Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Introduction
The Company
Beyond Meat, Inc., a Delaware corporation (including its consolidated subsidiaries unless the context otherwise requires, the “Company”), is one of the fastest growing food companies in the United States, offering a portfolio of revolutionary plant-based meats. The Company builds meat directly from plants, an innovation that enables consumers to experience the taste, texture and other sensory attributes of popular animal-based meat products while enjoying the nutritional and environmental benefits of eating the Company’s plant-based meat products.
On January 14, 2020, the Company registered its new subsidiary, Beyond Meat EU B.V., in the Netherlands. On April 28, 2020, the Company registered its new subsidiary, Beyond Meat (Jiaxing) Food Co., Ltd. (“BYND JX”), in the Zhejiang Province in China.
The Company’s primary production facilities are located in Columbia, Missouri, and research and development and administrative offices are located in El Segundo, California. In addition to its own production facilities, the Company uses co-manufacturers in various locations in the United States, Canada and the Netherlands. In the second quarter of 2020, the Company acquired its first manufacturing facility in Europe located in Enschede, the Netherlands. This facility is expected to be operational by the end of 2020. In addition, in June 2020 the Company announced the official opening of a new co-manufacturing facility to be used for Beyond Meat production built by the Company’s distributor in the Netherlands. In the third quarter of 2020, the Company and BYND JX entered into an investment agreement and related factory leasing contract to design and develop manufacturing facilities in the Jiaxing Economic & Technological Development Zone to manufacture plant-based meat products under the Beyond Meat brand in China. Renovations in the leased facility have commenced, with trial production expected by the end of 2020 and full-scale production expected in early 2021.
Subsequent to the quarter ended September 26, 2020, on October 30, 2020, the Company acquired certain assets including land, building, vehicles, machinery and equipment and certain workforce from one of its co-manufacturers for cash consideration of $14.5 million, subject to adjustment for customary prorations, transfer taxes, escrow holdbacks and other adjustments. The Company intends to use this manufacturing facility for the production of its finished goods.
The Company sells to a variety of customers in the retail and foodservice channels throughout the United States and internationally primarily through distributors who purchase, store, sell, and deliver the Company’s products. In addition, the Company sells directly to customers in the retail and foodservice channels who handle their own distribution. In the third quarter of 2020, the Company launched an e-commerce site to sell its products direct to consumers.
As of September 26, 2020, approximately 96% of the Company’s long-lived assets were located in the United States.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The global spread and unprecedented impact of COVID-19 continues to create significant volatility, uncertainty and economic disruption. In the second and third quarters of 2020, the Company’s operations and its financial results including net revenues, gross profit, gross margin and operating expenses were negatively impacted by COVID-19. The extent of COVID-19’s effect on the Company’s operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic and the level of social and economic restrictions imposed in the United States and abroad in an effort to curb the spread of the virus, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, it is not currently possible to ascertain the overall impact of
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
COVID-19 on the Company’s business, results of operations, financial condition, or liquidity. While the ultimate health and economic impact of the COVID-19 pandemic is highly uncertain, the Company expects that its business operations and results of operations, including its net revenues, gross profit, gross margin, earnings and cash flows, will be adversely impacted through at least the remainder of 2020, and likely into 2021. Future events and effects related to the COVID-19 pandemic cannot be determined with precision and actual results could significantly differ from estimates or forecasts.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the condensed consolidated financial statements include all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented. These interim results are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2020 or for any other interim period or for any other future fiscal year. These condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on March 19, 2020 (the “2019 10-K”). The condensed balance sheet as of December 31, 2019 has been derived from the audited financial statements at that date. There have been no material changes in the Company’s significant accounting policies from those that were disclosed in the 2019 10-K, except as noted below.
Principles of Consolidation
The condensed consolidated financial statements for the periods ended September 26, 2020 include the accounts of the Company and its subsidiaries. All inter-company balances and transactions have been eliminated.
Management’s Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates made by the Company include trade promotion accruals; useful lives of property, plant and equipment; valuation of deferred tax assets; valuation of inventory; incremental borrowing rate used to determine operating lease right-of-use assets and operating lease liabilities; assessment of contract-based factors, asset-based factors, entity-based factors and market-based factors to determine the lease term impacting right-of-use assets and lease liabilities; and the valuation of the fair value of stock options used to determine share-based compensation expense. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could differ from those estimates and such differences may be material to the condensed consolidated financial statements.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation and are depreciated using the straight-line method over the following estimated useful lives:
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Land
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Not amortized
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Buildings
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30 years
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Leasehold improvements
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Shorter of lease term or estimated useful life
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Furniture and fixtures
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3 years
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Manufacturing equipment
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5 to 10 years
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Research and development equipment
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5 to 10 years
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Software and computer equipment
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3 years
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Vehicles
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5 years
|
Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the asset or the remaining lease term. When assets are sold or retired, the asset and related accumulated depreciation are removed from the respective account balances and any gain or loss on disposal is included in loss from operations. Expenditures for repairs and maintenance are charged directly to expense when incurred. See Note 6.
Foreign Currency
The Company’s foreign entities use their local currency as the functional currency. For these entities, the Company translates net assets into U.S. dollars at period end exchange rates, while revenue and expense accounts are translated at average exchange rates prevailing during the periods being reported. Resulting currency translation adjustments are included in accumulated other comprehensive income and foreign currency transaction gains and losses are included in other, net. Transaction gains and losses on long-term intra-entity transactions are recorded as a component of other comprehensive income. Transactions denominated in a currency other than the reporting entity’s functional currency may give rise to transaction gains and losses that impact the Company’s results of operations.
Unrealized translation gains, net of tax, reported as cumulative translation adjustments through other comprehensive income were $0.5 million as of September 26, 2020. Foreign currency transaction (losses) gains included in other, net were $(15,000) and $0.1 million during the three and nine months ended September 26, 2020, respectively.
Fair Value of Financial Instruments
The fair value measurement accounting guidance creates a fair value hierarchy to prioritize the inputs used to measure fair value into three categories. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement, where Level 1 is the highest and Level 3 is the lowest.
The three levels are defined as follows:
•Level 1—Unadjusted quoted prices in active markets accessible by the reporting entity for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which significant value drivers are observable.
•Level 3—Valuations derived from valuation techniques in which significant value drivers are unobservable.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The Company’s financial instruments include cash equivalents, accounts receivable, accounts payable, and accrued expenses, for which the carrying amounts approximate fair value due to the short-term maturity of these financial instruments. Based on the borrowing rates currently available to the Company for debt with similar terms, the carrying value of the Company’s revolving credit facility approximates fair value as well.
The Company had no financial instruments measured at fair value on a recurring basis as of September 26, 2020 and December 31, 2019, other than the liability classified share-settled obligation to one of the Company’s executive officers as discussed in Note 9 which represents a Level 1 financial instrument. There was no change in the fair value of the liability-classified share-settled obligation in the three and nine months ended September 26, 2020. There were no transfers of financial assets or liabilities into or out of Level 1, Level 2 or Level 3 for the three and nine months ended September 26, 2020.
Prior to the IPO, the stock warrant liability was measured at fair value using Level 3 inputs upon issuance and at each reporting date. Inputs used to determine the estimated fair value of the warrant liability as of the valuation date included expected term of the warrants, the risk-free interest rate, volatility, and the fair value of underlying shares.
The following table sets forth a summary of the changes in the fair value of the preferred and common stock warrant liabilities:
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Nine Months Ended
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(in thousands)
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September 26, 2020
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September 28, 2019
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Beginning balance
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$
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—
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$
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1,918
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Fair value of warrants issued during the period
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—
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—
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Change in fair value of warrant liability
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—
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12,503
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Reclassification of warrant liability to additional paid-in capital in connection with the IPO
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—
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(14,421)
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Ending balance
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$
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—
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$
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—
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|
The Company remeasured and reclassified the common stock warrant liability to additional paid-in-capital in connection with the IPO. The final re-measurement of the preferred stock warrant was based upon the publicly available stock price on the conversion date. Subsequent to the closing of the IPO, all outstanding warrants to purchase shares of common stock were cashless exercised and no warrants were outstanding as of September 28, 2019.
