<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Judiciary Plaza, 450 Fifth Street N.W.
Washington, D.C. 20549
-----------------------------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1994 Commission File No. 1-9557
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FORMICA CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 34-1046753
- ---------------------------------- -----------------------------------
(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
Oak Hill Park, 1680 Route 23 North, Wayne, New Jersey 07474-0980
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (201) 305-9400
-----------------------
None
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Former name, former address and former fiscal year, if changed since last report
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at November 4, 1994
- --------------------------------------- --------------------------------------
Common stock, par value $0.01 per share 100
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FORMICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
------------------ -----------------
ASSETS (unaudited)
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,047 $ 2,446
Accounts receivable, net 89,544 81,350
Inventories, net 94,162 67,678
Other current assets 17,749 18,150
-------- --------
TOTAL CURRENT ASSETS 205,502 169,624
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 216,000 212,120
GOODWILL, NET 37,419 38,231
TRADEMARKS AND PATENTS, NET 89,287 92,024
DEFERRED CHARGES AND OTHER ASSETS 32,631 29,632
-------- --------
$580,839 $541,631
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 18,937 $ 11,351
Accounts payable 43,306 40,313
Accrued compensation 28,736 24,678
Other accrued liabilities 10,752 13,846
Income taxes payable 3,064 2,367
-------- --------
TOTAL CURRENT LIABILITIES 104,795 92,555
-------- --------
LONG-TERM DEBT 273,086 255,180
-------- --------
OTHER LONG-TERM LIABILITIES 16,825 15,849
-------- --------
DEFERRED INCOME TAXES 98,396 97,685
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock; 100 shares
outstanding - -
Preferred stock; none outstanding - -
Capital in excess of par value 116,879 116,879
Accumulated deficit (16,938) (18,747)
Cumulative translation adjustment (12,204) (17,770)
-------- --------
TOTAL STOCKHOLDER'S EQUITY 87,737 80,362
-------- --------
$580,839 $541,631
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
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FORMICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Month Periods
Ended September 30,
------------------------------
1994 1993
---- ----
<S> <C> <C>
Net sales $121,299 $109,499
Cost of sales 85,618 79,989
-------- --------
Gross profit 35,681 29,510
Selling, general and
administrative expenses 27,177 24,472
-------- --------
Operating income 8,504 5,038
Other income, net 5,134 3,816
-------- --------
Income before interest expense
and income taxes 13,638 8,854
Interest expense 9,927 13,387
-------- --------
Income (loss) before income taxes 3,711 (4,533)
Income tax provision (benefit) 2,502 (1,141)
-------- --------
Net income (loss) $ 1,209 $ (3,392)
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
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FORMICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Month Periods
Ended September 30,
------------------------------
1994 1993
---- ----
<S> <C> <C>
Net sales $353,034 $325,172
Cost of sales 246,866 233,410
-------- --------
Gross profit 106,168 91,762
Selling, general and
administrative expenses 78,388 72,751
-------- --------
Operating income 27,780 19,011
Other income, net 7,012 6,284
-------- --------
Income before interest expense,
income taxes and accounting change 34,792 25,295
Interest expense 29,469 37,521
-------- --------
Income (loss) before income taxes
and accounting change 5,323 (12,226)
Income tax provision (benefit) 3,514 (4,066)
-------- --------
Income (loss) before accounting change 1,809 (8,160)
Accounting change - cumulative
effect to January 1, 1993, of
accounting for income taxes - (2,850)
-------- --------
Net income (loss) $ 1,809 $ (5,310)
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
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<PAGE> 5
FORMICA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Month Periods
Ended September 30,
---------------------------
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,809 $ (5,310)
Depreciation and amortization 17,881 18,175
Amortization of Subordinated
Discount Debentures and deferred
financing costs 12,120 12,926
Deferred income taxes 306 (7,979)
Changes in operating assets and
liabilities, net (31,243) (26,282)
-------- --------
Net cash provided by (used in)
