2019-10-07 Earnings, Exhibits
8-K 2019-09-30 Other Events, Exhibits
8-K 2019-08-21 Enter Agreement, Regulation FD, Other Events, Exhibits
8-K 2019-07-23 Officers
8-K 2019-07-02 Earnings, Exhibits
8-K 2019-06-13 Officers
8-K 2019-04-04 Earnings, Exhibits
8-K 2019-02-25 Accountant, Exhibits
8-K 2019-01-23 Shareholder Vote
8-K 2019-01-03 Earnings, Exhibits
8-K 2018-12-17 Officers
8-K 2018-11-14 Leave Agreement, Exhibits
8-K 2018-11-13 Other Events, Exhibits
8-K 2018-11-05 Other Events
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-10-04 Other Events, Exhibits
8-K 2018-07-27 Officers, Exhibits
8-K 2018-07-10 Earnings, Exhibits
8-K 2018-04-10 Earnings, Exhibits
8-K 2018-03-20 Enter Agreement, Exhibits
8-K 2018-02-06 Regulation FD
8-K 2018-02-05 Shareholder Vote
8-K 2018-01-09 Earnings, Exhibits

ATK 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 exhibit311-q220.htm
EX-31.2 exhibit312-q220.htm
EX-32.1 exhibit321-q220.htm

Simply Good Foods Earnings 2020-02-29

Balance SheetIncome StatementCash Flow
1.20.90.70.40.2-0.12017201820192020
Assets, Equity
0.20.20.10.10.00.02017201820192020
Rev, G Profit, Net Income
0.30.20.1-0.1-0.2-0.32017201820192020
Ops, Inv, Fin

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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
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)
logoa07.jpg
___________________________________________________________________________________________________________
Delaware
 
82-1038121
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
1225 17th Street, Suite 1000
Denver, CO 80202
(Address of principal executive offices and zip code)
(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 every Interactive Date File required to be submitted 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 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
 
Smaller reporting company
 
 
 
Emerging growth company






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.☐

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 April 3, 2020, there were 95,378,514 shares of common stock, par value $0.01 per share, issued and outstanding.



THE SIMPLY GOOD FOODS COMPANY AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 29, 2020



INDEX
 
 
Page
 
 
 
 
 
 


2



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)
 
 
February 29, 2020
 
August 31, 2019
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
46,115

 
$
266,341

Accounts receivable, net
 
89,966

 
44,240

Inventories
 
79,552

 
38,085

Prepaid expenses
 
5,183

 
2,882

Other current assets
 
14,818

 
6,059

Total current assets
 
235,634

 
357,607


 
 
 
 
Long-term assets:
 
 
 
 
Property and equipment, net
 
12,008

 
2,456

Intangible assets, net
 
1,149,410

 
306,139

Goodwill
 
570,716

 
471,427

Other long-term assets
 
33,580

 
4,021

Total assets
 
$
2,001,348

 
$
1,141,650


 
 
 
 
Liabilities and stockholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
38,018

 
$
15,730

Accrued interest
 
1,868

 
1,693

Accrued expenses and other current liabilities
 
34,139

 
29,933

Current maturities of long-term debt
 
264

 
676

Total current liabilities
 
74,289

 
48,032


 
 
 
 
Long-term liabilities:
 
 
 
 
Long-term debt, less current maturities
 
624,076

 
190,259

Deferred income taxes
 
77,683

 
65,383

Other long-term liabilities
 
28,267

 
532

Total liabilities
 
804,315

 
304,206

See commitments and contingencies (Note 10)
 


 



 
 
 
 
Stockholders’ equity:
 
 
 
 
Preferred stock, $0.01 par value, 100,000,000 shares authorized, none issued
 

 

Common stock, $0.01 par value, 600,000,000 shares authorized, 95,476,537 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
 
1,087,506

 
733,775

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.

3



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
 
Twenty-Six Weeks Ended
 
 
February 29, 2020
 
February 23, 2019
 
February 29, 2020
 
February 23, 2019
Net sales
 
$
227,101

 
$
123,800

 
$
379,254

 
$
244,731

Cost of goods sold
 
141,707

 
74,145

 
231,654

 
143,156

Gross profit
 
85,394

 
49,655

 
147,600

 
101,575

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Selling and marketing
 
27,041

 
14,729

 
45,475

 
30,048

General and administrative
 
28,103

 
13,732

 
46,248

 
25,730

Depreciation and amortization
 
4,287

 
1,902

 
6,740

 
3,751

Business transaction costs
 
694

 
290

 
26,853

 
1,329

Loss in fair value change of contingent consideration - TRA liability
 

 

 

 
533

Total operating expenses
 
60,125

 
30,653

 
125,316

 
61,391

 
 
 
 
 
 
 
 
 
Income from operations
 
25,269

 
19,002

 
22,284

 
40,184

 
 
 
 
 
 
 
 
 
Other (expense) income:
 
 
 
 
 
 
 