Revenue Recognition
Revenue is recognized at the point in which the performance obligation under the terms of a contract with the customer have been satisfied and control has transferred. The Company’s performance obligation is typically defined as the accepted purchase order, or the contract, with the customer which requires the Company to deliver the requested products at agreed upon prices at the time and location of the customer’s choice. The Company does not offer warranties or a right to return on the products it sells except in the instance of a product recall.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for fulfilling the performance obligation. Sales and other taxes the Company collects concurrent with the sale of products are excluded from revenue. The Company's normal payment terms vary by the type and location of its customers and the products offered. The time between invoicing and when payment is due is not significant. None of the Company's customer contracts as of September 26, 2020 contains a significant financing component.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The Company routinely offers sales discounts and promotions through various programs to its customers and consumers. These programs include rebates, temporary on shelf price reductions, buy-one-get-one-free programs, off invoice discounts, retailer advertisements, product coupons and other trade activities. Provision for discounts and incentives are recorded in the same period in which the related revenues are recognized. At the end of each accounting period, the Company recognizes a liability for estimated sales discounts that have been incurred but not paid which totaled $3.3 million and $1.6 million as of September 26, 2020 and December 31, 2019, respectively. The offsetting charge is recorded as a reduction of revenues in the same period when the expense is incurred.
The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. The incremental cost to obtain contracts was not material.
Presentation of Net Revenues by Channel
Effective January 1, 2020, the Company began presenting net revenues by geography and distribution channel as follows:
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Distribution Channel
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Description
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U.S. Retail
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Net revenues from retail sales to the U.S. market
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U.S. Foodservice
|
|
Net revenues from restaurant and foodservice sales to the U.S. market
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International Retail
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|
Net revenues from retail sales to international markets, including Canada
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International Foodservice
|
|
Net revenues from restaurant and foodservice sales to international markets, including Canada
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Net revenues from sales to the Canadian market, previously included with net revenues from sales to the U.S. market, have been reclassified to International net revenues. Prior period amounts have been recast to conform to the current period presentation. The foregoing change in presentation had no impact on the Company’s net revenues, results of operations or cash flows.
Effective January 1, 2020, the Company also eliminated the presentation of net revenues by platform as it is no longer material to an understanding of the Company's financial results. Previously, the Company presented net revenues by platform for its “ready-to-cook” or fresh platform, and “ready-to-heat” or frozen platform. Gross revenues from sales of products in the Company's frozen platform were 5.5% of gross revenues in the year ended December 31, 2019, as compared to 16.3% of gross revenues in the year ended December 31, 2018.
The following table presents the Company’s net revenues by channel:
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Three Months Ended
|
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Nine Months Ended
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(in thousands)
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|
September 26,
2020
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|
September 28,
2019
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September 26,
2020
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|
September 28,
2019
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Net revenues:
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U.S.:
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Retail
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$
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62,057
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|
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$
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44,170
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|
|
$
|
202,019
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|
|
$
|
94,162
|
|
Foodservice
|
|
16,325
|
|
|
18,359
|
|
|
45,442
|
|
|
43,697
|
|
U.S. net revenues
|
|
78,382
|
|
|
62,529
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|
|
247,461
|
|
|
137,859
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|
International:
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|
|
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|
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|
Retail
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|
7,975
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|
|
6,295
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|
|
23,499
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|
|
10,002
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|
Foodservice
|
|
8,079
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|
|
23,137
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|
|
33,888
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|
|
51,557
|
|
International net revenues
|
|
16,054
|
|
|
29,432
|
|
|
57,387
|
|
|
61,559
|
|
Net revenues
|
|
$
|
94,436
|
|
|
$
|
91,961
|
|
|
$
|
304,848
|
|
|
$
|
199,418
|
|
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
One distributor accounted for approximately 11% of the Company’s gross revenues in the three months ended September 26, 2020; and two distributors accounted for approximately 17% and 15%, respectively, of the Company’s gross revenues in the three months ended September 28, 2019. One distributor accounted for approximately 13% of the Company’s gross revenues in the nine months ended September 26, 2020; and two distributors accounted for approximately 18% and 19%, respectively, of the Company’s gross revenues in the nine months ended September 28, 2019. No other distributor or customer accounted for more than 10% of the Company’s gross revenues in the three and nine months ended September 26, 2020 and September 28, 2019.
Shipping and Handling Costs
Outbound shipping and handling costs included in selling, general and administrative (“SG&A”) expenses in the three months ended September 26, 2020 and September 28, 2019 were $3.3 million and $3.4 million, respectively. Outbound shipping and handling costs included in SG&A expenses in the nine months ended September 26, 2020 and September 28, 2019 were $8.1 million and $7.4 million, respectively.
Recently Adopted Accounting Pronouncements
As an “emerging growth company” (“EGC”), the Jumpstart Our Business Startups Act (the “JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. The Company will no longer qualify as an EGC as of the end of the fiscal year ending December 31, 2020, when it becomes a Large Accelerated Filer under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Therefore, the Company has elected to use the adoption dates applicable to public companies beginning in the first quarter of 2020 and the adoption dates for the new accounting pronouncements disclosed below have been evaluated under such premise.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which requires lessees to record most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to Accounting Standards Codification (“ASC”) 840, “Leases” (“ASC 840”). ASU 2016-02 requires that a lessee recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term.
On January 1, 2020, the Company adopted ASU 2016-02 using the modified retrospective approach, which permits application of this new guidance at the beginning of the period of adoption, with comparative periods continuing to be reported under ASC 840. The Company also elected the package of practical expedients permitted under the transition guidance within ASU 2016-02, which among other things, permits the Company to not reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight practical expedient or the practical expedient pertaining to land easements, the latter not being applicable to the Company. As part of this adoption, the Company elected not to record operating right-of-use assets or operating lease liabilities for leases with an initial term of 12 months or less. Payments on those leases will be recognized on a straight-line basis through the Company’s condensed consolidated statements of operations over the lease term. The Company elected to separate the lease and non-lease components on all new or modified operating leases for the co-manufacturing class of assets for the purpose of recording operating lease right-of-use assets and operating lease liabilities and to combine lease and non-lease components on all new or modified operating leases into a single lease component for all other classes of assets. See Note 4.
On March 12, 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). The amendments in ASU 2020-04 provide temporary optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions to ease the potential accounting and financial reporting burden associated with transitioning away from reference rates that are expected to be
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
discontinued, including the London Interbank Offered Rate (LIBOR). ASU 2020-04 is effective for the Company as of March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04 has not had and is not expected to have a material impact on the Company’s financial position, results of operations, or cash flows.
New Accounting Pronouncements
On December 18, 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740)” (“ASU 2019-12”). ASU 2019-12 eliminates the need for an organization to analyze whether the following apply in a given period (1) exceptions to the incremental approach for intra-period tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) exceptions in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 also is designed to improve financial statement preparers’ application of income tax-related guidance and simplify GAAP for (1) franchise taxes that are partially based on income, (2) transactions with a government that result in a step-up in the tax basis of goodwill, (3) separate financial statements of legal entities that are not subject to tax, and (4) enacted changes in tax laws in interim periods. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. ASU 2019-12 is effective for the Company beginning on January 1, 2021. Adoption of ASU 2019-12 is not expected to result in any material changes to the way the tax provision is prepared and is not expected to have a material impact on the Company’s financial position, results of operations, or cash flows.
