FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 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 0-21340
MARTIN COLOR-FI, INC.
-------------------------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 57-0879569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
306 Main Street, Edgefield, South Carolina 29824
(Address of principal executive offices)
(803) 637-7000
------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 11, 1996, there were 6,662,648 shares of the
registrant's common stock issued and outstanding.
<PAGE>
MARTIN COLOR-FI, INC.
INDEX
Page No.
Part I - Financial Information
Item 1 - Financial Statements
Condensed Consolidated Statements of Operations (unaudited) -
Three and nine months ended October 1, 1995 and
September 29, 1996..........................................2
Condensed Consolidated Balance Sheets (unaudited) -
December 31, 1995 and September 29, 1996.....................3
Condensed Consolidated Statements of Cash Flows (unaudited) -
For the nine months ended October 1, 1995 and
September 29, 19964..........................................4
Notes to Condensed Consolidated Financial Statements
(unaudited) - September 29, 1996...........................5-6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................7-10
Part II - Other Information
Item 1 - Legal Proceedings..............................................11
Item 6 - Exhibits and Reports on Form 8-K...............................11
Signatures....................................................................12
Exhibit Index...........................................................13
<PAGE>
MARTIN COLOR-FI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 1, September 29, October 1, September 29,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 27,230 $ 31,521 $ 93,831 $ 86,726
Cost of sales 22,283 23,932 76,123 70,067
-------- -------- -------- --------
Gross profit 4,947 7,589 17,708 16,659
Selling, general and administrative expenses 2,736 3,396 8,589 8,989
-------- -------- -------- --------
Operating income 2,211 4,193 9,119 7,670
Interest expense (1,065) (1,083) (3,571) (3,310)
Other income 64 45 166 168
-------- -------- -------- --------
Income before income taxes 1,210 3,155 5,714 4,528
Provision for income taxes 468 1,150 2,139 1,666
-------- -------- -------- --------
Net income $ 742 $ 2,005 $ 3,575 $ 2,862
======== ======== ======== ========
Net income per share $ 0.11 $ 0.30 $ 0.54 $ 0.43
======== ======== ======== ========
Weighted average shares outstanding 6,657 6,657 6,657 6,657
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
MARTIN COLOR-FI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1995 and September 29, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31, September 29,
1995 1996
---- ----
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash $ 12 $ 164
Accounts receivable, net of allowance of $150
and $125, respectively, for doubtful accounts 10,403 16,251
Inventories 36,922 35,428
Prepaid expenses 652 1,039
Income tax receivable 51 -
Other assets - 793
--------- ---------
Total current assets 48,040 53,675
Property, plant, and equipment, net 40,214 42,684
Goodwill 4,852 4,946
Other assets 1,860 1,248
--------- ---------
Total assets $ 94,966 $ 102,553
======== =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 15,599 $ 16,507
Current portion of long-term debt 4,472 25,737
-------- ---------
Total current liabilities 20,071 42,244
Deferred income taxes 4,061 4,925
Long-term debt 45,168 26,890
Other non-current liabilities 34 -
Shareholders' equity:
Common stock, no par value:
Authorized shares - 50,000,000 in 1996 and 1995
Issued and outstanding shares - 6,657,483
in 1996 and 1995 832 832
Additional paid-in capital 19,754 19,754
Retained earnings 5,046 7,908
-------- ---------
Total shareholders' equity 25,632 28,494
-------- ---------
Total liabilities and shareholders' equity $ 94,966 $ 102,553
======== =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
MARTIN COLOR-FI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 1, 1995 AND SEPTEMBER 29, 1996
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
October 1, September 29,
1995 1996
---- ----
Operating activities:
<S> <C> <C>
Net income $ 3,575 $ 2,862
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,917 3,146
Deferred income taxes 1,355 864
Changes in operating assets and liabilities:
Accounts receivable 778 (5,848)
Income tax receivable 794 51
Inventories 2,687 1,494
Prepaid expenses (452) (387)
Other assets - -
Accounts payable and accrued expenses (649) 908
-------- --------
Net cash provided by operating activities 11,005 3,090
Investing activities:
