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[COVER]
MLX LOGO
96 Annual Report
Contents
2 Letter to Shareholders
4 Board of Directors and Officers
5 Form 10-K
8 Selected Financial Data
9 Management's Discussion and Analysis
F-2 Consolidated Financial Statements
IBC Corporate Data
1
Company Brief
Formed as a result of a reorganization in 1984, MLX Corp is today
a publicly held company owned by an estimated 8,900 beneficial
shareholders. MLX is engaged in the active search for acquisition
opportunities which have attractive valuations and which meet its
financial acquisition criteria. In this setting, MLX's strategic
assets include a federal tax loss carryforward of approximately
$275 million to offset taxable income from its operations,
available cash equivalents exceeding $35 million, the public
listing of its common stock and management experience in a
variety of industries.
[LETTER]
[SIDEBAR]
We continue to be actively engaged in our acquisition search.
[END SIDEBAR]
We are pleased to report continued positive financial
results for 1996 but, at the same time, are disappointed that our
efforts to acquire an operating business have not resulted in a
completed transaction.
We continue to be actively engaged in our on-going search
for attractive acquisition candidates. We are doing so through a
diverse network of financial intermediaries including investment
banks, professional firms, lenders, and specialized financial
advisors. This effort has enabled us to evaluate more than 150
potential candidates in a wide array of industries. To date, we
have made offers or engaged in extensive valuation discussions in
more than ten situations. While we are disappointed that none of
these has resulted in a completed transaction, we are very
disciplined and will only enter into a transaction when the price
and other features are attractive to our shareholders.
Our financial criteria have generally focused our search and
our referrals on mid-sized businesses involved in the
manufacture, distribution or assembly of non-consumer products
which offer continuing management.
Since the divestiture of the Wellman business on June 30,
1995, our financial results have included interest income from
the investment of the proceeds of that sale and administrative
expenses pertaining to acquisition search, compensation,
occupancy, shareholder costs and legal and professional matters.
The accompanying financial statements show the results of Wellman
(and the gain from its disposal) as a discontinued operation --
separate from the results of MLX as it is comprised today.
For 1996, our earnings from continuing operations amounted
to $562,000 or $0.20 per common share, compared to a 1995 loss
from continuing operations before extraordinary item of $707,000
(including dividends and accretion on preferred stock of
$652,000), or $0.26 per share.
As we enter 1997, we are facing two issues which are
impacted by our ability to complete an acquisition. First, our
federal income tax net operating loss carryforward ("NOL") is
scheduled to expire unevenly through 2007. The largest such
scheduled expiration is $144 million in 1997. If the entire
amount scheduled for 1997 expires, we will still have $134
million of our NOL going forward.
We will continue to devote our efforts to maximizing
shareholder value and, to the extent consistent with that
objective, we will attempt to utilize the maximum amount of our
NOL. A full schedule of our NOL and a timetable showing its
expiration dates is included in note 5 of our financial
statements.
The second such issue pertains to our potential
classification as a regulated investment company under the
Investment Company Act of 1940. While we continue to believe that
our objectives and activities indicate that MLX is not an
investment company, we may nevertheless have to register as such
during 1997 and commence reporting to you as an investment
company. We currently have an outstanding application with the
Securities and Exchange Commission which, if
2
approved, would exempt us from most of the substantive provisions
of the Investment Company Act through June 30, 1997. If we are
deemed to be an investment company, it will complicate our
efforts to acquire an operating business, add to our
administrative expenses and fundamentally alter the presentation
of our financial statements.
On October 1, 1996, the escrow fund partially
collateralizing our obligations under the purchase and sale
agreement from the Wellman transaction was returned to MLX in
full. The fund at that time had grown to $4.3 million. This
action by the fund trustee reflected the expiration of a major
portion of our representations and warranties made in connection
with the sale of Wellman as well as the absence of any claims
under the agreement. The return of this fund further enhanced our
resources in our search for merger and acquisition candidates.
The remaining escrow fund, currently $1.5 million, relates to
certain potential long-term income tax obligations.
During February 1997, we converted the 190,400 stock options
held by Brian Esher, our former Chief Executive Officer, to Stock
Appreciation Rights ("SARs") and paid our obligation under those
SARs to Mr. Esher at a valuation (net of his exercise price) of
$11.50 per share. This treatment permitted us to fulfill our
obligation to Mr. Esher with no impact on our cumulative
ownership change calculation (an important measure in
safeguarding our federal tax loss carryforward) and resulted in a
modest improvement in our fully diluted net book value per share.
The aggregate amount of this transaction, $2.2 million, will be
reported as an expense in our operating results for the quarter
ending March 31, 1997.
Our corporate funds continue to be invested in overnight
repurchase agreements backed by U.S. Treasury and federal agency
obligations. This function is managed for us by five large
commercial banks. This arrangement assures the rapid availability
of our funds and minimizes our risk of investment loss. Each of
our commercial banks has received and acknowledged written
instructions regarding disbursement controls and other procedural
safeguards.
We thank you for your continued interest. With your on-going
support, we will continue in our efforts to add long-term value
for our shareholders.
/s/ALFRED R. GLANCY III /s/THOMAS C. WAGGONER
Chairman of the Board President and Chief
Executive Officer
March 11, 1997
3
Directors
Alfred R. Glancy III (1)(2) S. Sterling McMillan, III(1)
Chairman of the Board Vice Chairman, Greenleaf
Chairman, President & Capital and Management, Inc.
Chief Executive
Officer, MCN Energy Group, Inc.
W. John Roberts(1)(2)(3) J. William Uhrig (1)(3)
Retired Senior Vice President - Managing Director, Three
Finance and Treasurer, Cities Research, Inc.
Amerisure Companies
Willem F. P. de Vogel(2) Brian R. Esher
President, Three Cities Private Investor
Research, Inc.
H. Whitney Wagner (3)
Managing Director, Three Cities
Research, Inc.
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Funds Management Committee
Officers
Thomas C. Waggoner
President & Chief Executive Officer
Theodore R. Kallgren
Vice President, Treasurer
& Secretary
Mary M. McCulley
Assistant Treasurer & Assistant
Secretary
4
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, 1996
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
incorporation or organization) Identification)
1000 Center Place, Norcross, Georgia 30093
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770)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 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. [X]
The aggregate market value of voting stock held by non-affiliates of
the Registrant was $23,798,266 as of March 3, 1997 based on the ending
market price as reported on the Domestic Electronic Bulletin Board.
