Company Quick10K Filing
Midamerican Funding LLC
Price12.47 EPS-0
Shares20 P/E-80
MCap246 P/FCF15
Net Debt-0 EBIT3
TEV246 TEV/EBIT93
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-03
10-Q 2020-06-30 Filed 2020-08-05
10-Q 2020-03-31 Filed 2020-05-06
10-K 2019-12-31 Filed 2020-03-02
10-Q 2019-09-30 Filed 2019-10-31
10-Q 2019-06-30 Filed 2019-08-09
S-1 2019-04-12 Public Filing
10-Q 2019-03-31 Filed 2019-06-18
8-K 2020-11-02
8-K 2020-08-04
8-K 2020-06-30
8-K 2020-06-25
8-K 2020-05-12
8-K 2020-05-05
8-K 2020-03-30
8-K 2020-03-12
8-K 2020-02-26
8-K 2020-01-29
8-K 2020-01-23
8-K 2019-10-29
8-K 2019-09-26
8-K 2019-08-06
8-K 2019-06-12
8-K 2019-05-28
8-K 2019-05-13

MEC 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Note 1. Basis of Presentation
Note 2. Ipo
Note 3. Select Balance Sheet Data
Note 4. Bank Revolving Credit Notes
Note 5. Capital Lease Obligation
Note 6. Operating Lease Obligation
Note 7. Employee Stock Ownership Plan
Note 8. Retirement Plans
Note 9. Income Taxes
Note 10. Contingencies
Note 11. Deferred Compensation
Note 12. Long - Term Incentive Plan
Note 13. Self - Funded Insurance
Note 14. Segments
Note 15. Fair Value of Financial Instruments
Note 16. Common Equity
Note 17. Temporary Equity
Note 18. Revenue Recognition
Note 19. Concentration of Major Customers
Note 20. Stock Based Compensation
Note 21. Greenwood Facility Closure and Restructuring
Note 22. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.1 mec-ex101_72.htm
EX-10.2 mec-ex102_71.htm
EX-31.1 mec-ex311_6.htm
EX-31.2 mec-ex312_8.htm
EX-32 mec-ex32_7.htm

Midamerican Funding LLC Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
4103282461648202018201820192020
Assets, Equity
150116824814-202018201820192020
Rev, G Profit, Net Income
10.05.00.0-5.0-10.0-15.02018201820192020
Ops, Inv, Fin

10-Q 1 mec-10q_20200930.htm 10-Q mec-10q_20200930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-38894

 

Mayville Engineering Company, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

Wisconsin

39-0944729

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

715 South Street

Mayville, Wisconsin

53050

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (920) 387-4500

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, no par value

 

MEC

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 30, 2020, the registrant had 20,059,390 shares of common stock, no par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

 

 

 

 

 

 

Page

 

 

 

PART  I.

FINANCIAL INFORMATION

5

 

 

 

Item 1.

Financial Statements (Unaudited)

5

 

 

 

 

 

Condensed Consolidated Balance Sheets

5

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows

7

 

 

 

 

Condensed Consolidated Statements of Shareholders Equity

8

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

 

 

 

Item 4.

Controls and Procedures

31

 

 

 

PART II.

OTHER INFORMATION

33

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

Items 1A.

Risk Factors

   33

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

 

 

 

Item 5.

Other Information

   33

 

 

 

Item 6.

Exhibits

35

 

 

 

Signatures

 

36

 

 

 

 

2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain matters discussed in this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements related to future events, business strategy, future performance, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek,” “anticipate,” “plan,” “continue,” “estimate,” “expect,” “may,” “will,” “project,” “predict,” “potential,” “targeting,” “intend,” “could,” “might,” “should,” “believe” and similar expressions or their negative. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on management’s belief, based on currently available information, as to the outcome and timing of future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those expressed in such forward-looking statements. Mayville Engineering Company, Inc. (MEC, the Company, we, our, us or similar terms) believes the expectations reflected in the forward-looking statements contained in this Quarterly Report on Form 10-Q are reasonable, but no assurance can be given that these expectations will prove to be correct. Forward-looking statements should not be unduly relied upon.