Note 3. Restructuring
In May 2017, management approved a plan to terminate the Company’s exclusive supply agreement (the “Agreement”) with one of its co-manufacturers, due to non-performance under the Agreement and on May 23, 2017, the Company notified the co-manufacturer of its decision to terminate the Agreement. In the three months ended September 26, 2020 and September 28, 2019, the Company recorded $2.1 million and $2.3 million, respectively, in restructuring expenses related to this dispute, which consisted primarily of legal and other expenses. In the nine months ended September 26, 2020 and September 28, 2019, the Company recorded $6.0 million and $3.6 million, respectively, in restructuring expenses related to this dispute, which consisted primarily of legal and other expenses. See Note 10 for further information. As of September 26, 2020 and December 31, 2019, the Company had $1.1 million in accrued and unpaid restructuring expenses.
Note 4. Leases
Leases are classified as either finance leases or operating leases based on criteria in ASC 842. The Company has operating leases for its corporate offices including its Manhattan Beach Innovation Center where the Company’s research and development facility is located, its manufacturing facilities, warehouses and vehicles, and finance leases for certain of the Company’s equipment. Such leases generally have original lease terms between two and 11 years, and often include one or more options to renew. Some leases also include early termination options, which can be exercised under specific conditions. The Company includes options to extend the lease term if the options are reasonably certain of being exercised. The Company currently considers its renewal options to be reasonably certain to be exercised. The Company does not have residual value guarantees or material restrictive covenants associated with its leases.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
On January 1, 2020, the Company adopted ASU 2016-02 using the modified retrospective approach, which permits application of this new guidance at the beginning of the period of adoption, with comparative periods continuing to be reported under ASC 840.
Operating lease assets represent the right to use an underlying asset for the lease term, and operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of future minimum lease payments at lease commencement. The Company calculates the present value of its operating leases using an estimated incremental borrowing rate, which requires judgment. The Company estimates the incremental borrowing rate for each operating lease based on prevailing market rates for collateralized debt in a similar economic environment with similar payment terms and maturity dates commensurate with the terms of the lease. Certain leases contain variable payments, which are expensed as incurred and not included in the Company’s operating lease right-of-use assets and operating lease liabilities. These amounts primarily include payments for maintenance, utilities, taxes, and insurance on the Company’s corporate, research and development, and manufacturing facilities and warehouse leases and are excluded from the present value of the Company’s lease obligations.
Previously designated capital leases under ASC 840 are now considered finance leases under ASC 842. The Company calculates the present value of its finance leases using the interest rate implicit in the lease agreement.
Upon adoption of ASU 2016-02, the Company recognized operating lease right-of-use assets of $11.9 million adjusted for $0.3 million previously recorded as deferred rent and $0.2 million previously recorded as prepaid rent on the Company’s condensed consolidated balance sheets. The Company also recorded $1.4 million in current operating lease liabilities and $10.6 million in operating lease liabilities, net of current portion.
As part of this adoption, the Company elected to not record operating lease right-of-use assets or operating lease liabilities for leases with an initial term of 12 months or less. The Company elected to separate the lease and non-lease components on all new or modified operating leases for the co-manufacturing class of assets for the purpose of recording operating lease right-of-use assets and operating lease liabilities and to combine lease and non-lease components on all new or modified operating leases into a single lease component for all other classes of assets.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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|
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Three Months Ended
|
|
Nine Months Ended
|
(in thousands)
|
|
Statement of Operations Location
|
|
September 26, 2020
|
|
September 26, 2020
|
Operating lease cost:
|
|
|
|
|
|
|
Lease cost
|
|
Cost of goods sold
|
|
$
|
341
|
|
|
$
|
993
|
|
Lease cost
|
|
Research and development expenses
|
|
187
|
|
|
470
|
|
Lease cost
|
|
Selling, general and administrative expenses
|
|
136
|
|
|
409
|
|
Variable lease cost (1)
|
|
Cost of goods sold
|
|
—
|
|
|
7
|
|
Operating lease cost
|
|
|
|
$
|
664
|
|
|
$
|
1,879
|
|
|
|
|
|
|
|
|
Short-term lease cost
|
|
Selling, general and administrative expenses
|
|
$
|
95
|
|
|
$
|
270
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
Amortization of right-of use assets
|
|
Cost of goods sold
|
|
$
|
19
|
|
|
$
|
57
|
|
Interest on lease liabilities
|
|
Interest expense
|
|
3
|
|
|
10
|
|
Finance lease cost
|
|
|
|
$
|
22
|
|
|
$
|
67
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
|
|
$
|
781
|
|
|
$
|
2,216
|
|
____________
(1) Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Supplemental balance sheet information as of September 26, 2020 related to leases are as follows:
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|
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|
|
|
|
(in thousands)
|
|
Balance Sheet Location
|
|
September 26, 2020
|
Assets
|
|
|
|
|
Operating leases
|
|
Operating lease right-of-use assets
|
|
$
|
13,736
|
|
Finance leases, net
|
|
Property, plant and equipment, net
|
|
230
|
|
Total lease assets
|
|
|
|
$
|
13,966
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current:
|
|
|
|
|
Operating lease liabilities
|
|
Current portion of operating lease liabilities
|
|
$
|
2,481
|
|
Finance lease liabilities
|
|
Current portion of finance lease liabilities
|
|
72
|
|
Long-term:
|
|
|
|
|
Operating lease liabilities
|
|
Operating lease liabilities, net of current portion
|
|
11,413
|
|
Finance lease liabilities
|
|
Finance lease obligations and other long-term liabilities
|
|
167
|
|
Total lease liabilities
|
|
|
|
$
|
14,133
|
|
The following is a schedule by year of the maturities of lease liabilities with original terms in excess of one year, as of September 26, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 26, 2020
|
(in thousands)
|
|
Operating Leases
|
|
Finance Leases
|
Remainder of 2020
|
|
$
|
681
|
|
|
$
|
21
|
|
2021
|
|
2,886
|
|
|
80
|
|
2022
|
|
2,814
|
|
|
71
|
|
2023
|
|
2,331
|
|
|
58
|
|
2024
|
|
1,495
|
|
|
30
|
|
2025
|
|
1,281
|
|
|
—
|
|
Thereafter
|
|
3,913
|
|
|
—
|
|
Total undiscounted future minimum lease payments
|
|
15,401
|
|
|
260
|
|
Less imputed interest
|
|
(1,507)
|
|
|
(21)
|
|
Total discounted future minimum lease payments
|
|
$
|
13,894
|
|
|
$
|
239
|
|
Weighted average remaining lease terms and weighted average discount rates were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 26, 2020
|
|
|
Operating Leases
|
|
Finance Leases
|
Weighted average remaining lease term (years)
|
|
7.1
|
|
3.5
|
Weighted average discount rate
|
|
2.9
|
%
|
|
5.3
|
%
|
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
A schedule of the future minimum rental commitments under the Company’s capital lease agreements and non-cancelable operating lease agreements with an initial or remaining term in excess of one year as of December 31, 2019, in accordance with ASC 840 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Capital Lease Obligations
|
|
Operating Lease
Obligations
|
2020
|
|
$
|
86
|
|
|
$
|
1,878
|
|
2021
|
|
80
|
|
|
1,813
|
|
2022
|
|
71
|
|
|
1,817
|
|
2023
|
|
58
|
|
|
1,840
|
|
2024
|
|
30
|
|
|
1,353
|
|
Thereafter
|
|
—
|
|
|
5,167
|
|
Total minimum lease payments
|
|
|
|
$
|
13,868
|
|
Total minimum lease payments
|
|
$
|
325
|
|
|
|
Less: imputed interest (4.1% to 15.9%)
|
|
(34)
|
|
|
|
Total capital lease obligations
|
|
$
|
291
|
|
|
|
Less: current portion of capital lease obligations
|
|
(72)
|
|
|
|
Long-term capital lease obligations
|
|
$
|
219
|
|
|
|
|
|
|
|
|
Note 5. Inventories
Major classes of inventory were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 26,
2020
|
|
December 31,
2019
|
Raw materials and packaging
|
$
|
83,636
|
|
|
$
|
36,884
|
|
Work in process
|
18,728
|
|
|
17,958
|
|
Finished goods
|
29,995
|
|
|
26,754
|
|
Total
|
$
|
132,359
|
|
|
$
|
81,596
|
|
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Note 6. Property, Plant and Equipment
Property, plant, and equipment are stated at cost and finance lease assets are included. A summary of property, plant, and equipment as of September 26, 2020 and December 31, 2019, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
September 26,
2020
|
|
December 31,
2019
|
Manufacturing equipment
|
|
$
|
56,435
|
|
|
$
|
37,939
|
|
Research and development equipment
|
|
10,481
|
|
|
8,933
|
|
Leasehold improvements
|
|
9,104
|
|
|
7,620
|
|
Building
|
|
2,096
|
|
|
—
|
|
Finance leases
|
|
287
|
|
|
1,108
|
|
Software
|
|
377
|
|
|
274
|
|
Furniture and fixtures
|
|
582
|
|
|
433
|
|
Vehicles
|
|
378
|
|
|
210
|
|
Land
|
|
1,156
|
|
|
—
|
|
Assets not yet placed in service
|
|
25,325
|
|
|
11,666
|
|
Total property, plant and equipment
|
|
$
|
106,221
|
|
|
$
|
68,183
|
|
Accumulated depreciation and amortization
|
|
(29,219)
|
|
|
(20,709)
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
77,002
|
|
|
$
|
47,474
|
|
Depreciation and amortization expense for the three months ended September 26, 2020 and September 28, 2019, was $3.4 million and $2.0 million, respectively. Of the total depreciation and amortization expense in the three months ended September 26, 2020 and September 28, 2019, $2.6 million and $1.4 million, respectively, were recorded in cost of goods sold, $0.7 million and $0.6 million, respectively, were recorded in research and development expenses, and $30,000 and $17,000, respectively, were recorded in SG&A expenses in the Company’s condensed consolidated statements of operations.
