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 June 29, 1997
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 August 11, 1997, there were 6,701,292 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 six months ended June 30, 1996 and June 29, 1997.......2
Condensed Consolidated Balance Sheets -
December 31, 1996 and June 29, 1997 (unaudited)..................3
Condensed Consolidated Statements of Cash Flows (unaudited) -
For the six months ended June 30, 1996 and June 29, 1997.........4
Notes to Condensed Consolidated Financial Statements
(unaudited) - June 29, 1997....................................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..............................................11-12
Signatures....................................................................13
Exhibit Index..............................................................14
<PAGE>
MARTIN COLOR-FI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 29, June 30, June 29,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ....................................... $ 29,582 $32,349 $ 55,205 $59,525
Cost of sales ................................... 24,215 26,000 46,135 47,375
---------- ------- ---------- -------
Gross profit .................................... 5,367 6,349 9,070 12,150
Selling, general and administrative expenses .... 2,831 3,412 5,593 6,680
---------- ------- ---------- -------
Operating income ................................ 2,536 2,937 3,477 5,470
Interest expense ................................ (1,123) (1,093) (2,227) (2,003)
Other income .................................... 62 80 122 226
---------- ------- ---------- -------
Income before income taxes ...................... 1,475 1,924 1,372 3,693
Provision for income taxes ...................... 543 613 515 1,182
---------- ------- ---------- -------
Net income ...................................... $ 932 $1,311 $ 857 $ 2,511
========== ======= ========== =======
Net income per share ............................ $ 0.14 $0.20 $ 0.13 $ 0.38
========== ======= ========== =======
Weighted average shares outstanding ............. 6,657 6,701 6,657 6,694
========== ======= ========== =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
MARTIN COLOR-FI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1996 and June 29, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31, June 29,
1996 1997
------------ --------
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash ......................................................................... $ 272 $ 475
Accounts receivable, net of allowance of $150
and $125, respectively, for doubtful accounts .............................. 12,622 16,973
Inventories .................................................................. 38,678 41,780
Prepaid expenses ............................................................. 881 1,472
Other assets ................................................................. 856 0
------------- -------------
Total current assets ......................................................... 53,309 60,700
Property, plant, and equipment, net .......................................... 42,873 42,794
Goodwill ..................................................................... 5,091 5,562
Other assets ................................................................. 1,343 1,290
------------- -------------
Total assets ................................................................. $ 102,616 $ 110,346
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses ........................................ $ 16,105 $ 14,287
Current portion of long-term debt ............................................ 6,725 11,471
------------- -------------
Total current liabilities .................................................... 22,830 25,758
Deferred income taxes .......................................................... 5,184 5,876
Long-term debt ................................................................. 44,429 45,942
Shareholders' equity:
Common stock, no par value:
Authorized shares - 50,000,000 in 1997 and 1996
Issued and outstanding shares - 6,701,292 and
6,681,479 in 1997 and 1996, respectively ................................... 832 832
Additional paid-in capital ..................................................... 19,861 19,947
Retained earnings .............................................................. 9,480 11,991
------------- -------------
Total shareholders' equity ..................................................... 30,173 32,770
------------- -------------
Total liabilities and shareholders' equity ..................................... $ 102,616 $ 110,346
============= =============
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
MARTIN COLOR-FI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 29, 1997
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, June 29,
1996 1997
-------- --------
Operating activities:
<S> <C> <C>
Net income ..................................................................... $ 857 $ 2,511
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .............................................. 2,187 2,192
Deferred income taxes ...................................................... 422 692
Changes in operating assets and liabilities:
Accounts receivable ........................................................ (4,059) (4,351)
Inventories ................................................................ 1,066 (3,102)
Prepaid expenses ........................................................... (342) (591)
Other assets ............................................................... - 866
