Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Introduction
The Company
Beyond Meat, Inc., a Delaware corporation (including its subsidiaries unless the context otherwise requires, the “Company”), is a leading plant-based meat company 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. The Company’s brand commitment, “Eat What You Love,” represents a strong belief that there is a better way to feed our future and that the positive choices we all make, no matter how small, can have a great impact on our personal health and the health of our planet. By shifting from animal-based meat to plant-based protein, we can positively impact four growing global issues: human health, climate change, constraints on natural resources and animal welfare.
As of July 2, 2022, approximately 85% of the Company’s 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. The Company’s operations and its financial results including net revenues, gross profit, gross margin and operating expenses were negatively impacted by COVID-19 in 2020, 2021 and the first half of 2022. 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 (including any resurgences), the impact of variants of the virus that causes COVID-19, the wide distribution and public acceptance of COVID-19 vaccines, labor needs at the Company as well as in the supply chain and at customers, compliance with government or employer COVID-19 vaccine mandates and the resulting impact on available labor, 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. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company’s business, results of operations, financial condition or liquidity. While the ultimate health and economic impact of COVID-19 continues to be highly uncertain, the Company expects that the adverse impact of COVID-19 on its business and results of operations, including its net revenues, gross profit, gross margin, earnings and cash flows, will continue in 2022. 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
A detailed description of the Company's significant accounting policies can be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 2, 2022 (“2021 10-K”). There have been no material changes in the Company’s significant accounting policies from those that were disclosed in the 2021 10-K, except as noted below.
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
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) 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, 2022 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 2021 10-K. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements at that date.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany 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; the valuation of the fair value of stock options used to determine share-based compensation expense; and loss contingency accruals in connection with claims, lawsuits and administrative proceedings. 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.
Foreign Currency
Foreign currency translation (loss) income, net of tax, reported as cumulative translation adjustment through “Other comprehensive loss” was $(2.3) million and $0.6 million for the three months ended July 2, 2022 and July 3, 2021, respectively.
Foreign currency translation loss, net of tax, reported as cumulative translation adjustments through “Other comprehensive loss” was $(3.0) million and $(0.7) million for the six months ended July 2, 2022 and July 3, 2021, respectively.
Realized and unrealized foreign currency transaction losses included in “Other, net” were $(5.5) million and $(6.6) million in the three and six months ended July 2, 2022, respectively. Realized and unrealized foreign currency transaction gains (losses) included in “Other, net” were $0.2 million and $(0.1) million in the three and six months ended July 3, 2021, respectively.
Fair Value of Financial Instruments
The Company had no financial instruments measured at fair value on a recurring basis as of July 2, 2022 and December 31, 2021.
There were no transfers of financial assets or liabilities into or out of Level 1, Level 2 or Level 3 for the three and six months ended July 2, 2022.
Revenue Recognition
At the end of each accounting period, the Company recognizes a contra asset to accounts receivable for estimated sales discounts that have been incurred but not paid which totaled $5.2 million and
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) $3.6 million as of July 2, 2022 and December 31, 2021, respectively. The offsetting charge is recorded as a reduction of revenues in the same period when the expense is incurred.
Presentation of Net Revenues by Channel
The following table presents the Company’s net revenues by channel:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(in thousands) | | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Net revenues: | | | | | | | | |
U.S.: | | | | | | | | |
Retail | | $ | 78,861 | | | $ | 77,195 | | | $ | 147,121 | | | $ | 141,021 | |
Foodservice | | 23,389 | | | 23,961 | | | 38,882 | | | 40,703 | |
U.S. net revenues | | 102,250 | | | 101,156 | | | 186,003 | | | 181,724 | |
International: | | | | | | | | |
Retail | | 23,692 | | | 28,544 | | | 39,829 | | | 45,743 | |
Foodservice | | 21,098 | | | 19,726 | | | 30,663 | | | 30,123 | |
International net revenues | | 44,790 | | | 48,270 | | | 70,492 | | | 75,866 | |
Net revenues | | $ | 147,040 | | | $ | 149,426 | | | $ | 256,495 | | | $ | 257,590 | |
Two distributors accounted for approximately 16% and 10%, respectively, of the Company’s gross revenues in the three months ended July 2, 2022 and one distributor accounted for approximately 10% of the Company’s gross revenues in the three months ended July 3, 2021. One distributor accounted for approximately 13% of the Company’s gross revenues in the six months ended July 2, 2022 and one customer accounted for approximately 10% of the Company’s gross revenues in the six months ended July 3, 2021. No other distributor or customer accounted for more than 10% of the Company’s gross revenues in the three and six months ended July 2, 2022 and July 3, 2021.
Investment in Joint Venture
The Company uses the equity method of accounting to record transactions associated with its joint venture when the Company shares in joint control of the investee. Investment in joint venture is not consolidated but is recorded in “Investment in unconsolidated joint venture” in the Company’s condensed consolidated balance sheets. The Company recognizes its portion of the investee’s results in “Equity in losses of unconsolidated joint venture” in its condensed consolidated statements of operations. The Company eliminates its proportionate interest in any intra-entity profits or losses in the inventory of the investee at the end of the reporting period and recognizes its portion of the profit and losses when realized by the investee.
Shipping and Handling Costs
Outbound shipping and handling costs included in selling, general and administrative (“SG&A”) expenses in the three months ended July 2, 2022 and July 3, 2021 were $4.2 million and $4.9 million, respectively. Outbound shipping and handling costs included in SG&A expenses in the six months ended July 2, 2022 and July 3, 2021 were $10.1 million and $8.2 million, respectively.
Recently Adopted Accounting Pronouncements
None.
