10-Q 1 atk-20220528.htm 10-Q atk-20220528
The Simply Good Foods 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
FORM 10-Q
_______________________________________________________
(Mark One) 
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 28, 2022
OR
oTRANSITION 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)
atk-20220528_g1.jpg
___________________________________________________________________________________________________________
Delaware82-1038121
(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 classTrading symbolName of each exchange on which registered
Common Stock, par value $0.01 per shareSMPLNasdaq
 

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 ☒ 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 ☒ 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 ☒

As of June 25, 2022, there were 100,370,687 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 MAY 28, 2022



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 and per share data)

May 28, 2022August 28, 2021
Assets
Current assets:
Cash$56,720 $75,345 
Accounts receivable, net
146,377 111,456 
Inventories
111,709 97,269 
Prepaid expenses
5,066 4,902 
Other current assets
46,852 9,694 
Total current assets
366,724 298,666 
Long-term assets:
Property and equipment, net
17,927 16,584 
Intangible assets, net
1,127,136 1,139,041 
Goodwill
543,134 543,134 
Other long-term assets
59,736 54,792 
Total assets
$2,114,657 $2,052,217 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
$64,729 $59,713 
Accrued interest
214 60 
Accrued expenses and other current liabilities
55,066 53,606 
Current maturities of long-term debt
278 285 
Total current liabilities
120,287 113,664 
Long-term liabilities:
Long-term debt, less current maturities
402,594 451,269 
Deferred income taxes
108,078 93,755 
Warrant liability— 159,835 
Other long-term liabilities
46,376 44,890 
Total liabilities
677,335 863,413 
See commitments and contingencies (Note 9)
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, 101,315,226 and 95,882,908 shares issued at May 28, 2022 and August 28, 2021, respectively1,013 959 
Treasury stock, 887,976 shares and 98,234 shares at cost at May 28, 2022 and August 28, 2021, respectively(30,649)(2,145)
Additional paid-in-capital
1,284,342 1,085,001 
Retained earnings
184,254 105,807 
Accumulated other comprehensive loss
(1,638)(818)
Total stockholders’ equity
1,437,322 1,188,804 
Total liabilities and stockholders’ equity$2,114,657 $2,052,217 

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 EndedThirty-Nine Weeks Ended
May 28, 2022May 29, 2021May 28, 2022May 29, 2021
Net sales$316,531 $284,001 $894,514 $745,760 
Cost of goods sold197,883 162,998 550,788 440,451 
Gross profit118,648 121,003 343,726 305,309 
Operating expenses:
Selling and marketing32,334 30,826 94,816 82,171 
General and administrative26,721 25,668 76,711 77,645 
Depreciation and amortization4,317 4,187 12,966 12,643 
Total operating expenses63,372 60,681 184,493 172,459 
Income from operations55,276 60,322 159,233 132,850 
Other income (expense):
Interest income— 1 1 4 
Interest expense(4,881)(7,985)(16,528)(24,352)
Loss in fair value change of warrant liability— (35,833)(30,062)(60,714)
Gain on legal settlement— 5,000 — 5,000 
Gain (loss) on foreign currency transactions76 (272)503 712 
Other income17 70 26 229 
Total other expense(4,788)(39,019)(46,060)(79,121)
Income before income taxes50,488 21,303 113,173 53,729 
Income tax expense11,654 15,408 34,726 31,095 
Net income$38,834 $5,895 $78,447 $22,634 
Other comprehensive income:
Foreign currency translation, net of reclassification adjustments$(72)$95 $(820)$293 
Comprehensive income$38,762 $5,990 $77,627 $22,927 
Earnings per share from net income:
Basic$0.39 $0.06 $0.80 $0.24 
Diluted$0.38 $0.06 $0.78 $0.23 
Weighted average shares outstanding:
Basic100,426,227 95,767,629 98,294,114 95,730,581 
Diluted102,237,457 97,589,656 100,190,068 97,197,180 

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)

