CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1994
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number I-4795
MLX CORP
(Exact name of registrant as specified in its charter)
GEORGIA 38-0811650
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1000 CENTER PLACE, NORCROSS. GEORGIA 30093
(Address of principal executive offices) (Zip Code)
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
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendments to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $6,256,515 as of March 1, 1995, based on the ending market
price as reported on the NASDAQ National Market.
The number of shares outstanding of the Registrant's Common Stock, par value
$.01, as of the close of business on March 1, 1995 was 2,539,550.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Part I, II & IV hereof incorporate information by reference from
Registrant's 1994 Annual Report to Shareholders, a copy of which is filed
with the Commission as Exhibit 13 hereto.
Portions of Part III hereof incorporate information by reference from
Registrant's definitive Proxy Statement to be filed with the Commission no
later than 120 days after the close of the Registrant's fiscal year ended
December 31, 1994 in connection with Registrant's 1995 Annual Meeting of
Shareholders.
PART I
Item 1 Business.
(A) General Development of Business
The Registrant is engaged in the design and manufacture of
high-energy friction materials which are used primarily in aircraft
brakes and heavy equipment brakes, transmission and clutches.
Reference is made to the information set forth in the Registrant's
1994 Annual Report to Shareholders under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a
discussion of the development of the business since January 1, 1994,
which information is incorporated herein by reference.
(B) Financial Information About Industry Segments
Reference is made to information set forth in Note J
of the Notes to Consolidated Financial Statements in the
Registrant's 1994 Annual Report to Shareholders, which
information is incorporated herein by reference.
(C) Narrative Description of Business
Reference is made to the information set forth in
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" under "Other Data"
and Note J of Notes to Consolidated Financial Statements
contained in the Registrant's 1994 Annual Report to
Shareholders, which information is incorporated herein by
reference. Additional information concerning the business
of the Registrant follows.
General: MLX owns and manages the S. K.
Wellman ("Wellman") subsidiary. Wellman is one of the
world's leading manufacturers of high-energy friction
materials. The friction materials manufactured and sold by
Wellman are used in a variety of applications which require
material which will withstand and function under extreme
conditions of high energy and heat. These types of conditions
exist in aircraft brakes and heavy equipment brakes, transmissions
and clutches. Wellman has manufacturing facilities located
in Brook Park, Ohio; LaVergne, Tennessee; Concord,
Ontario, Canada; and Orzinuovi, Italy. Wellman also has
administrative offices and research facilities located in
Solon, Ohio and sales and/or distribution offices in
Madison, Wisconsin; Peoria, Illinois; Detroit, Michigan;
Cleveland, Ohio; Akron, Ohio; Edmonton, Alberta, Canada;
Vancouver, British Columbia, Canada; Concord, Ontario,
Canada; and Orzinuovi, Italy.
At December 31, 1994 Wellman had 558 employees. Approximately
247 of these employees were covered under collective bargaining
agreements which expire on April 25, 1997.
MLX provides managerial and administrative support to
Wellman. This support is provided in the areas of strategic
management, income tax compliance, legal strategy and capital
and lending resources.
Products: The friction materials manufactured by Wellman are
made of a variety of materials, including metallic (either
copper or iron based), graphitic, ceramic, and composite fiber
(paper). These friction materials are used in commercial, military
and general aviation aircraft brakes; friction disks for
use in automatic and power shift transmissions; and clutch
buttons, which are used as the main contact point between
the engine and transmission. Wellman also manufactures
other types of clutch facings and opposing disks to
complement its clutch button business. Raw materials used
by Wellman are available from multiple sources.
Customers: Wellman's customers for the aircraft brake friction
materials are primarily aircraft wheel and brake manufacturers.
Wellman's principal customers for its friction disks are heavy
equipment manufacturers such as Caterpillar Inc., John Deere &
Company, and the Allison Division of General Motors
Corporation. The principal customers for its clutch
buttons are heavy equipment component suppliers such as
Dana Corporation. More than 80% of friction disk and
clutch button production is sold to original equipment
manufacturers with the balance sold to end users (under
the "Velvetouch" tradename) through distributors and
equipment rebuilders.
Competition: The Registrant believes that the domestic
market for the products that it manufactures
is approximately $200 million and that the total worldwide
approximates $300 million. The Registrant believes that it
is either the largest or the second largest manufacturer
of each of the products it sells, with market share
ranging between 20% and 60% of such markets. In each of
its markets, the Registrant competes with a number of
companies; however, there are only one or two competitors
in each of its markets which are comparable in size to the
Registrant. Competition is primarily based upon the
ability to engineer a product which meets the customers'
specifications, consistent quality, price and delivery.
Research and Development: Research, product development
and engineering are an important aspect of Wellman's business.
Each of Wellman's products are specifically engineered to
meet a customer's applications. The Registrant believes that
it has the most extensive research, development and engineering
capabilities and testing equipment in the industry.
Product research, development and engineering expenditures
for Wellman were approximately $3,374,000 in 1994,
$3,365,000 in 1993, and $3,164,000 in 1992.
(D) Financial Information About Foreign and Domestic Operations and
Export Sales Reference is made to the information set forth in Note
J of the Notes to Consolidated Financial Statements in the
Registrant's 1994 Annual Report to Shareholders, which
information is incorporated herein by reference.
Item 2. Properties.
The Registrant and its consolidated subsidiaries utilize the following
properties.
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Square
LOCATION HOW HELD FOOTAGE UTILIZATION
<S> <C> <C> <C>
Brook Park, Ohio Owned(1) 111,000 Manufacturing
Cleveland, Ohio Leased 14,300 Materials Storage
Akron, Ohio Leased 20,400 Distribution
Solon, Ohio Owned(1) 50,000 Administration & research
LaVergne, Tennessee Owned1 76,100 Manufacturing
Concord, Ontario, Canada Leased 15,200 Manufacturing &
distribution
Orzinuovi, Italy Owned 65,000 Manufacturing & sales
Norcross, Georgia Leased 3,000 Executive & administration
</TABLE>
1 These facilities and equipment at these locations
are a portion of the collateral securing the Senior
Lending Facility due in 1998 (S. K. Wellman) described in
Note D of the Notes to the Consolidated Financial
Statements contained in the Registrant's 1994 Annual
Report to Shareholders.
Management believes that none of the leased facilities is critical to its
operations. The leases are generally for an initial term of five years and
generally contain one or more renewal option periods. Management considers
the properties to be suitable for their present use.
Item 3. Legal Proceedings.
The Registrant is unaware of any litigation which is expected to have a
material effect on the results of operations or financial condition of the
Registrant.
Item 4. Submission of Matters to a Vote of Security Holders.
No response under this item is required.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Reference is made to the information set forth in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" under "Market,
Share Ownership and Dividend Information" in the Registrant's 1994 Annual
Report to Shareholders, which information is incorporated herein by
reference.
Item 6. Selected Financial Data.
