Share-based Compensation

9 Months Ended

Oct. 01, 2023

Share-Based Payment Arrangement [Abstract]

Restricted Stock Units (“RSUs”) and Performance Stock Units (“PSUs”)

The Company and certain of its subsidiaries issue time-vested RSUs and PSUs under their respective executive ownership plans and long-term incentive plans. During the three quarters ended October 1, 2023, the Company granted 2.5 million awards, of which 0.7 million were PSUs. The majority of new RSUs granted vest over a 60-month period subsequent to the grant date (with 60% vesting on the third anniversary of the grant date, 20% vesting on the fourth anniversary of the grant date, and 20% vesting at the end of the 60-month term). The new PSUs granted have one-year or three-year performance cycles, and the majority of the awards cliff vest at the end of the respective performance cycle.

The PSU vesting is contingent upon the achievement of certain performance objectives and the awards are subject to a requisite service period. If the Company meets targets for the performance objectives at the end of the performance cycle, the Company awards a resulting number of shares of its common stock to the award holders. The number of shares may be increased to a maximum threshold (up to 200% of the target threshold set at the grant date, for a majority of the awards) or reduced to a minimum threshold (a floor of zero) based on the achievement of these performance objectives in accordance with the terms established at the award’s grant date. The Company estimates the probability that the performance objectives will be achieved periodically and adjusts compensation expenses accordingly.

The Company determines compensation expenses associated with the RSUs and PSUs based on an award’s grant date fair value, with expenses recognized on a straight-line basis over the requisite service period for the entire award.

RSU and PSU activity under the Company’s various plans during the periods presented is as follows:


(in thousands, except per share amounts)	Non-vested shares outstanding at January 1, 2023		Granted	Vested	Forfeited	Non-vested shares outstanding at October 1, 2023
KKI
RSUs and PSUs	4,946		2,502	615	389	6,444
Weighted Average Grant Date Fair Value	$	14.23	14.80	11.66	14.97	$	14.65
KKUK
RSUs	60		—	50	3	7
Weighted Average Grant Date Fair Value	$	15.77	—	13.41	21.21	$	29.80
Insomnia Cookies
RSUs	38		—	—	1	37
Weighted Average Grant Date Fair Value	$	101.54	—	—	128.94	$	100.73
KK Australia
RSUs	354		—	169	—	185
Weighted Average Grant Date Fair Value	$	1.47	—	1.36	—	$	1.57
KK Mexico
RSUs	60		—	—	40	20
Weighted Average Grant Date Fair Value	$	33.08	—	—	34.58	$	30.18

The Company recorded total non-cash compensation expense related to RSUs and PSUs under the plans of $6.5 million and $15.1 million for the quarter and three quarters ended October 1, 2023, respectively, and $2.5 million and $11.4 million for the quarter and three quarters ended October 2, 2022, respectively, which is included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The unrecognized compensation cost related to the unvested RSUs and PSUs and the weighted average period over which such cost is expected to be recognized are as follows:


	As of October 1, 2023
	Unrecognized Compensation Cost		Recognized Over a Weighted Average Period of
KKI	$	61,809	3.0 years
KKUK	111		2.7 years
Insomnia Cookies	1,700		1.9 years
KK Australia	102		1.8 years
KK Mexico	297		1.9 years

The estimated fair value of restricted stock is calculated using a market approach (i.e., market multiple is used for the KKUK and Insomnia Cookies plans and an agreed-upon EBITDA buyout multiple is used for KK Australia and KK Mexico plans).

Time-Vested Stock Options

KKI issues time-vested stock options under its Omnibus Incentive Plan. The fair value of time-vested stock options was estimated on the date of grant using the Black-Scholes option pricing model.

A summary of the status of the time-vested stock options as of January 1, 2023 and changes during the first three quarters of fiscal 2023 is presented below:


	Share options outstanding at					Share options outstanding at
(in thousands, except per share amounts)	January 1, 2023		Granted	Exercised	Forfeited or Expired	October 1, 2023
KKI
Options	2,569		424	—	—	2,993
Weighted Average Grant Date Fair Value	$	6.10	4.72	—	—	$	5.90
Weighted Average Exercise Price	$	14.61	12.45	—	—	$	14.30

The Company recorded total non-cash compensation expense related to the time-vested stock options of $0.9 million and $2.7 million for the quarter and three quarters ended October 1, 2023, respectively, and $0.3 million and $1.9 million for the quarter and three quarters ended October 2, 2022, respectively, which is included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The unrecognized compensation cost related to the unvested stock options and the weighted average period over which such cost is expected to be recognized are as follows:


	As of October 1, 2023
	Unrecognized Compensation Cost		Recognized Over a Weighted Average Period of
KKI	$	9,095	2.6 years

No time-vested stock options under the KKI plan vested nor were exercised during the fiscal periods presented.