Important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements include, but are not limited to, those described in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (the SEC) on March 2, 2020, as such were previously supplemented and amended in Part II, Item 1A of our Quarterly Report on Form 10-Q filed with the SEC on May 6, 2020 and which may be further amended or supplemented in Part II, Item 1A of our subsequently filed Quarterly Reports on Form 10-Q (including this report), and the following:

 

the negative impacts the coronavirus (COVID-19) has had and will continue to have on our business, financial condition, cash flows and results of operations (including future uncertain impacts);

 

failure to compete successfully in our markets;

 

risks relating to developments in the industries in which our customers operate;

 

our ability to maintain our manufacturing, engineering and technological expertise;

 

the loss of any of our large customers or the loss of their respective market shares;

 

risks related to scheduling production accurately and maximizing efficiency;

 

our ability to realize net sales represented by our awarded business;

 

our ability to successfully identify or integrate acquisitions;

 

risks related to entering new markets;

 

our ability to develop new and innovative processes and gain customer acceptance of such processes;

 

our ability to recruit and retain our key executive officers, managers and trade-skilled personnel;

 

risks related to our information technology systems and infrastructure;

 

manufacturing risks, including delays and technical problems, issues with third-party suppliers, environmental risks and applicable statutory and regulatory requirements;

 

political and economic developments, including foreign trade relations and associated tariffs;

 

volatility in the prices or availability of raw materials critical to our business;

 

results of legal disputes, including product liability, intellectual property infringement and other claims;

 

risks associated with our capital-intensive industry;

 

risks related to our treatment as an S Corporation prior to the consummation of our initial public offering of common stock (IPO);

 

risks related to our employee stock ownership plan’s treatment as a tax-qualified retirement plan; and

 

our ability to remediate the material weakness in internal control over financial reporting identified in preparing our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, and to subsequently maintain effective internal control over financial reporting.

These factors are not necessarily all of the important factors that could cause actual results or events to differ materially from those expressed in forward-looking statements. Other unknown or unpredictable factors could also cause actual results or events to differ materially from those expressed in the forward-looking statements. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. Forward-looking statements speak only as of the date hereof. We undertake no

3


obligation to update or revise any forward-looking statements after the date on which any such statement is made, whether as a result of new information, future events or otherwise, except as required by federal securities laws.

4


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

(unaudited)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

110

 

 

$

1

 

Receivables, net of allowances for doubtful accounts of $1,293 at September 30, 2020

   and $526 at December 31, 2019

 

 

48,654

 

 

 

40,188

 

Inventories, net

 

 

37,964

 

 

 

45,692

 

Tooling in progress

 

 

3,642

 

 

 

1,589

 

Prepaid expenses and other current assets

 

 

2,717

 

 

 

3,007

 

Total current assets

 

 

93,087

 

 

 

90,477

 

Property, plant and equipment, net

 

 

107,887

 

 

 

125,063

 

Assets held for sale

 

 

3,552

 

 

 

 

Goodwill

 

 

71,535

 

 

 

71,535

 

Intangible assets-net

 

 

64,143

 

 

 

72,173

 

Capital lease, net

 

 

2,742

 

 

 

3,227

 

Other long-term assets

 

 

1,003

 

 

 

1,107

 

Total

 

$

343,949

 

 

$

363,582

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Accounts payable

 

$

27,606

 

 

$

32,173

 

Current portion of capital lease obligation

 

 

619

 

 

 

598

 

Accrued liabilities:

 

 

 

 

 

 

 

 

Salaries, wages, and payroll taxes

 

 

10,529

 

 

 

5,752

 

Profit sharing and bonus

 

 

1,310

 

 

 

6,229

 

Other current liabilities

 

 

4,526

 

 

 

3,439

 

Total current liabilities

 

 

44,590

 

 

 

48,191

 

Bank revolving credit notes

 

 

59,986

 

 

 

72,572

 

Capital lease obligation, less current maturities

 

 

2,220

 

 

 

2,687

 

