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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 June 30, 2024
☐ 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: 001-40573
Krispy Kreme, Inc.
(Exact name of registrant as specified in its charter)
_________________________
| | | | | |
| Delaware | 37-1701311 |
(State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
2116 Hawkins Street, Charlotte, North Carolina 28203
(Address of principal executive offices)
(800) 457-4779
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
_________________________
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, $0.01 par value per share | | DNUT | Nasdaq Global Select Market | |
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 Data 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
The registrant had outstanding 169.6 million shares of common stock as of August 2, 2024.
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Krispy Kreme, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended | | Two Quarters Ended |
| June 30,
2024 (13 weeks) | | July 2,
2023 (13 weeks) | | June 30,
2024 (26 weeks) | | July 2,
2023 (26 weeks) |
| Net revenues | | | | | | | |
| Product sales | $ | 429,411 | | | $ | 400,348 | | | $ | 862,923 | | | $ | 811,022 | |
| Royalties and other revenues | 9,398 | | | 8,534 | | | 18,584 | | | 16,810 | |
| Total net revenues | 438,809 | | | 408,882 | | | 881,507 | | | 827,832 | |
| Product and distribution costs | 107,846 | | | 111,106 | | | 214,861 | | | 228,939 | |
| Operating expenses | 212,504 | | | 189,165 | | | 417,699 | | | 380,573 | |
| Selling, general and administrative expense | 64,466 | | | 62,582 | | | 136,040 | | | 124,050 | |
| Marketing expenses | 12,416 | | | 9,770 | | | 24,531 | | | 19,623 | |
| Pre-opening costs | 967 | | | 1,104 | | | 2,072 | | | 1,868 | |
| Other (income)/expenses, net | (849) | | | 314 | | | (649) | | | (4,949) | |
| Depreciation and amortization expense | 34,600 | | | 29,196 | | | 68,186 | | | 57,135 | |
| Operating income | 6,859 | | | 5,645 | | | 18,767 | | | 20,593 | |
| Interest expense, net | 14,452 | | | 12,063 | | | 28,188 | | | 24,051 | |
| | | | | | | |
| Other non-operating expense, net | 949 | | | 1,061 | | | 1,522 | | | 2,060 | |
| Loss before income taxes | (8,542) | | | (7,479) | | | (10,943) | | | (5,518) | |
| Income tax (benefit)/expense | (3,611) | | | (7,563) | | | 651 | | | (7,246) | |
| Net (loss)/income | (4,931) | | | 84 | | | (11,594) | | | 1,728 | |
| Net income/(loss) attributable to noncontrolling interest | 560 | | | (139) | | | 2,431 | | | 1,806 | |
| Net (loss)/income attributable to Krispy Kreme, Inc. | $ | (5,491) | | | $ | 223 | | | $ | (14,025) | | | $ | (78) | |
| Net (loss)/income per share: | | | | | | | |
| Common stock — Basic | $ | (0.03) | | | $ | 0.00 | | | $ | (0.08) | | | $ | 0.00 | |
| Common stock — Diluted | $ | (0.03) | | | $ | 0.00 | | | $ | (0.08) | | | $ | 0.00 | |
| Weighted average shares outstanding: | | | | | | | |
| Basic | 169,095 | | | 168,184 | | | 168,890 | | | 168,162 | |
| Diluted | 169,095 | | | 170,659 | | | 168,890 | | | 168,162 | |
See accompanying notes to Condensed Consolidated Financial Statements.
Krispy Kreme, Inc.
Condensed Consolidated Statements of Comprehensive (Loss)/Income (Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended | | Two Quarters Ended |
| | June 30,
2024 (13 weeks) | | July 2,
2023 (13 weeks) | | June 30,
2024 (26 weeks) | | July 2,
2023 (26 weeks) |
| Net (loss)/income | $ | (4,931) | | | $ | 84 | | | $ | (11,594) | | | $ | 1,728 | |
| Other comprehensive (loss)/income, net of income taxes: | | | | | | | |
| Foreign currency translation adjustment | (7,944) | | | 9,294 | | | (14,013) | | | 20,386 | |
Unrealized (loss)/income on cash flow hedges, net of income taxes (1) | (3,504) | | | 472 | | | (6,188) | | | (2,495) | |
| | | | | | | |
| Total other comprehensive (loss)/income | (11,448) | | | 9,766 | | | (20,201) | | | 17,891 | |
| Comprehensive (loss)/income | (16,379) | | | 9,850 | | | (31,795) | | | 19,619 | |
| Net income/(loss) attributable to noncontrolling interest | 560 | | | (139) | | | 2,431 | | | 1,806 | |
| Foreign currency translation adjustment attributable to noncontrolling interest | (62) | | | 1,063 | | | (361) | | | 955 | |
| Total comprehensive income attributable to noncontrolling interest | 498 | | | 924 | | | 2,070 | | | 2,761 | |
| Comprehensive (loss)/income attributable to Krispy Kreme, Inc. | $ | (16,877) | | | $ | 8,926 | | | $ | (33,865) | | | $ | 16,858 | |
(1)Net of income tax benefit/(expense) of $1.2 million and $2.1 million for the quarter and two quarters ended June 30, 2024, respectively, and ($0.2 million) and $0.8 million for the quarter and two quarters ended July 2, 2023, respectively.
See accompanying notes to Condensed Consolidated Financial Statements.
