Simply Good Foods Co

9. Income Taxes

The sources of income before income taxes are as follows:

Income tax expense was comprised of the following:

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities at August 31, 2024, and August 26, 2023, were as follows:

The Company had federal net operating loss carryforwards of $63.0 million and $0.0 million, state net operating loss carryforwards of $44.2 million and $0.3 million, and foreign net operating loss carryforwards of $1.7 million and $0.0 million at August 31, 2024 and August 26, 2023, respectively. Federal net operating loss carryforwards will begin to expire in 2037 and the state net operating loss carryforwards will begin to expire in 2031.

As of August 31, 2024, the Company hasno valuation allowances on its deferred tax assets.

As of August 31, 2024, the Company does not intend to indefinitely reinvest its foreign earnings within its subsidiary in Canada and has not recognized any tax liabilities related to this jurisdiction. It is the Company’s intention to reinvest the earnings of its other non-U.S. subsidiaries in its Australia and New Zealand operations. As of August 31, 2024, the Company has not made a provision for U.S. or additional foreign withholding taxes for any outside basis differences inherent in its investments in foreign subsidiaries that are indefinitely reinvested. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

As of August 31, 2024, and August 26, 2023, the Company hasno unrecognized tax benefits.

The Company records interest and penalties associated with unrecognized tax benefits as a component of tax expense. As of August 31, 2024, and August 26, 2023, the Company hasnot accrued any interest or penalties on unrecognized tax benefits, as there is no position recorded as of these fiscal year-ends. No changes to the uncertain tax position balance are anticipated within the next 12 months and are not expected to materially affect the financial statements.

As of August 31, 2024, tax years 2017 to 2023 remain subject to examination in the United States by the Internal Revenue Service and state tax authorities and the tax years 2017 to 2023 remain subject to examination in other major foreign jurisdictions where the Company conducts business. State income tax returns are generally subject to examination for a period of three to six years after the filing of the respective return.

The future utilization of federal net operating loss carryforwards generated after 2017 is limited to 80% of taxable income. An additional limitation applies to the use of federal net operating loss and credit carryforwards, under Section 382 of the Internal Revenue Code of

1986, as amended, that is applicable if the Company experiences an "ownership change”. The Company has experienced various “ownership changes” in prior years. With the OWYN Acquisition, an "ownership change" occurred in the current year. The resulting Section 382 limitations are not expected to materially affect the Company’s ability to utilize carryforwards. Future changes in the ownership of the Company could further limit the Company’s ability to utilize its net operating losses and credits.

In 2021, the Organization for Economic Co-operation and Development (OECD) announced Pillar Two Model Rules, which call for the taxation of large multinational corporations at a minimum rate of 15%. Many non-U.S. tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in fiscal 2025 with the adoption of additional components in later years or announced their plans to enact legislation in future years. The currently enacted Pillar Two Model Rules are not expected to have a significant effect on the Company’s provision for income taxes. The Company continues to monitor developments and evaluate effects, if any, of these provisions on its results of operations and cash flows for future years.

10. Leases

The components of lease expense were as follows.

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

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

Future maturities of lease liabilities as of August 31, 2024, were as follows:

The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases were as follows:

Supplemental and other information related to leases was as follows:

11. Commitments and Contingencies

Litigation

The Company is a party to certain litigation and claims that are considered normal to the operations of the business. From time to time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of business. The Company is not presently a party to any litigation that it believes to be material, and the Company is not aware of any pending or threatened litigation against it that its management believes could have a material adverse effect on its business, operating results, financial condition or cash flows.

Other

The Company enters into endorsement contracts with certain celebrity figures and social media influencers to promote and endorse the Quest, Atkins, and OWYN 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 contracts in place and achievement of performance conditions as of August 31, 2024, the Company will be required to make payments of $1.2 million over the next year.

12. Stockholders’ Equity

Warrants to Purchase Common Stock

During the fifty-two weeks ended August 27, 2022, 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, a related party. Each whole warrant entitled the holder to purchase one share of the Company’s common stock at a price of $11.50 per share. On January 7, 2022, Conyers Park elected to exercise the Private Warrants in full on a cashless basis, resulting in a net issuance of 4,830,761 shares of the Company’s common stock. As a result of the cashless exercise on January 7, 2022, there wereno outstanding liability-classified Private Warrants as of August 31, 2024, or August 26, 2023.

As discussed in Note 8, Fair Value of Financial Instruments, the liability-classified warrants were remeasured on a recurring basis, primarily based on observable market data while the related theoretical private warrant volatility assumption within the Black-Scholes model represents a Level 3 measurement within the fair value measurement hierarchy. The periodic fair value remeasurements of the warrant liability, including the cashless exercise and the settlement of the warrant liability, have been reflected in(Loss) in fair value change of warrant liability within the Consolidated Statements of Income and Comprehensive Income.