Accounts payable and accrued expenses ...................................... 745 (1,818)
------------- -------------
Net cash provided by (used in) operating activities ............................ 876 (3,601)
Investing activities:
Purchases of property, plant and equipment ................................... (3,658) (1,859)
Other ........................................................................ (520) (644)
------------- -------------
Net cash used in investing activities .......................................... (4,178) (2,503)
Financing activities:
Borrowings under line of credit .............................................. 19,430 23,767
Payments on line of credit ................................................... (16,100) (17,050)
Additional loan costs ........................................................ (16) (38)
Proceeds from issuance of long-term debt ..................................... 2,468 2,452
Principal payments on long-term debt ......................................... (2,455) (2,910)
Proceeds from issuance of common stock ....................................... - 86
------------- -------------
Net cash provided by financing activities .................................... 3,327 6,307
Net increase in cash and cash equivalents ...................................... 25 203
Cash and cash equivalents at beginning of period ............................... 12 272
------------- -------------
Cash and cash equivalents at end of period ..................................... $ 37 $ 475
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) ........................................ $ 2,227 $ 1,994
Income taxes ................................................................. 27 517
</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 six months ended
June 30, 1996 and June 29, 1997 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 six month
periods ended June 29, 1997, are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997. 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, 1996, filed with
the Securities and Exchange Commission on March 31, 1997.
2. New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The Company does not
expect adoption of the Statement to have a material impact upon its current
earnings per share computation.
3. Inventories
Inventories consist of the following:
December 31, June 29,
1996 1997
------------ --------
Raw materials $25,963 $27,163
Finished goods 12,715 14,617
------- -------
$38,678 $41,780
======= =======
4. 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.
5
<PAGE>
A definitive written settlement agreement has been reached with the
class plaintiff under which the Company's settlement liability is fixed at
$2,000,000. In exchange for a written release, the Company's insurance carrier
has provided $850,000 of this amount. By order dated March 12, 1997, the United
States District Court certified the class in the matter, appointed the class
plaintiffs' counsel as settlement administrator and gave preliminary approval to
the settlement. The settlement was funded by the Company on March 20, 1997.
Final settlement of the matter remains subject to final 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 has been funded by bank debt.
6
<PAGE>
MARTIN COLOR-FI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended. The Company cautions readers that forward looking
statements, including without limitation, those relating to the Company's future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in the
Company's reports filed with the Securities and Exchange Commission.
Outlook for 1997
Demand for polyester fibers is expected to increase for the remainder of 1997.
The large declines in worldwide selling prices of polyester fiber throughout
1996 and into the second quarter of 1997 are expected to stabilize for the
remainder of 1997. The strong demand for the Company's carpet production is
expected to continue for the remainder of 1997. The Company has based its plans
for 1997 on these expectations. These matters are, however, beyond the Company's
control and could vary substantially from the Company's expectations.
Results of Operations:
Three months ended June 29, 1997, compared to the three months ended June 30,
1996.
Net Sales: Net sales increased 9.1% to $32.3 million in the second quarter of
1997 from $29.6 million in the second quarter of 1996. This net sales increase
is primarily related to an increase in net sales of the Pigment, Yarn, and
Carpet Divisions, after intercompany eliminations, to $15 million in the second
quarter of 1997 from $9.7 million in the second quarter of 1996. The increase
resulted primarily from an increased volume of sales in the Carpet Division.
Net sales in the Fibers Division decreased by $1.5 million due to a decrease in
PET fiber sales. PET fiber sales decreased due to a decrease in the average PET
fiber sales price per pound to $0.659 in the second quarter of 1997 from $0.798
in the second quarter of 1996. The decrease was, however, partially offset by an
increase in shipments to 26.6 million pounds in the second quarter of 1997 from
24.3 million pounds in the second quarter of 1996.
Gross profit: Gross profit increased 16.7% to $6.3 million in the second quarter
of 1997 as compared to $5.4 million in the second quarter of 1996. As a
percentage of net sales, gross profit increased to 19.6% in the second quarter
of 1997 as compared to 18.1% in the second quarter of 1996. 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 excluding the Carpet
Division which decreased.