operating activities 873 (8,470)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from
FM Holdings Inc. - 47,000
Net short-term borrowings 9,048 6,459
Net borrowings (payments) under bank
credit agreements 5,573 (38,190)
Other, net (2,503) (328)
-------- --------
Net cash provided by financing
activities 12,118 14,941
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (11,451) (4,257)
Other, net 122 (466)
-------- --------
Net cash used in investing
activities (11,329) (4,723)
-------- --------
Effect of exchange rate changes on cash (61) 39
-------- --------
Net change in cash and cash equivalents 1,601 1,787
Cash and cash equivalents at beginning
of period 2,446 867
-------- --------
Cash and cash equivalents at end of
period $ 4,047 $ 2,654
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
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<PAGE> 6
FORMICA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Formica Corporation and its subsidiaries (the "Company" or
"Formica"). All significant intercompany balances and transactions have been
eliminated. Earnings per share data are not presented because the Company's
common stock is not publicly owned and since the Company is a wholly-owned
subsidiary of FM Holdings Inc. ("Holdings"). In the opinion of the Company,
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows for
the interim periods presented have been included. The results of operations
for such interim periods are not necessarily indicative of the results for the
entire year. These interim financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
(2) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES
During the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). FAS
109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, FAS 109 generally considers
all expected future events other than enactments of changes in the tax law or
rates. Previously, the Company used the FAS 96 asset and liability approach
that gave no recognition to future events other than the recovery of assets and
settlement of liabilities at their carrying amounts.
Under FAS 109, the Company recognizes to a greater degree the future tax
benefits of expenses which have been recognized in the financial statements.
The adjustments to the January 1, 1993 balance sheet to adopt FAS 109 netted to
$2,850,000. This amount is reflected in first quarter 1993 net income as the
cumulative effect of a change in accounting principle.
(3) INVENTORIES, NET
Major classes of inventories were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Raw materials $32,014 $26,665
Work in process 11,023 9,627
Finished goods 51,125 31,386
------- -------
$94,162 $67,678
======= =======
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment balances were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Land and improvements $ 16,615 $ 15,355
Buildings and improvements 49,320 46,439
Machinery and equipment 242,736 228,403
-------- --------
308,671 290,197
Less - accumulated depreciation (92,671) (78,077)
-------- --------
$216,000 $212,120
======== ========
</TABLE>
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<PAGE> 7
(5) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Bank Credit Agreements $ 73,155 $ 65,542
Senior Subordinated Notes 100,000 100,000
Subordinated Discount Debentures 95,910 85,681
Other long-term debt 4,021 3,957
-------- --------
$273,086 $255,180
======== ========
</TABLE>
(6) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the nine month periods ended September 30, 1994 and 1993, the Company paid
interest of $20.8 million and $27.8 million and income taxes of $0.7 million
and $1.6 million, respectively.
(7) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers Accounting for Postretirement Benefits
Other Than Pensions" ("FAS 106"). This statement requires the accrual of the
cost of providing postretirement benefits, including medical and life insurance
coverage, during the active service of the employee. There was no effect on
the accompanying 1993 financial statements as a result of adopting FAS 106.
In accordance with the provision of this statement, postretirement benefit
information for prior years has not been restated.
(8) OTHER INCOME, NET
Included in other income, net for the three month period ended September 30,
1994 was approximately $3.0 million relating to the sale of emission reduction
credits generated at the Company's Rocklin, California facility. Other income,
net for the three month period ended September 30, 1993 included $1.9 million
relating to the reversal of other long-term liabilities associated with
reserves attributable to the realization of the Company's investment in a
product line which, based upon current and anticipated operating results,
management believed were no longer needed.
