AGILITY, ADAPTABILITY AND REALIGNMENT
2021 ANNUAL REPORT
Dear Fellow Shareholders,
We should and will remember 2021 as a year of
improvement and solid growth – both in sales and net
income, despite the pandemic induced macroeconomic
headwinds of inflationary pressures and supply chain
disruptions that impacted most of the economy. MEC’s U.S.
based supply chain was far less impacted than the supply
chains for many other companies, which meant we were
able to maintain our production capabilities and ability to
deliver for our customers during the year, regardless of the
external issues we faced. MEC will also be remembered by
our many market leading customers for the high quality and
service that we provided during an otherwise challenging
year. Our “Can Do” attitude remained resilient and strong.
As I look back at 2021, I am pleased with the way we responded to the challenges posed by the
pandemic and continued to position the company in the medium- and long-term to capture
opportunities across all of the end markets we serve. Some of the highlights of the year include
adding new takeover business and new customers in key markets. And we set the company on a
positive path for 2022 to deliver on deferred customer volumes and successfully execute on the
strong demand for our services for the future.
We accomplished this by exercising our core strengths – agility, adaptability and realignment –
at all times. Not only did we effectively adapt our operations to continue working throughout
2021 to support our customers, but we also meaningfully improved our core strengths through
supportive investments in capital, process improvement and organizational improvements which
in turn fortify our financial position. These were not easy and I thank our entire team for their
resilience in executing those plans and continually adapting and improving despite this volatile
environment.
As we navigated these challenges it was important to maintaining and growing our skilled labor
force so we can address the strong demand as supply chain issues start to improve. Although,
recruiting and training quality employees remains a challenge we have been able to cost-
effectively grow our capacity through smart investments in flexible, re-deployable automation
and process improvements.
As we closed the year, pandemic related problems stabilized somewhat, and we anticipate
volumes will gradually improve as 2022 progresses. Further, our new business pipeline remains
strong. We continue to build relationships and convert on new opportunities to expand our
customer base and the markets we serve.
During 2021 we expanded business opportunities with new and existing customers through:
(cid:120) The launch of new model programs
(cid:120) The takeover business with several top powersports customers
(cid:120) The growth in our aftermarket programs and new product line offerings by customers
(cid:120) The continued expansion of reshoring and outsourcing by OEMs
MEC was founded on and continues to focus on four important market deliverables: quality, cost,
speed and outstanding customer service. We demand of ourselves that we are the highest-
quality, most cost-efficient, and most agile fabricator in the world. MEC looks for ways to add
value to our relationships. Our customers are our partners and we strive for their success. We
honor our heritage, while building upon these engrained traditions every day.
This focus is our north star and our customers know they can always count on our service and
quality. Some examples from 2021 include:
(cid:120) We continued to launch new products in the commercial vehicle market which has led to
market share gains. We focused on cross selling our products during the model change
overs which positions us well as customers launch their next generation of products.
(cid:120) We were very active in the powersports market. We grew our market share with current
customers by adding new programs and with new and takeover programs with new
customers, which has led to powersports accounting for 20 percent of our 2021 revenues.
In fact, we now work with all the major players in the UTV / powersports market.
(cid:120)
(cid:120)
In the agriculture market, our volume and market share growth came from existing
customers in broader product applications which exhibits our broad capabilities to service
our customers.
In the military end market, we expanded our market share on tactical wheeled vehicles
with our customers launching next generation of products, plus expansion in the service
parts and new product development activities that have the potential to bolster revenues
in the coming years.
2
At MEC, we partner with blue-chip companies, allowing them to focus on super-charging their
new product development, final assembly, branding and distribution connection to their
customers. We collaborate on front end design for manufacturability and assembly so the final
product can be manufactured and assembled in the best way possible. Our customer partners
know that our expertise in value engineering, consistently high quality and low cost
manufacturing, combined with logistical benefits and our talented customer and shareholder
aligned workforce, is a powerful combination that our competition can’t match.
This leads to a robust pipeline of new opportunities with numerous new projects being actively
pursued, which continues to build the excitement within our organization about the potential
opportunities in 2022 and beyond.
Our new business pipeline remains robust with numerous projects being actively pursued. We
are excited about all of the avenues of growth with current and potential new customers. At the
same time, we continued to realign our operations and advance our operational efficiencies throughout
the year, with ongoing efficiencies from our investments in technology and automation. In 2021, we also
invested in a new facility in Hazel Park, Michigan, which we expect will be ready to start
production later in 2022 to support the continued growth we are seeing.
The flexibility and resources we have to grow our business, even in this difficult market
environment, will ensure MEC continues to thrive when our competition starts to falter. We are
seeing the benefits of the significant flexible, redeployable automation investments we continue
to make, while continuing to implement the necessary cost adjustments that come with market
fluctuations.
We continue to follow the three primary areas for investment in for our future:
(cid:120) Organic Growth: We believe there is a significant addressable market opportunity with our
strong one-stop offerings. Outsourcing in our served markets will continue to grow. As a well-
diversified market leader, MEC can also shift between served markets, establishing enhanced
revenue streams in attractive, adjacent or complementary platforms through new product
extensions. We will continue to focus on customers who are #1 or #2 in their served markets
as we benefit from their comparatively steadier volume performance and best-in-class
manufacturing practices.
(cid:120) Process and Capital-Driven Improvement Initiatives: Driven by our workforce’s evolving
talents and value creation, our improvement initiatives have resulted in significant savings.
3
This prong of our strategy will continue to include smart investment in flexible automation,
coupled with continuous improvement activities. This will allow us to extend our
differentiated and defendable market-leading position, as well as drive ongoing cost and
operating improvements.
(cid:120) Acquisitions: We remain alert to strategic acquisition opportunities that will help us achieve
long-term growth. Given the strength of our balance sheet, we are in a strong position to
pursue the right deal at the right time to expand and diversify our product offering, open new
industries, and introduce new blue-chip customers. Our reputation, scale and track record of
performance make us the “buyer of choice.” When the time comes to sell their business, we
believe most competitors would prefer to sell to a strategic and synergistic market leader like
MEC with a long-term, value-creating, innovative culture.
As we look ahead, we will continue to take advantage of industry trends that our scale and
partnerships make possible.
In our Commercial Vehicles market, we believe we are well-positioned to capture growth. We
anticipate that the market will remain somewhat choppy in the near-term as computer chip
supply and other issues persist and we continue to pay close attention to potential supply chain
constraints facing our customers and will remain flexible and nimble to respond to those issues,
as necessary.
The power sports market we serve also appears to be maintaining its positive momentum as
outdoor recreation is expected to be robust again in 2022. We continue to believe that this will
be an area of relative strength for us as customers work to rebuild their dealer inventories and
satisfy robust customer retail demand.
In the construction and access end markets we see continued positive momentum in residential
construction, potentially offset by ongoing uncertainty that exists in non-residential and oil & gas
markets. We believe we are positioned to respond well to any changes in retail demand going
forward.
The agriculture market we serve also remains encouraging, and the market dynamics of
increasing crop prices and low crop inventories that we have seen recently bodes well for this
market in the future.
Our military segment has continued to be a steady market for us, and we expect it to be an
ongoing source of strength for the foreseeable future.
4
Finally, we have be watching the ongoing infrastructure debate and allocations made in
Washington D.C. As those investments are distributed through the states, we anticipate MEC will
see some benefit across certain end-markets we serve in the years ahead.
While I have no doubt that we are well-positioned in all of our end markets, we also must manage
our business through all cycles. We have the resources and scale that none of our competitors
possess. Our disciplined capital allocation that has driven our growth will continue to serve us
well. Our talented workforce will continue to help our customers through unrivaled innovation.
I would like to thank all MEC employee shareholders for their unwavering efforts to improve our
business and their belief in our company and its future.
Sincerely,
Robert D. Kamphuis
Chairman of the Board, President and CEO
5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:1409) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2021
OR
(cid:1407) 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
(State or other jurisdiction of
incorporation or organization)
715 South Street
Mayville, Wisconsin
(Address of principal executive offices)
53050
(Zip Code)
Registrant’s telephone number, including area code: (920) 387-4500
39-0944729
(I.R.S. Employer
Identification No.)
Title of each class
Common Stock, no par value
Securities registered pursuant to Section 12(b) of the Act:
Trading
Symbol(s)
MEC
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES (cid:1407) NO (cid:1409)
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES (cid:1407) NO (cid:1409)
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 (cid:1409) NO (cid:1407)
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 (cid:1409) NO (cid:1407)
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.
(cid:1407)
Large accelerated filer
(cid:1407)
Non-accelerated filer
(cid:1409)
Emerging growth company
Accelerated filer
Smaller reporting company
(cid:1409)
(cid:1407)
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. (cid:1407)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES (cid:1407) NO (cid:1409)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262 (b)) by the registered public accounting
firm that prepared or issued its audit report. (cid:1407)
The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based on the closing price of the shares of common
stock on the New York Stock Exchange on June 30, 2021, was $395,649,389.
The number of shares of the Registrant’s Common Stock outstanding as of February 24, 2022 was 20,273,880.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report incorporates information by reference to the Registrant’s proxy statement for its 2022 annual meeting of shareholders,
which proxy statement will be filed with the Securities and Exchange Commission no later than 120 days after the close of the year ended December
31, 2021.
[This page intentionally left blank]
1
12
23
24
24
24
25
26
27
38
39
61
61
62
62
63
63
63
63
63
64
67
68
(cid:3)(cid:3)
Page
Table of Contents
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Reserved
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16.
Signatures
Form 10-K Summary
i
[This page intentionally left blank]
Item 1. Business.
Cautionary Statement Regarding Forward-Looking Statements
PART I
Certain matters discussed in this Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 this Annual Report on Form 10-K for
the year ended December 31, 2021, as such may be amended or supplemented in Part II, Item 1A of our subsequently filed Quarterly
Reports on Form 10-Q, and the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the negative impacts the COVID-19 pandemic has had and will continue to have on our business, financial condition, cash
flows, results of operations and supply chain, including the supply chain issues encountered by our original equipment
manufacturer customers, the current inflationary pressures on wages, benefits, components, and manufacturing supplies
and future uncertain impacts;
risks relating to developments in the industries in which our customers operate;
risks related to scheduling production accurately and maximizing efficiency;
failure to compete successfully in our markets;
our ability to realize net sales represented by our awarded business;
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 entering new markets;
our ability to recruit and retain our key executive officers, managers and trade-skilled personnel;
volatility in the prices or availability of raw materials critical to our business;
manufacturing risks, including delays and technical problems, issues with third-party suppliers, environmental risks and
applicable statutory and regulatory requirements;
our ability to successfully identify or integrate acquisitions;
our ability to develop new and innovative processes and gain customer acceptance of such processes;
risks related to our information technology systems and infrastructure;
political and economic developments, including foreign trade relations and associated tariffs;
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); and
risks related to our employee stock ownership plan’s treatment as a tax-qualified retirement plan.
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
1
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.
General
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. We have developed long-standing relationships with our blue-chip customers based upon a high level of experience, trust and
confidence. “We Make Things Simple” by providing a diverse set of process offerings and a “one stop shop” for end-to-end solutions
with benefits throughout the entire product lifecycle, including front-end collaboration in design and prototyping, product
manufacturing, aftermarket components and ancillary supply chain benefits. Founded as a corporation in 1945 and headquartered in
Mayville, Wisconsin, we are a leading Tier I U.S. supplier of highly engineered components to original equipment manufacturer
(OEM) customers with leading position in their respective markets. We are focused on producing the highest quality components
using complex processes at the lowest cost by working with customers throughout the product design and development process to
establish optimal solutions. Our engineering expertise and technical know-how allow us to add value through every product
redevelopment cycle (generally every three to five years for our customers). According to The Fabricator, we have been ranked as the
largest fabricator in the United States for the past eleven years in a row (2011 – 2021). We are approximately more than two times the
size of our next largest competitor, based on The Fabricator’s projections for revenue for metal fabricating companies.
Our customers’ complex products require a unique combination of our capabilities that allow us to achieve a customized
offering to satisfy our customers’ desired outcomes. Our capabilities, which include, but are not limited to: metal fabrication, metal
stamping, tube bending and forming, robotic part forming, robotic welding, resistance welding, five-axis tube and fiber laser cutting
and custom coatings, including high heat and chemical agent resistant coating (CARC) painting, are used in a variety of applications
and represent the building blocks of what we produce.
Our key customers have globally recognized brands and demand the highest product quality and expertise. Over our more than
75-year history, we have developed capabilities and provide solutions that result in customer loyalty and long-standing relationships,
which we call “Experience You Can Trust”. We have a diverse and market-leading customer base that serves broad end markets
representing favorable near- and long-term growth prospects for us. We have a track record of growth and are well-positioned to
increase our market share and benefit from growth in customer demand as well as consolidate demand across the end markets that we
serve. To help pursue our strategic mission, we have approximately 2,200 employees who are tactically aligned around our core values
and will continue to participate in our employee ownership culture. We are led by an experienced management team that has
contributed to our growth by establishing deep and long-standing relationships with key customers and has worked to expand the
customer base both organically and through strategic acquisitions.
We maintain an established base of long-standing customers comprised of leading, blue-chip OEM manufactures across the
United States. Our broad capabilities offering and track record of producing the highest quality solutions have allowed us to establish,
and subsequently deepen, relationships with additional products and platforms over time. For example, our more than 40-year
relationship with Deere & Company (John Deere) began with a small order of simple stamped parts for a farm tractor in its
agricultural segment that expanded over time and represented 2021 sales in excess of $75.5 million across five market segments,
representing over 60 model platforms. We have also been successful in winning customers and rapidly expanding relationships with
high-growth customers by utilizing our diversified “one-stop” offering. For instance, our relationship with Volvo Truck began with
fuel tanks and has expanded over the last nine years to include exhaust tubing, new sleeper cab and chassis fabrications and other
fabrications. Through the expansion of multiple fabricated components from multiple facilities, we have been able to deepen our
relationship with this customer and solidify our position as an important strategic sourcing partner.
We serve customers through 20 strategically located U.S. facilities, of which 19 are in operation, across seven states, with more
than 3.1 million square feet of manufacturing capacity. Our expansive footprint enables us to service and maintain strong relationships
with existing key customers across the United States with a “local” presence, as well as target new customer opportunities. Coupled
with our focus on market alignment and execution, we constantly strive to improve and refine capabilities, capacities and reduce our
carbon footprint. In addition, the ongoing investment in flexible, re-deployable automation allows us to expand output while reducing
cost and improving quality, productivity and consistency for margin enhancement and market leading competitiveness.
Our historical success is a function of our engineering expertise, extensive manufacturing capabilities, limited commodity
exposure, investment in automation and embedded relationships with the contractual ability to pass input costs through prices. We
believe we are poised to grow through economic cycles due to our:
(cid:120)
(cid:120)
(cid:120)
market positioning and reputation;
product breadth;
flexible and re-deployable capital investment in automation and process capabilities; and
2
(cid:120)
our geographic, end market and product diversification.
Our diversified profile today best positions us for stability and leading market performance through all phases of an economic
cycle.
Our Industry
We compete in the highly fragmented market of contract manufacturers, the majority of which are small local players that are
limited in scale, capabilities and technology. Many of these local manufacturers have single or limited production capabilities and
provide niche components in specific geographic markets. Accordingly, there are a limited number of competitors in the contract
manufacturing market in which we operate with the capacity and expertise to deliver the full range of solutions we offer. For example,
our diverse manufacturing capabilities across product lines have contributed to us being the recipient of The Fabricator’s “FAB 40” #1
Largest Fabricator in the attractive U.S. markets for the past eleven years in a row (2011 – 2021). While we compete with certain
manufacturers across selected product lines, we believe that no single manufacturer directly competes with us across our full offering
and end market applications.
Our end market diversification coupled with our extensive product breadth allows us to maintain financial stability as individual
end markets fluctuate. The primary end markets we serve include heavy- and medium-duty commercial vehicles, construction &
access equipment, powersports, agriculture, and military, among other machinery markets. As markets strengthen or weaken, our
output is redirected and realigned to support ongoing change. Further, as these fluctuations affect the market, we are favorably
positioned to benefit from the broader trend of our OEM customers to consolidate to fewer and more sophisticated suppliers in order
to improve quality and delivery while lowering the total cost of doing business. This consolidation trend will allow us to grow and
protects our cash flow as markets change and shift.
We have also experienced, and benefitted from, an OEM trend of seeking to improve their strategy execution and simplify their
business through outsourcing. Based on our history, OEMs pursue a strategy that focuses on core component market differentiation,
such as structural frames and complete powertrain assemblies, and prefer to outsource the remaining product components to third
parties rather than manufacturing them in-house. This is done in order to maintain their strategic focus, drive cost savings and reduce
their own investment in manufacturing, thereby allowing them to focus on the most important aspects of their value creation process,
namely product design and development, final product assembly and testing, branding, sales, marketing and distribution. While each
specific OEM differs in its strategy, we see this trend continuing as customers deal with workforce constraints and look for optimum
return on investments and improving cash flow. Moreover, our OEM customers focus on the production of the core components of
their products, which leads them to rely on outsourced providers like us for the remaining components of their finished product needs.
We believe we will benefit from this continued shift in our customers’ focus and ongoing desire for OEMs to improve efficiencies,
reduce costs and simplify supply chains. Our established and embedded relationships, breadth of capabilities and scalability will allow
us to simplify the supply chain process for our customers by acting as a single point of contact in the supply chain. In addition, we
believe OEMs are increasingly favoring platforms supported by larger, more sophisticated and financially stable suppliers with the
ability to serve large national and international operations all while maintaining a local touch. Our extensive manufacturing footprint,
competitive cost structure and integrated design, engineering, production planning and quality program management capabilities
positions us favorably to take advantage of these opportunities and trends.
Our Competitive Strengths
We believe that customers turn to us for their manufacturing needs because we are the ultimate “ReSource”. ReSource is a dual-
purpose acronym we use to describe the breadth of our capabilities and our goal to be the one-stop solution allowing customers to re-
source all of their fabrication needs through us. We collaborate with our customers to generate a strategic alignment and position
ourselves as an essential part of our customers’ product development and manufacturing process by drawing on our deep product and
engineering knowledge to deliver best-in-class solutions. We offer a broad portfolio of end-to-end solutions comprised of advanced
and innovative processes and capabilities that enhance quality and simplify supply chains. We are focused on producing the highest
quality components using complex processes at the lowest cost by working with customers throughout the product design and
development process to establish optimal solutions. Our engineering expertise and technical know-how allows us to add value through
every product redevelopment cycle (generally every three to five years for our customers).
Value-Added Supply Chain Partner with Embedded Relationships. Our embedded relationships with our large and diverse
customer base are driven by the P.R.I.D.E. (“Personal Responsibility In Daily Excellence”) approach our employees take in their
work, which emphasizes the highest quality and performance in all facets of our business, including our ability to partner with our
customers and deliver to them complex solutions across a wide range of products. Our unique, end-to-end offering provides solutions
throughout the life cycle of a product, including upfront product manufacturability advice and prototyping, production volumes and
aftermarket components. We strive to maintain operation alignment (and continuous re-alignment) with our customers’ strategy and
production activities as they evolve, allowing us to remain agile in response to market changes, while enabling our customers to be
successful, and to remain adaptable to changes in customer needs to retain flexibility to adjust appropriately. Together, these items
comprise “The MEC Mission.” Our focus on collaboration with our customers and our breadth of capabilities also generates strategic
3
alignment with our customers, resulting in sticky relationships, driving vendor reduction and providing other ancillary benefits such as
optimization of working capital investments. Our track record of engineering expertise has resulted in our consistent inclusion in
customer design and prototyping activities, enabling customers to view us as an invaluable extension of their own teams. In turn, this
collaboration allows our customers to focus on the development of their core technologies and products. Our position as a deeply
embedded supply chain partner of scale allows us to provide a multitude of solutions, driving strong customer relationships with high
switching costs.
Leading and Defendable Market Position in Attractive North American Market. According to the Fabricator, we have been
ranked as the largest fabricator in the United States for the past eleven years in a row (2011 – 2021). The market is highly fragmented
and characterized by high barriers to entry given the complex nature of the work, established relationships, and high customer
switching costs. While there are numerous competitors in the markets in which we operate, few maintain the product breadth,
manufacturing capabilities, scale or engineering expertise that we do. Our depth of capabilities allows us to offer our customers:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
low volume production capability;
customized and sophisticated solutions;
unique engineering and manufacturing capabilities throughout the product lifecycle;
critical scale to service large national and regional customers as well as local customers; and
the ability to act as a single point of contact and offer seamless customer service.
End Market and Customer Diversification. Our value-added manufacturing focus enables us to remain diversified across a
variety of customer end markets, including heavy- and medium-duty commercial vehicles, construction & access equipment,
powersports, agriculture, and military, among others. These end markets are representative of our globally recognized customers,
which are comprised of large OEM manufacturers. In 2021, our top customer and top ten customers accounted for 16.6% and 79.6%
of net sales, respectively, which collectively represents hundreds of platforms that we serve across a variety of end markets and
customer operating segments. Our access to a multitude of end markets allows us to strategically shift focus to sell into current
opportunities as end market demand evolves. In addition to customer and end market diversification, our customers themselves are
also diversified across multiple end markets. For example, John Deere is one of our leading customers with 2021 net sales accounting
for 16.6% of our total net sales, to whom we provide over 5,000 SKUs across over 60 individual John Deere platforms including the
agriculture, forestry, turf care, power systems and construction & access equipment end markets. Our increasingly stable performance
is a direct result of our intentional business design of agility and adaptability to realign manufacturing capacities to serve diversified
and ever-changing end markets.
4
Breadth of Capabilities Appealing to a Variety of Applications. We have many manufacturing capabilities that together
represent the building blocks for the complex solutions we provide to our customers. We maintain a full spectrum of capabilities
across our 20 production facilities, of which 19 are in operation, to address a wide set of customer needs, including upfront product
development advice and prototyping, unique manufacturing processes and capabilities across a variety of products and back-end
finishing, assembly and aftermarket components representing a unique end-to-end offering. Our range of capabilities combined with
our breadth of components, including fabrications, tubes, tanks, and performance structures, expands the applicable uses and end
markets in which we may offer our components. Throughout our history, our capabilities have allowed us to generate growth by
expanding into new verticals and by further penetrating existing verticals through cross-selling to increase wallet share, a strategy that
has driven sticky relationships with our customers. Further, our unique combination of manufacturing processes allows us to
opportunistically target sophisticated, higher margin business. The diversity of our offering has provided our Company with financial
stability through various end market and economic cycles.
Technology-Enabled Infrastructure. We continue to invest in a technology-enabled asset base that provides significant flexible
and re-deployable capacity to support our planned growth, increases profitability, efficiency, quality and employee safety, reduces
spend on energy and drives a long-term cost advantage over our competitors. We have leveraged our purchasing power to make
significant investments in operational infrastructure throughout our history, in items such as flexible and re-deployable automation and
capacity improvements to improve throughput, quality and consistency. For example, we were one of the first in our industry to adopt
fiber lasers and have continued to invest in this capability. We have implemented 10,000- and 12,000-watt fiber lasers with an
automation tower, which are on average three times faster, provide a cleaner, more precise cut and use one-third of the power
compared to traditional CO2 lasers, with a payback period of less than two years. Additionally, the implementation of robotic brakes
has improved quality through a continued shift towards precision automation. By reducing setup procedures, manual employee lifting
requirements and downtime while offering additional capacity, the implementation of robotic brakes has resulted in a payback period
of approximately two years. These two examples of investments in technology-enabled infrastructure allow us to reallocate our
workforce, as employees can be retrained and redeployed into more technically skilled positions. In today’s ever-changing labor
market, the ability to redeploy labor to increase flexibility and capacity for our customers is of utmost importance and interest as part
of our strategy. Our investments in continuous improvement and automation have driven operational efficiencies and improved metric
tracking allowing our management team to more effectively run the business and improve the value we provide to our customers. We
have, from time-to-time, made strategic, customer-driven investments that directly support new product and market expansion which
result in further competitive advantages and higher switching costs for our customers.
5
Cost Structure and Operational Excellence. We have reduced our exposure to commodity price risk by structuring our
customer contracts to pass through changes in commodity prices. As such, we have been able to effectively limit any potential impact
from tariffs and commodity price volatility to our margins. Our scale and profitability have also allowed us the flexibility to
implement continuous improvement initiatives in driving efficiencies, such as automation and additional capacity, which will result in
long-term efficiency and margin improvements, and expanded capabilities.
Our Strategy
Achieve Sales Growth Through Organic Expansion. We believe there is ample opportunity to achieve deeper penetration of
existing customers and to win new customers with our strong one-stop offerings. By leveraging our core product capabilities to
expand into new markets, and establishing new offerings in attractive, adjacent or complementary platforms through new product
introductions, there is significant opportunity to execute on our organic growth initiatives. Expanding our wallet share with our
customers by capturing a wider variety of products and more platforms both solidifies our relationship with customers (because it
increases customer switching costs) and attracts potential new customers that seek to simplify supply chains, while also defending our
market position from our competitors. These opportunities are enhanced through cross selling between MEC’s capabilities and
customer base. Our expertise allows us to produce higher quality components at cost-effective rates while our volume, equipment and
know-how establish competitive advantages. Further, an expanded offering increases our strategic alignment with customers and
supports our “We Make Things Simple” value proposition by presenting customers with further vendor consolidation opportunities.
