-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, JUt3dcGRRou6kkDF3ulBVwXb4OSuyAz/R+TGYbnyf9vEoAjE8qSf/Euwg7SUjilM zviBlMldiVCll012zjYaLA== 0000907098-95-000019.txt : 19950605 0000907098-95-000019.hdr.sgml : 19950605 ACCESSION NUMBER: 0000907098-95-000019 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950602 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MLX CORP /MI CENTRAL INDEX KEY: 0000064247 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES [5070] IRS NUMBER: 380811650 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-13198 FILM NUMBER: 95544688 BUSINESS ADDRESS: STREET 1: 1000 CENTER PLACE CITY: NORCROSS STATE: GA ZIP: 30093 BUSINESS PHONE: 4047980677 MAIL ADDRESS: STREET 1: 1000 CENTER PLACE CITY: NORCROSS STATE: GA ZIP: 30093 FORMER COMPANY: FORMER CONFORMED NAME: MCLOUTH STEEL CORP DATE OF NAME CHANGE: 19850212 10-K/A 1 Securities And Exchange Commission Washington, D.C. 20549 FORM 10-K/A #2 Amendment No. 2 to Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended December 31, 1994 Commission file number I-4795 Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 MLX Corp. (Exact name of registrant as specified in its charter) Georgia 38-0811650 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1000 Center Place, Norcross GA 30093 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (404) 798-0677 Securities registered pursuant to Section 12(b) of the Act: none Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of class) ITEM 14 OF THE FORM 10-K/A OF THE REGISTRANT AS FILED WITH THE COMMISSION ON APRIL 28, 1995 IS DELETED IN ITS ENTIRETY AND THE FOLLOWING IS INSERTED IN LIEU THEREOF: PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Documents Filed as part of the Report. (1) The following consolidated financial statements of the Registrant and its subsidiaries, included in its 1994 Annual Report to Shareholders, are incorporated in Item 8 of the Form 10-K by reference: Consolidated Balance Sheets at December 31, 1994 and 1993. Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992. Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992. Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994, 1993 and 1992. Notes to Consolidated Financial Statements - December 31, 1994. (2) The following consolidated financial statement schedules of the Registrant and its subsidiaries are included in Item 14(D): Schedule I - Condensed Financial Information of Registrant Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (3) Exhibits required by Item 601 of Regulation S-K: Exhibit 3.1 & 4.1 - Articles of Incorporation of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1993). Exhibit 3.2 & 4.2 - By-Laws of the Registrant (incorporated herein by reference to the Registrant's Report on Form 10-Q for the quarter June 30, 1993). Exhibit 4.3 & 9.1 - Voting Trust Agreement dated December 11, 1984 (incorporated herein by reference to Exhibit 4.3 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1991). Exhibit 4.4 & 9.2 - Amendment No. 1 dated October 26, 1987 to the Voting Trust Agreement dated December 11, 1984 (incorporated herein by reference to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1991). Exhibit 4.5 & 9.3 - Amendment No. 2, dated April 2, 1991, to the Voting Trust Agreement dated December 11, 1984 (incorporated herein by reference to Exhibit 4.3 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1991). Exhibit 4.6 - Restricted Transfer Trust Agreement dated October 10, 1986 (incorporated herein by reference to Exhibit 4.3 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1991). Exhibit 4.7 - Amendment No. 1 dated October 26, 1987 to the Restricted Transfer Trust Agreement dated October 10, 1986 (incorporated herein by reference to Exhibit 4.3 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1991). Exhibit 4.8 - Amendment No. 2 dated June 4, 1990, to the Restricted Transfer Trust Agreement dated October 10, 1986 (incorporated herein by reference to Exhibit 4.3 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1991). Exhibit 4.9 - MLX Exchange Agreement dated as of April 13, 1990, as amended and restated as of March 19, 1992, as amended and restated as of April 21, 1993, among the Registrant, the Lenders listed therein, and Morgan Guaranty Trust Company of New York, as Bond Agent. Exhibit 4.10 - MLX Limited Guarantee, dated as of March 19, 1992 (incorporated herein by reference to Exhibit 2.17 to the Registrant's Current Report on Form 8-K, dated April 10, 1992). Exhibit 4.11 - Management Services Agreement, dated as of March 19, 1992, between the Registrant and Pameco Holdings, Inc. (incorporated herein by reference to Exhibit 2.16 of the Registrant's Current Report on Form 8-K, dated April 10, 1992). Exhibit 4.12 - Amendment to Management Services Agreement, dated as of November 30, 1992, between the Registrant and Pameco Holdings, Inc. (incorporated herein by reference to Exhibit 4.12 of the Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 4.13 - Nomination Agreement, dated as of December 15, 1992, among the Registrant and the Investors listed therein (incorporated herein by reference to Exhibit 4.13 of the Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 4.14 - Exchange Agreement, dated as of January 15, 1993, among MLX Corp. and the Investors listed therein (incorporated herein by reference to Exhibit 4.14 of Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 4.15 - Loan and Security Agreement, dated as of January 15, 1993, between S.K. Wellman Limited, Inc. and Barclays Business Credit, Inc. (incorporated herein by reference to Exhibit 4.15 of Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 4.16 - First Amendment to Loan and Security Agreement, dated as of February 19, 1993, between S.K. Wellman Limited, Inc. and Barclays Business Credit, Inc. (incorporated herein by reference to Exhibit 4.16 of Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 4.17 - Second Amendment to Loan and Security Agreement, dated as of March 15, 1993, between S.K. Wellman Limited, Inc. and Barclays Business Credit, Inc. (incorporated herein by reference to Exhibit 4.17 of Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 4.18 - Stock Pledge Agreement (S.K. Wellman S.p.A.), dated as of January 15, 1993 between The S.K. Wellman Corp. and Barclays Business Credit, Inc. (incorporated herein by reference to Exhibit 4.18 of the Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 4.19 - Stock Pledge Agreement (S.K. Wellman S.p.A.), dated as of January 15, 1993, between S.K. Wellman Limited, Inc. and Barclays Business Credit. Inc. (incorporated herein by reference to Exhibit 4.19 of the Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 4.20 - Stock Pledge Agreement (The S.K. Wellman Company of Canada Limited), dated as of January 15, 1993, between The S.K. Wellman Corp. and Barclays Business Credit, Inc. (incorporated herein by reference to Exhibit 4.20 of the Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 4.21 - Patent Collateral Assignment and Security Agreement, dated as of January 15, 1993, between The S.K. Wellman Corp. and Barclays Business Credit. Inc. (incorporated herein by reference to Exhibit 4.21 of the Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 4.22 - Trademark Security Agreement, dated as of January 15, 1993, between The S.K. Wellman Corp. and Barclays Business Credit, Inc. (incorporated herein by reference to Exhibit 4.22 of the Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 4.23 - Exchange Agreement dated as of April 2, 1993 among MLX Corp. and the Bondholders listed therein. Exhibit 4.24* - First Consolidated Amendment to Loan and Security Agreement, dated as of November 16, 1994, between S.K. Wellman Limited, Inc. and Barclays Business Credit, Inc. Exhibit 10.1# - Employment Agreement dated February 10, 1991, between the Registrant and Brian R. Esher (incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990). Exhibit 10.2# - First Amendment to Employment Agreement, dated as of March 19, 1992, between the Registrant and Brian Esher. Exhibit 10.3 - Severance/Consulting Agreement dated January 14, 1991, between the Registrant and William P. Panny (incorporated herein by reference to Exhibit 10.3 to the Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990). Exhibit 10.4 - Purchase Agreement, dated as of March 19, 1992, among the Registrant, Pameco Holdings, Inc., and Pameco Corporation incorporated herein by reference to Exhibit 21 of Registrant's current Report on Form 8-K dated April 10, 1992). Exhibit 10.5# - MLX Corp. Stock Option Plan, dated as of December 29, 1989 (incorporated herein by reference to Exhibit 10.5 of Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 10.6# - Senior Management Discretionary Bonus Plan, dated as of January 21, 1992 (incorporated herein by reference to Exhibit 10.6 of the Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 10.7# - Second Amendment to Employment Agreement, dated as of January 1, 1994, between the Registrant and Brian Esher. Exhibit 13* - 1994 Annual Report to Shareholders of the Registrant. With the exception of information expressly incorporated herein by reference, the 1994Annual Report is not deemed to be filed with the Commission. Exhibit 21 - Subsidiaries of the Registrant (incorporated herein by reference to Exhibit 22 of Registrant's Report on Form 10-K for the year ended December 