Selling, general and administrative: Selling, general and administrative
expenses were $3.4 million or 10.5% of net sales in the second quarter of 1997
as compared to $2.8 million or 9.6% of net sales in the second quarter of 1996.
The increase in selling, general and administrative expenses is due primarily to
the increase in net sales discussed above primarily related to the Carpet
Division. 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 remained at $1.1 million in the second
quarter of 1997 compared to $1.1 million in the second quarter of 1996. The
increase in the average outstanding debt balance was offset by higher interest
capitalization and a decrease in the weighted average interest rate in the
second quarter of 1997 compared to the second quarter of 1996.
Income tax provision: The income tax expense for the second quarter of 1997 was
$613 thousand compared to $543 thousand for the second quarter of 1996. The
change is directly due to the increase in pretax income.
7
<PAGE>
Net income and net income per share: Net income increased to $1.3 million or
$0.20 per share for the second quarter of 1997 compared to $932 thousand or
$0.14 per share for the second quarter of 1996. The increase related directly to
the increase in gross profit and gross profit percentage which was partially
offset by an increase in selling, general and administrative expenses.
Six months ended June 29, 1997, compared to the six months ended June 30, 1996.
Net Sales: Net sales increased 7.8% to $59.5 million in the six months ended
June 29, 1997, from $55.2 million in the six months ended June 30, 1996. This
net sales increase is primarily related to an increase in net sales of the
Pigment, Yarn, and Carpet Divisions, after intercompany eliminations, to $28.5
million in the six months ended June 29, 1997, from $18.2 million in the six
months ended June 30, 1996. The increase resulted primarily from an increased
volume of sales in the Carpet Division.
Net sales in the Fibers Division decreased by $3.6 million due to a decrease in
PET fiber sales. PET fiber sales decreased due to a decrease in the average PET
fiber sales price per pound to $0.661 in the six months ended June 29, 1997,
from $0.814 in the six months ended June 30, 1996. The decrease was, however,
offset by an increase in shipments to 48.6 million pounds in the six months
ended June 29, 1997, from 44.3 million pounds in the six months ended June 30,
1996.
Gross profit: Gross profit increased 34.1% to $12.2 million in the six months
ended June 29, 1997, as compared to $9.1 million in the six months ended June
30, 1996. As a percentage of net sales, gross profit increased to 20.4% in the
six months ended June 29, 1997, as compared to 16.4% in the six months ended
June 30, 1996. 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 excluding the Carpet Division which decreased.
Selling, general and administrative: Selling, general and administrative
expenses were $6.7 million or 11.2% of net sales in the six months ended June
29, 1997, as compared to $5.6 million or 10.1% of net sales in the six months
ended June 30, 1996. The increase in selling, general and administrative
expenses is due primarily to the increase in net sales discussed above primarily
related to the Carpet Division. 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 decreased to $2.0 million in the six months
ended June 29, 1997, from $2.2 million in the six months ended June 30, 1996,
due primarily to higher interest capitalization and a decrease in the weighted
average interest rate offset by an increase in the average outstanding debt
balance during the six months ended June 29, 1997, compared to the six months
ended June 30, 1996.
Income tax provision: The income tax expense for the six months ended June 29,
1997, was $1.2 million compared to $515 thousand for the six months ended June
30, 1996. The change is directly due to the increase in pretax income.
Net income and net income per share: Net income increased to $2.5 million or
$0.38 per share for the six months ended June 29, 1997, compared to $857
thousand or $0.13 per share for the six months ended June 30, 1996. The increase
related directly to the increase in gross profit and gross profit percentage and
a decrease in interest expense which was, however, partially offset by an
increase in selling, general and administrative expenses.
