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FILED PURSUANT TO RULE 424(B)(3)
OF THE RULES AND REGULATIONS
UNDER THE SECURITIES ACT OF 1933
REGISTRATION STATEMENT
NOS. 33-30012 AND 33-31900
PROSPECTUS SUPPLEMENT DATED MARCH 30, 1994
(To Prospectus dated April 26, 1993)
FORMICA CORPORATION
$100,000,000 14% SENIOR SUBORDINATED NOTES DUE 1999
$95,910,000 15 3/4% SUBORDINATED DISCOUNT DEBENTURES DUE 2001
This Prospectus Supplement, together with the Prospectus, is to be used by
Dillon, Read & Co. Inc. in connection with offers and sales of the
above-referenced securities in market-making transactions at negotiated prices
related to prevailing market prices at the time of sale. Dillon, Read & Co.
Inc. may act as principal or agent in such transactions.
The Annual Report for Formica Corporation (the "Company" or "Formica") on
Form 10-K for the year ended December 31, 1993 (the "Annual Report") was filed
with the Securities and Exchange Commission (the "Commission") on March 30,
1994. The Annual Report contains financial information relating to the
Company's results of operations for the year ended December 31, 1993 and may be
inspected and copies can be obtained in the manner set forth in the Prospectus.
Set forth below is selected financial data for the Company for 1993 and
1992, and management's discussion and analysis of the results of operations and
financial condition for 1993 compared with 1992, all as set forth in the Annual
Report. Financial information for periods prior to January 1, 1992 is included
in the Prospectus. The financial data set forth below is qualified in its
entirety by the information contained in the Annual Report, which is
incorporated herein by reference.
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SELECTED FINANCIAL DATA
FORMICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years
Ended December 31,
-------------------------
1993 1992
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<S> <C> <C>
Net sales $447,079 $446,217
Cost of sales 319,873 314,457
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Gross profit 127,206 131,760
Selling expenses 83,679 79,042
General and administrative expenses 15,094 15,194
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Operating income 28,433 37,524
Other income, net(a) 6,993 14,712
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Income before interest expense,
income taxes and accounting change 35,426 52,236
Interest expense 47,352 52,805
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Loss before income taxes
and accounting change (11,926) (569)
Provision (benefit) for income taxes (8,564) 1,066
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Loss before accounting change (3,362) (1,635)
Accounting change - cumulative
effect to January 1, 1993, of
accounting for income taxes(b) (2,850) --
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Net loss $ (512) $ (1,635)
======== ========
Total assets $541,631 $562,843
Long-term debt $255,180 $303,638
Stockholder's equity $ 80,362 $ 39,333
</TABLE>
(a) Other income, net in 1993 included $1.9 million relating to the reversal
of other long-term liabilities associated with reserves which management
believed were no longer needed. Other income, net in 1992 included $9.1
million relating to a reduction of other long-term liabilities attributable to
changes in certain of the Company's postretirement medical benefit plans (See
Notes 2, 6 and 10 of the Consolidated Financial Statements) and $2.0 million
relating to the reversal of other long-term liabilities as a result of the
release of certain warranties and representations made by Formica in connection
with the prior sale of a subsidiary.
(b) The Company adopted the accounting and disclosure rules prescribed by
Statement of Financial Accounting Standards No. 109 ("SFAS 109") on accounting
for income taxes as of January 1, 1993. The adjustments to the January 1, 1993
balance sheet to adopt SFAS 109 netted to $2,850,000, which has been reflected
in the 1993 net loss as the cumulative effect of a change in accounting
principle.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1993 compared to 1992
Net sales for the year ended December 31, 1993 increased $0.9 million, or
0.2%, as compared with the same period in 1992. When adjusted to exclude $24.4
million of foreign exchange effects, net sales increased $25.3 million, or
5.7%. Domestic net sales rose $26.2 million, or 12.3%, above the comparable
1992 period primarily due to an increase in unit volumes. Net sales in the
international segment decreased by $25.3 million, or 10.9%. Excluding the
impact of foreign exchange, international net sales decreased $0.9 million, or
0.4%, primarily due to decreased unit volumes.