Krispy Kreme, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
| | | | | | | | | | | |
| As of |
| | (Unaudited) June 30,
2024 | | December 31,
2023 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 28,625 | | | $ | 38,185 | |
| Restricted cash | 483 | | | 429 | |
| Accounts receivable, net | 57,348 | | | 59,362 | |
| Inventories | 39,461 | | | 34,716 | |
| Taxes receivable | 18,143 | | | 15,526 | |
| Prepaid expense and other current assets | 24,110 | | | 25,363 | |
| Total current assets | 168,170 | | | 173,581 | |
| Property and equipment, net | 551,406 | | | 538,220 | |
| Goodwill | 1,096,249 | | | 1,101,939 | |
| Other intangible assets, net | 927,714 | | | 946,349 | |
| Operating lease right of use asset, net | 456,124 | | | 456,964 | |
| Other assets | 23,823 | | | 23,539 | |
| Total assets | $ | 3,223,486 | | | $ | 3,240,592 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Current portion of long-term debt | $ | 59,827 | | | $ | 54,631 | |
| Current operating lease liabilities | 54,937 | | | 50,365 | |
| Accounts payable | 135,197 | | | 156,488 | |
| Accrued liabilities | 114,269 | | | 134,005 | |
| Structured payables | 129,344 | | | 130,104 | |
| Total current liabilities | 493,574 | | | 525,593 | |
| Long-term debt, less current portion | 894,979 | | | 836,615 | |
| | | |
| Noncurrent operating lease liabilities | 453,338 | | | 454,583 | |
| Deferred income taxes, net | 115,800 | | | 123,925 | |
| Other long-term obligations and deferred credits | 36,538 | | | 36,093 | |
| Total liabilities | 1,994,229 | | | 1,976,809 | |
| Commitments and contingencies | | | |
| Shareholders’ equity: | | | |
Common stock, $0.01 par value; 300,000 shares authorized as of both June 30, 2024 and December 31, 2023; 169,357 and 168,628 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | 1,694 | | | 1,686 | |
| Additional paid-in capital | 1,453,944 | | | 1,443,591 | |
| | | |
| Shareholder note receivable | (2,865) | | | (3,850) | |
| Accumulated other comprehensive (loss)/income, net of income tax | (12,594) | | | 7,246 | |
| Retained deficit | (304,840) | | | (278,990) | |
| Total shareholders’ equity attributable to Krispy Kreme, Inc. | 1,135,339 | | | 1,169,683 | |
| Noncontrolling interest | 93,918 | | | 94,100 | |
| Total shareholders’ equity | 1,229,257 | | | 1,263,783 | |
| Total liabilities and shareholders’ equity | $ | 3,223,486 | | | $ | 3,240,592 | |
See accompanying notes to Condensed Consolidated Financial Statements.
Krispy Kreme, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-in
Capital | | Shareholder
Note
Receivable | | Accumulated Other Comprehensive Income/(Loss) | | Retained
(Deficit)/
Earnings | | Noncontrolling
Interest | | Total |
| | Shares
Outstanding | | Amount | | | | Foreign
Currency
Translation
Adjustment | | Unrealized
Income/(Loss) on
Cash Flow
Hedges | | Unrealized Loss on Employee
Benefit Plans | | | |
| Balance at December 31, 2023 | 168,628 | | | $ | 1,686 | | | $ | 1,443,591 | | | $ | (3,850) | | | $ | 1,985 | | | $ | 5,629 | | | $ | (368) | | | $ | (278,990) | | | $ | 94,100 | | | $ | 1,263,783 | |
| Net (loss)/income for the quarter ended March 31, 2024 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8,534) | | | 1,871 | | | (6,663) | |
| Other comprehensive (loss)/income for the quarter ended March 31, 2024 before reclassifications | — | | | — | | | — | | | — | | | (5,770) | | | 367 | | | — | | | — | | | (299) | | | (5,702) | |
| Reclassification from AOCI | — | | | — | | | — | | | — | | | — | | | (3,051) | | | — | | | — | | | — | | | (3,051) | |
| Capital contribution by shareholders, net of loans issued | — | | | — | | | — | | | 232 | | | — | | | — | | | — | | | — | | | — | | | 232 | |
| Share-based compensation | — | | | — | | | 6,986 | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,986 | |
| | | | | | | | | | | | | | | | | | | |
Dividends declared on common stock and equivalents ($0.035 per share) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,905) | | | — | | | (5,905) | |
| | | | | | | | | | | | | | | | | | | |
| Distribution to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (977) | | | (977) | |
| Issuance of common stock upon settlement of RSUs, net of shares withheld | 103 | | | 1 | | | (805) | | | — | | | — | | | — | | | — | | | — | | | — | | | (804) | |
| Other | — | | | — | | | 1 | | | (11) | | | — | | | — | | | — | | | (1) | | | (1) | | | (12) | |
| Balance at March 31, 2024 | 168,731 | | | $ | 1,687 | | | $ | 1,449,773 | | | $ | (3,629) | | | $ | (3,785) | | | $ | 2,945 | | | $ | (368) | | | $ | (293,430) | | | $ | 94,694 | | | $ | 1,247,887 | |
| Net (loss)/income for the quarter ended June 30, 2024 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,491) | | | 560 | | | (4,931) | |
| Other comprehensive loss for the quarter ended June 30, 2024 before reclassifications | — | | | — | | | — | | | — | | | (7,882) | | | (488) | | | — | | | — | | | (62) | | | (8,432) | |
| Reclassification from AOCI | — | | | — | | | — | | | — | | | — | | | (3,016) | | | — | | | — | | | — | | | (3,016) | |
| Capital contribution from shareholders, net of loans issued | — | | | — | | | — | | | 687 | | | — | | | — | | | — | | | — | | | — | | | 687 | |
| Share-based compensation | — | | | — | | | 7,648 | | | — | | | — | | | — | | | — | | | — | | | — | | | 7,648 | |
| | | | | | | | | | | | | | | | | | | |
Dividends declared on common stock and equivalents ($0.035 per share) (1) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,919) | | | — | | | (5,919) | |
| Distribution to noncontrolling interest | — | | | — | | | — | | | 105 | | | — | | | — | | | — | | | — | | | (1,274) | | | (1,169) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Issuance of common stock upon settlement of RSUs, net of shares withheld | 626 | | | 6 | | | (3,477) | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,471) | |
| | | | | | | | | | | | | | | | | | | |
| Other | — | | | 1 | | | — | | | (28) | | | — | | | — | | | — | | | — | | | — | | | (27) | |
| Balance at June 30, 2024 | 169,357 | | | $ | 1,694 | | | $ | 1,453,944 | | | $ | (2,865) | | | $ | (11,667) | | | $ | (559) | | | $ | (368) | | | $ | (304,840) | | | $ | 93,918 | | | $ | 1,229,257 | |
| | | | | | | | | | | | | | | | | | | |
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(1)Includes a $0.035 cash dividend per common share declared in the second quarter of fiscal 2024 and expected to be paid in the third quarter of fiscal 2024.