Stock Repurchase Program

The Company adopted a $50.0 million stock repurchase program on November 13, 2018. On April 13, 2022, and October 21, 2022, the Company announced that its Board of Directors had approved the addition of $50.0 million and $50.0 million, respectively, to its stock repurchase program, resulting in authorized stock repurchases of up to an aggregate of $150.0 million. Under the stock repurchase program, the Company may repurchase shares from time to time in the open market or in privately negotiated transactions. The stock repurchase program does not obligate the Company to acquire any specific number of shares or acquire shares over any specific period of time. The stock repurchase program may be suspended or discontinued at any time by the Company and does not have an expiration date.

The Company did not repurchase any shares of common stock during the fifty-three weeks ended August 31, 2024. During the fifty-two weeks ended August 26, 2023, the Company repurchased 546,346 shares of common stock at an average share price of $30.11 per share. During the fifty-two weeks ended August 27, 2022, the Company repurchased 1,720,520 shares of common stock at an average share price of $34.79 per share. As of August 31, 2024, approximately $71.5 million remained available under the stock repurchase program.

Accumulated Other Comprehensive Loss

During the fifty-two weeks ended August 27, 2022, the Company recognized a foreign currency translation gain of $1.1 million related to the liquidation of a foreign subsidiary. The gain is reflected as a component of Other income (expense) in Gain (loss) on foreign currency transactions within the Consolidated Statements of Income and Comprehensive Income.

13. Earnings Per Share

Basic earnings or loss per share is based on the weighted average number of common shares issued and outstanding. In computing diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all potentially dilutive securities, including the Company’s employee stock options, non-vested stock units, and Private Warrants for the periods during which they were outstanding. During periods when the effect of the outstanding Private Warrants was dilutive, the Company assumed share settlement of the instruments as of the beginning of the reporting period and adjusted the numerator to remove the change in fair value of the warrant liability and adjusted the denominator to include the dilutive shares, calculated using the treasury stock method. During periods when the effect of the outstanding Private Warrants was anti-dilutive, the share settlement was excluded.

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

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

Diluted earnings per share calculations for the fifty-two weeks ended August 27, 2022, excluded 0.7 million shares issuable upon exercise of Private Warrants, respectively, that would have been anti-dilutive.

Diluted earnings per share calculations for the fifty-three weeks ended August 31, 2024, and the fifty-two weeks ended August 26, 2023, and August 27, 2022, excluded 0.8 million shares,0.6 million shares, and 0.3 million shares of common stock issuable upon exercise of stock options, respectively, that would have been anti-dilutive.

Diluted earnings per share calculations for the fifty-three weeks ended August 31, 2024, and the fifty-two weeks ended August 26, 2023, and August 27, 2022, excluded an immaterial number of non-vested restricted stock units that would have been anti-dilutive.

14. Omnibus Incentive Plan

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

For the fifty-three weeks ended August 31, 2024, and the fifty-two weeks ended August 26, 2023, and August 27, 2022, the Company recorded stock-based compensation expense of $18.4 million, $14.5 million, and $11.7 million, respectively.

In July 2017, the Company’s stockholders approved the 2017 Omnibus Incentive Plan (the “Incentive Plan”). The Incentive Plan provides for the issuance of a maximum of 9,067,917 shares of stock-denominated awards to directors, employees, officers and agents of the Company. As of August 31, 2024, there were 3.0 million shares available for grant under the Incentive Plan.

Stock Options

Stock options granted under the Incentive Plan are granted at a price equal to or more than the fair value of common stock on the date the option is granted. Stock options under the Incentive Plan generally become exercisable ratably over three years from the date of grant and must be exercised withinten years from the date of grant.

The following table summarizes stock option activity for the fifty-three weeks ended August 31, 2024:

The following table summarizes information about stock options outstanding at August 31, 2024:

The weighted average fair value of options granted during the fifty-three weeks ended August 31, 2024, and the fifty-two weeks ended August 26, 2023, and August 27, 2022, were $14.36, $16.58, and $15.32, respectively.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes Option Pricing Model based on the following assumptions:

As the Company has now been listed for more than five years for the years presented above, which is broadly consistent with the expected term of the options, the Company has based its Black-Scholes valuation model’s expected volatility assumption on the actual volatility of its daily closing share price over the period since listing to the valuation date. The risk-free rates are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. Future annual dividends over the expected term are estimated to benil.

As of August 31, 2024, the Company had $2.3 million of total unrecognized compensation cost related to stock option plans that will be recognized over a weighted average period of 1.4 years. During the fifty-three weeks ended August 31, 2024, and fifty-two weeks ended August 26, 2023, and August 27, 2022, the Company received $4.3 million, $5.2 million, and $4.3 million in cash from stock option exercises, respectively.

Restricted Stock Units

Restricted stock units granted under the Incentive Plan are granted at a price equal to closing market price of the Company’s common stock on the date of grant. Restricted stock units under the Incentive Plan generally vest over three years.

The following table summarizes restricted stock unit activity for the fifty-three weeks ended August 31, 2024:

As of August 31, 2024, the Company had $11.8 million of total unrecognized compensation cost related to restricted stock units that will be recognized over a weighted average period of 1.6 years.