8
<PAGE>
Financial Condition
Current assets increased to $60.7 million at June 29, 1997 from $53.3 million at
December 31, 1996. Accounts receivable increased $4.4 million, and inventories
increased $3.1 million. The above changes resulted directly from increased sales
in the second quarter of 1997 versus sales in the first quarter of 1997. The
increase in inventories was primarily related to an increase in finished goods
inventories resulting from production exceeding shipments in the first half of
the year.
The decrease in accounts payable and accrued expenses was primarily related to
the increase in debt and the timing of purchases and cash disbursements. The
increase in debt relates directly to the growth in accounts receivable and
inventory discussed above and the reduction of accounts payable and accrued
expenses.
Liquidity and capital resources: The Company used cash in operations of $3.6
million for the second quarter of 1997 compared to cash generated from
operations of $876 thousand for the second quarter of 1996. The increase in cash
used in operations was primarily the result of increases in net operating assets
and liabilities, primarily an increase in inventories and accounts receivable,
and a decrease in accounts payable and accrued expenses, partially offset by an
increase in net income.
Net cash used in investing activities amounted to $2.5 million in the second
quarter of 1997 compared to $4.2 million in the second quarter of 1996. The
Company decreased its investment in property, plant, and equipment during the
second quarter of 1997 by $1.8 million compared to the second quarter of 1996.
Net cash provided by financing activities amounted to $6.3 million for the
second quarter of 1997 compared to $3.3 million for the second quarter of 1996.
The change occurred primarily due to the increase in net cash used in operating
activities discussed above.
In March of 1997, the Company entered into a $5 million capital expenditure term
loan to fund $2 million of 1996 capital expenditures, which were previously
funded under the revolving line of credit agreement, and $3 million of 1997
capital expenditures.
On June 2, 1997, and August 6, 1997, the Company amended its revolving line of
credit agreement effective March 27, 1997, to increase its borrowings from $25
million, or an agreed upon borrowing base to $28 million, or an agreed upon
borrowing base. The amendments provide for changes in the borrowing base formula
until September 30, 1997.
The Company believes that the financial resources available to it under its
revolving line of credit, 1997 term loan, and other internally generated funds
will be sufficient to adequately meet its foreseeable working capital and
capital expenditures requirements.
9
<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 sought 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. A definitive written settlement agreement has been
reached with the class plaintiff under which the Company's settlement liability
is fixed at $2,000,000. In exchange for a written release, the Company's
insurance carrier has provided $850,000 of this amount. By order dated March 12,
1997, the United States District Court certified the class in the matter,
appointed the class plaintiffs' counsel as settlement administrator and gave
preliminary approval to the settlement. The settlement was funded by the Company
on March 20, 1997. Final settlement of the matter remains subject to final 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 has been funded by bank debt.
Item 4. Submission of Matters to a Vote of Security Holders:
(a) An annual meeting of the shareholders of the Company was held on May
13, 1997.
(b) The names of the directors elected at the meeting are as follows:
Gregory W. Anderson, W. Fred Davis, Jr., and Jerry E. Trapnell (for
terms expiring in 2000); and Bret J. Harris (whose term expires in
1998).
(c) The items voted upon at the meeting of shareholders were as follows:
(1) the election of directors;
(2) the ratification of the appointment of Ernst & Young LLP as
independent auditors for the Company's fiscal year ending
December 31, 1997;
The number of votes cast for, against or withheld and the number of its
abstentions or broker non- votes as to each matter is as follows:
Item No. Votes Against Abstentions or
(see above) Name Votes for or Withheld Broker Non-Votes
- ----------- ---- --------- ----------- ----------------
(1) Gregory W. Anderson 5,911,627 360
W. Fred Davis, Jr. 5,911,627 360
Jerry E. Trapnell 5,911,627 360
Bret J. Harris 5,911,627 360
(2) 5,911,637 100 250
(d) Not applicable.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.39 - Letter Agreement, dated June 2, 1997, Modifying Third
Amended and Restated Loan and Security Agreement, dated March 27, 1997, with
NationsBank, N.A.