Pursue Opportunistic Acquisitions. Our management team maintains a proven track record of successfully executing and
integrating strategic acquisitions. We have completed two significant acquisitions since 2012 (Center Mfg. Co. in 2012 and Defiance
Metal Products (DMP) in December 2018) and four other complementary acquisitions since 2004, which have contributed new
capabilities, product offerings, end markets served, and technologies to our legacy business, along with significant synergy
opportunities that have enhanced our financial position. Our strategy is to continue to identify, and opportunistically execute on,
accretive acquisitions that will allow our Company to achieve further growth. We believe that our reputation, scale and track record of
performance makes us a “consolidator of choice” among industry participants, which has led to an ample pipeline of actionable
acquisition opportunities. Our investment criteria for acquisitions are U.S.-based companies with long-standing customer bases
comprised of leading OEMs, and specialized manufacturing capabilities that allows us to enhance our existing expertise or expand
into new types of capabilities, among other criteria. It is our view that continued execution of our acquisition strategy provides
significant opportunity to generate shareholder value through further consolidation of our fragmented industry. The market
environment, comprised mainly of small local and regional players, provides ample add-on acquisition opportunities to bolster our
one-stop shop approach to broadly serving our customers. Beyond our existing served markets, we see potential acquisition
opportunities within the rail, aerospace, medical, fitness, energy, heavy fabrication and food & beverage end markets, among others.
Continue Process-Driven Improvement Initiatives. Our process-driven improvement initiatives have resulted in significant
savings throughout our history, leading to improved financial results and positive customer outcomes. Our strategy will continue to
include a keen focus on continuous improvements in order to maintain a differentiated and defendable market-leading position, as well
as ongoing costs and operating improvements including investments in technology and automation, plant consolidations, and
acquisition integration synergies, which are expected to drive immediate and long-term productivity and margin improvements
through permanent headcount reductions. Examples of recent process driven improvement plans include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
successful integration of new 10,000- and 12,000-watt fiber lasers, robotic brake presses, and automated material handling
equipment in Mayville, WI and Defiance, OH;
consolidation of shifts through better utilization of automation on paint lines, new laser and robotic brake press
technology, automated machining centers and optimization of companywide assets;
closure of our Greenwood, SC and Wytheville, VA facilities and consolidation of their production capabilities into our
other facilities, maintaining overall manufacturing capacity with a smaller footprint by leveraging our investments in
technology and automation; and
acquisition synergies between DMP and legacy MEC through centers of competencies driving best practices throughout
the organization.
6
Maintain Alignment with Employee Base and Employee-Driven Results. Our rich history of employee ownership and
P.R.I.D.E has cultivated a strategic management-employee alignment and results-driven organization with each employee contributing
to a common goal. Our employees maintain a significant ownership stake since our IPO, which we believe benefits the entire
organization as our strategic alignment remains in place and continues to generate employee-driven results. As we continue to invest
in our business and increasingly implement a more technology-enabled infrastructure, we will strive to redeploy our employees in
other, higher-skilled areas of our business and invest in training where needed. Our employees are the foundation of our company;
with experience across a diverse range of markets and capabilities, they drive innovation, believe in our process and the outcomes of
their work and our success. Our investment in new technology attracts technically savvy employees to replace retiring traditionally
skilled employees. We and our employees are also highly involved in, and actively support, the communities in which our facilities
are located; our 2,200 employees take P.R.I.D.E. in creating value and support for both our customers and communities every day.
Our Capabilities
We offer a broad portfolio of end-to-end processes and solutions comprised of advanced and innovative capabilities that
enhance quality and simplify supply chains for our customers. Through our collaborative approach, we maintain a complete, and
growing, set of sophisticated manufacturing capabilities to meet the diverse needs of our customers, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Program Management (cid:127) We offer our customers a complete solution from concept to launch following the APQP
(Advanced Product Quality Planning) process (planning, design for manufacturability and development, process design
and improvement, product and process validation and continuous improvement).
Engineering (cid:127) We collaborate with our customers and provide design for manufacturing, off-line programming (lasers,
brake press, machining, robot welding, coordinate measuring machines), value engineering and CI (continuous
improvement).
Tool Design and Build (cid:127) Our in-house tool design and tool room capability ensures quality from start to finish. We build
and service all categories of tooling, including large progressive dies.
Laser Cutting (cid:127) Our programmable fiber and CO2 laser cutting capabilities eliminate expensive hard tooling. Our
equipment can cut metal up to 1 inch thick while maintaining tolerances to .002 inches at speeds up to 4,000 per minute.
Our tube lasers are state of the art cutting machines that offer exceptional tolerances and through-put.
Brake Press (cid:127) We combine our operator’s expertise with the proper equipment required to offer top versatility to our
clients for bending, forming, coining and air bending. Our facilities house the latest press brake machinery including
robotic part manipulation and stacking.
Stamping (cid:127) We provide custom metal stamping capabilities for short, medium or long production runs. For longer runs,
our production of sheet metal stamping uses 50 to 1,200-ton manual or automatic feed presses with state-of-the-art feed
lines for precision metal stamping. Our small, high-speed presses are ideal for producing intricate high-volume stampings.
Machining (cid:127) We provide a variety of machining capabilities to meet our customer needs by providing in-house
machining assistance for parts that are part of larger fabrications and assemblies.
Tube Bending (cid:127) We maintain vast tube bending capabilities, including (i) manufacturing of oval, round and square tubes
from .25 inch up through six inch and (ii) leveraging our extensive inventory of equipment including the latest CNC
(computer numerical control) benders; and state-of-the-art technologies such as CNC electro-servo-driven bending with
multi-task heads.
Welding (cid:127) We have earned our reputation as one of the premier manufacturers of weldments. Our welding departments
offer manual and robotic wire welding, including GMAW (Gas Metal Arc Welding and also known as MIG, or Metal
Inert Gas), GTAW (Gas Tungsten Arc Welding) and also known as TIG (Tungsten Inert Gas), Heliarc, Fluxcore,
Metalcore, Aluminum, Plasma Weld, Brazing and Pulse Heliarc.
Coatings, Assembly and Logistics (cid:127) We provide premier full-service coating, assembly and logistics solutions for blue
chip OEMs. Our coating capabilities offer a full-range of high technology industrial coating capabilities, including: E-
Coat, military certified CARC, commercial and industrial powder and liquid coatings. Our coating systems utilize direct-
to-metal and pre-treatments including acid pickle, zinc phosphate and in-line Alodine for the conversion of aluminum.
7
Our Proven Approach
We collaborate with our customers to generate a strategic alignment and position ourselves as an essential part of our customers’
product development and manufacturing process by drawing on our deep product and engineering knowledge to deliver best-in-class
solutions. Our approach is simple: we view quality as a significant business strategy with a strong return on investment. Our
philosophy on quality is based on Continuous Improvement with an IATF (international automotive task force) and ISO (international
organization for standardization) foundation. Our skilled and experienced staff is highly trained in areas of quality planning,
metrology, geometric dimensioning and tolerancing (ASME Y14.5M 1994), ISO, QS9000, statistical techniques (SPC) and ISO 14001
certifications. Our Quality Management System is comprised of the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
IATF 16949:2016 certification (one of the automotive industry’s most widely used international standards for quality
management);
ISO 9001:2015 registration (international standard for quality management systems);
process and assembly line audits with focus on process control;
process capability that is proven at validation and monitored during production; and
specialized validations for paint and weld operations.
We periodically enter into joint process improvement efforts with key customers. Such exercises have historically resulted in
reduced manufacturing critical path time, cost reductions and quality improvements through effective batch sizes and more repeatable
processes. Our continuous improvement initiatives have resulted in the acquisition and application of state-of-the-art technologies and
plant improvements that support lean, quick response manufacturing flexibility that put us at the forefront of our market. Moreover,
the agility that our quick response manufacturing methodology provides us keeps our purchasing, manufacturing, engineering and
quality teams on the cutting edge of flexible manufacturing. This adaptable approach also decreases manufacturing costs, allows for
faster order turnaround times, and elimination of excess waste.
We maintain an advanced machinery portfolio in our facilities that allow us to leverage our employee workforce with state-of-
the-art capabilities and functionality. We strive to maintain our assets or upgrade capabilities where deterioration has driven
obsolescence or better technology is available, reducing our carbon footprint. Most recently, we have invested in multiple fiber laser
systems and robotic brake presses with automation aimed at reducing labor content and optimizing floor space which allows us to
generate more revenue with the same workforce and footprint. We have also recently invested in a machining center with palletizers,
leading edge tube lasers with automatic loaders, robotic brake presses, robotic weld cells and a direct-to-metal paint line.
Our Markets
Our primary end markets include (but are not limited to) the heavy- and medium-duty commercial vehicles, construction &
access equipment, powersports, agriculture, and military markets. While our individual end markets may be exposed to cyclical
variations, the diversified nature of our end markets affords us the ability to shift production with demand as certain end markets trend
lower and others trend higher. In our experience, our diversification has muted the impact of downturns on our business that we have
faced in the past. For example, we experienced net sales growth during the 2008 and 2009 recessions due to strong orders, particularly
from our customers focused on the military end market. Moreover, as our heavy- and medium-duty commercial vehicles, construction
& access equipment, powersports, and agriculture customers’ revenues fluctuated from 2013 to 2017, with median peak-to-trough
sales decline of 23%, our peak-to-trough sales declines were less than that of those respective markets at only 10%. We were able to
accomplish this by reallocating our resources to serve our heavy- and medium-duty commercial vehicles and powersports customers,
leading to strong double-digit growth in those end markets.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Heavy- and Medium-Duty Commercial Vehicles: Heavy-duty commercial vehicles include class 8 heavy trucks such as
standard semi-trucks. Medium-duty commercial vehicles include classes 3-7 trucks such as box trucks;
Construction & Access Equipment: Primary applications include wheel loaders, crawlers, skid steer loaders, excavators,
motor graders, aerial lifts, boom lifts and other construction equipment;
Powersports: Encompasses our all-terrain (ATV) and multi-utility (MUV) vehicles, as well as marine and motorcycle
markets;
Agriculture: Primary applications include tractors, combines, sprayers, turf care, implements and other agriculture-related
equipment;
(cid:120) Military: We provide a variety of components for military vehicle platforms;
(cid:120)
Other: We provide components and assemblies to a variety of other industrial and automotive end markets, such as power
generation, mining and medical cabinetry.
8
Our Customers
We are a critical and deeply embedded supply partner with strong strategic alignment and relationships with our customers. We
have developed long-standing business relationships with our OEM customers, many of which span decades. Further, we are
diversified by customers and end markets with net sales attributed to our top 20 customers accounting for $406 million of 2021 net
sales, and no single end market accounting for more than 34% of net sales. For the year ended December 31, 2021, John Deere,
PACCAR Inc., AB Volvo and Honda accounted for 16.6%, 14.1%, 10.8% and 10.0% of net sales, respectively. We have not
historically experienced customer attrition given high customer switching costs resulting from our embedded relationships driven by
our broad capabilities and scale.
Raw Materials and Manufactured Components
Our purchases primarily include steel and aluminum. We maintain a broad and diverse base of over 1,000 suppliers. Our
established relationships provide efficient and flexible access to resources and redundancy to ensure support of our customers. We
have no history of material supply issues or outages. In 2021, no single supplier represented more than 16% of our total purchases and
98% of the raw materials we purchased were sourced from domestic suppliers. Our suppliers are strategically located in order to
maximize efficiencies and minimize shipping costs, although switching costs are minimal and we maintain a multitude of alternative
suppliers that we could transfer orders to, if needed. We have structured our customer contracts to pass through commodity price
changes, which has allowed us to remain mostly unaffected by the recent raw material price volatility and tariffs. As we continue to
grow, we intend to leverage our size and scale to further reduce material costs.
Sales and Marketing
We have a strong sales team comprised of approximately 50 experienced professionals responsible for managing and expanding
client relationships, and proactively pursuing new opportunities. Sales personnel are aligned by market segment and customer,
including heavy- and medium-duty commercial vehicles, construction & access equipment, powersports, agriculture, military and
other end markets, and employ a highly technical and collaborative sales process with deep knowledge of our customers and
capabilities. Sales personnel have assigned support teams comprised of inside sales, marketing, and sales administration personnel.
We are consistently involved in request for proposal processes, where our sales teams with deep process expertise collaborate with
customers on optimal designs for manufacturability and manufacturing efficiency. The upfront collaboration drives formalization of
product specifications, program lifecycle planning, cost estimates and risk mitigation. The sales process typically takes 3 – 18 months
and ultimately ends in the implementation of product lifecycle timelines and purchase orders under long-term customer arrangements.
The sales team utilizes systems infrastructure that effectively track and manage backlogs, quotes and bookings information, strategic
projects and call reports, all of which are reviewed at weekly sales team meetings.
Information Systems
We utilize standardized information technology systems across all areas of quoting and estimating, enterprise resource planning,
materials resource planning, capacity planning and accounting for enhanced procurement of work, project execution and financial
controls. We provide information technology oversight and support from our corporate headquarters in Mayville, WI. The operational
information systems we employ throughout our company are industry specific applications that in some cases have been internally or
vendor modified and improved to fit our operations. Our enterprise resource planning software is integrated with our operational
information systems wherever possible to deliver relevant, real-time operational data to designated personnel. Accounting and
operations personnel of acquired companies are trained not only by our information technology support staff, but by long- tenured
employees in our organization with extensive experience using our systems. We believe our information systems provide our people
with the tools to execute their individual job function and achieve our strategic initiatives.
Our Competition
We participate in a highly fragmented market with competitors in each of the end markets we serve ranging in size from small
companies focused on a single capability or end market, to large multi-disciplinary companies. While there can be instances of intense
competition from specific end markets, we believe that we have been able to effectively compete, and maintain competitive
advantages on the basis of our:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
scale and product offering with the ability to cross-sell and provide our customers with a one-stop solution;
broad manufacturing capability and flexibility to fulfill requests that require complex solutions;
customer service with our highly skilled and knowledgeable workforce able to provide consultative advice; and
regionalized geographic focus provides a defensible position from both foreign and domestic competitors as our
customers continue to take a regionalized approach to production, which provides a shorter supply chain with greater
flexibility.
9
Our Human Capital Management
As of December 31, 2021, we had approximately 2,200 full-time employees, approximately 1,725 of whom are production
employees, none of which are unionized.
We maintain an experienced and skilled workforce. We have been highly focused on attracting and retaining high quality
personnel as they represent a critical factor in our continued success. Despite the recent market challenges in the hiring of trade-skilled
employees, our continued investment in newer technologies and capabilities has allowed us to opportunistically re-train and redeploy
certain roles that were previously human capital-intensive, and re-train and repurpose employees into other areas of the company. On
average, our employees have approximately seven years of service with us.
We believe we maintain strong relationships with our employees and believe they are aligned with our employee-owned
mindset through our ESOP and annual discretionary profit-sharing programs. We offer our employees competitive compensation and
comprehensive benefit packages, annually benchmarking them against comparable industries in the same geographic vicinity to where
our facilities are located. Further enhancing our benefit offerings, we provide an on-site healthcare team at certain facilities to treat
work and non-work related injuries and assist employees with general wellness and overall well-being.
The safety, health and well-being of our employees is one of the Company’s top priorities. Our “Work MEC Safe” program
creates a strong safety culture based on five key elements: Inspire, Lead, Analyze, Educate and Recognize. These elements lay the
foundation for establishing an employee voice in daily operations, ensuring safety ownership from those in leadership roles,
identifying workplace hazards through routine inspections, audits and observations, training employees to identify and mitigate risks
and prevent injuries, and developing avenues to continue enhancing the importance of safety in the workplace.
In response to the COVID-19 pandemic, the Company has taken steps at all locations across the U.S to limit the risk of
exposure. These actions include continuous communication emphasizing personal hygiene best practices, providing hand sanitizer and
masks for all employees, implementing additional cleansing and sanitizing processes in all our workstations and common areas, and
providing on-site testing at certain facilities. Additionally, our employees are able to socially distance naturally to some extent as a
result of being separated by their respective work cells.
Environmental Matters
We are subject to numerous federal, state and local laws and regulations relating to manufacturing, handling and disposal of
materials into the environment. We believe that our environmental control procedures are adequate.
10
Information About Our Executive Officers
The following table sets forth certain information as of February 1, 2022, regarding our executive officers:
Name
Robert D. Kamphuis
Todd M. Butz
Ryan F. Raber
Rand P. Stille
Age
63
50
39
51
Position
Chairman, President and Chief Executive Officer
Chief Financial Officer
Executive Vice President(cid:650)Strategy,(cid:3)Sales & Marketing
Chief Operating Officer
Robert D. Kamphuis joined our company as President and Chief Executive Officer in 2005 and has served as the Chairman,
President and Chief Executive Officer since January 2007. Mr. Kamphuis also serves as a board member and past Chairman of
Wisconsin Manufacturers & Commerce, a board member of Brakebush Brothers, Inc. and Subzero Group Inc., a member of the John
Deere Direct Material Supplier Council, and a past member of the Harley Davidson Supplier Advisory Council. Prior to joining our
company, Mr. Kamphuis held various roles with Giddings & Lewis, Inc. including as President and Chief Executive Officer of
Gilman Engineering and Manufacturing Co., LLC, a designer and manufacturer of automated assembly systems, and began his career
with Ernst & Young. Mr. Kamphuis is a graduate of the Executive International Leadership Program at Stanford University and
earned a Bachelor of Business Administration & Accounting from the University of Wisconsin-Whitewater. He is also a licensed
certified public accountant.
Todd M. Butz joined our company in 2008 and has served as our Chief Financial Officer since January 2014. Mr. Butz also
serves on the Board of Trustees for Marian University. Prior to joining our company, Mr. Butz spent time in various roles including
Manager of Worldwide Financial Reporting at Mercury Marine, a subsidiary of the Brunswick Corporation, and Audit Supervisor at
Schenck Business Solutions, now Clifton Larsen Allen. Mr. Butz earned a Bachelor of Science in Accounting and Business
Management from Marian University and is currently a licensed certified public accountant.
Ryan F. Raber joined our company in 2009 and has served as our Executive Vice President – Strategy, Sales & Marketing since
June 2019. Prior to serving in his current position, Mr. Raber served as our Executive Vice President – Sales & Marketing beginning
in November 2018 and as our Vice President of Sales & Marketing beginning in August 2013. Mr. Raber earned a Masters of
Business Administration from the University of Wisconsin-Madison and a Bachelor of Science in Mechanical Engineering from
Purdue University.
Rand P. Stille joined our company in April 2019 and has served as our Chief Operating Officer since March 2020. Prior to
serving in his current position, Mr. Stille served as our Executive Vice President – DMP & Performance Structures Operations and
Vice President – Performance Structures Operations. Prior to joining our company, Mr. Stille held various roles with Universal
Logistics Holdings, Inc. including Senior Vice President of Operations, Vice President & Executive Director of Westport Axle and
Vice President of Mexican Operations. Mr. Stille earned a Master of Science in Supply Chain Management from the University of
Michigan State and a Bachelor of Arts, Economics and Management degree from Depauw University.
Available Information
Our website address is www.mecinc.com. We are not including the information provided on our website as a part of, or
incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge (other than an investor’s own
internet access charges) through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, amendments to these reports and our proxy statements, as soon as reasonably practicable after we electronically file such
material with, or furnish such material to, the United States Securities and Exchange Commission (the SEC).
11
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described
below, together with all of the other information in this Annual Report on Form 10-K, including “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before
making a decision to invest in our common stock. The risks and uncertainties described below may not be the only ones we face. If
any of the risks actually occur, our business, financial condition, operating results and prospects could be materially and adversely
affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business
The COVID-19 pandemic has had, and will continue to have, a negative impact on our business, financial condition, cash flows,
results of operations and supply chain.
The COVID-19 pandemic resulted in national, state and local government authorities implementing numerous measures to try to
contain the virus, such as travel bans and restrictions, border closings, restrictions on public gatherings, quarantining of people who
may have been exposed to the virus, shelter-in-place restrictions, and limitations or shutdowns of business operations. These
measures, some of which are continuing or being re-implemented in light of new variants of the virus, have impacted and may further
impact our workforce and operations, including disruptions at some of our manufacturing operations and facilities, as well as the
operations of our customers, and those of our suppliers. There is still uncertainty regarding the full impact and duration of such
measures and potential future measures, and restrictions on our access to our facilities or on our support operations or workforce, or
similar limitations for our suppliers.
The COVID-19 pandemic has resulted in supply chain issues at our original equipment manufacturer customers (such as
microchip shortages and port issues). This, in turn, has weakened demand for our components, products and services, which has
resulted in a decline in sales activities and customer orders, and it remains uncertain what impact this weakened demand will have on
future sales activities and customer orders once conditions continue to further improve. The pandemic has also resulted in inflationary
pressures on wages, benefits, components and manufacturing supplies.
The COVID-19 pandemic has had, and will continue to have, a negative impact on our business, financial condition, cash flows,
results of operations, supply chain, and raw material availability, although the full extent is still uncertain. As the pandemic continues
to evolve and new variants continue to emerge, the extent of the impact on our business, financial condition, cash flows, results of
operations and supply chain will depend on future developments, including, but not limited to, the continued duration of the pandemic,
government actions to contain the virus and/or treat its impact, restrictions on travel, the duration, timing and severity of the impact on
customer spending, and how quickly and to what extent normal economic and operating conditions can resume, all of which are still
uncertain and cannot be predicted.
We are affected by developments in the industries in which our customers operate.
We derive a large amount of our net sales from customers in the following industry sectors: heavy- and medium-duty
commercial vehicles, construction & access equipment, powersports, agriculture and military. Factors affecting any of these industries
in general, or any of our customers in particular, could adversely affect us because our net sales growth largely depends on the
continued growth of our customers’ businesses in their respective industries. These factors include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
seasonality of demand for our customers’ products which may cause our manufacturing capacity to be underutilized for
periods of time;
our customers’ failure to successfully market their products, to gain or retain widespread commercial acceptance of their
products or to compete effectively in their industries;
loss of market share for our customers’ products, which may lead our customers to reduce or discontinue purchasing our
processes and solutions and to reduce prices, thereby exerting pricing pressure on us;
economic conditions in the markets in which our customers operate, in particular, the United States, including inflationary
pressures and the other negative impacts on economic conditions as a result of COVID-19 (including the uncertain future
impacts of the continuing pandemic), as well as recessionary periods such as a global economic downturn;
12
(cid:120)
(cid:120)
our customers’ decision to insource the production of components that has traditionally been outsourced to us; and
product design changes or manufacturing process changes that may reduce or eliminate demand for the components we
supply.
We expect that future sales will continue to depend on the success of our customers. If economic conditions and demand for our
customers’ products deteriorate, we may experience a material adverse effect on our business, operating results and financial
condition.
Most of our customers do not commit to long-term production schedules, which makes it difficult for us to schedule production
accurately and achieve maximum efficiency of our manufacturing capacity.
Most of our customers do not commit to long-term contracts or firm production schedules, and we continue to experience
reduced lead-times in customer orders. Additionally, customers may change production quantities or delay production with little lead-
time or advance notice. Therefore, we rely on and plan our production and inventory levels based on our customers’ advance orders,
commitments and/or forecasts as well as our internal assessments and forecasts of customer demand. The volume and timing of sales
to our customers may vary due to, among others:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
variation in demand for or discontinuation of our customers’ products;
our customers’ attempts to manage their inventory;
design changes;
changes in our customers’ manufacturing strategies;
disruptive events in the markets in which our customers operate, including natural disasters, epidemics and pandemics like
COVID-19; and
acquisitions of or consolidation among customers.
The variations in volume and timing of sales make it difficult to schedule production and optimize utilization of manufacturing
capacity. This uncertainty may require us to increase staffing and incur other expenses in order to meet an unexpected increase in
customer demand, potentially placing a significant burden on our resources. Additionally, an inability to respond to such increases in a
timely manner may cause customer dissatisfaction, which may negatively affect our customer relationships.
Further, in order to secure sufficient production scale, we may make capital investments in advance of anticipated customer
demand (including, in some instances, new customer demand). Such investments may lead to low utilization levels if demand
forecasts change and we are unable to utilize the additional capacity. Because fixed costs make up a large proportion of our total
production costs, a reduction in customer demand can have a significant adverse impact on our gross profits and operating results.
Additionally, we order materials and components based on customer forecasts and orders and suppliers may require us to purchase
materials and components in minimum quantities that exceed customer requirements, which may have an adverse impact on our gross
profits and operating results. In the past, anticipated orders from some of our customers and anticipated new customers have failed to
materialize and/or delivery schedules have been deferred as a result of changes in our customers’ business needs.
Failure to compete successfully in our markets could materially adversely affect our business, financial condition, results of
operations or prospects.