Thirty-Nine Weeks Ended
May 28, 2022May 29, 2021
Operating activities
Net income
$78,447 $22,634 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization14,398 13,508 
Amortization of deferred financing costs and debt discount2,073 3,449 
Stock compensation expense8,691 5,766 
Loss in fair value change of warrant liability30,062 60,714 
Estimated credit losses148 — 
Unrealized gain on foreign currency transactions(503)(712)
Deferred income taxes14,140 13,670 
Amortization of operating lease right-of-use asset4,955 3,385 
Loss on operating lease right-of-use asset impairment— 686 
Gain on lease termination(30)(156)
Other345 769 
Changes in operating assets and liabilities:
Accounts receivable, net(35,269)(28,737)
Inventories(15,006)(20,318)
Prepaid expenses(170)(1,189)
Other current assets(37,288)(5,376)
Accounts payable5,585 13,380 
Accrued interest154 (626)
Accrued expenses and other current liabilities676 12,745 
Other assets and liabilities(4,045)(2,104)
Net cash provided by operating activities
67,363 91,488
Investing activities
Purchases of property and equipment(4,696)(3,232)
Issuance of note receivable(2,400)— 
Proceeds from sale of business— 5,800 
Investments in intangible and other assets(187)(114)
Net cash (used in) provided by investing activities
(7,283)2,454 
Financing activities
Proceeds from option exercises4,343 700 
Tax payments related to issuance of restricted stock units and performance stock units(3,536)(320)
Payments on finance lease obligations(235)(269)
Repurchase of common stock(28,504)— 
Principal payments of long-term debt(50,000)(100,000)
Deferred financing costs(544)— 
Net cash used in financing activities
(78,476)(99,889)
Cash and cash equivalents
Net decrease in cash(18,396)(5,947)
Effect of exchange rate on cash(229)273 
Cash at beginning of period75,345 95,847 
Cash and cash equivalents at end of period
$56,720 $90,173 

5
Thirty-Nine Weeks Ended
May 28, 2022May 29, 2021
Supplemental disclosures of cash flow information
Cash paid for interest
$14,301 $21,529 
Cash paid for taxes
$43,430 $15,282 
Non-cash investing and financing transactions
Non-cash proceeds from sale of business$— $3,000 
Operating lease right-of-use assets exchanged for operating lease liabilities$6,881 $316 
Issuance of common stock in extinguishment of warrant liabilities$189,897 $— 

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 StockTreasury StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
SharesAmountSharesAmount
Balance at August 28, 202195,882,908 $959 98,234 $(2,145)$1,085,001 $105,807 $(818)$1,188,804 
Net income— — — — — 21,152 — 21,152 
Stock-based compensation— — — — 2,605 — — 2,605 
Foreign currency translation adjustments— — — — — — (40)(40)
Shares issued upon vesting of restricted stock units and performance stock units227,729 2 — — (3,190)— — (3,188)
Exercise of options to purchase common stock19,804 — — — 274 — — 274 
Balance at November 27, 202196,130,441 $961 98,234 $(2,145)$1,084,690 $126,959 $(858)$1,209,607 
Net income— — — — — 18,461 — 18,461 
Stock-based compensation— — — — 3,092 — — 3,092 
Foreign currency translation adjustments— — — — — — 439 439 
Reclassification adjustment for currency translation gains related to the liquidation of foreign entities— — — — — — (1,147)(1,147)
Repurchase of common stock— — 571,521 (20,394)— — — (20,394)
Warrant conversion4,830,761 48 — — 189,849 — — 189,897 
Shares issued upon vesting of restricted stock units9,679 1 — — (102)— — (101)
Exercise of options to purchase common stock100,000 1 — — 1,199 — — 1,200 
Balance at February 26, 2022101,070,881 $1,011 669,755 $(22,539)$1,278,728 $145,420 $(1,566)$1,401,054 
Net income— — — — — 38,834 — 38,834 
Stock-based compensation— — — — 2,994 — — 2,994 
Foreign currency translation adjustments— — — — — — (72)(72)
Repurchase of common stock— — 218,221 (8,110)— — — (8,110)
Shares issued upon vesting of restricted stock units11,358 — — — (247)— — (247)
Exercise of options to purchase common stock232,987 2 — — 2,867 — — 2,869 
Balance at May 28, 2022101,315,226 $1,013 887,976 $(30,649)$1,284,342 $184,254 $(1,638)$1,437,322 