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
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) May 23, 2017, the Company notified the co-manufacturer of its decision to terminate the Agreement. In the three months ended July 2, 2022 and July 3, 2021, the Company recorded $4.3 million and $3.8 million, respectively, in restructuring expenses related to this dispute, which consisted primarily of legal and other expenses. In the six months ended July 2, 2022 and July 3, 2021, the Company recorded $7.3 million and $6.3 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 July 2, 2022 and December 31, 2021, the Company had $2.2 million and $2.7 million, respectively, in accrued and unpaid restructuring expenses. Note 4. Leases
Leases are classified as either finance leases or operating leases based on criteria in Accounting Standards Codification 842. The Company has operating leases for its corporate offices, including its Manhattan Beach Project Innovation Center where the Company’s research and development facility is located, its manufacturing facilities, commercialization center, warehouses and vehicles, and to a lesser extent, certain equipment and finance leases. Such leases generally have original lease terms between two and 12 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.
On January 14, 2021, the Company entered into the Campus Lease, a 12-year lease with two 5-year renewal options to house its corporate headquarters, lab and innovation space in El Segundo, California. The Company has not recognized an asset or a liability for the Campus Lease in its consolidated balance sheet as of July 2, 2022 because there was no lease commencement during the three months ended July 2, 2022. Therefore, the Campus Lease is not included in the tables below.
Lease costs for operating and finance leases were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
(in thousands) | | Statement of Operations Location | | July 2, 2022 | | July 3, 2021 |
Operating lease cost: | | | | | | |
Lease cost | | Cost of goods sold | | $ | 151 | | | $ | 556 | |
Lease cost | | Research and development expenses | | 551 | | | 191 | |
Lease cost | | Selling, general and administrative expenses | | 860 | | | 148 | |
Variable lease cost(1) | | Cost of goods sold | | 9 | | | 1 | |
Operating lease cost | | | | $ | 1,571 | | | $ | 896 | |
| | | | | | |
Short-term lease cost | | Selling, general and administrative expenses | | $ | 152 | | | $ | 87 | |
| | | | | | |
Finance lease cost: | | | | | | |
Amortization of right-of use assets | | Cost of goods sold | | $ | 45 | | | $ | 47 | |
Interest on lease liabilities | | Interest expense | | (12) | | | 5 | |
Finance lease cost | | | | $ | 33 | | | $ | 52 | |
| | | | | | |
Total lease cost(2) | | | | $ | 1,756 | | | $ | 1,035 | |
____________
(1) Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs.
(2) Excludes Campus Lease. See Note 10.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) | | | | | | | | | | | | | | | | | | | | |
| | | | Six Months Ended |
(in thousands) | | Statement of Operations Location | | July 2, 2022 | | July 3, 2021 |
Operating lease cost: | | | | | | |
Lease cost | | Cost of goods sold | | $ | 762 | | | $ | 1,095 | |
Lease cost | | Research and development expenses | | 1,065 | | | 339 | |
Lease cost | | Selling, general and administrative expenses | | 1,863 | | | 345 | |
Variable lease cost(1) | | Cost of goods sold | | 162 | | | 29 | |
Operating lease cost | | | | $ | 3,852 | | | $ | 1,808 | |
| | | | | | |
Short-term lease cost | | Selling, general and administrative expenses | | $ | 299 | | | $ | 113 | |
| | | | | | |
Finance lease cost: | | | | | | |
Amortization of right-of use assets | | Cost of goods sold | | $ | 90 | | | $ | 84 | |
Interest on lease liabilities | | Interest expense | | 12 | | | 10 | |
Finance lease cost | | | | $ | 102 | | | $ | 94 | |
| | | | | | |
Total lease cost(2) | | | | $ | 4,253 | | | $ | 2,015 | |
____________
(1) Variable lease cost primarily consists of common area maintenance, such as cleaning and repairs.
(2) Excludes Campus Lease. See Note 10.
Supplemental balance sheet information as of July 2, 2022 and December 31, 2021 related to leases are as follows:
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Balance Sheet Location | | July 2, 2022 | | December 31, 2021 |
Assets(1) | | | | | | |
Operating leases | | Operating lease right-of-use assets | | $ | 25,464 | | | $ | 26,815 | |
Finance leases, net | | Property, plant and equipment, net | | 687 | | | 615 | |
Total lease assets | | | | $ | 26,151 | | | $ | 27,430 | |
| | | | | | |
Liabilities(1) | | | | | | |
Current: | | | | | | |
Operating lease liabilities | | Current portion of operating lease liabilities | | $ | 4,595 | | | $ | 4,458 | |
Finance lease liabilities | | Short-term finance lease liabilities | | 210 | | | 182 | |
Long-term: | | | | | | |
Operating lease liabilities | | Operating lease liabilities, net of current portion | | 21,143 | | | 22,599 | |
Finance lease liabilities | | Finance lease obligations and other long-term liabilities | | 485 | | | 442 | |
Total lease liabilities | | | | $ | 26,433 | | | $ | 27,681 | |
_______________
(1) Excludes Campus Lease. See Note 10.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) The following is a schedule by year of the maturities of lease liabilities with original terms in excess of one year, as of July 2, 2022:
| | | | | | | | | | | | | | |
| | July 2, 2022 |
(in thousands) | | Operating Leases(1) | | Finance Leases |
Remainder of 2022 | | $ | 2,841 | | | $ | 116 | |
2023 | | 5,501 | | | 219 | |
2024 | | 3,811 | | | 184 | |
2025 | | 3,230 | | | 153 | |
2026 | | 2,972 | | | 47 | |
2027 | | 2,456 | | | 16 | |
Thereafter | | 10,597 | | | — | |
Total undiscounted future minimum lease payments | | 31,408 | | | 735 | |
Less imputed interest | | (5,670) | | | (40) | |
Total discounted future minimum lease payments | | $ | 25,738 | | | $ | 695 | |
_______________
(1) Excludes Campus Lease. See Note 10.
