Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On July 1, 2023, Mayville Engineering Company, Inc. (MEC, the Company, we, our, us or similar terms) completed its acquisition (the Acquisition) of Mid-States Aluminum (MSA) for $90.0 million in cash, which included estimated adjustments for the amount of cash, indebtedness, net working capital, and certain expenses of MSA as of the closing, pursuant to the Unit Purchase Agreement, dated June 19, 2023. Prior to the closing of the Acquisition, MSA conducted a reorganization from a corporation to a limited liability company. MSA is a leading manufacturer of custom aluminum extrusions and fabrications that also offers related services including design, engineering, anodizing and finishing, assembly and packaging.
The Company financed the Acquisition by borrowing under its amended and restated credit agreement, dated as of June 28, 2023. The Company filed the amended and restated credit agreement with the Securities and Exchange Commission on June 29, 2023 as Exhibit 10 on Form 8-K dated June 28, 2023.
The following Unaudited Pro Forma Condensed Combined Financial Information was prepared in accordance with Regulation S-X under the Securities Act using accounting policies in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP). The Unaudited Pro Forma Condensed Combined Financial Information (1) was prepared using the acquisition method of accounting in accordance with the business combination accounting guidance as provided in Accounting Standards Codification (ASC) 805, Business Combinations, the Company being the acquiring entity and (2) is based on the Company’s historical consolidated financial statements and MSA’s historical financial statements. In the Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2023, it is assumed that the Acquisition occurred on June 30, 2023. In the Unaudited Pro Forma Condensed Combined Statements of Comprehensive Income for the six months ended June 30, 2023, and the twelve months ended December 31, 2022, it is assumed that the Acquisition occurred on January 1, 2022.
In accordance with ASC 805, we use our best estimates and assumptions to accurately assign fair value to the tangible assets acquired, identifiable intangible assets and liabilities assumed, and the related income tax impacts as of the Acquisition date. The estimate of the excess purchase price over the fair value of net tangible assets acquired was allocated to identifiable intangible assets and goodwill. The fair values assigned to MSA’s tangible and identifiable intangible assets acquired and liabilities assumed are based on the Company’s estimates and assumptions. The estimated fair values of these assets acquired, and liabilities assumed are considered preliminary and are based on the information that was available as of the date of the Acquisition. In the opinion of the Company’s management, the Unaudited Pro Forma Condensed Combined Financial Information includes all material adjustments necessary to be in accordance with Article 11 of Regulation S-X under the Securities Act.
The Company’s historical financial statements have been adjusted in the Unaudited Pro Forma Condensed Combined Financial Information to give effect to Pro Forma events that are (1) directly attributable to the Acquisition, (2) factually supportable and (3) expected to have a continuing impact on the combined results of the Company after the Acquisition. The purchase price allocation reflected in the following Unaudited Pro Forma Condensed Combined Financial Information is preliminary in nature as the final, actual purchase price and certain valuations have not been finalized. Accordingly, although these amounts represent Company management’s current best estimate of fair value, the final purchase price allocation may differ materially from the preliminary allocation utilized in the following Unaudited Pro Forma Condensed Combined Financial Information. In addition, the Unaudited Pro Forma Condensed Combined Statement of Comprehensive Income Information includes various estimates which are subject to material change and may not be indicative of what may be expected to occur in the future. The Pro Forma adjustments are described in the accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
The Unaudited Pro Forma Condensed Combined Financial Information is presented for informational purposes only. Such information is not necessarily indicative of the operating results or financial position that actually would have been achieved if the Acquisition had been consummated on the dates indicated or that the combined company may achieve in future periods. Further, the Unaudited Pro Forma Condensed Combined Financial Information does not reflect any revenue and operating synergies or cost savings that may result from the Acquisition.