Reference is made to the information set forth in "Financial Review" under
"Selected Financial Information" in the Registrant's 1994 Annual Report to
Shareholders, which information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Reference is made to the information set forth under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the
Registrant's 1994 Annual Report to Shareholders, which information is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
Reference is made to the information set forth under "Consolidated Financial
Statements" in the Registrant's 1994 Annual Report to Shareholders, which
information is incorporated herein by reference.
Reference is made to the information set forth under "Quarterly Data" in the
Registrant's 1994 Annual Report to Shareholders, which information is
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
No response under this item is required.
PART III
Item 10. Directors and Executive Officers of the Registrant.
For information with respect to Directors and Executive Officers of the
Registrant, the Registrant incorporates by reference herein the information
appearing under the caption, "Business Experience of Directors and Executive
Officers" and, with respect to compliance with Item 405 of Regulation S-K,
"Security Ownership of Certain Beneficial Owners" under the table containing
the "Amount and Nature of Beneficial Ownership" of executive officers and
directors contained in the Registrant's definitive Proxy Statement to be
filed with the Commission no later than 120 days after the close of the
Registrant's fiscal year ended December 31, 1994 in connection with the
Registrant's 1995 Annual Meeting of Shareholders.
Item 11. Executive Compensation.
Registrant incorporates by reference herein information appearing under the
caption "Remuneration of Directors and Executive Officers" contained in the
Registrant's definitive Proxy Statement to be filed with the Commission no
later than 120 days after the close of the Registrant's fiscal year ended
December 31, 1994 in connection with the Registrant's 1995 Annual Meeting of
Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Registrant incorporates by reference herein information appearing under the
caption "Security Ownership of Certain Beneficial Owners" contained in the
Registrant's definitive Proxy Statement to be filed with the Commission no
later than 120 days after the close of the Registrant's fiscal year ended
December 31, 1994 in connection with the Registrant's 1995 Annual Meeting of
Shareholders.
Item 13. Certain Relationships and Related Transactions.
Registrant incorporates by reference herein information appearing under the
caption "Employment Agreements With Executive Officers" and "Compensation
Committee Interlocks and Related Transactions" contained in the Registrant's
definitive Proxy Statement to be filed with the Commission no later than 120
days after the close of the Registrant's fiscal year ended December 31, 1994
in connection with the Registrant's 1995 Annual Meeting of Shareholders.
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 herein 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 (incorpor-
ated 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 (incorpor-
ated 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, to the
1990 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
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
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 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 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
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 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
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 Herein.
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 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
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
1994 Annual 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 24* - Consent of Independent Accountants.
* Filed with this Report on Form 10-K
# 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 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, hereunto duly authorized.
MLX Corp.
Dated: March 10, 1995 By: /S/ THOMAS C. WAGGONER
Thomas C. Waggoner
Vice President &
Chief Financial Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, and in the capacities indicated, on March 10, 1995.
Signature Title
/s/ BRIAN R. ESHER Chairman of the Board, President &
Chief Executive Officer (Principal
Executive Officer) and Director
/s/ THOMAS C. WAGGONER Vice President, Chief Financial
Officer & Secretary (Principal
Financial & Accounting Officer)
/s/ WILLEM F.P. de VOGEL Director
/s/ ALFRED R. GLANCY III Director
/s/ S. STERLING McMILLAN, III Director
/s/ J. WILLIAM UHRIG Director
/s/ W. JOHN ROBERTS Director
/s/ H. WHITNEY WAGNER Director
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
Atlanta, Georgia
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SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
MLX Corp.
December 31, 1994 and 1993
(In thousands)
CONDENSED BALANCE SHEETS 1994 1993
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ASSETS
Current Assets:
Cash and cash equivalents $ 640 $ 695
Total Current Assets 640 695
Investment in Subsidiaries* 15,021 12,612
Other Assets:
Leasehold improvements and equipment - net 1 7
Intangible assets - net 363 415
Other 1 1
Total Other Assets 365 423
$16,026 $ 13,730
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 14 $ 6
Other accrued liabilities. 409 1,083
Federal income taxes payable 47 150
Dividends payable on Series A Preferred Stock 212 638
Total Current Liabilities 682 1,877
Long-Term Liabilities:
Zero coupon bonds. 1,022 1,005
Variable rate subordinated notes 1,441 1,397
Note payable to subsidiary* 2,152 2,127
Total Long-Term Liabilities 4,615 4,529
Shareholders' Equity:
Preferred stock 7,265 6,981
Common stock 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 deductions (1,288) (1,397)
Total Shareholders' Equity 10,729 7,324
$16,026 $ 3,730
*Eliminated in consolidation.
</TABLE>
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SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (cont.)
MLXCorp.
Years Ended December 31, 1994, 1993 and 1992
(In thousands)
CONDENSED STATEMENTS OF INCOME 1994 1993 1992
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Revenues:
Interest and other income (expense) $ (77) $ 25 $ 348
Dividends from subsidiaries* - 5,900 -
Management fees from subsidiaries* 1,200 950 600
Management fee from related party - 82 470
Total Revenues 1,123 7,057 1,418
Expenses:
General and administrative expenses 879 1,355 1,408
Interest expense:
Subsidiary indebtedness* 185 151 295
Other indebtedness 202 366 1,334
Earnings (loss) before taxes, equity in earnings
(losses) of subsidiaries and extraordinary
item (143) 5,185 (1,619)
Charge in lieu of federal income taxes (1,314) (1,243) (1,110)
Provision for federal AMT taxes (80) (150) -
Credit for subsidiary tax sharing* 1,489 1,360 2,129
Earnings (loss) before equity in earnings
(losses) of subsidiaries and extraordinary
item (48) 5,152 (600)
Equity in earnings (losses) of subsidiaries,
after payment of dividends* 2,795 (3,113) 1,985
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
CONDENSED STATEMENTS OF CASH FLOWS
Net Cash Provided by (used in) Operating Activities $ (339) $ 254 $1,211
Financing Activities:
Payment of dividends on
Series APreferred Stock (1,200) - -
Dividends and advances from subsidiary 1,398 6,538 -
Increase/(reduction) in debt and preferred
stock obligations 86 (6,510) (1,835)
619 28 (1,835)
Increase (Decrease) in cash $ (55) $ 282 $ (624)
</TABLE>
*Eliminated in consolidation.
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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
MLX CORP. AND SUBSIDIARIES
COL. A COL. B. COL. C COL. D COL. E
Additions
Balance at Charged to Charged to Balance at
Beginning Costs Other Deductions - End of
Description of Period and Expenses Accounts Describe of Period
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Reserve and allowances deducted from
asset accounts
Year ended December 31, 1994:
Valuation allowance for deferred
tax assets $121,000,000 $ 0 $2,000,000 (1) $119,000,000
Year ended December 31, 1993:
Valuation allowance for deferred
tax assets 0 $124,000,000 $3,000,000 (2) $121,000,000
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(1) Reduction in net operating loss carryover due to offset against taxable
income and expiration of certain general business credits.