Purchases of property, plant and equipment (3,933) (5,272)
Cost of acquisitions, net of cash acquired (608) (518)
Other (479) (119)
-------- --------
Net cash used in investing activities (5,020) (5,909)
Financing activities:
Borrowings under line of credit 30,965 32,392
Payments on line of credit (33,410) (29,098)
Additional loan costs (33) (16)
Proceeds from issuance of long-term debt - 3,000
Principal payments on long-term debt (3,762) (3,307)
-------- --------
Net cash (used in) provided by financing activities (6,240) 2,971
Net (decrease) increase in cash and cash equivalents (255) 152
Cash and cash equivalents at beginning of period 311 12
-------- --------
Cash and cash equivalents at end of period $ 56 $ 164
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 3,651 $ 3,320
Income taxes 871 507
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MARTIN COLOR-FI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three and nine months ended October 1, 1995 and
September 29, 1996 is unaudited)
(In Thousands)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine month
periods ended September 29, 1996, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. For further
information, refer to the financial statements and footnotes thereto included in
the Registrant Company's Form 10-K for the year ended December 31, 1995, filed
with the Securities and Exchange Commission on March 29, 1996.
2. Inventories
Inventories consist of the following:
December 31, September 29,
1995 1996
Raw materials $22,811 $26,224
Finished goods 14,111 9,204
------- -------
$36,922 $35,428
======= =======
3. Contingent Liability
On March 16, 1995, the Company was served with a lawsuit by a
shareholder alleging violations of Federal securities laws and related state
laws and seeking an unspecified amount of damages. The shareholder requested to
have the case certified as a class action on behalf of other non-insider
shareholders.
The parties have agreed in principle to enter into a settlement
agreement to end the litigation. The agreement in principle requires the payment
of $2 million by the defendants. Final settlement of the matter is contingent
upon execution of a definitive settlement agreement and court approval of such
agreement. The Company's insurance carrier has agreed to contribute $850
thousand towards the settlement pending court approval.
At December 31, 1995, the Company accrued the estimated settlement
amount, which includes legal fees less insurance proceeds, as a liability. The
Company's portion of the settlement is expected to be funded by bank debt.
5
<PAGE>
4. Debt
At September 29, 1996, the Company had two loan agreements. The
Company's revolving line of credit agreement with a bank provides for borrowings
not to exceed the lesser of $25,000 or an agreed-upon borrowing base. The
borrowing base is calculated based on accounts receivable and inventory
balances. The line of credit bears interest at prime plus 1/8%. At September 29,
1996, the interest rate was 8.375%. A single principal payment is due on June 2,
1997, with interest on the outstanding principal payable monthly beginning on
August 12, 1995, continuing each month with final payment of all accrued but
unpaid interest on June 2, 1997. At September 29, 1996, the balance outstanding
was $20,600, which is classified as current.
The Company also has a term loan agreement with a bank which provides
for borrowings up to $36,300. The term loan refinanced the majority of existing
long-term debt including the debt assumed in the Palmetto Spinning Corporation
and Buchanan Industries acquisitions and financed the cash portion of the
purchase prices of the acquisitions. The term loan bears interest at prime plus
1/4% and requires monthly principal payments of $282. At September 29, 1996, the
principal payments were being adjusted upward based on additional drawings for
capital expenditures. The loan also requires a principal payment each year equal
to 25% of the previous years' net income if the debt to tangible net worth is
greater than 1.75 to 1. The loan matures on June 2, 1999.
The agreements with the bank contain several restrictive covenants
requiring, among other matters, a minimum debt service ratio, a maximum ratio of
indebtedness to net worth, and restrictions on the payment of dividends. At
September 29, 1996, the Company was in violation of certain loan covenants under
the debt agreements as a result of making capital expenditures in excess of
$5,000 during the fiscal year ending December 31, 1996. The bank, in a letter
dated October 25, 1996, agreed to waive those violations. The loans are
collateralized by all Company assets.