Deferred compensation and long-term incentive, less current portion

 

 

25,183

 

 

 

24,949

 

Deferred income tax liability

 

 

12,998

 

 

 

14,188

 

Other long-term liabilities

 

 

100

 

 

 

100

 

Total liabilities

 

 

145,077

 

 

 

162,687

 

Common shares, no par value, 75,000,000 authorized, 21,093,035 shares issued at

   September 30, 2020 and 20,845,693 at December 31, 2019

 

 

 

 

 

 

Additional paid-in-capital

 

 

189,780

 

 

 

183,687

 

Retained earnings

 

 

14,026

 

 

 

22,090

 

Treasury shares at cost, 1,033,645 shares at September 30, 2020 and 1,213,482 at

   December 31, 2019

 

 

(4,934

)

 

 

(4,882

)

Total shareholders’ equity

 

 

198,872

 

 

 

200,895

 

Total

 

$

343,949

 

 

$

363,582

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5


Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands, except share amounts and per share data)

(unaudited)

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales

 

$

91,075

 

 

$

128,511

 

 

$

262,262

 

 

$

417,373

 

Cost of sales

 

 

81,340

 

 

 

113,941

 

 

 

241,838

 

 

 

362,689

 

Amortization of intangibles

 

 

2,677

 

 

 

2,677

 

 

 

8,030

 

 

 

8,030

 

Profit sharing, bonuses, and deferred compensation

 

 

2,288

 

 

 

678

 

 

 

4,807

 

 

 

25,258

 

Employee stock ownership plan expense

 

 

 

 

 

1,500

 

 

 

 

 

 

4,500

 

Other selling, general and administrative expenses

 

 

4,490

 

 

 

6,068

 

 

 

14,642

 

 

 

20,296

 

Contingent consideration revaluation

 

 

 

 

 

(9,598

)

 

 

 

 

 

(6,054

)

Income (loss) from operations

 

 

280

 

 

 

13,245

 

 

 

(7,055

)

 

 

2,655

 

Interest expense

 

 

(647

)

 

 

(987

)

 

 

(2,110

)

 

 

(5,811

)

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

(154

)

Income (loss) before taxes

 

 

(367

)

 

 

12,258

 

 

 

(9,165

)

 

 

(3,310

)

Income tax expense (benefit)

 

 

733

 

 

 

2,512

 

 

 

(1,101

)

 

 

(231

)

Net income (loss) and comprehensive income (loss)

 

$

(1,100

)

 

$

9,746

 

 

$

(8,064

)

 

$

(3,079

)

Earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to shareholders

 

$

(1,100

)

 

$

9,746

 

 

$

(8,064

)

 

$

(3,079

)

Basic and diluted earnings (loss) per share

 

$

(0.05

)

 

$

0.49

 

 

$

(0.41

)

 

$

(0.18

)

Basic and diluted weighted average shares outstanding

 

 

20,077,039

 

 

 

19,740,296

 

 

 

19,838,701

 

 

 

16,684,337

 

Tax-adjusted pro forma information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to shareholders

 

$

(1,100

)

 

$

9,746

 

 

$

(8,064

)

 

$

(3,079

)

Pro forma provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

173

 

Pro forma net income (loss)

 

$

(1,100

)

 

$

9,746

 

 

$

(8,064

)

 

$

(3,252

)

Pro forma basic and diluted earnings (loss) per share

 

$

(0.05

)

 

$

0.49

 

 

$

(0.41

)

 

$

(0.19

)

Basic and diluted weighted average shares outstanding

 

 

20,077,039

 

 

 

19,740,296

 

 

 

19,838,701

 

 

 

16,684,337

 

 

Weighted average shares in 2019 give effect to the issuance of a stock dividend of approximately 1,334.34-for-1 related to the IPO, as if the IPO occurred at the beginning of 2019.