The number of shares outstanding of the Registrant's Common Stock, par
value $.01, as of the close of business on March 3, 1997 was
2,617,584.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Part III hereof incorporate information by reference from
Registrant's definitive Proxy Statement for the fiscal year ended
December 31, 1996 in connection with Registrant's 1997 Annual Meeting
of Shareholders.
- - - 5 -
MLX CORP
INDEX TO REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
PART I
Item 1. Business...................................................7
Item 2. Properties.................................................7
Item 3. Legal proceedings..........................................7
Item 4. Submission of Matters to a Vote of Security Holders........7
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters................................7
Item 6. Selected Financial Data....................................7
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............9
Item 8. Financial Statements and Supplementary Data...............14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................14
PART III
Item 10. Directors and Executive Officers of the Registrant........14
Item 11. Executive Compensation....................................14
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................14
Item 13. Certain Relationships and Related
Transactions..............................................14
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.......................................15
OTHER SECTIONS
Section F Financial Statements
- - - 6 -
PART I
Item 1. Business.
The Registrant has owned and managed businesses in a variety of
industries. With the sale of its S.K. Wellman business on June 30,
1995, the Registrant no longer has recurring revenues or operating
subsidiaries and is engaged in the active search for acquisition
opportunities which meet its financial acquisition criteria. These
criteria generally focus the Company's search on mid-sized entities
which are involved in manufacturing, distribution or assembly of
non-consumer products and which offer continuing management.
Reference is made to the information set forth in Item 7,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," elsewhere in this Form 10-K for a discussion
of the development of the business since January 1, 1996.
Item 2. Properties.
No response under this item is required.
Item 3. Legal Proceedings.
The Registrant is unaware of any litigation that is expected to have a
material effect on the results of operations or financial condition of
the Registrant.
Item 4. Submissions of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the three
months ended December 31, 1996.
PART II
Item 5. Market for Registrant's Common Stock 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 Item 7 of this report, which information is incorporated into this
Item 5 by reference.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction
with the Consolidated Financial Statements and notes thereto included
elsewhere herein.
- - - 7 -
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31 1996 1995 1994 1993 1992
(in thousands, except per share data)
Operating Data:
Net sales................................ $ -- $ -- $ -- $ -- $ --
General and administrative expenses...... (997) (1,015) (827) (1,342) (1,363)
Interest income.......................... 1,876 1,074 17 12 --
Interest expense......................... -- (114) (202) (366) (1,313)
Other (expense) income................... -- (18) (94) 81 327
Provision for income taxes............... (317) 18 376 549 799
------- ------- ------- ------- -------
Earnings (loss) from continuing operations 562 (55) (730) (1,066) (1,550)
Discontinued operations (net of income taxes) -- 20,593 3,477 3,105 2,935
Extraordinary gain on early retirement of debt
(net of income taxes).................... -- 272 -- 3,627 4,124
------- ------- ------- ------- -------
Net earnings............................. $ 562 $20,810 $ 2,747 $ 5,666 $ 5,509
======= ======= ======= ======= =======
Earnings applicable to common stock...... $ 562 $20,158 $ 1,689 $ 4,793 $ 5,509
======= ======= ======= ======= =======
Discontinued Operations:
Net sales................................ $ -- $34,916 $60,858 $57,036 $53,862
Gross margin............................. -- 8,299 14,493 13,862 12,586
Operating expenses....................... -- (3,199) (6,998) (6,302) (5,850)
Other expenses........................... -- (665) (1,254) (1,989) (1,259)
Income taxes............................. -- (1,928) (2,764) (2,466) (2,227)
Gain on disposal (net of income taxes)... -- 18,086 -- -- --
Minority interests....................... -- -- -- -- (315)
------- ------- ------- ------- -------
Net earnings from discontinued
operations............................... $ -- $20,593 $ 3,477 $ 3,105 $ 2,935
======= ======= ======= ======= =======
Financial Position:
Working capital (deficit)................ $37,304 $36,445 $ (42) $(1,181) $(1,224)
Total assets............................. 39,431 38,509 13,874 11,603 15,065
Long-term liabilities 1,998 1,957 2,463 2,403 15,158
Shareholders' equity (deficit)........... $36,764 $35,878 $10,729 $ 7,324 $(1,844)
Per Share Data:
Average outstanding common shares
and dilutive options..................... 2,755 2,676 2,613 2,620 2,541
Earnings (loss) per share:
Continuing operations (net of dividends
and accretion on preferred stock)........ $ 0.20 $ (0.26) $ (0.68) $ (0.74) $ (0.73)
Discontinued operations (net of income
taxes)................................... -- 7.69 1.33 1.19 1.28
Extraordinary gain on early retirement of debt
(net of income taxes).................... -- 0.10 -- 1.38 1.62
------- ------- ------- ------- -------
Total...................................... $ 0.20 $ 7.53 $ 0.65 $ 1.83 $ 2.17
======= ======= ======= ======= =======
- - - 8 -
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
Basis of Presentation - On June 30, 1995, the Company completed the
sale of all the common stock of its subsidiary, S.K. Wellman Limited,
Inc., following the approval of such divestiture by the Company's
shareholders at the 1995 Annual Meeting. The accompanying financial
statements report the financial condition and results of operations of
the Wellman business as a discontinued operation and, accordingly, the
results of operations of Wellman for all the periods presented are
excluded from earnings/loss from continuing operations. The gain on
the disposal of the Wellman subsidiary is reported as a gain from the
disposal of a discontinued business.
The discussion below addresses the operations and financial condition
of the Registrant only.
Operations - After the disposal of S.K. Wellman, the Registrant has no
recurring revenues or operating subsidiaries. The general and
administrative expenses of the Registrant are incurred for acquisition
search, compensation, occupancy, shareholders' costs (such as
printing, distribution and stock transfer fees) and legal and
professional matters.