7
Common StockTreasury StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
SharesAmountSharesAmount
Balance at August 29, 202095,751,845 $958 98,234 $(2,145)$1,076,472 $64,927 $(879)$1,139,333 
Net income— — — — — 42,953 — 42,953 
Stock-based compensation— — — — 1,110 — — 1,110 
Foreign currency translation adjustments— — — — — — (45)(45)
Shares issued upon vesting of restricted stock units53,908 — — — (201)— — (201)
Exercise of options to purchase common stock13,118 — — — 157 — — 157 
Balance at November 28, 202095,818,871 $958 98,234 $(2,145)$1,077,538 $107,880 $(924)$1,183,307 
Net loss— — — — — (26,214)— (26,214)
Stock-based compensation— — — — 2,484 — — 2,484 
Foreign currency translation adjustments— — — — — — 243 243 
Shares issued upon vesting of restricted stock units7,034 — — — (51)— — (51)
Exercise of options to purchase common stock30,810 1 — — 369 — — 370 
Balance at February 27, 202195,856,715 $959 98,234 $(2,145)$1,080,340 $81,666 $(681)$1,160,139 
Net income— — — — — 5,895 — 5,895 
Stock-based compensation— — — — 2,172 — — 2,172 
Foreign currency translation adjustments— — — — — — 95 95 
Shares issued upon vesting of restricted stock units4,683 — — — (68)— — (68)
Exercise of options to purchase common stock14,380 — — — 173 — — 173 
Balance at May 29, 202195,875,778 $959 98,234 $(2,145)$1,082,617 $87,561 $(586)$1,168,406 

See accompanying notes to the unaudited condensed consolidated financial statements.

8
Notes to Unaudited Condensed Consolidated Financial Statements
(Unaudited, dollars in thousands, except for share and per share data)

1. Nature of Operations and Principles of Consolidation

Description of Business

    The Simply Good Foods Company (“Simply Good Foods” or the “Company”) is a consumer packaged food and beverage company that aims to lead the nutritious snacking movement with trusted brands that offer a variety of convenient, innovative, great-tasting, better-for-you snacks and meal replacements. The product portfolio the Company develops, markets and sells consists primarily of protein bars, ready-to-drink (“RTD”) shakes, sweet and salty snacks and confectionery products marketed under the Atkins®, Atkins Endulge®, and Quest® brand names. Simply Good Foods is poised to expand its wellness platform through innovation and organic growth along with acquisition opportunities in the nutritional snacking space.

    The Company’s nutritious snacking platform consists of brands that specialize in providing products for consumers that follow certain nutritional philosophies and health-and-wellness trends: Atkins® for those following a low-carb lifestyle and Quest® for consumers seeking a variety of protein-rich foods and beverages that also limit sugars and simple carbs. The Company distributes its products in major retail channels, primarily in North America, including grocery, club, and mass merchandise, as well as through e-commerce, convenience, specialty, and other channels. The Company’s portfolio of nutritious snacking brands gives it a strong platform with which to introduce new products, expand distribution, and attract new consumers to its products.

    The common stock of Simply Good Foods is listed on the Nasdaq Capital Market under the symbol “SMPL.”

Unaudited Interim Condensed Consolidated Financial Statements

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

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

    The interim condensed consolidated financial statements and related notes of the Company and its subsidiaries are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The unaudited interim condensed consolidated financial statements reflect all adjustments and disclosures which are, in the Company’s opinion, necessary for a fair presentation of the results of operations, financial position and cash flows for the indicated periods. All such adjustments were of a normal and recurring nature unless otherwise disclosed. The year-end balance sheet data was derived from the audited financial statements and, in accordance with the instructions to Form 10-Q, certain information and footnote disclosures required by GAAP have been condensed or omitted. The results reported in these unaudited interim condensed consolidated financial statements are not necessarily indicative of the results that may be reported for the entire fiscal year and should be read in conjunction with the Company’s consolidated financial statements for the fiscal year ended August 28, 2021, included in the Company’s Annual Report on Form 10-K (“Annual Report”) filed with the SEC on October 26, 2021.