See accompanying notes to Condensed Consolidated Financial Statements.
Krispy Kreme, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional
Paid-in
Capital | | Shareholder
Note
Receivable | | Accumulated Other Comprehensive Income/(Loss) | | Retained
(Deficit)/
Earnings | | Noncontrolling
Interest | | Total |
| | Shares
Outstanding | | Amount | | | | Foreign
Currency
Translation
Adjustment | | Unrealized
Income/(Loss) on
Cash Flow
Hedges | | Unrealized Loss on Employee
Benefit Plans | | | |
| Balance at January 1, 2023 | 168,137 | | | $ | 1,681 | | | $ | 1,426,105 | | | $ | (4,813) | | | $ | (23,028) | | | $ | 14,251 | | | $ | (374) | | | $ | (217,490) | | | $ | 102,543 | | | $ | 1,298,875 | |
| Net (loss)/income for the quarter ended April 2, 2023 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (301) | | | 1,945 | | | 1,644 | |
| Other comprehensive income/(loss) for the quarter ended April 2, 2023 before reclassifications | — | | | — | | | — | | | — | | | 11,200 | | | (781) | | | — | | | — | | | (108) | | | 10,311 | |
| Reclassification from AOCI | — | | | — | | | — | | | — | | | — | | | (2,186) | | | — | | | — | | | — | | | (2,186) | |
| | | | | | | | | | | | | | | | | | | |
| Share-based compensation | — | | | — | | | 5,545 | | | — | | | — | | | — | | | — | | | — | | | — | | | 5,545 | |
| | | | | | | | | | | | | | | | | | | |
Dividends declared on common stock and equivalents ($0.035 per share) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,884) | | | — | | | (5,884) | |
| | | | | | | | | | | | | | | | | | | |
| Distribution to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,139) | | | (1,139) | |
| Issuance of common stock upon settlement of RSUs, net of shares withheld | 39 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other | — | | | — | | | — | | | (17) | | | — | | | — | | | — | | | 1 | | | — | | | (16) | |
| Balance at April 2, 2023 | 168,176 | | | $ | 1,682 | | | $ | 1,431,649 | | | $ | (4,830) | | | $ | (11,828) | | | $ | 11,284 | | | $ | (374) | | | $ | (223,674) | | | $ | 103,241 | | | $ | 1,307,150 | |
| Net income/(loss) for the quarter ended July 2, 2023 | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 223 | | | (139) | | | 84 | |
| Other comprehensive income for the quarter ended July 2, 2023 before reclassifications | — | | | — | | | — | | | — | | | 8,231 | | | 918 | | | — | | | — | | | 1,063 | | | 10,212 | |
| Reclassification from AOCI | — | | | — | | | — | | | — | | | — | | | (446) | | | — | | | — | | | — | | | (446) | |
| Capital contribution by shareholders, net of loans issued | — | | | — | | | — | | | 631 | | | — | | | — | | | — | | | — | | | — | | | 631 | |
| Share-based compensation | — | | | — | | | 4,824 | | | — | | | — | | | — | | | — | | | — | | | — | | | 4,824 | |
| | | | | | | | | | | | | | | | | | | |
Dividends declared on common stock and equivalents ($0.035 per share) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,889) | | | — | | | (5,889) | |
| Distribution to noncontrolling interest | — | | | — | | | (4,176) | | | 426 | | | — | | | — | | | — | | | — | | | (6,357) | | | (10,107) | |
| Issuance of common stock upon settlement of RSUs, net of shares withheld | 8 | | | — | | | (147) | | | — | | | — | | | — | | | — | | | — | | | — | | | (147) | |
| Other | — | | | — | | | — | | | (36) | | | (1) | | | — | | | — | | | — | | | — | | | (37) | |
| Balance at July 2, 2023 | 168,184 | | | $ | 1,682 | | | $ | 1,432,150 | | | $ | (3,809) | | | $ | (3,598) | | | $ | 11,756 | | | $ | (374) | | | $ | (229,340) | | | $ | 97,808 | | | $ | 1,306,275 | |
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See accompanying notes to Condensed Consolidated Financial Statements.