Weighted average remaining lease terms and weighted average discount rates were:
| | | | | | | | | | | | | | |
| | July 2, 2022 |
| | Operating Leases(1) | | Finance Leases |
Weighted average remaining lease term (years) | | 8.1 | | 3.6 |
Weighted average discount rate | | 4.6 | % | | 3.2 | % |
_______________
(1) Excludes Campus Lease. See Note 10. Note 5. Inventories
Major classes of inventory were as follows:
| | | | | | | | | | | |
(in thousands) | July 2, 2022 | | December 31, 2021 |
Raw materials and packaging | $ | 135,937 | | | $ | 129,974 | |
Work in process | 54,678 | | | 50,227 | |
Finished goods | 64,038 | | | 61,669 | |
Total | $ | 254,653 | | | $ | 241,870 | |
BEYOND MEAT, INC. AND SUBSIDIARIES
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 July 2, 2022 and December 31, 2021, is as follows:
| | | | | | | | | | | | | | |
(in thousands) | | July 2, 2022 | | December 31, 2021 |
Manufacturing equipment | | $ | 144,964 | | | $ | 115,412 | |
Research and development equipment | | 16,944 | | | 16,837 | |
Leasehold improvements | | 20,510 | | | 20,250 | |
Building | | 22,548 | | | 22,937 | |
Finance leases | | 981 | | | 867 | |
Software | | 1,354 | | | 1,297 | |
Furniture and fixtures | | 865 | | | 868 | |
Vehicles | | 584 | | | 584 | |
Land | | 5,345 | | | 5,434 | |
Assets not yet placed in service | | 111,281 | | | 95,455 | |
Total property, plant and equipment | | $ | 325,376 | | | $ | 279,941 | |
Less: accumulated depreciation and amortization | | 67,301 | | | 53,452 | |
| | | | |
Property, plant and equipment, net | | $ | 258,075 | | | $ | 226,489 | |
Depreciation and amortization expense for the three months ended July 2, 2022 and July 3, 2021 was $7.7 million and $4.9 million, respectively. Of the total depreciation and amortization expense in the three months ended July 2, 2022 and July 3, 2021, $6.6 million and $3.9 million, respectively, were recorded in cost of goods sold; $1.0 million and $0.9 million, respectively, were recorded in research and development expenses; and $0.1 million and $30,000, respectively, were recorded in SG&A expenses in the Company’s condensed consolidated statements of operations.
Depreciation and amortization expense for the six months ended July 2, 2022 and July 3, 2021 was $14.8 million and $9.2 million, respectively. Of the total depreciation and amortization expense in the six months ended July 2, 2022 and July 3, 2021, $12.5 million and $7.4 million, respectively, were recorded in cost of goods sold; $2.0 million and $1.8 million, respectively, were recorded in research and development expenses; and $0.3 million and $60,000, respectively, were recorded in SG&A expenses in the Company’s condensed consolidated statements of operations.
The Company concluded that no property, plant and equipment met the criteria for assets held for sale as of July 2, 2022 and December 31, 2021. Previous amounts classified as assets held for sale were sold for amounts that approximated book value for which a note receivable of $3.8 million, net of payments received, had been recorded. The note receivable is included in “Other non-current assets, net” in the Company’s condensed consolidated balance sheet at July 2, 2022 and December 31, 2021.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Note 7. Debt
The following is a summary of debt balances as of July 2, 2022 and December 31, 2021:
| | | | | | | | | | | | | |
(in thousands) | | | July 2, 2022 | | December 31, 2021 |
Convertible senior notes | | | $ | 1,150,000 | | | $ | 1,150,000 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Debt issuance costs | | | (18,359) | | | (20,326) | |
| | | | | |
| | | | | |
Convertible senior notes, net | | | $ | 1,131,641 | | | $ | 1,129,674 | |
Convertible Senior Notes
On March 5, 2021, the Company issued $1.0 billion aggregate principal amount of its 0% Convertible Senior Notes due 2027 (the “Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. On March 12, 2021, the initial purchasers of the Convertible Notes exercised their option to purchase an additional $150.0 million aggregate principal amount of the Company’s 0% Convertible Senior Notes due 2027 (the “Additional Notes”, and together with the Convertible Notes, the “Notes”), and such Additional Notes were issued on March 16, 2021.
The total amount of debt issuance costs of $23.6 million was recorded as a reduction to “Convertible senior notes, net” in the condensed consolidated balance sheet and are being amortized as interest expense over the term of the Notes using the effective interest method. During the three and six months ended July 2, 2022, the Company recognized $1.0 million and $2.0 million, respectively, in interest expense related to the amortization of the debt issuance costs related to the Notes. During the three and six months ended July 3, 2021, the Company recognized $1.0 million and $1.3 million, respectively, in interest expense related to the amortization of the debt issuance costs related to the Notes.
The following is a summary of the Company’s Notes as of July 2, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Principal Amount | | Unamortized Issuance Costs | | Net Carrying Amount | | Fair Value |
| | | | Amount | | Leveling |
0% Convertible senior notes due on March 15, 2027 | | $1,150,000 | | $18,359 | | $1,131,641 | | $419,750 | | Level 2 |
| | | | | | | | | | |
The Notes are carried at face value less the unamortized debt issuance costs on the Company’s condensed consolidated balance sheets. As of July 2, 2022, the estimated fair value of the Notes was approximately $0.4 billion. The Notes are quoted on the Intercontinental Exchange and are classified as Level 2 financial instruments. The estimated fair value of the Notes was determined based on the actual bid price of the Notes on June 30, 2022, the last trade day of the period.
As of July 2, 2022, the remaining life of the Notes is approximately 4.7 years.
Revolving Credit Facility
On March 2, 2021, the Company terminated its secured revolving credit agreement, dated as of April 21, 2020 (the “Credit Agreement”).
The Company recorded debt issuance costs on the revolving credit facility in “Prepaid and other non-current assets, net” in the accompanying condensed consolidated balance sheet. Debt issuance costs associated with the revolving credit facility were amortized as interest expense over the term of the loan. In the three and six months ended July 3, 2021, debt issuance costs of $0 and $41,000, respectively, related to the Company’s prior revolving credit facility and equipment loan were amortized to interest expense.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) In the three months ended July 2, 2022 and July 3, 2021, the Company incurred $0 in interest expense related to its bank credit facilities. In the six months ended July 2, 2022 and July 3, 2021, the Company incurred $0 and $0.3 million, respectively, in interest expense related to its bank credit facilities.