We offer our processes and solutions in highly competitive markets. The competitors in these markets may, among other things:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
respond more quickly to new or emerging technologies;
have greater name recognition, critical mass or geographic market presence;
be better positioned to take advantage of acquisition opportunities;
adapt more quickly to changes in customer requirements;
devote greater resources to the development, promotion and sale of their processes and solutions;
be better positioned to compete on price due to any combination of low-cost labor, raw materials, components, facilities or
other operating items, or willingness to make sales at lower margins than us;
13
(cid:120)
(cid:120)
consolidate with other competitors in the industry which may create increased pricing and competitive pressures on our
business; and
be better able to utilize excess capacity which may reduce the cost of their processes and solutions.
Competitors with lower cost structures may have a competitive advantage over us. We also expect our competitors to continue
to improve the performance of their current processes and solutions, to reduce the prices of their existing processes and solutions and
to introduce new processes or solutions that may offer greater performance and improved pricing. Additionally, we may face
competition from new entrants to the industry in which we operate. Any of these developments could cause a decline in sales and
average selling prices, loss of market share or profit margin compression. Maintaining and improving our competitive position will
require successful management of these factors, including continued investment by us in research and development, engineering,
marketing and customer service and support. Our future growth rate depends upon our agility to compete successfully, which is
impacted by a number of factors, including, but not limited to, our ability to (i) identify emerging technological trends in our target
end markets, (ii) develop and maintain a wide range of competitive and appropriately priced processes and solutions and defend our
market share against an ever-expanding number of competitors including many new and non-traditional competitors, (iii) ensure that
our processes and solutions remain cost-competitive and (iv) attract, develop and retain individuals with the requisite technical
expertise and understand of customers’ needs to develop and sell new technologies and processes.
We may be unable to realize net sales represented by our awarded business, which could materially and adversely impact our
business, financial condition, results of operations and cash flows.
The realization of future net sales from awarded business is inherently subject to a number of important risks and uncertainties,
including a lack of long-term commitments and production schedules with customers and anticipated new customers. Accordingly, we
cannot assure you that we will realize any or all of the future net sales represented by our awarded business. Any failure to realize
these net sales could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition to not having a commitment from our customers and anticipated new customers regarding the minimum number of
components they must purchase from us if we obtain awarded business, typically the terms and conditions of the agreements with our
customers provide that they have the contractual right to unilaterally terminate our contracts with them with no notice or limited
notice. In many cases, we must commit substantial resources in preparation for production under awarded customer business well in
advance of the customer’s production start date. If such contracts are terminated by our customers, our ability to obtain compensation
from our customers for such termination is generally limited to the direct out-of-pocket costs that we incurred for raw materials and
work-in-progress. Although we have been successful in recovering these costs under appropriate circumstances in the past, we cannot
assure you that our results of operations will not be materially adversely impacted in the future if we are unable to recover these types
of pre-production costs related to our customers’ cancellation of awarded business.
We may not be able to maintain our manufacturing, engineering and technological expertise.
The markets for our processes and solutions are characterized by changing technology and evolving process development. The
continued success of our business will depend upon our ability to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
hire, retain and expand our pool of qualified engineering and trade-skilled personnel;
maintain technological leadership in our industry;
implement new and expand upon current robotics, automation and tooling technologies; and
anticipate or respond to changes in manufacturing processes in a cost-effective and timely manner.
We cannot be certain that we will develop the capabilities required by our customers in the future. The emergence of new
technologies, industry standards or customer requirements may render our equipment, inventory or processes obsolete or
uncompetitive. We may have to acquire new technologies and equipment to remain competitive. The acquisition and implementation
of new technologies and equipment may require us to incur significant expense and capital investment, which could reduce our
margins and affect our operating results. When we establish or acquire new facilities, we may not be able to maintain or develop our
manufacturing, engineering and technological expertise due to a lack of trained personnel, effective training of new staff or technical
difficulties with machinery. Failure to anticipate and adapt to customers’ changing technological needs and requirements or to hire and
retain a sufficient number of engineers and maintain manufacturing, engineering and technological expertise may have a material
adverse effect on our business, operating results and financial condition.
14
We are dependent on a limited number of large customers for current and future net sales. The loss of any of these customers or
the loss of market share by these customers could materially adversely affect our business, financial condition, results of
operations and cash flows.
We depend on a limited number of major manufacturers for a majority of our net sales. For example, our largest customers in
2021, including John Deere, PACCAR Inc., AB Volvo and Honda accounted for 16.6%, 14.1%, 10.8% and 10.0% of our net sales,
respectively. Our financial performance depends in large part on our ability to continue to arrange for the purchase of our processes
and solutions with these customers, and we expect these customers to continue to make up a large portion of our net sales in the
foreseeable future. The loss of all or a substantial portion of our sales to any of our large-volume customers could have a material
adverse effect on our business, financial condition, results of operations and cash flows by reducing cash flows and by limiting our
ability to spread our fixed costs over a larger net sales base. We may make fewer sales to these customers for a variety of reasons,
including, but not limited to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
loss of business relationship;
reduced or delayed customer requirements;
the insourcing of business that has been traditionally outsourced to us;
strikes or other work stoppages affecting production by our customers; or
reduced demand for our customers’ products, including as a result of the continuing COVID-19 pandemic.
Entering new markets, either organically or via acquisition, poses new competitive threats and commercial risks.
As we expand into new markets, either organically or via acquisition, we expect to diversify our net sales by leveraging our
development, engineering and manufacturing capabilities in order to source necessary parts and components for other industries. Such
diversification requires investments and resources that may not be available as needed. Furthermore, even if we sign contracts in new
markets, we cannot guarantee that we will be successful in leveraging our capabilities into these new markets and thus in meeting the
needs of these new customers and competing favorably in these new markets. If these new customers experience reduced demand for
their products or financial difficulties, our future prospects will be negatively affected as well.
We depend on our key executive officers, managers, and trade-skilled personnel and may have difficulty retaining and recruiting
qualified employees. Moreover, we operate in competitive labor markets, which may also impact our ability to hire and retain
employees at our facilities.
Our success depends to a large extent upon the continued services of our executive officers, senior management, managers and
trade-skilled personnel and our ability to recruit and retain skilled personnel to maintain and expand our operations. We could be
affected by the loss of any of our executive officers who are responsible for formulating and implementing our business plan and
strategy, and who have been instrumental in our growth and development. In addition, we need to recruit and retain additional
management personnel and other skilled employees at our facilities. However, competition for our trade-skilled labor is high,
particularly in some of the geographic locations where our facilities are located, and especially in light of the labor pressures resulting
from the COVID-19 pandemic. Although we intend to continue to devote significant resources to recruit, train and retain qualified
employees, we may not be able to attract, effectively train and retain these employees. Any failure to do so could impair our ability to
conduct design, engineering and manufacturing activities, efficiently perform our contractual obligations, develop marketable
components, timely meet our customers’ needs and ultimately win new business, all of which could adversely affect our business,
financial condition and results of operations. If we are not able to do so, our business and our ability to continue to grow could be
negatively affected. In addition, salaries and related costs are a significant portion of the cost of providing our solutions and,
accordingly, our ability to efficiently utilize our workforce impacts our profitability.
Availability of, and volatility in the prices of, raw materials and energy prices and our ability to pass along increased costs to our
customers could adversely affect our results of operations.
The prices and availability of raw materials critical to our business and performance are based on global supply and demand
conditions. Certain raw materials used by us are only available from a limited number of suppliers, and it may be difficult to find
alternative suppliers at the same or similar costs. While we strive to pass through the price of raw materials to our customers, we may
not be able to do so in the future, and volatility in the prices of raw materials (including as a result of the inflationary pressures and the
other negative impacts of the continuing COVID-19 pandemic) may affect customer demand for certain components. In addition, we,
along with our suppliers and customers, rely on various energy sources for a number of activities connected with our business, such as
the transportation of raw materials and finished parts. The availability and pricing of these resources are subject to market forces that
are beyond our control. Furthermore, we are vulnerable to any reliability issues experienced by our suppliers, which also are beyond
our control. Our suppliers contract separately for the purchase of such resources, and our sources of supply could be interrupted should
our suppliers not be able to obtain these materials due to higher demand or other factors that interrupt their availability (such as the
15
impacts of the continuing COVID-19 pandemic). Energy and utility prices, including electricity and water prices, and in particular
prices for petroleum-based energy sources, are volatile. Increased supplier and customer operating costs arising from volatility in the
prices of energy sources, such as increased energy and utility costs and transportation costs, could be passed through to us and we may
not be able to increase our product prices sufficiently or at all to offset such increased costs. The impact of any volatility in the prices
of energy or the raw materials on which we rely, including the reduction in demand for certain components caused by such price
volatility, could result in a loss of net sales and profitability and adversely affect our results of operations.
Our manufacturing operations are dependent upon third-party suppliers, making us vulnerable to supply shortages.
We obtain raw materials, parts and certain components from third-party suppliers. Any delay in receiving supplies (including as
a result of the continuing COVID-19 pandemic) could impair our ability to timely deliver components to our customers and,
accordingly, could have an adverse effect on our business, financial condition, results of operations and cash flows. The volatility in
the financial markets and uncertainty in the sectors our suppliers service (including as a result of the continuing COVID-19 pandemic)
could result in exposure related to the financial viability of certain of our suppliers. Suppliers may also exit certain business lines,
causing us to find other suppliers for materials or components and potentially delaying our ability to deliver components to customers,
or our suppliers may change the terms on which they are willing to provide parts or materials to us, any of which could adversely
affect our financial condition and results of operations. In addition, many of our suppliers have unionized workforces that could be
subject to work stoppages as a result of labor relations issues. Some of our suppliers supply components and materials that cannot be
quickly or inexpensively re-sourced to another supplier due to long lead times and contractual commitments that might be required by
another supplier in order to provide the components or materials.
Increases in the cost of employee benefits could impact our financial results and cash flows.
Our expenses relating to employee health benefits are significant. Unfavorable changes in the cost of and the unpredictability of
claims under such benefits, including the current inflationary pressures on benefits (and wages) as a result of the COVID-19
pandemic, could impact our financial results and cash flows. Healthcare costs have risen significantly in recent years, and recent
legislative and private sector initiatives regarding healthcare reform could result in significant changes to the U.S. healthcare system.
Pursuant to the Affordable Care Act, employees may be ineligible for certain healthcare subsidies if such employee is eligible and
offered qualifying and affordable healthcare coverage under an employer’s plan. Due to the breadth and complexity of the healthcare
reform legislation, the lack of implementing regulations and interpretive guidance and the uncertainty surrounding further reform
proposals, we are not able to fully determine the impact that healthcare reform will have in the future on company sponsored medical
plans.
Our growth strategy includes acquisitions, and we may not be able to identify attractive acquisition targets or successfully integrate
acquired targets without impacting our business.
Acquisitions have played a key role in our growth strategy, and we expect to continue to grow through acquisitions in the future.
We expect to continue evaluating potential strategic acquisitions of businesses, assets and product lines. We may not be able to
identify suitable candidates, negotiate appropriate or favorable acquisition terms, obtain financing that may be needed to consummate
such transactions or complete proposed acquisitions. There is significant competition for acquisition and expansion opportunities in
our businesses, which may increase the cost of any acquisition or result in the loss of attractive acquisition targets.
In addition, acquisitions involve numerous risks, including (i) incurring the time and expense associated with identifying and
evaluating potential acquisitions and negotiating potential transactions, resulting in management’s attention being diverted from the
operation of our existing business; (ii) using estimates and judgments to evaluate credit, operations, funding, liquidity, business,
management and market risks with respect to the target entity or assets; (iii) litigation relating to an acquisition, particularly in the
context of a publicly held acquisition target, could require us to incur significant expenses or result in the delaying or enjoining of the
transaction; (iv) failing to properly identify an acquisition candidate’s liabilities, potential liabilities or risks; and (v) not receiving
required regulatory approvals or such approvals being delayed or restrictively conditional. In addition, any acquisitions could involve
the incurrence of substantial additional indebtedness or dilution to our shareholders. We cannot assure you that we will be able to
successfully integrate any acquisitions that we undertake or that such acquisitions will perform as planned or prove to be beneficial to
our operations and cash flow. Any such failure could seriously harm our financial condition, results of operations and cash flows.
We routinely evaluate potential acquisition candidates and engage in discussions and negotiations regarding potential
acquisitions; however, even if we execute a definitive agreement for an acquisition, there can be no assurance that we will
consummate the transaction within the anticipated closing timeframe, or at all. Further, acquisitions typically involve the payment of a
premium over book- and market-value for the target business or asset and, therefore, some dilution of our tangible book value and/or
earnings per common share may occur in connection with any future transaction.
16
If we fail to develop new and innovative processes or if customers in our market do not accept them, our results would be
negatively affected.
Our processes must be kept current to meet our customers’ needs. To remain competitive, we therefore must develop new and
innovative processes on an ongoing basis. If we fail to make innovations or the market does not accept our new processes, our sales
and results would suffer. We invest significantly in the research and development of new processes; however, these expenditures do
not always result in processes that will be accepted by the market. To the extent they do not, whether as a function of the process or
the business cycle, we will have increased expenses without significant sales to offset such costs. Failure to develop successful new
processes may also cause potential customers to purchase from competitors.
We are dependent on information technology and our systems and infrastructure face certain risks, including cyber security risks
and data leakage risks.
We are dependent on information technology systems and infrastructure that could be damaged or interrupted by a variety of
factors. Any significant breach, breakdown, destruction or interruption of these systems by employees, others with authorized access
to our systems or unauthorized persons has the potential to negatively affect our operations. There is also a risk that we could
experience a business interruption, theft of information or reputational damage as a result of a cyberattack, such as the infiltration of a
data center, or data leakage of confidential information either internally or at our third-party providers. Although we have invested in
the protection of our data and information technology to reduce these risks and periodically test the security of our information
systems network, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could have a
material adverse effect on our financial condition, results of operations and liquidity.
We may incur additional expenses and delays due to technical problems or other interruptions at our manufacturing facilities.
Disruptions in operations due to technical problems or power interruptions as well as other interruptions such as floods, fire,
other natural disasters, epidemics or pandemics like COVID-19 could adversely affect the manufacturing capacity of our facilities.
Such interruptions could cause delays in production and cause us to incur additional expenses such as charges for expedited deliveries
for components that are delayed. In addition, our customers have the ability to cancel purchase orders in the event of any delays in
production and may decrease future orders if delays are persistent. Additionally, to the extent that such disruptions do not result from
damage to our physical property, these may not be covered by our business interruption insurance. Any such disruptions may
adversely affect our operations and financial results.
Political and economic developments could adversely affect our business.
Increased political instability and social unrest, evidenced by the threat or occurrence of terrorist attacks, enhanced national
security measures, the risks related to epidemics or pandemics like COVID-19 and the related decline in consumer confidence may
hinder our ability to do business. Any escalation in these events or similar future events may disrupt our operations or those of our
customers and suppliers and could affect the availability of raw materials and components we need in our manufacturing operations or
the means to transport those materials or components to our manufacturing facilities and finished parts to our customers. These events
have had and may continue to have an adverse effect, generally, on the economy and consumer confidence and spending, which could
adversely affect our net sales and operating results. The effect of these events on the volatility of the financial markets could in the
future lead to volatility of the market price of our securities and may limit the capital resources available to us, our customers and our
suppliers.
The impact of foreign trade relations and associated tariffs, as well as our reliance on international suppliers for certain raw
materials, could adversely impact our business.
We currently source certain raw materials from international suppliers. Import tariffs, taxes, customs duties and/or other trade
regulations imposed by the U.S. government on foreign countries, or by foreign countries on the United States, could significantly
increase the prices we pay for certain raw materials, such as steel, aluminum and purchased components, that are critical to our ability
to manufacture components for our customers. The international sourcing for these materials may also be hurt by health concerns
regarding infectious diseases in countries in which these materials are purchased from (such as COVID-19), adverse weather or
natural disasters. In addition, we may be unable to find a domestic supplier to provide the necessary raw materials on an economical
basis in the amounts we require. If the cost of our raw materials increases, or if we are unable to procure the necessary raw materials
required to manufacture our components, then we could experience a negative impact on our operating results, profitability, customer
relationships and future cash flows.
Additionally, our customers’ businesses may be negatively impacted by import tariffs, taxes, customs duties and/or other trade
regulations imposed by the U.S. government on foreign countries or by foreign countries on the United States, which could, in turn,
reduce our customers’ demand for the components that we manufacture for them. Any reduction in customer demand for our
components as a result of such tariffs, taxes, customs duties and/or other trade regulations, or as a result of the impact of infectious
17
diseases such as COVID-19, could have a material adverse impact on our financial position, results of operations, cash flows and
liquidity.
The risks associated with climate change, as well as climate change legislation and regulations, could adversely affect our
operations and financial condition.
The physical risks of climate change, such as more frequent or more extreme weather events, changes in temperature and
precipitation patterns, changes to ground and surface water availability and other related phenomena, could affect some, or all, of our
operations. Severe weather or other natural disasters could be destructive, which could result in increased costs, including supply
chain costs.
In addition, a number of government bodies have finalized, proposed or are contemplating legislative and regulatory changes in
response to growing concerns about climate change. In recent years, federal, state and local governments have taken steps to reduce
emissions of greenhouse gases (GHGs). The Environmental Protection Agency has finalized a series of GHG monitoring, reporting
and emissions control rules for certain large sources of GHGs, and the U.S. Congress has, from time to time, considered adopting
legislation to reduce GHG emissions. Numerous states have already taken measures to reduce GHG emissions, primarily through the
development of GHG emission inventories and/or regional GHG cap-and-trade programs.
Although it is not possible at this time to predict how future legislation or regulations to address GHG emissions would impact
our business, any such laws and regulations imposing reporting obligations on, or limiting emissions of GHGs from, our equipment
and operations, could require us to incur costs to reduce GHG emissions associated with our operations. We cannot assure you that our
costs, liabilities and obligations relating to environmental matters will not have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Our manufacturing, painting and coating operations are subject to environmental, health and safety laws and regulations that
could result in liabilities to us.
Our manufacturing, painting and coating operations are subject to environmental, health and safety laws and regulations,
including those governing discharges to air and water, the management and disposal of hazardous substances, the cleanup of
contaminated sites and health and safety matters. We could incur material costs, including cleanup costs, civil and criminal fines,
penalties and third-party claims for cost recovery, property damage or personal injury as a result of violations of or liabilities under
such laws and regulations. The ultimate cost of remediating contaminated sites, if any, is difficult to accurately predict and could
exceed estimates. In addition, as environmental, health and safety laws and regulations have tended to become stricter, we could incur
additional costs complying with requirements that are promulgated in the future.
If our manufacturing processes do not comply with applicable statutory and regulatory requirements, or if we manufacture
components containing manufacturing defects, demand for our capabilities may decline and we may be subject to liability claims.
Our manufacturing processes and facilities need to comply with applicable statutory and regulatory requirements. We may also
have the responsibility to ensure that the processes we use satisfy safety and regulatory standards, including those applicable to our
customers and to obtain any necessary certifications. In addition, our customers’ products, as well as the manufacturing processes and
components that we use to produce such products, are often highly complex. As a result, components that we manufacture may at
times contain manufacturing defects, and our manufacturing processes may be subject to errors or not be in compliance with
applicable statutory and regulatory requirements or demands of our customers. Defects in the components we manufacture, whether
caused by a manufacturing or component failure or error, or deficiencies in our manufacturing processes, may result in delayed
shipments to customers, replacement costs or reduced or cancelled customer orders. If these defects or deficiencies are significant, our
business reputation may also be damaged. The failure of the components that we manufacture for our customers to comply with
applicable statutory and regulatory requirements may subject us to legal fines or penalties and, in some cases, require us to shut down
or incur considerable expense to correct a manufacturing process or facility. In addition, these defects may expose us to liability to pay
for the recall of a customer’s product or to indemnify our customers for the costs of any such claims or recalls which they face as a
result of using items manufactured by us in their products.
Adverse judgments or settlements in legal disputes, including product liability, intellectual property infringement and other claims,
could result in materially adverse monetary damages or injunctive relief and damage our business and/or our reputation.
We are subject to, and may become a party to, a variety of litigation or other claims and suits that arise from time to time in the
ordinary course of our business. The results of litigation and other legal proceedings are inherently uncertain and adverse judgments or
settlements in some or all of these legal disputes may result in materially adverse monetary damages or injunctive relief against us, or
in other adverse consequences to our financial condition and results of operations. Additionally, our insurance policies may not protect
us against potential liability due to various exclusions in the policies and self-insured retention amounts. Partially or completely
18
uninsured claims, if successful and of significant magnitude, could have a material adverse effect on our business, financial condition
and results of operations. Furthermore, any claims or litigation, even if fully indemnified or insured, could damage our reputation and
make it more difficult to compete effectively or obtain adequate insurance in the future.
The components we manufacture can expose us to potential liabilities. For instance, our manufacturing operations expose us to
potential product liability claims resulting from injuries caused by defects in components we design or manufacture, as well as
potential claims that components we design infringe on third-party intellectual property rights. Such claims could subject us to
significant liability for damages, subject the infringing portion of our business to injunction and, regardless of their merits, could be
time-consuming and expensive to resolve. We may also have greater potential exposure from warranty claims and recalls due to
problems caused by component or product design. Although we have product liability insurance coverage, it may not be sufficient to
cover the full extent of our product liability, if at all. A successful product liability claim in excess or outside of our insurance
coverage or any material claim for which insurance coverage was denied or limited and for which indemnification was not available
could have a material adverse effect on our business, results of operations and/or financial condition.
Any failure to protect our customers’ intellectual property that we use in the products we manufacture for them could harm our
customer relationships and subject us to liability.
The products we manufacture for our customers often contain our customers’ intellectual property, including copyrights,
patents, trade secrets and know-how. Our success depends, in part, on our ability to protect our customers’ intellectual property. The
steps we take to protect our customers’ intellectual property may not adequately prevent its disclosure or misappropriation. If we fail
to protect our customers’ intellectual property, our customer relationships could be harmed, and we may experience difficulty in
establishing new customer relationships. In addition, our customers might pursue legal claims against us for any failure to protect their
intellectual property, possibly resulting in harm to our reputation and our business, financial condition and operating results.
Compliance or the failure to comply with regulations and governmental policies could cause us to incur significant expense.
We are subject to a variety of local and foreign laws and regulations including those relating to labor and health and safety
concerns. Such laws may require us to pay mandated compensation and penalties. Additionally, we may need to obtain and maintain
licenses and permits to conduct business in various jurisdictions. If we or the businesses or companies we acquire have failed or fail in
the future to comply with such laws and regulations, then we could incur liabilities and fines and our operations could be suspended.
Such laws and regulations could also restrict our ability to modify or expand our facilities, could require us to acquire costly
equipment, or could impose other significant expenditures.
Because our industry is capital intensive and we have significant fixed and semi-fixed costs, our profitability is sensitive to changes
in volume.
The property, plants and equipment needed to produce components for our customers and provide our processes and solutions
can be very expensive. We must spend a substantial amount of capital to purchase and maintain such property, plants and equipment.
Although we believe our current cash balance, along with our projected internal cash flows and available financing sources, will
provide sufficient cash to support our currently anticipated operating and capital needs, if we are unable to generate sufficient cash to
purchase and maintain the property, plants and equipment necessary to operate our business, we may be required to reduce or delay
planned capital expenditures or to incur additional indebtedness.
Prior to our initial public offering, we were treated as an S Corporation, and claims of taxing authorities related to our prior status
as an S Corporation could have an adverse effect on our business, financial condition and results of operations.
Upon the consummation of our initial public offering, our status as an S Corporation was terminated and we have since been
treated as a “C Corporation” for U.S. federal income tax purposes and thus are now subject to U.S. federal income tax. If the
unaudited, open tax years in which we were an S Corporation are audited by the Internal Revenue Service (IRS), and we determined
not to have qualified for, or to have violated any requirement for maintaining our S Corporation status, we will be obligated to pay
back taxes, interest and possibly penalties. The amounts that we would be obligated to pay could include taxes on all our taxable
income attributable to such open tax years. Any such claims could result in additional costs to us and could have a material adverse
effect on our business, financial condition and results of operations.
Prior to the completion of our initial public offering we were 100% owned by the ESOP, which is a retirement plan intended to be
tax-qualified. If the ESOP fails to meet the requirements of a tax-qualified retirement plan, we could be subject to substantial
penalties.
The Mayville Engineering Company, Inc. Employee Stock Ownership Plan (the ESOP), is a defined contribution retirement
plan subject to the requirements of the Internal Revenue Code of 1986, as amended (the Code), and the Employee Retirement Income
19
Security Act of 1974, as amended (ERISA). The ESOP has received a determination letter from the IRS that it meets the requirements
of a tax-qualified retirement plan in form and we endeavor to maintain and administer the ESOP in compliance with all requirements
of the Code and ERISA. However, the rules regarding tax-qualified plans, and especially ESOPs, are complex and change frequently.
Accordingly, it is possible that the ESOP may not have been and may not in the future be administered in full compliance with all
applicable rules under the Code or ERISA.
If the IRS were to determine that the ESOP was not in material compliance with the Code or ERISA, then the ESOP could lose
its tax-qualified status and we could be subject to substantial penalties under the Code and/or ERISA, which could have a material
adverse effect on our business, financial condition or results of operations. Additionally, any retroactive loss of the ESOP’s tax-
qualified status would adversely impact our prior treatment as an S Corporation. See “(cid:127)Prior to our initial public offering, we were
treated as an S Corporation, and claims of taxing authorities related to our prior status as an S Corporation could have an adverse
effect on our business, financial condition and results of operations.”