(9) SUBSEQUENT EVENT
The Company has entered into a new credit agreement, dated as of October 21,
1994, with Bankers Trust Company, as managing agent, and other lenders
providing for borrowings of up to $370 million in the United States and by the
Company's Canadian, French, Spanish and United Kingdom subsidiaries (the "BT
Co. Credit Agreement"). The multicurrency facility consists of a $80 million
revolving credit loan providing for up to $50 million in foreign currency
borrowings, a $115 million Term A loan providing for up to $75 million in
foreign currency borrowings, and a $175 million Term B loan. The revolving
credit loan and Term A loan bear interest at floating rates and mature in five
years. The Term B loan bears interest at floating rates and matures in seven
years. The Term A and Term B loans require quarterly amortization payments as
provided for in the BT Co. Credit Agreement. Within 90 days of the closing,
the Company is also required to enter into interest rate hedging agreements for
a minimum of three years for approximately 50% of the outstanding indebtedness
under the Term A and Term B loans.
On October 26, 1994, the Company drew down approximately $100 million in
various foreign currencies under the BT Co. Credit Agreement to pay down all of
the outstanding indebtedness under the CIBC Credit Agreements which were
terminated at that time. Additionally, Formica issued a redemption notice to
redeem on November 17, 1994 its $100 million 14.0% Senior Subordinated Notes
and $95.9 million 15 3/4% Subordinated Discount Debentures, including a call
premium of 4% and 3%, respectively, with accrued interest to the redemption
date. The remaining commitments under the Term A and Term B loans of the BT
Co. Credit Agreement will be drawn to redeem the Senior Subordinated Notes and
Subordinated Discount Debentures.
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<PAGE> 8
(9) SUBSEQUENT EVENT (CON'T)
In connection with the aforementioned pay down of the outstanding indebtedness
under the CIBC Credit Agreements and the redemption of the $100 million 14.0%
Senior Subordinated Notes and $95.9 million 15 3/4% Subordinated Discount
Debentures, the related unamortized deferred financing costs will be
written-off, net of taxes, in the fourth quarter of 1994. Additionally, the
payment of the call premiums, net of taxes, will be recorded as an
extraordinary item in the fourth quarter of 1994.
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<PAGE> 9
FORMICA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THIRD QUARTER ENDED 9-30-94 VERSUS THIRD QUARTER ENDED 9-30-93
Net sales for the third quarter of 1994 increased $11.8 million, or 10.8%, as
compared with the same quarter in 1993. When adjusted for the effects of
foreign currency exchange rate fluctuations, net sales increased $12.4 million,
or 11.3%, for the quarter. Domestic net sales rose $4.1 million, or 6.8%,
above the comparable 1993 period primarily due to an increase in unit volumes.
Quarterly net sales in the international segment increased by $7.7 million, or
15.8%. Excluding the impact of foreign exchange, international net sales
increased $8.3 million, or 17.0%, primarily as a result of increased unit
volumes.
Cost of sales for the third quarter of 1994 increased $5.6 million, or 7.0%,
over 1993. When adjusted for foreign exchange effects, cost of sales increased
$6.0 million, or 7.5%. Domestic cost of sales increased $0.7 million, or 1.6%,
primarily as a result of increased unit volumes. International cost of sales
increased $4.9 million, or 13.9% for the third quarter. When adjusted for the
effects of foreign exchange, international cost of sales increased $5.3
million, or 15.0%, principally attributable to an increase in unit volumes.
Selling, general and administrative expenses for the third quarter of 1994
increased $2.7 million, or 11.1%, when compared to the same period in 1993.
When adjusted for the effects of foreign exchange, selling, general and
administrative expenses increased $2.8 million, or 11.2%. Domestic selling,
general and administrative expenses increased $1.6 million, or 11.4%, primarily
as a result of higher selling and distribution costs associated with the
increase in unit volumes. International selling, general and administrative
expenses increased $1.1 million, or 10.5%, as compared to the third quarter of
1993. When adjusted for foreign exchange effects, international selling,
general and administrative expenses increased $1.2 million, or 11.0%, primarily
as a result of higher selling and distribution costs associated with increased
unit volumes.