Upon termination of the revolving credit facility, unamortized debt issuance costs of $1.0 million associated with the revolving credit facility were written off as “Loss on extinguishment of debt,” which is included in “Other, net” in the condensed consolidated statement of operations for the six months ended July 3, 2021.
Concurrent with the Company’s execution of the Campus Lease, as a security deposit, the Company delivered to the landlord a letter of credit under the revolving credit facility in the amount of $12.5 million. Upon termination of the revolving credit facility, the letter of credit continued in effect, unsecured.
Note 8. Stockholders’ Equity
As of July 2, 2022, the Company’s shares consisted of 500,000,000 authorized shares of common stock, par value $0.0001 per share, of which 63,643,369 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, 2021, the Company’s shares consisted of 500,000,000 authorized shares of common stock, par value $0.0001 per share, of which 63,400,899 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.
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 (“2011 Plan”) was amended, restated and re-named the 2018 Equity Incentive Plan (the “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, 2022, the maximum aggregate number of shares that may be issued under the 2018 Plan increased to 20,915,919 shares, which includes an increase of 2,144,521 shares effective January 1, 2022 under the terms of the 2018 Plan.
The following table summarizes the shares available for grant under the 2018 Plan:
| | | | | |
| Shares Available for Grant |
Balance - December 31, 2021 | 6,515,807 | |
Authorized | 2,144,521 | |
Granted | (1,204,318) | |
Shares withheld to cover taxes | 23,241 | |
Forfeited | 102,009 | |
Balance - July 2, 2022 | 7,581,260 | |
| |
As of July 2, 2022 and December 31, 2021, there were 4,402,397 and 3,956,364 shares, respectively, issuable under stock options outstanding; 983,304 and 608,175 shares, respectively, issuable under unvested RSUs outstanding; 7,997,539 and 7,730,884 shares, respectively, issued for stock option exercises, RSU settlement, and restricted stock grants; and 7,581,260 and 6,515,807 shares, respectively, available for grant under the 2018 Plan.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Stock Options
Following are the assumptions used in the Black-Scholes valuation model for options granted during the periods shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 |
Risk-free interest rate | | 3.0% | | 1.3% | | 1.9% | | 1.3% |
Average expected term (years) | | 7.0 | | 7.0 | | 7.0 | | 7.0 |
Expected volatility | | 55.0% | | 74.0% | | 55.0% | | 72.8% |
Dividend yield | | — | | — | | — | | — |
Option grants to new employees in the six months ended July 2, 2022 and July 3, 2021 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. Option grants to continuing employees in the six months ended July 2, 2022 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. Option grants to continuing employees in the six months ended July 3, 2021 generally vest monthly over a 48-month period, subject to continued employment through the vesting date. An option grant to one executive officer in the six months ended July 3, 2021 vested over three months from the vesting commencement date.
The following table summarizes the Company’s stock option activity during the six months ended July 2, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Stock Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value (in thousands)(1) |
Outstanding at December 31, 2021 | 3,956,364 | | | $ | 27.04 | | | 5.9 | | $ | 180,302 | |
Granted | 670,525 | | | $ | 44.83 | | | — | | $ | — | |
Exercised | (177,024) | | | $ | 7.38 | | | — | | $ | 6,017 | |
Cancelled/Forfeited | (47,468) | | | $ | 75.99 | | | — | | $ | — | |
Outstanding at July 2, 2022 | 4,402,397 | | | $ | 30.01 | | | 6.0 | | $ | 49,535 | |
Vested and exercisable at July 2, 2022 | 3,006,753 | | | $ | 17.09 | | | 4.7 | | $ | 49,124 | |
Vested and expected to vest at July 2, 2022 | 3,862,463 | | | $ | 26.17 | | | 6.8 | | $ | 49,525 | |
__________
(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 July 2, 2022 and July 3, 2021, the Company recorded $4.3 million and $3.7 million, respectively, of share-based compensation expense related to options. During the six months ended July 2, 2022 and July 3, 2021, the Company recorded $8.4 million and $7.1 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.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) As of July 2, 2022, there was $25.6 million in unrecognized compensation expense related to nonvested stock option awards which is expected to be recognized over a weighted average period of 1.4 years.
Restricted Stock Units
RSU grants to new and continuing employees in the six months ended July 2, 2022 generally vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter vest quarterly over the remaining three years of the award, subject to continued employment through the vesting date. Some of the RSU grants to continuing employees in the six months ended July 2, 2022 vest 50% of the total award on the first anniversary of the vesting commencement date, and thereafter vest quarterly over the remaining four quarters of the award, subject to continued employment through the vesting date. Annual RSU grants to directors on the Company’s Board of Directors (the “Board”) in the six months ended July 2, 2022 vest monthly over a one-year period and an RSU grant to a new director on the Board vests monthly over a three-year period. RSU grants to nonemployee brand ambassadors in the six months ended July 2, 2022 vest on varying dates, subject to continued service through the vesting date.
RSU grants to new employees in the six months ended July 3, 2021 vest 25% of the total award on the first anniversary of the vesting commencement date, and thereafter vest quarterly over the remaining three years of the award, subject to continued employment through the vesting date. RSU grants in the six months ended July 3, 2021 include fully vested RSUs granted to an executive officer issued in settlement of the obligation discussed below under Share-Settled Obligation. An RSU grant to one executive officer in the six months ended July 3, 2021 vested 100% over three months from the vesting commencement date. RSU grants to continuing employees in the six months ended July 3, 2021 generally vest quarterly over 16 quarters, subject to continued employment through the vesting date. An RSU grant to one executive officer in the six months ended July 3, 2021 vests quarterly over four quarters, subject to continued employment through the vesting date. Annual RSU grants to the Board in the six months ended July 3, 2021 vest monthly over a one-year period and RSU grants to two new directors on the Board vest monthly over a three-year period. RSU grants to nonemployee brand ambassadors in the six months ended July 3, 2021 vest quarterly over four quarters from the vesting commencement date, subject to continued service through the vesting date.