In the short term, the Company intends to invest its cash resources in
short-term repurchase instruments managed by selected, large
commercial banks. At December 31, 1996, the Company's average rate of
return on these investments was approximately 5.42%. As these
investments account for all of the Company's income subsequent to the
sale of S.K. Wellman, the Company's future financial results will be
impacted by changes in the short-term interest rates available to the
Company. Since the divestiture of S.K. Wellman, the Company has been
actively engaged in pursuing the acquisition of new businesses where
purchase valuations are attractive. No agreements have been entered
into with respect to any acquisition opportunity.
The Company considers its business to be that of seeking to acquire an
operating business that meets its financial acquisition criteria.
Accordingly, the Company believes that it is not an investment company
as defined by the Investment Company Act of 1940 (the "Act"). This
belief has been supported in part by the Company's compliance with the
safe harbor provisions of Rule 3a-2 under the Act, compliance with
which effectively excepted the Company from the definition of an
investment company for a one year period ended June 30, 1996. Given
the termination of this safe harbor period, the Company's inability to
control the timing of any acquisition and the uncertainty of the
Company's status under the Act, the Company has prepared and submitted
an application to the Securities and Exchange Commission requesting an
exemption from most substantive provisions of the Act until June 30,
1997. If such application is denied and/or the Company is otherwise
deemed to be an investment company, the Company will be required to
register under the Act and will thereafter be subject to regulation
thereunder, which would add complexity to the Company's pursuit of its
acquisition strategy, add to the administrative expenses of the
Company and fundamentally alter the presentation of the Company's
financial statements.
- - - 9 -
1996 versus 1995 - General and administrative expenses in 1996
amounted to $997,000 versus a 1995 level of approximately $1.0
million, a decrease of 2%.
Interest income in 1996 amounted to $1.9 million compared to $1.1
million in 1995 because the 1995 period included two quarters which
preceded the sale of Wellman and the availability of cash proceeds
from that sale. Correspondingly, there was no interest expense in
1996 compared to $114,000 in 1995 since the debt obligations of MLX
were repaid following the divestiture of the Wellman business.
There were no dividends and accretion on the Registrant's Series A
Preferred Stock in 1996 compared to $652,000 in 1995. This decrease
resulted from the redemption of such Preferred Stock at the time of
the Wellman transaction.
In 1996, the Company had net earnings of $562,000 (or $.20 per share)
compared to $20.8 million in 1995 (or $7.53 per share net of
obligations on the Series A Preferred Stock). In 1995, earnings from
discontinued operations (including the gain on disposal of Wellman)
amounted to $7.69 per share and the extraordinary gain on early
retirement amounted to $0.10 per share.
1995 Versus 1994 - On June 30, 1995, the Registrant completed the sale
of the Wellman business. The proceeds of this transaction amounted to
$60.0 million, which included certain amounts related to the repayment
or assumption of debt and capital leases by the purchaser. After
purchase price adjustments and expenses, the transaction resulted in a
gain to MLX of $31.4 million. The gain was reduced by $3.3 million
for estimated income taxes due and payable as well as $10.0 million
for a charge in lieu of federal income taxes which is not due or
payable resulting in a net gain to the Company of $18.1 million. No
such sale or gain occurred in 1994.
General and administrative expenses in 1995 were approximately $1.0
million versus a 1994 level of approximately $827,000, an increase of
23%. Principal components of this increase were higher expenses
associated with employee compensation, insurance charges, shareholder
costs and legal and professional matters.
Interest income in 1995 amounted to $1.1 million compared to a nominal
amount in 1994 as a result of the investment of the proceeds of the
Wellman transaction. Correspondingly, interest expense of the Company
dropped from $202,000 in 1994 to $114,000 in 1995 since the debt
obligations of MLX were repaid following the divestiture of the
Wellman business.
A portion of the proceeds of the Wellman transaction was used to repay
the Registrant's Zero Coupon Bonds and Variable Rate Subordinated
Notes. These repayments resulted in a pre-tax, extraordinary gain on
the early retirement of debt of $412,000. No such gain occurred in
1994.
Dividends and accretion on the Registrant's Series A Preferred Stock
amounted to $652,000 in 1995 versus $1.1 million in 1994. This
decrease resulted from the redemption of such Preferred Stock at the
time of the Wellman transaction.
- - - 10 -
In 1995, the Company had net earnings of $20.8 million (or $7.53 per
share net of obligations on the Series A Preferred Stock) compared to
$2.7 million in 1994 (or $0.65 per share). In 1995, the gain on
disposal of Wellman amounted to $6.76 per share and the extraordinary
gain amounted to $0.10 per share.
[BOXED ITEM]
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 in 1996, 1995 and 1994 were $299,000, $11.3
million and $1.3 million, respectively. The following table
illustrates the effect of this pro forma charge on the Company's
earnings and earnings per share.
1996 1995 1994
---- ------- -------
(in thousands, except per share data)
Net earnings $562 $20,810 $ 2,747
Less dividends and accretion on preferred stock -- (652) (1,058)
Plus pro forma federal tax charge not due or payable 299 11,325 1,314
---- ------- -------
Total earnings $861 $31,483 $ 3,003
==== ======= =======
Total earnings per common share $.31 $ 11.76 $ 1.15
==== ======= =======
[END BOX ITEM]
Financial Position and Liquidity
Consolidated working capital at December 31, 1996 was $37.3 million
compared to $36.4 million at the end of 1995. Working capital at
December 31, 1996 consisted principally of cash and short-term
investments of $37.9 million and estimated short-term obligations of
$669,000 for income taxes, legal and professional expenses and
compensation.
On February 12, 1997 the Company's Board of Directors approved the
conversion of all the common stock options held by its former Chief
Executive Officer to Stock Appreciation Rights (SARs) and those SARs
were exercised as of that date. The resulting liability of $2.2
million was disbursed to the former Chief Executive Officer in
February 1997. After this transaction, the Company's employees have
outstanding options to purchase 50,000 shares of common stock.
The Company invests its available funds in short-term repurchase
agreements managed by five selected, large commercial banks and
collateralized by U.S. Treasury and federal agency obligations. The
Company has issued instructions to each such bank providing guidelines
on investments and restrictions on any disbursement of the Company's
funds.