Income Before Interest and Taxes ("EBIT") for the third quarter of 1994
increased $4.8 million, or 54.0%, when compared to the third quarter of 1993.
When adjusted for the effects of foreign exchange, EBIT increased approximately
$4.8 million, or 54.2%. Domestic EBIT increased $2.6 million, or 39.1%,
primarily as a result of higher net sales, approximately $3.0 million of other
income resulting from the sale of emission reduction credits (See Note 8),
offset by approximately $1.9 million of other income recorded in the third
quarter of 1993 resulting from the reversal of reserves (See Note 8).
International EBIT increased $2.2 million, or 95.9%, for the third quarter.
When adjusted for the effects of foreign exchange, international EBIT increased
approximately $2.2 million, or 96.8%, primarily as a result of the increase in
net sales associated with higher unit volumes in Europe and Asia.
The decrease of approximately $3.5 million in interest expense for the third
quarter of 1994 as compared to the same period in 1993 was primarily
attributable to the effects of lower bank debt outstanding in the third quarter
of 1994. The income tax provision for the third quarter of 1994 increased by
approximately $3.6 million as compared to the third quarter of 1993, primarily
as a result of higher taxable income before income taxes.
During October, 1994, the Company entered into a new credit agreement with
Bankers Trust Company, as managing agent, and other lenders. See "Note 9 -
Subsequent Event" to the Condensed Consolidated Financial Statements and the
liquidity and capital section of Management's Discussion and Analysis for a
further description of this facility.
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<PAGE> 10
NINE MONTH PERIOD ENDED 9-30-94 VERSUS NINE MONTH PERIOD ENDED 9-30-93
Net sales for the first nine months of 1994 increased $27.9 million, or 8.6%,
as compared with the same period in 1993. When adjusted for the effects of
foreign currency exchange rate fluctuations, net sales increased $35.3 million,
or 10.8%, for the nine month period. Domestic net sales rose $12.4 million, or
6.9%, above the comparable 1993 period, primarily due to higher unit volumes.
Net sales in the international segment increased by $15.5 million, or 10.5%,
when compared to the same period in 1993. Excluding the impact of foreign
exchange, international net sales increased $22.9 million, or 15.6%, primarily
due to increased unit volumes.
Cost of sales for the first nine months of 1994 increased $13.5 million, or
5.8%, above 1993. When adjusted for foreign exchange effects, cost of sales
increased $18.7 million, or 8.0%. Domestic cost of sales increased $4.9
million, or 3.8%, primarily as a result of increased unit volumes.
International cost of sales increased $8.6 million, or 8.1%, for the period.
When adjusted for the impact of foreign exchange, international cost of sales
increased by $13.8 million, or 13.0%, primarily due to increased unit volumes.
Selling, general and administrative expenses for the first nine months of 1994
increased $5.6 million, or 7.7%, when compared to the same period in 1993.
When adjusted for the effects of foreign exchange, selling, general and
administrative expenses increased $7.1 million, or 9.8% The increase in
domestic selling, general and administrative expenses of $4.3 million, or
10.5%, was primarily attributable to increased distribution expenses due to
higher unit volumes. International selling, general and administrative
expenses increased $1.3 million, or 4.2%, compared to the first nine months of
1993. When adjusted for foreign exchange effects, international selling,
general and administrative expenses rose $2.8 million, or 8.8%, due to
increased selling and distribution costs associated with higher unit volumes.