The following table summarizes the Company’s RSU activity during the six months ended July 2, 2022:
| | | | | | | | | | | | | | |
| | Number of Units | | Weighted Average Grant Date Fair Value Per Unit |
Unvested at December 31, 2021 | | 608,175 | | | $ | 88.78 | |
Granted | | 533,793 | | | $ | 43.71 | |
Vested(1) | | (104,617) | | | $ | 91.62 | |
Cancelled/Forfeited | | (54,047) | | | $ | 85.62 | |
Unvested at July 2, 2022 | | 983,304 | | | $ | 64.18 | |
________
(1) Includes 23,241 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 July 2, 2022 and July 3, 2021, the Company recorded $6.0 million and $3.3 million, respectively, of share-based compensation expense related to RSUs. During the six months ended July 2, 2022 and July 3, 2021, the Company recorded $11.2 million and $6.3 million, respectively, of share-based compensation expense related to RSUs. The share-based compensation
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) 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 July 2, 2022, there was $35.3 million in unrecognized compensation expense related to unvested RSUs which is expected to be recognized over a weighted average period of 1.4 years.
Share-Settled Obligation
Share-based compensation expense in the three months ended July 2, 2022 and July 3, 2021 includes $0 and $0.8 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. Share-based compensation expense in the six months ended July 2, 2022 and July 3, 2021 includes $0 and $1.6 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. 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. Financing activities in the statement of cash flows for the six months ended July 2, 2022 and July 3, 2021 includes $0 and $1.6 million, respectively, noncash reclassification of the share-settled obligation from “Other current liabilities” to “Additional paid-in capital.”
In the first six months of 2021, two quarterly tranches related to this obligation were earned, and the Company delivered to this executive officer 13,804 fully vested RSUs with a settlement date fair value of $1.6 million.
Restricted Stock to Nonemployees
During the six months ended July 2, 2022, no shares of restricted stock had been issued to nonemployee brand ambassadors.
During the three months ended July 2, 2022 and July 3, 2021, the Company recorded $0 and $34,000, 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 six months ended July 2, 2022 and July 3, 2021, the Company recorded $0 million and $0.2 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 July 2, 2022, there was no unrecognized compensation expense related to unvested restricted stock granted to nonemployee brand ambassadors.
Employee Stock Purchase Plan
As of July 2, 2022, the maximum aggregate number of shares that may be issued under the 2018 Employee Stock Purchase Plan (“ESPP”) was 2,412,585 shares of common stock, including an increase of 536,130 shares effective January 1, 2022 under the terms of the ESPP. The 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 ESPP.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Note 10. Commitments and Contingencies
Leases
On January 14, 2021, the Company entered into the Campus Lease with HC Hornet Way, LLC, a Delaware limited liability company (the “Landlord”), to house the Company’s lab and innovation space and headquarters offices in El Segundo, California.
In the three and six months ended July 2, 2022, the Company paid $0.5 million and $0.8 million, respectively, in payments towards common area maintenance, parking, and insurance. No such payments were made in the three and six months ended July 3, 2021.
Although the Company is involved in the design of the tenant improvements of the Premises, the Company does not have title or possession of the assets during construction. In addition, the Company does not have the ability to control the leased Premises until each phase of the tenant improvements is complete. As of July 2, 2022, the tenant improvements associated with Phase 1-A had not been completed, and the underlying asset had not been delivered to the Company. Accordingly, there was no lease commencement during the six months ended July 2, 2022. Therefore, the Company has not recognized an asset or a liability for the Campus Lease in its condensed consolidated balance sheets as of July 2, 2022 and December 31, 2021. The Company contributed $43.7 million and $59.2 million in payments to a construction escrow account in the six months ended July 2, 2022 and the year ended December 31, 2021, respectively. These payments are recorded in “Prepaid lease costs, non-current” in the Company’s condensed consolidated balance sheets as of July 2, 2022 and December 31, 2021, respectively, which will ultimately be recorded as a component of a right-of-use asset upon lease commencement.
Concurrent with the Company’s execution of the Campus Lease, as a security deposit, the Company delivered to the Landlord a letter of credit under its revolving credit facility at the time in the amount of $12.5 million which amount will decrease to: (i) $6.3 million on the fifth (5th) anniversary of the Rent Commencement Date (as defined in the Campus Lease); (ii) $3.1 million on the eighth (8th) anniversary of the Rent Commencement Date; and (iii) $0 in the event the Company receives certain credit ratings; provided the Company is not then in default of its obligations under the Campus Lease. Upon termination of the revolving credit facility, the letter of credit continued in effect, unsecured.
China Investment and Lease Agreement
On September 22, 2020, the Company and its wholly-owned subsidiary, Beyond Meat (Jiaxing) Food Co., Ltd. (“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 had 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 for a minimum of two years. In connection with such agreement, BYND JX entered into a factory leasing contract with an affiliate of the JX Committee, pursuant to which BYND JX has agreed to lease and renovate a facility in the JXEDZ and lease it for a minimum of two years. In the three months ended July 2, 2022, the lease was amended to extend the term an additional five years without rent escalation. As of July 2, 2022, the Company had invested $22.0 million and had advanced $20.0 million to its subsidiary, BYND JX.
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 increase its registered capital by $30.0 million and to acquire the land use right to a state-owned land plot in the
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) 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 obtain a second state-owned land plot in the JXEDZ in order to construct an additional facility thereon.