In connection with the sale of Wellman, the Company funded an escrow
fund with a cash payment of $4 million to partially collateralize its
indemnification obligations in the purchase and sale agreement. The
Company's maximum liability under such indemnity provisions was $5
million. On October 1, 1996, the escrow fund balance of $4.3 million
was disbursed to MLX. An additional escrow fund amounting to
$1,250,000 was established at June 30, 1995 (adjusted to $1,347,000 in
August 1995) relating to certain estimated income tax obligations
arising from the sale.
- - - 11 -
Other Data
Capital Expenditures - There were no material commitments for capital
expenditures outstanding at December 31, 1996.
Employees - The Registrant's business is conducted by two full-time
and three part-time employees. The services of the part-time
employees are obtained through a facilities and service sharing
arrangement with Pameco Corp. At December 31, 1995, the number of
employees was approximately the same.
Market, Share Ownership and Dividend Information -- As of December 31,
1996 (and commencing on July 2, 1996) the Company's common shares were
traded on the OTC Electronic Bulletin Board regulated by NASD under
the trading symbol "MLXR". From April 28, 1994 until July 2, 1996 the
Company's common shares were traded on the NASDAQ National Market.
The Company was advised by NASDAQ on February 5, 1996 that it failed
to comply with Section 3(a)3 of Schedule D of the NASD By-Laws by not
having an operating business activity. A temporary exception was
granted on that date permitting the Company's common shares to remain
listed on the NASDAQ National Market until June 30, 1996. On July 2,
1996, the Registrant's shares were delisted and accepted for quotation
on the OTC Electronic Bulletin Board.
As of December 31, 1996, the Company estimated there were
approximately 6,500 shareholders of record of its common stock. In
addition, the Company believes that there are approximately 2,400
shareholders whose shares are registered in names of nominees.
MLX's current policy is to retain earnings to finance future growth
and acquisition opportunities and, accordingly, does not currently
expect to pay any cash dividends on its common stock in the
foreseeable future.
- - - 12 -
QUARTERLY DATA (UNAUDITED)
(in thousands, except per share data)
1996 1st 2nd 3rd 4th
----------- ------------ ------------ ------------
Net sales............................. $ -- $ -- $ -- $ --
Operating loss from continuing operations (280) (256) (270) (191)
Earnings before income taxes.......... 180 208 202 289
Net earnings.......................... $ 116 $ 133 $ 128 $ 185
=========== ============ ============ ============
Earnings Per Share.................... $ 0.04 $ 0.05 $ 0.05 $ 0.07
=========== ============ ============ ============
Stock price range per common share.... $9.88-13.50 $12.75-16.50 $12.75-14.50 $12.63-14.00
=========== ============ ============ ============
Trading volume as reported by NASDAQ.. 743 452 202 92
=========== ============ ============ ============
1995 1st 2nd 3rd 4th
----------- ------------ ------------ ------------
Net sales............................. $ -- $ -- $ -- $ --
Operating loss from continuing operations (200) (263) (277) (275)
Earnings (loss) before income taxes,
discontinued operations and
extraordinary item.................... (248) (312) 266 221
Discontinued operations............... 1,158 19,435 -- --
Extraordinary item.................... -- 272 -- --
Net earnings.......................... $ 994 $ 19,501 $ 167 $ 148
=========== ============ ============ ============
Earnings applicable to common
stockholders.......................... $ 694 $ 19,149 $ 167 $ 148
=========== ============ ============ ============
Net earnings per common share:
Continuing operations (net of dividends and
accretion on preferred stock)......... $ (0.18) $ (0.21) $ 0.06 $ 0.05
Discontinued operations................. 0.45 7.24 -- --
Extraordinary item.................... -- 0.10 -- --
----------- ------------ ------------ -----------
Total................................. $ 0.27 $ 7.13 $ 0.06 $ 0.05
=========== ============ ============ ===========
Stock price range per common share.... 3.63-4.69 $ 4.13-10.25 $ 9.25-11.00 $9.88-10.38
=========== ============ ============ ===========
Trading volume as reported by NASDAQ.. 179 1,036 399 228
----------- ------------ ------------ -----------
- - - 13 -
Item 8. Financial Statements and Supplementary Data.
Reference is made to the consolidated financial statements of MLX
Corp., consisting of the Report of Independent Auditors, the
Consolidated Balance Sheets as of December 31, 1996 and 1995, the
related Consolidated Statements of Income, Consolidated Statements of
Cash Flows and Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended December 31, 1996 together
with the Notes to Consolidated Financial Statements. See Section F of
this report, which information is incorporated into this Item 8 by
reference.
Reference is made to the information set forth under "Quarterly Data"
in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," elsewhere in this Form 10-K,
which information is incorporated into this Item 8 by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant incorporates by reference herein information appearing
under the caption "Business Experience of Directors and Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" contained in the Registrant's definitive Proxy Statement
for the fiscal year ended December 31, 1996 in connection with the
Registrant's 1997 Annual Meeting of Shareholders.
Item 11. Executive Compensation.
The Registrant incorporates by reference herein information appearing
under the caption "Remuneration of Directors and Executive Officers"
contained in the Registrant's definitive Proxy Statement for the
fiscal year ended December 31, 1996 in connection with the
Registrant's 1997 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The Registrant incorporates by reference herein information appearing
under the caption "Security Ownership of Certain Beneficial Owners and
Management" contained in the Registrant's definitive Proxy Statement
for the fiscal year ended December 31, 1996 in connection with the
Registrant's 1997 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions.
The 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 for the fiscal year
ended December 31, 1996 in connection with the Registrant's 1997
Annual Meeting of Shareholders.
- - - 14 -
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
(a)
(1) Financial Statements
The following consolidated financial statements of the
Registrant are incorporated by reference in Item 8:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1996 and
1995.
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements - December
31, 1996.
(2) Schedules
All schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have
been omitted.
(3) Listing of Exhibits
Exhibit 3.1 & 4.1 -- Articles of Incorporation of
the Registrant, as amended
(incorporated herein by
reference to Exhibit 3.1 to
the Registrant's Report on
Form 10-Q for the quarter
ended June 30, 1993).
Exhibit 3.2 & 4.2 -- By-Laws of the Registrant
(incorporated herein by
reference to Exhibit 3.2 to
the Registrant's Report on
Form 10-Q for the quarter
ended 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
- 15 -
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 4.5 & 9.3 -- Amendment No. 2, dated April
2, 1991, to the Voting Trust
Agreement dated December 11,
1984 (incorporated herein by
reference to Exhibit 4.3 to
the Registrant's Report on
Form 10-K for the fiscal year
ended December 31, 1991).