Tax adjusted pro forma amounts reflect income tax adjustments as if the Company was a taxable entity as of the beginning of 2019 using a 26% effective tax rate.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6


Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net loss

 

$

(8,064

)

 

$

(3,079

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

16,304

 

 

 

16,622

 

Amortization

 

 

8,030

 

 

 

8,030

 

Stock-based compensation expense

 

 

3,719

 

 

 

2,135

 

Allowance for doubtful accounts

 

 

767

 

 

 

(271

)

Inventory excess and obsolescence reserve

 

 

279

 

 

 

165

 

Costs recognized on step-up of acquired inventory

 

 

 

 

 

395

 

Contingent consideration revaluation

 

 

 

 

 

(6,054

)

Loss (gain) on disposal of property, plant and equipment

 

 

688

 

 

 

(74

)

Deferred compensation and long-term incentive

 

 

234

 

 

 

11,392

 

Gain on extinguishment or forgiveness of debt

 

 

 

 

 

(367

)

Other non-cash adjustments

 

 

262

 

 

 

1,892

 

Changes in operating assets and liabilities – net of effects of acquisition:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(9,233

)

 

 

(9,524

)

Inventories

 

 

7,449

 

 

 

3,700

 

Tooling in progress

 

 

(2,053

)

 

 

826

 

Prepaids and other current assets

 

 

338

 

 

 

(1,633

)

Accounts payable

 

 

(4,016

)

 

 

(1,175

)

Deferred income taxes

 

 

(1,189

)

 

 

(4,266

)

Accrued liabilities, excluding long-term incentive

 

 

5,776

 

 

 

(2,290

)

Net cash provided by operating activities

 

 

19,291

 

 

 

16,424

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(5,354

)

 

 

(22,820

)

Proceeds from sale of property, plant and equipment

 

 

1,920

 

 

 

76

 

Non-cash adjustments

 

 

 

 

 

(1,656

)

Acquisitions, net of cash acquired

 

 

 

 

 

(2,368

)

Net cash used in investing activities

 

 

(3,434

)

 

 

(26,768

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from bank revolving credit notes

 

 

209,857

 

 

 

367,364

 

Payments on bank revolving credit notes

 

 

(222,443

)

 

 

(339,993

)

Repayments of other long-term debt

 

 

 

 

 

(119,963

)

Deferred financing costs

 

 

(206

)

 

 

 

Proceeds from IPO, net

 

 

 

 

 

101,763

 

Purchase of treasury stock

 

 

(2,510

)

 

 

(1,592

)

Payments on capital leases

 

 

(446

)

 

 

(323

)

Net cash provided (used in) by financing activities

 

 

(15,748

)

 

 

7,256

 

Net increase (decrease) in cash and cash equivalents

 

 

109

 

 

 

(3,088

)

Cash and cash equivalents at beginning of period

 

 

1

 

 

 

3,089

 

Cash and cash equivalents at end of period

 

$

110

 

 

$

1

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,366

 

 

$

6,288

 

Cash paid for taxes

 

$

351

 

 

$

538

 

Non-cash construction in progress in accounts payable

 

$

201

 

 

$

1,238

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


Mayville Engineering Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

(in thousands)

(unaudited)  

 

 

 

Shareholder’s Equity

 

 

 

Additional

Paid-in-Capital

 

 

Treasury

Shares

 

 

Retained

Earnings

 

 

Total

 

Balance as of December 31, 2019

 

$

183,687

 

 

$

(4,882

)

 

$

22,090

 

 

$

200,895

 

Net income

 

 

 

 

 

 

 

 

50

 

 

 

50

 

Purchase of treasury stock

 

 

 

 

 

(2,435

)

 

 

 

 

 

(2,435

)

ESOP contribution

 

 

2,374

 

 

 

2,457

 

 

 

 

 

 

4,831

 

Stock-based compensation

 

 

1,582

 

 

 

 

 

 

 

 

 

1,582

 

Balance as of March 31, 2020

 

 

187,643

 

 

 

(4,860

)

 

 

22,140

 

 

 

204,923

 

Net loss

 

 

 

 

 

 

 

 

(7,014

)

 

 

(7,014

)

Purchase of treasury stock

 

 

 

 

 

(74

)

 

 

 

 

 

(74

)

Stock-based compensation

 

 

1,159

 