Depreciation and amortization expense for the nine months ended September 26, 2020 and September 28, 2019, was $9.3 million and $6.0 million, respectively. Of the total depreciation and amortization expense in the nine months ended September 26, 2020 and September 28, 2019, $7.1 million and $4.2 million, respectively, were recorded in cost of goods sold, $2.1 million and $1.8 million, respectively, were recorded in research and development expenses, and $0.1 million and $39,000, respectively, were recorded in SG&A expenses, in the Company’s condensed consolidated statements of operations.
The Company no longer has any assets that meet the criteria for assets held for sale as of September 26, 2020. Amounts previously classified as assets held for sale were sold for amounts that approximated book value for which a note receivable of $4.6 million, net of payments, was recorded as of September 26, 2020, of which $2.4 million is included in prepaid expenses and other current assets and $2.2 million is included in other non-current assets.
Subsequent to the quarter ended September 26, 2020, on October 30, 2020, the Company acquired certain assets including land, building, vehicles, machinery and equipment and certain workforce from one of its former co-manufacturers. See Note 13.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Note 7. Debt
On April 21, 2020, the Company entered into a $150 million five-year secured revolving credit agreement (“2020 Credit Agreement”) by and among the Company, the lenders party thereto (the “Lenders”) and JPMorgan Chase Bank, N.A., as the administrative agent (the “Administrative Agent”). JPMorgan Chase Bank, N.A. and Silicon Valley Bank acted as joint bookrunners and joint lead arrangers under the 2020 Credit Agreement. The 2020 Credit Agreement includes an accordion feature for up to an additional $200 million. Capitalized terms used below but not defined have the meanings ascribed to such terms in the 2020 Credit Agreement.
Concurrently with the effectiveness of the 2020 Credit Agreement, on April 21, 2020, the Company terminated the SVB Credit Facilities (a revolving credit facility and a term loan facility with Silicon Valley Bank) and the Equipment Loan Facility (an equipment loan from Structural Capital), and incurred an aggregate of $1.2 million of termination, prepayment, and related fees in connection with such terminations.
Amounts available under the 2020 Credit Agreement are for working capital needs, for general corporate purposes and to refinance certain existing indebtedness, as the Company deems necessary. Borrowings under the 2020 Credit Agreement will bear interest, at the Company’s option, calculated according to an Alternate Base Rate or LIBO Rate, as the case may be, plus an applicable margin. Until the delivery to the Administrative Agent of the Company’s consolidated financial information for the fiscal quarter ended September 26, 2020, the applicable margin was 1.5% per annum for Alternate Base Rate loans and 2.5% per annum for LIBO Rate loans. Thereafter, the applicable margin for Alternate Base Rate loans will range from 1.25% to 1.75% per annum, and the applicable margin for LIBO Rate loans will range from 2.25% to 2.75% per annum, in each case, based on the Company’s total leverage ratio at the end of each quarter.
The Company is required to pay an unused commitment fee of 0.375% per annum, which shall accrue at the applicable rate on the daily amount of the undrawn portion of the commitment of each Lender. Letters of credit issued under the 2020 Credit Agreement are subject to customary letter of credit fees. The Company’s obligations under the 2020 Credit Agreement are secured by substantially all of its assets, subject to customary exceptions set forth in the 2020 Credit Agreement. In addition, to the extent the Company forms or acquires any domestic subsidiaries, such domestic subsidiaries will be required to guarantee the Company’s obligations under the 2020 Credit Agreement and provide a security interest over substantially all of their assets.
The 2020 Credit Agreement contains customary representations, warranties and covenants for a transaction of this type, including maintenance of (i) a maximum total leverage ratio of 3.00 to 1.00 and (ii) a minimum fixed charge coverage ratio of 1.25 to 1.00, in each case, tested on the last day of each fiscal quarter. The Company is permitted to declare and pay up to $10.0 million per year in dividends on its capital stock (and, subject to meeting certain leverage requirements and minimum liquidity thresholds, additional dividends), provided, among other things, no event of default exists or would result therefrom and the Company is in compliance with certain financial covenants contained in the 2020 Credit Agreement. The 2020 Credit Agreement also provides for customary events of default, including (among others) nonpayment, covenant defaults, breaches of representations or warranties, bankruptcy and insolvency events and a change of control. If an event of default occurs, the Administrative Agent shall, at the request of, or may, with the consent of, the required Lenders, declare the obligations under the 2020 Credit Agreement immediately due and payable and the commitments of the Lenders may be terminated. For certain events of default relating to insolvency, the commitments of the Lenders are automatically terminated and all outstanding obligations become due and payable. The revolving credit facility matures on April 21, 2025.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The Company’s debt balances are detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
September 26,
2020
|
|
December 31,
2019
|
Revolving credit facility
|
|
|
$
|
50,000
|
|
|
$
|
—
|
|
Revolving credit line (SVB)
|
|
|
—
|
|
|
6,000
|
|
Term loan facility
|
|
|
—
|
|
|
20,000
|
|
Equipment financing loan
|
|
|
—
|
|
|
5,000
|
|
Debt issuance costs
|
|
|
—
|
|
|
(431)
|
|
Total debt outstanding
|
|
|
$
|
50,000
|
|
|
$
|
30,569
|
|
Less: current portion of long-term debt
|
|
|
—
|
|
|
11,000
|
|
Long-term debt
|
|
|
$
|
50,000
|
|
|
$
|
19,569
|
|
The Company records debt issuance costs on the revolving credit facility in other non-current assets, net in the accompanying condensed consolidated balance sheet as of September 26, 2020. Debt issuance costs on the revolving credit line and term loan, net of amortization, were recorded as a reduction of carrying value of the debt in the accompanying condensed consolidated balance sheet as of December 31, 2019. Debt issuance costs, net of amortization, totaled $1.1 million and $0.4 million as of September 26, 2020 and December 31, 2019, respectively. Debt issuance costs are amortized as interest expense over the term of the loan for which amortization of $0.1 million and $46,000 was recorded during the three months ended September 26, 2020 and September 28, 2019, respectively, and $0.2 million and $0.1 million was recorded in the nine months ended September 26, 2020 and September 28, 2019, respectively.