EBIT for the first nine months of 1994 increased $9.5 million, or 37.5%, above
the first nine months of 1993. EBIT increased $9.9 million, or 39.2%, when
adjusted for the effects of foreign exchange. Domestic EBIT increased $3.5
million, or 17.9%, as compared with the same period in 1993, primarily as a
result of higher net sales, the aforementioned sale of emission reduction
credits (See Note 8), offset by approximately $1.9 million of other income
recorded in the third quarter of 1993 resulting from the reversal of reserves
(See Note 8). International EBIT for the period was $6.0 million higher, or
more than double the 1993 level. When adjusted for the impact of foreign
exchange, international EBIT increased $6.4 million, or more than double the
1993 level, primarily as a result of the increase in net sales associated with
higher unit volumes in Europe and Asia.
The decrease of approximately $8.1 million in interest expense for the first
nine months of 1994 as compared to the same period in 1993 was principally
attributable to lower bank debt outstanding in 1994. The income tax provision
for the first nine months of 1994 changed by approximately $7.6 million as
compared to the income tax benefit for the first nine months of 1993, primarily
due to higher taxable income before income taxes.
During October, 1994, the Company entered into a new credit agreement with
Bankers Trust Company, as managing agent, and other lenders. See "Note 9 -
Subsequent Event" to the Condensed Consolidated Financial Statements and the
liquidity and capital section of Management's Discussion and Analysis for a
further description of this facility.
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<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1994 the Company's working capital was $100.7 million,
representing an increase of $23.6 million, or 30.7%, from the amount at
December 31, 1993. Exclusive of the impact of foreign currency exchange
effects, the Company's working capital increased $21.4 million, or 27.7%, from
the amount at December 31, 1993. The increase in working capital was primarily
due to higher accounts receivable and inventory balances, partially offset by
an increase in short-term borrowings. The increase in accounts receivable is
primarily attributable to the increase in sales. The increase in inventory
resulted from management's efforts to increase quantities on hand in order to
meet current and anticipated future volume demands. The additional short-term
borrowings were primarily used to pay the Company's semi-annual interest
payment of $7.0 million on the 14% Senior Subordinated Notes.
In September 1989, Formica executed revolving credit agreements with Canadian
Imperial Bank of Commerce, as agent, and other banks for borrowings in the
United States and by the Company's Canadian, French, Spanish and United Kingdom
subsidiaries (the "CIBC Credit Agreements"). Also, Formica's Taiwan subsidiary
entered into a new revolving credit facility with a local bank to repay
existing debt and provide for working capital requirements. Additionally, in
October 1989, Formica issued Senior Subordinated Notes ($100 million) due 1999
and Subordinated Discount Debentures ($45 million), at a discount, due 2001.
On September 27, 1993, Holdings consummated a private placement of $50 million
of 13-1/8% Accrual Debentures due September 15, 2005. Interest on the Accrual
Debentures will accrue and compound on a semi-annual basis and will be payable
in cash on September 15, 1998 in an aggregate amount of approximately $44
million. Thereafter, interest will be payable on March 15 and September 15 of
each year. Using funds received from the closing of the private placement,
Holdings made a capital contribution of $47.5 million to Formica in 1993. The
$47.5 million capital contribution was then used by Formica to pay down debt
outstanding under the CIBC Credit Agreements. After the private placement was
completed, Holdings filed a registration statement with the SEC, and upon the
registration statement being declared effective, Holdings exchanged the
privately placed Accrual Debentures for identical publicly registered
Debentures.
As of September 30, 1994, utilizing foreign currency exchange rates in effect
at that time, the Company had approximately $53.2 million of available and
unused principal borrowing commitments for both revolving credit and working
capital purposes over and above the $82.1 million of outstanding borrowings
under the CIBC Credit Agreements and other local bank borrowing arrangements.
Borrowings under the CIBC Credit Agreements bear interest at floating rates
which averaged approximately 8.8% for the nine month period ended September 30,
1994. Formica has interest rate swap agreements outstanding at September 30,
1994 on approximately $19.2 million of borrowings at an average interest rate
of approximately 11.9%. The average interest rate of borrowings under the CIBC
Credit Agreements for the nine month period ended September 30, 1994, after
taking into consideration the adverse impact of the interest rate swap
agreements, approximated 10.2%. See Note 4 to the Company's Consolidated
Financial Statements as of December 31, 1993 for additional information with
respect to bank revolving credit facilities and other long-term debt.