 

 

 

 

 

 

 

 

1,159

 

Balance as of June 30, 2020

 

 

188,802

 

 

 

(4,934

)

 

 

15,126

 

 

 

198,994

 

Net loss

 

 

 

 

 

 

 

 

(1,100

)

 

 

(1,100

)

Stock-based compensation

 

 

978

 

 

 

 

 

 

 

 

 

978

 

Balance as of September 30, 2020

 

$

189,780

 

 

$

(4,934

)

 

$

14,026

 

 

$

198,872

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholder’s Equity

 

 

 

Additional

Paid-in-Capital

 

 

Treasury

Shares

 

 

Retained

Earnings

 

 

Total

 

Balance as of December 31, 2018

 

$

 

 

$

 

 

$

 

 

$

 

Balance as of March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Transfer from temporary equity (see Note 17)

 

 

133,806

 

 

 

(57,659

)

 

 

29,698

 

 

 

105,845

 

Net loss post IPO

 

 

 

 

 

 

 

 

(15,681

)

 

 

(15,681

)

Share issuance - IPO

 

 

101,763

 

 

 

 

 

 

 

 

 

101,763

 

Stock-based compensation

 

 

797

 

 

 

 

 

 

 

 

 

797

 

Share repurchases

 

 

 

 

 

(1,592

)

 

 

 

 

 

(1,592

)

Cancellation of treasury stock

 

 

(55,369

)

 

 

55,369

 

 

 

 

 

 

 

Balance as of June 30, 2019

 

 

180,997

 

 

 

(3,882

)

 

 

14,017

 

 

 

191,132

 

Net income

 

 

 

 

 

 

 

 

9,746

 

 

 

9,746

 

Stock-based compensation

 

 

1,338

 

 

 

 

 

 

 

 

 

1,338

 

Balance as of September 30, 2019

 

$

182,335

 

 

$

(3,882

)

 

$

23,763

 

 

$

202,216

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

8


Mayville Engineering Company, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands except share amounts, per share data, years and ratios)

(unaudited)

Note 1. Basis of presentation

The interim unaudited consolidated financial statements of Mayville Engineering Company, Inc. and subsidiaries (MEC, the Company, we, our, us or similar terms) presented here have been prepared in accordance with the accounting principles generally accepted in the United States of America (GAAP) and with instructions to Form 10-Q and Article 10 of Regulation S-X. They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations and financial position for the interim unaudited periods presented. All intercompany balances and transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These interim unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2019, included in the Company’s Annual Report on Form 10-K. A summary of the Company’s significant accounting policies is included in the Company’s 2019 financial statements in the Annual Report on Form 10-K. The Company followed these policies in preparation of the interim unaudited Condensed Consolidated Financial Statements.

Nature of Operations

MEC is a leading U.S.-based value-added manufacturing partner that provides a broad range of prototyping and tooling, production fabrication, coating, assembly and aftermarket components. Our customers operate in diverse end markets, including heavy- and medium-duty commercial vehicles, construction & access equipment, powersports, agriculture, military and other end markets. Along with process engineering and development services, MEC maintains an extensive manufacturing infrastructure with 19 facilities across seven states. These facilities make it possible to offer conventional and computer numerical control (CNC) stamping, shearing, fiber laser cutting, forming, drilling, tapping, grinding, tube bending, machining, welding, assembly and logistic services. MEC also possesses a broad range of finishing capabilities including shot blasting, e-coating, powder coating, wet spray and military grade chemical agent resistant coating (CARC) painting.

Our one operating segment focuses on producing metal components that are used in a broad range of heavy- and medium-duty commercial vehicles, construction & access equipment, powersports, agricultural, military and other products.

In May 2019, we completed our initial public offering (IPO). In conjunction with the IPO, the Company’s legacy business converted from an S corporation to a C corporation. As a result, the consolidated business is subject to paying federal and state corporate income taxes on its taxable income from May 9, 2019 forward.

COVID-19 has had and will continue to have a negative impact on our business, financial condition, cash flows and results of operations (including future uncertain impacts).