31, 1992). Exhibit 23* - Consent of Independent Accountants. Exhibit 27* - Financial Data Schedule. Exhibit 99.1* - Opinion of Independent Accountants * Filed with this Report on Form 10-K/A # Management compensatory plan or arrangement (b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended December 31, 1994. SIGNATURES Pursuant to the requirements of Section 12(g) of the Securities Exchange Act of 1934 and Rule 12b-15 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MLX CORP. Date: June 1, 1995. By: /s/ Thomas C. Waggoner Thomas C. Waggoner Vice President & Chief Financial Officer Exhibit Index Exhibit No. Description of Exhibit Page 13 1994 Annual Report to Shareholders of the Registrant 23 Consent of Independent Accountants 99.1 Opinion of Independent Accountants EX-13 2 MLX CORP. 1994 ANNUAL REPORT PROFILE Formed as a result of a reorganization in 1984, MLX Corp is today a publicly held company owned by an estimated 10,000 beneficial shareholders. MLX owns and manages the S. K. Wellman group of specialty friction materials businesses. MLX has a federal net operating loss carryforward exceeding $300 million to offset federal taxable income from its investments. The S. K. Wellman subsidiaries are engaged in the global design and manufacture of specialty friction and related products intended for use in extremely demanding environments. Wellman produces friction components under very precise tolerances for use in brake, clutch and transmission applications in heavy equipment, farm machinery, military equipment, recreational vehicles, trains and over the road trucks as well as brake applications for commercial and military aircraft. Wellman participates in both the original equipment and replacement markets and relies on an extensive research and development and engineering staff to continually provide improved products and performance to its Fortune 500 and international customers. CONTENTS 1........Financial Highlights 2........Letter to Shareholders 4........Five-Year Financial Review 5........Management's Discussion and Analysis 9........Consolidated Financial Statements and Notes 23.......Report of Independent Auditors 24.......Corporate Data MLX Corp. & Subsidiaries FINANCIAL HIGHLIGHTS (In thousands, except per share data) 1994 1993 1992 Net sales $60,858 $57,036 $53,862 Operating earnings 6,668 6,218 5,373 Interest expense, net (1,553) (2,100) (2,612) Earnings before extraordinary item 2,747 2,039 1,385 Net earnings 2,747 5,666 5,509 Earnings per share before extraordinary item (Net of dividends and accretion on preferred stock) $ 0.65 $ 0.45 $ 0.55 Long-term debt 14,165 14,845 25,711 Shareholders' equity (deficit) 10,729 7,324 (1,844)
Earnings per share data have been restated to reflect the 1993 one-for-ten reverse stock split. [GRAPHIC--PIE CHART] REVENUES 1990 $55,228 1991 50,714 1992 53,862 1993 57,036 1994 60,858 OPERATING EARNINGS 1990 $3,858 1991 3,738 1992 5,373 1993 6,218 1994 6,668 TANGIBLE SHAREHOLDERS' EQUITY* 1990 $(99,323) 1991 (17,165) 1992 (4,576) 1993 4,539 1994 8,441 *includes intangible assets of $2.7 million and $2.9 million in 1992 and 1991, respectively, and $108.2 million in 1990 including intangible assets of the RAC Group (discontinued as of December 31, 1991). MLX Corp. & Subsidiaries LETTER TO SHAREHOLDERS We are pleased to report another successful year of operations. Our S.K. Wellman subsidiary produced record revenues, and operating earnings reached a five year high. These profits enabled us to further reduce debt while maintaining our research and development spending and investments in new products, markets and technologies. Despite strong results since our restructuring in 1992, S.K. Wellman operates in a mature, consolidating industry. In this situation, long-term success depends in part on creating alliances or in merging with synergistic businesses. While we have attempted since late 1993 to identify synergistic acquisition opportunities for Wellman, to date we have been unsuccessful in negotiating an attractive price for such businesses. In response to this situation, we have solicited offers for our Wellman operating subsidiary and have executed a Stock Purchase Agreement to sell all our interests in Wellman for $60 million, which includes certain amounts related to the repayment or assumption of debt and capital leases by the purchaser. This sale is contingent on the majority approval by you, the common shareholders, at our upcoming annual meeting. Your board recommends the approval of this proposed sale and has received from Donaldson, Lufkin & Jenrette Securities Corporation a favorable fairness opinion regarding the consideration to be received by the Company. "We entered into an agreement providing for the sale of Wellman." The sale of Wellman as proposed and described fully in our proxy statement would yield approximately $36 million in cash to MLX after payment of existing debts, the preferred stock interests, and payment of the federal and state tax obligations arising from the sale. Furthermore, with a substantial cash balance and no debt, MLX will be in a position to capitalize on the value of its large net operating loss carryforward. In this transaction, our "fully diluted" shares (outstanding shares plus exercisable stock options) would remain constant at 2,822,000 equivalent shares. Our financial statements include a table at Note B showing the effects the proposed sale would have had on our balance sheet at December 31, 1994 on a pro forma basis. "Your board recommends approval of the proposed sale." Your board of directors has considered the direction MLX should take to enhance shareholder value if the sale of S.K. Wellman is approved at the upcoming Annual Meeting of Shareholders. As a result of such considerations, your board has identified certain strategies as being potentially attractive courses of action, although there can be no assurances [GRAPHIC--PIE CHART] REPORTED PRIMARY EARNINGS PER SHARE 1990 $0.06 1991 0.02 1992 0.55 1993 0.45 1994 0.65 TOTAL EARNINGS PER SHARE (Defined)* 1990 $0.06 1991 0.02 1992 0.98 1993 0.92 1994 1.15 *Total Earnings defined as earnings (a) excluding pro-forma federal tax provision, (b) after dividends and accretion on preferred stock, and (c) before extraordinary item. The Company is able to offset substantially all of its federal taxable income with its pre-reorganization tax loss carry-forwards and therefore has a federal tax liability only for Alternative Minimum Tax amounts. Accordingly, the pro forma charge in lieu of federal income taxes included in the statements of income is not accruable or payable. MLX Corp. & Subsidiaries that any of them will be pursued. I urge you to consult the Proxy Statement for the 1995 Annual Meeting for a more complete description of the proposed transaction and the potential courses of action that are being considered by the board. One such strategy involves utilizing a portion of the cash balance resulting from the sale of S.K. Wellman to support the issuance by MLX of a series of structured preferred securities (known as Market Auction Preferred Stock). Proceeds from the sale of the preferred securities would be invested in U.S. Government obligations or similar investments which represent low credit risks. The federal taxable income from this investment portfolio would be substantially sheltered by our existing net operating losses, and dividends would be paid on the preferred securities at market rates. The tax savings resulting from the utilization of the net operating loss carryforwards would enhance the returns to the shareholders. Further, if valuations for businesses become more attractive, we will consider possible acquisitions. An additional strategy being considered is the use of the proceeds to support a common share buy-back program. We should not overlook the many achievements of the employees of MLX and Wellman during 1994. I am especially proud of the achievements made by our Wellman operations team this year -- including the introduction of several new products and reaching an all-time revenue record. In fact, at year end our backlog of unshipped orders had reached $16.4 million which is the highest level for this measure since we have maintained this record. The 1994 operations are discussed in greater detail in the "Management's Discussion and Analysis" section elsewhere in this report. We regained our listing on the NASDAQ National Market System in April, and in November we restructured our senior lending facility to lower our borrowing costs and extend the maturity date of the facility. "We accept the challenge of refocusing the mission of MLX." In closing, you should know that we have approached the proposed sale of Wellman very carefully and analytically and ask for your approval at the upcoming annual meeting - -- either in person or by proxy. We accept the challenge of refocusing the mission of MLX after the Wellman transaction. With your support, we will attempt to continue to add to the long-term value for our shareholders. Brian R. Esher Chairman, President and Chief Executive Officer April 10, 1995 [GRAPHIC -- PIE CHART] LATEST TWELVE MONTHS ENDED (In 000S) Operating Earnings Income Before Extraordinary Items 12/31/92 5,373 1,385 3/31/93 5,949 1,796 6/30/93 5,844 2,041 9/30/93 6,151 2,229 12/31/93 6,218 2,039 3/31/94 6,605 2,710 6/30/94 6,892 2,908 9/30/94 6,331 