In each of the three months ended September 26, 2020 and September 28, 2019, the Company incurred $0.7 million in interest expense related to its bank credit facilities. In the nine months ended September 26, 2020 and September 28, 2019, the Company incurred $1.6 million and $1.9 million, respectively, in interest expense related to its bank credit facilities. In the three months ended September 26, 2020 and September 28, 2019, the Company incurred $0 and $0.1 million, respectively, in interest expense related to the Equipment Loan Facility. In the nine months ended September 26, 2020 and September 28, 2019, the Company recorded $0.2 million and $0.4 million, respectively, in interest expense related to the Equipment Loan Facility.
As of September 26, 2020, the Company had outstanding borrowings of $50.0 million and $100.0 million in excess availability (excluding the accordion feature) under the revolving credit facility (subject to limitations in order to comply with the Company’s quarterly financial maintenance covenants). The interest rate on outstanding borrowings at September 26, 2020 was 3.5%. The Company was in compliance with the financial covenants in the 2020 Credit Agreement for the fiscal quarter ended September 26, 2020.
Note 8. Stockholders’ Equity
As of September 26, 2020, the Company’s shares consisted of 500,000,000 authorized shares of common stock, par value $0.0001 per share, of which 62,625,629 shares of common stock were issued and outstanding, and 500,000 authorized shares of preferred stock, par value $0.0001 per share, of which no shares were issued and outstanding.
As of December 31, 2019, the Company’s shares consisted of 500,000,000 authorized shares of common stock, par value $0.0001 per share, of which 61,576,494 shares were issued and outstanding, and 500,000 authorized shares of preferred stock, par value $0.0001 per share, of which no shares were issued and outstanding.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The Company has not declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock.
Note 9. Share-Based Compensation
In 2019, the Company’s 2011 Equity Incentive Plan was amended, restated and re-named the 2018 Equity Incentive Plan (“2018 Plan”), and the remaining shares available for issuance under the 2011 Plan were added to the shares reserved for issuance under the 2018 Plan. As of January 1, 2020, the maximum aggregate number of shares that may be issued under the 2018 Plan increased to 16,626,877 shares.
As of September 26, 2020 and December 31, 2019, there were 4,375,498 and 5,170,976 shares, respectively, issuable under stock options outstanding, 283,698 and 149,004 shares, respectively, issuable under unvested RSUs outstanding, 6,926,700 and 5,864,738 shares, respectively, issued for stock option exercises, RSU settlement, and restricted stock grants, and 5,053,398 and 3,297,638 shares, respectively, available for grants under the 2018 Plan.
Stock Options
Following are the assumptions used in the Black-Scholes valuation model for options granted during the periods shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 26,
2020
|
|
September 28,
2019
|
|
September 26,
2020
|
|
September 28,
2019
|
Risk-free interest rate
|
|
0.6%
|
|
1.7%
|
|
0.8%
|
|
2.3%
|
Average expected term (years)
|
|
7.0
|
|
6.0
|
|
7.0
|
|
6.0
|
Expected volatility
|
|
55.0%
|
|
55.0%
|
|
55.0%
|
|
55.0%
|
Dividend yield
|
|
—
|
|
—
|
|
—
|
|
—
|
Option grants to new employees in the nine months ended September 26, 2020 vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter ratably vesting monthly over the remaining three-year period, subject to continued employment through the vesting date. Option grants to continuing employees in the nine months ended September 26, 2020 vest monthly over a 48-month period, subject to continued employment through the vesting date. Option grants to continuing employees in the nine months ended September 28, 2019 generally vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter ratably vesting monthly over the remaining three-year period, subject to continued employment through the vesting date. The stock option grant to an executive officer on August 1, 2019 vests monthly over a 48-month period.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table summarizes the Company’s stock option activity during the nine months ended September 26, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Stock
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Aggregate
Intrinsic
Value (in thousands)(1)
|
Outstanding at December 31, 2019
|
5,170,976
|
|
|
$
|
14.28
|
|
|
7.5
|
|
$
|
329,879
|
|
Granted
|
257,374
|
|
|
$
|
98.56
|
|
|
—
|
|
$
|
—
|
|
Exercised
|
(1,010,116)
|
|
|
$
|
6.43
|
|
|
—
|
|
$
|
113,753
|
|
Cancelled/Forfeited
|
(42,736)
|
|
|
$
|
29.99
|
|
|
—
|
|
$
|
—
|
|
Outstanding at September 26, 2020
|
4,375,498
|
|
|
$
|
20.89
|
|
|
6.9
|
|
$
|
588,621
|
|
Vested and exercisable at September 26, 2020
|
2,533,172
|
|
|
$
|
8.66
|
|
|
5.9
|
|
$
|
371,329
|
|
Vested and expected to vest at September 26, 2020
|
3,897,508
|
|
|
$
|
17.08
|
|
|
6.7
|
|
$
|
538,980
|
|
__________
(1) Aggregate intrinsic value is calculated as the difference between the value of common stock on the transaction date and the exercise price multiplied by the number of shares issuable under the stock option. Aggregate intrinsic value of shares outstanding at the beginning and end of the reporting period is calculated as the difference between the value of common stock on the beginning and end dates, respectively, and the exercise price multiplied by the number of shares outstanding.
During the three months ended September 26, 2020 and September 28, 2019, the Company recorded in aggregate $3.1 million and $2.0 million, respectively, of share-based compensation expense related to options. During the nine months ended September 26, 2020 and September 28, 2019, the Company recorded in aggregate $9.7 million and $3.8 million, respectively, of share-based compensation expense related to options. The share-based compensation expense is included in cost of goods sold, research and development expenses, and SG&A expenses in the Company’s condensed consolidated statements of operations.
As of September 26, 2020, there was $16.5 million in unrecognized compensation expense related to nonvested stock option awards which is expected to be recognized over a weighted average period of 2.1 years.
Restricted Stock Units
RSU grants to new employees in the nine months ended September 26, 2020 and September 28, 2019 vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter ratably vesting quarterly over the remaining three years of the award, subject to continued employment through the vesting date. RSU grants to continuing employees in the nine months ended September 26, 2020 and September 28, 2019 vest quarterly over 16 quarters, subject to continued employment through the vesting date. RSU grants to non-employee directors in the nine-months ended September 26, 2020 vest monthly over 12 months, subject to continued service through the vesting date. RSU grants to consultants in the nine months ended September 26, 2020 vest (i) quarterly over 8 quarters, or (ii) monthly over 12 months, in each case, subject to continued service through the vesting date. RSU grants to nonemployee brand ambassadors in the nine months ended September 26, 2020 vest (i) 50% upon grant with the remainder vesting quarterly over 4 quarters commencing on October 1, 2020, or (ii) quarterly over two years, in each case, subject to continued service through the vesting date.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table summarizes the Company’s RSU activity during the nine months ended September 26, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted
Average
Grant Date Fair Value Per Share
|
Unvested at December 31, 2019
|
|
149,004
|
|
|
$
|
132.73
|
|
Granted
|
|
198,706
|
|
|
$
|
105.30
|
|
Vested(1)
|
|
(52,250)
|
|
|
$
|
132.99
|
|
Cancelled/Forfeited
|
|
(11,762)
|
|
|
$
|
—
|
|
Unvested at September 26, 2020
|
|
283,698
|
|
|
$
|
113.73
|
|
________
(1) Includes 12,822 shares of common stock that were withheld to cover taxes on the release of vested RSUs and became available for future grants pursuant to the 2018 Plan.
During the three months ended September 26, 2020 and September 28, 2019, the Company recorded in aggregate $2.5 million and $0.6 million, respectively, of share-based compensation expense related to RSUs. During the nine months ended September 26, 2020 and September 28, 2019, the Company recorded in aggregate $6.9 million and $0.7 million, respectively, of share-based compensation expense related to RSUs. The share-based compensation expense is included in cost of goods sold, research and development expenses, and SG&A expenses in the Company’s condensed consolidated statements of operations.