6
<PAGE>
MARTIN COLOR-FI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Three months ended September 29, 1996, compared to the three months ended
October 1, 1995.
As previously noted, during the third quarter of 1995, the market conditions for
polyester fiber changed rapidly as a result of a significant reduction in demand
from China and a corresponding redirection of production from other Asian
countries from China to European and U.S. markets. The Company believes this
change caused its international customers to delay purchases, relying instead on
existing inventories that they had built up during the second quarter due to
their perception of a shortage of polyester fiber. Also, the availability of
low-priced Asian imports caused a reduction in shipments of the Company's
commodity product lines.
The above market conditions resulted in a weakened demand for the Company's
polyester fibers. Demand remained at a lower level during the first part of
1996, but returned to normal levels during the third quarter of 1996. The
weakening of the polyester market has also resulted in decreasing recycled raw
material costs resulting in a downward pressure on polyester fiber selling
prices. The Company anticipates its polyester fiber selling prices will continue
to follow these general market trends.
The Company installed a new production line during the latter part of the third
quarter of 1996 for the manufacture of fine denier, solution-dyed fiber. The
Company began test production during the third quarter and is expected to begin
shipping products during the fourth quarter of 1996. The new line will enhance
the Company's diversity of product mix in fibers for automotive and industrial
fabrics, nonwovens, home furnishings, and apparel. The fine denier line is
expected to enable the Company to produce in excess of 20 million pounds of 2
denier fiber each year.
Net Sales: Net sales increased 15.8% to $31.5 million in the third quarter of
1996 from $27.2 million in the third quarter of 1995. This net sales increase is
primarily related to an increase in net sales of the Pigment, Yarn, and Carpet
Divisions, after intercompany eliminations, to $11.1 million in the third
quarter of 1996 from $7.4 million in the third quarter of 1995. The increase
relates primarily to increased sales of the Carpet Division due to volume
growth.
Net sales in the Fibers Division increased by $555 thousand which was due to an
increase in PET fiber sales offset by a decrease in non-PET fiber sales. PET
fiber sales increased due to an increase in shipments to 27.4 million pounds in
the third quarter of 1996 from 20.1 million pounds in the third quarter of 1995
which was offset by a decrease in the average PET fiber sales price per pound to
$0.734 in the third quarter of 1996 from $0.920 in the third quarter of 1995.
Net sales in the Fibers Division involving non-PET fiber sales, which includes
nylon fiber, pellets, and trading materials, decreased to $315 thousand in the
third quarter of 1996 from $1.4 million in the third quarter of 1995. The
decrease in sales is a continuing result of management's decision in the third
quarter of 1995 to temporarily exit the majority of operations relating to these
markets due to current market conditions. Operations do, however, continue in
the Fibers Division on a very limited basis.
Gross profit: Gross profit increased 55.1% to $7.6 million in the third quarter
of 1996 as compared to $4.9 million in the third quarter of 1995. As a
percentage of net sales, gross profit increased to 24.1% in the third quarter of
1996 as compared to 18.2% in the third quarter of 1995. The increase in gross
profit is directly related to the increase in net sales discussed above and an
increase in the gross profit margin. The increase in gross profit percentage
relates to increased margins in all divisions.
7
<PAGE>
Selling, general and administrative: Selling, general and administrative
expenses were $3.4 million or 10.8% of net sales in the third quarter of 1996 as
compared to $2.7 million or 10.0% of net sales in the third quarter of 1995. The
increase in selling, general and administrative expenses is due primarily to the
increase in net sales discussed above. The increase in selling, general and
administrative expenses as a percentage of net sales is due to the sales growth
of the Carpet Division which incurs higher selling, general and administrative
expenses for its revenue than the other divisions.
Interest expense: Interest expense increased to $1.2 million in the third
quarter of 1996 from $1.1 million in the third quarter of 1995 due primarily to
an increase in the average outstanding debt balance in the third quarter of 1996
compared to the third quarter of 1995.