 
Interest income
 
85

 
884

 
1,464

 
1,665

Interest expense
 
(10,589
)
 
(3,344
)
 
(15,558
)
 
(6,605
)
Gain on settlement of TRA liability
 

 

 

 
1,534

Gain (loss) on foreign currency transactions
 
(194
)
 
130

 
(178
)
 
(268
)
Other income
 
8

 
77

 
45

 
121

Total other expense
 
(10,690
)
 
(2,253
)
 
(14,227
)
 
(3,553
)
 
 
 
 
 
 
 
 
 
Income before income taxes
 
14,579

 
16,749

 
8,057

 
36,631

Income tax expense
 
3,922

 
4,027

 
2,193

 
8,652

Net income
 
$
10,657

 
$
12,722

 
$
5,864

 
$
27,979

 
 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(141
)
 
(179
)
 
(141
)
 
(37
)
Comprehensive income
 
$
10,516

 
$
12,543

 
$
5,723

 
$
27,942

 
 
 
 
 
 
 
 
 
Earnings per share from net income:
 
 
 
 
 
 
 
 
Basic
 
$
0.11

 
$
0.16

 
$
0.06

 
$
0.35

Diluted
 
$
0.11

 
$
0.15

 
$
0.06

 
$
0.33

Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
95,339,489

 
81,900,352

 
92,524,061

 
79,595,330

Diluted
 
100,336,571

 
85,350,196

 
97,597,614

 
84,062,479

See accompanying notes to the unaudited condensed consolidated financial statements.

4



The Simply Good Foods Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in thousands)
 
 
Twenty-Six Weeks Ended
 
 
February 29, 2020
 
February 23, 2019
Operating activities
 
 
 
 
Net income
 
$
5,864

 
$
27,979

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
7,119

 
3,825

Amortization of deferred financing costs and debt discount
 
1,569

 
668

Stock compensation expense
 
3,795

 
2,478

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
 
178

 
268

Deferred income taxes
 
2,485

 
8,463

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
 
(19,062
)
 
(8,774
)
Inventories
 
768

 
(15,855
)
Prepaid expenses
 
(873
)
 
(384
)
Other current assets
 
(5,808
)
 
(2,092
)
Accounts payable
 
(2,953
)
 
6,143

Accrued interest
 
175

 
1,949

Accrued expenses and other current liabilities
 
(8,760
)
 
(1,810
)
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
 
(481
)
 
(887
)
Issuance of note receivable
 
(1,250
)
 

Acquisition of business, net of cash acquired
 
(984,201
)
 

Net cash (used in) investing activities
 
(985,932
)
 
(887
)
 
 
 
 
 
Financing activities
 
 
 
 
Proceeds from option exercises
 
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
 
780,705

 
86,225

 
 
 
 
 
Cash and cash equivalents
 
 
 
 
Net (decrease) increase in cash
 
(220,113
)
 
107,169

Effect of exchange rate on cash
 
(113
)
 
(243
)
Cash at beginning of period
 
266,341

 
111,971

Cash and cash equivalents at end of period
 
$
46,115

 
$
218,897



5



 
 
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.

6



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
 
 
 
 
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
 
 
 
 
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.


7



Notes to Unaudited Condensed Consolidated Financial Statements
(Unaudited, dollars in thousands, except for share and per share data)

1. Nature of Operations and Principles of Consolidation
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., among others, entered into a definitive merger agreement (the “Merger Agreement”), pursuant to which on July 7, 2017, Conyers Park merged into Simply Good Foods and as a result acquired the companies which conducted the Atkins® brand business (the “Acquisition of Atkins”). The common stock of Simply Good Foods is listed on the 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 Purchase Agreement, Atkins completed the Acquisition of Quest, via Atkins’ direct or indirect acquisition of 100% of the equity interests of Voyage Holdings, LLC (“Voyage Holdings”), and 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).

The unaudited condensed consolidated financial statements include the accounts of Simply Good Foods and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Unless the context otherwise requires, “we,” “us,” “our” and the “Company” refer to Simply Good Foods and its subsidiaries.

The Company maintains its accounting records on a 52/53-week fiscal year, ending on the last Saturday in August of each year.

Description of Business

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 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 Company and its subsidiaries are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited interim condensed consolidated financial statements reflect all adjustments and disclosures which are, in our opinion, necessary for a fair presentation of the results of operations, financial position and cash flows for the indicated periods. All such adjustments were of a normal and recurring nature unless otherwise disclosed. The results reported in these unaudited interim condensed consolidated financial statements are not necessarily indicative of the results that may be reported for the entire fiscal year and should be read in conjunction with our consolidated financial statements for the fiscal year ended August 31, 2019, included in our Annual Report on Form 10-K (“Annual Report”), filed with the SEC on 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 GAAP have been condensed or omitted.


8



2. Summary of Significant Accounting Policies

Refer to Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included in our Annual Report for a description of significant accounting policies.