9


Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases, creating Topic 842, which requires lessees to record the assets and liabilities arising from all leases in the statement of financial position. Under ASU 2016-02, lessees will recognize a liability for lease payments and a right-of-use asset. When measuring assets and liabilities, a lessee should include amounts related to option terms, such as the option of extending or terminating the lease or purchasing the underlying asset, that are reasonably certain to be exercised. For leases with a term of 12 months or less, lessees are permitted to make an accounting policy election to not recognize lease assets and liabilities. This guidance retains the distinction between finance leases and operating leases and the classification criteria remains similar to existing guidance. For financing leases, a lessee will recognize the interest on a lease liability separate from amortization of the right-of-use asset. In addition, repayments of principal will be presented within financing activities, and interest payments will be presented within operating activities in the statement of cash flows. For operating leases, a lessee will recognize a single lease cost on a straight-line basis and classify all cash payments within operating activities in the statement of cash flows. For public companies, this guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. For as long as the Company remains an “emerging growth company” (EGC), the new guidance is effective for annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is evaluating the potential impact of this guidance on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Further, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. For public companies, this guidance is effective for annual or any interim goodwill impairment test in annual reporting periods beginning after December 15, 2018. For as long as the Company remains an EGC, the new guidance is effective for any annual or interim goodwill impairment test in annual reporting periods beginning after December 15, 2021. During the period ended March 31, 2020, the Company elected to early adopt this guidance. This adoption had no impact on the financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes, creating Topic 740, which removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. For public companies, this guidance will be effective for fiscal years beginning after December 15, 2020. For as long as the Company remains an EGC, the new guidance is effective for annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is evaluating the potential impact of this guidance on the consolidated financial statements.

A summary of the Company’s evaluation of other recent accounting pronouncements is included in the Company’s 2019 financial statements in its Annual Report on Form 10-K for the year ended December 31, 2019.

Note 2. IPO

The IPO of shares of the Company’s common stock was completed in May 2019. In connection with the offering, the Company initially sold 6,250,000 shares of common stock at $17 per share generating proceeds of $99,344, net of underwriting discounts and commissions. Additional shares were also sold under an option granted to the underwriters that same month, resulting in a sale of an additional 152,209 shares of common stock at $17 per share, generating additional proceeds of $2,419, net of underwriting discounts and commissions. IPO proceeds were used to pay down certain indebtedness.

In conjunction with the IPO, the Company issued a stock dividend specific to pre-IPO shares, of approximately 1,334.34-for-1, resulting in the conversion of 10,075 shares in our Employee Stock Ownership Plan to 13,443,484 shares.

10


Note 3. Select balance sheet data

Inventory

Inventories as of September 30, 2020 and December 31, 2019 consist of:

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Finished goods and purchased parts

 

$

23,525

 

 

$

28,664

 

Raw materials

 

 

8,634

 

 

 

10,834

 

Work-in-process

 

 

5,805

 

 

 

6,194

 

Total

 

$

37,964

 

 

$

45,692

 

Property, plant and equipment

Property, plant and equipment as of September 30, 2020 and December 31, 2019 consist of:

 

 

 

Useful Lives

Years*

 

September 30,

2020

 

 

December 31,

2019

 

Land

 

Indefinite

 

$

1,033

 

 

$

1,264

 

Land improvements

 

15-39

 

 

3,169

 

 

 

3,169

 

Building and building improvements

 

15-39

 

 

55,022

 

 

 

58,021

 

Machinery, equipment and tooling

 

3-10

 

 

198,951

 

 

 

204,248

 

Vehicles

 

5

 

 

3,712

 

 

 

3,738

 

Office furniture and fixtures

 

3-7

 

 

16,243

 

 

 

15,469

 

Construction in progress

 

N/A

 

 

1,677

 

 

 

3,154

 

Total property, plant and equipment, gross

 

 

 

 

279,807

 

 

 

289,063

 

Less accumulated depreciation

 

 

 

 

171,920

 

 

 

164,000

 

Total property, plant and equipment, net

 

 

 

$

107,887

 

 

$

125,063

 

 

Additionally, the Company completed the closure of its Greenwood, SC manufacturing facility during the quarter. The net amount of property, plant and equipment associated with the facility was $3,552, which is classified in assets held for sale on the Condensed Consolidated Balance Sheets as of September 30, 2020.