2,729 12/31/94 6,668 2,747 MLX Corp. & Subsidiaries FINANCIAL REVIEW SELECTED FINANCIAL INFORMATION Years ended December 31 1994 1993 1992 1991 1990 Dollars in thousands (except earnings per share data) Operating Data Net sales $60,858 $57,036 $ 53,862 $ 50,714 $ 55,228 Gross margin 14,493 13,862 12,586 10,711 13,329 Operating expenses (excluding restructuring and other nonrecurring costs in 1990) 7,825 7,644 7,213 6,973 8,811 Operating earnings 6,668 6,218 5,373 3,738 3,858 Interest expense, net (1,553) (2,100) (2,612) (3,399) (3,333) Other income (expense) 20 (162) 367 (75) 331 Income taxes (2,388) (1,917) (1,428) (7) (413) Minority interests - - (315) (200) (310) Earnings from continuing operations 2,747 2,039 1,385 57 133 Discontinued operations - - - (23,291) (26,505) Extraordinary gain on early retirement of debt (net of taxes) - 3,627 4,124 - - Net earnings (loss) $ 2,747 $5,666 $ 5,509 $(23,234) $ (26,372) Earnings (loss) applicable to common stock $ 1,689 $4,793 $ 5,509 $(23,234) $ (26,372) Discontinued Operations Net sales - - - $333,279 $ 394,849 Gross margin - - - 83,820 97,101 Operating expenses - - - (81,090) (105,488) Other expenses - - - (17,086) (18,118) Loss on disposal - - - (8,935) - Net loss from discontinued operations - - - $(23,291) $ (26,505) Financial Position Working capital $10,908 $8,990 $ 9,752 $ 10,331 $ 14,589 Depreciation and amortization 2,277 2,671 3,421 3,622 3,396 Total assets 37,524 33,761 33,128 41,718 47,945 Long-term liabilities 16,339 17,053 26,631 40,980 46,253 Minority interests - - - 2,045 1,845 Shareholders' equity (deficit) 10,729 7,324 (1,844) (14,252) 8,852 Per Share Data Average common shares outstanding and dilutive options 2,613 2,620 2,541 2,540 2,268 Earnings (loss) per share: Continuing operations $ 0.65 $ 0.45 $ 0.55 $ 0.02 $ 0.06 Discontinued operations - - - (9.17) (11.69) Extraordinary gain on early retirement of debt - 1.38 1.62 - - Total $ 0.65 $ 1.83 $ 2.17 $ (9.15) $ (11.63)
Earnings per share data have been restated to reflect the 1993 one-for-ten reverse stock split. MLX Corp. & Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations Basis of Presentation -- On April 10, 1995 the Company entered into a stock purchase agreement for the sale of all the common shares of S.K. Wellman. The transaction, if approved by the Company's shareholders and subsequently consummated, will eliminate all the Company's assets and liabilities pertaining to Wellman. The accompanying financial statements reflect the financial condition and results of operations for the consolidated group (including S.K. Wellman) as it is now comprised. Note B to the consolidated financial statements presents the pro forma effect of the proposed transaction on the historical consolidated balance sheet at December 31, 1994. Effective June 25, 1993, MLX implemented a one-for-ten reverse stock split as approved by shareholders at the 1993 annual meeting of shareholders. Historical per share data in the consolidated financial statements and in the discussion below have been retroactively adjusted to reflect this reverse split. 1994 vs 1993 -- Revenues for S. K. Wellman in 1994 were $60.9 million versus a 1993 level of $57.0 million, an increase of 6.7%. This increase resulted from increased sales of clutch, brake and transmission components for applications including on-highway hauling vehicles, construction equipment and commercial aircraft. In addition, sales volume from the Italian facility increased by 20% over the prior year due to overall increased demand in its markets. Sales of after-market components decreased by 12% in 1994 versus 1993 due to declining demand for military items and the military component of export sales. The effect of foreign currency exchange fluctuations was insignificant in 1994. The gross margin achieved in 1994 was 23.8% compared to 24.3% in 1993. This decrease resulted from increases in raw material commodity prices (principally steel), strategic price concessions, unfavorable product mix shifts and outsourcing due to capacity constraints. Consolidated selling, general and administrative expenses for 1994 amounted to $7.8 million compared to $7.6 million in 1993, an increase of 2.4%. The increase occurred principally at S. K. Wellman as a result of higher compensation charges and the marketing costs of supporting new product initiatives. These were offset in part by reduced compensation and administrative charges at MLX Corp. Consolidated interest expense dropped from $2.1 million in 1993 to a level of $1.6 million in 1994 (a reduction of 26%). The MLX Corp. component dropped by $164,000 from the prior year due to the repayment of the minority interest purchase note in December 1993. The Wellman interest component dropped by $383,000 due to lower overall borrowings under the senior credit facility. Included in the results for 1993 is an extraordinary gain from early retirement of debt resulting from an exchange of Series A Preferred Stock for certain debt obligations described in Note C to the financial statements. No such exchange or gain occurred in 1994. Dividends and accretion applicable to Series A Preferred Stock increased to $1.1 million in 1994 versus $900,000 in 1993 due to increases in the prime rate component in the dividend rate structure. In 1994, the Company had net earnings of $2.7 million (or $0.65 per share net of obligations on the Series A Preferred Stock) compared to earnings before extraordinary item in 1993 of $2.0 million (or $0.45 per share). The extraordinary gain in 1993 amounted to $1.38 per common share. 1993 vs 1992 -- Revenues for S. K. Wellman in 1993 were $57.0 million compared to a 1992 level of $53.9 million, an increase of 5.9%. This increase resulted principally from higher sales of transmission and clutch components for use in construction equipment, farm machinery and on-highway hauling vehicles. In addition, after-market sales increased by 15.4% compared to 1992 due to higher demand for sales for U.S. military applications and to export customers. Sales of aircraft brake components in 1993 decreased by approximately 10.5% compared to 1992 due to lower mid-year demand from commercial airline customers. In addition, reported 1993 sales from the Italian plant, as expressed in U.S. dollars, decreased by $700,000, or 7.3%, compared to 1992. However, if the weighted average currency exchange rate for 1992 had remained constant in 1993, reported 1993 sales from this plant would have increased by $1.7 million, or 18%. MLX Corp. & Subsidiaries The gross margin achieved in 1993 increased to 24.3% compared to 23.4% in 1992. This favorable result was due principally to improved efficiencies in production operations which offset the unfavorable shift in product mix away from higher margin commercial aircraft products. Consolidated selling, general and administrative expenses for 1993 rose by 6% to $7.6 million compared to $7.2 million in 1992. At S. K. Wellman, such expenses rose by a nominal amount to $6.3 million. At MLX Corp. charges in this area increased to $1.3 million (from $1.1 million in 1992) since 1992 had a nonrecurring credit of $675,000 resulting from a change in estimate in medical claim reserves which was partially offset by a charge of $450,000 for potential litigation and professional obligations. Consolidated interest expense dropped from $2.6 million in 1992 to $2.1 million in 1993. The interest incurred at S. K. Wellman rose to $1.7 million in 1993 (compared to $1.3 million in 1992) as a result of amounts borrowed to pay off the MLX senior term loan and the minority interest obligations. At MLX the interest charge dropped to $400,000 in 1993 (compared to $1.3 million in 1992) due to the payoff of the senior term loan and the exchange of certain of the Zero Coupon Bonds for Series A Preferred Stock. Included in the results for 1993 is an extraordinary gain from early retirement of debt of $3.6 million resulting from the exchange in the second quarter of Series A Preferred Stock and 1993 Variable Rate Notes for certain of the remaining Zero Coupon Bonds. The gain is reported net of a charge in lieu of federal income taxes of $1.9 million and is discussed in Note C to Consolidated Financial Statements. Earnings applicable to common stock for 1993 have been reduced for dividend and accretion obligations amounting to $873,000 on the Series A Preferred Stock issued as of December 31, 1992 and April 22, 1993. In 1993, the Company had earnings before extraordinary items of $2.0 million, $0.45 per share (net of obligations on the Series A Preferred Stock), and net income of $5.7 million, or $1.83 per share. In 1992, the Company had earnings before extraordinary item of $1.4 million, or $0.55 per share, and net income of $5.5 million, or $2.17 per share. The Company is able to offset substantially all of its federal taxable income with its pre-reorganization tax loss carryforwards and therefore has a federal tax liability only for Alternative Minimum Tax amounts. Accordingly, the charge in lieu of federal income taxes included in the statements of income is not accruable or payable. These pro forma charges for 1994, 1993 and 1992 (excluding the pro forma charge provided for extraordinary gains) were $1.3 million, $1.2 million and $1.1 million, respectively. The following table illustrates the effect of this pro forma charge on the Company's earnings and earnings per share. 1994 1993 1992 (Dollars in thousands, except per share data) Earnings before extraordinary item $ 2,747 $2,039 $1,385 Less dividends and accretion on preferred stock (1,058) (873) - Plus pro forma federal tax charge not due or payable 1,314 1,243 1,110 Total earnings $ 3,003 $2,409 $2,495 Total earnings per common share $ 1.15 $ 0.92 $ 0.98