Krispy Kreme, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| | | | | | | | | | | |
| | Two Quarters Ended |
| | June 30,
2024 (26 weeks) | | July 2,
2023 (26 weeks) |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
| Net (loss)/income | $ | (11,594) | | | $ | 1,728 | |
| Adjustments to reconcile net (loss)/income to net cash provided by operating activities: | | | |
| Depreciation and amortization expense | 68,186 | | | 57,135 | |
| Deferred and other income taxes | (5,338) | | | (11,743) | |
| Loss on extinguishment of debt | — | | | 472 | |
| Impairment and lease termination charges | 448 | | | 7,808 | |
| Gain on disposal of property and equipment | (3) | | | (151) | |
| Gain on sale-leaseback | — | | | (9,646) | |
| Share-based compensation | 14,634 | | | 10,369 | |
| Change in accounts and notes receivable allowances | 327 | | | 372 | |
| Inventory write-off | 1,038 | | | 10,244 | |
| Settlement of interest rate swap derivatives | — | | | 7,657 | |
| Amortization related to settlement of interest rate swap derivatives | (5,910) | | | (4,379) | |
| Other | 858 | | | 996 | |
| Change in operating assets and liabilities, excluding foreign currency translation adjustments | (47,121) | | | (24,609) | |
| Net cash provided by operating activities | 15,525 | | | 46,253 | |
| CASH FLOWS USED FOR INVESTING ACTIVITIES: | | | |
| Purchase of property and equipment | (60,735) | | | (54,290) | |
| | | |
| Proceeds from sale-leaseback | — | | | 10,025 | |
| | | |
| Purchase of equity method investment | (3,506) | | — |
| | | |
| Disbursement for loan receivable | (1,086) | | | — |
| | | |
| | | |
| Other investing activities | 166 | | | 163 | |
| Net cash used for investing activities | (65,161) | | | (44,102) | |
| CASH FLOWS FROM/(USED FOR) FINANCING ACTIVITIES: | | | |
| Proceeds from the issuance of debt | 365,000 | | | 989,198 | |
| Repayment of long-term debt and lease obligations | (306,797) | | | (916,580) | |
| Payment of financing costs | — | | | (5,000) | |
| Proceeds from structured payables | 190,162 | | | 73,939 | |
| Payments on structured payables | (190,811) | | | (126,920) | |
| | | |
| Capital contribution by shareholders, net of loans issued | 919 | | | 631 | |
| | | |
| | | |
| Distribution to shareholders | (11,807) | | | (11,771) | |
| Payments for repurchase and retirement of common stock | (4,275) | | | (147) | |
| Distribution to noncontrolling interest | (2,146) | | | (11,246) | |
| Net cash provided by/(used for) financing activities | 40,245 | | | (7,896) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (115) | | | (3,011) | |
| Net decrease in cash, cash equivalents and restricted cash | (9,506) | | | (8,756) | |
| Cash, cash equivalents and restricted cash at beginning of period | 38,614 | | | 35,730 | |
| Cash, cash equivalents and restricted cash at end of period | $ | 29,108 | | | $ | 26,974 | |
| Supplemental schedule of non-cash investing and financing activities: | | | |
| Increase in accrual for property and equipment | $ | 12,176 | | | $ | 10,636 | |
| | | |
| | | |
| Accrual for distribution to shareholders | (5,919) | | | (5,886) | |
| | | |
| Reconciliation of cash, cash equivalents and restricted cash at end of period: | | | |
| Cash and cash equivalents | $ | 28,625 | | | $ | 26,635 | |
| Restricted cash | 483 | | | 339 | |
| Total cash, cash equivalents and restricted cash | $ | 29,108 | | | $ | 26,974 | |
See accompanying notes to Condensed Consolidated Financial Statements.
Krispy Kreme, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, unless otherwise specified)
Note 1 — Description of Business and Summary of Significant Accounting Policies
Description of Business
Krispy Kreme, Inc. (“KKI”) and its subsidiaries (collectively, the “Company” or “Krispy Kreme”) operates through its omni-channel business model to deliver fresh doughnut experiences and produce doughnuts for Doughnut Shops, Delivered Fresh Daily (“DFD”) outlets, and digital channels, expanding consumer access to the Krispy Kreme brand.
The Company has three reportable operating segments: 1) U.S., which includes all Krispy Kreme Company-owned operations in the U.S. and Insomnia Cookies Bakeries globally; 2) International, which includes all Krispy Kreme Company-owned operations in the U.K., Ireland, Australia, New Zealand, Mexico, Canada, and Japan; and 3) Market Development, which includes franchise operations across the globe. Unallocated corporate costs are excluded from the Company’s measurement of segment performance.
Basis of Presentation and Consolidation
The Company operates and reports financial information on a 52 or 53-week year with the fiscal year ending on the Sunday closest to December 31. The data periods contained within fiscal years 2023 and 2024 will reflect the results of operations for the 52-week periods ended December 31, 2023 and December 29, 2024, respectively. The quarters ended June 30, 2024 and July 2, 2023 were both 13-week periods.
The unaudited Condensed Consolidated Financial Statements include the accounts of KKI and subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, these interim financial statements do not include all information and footnotes required under GAAP for complete financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of results of operations, balance sheet, cash flows, and shareholders’ equity for the periods presented. All significant intercompany balances and transactions among KKI and subsidiaries have been eliminated in consolidation. Investments in entities over which the Company has the ability to exercise significant influence but which it does not control and whose financial statements are not otherwise required to be consolidated, are accounted for using the equity method.
These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto as of and for the year ended December 31, 2023, included in the Annual Report on Form 10-K. The Condensed Consolidated Balance Sheet as of December 31, 2023 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The results of operations for the quarter ended June 30, 2024 are not necessarily indicative of the results of operations that may be achieved for the entire fiscal year ending December 29, 2024.