Goodwill

Changes in goodwill between December 31, 2019 and September 30, 2020 consist of:

 

Balance as of December 31, 2019

 

$

71,535

 

Impairment

 

 

 

Balance as of September 30, 2020

 

$

71,535

 

 Intangible Assets

The following is a listing of intangible assets, the useful lives in years (amortization period) and accumulated amortization as of September 30, 2020 and December 31, 2019:

 

 

 

Useful Lives

Years

 

September 30,

2020

 

 

December 31,

2019

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

Customer relationships and contracts

 

9-12

 

$

78,340

 

 

$

78,340

 

Trade name

 

10

 

 

14,780

 

 

 

14,780

 

Non-compete agreements

 

5

 

 

8,800

 

 

 

8,800

 

Patents

 

19

 

 

24

 

 

 

24

 

Accumulated amortization

 

 

 

 

(41,612

)

 

 

(33,582

)

Total amortizable intangible assets, net

 

 

 

 

60,332

 

 

 

68,362

 

Non-amortizable brand name

 

 

 

 

3,811

 

 

 

3,811

 

Total intangible assets, net

 

 

 

$

64,143

 

 

$

72,173

 

 

11


Non-amortizable brand name is tested annually for impairment.

Changes in intangible assets between December 31, 2019 and September 30, 2020 consist of:

 

Balance as of December 31, 2019

 

$

72,173

 

Amortization expense

 

 

(8,030

)

Balance as of September 30, 2020

 

$

64,143

 

 

Amortization expense was $2,677 for the three months ended September 30, 2020 and 2019, and $8,030 for the nine months ended September 30, 2020 and 2019.

Future amortization expense is expected to be as followed:

Year ending December 31,

 

 

 

 

2020 (remainder)

 

$

2,676

 

2021

 

$

10,706

 

2022

 

$

6,952

 

2023

 

$

6,866

 

2024

 

$

5,192

 

Thereafter

 

$

27,940

 

 

Note 4. Bank revolving credit notes

On September 26, 2019, and as last amended as of June 30, 2020, we entered into an amended and restated credit agreement (Credit Agreement) with certain lenders and Wells Fargo Bank, National Association, as administrative agent. The Credit Agreement provides for a $200,000  revolving credit facility (the Revolving Loan), with a letter of credit sub-facility in an aggregate amount not to exceed $5,000, and a swingline facility in an aggregate amount of $20,000. The Credit Agreement also provides for an additional $100,000 of debt capacity through an accordion feature. All amounts borrowed under the Credit Agreement mature on September 26, 2024.

The Credit Agreement contains usual and customary negative covenants for agreements of this type, including, but not limited to, restrictions on our ability to, subject to certain exceptions, create, incur or assume indebtedness, create or incur liens, make certain investments, merge or consolidate with another entity, make certain asset dispositions, pay dividends or other distributions to shareholders, enter into transactions with affiliates, enter into sale leaseback transactions or make capital expenditures. The Credit Agreement also requires us to satisfy certain financial covenants, including a minimum interest coverage ratio of 3.00 to 1.00 as well as a consolidated total leverage ratio not to exceed 3.25 to 1.00, although such leverage ratio can be increased in connection with certain acquisitions.

In order to provide a means of insurance against future macroeconomic events, we entered into an amendment (Second Amendment) to the Credit Agreement on June 30, 2020. The Second Amendment provides the Company with temporary changes to the total leverage ratio covenant for the period from June 30, 2020, through December 31, 2021, or such earlier date as the Company may elect (Covenant Relief Period), in return for certain increases in interest rates, fees and restrictions on certain activities of the Company, including capital expenditures, acquisitions, dividends and share repurchases. New pricing, which takes effect for the quarters ending on and after September 30, 2020, includes interest at a fluctuating London Interbank Offered Rate (LIBOR) (at a floor of 75 basis points), plus 1.00% – 2.75%, along with the commitment fee ranging from 20 to 50 basis points.