Financial Position and Liquidity Consolidated working capital at December 31, 1994 was $10.9 million compared to $9.0 million at December 31, 1993. This increase resulted from higher trade receivables and inventories stemming from increased sales volume and additional inventory investments to support new product initiatives. S. K. Wellman finances its operations with cash from operations and the use of a senior credit facility. In 1993 the Company successfully executed a new senior credit agreement with a new lender which extends through January 1998. During 1993, the proceeds from this facility were used to pay down certain obligations of MLX Corp. and to replace the previous senior facility and the two Industrial Revenue Bonds. In 1994 funds from the senior credit facility were used to repay the Seller Note otherwise due in 1995 and to pay certain obligations of MLX Corp. MLX Corp. & Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) In 1994 the senior credit facility was amended to lower the interest rate structure, extend the maturity date and to consolidate certain components of the facility. At December 31, 1994 the facility included a consolidated term component, a mezzanine component and an equipment line with varying amortization obligations and maturities ranging from July 1995 to January 1998. In addition, there is a revolving loan component with a limit of $7.2 million, subject to certain availability formulas, and an expiration date of January 1998. In February 1995 the remaining balance under the mezzanine facility was repaid with proceeds from the revolving loan component. The amount available under the revolving loan facility at December 31, 1994 was $4.8 million which exceeded the amount outstanding on that date by $2.8 million. Management believes that the existing lending facilities provide adequate working capital resources for its anticipated needs in 1995. The senior credit facility limits cash dividends and loans which S. K.Wellman may make to MLX Corp. Under the most restrictive covenants, retained earnings in the amount of approximatel $1.3 million were free from limitations on the payment of dividends to MLX Corp. at December 31, 1994. The Zero Coupon Bonds were originally issued in 1990 and were subsequently amended in 1992. As of the end of 1993, approximately 94.2% of these bonds had been exchanged for 1993 Variable Rate Notes and shares of Series A Preferred Stock. The remaining outstanding Zero Coupon Bonds mature in 2002 and require no payments of principal or interest until maturity except in very limited circumstances. Early redemption of the Bonds is at the Company's option. The Series A Preferred Stock was issued as of December 31, 1992 and April 22, 1993 and provides for dividend rates which commence at prime plus 2.5% (but not less than 9%) and escalate gradually to a peak of prime plus 7% (but not less than 14%) for all periods after January 1, 1999. The dividend rate at December 31, 1994 was 11%. Dividends accumulate in arrears unless paid, and the redemption of the Preferred Stock is solely at the option of the Company. The 1993 Variable Rate Notes were issued in April 1993 in exchange for certain of the Zero Coupon Bonds. The Notes have an escalating interest rate feature (currently at 11%) and mature in 2002. The agreement governing the Notes requires that interest due on the Notes be paid (on a pro rata basis) whenever dividends on the Series A Preferred Stock are paid. In connection with the proposed sale of the common stock of Wellman, certain provisions of the documents governing the Zero Coupon Bonds, 1993 Variable Rate Notes and Series A Preferred Stock require that funds from such sale be used to repay certain minimum portions of those obligations aggregating $4.5 million. If the transaction is approved and consummated, the Company expects to repay all of such obligations. Effective December 31, 1992 the Company purchased the 13.7% minority interest in its S. K. Wellman subsidiary under the terms of the relevant agreement. Notes were issued to the holders of such minority interests, and these notes were paid off in February and December 1993. Other Data Capital Expenditures -- Capital expenditures in 1994 amounted to $3.0 million, all of which pertains to S. K. Wellman. These expenditures were made to expand the Italian facility, add laser cutting equipment and further automate the clutch component production lines. In 1993, capital expenditures amounted to $1.8 million for capital projects to improve quality control procedures, expand existing clutch component production capabilities, install new production capabilities in other areas and to automate certain engineering design steps. There were no material commitments for capital expenditures outstanding at December 31, 1994. The expected level of capital expenditures for S.K. Wellman in 1995 is approximately $3.2 million. Seasonality -- Sales of S. K. Wellman generally do not follow a strong seasonal pattern. However, extended holiday shutdowns of major customer production sites can result in minor reductions in sales volume in the third and fourth quarters for the European operation and in the fourth quarter for the North American operation. The quarterly results are further affected by interim accounting estimates for matters such as income tax provisions, plant operating efficiencies, operating expense accruals and preferred stock dividends. Backlog -- The backlog of unshipped orders for the ensuing three months (the period which generally represents a firm customer commitment) at December 31, 1994 was $16.4 million. At December 31, 1993 the backlog for such period was $13.0 million. MLX Corp. & Subsidiaries Employees -- At December 31, 1994 the Company had 559 employees compared to 511 at December 31, 1993. Approximately 247 are covered by collective bargaining agreements as of December 31, 1994. Environmental Status -- In connection with the loan application procedures for the new senior lender, S. K. Wellman performed certain tests for environmental contamination for each of the three owned U.S. operating sites. These tests revealed minor surface contamination at one site and no other condition requiring remediation. In 1993 the Company removed this contaminated soil following specific disposal guidelines. Costs incurred in connection with the removal were not significant. Market, Share Ownership and Dividend Information -- As of December 31, 1994 (and commencing on April 28, 1994) the Company's common shares were traded on the NASDAQ National Market under the trading symbol "MLXR." From August 30, 1993 until April 28, 1994, the Company's shares were traded in the NASDAQ Small Cap Market. From January 26, 1993 until August 30, 1993, the Company's shares were traded in the Domestic OTC Electronic Bulletin Board regulated by NASD. Prior to that time and commencing on March 27, 1992, the Company's shares were traded on the NASDAQ Small Cap Market. Prior to that date the Company's shares were traded on the NASDAQ National Market. As of December 31, 1994 the Company estimated there were approximately 6,900 shareholders of record of its common stock. In addition, the Company believes that there are approximately 2,700 shareholders whose shares are registered in names of nominees. In connection with the reverse stock split implemented in June 1993, approximately 3,200 shareholders who held fewer than 10 pre-split shares were eliminated as shareholders and given the right to redeem their shares at $1 each. MLX's current policy is to retain earnings to finance future growth and for debt repayment and, accordingly, does not currently expect to pay any cash dividends on its common stock in the foreseeable future. In addition, certain covenants relating to indebtedness of MLX and S. K. Wellman prohibit the payment of common stock cash dividends. Quarterly Data (Unaudited) (In thousands, except per share data) 1994 1st 2nd 3rd 4th Net sales $ 14,995 $ 15,405 $ 14,940 $ 15,518 Operating earnings 1,921 1,739 1,156 1,852 Net earnings 1,046 792 493 416 Earnings applicable to common stockholders 800 543 243 103 Net earnings per common share $ 0.31 $ 0.21 $ 0.09 $ 0.04 Stock price range per common share $6.13-5.25 $7.50-5.25 $7.38-5.38 $6.00-3.75 Trading volume as reported by NASDAQ 69 174 164 129 1993 1st 2nd 3rd 4th Net sales $ 14,428 $ 14,143 $ 13,892 $ 14,573 Operating earnings 1,534 1,452 1,717 1,515 Extraordinary gain on early retirement of debt - 3,627 - - Net earnings 375 4,221 672 398 Earnings applicable to common stockholders 195 3,982 430 186 Net earnings per common share: Earnings before extraordinary item $ 0.08 $ 0.13 $ 0.16 $ 0.07 Extraordinary gain on early retirement of debt - 1.37 - - Total $ 0.08 $ 1.50 $ 0.16 $ 0.07 Stock price range per common share $9.38-3.13 $9.38-5.00 $9.00-4.25 $5.75-4.13 Trading volume as reported by NASDAQ 73 45 64 55