Exhibit 10.40 - Letter Agreement, dated August 6, 1997, Modifying Third
Amended and Restated Loan and Security Agreement, dated March 27, 1997, 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: 8/12/97 By: /s/ Bret J. Harris
Bret J. Harris*
Treasurer, Chief Financial Officer
* Principal Financial and Accounting Officer
12
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
10.39 Letter Agreement, dated June 2, 1997, Modifying Third
Amended and Restated Loan and Security Agreement, dated
March 27, 1997, with NationsBank, N.A.
10.40 Letter Agreement, dated August 6, 1997, Modifying
Third Amended and Restated Loan and Security Agreement,
dated March 27, 1997, with NationsBank, N.A.
27 Financial Data Schedule
13
As of June 2, 1997
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 Loans Extended by NationsBank, N.A. to Martin
Color-Fi, Inc., et al.
Dear Bret:
This letter shall serve as a written modification to (i) that certain
Third Amended and Restated Loan and Security Agreement (as amended or modified
the "Loan Agreement") dated to be effective as of March 27, 1997 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. ("NationsBank"); (ii) that certain Second
Amended and Restated Revolving Credit Promissory Note (the "Revolving Credit
Note") in the principal amount of $25,000,000 dated to be effective as of
December 16, 1996 executed by Borrowers and delivered to NationsBank; (iii) that
certain Second Amended and Restated Term Loan Promissory Note (the "Term Note")
in the principal amount of $36,310,000 dated to be effective as of December 16,
1996 executed by Borrowers and delivered to NationsBank; and (iv) the other Loan
Documents (as such term is defined in the Loan Agreement).
I. MODIFICATIONS TO LOAN AGREEMENT
The Loan Agreement is amended as follows:
(i) By amending all references to the maximum principal amount of the
Revolving Credit Loan such that for the period of time commencing
on the effective date of this letter and ending on August 6,
1997, the maximum principal amount of the Revolving Credit Loan
shall be $28,000,000; provided, from and after August 7, 1997 the
maximum principal amount of the Revolving Credit Loan shall be
$25,000,000;
<PAGE>
(ii) By deleting the provision that reads "sixty percent (60%) of the
total principal outstanding under the Revolving Credit Loan
during the period of time commencing on December 16, 1996 and
ending on June 2, 1997" at the end of the next to the last
sentence of Section 2.5 on page 13 and substituting in lieu
thereof the following:
sixty percent (60%) of the total principal outstanding under
Revolving Credit Loan during the period of time commencing
on December 16, 1996 and ending on August 6, 1997.
(iii) By inserting the following provision at the end of the second
sentence of Section 3.2:
; provided, the Income Recapture Payment due in calendar
year 1997 shall be due and payable on August 6, 1997.
II. MODIFICATIONS TO REVOLVING CREDIT NOTE
The Revolving Credit Note is modified as necessary to provide that the
maximum principal amount of the Revolving Credit Note shall be $28,000,000 for
the period of time commencing as of the effective date of this letter and ending
on August 6, 1997. From and after August 7, 1997, the maximum principal amount
of the Revolving Credit Note shall be reduced to $25,000,000.
III. MODIFICATIONS TO TERM NOTE
The Term Note is amended by inserting the following provision at the
end of the second sentence of the section entitled Repayment of Principal and
Payment of Interest:
, provided, the Income Recapture Payment due in calendar year 1997
shall be due and payable on August 6, 1997.
IV. MODIFICATIONS TO OTHER LOAN DOCUMENTS
All other Loan Documents are amended as necessary to be consistent with
the modification set forth in this letter and to provide that each of the Loan
Documents and any liens granted thereby shall continue to secure the Loans as
modified by this letter, with the same force and effect as when originally
executed.