As of September 26, 2020, there was $15.2 million in unrecognized compensation expense related to unvested RSUs which is expected to be recognized over a weighted average period of 2.0 years.
Share-Settled Obligation
Share-based compensation expense in the three and nine months ended September 26, 2020 includes $0.9 million and $2.6 million, respectively, for a liability classified, share-settled obligation to an executive officer related to a sign-on award pursuant to the terms of the executive officer’s offer letter dated August 1, 2019 with the Company. There was no such expense in the three and nine months ended September 28, 2019. The share-based compensation expense related to this share-settled obligation is included in SG&A expenses in the Company’s condensed consolidated statements of operations. The liability classified award is considered unearned until the requirements for issuance of the shares are met and is included in accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheets as of September 26, 2020 and December 31, 2019 in the amount of $3.6 million and $1.0 million, respectively. As of September 26, 2020, there was $3.4 million in unrecognized compensation expense related to this share-settled obligation which is expected to be recognized over one year.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Restricted Stock to Nonemployees
The following table summarizes the Company’s restricted stock activity during the nine months ended September 26, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares of
Restricted Stock
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Weighted
Average
Grant Date
Fair Value
Per Share
|
Unvested at December 31, 2019
|
88,988
|
|
|
1.2
|
|
$
|
19.49
|
|
Granted
|
—
|
|
|
—
|
|
$
|
—
|
|
Vested/Released
|
(67,208)
|
|
|
—
|
|
$
|
19.42
|
|
Cancelled/Forfeited
|
—
|
|
|
—
|
|
$
|
—
|
|
Unvested at September 26, 2020
|
21,780
|
|
|
0.7
|
|
$
|
20.00
|
|
As of September 26, 2020, 21,780 shares of restricted stock had been purchased by nonemployee brand ambassadors which remained subject to vesting requirements and repurchase pursuant to restricted stock purchase agreements.
During the three months ended September 26, 2020 and September 28, 2019, the Company recorded in aggregate $0.4 million and $0.5 million, respectively, of share-based compensation expense related to restricted stock issued to nonemployee brand ambassadors, which is included in SG&A expenses in the Company’s condensed consolidated statements of operations. During the nine months ended September 26, 2020 and September 28, 2019, the Company recorded in aggregate $1.2 million and $1.3 million, respectively, of share-based compensation expense related to restricted stock issued to nonemployee brand ambassadors, which is included in SG&A expenses in the Company’s condensed consolidated statements of operations.
As of September 26, 2020, there was $0.4 million in unrecognized compensation expense related to unvested restricted stock granted to nonemployee brand ambassadors, which is expected to be recognized over nine months.
Employee Stock Purchase Plan
As of September 26, 2020, the maximum aggregate number of shares that may be issued under the 2018 Employee Stock Purchase Plan (“ESPP”) was 1,340,325 shares of common stock, including an increase of 536,130 shares effective January 1, 2020 under the terms of the ESPP. The 2018 ESPP is expected to be implemented through a series of offerings under which participants are granted purchase rights to purchase shares of the Company’s common stock on specified dates during such offerings. The administrator has not yet approved an offering under the 2018 ESPP.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Note 10. Commitments and Contingencies
Leases
On March 16, 2020, the Company amended an operating lease for its manufacturing facility in Columbia, Missouri, to extend the lease term for two years to June 30, 2022.
Effective May 22, 2020, the Company amended an operating lease for one of its leased manufacturing facilities to include land adjacent to the facility upon which the landlord will construct a parking lot.
Effective May 26, 2020, the Company entered into an agreement, assignment and assumption of lease and first amendment to lease pursuant to which the Company assumed an operating lease under which the Company is leasing certain real property and a building consisting of approximately 142,317 square feet in Columbia, Missouri, for a term expiring on April 30, 2023 with no renewal options. See Note 4.
China Investment and Lease Agreement
On September 22, 2020, the Company and BYND JX entered into an investment agreement with the Administrative Committee (the “JX Committee”) of the Jiaxing Economic & Technological Development Zone (the “JXEDZ”) pursuant to which, among other things, BYND JX has agreed to make certain investments in the JXEDZ in two phases of development, and the Company has agreed to guarantee certain repayment obligations of BYND JX under such agreement.
During Phase 1, the Company has agreed to invest $10.0 million in the JXEDZ through an intercompany investment in BYND JX and BYND JX has agreed to lease a facility in the JXEDZ in return for certain subsidies, rewards and other preferential rights granted by the JX Committee and its affiliates. In connection with such agreement, BYND JX entered into a factory leasing contract as of September 11, 2020 with an affiliate of the JX Committee, pursuant to which BYND JX has agreed to lease and renovate a facility in the JXEDZ for a minimum of two (2) years. Renovations in the leased facility have commenced, with trial production expected by the end of 2020 and full-scale production expected in early 2021.
In the event that the Company and BYND JX determine, in their sole discretion, to proceed with the Phase 2 development in the JXEDZ, BYND JX has agreed in the first stage of Phase 2 to invest $30.0 million to acquire the land use right to a state-owned land plot in the JXEDZ to conduct development and construction of a new production facility. Following the first stage of Phase 2, the Company and BYND JX may determine, in their sole discretion, to permit BYND JX to invest an additional $10.0 million to obtain a second state-owned land plot in the JXEDZ in order to construct an additional facility thereon. Each of the land use rights acquired during Phase 2 (if any) will be valid for fifty (50) years.
Purchase Commitments
On January 10, 2020, the Company and Roquette Frères (“Roquette”) entered into a multi-year sales agreement pursuant to which Roquette will provide the Company with plant-based protein. The agreement expires on December 31, 2022; however it can be terminated after 18 months under certain circumstances. This agreement increases the amount of plant-based protein to be supplied by Roquette in each of 2020, 2021 and 2022 compared to the amount supplied 2019. The plant-based protein sourced under the supply agreement is secured on a purchase order basis regularly, per specified minimum monthly and semi-annual quantities, throughout the term. The Company is not required to purchase plant-based protein in amounts in excess of such specified minimum quantities; however the Company has the option to increase such minimum quantities for delivery in each of 2021 and 2022. The total annual amount purchased each year by the Company must be at least the minimum amount specified in the agreement, which totals in the aggregate $154.1 million over the term of the agreement. The Company also has the right to be indemnified by Roquette in certain circumstances.
As of September 26, 2020, the Company had committed to purchase pea protein inventory totaling $177.5 million, approximately $36.9 million in the remainder of 2020, $82.1 million in 2021, and $58.5 million in 2022.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
In addition, as of September 26, 2020, the Company had approximately $19.3 million in purchase order commitments for capital expenditures primarily to purchase machinery and equipment. Payments for these purchases will be due within twelve months.
Litigation
Don Lee Farms
On May 25, 2017, Don Lee Farms, a division of Goodman Food Products, Inc., filed a complaint against the Company in the Superior Court of the State of California for the County of Los Angeles asserting claims for breach of contract, misappropriation of trade secrets, unfair competition under the California Business and Professions Code, money owed and due, declaratory relief and injunctive relief, each arising out of the Company’s decision to terminate an exclusive supply agreement between the Company and Don Lee Farms. The Company denied all of these claims and filed counterclaims on July 27, 2017, alleging breach of contract, unfair competition under the California Business and Professions Code and conversion. In October 2018, the former co-manufacturer filed an amended complaint that added one of the Company’s current contract manufacturers as a defendant, principally for claims arising from the current contract manufacturer’s alleged use of the former co-manufacturer’s alleged trade secrets, and for replacing the former co-manufacturer as one of the Company’s current co-manufacturers. The current contract manufacturer filed an answer denying all of Don Lee Farms’ claims and a cross-complaint against Beyond Meat asserting claims of total and partial equitable indemnity, contribution, and repayment. On March 11, 2019, Don Lee Farms filed a second amended complaint to add claims of fraud and negligent misrepresentation against the Company. On May 30, 2019, the judge denied the Company’s motion to dismiss the fraud and negligent misrepresentation claims, allowing the claims to proceed. On June 19, 2019, the Company filed an answer denying Don Lee Farms' claims.