Risks Related to Our Indebtedness
Our Amended and Restated Credit Agreement restricts our ability and the ability of our subsidiaries to engage in some business
and financial transactions.
On September 26, 2019, and as last amended as of March 31, 2021, 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 (i) a $200.0 million revolving credit facility (the Revolving Loan), with a letter of credit sub-facility in an aggregate
amount not to exceed $5.0 million, and a swingline facility in an aggregate amount of $20.0 million. The Credit Agreement also
provides for an additional $100.0 million of capacity through an accordion feature.
Our Credit Agreement contains a number of covenants that limit our ability and the ability of our subsidiaries to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
create, incur or assume indebtedness (other than certain permitted indebtedness);
create or incur liens (other than certain permitted liens);
make investments (other than certain permitted investments);
merge or consolidate with another entity;
make asset dispositions (other than certain permitted dispositions);
declare or pay any dividend or any other distribution to shareholders;
enter into transactions with affiliates;
make certain organizational changes, including changing our fiscal year end or amending our organizational documents;
enter into any agreement further restricting our ability to create or assume any lien;
sell notes receivable or accounts receivable except under certain circumstances;
enter into sale leaseback transactions;
incur capital expenditures in excess of $35,000,000 in any fiscal year (or in excess of $70,000,000 in 2021);
permit any person or group other than the ESOP or other employee benefit plan of ours (like our 401(k) plan) to own or
control more than 35% of our equity interests; or
permit our board of directors to not be composed of a majority of our continuing directors (i.e., our directors as of
September 26, 2019 and any additional or replacement directors that have been approved by at least 51% of the directors
then in office).
Our Credit Agreement also requires us to maintain a minimum interest coverage ratio and a consolidated total leverage ratio,
and contains certain customary representations and warranties, affirmative covenants and events of default (including, among others,
payment default, covenant default, breach of representation or warranty, bankruptcy, cross-default, material ERISA events, certain
changes of control, material money judgements and failure to maintain subsidiary guarantees). If an event of default occurs under the
Credit Agreement, the lenders under the Credit Agreement will be entitled to take various actions, including the acceleration of
amounts due thereunder, the termination of such credit facility and all actions permitted to be taken by a secured creditor. Our failure
to comply with our obligations under the Credit Agreement may result in an event of default under the Credit Agreement. A default, if
not cured or waived, may permit acceleration of our indebtedness. If our indebtedness is accelerated, we cannot be certain that we will
have sufficient funds available to pay the accelerated indebtedness or that we will have the ability to refinance the accelerated
indebtedness on terms favorable to us or at all.
20
We are able to incur additional debt, which could reduce our ability to satisfy our current obligations under our existing
indebtedness.
At December 31, 2021, we had $67.6 million outstanding under the Revolving Loan. In addition, we may be able to incur
significant additional indebtedness in the future, and we may do so, among other reasons, to fund acquisitions as part of our growth
strategy. Although the Credit Agreement contains restrictions on the incurrence of additional indebtedness, these restrictions are
subject to a number of qualifications and exceptions, and we could incur substantial additional indebtedness in compliance with these
restrictions.
Risks Related to Ownership of Our Common Stock
Your ability to influence corporate matters may be limited because the ESOP and our 401(k) plan own a substantial amount of our
stock and continue to have significant influence over us, which may limit your ability to influence the outcome of important
transactions, including a change in control.
As of December 31, 2021, our employees and certain former employees, through their interests in the ESOP and the Mayville
Engineering Company, Inc. 401(k) Plan (the 401(k) Plan), beneficially owned approximately 48% of the outstanding shares of our
common stock. Each participant in the ESOP and the 401(k) Plan is entitled to direct the vote of the shares allocated to his or her
accounts, in his or her sole discretion. As a result, our employees and former employees, if acting together, will be able to influence or
control matters requiring approval by our shareholders, including the election of directors, influence over our management and
policies and the approval of mergers, acquisitions or other extraordinary transactions. As employees and former employees, the ESOP
and 401(k) Plan participants’ interests may be contrary to other investors. This concentration of ownership may have the effect of
delaying, preventing or deterring a change in control of our company, could deprive our non-ESOP and non-401(k) Plan shareholders
of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market
price of our common stock.
The Trustees of the ESOP and the 401(k) Plan may have the power to vote a large block of shares on matters presented to
shareholders for approval.
ESOP and 401(k) Plan participants have the right to direct the vote of the shares allocated to his or her ESOP and 401(k) Plan
accounts. However, if a participant does not timely direct the voting of his or her shares, then (1) GreatBanc Trust Company (the
ESOP Trustee) will vote such shares in its independent fiduciary discretion and (2) Principal Trust Company (the 401(k) Plan Trustee)
will vote such shares as directed by the 401(k) Plan sponsor, which is the Company. Additionally, the ESOP Trustee and the 401(k)
Plan Trustee have fiduciary duties under ERISA which may cause the ESOP Trustee or the 401(k) Plan Trustee to override
participants’ voting discretions. Consequently, there may be circumstances in which the ESOP Trustee and the 401(k) Plan Trustee
have the ability to vote a significant block of shares on matters presented to shareholders for approval. The ESOP and the 401(k) Plan,
which as retirement plans have the purpose of providing retirement benefits to current and former employees of the Company and
their beneficiaries, may have interests that are different from other investors and may vote in a way with which other shareholders
disagree and which may be adverse to other shareholders interests.
The market price of our common stock may be volatile, and you could lose all or part of your investment.
Since our initial public offering in May 2019, the market price of our common stock has been volatile and has been and could
continue to be subject to wide fluctuations in response to various factors, some of which are beyond our control. These fluctuations
could cause investors to lose all or part of their investment in our common stock. Factors that could cause fluctuations in the market
price of our common stock include the following: sales of substantial amounts of our securities by our directors, executive officers or
significant shareholders (including our current and former employees via the ESOP and the 401(k) Plan) or the perception that such
sales could occur; general economic and political conditions such as the continuing COVID-19 pandemic, inflation, interest rates,
tariffs, fuel prices, international currency fluctuations, recessions and acts of war or terrorism; price and volume fluctuations in the
overall stock market from time to time; relatively small percentage of our common stock available publicly; actual or anticipated
fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us; changes in
the market’s expectations about our operating results; changes in our orders in a given period; success of competitors; our operating
results failing to meet the expectation of securities analysts or investors in a particular period; changes in financial estimates and
recommendations by securities analysts concerning us or the markets in general; operating and stock price performance of other
companies that investors deem comparable to us; our ability to manufacture new and enhanced components for the products of our
customers on a timely basis; changes in laws and regulations affecting our business; commencement of, or involvement in, litigation
21
involving us; changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; the volume of
securities available for public sale; any major change in our board of directors or management; and changes in our investor base.
In the past, following periods of volatility in the overall market and the market price of a particular company’s securities,
securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result
in substantial costs and a diversion of our management’s attention and resources.
We do not expect to declare any dividends in the foreseeable future.
The continued operation and growth of our business, including acquisitions and capital expenditures, will require substantial
cash. Accordingly, we do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Any
determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of
operations, financial condition, any contractual restrictions, our indebtedness, restrictions imposed by applicable law and other factors
our board of directors deem relevant. Consequently, investors may need to sell all or part of their holdings of our common stock after
price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Some provisions of Wisconsin law and our articles of incorporation and bylaws could make a merger, tender offer or proxy contest
difficult, thereby depressing the trading price of our common stock.
Our status as a Wisconsin corporation and the anti-takeover provisions of the Wisconsin Business Corporation Law (the WBCL)
may discourage, delay or prevent a change in control even if a change in control would be beneficial to our shareholders by
prohibiting us from engaging in a business combination with an interested shareholder for a period of three years after the person
becomes an interested shareholder. We may engage in a business combination with an interested shareholder after the expiration of the
three-year period with respect to that shareholder only if one or more of the following conditions is satisfied: (i) our board of directors
approved the acquisition of the stock before the date on which the shareholder acquired the shares, (ii) the business combination is
approved by a majority of our outstanding voting stock not beneficially owned by the interested shareholder or (iii) the consideration
to be received by shareholders meets certain fair prices requirements of the WBCL with respect to form and amount.
In addition, our articles of incorporation and bylaws contain provisions that may make the acquisition of the company more
difficult, including the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
establishing a classified board of directors so that not all members of our board of directors are elected at one time, which
could delay the ability of shareholders to change the membership of a majority of our board of directors;
authorizing undesignated preferred stock, the terms of which may be established and shares of which may be issued by
our board of directors without shareholder approval;
requiring certain procedures to be satisfied in order for a shareholder to call a special meeting of shareholders, including
requiring that we receive written demands for a special meeting from holders of 10% or more of all the votes entitled to be
cast on any issue proposed to be considered;
requiring that a director may be removed from office only for “cause” and with the affirmative vote of shareholders
holding at least 66 2/3% of the then outstanding shares of stock entitled to vote in the election of directors;
not providing for cumulative voting in the election of directors, which would otherwise allow holders of less than a
majority of stock to elect some directors; and
establishing advance notice procedures for shareholder proposals or the nomination of candidates for election as directors.
These provisions could have the effect of discouraging, delaying or preventing a transaction involving a change in control of the
Company. These provisions could also have the effect of discouraging proxy contests and make it more difficult for shareholders to
elect directors of their choosing or prevent us from taking other corporate actions that shareholders may desire.
22
Risks Related to Being a Relatively New Public Company
If we fail to maintain an effective system of internal controls in the future, or if we experience any additional material weaknesses
in the future, we may not be able to accurately or timely report our financial condition or results of operations, which may
adversely affect investor confidence in us and, as a result, the value of our common stock.
As a public company, we are required to maintain effective disclosure controls and procedures and internal controls over
financial reporting, as well as document and assess the effectiveness of our system of internal controls over financial reporting to
satisfy the requirements of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act).
While preparing for the IPO in 2019 and as of December 31, 2019, we identified material weaknesses in the design and
operation of our internal control over financial reporting that were remediated as of December 31, 2020. In 2019 and 2020, we took
numerous steps to enhance our internal control environment and remediate the prior material weaknesses. Despite these actions, we
may identify additional material weaknesses in our internal control over financial reporting in the future.
If we identify future material weaknesses in our internal control over financial reporting or if we are unable to comply with the
demands that are placed upon us as a public company, including the current and future requirements of Section 404 of the Sarbanes-
Oxley Act (which currently requires annual management assessments of the effectiveness of our internal control over financial
reporting and, in the future, will also require a report by our independent auditors addressing these assessments), in a timely manner,
we may be unable to accurately report our financial results, or report them within the timeframes required by the SEC. In addition, if
we are unable to assert that our internal control over financial reporting is effective in future years, or if our independent registered
public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when
required, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the
capital markets and our stock price may be adversely affected.
We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure
requirements applicable to emerging growth companies could make our common stock less attractive to investors.
We are an “emerging growth company” as defined by the Jumpstart Our Business Startups Act of 2012 (JOBS Act). Under the
JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards
apply to private companies. We have elected to use this exemption from new or revised accounting standards and, therefore, we will
not be subject to the same new or revised accounting standards as other public companies that have not made this election.
In addition, as an emerging growth company under the JOBS Act we are only subject to one portion of Section 404 of the
Sarbanes-Oxley Act at this time—management reporting on the assessment of internal control over financial reporting (we are not
currently required to have our independent auditors issue a report addressing these assessments). Assuming we have not ceased to
qualify as an “emerging growth company” earlier, we will be required to comply with both the management and the auditor
assessment of internal control over financial reporting requirements of Section 404 at the time we file our annual report for 2024.
For as long as we continue to be an emerging growth company, we also intend to take advantage of certain other exemptions
from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of
holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not
previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these
exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our
common stock and our stock price may be more volatile.
We will remain an emerging growth company until the earliest of (i) the last day of the year which we have total annual gross
revenue of $1.07 billion or more; (ii) the last day of the year following the fifth anniversary of the date of the closing of our initial
public offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years;
or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
Item 1B. Unresolved Staff Comments.
None.
23
Item 2. Properties.
We maintain 20 strategically located U.S. facilities, of which 19 are in operation, comprising approximately 3.1 million square
feet of manufacturing space. We are headquartered in Mayville, WI. We believe that our facilities are sufficient to meet our current
and near-term manufacturing needs.
Facility
1. Mayville, WI
2. Hazel Park, MI
3. Beaver Dam, WI
4. Defiance, OH
5. Defiance, OH
6. Heber Springs, AR
7. Bedford, PA
8. Mayville, WI
9. Beaver Dam, WI
10. Wautoma, WI
11. Atkins, VA
12. Byron Center, MI
13. Defiance, OH
14. Greenville, MS
15. Wayland, MI
16. Neillsville, WI
17. Vanderbilt, MI
18. Neillsville, WI
19. Vanderbilt, MI
20. Piedmont, MI
TOTAL
Description of Use
Manufacturing /
Corporate
Headquarters
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Approximate
Square Feet Ownership
340,000 Owned
445,000 Leased
303,000 Owned
250,000 Owned
192,000 Owned
190,000 Owned
181,000 Leased
167,000 Owned
163,000 Owned
157,000 Owned
150,000 Owned
138,000 Leased
90,000 Leased
76,000 Leased
75,000 Leased
58,000 Owned
50,000 Owned
42,000 Owned
40,000 Owned
34,000 Leased
3,141,000
Item 3. Legal Proceedings.
We are not currently a party to any material litigation proceedings. From time to time, however we may be a party to litigation
and subject to claims incident to the ordinary course of business. Regardless of the outcome, litigation can have an adverse impact on
us because of defense and settlement costs, diversion of management resources and other factors.
Item 4. Mine Safety Disclosures.
Not applicable.
24
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Price Information
Our common stock is traded on the New York Stock Exchange under the symbol MEC. As of February 1, 2022, there were five
registered shareholders of record of our common stock and thousands of beneficial holders of our common stock, including all the
participants in our ESOP and many participants in our 401(k) Plan.
We have never declared or paid any cash dividends on our common stock. We intend to retain all available funds and any future
earnings for use in the operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the
foreseeable future. Any future determination as to the declaration and payment of dividends will be at the discretion of our board of
directors and will depend on then-existing conditions, including our financial condition, results of operations, contractual restrictions,
capital requirements, business prospects and other factors that our board of directors considers relevant. In addition, the terms of the
Credit Agreement restrict our ability to pay cash dividends to the holders of our common stock.
Issuer Purchases of Equity Securities
The table below sets forth information with respect to purchases we made of shares of our common stock during the three
months ended December 31, 2021:
Period
October 2021
November 2021
December 2021
Total
Total
Number
of Shares
Purchased
Average Price
Paid per Share
— $
— $
100,785 $
100,785
—
—
14.88
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs (1)
Dollar Value of
Shares that
May Yet Be
Purchased
Under the Plans
or Programs (1)
— $ 25,000,000
— $ 25,000,000
100,785 $ 23,500,002
100,785
(1) On June 12, 2019, our Board of Directors authorized the purchase of up to $4.0 million of shares of our common stock to be
used to meet our required 2019 safe harbor funding obligation under the ESOP. On October 28, 2019, our Board of Directors
approved an increase of our prior share repurchase program from $4.0 million to $25.0 million shares of our common stock
through 2021. On October 19, 2021, the Board of Directors approved a new share repurchase program of up to $25.0 million of
shares of our common stock through 2023. The new share repurchase program replaced the prior program.
25
Stock Performance Graph
The following graph compares the total return on our common stock since the time of the Company’s IPO with similar returns
on the Standard & Poor’s (S&P) SmallCap 600 Index and the Dow Jones Industrial Average Index. The graph assumes a $100
investment with the reinvestment of any dividends.
Securities Authorized For Issuance Under Equity Compensation Plans
See Part III, Item 12, of this Annual Report on Form 10-K for certain information regarding our equity compensation plans.
Item 6. Reserved.
26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in the
understanding and assessing the trends and significant changes in our results of operations and financial condition. Historical results
may not be indicative of future performance. This discussion includes forward-looking statements that reflect our plans, estimates and
beliefs. Such statements involve risks and uncertainties. Our actual results may differ materially from those contemplated by these
forward-looking statements as a result of various factors, including those set forth in “Risk Factors” in Part I, Item 1A and
“Cautionary Statement Regarding Forward-Looking Statements” of this Annual Report on Form 10-K. This discussion should be read
in conjunction with our audited consolidated financial statements and the notes thereto included in Part II, Item 8 of this Annual
Report on Form 10-K. In this discussion, we use certain financial measures that are not prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). Explanation of these non-GAAP financial measures and
reconciliation to the most directly comparable GAAP financial measures are included in this Management’s Discussion and Analysis
of Financial Condition and Results of Operations. Investors should not consider non-GAAP financial measures in isolation or as
substitutes for financial information presented in compliance with GAAP.
All amounts are presented in thousands except share amounts, per share data, years and ratios.
Critical Accounting Policies and Estimates
Critical accounting policies are those policies that, in management’s view, are most important in the portrayal of our financial
condition and results of operations. The notes to the consolidated financial statements include full disclosure of significant accounting
policies. The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the
results that we report in our financial statements. These critical accounting policies require us to make difficult and subjective
judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Those critical accounting
policies and estimates that require the most significant judgment are discussed further below. See Note 1 – Nature of Business and
summary of significant accounting policies, in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual
Report on Form 10-K for more specifics.
Goodwill, Other Intangibles and Other Long-Lived Assets
Our long-lived assets consist primarily of property, equipment, purchased intangible assets and goodwill. The valuation and the
impairment testing of these long-lived assets involve significant judgments and assumptions, particularly as they relate to the
identification of reporting units, asset groups and the determination of fair market value.
We test our tangible and intangible long-lived assets subject to amortization for impairment whenever facts and circumstances
indicate that the carrying amount of an asset may not be recoverable. We test goodwill and indefinite lived intangible assets for
impairment annually, or more frequently if triggering events occur indicating that there may be impairment.
We have recorded goodwill and perform testing for potential goodwill impairment at a reporting unit level. A reporting unit is
an operating segment, or a business unit one level below an operating segment for which discrete financial information is available,
and for which management regularly reviews the operating results. Additionally, components within an operating segment can be
aggregated as a single reporting unit if they have similar economic characteristics. We have performed testing on our one reporting
unit.
We determine the fair value of our reporting unit using an income approach. Under the income approach, we calculate the fair
value of a reporting unit based on the present value of estimated future cash flows. The income approach is dependent on several key
management assumptions, including estimates of future sales, gross margins, operating costs, interest expense, income tax rates,
capital expenditures, changes in working capital requirements and the weighted average cost of capital or the discount rate. Discount
rate assumptions include an assessment of the risk inherent in the future cash flows of the reporting unit. Expected cash flows used
under the income approach are developed in conjunction with our budgeting and forecasting process.
We test our goodwill for impairment on an annual basis, and more frequently if events or changes in circumstances indicate that
it might be impaired. Due to the economic conditions during the second quarter of 2020 as a result of the COVID-19 pandemic, we
determined that an impairment triggering event occurred, which required an interim quantitative impairment assessment of goodwill.
Based on our interim quantitative assessments, the fair value of our reporting unit exceeded our related carrying value by more than
50%, thus no impairment of goodwill was indicated. For the years ended December 31, 2021 and 2020, there were no events or
changes in circumstances that would indicate a material impairment of our goodwill.
Changes to management assumptions and estimates utilized in the income approach could negatively impact the fair value
conclusions for our reporting unit resulting in goodwill impairment. All key assumptions and valuations are determined by and are the
responsibility of management. The factors used in the impairment analysis are inherently subject to uncertainty. We believe that the
estimates and assumptions are reasonable to determine the fair value of our reporting unit, however, if actual results are not consistent
with these estimates and assumptions, goodwill and other intangible assets may be overstated which could trigger an impairment
charge.
27
For impairment testing of long-lived assets, we identify asset groups at the lowest level for which identifiable cash flows are
largely independent of the cash flows of other groups of assets and liabilities. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flow expected to be generated by the
assets. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the estimated fair value of the asset group. For the year ended December
31, 2020, there were no events or changes in circumstances that indicated a material impairment of our long-lived assets. For the year
ended December 31, 2021, the Company recorded an impairment of its long-lived assets in the amount of $16,151. Please refer to
Note 24 – Subsequent Event in the Notes to Consolidated Financial Statements for further discussion of the facts and circumstances
that led to this impairment.
Determining the useful life of an intangible asset also requires judgment. Certain intangible assets are expected to have
indefinite lives based on their history and our plans to continue to support and build the acquired brands. Other acquired intangible
assets such as customer relationships, trade names, and non-compete agreements are expected to have determinable useful lives. The
costs of determinable-lived intangibles are amortized to expense over their estimated lives.
Income Taxes
The provision for, or benefit from, income taxes includes deferred taxes resulting from temporary differences in income for
financial and tax purposes using the liability method. Such temporary differences result primarily from differences in the carrying
value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback
and/or carryforward period available under tax law.
The Company evaluates on a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax
assets are realizable. Valuation allowances are established when it is estimated that it is more likely than not that the tax benefit of the
deferred tax asset will not be realized. The evaluation includes the consideration of all available evidence, both positive and negative,
regarding the estimated future reversals of existing taxable temporary differences, estimated future taxable income exclusive of
reversing temporary differences and carryforwards, historical taxable income in prior carryback periods if carryback is permitted, and
potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused.
The verifiable evidence such as future reversals of existing temporary differences and the ability to carryback are considered before
the subjective sources such as estimate future taxable income exclusive of temporary differences and tax planning strategies.
Additionally, we record uncertain tax positions at their net recognizable amount, based on the amount that management deems is more
likely than not to be sustained upon ultimate settlement with the tax authorities in jurisdictions in which we operate.
Revenue recognition
The Company adopted Accounting Standards Codification 606 January 1, 2019, where the Company recognizes revenue for the
transfer of goods or services to a customer in an amount that reflects the consideration it expects to receive in exchange for those
goods or services. The Company enters into supply agreements and purchase orders that include both free on board (FOB) origin and
FOB destination shipping terms. Depending on the terms of the agreement, the customer takes ownership at shipment or at delivery,
and this is when control transfers. Sales are supported by documentation such as supply agreements and purchase orders, which
specify certain terms and conditions including product specifications, quantities, fixed prices, delivery dates and payments terms.
Revenue related to services is recognized in the period in which the services are performed, thus the Company recognizes revenue at a
point in time.
There are many customers where the Company designs, engineers and builds production tooling, which is purchased by the
customer. Most of the tooling revenue is complete at the point the customer signs off on the product through the Product Part
Approval Process (PPAP) and the tool is placed into service. Revenue is recognized when control of the tooling promised under a
contract is transferred to the customer either at a point in time or over a period of time in an amount that reflects the consideration to
which the Company expects to be entitled in exchange for the goods or services.
The Company offers certain customers discounts for early payments. These discounts are recorded against net sales in the
Consolidated Statement of Comprehensive Income (Loss) and accounts receivable in the Consolidated Balance Sheets. The Company
does not offer any other customer incentives, rebates or allowances.
ESOP
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 upon the
approval of the Board of Directors’. 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. The stock in the ESOP is held in trust for the sole benefit of the participants. Shares allocated to a participant’s
account are fully vested. For the twelve months ended December 31, 2021, 2020, and 2019, the Company’s ESOP expense amounted
to $0, $0, $5,453, respectively. The Company elected to make annual discretionary contributions to the Mayville Engineering
28
Company, Inc. 401(k) Plan in 2020 and 2021, providing participants the opportunity to diversify their shares of common stock of the
Company if they choose to.
Upon retirement, death, termination of employment or exercise of diversification rights, the eligible portion of a participant’s
ESOP account is redeemable annually at the current price per share of the stock. Under the terms of the ESOP prior to the IPO, we
were obligated to redeem eligible participant account balances for cash (in accordance with the redemption schedule and subject to the
limitations set forth in the ESOP). Following the IPO, (i) we no longer redeem participants’ ESOP interests, as distributions from the
ESOP made to a participant following retirement, death or termination of employment, or the exercise of diversification rights under
the Traditional ESOP, will be made in our common stock, and upon receiving a distribution of our common stock from the ESOP a
participant will be able to sell such shares of common stock in the market, subject to any requirements of federal securities law; and
(ii) with respect to any participant who exercises statutory diversification rights under the ESOP, the ESOP Trustee will sell, on behalf
of the participant, the shares that the participant has elected to diversify and reinvest the sale proceeds in an alternate investment
option as directed by the participant.
Emerging Growth Company
The JOBS Act permits an “emerging growth company” like us to take advantage of an extended transition period to comply
with new or revised accounting standards applicable to public companies. We are choosing to use this provision and, as a result, we
will comply with new or revised accounting standards as required for private companies.
Internal Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our
company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over
financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing
reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable
assurance that receipts and expenditures of our assets are made in accordance with management’s authorization; and providing
reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial
statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial
reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Furthermore, our controls and procedures can be circumvented by the individual acts of some persons, by collusion of two or more
people or by management override of the control, and misstatements due to error or fraud may occur and not be detected on a timely
basis.