(2) Reduction in net operating loss carryover due to offset against taxable
income.
FIRST CONSOLIDATED AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST CONSOLIDATED AMENDMENT TO LOAN AND SECURITY
AGREEMENT (this "Amendment") is made and entered into this 16th day
of November, 1994, by and among S. K. WELLMAN LIMITED, INC. and THE
S. K. WELLMAN CORP., each a Michigan corporation (hereinafter
referred to collectively as "Borrowers" and individually as a
"Borrower") with their chief executive offices and principal places
of business at 6180 Cochran Road, Solon, Ohio 44139, and BARCLAYS
BUSINESS CREDIT, INC., a Connecticut corporation (hereinafter
referred to, together with its successors and assigns, as "Lender")
with an office at 6060 J. A. Jones Drive, Suite 200, Charlotte,
North Carolina 28287.
R E C I T A L S:
Lender and Borrowers are parties to a certain Loan and
Security Agreement dated January 15, 1993 (the "Loan Agreement"),
as amended by that certain First Amendment to Loan and Security
Agreement dated February 19, 1993, that certain Second Amendment to
Loan and Security Agreement dated March 15, 1993, that certain
Third Amendment to Loan and Security Agreement dated June 8, 1993,
that certain Fourth Amendment to Loan and Security Agreement dated
December 29, 1993, that certain Fifth Amendment to Loan and
Security Agreement dated March 24, 1994 and that certain Sixth
Amendment to Loan and Security Agreement dated June 14, 1994
(collectively, the "Prior Amendments").
Pursuant to the Loan Agreement, Lender has extended the
following credit facilities to Borrowers: (a) revolving credit
facility in the aggregate principal amount of up to $7,200,000; (b)
term loan in the original principal amount of $5,725,000 ("Term
Loan A"); (c) term loan in the original principal amount of
$1,500,000 ("Term Loan B"); (d) term loan in the original principal
amount of $1,575,000 ("Term Loan C"); (e) term loan in the original
principal amount of $500,000 ("Term Loan D"); and (f) capital
expenditure facility in the aggregate principal amount of up to
$1,500,000 ("Equipment Facility").
As of the date hereof, Lender has made two equipment loans to
Borrowers under the Equipment Facility in the original principal
amounts of $1,050,000 and $450,000, respectively (the "Existing
Equipment Loans").
Borrowers have requested that Lender consolidate Term Loan A,
Term Loan C, the Existing Equipment Loans and a Revolver Loan in
the amount of $1,706,255, such that the aggregate of such loans in
the amount of $8,500,000 will be evidenced by and repaid in
accordance with the terms of the Consolidated Note (as hereinafter
defined).
Borrowers have also requested, among other things, that Lender
increase the principal amount of the Equipment Facility from
$1,500,000 to $2,000,000.
Borrowers and Lender also desire to consolidate into this
Amendment, for ease of reference, those changes to the Loan
Agreement that were effected by the Prior Amendments and that
Borrowers and Lender desire to continue in effect. It is the
intent of the parties hereto that this Amendment supersede all of
the Prior Amendments and set forth all of the amendments to the
Loan Agreement that are agreed to by the parties on and as of the
date hereof.
NOW, THEREFORE, for and in consideration of TEN DOLLARS
($10.00) in hand paid and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as
follows:
1. Definitions. All capitalized terms used in this
Amendment, unless otherwise defined herein, shall have the meaning
ascribed to such terms in the Loan Agreement.
2. Amendments to Section 1.1. Section 1.1 of the Loan
Agreement is hereby amended as follows:
(a) By deleting the definition of "Average Monthly
Revolver Loan Balance" in its entirety and by substituting the
following in lieu thereof:
Average Monthly Loan Balance - the amount obtained by
adding the unpaid balance of Loans owing by Borrowers to
Lender at the end of each day for each day during the month in
question and by dividing such sum by the number of days in
such month.
(b) By adding the following clause (vii) to the
definition of "Distribution Conditions":
; and (vii) Borrowers shall have paid all accounts
payable owing to trade creditors of Borrowers when due,
except those payables that are being disputed in good
faith by Borrowers and that have been disclosed to Lender
in writing prior to the due date thereof.
(c) By deleting the proviso at the end of the definition
of "Eligible Canadian Inventory" and substituting in lieu thereof
the following:
provided, however, that no such inventory that is
situated in provinces where Wellman Canada is not
qualified to do business or where Lender's Lien search
has not yet confirmed the first priority of Lender's Lien
upon such Inventory shall be deemed Eligible Canadian
Inventory unless and until such qualification is made and
such first priority confirmed.
(d) By deleting the definitions of "Factor," "Term Note
A," and "Term Note C" in their entirety.
(e) By deleting the definition of "Current Liabilities"
and by substituting the following new definition in lieu thereof:
Current Liabilities - at any date, means the amount
at which the liabilities of a Person that are properly
classified as current liabilities in accordance with GAAP
would be shown as current liabilities on a GAAP balance
sheet of such Person at such date.
(f) By deleting the definition of "Consolidated Debt
Service Coverage Ratio" and by substituting the following new
definition in lieu thereof:
Consolidated Debt Service Coverage Ratio - for any
period, the Consolidated Free Cash Flow divided by the
current maturities of Funded Debt. In calculating the
amount of current maturities of Funded Debt during any
period in question for purposes of this definition, the
amount of Funded Debt at any time shall be divided by
twelve and multiplied by the number of months in the
period in question. For purposes of this calculation,
quarterly dividend payments on Preferred Stock shall be
subtracted from Consolidated Free Cash Flow.
(g) By deleting the definition of "Permitted Purchase
Money Indebtedness" in its entirety and by substituting in lieu
thereof the following:
Permitted Purchase Money Indebtedness - Purchase
Money Indebtedness of a Borrower incurred after the date
hereof which is secured by a Purchase Money Lien and
which, when aggregated with the principal amount of all
other such Indebtedness and Capitalized Lease Obligations
of Borrowers at the time outstanding, does not exceed
$1,250,000. For the purposes of this definition, the
principal amount of any Purchase Money Indebtedness
consisting of Capital Leases shall be computed as a
Capitalized Lease Obligation.
(h) By deleting the definitions of "Term Loan A" and
"Term Loan C" in their entirety and by substituting the following
in lieu thereof:
Term Loan A - that certain term loan made by Lender
to Borrowers on January 15, 1993, in the original
principal amount of $5,725,000, which term loan has been
consolidated into the Consolidated Loan pursuant to
Section 2.2(A) hereof.
Term Loan C - that certain term loan made by Lender
to Borrowers on February 19, 1993, in the original
principal amount of $1,575,000, which term loan has been
consolidated into the Consolidated Loan pursuant to
Section 2.2(A) hereof.
(i) By deleting the definitions of "Term Loans" and
"Term Notes" in their entirety and by substituting in lieu thereof
the following:
Term Loans - collectively, the Consolidated Loan,
Term Loan B and Term Loan D.
Term Notes - collectively, the Consolidated Note,
Term Note B and Term Note D.