The intent of the foregoing modifications described in this letter are
(i) to increase the maximum principal amount of the Revolving Credit Loan to
$28,000,000 from the date hereof through August 6, 1997 at which time the
maximum principal amount of the Revolving Credit Loan shall be reduced to
$25,000,000; (ii) to provide Borrowers a period of time commencing on December
16, 1996 and ending on August 6, 1997 during which the inventory "cap" will be
raised from 50% of the total principal outstanding under the Revolving Credit
Loan to 60% of the total principal outstanding under the Revolving Credit Loan;
provided, from and after August 7, 1997, the maximum principal advanced and
outstanding under the Revolving Credit Loan against Eligible Inventory shall not
exceed, at any time, fifty percent (50%) of the total principal outstanding
under the Revolving Credit Loan; and (iii) to establish August 6, 1997 as the
date on which the Income Recapture Payment required to be paid in connection
with the Term Loan in calendar year 1997 is due.
2
<PAGE>
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 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 and the other Loan Documents are
true and accurate; (ii) all covenants contained in the Loan Agreement and the
other 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, or both, would constitute an Event of Default under Loan
Agreement or the other Loan Documents.
Please have all parties execute the original of this letter to indicate
each of the Borrowers' agreement to 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 binding on all parties upon our receipt of the
original fully-executed and dated letter and our fee.
Kindest regards,
NationsBank, N.A.
Greg A. LaPointe
Vice President
3
<PAGE>
Agreed to on this day of June, 1997.
BORROWERS:
MARTIN COLOR-FI, INC.
By: Bret J. Harris
Its: Chief Financial Officer
STAR FIBERS CORP.
By: Bret J. Harris
Its: Chief Financial Officer
CUSTOM COLORANTS, INC.
By: Bret J. Harris
Its: Chief Financial Officer
BUCHANAN INDUSTRIES, INC.
By: Bret J. Harris
Its: Chief Financial Officer
PALMETTO SPINNING CORPORATION
By: Bret J. Harris
Its: Chief Financial Officer
4
As of August 6, 1997
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 Loans Extended by NationsBank, N.A. to Martin
Color-Fi, Inc., et al.
Dear Bret:
This letter shall serve as a written modification to (i) that certain
Third Amended and Restated Loan and Security Agreement (as amended or modified
the "Loan Agreement") dated to be effective as of March 27, 1997 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. ("NationsBank"); (ii) that certain Second
Amended and Restated Revolving Credit Promissory Note (the "Revolving Credit
Note") in the principal amount of $25,000,000 dated to be effective as of
December 16, 1996 executed by Borrowers and delivered to NationsBank; (iii) that
certain Second Amended and Restated Term Loan Promissory Note (the "Term Note")
in the principal amount of $36,310,000 dated to be effective as of December 16,
1996 executed by Borrowers and delivered to NationsBank; and (iv) the other Loan
Documents (as such term is defined in the Loan Agreement).
I. MODIFICATIONS TO LOAN AGREEMENT
The Loan Agreement is amended as follows:
(i) By amending all references to the maximum principal amount of the
Revolving Credit Loan such that for the period of time commencing
on the effective date of this letter and ending on September 30,
1997, the maximum principal amount of the Revolving Credit Loan
shall be $28,000,000; provided, from and after October 1, 1997
the maximum principal amount of the Revolving Credit Loan shall
be $25,000,000;
<PAGE>
(ii) By deleting the provision that reads "sixty percent (60%) of the
total principal outstanding under the Revolving Credit Loan
during the period of time commencing on December 16, 1996 and
ending on August 6, 1997" at the end of the next to the last
sentence of Section 2.5 on page 13 and substituting in lieu
thereof the following:
sixty percent (60%) of the total principal outstanding under
Revolving Credit Loan during the period of time commencing
on December 16, 1996 and ending on September 30, 1997.
(iii) By inserting the following provision at the end of the second
sentence of Section 3.2:
; provided, the Income Recapture Payment due in calendar
year 1997 shall be due and payable on September 30, 1997.