While preparing for the IPO in 2019 and as of December 31, 2019, we identified material weaknesses in the design and
operation of our internal control over financial reporting that were remediated as of December 31, 2020. In 2019 and 2020, we took
numerous steps to enhance our internal control environment and remediate the prior material weaknesses. Despite these actions, we
may identify additional material weaknesses in our internal control over financial reporting in the future.
If we identify future material weaknesses in our internal control over financial reporting or if we are unable to comply with the
demands that are placed upon us as a public company, including the current and future requirements of Section 404 of the Sarbanes-
Oxley Act, in a timely manner, we may be unable to accurately report our financial results, or report them within the timeframes
required by the SEC. In addition, if we are unable to assert that our internal control over financial reporting is effective in future years,
or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control
over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports, we
may face restricted access to the capital markets and our stock price may be adversely affected.
Overview
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. We have developed long-standing relationships with our blue-chip customers based upon a high level of experience, trust and
confidence.
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.
29
In May 2019, we completed our 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 Impact
The COVID-19 pandemic has had and will continue to have a negative impact on our business, financial condition, cash flows,
results of operations, supply chain, and raw material availability, although the full extent is still uncertain.
For the twelve months ended December 31, 2020, net sales reflected the significant disruption we encountered primarily due to
COVID-19 pandemic with customer shutdowns, demand changes, and continued destocking, which were most apparent in the
commercial vehicle, agriculture and construction & access equipment end markets served. Despite MEC and its customer base
carrying the essential business designation, customer production facilities shut down for 5 – 6 weeks on average during the second
quarter of 2020 due to the pandemic. As a direct result of the customer shutdowns, MEC temporarily halted production at some of its
facilities during the second quarter. Customer manufacturing facilities gradually reopened toward the end of the second quarter, but
MEC production volumes remained below pre-pandemic levels through the remainder of the year with all MEC facilities open.
Despite the decline in volumes for the second, third and fourth quarters of 2020 due to the pandemic, all pre-existing customer
relationships and manufacturing programs remained intact.
For the twelve months ended December 31, 2021, net sales reflected the supply chain issues encountered by original equipment
manufacturers’ that led to lower production demand at times, which can be directly attributed to microchip shortages in the
commercial vehicle market and port issues that impacted nearly all end markets served. Additionally, we experienced inflationary
pressures on wages, benefits, materials, and manufacturing supplies due to a higher level of competition for employees and materials.
We are unable to predict the future impact of the labor and supply chain shortages and inflation, and the resulting impact on our
business, financial condition, cash flows, and results of operations.
The future financial effects of the continuing COVID-19 pandemic are unknown due to many factors. These factors include
uncertainty related to the Delta and Omicron variants, uncertainty of the effectiveness of governmental actions to address the
pandemic, including health, monetary and fiscal policies, the effect of elevated levels of sovereign and state debt, capital market
disruptions, changes in demand and pricing, trade agreements, other geopolitical events, and the availability and volatility in the price
of raw materials and other commodities. As a result, predicting the Company’s forecasted financial performance is difficult and
subject to many assumptions.
The Company’s first priority has been to safeguard the health and well-being of its employees while fulfilling its obligations as
an essential business serving its customer base. This proactive approach has kept employees safe and production facilities operational
based on customer demand. Our goal is to continue to successfully manage through the effects of the COVID-19 pandemic and
strengthen our position serving customers in the future.
How We Assess Performance
Net Sales. Net sales reflect sales of our components and products net of allowances for returns and discounts. Several factors
affect our net sales in any given period, including general economic conditions, weather, timing of acquisitions and the production
schedules of our customers. Net sales are recognized at the time of shipment to the customer.
Manufacturing Margins. Manufacturing margins represents net sales less cost of sales. Cost of sales consists of all direct and
indirect costs used in the manufacturing process, including raw materials, labor, equipment costs, depreciation, lease expenses,
subcontract costs and other directly related overhead costs. Our cost of sales is directly affected by the fluctuations in commodity
prices, primarily sheet steel and aluminum, but these changes are largely mitigated by contractual agreements with our customers that
allow us to pass through these price variations based upon certain market indexes.
Depreciation and Amortization. We carry property, plant and equipment on our balance sheet at cost, net of accumulated
depreciation and amortization. Depreciation on property, plant and equipment is computed on a straight-line basis over the estimated
useful life of the asset. Amortization expense is the periodic expense related to leasehold improvements and intangible assets.
Leasehold improvements are amortized over the lesser of the life of the underlying asset or the remaining lease term. Our intangible
assets were recognized as a result of certain acquisitions and are generally amortized on a straight-line basis over the estimated useful
lives of the assets.
Other Selling, General, and Administrative Expenses. Other selling, general and administrative expenses consist primarily of
salaries and personnel costs for our sales and marketing, finance, human resources, information systems, administration and certain
30
other managerial employees and corporate level administrative expenses such as incentive compensation, audit, accounting, legal and
other consulting and professional services, travel, and insurance.
Other Key Performance Indicators
EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin
EBITDA represents net loss before interest expense, benefit for income taxes, depreciation and amortization. EBITDA Margin
represents EBITDA as a percentage of net sales for each period.
Adjusted EBITDA represents EBITDA before transaction fees incurred in connection with the DMP acquisition and the IPO,
the loss on debt extinguishment relating to our December 2018 credit agreement, non-cash purchase accounting charges including
costs recognized on the step-up of acquired inventory and contingent consideration fair value adjustments, one-time increases in
deferred compensation and long term incentive plan expenses related to the IPO, stock-based compensation, restructuring expenses
related to the closure of the Greenwood facility, and impairment charges on long-lived assets and inventory specifically purchased to
meet obligations under the agreement with our fitness customer. Adjusted EBITDA Margin represents Adjusted EBITDA as a
percentage of net sales for each period. These metrics are supplemental measures of our operating performance that are neither
required by, nor presented in accordance with, GAAP. These measures should not be considered as an alternative to net income or any
other performance measure derived in accordance with GAAP as an indicator of our operating performance. We present Adjusted
EBITDA and Adjusted EBITDA Margin as management uses these measures as key performance indicators, and we believe they are
measures frequently used by securities analysts, investors and other parties to evaluate companies in our industry. These measures
have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of our results as reported
under GAAP.
Starting in the first quarter of 2020, we excluded stock-based compensation expense from Adjusted EBITDA. Management
excludes this charge when evaluating the performance of the business because it is a non-cash charge, and the Company is able to
fund vesting obligations through its Omnibus Incentive Plan. Further, the exclusion of these charges aligns with the calculation of
Adjusted EBITDA for purposes of our covenant calculations under the Credit Agreement. And finally, revaluations of grant date fair
values can vary significantly with the passage of time without any accounting impact.
Our calculation of EBITDA, EBITDA Margin, Adjusted EBITDA and Adjusted EBITDA Margin may not be comparable to the
similarly named measures reported by other companies. Potential differences between our measures of EBITDA and Adjusted
EBITDA compared to other similar companies’ measures of EBITDA and Adjusted EBITDA may include differences in capital
structure and tax positions.
The following table presents a reconciliation of net loss, the most directly comparable measure calculated in accordance with
GAAP, to EBITDA and Adjusted EBITDA, and the calculation of EBITDA Margin and Adjusted EBITDA Margin for each of the
periods presented.
31
Net loss
Interest expense
Benefit for income taxes
Depreciation and amortization
EBITDA
Loss on the extinguishment of debt
Costs recognized on step-up of acquired inventory
Contingent consideration revaluation
Deferred compensation expense specific to IPO
Long term incentive plan expense specific to IPO
Other IPO and DMP acquisition related expenses
IPO stock-based compensation expense
Stock based compensation expense
Greenwood restructuring charges
Impairment of inventory and loss on contracts
Impairment of long-lived assets and loss on contracts
Adjusted EBITDA
Net sales
EBITDA Margin
Adjusted EBITDA Margin
$
$
$
Twelve Months Ended
December 31,
2020
2021
2019
(7,451 ) $
2,003
(1,943 )
31,783
24,392
—
—
—
—
—
—
—
4,962
—
700
16,151
46,205 $
454,826 $
5.4 %
10.2 %
(7,092 ) $
2,668
(2,074 )
32,089
25,591
—
—
—
—
—
—
1,029
3,703
2,524
—
—
32,847 $
357,606 $
7.2 %
9.2 %
(4,753 )
6,728
(4,088 )
33,002
30,890
154
395
(6,054 )
10,159
9,921
5,744
1,871
1,616
—
—
—
54,696
519,704
5.9 %
10.5 %
Consolidated Results of Operations
Twelve Months Ended December 31, 2021 Compared to Twelve Months Ended December 31, 2020
Twelve Months Ended December 31,
2020
2021
Increase (Decrease)
Net sales
Cost of sales
Amount
$ 454,826
403,451
51,375
Manufacturing margins
10,706
Amortization of intangibles
11,500
Profit sharing, bonuses and deferred compensation
Other selling, general and administrative expenses
20,409
Impairment of long-lived assets and loss on contracts 16,151
(7,391 )
(2,003 )
(1,943 )
$
(7,451 )
$ 24,392
$ 46,205
Interest expense
Benefit for income taxes
EBITDA
Adjusted EBITDA
Net loss and comprehensive loss
Loss from operations
% of Net
Sales
Amount
% of Net
Sales
Amount
Change
% Change
100.0 % $ 357,606
88.7 % 326,105
11.3 % 31,501
2.4 % 10,706
2.5 %
8,250
4.5 % 19,043
—
3.6 %
(6,498 )
-1.6 %
(2,668 )
0.4 %
(2,074 )
-0.4 %
-1.6 % $
(7,092 )
5.4 % $ 25,591
10.2 % $ 32,847
100.0 % $ 97,220
91.2 % 77,346
8.8 % 19,874
—
3.0 %
3,250
2.3 %
5.3 %
1,366
0.0 % 16,151
893
-1.8 %
(665 )
0.7 %
(131 )
-0.6 %
359
-2.0 % $
7.2 % $
(1,199 )
9.2 % $ 13,358
27.2 %
23.7 %
63.1 %
0.0 %
39.4 %
7.2 %
N/A
13.7 %
-24.9 %
-6.3 %
5.1 %
-4.7 %
40.7 %
Net Sales. Net sales were $454,826 for the twelve months ended December 31, 2021 as compared to $357,606 for the twelve
months ended December 31, 2020. This change was primarily driven by the improvement in market conditions from the prior year
period and commercial pricing increases implemented in the fourth quarter of 2021 to combat inflationary pressures, which were
slightly offset by customer supply chain issues and the timing lag related to contractual raw material price pass-throughs to customers.
The prior year period was impacted by customer facility shutdowns driven by the pandemic, along with lower market demand and
related destocking activities, which were most apparent in the Commercial Vehicle, Agricultural and Construction & Access
Equipment end markets served.
Manufacturing Margins. Manufacturing margins were $51,375 for the twelve months ended December 31, 2021 as compared
to $31,501 for the twelve months ended December 31, 2020. The increase was driven by production volume increases and higher
scrap income. Furthermore, the improved production volumes, the utilization of the Company’s investments in new technology and
32
automation, and efficiencies following the closure of the Greenwood, SC facility in 2020 resulted in significant improvements in
absorbed manufacturing overhead costs. This was partially offset by the timing of raw material pricing passed through to customers,
inflationary pressures on wages, benefits, materials, and general manufacturing supply costs during 2021, and increased utility, freight,
repair, and other costs related to the improved sales volumes. Additionally, the Company incurred approximately $2.9 million in
launch costs and $700 of inventory write-offs related to the agreement with the new fitness customer during 2021. Further, the prior
year period was negatively impacted by the following: market demand changes, customer shutdowns related to the COVID-19
pandemic, approximately $775 of inventory obsolescence, and health care charges specific to the estimated potential impacts of the
pandemic, and $2,524 of restructuring costs related to the Greenwood facility closure.
Manufacturing margin percentages were 11.3% for the twelve months ended December 31, 2021 as compared to 8.8% for the
twelve months ended December 31, 2020, an increase of 2.5%, which can be attributed to the items discussed above.
Profit Sharing, Bonuses and Deferred Compensation Expenses. Profit sharing, bonuses and deferred compensation expenses
were $11,500 for the twelve months ended December 31, 2021 as compared to $8,250 for the twelve months ended December 31,
2020. The increase is primarily driven by the return of normalized discretionary 401(k) and bonus accruals as business activity and
sales volumes improved.
Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses were $20,409 for the
twelve months ended December 31, 2021 as compared to $19,043 for the twelve months ended December 31, 2020. The increase was
mainly driven by higher salary and payroll expenses which were unusually low in the prior year period due to the pandemic.
Impairment of Long-Lived Assets and Loss on Contracts. On February 18, 2022, the new customer in the fitness market
informed the Company that it does not forecast any demand for any products or parts that are the subject of the agreement between the
Company and the customer for the remainder of the agreement’s term, which ends March 2026. Given the circumstances, GAAP
required the Company to assess whether the assets were impaired. As a result of this assessment, the Company recorded an
impairment on the assets specifically purchased to meet obligations under the agreement with the fitness customer. As a result, the
Company recorded an impairment of long-lived assets and loss on contracts of $16,151 in the fourth quarter of 2021.
Interest Expense. Interest expense was $2,003 for the twelve months ended December 31, 2021 as compared to $2,668 for the
twelve months ended December 31, 2020. On average, the Company carried a lower debt balance throughout the current year coupled
with lower interest rates in 2021.
Benefit for Income Taxes. Income tax benefit was $1,943 for the twelve months ended December 31, 2021 as compared to
income tax benefit of $2,074 for the twelve months ended December 31, 2020. Please reference Note 9 – Income Taxes in the
Condensed Consolidated Financial Statements for further details.
Due to the factors described in the preceding paragraphs, net loss, comprehensive loss, EBITDA, EBITDA Margin, Adjusted
EBITDA and Adjusted EBITDA Margin increased during 2021.
33
Twelve Months Ended December 31, 2020 Compared to Twelve Months Ended December 31, 2019
Net sales
Cost of sales
Manufacturing margins
Amortization of intangibles
Profit sharing, bonuses and deferred compensation
Employee stock ownership plan expense
Other selling, general and administrative expenses
Contingent consideration revaluation
Loss from operations
Interest expense
Loss on extinguishment of debt
Benefit for income taxes
Net loss and comprehensive loss
EBITDA
Adjusted EBITDA
Twelve Months Ended December 31,
2019
2020
Increase (Decrease)
Amount
$ 357,606
326,105
31,501
10,706
8,250
—
19,043
—
(6,498 )
(2,668 )
—
(2,074 )
$
(7,092 )
$ 25,591
$ 32,847
% of Net
Sales
Amount
% of Net
Sales
Amount
Change
% Change
100.0 % $ 519,704
91.2 % 460,986
8.8 % 58,718
3.0 % 10,706
2.3 % 25,105
5,453
0.0 %
5.3 % 25,466
(6,054 )
0.0 %
(1,958 )
-1.8 %
(6,728 )
0.7 %
(154 )
0.0 %
(4,088 )
-0.6 %
-2.0 % $
(4,753 )
7.2 % $ 30,890
9.2 % $ 54,696
100.0 % $ (162,098 )
88.7 % (134,881 )
11.3 % (27,217 )
2.1 %
—
4.8 % (16,855 )
(5,453 )
1.0 %
(6,423 )
4.9 %
(6,054 )
-1.2 %
4,540
-0.4 %
(4,060 )
1.3 %
(154 )
0.0 %
(2,014 )
-0.8 %
(2,339 )
-0.9 % $
(5,299 )
5.9 % $
10.5 % $ (21,849 )
-31.2 %
-29.3 %
-46.4 %
0.0 %
-67.1 %
-100.0 %
-25.2 %
-100.0 %
231.9 %
-60.3 %
-100.0 %
-49.3 %
49.2 %
-17.2 %
-39.9 %
Net Sales. Net sales were $357,606 for the twelve months ended December 31, 2020 as compared to $519,704 for the twelve
months ended December 31, 2019. The decrease was driven by volume reductions across nearly all end markets served due to the
COVID-19 pandemic, along with continued market demand changes and customer destocking activities which were most apparent in
the Commercial Vehicle, Agriculture and Construction & Access Equipment end markets served. Despite MEC and its customer base
carrying the essential business designation, customer production facilities shut down for 5 – 6 weeks on average during the second
quarter of 2020 due to the pandemic. As a direct result of the customer shutdowns, MEC temporarily halted production at some of its
facilities during this time period. Customer manufacturing facilities gradually reopened, but MEC production volumes remained
below pre-pandemic levels through the remainder of the year. Despite these volume declines, all pre-existing customer relationships
and manufacturing programs remained intact.
Manufacturing Margins. Manufacturing margins were $31,501 for the twelve months ended December 31, 2020 as compared
to $58,718 for the twelve months ended December 31, 2019. The decline was mainly driven by the aforementioned volume reductions
propelled by the COVID-19 pandemic along with the continued impact of market demand changes and destocking activities resulting
in higher under-absorbed manufacturing costs, and $2,524 of restructuring costs related to the Greenwood facility consolidation, the
details of which are outlined in Note 22 – Greenwood Facility Closure and Restructuring of the Consolidated Financial Statements. In
addition, cost of sales includes approximately $775 of inventory obsolescence and health care charges specific to the estimated
potential impacts of the pandemic.
Our traditional methods of determining inventory obsolescence and health care accruals significantly rely upon historical data.
When estimating the approximately $775 of COVID-19 reserves during 2020, we had neither historical information, nor much other
data from which to compute an estimated impact for this type of event. Nevertheless, the Company believed the obvious risk posed by
the pandemic had a financial impact in these areas. The charges for these COVID-19 specific accruals represented our best good faith
estimate of the potential financial impact to the Company based on information available to us at the time. Due to the continued risk
posed by the pandemic, these reserves remained mostly unchanged since establishment during the first quarter of 2020.
Manufacturing margin percentages were 8.8% for the twelve months ended December 31, 2020 as compared to 11.3% for the
twelve months ended December 31, 2019, a decline of 2.5%. This decline was mostly attributable to the aforementioned impacts of
the pandemic, market demand changes and destocking activities resulting in under-absorbed fixed overhead costs along with
Greenwood facility restructuring costs and COVID-19 specific reserves.
Profit Sharing, Bonuses and Deferred Compensation. Profit sharing, bonuses and deferred compensation expense were $8,250
for the twelve months ended December 31, 2020 as compared to $25,105 for the twelve months ended December 31, 2019. The prior
year included $20,080 of one-time IPO expenses, including $10,159 for deferred compensation and $9,921 for our long-term incentive
plan. Excluding these items from the prior year, these expenses increased $3,225. The increase was primarily due to increased stock-
based compensation expense during 2020 due to the timing of awards.
Employee Stock Ownership Plan Expense. Employee stock ownership plan expense was zero for the twelve months ended
December 31, 2020 as compared to $5,453 for the twelve months ended December 31, 2019. Prior to December 31, 2019, the annual
34
ESOP 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 in 2020, all contributions are discretionary. The change is due to the decision to eliminate this particular
discretionary gain sharing contribution for the fiscal year 2020 as a result of lower financial performance due to the adverse impacts of
the COVID-19 pandemic.
Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses were $19,043 for the
twelve months ended December 31, 2020 as compared to $25,466 for the twelve months ended December 31, 2019. The prior year
includes $5,744 of one-time other IPO and DMP acquisition related expenses. Excluding these one-time charges, these expenses
decreased $679. The decrease was driven by synergies achieved through the integration of DMP, lower travel and entertainment
expenses in 2020 due to the pandemic restrictions, and other cost saving initiatives initiated during 2020, slightly offset by an increase
in costs associated with being a publicly traded company.
Contingent Consideration Revaluation. The DMP purchase agreement provided for a payout to the previous shareholders of
DMP of $7,500, but not more than $10,000 if a certain level of EBITDA was generated during the twelve-month period ended
September 30, 2019. We estimated the fair value of the contingent consideration payable balance of $6,076 as of the acquisition date
of December 14, 2018. We then remeasured the fair value each quarter through September 30, 2019, with the change recorded as a
contingent consideration revaluation adjustment. Based on our calculations in accordance with the purchase agreement, and as agreed
to by DMP’s former shareholders, it was determined DMP’s EBITDA fell short of the payout threshold and as a result, the contingent
consideration payable balance was adjusted to zero in the third quarter of 2019, resulting in income of $6,054 for the twelve months
ended December 31, 2019.
Interest Expense. Interest expense was $2,668 for the twelve months ended December 31, 2020 as compared to $6,728 for the
twelve months ended December 31, 2019. The change is due to lower borrowings during the twelve months ended December 31, 2020
as compared to the same prior year period along with lower interest rates attributable to the more favorable terms afforded under our
amended and restated Credit Agreement.
Benefit for Income Taxes. Income tax benefits were $2,074 for the twelve months ended December 31, 2020 as compared to
$4,088 for the twelve months ended December 31, 2019. The decrease is due to a smaller pretax loss in 2020. As of December 31,
2020, our federal net operating loss (NOL) carryforward was $11,833 driven by the pretax losses incurred during the twelve months
ended December 31, 2020 and 2019.
The Company completed its IPO in May of 2019. The following 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.
Tax-adjusted pro forma information
Net loss available to shareholders
Pro forma provision for income taxes
Pro forma net loss
Pro forma basic loss per share
Pro forma diluted loss per share
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
Twelve Months Ended
December 31,
2020
2019
$
$
$
$
(7,092 ) $
—
(7,092 ) $
(0.36 ) $
(0.36 ) $
19,898,122
19,898,122
(4,753 )
173
(4,926 )
(0.28 )
(0.28 )
17,447,464
17,447,464
Due to the factors described in the preceding paragraphs, net loss and comprehensive loss increased, while EBITDA, EBITDA
Margin, Adjusted EBITDA and Adjusted EBITDA Margin decreased during 2020.
Liquidity and Capital Resources
The following is a summary of our cash flows from operating, investing, and financing activities, as reflected in the
Consolidated Statement of Cash Flows:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Net change in cash
Twelve Months Ended
December 31,
2020
2021
14,457 $
(33,961 )
19,501
(3 ) $
36,523 $
(5,774 )
(30,629 )
120 $
$
$
2019
33,402
(28,090 )
(8,400 )
(3,088 )
35
Cash Flows Analysis Twelve Months Ended December 31, 2021 Compared to Twelve Months Ended December 31, 2020
Operating Activities. Cash provided by operating activities was $14,457 for the twelve months ended December 31, 2021 as
compared to $36,523 for the twelve months ended December 31, 2020. The $22,066 decrease in operating cash flows was primarily
due to changes in net working capital, more specifically, accounts receivable rose relative to the growth in sales, while inventories and
accounts payable were elevated due to higher raw material prices and other costs as production levels rebounded from the pandemic
lows. Additionally, the Company carried more inventory at the end of 2021 due to the deferment of customer orders into 2022 as they
navigate supply chain issues impacting their production schedules.
Investing Activities. Cash used in investing activities was $33,961 for the twelve months ended December 31, 2021, as
compared to $5,774 for the twelve months ended December 31, 2020. The $28,187 increase in cash used in investing activities was
driven by the Company’s continued investment in technology and automation in 2021 as compared to leveraging our investments in
new technology and automation and preserving cash during the prior year period. Additionally, the Company invested $19,658 into
the new Hazel Park, MI facility during 2021. The Company also recorded $5,348 in proceeds from the sale of property, plant and
equipment mainly driven by the sale of the Greenwood, SC facility during the current period.
Financing Activities. Cash provided by financing activities was $19,501 for the twelve months ended December 31, 2021, as
compared to cash used in financing activities of $30,629 for the twelve months ended December 31, 2020. The $50,130 change was
driven by higher borrowings in excess of debt repayments in the second half of 2021 compared to debt repayments in excess of
borrowings during the prior year. The Company repurchased 147,785 shares of our common stock in 2021 under our share repurchase
program at a total cost of $2,153 and an average cost of $14.57 per share. In 2020, the Company repurchased 320,245 shares of our
common stock under our share repurchase program at a total cost of $2,435 and an average cost of $7.60 per share. The Company’s
decision to repurchase shares in 2022 will depend on business conditions, free cash flow generation, other cash requirements and stock
price. See Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, for
additional information regarding share repurchases.
Cash Flows Analysis Twelve Months Ended December 31, 2020 Compared to Twelve Months Ended December 31, 2019
Operating Activities. Cash provided by operating activities was $36,523 for the twelve months ended December 31, 2020 as
compared to $33,402 for the twelve months ended December 31, 2019. The 3,121 increase in operating cash flows was primarily due
to a greater reduction in inventory, prepaids and other assets, along with beneficial changes in a variety of other operating assets and
liability categories in 2020 as compared to the same prior year period. Changes to pricing, payment terms and credit terms did not
have a significant impact on changes to working capital items, or any other element of the operating cash flow activities for the
periods presented.
Investing Activities. Cash used in investing activities was $5,774 for the twelve months ended December 31, 2020, as compared
to $28,090 for the twelve months ended December 31, 2019. The $22,316, or 79.4%, decrease in cash used in investing activities was
driven by our capital spend changing from a focus on investments in new technology and automation in 2019, to leveraging those
investments and preserving cash in 2020. In addition, due to the Greenwood facility closure, the Company generated more proceeds
from the sale of equipment in 2020 as compared to 2019.