(j) By adding the following new definitions to Section
1.1 in proper alphabetical sequence:
Consolidated Loan - the Loans that are consolidated
as described in Section 2.2(A) of this Agreement and
that are to be evidenced by and repaid in accordance with
the Consolidated Note.
Consolidated Note - the Amended, Restated and
Consolidated Secured Promissory Note dated November 16,
1994, from Borrowers to Lender, in the original principal
amount of $8,500,000, which shall be in the form of
Exhibit A-2 attached hereto.
Variable Rate Notes - collectively, (i) that certain
promissory note dated June 30, 1993, in the original
principal amount of $863,310, from Parent to Cudd & Co.,
and (ii) that certain promissory note dated June 30,
1993, in the original principal amount of $580,494, from
Parent to Equitable Life Assurance Society of the United
States, that evidence the obligations arising from the
conversion of the Zero Coupon Bonds.
3. Amendment to Section 2. Section 2 of the Loan Agreement
is hereby amended by deleting the reference to "EIGHTEEN MILLION
AND NO/100 DOLLARS ($18,000,000)" contained in the introductory
paragraph thereof and by substituting a reference to "NINETEEN
MILLION SEVEN HUNDRED THOUSAND AND NO/100 DOLLARS ($19,700,000)" in
lieu thereof.
4. Amendment to Section 2.2. Section 2.2 of the Loan
Agreement is hereby amended as follows:
(a) By deleting Section 2.2(A) in its entirety and by
substituting the following in lieu thereof:
(A) Consolidated Loan. The parties agree that the
unpaid principal balances outstanding on November 16,
1994, of Term Loan A, Term Loan C and Equipment Loans in
the original principal amount of $1,050,000 and $450,000,
respectively and $1,706,255 of the outstanding principal
balance of Revolver Loans shall be consolidated into a
term loan in the amount of $8,500,000 (the "Consolidated
Loan"), which Loan shall be evidenced by and repaid in
accordance with the terms of the Consolidated Note and
shall be secured by the Property of each Borrower
described in Section 4 hereof and in the Security
Documents.
(b) By deleting Section 2.2(C) in its entirety and by
substituting the following in lieu thereof:
(C) [INTENTIONALLY OMITTED]
(c) By deleting the reference to "January 14, 1995"
contained in Section 2.2(E) of the Loan Agreement and by
substituting in lieu thereof a reference to "January 14, 1997."
(d) By deleting the reference to "$1,500,000" contained
in Section 2.2(E) of the Loan Agreement and by substituting in lieu
thereof a reference to "$2,000,000."
(e) By deleting the last sentence of Section 2.2(F) in
its entirety.
5. Amendment to Section 3.1. Section 3.1 of the Loan
Agreement is hereby amended as follows:
(a) By deleting Section 3.1(A) in its entirety and by
substituting in lieu thereof the following:
3.1 Interest, Fees and Charges.
(A) Interest. Interest shall accrue on the
Term Loans and the Equipment Loans in accordance with the
terms of the Term Notes and the Equipment Notes and shall
accrue on the principal amount of the Revolver Loans
outstanding at the end of each day at a fluctuating rate
per annum equal to one and one-quarter percent (1.25%)
above the Base Rate in effect on such day. The foregoing
applicable rates of interest shall be increased or
decreased, as the case may be, by an amount equal to any
increase or decrease in the Base Rate, with such
adjustments to be effective as of the opening of business
on the day that any such change in the Base Rate becomes
effective. The Base Rate in effect on the date hereof
shall be the Base Rate effective as of the opening of
business on the date hereof. In no event shall the per
annum rate of interest with respect to the Revolver Loans
be less than six percent (6.0%). Interest shall be
calculated on a daily basis (computed on the actual
number of days elapsed over a year of 360 days unless
reference to a 365 or 366-day year is necessary in order
not to exceed the Maximum Rate), commencing on the date
hereof, and shall be payable monthly, in arrears, on the
first day of each month. The calculation of interest on
the basis of a 360-day year, as opposed to a year of 365
days, results in a higher effective rate of interest
hereunder.
(b) By deleting from Section 3.1(E) of the Loan
Agreement the reference to "$130,000" and by substituting in lieu
thereof a reference to "$95,000."
(c) By deleting from Section 3.1(E) of the Loan
Agreement the clause that reads "and the balance of $62,500 on
February 1, 1994" and by substituting in lieu thereof a clause that
reads "and the balance of $32,500 on February 1, 1994."
6. Amendment to Section 3.2. Section 3.2 of the Loan
Agreement is hereby deleted in its entirety and the following
substituted in lieu thereof:
3.2. Term of Agreement. Subject to Lender's right
to cease making Loans to Borrowers at any time upon or
after the occurrence of a Default or an Event of Default,
this Agreement shall be in effect for a period commencing
on the date hereof and ending on January 15, 1998 (the
"Original Term"), and this Agreement shall automatically
renew itself (but no such renewal shall be construed to
extend the maturity date of any of the Notes) for one (1)
year periods thereafter (each a "Renewal Term"), unless
terminated as provided in Section 3.3 hereof.
7. Amendment to Section 3.3. Section 3.3(C) of the Loan
Agreement is hereby deleted in its entirety and the following
substituted in lieu thereof:
At the effective date of any such termination, Borrowers
shall pay to Lender (in addition to the then outstanding
principal, accrued interest and other charges owing under
the terms of this Agreement and any of the other Loan
Documents), as liquidated damages for the loss of the
bargain and not as a penalty, an amount equal to three
percent (3%) of the highest of the Average Monthly Loan
Balances outstanding during the Original Term if
termination occurs during the first twelve-month period
of the Original Term (January 15, 1993 through January
15, 1994); two percent (2%) of the highest of the Average
Monthly Loan Balances outstanding during the Original
Term if termination occurs during the second twelve-month
period of the Original Term (January 16, 1994 through
January 15, 1995); one percent (1%) of the highest of the
Average Monthly Loan Balances outstanding during the
Original Term if termination occurs during the period
from January 16, 1995 through January 15, 1998; provided,
however, that if termination occurs on the last day of
the Original Term, no termination charge shall be
payable.
8. Amendment to Section 3.4. Section 3.4 of the Loan
Agreement is hereby amended by adding a new Paragraph (E) to the
end of Section 3.4 of the Loan Agreement that reads as follows:
(E) Notwithstanding anything to the contrary
contained in paragraphs (A) and (B) of this Section 3.4,
payment of the principal amount and accrued interest on
each Revolver Loan shall in all events be due and payable
(if not sooner paid in accordance with the provisions of
paragraphs (A) and (B) of this Section 3.4), and shall be
paid, one day prior to the last day of the thirty-fifth
month after the month in which such Revolver Loan is made
so that no Revolver Loan shall remain outstanding and
unpaid for three years or more from the date such
Revolver Loan was first funded by Lender to Borrowers.