The Company has entered into a new credit agreement, dated as of October 21,
1994, with Bankers Trust Company, as managing agent, and other lenders
providing for borrowings of up to $370 million in the United States and by the
Company's Canadian, French, Spanish and United Kingdom subsidiaries (the "BT
Co. Credit Agreement"). The multicurrency facility consists of a $80 million
revolving credit loan providing for up to $50 million in foreign currency
borrowings, a $115 million Term A loan providing for up to $75 million in
foreign currency borrowings, and a $175 million Term B loan. The revolving
credit loan and Term A loan bear interest at floating rates and mature in five
years. The Term B loan bears interest at floating rates and matures in seven
years. The Term A and Term B loans require quarterly amortization payments as
provided for in the BT Co. Credit Agreement. Within 90 days of the closing,
the Company is also required to enter into interest rate hedging agreements for
a minimum of three years for approximately 50% of the outstanding indebtedness
under the Term A and Term B loans.
- 11 -
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES - (CON'T)
On October 26, 1994, the Company drew down approximately $100 million in
various foreign currencies under the BT Co. Credit Agreement to pay down all of
the outstanding indebtedness under the CIBC Credit Agreements, which were
terminated at that time. Additionally, Formica issued a redemption notice to
redeem on November 17, 1994 its $100 million 14.0% Senior Subordinated Notes
and $95.9 million 15 3/4% Subordinated Discount Debentures, including a call
premium of 4% and 3%, respectively, with accrued interest to the redemption
date. The remaining commitments under the Term A and Term B loans of the BT
Co. Credit Agreement will be drawn to redeem the Senior Subordinated Notes and
Subordinated Discount Debentures.
The Company's percentage of long-term debt to total capital (long-term debt and
stockholder's equity) changed from 76.1% at December 31, 1993 to 75.7% at
September 30, 1994. Payments of principal and interest under the various debt
instruments will be the Company's largest use of funds for the foreseeable
future. Funds generated from operations and borrowings are expected to be
adequate to fund the Company's debt service obligations, capital expenditures
and working capital requirements. The Company believes that it has adequate
resources from operations and unused credit facilities to fund its operations
and expected future capital expenditures through the expiration of the BT Co.
Credit Agreement.
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<PAGE> 13
FORMICA CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
ITEM 2. CHANGES IN SECURITIES
On October 26, 1994, Holdings and United Jersey Bank, as Trustee, entered into
the First Supplemental Indenture to the Indenture dated as of September 27,
1993 for the $50 million 13 1/8% Accrual Debentures due 2005. The First
Supplemental Indenture eliminated certain restrictions contained in the
Indenture on the incurrence of debt pursuant to the BT Co. Credit Agreement.
Since a portion of the debt of Formica and its subsidiaries under the BT Co.
Credit Agreement did not constitute "Refinancing Debt" for the purposes of the
Indenture, the limitations on debt contained in Section 3.5(b) of the Indenture
prohibited the incurrence of the full amount of such debt pursuant to said
Section 3.5(b). Among other things, the Indenture required Refinancing Debt to
(a) be the obligation of the same Person as the debt being refinanced, (b) be
secured only to the extent, and by the assets, that the debt being refinanced
is secured and (c) have a later maturity and a longer average life than the
debt being refinanced. Because the 14% Senior Subordinated Notes and the
15-3/4% Subordinated Discount Debentures, unlike the extensions of credit under
the BT Co. Credit Agreement, are not guaranteed by the subsidiaries of Formica,
are unsecured and do not amortize until one year prior to final maturity, the
portion of the debt under the BT Co. Credit Agreement incurred in order to
refinance such existing debt did not fit within these parameters. The First
Supplemental Indenture expressly included as "Refinancing Debt" all debt
incurred by Formica and its subsidiaries under the BT Co. Credit Agreement and
any refinancings thereof.