On January 24, 2020, a writ judge granted Don Lee Farms a right to attach in the amount of $628,689 on the grounds that Don Lee Farms had established a “probable validity” of its claim that the Company owes it money for a small batch of unpaid invoices. This determination was not made by the trial judge. The trial judge has yet to determine the legitimacy or merits of Don Lee Farms’ claims.
On January 27, 2020, Don Lee Farms filed a third amended complaint to add three individual defendants, all of whom are current or former employees of the Company, including Mark Nelson, the Company’s Chief Financial Officer and Treasurer, to Don Lee Farms’ existing fraud and negligent misrepresentation claims alleging that those individuals were involved in the alleged fraud and negligent misrepresentations. On June 23, 2020, the judge denied Beyond Meat and the individual defendants’ motion to dismiss the fraud and negligent misrepresentation claims, allowing the claims to proceed. On July 6, 2020, the Company and the individual defendants filed an answer denying all of Don Lee Farms’ claims, including denying all allegations of fraud and negligent misrepresentation.
On August 11, 2020, the Company filed an amended cross-complaint against Don Lee Farms, its parent Goodman Food Products, Inc. and its owners and employees, Donald, Daniel, and Brandon Goodman. Among other claims, the amended cross-complaint alleges that Don Lee Farms defrauded Beyond Meat, misappropriated its trade secrets, and infringed its trademarks.
The previous trial date, February 8, 2021, was vacated. Trial is currently set for June 14, 2021.
Don Lee Farms is seeking from Beyond Meat, the individual defendants, and the current contract manufacturer unspecified compensatory and punitive damages, declaratory and injunctive relief, including the prohibition of Beyond Meat’s use or disclosure of the alleged trade secrets, and attorneys’ fees and costs. The Company is seeking from Don Lee Farms monetary damages, restitution of monies paid to Don Lee Farms, injunctive relief, including the prohibition of Don Lee Farms’ use or disclosure of Beyond Meat’s trade secrets and the prohibition of Don Lee Farms’ infringing use of Beyond Meat’s trademarks, and attorneys’ fees and costs. The current contract manufacturer is seeking indemnity, contribution, or repayment from the Company of any or all damages that the current contract manufacturer may be found liable to Don Lee Farms, and attorneys’ fees and costs.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The Company believes it was justified in terminating the supply agreement with Don Lee Farms, that the Company did not misappropriate Don Lee Farms’ alleged trade secrets, that the Company is not liable for the fraud or negligent misrepresentation alleged in the third amended complaint, that Don Lee Farms is liable for the conduct alleged in the Company’s amended cross-complaint, and that the Company is not liable to the current contract manufacturer for any indemnity, contribution, or repayment, including for any damages or attorneys’ fees and costs. Conversely, as alleged in the Company’s amended cross-complaint, the Company believes Don Lee Farms misappropriated the Company’s trade secrets, defrauded the Company, and ultimately has infringed the Company’s trademarks.
The Company is currently in the process of litigating this matter and intends to vigorously defend itself and its current and former employees against the claims and to prosecute the Company’s own claims. The Company cannot assure you that Don Lee Farms or the current contract manufacturer will not prevail in all or some of their claims against the Company or the individual defendants, or that the Company will prevail in some or all of its claims against Don Lee Farms. For example, if Don Lee Farms succeeds in the lawsuit, the Company could be required to pay damages, including but not limited to contract damages reasonably calculated at what the Company would have paid Don Lee Farms to produce the Company’s products through 2019, the end of the contract term, and Don Lee Farms could also claim some ownership in the intellectual property associated with the production of certain of the Company’s products or in the products themselves, and thus claim a stake in the value the Company has derived and will derive from the use of that intellectual property after the Company terminated its supply agreement with Don Lee Farms. Based on the Company’s current knowledge, the Company has determined that the amount of any material loss or range of any losses that is reasonably possible to result from this lawsuit is not estimable.
Securities Related Litigation
On January 30, 2020, Larry Tran, a purported shareholder of Beyond Meat, filed a putative securities class action lawsuit in the United States District Court for the Central District of California against Beyond Meat and two of the Company’s executive officers, the Company’s President and CEO, Ethan Brown, and the Company’s Chief Financial Officer and Treasurer, Mark Nelson. The lawsuit asserts claims under Sections 10(b) and 20(a) of the Exchange Act and is premised on allegedly false or misleading statements, and alleged non-disclosure of material facts, related to the Company’s public disclosures regarding the Company’s ongoing litigation with Don Lee Farms during the proposed class period of May 2, 2019 to January 27, 2020. The Court appointed a lead plaintiff and lead counsel on May 18, 2020, and a First Amended Complaint (“FAC”) was filed on July 1, 2020. The FAC names the same defendants, proposes the same class period, and similarly asserts claims under Sections 10(b) and 20(a) of the Exchange Act premised on allegedly false or misleading statements, and alleged non-disclosure of material facts, related to the Company’s public disclosures regarding the Company’s ongoing litigation with Don Lee Farms. The Company filed a motion to dismiss on behalf of all defendants on July 31, 2020. On October 8, 2020, the Court entered an opinion and order granting defendants’ motion to dismiss with leave to amend. Plaintiffs did not file an amended complaint by the deadline set by the Court. As a result, on October 27, 2020, the Court entered an order dismissing the action with prejudice, except for the class allegations of absent putative class members, which were dismissed without prejudice. The dismissal is final pending appeal. The Company believes the claims are without merit and intends to vigorously defend all claims asserted.
On March 16, 2020, Eric Weiner, a purported shareholder of Beyond Meat, filed a shareholder derivative lawsuit in the United States District Court for the Central District of California, putatively on behalf of the Company, against two of the Company’s executive officers, the Company’s President and CEO, Ethan Brown, and the Company’s Chief Financial Officer and Treasurer, Mark Nelson, and each of the Company’s directors, including one former director, who signed the Company’s initial public offering registration statement. The lawsuit asserts claims under Sections 10(b) and 21D of the Exchange Act, claims of breaches of fiduciary duty as directors and/or officers of Beyond Meat, and claims of unjust enrichment and waste of corporate assets, all relating to the Company’s ongoing litigation with Don Lee Farms, related actions taken by Beyond Meat and the named individuals during the period of May 2, 2019 to March 16, 2020, and the securities case brought against the Company.
On March 18, 2020, Kimberly Brink and Melvyn Klein, purported shareholders of Beyond Meat, filed a shareholder derivative lawsuit in the United States District Court for the Central District of California,
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
putatively on behalf of the Company, against two of the Company’s executive officers, the Company’s President and CEO, Ethan Brown, and the Company’s Chief Financial Officer and Treasurer, Mark Nelson, and each of the Company’s directors, including one former director, who signed the Company’s initial public offering registration statement. The lawsuit asserts claims under Sections 10(b) and 21D of the Exchange Act, claims of breaches of fiduciary duty as directors and/or officers of Beyond Meat, and claims of unjust enrichment and waste of corporate assets, all relating to the Company’s ongoing litigation with Don Lee Farms, related actions taken by Beyond Meat and the named individuals during the period of May 2, 2019 to March 18, 2020, and the securities case brought against the Company.
On April 1, 2020, the United States District Court for the Central District of California entered an order consolidating the Weiner action and the Brink action for all purposes and designated the consolidated case In re: Beyond Meat, Inc. Derivative Litigation. On April 13, 2020, the Court entered an order appointing co-lead counsel for the consolidated derivative action. On June 23, 2020, the Court entered an order approving a Joint Stipulation Regarding Stay of Actions. Under the terms of the stay approval order, all proceedings in the consolidated derivative case are stayed until (1) the securities class action is dismissed, with prejudice, and all appeals related thereto have been exhausted; or (2) any motion to dismiss the securities class action is denied in whole or in part. Based on the early stages of this matter, the Company is unable to estimate potential losses, if any, related to this lawsuit.