Unaudited Pro Forma Condensed Combined Financial Information is based upon, and should be read in conjunction with:
● | Accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information; |
● | The Company’s historical financial statements included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2022 and in the Company’s Quarterly Report on Form 10-Q as of and for the six months ended June 30, 2023; and |
● | MSA’s historical financial statements included within this Current Report on Form 8-K as Exhibits 99.1 and 99.2 as of and for the year ended December 31, 2022 and as of and for the six months ended June 30, 2023, respectively. |
Mayville Engineering Company, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2023
(in thousands)
| | | | | | | | | | | | | | |
| | | | Mid-States | | | | | | | ||||
| | Mayville | | Aluminum | | | | | | | | | ||
| | Engineering | | After Reclassifications | | Pro Forma | | Note Ref. | | Pro Forma | ||||
| | Company | | (See Note 3) | | Adjustments | | (See Note 4) | | Combined | ||||
ASSETS | |
| | | | | | | | | | |||
Cash and cash equivalents | | $ | 90,125 | | $ | 324 | | $ | (90,002) | | [a] | | $ | 447 |
Receivables, net of allowances for doubtful accounts | |
| 69,066 | |
| 7,381 | |
| — | | | |
| 76,447 |
Inventories, net | |
| 66,828 | |
| 8,847 | |
| 891 | | [b] | |
| 76,566 |
Tooling in progress | |
| 7,827 | |
| — | |
| — | | | |
| 7,827 |
Prepaid expenses and other current assets | |
| 4,360 | |
| 262 | |
| — | | | |
| 4,622 |
Total current assets | |
| 238,206 | |
| 16,814 | |
| (89,111) | | | |
| 165,909 |
Property, plant and equipment, net | |
| 141,326 | |
| 20,114 | |
| 21,157 | | [b] | |
| 182,597 |
Assets held for sale | | | 81 | | | — | | | — | | | | | 81 |
Goodwill | |
| 71,535 | |
| — | |
| 21,800 | | [b] | |
| 93,335 |
Intangible assets, net | |
| 40,333 | |
| — | |
| 22,600 | | [b] | |
| 62,933 |
Operating lease assets | | | 33,929 | | | — | | | — | | | | | 33,929 |
Other long-term assets | |
| 3,192 | |
| 167 | |
| — | | | |
| 3,359 |
Total assets | | $ | 528,602 | | $ | 37,095 | | $ | (23,554) | | | | $ | 542,143 |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
|
| |
| | |
| | | | |
| |
Accounts payable | | $ | 52,354 | | $ | 2,279 | | $ | — | | | | $ | 54,633 |
Current portion of operating lease obligation | | | 5,017 | | | — | | | — | | | | | 5,017 |
Current portion of long-term debt | | | — | | | 697 | | | (212) | | [c] | | | 485 |
Accrued liabilities: | |
| | |
| | |
| | | | |
| — |
Salaries, wages, and payroll taxes | |
| 8,229 | |
| 1,441 | |
| — | | | |
| 9,670 |
Profit sharing and bonus | |
| 1,499 | |
| 461 | |
| — | | | |
| 1,960 |
Current portion of deferred compensation | | | 273 | | | — | | | — | | | | | 273 |
Other current liabilities | |
| 11,333 | |
| 1,361 | |
| — | | | |
| 12,694 |
Total current liabilities | |
| 78,705 | |
| 6,239 | |
| (212) | | | |
| 84,732 |
Bank revolving credit notes | |
| 177,943 | |
| — | |
| 5,009 | | [c] | |
| 182,952 |
Other long-term debt, less current maturities | | | — | | | 7,187 | | | (4,797) | | [c] | | | 2,390 |
Operating lease obligation, less current maturities | | | 29,745 | | | — | | | — | | | | | 29,745 |
Deferred compensation, less current portion | |
| 3,446 | |
| — | |
| — | | | |
| 3,446 |
Deferred income tax liability | |
| 12,710 | |
| — | |
| — | | | |
| 12,710 |
Other long-term liabilities | |
| 684 | |
| 115 | |
| — | | | |
| 799 |
Total liabilities | | $ | 303,233 | | $ | 13,541 | | $ | — | | | | $ | 316,774 |
Total shareholders’ equity | |
| 225,369 | |
| 23,554 | |
| (23,554) | | [d] | |
| 225,369 |
Total | | $ | 528,602 | | $ | 37,095 | | $ | (23,554) | | | | $ | 542,143 |
The accompanying notes are an integral part of these Condensed Combined Financial Statements
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Mayville Engineering Company, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Comprehensive Income
For the Six Months Ended June 30, 2023
(in thousands, except share amounts and per share data)
| | | | | | | | | | | | | |
| | | Mid-States | | | | | | | ||||
| Mayville | | Aluminum | | | | | | | | | ||
| Engineering | | After Reclassifications | | Pro Forma | | Note Ref. | | Pro Forma | ||||
| Company | | (See Note 3) | | Adjustments | | (See Note 4) | | Combined | ||||
Net sales | $ | 281,626 |