Noncontrolling interest in the Company’s Condensed Consolidated Financial Statements represents the interest in subsidiaries held by joint venture partners and employee shareholders. The joint venture partners hold noncontrolling interests in the Company’s consolidated subsidiaries, Awesome Doughnut, LLC (“Awesome Doughnut”), W.K.S. Krispy Kreme, LLC (“WKS Krispy Kreme”), and Krispy K Canada, Inc. (“KK Canada”). Employee shareholders hold noncontrolling interests in the consolidated subsidiaries Krispy Kreme Holding U.K. Ltd. (“KK U.K.”), Krispy Kreme Holdings Pty Ltd. (“KK Australia”), Krispy Kreme Mexico Holding S.A.P.I. de C.V. (“KK Mexico”), and Insomnia Cookies Holdings, LLC (“Insomnia Cookies”). Since the Company consolidates the financial statements of these subsidiaries, the noncontrolling owners’ share of each subsidiary’s net assets and results of operations are deducted and reported as noncontrolling interest on the Condensed Consolidated Balance Sheets and as net income attributable to noncontrolling interest in the Condensed Consolidated Statements of Operations and comprehensive income attributable to noncontrolling interest in the Condensed Consolidated Statements of Comprehensive (Loss)/Income.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 1, “Description of Business and Summary of Significant Accounting Policies” to the Consolidated Financial Statements for the year ended December 31, 2023 included in the Annual Report on Form 10-K. There have been no material changes to the significant accounting policies during the quarter ended June 30, 2024.
Reclassifications
Segment information is prepared on the same basis that the Company’s management reviews financial information for operational decision-making purposes. Effective January 1, 2024, the Company realigned its segment reporting structure such that the Company-owned Canada and Japan businesses have moved from the Market Development reportable operating segment to the International reportable operating segment. All segment information has been restated to be consistent with current presentation.
Recent Accounting Pronouncements
In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker. The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A public entity should apply the amendments in this standard retrospectively to all prior periods presented in the financial statements. We expect this standard to impact our segment disclosures, but with no impacts to our results of operations, cash flows, and financial condition.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on the rate reconciliation and income taxes paid disclosures. The standard requires a public business entity (“PBE”) to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further disaggregated by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state, and foreign and by individual jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. For PBEs, the standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity should apply the amendments in this standard prospectively, with retrospective application permitted. We expect this standard to impact our income tax disclosures, but with no impacts to our results of operations, cash flows, and financial condition.
Note 2 — Acquisitions
2024 Acquisitions
Equity Method Investments
In the quarter ended June 30, 2024, the Company acquired a 45% noncontrolling ownership interest in the newly formed entity Krispy Kreme Doughnuts Brasil S.A. (“KK Brazil”), for approximately $2.7 million in cash, and a 25% noncontrolling ownership interest in the newly formed entity Glaseadas Originales S.L. (“KK Spain”), for approximately $0.8 million in cash. As the Company has the ability to exercise significant influence over both KK Brazil and KK Spain, but does not exercise control, the investments will be accounted for using the equity method, and equity method earnings will be recognized within Other (income)/expenses, net on the Condensed Consolidated Statements of Operations.
2023 Acquisitions
In the quarter and two quarters ended July 2, 2023, there were no acquisitions.
Note 3 — Inventories
The components of Inventories are as follows:
| | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
| Raw materials | $ | 23,335 | | | $ | 21,000 | |
| Work in progress | 458 | | | 211 | |
| Finished goods and purchased merchandise | 15,668 | | | 13,505 | |
| Total inventories | $ | 39,461 | | | $ | 34,716 | |
Note 4 — Goodwill and Other Intangible Assets, net
Goodwill
Changes in the carrying amount of goodwill by reportable segment are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | | International | | Market Development | | Total |
| Balance as of December 31, 2023 | $ | 677,956 | | | $ | 294,468 | | | $ | 129,515 | | | $ | 1,101,939 | |
| | | | | | | |
| | | | | | | |
Foreign currency impact | — | | | (5,690) | | | — | | | (5,690) | |
| Balance as of June 30, 2024 | $ | 677,956 | | | $ | 288,778 | | | $ | 129,515 | | | $ | 1,096,249 | |
Other Intangible Assets, net
Other intangible assets consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2024 | | December 31, 2023 |
| Gross
Carrying
Amount | | Accumulated
Amortization | | Net Amount | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net Amount |
| Intangible assets with indefinite lives | | | | | | | | | | | |
| Trade names and trademarks | $ | 658,033 | | | $ | — | | | $ | 658,033 | | | $ | 657,980 | | | $ | — | | | $ | 657,980 | |
| Intangible assets with definite lives | | | | | | | | | | | |
| Franchise agreements | 30,390 | | | (11,471) | | | 18,919 | | | 30,390 | | | (10,744) | | | 19,646 | |
| Customer relationships | 15,000 | | | (6,845) | | | 8,155 | | | 15,000 | | | (6,413) | | | 8,587 | |
Reacquired franchise rights (1) | 391,537 | | | (148,930) | | | 242,607 | | | 397,279 | | | (137,143) | | | 260,136 | |
| | | | | | | | | | | |
| Total intangible assets with definite lives | 436,927 | | | (167,246) | | | 269,681 | | | 442,669 | | | (154,300) | | | 288,369 | |
| Total intangible assets | $ | 1,094,960 | | | $ | (167,246) | | | $ | 927,714 | | | $ | 1,100,649 | | | $ | (154,300) | | | $ | 946,349 | |
(1)Reacquired franchise rights include the impact of foreign currency fluctuations associated with the respective countries.
Amortization expense related to intangible assets included in depreciation and amortization expense was $7.4 million and $14.8 million for the quarter and two quarters ended June 30, 2024, and $7.3 million and $14.6 million for the quarter and two quarters ended July 2, 2023.