Exhibit 4.6 -- Restricted Transfer Trust
Agreement dated October 10,
1986 (incorporated herein by
reference to Exhibit 4.3 to
the Registrant's Report on
Form 10-K for the fiscal year
ended December 31, 1991).
Exhibit 4.7 -- Amendment No. 1, dated October
26, 1987, to the Restricted
Transfer Trust Agreement dated
October 10, 1986 (incorporated
herein by reference to Exhibit
4.3 to the Registrant's Report
on Form 10-K for the fiscal
year ended December 31, 1991).
Exhibit 4.8 -- Amendment No. 2, dated June 4,
1991, to the Restricted
Transfer Trust Agreement dated
October 10, 1986 (incorporated
herein by reference to Exhibit
4.3 to the Registrant's Report
on Form 10-K for the fiscal
year ended December 31, 1991).
Exhibit 4.9 -- MLX Exchange Agreement, dated
as of April 13, 1990, as
amended and restated as of
March 19, 1992, as amended and
restated as of April 21, 1993,
among the Registrant, the
Lenders listed therein, and
Morgan Guaranty Trust Company
of New York, as Bond Agent.
Exhibit 4.10 -- MLX Limited Guarantee, dated
as of March 19, 1992
(incorporated herein by
reference to Exhibit 2.17 to
the Registrant's Current
Report on Form 8-K, dated
April 10, 1992).
Exhibit 4.11 -- Management Services Agreement,
dated as of March 19, 1992,
between the Registrant and
Pameco Holdings, Inc.
(incorporated herein by
reference to Exhibit 2.16 of
the Registrant's Current
Report on Form 8-K, dated
April 10, 1992).
Exhibit 4.12 -- Amendment to Management
Services Agreement, dated as
of November 30, 1992,
- - - 16 -
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,
- - - 17 -
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.
(incorporated herein by
reference to Exhibit 4.24 of
Registrant's Report on Form
10-K for the year ended
December 31, 1994).
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 10.1a# -- First Amendment to Employment
Agreement, dated as of March
19, 1992, between the
Registrant and Brian Esher.
- - - 18 -
Exhibit 10.1b# -- Second Amendment to Employment
Agreement, dated as of January
1, 1994, between Registrant
and Brian Esher.
Exhibit 10.1c# -- Third Amendment to Employment
Agreement, dated as of January
1, 1995, between the
Registrant and Brian Esher.
Exhibit 10.1d# -- Fourth Amendment to Employment
Agreement, dated as of January
1, 1996, 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 10.8# -- MLX 1995 Stock Option and
Incentive Award Plan
(incorporated herein by
reference to Exhibit C of
Registrant's definitive Proxy
Statement for the fiscal year
ended December 31, 1994 in
connection with the
Registrant's 1995 Annual
Meeting of Shareholders).
Exhibit 10.9 -- Wellman Sale Agreement
(incorporated herein by
reference to Exhibit B of
Registrant's definitive Proxy
Statement for the fiscal year
ended December 31, 1994 in
connection with the
Registrant's 1995 Annual
Meeting of Shareholders).
Exhibit 23* -- Consent of Ernst & Young LLP
Exhibit 27* -- Financial Data Schedule.
- - - 19 -
*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, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
MLX Corp.
Dated: March 11, 1997 By: /S/THOMAS C. WAGGONER
President & Chief Executive
Officer
Pursuant to the requirement of the Securities and 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 11,
1997.
Signature Title
/S/THOMAS C. WAGGONER President & Chief Executive
Officer
(Principal Executive Officer)
/S/ALFRED R. GLANCY III Chairman of the Board &
Director
/S/WILLEM F. P. DE VOGEL Director
/S/BRIAN R. ESHER Director
/S/S. STERLING MCMILLAN, III Director
/S/W. JOHN ROBERTS Director
/S/J. WILLIAM UHRIG Director
/S/H. WHITNEY WAGNER Director
MLX CORP.
- - - 20 -
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1996
ITEM 8
REPORT OF INDEPENDENT AUDITORS
FINANCIAL STATEMENTS
SECTION F
- - - 21 -
BLANK
- - - 22 -
REPORT OF INDEPENDENT AUDITORS
Board of Directors
MLX Corp.
We have audited the accompanying consolidated balance sheets of MLX
Corp. as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1996. 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. at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
February 28, 1997
Atlanta, Georgia
- - - F-1 -
MLX Corp.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31
1996 1995
-------- --------
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 37,927 $ 32,903
Prepaid expenses................................................. 46 103
Escrow funds..................................................... -- 4,113
-------- --------
Total current assets........................................... 37,973 37,119
Equipment and other assets....................................... 4 5
Tax escrow funds................................................. 1,454 1,385
-------- --------
Total assets................................................... $ 39,431 $ 38,509
======== ========
LIABILITIES
Current liabilities:
Accrued compensation and benefits................................ $ 103 $ 75
Other accrued liabilities and expenses........................... 280 310
Accrued taxes.................................................... 286 289
-------- --------
Total current liabilities...................................... 669 674
Other long-term liabilities.......................................... 1,998 1,957
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; none outstanding.................... -- --
Common stock, $.01 par value -
authorized 38,500,000 shares; 2,618,000 shares
outstanding (2,607,000 shares in 1995)......................... 26 26
Capital in excess of par value................................... 73,165 72,841
Retained earnings deficit........................................ (36,427) (36,989)
-------- --------
Total shareholders' equity..................................... 36,764 35,878
-------- --------
Total liabilities and shareholders' equity..................... $ 39,431 $ 38,509
======== ========
See accompanying notes.