| $ | 30,956 | | $ | — | | | | $ | 312,582 |
Cost of sales | | 249,154 |
| | 23,936 | | | (98) | | [e] | | | 272,992 |
Amortization of intangible assets | | 3,476 |
| | — | | | 871 | | [f] | | | 4,347 |
Profit sharing, bonuses, and deferred compensation | | 5,690 |
| | 235 | | | — | | | | | 5,925 |
Other selling, general and administrative expenses | | 14,363 | | | 5,406 | | | — | | | | | 19,769 |
Income from operations | | 8,943 | | | 1,379 | | | (773) | | | | | 9,549 |
Interest expense | | (3,626) | | | (69) | | | (3,460) | | [g] | | | (7,155) |
Loss on extinguishment of debt | | (216) | | | — | | | — | | | | | (216) |
Income before taxes | | 5,101 | | | 1,310 | | | (4,233) | | | | | 2,178 |
Income tax expense (benefit) | | 916 | | | — | | | (914) | | [h] | | | 2 |
Net income (loss) and comprehensive income (loss) | $ | 4,185 | | $ | 1,310 | | $ | (3,319) | | | | $ | 2,176 |
| | | | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | | | |
Basic | $ | 0.21 | | | | | | | | | | $ | 0.11 |
Diluted | $ | 0.20 | | | | | | | | | | $ | 0.10 |
| | | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | |
Basic | | 20,405,383 | | | | | | | | | | | 20,405,383 |
Diluted | | 20,789,175 | | | | | | | | | | | 20,789,175 |
The accompanying notes are an integral part of these Condensed Combined Financial Statements
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Mayville Engineering Company, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Comprehensive Income
For the Twelve Months Ended December 31, 2022
(in thousands, except share amounts and per share data)
| | | | | | | | | | | | | |
| | | Mid-States | | | | | | | ||||
| Mayville | | Aluminum | | | | | | | | | ||
| Engineering | | After Reclassifications | | Pro Forma | | Note Ref. | | Pro Forma | ||||
| Company | | (See Note 3) | | Adjustments | | (See Note 4) | | Combined | ||||
Net sales | $ | 539,392 |
| $ | 85,603 | | $ | — | | | | $ | 624,995 |
Cost of sales | | 478,323 |
| | 64,748 | | | (219) | | [i] | | | 542,852 |
Amortization of intangible assets | | 6,952 |
| | — | | | 1,741 | | [j] | | | 8,693 |
Profit sharing, bonuses, and deferred compensation | | 7,997 |
| | 411 | | | — | | | | | 8,408 |
Other selling, general and administrative expenses | | 24,692 | | | 7,734 | | | — | | | | | 32,426 |
Impairment of long-lived assets and gain on contracts | | (4,346) | | | — | | | — | | | | | (4,346) |
Income from operations | | 25,774 | | | 12,710 | | | (1,522) | | | | | 36,962 |
Interest expense | | (3,380) | | | (176) | | | (6,921) | | [k] | | | (10,477) |
Income before taxes | | 22,394 | | | 12,534 | | | (8,443) | | | | | 26,485 |
Income tax expense | | 3,667 | | | — | | | 330 | | [l] | | | 3,997 |
Net income (loss) and comprehensive income (loss) | $ | 18,727 | | $ | 12,534 | | $ | (8,773) | | | | $ | 22,488 |
| | | | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | | | |
Basic | $ | 0.92 | | | | | | | | | | $ | 1.10 |
Diluted | $ | 0.91 | | | | | | | | | | $ | 1.09 |
| | | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | |
Basic | | 20,399,737 | | | | | | | | | | | 20,399,737 |
Diluted | | 20,682,628 | | | | | | | | | | | 20,682,628 |
The accompanying notes are an integral part of these Condensed Combined Financial Statements
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Mayville Engineering Company, Inc. and Subsidiaries
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
(in thousands, except share amounts, per share data and years)
Note 1. Description of Transaction and Basis of Presentation
On July 1, 2023, the Company acquired all of the issued and outstanding limited liability interests of MSA. The Acquisition was consummated in accordance with the terms and conditions of that certain Unit Purchase Agreement, dated as of June 19, 2023, among the Company and the shareholders of MSA, following a reorganization of MSA from a corporation to a limited liability company. The purchase price in the Acquisition was $95,945, subject to adjustments for the amount of cash, indebtedness, net working capital and certain expenses of MSA as of the closing. At the closing of the Acquisition, the Company applied an estimate of the adjustments and paid total net consideration of $90,002. The Company financed the Acquisition by borrowing under its amended and restated credit agreement, dated as of June 28, 2023.