Note 5 — Leases
The Company included the following amounts related to operating and finance lease assets and liabilities within the Condensed Consolidated Balance Sheets:
| | | | | | | | | | | | | | |
| | As of |
| | | June 30, 2024 | | December 31, 2023 |
| Assets | Classification | | | |
| Operating lease | Operating lease right of use asset, net | $ | 456,124 | | | $ | 456,964 | |
| Finance lease | Property and equipment, net | 40,599 | | | 41,411 | |
| Total leased assets | $ | 496,723 | | | $ | 498,375 | |
| Liabilities | | | | |
| Current | | | | |
| Operating lease | Current operating lease liabilities | $ | 54,937 | | | $ | 50,365 | |
| Finance lease | Current portion of long-term debt | 7,827 | | | 8,631 | |
| Noncurrent | | | | |
| Operating lease | Noncurrent operating lease liabilities | 453,338 | | | 454,583 | |
| Finance lease | Long-term debt, less current portion | 38,825 | | | 38,486 | |
| Total leased liabilities | $ | 554,927 | | | $ | 552,065 | |
Lease costs were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter Ended | | Two Quarters Ended |
| | | June 30, 2024 | | July 2, 2023 | | June 30, 2024 | | July 2, 2023 |
| Lease cost | Classification | | | | | | | |
| Operating lease cost | Selling, general and administrative expense | $ | 879 | | | $ | 986 | | | $ | 1,814 | | | $ | 1,877 | |
| Operating lease cost | Operating expenses | 24,365 | | | 22,185 | | | 48,388 | | | 44,575 | |
| Short-term lease cost | Operating expenses | 1,265 | | | 1,264 | | | 2,350 | | | 2,545 | |
| Variable lease costs | Operating expenses | 7,398 | | | 6,886 | | | 14,831 | | | 16,231 | |
| Sublease income | Royalties and other revenues | (35) | | | (35) | | | (70) | | | (70) | |
| Finance lease cost: | | | | | | | | |
| Amortization of right of use assets | Depreciation and amortization expense | $ | 2,867 | | | $ | 1,781 | | | $ | 5,788 | | | $ | 3,365 | |
| Interest on lease liabilities | Interest expense, net | 865 | | | 491 | | | 1,742 | | | 1,064 | |
Supplemental disclosures of cash flow information related to leases were as follows:
| | | | | | | | | | | |
| Two Quarters Ended |
| June 30, 2024 | | July 2, 2023 |
Other information | | | |
Cash paid for leases: | | | |
Operating cash flows for operating leases (1) | $ | 58,406 | | | $ | 57,968 | |
Operating cash flows for finance leases | 1,728 | | | 1,121 | |
Financing cash flows for finance leases | 5,297 | | | 3,632 | |
Right of use assets obtained in exchange for new lease liabilities: | | | |
Operating leases | $ | 26,909 | | | $ | 43,895 | |
Finance leases | 4,594 | | | 5,931 | |
(1)Operating cash flows from operating leases include variable rent payments which are not included in the measurement of lease liabilities. Variable rent payments were $14.8 million and $16.2 million for the two quarters ended June 30, 2024 and July 2, 2023, respectively.
There were no lease termination charges in the two quarters ended June 30, 2024. The Company recognized a net gain of $0.6 million included in Other (income)/expenses, net on the Condensed Consolidated Statement of Operations in the two quarters ended July 2, 2023, related to the termination of leases at certain Krispy Kreme shops in the U.S. where the Company had already recognized impairment of the corresponding right of use assets in a prior period.
There were no sale-leaseback transactions completed in the two quarters ended June 30, 2024. In the two quarters ended July 2, 2023, the Company completed a sale-leaseback transaction whereby it disposed of the land at one real estate property for proceeds of $10.0 million. The Company subsequently leased back the property, which is accounted for as an operating lease. The Company recognized a gain on sale of $9.6 million, which is included in Other (income)/expenses, net on the Condensed Consolidated Statement of Operations.
Note 6 — Fair Value Measurements
The following table presents assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023:
| | | | | | | | | | | |
| | June 30, 2024 |
| | | Level 2 | | |
Assets: | | | | | |
| | | | | |
| | | | | |
Commodity derivatives | | | $ | 154 | | | |
| | | | | |
| Total Assets | | | $ | 154 | | | |
| | | | | |
Liabilities: | | | | | |
Interest rate derivatives | | | $ | 745 | | | |
| Foreign currency derivatives | | | 408 | | | |
| Total Liabilities | | | $ | 1,153 | | | |
| | | | | | | | | | | |
| | December 31, 2023 |
| | | Level 2 | | |
Assets: | | | | | |
| | | | | |
Interest rate derivatives | | | $ | 1,596 | | | |
| | | | | |
| Total Assets | | | $ | 1,596 | | | |
| | | | | |
Liabilities: | | | | | |
| Foreign currency derivatives | | | $ | 345 | | | |
Commodity derivatives | | | 113 | | | |
| Total Liabilities | | | $ | 458 | | | |
There were no assets or liabilities measured using Level 1 and Level 3 inputs and no transfers of financial assets or liabilities among the levels within the fair value hierarchy during the two quarters ended June 30, 2024 and fiscal year ended December 31, 2023. The Company’s derivatives are valued using discounted cash flow analyses that incorporate observable market parameters, such as interest rate yield curves and currency rates.
Note 7 — Derivative Instruments
Commodity Price Risk
The Company uses forward contracts to protect against the effects of commodity price fluctuations in the cost of ingredients of its products, of which flour, sugar, and shortening are the most significant, and the cost of gasoline used by its delivery vehicles. Management has not designated these forward contracts as hedges. As of June 30, 2024 and December 31, 2023, the total notional amount of commodity derivatives was 1.0 million and 1.8 million gallons of fuel, respectively. They are scheduled to mature between July 2024 and December 2024 and January 2024 and December 2024, respectively. As of June 30, 2024 and December 31, 2023, the Company recorded an asset of $0.2 million and a liability of $0.1 million, respectively, related to the fair market values of its commodity derivatives. The settlement of commodity derivative contracts is reported in the Condensed Consolidated Statements of Cash Flows as a cash flow from operating activities.