Income tax provision: The income tax expense for the third quarter of 1996 was
$1.1 million compared to $468 thousand for the third quarter of 1995. The change
is directly due to the increase in pretax income.
Net income and net income per share: Net income increased to $2.0 million or
$0.30 per share for the third quarter of 1996 compared to net income of $742
thousand or $0.11 per share for the third quarter of 1995. The increase related
directly to the increase in gross profit and gross profit percentage which was
partially offset by increases in selling, general and administrative and
interest expenses.
8
<PAGE>
Nine months ended September 29, 1996, compared to the nine months ended October
1, 1995.
Net Sales: Net sales decreased 7.6% to $86.7 million in the nine months ended
September 29, 1996, from $93.8 million in the nine months ended October 1, 1995.
This net sales decrease is primarily related to a decrease in the Fibers
Division's revenue of $11.1 million. PET fiber sales decreased due to a decrease
in demand as well as a decrease in the average selling price per pound.
Shipments decreased to 71.8 million pounds in the nine months ended September
29, 1996, from 74.0 million pounds in the nine months ended October 1, 1995, and
the average PET fiber sales price per pound decreased to $0.784 in the nine
months ended September 29, 1996, from $0.815 in the nine months ended October 1,
1995.
Net sales in the Fibers Division involving non-PET fiber sales, which includes
nylon fiber, pellets, and trading materials, decreased to $1.2 million in the
nine months ended September 29, 1996, from $8.3 million in the nine months ended
October 1, 1995. The decrease in sales is a continuing result of management's
decision in the third quarter of 1995 to temporarily exit the majority of
operations relating to these markets due to current market conditions.
Net sales of the Pigment, Yarn, and Carpet Divisions after intercompany
eliminations increased to $29.3 million in the nine months ended September 29,
1996, from $25.3 million in the nine months ended October 1, 1995. The increase
relates primarily to increased sales of the Carpet Division due to volume
growth.
Gross profit: Gross profit decreased 5.9% to $16.7 million in the nine months
ended September 29, 1996, as compared to $17.7 million in the nine months ended
October 1, 1995. As a percentage of net sales, gross profit increased to 19.2%
in the nine months ended September 29, 1996, as compared to 18.9% in the nine
months ended October 1, 1995. The decrease in gross profit is directly related
to the decrease in net sales discussed above offset by a slight increase in the
gross profit margin.
Selling, general and administrative: Selling, general and administrative
expenses were $9.0 million or 10.4% of net sales in the nine months ended
September 29, 1996, as compared to $8.6 million or 9.2% of net sales in the nine
months ended October 1, 1995. The increase in selling, general and
administrative expenses is due primarily to the Carpet Division's increase in
net sales discussed above partially offset by a reduction in professional fees.
Interest expense: Interest expense decreased to $3.3 million in the nine months
ended September 29, 1996, from $3.6 million in the nine months ended October 1,
1995, due primarily to a decrease in the weighted average interest rate during
the nine months ended September 29, 1996, compared to the nine months ended
October 1, 1995.
Income tax provision: The income tax expense for the nine months ended September
29, 1996, was $1.7 million compared to $2.1 million for the nine months ended
October 1, 1995. The change is directly due to the decrease in pretax income.
Net income and net income per share: Net income decreased to $2.9 million or
$0.43 per share for the nine months ended September 29, 1996, compared to a net
income of $3.6 million or $0.54 per share for the nine months ended October 1,
1995. The decrease related directly to the decrease in gross profit and
increases in selling, general and administrative expenses offset by a decrease
in interest expense.
9
<PAGE>
Financial Condition
Current assets increased to $53.7 million at the end of the third quarter of
1996 from $48.0 million at the end of 1995. Accounts receivable increased $5.8
million, and inventories decreased $1.5 million. The above changes resulted
directly from 1996 third quarter sales of $31.5 million being higher than 1995
fourth quarter sales of $23.1 million. The decrease in inventories was related
to a decrease in finished goods inventories resulting from shipments exceeding
production in the first nine months of the year and a reduction in production
costs, which has resulted in a lower valuation of finished goods inventory. The
decrease in inventories was partially offset by an increase in raw material
inventory primarily related to the increased sales volume of the Carpet
Division.