Financing Activities. Cash used by financing activities was $30,629 for the twelve months ended December 31, 2020, as
compared to cash used in financing activities of $8,400 for the twelve months ended December 31, 2019. The $22,229 change was
driven by the use of operating cash flow in 2020 to pay down debt as compared to net cash used in 2019 driven by IPO proceeds to
pay down debt.
Amended and Restated Credit Agreement
On September 26, 2019, and as last amended as of March 31, 2021, we entered into the Credit Agreement with certain lenders
and Wells Fargo Bank, National Association, as administrative agent (the Agent). The Credit Agreement provides for a $200,000
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 capacity through an accordion
feature. All amounts borrowed under the Credit Agreement mature on September 26, 2024.
Our obligations under the Credit Agreement are secured by first priority security interests in substantially all of our personal
property and guaranteed by, and secured by first priority security interests in, substantially all of the personal property of, our direct
and indirect subsidiaries: Center Manufacturing, Inc., Center Manufacturing Holdings, Inc., Center—Moeller Products LLC, Defiance
Metal Products Co., Defiance Metal Products of Arkansas, Inc., Defiance Metal Products of PA., Inc. and Defiance Metal Products of
WI, Inc.
36
Borrowings under the Credit Agreement bear interest at a fluctuating London Interbank Offered Rate (LIBOR) (which may be
adjusted for certain reserve requirements), plus 1.00 to 2.00% depending on the current Consolidated Total Leverage Ratio (as defined
in the Credit Agreement). Under certain circumstances, we may not be able to pay interest based on LIBOR. If that happens, we will
be required to pay interest at the Base Rate, which is the sum of (a) the higher of (i) the Prime Rate (as publicly announced by the
Agent from time to time) and (ii) the Federal Funds Rate plus 0.50%, plus (b) 0.00% to 1.00%, depending on the current Total
Consolidated Leverage Ratio. The Credit Agreement also includes provisions for determining a replacement rate when LIBOR is no
longer available.
At December 31, 2021, the interest rate on outstanding borrowings under the Revolving Loan was 1.75%. At December 31,
2021, we had availability of $132,390 under the Revolving Loan.
We must pay a commitment fee at a rate of 0.20% per annum on the average daily unused portion of the aggregate unused
revolving commitments under the Credit Agreement. We must also pay fees as specified in the Fee Letter (as defined in the Credit
Agreement) and with respect to any letters of credit issued under the Credit Agreement.
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. At
December 31, 2021, our interest coverage ratio was 10.36 to 1.00. The Credit Agreement also requires us to maintain 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.
As of December 31, 2021, our consolidated total leverage ratio was 2.43 to 1.00.
The Credit Agreement includes customary events of default, including, among other things, payment default, covenant default,
breach of representation or warranty, bankruptcy, cross-default, material ERISA events, material money judgments, and failure to
maintain subsidiary guarantees. If an event of default occurs, the Agent will be entitled to take various actions, including the
acceleration of amounts due under the Credit Agreement, termination of the credit facility, and all other actions permitted to be taken
by a secured creditor.
On June 30, 2020 and March 31, 2021, the Company entered into amendments to the Credit Agreement. Please refer to Note 4 –
Bank Revolving Credit Notes in the Notes to the Consolidated Financial Statements for a more detailed discussion.
Capital Requirements and Sources of Liquidity
During the twelve months ended December 31, 2021 and 2020, our capital expenditures were $39,356 and $7,794, respectively.
The increase of $31,562 was driven by our continued focus on investment in technology and automation in the current period as
compared to leveraging our investments and preserving cash during the same prior year period. Additionally, the Company invested
$19,658 into the new Hazel Park, MI facility during the current year period.
We have historically relied upon cash available through credit facilities, in addition to cash from operations, to finance our
working capital requirements and to support our growth. At December 31, 2021, we had immediate availability of $132,390 through
our Revolving Loan and another $100,000 through an accordion feature under our Credit Agreement, subject to covenants under the
Credit Agreement. We regularly monitor potential capital sources, including equity and debt financings, in an effort to meet our
planned capital expenditures and liquidity requirements. Our future success will be highly dependent on our ability to access outside
sources of capital. We will continue to have access to the availability currently provided under the Credit Agreement as long as we
remain compliant with the financial covenants. Based on our estimates of the impact of the COVID-19 pandemic at this time, we
expect to be in compliance with these financial covenants through 2022 and the foreseeable future.
We believe that our operating cash flow and available borrowings under the Credit Agreement are sufficient to fund our
operations for 2022 and beyond when taking into consideration the estimated impacts of the pandemic based on the information we
have available at this time. However, future cash flows are subject to a number of variables, and additional capital expenditures will be
required to conduct our operations. There can be no assurance that operations and other capital resources will provide cash in
sufficient amounts to maintain planned or future levels of capital expenditures. In the event we make one or more acquisitions and the
amount of capital required is greater than the amount we have available for acquisitions at that time, we could be required to reduce
the expected level of capital expenditures and/or seek additional capital. If we seek additional capital, we may do so through
borrowings under the Credit Agreement, joint ventures, asset sales, offerings of debt or equity securities or other means. We cannot
guarantee that this additional capital will be available on acceptable terms or at all. If we are unable to obtain the funds we need, we
may not be able to complete acquisitions that may be favorable to us or finance the capital expenditures necessary to conduct our
operations.
37
Contractual Obligations
The following table presents our obligations and commitments to make future payments under contracts and contingent
commitments at December 31, 2021:
Long-term debt principal payment obligations (1)
Equipment financing agreements (2)
Forecasted interest on debt payment obligations (3)
Capital lease obligations (4)
Operating lease obligations (5)
Total
Payments Due by Period
Total
2022
2023 – 2024 2025 – 2026 Thereafter
$
67,610 $
2,731 $
4,136
1,299
45,341
$ 121,117 $
— $
1,211 $
1,551
358
5,693
8,813 $
67,610 $
1,520
2,585
716
11,360
83,791 $
— $
—
—
225
9,487
9,712 $
—
—
18,801
18,801
(1)
(2)
(3)
(4)
(5)
Principal payments under the Company’s Credit Agreement, which expires in 2024.
Financing agreements entered into to purchase manufacturing equipment. Current and long-term portions are classified in other
current liabilities and other long-term liabilities, respectively, on the Consolidated Balance Sheets.
Forecasted interest on debt obligations are based on the debt balance, interest rate, and unused fee of the Company’s revolver
credit facility as of December 31, 2021, and the debt balances and interest rates of the Company’s equipment finance
agreements.
See Note 5 – Capital Lease Obligations in the Notes to Consolidated Financial Statements for additional information.
See Note 6 – Operating Lease Obligations in the Notes to Consolidated Financial Statements for additional information.
Capital expenditures for the full year 2022 are expected to be above 2021 levels as we make final payments for capital
equipment commitments previously made to meet contractual obligations related to the fitness customer, as well as continued
investments in new technologies and automation for our base business.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in customer forecasts, interest rates, and, to a lesser extent, commodities. To reduce
such risks, we selectively use financial instruments and other proactive management techniques.
Customer Forecasts
The use and consumption of our components, products and services fluctuates depending on order forecasts we receive from our
customers. These order forecasts can change dramatically from quarter-to-quarter dependent upon the respective markets that our
customers provide products in.
Interest Rate Risk
We are exposed to interest rate risk on certain of our short- and long-term debt obligations used to finance our operations and
acquisitions. We have LIBOR-based floating rate borrowings under the Credit Agreement, which exposes us to variability in interest
payments due to changes in the reference interest rates.
The amount borrowed under the Revolver Loan under the Credit Agreement was $67.6 million as of December 31, 2021. The
interest rate was 1.75% as of December 31, 2021. Please see “Liquidity and Capital Resources – Amended and Restated Credit
Agreement” in Part II, Item 7 of this Annual Report on Form 10-K and Note 4 – Bank Revolving Credit Notes in the Notes to the
Consolidated Financial Statements for more specifics.
A hypothetical 100-basis-point increase in our borrowing rates would have resulted in an additional $0.6 million of interest
expense based on our variable rate debt at December 31, 2021. We do not use derivative financial instruments to manage interest risk
or to speculate on future changes in interest rates. A rise in interest rates could negatively affect our cash flow.
Commodity Risk
We source a wide variety of materials and components from a network of suppliers. While such materials are generally available
from numerous suppliers, the COVID-19 pandemic has resulted in availability delays at times. In addition, commodity raw materials,
such as steel, aluminum, copper, paint and paint chemicals, and other production costs are subject to price fluctuations, which could
have a negative impact on our results. We strive to pass along such commodity price increases to customers to avoid profit margin
erosion and in many cases utilize contracts with those customers to mitigate the impact of commodity raw material price fluctuations.
As of December 31, 2021, we did not have any commodity hedging instruments in place.
38
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Mayville Engineering Company, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Mayville Engineering Company, Inc. and subsidiaries (the
"Company") as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income (loss), shareholders’
equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred
to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2021 and 2020 and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no
such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, WI
March 2, 2022
We have served as the Company's auditor since 2018.
39
Mayville Engineering Company, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share amounts)
ASSETS
Cash and cash equivalents
Receivables, net of allowances for doubtful accounts of $631 as of December 31, 2021
and $1,298 as of December 31, 2020
Inventories, net
Tooling in progress
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Assets held for sale
Goodwill
Intangible assets-net
Capital lease, net
Other long-term assets
Total
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable
Current portion of capital lease obligation
Accrued liabilities:
Salaries, wages, and payroll taxes
Profit sharing and bonus
Other current liabilities
Total current liabilities
Bank revolving credit notes
Capital lease obligation, less current maturities
Deferred compensation and long-term incentive, less current portion
Deferred income tax liability
Other long-term liabilities
Total liabilities
Commitments and contingencies (see Note 10)
Common shares, no par value, 75,000,000 authorized, 21,386,382 shares issued at
December 31, 2021 and 21,093,035 at December 31, 2020
Additional paid-in-capital
Retained earnings
Treasury shares at cost, 1,050,448 shares at December 31, 2021 and 1,033,645 at
December 31, 2020
Total shareholders’ equity
Total
December 31,
2021
December 31,
2020
$
118 $
121
55,417
70,157
3,950
2,924
132,566
119,610
—
71,535
50,761
1,136
3,865
379,473
50,119
315
8,684
5,289
12,965
77,372
67,610
892
25,117
8,641
1,570
181,202
—
197,186
7,547
(6,462 )
198,271
379,473 $
$
42,080
41,366
3,126
2,555
89,248
106,688
3,552
71,535
61,467
2,581
3,462
338,533
33,495
626
10,190
3,089
5,340
52,740
45,257
2,061
25,631
11,887
100
137,676
—
190,793
14,998
(4,934 )
200,857
338,533
The accompanying notes are an integral part of these Consolidated Financial Statements.
40
Mayville Engineering Company, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(in thousands, except share amounts and per share data)
Net sales
Cost of sales
Amortization of intangibles
Profit sharing, bonuses, and deferred compensation
Employee stock ownership plan expense
Other selling, general and administrative expenses
Impairment of long-lived assets and loss on contracts
Contingent consideration revaluation
Loss from operations
Interest expense
Loss on extinguishment of debt
Loss before taxes
Income tax benefit
Net loss and comprehensive loss
Loss per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Twelve Months Ended
December 31,
2020
2021
2019
454,826 $
403,451
10,706
11,500
—
20,409
16,151
—
(7,391 )
(2,003 )
—
(9,394 )
(1,943 )
(7,451 ) $
357,606 $
326,105
10,706
8,250
—
19,043
—
—
(6,498 )
(2,668 )
—
(9,166 )
(2,074 )
(7,092 ) $
519,704
460,986
10,706
25,105
5,453
25,466
—
(6,054 )
(1,958 )
(6,728 )
(154 )
(8,840 )
(4,088 )
(4,753 )
(0.37 ) $
(0.36 ) $
(0.36 ) $
(0.36 ) $
(0.27 )
(0.27 )
$
$
$
$
20,404,543
20,830,977
19,898,122
19,898,122
17,447,464
17,447,464
The accompanying notes are an integral part of these Consolidated Financial Statements.
41
Mayville Engineering Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation
Amortization
Allowance for doubtful accounts
Inventory excess and obsolescence reserve
Stock-based compensation expense
Costs recognized on step-up of acquired inventory
Contingent consideration revaluation
Loss (gain) on disposal of property, plant and equipment
Impairment of inventory and loss on contracts
Impairment of long-lived assets and loss on contracts
Deferred compensation and long-term incentive
Gain on extinguishment or forgiveness of debt
Non-cash adjustments
Changes in operating assets and liabilities – net of effects of acquisition:
Accounts receivable
Inventories
Tooling in progress
Prepaids and other current assets
Accounts payable
Deferred income taxes
Accrued liabilities, excluding long-term incentive
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisitions, net of cash acquired
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank revolving credit notes
Payments on bank revolving credit notes
Repayments of other long-term debt
Deferred financing costs
Proceeds from IPO, net
Purchase of treasury stock
Payments on capital leases
Proceeds from the exercise of stock options
Other financing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for taxes
Non-cash construction in progress in accounts payable
Twelve Months Ended
December 31,
2020
2021
2019
$
(7,451 ) $
(7,092 ) $
(4,753 )
21,077
10,706
(667 )
(935 )
4,962
—
—
(1,311 )
700
16,151
(514 )
—
325
(12,670 )
(27,896 )
(824 )
(1,013 )
11,836
(3,323 )
5,304
14,457
(39,309 )
5,348
—
(33,961 )
385,226
(362,873 )
(268 )
—
—
(2,153 )
(544 )
139
(26 )
19,501
(3 )
121
118 $
21,383
10,706
772
80
4,732
—
—
667
—
—
682
—
358
(2,664 )
4,246
(1,537 )
500
515
(4,857 )
8,032
36,523
(7,794 )
2,020
—
(5,774 )
267,169
(294,484 )
—
(207 )
—
(2,509 )
(598 )
—
—
(30,629 )
120
1
121 $
2,122 $
1,548 $
6,347 $
3,011 $
744 $
1,559 $
22,296
10,706
284
(60 )
3,486
395
(6,054 )
(62 )
—
—
11,598
(367 )
(237 )
11,853
8,886
729
(1,358 )
(11,010 )
(5,992 )
(6,938 )
33,402
(25,797 )
76
(2,369 )
(28,090 )
442,154
(429,211 )
(120,046 )
—
101,763
(2,591 )
(469 )
—
—
(8,400 )
(3,088 )
3,089
1
6,629
544
2,809
$
$
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
42
Mayville Engineering Company, Inc. and Subsidiaries
Consolidated Statement of Shareholders’ Equity
(in thousands)
Balance as of December 31, 2018
Transfer from temporary equity (see Note 17)
Share issuance – IPO
Cancellation of treasury stock
Share repurchases
Stock-based compensation
Net loss post IPO
Balance as of December 31, 2019
Net loss
Share repurchases
ESOP contribution
Stock-based compensation
Balance as of December 31, 2020
Net income
Share repurchases
401(k) contribution
Stock options exercised
Stock-based compensation
Balance as of December 31, 2021
Additional
Paid-in-Capital
Treasury
Shares
Retained
Earnings
Total
Shareholder’s Equity
$
$
$
$
— $
133,806
101,763
(55,369 )
—
3,486
—
183,687 $
—
—
2,374
4,732
190,793 $
—
—
1,319
112
4,962
197,186 $
— $
(57,659 )
—
55,369
(2,592 )
—
—
(4,882 ) $
—
(2,509 )
2,457
—
(4,934 ) $
—
(2,153 )
625
—
—
(6,462 ) $
— $
29,698
—
—
—
—
(7,609 )
22,089 $
(7,092 )
—
—
—
14,998 $
(7,451 )
—
—
—
—
7,547 $
—
105,845
101,763
—
(2,592 )
3,486
(7,609 )
200,895
(7,092 )
(2,509 )
4,831
4,732
200,857
(7,451 )
(2,153 )
1,944
112
4,962
198,271
The accompanying notes are an integral part of these Consolidated Financial Statements.
43
Mayville Engineering Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except share amounts and per share data)
Note 1. Nature of business and summary of significant accounting policies
Mayville Engineering Company, Inc. and subsidiaries (MEC, the Company, we, our, us or similar terms) 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 vehicle,
construction & access equipment, powersports, agriculture, military and other end markets. Founded in 1945 and headquartered in
Mayville, Wisconsin, we are a leading Tier I U.S. supplier of highly engineered components to original equipment manufacturers
(OEM) customers with leading positions in their respective markets. The Company operates 20 facilities, of which 19 are in operation,
located in Arkansas, Michigan, Mississippi, Ohio, Pennsylvania, Virginia, and Wisconsin. Our engineering expertise and technical
know-how allow us to add value through every product redevelopment cycle (generally every three to five years for our customers).
In December 1985, the Company formed the Mayville Engineering Company, Inc. Employee Stock Ownership Plan (ESOP).
The ESOP is a tax qualified retirement plan and is designed to invest primarily in the Company’s common stock which is held in a
Trust. From January 2003 until the Company’s IPO in May 2019, the ESOP owned 100% of the Company’s outstanding shares of
common stock which have been fully allocated to active or retired eligible employees. In connection with the IPO, the Company
initially sold 6,250,000 shares of common stock into the public market, reducing ESOP ownership to approximately 67%. As of
December 31, 2021, 48.0% of all outstanding shares were held by the ESOP or within the Company’s 401(k) plan.
Basis of presentation and consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP). They include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates
and assumptions that affect the reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly-liquid investments purchased with original maturities of 90 days or less to be cash and cash
equivalents.
Concentration of credit risk
Financial instruments that potentially subject the Company to credit risk consist principally of bank balances above the Federal
Deposit Insurance Corporation (FDIC) insurability limits of $250 per official custodian. The Company has not experienced any losses
on these accounts and management believes the Company is not exposed to any significant credit risk on cash.
Accounts receivable
Accounts receivable are generally uncollateralized customer obligations due under normal trade terms requiring payment within
30 to 60 days from the invoice date. Management periodically reviews past due balances and established an allowance for doubtful
accounts of approximately $631 and $1,298 as of December 31, 2021 and 2020, respectively, for probable uncollectible amounts
based on its assessment of the current status of individual accounts. The estimated valuation allowance results in a charge to cost of
sales and the accounts are written-off through a charge to the valuation allowance and a credit to accounts receivable after the
Company has used all reasonable collection efforts.
Inventories
Inventories are stated at the lower of cost, determined on the first-in, first-out method (FIFO), and net realizable value. Net
realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion,
disposal and transportation. Work-in-process and finished goods are valued at production cost consisting of material, labor and
overhead. The Company maintains a reserve for obsolete and slow-moving inventory of approximately $2,265 and $3,199 as of
December 31, 2021 and 2020, respectively, which is based upon the aging of current inventory as well as assumptions on future
demand and market conditions.
Tooling in progress
The Company has agreements with its customers to provide production tooling which will be used to produce specific parts for
its customers. The costs to design, engineer, and manufacture the tooling are charged to tooling in progress as incurred and based on
when control of the tooling is promised under contract, is transferred to the customer either at a point in time or over a period of time
is when revenue is recognized. The Company may also provide production tooling that is not sold to customers but is capitalized in
44
property, plant and equipment. To the extent that estimated costs exceed expected reimbursement from the customer, the Company
recognizes a loss. Tooling in progress was $3,950 and $3,126 as of December 31, 2021 and 2020, respectively.
Property, plant and equipment
Property, plant and equipment are stated at cost. Expenditures for additions and improvements are capitalized while
replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are expensed as incurred.
Properties sold, or otherwise disposed of, are removed from the property accounts, with gains or losses on disposal credited or charged
to the results of operations. Depreciation is provided over the estimated useful lives of the respective assets, using the straight-line
depreciation method for financial reporting purposes and begins when the asset is placed into service. Depreciation expense for the
twelve months ended December 31, 2021, 2020 and 2019 was $21,077, $21,383 and $22,296, respectively.
Business combinations
The Company accounts for all business combinations in accordance with Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Topic 805, “Business Combinations”. In connection with a business combination, the
acquiring company must allocate the cost of the acquisition to assets acquired and liabilities assumed based on fair values as of the
acquisition date. Any excess or shortage of amounts assigned to assets and liabilities over or under the purchase price is recorded as a
gain on bargain purchase or goodwill. Transaction costs associated with acquisitions are expensed as incurred within selling, general
and administrative expenses.
Goodwill
We test goodwill for impairment annually, or more frequently if triggering events occur indicating that there may be an
impairment. We have recorded goodwill and perform testing for potential goodwill impairment at a reporting unit level. A reporting
unit is an operating segment, or a business unit one level below an operating segment for which discrete financial information is
available, and for which management regularly reviews the operating results. Additionally, components within an operating segment
can be aggregated as a single reporting unit if they have similar economic characteristics. We have performed testing on our one
reporting unit.
We determine the fair value of our reporting units using an income approach. Under the income approach, we calculate the fair
value of a reporting unit based on the present value of estimated future cash flows. The income approach is dependent on several key
management assumptions, including estimates of future sales, gross margins, operating costs, interest expense, income tax rates,
capital expenditures, changes in working capital requirements and the weighted average cost of capital or the discount rate. Discount
rate assumptions include an assessment of the risk inherent in the future cash flows of the reporting unit. Expected cash flows used
under the income approach are developed in conjunction with our budgeting and forecasting process.
We test our goodwill for impairment on an annual basis in the fourth quarter of each fiscal year, and more frequently if events or
changes in circumstances indicate that it might be impaired. Due to the economic conditions during the second quarter of 2020 as a
result of the COVID-19 pandemic, we determined that an impairment triggering event occurred, which required an interim
quantitative impairment assessment of goodwill. Based on our interim quantitative assessments, the fair value of our reporting unit
exceeded our related carrying value by more than 50%, thus no impairment of goodwill was indicated. At December 31, 2021, the
Company had goodwill with a carrying amount of $71,535. The fair value exceeded the carrying value for 2021.
If the market valuation of our common shares or operating results of our reporting unit significantly decline beyond current
levels, we may again need to conduct an evaluation of the fair value of our goodwill, which may result in an impairment change.
Changes to management assumptions and estimates utilized in the income and market approaches could negatively impact the
fair value conclusions for our reporting units resulting in goodwill impairment. All key assumptions and valuations are determined by
and are the responsibility of management. The factors used in the impairment analysis are inherently subject to uncertainty. We
believe that the estimates and assumptions are reasonable to determine the fair value of our reporting units, however, if actual results
are not consistent with these estimates and assumptions, goodwill and other intangible assets may be overstated which could trigger an
impairment charge.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The
carrying amount of all significant financial instruments approximates fair value due to either the short maturity or the existence of
variable interest rates that approximate prevailing market rates. Cash and cash equivalents, accounts receivable and accounts payable
are classified as Level 1 fair value inputs as further described in Note 15 – Fair Value of Financial Instruments. Long-term debt is
classified as a Level 2 fair value input.
45
Impairment of long-lived assets and loss on contracts
When events or conditions warrant, the Company evaluates the recoverability of long-lived assets and considers whether these
assets are impaired. The Company assesses the recoverability of these assets based on several factors, including management’s
intention with respect to these assets and their projected undiscounted cash flows. If projected undiscounted cash flows are less than
the carrying amount of the respective assets, the Company adjusts the carrying amounts of such assets to their estimated fair value. To
the extent that the carrying value of the net assets of a reportable unit is greater than the estimated fair value, the Company may be
required to record impairment charges. The Company records long-lived asset impairment charges as a reduction to property, plant
and equipment and an increase in other current liabilities for loss contracts in the Consolidated Balance Sheets.
Deferred financing costs
Loan issuance costs and discounts are capitalized upon the issuance of long-term debt and amortized over the life of the related
debt. Loan issuance costs associated with revolving debt arrangements are presented as a component of other assets. Loan issuance
costs incurred in connection with revolving debt arrangements are amortized using the straight-line method over the life of the credit
agreement. Loan issuance costs and discounts incurred in connection with term debt are amortized using the effective interest method.
Amortization of deferred loan issuance costs and discounts are included in interest expense. During 2021, 2020 and 2019, the
Company recorded $0, $207 and $142, respectively of deferred financing costs associated with its long-term debt and line of credit
arrangements. Amortization expense associated with the deferred debt issuance costs and discounts in 2021, 2020 and 2019 was
approximately $336, $358 and $381. Accumulated amortization was approximately $720, $616 and $474 as of December 31, 2021,
2020 and 2019, respectively. Amendments made to existing debt in 2021, 2020 and 2019 resulted in the write-offs of $0, $0 and $154,
respectively of unamortized costs associated with the debt that was replaced.
Revenue recognition
The Company adopted ASC 606 January 1, 2019, where the Company recognizes revenue for the transfer of goods or services
to a customer in an amount that reflects the consideration it expects to receive in exchange for those goods or services. The Company
enters into supply agreements and purchase orders that include both free on board (FOB) origin and FOB destination shipping terms.
Depending on the terms of the agreement, the customer takes ownership at shipment or at delivery, and this is when control transfers.
Sales are supported by documentation such as supply agreements and purchase order, which specify certain terms and conditions
including product specifications, quantities, fixed prices, delivery dates and payments terms. Revenue related to services is recognized
in the period services are performed, thus the Company recognizes revenue at a point in time.