MLX Corp. & Subsidiaries CONSOLIDATED BALANCE SHEETS December 31 1994 1993 (Dollars in thousands, except share data) Assets Current assets Cash and cash equivalents $ 1,087 $ 985 Accounts receivable 9,638 8,357 Inventories 9,681 8,449 Prepaid expenses and other current assets 958 583 Total current assets 21,364 18,374 Property, plant and equipment, net 13,362 12,064 Intangible assets, net 2,288 2,785 Other assets 510 538 Total assets $37,524 $ 33,761 Liabilities Current liabilities Accounts payable $ 4,629 $ 3,362 Accrued compensation and benefits 2,965 2,809 Other accrued liabilities and expenses 1,630 1,969 Accrued taxes 815 553 Dividends payable on Series A preferred stock 212 638 Current portion of long-term debt 205 53 Total current liabilities 10,456 9,384 Long-term debt 13,960 14,792 Other long-term liabilities 2,379 2,261 Shareholders' equity Preferred stock, no par value -- authorized 1,500,000 shares; none outstanding - - Preferred stock, Series A, $30 par value -- authorized 500,000 shares; 264,000 shares outstanding 7,265 6,981 Common stock, $.01 par value -- authorized 38,500,000 shares; 2,540,000 shares outstanding (2,536,000 shares in 1993) 25 25 Capital in excess of par value 61,874 60,551 Retained earnings deficit since December 11, 1984 (57,147) (58,836) 12,017 8,721 Other equity adjustments (1,288) (1,397) Total shareholders' equity 10,729 7,324 Total liabilities and shareholders' equity $37,524 $ 33,761
See notes to consolidated financial statements. MLX Corp. & Subsidiaries CONSOLIDATED STATEMENTS OF INCOME Years ended December 31 1994 1993 1992 (Dollars in thousands, except per share data) Net sales $60,858 $57,036 $53,862 Costs and expenses Cost of products sold 46,365 43,174 41,276 Selling, general and administrative expenses 7,825 7,644 7,213 54,190 50,818 48,489 Operating earnings 6,668 6,218 5,373 Interest expense, net (1,553) (2,100) (2,612) Other income (expense) 20 (162) 367 Earnings before income taxes, minority interests, and extraordinary item 5,135 3,956 3,128 Provision for income taxes: Federal taxes due and payable 80 150 - Charge in lieu of federal income taxes 1,314 1,243 1,110 Foreign, state and local income taxes 994 524 318 Minority interests in net earnings of consolidated subsidiaries - - 315 Earnings before extraordinary item 2,747 2,039 1,385 Extraordinary gain on early retirement of debt (net of charge in lieu of federal income taxes of $1,869 in 1993 and $1,661 in 1992) - 3,627 4,124 Net earnings 2,747 5,666 5,509 Dividends and accretion on preferred stock (1,058) (873) - Earnings applicable to common stock $ 1,689 $ 4,793 $ 5,509 Earnings per share: Earnings before extraordinary item (net of dividends and accretion on preferred stock) $ 0.65 $ 0.45 $ 0.55 Extraordinary gain on early retirement of debt - 1.38 1.62 Net earnings $ 0.65 $ 1.83 $ 2.17 Average outstanding common shares and dilutive options 2,613 2,620 2,541
See notes to consolidated financial statements. MLX Corp. & Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Series A Capital In Retained Other Preferred Common Excess of Earnings Equity (Dollars in thousands) Stock Stock Par Value (Deficit) Adjustments Total Balances at January 1, 1992 $ - $254 $54,548 $(69,138) $ 84 $(14,252) Issuance of 200,000 shares of preferred stock in connection with the retirement of debt 5,100 - - - - 5,100 Foreign currency translation adjustment - - - - (972) (972) Benefit of pre-reorganization tax loss carryforwards - - 2,771 - - 2,771 Net earnings - - - 5,509 - 5,509 Balances at December 31, 1992 5,100 254 57,319 (63,629) (888) (1,844) Issuance of 64,000 shares of preferred stock in connection with the retirement of debt 1,646 - - - - 1,646 Dividends and accretion on preferred stock 235 - - (873) - (638) Foreign currency translation adjustment - - - - (509) (509) Benefit of pre-reorganization tax loss carryforwards - - 3,112 - - 3,112 One-for-ten reverse stock split - (229) 118 - - (111) Stock options exercised - - 2 - - 2 Net earnings - - - 5,666 - 5,666 Balances at December 31, 1993 6,981 25 60,551 (58,836) (1,397) 7,324 Dividends and accretion on preferred stock 284 - - (1,058) - (774) Foreign currency translation adjustment - - - - 109 109 Benefit of pre-reorganization tax loss carryforwards - - 1,314 - - 1,314 Stock options exercised - - 9 - - 9 Net earnings - - - 2,747 - 2,747 Balances at December 31, 1994 $7,265 $ 25 $61,874 $(57,147) $ (1,288) $10,729
See notes to consolidated financial statements. MLX Corp. & Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31 1994 1993 1992 (Dollars in thousands) Cash Flows From Operating Activities: Net earnings $ 2,747 $ 5,666 $ 5,509 Adjustments to reconcile net earnings to net cash provided by operating activities: Extraordinary gain on early retirement of debt - (5,496) (5,785) Charge in lieu of federal income taxes 1,314 3,112 2,771 Depreciation and amortization 2,277 2,671 3,421 Minority interests in net earnings of consolidated subsidiaries - - 315 Changes in operating assets and liabilities: Accounts receivable (1,281) (84) (2) Inventories and prepaid expenses (1,607) (390) 1,264 Accounts payable and accrued expenses 920 1,630 (1,094) Other 693 (1,053) (919) Net cash provided by operating activities 5,063 6,056 5,480 Cash Flows From Investing Activities: Purchase of property, plant and equipment (2,985) (1,820) (1,129) Net cash used in investing activities (2,985) (1,820) (1,129) Cash Flows From Financing Activities: Borrowings on long-term debt 976 10,740 - Repayment of debt (1,761) (14,611) (6,460) Payment of dividends on Series A preferred stock (1,200) - - Other 9 (47) - Net cash used in financing activities (1,976) (3,918) (6,460) Net increase (decrease) in cash and cash equivalents 102 318 (2,109) Cash and cash equivalents at January 1 985 667 2,776 Cash and cash equivalents at December 31 $ 1,087 $ 985 $ 667
See notes to consolidated financial statements. MLX Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A Summary of Significant Accounting Policies Principles of Consolidation: The financial statements include the accounts of MLX Corp. (MLX or the Company) and its wholly owned subsidiaries. The wholly owned subsidiaries include S. K. Wellman Limited, Inc. (S. K. Wellman -- the principal entity of the Company's specialty friction materials manufacturing group) and each of its wholly owned subsidiaries. Upon consolidation, all significant intercompany accounts and transactions have been eliminated. Cash Equivalents: Cash equivalents consist of investments in short-term asset management accounts. Such investments are stated at cost plus accrued interest which approximates market value. For purposes of the accompanying Consolidated Statements of Cash Flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Inventories: Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. The components of inventories are as follows (in thousands): 1994 1993 Manufactured goods $2,353 $2,298 Raw materials and work in progress 7,328 6,151 Property, Plant and Equipment: Properties are recorded at cost and include expenditures for additions and major improvements. Expenditures for repairs and maintenance are charged to operations as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets. The components of property, plant and equipment are as follows (in thousands): 1994 1993 Land and improvements $ 1,239 $ 1,179 Buildings and leasehold improvements 7,376 6,933 Machinery and equipment 17,581 16,007 Construction in progress 1,178 533 27,374 24,652 Accumulated depreciation and amortization (14,012) (12,588) $ 13,362 $ 12,064 Accrued Insurance: The Company sponsors funded health and workers' compensation plans for the majority of its employees. Premiums are based on experience and accrued insurance is based on a pre-calculated contractual obligation to the insurance company. During a portion of 1992 the Company was self-insured for both health and workers' compensation claims. Health accruals under the previous plan were based on current claims plus estimates of incurred but not reported claims. In 1992 the Company recorded income of $675,000 related to a change in its estimate of necessary claims accrual due to better than expected claims experience. MLX Corp. & Subsidiaries NOTE A Summary of Significant Accounting Policies (continued) Intangible Assets: Intangible assets are amortized using the straight-line method over the average lives indicated in the following table. The components of intangible assets are as follows (in thousands): 1994 1993 Life Excess of cost of acquired businesses over the fair value of the net assets acquired $ 2,445 $ 2,445 10 years Deferred financing costs 953 907 11 years Proprietary formulations and patents 1,806 1,806 10 years Pension costs 1,025 1,018 15 years 6,229 6,176 Accumulated amortization (3,941) (3,391) $ 2,288 $ 2,785