The Planet Partnership
On January 25, 2021, the Company entered into TPP, a joint venture with PepsiCo, Inc., to develop, produce and market innovative snack and beverage products made from plant-based protein. For the three months ended July 2, 2022 and July 3, 2021, the Company recognized its share of the net losses in TPP, in the amount of $1.4 million and $0.2 million, respectively. For the six months ended July 2, 2022 and July 3, 2021, the Company recognized its share of the net losses in TPP in the amount of $2.1 million and $0.6 million, respectively. For the year ended December 31, 2021, the Company contributed its share of the investment in TPP, $11.0 million, which was increased subsequent to the quarter ended July 2, 2022. See Note 2, Note 13 and Note 14. Purchase Commitments
As of July 2, 2022, the Company had a commitment to purchase pea protein inventory totaling $56.4 million in the remainder of 2022, which commitment schedule was amended subsequent to the quarter ended July 2, 2022 to purchase $16.2 million in the remainder of 2022 and $40.2 million in 2023. See Note 14. On April 6, 2022, the Company entered into a co-manufacturing agreement (“Agreement”) with a co-manufacturer to manufacture various products for the Company. The Agreement includes a minimum order quantity commitment per month and an aggregate quantity over a 5-year term. If the minimum order for a month during a quarter is not fulfilled, the Company may be assessed a fee per pound, which fee may be waived by the co-manufacturer upon reaching certain aggregate quantity limits. The following table sets forth the schedule of the fees for the committed quantity under the Agreement. | | | | | | | | |
(in thousands) | | As of July 2, 2022 |
Remainder of 2022 | | $ | 4,925 | |
2023 | | 11,820 | |
2024 | | 11,820 | |
2025 | | 11,820 | |
2026 | | 11,820 | |
2027 | | 34,475 | |
| | $ | 86,680 | |
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 then current contract manufacturers as a defendant, principally for claims arising from the then 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 co-manufacturers. The then 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
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) 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 Beyond Meat owes Don Lee Farms money for a small batch of unpaid invoices. This determination was not made by the trial judge.
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 former Chief Financial Officer and Treasurer, to Don Lee Farms’ existing fraud claims alleging that those individuals were involved in the alleged fraudulent 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.
On January 28, 2021, Don Lee Farms filed a motion for summary adjudication on its breach of contract and money owed claims and on Beyond Meat’s breach of contract claims. On February 18, 2021, Don Lee Farms and Donald, Daniel and Brandon Goodman filed a motion for summary adjudication on Beyond Meat’s fraud, negligent misrepresentation, and conversion claims.
On February 16, 2021, the Court entered an order consolidating this action with an action that Don Lee Farms filed against CLW Foods, LLC, a current Beyond Meat contract manufacturer. On February 22, 2021, CLW Foods, LLC requested a continuance of the trial date, which the Court granted.
On March 19, 2021, Don Lee Farms requested the dismissal, without prejudice, of Don Lee Farms’ claims against the Company’s former contract manufacturer, ProPortion Foods, LLC and current contract manufacturer CLW Foods, LLC. On March 23, 2021, ProPortion Foods, LLC requested that its claims against the Company be dismissed without prejudice. On March 26, 2021, the Court granted Don Lee Farms’ request to dismiss its claims against ProPortion Foods, LLC and CLW Foods, LLC; and granted ProPortion Foods, LLC request to dismiss its claims against the Company.
On May 7, 2021, the Court ruled on Don Lee Farms’ motions for summary adjudication. The Court granted Don Lee Farms’ motion for summary adjudication on its breach of contract and money owed claims, and Beyond Meat’s negligent misrepresentation and conversion claims. The Court denied Don Lee Farms’ motion for summary adjudication on Beyond Meat’s breach of contract and fraud claims, allowing Beyond Meat’s claims to proceed to trial.
On June 11, 2021, former Beyond Meat employees Mark Nelson and Tony Miller, and current employee, Jessica Quetsch (collectively, the “individual defendants”), filed a motion for summary adjudication on Don Lee Farms’ fraud claim asserted against them. On June 11, 2021, the Company filed a motion for summary adjudication on Don Lee Farms’ fraud and negligent misrepresentation claims, misappropriation of trade secret claim, and unfair competition claim under the California Business and Professions Code. On August 27, 2021, the Court ruled on the individual defendants’ and the Company’s motions for summary adjudication. The Court denied the individual defendants’ motion for summary adjudication. The Court also denied the Company’s motion for summary adjudication on Don Lee Farms’ fraud and negligent misrepresentation claims. The Court granted the Company’s motion for summary
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) adjudication on Don Lee Farms’ trade secret misappropriation and unfair competition claims. Don Lee Farms’ trade secret misappropriation and unfair competition claims will not proceed to trial.
On January 27, 2022, Don Lee Farms filed a motion for summary adjudication on Beyond Meat’s trade secret misappropriation claim. On April 19, 2022, the Court denied Don Lee Farms motion for summary adjudication on Beyond Meat’s trade secret misappropriation claim. Beyond Meat’s trade secret misappropriation claim will proceed to trial.
The previous trial date, May 16, 2022, was continued. Trial is currently set for September 26, 2022.
Don Lee Farms is seeking from Beyond Meat and the individual defendants unspecified compensatory and punitive damages, declaratory and injunctive relief, 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 Company believes it was justified in terminating the supply agreement with Don Lee Farms, that the Company is not liable for the fraud or negligent misrepresentation alleged in the third amended complaint, and that Don Lee Farms is liable for the conduct alleged in the Company’s amended cross-complaint. 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 provide assurance that Don Lee Farms 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. 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.
Don Lee Farms II
On June 2, 2022, Don Lee Farms, a division of Goodman Food Products, Inc., filed a complaint against the Company and Chief Executive Officer Ethan Brown, in the Central District of California, asserting claims for violation of the Lanham Act, false advertising, and unfair competition under the California Business and Professions Code, each arising out of claims that the Company’s Beyond Burger and Beyond Crumble products inaccurately state the daily value percentage of protein contained within and the Company erroneously markets these products as free of synthetic ingredients. Don Lee Farms is seeking from the Company and Mr. Brown unspecified compensatory and punitive damages, restitution, declaratory and injunctive relief, and attorneys’ fees and costs. On August 5, 2022, the Company and Mr. Brown each filed motions to dismiss the case. The Company is currently in the process of litigating this matter and intends to vigorously defend itself and Mr. Brown against the claims. 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.