The increase in accounts payable and accrued expenses was primarily related to
increased purchases of raw material and the timing of purchases and cash
disbursements. The increase in debt related to the purchase of property, plant,
and equipment was primarily attributable to the new production line discussed
above.
Liquidity and capital resources: The Company generated cash from operations of
$3.1 million for the nine months ended September 29, 1996, compared to $11.0
million for the nine months ended October 1, 1995.
The decrease in cash provided by operations was primarily the result of a
decrease in net income and increases in net operating assets and liabilities,
primarily an increase in accounts receivable.
Net cash used in investing activities amounted to $5.9 million in the nine
months ended September 29, 1996, compared to $5.0 million in the nine months
ended October 1, 1995. The Company increased its investment in property, plant,
and equipment during the nine months ended September 29, 1996, by $1.3 million
compared to the nine months ended October 1, 1995.
Net cash provided by financing activities amounted to $3.0 million for the nine
months ended September 29, 1996, compared to net cash used in financing
activities of $6.2 million for the nine months ended October 1, 1995. The change
occurred primarily due to the reduction in net cash provided by operating
activities discussed above.
The Company believes that the financial resources available to it under its
revolving line of credit and other internally generated funds will be sufficient
to adequately meet its foreseeable working capital and capital expenditures
requirements.
The current portion of long-term debt increased to $25.7 million during the nine
months ended September 29, 1996, from $4.5 million at year end 1995, and
long-term debt decreased to $26.8 million from $45.2 million. Those changes were
a result of the classification of the Company's revolving line of credit
agreement as current due to the maturity date being June 2, 1997. The balance of
the revolving line of credit was $20.6 million at September 29, 1996. The
Company expects to seek an extension of the revolving line of credit agreement
before the current portion is due. Although the Company does not anticipate any
difficulties in obtaining such an extension, there can, of course, be no
assurances that the lender will agree to the extension or that alternative
financing will be available if the lender does not agree to the extension.
10
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
In March 1995, litigation was commenced by a shareholder of the Company
against the Company and James F. Martin, Chairman and Chief Executive Officer of
the Company, in the United States District Court for the District of South
Carolina, Greenville Division. In the litigation, the plaintiff alleges, among
other things, that the Company failed to prepare its financial statements in
accordance with generally accepted accounting principles and issued false and
misleading business and financial information to the investing public which
misstated the Company's financial condition, earnings and prospects, in
violation of the Federal securities laws and common law. The plaintiff seeks to
have the action certified as a class action on behalf of non-insider
shareholders who purchased the common stock of the Company from April 21, 1993,
through February 28, 1995. The parties have agreed in principle to enter into a
settlement agreement to end the litigation. The agreement in principle requires
the payment of $2 million by the defendants. Final settlement of the matter is
contingent upon execution of a definitive settlement agreement and court
approval of such agreement. The Company's insurance carrier has agreed to
contribute $850 thousand towards the settlement pending court approval.
At December 31, 1995, the Company accrued the estimated settlement
amount, which includes legal fees less insurance proceeds, as a liability. The
Company's portion of the settlement is expected to be funded by bank debt.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 - Letter Agreement, dated October 25, 1996, Modifying
Amended and Restated Loan and Security Agreement, dated August 9, 1995,
with NationsBank, N.A.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARTIN COLOR-FI, INC.
Dated: 11/13/96 By: /s/ Bret J. Harris
---------------------------------------
Bret J. Harris*
Treasurer, Chief Financial Officer
* Principal Financial and Accounting Officer
12
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10 Letter Agreement, dated October 25, 1996, Modifying
Amended and Restated Loan and Security Agreement,
dated August 9, 1995, with NationsBank, N.A.