Interest Rate Risk
The Company uses interest rate swaps to manage its exposure to interest rate volatility from its debt arrangements. Management has designated the swap agreements as cash flow hedges and recognized the changes in the fair value of these swaps in other comprehensive income. As of June 30, 2024 and December 31, 2023, the Company has recorded a liability of $0.7 million and an asset of $1.6 million, respectively, related to the fair market values of its interest rate derivatives. The cash flows associated with the interest rate swaps are reflected in operating activities in the Condensed Consolidated Statements of Cash Flows, which is consistent with the classification as operating activities of the interest payments on the term loan.
In the quarter ended June 30, 2024, existing interest rate swap agreements (the “prior agreements”) with an aggregate notional amount of $505.0 million matured. The Company then entered into new interest rate swap agreements (the “new agreements”) with an aggregate notional amount of $200.0 million as of June 30, 2024. The primary difference between the new agreements and the prior agreements included the setting of a new rate on the fixed component of the swaps (approximately 4.2%). The new agreements have a benchmark rate on the floating component of the swaps of one-month SOFR and are scheduled to mature in March 2028. The Company expects to increase the ratio of hedged to unhedged debt during the second half of fiscal 2024, which decreased following the maturity of the prior agreements, and entered into interest rate swap agreements with an additional aggregate notional amount of $250.0 million subsequent to the end of the quarter ended June 30, 2024.
The net effect of the interest rate swap arrangements will be to fix the interest rate on the term loan under the 2023 Facility (as defined in Note 9, Long-Term Debt) up to the notional amount outstanding at the rates payable under the swap agreements plus the Applicable Rate (as defined by the 2023 Facility), through the swap maturity dates in March 2028. In the two quarters ended July 2, 2023, the Company cancelled certain interest rate swap agreements with an aggregate notional amount of $265.0 million, collecting $7.7 million in cash proceeds, and entered into new agreements with the same counterparties. The cash flows are reflected in operating activities in the Condensed Consolidated Statements of Cash Flows.
Foreign Currency Exchange Rate Risk
The Company is exposed to foreign currency risk primarily from its investments in consolidated subsidiaries that operate in Canada, the U.K., Ireland, Australia, New Zealand, Mexico, and Japan. In order to mitigate the impact of foreign exchange fluctuations on commercial and financial transactions with these subsidiaries, the Company enters into foreign exchange forward contracts. Management has not designated these forward contracts as hedges. As of June 30, 2024 and December 31, 2023, the total notional amount of foreign exchange derivatives was $75.8 million and $49.8 million, respectively. The majority matured in July 2024 and January 2024, respectively. The Company recorded liabilities of $0.4 million and $0.3 million as of June 30, 2024 and December 31, 2023, respectively, related to the fair market values of its foreign exchange derivatives.
Quantitative Summary of Derivative Positions and Their Effect on Results of Operations
The following tables present the fair values of derivative instruments included in the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023, for derivatives not designated as hedging instruments and derivatives designated as hedging instruments, respectively. The Company only has cash flow hedges that are designated as hedging instruments.
| | | | | | | | | | | | | | | | | |
| Derivatives Fair Value | | |
Derivatives Not Designated as Hedging Instruments | June 30,
2024 | | December 31,
2023 | | Balance Sheet Location |
| | | | | |
Commodity derivatives | $ | 154 | | | $ | — | | | Prepaid expense and other current assets |
| Total Assets | $ | 154 | | | $ | — | | | |
Foreign currency derivatives | $ | 408 | | | $ | 345 | | | Accrued liabilities |
| Commodity derivatives | — | | | 113 | | | Accrued liabilities |
| Total Liabilities | $ | 408 | | | $ | 458 | | | |
| | | | | | | | | | | | | | | | | |
| Derivatives Fair Value | | |
Derivatives Designated as Hedging Instruments | June 30,
2024 | | December 31,
2023 | | Balance Sheet Location |
Interest rate derivatives (current) | $ | — | | | $ | 1,596 | | | Prepaid expense and other current assets |
| | | | | |
| Total Assets | $ | — | | | $ | 1,596 | | | |
Interest rate derivatives (current) | $ | 200 | | | — | | | Accrued liabilities |
Interest rate derivatives (noncurrent) | 545 | | | — | | | Other long-term obligations and deferred credits |
| | | | | |
| Total Liabilities | $ | 745 | | | $ | — | | | |
The effect of derivative instruments on the Condensed Consolidated Statements of Operations for the quarters and two quarters ended June 30, 2024 and July 2, 2023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Derivative Gain Recognized in Income for the Quarter Ended | | Derivative Gain Recognized in Income for the Two Quarters Ended | | |
| Derivatives Designated as Hedging Instruments | June 30, 2024 | | July 2, 2023 | | June 30, 2024 | | July 2, 2023 | | Location of Derivative Gain Recognized in Income |
| Gain on interest rate derivatives | $ | 3,016 | | | $ | 446 | | | $ | 6,067 | | | $ | 2,632 | | | Interest expense, net |
| | $ | 3,016 | | | $ | 446 | | | $ | 6,067 | | | $ | 2,632 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Derivative Gain/(Loss) Recognized in Income for the Quarter Ended | | Derivative Gain/(Loss) Recognized in Income for the Two Quarters Ended | | |
| Derivatives Not Designated as Hedging Instruments | June 30, 2024 | | July 2, 2023 | | June 30, 2024 | | July 2, 2023 | | Location of Derivative Gain/(Loss) Recognized in Income |
| Gain/(loss) on foreign currency derivatives | $ | 191 | | | $ | 986 | | | $ | (63) | | | $ | 62 | | | Other non-operating expense, net |