- - - F-2 -
MLX Corp.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year ended December 31
1996 1995 1994
------ ------- ------
Net sales................................................. $ -- $ -- $ --
General and administrative expenses....................... 997 1,015 827
------ ------- ------
Operating loss from continuing operations ................ (997) (1,015) (827)
Interest income........................................... 1,876 1,074 17
Interest expense.......................................... -- (114) (202)
Other expense............................................. -- (18) (94)
------ ------- ------
Earnings (loss) before income taxes, discontinued
operations and extraordinary item................... 879 (73) (1,106)
Provision for income taxes:
Federal taxes due and payable......................... 18 -- --
Charge in lieu of federal income taxes (federal
income tax benefit)................................. 299 (18) (376)
------ ------- ------
Earnings (loss) from continuing operations before
extraordinary item.................................. 562 (55) (730)
Discontinued operations:
Earnings from operations (net of income tax of $1,928
in 1995 and $2,764 in 1994)......................... -- 2,507 3,477
Gain on disposal of business
(net of income tax of $13,311)...................... -- 18,086 --
------ ------- ------
Earnings from discontinued operations ................. -- 20,593 3,477
Extraordinary gain on early retirement of debt
(net of income taxes of $140) ...................... -- 272 --
------ ------- ------
Net earnings.............................................. 562 20,810 2,747
Dividends and accretion on preferred stock................ -- (652) (1,058)
------ ------ ------
Earnings applicable to common stock....................... $ 562 $20,158 $1,689
====== ======= ======
Earnings per share:
Earnings (loss) from continuing operations (net of
dividends and accretion on preferred stock)......... $ 0.20 $ (0.26) $(0.68)
Discontinued operations:
Earnings from operations............................ -- 0.93 1.33
Gain on disposal of business........................ -- 6.76 --
Extraordinary gain on early retirement of debt........ -- 0.10 --
------ ------- ------
Net earnings ....................................... $ 0.20 $ 7.53 $ 0.65
====== ======= ======
Average outstanding common shares and
dilutive options.................................... 2,755 2,676 2,613
====== ======= ======
See accompanying notes.
- - - F-3 -
MLX Corp.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Series A Capital in Retained Other
Preferred Common Excess of Earnings Equity
Stock Stock Par Value (Deficit) Adjustments Total
--------- ------ ---------- -------- ----------- --------
Balance at January 1, 1994................ $ 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
------- --- ------- -------- ------- -------
Balance at December 31, 1994.............. 7,265 25 61,874 (57,147) (1,288) 10,729
Dividends and accretion on preferred stock 117 -- -- (652) -- (535)
Foreign currency translation adjustment -- -- -- -- (77) (77)
Benefit of pre-reorganization tax
loss carryforwards.................. -- -- 11,325 -- -- 11,325
Stock options exercised............... -- 1 180 -- -- 181
Equity adjustment upon sale of S.K. Wellman -- -- -- -- 1,365 1,365
Redemption of preferred stock......... (7,382) -- (538) -- -- (7,920)
Net earnings.......................... -- -- -- 20,810 -- 20,810
------- --- ------- -------- ------- -------
Balance at December 31, 1995.............. -- 26 72,841 (36,989) -- 35,878
Benefit of pre-reorganization tax
loss carryforwards.................. -- -- 299 -- -- 299
Stock options exercised................. -- -- 25 -- -- 25
Net earnings............................ -- -- -- 562 -- 562
------- --- ------- -------- ------- -------
Balance at December 31, 1996.............. $ -- $26 $73,165 $(36,427) $ -- $36,764
======= === ======= ======== ======= =======
See accompanying notes.
- - - F-4 -
MLX Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31
1996 1995 1994
-------- ------- -------
Cash flows from operating activities:
Earnings (loss) from continuing operations
(including extraordinary gain on early
retirement of debt)...................................... $ 562 $ 217 $ (730)
Adjustments to reconcile earnings (loss) from
continuing operations to net cash provided by (used in)
operating activities from continuing operations:
Extraordinary gain on early retirement of debt............... -- (412) --
Charge in lieu of federal income taxes
(federal income tax benefit)............................. 299 122 (376)
Depreciation and amortization................................ -- -- 8
Change in operating assets and liabilities of
continuing operations:
Prepaid expenses....................................... 57 (217) (1)
Accounts payable and accrued expenses.................. (5) (1,655) (1,195)
Other.................................................. 42 (54) 540
-------- ------- -------
Net cash provided by (used in) operating activities from
continuing operations........................................ 955 (1,999) (1,754)
Net cash provided by operating activities from
discontinued operations...................................... -- 3,875 6,817
-------- ------- -------
Net cash provided by operating activities.......................... 955 1,876 5,063
Cash flows from investing activities:
Proceeds from sale of S.K. Wellman............................. -- 49,177 --
Redemption of Series A Preferred Stock......................... -- (7,920) --
Decrease (increase) in escrow funds for warranties and taxes... 4,044 (5,498) --
Investing cash flows from discontinued operations.............. -- (1,437) (2,985)
-------- ------- ------
Net cash provided by (used in) investing activities................ 4,044 34,322 (2,985)
Cash flows from financing activities:
Payments of dividends on Series A Preferred Stock.............. -- (747) (1,200)
Repayment of debt.............................................. -- (2,076) --
Stock options exercised........................................ 25 181 9
Financing cash flows from discontinued operations.............. -- (1,740) (785)
-------- ------- -------
Net cash provided by (used in) financing activities................ 25 (4,382) (1,976)
-------- ------- -------
Net increase in cash and cash equivalents.......................... 5,024 31,816 102
Cash and cash equivalents at January 1............................. 32,903 1,087 985
-------- ------- -------
Cash and cash equivalents at December 31
(including cash of discontinued operations
of $447 in 1994)............................................... $ 37,927 $32,903 $ 1,087
======== ======= =======
Supplemental Disclosure of Cash Flow Information:
Interest Paid.................................................. $ -- $ 127 $ 197
======== ======= =======
See accompanying notes.
- - - F-5 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
MLX Corp. (MLX or the Company) is a publicly traded company engaged in
the active search for acquisition opportunities which have attractive
valuations and which meet its financial acquisition criteria.
During 1995, the Company sold its sole remaining operating subsidiary,
S.K. Wellman Limited, Inc. (Wellman). Accordingly, the accompanying
financial statements and notes have been restated to report the
operating results of Wellman as a discontinued operation.
Principles of Consolidation
The financial statements include the accounts of MLX and, prior to
their sale, its wholly owned subsidiaries. The wholly owned
subsidiaries include S.K. Wellman Limited, Inc. and each of its wholly
owned subsidiaries -- comprising the Wellman business. Upon
consolidation, all significant intercompany accounts and transactions
were eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual
results may differ from those estimates.