9. Amendment to Section 9.1. Section 9.1 of the Loan
Agreement is hereby amended by adding a new Section 9.1(U) thereto
that reads as follows:
(U) Accounts Payable. Pay all accounts
payable owing to any Person in a timely
manner.
10. Amendment to Section 9.2. Section 9.2 of the Loan
Agreement is hereby amended as follows:
(a) By deleting clause (ii) of Section 9.2(G) in its
entirety and renumbering the existing clause (iii) of Section
9.2(G) as clause (ii) of Section 9.2(G).
(b) By deleting clauses (iii) and (iv) of Section 9.2(J)
of the Loan Agreement in their entirety and by substituting the
following in lieu thereof:
(iii) Wellman Ltd. may make Distributions to Parent on or
before December 31, 1993, in an amount not to exceed
$1,015,000, to enable Parent to satisfy the following
obligations of Parent: (a) payment of principal and
interest due and owing under the Put Notes, not to exceed
$690,000 in the aggregate, and (b) operating expenses and
employee bonuses for fiscal year ending December 31,
1993, not to exceed $325,000 in the aggregate; (iv)
Wellman Ltd. may make Distributions to Parent on or
before January 31, 1994, in an amount not to exceed
$770,000, to enable Parent to pay dividends on the
Preferred Stock and to pay interest then due and owing on
the Variable Rate Notes; (v) except as set forth in
clauses (iii) and (iv) above, after payment in full of
Term Loan B and Term Loan D and subject to receipt by
Lender of the annual audited financial statements of
Borrowers delivered pursuant to Section 9.1(J)(i) of this
Agreement, in form and substance satisfactory to Lender,
Wellman Ltd. may make Distributions no more frequently
than once each fiscal year for the purpose of enabling
Parent to pay any unpaid Indebtedness of Parent owing to
TCR or to enable Parent to make payments in respect of
the Zero Coupon Bonds or any substitutions therefor,
including, without limitation, the Variable Rate Notes;
(vi) Wellman Corp. may make Distributions from time to
time to Wellman Ltd; (vii) commencing March 31, 1994,
Wellman Ltd. may make quarterly Distributions to Parent
(not to exceed $245,000 per quarter) to enable Parent to
pay dividends on the Preferred Stock so long as (a)
Borrowers' Average Excess Availability for the thirty-day
period prior to the date of such Distribution after
giving effect to such Distribution is at least $1,000,000
and (b) Borrower's Average Excess Availability on the
date of such Distribution and following the Distribution
is at least $1,000,000; and (viii) Wellman Ltd. may make
a Distribution to Parent in an aggregate amount not to
exceed $425,000 on or before November 30, 1994, to enable
Parent to indemnify Three Cities for unpaid tax
obligations of Pameco.
(c) By deleting Section 9.2(L) in its entirety and by
substituting the following in lieu thereof:
(L) Capital Expenditures. Make Capital
Expenditures (including, without limitation, by way of
Capital Leases) which, in the aggregate, as to Borrowers
and their Subsidiaries, exceed $3,250,000 during any
fiscal year of Borrowers.
(d) By deleting Section 9.2(Q) of the Loan Agreement in
its entirety and by substituting the following in lieu thereof:
(Q) Key-Man Insurance. On or before December 31,
1994, deliver the Insurance Assignment to Lender, in form
and substance satisfactory to Lender.
(e) By deleting the reference to "$50,000" contained in
Section 9.2(Y) of the Loan Agreement and by substituting in lieu
thereof a reference to "$100,000."
11. Amendment to Section 9.3. Section 9.3 of the Loan
Agreement is hereby amended as follows:
(a) By deleting the reference to "April 1, 1994 through
June 30, 1994 -- $4,300,000" contained in Section 9.3(A) and by
substituting in lieu thereof a reference to "April 1, 1994 through
June 30, 1994 -- $4,800,000."
(b) By deleting Section 9.3(C) in its entirety and by
substituting the following in lieu thereof:
(C) Profitability. Achieve Consolidated Adjusted Net
Earnings of not less than $1 per month or less than the amount
shown below for the period corresponding thereto as of the
last day of such period (and compliance with this covenant on
the dates shown below shall be tested on a cumulative
quarterly and annual basis):
Period Amount
Closing Date through $ 725,000
March 31, 1993
Closing Date through $ 1,500,000
June 30, 1993
Closing Date through $ 2,100,000
September 30, 1993
Closing Date through $ 2,700,000
December 31, 1993
January 1, 1994 through $ 725,000
March 31, 1994
January 1, 1994 through $ 1,500,000
June 30, 1994
January 1, 1994 through $ 2,100,000
September 30, 1994
January 1, 1994 through $ 2,700,000
December 31, 1994
January 1, 1995 through $ 800,000
March 31, 1995
January 1, 1995 through $ 1,650,000
June 30, 1995
January 1, 1995 through $ 2,300,000
September 30, 1995
January 1, 1995 through $ 3,050,000
December 31, 1995
January 1, 1996 through $ 800,000
March 31, 1996
January 1, 1996 through $ 1,650,000
June 30, 1996
January 1, 1996 through $ 2,300,000
September 30, 1996
January 1, 1996 through $ 3,050,000
December 31, 1996
January 1, 1997 through $ 800,000
March 31, 1997
January 1, 1997 through $ 1,650,000
June 30, 1997
January 1, 1997 through $ 2,300,000
September 30, 1997
January 1, 1997 through $ 3,050,000
December 31, 1997
January 1 through March 31 $ 800,000
of each fiscal year thereafter
January 1 through June 30 $ 1,650,000
of each fiscal year thereafter
January 1 through September 30 $ 2,300,000
of each fiscal year thereafter
January 1 through December 31 $ 3,050,000
of each fiscal year thereafter
(c) By deleting Section 9.3(D) in its entirety and by
adding the following in lieu thereof:
(D) Consolidated Debt Service Coverage Ratio.