On May 27, 2020, Kevin Chew, a purported shareholder of Beyond Meat, filed a shareholder derivative lawsuit in the United States District Court of the District of Delaware, putatively on behalf of the Company, against two of the Company’s executive officers, the Company’s President and CEO, Ethan Brown, and the Company’s Chief Financial Officer and Treasurer, Mark Nelson, and each of the Company’s directors, including one former director, who signed the Company’s initial public offering registration statement. The lawsuit asserts claims under Sections 10(b) and 21D of the Exchange Act and claims of breaches of fiduciary duty, relating to the Company’s ongoing litigation with Don Lee Farms, related actions taken by Beyond Meat and the named individuals during the period of May 2, 2019 to May 27, 2020. On June 16, 2020, the Court entered an order staying all proceedings in the derivative action until (1) the securities class action is dismissed, with prejudice, and all appeals related thereto have been exhausted; or (2) any motion to dismiss the securities class action is denied in whole or in part. On June 17, 2020, the Court entered an order administratively closing the derivative case based on the stay order. Based on the early stages of this matter, the Company is unable to estimate potential losses, if any, related to this lawsuit.
On June 17, 2020, James Janolek, a purported shareholder of Beyond Meat, filed a shareholder derivative lawsuit in the United States District Court of the District of Delaware, putatively on behalf of the Company, against two of the Company’s executive officers, the Company’s President and CEO, Ethan Brown, and the Company’s Chief Financial Officer and Treasurer, Mark Nelson, and each of the Company’s directors, including one former director, who signed the Company’s initial public offering registration statement. The lawsuit asserts claims under Sections 14(a) and 20(a) of the Exchange Act, claims of breaches of fiduciary duty as directors and/or officers of Beyond Meat, and claims of unjust enrichment and waste of corporate assets, all relating to the Company’s ongoing litigation with Don Lee Farms, related actions taken by Beyond Meat and the named individuals during the period of May 2, 2019 to June 17, 2020. On July 10, 2020, the Court entered an order staying all proceedings in the derivative action until (1) the securities class action is dismissed, with prejudice, and all appeals related thereto have been exhausted; or (2) any motion to dismiss the securities class action is denied in whole or in part. On July 10, 2020, the Court entered an order administratively closing the derivative case based on the stay order. On November 9, 2020, Plaintiff filed a Notice of Voluntary Dismissal without prejudice and without costs or attorney fees to either party. Based on the early stages of this matter, the Company is unable to estimate potential losses, if any, related to this lawsuit.
The Company is involved in various other legal proceedings, claims, and litigation arising in the ordinary course of business. Based on the facts currently available, the Company does not believe that the disposition of such matters that are pending or asserted will have a material effect on its financial statements.
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Note 11. Income Taxes
For the three months ended September 26, 2020 and September 28, 2019, the Company recorded $55,000 and $0, respectively, in income tax expense, in its condensed consolidated statements of operations.
For the nine months ended September 26, 2020 and September 28, 2019, the Company recorded $70,000 and $21,000, respectively, in income tax expense in its condensed consolidated statements of operations.
The Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized in the U.S. Due to uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against substantially all deferred tax assets. If the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets will be made and the adjustment would have the effect of increasing net income in the period such determination is made.
As of September 26, 2020, the Company does not have any accrued interest or penalties related to uncertain tax positions. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company is subject to U.S. federal tax authority and U.S. state tax authority examinations for all years with respect to net operating loss and credit carryforwards.
On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the U.S. economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions include removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act.
Due to the recent enactment of the CARES Act, the Company is currently evaluating the impact, if any, that the CARES Act will have on its financial position, results of operations or cash flows. Currently the Company does not expect the enactment of CARES Act will have a material impact on the Company’s financial position, results of operations or cash flows.
Note 12. Net (Loss) Income Per Share Available to Common Stockholders
The Company calculates basic and diluted net (loss) income per share available to common stockholders in conformity with the two-class method required for companies with participating securities. Computation of net (loss) income per share available to common stockholders for the three and nine months ended September 26, 2020 excludes the dilutive effect of 4,375,498 option shares, 283,698 RSUs and 21,780 unvested restricted stock shares outstanding at September 26, 2020 because their inclusion would be anti-dilutive. Computation of net loss per share available to common stockholders for the three and nine months ended September 26, 2020 also excludes adjustments under the two-class method relating to a liability classified, share-settled obligation to an executive officer to deliver a variable number of shares based on a fixed monetary amount because the shares to be delivered are not participating securities as they do not have voting rights and are not entitled to participate in dividends until they are issued. Computation of net income per share available to common stockholders for the three months ended September 28, 2019 includes the dilutive effect of 5,608,822 shares issuable under stock options with exercise prices below the closing price of the Company's common stock on the last trading day of the applicable period and 1,802 RSUs, but excludes the dilutive effect of 411 RSUs because their inclusion would be anti-dilutive. Computation of net loss per share available to common stockholders for the nine months ended September 28, 2019 excludes the dilutive effect of 6,087,169 shares issuable under stock
BEYOND MEAT, INC.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
options and 85,121 RSUs outstanding at September 28, 2019 because their inclusion would be anti-dilutive.
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(in thousands, except share and per share amounts)
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Three Months Ended
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Nine Months Ended
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September 26,
2020
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September 28,
2019
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September 26,
2020
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|
September 28,
2019
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Numerator:
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|
|
|
|
|
|
Net (loss) income available to common stockholders
|
|
$
|
(19,285)
|
|
|
$
|
4,090
|
|
|
$
|
(27,675)
|
|
|
$
|
(11,991)
|
|
Undistributed net income available to unvested restricted stockholders
|
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
Net (loss) income available to common stockholders—basic
|
|
(19,285)
|
|
|
4,099
|
|
|
(27,675)
|
|
|
(11,991)
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|
Denominator:
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|
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|
|
|
|
|
|
Weighted average common shares outstanding—basic
|
|
62,487,152
|
|
|
60,415,866
|
|
|
62,114,399
|
|
|
35,806,520
|
|
Dilutive effect of shares issuable under stock options
|
|
—
|
|
|
5,608,822
|
|
|
—
|
|
|
—
|
|
Dilutive effect of RSUs
|
|
—
|
|
|
1,802
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding—diluted
|
|
62,487,152
|
|
|
66,026,490
|
|
|
62,114,399
|
|
|
35,806,520
|
|
Net (loss) income per share available to common stockholders—basic
|
|
$
|
(0.31)
|
|
|
$
|
0.07
|
|
|
$
|
(0.45)
|
|
|
$
|
(0.33)
|
|
Net (loss) income per share available to common stockholders—diluted
|
|
$
|
(0.31)
|
|
|
$
|
0.06
|
|
|
$
|
(0.45)
|
|
|
$
|
(0.33)
|
|
Note 13. Subsequent Event
Subsequent to the quarter ended September 26, 2020, on October 30, 2020, the Company acquired certain assets including land, building, vehicles, machinery and equipment and certain workforce from one of its former co-manufacturers for cash consideration of $14.5 million, subject to adjustment for customary prorations, transfer taxes, escrow holdbacks and other adjustments. As of September 26, 2020, the Company had incurred $0.7 million of related acquisition costs which are reflected in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheet. As part of this transaction, the Company hired approximately 180 employees. The Company intends to use this manufacturing facility for the production of its finished goods.
The Company will record the preliminary effects of this asset acquisition during the fourth quarter of 2020 and has engaged a valuation firm to value the acquired assets and workforce for which the valuation is not complete as of the date of this filing due to the limited time since the acquisition date.