Cash Equivalents
Cash equivalents consist of investments in short-term asset management
accounts with five banking institutions, none of which holds greater
than $8 million of these assets. All investments are stated at cost
plus accrued interest which approximates market value. At December
31, 1996, the Company's average rate of return on these investments
was approximately 5.42%. As these investments account for all of the
Company's income subsequent to the sale of Wellman, the Company's
future financial results will be impacted by changes in the short-term
interest rates available to the Company. For purposes of the
accompanying Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
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.
- - - F-6 -
1. Summary of Significant Accounting Policies (continued)
Stock Options
Proceeds from the sale of stock under options are credited to common
stock at par value and the excess of the option price over par value
is credited to capital in excess of par value.
Earnings Per Common Share
Earnings per common share is based on the weighted average number of
shares outstanding during each year and dilutive common stock
equivalents. Earnings applicable to common stock is determined by
adjusting net earnings for dividends and accretion on preferred stock.
Relationship with Pameco Corporation
MLX has an arrangement with Pameco Corporation (Pameco) pursuant to
which MLX shares certain management, operational and administrative
functions. The costs for such services are also shared. MLX paid
$52,000 to Pameco under this agreement in 1996 and $60,000 in 1995 and
1994. Such amounts are included as a component of general and
administrative expenses in the accompanying Consolidated Statements of
Income.
2. Sale of S.K. Wellman Subsidiary
On April 10, 1995, the Company entered into a stock purchase agreement
(the Agreement) with a third party for the sale of all the common
stock of Wellman for $60 million, which includes certain amounts
related to the repayment or assumption of debt and capital leases by
the purchaser. Such sale was approved by the common shareholders of
MLX Corp. at the 1995 annual meeting of shareholders and was completed
on June 30, 1995. The cash proceeds received by the Company pursuant
to the transaction, less purchase price adjustments and estimated
expenses, amounted to $48.9 million.
In connection with the sale of the Wellman subsidiary, the Company
repaid its principal and interest obligations under the Variable Rate
Subordinated Notes and Zero Coupon Bonds and redeemed its Series A
Preferred Stock along with unpaid dividends. The net proceeds to the
Company from the transaction after such repayments were $38.5 million.
A portion of these proceeds was used by the Company to fund an escrow
account of $4 million to partially collateralize its indemnification
obligations in the purchase and sale agreement. The Company's maximum
liability under such indemnity provisions was $5 million. On October
1, 1996, the escrow fund balance of $4.3 million was disbursed to MLX.
An additional escrow fund amounting to $1,250,000 was established at
June 30, 1995 (adjusted to $1,347,000 in August 1995) relating to
certain estimated income tax obligations arising from the sale. This
escrow fund has been classified as long-term in the Consolidated
Balance Sheets. Other Long-Term Liabilities include taxes related to
this escrow fund which are estimated to be payable after one year.
- - - F-7 -
2. Sale of S.K. Wellman Subsidiary (continued)
The transaction resulted in a gain of $31.4 million. Income taxes
were provided for this gain as follows (in thousands):
Federal and state income taxes payable $ 3,291
Pro forma charge in lieu of federal income taxes 10,020
-------
$13,311
=======
The accompanying consolidated financial statements reflect the
operating results and cash flows of the discontinued operations
separately from continuing operations for all years presented.
The operating results of the discontinued operations were as follows.
(The 1995 results include operations through the date of the sale):
Year ended December 31
(in thousands)
1995 1994
------- -------
Net sales $34,916 $60,858
======= =======
Earnings from operations before
income taxes $ 4,435 $ 6,241
Income taxes (1,928) (2,764)
------- -------
Earnings from discontinued operations $ 2,507 $ 3,477
======= =======
- - - F-8 -
2. Sale of S.K. Wellman Subsidiary (continued)
The following table provides supplemental information pertaining to
the discontinued operations in the Consolidated Statements of Cash
Flows. (The 1995 cash flows include operations through the date of the
sale):
Year ended December 31
(in thousands)
1995 1994
------- -------
Cash flows from operating activities:
Earnings from discontinued operations $ 2,507 $ 3,477
Adjustments to reconcile earnings to net
cash provided by discontinued
operating activities:
Depreciation and amortization 1,062 2,269
Charge in lieu of federal income taxes 1,183 1,690
Changes in operating assets and liabilities:
Accounts receivable (1,158) (1,281)
Inventories and prepaid expenses (791) (1,606)
Accounts payable and accrued expenses 310 2,115
Other 762 153
------- -------
Net cash provided by operating activities $ 3,875 $ 6,817
======= =======
Cash flows from investing activities:
Purchase of property, plant and equipment $(1,437) $(2,985)
------- -------
Net cash used investing activities $(1,437) $(2,985)
======= =======
Cash flows from financing activities:
Borrowings on long-term debt $ 522 $ 976
Repayment of debt (2,262) (1,761)
------- -------
Net cash used in financing activities $(1,740) $ (785)
3. Gain on Early Retirement of Debt
In connection with the sale of Wellman (see Note 2), the Company
retired Zero Coupon Bonds and Variable Rate Subordinated Notes with a
carrying value of $2.5 million with cash payments totaling $2.1
million. The resulting net gain on early retirement of debt (net of
pro forma charge in lieu of federal income taxes of $140,000) has been
reported as an extraordinary item.
Also on June 30, 1995, the Company redeemed all its outstanding shares
of Series A Preferred Stock for cash payments totaling $7.9 million,
the contractual redemption value. The difference between this
redemption amount and the carrying value of $7.4 million was charged
to Capital in Excess of Par Value.
- - - F-9 -
4. Shareholders' Equity and Stock Options
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB25,
because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
The Company has two stock option plans. Under the MLX Corp. Stock
Option Plan, adopted in 1985, the Company granted stock options to
certain officers, directors and key employees at prices not less than
the market value on the date the option was granted. At December 31,
1996, 20,000 options were outstanding under this Plan (excluding
190,400 issued to the Company's former Chief Executive Officer -- see
below) with exercise periods extending through December 1999. No new
options may be granted under this Plan.