Maintain at all times a Consolidated Debt Service
Coverage Ratio of not less than the ratio shown below for
the fiscal period corresponding thereto:
Closing Date through 1.75 to 1
March 31, 1993
Closing Date through 1.75 to 1
June 30, 1993
Closing Date through 1.75 to 1
September 30, 1993
Closing Date through 1.75 to 1
December 31, 1993
January 1, 1994 through 1.75 to 1
March 31, 1994
January 1, 1994 through 1.75 to 1
June 30, 1994
January 1, 1994 through 1.75 to 1
September 30, 1994
January 1, 1994 through 1.75 to 1
December 31, 1994
January 1, 1995 through 1.75 to 1
March 31, 1995
January 1, 1995 through 1.75 to 1
June 30, 1995
January 1, 1995 through 1.75 to 1
September 30, 1995
January 1, 1995 through 1.75 to 1
December 31, 1995
January 1, 1996 through 1.75 to 1
March 31, 1996
January 1, 1996 through 1.75 to 1
June 30, 1996
January 1, 1996 through 1.75 to 1
September 30, 1996
January 1, 1996 through 1.75 to 1
December 31, 1996
January 1, 1997 through 1.75 to 1
March 31, 1997
January 1, 1997 through 1.75 to 1
June 30, 1997
January 1, 1997 through 1.75 to 1
September 30, 1997
January 1, 1997 through 1.75 to 1
December 31, 1997
January 1 through March 31 1.75 to 1
of each fiscal year thereafter
January 1 through June 30 1.75 to 1
of each fiscal year thereafter
January 1 through September 30 1.75 to 1
of each fiscal year thereafter
January 1 through December 31 1.75 to 1
of each fiscal year thereafter
(d) By deleting Section 9.3(E) in its entirety and by
substituting the following in lieu thereof:
(E) Consolidated Free Cash Flow. Maintain at all
times a Consolidated Free Cash Flow of not less than the
amount shown below for the period corresponding thereto:
(i) Quarterly Calculation
Period Amount
Closing Date through $ 750,000
March 31, 1993
April 1, 1993 through $ 750,000
June 30, 1993
July 1, 1993 through $ 750,000
September 30, 1993
October 1, 1993 through $ 750,000
December 31, 1993
January 1, 1994 through $ 750,000
March 31, 1994
April 1, 1994 through $ 750,000
June 30, 1994
July 1, 1994 through $ 750,000
September 30, 1994
October 1, 1994 through $ 750,000
December 31, 1994
January 1, 1995 and at the end $ 800,000
of each fiscal quarter thereafter
(ii) Cumulative Calculation
Period Amount
Closing through $ 750,000
March 31, 1993
Closing through $ 2,000,000
June 30, 1993
Closing through $ 2,800,000
September 30, 1993
Closing through $ 3,675,000
December 31, 1993
January 1, 1994 through $ 750,000
March 31, 1994
January 1, 1994 through $ 2,000,000
June 30, 1994
January 1, 1994 through $ 2,800,000
September 30, 1994
January 1, 1994 through $ 3,675,000
December 31, 1994
January 1, 1995 through $ 1,000,000
March 31, 1995
January 1, 1995 through $ 2,300,000
June 30, 1995
January 1, 1995 through $ 3,250,000
September 30, 1995
January 1, 1995 through $ 4,300,000
December 31, 1995
January 1, 1996 through $ 1,000,000
March 31, 1996
January 1, 1996 through $ 2,300,000
June 30, 1996
January 1, 1996 through $ 3,250,000
September 30, 1996
January 1, 1996 through $ 4,300,000
December 31, 1996
January 1, 1997 through $ 1,000,000
March 31, 1997
January 1, 1997 through $ 2,300,000
June 30, 1997
January 1, 1997 through $ 3,250,000
September 30, 1997
January 1, 1997 through $ 4,300,000
December 31, 1997
January 1 through March 31 $ 1,000,000
of each fiscal year thereafter
January 1 through June 30 $ 2,300,000
of each fiscal year thereafter
January 1 through September 30 $ 3,250,000
of each fiscal year thereafter
January 1 through December 31 $ 4,300,000
of each fiscal year thereafter
12. Amendment to Section 11.1. Section 11.1 of the Loan
Agreement is hereby amended by deleting Section 11.1(I) entitled
"Adverse Changes" in its entirety.
13. Amendment to Section 11.2. Section 11.2 of the Loan
Agreement is hereby deleted in its entirety and the following
substituted in lieu thereof:
11.2 Acceleration of the Obligations. Without in
any way limiting the right of Lender to demand payment of
any portion of the Obligations payable on demand in
accordance with this Agreement or any of the other Loan
Documents, upon or at any time after the occurrence of an
Event of Default all of the Obligations then outstanding
(whether under this Agreement or any of the other Loan
Documents or otherwise) shall, at the option of Lender
and without notice or demand by Lender, become at once
due and payable and Borrowers shall forthwith pay to
Lender, in addition to any and all sums and charges due,
the entire principal of and accrued and unpaid interest
on the Obligations plus reasonable attorneys' fees, not
to exceed fifteen percent (15%) of the Obligations, if
the same are collected by or through an attorney at law.
Nothing herein shall be construed to permit Lender to
charge or collect any unmatured or unearned interest.
14. Amendment to Section 14.8. The notice address of
Borrowers set forth in Section 14.8 of the Loan Agreement is hereby
amended to read as follows:
(B) If to either
Borrower: c/o MLX Corp.
1000 Center Place
Norcross, Georgia 30092
15. Substitution of Exhibits. The Exhibits to the Loan
Agreement are hereby amended as follows:
(a) By substituting Exhibit A-1 (Equipment Promissory
Note) and Exhibit A-2 (Amended, Restated and Consolidated Secured
Promissory Note) attached hereto for the Exhibit A-1 (Equipment
Promissory Note) and Exhibit A-2 (Term Note A) attached to the Loan
Agreement; and
(b) By deleting Exhibit A-4 (Term Note C) in its
entirety.
16. Interest Rate Disclosure. On the date of this Amendment,
the Base Rate is seven and three-quarters percent (7.75%) and
therefore, the rate of interest in effect hereunder for Revolver
Loans on the date hereof, expressed in simple interest terms, is
nine percent (9.0%) per annum.
17. Ratification and Reaffirmation. Each Borrower hereby
ratifies and reaffirms each of the Loan Documents and all of such
Borrower's covenants, duties and liabilities thereunder.
18. Additional Covenants. To induce Lender to enter into
this Amendment, Borrowers covenant and agree that simultaneously
with the execution and delivery of this Amendment, Borrowers shall
(i) execute and deliver amendments to each of the Mortgages
recorded in Cuyahoga County, Ohio and LaVergne, Tennessee, all in
form and substance satisfactory to Lender; (ii) deliver
endorsements or commitments for endorsements to the existing
mortgagee title insurance policies insuring the Liens of such
Mortgages, which shall be in form and substance satisfactory to
Lender and which shall give effect to the mortgage amendments
described in the foregoing clause (i); (iii) reimburse Lender for
the payment of all applicable documentary stamp, intangibles,
recording, note or other similar taxes payable with respect to the
mortgage amendments described in clause (i); and (iv) execute and
deliver the Amended, Restated and Consolidated Secured Promissory
Note in the form of Exhibit A-2 attached hereto (the "Consolidated
Note").
19. Acknowledgements and Stipulations. Each Borrower
acknowledges and stipulates that the Loan Agreement and the other
Loan Documents executed by such Borrower are legal, valid and
binding obligations of such Borrower that are enforceable against
such Borrower in accordance with the terms thereof; all of the
Obligations are owing and payable without defense, offset or
counterclaim (and to the extent there exists any such defense,
offset or counterclaim on the date hereof, the same is hereby
waived by each Borrower); the security interests and Liens granted
by Borrowers in favor of Lender are duly perfected, first priority
security interests and liens and the unpaid principal balance of
the Loans as of the opening of business on November 15, 1994,
totalled $8,475,564.53
20. Representations and Warranties. Each Borrower represents
and warrants to Lender, to induce Lender to enter into this
Amendment, that no Default or Event of Default exists on the date
hereof; the execution, delivery and performance of this Amendment
have been duly authorized by all requisite corporate action on the
part of each Borrower and this Amendment has been duly executed and
delivered by each Borrower; and except as may have been disclosed
in writing by Borrowers to Lender prior to the date hereof, all of
the representations and warranties made by each Borrower in the
Loan Agreement are true and correct on and as of the date hereof.