Consumer Class Actions Regarding Protein Claims
From May 31, 2022 through July 26, 2022, multiple putative class action lawsuits were filed against the Company in various federal courts alleging that the labeling and marketing of certain of the Company’s products is false and/or misleading under federal and/or various states’ laws. Specifically, each of these lawsuits allege one or more of the following theories of liability: (i) that the labels and
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) related marketing of the challenged products misstate the quantitative amount of protein that is provided by each serving of the product; (ii) that the labels and related marketing of the challenged products misstate the percent daily value of protein that is provided by each serving of the product; and (iii) that the Company has represented that the challenged products are “all-natural,” “organic,” or contain no “synthetic” ingredients when they in fact contain methylcellulose, an allegedly synthetic ingredient. The named plaintiffs of each complaint seek to represent classes of nationwide and/or state-specific consumers, and seek on behalf of the putative classes damages, restitution, and injunctive relief, among other relief. Additional complaints asserting these theories of liability are possible. The Company intends to vigorously defend against all claims asserted in the complaints. 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 these lawsuits is not estimable.
The active lawsuits are:
•Roberts v. Beyond Meat, Inc., No. 1:22-cv-02861 (N.D. Ill.) (filed May 31, 2022)
•Yoon v. Beyond Meat, Inc., No. 5:22-cv-01032 (C.D. Cal.) (filed June 24, 2022)
•DeLoss v. Beyond Meat, Inc., No. 2:22-cv-04405 (C.D. Cal.) (filed June 28, 2022)
•Borovoy v. Beyond Meat, Inc., No. 3:22-cv-50242 (N.D. Ill.) (filed July 6, 2022)
•Cascio v. Beyond Meat, Inc., No. 1:22-cv-04018 (E.D.N.Y.) (filed July 8, 2022)
•Miller v. Beyond Meat, Inc., No. 1:22-cv-06336 (S.D.N.Y.) (filed July 26, 2022)
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 former Chief Financial Officer and Treasurer, Mark Nelson. As noted here and in previous filings, the Tran securities class action was dismissed with prejudice on October 27, 2020, except for the class allegations of absent putative class members, which were dismissed without prejudice.
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 former 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 Securities Exchange Act of 1934, as amended (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 Tran 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, 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 former 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 Tran securities case brought against the Company.
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 (the “Chew Derivative
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Action”), 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 former 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 Tran securities class action is dismissed, with prejudice, and all appeals related thereto have been exhausted; or (2) any motion to dismiss the Tran 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. On July 29, 2021, the Court entered a Joint Stipulation to Continue the Stay of the Action, staying the case until the resolution of the California Derivative Action.
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/Klein action for all purposes and designated the consolidated case In re: Beyond Meat, Inc. Derivative Litigation (the “California Derivative Action”). On April 13, 2020, the Court entered an order appointing co-lead counsel for the California 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 California Derivative Action are stayed until (1) the Tran securities class action is dismissed, with prejudice, and all appeals related thereto have been exhausted; or (2) any motion to dismiss the Tran securities class action is denied in whole or in part. As noted herein and in previous filings, the Tran securities class action was dismissed with prejudice on October 27, 2020, except for the class allegations of absent putative class members, which were dismissed without prejudice. On April 20, 2021, the parties filed a joint stipulation regarding briefing schedule, and the Court entered a schedule on April 21, 2021.
On May 24, 2021, the plaintiffs in the California Derivative Action filed a First Amended Complaint (“FAC”). The FAC names the same defendants named in the originally-filed consolidated complaint and adds four additional defendants, including ProPortion Foods, LLC (“ProPortion”) and CLW Foods, LLC (“CLW”). The FAC asserts claims under Section 14(a) of the Exchange Act, claims of breach of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control and gross mismanagement against the individual defendants, and aiding and abetting claims against CLW and ProPortion. All of these claims relate to the Company’s dealings and ongoing litigation with Don Lee Farms, and related actions taken by Beyond Meat and the named individuals during the period of April 2016 to the present. On July 2, 2021, the Court entered a Joint Stipulation Regarding Extension of Briefing Schedule so that the parties could attempt to reach resolution of the lawsuit.
The parties have reached a settlement of the California and Chew Derivative Actions. The proposed settlement, which is subject to final Court approval, includes the Company enacting certain corporate governance reforms and paying plaintiffs’ attorney fees and costs in the amount of $515,000, which amount has been accrued as of April 2, 2022 and December 31, 2021. No other payment is contemplated in the proposed settlement. The Stipulation of Settlement was signed on January 14, 2022, and Plaintiffs filed a motion for preliminary approval that same day. On February 8, 2022, the Court entered a Scheduling Notice and Order finding that Plaintiffs’ motion for preliminary approval is appropriate for submission on the papers without oral argument. On March 31, 2022, the Court entered an order preliminarily approving the Stipulation of Settlement. On April 8, 2022, the Company published notice of the preliminary approval and the proposed settlement in accordance with the Stipulation of Settlement. On April 18, 2022, the Company paid to escrow the $515,000 for Plaintiffs’ attorneys’ fees and costs and on April 19, 2022, the Company filed proof of notice with the Court. Plaintiffs filed their motion for final approval on June 13, 2022.On July 1, 2022, Plaintiffs filed a notice of non-objection, stating that they received no objections to the proposed settlement. The Final Approval Hearing was scheduled for July 11, 2022, but on July 7, 2022, the Court entered a Scheduling Notice and Order finding that Plaintiffs’ motion for final approval is appropriate for submission on the papers without oral argument.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Interbev
In October 2020, Interbev, a French trade association for the cattle industry sent a cease-and-desist letter to one of the Company’s contract manufacturers alleging that the use of “meat” and meat-related terms is misleading the French consumer. Despite the Company’s best efforts to reach a settlement, including a formal settlement proposal from the Company in March 2021, the association no longer responded. Instead, on March 13, 2022, the Company was served a summons by Interbev to appear before the Commercial Court of Paris. The summons alleges that the Company misleads the French consumer with references to e.g. “plant based meat,” “plant based burger” and related descriptive names, and alleges that the Company is denigrating meat and meat products. The relief sought by Interbev includes (i) changing the presentation of Beyond Meat products to avoid any potential confusion with meat products, (ii) publication of the judgment of the court in the media, and (iii) damages of EUR 200,000. The Company strongly denies these claims and will defend its position with the utmost vigor. The litigation is expected to take at least 18 months in first instance, and if the Court rules against the Company, it could disrupt the Company’s ability to market in France. Should the case be referred to the Court of Justice of the European Union, this case may have repercussions for the entire plant-based protein industry, in all member states of the European Union.