Accounting Changes: Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The adoption of Statement 109 did not have an impact on the Company's financial position or results of operations. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers Accounting for Post-retirement Benefits Other Than Pensions" which requires the projected future costs of providing post-retirement health care benefits be recognized as an expense as employees render service instead of when benefits are paid. The Company elected to recognize the transition obligation on a prospective basis. The transition obligation (approximately $540,000 at January 1, 1993) for prior service costs at the time of adoption of the Standard is being amortized into general and administrative expense over 20 years. Federal Income Taxes: Any tax benefits resulting from the utilization of the Company's federal net operating loss or other carryforwards existing at December 11, 1984, the date of confirmation of the Plan of Reorganization (Confirmation Date), are excluded from operations and credited to capital in excess of par value in the year such tax benefits are realized. Earnings Per Common Share: Primary earnings per common share is based on the weighted average number of shares outstanding during each year and dilutive common stock equivalents. Earnings applicable to common stock is determined by adjusting net earnings for dividends and accretion on preferred stock. Relationship With Pameco Corporation: On March 19, 1992 the Company reached an agreement with its Refrigeration & Air Conditioning (RAC) Group senior lenders (the Lenders) and a third party investment group, (the Buyers) which included a director, to sell its equity interest in its RAC Group. The loss on disposal resulting from the divestiture of the RAC Group was reported in the 1991 consolidated financial statements. MLX entered into an agreement with the Buyers pursuant to which MLX shares management, operational and administrative functions with the RAC Group (renamed Pameco Corporation). The costs for such services are also shared. In 1994 MLX paid $60,000 to Pameco Corporation under this agreement. MLX received $81,500 (net of amounts paid) in 1993 and $470,000 in 1992 from Pameco Corporation. Such amounts are included as a component of selling, general and administrative expenses in the accompanying Consolidated Statements of Income. MLX Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE B PROPOSED SALE OF S.K. WELLMAN On April 10, 1995 the Company entered into a stock purchase agreement (the Agreement) with a third party for the sale of all the common stock of S.K. Wellman for $60 million, which includes certain amounts related to the repayment or assumption of debt and capital leases by the purchaser. Such sale is subject to the approval of the common shareholders of MLX Corp. at the 1995 annual meeting of shareholders. The Company's Board of Directors has recommended approval of the proposed sale and has obtained a fairness opinion from an investment banker regarding the consideration to be received by the Company in the transaction. If the transaction is approved by the MLX shareholders and consummated thereafter, the Company's investment in Wellman will be exchanged for cash, and the assets and liabilities of S.K. Wellman will cease to be a part of the consolidated financial statements of MLX. The following table shows the unaudited pro forma effect of this transaction on the historical consolidated balance sheet of the Company at December 31, 1994 as if such transaction had occurred on that date (in thousands): Historical Required and Pro Forma Balance Sheet at Sale of Discretionary Balance Sheet at December 31, 1994 S.K. Wellman Repayments December 31, 1994 Cash $ 1,087 $ 44,235 $(10,220) $35,102 Other current assets 20,277 (20,277) - - Property, plant and equipment 13,362 (13,361) - 1 Intangible assets 2,288 (2,288) - - Other assets -- escrow fund - 4,000 - 4,000 Other assets 510 (510) - - $37,524 $ 11,799 $(10,220) $39,103 Current liabilities $10,456 $ (7,308) $ (251) $ 2,897 Long-term debt 13,960 (11,496) (2,464) - Other long-term liabilities 2,379 (2,379) - - Shareholders' equity 10,729 32,982 (7,505) 36,206 $37,524 $ 11,799 $(10,220) $39,103
Reference is made to Note J for information regarding sales and earnings of S.K. Wellman and its Italian and Canadian operations. The Agreement includes provisions for certain representations and warranties made by the Company for such matters as environmental status, income tax status, etc. In this connection, it is anticipated that $4 million of the proceeds will be deposited with a trustee bank for a period of 15 months to fund any claim against such representations and warranties. MLX's maximum liability for such claims under the Agreement is limited to $5 million. The Company will also be required to deposit with the trustee bank 85% of MLX's estimate of certain tax liabilities of S.K. Wellman that may arise from the sale. Such amount has not been determined and has not been included in the above table. NOTE C GAIN ON EARLY RETIREMENT OF DEBT Effective December 31, 1992, the Company exchanged shares of its Series A Preferred Stock (see Note F) with an approximate fair value of $5.1 million (face value of $6.0 million) for Zero Coupon Bonds with a carrying value of $7.7 million and a portion of the MLX Senior Term Loan with a carrying value of $3.1 million. In addition, a senior term loan with a carrying value of $2.6 million was replaced with a note for $2.5 million (since repaid). The resulting net gain on early retirement of debt of $4.1 million was reported as of December 31, 1992 as an extraordinary item. MLX Corp. & Subsidiaries NOTE C GAIN ON EARLY RETIREMENT OF DEBT (CONTINUED) During the quarter ended June 30, 1993, the Company exchanged shares of its Series A Preferred Stock (see Note F) with an approximate fair value of $1.6 million (face value of $1.9 million) and 1993 Variable Rate Notes with an approximate fair value of $1.4 million for Zero Coupon Bonds with a carrying value of $8.5 million. The resulting net gain on early retirement of debt of $3.6 million was reported in the quarter ended June 30, 1993 as an extraordinary item. NOTE D LONG-TERM DEBT The components of long-term debt are as follows (in thousands): 1994 1993 S. K. Wellman: Senior credit facility: Revolving credit facility $ 1,981 $ 2,345 Real estate term facility - 6,450 Consolidated term facility 8,399 - Mezzanine component 550 1,350 Equipment term note - 420 Seller note, due 1995 with interest at 8% - 1,703 Note payable to bank 128 175 Capital leases 64 - MLX: Zero coupon bonds net of unamortized discount of $130 in 1994 and $147 in 1993 1,022 1,005 Variable rate subordinated notes 1,441 1,397 14,165 14,845 Less current portion of debt (205) (53) $13,960 $14,792 S. K. Wellman: S. K. Wellman's primary credit facility at December 31, 1994 was the senior credit facility which provides for four borrowing components with varying rates and repayment obligations. It is secured by a lien of substantially all the North American assets of S. K. Wellman and a pledge of the common stock of the Italian and Canadian subsidiaries. The loan and security agreement for the senior credit facility requires S. K. Wellman to, among other things, maintain certain levels of working capital, net worth and profitability. This agreement also limits cash dividends and loans to MLX Corp. Under the most restrictive covenants, retained earnings in the amount of approximately $1.3 million were free from limitations on the payment of dividends to MLX Corp. at December 31, 1994. In November 1994 the loan and security agreement was amended to extend the expiration of the facility through January 1998 and to consolidate the real estate term facility, the original equipment term note and the proceeds used to repay the seller note into the consolidated term loan. The senior credit facility has a revolving credit component with a maximum borrowing limit of $7.2 million which expires in January 1998. This revolving loan bears interest at prime rate plus 1.25% (9.75%) at December 31, 1994 compared to prime rate plus 2.0% (8%) at December 31, 1993. The amount which may be borrowed is subject to certain availability formulas regarding accounts receivable and inventory. MLX Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE D LONG-TERM DEBT (continued) The senior credit facility also includes a consolidated term loan component with an initial balance of $8.5 million. This loan requires monthly amortization of $101,000 with any remaining unpaid balance payable in January 1998. The loan bears an initial interest rate of prime plus 2.0% which drops to prime plus 1.75% after certain conditions are met. The senior credit facility also includes a $2 million 30-month mezzanine term facility (expiring in July 1995) with monthly amortization requirements of $67,000 and an interest rate of prime plus 3.5%. This facility was repaid, with no penalty, in February 1995. The senior credit facility has an additional line of credit intended to fund capital expenditures up to a maximum of $2.0 million. At December 31, 1994 no amounts were outstanding under the arrangement. This line will bear interest at prime plus 1.75%.Advances may be made at any time until January 1997. The proceeds of the note payable to a bank were used to fund certain capital expenditures in Italy. The note bears interest at 9%, is unsecured and is due in varying quarterly installments through December 1996. MLX: The Company has outstanding Zero Coupon Bonds with a maturity date of March 2002. As of December 1992 and April 1993 certain of the Bonds were exchanged for MLX Series A Preferred Stock (See Note C) and Variable Rate Notes. Subsequent to these exchanges, Zero Coupon Bonds with a net carrying value at December 31, 1994 of $1.0 million remain outstanding. Such Bonds have a maturity value of $1.2 million and have an accretion rate of 1.7% for financial reporting purposes. The redemption value of the Bonds remaining after the exchange