Performance Stock Units

During the fifty-three weeks ended August 31, 2024, the Board of Directors granted performance stock units under the Company’s Incentive Plan. The number of shares issuable as a result of grants of performance stock units is determined based on the performance criteria of the Company’s relative total shareholder return, or relative TSR, measured for the Company and each company in the Russell 3000 Food & Beverage index using the immediately preceding 30-day average share price at the beginning and end of the applicable three-year performance period. The percentile rank of the Company’s TSR within the peer group determines the percent of the target award earned, ranging between 0% and 200%. The related compensation expense is recognized regardless of whether or not the market condition is satisfied, provided the requisite service is rendered. Performance stock units were valued using a Monte-Carlo simulation.

The following table summarizes performance stock unit activity for the fifty-three weeks ended August 31, 2024:

Performance stock units are generally granted to employees as a part of the annual grant in November of the associated fiscal year, although the Board of Directors reserves the right to administer mid-year grants from time to time as they see fit. The fair value of each performance stock unit grant is estimated on the date of grant using a Monte-Carlo simulation based on the following assumptions presented below which are associated with each year’s annual grant:

As of August 31, 2024, the Company had $4.3 million of total unrecognized compensation cost related to performance stock units that will be recognized over a weighted average period of 1.4 years.

Stock Appreciation Rights

Stock appreciation rights (“SARs”) permit the holder to participate in the appreciation of the Company’s common stock price and are awarded to non-employee consultants of the Company. The Company’s SARs settle in shares of its common stock if and when the applicable vesting criteria has been met. SARs cliff vest three years from the date of grant and must be exercised withinten years.

The following table summarizes SARs activity for the fifty-three weeks ended August 31, 2024:

The SARs exercised in the fifty-two weeks ended August 26, 2023, resulted in a net issuance of 38,850 shares of the Company’s common stock. The SARs granted in the fifty-two weeks ended August 26, 2023, are liability-classified; therefore, the related stock-based compensation expense is based on the vesting provisions and the fair value of the awards.

15. Segment and Customer Information

Following the OWYN Acquisition, the Company's operations are organized into two operating segments, Quest and Atkins, and OWYN, which are aggregated into one reporting segment due to similar financial, economic and operating characteristics. The operating segments are also similar in the following areas: (a) the nature of the 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 Company also designed its organizational structure to support entity-wide business functions across brands, products, customers, and geographic regions. As a result, during the fifty-three weeks ended August 31, 2024, the Company determined its operations are organized into two operating segments, which were aggregated into one reporting segment due to similar financial, economic and operating characteristics. During the fifty-two weeks ended August 26, 2023, and August 27, 2022, the Company determined its operations are organized intoone, consolidated operating segment and reportable segment.

Reconciliation of the totals of reported segment revenue, profit or loss measurement, assets and other significant items reported by segment to the corresponding GAAP totals is not applicable to the Company as it only has one reportable segment. Additionally, revenue 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 is a summary of revenue disaggregated by geographic area and brand:

The following is a summary of long lived assets by geographic area:

Significant Customers

Credit risk for the Company was concentrated in three customers who each comprised more than 10% of the Company’s total sales for the fifty-three weeks ended August 31, 2024, and fifty-two weeks ended August 26, 2023, and August 27, 2022.

At August 31, 2024, and August 26, 2023, the following amounts of the Company’s accounts receivable, net were related to these significant customers for the periods in which the customers were significant:

16. Restructuring and Related Charges

In May 2020, the Company announced certain restructuring activities in conjunction with the implementation of the Company’s future-state organization design, which created a fully integrated organization with its completed Quest Acquisition. The new organization design became effective on August 31, 2020. These restructuring plans primarily included workforce reductions, changes in management structure, and the relocation of business activities from one location to another.

The Company substantially completed the aforementioned restructuring activities during the fifty-two weeks ended August 27, 2022. During the fifty-two weeks ended August 27, 2022, the Company incurred $0.1 million of restructuring charges which included an immaterial gain on lease termination related to its lease in the Netherlands. Since the announcement of the restructuring activities in May 2020, the Company incurred aggregate restructuring and restructuring-related costs of $9.9 million.

The one-time termination benefits and employee severance costs incurred in relation to these restructuring activities were accounted for in accordance with ASC Topic 420, Exit or Disposal Cost Obligations, and ASC Topic 712, Compensation - Nonretirement Post-employment Benefits, respectively. The Company recognized a liability and the related expense for these restructuring costs when the liability was incurred and could be measured. Restructuring accruals were based upon management estimates at the time and could change depending upon changes in facts and circumstances subsequent to the date the original liability was recorded. The effect of these restructuring activities was included within General and administrative on the Consolidated Statements of Income and Comprehensive Income.

No restructuring and restructuring-related costs were incurred in the fifty-three weeks ended August 31, 2024, or the fifty-two weeks ended August 26, 2023.