27 Financial Data Schedule
13
NationsBank
Commercial Lending
P.O. Box 448
Columbia, SC 29202-0448
NationsBank
October 25, 1996
Mr. Bret J. Harris
Chief Financial Officer
Martin Color-Fi, Inc.
Star Fibers Corp.
Custom Colorants, Inc.
Buchanan Industries, Inc.
Palmetto Spinning Corporation
P.O. Box 469
Edgefield, SC 29824
Re: Modification of Terms of Credit Facilities Extended by
NationsBank, N.A.
Dear Bret:
This letter shall serve as a written modification to that certain
Amended and Restated Loan and Security Agreement dated to be effective as of
August 9, 1995 (as amended or modified the "Loan Agreement") by and between
Martin Color-Fi, Inc., Star Fibers Corp., Custom Colorants, Inc., Buchanan
Industries, Inc. and Palmetto Spinning Corporation (collectively, the
"Borrowers") and NationsBank, N.A. formerly known as NationsBank, National
Association (Carolinas) ("NationsBank").
The Loan Agreement is amended by deleting Section 7.2(h) in its
entirety and substantially in lieu thereof the following:
(h) Make capital expenditures in the aggregate in excess of (i)
$6,500,000 during Borrowers' fiscal year ending on December 31,
1996; and (ii) $5,000,000 during any fiscal year after December
31, 1996.
All capitalized terms not otherwise defined in this letter shall have
the meaning ascribed to such term in the Loan Agreement. All other terms and
conditions of the Loan Agreement and any other document executed in connection
with the Loans (collectively, the "Loan Documents") shall remain in full force
and effect. Borrowers represent and warrant that, as of the date of this letter,
(i) all representations contained in the Loan Agreement or the Loan Documents
are true and accurate (ii) all covenants contained in the Loan Agreement and the
Loan Documents have been and remain satisfied and (iii) no Event of Default
exists or no condition exists which with the giving of notice for the passage of
time would constitute an Event of Default under Loan Agreement or the Loan
Documents.
<PAGE>
Mr. Bret J. Harris
October 25, 1996
Page 2
Please have all parties execute the original of this letter to agree
that the Borrowers will be bound by the terms and conditions of this letter and
return the original fully-executed letter to me as soon as possible. This letter
agreement will be effective as of the date of Borrowers' acceptance of this
letter and will be binding on all parties upon our receipt of the original,
fully-executed and dated letter.
Kindest regards,
NationsBank, N.A.
Mary H. "Mze" Wilkins
Senior Vice President
Agreed to on this 28 day of October, 1996.
BORROWERS: BUCHANAN INDUSTRIES, INC.
MARTIN COLOR-FI, INC. By: Bret J. Harris
Its: Chief Financial Officer
By: Bret J. Harris PALMETTO SPINNING CORPORATION
Its: Chief Financial Officer
STAR FIBERS CORP. By: Bret J. Harris
Its: Chief Financial Officer
By: Bret J. Harris
Its: Chief Financial Officer
CUSTOM COLORANTS, INC.
By: Bret J. Harris
Its: Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at September 29, 1996 (unaudited), and the
Condensed Consolidated Statement of Operations for the Nine Months Ended
September 29, 1996 (unaudited), and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-START> JAN-01-1996
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-29-1996
<CASH> 164
<SECURITIES> 0
<RECEIVABLES> 16,376
<ALLOWANCES> 125
<INVENTORY> 35,428
<CURRENT-ASSETS> 53,675
<PP&E> 42,684
<DEPRECIATION> 17,580
<TOTAL-ASSETS> 102,553
<CURRENT-LIABILITIES> 42,244
<BONDS> 26,890
0
0
<COMMON> 832
<OTHER-SE> 27,662
<TOTAL-LIABILITY-AND-EQUITY> 102,553
<SALES> 86,726
<TOTAL-REVENUES> 86,726
<CGS> 70,067
<TOTAL-COSTS> 79,056
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,310
<INCOME-PRETAX> 4,528
<INCOME-TAX> 1,666
<INCOME-CONTINUING> 2,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,862
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