The Pro Forma adjustments to the Unaudited Pro Forma Condensed Combined Financial Information is based on historical consolidated financial statements of the Company and the historical financial statements of MSA. The Pro Forma adjustments eliminate transactions between Mayville Engineering Company, Inc. and Mid-States Aluminum using balances as of June 30, 2023 and conform the accounting principles of MSA to those of the Company in preparing the Unaudited Pro Forma Condensed Combined Financial Information.
The Unaudited Pro Forma Condensed Combined Financial Information was prepared using the acquisition method of accounting in accordance with the business combination accounting guidance as provided in ASC 805, Business Combinations, with Mayville Engineering Company, Inc being the acquiring entity, and reflects estimates and assumptions deemed appropriate by the Company’s management. In the opinion of the Company’s management, the Unaudited Pro Forma Condensed Combined Financial Information includes all material adjustments necessary to be in accordance with Article 11 of Regulation S-X under the Securities Act.
The Unaudited Pro Forma Condensed Combined Financial Information is presented for informational purposes only. Such information is not necessarily indicative of the operating results or financial position that actually would have been achieved if the Acquisition had been consummated on the dates indicated or that the combined company may achieve in future periods. Further, the Unaudited Pro Forma Condensed Combined Financial Information does not reflect any revenue and operating synergies or cost savings that may result from the Acquisition.
Note 2. Preliminary Purchase Price Allocation
For the Unaudited Pro Forma Condensed Combined Balance Sheet, the $90,002 purchase price was allocated based on financial information and the Company’s preliminary estimate of the fair value of the assets acquired and liabilities assumed as of the Acquisition date. The following table summarizes the allocation of the preliminary purchase price:
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| | |
| Preliminary | |
| Opening Balance | |
| Sheet Allocation | |
Cash | $ | 324 |
Accounts receivable, net | | 7,381 |
Inventory | | 9,738 |
Property, plant and equipment | | 41,271 |
Other assets | | 429 |
Intangible assets | | |
Developed technology (7-year estimated useful life) | | 4,900 |
Customer relationships (17-year estimated useful life) | | 17,700 |
Goodwill | | 21,800 |
Total assets acquired | | 103,543 |
Accounts payable | | (2,279) |
Accrued expenses | | (1,441) |
Other liabilities | | (1,937) |
Debt | | (7,884) |
Total consideration | $ | 90,002 |
This preliminary purchase price allocation has been used to prepare Pro Forma adjustments for purposes of the Pro Forma Balance Sheet and Statement of Comprehensive Income. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the Pro Forma adjustments. The final allocation may include changes in allocations to intangible assets such as developed technology and customer relationships as well as goodwill and other changes to assets and liabilities.
Note 3. Reclassification of Mid-States Aluminum Historical Financial Information
Certain classifications have been made to Mid-States Aluminum’s historical financial statements to conform with the Company’s financial presentation. Reclassifications reflected in the Unaudited Pro Forma Condensed Combine Balance Sheet and Unaudited Pro Forma Condensed Combined Statement of Comprehensive Income are presented in the following tables:
| | | | | | | | |
| As of June 30, 2023 | |||||||
| Mid-States | | | | | Mid-States | ||
| Aluminum | | | | Aluminum | |||
| Before | | | | After | |||
| Reclassifications | | Reclassifications | | Reclassifications | |||
Right-of-use assets - Finance | $ | 144 |
| $ | (144) | | $ | — |
Property, plant and equipment, net | | 19,970 |
| | 144 | | | 20,114 |
Prepaid expenses and other current assets | | 133 |
| | 129 | | | 262 |
Notes payable - Bank and other | | 7,755 | | | (7,755) | | | — |
Current portion of long-term debt | | — | | | 697 | | | 697 |
Other long-term debt; less current maturities | | — | | | 7,187 | | | 7,187 |
Lease liabilities - Finance; current portion | | 36 | | | (36) | | | — |
Accounts payable | | 2,267 | | | 12 | | | 2,279 |
Customer deposits | | 204 | | | (204) | | | — |
Salaries, wages, and payroll taxes | | — | | | 1,441 | | | 1,441 |
Profit sharing and bonus | | — | | | 461 | | | 461 |
Other current liabilities | | 3,035 | | | (1,674) | | | 1,361 |
Lease liabilities - Finance; long-term portion | | 115 | | | (115) | | | — |
Other long-term liabilities | | — | | | 115 | | | 115 |
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| | | | | | | | |
| Six Months Ended June 30, 2023 | |||||||
| Mid-States | | | | | Mid-States | ||
| Aluminum | | | | Aluminum | |||
| Before | | | | After | |||