In addition, Section 3.8 of the Indenture, subject to certain exceptions,
prohibited Holdings or any of its subsidiaries from entering into any
consensual encumbrance on the ability of any subsidiary to (a) pay dividends on
its capital stock, (b) make payments in respect of any debt owed to Holdings or
its subsidiaries, (c) make loans or advances to Holdings or its subsidiaries or
(d) transfer assets to Holdings or its subsidiaries. The First Supplemental
Indenture amended Section 3.8 of the Indenture in order to provide Holdings
with additional flexibility, in connection with the incurrence of Refinancing
Debt (including the BT Co. Credit Agreement), to enable its subsidiaries to
agree to restrictions of the kind described in clauses (c) and (d) of the
preceding sentence.
The payment of dividends by Formica to Holdings to enable it to pay interest on
its 13-1/8% Accrual Debentures, which was prohibited by Formica's credit
facilities with Canadian Imperial Bank of Commerce, is permitted by the BT Co.
Credit Agreement subject to the absence of defaults and satisfaction of
leverage and interest coverage tests. The tests have been set at levels which
require Formica to decrease leverage and increase interest coverage, as
compared to present levels, prior to the time interest becomes payable in
respect of the Accrual Debentures.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- 13 -
<PAGE> 14
FORMICA CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION (CON'T.)
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The exhibits filed with this report are listed on the Index to Exhibits.
No reports were required to be filed on Form 8-K during the quarter for which
this report is filed.
- 14 -
<PAGE> 15
FORMICA CORPORATION AND SUBSIDIARIES
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.
FORMICA CORPORATION
Dated: November 10, 1994 By: /s/ David Schneider
--------------------
David Schneider
Vice President and
Chief Financial Officer
and Chief Accounting
Officer
- 15 -
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT NO. INDEX TO EXHIBITS
- ----------- -----------------
<S> <C>
4.31 (a) Form of Credit Agreement, with exhibits, dated as of October 21, 1994 by and among FM Holdings Inc., Formica Corporation,
each Subsidiary Borrower, the Banks party thereto from time to time, General Electric Capital Corporation, as Co-Agent,
Canadian Imperial Bank of Commerce, as Agent, and Bankers Trust Company, as Arranger, Administrative Agent and Managing
Agent
4.32 (a) Form of First Supplemental Indenture dated as of October 26, 1994 between FM Holdings Inc., and United Jersey Bank, as
Trustee under the Indenture dated as of September 27, 1993 for the $50 million 13 1/8% Accrual Debentures due 2005
27 Financial Data Schedule
</TABLE>
- --------------------------------------------------------
(a) Previously filed as an Exhibit to FM Holdings
Inc.'s Form 10-Q for the quarter ended September
30, 1994 as the Exhibit No. indicated and hereby
incorporated by reference.
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30,
1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 4,047
<SECURITIES> 0
<RECEIVABLES> 100,469
<ALLOWANCES> (10,925)
<INVENTORY> 94,162
<CURRENT-ASSETS> 17,749
<PP&E> 216,000
<DEPRECIATION> 308,671
<TOTAL-ASSETS> (92,671)
<CURRENT-LIABILITIES> 104,795
<BONDS> 273,086
<COMMON> 0
0
0
<OTHER-SE> 87,737
<TOTAL-LIABILITY-AND-EQUITY> 580,839
<SALES> 353,034
<TOTAL-REVENUES> 353,034
<CGS> 246,866
<TOTAL-COSTS> 246,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,203<F1>
<INTEREST-EXPENSE> 29,469
<INCOME-PRETAX> 5,323
<INCOME-TAX> 3,514
<INCOME-CONTINUING> 1,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,809
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>INCLUDED IN SG&A ON THE STATEMENT OF OPERATIONS
</FN>
</TABLE>