    While the Company’s business has continued to improve from the end of fiscal year 2021, driven in part by the increasing normalization of consumer mobility and shopper traffic patterns in brick-and-mortar retailers versus prior periods that were pressured by COVID-19 movement restrictions, the ultimate effect COVID-19, supply chain challenges, cost pressures, and the overall effects of the current high inflation environment on consumer purchasing patterns could have on our business continues to be not fully known. Additionally, management is continuing to monitor the conflict in Ukraine, especially regarding the availability and cost of raw materials that are produced in this region. Management is also monitoring for signs of any expansion of economic or supply chain disruptions or broader supply chain inflationary costs resulting either directly or indirectly from the crisis. Factors contributing to the uncertainty described above, among other things, include (i) continued supply chain disruptions, including disruptions resulting from labor shortages and other cost pressures, (ii) changes to customer operations, (iii) a reversal in improving consumer purchasing and consumption behavior, and (iv) unforeseen business disruptions or other effects due to current global geopolitical tensions, including relating directly or indirectly to the Ukraine crisis.

2. Summary of Significant Accounting Policies

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

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Recently Issued and Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

    In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. The amendments in this ASU are effective for all entities and can be applied to contract modifications due to rate reform and eligible existing and new hedging relationships entered into between March 12, 2020 and December 31, 2022. The amendments of this ASU should be applied on a prospective basis.

    On January 21, 2022, the Company entered into a repricing amendment (the “2022 Repricing Amendment”) to its credit agreement with Barclays Bank PLC and other parties (as amended to date, the “Credit Agreement”), as described in Note 5, Long-Term Debt and Line of Credit. In addition to replacing the London Interbank Offered Rate (“LIBOR”) as the Credit Agreement’s reference rate with the Secured Overnight Financing Rate (“SOFR”), the 2022 Repricing Amendment contemporaneously modified other terms that changed, or had the potential to change, the amount or timing of contractual cash flows as contemplated by the guidance in ASU 2020-04. As such, the contract modifications related to the 2022 Repricing Amendment were outside of the scope of the optional guidance in ASU 2020-04. The Company will continue to monitor the effects of rate reform, if any, on any new or amended contracts through December 31, 2022. The Company does not anticipate the amendments in this ASU will be material to its consolidated financial statements.

Recently Adopted Accounting Pronouncements

    In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which amends existing guidance related to the accounting for income taxes. This ASU was intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. The Company adopted this ASU as of the first day of fiscal year 2022. The adoption of this ASU did not have a material effect on the consolidated financial statements.

    In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which provided updates for technical corrections, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements across various areas of accounting within GAAP. The Company adopted this ASU as of the first day of fiscal year 2022 on a prospective basis. The adoption of this ASU did not have a material effect on the consolidated financial statements.

    No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material effect on the Company’s consolidated financial statements.

3. Revenue Recognition

    Revenue from transactions with external customers for each of the Company’s products would be impracticable to disclose and management does not view its business by product line. The following is a summary of revenue disaggregated by geographic area and core brands:

Thirteen Weeks EndedThirty-Nine Weeks Ended
(In thousands)May 28, 2022May 29, 2021May 28, 2022May 29, 2021
North America (1)
Atkins$148,163 $146,082 $417,539 $382,998 
Quest160,261 127,097 451,128 327,891 
Total North America308,424 273,179 868,667 710,889 
International8,107 10,822 25,847 34,871 
Total net sales$316,531 $284,001 $894,514 $745,760 
(1) The North America geographic area consists of net sales substantially related to the United States and there is no individual foreign country to which more than 10% of the Company’s net sales are attributed or that is otherwise deemed individually material.

    Charges related to credit loss on accounts receivables from transactions with external customers were $0.2 million and $0.1 million for the thirteen and thirty-nine weeks ended May 28, 2022, respectively, and were $0.6 million and $0.7 million for the thirteen and thirty-nine weeks ended May 29, 2021, respectively. As of May 28, 2022 and August 28, 2021, the allowances for doubtful accounts related to these accounts receivable were $1.3 million and $1.1 million, respectively.
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4. Goodwill and Intangibles

    As of May 28, 2022 and August 28, 2021, Goodwill in the Condensed Consolidated Balance Sheets was $543.1 million. There were no impairment charges related to goodwill during the thirteen and thirty-nine weeks ended May 28, 2022 or since the inception of the Company.