| Reclassifications | | Reclassifications | | Reclassifications | |||
Net sales | $ | 32,989 |
| $ | (2,033) | | $ | 30,956 |
Cost of sales | | 26,048 |
| | (2,112) | | | 23,936 |
Profit sharing, bonuses and deferred compensation | | — | | | 235 | | | 235 |
Selling, general and administrative expenses | | 5,545 |
| | (139) | | | 5,406 |
Interest income | | 59 | | | (59) | | | — |
Loss on disposal of property, plant and equipment | | (106) | | | 106 | | | — |
Rental income | | 30 | | | (30) | | | — |
| | | | | | | | |
| Twelve Months Ended December 31, 2022 | |||||||
| Mid-States | | | | | Mid-States | ||
| Aluminum | | | | Aluminum | |||
| Before | | | | After | |||
| Reclassifications | | Reclassifications | | Reclassifications | |||
Net sales | $ | 94,107 |
| $ | (8,504) | | $ | 85,603 |
Cost of sales | | 73,629 | | | (8,881) | | | 64,748 |
Profit sharing, bonuses and deferred compensation | | — | | | 411 | | | 411 |
Selling, general and administrative expenses | | 7,930 | | | (196) | | | 7,734 |
Interest income | | 42 | | | (42) | | | — |
Gain on disposal of property, plant and equipment | | 16 | | | (16) | | | — |
Rental income | | 101 | | | (101) | | | — |
Other | | 3 | | | (3) | | | — |
Note 4. Pro forma adjustments
The Pro Forma adjustments included in the Unaudited Pro Forma Condensed Combined Financial Information are as follows:
Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2023:
(a) | Reflects the initial cash consideration of $90,002 paid to acquire Mid-States Aluminum. |
(b) | Represents the estimated fair value adjustments to inventory, property, plant and equipment and intangible assets, plus the estimated goodwill recognized as part of purchase accounting. |
(c) | Represents the payoff of Mid-State Aluminum’s small business loan of $5,009 as Mayville Engineering Company does not meet the necessary criteria to qualify for this type of loan. |
(d) | Represents historical Mid-States Aluminum accounts eliminated upon the Acquisition. |
Unaudited Pro Forma Condensed Combined Statement of Comprehensive Income for the Six Months Ended June 30, 2023:
(e) | Reflects estimated depreciation expense of $1,534 associated with the fair value of acquired property, plant and equipment less elimination of Mid-State Aluminum’s depreciation expense of $1,632. |
(f) | Reflects the estimated amortization expense of $871 associated with the fair value of acquired intangible assets. |
(g) | Reflects the additional estimated interest expense of $3,460 associated with the increased debt under the Company’s revolving credit note used to fund the Acquisition. This assumes an interest rate of 7.69%, the Company’s interest rate as of June 30, 2023. An increase in the interest rate on the Company’s revolving credit note of 0.125% would increase interest expense by $57 for the six-month period presented. |
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(h) | Reflects estimated income tax expense of $309 on MSA’s pretax income of $1,310 using an effective tax rate of 23.6%. Additionally, reflects estimated income tax benefit of $1,223 on the net impact of the pro form adjustments using a statutory rate of 28.9%. |
Unaudited Pro Forma Condensed Combined Statement of Comprehensive Income for the Twelve Months Ended December 31, 2022:
(i) | Reflects estimated depreciation expense of $3,067 associated with the fair value of acquired property, plant and equipment less elimination of Mid-State Aluminum’s depreciation expense of $3,286. |
(j) | Reflects the estimated amortization expense of $1,741 associated with the fair value of acquired intangible assets. |
(k) | Reflects the additional estimated interest expense of $6,921 associated with the increased debt under the Company’s revolving credit note used to fund the Acquisition. This assumes an interest rate of 7.69%, the Company’s interest rate as of June 30, 2023. An increase in the interest rate on the Company’s revolving credit note of 0.125% would increase interest expense by $113 for the twelve-month period presented. |
(l) | Reflects estimated income tax expense of $2,770 on MSA’s pretax income of $12,534 using an effective tax rate of 22.1%. Additionally, reflects estimated income tax benefit of $2,440 on the net impact of the pro forma adjustments using a statutory rate of 28.9%. |
Non-Recurring Transactions:
No adjustments have been made to the Unaudited Pro Forma Condensed Combined Statements of Comprehensive Income for the following amounts as they are not expected to have a continuing impact on the Company’s financial statements subsequent to the Acquisition:
● | Expense related to estimated fair value adjustment of inventory recognized as part of purchase accounting of $891; and |
● | Estimated transaction related expenses of $1,000, exclusive of the $899 included in the Company’s six-month period presented. |
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