was $605,000 at December 31, 1994. In April 1993 MLX issued variable rate subordinated notes to certain holders of its Zero Coupon Bonds. These notes, which are unsecured, bear interest at an initial rate of the prime rate plus 2.5% (11% at December 31, 1994) but not less than 9%, increasing to a maximum rate of the prime rate plus 7%, but not less than 14% on January 1, 1999. The notes were initially recorded at their estimated fair value and are being increased to the redemption value of $1,444,000 during the period from date of issuance until March 19, 2002 (date of maturity). The notes are due in 2002 or, on a pro rata basis, whenever shares of the Series A preferred stock are repurchased. Aggregate maturities and other required reductions of debt for the next five years are: 1995 -$205,000, 1996 - $1.4 million, 1997 - $1.3 million, 1998 - $8.6 million and 1999 - $32,000. The Company intends to pay installments due in 1995 under the consolidated term facility and mezzanine component with borrowings under the revolving credit facility. Accordingly, such amounts have been classified as long term. Interest paid was $1.4 million in 1994, $1.5 million in 1993, and $1.2 million in 1992. NOTE E REVERSE STOCK SPLIT On June 2, 1993, the stockholders authorized a reverse stock split whereby each 10 common shares owned prior to the reverse stock split became one common share. The reverse stock split was implemented on June 25, 1993, and fractional common shares (approximately 62,000 common shares) were or will be repurchased for $1.00 per share. All references in the financial statements with regard to average number of shares of common stock and related prices and per share amounts have been restated to reflect the one-for-ten reverse stock split. NOTE F SHAREHOLDERS' EQUITY AND STOCK OPTIONS The assets and liabilities of foreign operations are translated into U.S. dollars at current exchange rates with the resulting cumulative translation adjustment, $(1,018,000) at December 31, 1994 and $(1,127,000) at December 31, 1993, recorded as a separate component of shareholders' equity. Exchange adjustments resulting from foreign currency translations included in other income (expense) in the accompanying Consolidated Statements of Income were $95,000 in 1994, $(255,000) in 1993 and $(461,000) in 1992. MLX Corp. & Subsidiaries NOTE F SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED) The Company has a stock option plan which provides that options may be granted to key employees, including officers and directors, to purchase common stock at a price not less than market value on the date the option is granted. The stock options are exercisable over periods not exceeding five years. A summary of transactions under the plan is as follows: 1994 1993 1992 Number Price Per Number Price Per Number Price Per of Shares Share of Shares Share of Shares Share Outstanding at beginning of year 94,733 $2.50-8.44 87,000 $2.50-33.70 75,490 $5.00-33.70 Granted 14,300 4.00 11,800 4.25-8.44 86,000 2.50 Exercised (3,600) 2.50 (867) 2.50-8.44 - - Canceled for reissuance(1) - - - - (24,450) 5.00-31.30 Canceled (966) 2.50-8.44 (3,200) 2.50-33.70 (50,040) 5.00-33.70 Outstanding at end of year 104,467 $2.50-8.44 94,733 $ 2.50-8.44 87,000 $2.50-33.70 At December 31: Exercisable 91,100 58,854 29,665 Reserved for future grant 3,817 17,151 25,750
(1) As a result of the sale of the RAC Group in March of 1992, certain options held by employees of that group were canceled. Options were also canceled for MLX employees and reissued at the market price as of the new date of issuance. Certain other key employees of MLX were also issued options during 1992. On February 11, 1991, MLX issued options to its Chief Executive Officer (CEO) to acquire 190,400 shares of the Company's common stock at $5.00 per share (the market value at date of grant), which are not reflected in the table above. At December 31, 1994, all such options are exercisable and will expire in February 1998. The options contain a clause that in the event that any new or existing shareholders increase their percentage ownership interest of the Company's common stock by 5% or more, the options are immediately converted to a Stock Appreciation Rights (SAR). The Company is authorized to issue up to 500,000 shares designated as Series A Preferred Stock with a par value and liquidation preference of $30 per share. The Series A Preferred Stock is non-voting. Cumulative dividends on the Series A Preferred Stock are payable when, and if declared, at an initial rate of the prime rate plus 2.5% (11% at December 31, 1994), but not less than 9%, increasing to a maximum rate of the prime rate plus 7%, but not less than 14% on January 1, 1999. The dividend rate will be 1% greater than the rate reflected above for any period after March 31, 1994 during which dividends for more than one quarter remain unpaid. The Series A Preferred Stock is redeemable at the option of the Company at any time at a cash redemption price equal to $30 per share plus any and all cumulative dividends accrued and unpaid on the date of redemption. An aggregate of 264,000 shares of Series A Preferred Stock was issued (see Note C) to certain holders of Zero Coupon Bonds as of December 1992 and April 1993. The Series A Preferred Stock was initially recorded at its estimated fair value and is being increased to the redemption price of $30 per share during the period from date of issuance until January 1, 1999 (commencement of maximum annual dividend rate). The annual accretion, based on the interest method, is charged to retained earnings and amounted to $284,000 in 1994 and $235,000 in 1993. MLX Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE G INCOME TAXES Effective January 1, 1993, the Company adopted the liability method of accounting for income taxes as required by FASB Statement 109, "Accounting for Income Taxes." At December 31, 1994, MLX has net operating loss carryforwards, existing as of the Confirmation Date, of approximately $277.4 million which are available to offset future taxable income for federal income tax purposes. Such carryforwards expire as follows: $16.8 million in 1995, $41.3 million in 1996, $144.3 million in 1997, $1.2 million in 1998 and $73.8 million in 1999. Any tax benefit derived from the utilization of these net operating loss carryforwards is excluded from operations and credited to capital in excess of par value in the year such tax benefits are utilized. Subsequent to the Confirmation Date, the Company has available (for federal income tax purposes), net operating loss carryforwards of approximately $59.2 million, which expire as follows: $2.7 million in 2000, $45,000 in 2001, $2.2 million in 2002, $8,000 in 2004, $5.0 million in 2005, $2.0 million in 2006 and $47.3 million in 2007. The cumulative net operating loss for financial reporting purposes approximates the tax amount as shown above. The components of the income tax provision are as follows (in thousands): 1994 1993 1992 Charge in lieu of federal income taxes: Operating earnings $1,314 $1,243 $1,110 Extraordinary gain - 1,869 1,661 Total $1,314 $3,112 $2,771 Federal alternative minimum taxes $ 80 $ 150 $ - Foreign, state and local income taxes: Foreign $ 699 $ 168 $ (82) State and local 295 356 400 Total $ 994 $ 524 $ 318 The charge in lieu of federal income taxes is computed by applying the statutory rate to earnings before income taxes adjusted for items which are not deductible (includable) for income tax purposes of $(954,000) in 1994, $(2,000) in 1993 and $617,000 in 1992 (principally results from foreign operations and goodwill amortization) and further adjusted for foreign, state and local taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets as of December 31, 1994 and 1993 are as follows (in thousands): 1994 1993 Federal net operating loss carryforward $ 114,000 $ 115,000 State net operating loss carryforward 3,000 3,000 Reserves and other 2,000 3,000 Total 119,000 121,000 Valuation allowance for deferred tax assets (119,000) (121,000) Net deferred tax assets $ - $ - The valuation allowance for deferred tax assets decreased $3 million during 1993. MLX Corp. & Subsidiaries NOTE G INCOME TAXES (CONTINUED) Undistributed earnings of the Company's foreign subsidiaries were not significant at December 31, 1994. These earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes payable to various foreign countries. Cash paid for foreign, state and local taxes and federal alternative minimum taxes amounted to $810,000, $504,000 and $500,000 in 1994, 1993 and 1992, respectively. NOTE H EMPLOYEE BENEFITS The Company and its subsidiaries sponsor a defined contribution plan which covers a majority of their employees. This plan provides for voluntary employee contributions, a matching Company contribution and a discretionary Company contribution. Expenses related to this plan were $516,000, $470,000 and $128,000 in 1994, 1993 and 1992, espectively. The Company and certain of its subsidiaries sponsor two non-contributory defined benefit pension plans covering certain of their U.S. and Canadian employees. Benefits under one plan are based on compensation during the years immediately preceding retirement. Under the other plan, the benefits are based on a fixed annual benefit for each year of credited service. It is the Company's policy to make contributions to these plans sufficient to meet minimum funding requirements of the applicable laws and regulations, plus such additional amounts, if any, as the Company's actuarial consultants advise to be appropriate. Plan assets consist principally of equity securities and fixed income instruments. In 1992 the Company terminated one of its defined benefit plans and recognized a curtailment gain of $200,000. The Company settled the obligation under the plan in 1993, which resulted in a loss of $230,000. A summary of the components of net periodic pension costs for the plans is as follows (in thousands): 1994 1993 1992 Service cost $ 125 $ 105 $ 344 Interest cost 160 259 439 Actual return on plan assets 71 (281) (197) Net amortization and deferral (227) 88 (90) $ 129 $ 171 $ 496 Assumptions used were: Weighted average discount rate 8.38% 7.44% 8.03% Rate of increase in compensation levels 5.00% 6.00% 6.00% Weighted average expected long-term rate of return on assets 8.63% 8.63% 8.66%