    Intangible assets, net in the Condensed Consolidated Balance Sheets consists of the following:
May 28, 2022
(In thousands)Useful lifeGross carrying amountAccumulated amortizationNet carrying
amount
Intangible assets with indefinite life:
Brands and trademarksIndefinite life$974,000 $— $974,000 
Intangible assets with finite lives:
Customer relationships15 years174,000 38,803 135,197 
Licensing agreements13 years22,000 8,102 13,898 
Proprietary recipes and formulas7 years7,000 4,881 2,119 
Software and website development costs3-5 years5,863 3,941 1,922 
$1,182,863 $55,727 $1,127,136 
August 28, 2021
(In thousands)Useful lifeGross carrying amountAccumulated amortizationNet carrying
amount
Intangible assets with indefinite life:
Brands and trademarksIndefinite life$974,000 $— $974,000 
Intangible assets with finite lives:
Customer relationships15 years174,000 30,103 143,897 
Licensing agreements13 years22,000 6,664 15,336 
Proprietary recipes and formulas7 years7,000 4,131 2,869 
Software and website development costs3-5 years5,560 2,924 2,636 
Intangible assets in progress3-5 years303 — 303 
$1,182,863 $43,822 $1,139,041 

    Changes in Intangible assets, net during the thirty-nine weeks ended May 28, 2022 were primarily related to recurring amortization expense. Amortization expense related to intangible assets was $4.0 million and $3.8 million for the thirteen weeks ended May 28, 2022 and May 29, 2021, respectively, and $11.9 million and $11.6 million for the thirty-nine weeks ended May 28, 2022 and May 29, 2021, respectively. There were no impairment charges related to intangible assets during the thirteen and thirty-nine weeks ended May 28, 2022 and May 29, 2021.

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

(In thousands)Amortization
Remainder of 2022$3,935 
202315,602 
202414,917 
202513,517 
202613,517 
2027 and thereafter91,648 
Total$153,136 

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5. Long-Term Debt and Line of Credit

    On July 7, 2017, the Company entered into a credit agreement with Barclays Bank PLC and other parties (as amended to date, the “Credit Agreement”). The Credit Agreement at that time provided for (i) a term facility of $200.0 million (“Term Facility”) with a seven-year maturity and (ii) a revolving credit facility of up to $75.0 million (the “Revolving Credit Facility”) with a five-year maturity. Substantially concurrent with the consummation of the business combination between Conyers Park Acquisition Corp. and NCP-ATK Holdings, Inc. on July 7, 2017, the full $200.0 million of the Term Facility (the “Term Loan”) was drawn.

    On November 7, 2019, the Company entered into a second amendment (the “Incremental Facility Amendment”) to the Credit Agreement to increase the principal borrowed on the Term Facility by $460.0 million. The Term Facility together with the incremental borrowing make up the Initial Term Loans (as defined in the Incremental Facility Amendment). The Incremental Facility Amendment was executed to partially finance the acquisition of Quest Nutrition, LLC on November 7, 2019. No amounts under the Term Facility were repaid as a result of the execution of the Incremental Facility Amendment.

    Effective as of December 16, 2021, the Company entered into a third amendment (the “Extension Amendment”) to the Credit Agreement. The Extension Amendment provided for an extension of the stated maturity date of the Revolving Commitments and Revolving Loans (each as defined in the Credit Agreement) from July 7, 2022 to the earlier of (i) 91 days prior to the maturity date of the Initial Term Loans on July 7, 2024 and (ii) December 16, 2026.

    On January 21, 2022, the Company entered into a repricing amendment (the “2022 Repricing Amendment”) to the Credit Agreement. The 2022 Repricing Amendment, among other things, (i) reduced the interest rate per annum applicable to the Initial Term Loans outstanding under the Credit Agreement immediately prior to the effective date of the 2022 Repricing Amendment, (ii) reset the prepayment premium for the existing Initial Term Loans to apply to Repricing Transactions (as defined in the Credit Agreement) that occur within six months after the effective date of the 2022 Repricing Amendment, and (iii) implemented the Secured Overnight Financing Rate (“SOFR”) and related replacement provisions for the London Interbank Offered Rate (“LIBOR”).