Cost of sales for 1993 increased $5.4 million, or 1.7%, above the
comparable 1992 period. When adjusted to exclude $17.7 million of foreign
exchange effects, cost of sales increased $23.1 million, or 7.4%. Domestic
cost of sales increased $18.8 million, or 12.2%, primarily as a result of
increased unit volumes. International cost of sales decreased $13.4 million,
or 8.3%, for the period. When adjusted for the impact of foreign exchange,
international cost of sales increased by $4.3 million or 2.7%, primarily due to
the mix of subsidiaries sales.
Selling, general and administrative expenses for 1993 increased $4.6
million, or 4.8%, compared to 1992. When adjusted to exclude $4.8 million of
foreign exchange effects, selling, general and administrative expenses
increased $9.4 million, or 10.0%. The increase in domestic selling, general
and administrative expenses of $6.1 million, or 12.2%, was primarily
attributable to increased advertising, selling, distribution and administrative
expenses associated with higher unit volumes and the introduction of new
products. International selling, general and administrative expenses decreased
$1.5 million, or 3.5%, compared to 1992. When adjusted for foreign exchange
effects, international selling, general and administrative expenses rose $3.3
million, or 7.5%, primarily due to general inflationary cost increases and
increased selling, distribution, advertising and administrative expenses
related to the introduction of new products.
Operating income for 1993 declined $9.1 million, or 24.3%, compared to
1992. When adjusted to exclude $1.9 million of foreign exchange effects,
operating income decreased $7.2 million, or 19.2%. Domestic operating income
increased $1.3 million, or 14.5%, primarily due to higher sales volume,
partially offset by the aforementioned higher selling, general and
administrative expenses. International operating income decreased $10.4
million, or 36.8%. When adjusted for the effects of foreign exchange,
international operating income declined $8.5 million, or 30.1%, primarily
attributable to increases in cost of sales and selling, general and
administrative expenses.
Earnings before interest expense and income taxes ("EBIT") for 1993
decreased $16.8 million, or 32.2%, below 1992. EBIT decreased $15.1 million,
or 28.9%, when adjusted to exclude $1.7 million of foreign exchange effects.
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Domestic EBIT decreased $8.4 million, or 28.3%, primarily as a result of other
income recorded in 1992 of $9.1 million attributable to a revision of certain
of the Company's postretirement medical benefit plans (see Notes 2, 6 and 10 to
the Consolidated Financial Statements), $2.0 million of other income relating
to the reversal of other long-term liabilities associated with the release of
certain warranties and representations (see Notes 2 and 10 to the Consolidated
Financial Statements) and $1.4 million of interest income associated with a
Federal income tax refund, partially offset in 1993 by higher sales and
approximately $1.9 million of other income resulting from the reversal of
reserves (see Notes 2 and 10 to the Consolidated Financial Statements).
International EBIT for the period was $8.4 million, or 37.2%, below the
comparable 1992 period. When adjusted for the impact of foreign exchange,
international EBIT decreased $6.7 million, or 29.6%, primarily due to decreased
sales levels and higher cost of sales resulting from the European economic
downturn and higher selling, general and administrative expenses.
The decrease of approximately $5.5 million in interest expense for 1993 as
compared to 1992 was principally attributable to lower interest rates and
foreign exchange effects, which more than compensated for the one-time
acceleration of deferred financing costs amortization of $2.0 million
associated with the paydown of revolving credit debt (see Note 4 to the
Consolidated Financial Statements) and increased accretion of the Company's
Discount Debentures. The income tax benefit for 1993 changed by approximately
$9.6 million as compared to the income tax provision for 1992, primarily due to
a change in the mix of subsidiary pre-tax earnings and the reduction of income
tax reserves due to the favorable settlement of certain tax examinations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1993, the Company's working capital was $77.1 million,
representing a decrease of $13.2 million, or 14.7%, from the amount at December
31, 1992. Exclusive of the impact of foreign currency exchange effects, the
Company's working capital decreased $8.4 million, or 9.3%, from the amount at
December 31, 1992. The decrease in working capital was primarily due to lower
inventory levels and higher accounts payable, partially offset by an increase
in accounts receivable levels. The decrease in inventory resulted from
management's efforts to reduce quantities on hand in order to conserve working
capital. The higher accounts payable balances were primarily a result of
increased purchases in the fourth quarter of 1993. The increase in accounts
receivable was due primarily to an increase in net sales for the fourth quarter
of 1993 as compared to 1992.