There are many customers where the Company designs, engineers and builds production tooling, which is purchased by the
customer. Most of the tooling revenue is complete at the point the customer signs off on the product through the Product Part
Approval Process (PPAP) and the tool is placed into service. Revenue is recognized when control of the tooling promised under a
contract is transferred to the customer either at a point in time or over a period of time in an amount that reflects the consideration to
which the Company expects to be entitled in exchange for the goods or services.
The Company offers certain customers discounts for early payments. These discounts are recorded against net sales in the
consolidated statement of comprehensive income and accounts receivable in the Consolidated Balance Sheets. The Company does not
offer any other customer incentives, rebates or allowances.
Shipping and handling
The Company expenses shipping and handling costs as incurred. These costs are generally comprised of salaries and wages,
shipping supplies and warehouse costs. Inbound freight costs, which mostly relate to raw materials, are included in cost of sales on the
Consolidated Statements of Comprehensive Loss. Outbound freight costs, which mostly relate to sales, are included in net sales on the
Consolidated Statements of Comprehensive Loss. The Company does not charge customers nor recognize revenue for shipping and
handling. The Company’s OEM customers arrange and pay the freight for delivery.
Advertising
The Company expenses the costs of advertising when incurred. Advertising expense was approximately $163, $100 and $110
for the twelve months ended December 31, 2021, 2020 and 2019, respectively. Advertising costs are charged to selling, general and
administrative expenses.
Income Taxes
Income taxes and uncertain tax positions are accounted for in accordance with ASC 740, “Accounting for Income Taxes”.
Deferred income taxes are provided for the differences between the bases of assets and liabilities for financial reporting and income
tax purposes. The Company measures deferred tax assets and liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse and recognizes the effect of a change in enacted rates in the period of enactment. Tax positions
meeting the more-likely-than-not recognition threshold are measured pursuant to the guidance set forth in ASC 740. A valuation
allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. See Note 9 “Income
Taxes” of these Notes to Consolidated Financial Statements for further discussion.
46
Loss per share
The Company computes basic loss per share by dividing net loss available to shareholders by the actual weighted average
number of common shares outstanding for the reporting period. The dilutive impact to basic earnings per share considers the impact to
earnings if all convertible securities were exercised or outstanding that do not have an antidilutive impact on earnings per share.
Treasury Stock
Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as
treasury stock. Subsequent reissuance of shares to the ESOP are recorded as a reduction to treasury stock and as ESOP expense in the
Consolidated Statements of Comprehensive Loss.
Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases, creating Topic 842. Under the new
guidance, lessees are required to recognize a right-of-use asset and a lease liability for substantially all leases. When measuring right-
of-use assets and lease 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. The new guidance will continue to
classify leases as either finance or operating, with classification affecting the pattern of expense recognition. For finance 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. Entities have the option to adopt the new guidance through a
cumulative effect adjustment to retained earnings applied either to the beginning of the earliest period presented (modified
retrospective approach) or to the beginning of the period of adoption (effective date approach) whereby the comparative periods are
unchanged. For public companies, this guidance is 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, 2022, and interim periods within fiscal years beginning after
December 15, 2022. Early adoption is permitted. The Company adopted the annual reporting guidance as of January 1, 2022 using the
effective date approach. The Company will early adopt the interim reporting guidance for the three month period ending March 31,
2022.
The new guidance provides a number of optional practical expedients in transition. The Company elected the "package of
practical expedients", which allows it to not reassess under the new guidance its prior conclusions about lease identification, lease
classification and initial direct costs. The Company did not elect the use-of-hindsight practical expedient. In addition, the new
guidance provides accounting policy elections for an entity’s ongoing lessee accounting. The Company has elected to not separate
lease and non-lease components for certain of its real estate leases. The Company has elected the short-term lease recognition
exemption for all leases that qualify which means that it will not recognize right-of-use assets or lease liabilities for those leases with a
term of 12 months or less.
The most significant effects of adoption relate to the recognition of right-of-use assets and lease liabilities on the Company’s
balance sheet for operating leases and providing new disclosures about the Company’s leasing activities. The Company currently
estimates these operating lease liabilities as of January 1, 2022 will be approximately $40,000. The Company does not expect the new
guidance to have a material impact on its results of operations.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which establishes
ASC 326, Financial Instruments – Credit Losses. The ASU revises the measurement of credit losses for financial assets measured at
amortized cost from an incurred loss methodology to an expected loss methodology. The ASU affects trade receivables, debt
securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about
significant estimates and credit quality are also required. In November 2018, the FASB issued ASU No. 2018-19, Codification
Improvements to Topic 326, Financial Instruments – Credit Losses. This ASU clarifies that receivables from operating leases are
accounted for using the lease guidance and not as financial instruments. In May 2019, the FASB issued ASU No. 2019-05, Targeted
Transition Relief, which amends ASC 326. This ASU provides an option to irrevocably elect to measure certain individual financial
assets at fair value instead of amortized cost. In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to
Topic 326, Financial Instruments – Credit Losses. The ASU clarifies the treatment of expected recoveries for amounts previously
written off on purchased receivables, provides transition relief for troubled debt restructuring, and allows for certain disclosure
simplifications of accrued interest. For as long as the Company remains an EGC, the new guidance is effective for annual reporting
periods beginning after December 15, 2022. The Company is evaluating the potential effects on the consolidated 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
47
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.
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
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.
Note 3. Select balance sheet data
Inventory
Inventories as of December 31, 2021 and December 31, 2020 consist of:
Finished goods and purchased parts
Raw materials
Work-in-process
Total
December 31,
2021
December 31,
2020
$
$
41,041 $
18,905
10,211
70,157 $
24,561
11,266
5,539
41,366
During the fourth quarter of 2021, the Company recorded an inventory impairment of $700. Please refer to Note 24 –
Subsequent Event for further discussion of the facts and circumstances that led to this impairment.
Property, plant and equipment
Property, plant and equipment as of December 31, 2021 and December 31, 2020 consist of:
Land
Land improvements
Building and building improvements
Machinery, equipment and tooling
Vehicles
Office furniture and fixtures
Construction in progress
Total property, plant and equipment, gross
Less accumulated depreciation
Total property, plant and equipment, net
Useful Lives
Years
Indefinite
15-39
15-39
3-10
5
3-7
N/A
December 31,
2021
December 31,
2020
$
$
1,033 $
3,169
56,243
221,140
3,869
17,960
15,443
318,857
199,247
119,610 $
1,033
3,169
55,172
199,854
3,778
16,242
3,931
283,179
176,491
106,688
The Company completed the closure of its Greenwood, SC manufacturing facility during the third quarter of the prior year and
sold the facility during the third quarter of the current year for $5,300 before commissions and fees, resulting in a gain on the sale of
asset of $1,374, which is classified in cost of sales on the Condensed Consolidated Statements of Comprehensive Loss as of December
48
31, 2021. The net amount of property, plant and equipment associated with the facility was $3,552, which was classified in assets held
for sale on the Consolidated Balance Sheets as of December 31, 2020.
Additionally, the Company finalized an agreement to lease a new facility in Hazel Park, MI during the second quarter of the
current year. As of December 31, 2021, the company invested $19,658 for the ramp-up of production, of which $6,654 is classified in
construction in progress.
During the fourth quarter of 2021, the Company recorded a long-lived asset impairment $12,875. Please refer to Note 24 –
Subsequent Event for further discussion of the facts and circumstances that led to this impairment.
Goodwill
We test our goodwill for impairment on an annual basis in the fourth quarter of each fiscal year, and more frequently if events or
changes in circumstances indicate that it might be impaired. Due to the economic conditions during the second quarter of 2020 as a
result of the COVID-19 pandemic, we determined that an impairment triggering event occurred, which required an interim
quantitative impairment assessment of goodwill. Based on our interim quantitative assessments, the fair value of our reporting unit
exceeded our related carrying value by more than 50%, thus no impairment of goodwill was indicated. We also performed our annual
qualitative goodwill impairment test during the fourth quarter of fiscal years 2021 and 2020, which did not indicate an impairment
existed. At December 31, 2021, the Company had goodwill with a carrying amount of $71,535. The fair value exceeded the carrying
value for 2021.
The goodwill carrying amount did not change between December 31, 2020 and December 31, 2021.
Intangible Assets
The following is a listing of intangible assets, the useful lives in years (amortization period) and accumulated amortization as of
December 31, 2021 and December 31, 2020:
Amortizable intangible assets:
Customer relationships and contracts
Trade name
Non-compete agreements
Patents
Accumulated amortization
Total amortizable intangible assets, net
Non-amortizable brand name
Total intangible assets, net
Useful Lives
Years
December 31,
2021
December 31,
2020
9-12
10
5
19
$
$
78,340 $
14,780
8,800
24
(54,994 )
46,950
3,811
50,761 $
78,340
14,780
8,800
24
(44,288 )
57,656
3,811
61,467
Non-amortizable brand name is tested annually for impairment.
Changes in intangible assets between December 31, 2020 and December 31, 2021 consist of:
Balance as of December 31, 2020
Amortization expense
Balance as of December 31, 2021
$
$
61,467
(10,706 )
50,761
49
Amortization expense was $10,706, for each of the twelve months ended December 31, 2021, 2020 and 2019.
Future amortization expense is expected to be as followed:
Year ending December 31,
2022
2023
2024
2025
2026
Thereafter
$
$
$
$
$
$
6,952
6,866
5,192
5,192
5,192
17,556
Note 4. Bank revolving credit notes
On September 26, 2019, and as last amended as of March 31, 2021, we entered into an amended and restated credit agreement
(Credit Agreement) with certain lenders and Wells Fargo Bank, National Association, as administrative agent (the 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 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 provided 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 took 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% to 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 was 4.25 to 1.00 for quarters
ending June 30, 2020 through and including December 31, 2020, and declined in quarterly increments to 3.25 to 1.00 through the
quarter ending December 31, 2021.
We entered into an amendment (Third Amendment) to the Credit Agreement on March 31, 2021 which allowed the Company to
incur up to $70,000 of capital expenditures in 2021, as opposed to $35,000.
At December 31, 2021, our consolidated total leverage ratio was 2.43 to 1.00 as compared to a covenant maximum of 3.25 to
1.00 in accordance with the Second Amendment of the Credit Agreement.
At December 31, 2021, our interest coverage ratio was 10.36 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 1.75% and 2.50% as of December 31, 2021 and December 31,
2020, 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 December 31, 2021 and December 31, 2020.
The Company was in compliance with all financial covenants of its credit agreements as of December 31, 2021 and
December 31, 2020. The amount borrowed on the revolving credit notes was $67,610 and $45,257 as of December 31, 2021 and
December 31, 2020, respectively.
50
Note 5. Capital lease obligations
Capital leases consist of equipment with a capitalized cost of $2,170 and $3,825 and accumulated depreciation of $1,034 and
$1,245 at December 31, 2021 and December 31, 2020, respectively. Depreciation of $565 and $644 was recognized on the capital
lease assets during the twelve months ended December 31, 2021 and December 31, 2020, respectively. Non-cash capital lease
transactions amounted to $0, $$0 and $1,776, for the twelve months ended December 31, 2021, 2020 and 2019, respectively. Future
minimum lease payments required under the lease are as follows:
Year ending December 31,
2022
2023
2024
2025
Total
Less payment amount allocated to interest
Present value of capital lease obligations
Current portion of capital lease obligations
Long-term portion of capital lease obligations
Total capital lease obligations
$
$
$
358
358
358
225
1,299
92
1,207
315
892
1,207
Note 6. Operating lease obligations
Operating leases relate to property, plant and equipment. Future minimum lease payments required under the lease are as
follows:
Year ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total
$
$
5,693
5,699
5,661
4,832
4,655
18,801
45,341
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 times through August 2031. Total rent expense under the
arrangements was approximately $5,282, $4,471 and $4,801 for the twelve months ended December 31, 2021, 2020, and 2019,
respectively.
Note 7. Employee stock ownership plan
Under the ESOP, the Company can make annual discretionary contributions to the trust for the benefit of eligible employees in
the form of cash or shares of common stock of the Company subject to the Board of Directors’ approval. 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 twelve months ended December 31, 2021,
2020 and 2019, the Company’s ESOP expense amounted to $0, $0 and $5,453, respectively.
At various times following death, disability, retirement, termination of employment or the exercise of diversification rights, an
ESOP participant is entitled to receive their ESOP account balance in accordance with various distribution methods as permitted under
the policies adopted by the ESOP. Prior to the IPO, all distributions were paid to participants in cash.
As of December 31, 2021, and December 31, 2020, the ESOP shares, excluding safe harbor shares held in the Company’s
401(k) plan, consisted of 7,292,392 and 8,253,533 in allocated shares, respectively. Prior to its IPO, the Company was obligated to
repurchase shares in the trust that were not distributed to ESOP participants as determined by the ESOP trustees, and thus the shares
were mandatorily redeemable. Subsequent to the IPO, shares are sold in the public market.
Note 8. Retirement plans
The Mayville Engineering Company, Inc. 401(k) Plan (the 401(k) Plan) covers substantially all employees meeting certain
eligibility requirements. The 401(k) Plan is a defined contribution plan and is intended for eligible employees to defer tax-free
51
contributions to save for retirement. Employees may contribute up to 50% of their eligible compensation plan to the 401(k) Plan,
subject to the limits of Section 401(k) of the Internal Revenue Code.
The 401(k) Plan also provides for employer discretionary profit sharing contributions and the Board of Directors authorized
discretionary profit sharing contributions of approximately $2,057, $1,833 and $0 for the twelve months ended December 31, 2021,
2020 and 2019, respectively, that are funded in the subsequent years.
Note 9. Income taxes
Income taxes are included in the Consolidated Statements of Comprehensive Loss at December 31, 2021 and 2020 as below:
Current income tax expense
U.S Federal
State
Total
Deferred income tax expense (benefit)
U.S Federal
State
Total
Total income tax benefit
December 31,
2021
December 31,
2020
$
$
100 $
1,203
1,303
(2,790 )
(456 )
(3,246 )
(1,943 ) $
129
98
227
(2,457 )
156
(2,301 )
(2,074 )
A reconciliation of the statutory federal income tax benefit to the income tax benefit from continuing operations provided at
December 31, 2021 and 2020, is as follows:
December 31,
2021
December 31,
2020
Income tax benefit at the federal statutory rate - 21%
State and local income taxes - net of federal income tax benefits
Compensation deduction limitation - section 162(m) adjustment
Income taxed by shareholder before IPO
Other - perms
Tax credits generated
Uncertain tax positions - current year
Uncertain tax positions - prior year
Loan fee amortization
Stock compensation
Section 481(a) adjustments
Fixed assets
Return to provision
Other miscellaneous tax
Total income tax benefit
Effective tax rate
$
$
(1,971 ) $
523
14
—
29
(301 )
75
—
—
(546 )
—
—
140
94
(1,943 ) $
26.5 %
(1,925 )
79
(113 )
(387 )
51
(409 )
106
115
698
764
(184 )
(452 )
(121 )
(296 )
(2,074 )
22.6 %
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities are
presented below:
52
Deferred tax assets:
Deferred compensation
Inventory adjustments
Accrued expenses
Credits
Net operating loss
Other
Total deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Intangibles
Other
Total deferred tax liabilities
Valuation allowance
Net deferred tax liability
December 31,
2021
December 31,
2020
$
$
8,349 $
1,694
1,530
656
4,080
240
16,549
11,612
13,556
22
25,190
—
(8,641 ) $
8,295
1,506
409
508
2,626
338
13,682
9,485
15,773
311
25,569
—
(11,887 )
Consolidated federal net operating loss carryforwards are $18,466 and do not expire. In addition, the Company has consolidated
and separate company net operating loss carryforwards of $4,386 in various states.
Uncertain Tax Positions
Based on an evaluation of its tax positions, the Company recorded an unrecognized tax benefit related to research and
development tax credits in its financial statements as of December 31, 2021 and December 31, 2020. The Company does not
anticipate that there will be a material change in the balance of the unrecognized tax benefits in the next twelve months. Any interest
and penalties related to uncertain tax positions are recorded in income tax expense. No amounts have been recorded as tax expense for
interest and penalties for the year ended December 31, 2021 as the amount for the utilized portion of the research and development
credit on the Wisconsin return is considered to be immaterial. At December 31, 2021, a total of $314 of unrecognized tax benefits
would, if recognized, impact the company's effective tax rate.
The Company files income tax returns in the United States federal jurisdiction and in various state and local jurisdictions.
Federal tax returns for tax years beginning January 1, 2018, and state tax returns beginning January 1, 2017, are open for examination.
Details of Unrecognized Tax Benefits
The following is a reconciliation of beginning and ending amounts of unrecognized tax benefits:
Balance as of December 31, 2020
Increase from current year tax positions
Decrease from prior year tax positions
Decrease from settlements with tax authority
Decrease from expiration of statute of limitations
Balance as of December 31, 2021
$
$
221
100
(7 )
—
—
314
Note 10. Contingencies
From time to time, the Company may be involved in various claims and lawsuits, both for and against the Company, arising in
the normal course of business. Although the results of litigation and claims cannot be predicted with certainty, in management’s
opinion, either the likelihood of loss is remote, or any reasonably possible loss associated with the resolution of such proceedings is
not expected to have a material adverse impact on the consolidated financial statements.
Note 11. Deferred compensation
The Mayville Engineering Deferred Compensation Plan is available for certain employees designated to be eligible to
participate by the Company and approved by the Board of Directors. Eligible employees may elect to defer a portion of his or her
compensation for any plan year and the deferral cannot exceed 50% of the participant’s base salary and may include the participant’s
annual short-term cash incentive up to 100%. The participant’s election must be made prior to the first day of the plan year.
53
An employer contribution will be made for each participant to reflect the amount of any reduced allocations to the ESOP and/or
401(k) employer contributions due solely to the participant’s deferral amounts, as applicable. In addition, a discretionary amount may
be awarded to a participant by the Company.
Prior to the IPO, all deferrals were deemed to have been invested in the Company’s common stock at a price equal to the share
value on the date of deferral and the value of the account increased or decreased with the change in the value of the stock. Individual
accounts are maintained for each participant. Each participant’s account is credited with the participant’s deferred compensation and
investment income or loss, reduced for charges, if any.
For the period subsequent to the IPO, deferrals are assumed to be invested in an investment vehicle based on the options made
available to the participant (which does not include Company stock).
The deferred compensation plan provides benefits payable upon separation of service or death. Payments are to be made 30 days
after date of separation from service, either in a lump-sum payment or up to five annual installments as elected by the participant when
the participant first elects to defer compensation.
The deferred compensation plan is non-funded, and all future contributions are unsecured in that the employees have the status
of a general unsecured creditor of the Company and the agreements constitute a promise by the Company to make benefit payments in
the future. During the twelve months ended December 31, 2021, 2020 and 2019, eligible employees elected to defer compensation of
$0, $,63 and $1,296, respectively. As of December 31, 2021, and December 31, 2020, the total amount accrued for all benefit years
under this plan was $25,117 and $25,631, respectively, which is included within the deferred compensation and long-term incentive
on the Consolidated Balance Sheets. These amounts include the initial deferral of compensation as adjusted for (a) subsequent changes
in the share value of the Company stock pursuant to the IPO or (b) following the IPO in the investment options chosen by the
participants. Total expense for the deferred compensation plan for the twelve months ended December 31, 2021, 2020 and 2019
amounted to $812, $725 and $10,476, respectively. These expenses are included in profit sharing, bonuses and deferred compensation
on the Consolidated Statements of Comprehensive Loss.
Note 12. Long-Term incentive plan
Prior to the IPO, the Company’s long-term incentive plan (LTIP) was available for any employee who had been designated to be
eligible to participate by the Compensation Committee of the Board of Directors. Annually, the LTIP provided for long-term cash
incentive awards to eligible participants based on the Company’s performance over a three-year performance period.
The LTIP was non-funded and each participant in the plan was considered a general unsecured creditor of the Company and
each agreement constituted a promise by the Company to make benefit payments if the future conditions were met, or if discretion is
exercised in favor of a benefit payment.
The qualifying conditions for each award granted under the plan included a minimum increase in the aggregate fair value of the
Company of 12% during the three-year performance period and the eligible participants must have been employed by the Company on
the date of the cash payment or have retired after attaining age 65, died or become disabled during the period from the beginning of
the performance period to the date of payment. If the qualifying conditions were not attained, discretionary payments were made, up
to a maximum amount specified in each award agreement. Discretionary payments were determined by the Compensation Committee
of the Board of Directors (for payment to the Chief Executive Officer of the Company) and by the Chief Executive Officer (for
payments to other participants in the plan).
If a participant was not employed throughout the performance period due to retirement, death or disability, their maximum
benefit was prorated based on the number of days employed by the Company during the performance periods.
The LTIP was terminated in May 2019 in conjunction with the IPO. Total expense for the long-term incentive plan for the
twelve months ended December 31, 2021, 2020 and 2019 amounted to $0, $0 and $10,000, respectively. These expenses are included
in profit sharing, bonuses and deferred compensation on the Consolidated Statements of Comprehensive Loss.
Note 13. Self-Funded insurance
The Company is self-funded for the medical benefits provided to its employees and their dependents. Healthcare costs are
expensed as incurred and are based upon actual claims paid, reinsurance premiums, administration fees, and estimated unpaid claims.
As of March 31, 2020, the Company consolidated its benefit plans and now has no specific stop loss limitation but has an aggregate
stop loss limit to mitigate risk. Expense related to this contract was approximately $17,157, $20,849 and $19,208 for the twelve
months ended December 31, 2021, 2020 and 2019, respectively. An estimated accrued liability of approximately $1,471 and $1,721
was recorded as of December 31, 2021 and December 31, 2020, respectively, for estimated unpaid claims and is included within other
current liabilities on the Consolidated Balance Sheets.
54
Note 14. Segments
The Company applies the provisions of ASC Topic 280, Segment Reporting. An operating segment is defined as a component
that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete
financial information is available. Based on the provisions of ASC 280, the Company has determined it has one operating segment.
The Company does not earn revenues or have long-lived assets located in foreign countries.
Note 15. Fair value of financial instruments
Fair value provides information on what the Company may realize if certain assets were sold or might pay to transfer certain
liabilities based upon an exit price. Financial assets and liabilities that are measured and reported at fair value are classified into a
three-level hierarchy that prioritizes the inputs used in the valuation process. A financial instrument’s categorization within the
valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based
on the observability and objectivity of the pricing inputs, as follows:
(cid:120)
(cid:120)
(cid:120)
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data
through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for
similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or
(iii) information derived from or corroborated by observable market data. Long term debt is classified as a Level 2 fair
value input.
Level 3 – Prices or valuation techniques that require significant unobservable data inputs. These inputs would normally be
the Company’s own data and judgements about assumptions that market participants would use in pricing the asset or
liability.
The following table lists the Company’s financial assets and liabilities accounted for at fair value by the fair value hierarchy:
Deferred compensation liability
Total
$
$
25,117 $
25,117 $
22,272 $
22,272 $
2,845 $
2,845 $
—
—
Fair Value Measurements at
Report Date Using
Balance at
December 31,
2021
(Level 1)
(Level 2)
(Level 3)
Fair Value Measurements at
Report Date Using
Balance at
December 31,
2020
(Level 1)
(Level 2)
(Level 3)
Deferred compensation liability
Total
$
$
25,631 $
25,631 $
4,865 $
4,865 $
20,766 $
20,766 $
—
—
Fair value measurements for the Company’s cash and cash equivalents are classified based upon Level 1 measurements because
such measurements are based upon quoted market prices in active markets for identical assets.
Accounts receivable, accounts payable, long-term debt and accrued liabilities are recorded in the financial statements at cost and
approximate fair value.
Deferred compensation liabilities are recorded at amounts due to participants at the time of deferral. Deferrals are invested in an
investment vehicle based on the options made available to the participant, considered to be Level 1 and Level 2 on the fair value
hierarchy, with the majority of the balance as Level 1. The change in fair value is recorded in the profit sharing, bonuses, and deferred
compensation line item on the Consolidated Statements of Comprehensive Loss. The balance due to participants is reflected on the
deferred compensation and long-term incentive line item on the Consolidated Balance Sheets.
The Company’s non-financial assets such as intangible assets and property, plant, and equipment are re-measured at fair value
when there is an indication of impairment and adjusted only when an impairment charge is recognized.
Note 16. Revenue recognition
55
Contract Assets and Contract Liabilities
The Company has contract assets and contract liabilities, which are included in other current assets and other current liabilities
on the Consolidated Balance Sheet, respectively. Contract assets include products where the Company has satisfied its performance
obligation, but receipt of payment is contingent upon delivery. Contract liabilities include deferred tooling revenue, where the
performance obligation was not met. The performance obligation is satisfied when the tooling is completed and the customer signs off
through the PPAP. Cost of goods sold is recognized and released from the balance sheet when control of the tooling promised under
contract is transferred to the customer either at a point in time or over a period of time.
The Company’s contracts with customers are short-term in nature; therefore, revenue is typically recognized, billed and
collected within a 12-month period. The following table reflects the changes in our contract assets and liabilities during the twelve
months ended December 31, 2021.