    Effective as of the 2022 Repricing Amendment dated January 21, 2022, the interest rate per annum is based on either:
i.A base rate equaling the higher of (a) the “prime rate,” (b) the federal funds effective rate plus 0.50%, or (c) the Adjusted Term SOFR Rate (as defined in the Credit Agreement) applicable for an interest period of one month plus 1.00% plus (x) 2.25% margin for the Term Loan or (y) 2.00% margin for the Revolving Credit Facility; or
ii.SOFR plus a credit spread adjustment equal to 0.10% for one-month SOFR, 0.15% for up to three-month SOFR and 0.25% for up to six-month SOFR, subject to a floor of 0.50%, plus (x) 3.25% margin for the Term Loan or (y) 3.00% margin for the Revolving Credit Facility.

    The Simply Good Foods Company is not a borrower under the Credit Agreement and has not provided a guarantee of the Credit Agreement. Simply Good Foods USA, Inc., is the administrative borrower and certain other subsidiary holding companies are co-borrowers under the Credit Agreement. Each of the Company’s domestic subsidiaries that is not a named borrower under the Credit Agreement has provided a guarantee on a secured basis. As security for the payment or performance of the debt under the Credit Agreement, the borrowers and the guarantors have pledged certain equity interests in their respective subsidiaries and granted the lenders a security interest in substantially all of their domestic assets. All guarantors other than Quest Nutrition, LLC are holding companies with no assets other than their investments in their respective subsidiaries.

    The Credit Agreement contains certain financial and other covenants that limit the Company’s ability to, among other things, incur and/or undertake asset sales and other dispositions, liens, indebtedness, certain acquisitions and investments, consolidations, mergers, reorganizations and other fundamental changes, payment of dividends and other distributions to equity and warrant holders, and prepayments of material subordinated debt, in each case, subject to customary exceptions materially consistent with credit facilities of such type and size. The Revolving Credit Facility has a maximum total net leverage ratio equal to or less than 6.00:1.00 contingent on credit extensions in excess of 30% of the total amount of commitments available under the Revolving Credit Facility. Any failure to comply with the restrictions of the credit facilities may result in an event of default. The Company was in compliance with all financial covenants as of May 28, 2022 and August 28, 2021, respectively.

12
    Long-term debt consists of the following:
(In thousands)May 28, 2022August 28, 2021
Term Facility (effective rate of 4.7% at May 28, 2022)
$406,500 $456,500 
Finance lease liabilities (effective rate of 5.6% at May 28, 2022)
479 690 
Less: Deferred financing fees4,107 5,636 
Total debt402,872451,554
Less: Current finance lease liabilities278285
Long-term debt, net of deferred financing fees$402,594$451,269

    The Company is not required to make principal payments on the Term Facility over the twelve months following the period ended May 28, 2022. The outstanding balance of the Term Facility is due upon its maturity in July 2024.

    As of May 28, 2022, the Company had letters of credit in the amount of $3.5 million outstanding. These letters of credit offset against the $75.0 million availability of the Revolving Credit Facility and exist to support three of the Company’s leased buildings and insurance programs relating to workers’ compensation. No amounts were drawn against these letters of credit at May 28, 2022.

    The Company utilizes market approaches to estimate the fair value of certain outstanding borrowings by discounting anticipated future cash flows derived from the contractual terms of the obligations and observable market interest and foreign exchange rates. The Company carries debt at historical cost and discloses fair value. As of May 28, 2022 and August 28, 2021, the book value of the Company’s debt approximated fair value. The estimated fair value of the Term Loan is valued based on observable inputs and classified as Level 2 in the fair value hierarchy.

6. 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 used:

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.

Level 3 Measurements

    As of August 28, 2021, the Company had outstanding liability-classified Private Warrants that allowed holders to purchase 6,700,000 shares of the Company’s common stock. Such Private Warrants were held by Conyers Park Sponsor, LLC (“Conyers Park”), a related party. On January 7, 2022, Conyers Park elected to exercise the Private Warrants on a cashless basis, resulting in a net issuance of 4,830,761 shares of the Company’s common stock. As a result of Conyers Park’s election to exercise the Private Warrants, there were no outstanding liability-classified Private Warrants as of May 28, 2022. Refer to Note 10, Stockholders’ Equity, for additional details regarding the cashless exercise of the Private Warrants.