Under the MLX Corp. Stock Option and Incentive Award Plan (the "1995
Plan"), adopted in 1995, stock-based awards may be issued to key
employees (including directors who are also employees) and certain
others in a variety of forms. Such awards may include incentive stock
options, non-qualified stock options, restricted stock and outright
stock awards. A total of 125,000 shares of MLX common stock are
reserved under the 1995 Plan. All options granted under the 1995 plan
have 5 year terms and vest and become fully exercisable at the end
of 3 years of continued employment. The 1995 Plan terminates in June
2005. At December 31, 1996, 30,000 options were outstanding under the
1995 Plan.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock
options granted subsequent to December 31, 1994 under the fair value
method of that Statement. There were no options granted in 1996. The
fair value for the options granted in 1995 was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 6.21%;
volatility factor of the expected market price of the Company's common
stock of .817; and a weighted average expected life of the option of 5
years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including
the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily
provide a reliable single measureof the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for
earnings per share information):
1996 1995
---- -------
Pro forma net earnings $520 $20,140
Pro forma earnings per share $.19 $ 7.53
- - - F-10 -
Because Statement 123 is applicable only to options granted subsequent
to December 31, 1994, its pro forma effect will not be fully reflected
until future years.
Asummary of the Company's stock option activity, and related
information for the years ended December 31 follows:
1996 1995 1994
------------------------ ------------------------ -------------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- -------------- ------- -------------- ------- --------------
Outstanding at beginning of year 60,200 $6.39 104,467 $3.04 94,733 $2.89
Granted -- -- 30,000 9.25 14,300 4.00
Exercised (10,200) 2.50 (67,834) 2.63 (3,600) 2.50
Cancelled -- -- (6,433) 5.01 (966) 4.34
------- ------- -------
Outstanding at end of year 50,000 $7.19 60,200 $6.39 104,467 $3.04
======= ======= =======
At December 31
Exerciseable 40,000 $6.67 36,033 $5.08 91,100 $2.90
====== ======= =======
Reserved for future grant 95,000 95,000 3,817
====== ======= =======
Weighted average fair value of
options granted during
the year -- $6.40
====== =======
Exercise prices for options outstanding as of December 31, 1996 ranged
from $4.00 to $9.25. The weighted average remaining contractual life
of those options is 3 years.
The Company's former Chief Executive Officer holds options 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, 1996, all such options are exercisable and
will expire in February 1998. The agreement governing these options
contains certain clauses including a clause providing for the
conversion, under certain circumstances, of the options to Stock
Appreciation Rights (SARs). In February 1997, the MLX Board of
Directors approved the conversion of the 190,400 options held by the
former Chief Executive Officer to Stock Appreciation Rights and all
such SARs were exercised as of February 12, 1997. The resulting
liability under this agreement amounted to $2.2 million and was
disbursed in February 1997 and will be reported as compensation
expense in the quarter ending March 31, 1997.
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 nonvoting.
Dividends on shares of Series A Preferred Stock outstanding during
1995 and 1994 were payable in cash on the basis of an increasing rate
formula (12.5% at June 30, 1995 and 11% at December 31, 1994). All
outstanding shares of Series A Preferred Stock were redeemed by the
Company with the proceeds from the sale of Wellman.
An aggregate of 264,000 shares of Series A Preferred Stock was issued
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 was 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). This annual
accretion, based on the interest method, was charged to retained
earnings and amounted to $117,000 in 1995 and $284,000 in 1994.
- - - F-11 -
The assets and liabilities of foreign operations of the discontinued
operations were translated into U.S. dollars at current exchange rates
with the resulting cumulative translation adjustment, $(1,018,000) at
December 31, 1994, recorded as a separate component of shareholders'
equity. In connection with the sale of Wellman, the cumulative
translation adjustment at June 30, 1995 was included in the
calculation of the gain on the sale.
5. Income Taxes
The Company accounts for income taxes in accordance with the liability
method as required by FASB Statement No. 109, "Accounting for Income
Taxes."
At December 31, 1996, MLX has net operating loss carryforwards,
existing as of the Confirmation Date, of approximately $219.3 million
which are available to offset future taxable income for federal income
tax purposes. Such carryforwards expire as of December 31 in each of
the years as follows: $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 of December 31 in each
of the years as follows: $2.7 million in 2000, $2.2 million in 2002,
$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):
1996 1995 1994
---- ---- -----
Charge in lieu of federal income taxes
(federal income tax benefit):
Continuing operations $299 $(18) $(376)
Extraordinary gain on early retirement of debt -- 140 --
Federal alternative minimum taxes 18 -- --
---- ---- -----
Total $317 $122 $(376)
==== ==== =====
Income tax expense associated with discontinued operations is set
forth in Note 2.
The charge in lieu of federal income taxes (federal income tax
benefit) approximates the statutory rate applied to earnings before
income taxes.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
are as follows (in thousands):
- - - F-12 -
1996 1995
-------- --------
Federal net operating loss carryforward $ 94,000 $102,000
State net operating loss carryforward 3,000 3,000
Reserves and other 1,000 1,000
-------- --------
Total 98,000 106,000
Valuation allowance for deferred tax assets (98,000) (106,000)
-------- --------
Net deferred tax assets $ -- $ --
======== ========
The valuation allowance for deferred tax assets decreased $8million
during 1996.
- - - F-13 -
[INSIDE BACK COVER]
Corporate Data
Executive Office
1000 Center Place
Norcross, Georgia 30093
Independent Auditors
Ernst & Young LLP
Atlanta, Georgia
Legal Counsel
Kilpatrick Stockton LLP
Atlanta, Georgia
Stock Transfer Agent & Registrar
American Stock Transfer & Trust Co.
New York, New York
MLX Corp. common stock is quoted on the Domestic Electronic
Bulletin Board regulated by NASD under the symbol "MLXR."
For more information about the Company contact the Investors
Relations Department at 770.798.0677 or write to MLX Corp., 1000
Center Place, Norcross, Georgia 30093.
The annual meeting of shareholders of MLX Corp. will be held on
April 30, 1997 at 11:00 a.m. at the offices of Kilpatrick
Stockton LLP, 1100 Peachtree Street, Suite 2700, Atlanta,
Georgia.
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[BACK COVER]
MLX LOGO
MLX Corp.
Headquarters
1000 Center Place
Norcross, Georgia 30093
770.798.0677
Fax 770.798.0633