II. MODIFICATIONS TO REVOLVING CREDIT NOTE
The Revolving Credit Note is modified as necessary to provide that the
maximum principal amount of the Revolving Credit Note shall be $28,000,000 for
the period of time commencing as of the effective date of this letter and ending
on September 30, 1997. From and after October 1, 1997, the maximum principal
amount of the Revolving Credit Note shall be reduced to $25,000,000.
III. MODIFICATIONS TO TERM NOTE
The Term Note is amended by inserting the following provision at the
end of the second sentence of the section entitled Repayment of Principal and
Payment of Interest:
, provided, the Income Recapture Payment due in calendar year 1997
shall be due and payable on September 30, 1997.
IV. MODIFICATIONS TO OTHER LOAN DOCUMENTS
All other Loan Documents are amended as necessary to be consistent with
the modification set forth in this letter and to provide that each of the Loan
Documents and any liens granted thereby shall continue to secure the Loans as
modified by this letter, with the same force and effect as when originally
executed.
2
<PAGE>
The intent of the foregoing modifications described in this letter are
(i) to increase the maximum principal amount of the Revolving Credit Loan to
$28,000,000 from the date hereof through September 30, 1997 at which time the
maximum principal amount of the Revolving Credit Loan shall be reduced to
$25,000,000; (ii) to provide Borrowers a period of time commencing on December
16, 1996 and ending on September 30, 1997 during which the inventory "cap" will
be raised from 50% of the total principal outstanding under the Revolving Credit
Loan to 60% of the total principal outstanding under the Revolving Credit Loan;
provided, from and after October 1, 1997, the maximum principal advanced and
outstanding under the Revolving Credit Loan against Eligible Inventory shall not
exceed, at any time, fifty percent (50%) of the total principal outstanding
under the Revolving Credit Loan; and (iii) to establish September 30, 1997 as
the date on which the Income Recapture Payment required to be paid in connection
with the Term Loan in calendar year 1997 is due.
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 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 and the other Loan Documents are
true and accurate; (ii) all covenants contained in the Loan Agreement and the
other 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, or both, would constitute an Event of Default under Loan
Agreement or the other Loan Documents.
Please have all parties execute the original of this letter to indicate
each of the Borrowers' agreement to 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 binding on all parties upon our receipt of the
original fully-executed and dated letter and our fee.
Kindest regards,
NationsBank, N.A.
Greg A. LaPointe
Vice President
3
<PAGE>
Agreed to on this day of August, 1997.
BORROWERS:
MARTIN COLOR-FI, INC.
By: Bret J. Harris
Its: Chief Financial Officer
STAR FIBERS CORP.
By: Bret J. Harris
Its: Chief Financial Officer
CUSTOM COLORANTS, INC.
By: Bret J. Harris
Its: Chief Financial Officer
BUCHANAN INDUSTRIES, INC.
By: Bret J. Harris
Its: Chief Financial Officer
PALMETTO SPINNING CORPORATION
By: Bret J. Harris
Its: Chief Financial Officer
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at June 29, 1997 (unaudited), and the
Condensed Consolidated Statement of Operations for the Six Months Ended June 29,
1997 (unaudited), and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-29-1997
<CASH> 475
<SECURITIES> 0
<RECEIVABLES> 16,973
<ALLOWANCES> 125
<INVENTORY> 41,780
<CURRENT-ASSETS> 60,700
<PP&E> 42,794
<DEPRECIATION> 20,453
<TOTAL-ASSETS> 110,346
<CURRENT-LIABILITIES> 25,758
<BONDS> 45,942
0
0
<COMMON> 832
<OTHER-SE> 31,938
<TOTAL-LIABILITY-AND-EQUITY> 110,346
<SALES> 59,525
<TOTAL-REVENUES> 59,525
<CGS> 47,375
<TOTAL-COSTS> 54,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,003
<INCOME-PRETAX> 3,693
<INCOME-TAX> 1,182
<INCOME-CONTINUING> 2,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,511
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