Change in Accounting Principle

During the fourth quarter ended August 31, 2019, the Company changed its accounting principle related to the presentation of third party delivery costs associated with shipping and handling activities previously included as operating expenses in Distribution in the Consolidated Statements of Operations and Comprehensive Income. 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 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 June 2016, The Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 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 early adoption permitted. The 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. 2018-13, Fair Value Measurement (Topic 820), which modifies disclosure requirements on fair value measurements of Accounting Standards Codification (“ASC”) 820. This ASU is effective for all entities for fiscal years beginning after December 15, 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 the eliminated or modified disclosure requirements and delay the adoption new disclosure requirements until their effective date. The Company is currently evaluating the effects adoption of this guidance will have on the consolidated financial statements and does not anticipate adoption of this ASU will be material to its consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. The amendments in this ASU are effective for all entities 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

9



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 amendments provide the option for the ASU to be applied at the beginning of the period adopted using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period.

On September 1, 2019, we adopted ASU No. 2016-02, Leases (“Topic 842”) using the 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 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 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 our leases, see Note 9.

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. The Company adopted this ASU as of the first day of fiscal 2020. The adoption of this ASU did not have a material effect on the consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and 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 requirements for 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 Company adopted this ASU as of the first day of fiscal 2020. The adoption of this ASU did not have a material effect on the consolidated financial statements.

3. Business 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 Quest for a cash purchase price at closing of $988.9 million subject to customary post closing adjustments.

Atkins acquired Quest as a part of our vision to lead the nutritious snacking movement with trusted brands that offer a variety of convenient, innovative, great-tasting, better-for-you snacks and meal replacements. Quest is a healthy lifestyle food company offering a variety of bars, cookies, chips, ready-to-drink shakes and pizzas that compete in many of the attractive, fast growing sub-segments within the nutritional snacking category. Quest has a loyal following and strong appeal among consumers 18-44 years.

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

10



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

Included in the transaction advisory fees paid 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 Company for this transaction. Three members of the Company’s Board of Directors, Messrs. Kilts, West, and Ratzan, have business relationships with certain partners of Centerview Partners LLC (including relating to Centerview Capital Consumer, a private equity firm and affiliate of Conyers Park Sponsor LLC), but they are not themselves partners, executives or employees of Centerview Partners LLC and Centerview Partners LLC is not a related party of the Company pursuant to applicable rules and policies. The advisory fee paid to Centerview Partners LLC represents approximately 1.2% of the total cash purchase price paid by the Company on the closing date of the Acquisition of Quest. All transaction advisory fees relating to the Acquisition of Quest were approved by the Company’s Audit Committee.

The following table sets forth the preliminary purchase price of the Acquisition of Quest to the estimated fair value of the net assets acquired at the date of acquisition, subject to finalization per the terms of the Purchase Agreement. The preliminary purchase price allocation may be adjusted as a result of the finalization of our purchase price allocation procedures related to the assets acquired and liabilities assumed. The preliminary November 7, 2019 fair value is as 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



(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.
(2) Intangible assets were recorded at fair value consistent with ASC 820 as a result of the Acquisition of Quest. Intangible assets consist of $730.0 million of indefinite brands and trademarks, $115.0 million of amortizable customer relationships, and $3.4 million of internally developed software. The useful lives of the intangible assets are disclosed in Note 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 and market comparable data and companies.
(3) As a result of the increase in the fair value of the identifiable intangible asset, the deferred income tax liability was increased by $14.2 million.
(4) Goodwill was recorded at fair value consistent with ASC 820 as a result of the Acquisition of Quest. Amounts recorded for goodwill created in an acquisition structured as a stock purchase for tax are generally not expected to be deductible for tax purposes. Amounts recorded for goodwill resulting in a tax basis step-up are generally expected to be deductible for tax purposes. Tax deductible Goodwill 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 per the terms of the 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 Acquisition of Quest, including a period of time to finalize working capital 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 fair value determination of the assets acquired and liabilities assumed will be completed prior to one year from the transaction completion, consistent with ASC 805.


11



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

Pro forma financial information is not intended to represent or be indicative of the actual results of operations of the combined business that would have been reported had the Acquisition of Quest been completed at the beginning of the fiscal year 2019, nor is it representative of future operating results of the Company.

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

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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.


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5. Goodwill and Intangibles

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 the Company's Goodwill from August 31, 2019 to February 29, 2020 is the result of the acquisition method of accounting related to the Acquisition of Quest, as described in Note 3. There were no impairment charges related to goodwill during this period or since the inception of the Company.

Intangible assets, net in our Condensed Consolidated Balance Sheets consist of the following:
 
 
 
 
 
 
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
 
$
962,000

 
$

 
$
962,000

Intangible assets with finite lives:
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
15 years
 
174,000

 
12,703

 
161,297

Proprietary recipes and formulas
 
7 years
 
7,000

 
2,631

 
4,369

Licensing agreements
 
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

 
 
 
 
 
 
$
1,170,818

 
$