MLX Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE H EMPLOYEE BENEFITS (continued) The following table presents the funded status and amounts recognized in the consolidated balance sheets at December 31, 1994 and 1993 related to the defined benefit plans (in thousands): Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits Benefits Exceed Assets Benefits Exceed Assets Actuarial present value of benefit obligations: Vested benefit obligations $(372) $(1,558) $ (423) $(1,407) Accumulated benefit obligations $(381) $(1,772) $ (434) $(1,613) Projected benefit obligations $(495) $(1,772) $ (537) $(1,613) Plan assets at fair value 891 1,038 1,012 984 Projected benefit obligations less than (in excess of) plan assets 396 (734) 475 (629) Unrecognized net loss 170 149 93 86 Prior service cost not yet recognized in net periodic pension cost - 349 - 200 Unrecognized net obligation (asset) at January 1 (246) 76 (284) 214 Adjustment required to recognize minimum liability - (574) - (500) Prepaid (accrued) pension cost at December 31 $320 $ (734) $ 284 $ (629)
The Company provides a fixed non-contributory benefit towards post-retirement health care for certain of its U.S. subsidiary's retired union employees. The weighted average discount rate used in determining the accumulated post-retirement benefit obligation was 7%. Post-retirement benefit costs, which are not considered significant, amounted to $50,000 in 1994 and $62,000 in 1993. Post-retirement benefit cost for 1992, which was recorded on a cash basis, has not been restated. Such amounts for 1992 are not considered significant. NOTE I LEASES The Company leases certain office and warehouse facilities and equipment under noncancelable operating leases. Rental expense for 1994, 1993 and 1992 approximated $367,000, $312,000, and $351,000, respectively. Future minimum lease commitments under these agreements which have an original or existing term in excess of one year as of December 31, 1994 are: 1995-$259,000, 1996 - $128,000, 1997 -$76,000, 1998 - $11,000 and 1999 - $9,000. MLX Corp. & Subsidiaries NOTE J SEGMENT INFORMATION The Company is engaged in the design, manufacture and sale of high-energy friction materials which are used primarily in jet aircraft brakes and heavy equipment brakes, transmissions and clutches. The following table presents geographic segment information for the years ended December 31, 1994, 1993 and 1992 (in thousands): Corporate United States Italy Canada Consolidated 1994: Net sales $ - $49,010 $10,195 $1,653 $60,858 Inter-area sales to affiliates - 1,093 21 288 1,402 Earnings (loss) (212) 2,445 402 112 2,747 Identifiable assets 1,005 25,699 9,086 1,734 37,524 1993: Net sales $ - $46,923 $ 8,487 $1,626 $57,036 Inter-area sales to affiliates - 853 3 292 1,148 Earnings (loss) (888) 2,943 (66) 50 2,039 Identifiable assets 1,119 23,253 7,521 1,868 33,761 1992: Net sales $ - $42,987 $ 9,157 $1,718 $53,862 Inter-area sales to affiliates - 731 82 139 952 Earnings (loss) (601) 2,291 (428) 123 1,385 Identifiable assets 921 22,824 7,494 1,889 33,128
Inter-area sales to affiliates represent products which are transferred between geographic areas on a basis intended to approximate the market value of the products. Inter-area sales to affiliates are not included in the net sales of each geographic segment. Earnings (loss) by geographic area is defined as sales less all expenses (excluding extraordinary gain on early retirement of debt). Identifiable assets are those assets used exclusively in the operations of each geographic area. Corporate assets consist principally of cash and cash equivalents, prepaid expenses and intangible assets. Product research, development and engineering expenses were $3.4 million, $3.4 million and $3.2 million in 1994, 1993 and 1992, respectively. As a percent of sales, these expenditures were 5.5%, 5.9% and 5.9% respectively. MLX Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE J SEGMENT INFORMATION (CONTINUED) The percentage of net sales to major customers was as follows: 1994 1993 1992 Customer A 15% 16% 15% Customer B 9% 9% 12% Customer C 16% 14% 14% Customer D 9% 9% 9% The Company manufacturers and sells sintered friction materials to original equipment manufacturers, aircraft component and aftermarket customers. The Company's customers are not concentrated in any specific geographic region. The Company performs ongoing evaluations of its customers' financial condition and generally does not require collateral. Receivables generally are due within 60 days. Credit losses consistently have been within the range of management's expectations. REPORT OF INDEPENDENT AUDITORS Board of Directors MLX Corp.: We have audited the accompanying consolidated balance sheets of MLX Corp. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of MLX Corp. and subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31,1994 in conformity with generally accepted accounting principles. March 10, 1995, except for Note B, as to which the date is April 10, 1995 Atlanta, Georgia CORPORATE DATA Board of Directors Brian R. Esher Chairman of the Board, President & Chief Executive Officer of the Company W. John Roberts (1) (2) Retired Senior Vice President-Finance and Treasurer, Amerisure Companies Willem F. P. de Vogel (2) President, Three Cities Research, Inc. H. Whitney Wagner Managing Director, Three Cities Research, Inc. Alfred R. Glancy III (1) (2) Chairman President & Chief Executive Officer, MCN Corporation S. Sterling McMillan, III (1) Vice Chairman, Greenlead Capital Management, Inc. J. William Uhrig (1) Managing Director, Three Cities Research, Inc. (1) Member of Audit Committee (2) Member of Compensation Committee MLX Corporate Management Brian R. Esher Chairman of the Board, President & Chief Executive Officer Theodore R. Kallgren Vice President, Fianance & Treasurer Thomas C. Waggoner Vice President, Chief Financial Officer & Secretary S.K. Wellman Operating Management Ronald E. Grambo President James W. Feldhouse Vice President, Operations Giovanni Cipolla General Manager, European Operations Frederich A. Kowalcyk Vice President, Velvetouch Division Anthony M. Gambatese Vice President, Sales Douglas O. Firman Corporate Controller Gail D. Terry Operations Manager, Canada Corporate Data Executive Office 1000 Center Place Norcross, Georgia 30093 Independent Auditors Ernst & Young LLP Atlanta, Georgia Legal Counsel Kilpatrick & Cody Atlanta, Georgia Stock Transfer Agent & Registrar American Stock Transfer & Trust Company New York, New York MLX Corp. common stock is traded in the NASDAQ National Market under the symbol "MLXR". For more information about the Company or to obtain a copy of the Company's annual report on Form 10-K, contact the Investor Relations Department at (404) 798-0677 or write to MLX Corp., 1000 Center Place, Norcross, Georgia 30093. The annual meeting of shareholders of MLX Corp. will be held on June 27, 1995 at 11:00 a.m. at the offices of Kilpatrick &Cody, 1100 Peachtree Street, Suite 2700, Atlanta, Georgia. Designed and produced by Phoenix Communications, Inc. / Atlanta, Georgia Printed on Recycled paper MLX Corp. World Headquarters 1000 Center Place Norcross, Georgia 30093 (404) 798-0677 FAX (404) 798-0633 S. K. Wellman World Headquarters 6180 Cochran Road Solon, Ohio 44139 (216) 498-2275 FAX (216) 498-2290 MLX Corp. & Subsidiaries EX-23 3 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-32841 and No. 33-13130) pertaining to the MLX Corp. Stock Option Plan and in the related Prospectuses of our report dated March 10, 1995, except for Note B, as to which the date is April 10, 1995, with respect to the consolidated financial statements and schedules of MLX Corp. included in the Annual Report of Form 10-K/A#2 for the year ended December 31, 1994. Ernst & Young LLP May 30, 1995 Atlanta, Georgia EX-27 4
5 1,000 12-MOS DEC-31-1994 DEC-31-1994 1,087 0 9,638 0 9,681 21,364 27,374 14,012 37,524 10,456 0 3,464 0 7,265 0 37,524 60,858 60,858 46,385 54,190 0 0 1,553 5,135 2,388 2,747 0 0 0 2,747 0.65 0.65
EX-99.1 5 Report of Independent Auditors BOARD OF DIRECTORS MLX CORP. We have audited the consolidated balance sheets of MLX Corp. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of MLX Corp. and subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG LLP March 10, 1995, except for Note B, as to which the date id April 10, 1995 Atlanta, Georgia -----END PRIVACY-ENHANCED MESSAGE-----