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.
Note 11. Income Taxes
For the three months ended July 2, 2022 and July 3, 2021, the Company recorded $11,000 and $2,000, respectively, in income tax expense in its condensed consolidated statements of operations. For the six months ended July 2, 2022 and July 3, 2021, the Company recorded $21,000 and $50,000, 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 July 2, 2022, the Company did 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.
In response to the COVID-19 pandemic, the United States passed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act in March 2020 and on March 11, 2021 the United States enacted the American Rescue Plan Act of 2021. These Acts include various income and payroll tax measures. The income tax and payroll tax measures did not materially impact the Company’s financial statements.
Note 12. Net Loss Per Share Available to Common Stockholders
The Company calculates basic and diluted net loss per share available to common stockholders in conformity with the two-class method required for companies with participating securities. Pursuant to Accounting Standards Update 2020-06, the Company applies the more dilutive of the if-converted method and the two-class method to its Notes.
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) Computation of net loss per share available to common stockholders for the three and six months ended July 2, 2022 excludes the dilutive effect of 4,402,397 shares issuable under stock options and 983,304 RSUs outstanding at July 2, 2022 because the Company incurred a net loss and their inclusion would be anti-dilutive. Computation of net loss per share available to common stockholders for the three and six months ended July 2, 2022 also excludes the dilutive effect of the Notes because the Company recorded a net loss and their inclusion would be anti-dilutive. Computation of net loss per share available to common stockholders for the three and six months ended July 3, 2021 excludes the dilutive effect of 3,892,262 shares issuable under stock options and 303,392 RSUs outstanding as of July 3, 2021 because their inclusion would be anti-dilutive. Computation of net loss per share available to common stockholders for the three and six months ended July 3, 2021 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 (see Note 9) 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 loss per share available to common stockholders for the three and six months ended July 3, 2021 also excludes the dilutive effect of the Notes because the Company recorded a net loss and their inclusion would be anti-dilutive. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except share and per share amounts) | | Three Months Ended | | Six Months Ended | | |
| July 2, 2022 | | July 3, 2021 | | July 2, 2022 | | July 3, 2021 | | | | |
Numerator: | | | | | | | | | | | | |
Net loss available to common stockholders | | $ | (97,134) | | | $ | (19,652) | | | $ | (197,592) | | | $ | (46,918) | | | | | |
Undistributed net income available to unvested restricted stockholders | | — | | | — | | | — | | | — | | | | | |
Net loss available to common stockholders—basic | | (97,134) | | | (19,652) | | | (197,592) | | | (46,918) | | | | | |
Denominator: | | | | | | | | | | | | |
Weighted average common shares outstanding—basic | | 63,573,658 | | | 63,121,400 | | | 63,519,444 | | | 63,029,597 | | | | | |
Dilutive effect of shares issuable under stock options | | — | | | — | | | — | | | — | | | | | |
Dilutive effect of RSUs | | — | | | — | | | — | | | — | | | | | |
Dilutive effect of share-settled obligation | | — | | | — | | | — | | | — | | | | | |
Dilutive effect of Notes, if converted(1) | | — | | | — | | | — | | | — | | | | | |
Weighted average common shares outstanding—diluted | | 63,573,658 | | | 63,121,400 | | | 63,519,444 | | | 63,029,597 | | | | | |
Net loss per share available to common stockholders—basic | | $ | (1.53) | | | $ | (0.31) | | | $ | (3.11) | | | $ | (0.74) | | | | | |
Net loss per share available to common stockholders—diluted | | $ | (1.53) | | | $ | (0.31) | | | $ | (3.11) | | | $ | (0.74) | | | | | |
__________
(1) As the Company recorded net losses in the three and six months ended July 2, 2022 and July 3, 2021, inclusion of shares from the conversion premium or spread would be anti-dilutive. The Company had $1.2 billion in Notes outstanding as of July 2, 2022.
Note 13. Related Party Transactions
In connection with the Company’s investment in TPP, a joint venture with PepsiCo, Inc., the Company sells certain products directly to the joint venture. In the three months ended July 2, 2022, the Company also entered into an agreement for a nonrefundable up-front fee associated with its manufacturing and supply agreement with TPP that will be recognized over the estimated term of the manufacturing and supply agreement. Net revenues earned from TPP included in U.S. retail channel net revenues were
BEYOND MEAT, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (continued) $15.9 million and $0 for the three months ended July 2, 2022 and July 3, 2021, respectively, and $26.6 million and $0 for the six months ended July 2, 2022 and July 3, 2021, respectively.
Accounts receivable from TPP were $12.0 million and $0 at July 2, 2022 and December 31, 2021, respectively. Current and long-term portions of the unrecognized revenue associated with the up-front fee charged to TPP as of July 2, 2022 were $0.9 million and $3.3 million, respectively, and included in "Accrued expenses and other current liabilities" and "Finance lease obligations and other long-term liabilities," respectively, in the Company's condensed consolidated balance sheet as of July 2, 2022. There were no such balances as of December 31, 2021.
Note 14. Subsequent Events
Subsequent to the quarter ended July 2, 2022, on July 27, 2022, the Company entered into an agreement to purchase certain real property on a neighboring site to its manufacturing facility in Europe located in Enschede, the Netherlands for cash consideration of approximately €6.3 million. The purchase is expected to close in the second half of 2023.
Subsequent to the quarter ended July 2, 2022, on August 3, 2022, the Company and Roquette Frères amended their agreement (“Amendment”) dated January 10, 2020 to extend it to December 31, 2023. Pursuant to the Amendment the purchase commitment was revised to purchase $16.2 million of pea protein in the remainder of 2022 and $40.2 million in 2023.
Subsequent to the quarter ended July 2, 2022, the Company contributed an additional $10.0 million as its share of the additional investment in TPP.