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STOCK-BASED COMPENSATION
6 Months Ended
Jun. 30, 2024
Share-Based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION
13. STOCK-BASED COMPENSATION

The Board of Directors adopted, and the Company's stockholders approved, the "TreeHouse Foods, Inc. Equity and Incentive Plan" (the "Plan"). Under the Plan, the Compensation Committee may grant awards of various types of compensation, including stock options, restricted stock, restricted stock units, performance shares, performance units, other types of stock-based awards, and other cash-based compensation. The maximum number of shares authorized to be awarded under the Plan is approximately 22.5 million as of June 30, 2024.

Total compensation expense related to stock-based payments and the related income tax benefit recognized in Net (loss) income from continuing operations are as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2024202320242023
(In millions)(In millions)
Compensation expense related to stock-based payments$5.3 $5.9 $11.0 $13.1 
Related income tax benefit1.2 0.8 2.6 1.7 

All amounts below include continuing and discontinued operations.

Stock Options — Stock options granted under the Plan during 2022 have a three-year vesting schedule, vest one-third on the second anniversary of the grant date and two-thirds on the third anniversary of the grant date, and expire ten years from the grant date. Stock options are generally only granted to employees and non-employee directors.

The following table summarizes stock option activity during 2024:
Employee
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (yrs.)
Aggregate
Intrinsic
Value
(In thousands)(In millions)
Outstanding, at December 31, 2023578 $64.20 5.1$— 
Expired(54)80.55 
Outstanding, at June 30, 2024524 62.54 5.0— 
Vested/expected to vest, at June 30, 2024510 63.10 5.0— 
Exercisable, at June 30, 2024331 74.10 3.4— 
Unrecognized compensation costs related to nonvested options totaled $1.3 million at June 30, 2024 and are expected to be recognized over a weighted average period of 0.9 years.

Restricted Stock Units — Employee restricted stock unit awards generally vest based on the passage of time in approximately three equal installments on each of the first three anniversaries of the grant date.

Non-employee director restricted stock units generally vest on the first anniversary of the grant date. Certain non-employee directors have elected to defer receipt of their awards until either their departure from the Board of Directors or a specified date beyond the first anniversary of the grant date.
The following table summarizes the restricted stock unit activity during the six months ended June 30, 2024:
 
Employee
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
Director
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
 (In thousands) (In thousands) 
Nonvested, at December 31, 2023573 $41.57 45 $50.14 
Granted500 37.08 35 36.10 
Vested(242)41.20 (18)51.87 
Forfeited(87)39.69 — — 
Nonvested, at June 30, 2024744 38.90 62 41.73 
Earned and deferred, at June 30, 202428 48.62 
 
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2024202320242023
 (In millions)(In millions)
Fair value of vested restricted stock units$1.0 $3.2 $9.8 $14.3 
Tax benefit recognized from vested restricted stock units0.2 0.7 1.6 2.3 
 
Unrecognized compensation costs related to nonvested restricted stock units are approximately $25.9 million as of June 30, 2024 and will be recognized over a weighted average period of 2.1 years. The grant date fair value of the awards is equal to the Company's closing stock price on the grant date.

Performance Units — Performance unit awards are granted to certain members of management. These awards contain both service and performance conditions, and for certain executive members of management, a market condition, in each case as described below.

For performance unit awards granted in 2021 through 2023, performance goals are set and measured annually with one-quarter of the units eligible to accrue for each year in the three-year performance period. Accrued shares are earned at the end of each performance period but remain subject to forfeiture until the third anniversary of the grant date. Additionally, for the cumulative three-year performance period, one-quarter of the units will accrue. For both the annual and cumulative shares, the earned shares are equal to the number of units granted multiplied by a predefined percentage generally between 0% and 200%, depending on the achievement of certain operating performance measures.
For performance unit awards granted in 2024, performance goals were established upfront and will be measured over a cumulative three-year performance period. The units will accrue each month, multiplied by a predefined percentage between 0% and 200%, depending on the achievement of certain operating performance measures. Accrued shares are not earned until the end of the full three-year performance period and remain subject to forfeiture until the third anniversary of the grant date.
For performance unit awards granted in 2021 through 2024, certain executive members of management received awards that were measured using a relative total shareholder return ("TSR") market condition over a three-year performance goal. The units will accrue, multiplied by a predefined percentage between 0% and 150% for years 2021 through 2023 and between 0% and 200% for 2024, for the relative TSR measure, depending on the achievement attainment over the three-year performance period based on the Company's absolute annualized TSR relative to the annualized TSR of a Peer Group. The fair value of the portion of the awards based on relative TSR was valued using a Monte Carlo simulation model with a grant-date fair value of $37.56 on approximately 35,800 units granted in 2024.
During the second quarter of 2022, the Company made grants to certain of the Company’s named executive officers and certain other executive officers of performance-based restricted stock units (the "PBRSU Awards"). The PBRSU Awards included a relative TSR market condition over a two-year performance period beginning on the date of grant. The units accrued over the two-year performance period and were multiplied by a predefined percentage between 0% to 450% for the relative TSR measure, depending on the achievement attainment over the two-year performance period based on the Company’s absolute annualized TSR relative to the annualized TSR of the S&P Food & Beverage Select Industry Index (the "Index"). The fair value of the awards was valued using a Monte Carlo simulation model with a weighted average grant-date fair value of $58.36 on approximately 239,300 units granted in 2022. The PBRSU Awards vested in the second quarter of 2024. Over the two-year performance period, the achievement attainment percentage was 0%, resulting in no payout of the awards.

These awards will be converted to stock or cash, at the discretion of the Compensation Committee, generally, on the third anniversary of the grant date with the exception of the PBRSU Awards on the second anniversary. The Company intends to settle these awards in stock and has the shares available to do so.

Performance unit awards with market conditions are valued using a Monte Carlo simulation model. Expected volatility is based on the historical volatility of the Company’s stock price, average Peer Group stock price, or the total return value of the Index. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant with a term equivalent to the expected term of the award. The expected term is the time period from the grant date to the end of the performance period. The assumptions used in the Monte Carlo simulation were as follows:

Six Months Ended
June 30,
2024
Dividend yield%
Risk-free rate4.50 %
Expected volatility (TreeHouse Foods, Inc.)34.34 %
Expected volatility (Peer Group)33.56 %
Expected term (in years)2.79

The following table summarizes the performance unit activity during the six months ended June 30, 2024:
Performance
Units
Weighted
Average
Grant Date
Fair Value
 (In thousands) 
Nonvested, at December 31, 2023534 $47.44 
Granted143 36.95 
Vested(45)43.45 
Forfeited(244)56.81 
Nonvested, at June 30, 2024388 38.09 
 
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2024202320242023
 (In millions)(In millions)
Fair value of vested performance units$0.1 $1.3 $1.8 $5.0 
Tax benefit recognized from performance units vested— — 0.1 0.4 

Unrecognized compensation costs related to nonvested performance units are estimated to be approximately $7.8 million as of June 30, 2024 and are expected to be recognized over a weighted average period of 1.7 years. The fair value of the portion of the awards granted based on market conditions were valued using a Monte Carlo simulation model. For other awards, the grant date fair value is equal to the Company's closing stock price on the date of grant.