21. Expenses of Lender. Borrowers agree to pay, on demand,
all costs and expenses incurred by Lender in connection with the
preparation, negotiation and execution of this Amendment and any
other Loan Documents executed pursuant hereto and any and all
amendments, modifications, and supplements thereto, including,
without limitation, the costs and fees of Lender's legal counsel.
22. Governing Law. This Amendment shall be effective when
signed by each Borrower and accepted by Lender in Atlanta, Georgia,
whereupon this Amendment shall be a contract made in Georgia and
shall be governed by and construed in accordance with the internal
laws of the State of Georgia.
23. Successors and Assigns. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
24. No Novation, etc. This Amendment is not intended to be,
nor shall it be construed to create, a novation or accord and
satisfaction, and the Loan Agreement as herein modified shall
continue in full force and effect. Notwithstanding any prior
mutual temporary disregard of any of the terms of any of the Loan
Documents, the parties agree that the terms of each of the Loan
Documents shall be strictly adhered to on and after the date
hereof.
25. Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall constitute an original, but
all of which taken together shall be one and the same instrument.
26. Release of Claims. To induce Lender to enter into this
Amendment, each Borrower hereby releases, acquits and forever
discharges Lender, and the officers, directors, agents, employees,
successors and assigns of Lender from all liabilities, claims,
demands, actions or causes of actions of any kind (if there be
any), whether absolute or contingent, disputed or undisputed, at
law or in equity, or known or unknown that any Borrower now has or
ever had against Lender arising under or in connection with any of
the loan documents or otherwise.
27. Waiver of Notice. Each Borrower hereby waives notice of
acceptance of this Amendment by Lender.
28. Waiver of Jury Trial. To the fullest extent permitted
under Applicable Law, the parties hereto each hereby waives the
right to trial by jury in any action, suit, proceeding or
counterclaim arising out of or related to this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed under seal in Atlanta, Georgia, and
delivered by their respective duly authorized officers on the date
first written above.
ATTEST: S. K. WELLMAN LIMITED, INC.
("Borrower")
/s/Thomas C. Waggoner By: /s/Brian Esher
Secretary Brian Esher, President
[CORPORATE SEAL]
ATTEST: THE S. K. WELLMAN CORP.
("Borrower")
/s/Thomas C. Waggoner By:/s/Brian Esher
Secretary Brian Esher, President
[CORPORATE SEAL]
BARCLAYS BUSINESS CREDIT, INC.
("Lender")
By:/s/Elizabeth L. Walker
Title: Vice President
[Consent and Reaffirmation on following page]
CONSENT AND REAFFIRMATION
The undersigned guarantors of the Obligations of Borrowers at
any time owing to Lender hereby (i) acknowledge receipt of a copy
of the foregoing First Consolidated Amendment to Loan and Security
Agreement; (ii) consent to Borrowers' execution and delivery
thereof; (iii) agree to be bound thereby; and (iv) affirm that
nothing contained therein shall modify in any respect whatsoever
its respective guaranty of the Obligations and reaffirm that such
guaranty is and shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Consent
and Reaffirmation on the date of such First Consolidated Amendment
to Loan and Security Agreement.
ATTEST: MLX CORP.
/s/Thomas C. Waggoner By:/s/Brian Esher
Secretary Brian Esher, President
[CORPORATE SEAL]
ATTEST: S. K. WELLMAN, S.p.A.
/s/Thomas C. Waggoner By: /s/Brian Esher
Secretary Name: Brian Esher
Title:
[CORPORATE SEAL]
ATTEST: THE S. K. WELLMAN COMPANY OF
CANADA LIMITED
/s/Thomas C. Waggoner By: /s/Brian Esher
Secretary Brian Esher, President
[CORPORATE SEAL]
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
This Second Amendment is entered into effective January 1, 1994,
between MLX CORP., a Georgia (formerly Michigan) corporation ("MLX"),
and BRIAN R. ESHER ("Esher").
WHEREAS, MLX and Esher entered into that certain Employment Agreement
effective as of February 10, 1991, (The "Employment Agreement") and
that certain First Amendment to Employment Agreement effective as of
March 27, 1993 ("First Amendment" and collectively as "the Contract").
WHEREAS, MLX and Esher desire to continue the employment relationship;
THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Esher and MLX hereby
extend the Contract to December 31, 1994 and amend it as follows:
1. Section "2." of the Contract shall be amended to reflect the
extension of the Contract from a three (3) year period to a period through
December 31, 1994 and this Second Amendment shall reflect changes effective
from January 1, 1994 through December 31, 1994.
2. Section "3.B." of the Contract is amended to delete the number
"$100,000" and substituting in lieu thereof the number "$125,000."
3. Section "3.C." shall be deleted and replaced as follows:
"C. Annual Bonus. MLX shall pay to Esher an annual bonus, which
shall be computed in accordance with the following formula:
(i) Based on the MLX level Annual Operating Plan Profit ("AOP",
pre-tax and pre-interest $6,110,000) MLX shall pay to Esher a bonus
of not more than $75,000 based on a sliding scale:
(ii) Sliding Scale Formula:
% of AOP achieved Bonus dollars % of AOP achieved Bonus dollars
<90% $0.00 90 $25,000
91 27,500 92 30,000
93 32,500 94 35,000
95 37,500 96 40,000
97 42,500 98 45,000
99 47,500 100 50,000
101 52,500 102 55,000
103 57,500 104 60,000
105 62,500 106 65,000
107 67,500 108 70,000
109 72,500 110 & > 75,000"
4. All terms and conditions of the Contract, as hereby amended,
shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Second
Amendment effective as of the day and year first above written.
MLX CORP.
By: /s/James D. Askren II, Secy.
/s/Brian R. Esher
MLX CORP.
1994 ANNUAL REPORT
<PAGE>
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
6 Management's Discussion and Analysis
9 Consolidated Financial Statements and Notes
23 Report of Independent Auditors
24 Corporate Data
<PAGE>
MLX Corp. & Subsidiaries
FINANCIAL HIGHLIGHTS
1994 1993 1992
(In thousands, except per share data)
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.
[GRAPHS]
REVENUES
1994 $60,858
1993 57,036
1992 53,862
1991 50,714
1990 55,228
OPERATING EARNINGS
1994 $6,668
1993 6,218
1992 5,373
1991 3,738
1990 3,858
TANGIBLE SHAREHOLDERS' EQUITY*
1994 $ 8,441
1993 4,539
1992 (4,576)
1991 (17,165)
1990 (99,323)
*Includes intangible assets of $2.7 million and $2.9 million in 1992 and 1993,
respectively, and $108.2 million in 1990 including intangible assets of the
RAC Group (discontinued as of December 31, 1993).