| (Loss)/gain on commodity derivatives | (87) | | | (266) | | | 367 | | | (384) | | | Other non-operating expense, net |
| | $ | 104 | | | $ | 720 | | | $ | 304 | | | $ | (322) | | | |
Note 8 — Vendor Finance Programs
The following table presents liabilities related to vendor finance programs which the Company participates in as a buyer as of June 30, 2024 and December 31, 2023:
| | | | | | | | | | | | | | | | | |
| | June 30, 2024 | | December 31, 2023 | | Balance Sheet Location |
| Supply chain financing programs | $ | 33,253 | | | $ | 51,239 | | | Accounts payable |
| Structured payables programs | 129,344 | | | 130,104 | | | Structured payables |
| Total Liabilities | $ | 162,597 | | | $ | 181,343 | | | |
Supply Chain Financing (“SCF”) Programs
The Company has an agreement with a third-party administrator which allows participating vendors to track its payments, and if voluntarily elected by the vendor, to sell payment obligations from the Company to financial institutions as part of the SCF program. The Company’s typical payment terms for trade payables range up to 180 days outside of the SCF program, depending on the type of vendors and the nature of the supplies or services. For vendors under the SCF Program, the Company has established payable terms ranging up to, but not exceeding, 360 days. When participating vendors elect to sell one or more of the Company’s payment obligations, the Company’s rights and obligations to settle the payables on their contractual due date are not impacted. The Company has no economic or commercial interest in a vendor’s decision to enter into these agreements and the financial institutions do not provide the Company with incentives such as rebates or profit sharing under the SCF program. The Company agrees on commercial terms with vendors for the goods and services procured, which are consistent with payment terms observed at other peer companies in the industry, and as the terms are not impacted by the SCF program, such obligations are classified as Accounts payable on the Condensed Consolidated Balance Sheets and the associated cash flows are included in operating activities in the Condensed Consolidated Statements of Cash Flows.
Structured Payables Programs
The Company utilizes various card products issued by financial institutions to facilitate purchases of goods and services. By using these products, the Company may receive differing levels of rebates based on timing of repayment. The payment obligations under these card products are classified as Structured payables on the Condensed Consolidated Balance Sheets and the associated cash flows are included in financing activities in the Condensed Consolidated Statements of Cash Flows.
Note 9 — Long-Term Debt
The Company’s long-term debt obligations consists of the following:
| | | | | | | | | | | |
| June 30, 2024 | | December 31, 2023 |
| 2023 Facility — term loan | $ | 665,000 | | | $ | 682,500 | |
| 2023 Facility — revolving credit facility | 230,000 | | | 155,000 | |
| Short-term lines of credit | 17,000 | | | 11,000 | |
| | | |
| | | |
| Less: Debt issuance costs | (3,847) | | | (4,371) | |
| Finance lease obligations | 46,653 | | | 47,117 | |
| Total long-term debt | 954,806 | | | 891,246 | |
| Less: Current portion of long-term debt | (59,827) | | | (54,631) | |
| Long-term debt, less current portion | $ | 894,979 | | | $ | 836,615 | |
| | | |
| | | |
2023 Secured Credit Facility
The Company is party to a credit agreement (the “2023 Facility”) consisting of a $300.0 million senior secured revolving credit facility and a term loan with an original principal amount of $700.0 million. The 2023 Facility is secured by a first priority lien on substantially all of the Company’s personal property assets, certain real properties, and all of the Company’s domestic wholly owned subsidiaries. Loans made pursuant to the 2023 Facility may be used for general corporate purposes of the Company (including, but not limited to, financing working capital needs, capital expenditures, acquisitions, other investments, dividends, and stock repurchases) and for any other purpose not prohibited under the related loan documents.
Borrowings under the 2023 Facility are generally subject to an interest rate of adjusted term SOFR plus a credit spread adjustment of 0.10% plus (i) 2.25% if the Company’s leverage ratio (as defined in the 2023 Facility) equals or exceeds 4.00 to 1.00, (ii) 2.00% if the Company’s leverage ratio is less than 4.00 to 1.00 but greater than or equal to 3.00 to 1.00, or (iii) 1.75% if the Company’s leverage ratio is less than 3.00 to 1.00. As of June 30, 2024 and December 31, 2023, the unhedged interest rate was 7.43% and 7.46% under the 2023 Facility, respectively. As of June 30, 2024 and December 31, 2023, $200.0 million out of the $665.0 million term loan balance and $505.0 million out of the $682.5 million term loan balance, respectively, was hedged. As of June 30, 2024 and December 31, 2023, the effective interest rate on the term loan was approximately 7.10% and 6.80%, respectively. The Company is required to make equal installments of 1.25% of the aggregate closing date principal amount of the term loan on the last day of each fiscal quarter. All remaining term loan and revolving loan balances are to be due at maturity in March 2028.
Short-Term Lines of Credit
The Company is party to two agreements with existing lenders providing for short-term, uncommitted lines of credit up to $25.0 million. Borrowings under these short-term lines of credit are payable to the lenders on a revolving basis for tenors up to a maximum of three months and are subject to an interest rate of adjusted term SOFR plus a credit spread adjustment of 0.10% plus a margin of 1.75%.
Note 10 — Share-based Compensation
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.
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 December 31,
2023 | | Granted | | | | Vested | | Forfeited | | Non-vested shares outstanding at June 30,
2024 |
KKI | | | | | | | | | | | |
RSUs and PSUs | 6,785 | | | 1,587 | | | | | 1,073 | | | 298 | | | 7,001 | |
Weighted Average Grant Date Fair Value | $ | 14.54 | | | 14.89 | | | | | 15.03 | | | 14.97 |