During the Covenant Relief Period, the required ceiling on the Company’s total leverage ratio will be 4.25 to 1.00 for quarters ending June 30, 2020 through and including December 31, 2020, and will decline in quarterly increments to 3.25 to 1.00 through the quarter ending December 31, 2021.

At September 30, 2020, our consolidated total leverage ratio was 2.16 to 1.00 as compared to a covenant maximum of 4.25 to 1.00 in accordance with the Second Amendment of the Credit Agreement.

At September 30, 2020, our interest coverage ratio was 7.44 to 1.00 as compared to a covenant minimum of 3.00 to 1.00 under the Credit Agreement.

Under the Credit Agreement, interest is payable quarterly at the adjusted LIBOR plus an applicable margin based on the current funded indebtedness to adjusted EBITDA ratio. The interest rate was 2.50% and 3.25% as of September 30, 2020 and December 31,

12


2019, respectively. Additionally, the agreement has a fee on the average daily unused portion of the aggregate unused revolving commitments. This fee was 0.20% as of September 30, 2020 and December 31, 2019.

The Company was in compliance with all financial covenants of its credit agreements as of September 30, 2020 and December 31, 2019. The amount borrowed on the revolving credit notes was $59,986 and $72,572 as of September 30, 2020 and December 31, 2019, respectively.

Note 5. Capital lease obligation

Capital leases consist of equipment with a capitalized cost of $3,825 at September 30, 2020 and December 31, 2019, and accumulated depreciation of $1,084 and $598 at September 30, 2020 and December 31, 2019, respectively. Depreciation of $161 and $483 was recognized on the capital lease assets during the three and nine months ended September 30, 2020, respectively, and $196 and $342 during the three and nine months ended September 30, 2019, respectively. Non-cash capital lease transactions amounted to zero for the three and nine months ended September 30, 2020. Future minimum lease payments required under the lease are as follows:

 

Year ending December 31,

 

 

 

 

2020 (remainder)

 

$

184

 

2021

 

 

734

 

2022

 

 

734

 

2023

 

 

734

 

2024

 

 

514

 

Thereafter

 

 

226

 

Total

 

 

3,126

 

Less payment amount allocated to interest

 

 

287

 

Present value of capital lease obligation

 

$

2,839

 

Current portion of capital lease obligation

 

 

619

 

Long-term portion of capital lease obligation

 

 

2,220

 

Total capital lease obligation

 

$

2,839

 

 

Note 6. Operating lease obligation

Operating leases relate to property, plant and equipment. Future minimum lease payments required under the leases are as follows:

Year ending December 31,

 

 

 

 

2020 (remainder)

 

$

877

 

2021

 

 

3,112

 

2022

 

 

2,300

 

2023

 

 

2,260

 

2024

 

 

1,473

 

Thereafter

 

 

2,981

 

Total

 

$

13,003

 

The Company leases certain office space, warehousing facilities, equipment and vehicles under operating lease arrangements with third-party lessors. These lease arrangements expire at various time through December 2028. Total rent expense under the arrangements was approximately $1,128 and $1,223 for the three months ended September 30, 2020 and 2019, respectively, and $3,283 and $3,624 for the nine months ended September 30, 2020 and 2019, respectively.

Note 7. Employee stock ownership plan

Under the Mayville Engineering Company, Inc. Employee Stock Ownership Plan (the ESOP), the Company can make annual contributions to the trust for the benefit of eligible employees in the form of cash or shares of common stock of the Company. Prior to December 31, 2019, the annual contribution was discretionary except that it must have been at least 3% of the compensation for all safe harbor participants for the plan year. Beginning on January 1, 2020, all contributions are discretionary. For the three months ended September 30, 2020 and 2019, the Company’s ESOP expense amounted to zero and $1,500, respectively. For the nine months ended September 30, 2020 and 2019, the Company’s ESOP expense amounted to zero and $4,500, respectively.

13