<PAGE>
MLX Corp. & Subsidiaries
LETTER TO SHAREHOLDERS
We are pleased to report another successful year of operations with a
new record high in revenues and a
five-year high for operating earnings at our S.K. Wellman operating
subsidiary. This profitable operation has enabled us to further reduce our
debt level and achieve an attractive, balanced debt to equity relationship.
This also continues the trend of successful financial results which followed
our restructuring accomplished in 1992.
The year was characterized by increased sales for brake,
transmission and clutch applications for original equipment manufacturers
both domestically and overseas. These increases more than offset declines
experienced in our sales for U.S. military applications and the military
component of export shipments. We ended the year with consolidated operating
earnings of $6.7 million, an increase of 7% and our highest achievement for
this measure since 1988.
The year also saw us expand our capital expenditures for
enhanced operating capacity and efficiency at Wellman. The capital
expenditures level of $3.0 million was our highest annual amount since 1990
and included a plant expansion in Italy, additional production line automation
and laser cutting equipment. Our lower debt level permits us to direct more
of our operating cash flow to these areas with a focus on long term benefits.
We had a very active productive year in managing the
affairs of both MLX and Wellman. We were pleased to announce to you in April
that we had regained our listing on the NASDAQ National Market System. This
achieved our long-standing goal of providing you with a more active trading
market with up to date and readily available trade data. In this context, we
also dissolved our Restricted Transfer and Voting Trusts in May following the
annual meeting of shareholders. This freed up additional common shares for
trading in the equity market.
We were also successful in restructuring our financing
arrangement with Wellman's senior lender. This November transaction enabled us
to consolidate various loan facilities into one combined facility, lower our
overall cost of borrowing and repay the Italian Seller Note in advance of its
due date. In this transaction, our senior lending facility maturity was
extended to January 1998.
[GRAPH]
REPORTED PRIMARY EARNINGS PER SHARE
1994 $0.65
1993 0.45
1992 0.55
1991 0.02
1990 0.06
TOTAL EARNINGS PER SHARE (Defined)*
1994 $1.15
1993 0.92
1992 0.98
1991 0.02
1990 0.06
<PAGE>
From an operational viewpoint, our year was a successful
one as well. At year's end our Wellman subsidiary had achieved an increase in
quarterly sales over the comparable prior year quarter for eleven consecutive
quarters. While we are facing various challenges at Wellman, including
increasing margin pressures, our backlog of unshipped orders has
reached a new record of $16.4 million. I am particularly proud of our Wellman
management team for their drive and initiative in introducing many new
products including various aftermarket products for motorcycle applications.
We were also active in 1994 in continuing our search for
acquisition candidates with a strategy and line of business compatible with
those of S.K. Wellman. We recognize that Wellman operates in a mature
industry, and for this reason, long term success depends in part on creating
synergistic alliances. To date, we have identified many acquisition
opportunities but have been unsuccessful in negotiating attractive
acquisition valuations for these businesses. We will continue to investigate
ways to bring enhanced value to our shareholders.
Our sales outlook for 1995 continues to be strong, both
domestically and overseas, and we expect to continue to fight pressures on our
operating margins. In addition, we expect additional charges in 1995
pertaining to our Series A Preferred Stock since these preferred shares have
a dividend rate based in part on the applicable prime rate as well as an
increasing minimum rate feature. Our borrowings from our senior lender are
also linked to the prime rate.
We hope you share our excitement about these financial and
operating results. With your support, we will attempt to continue to add to
the long-term value of our common stock.
Brian R. Esher
Chairman, President and Chief Executive Officer
March 10, 1995
[GRAPH]
LATEST TWELVE MONTHS ENDED
(In 000s)
Income Before
Twelve Months Ended: Operating Earnings Extraordinary Items
31-Dec-92 5,373 1,385
31-Mar-93 5,949 1,796
30-Jun-93 5,844 2,041
30-Sep-93 6,151 2,229
31-Dec-93 6,218 2,039
31-Mar-94 6,605 2,710
30-Jun-94 6,892 2,908
30-Sep-94 6,331 2,729
31-Dec-94 6,668 2,747
<PAGE>
MLX Corp. & Subsidiaries
FINANCIAL REVIEW
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION
Years ended December 31 1994 1993 1992 1991 1990
Dollars in thousands (except earnings per share data)
<S> <C> <C> <C> <C> <C>
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 - - 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)
</TABLE>
Earnings per share data have been restated to reflect the 1993 one-for-ten
reverse stock split.
<PAGE>
MLX Corp. & Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Basis of Presentation -- The accompanying financial statements include the
accounts of MLX Corp. (MLX or the Company) and its wholly owned subsidiaries.
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 their
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 increases 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%.
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.
<PAGE>
MLX Corp. & Subsidiaries
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.
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
<PAGE>
MLX Corp. & Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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 approximately $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.
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.
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.
<PAGE>
MLX Corp. & Subsidiaries
Enviromental 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.
<TABLE>
<CAPTION>
Quarterly Data (Unaudited)
1994 1st 2nd 3rd 4th
(In thousands, except per share data)
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
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.
<PAGE>
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.
<PAGE>
MLX Corp. & Subsidiaries
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
See notes to consolidated financial statements.
<PAGE>
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.
<PAGE>
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 Compan
y 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
$9,681 $8,449
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.
<PAGE>
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.
NOTE B 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.
<PAGE>
MLX Corp. & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 644 -
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 subsidiary. 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.
<PAGE>
MLX Corp. & Subsidiaries
NOTE D LONG-TERM DEBT (continued)
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.
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 rate 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.
<PAGE>
MLX Corp. & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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:
<TABLE>
<CAPTION>
1994 1993 1992
Number Price Per Number Price Per Number Price Per
of Shares Share of Shares Share of Shares Share
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
(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).
<PAGE>
MLX Corp. & Subsidiaries
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.
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.
<PAGE>
MLX Corp. & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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,
respectively.
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%
<PAGE>
MLX Corp. & Subsidiaries
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):
<TABLE>
<CAPTION>
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
<S> <C> <C> <C> <C>
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)
</TABLE>
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.
<PAGE>
MLX Corp. & Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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):
<TABLE>
<CAPTION>
Corporate United States Italy Canada Consolidated
1994:
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE>
MLX Corp. &Subsidiaries
NOTE J SEGMENT INFORMATION
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.
<PAGE>
MLX Corp. & Subsidiaries
REPORT OF INDEPENDENT AUDITORSBoard 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.
/S/ERNST & YOUNG LLP
March 10, 1995
Atlanta, Georgia
<PAGE>
MLX Corp. & Subsidiaries
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.
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
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, with respect to the consolidated
financial statements and schedules of MLX Corp. included in the Annual
Report on Form 10-K for the year ended December 31, 1994.
Ernst & Young LLP
March 28, 1995
Atlanta, Georgia