    The Company utilized the Black-Scholes model to estimate the fair value of the Private Warrants at each reporting date. The application of the Black-Scholes model utilizes significant assumptions, including volatility. Significant judgment is required in determining the expected volatility, historically the key assumption, of the Private Warrants. In order to determine the most accurate measure of this volatility, the Company measured expected volatility based on several inputs, including considering a peer group of publicly traded companies, the Company’s implied volatility based on traded options, the implied volatility of comparable warrants, and the implied volatility of any outstanding public warrants during the periods they were outstanding. As a result of the unobservable inputs that were used to determine the expected volatility of the Private Warrants, the fair value measurement of these warrants reflects a Level 3 measurement within the fair value measurement hierarchy.

13
    There were no Private Warrants outstanding as of May 28, 2022. As of August 28, 2021, the Company had 6,700,000 Private Warrants outstanding with a fair value price per Private Warrant of $23.86, resulting in a $159.8 million total warrant liability. The table below summarizes the inputs used to calculate the fair value of the warrant liability at August 28,2021:

August 28, 2021
Exercise price$11.50 
Stock price$35.35 
Dividend yield— %
Expected term (in years)0.86
Risk-free interest rate0.06 %
Expected volatility21.70 %
Per share value of warrants$23.86 

    The periodic remeasurement of the warrant liability has been reflected in Loss in fair value change of warrant liability within the Condensed Consolidated Statements of Operations and Comprehensive Income. The adjustments for the thirty-nine weeks ended May 28, 2022 resulted in a loss of $30.1 million, and the adjustments for the thirteen and thirty-nine weeks ended May 29, 2021 were losses of $35.8 million and $60.7 million, respectively.

7. Income Taxes

    The tax expense and the effective tax rate resulting from operations were as follows:

Thirty-Nine Weeks Ended
(In thousands)May 28, 2022May 29, 2021
Income before income taxes$113,173 $53,729 
Income tax expense$34,726 $31,095 
Effective tax rate30.7 %57.9 %

    The effective tax rate for the thirty-nine weeks ended May 28, 2022 was 27.2% less than the effective tax rate for the thirty-nine weeks ended May 29, 2021, which was primarily driven by the non-cash change in the fair value of the warrant liability and other permanent differences.

8. Leases

    The components of lease expense were as follows:

Thirteen Weeks EndedThirty-Nine Weeks Ended
(In thousands)Statements of Operations CaptionMay 28, 2022May 29, 2021May 28, 2022May 29, 2021
Operating lease cost:
Lease costCost of goods sold and
General and administrative		$2,278 $1,486 $6,806 $4,480 
Variable lease cost (1)
Cost of goods sold and
General and administrative		787 470 2,300 1,246 
Total operating lease cost3,065 1,956 9,106 5,726 
Finance lease cost:
Amortization of right-of-use assetsCost of goods sold69 69 205 205 
Interest on lease liabilitiesInterest expense7 10 24 35 
Total finance lease cost76 79 229 240 
Total lease cost$3,141 $2,035 $9,335 $5,966 
(1)    Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs.

14
    In conjunction with the Company’s restructuring activities as discussed in Note 13, Restructuring and Related Charges, the Company recorded an immaterial gain on lease termination related to its lease in the Netherlands in the thirty-nine weeks ended May 28, 2022 and a $0.5 million impairment charge, net of a gain on lease termination, related to its leases in Toronto, Ontario and the Netherlands in the thirty-nine weeks ended May 29, 2021. The effect of these restructuring activities has been included within General and administrative on the Condensed Consolidated Statements of Operations and Comprehensive Income. Refer to Note 13, Restructuring and Related Charges, for additional information regarding restructuring activities.

    The right-of-use assets and corresponding liabilities related to both operating and finance leases are as follows:

(In thousands)Balance Sheets CaptionMay 28, 2022August 28, 2021
Assets
Operating lease right-of-use assetsOther long-term assets$48,134 $46,197 
Finance lease right-of-use assetsProperty and equipment, net435 640 
Total lease assets$48,569 $46,837 
Liabilities
Current:
Operating lease liabilitiesAccrued expenses and other current liabilities$5,721 $3,788 
Finance lease liabilitiesCurrent maturities of long-term debt278 285 
Long-term:
Operating lease liabilitiesOther long-term liabilities46,219 44,892 
Finance lease liabilitiesLong-term debt, less current maturities201 405 
Total lease liabilities$