As of December 31, 2020
Net activity
As of December 31, 2021
Contract
Assets
Contract
Liabilities
$
$
3,126 $
824
3,950 $
1,060
1,658
2,718
Disaggregated Revenue
The following table represents a disaggregation of revenue by product category:
Outdoor sports
Fabrication
Performance structures
Tube
Tank
Total
Intercompany sales elimination
Total, net sales
Note 17. Temporary Equity
Twelve Months Ended
December 31,
2020
2021
$
$
10,039 $
295,988
73,207
58,749
25,816
463,799
(8,973 )
454,826 $
7,225 $
227,476
60,597
49,868
19,431
364,597
(6,991 )
357,606 $
2019
7,181
334,340
71,881
71,108
40,033
524,544
(4,839 )
519,704
Prior to our IPO in May 2019, our common stock was considered redeemable under GAAP because of certain repurchase
obligations related to the ESOP. As a result, all common shares were recorded as temporary equity (redeemable common shares) on
the Consolidated Balance Sheets at their redemption value as of the respective balance sheet dates.
All contractual redemption features were removed at the time of the IPO. As a consequence, all outstanding shares of common
stock ceased to be considered temporary equity and were reclassified to Shareholders’ Equity, including the associated balances of
retained earnings. As the common shares have no par value, the amounts recorded in temporary equity for the share redemption value
were recorded to additional paid-in capital within Shareholders’ Equity upon the transfer.
The following table shows all changes to temporary equity during the period of January 1, 2019 through the IPO of May 9,
2019.
Balance as of December 31, 2018
Net income pre-IPO
Transfer from temporary equity to common equity
Balance as of December 31, 2019
Redeemable
Common Shares
Temporary Equity
Treasury
Shares
Retained
Earnings
$
$
133,806 $
—
(133,806 )
— $
(57,659 ) $
—
57,659
— $
26,842
2,856
(29,698 )
—
56
Note 18. Common equity
On May 13, 2019, the Company issued a stock dividend specific to pre-IPO shares, of approximately 1,334.34-for-1. The share
dividend was accounted for as a 1,334.34-for-1 stock split and is retroactively reflected in these consolidated financial statements. All
share redemption provisions were removed effective with the IPO.
As disclosed in Note 2 – IPO, the Company’s IPO of common stock was effective in May 2019. In connection with the offering,
the Company sold a total of 6,402,209 additional shares of common stock.
On June 28, 2019, the Company cancelled 24,180,421 shares of common stock held in the Company’s treasury and returned
those shares to the status of authorized but unissued shares of common stock.
At December 31, 2021, the authorized stock of the Company consisted of 75,000,000 shares of common stock without par
value.
Changes in outstanding common shares are summarized as follows:
Beginning balance
IPO with Greenshoe option
Treasury stock purchases
Common stock issued (including share-based compensation impact)
Ending balance
2021
20,059,390
—
(147,785 )
424,329
20,335,934
2020
19,632,211
—
(320,245 )
747,424
20,059,390
2019
13,443,484
6,402,209
(213,482 )
—
19,632,211
Note 19. Earnings per share
The company computes earnings per share in accordance with ASC Topic 260, Earnings per Share. In accordance with ASC
260, outstanding options will be considered to have been exercised and outstanding as of the beginning of the period if the average
market price of the common stock during the period exceeds the exercise price of the options (they are “in the money”), and the
assumed exercise of the options do not have an anti-dilutive impact on earnings per share.
Options in the money that were not included in the computation of diluted earnings per share because they would have had
antidilutive impact on earnings per share were as follows:
Stock options
Note 20. Concentration of major customers
2021
Twelve Months Ended December 31,
2020
2019
300,510
600,530
—
The following customers accounted for 10% or greater of the Company’s recorded net sales and net trade receivables:
Customer
A
B
C
D
E
Net Sales
Twelve Months Ended December 31,
2021
2020
2019
Accounts Receivable
As of
December 31,
2021
As of
December 31,
2020
16.6 %
10.8 %
10.0 %
14.1 %
<10 %
15.3 %
11.1 %
12.5 %
11.6 %
<10 %
15.1 %
13.5 %
<10 %
13.1 %
<10 %
10.2 %
<10 %
<10 %
<10 %
11.2 %
11.3 %
<10 %
12.2 %
<10 %
<10 %
57
Note 21. Stock-based compensation
The Mayville Engineering Company, Inc. 2019 Omnibus Incentive Plan provided the Company the ability to grant monetary
payments based on the value of its common stock, up to two million shares.
On April 20, 2021, shareholders of the Company approved an amendment to the 2019 Omnibus Incentive Plan increasing the
number of shares of common stock authorized for issuance by 2,500,000 shares.
The Company recognizes stock-based compensation using the fair value provisions prescribed by ASC Topic 718,
Compensation – Stock Compensation. Accordingly, compensation costs for awards of stock-based compensation settled in shares are
determined based on the fair value of the share-based instrument at the time of grant and are recognized as expense over the vesting
period of the share-based instrument. For units, fair value is equivalent to the adjusted closing stock price at the date preceding the
date of grant. The Black-Scholes option pricing model is utilized to determine fair value for options.
Cancellations and forfeitures are accounted for as incurred.
Stock awards were granted on June 3, 2021, May 12, 2021, February 28, 2021, May 12, 2020, February 27, 2020, and May 8,
2019. There were no stock awards granted prior to this.
The Company’s stock-based compensation expense by award type is summarized as follows:
IPO unit awards
Unit awards
Option awards
$
Stock based compensation expense, net of tax
$
2021
Twelve Months Ended December 31,
2020
2019
— $
3,006
1,956
4,962 $
1,029 $
2,305
1,398
4,732 $
1,871
1,080
536
3,487
One-time IPO unit awards were fully expensed as of December 31, 2020.
A rollforward of unrecognized stock-based compensation expense is displayed in the table below. Unrecognized stock-based
compensation expense as of December 31, 2021 will be expensed over the remaining requisite service period from which individual
award values relate, up to February 28, 2023.
Balance as of December 31, 2018
Grants
Forfeitures
Expense
Balance as of December 31, 2019
Grants
Forfeitures
Expense
Balance as of December 31 2020
Grants
Forfeitures
Expense
Balance as of December 31, 2021
Units
Options
Total
$
$
— $
5,634
(88 )
(2,951 )
2,595
3,022
(738 )
(3,334 )
1,545
3,456
(319 )
(3,006 )
1,676 $
— $
1,748
(88 )
(536 )
1,124
2,041
(335 )
(1,398 )
1,432
2,130
(69 )
(1,956 )
1,537 $
—
7,382
(176 )
(3,487 )
3,719
5,063
(1,073 )
(4,732 )
2,977
5,586
(388 )
(4,962 )
3,213
58
Units
A summary of the Company’s unit award activity is as follows:
For the Year Ended December 31,
2021
Weighted-Average
Grant Date Fair
Value
Number of Units
Number of Units
2020
Weighted-Average
Grant Date Fair
Value
456,257
233,963
(20,412 )
(314,902 )
354,906
$
$
$
$
$
7.69
14.54
13.03
8.04
11.59
326,288 $
457,369 $
(62,409 ) $
(264,991 ) $
456,257 $
17.00
6.61
8.90
17.00
7.69
Nonvested, beginning of year
Grants
Forfeitures
Vested
Nonvested, end of year
Stock Options
A summary of the Company’s stock option award activity is as follows:
Nonvested, beginning of year
Grants
Forfeitures
Vested
Nonvested, end of year
For the Year Ended December 31,
2021
2020
Number of Options
718,528
307,365
(14,337 )
(484,661 )
526,895
Weighted-Average
Exercise Price
Number of Options
Weighted-Average
Exercise Price
$
$
$
$
$
8.74
14.01
10.41
9.68
10.91
273,479 $
718,489 $
(148,026 ) $
(125,414 ) $
718,528 $
17.00
7.12
9.13
17.00
8.74
As of December 31, 2021, there were 250,505 and 344,282 options issued and outstanding at exercise prices of $17.00 and
$7.12 per share, respectively, with a remaining weighted average contractual life of 7.93 years. The intrinsic values of these
outstanding options was zero and $7.79, respectively, based on the Company’s stock price as of December 31, 2021.
The Company uses the Black-Scholes valuation model to estimate the fair value of stock options which were $6.93 and $2.84
for those options granted during the years ended December 31, 2021 and 2020, respectively. The Company utilized the following
assumptions in determining these fair values:
Assumptions
Stock price at date of grant/exercise price
Expected term (in years)
Estimated volatility
Estimated risk-free rate of return
Expected dividend yield
$
Inputs
2021
2020
$
14.01
5.75
53.9 %
0.8 %
0.0 %
7.12
5.75
41.2 %
1.2 %
0.0 %
The Company does not have historical option exercise data to estimate the expected term. For options granted, the Company
utilizes the simplified method prescribed by Staff Accounting Bulletin (SAB) Topic 14 to estimate the expected term, which is
calculated as the average of the vesting term and the contractual term. The option grants have a contractual life of 10 years and a
requisite service period, or vesting term, of 2 years with 50% vesting on the annual anniversary dates. Applying the simplified method,
the Company calculated the expected terms of each tranche to be 5.5 years and 6.0 years resulting in an average expected term of 5.75
years for these awards. The Company will continue to employ the simplified method until more relevant detailed information becomes
available from which to make this estimate.
Note 22. Greenwood facility closure and restructuring
Based on the Company’s investments in new technology and automation, which have resulted in a smaller footprint requirement
to maintain manufacturing capacity, the Company announced it would be closing its Greenwood, SC facility on May 6, 2020. The
facility closure was finalized during the third quarter of 2020 with all customer components re-distributed amongst five other MEC
manufacturing facilities. All customer relationships and manufactured components were maintained through this transition without
disruption to our customers.
59
On July 1, 2021, the Company entered into a contract to sell the Greenwood, SC facility for $5,300 before commissions and
fees. Settlement of the contract occurred on August 30, 2021, resulting in a gain on the sale of the asset of $1,374, which is classified
in cost of sales on the Condensed Consolidated Statements of Comprehensive Loss for the twelve months ended December 31, 2021.
Costs associated with the closure were accounted for in accordance with ASC 420 Exit or Disposal Cost Obligations.
For the twelve months ended December 31, 2021, the Company incurred $0 costs associated with the facility closure and
restructuring. For the twelve months ended December 31, 2020, the Company incurred $2,524 of costs associated with the facility
closure and restructuring, including $282 for severance and retention bonus, $931 for the loss on sale of manufacturing equipment not
transferred to another MEC facility, $78 for the buyout of operating leases, $622 for the disposition of inventory, and the remainder
mostly related to costs to close the facility and relocate equipment to other facilities. These costs were recognized on the cost of sales
line item of the Condensed Consolidated Statements of Comprehensive Loss.
The Greenwood facility had a net book value of approximately $3,552 as of December 31, 2020 and was classified as assets
held for sale on the Consolidated Balance Sheet.
The following table summarizes the activity related to the Greenwood restructuring through December 31, 2020:
Employee Severance
and Retention Bonus
Reserve
Inventory Excess
and Obsolescence
Reserve
Other Reserves
Total Reserves
Balance as of December 31, 2019
$
Charges
Cash receipts (payments)
Accrual adjustments
Balance as of December 31, 2020
$
— $
282
(282 )
—
— $
— $
622
16
(638 )
— $
— $
1,620
(1,620 )
—
— $
—
2,524
(1,886 )
(638 )
—
As a result of the Greenwood facility closure, future earnings and cash flows were not impacted by the depreciation associated
with the assets disposed of or the facility, maintenance costs of the facility, and facility personnel expenses.
Assets disposed of had a net book value of $2,475 with a remaining useful life of approximately 3 years resulting in
approximately $825 of annual depreciation expense that is no longer incurred. The facility had a net book value of $3,552 as of
August 30, 2021 with a remaining weighted average useful life of approximately 27 years resulting in approximately $133 of annual
depreciation expense that is no longer be incurred.
Additionally, the Company no longer has approximately $800 of annual facility maintenance costs, including utilities, that are
no longer incurred.
Total personnel costs associated with the facility were approximately $2,250 for the first quarter 2020 resulting in approximately
$9,000 of annual personnel expenses; the majority of these costs were transitioned to five other MEC facilities that are now
manufacturing these components. As previously mentioned, all customer relationships and manufacturing programs were retained
through the transition.
The aforementioned depreciation, maintenance costs, and personnel expenses associated with the Greenwood facility have been
classified as cost of sales on the Condensed Consolidated Statements of Comprehensive Loss.
Note 23. Valuation and qualifying accounts
Description
Year ended December 31, 2021
Allowance for doubtful accounts
Year ended December 31, 2020
Allowance for doubtful accounts
Note 24 Subsequent events
Balance at
beginning of
period
Additions
Deductions
Balance at
end of period
$
1,298 $
751 $
1,418 $
631
$
526 $
1,582 $
810 $
1,298
The Company evaluated events and transactions for potential recognition or disclosure in the consolidated financial statements
through March 2, 2022, the date on which the consolidated financial statements were available to be issued.
60
In March 2021, the Company signed a contract with a new customer in the fitness market. As a result, the Company entered into
a lease for the new facility in Hazel Park, MI, and specifically purchased assets to meet obligations under the agreement with the
fitness customer. On February 18, 2022, the new customer in the fitness market informed the Company that it does not forecast any
demand for any products or parts that are subject of the agreement between the Company and the customer during the remaining four-
year term of that agreement. Additionally, fixed amounts owed, commencing in January 2022, included within the customer contract
are expected to be reserved in full within allowance for doubtful accounts.
At December 31, 2021, there was uncertainty as to the level of demand from the new fitness customer, but it was determined
that future cash flows would support the recovery of assets purchased and assets the Company committed to purchase to support the
launch of the new customer. The notification on February 18, 2022, resulted in a change in forecasted future cash flow, which
triggered an impairment assessment of those assets purchased, and assets the Company committed to purchase, to meet obligations
under the agreement with the new fitness customer. The result of the impairment assessment indicated the fair value of assets within
the impacted asset groups were less than carrying value, and, accordingly, a non-cash impairment should be recorded. As of December
31, 2021, the Company recorded an impairment of long-lived assets of $16,151, which is comprised of a decrease in property, plant
and equipment of $12,875, and an increase in other current liabilities of $3,276 due to non-cancellable commitments to purchase
property, plant and equipment related to loss contracts. Additionally, the Company recorded an increase in cost of sales of $700, of
which $661 was due to loss contacts recorded in other current liabilities and a $39 decrease to inventories. This transaction resulted in
a net tax benefit of $3,963.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to
be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded,
processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosure. In designing disclosure controls and procedures, our management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of
any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives.
Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
period covered by this Annual Report on Form 10-K and has concluded that, as of the end of such period, our disclosure controls and
procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such
term is defined in Rules 13a- 15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that: (i)
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our
assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our
management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the
61
Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that,
as of December 31, 2021, our internal control over financial reporting was effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Attestation Report of the Registered Public Accounting Firm (PCAOB ID No. 34)
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm
due to an exemption established by the JOBS Act for “emerging growth companies.”
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
of the Exchange Act) during the fourth quarter of 2021 that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
62
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item with respect to directors and Section 16 compliance is included under the captions
“Election of Directors,” “Corporate Governance – Committees” and “Delinquent Section 16(a) Reports,” respectively, in the
Company’s definitive proxy statement for its 2022 annual meeting of shareholders (Proxy Statement) and is hereby incorporated
herein by reference. Information with respect to the executive officers of the Company appears in Item 1 of this Annual Report on
Form 10-K. The information required by this Item with respect to audit committees and audit committee financial experts is included
under the caption “Corporate Governance” in the Proxy Statement and is incorporated herein by reference.
The Company has adopted a Code of Conduct and Ethics that applies to all of the Company’s directors, officers and employees,
including the Company’s Chief Executive Officer and Chief Financial Officer and other persons performing similar functions. The
Company has posted a copy of the Code of Conduct and Ethics on its website at www.mecinc.com. The Company intends to satisfy
the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, the Code of Conduct and Ethics
by posting such information on its website at www.mecinc.com. We are not including the information contained on its website as part
of, or incorporating it by reference into, this report.
Item 11. Executive Compensation.
The information required by this Item is included under the captions “Executive Compensation” and “2021 Director
Compensation” in the Proxy Statement and is hereby incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item with respect to security ownership of certain beneficial owners and management is
included under the caption “Principal Shareholders” in the Proxy Statement and is hereby incorporated by reference.
The following table sets forth information with respect to compensation plans under which equity securities of the Company are
authorized for issuance as of December 31, 2021:
Plan Category
Equity compensation plans approved by security holders (2)
Equity compensation plans not approved by security holders
Total
Number of securities
issued or to be
issued upon vesting
of units or exercise
of outstanding
options, warrants,
and rights
Weighted average
exercise price of
outstanding options,
warrants and rights
(1)
2,011,269 $
—
2,011,269 $
11.28
—
11.28
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
2,488,731
—
2,488,731
(1) Represents weighted average exercise price of 594,787 outstanding options and does not take into account restricted stock units.
(2) Consists of the Mayville Engineering Company, Inc. 2019 Omnibus Incentive Plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is included under the caption “Corporate Governance” in the Proxy Statement and is
hereby incorporated by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this Item is included under the caption “Miscellaneous – Independent Registered Public
Accounting Firm” in the Proxy Statement and is hereby incorporated by reference.
63
Item 15. Exhibits, Financial Statement Schedules.
Consolidated Financial Statements
PART IV
The consolidated financial statements listed in the accompanying index to the consolidated financial statements are filed as part
of this Annual Report on Form 10-K.
Financial Statement Schedules
All financial statement schedules have been omitted because they are not applicable or the required information is included in
the consolidated financial statements and the related notes thereto.
Exhibits
The exhibits listed in the exhibit index below are filed as part of this Annual Report on Form 10-K.
64
Exhibit
Number
3.1
EXHIBIT INDEX
Description
Amended and Restated Articles of Incorporation of Mayville Engineering Company, Inc. (incorporated by reference to
Exhibit 3.1 to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-230840) filed on April 29,
2019).
3.2
Bylaws of Mayville Engineering Company, Inc. as amended through April 20, 2021 (incorporated by reference to Exhibit
3.2 to the Company’s Current Report on Form 8-K filed on April 26, 2021).
4
Description of Mayville Engineering Company, Inc.’s Securities (incorporated by reference to Exhibit 4 to the Company’s
Annual Report on Form 10-K filed on March 2, 2020).
10.1†
10.2†
Mayville Engineering Company, Inc. 2019 Omnibus Incentive Plan, as amended through April 20, 2021 (incorporated by
reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed on March 8, 2021).
Form of Restricted Stock Unit Award Agreement (Non-Employee Director) under the Mayville Engineering Company,
Inc. 2019 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form
10-Q filed on June 18, 2019).
10.3†
Form of Restricted Stock Unit Award Agreement (Employee) under the Mayville Engineering Company, Inc. 2019
Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q
filed on June 18, 2019).
10.4†
Form of Stock Option Award Agreement under the Mayville Engineering Company, Inc. 2019 Omnibus Incentive Plan
(incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-
230840) filed on April 29, 2019).
10.5†
Form of Restricted Stock Award Agreement (Non-Employee Director) under the Mayville Engineering Company, Inc.
2019 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Registration
Statement on Form S-1 (File No. 333-230840) filed on April 29, 2019).
10.6†
Form of Restricted Stock Award Agreement (Employee) under the Mayville Engineering Company, Inc. 2019 Omnibus
Incentive Plan (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Registration Statement on Form S-
1 (File No. 333-230840) filed on April 29, 2019).
10.7†
Form of Stock Option Award Agreement under the Mayville Engineering Company, Inc. 2019 Omnibus Incentive Plan
(Full Term Exercise Period on Retirement) (incorporated by reference to Exhibit 10 to the Company’s Current Report on
Form 8-K filed on January 29, 2020).
10.8†
10.9†
10.10†
10.11
Mayville Engineering Company, Inc. Long-Term Incentive Plan, as amended and restated effective May 13, 2019
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on June 18, 2019).
Mayville Engineering Company, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.3 to the
Registration Statement on Form S-1 (File No. 333-230840) filed on April 12, 2019).
Form of Severance Agreement between Mayville Engineering Company, Inc. and each of Robert D. Kamphuis and Todd
M. Butz (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 (File No. 333-230840) filed
on April 12, 2019).
Form of Change in Control Employment and Severance Agreement between Mayville Engineering Company, Inc. and
each of Robert D. Kamphuis and Todd M. Butz (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q filed on November 3, 2020).
10.12
Form of Change in Control Employment and Severance Agreement between Mayville Engineering Company, Inc. and
each of Ryan F. Raber and Randall P. Stille (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report
on Form 10-Q filed on November 3, 2020).
10.13†
Memorandum of Agreement between Mayville Engineering Company, Inc. and Robert D. Kamphuis (incorporated by
reference to Exhibit 10.7 to the Registration Statement on Form S-1 (File No. 333-230840) filed on April 12, 2019).
65
10.14
Amended and Restated Credit Agreement, dated as of September 26, 2019, by and among Mayville Engineering
Company, Inc., the lenders from time to time party thereto, Wells Fargo Bank, National Association, as Administrative
Agent for the lenders, and Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner (incorporated by
reference to Exhibit 10 to the Company’s Current Report on Form 8-K filed on October 2, 2019).
10.15
10.16
Second Amendment, dated as of June 30, 2020, to the Amended and Restated Credit Agreement, dated as of September
26, 2019, by and among Mayville Engineering Company, Inc., the lenders from time to time party thereto, Wells Fargo
Bank, National Association, as Administrative Agent for the lenders, and Wells Fargo Securities, LLC, as Sole Lead
Arranger and Sole Bookrunner (incorporated by reference to Exhibit 10 to the Company’s Current Report on Form 8-K
filed on July 6, 2020).
Third Amendment, dated as of March 31, 2021, to the Amended and Restated Credit Agreement, dated as of September
26, 2019, by and among Mayville Engineering Company, Inc., the lenders from time to time party thereto, Wells Fargo
Bank, National Association, as Administrative Agent for the lenders, and Wells Fargo Securities, LLC, as Sole Lead
Arranger and Sole Bookrunner (incorporated by reference to Exhibit 10 to the Company’s Current Report on Form 8-K
filed on April 6, 2021).
21*
List of Subsidiaries of Mayville Engineering Company, Inc.
23*
Consent of Independent Registered Public Accounting Firm.
31.1*
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act
of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act
of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906of the Sarbanes-Oxley Act of 2002.
99
Proxy Statement for the 2022 Annual Meeting of Shareholders. [To be filed with the Securities and Exchange
Commission under Regulation 14A within 120 days after December 31, 2021; except to the extent specifically
incorporated by reference, the Proxy Statement for the 2022 Annual Meeting of Shareholders shall not be deemed to be
filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K].
101.INS
Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Date File (embedded within the Inline XBRL document)
Filed herewith.
*
† Management contract, compensatory plan or arrangement
66
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Comprehensive Loss for the Years ended December 31, 2021 and 2020, and 2019
Consolidated Statements of Cash Flows for the Years ended December 31, 2021 and 2020, and 2019
Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2021 and 2020, and 2019
Notes to Consolidated Financial Statements
Item 16. Form 10-K Summary
None.
39
40
41
42
43
44
67
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 2, 2022
MAYVILLE ENGINEERING COMPANY, INC.
By:
/s/ Robert D. Kamphuis
Robert D. Kamphuis
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name
Title
Date
/s/ Robert D. Kamphuis
Robert D. Kamphuis
/s/ Todd M. Butz
Todd M. Butz
/s/ Allen J. Carlson
Allen J. Carlson
/s/ Timothy L. Christen
Timothy L. Christen
/s/ Steven L. Fisher
Steven L. Fisher
/s/ Jennifer J. Kent
Jennifer J. Kent
/s/ Patrick D. Michels
Patrick D. Michels
/s/ Jay O. Rothman
Jay O. Rothman
Chairman, President, Chief Executive Officer
(Principal Executive Officer) and Director
March 2, 2022
Chief Financial Officer (Principal Financial
and Accounting Officer)
March 2, 2022
Director
Director
Director
Director
Director
Director
March 2, 2022
March 2, 2022
March 2, 2022
March 2, 2022
March 2, 2022
March 2, 2022
68
OFFICERS & DIRECTORS
EXECUTIVE OFFICERS
BOARD OF DIRECTORS
Robert D. Kamphuis
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Allen J. Carlson
UNIVERSITY OF FLORIDA COLLEGE OF ENGINEERING
Todd M. Butz
CHIEF FINANCIAL OFFICER
Timothy L. Christen
CHAIRMAN EMERITUS—BAKER TILLY
Ryan F. Raber
EXECUTIVE VICE PRESIDENT—STRATEGY, SALES AND MARKETING
Steven L. Fisher
RETIRED BUSINESS EXECUTIVE
Rand P. Stille
CHIEF OPERATING OFFICER
Jennifer J. Kent
EXECUTIVE VICE PRESIDENT AND
CHIEF PEOPLE & LEGAL OFFICER—QUAD
Patrick D. Michels
PRESIDENT AND CEO—MICHELS CORPORATION
Jay O. Rothman
CHAIRMAN AND CEO—FOLEY & LARDNER LLP