In September 1989, Formica and certain of its foreign subsidiaries entered
into revolving credit agreements with CIBC or its affiliates, as agent, and
other banks for borrowings in the United States, France and the United Kingdom
(the "CIBC Credit Agreement"). Additionally, Formica's subsidiaries in Canada
and Spain entered into the Foreign Credit Documents and its subsidiary in
Taiwan entered into the Taiwan Credit Agreement (as herein defined) to repay
existing debt and provide for working capital requirements. The Taiwan credit
facility was renewed for an additional one-year period commencing November 30,
1993. The Company expects to renew this facility on an annual basis as of
November 30 of each succeeding year.
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With the funding on September 11, 1989 under the CIBC Credit Agreement and
the Foreign Credit Documents, which provided $224.0 million of bank commitments
to support principal, interest and international local borrowing arrangements,
Formica received $177.1 million to be applied towards the permanent financing
of the Acquisition. On October 4, 1989, the commitments were reduced by $18.0
million with the proceeds received from the issuance of Senior Subordinated
Notes and Subordinated Discount Debentures. On September 11, 1993, 1992 and
1991, in accordance with the terms of the CIBC Credit Agreement and the Foreign
Credit Documents, the commitments were further reduced by approximately $31.4
million, $12.5 million and $11.0 million, respectively, (expressed in U.S.
Dollars using December 31, 1993 exchange rates).
On September 27, 1993, FM Holdings Inc. ("Holdings"), the parent of the
Company, consummated a private placement of $50.0 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 $44.0 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 its bank 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 December 31, 1993, utilizing foreign currency exchange rates in
effect at that time, the Company had approximately $69.6 million of available
and unused principal borrowing commitments for both revolving credit and
working capital purposes over and above the $75.0 million of outstanding
borrowings under the CIBC Credit Agreement and the Foreign Credit Documents.
Commitment fees of 1/2% are paid on the unused lines of credit under the CIBC
Credit Agreement and the Foreign Credit Documents. Considering Formica's right
to repay the loans under the Credit Documents without penalty and the floating
interest rate, the Company believes the carrying amounts approximate fair value
at December 31, 1993. Under the terms of the CIBC Credit Agreement and the
Foreign Credit Documents, the commitments will be further reduced on each
anniversary of September 11, 1989 (the merger date) in the following amounts
(expressed in U.S. Dollars using December 31, 1993 exchange rates): 1994 --
$18.3 million; 1995 -- $13.4 million; 1996 -- $19.4 million; and 1997 --
remainder. Additionally, the Working Capital Facility of $15.0 million, which
is part of the CIBC Credit Agreement, matures in September 1994.
The CIBC Credit Agreement and the Foreign Credit Documents contain
covenants, the most restrictive of which significantly limit Formica's ability
to borrow additional funds, acquire or dispose of certain operating assets,
redeem its stock and repay its Senior Subordinated Notes and Subordinated
Discount Debentures prior to maturity. Formica is also prohibited from making
loans, paying dividends and otherwise making distributions to Holdings, except
under certain limited circumstances. Additionally, Formica must maintain
minimum levels of working capital and earnings before interest expense, income
taxes, depreciation expense and amortization expense. Also Formica must
maintain
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minimum interest coverage ratios and cannot exceed certain maximum leverage
ratios. Certain of the minimum levels and ratios become more restrictive in
each succeeding year of the agreements.
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. Borrowings under the Credit Documents bear interest at
floating rates which averaged approximately 11.8% for the year ended December
31, 1993. Formica has interest rate swap agreements outstanding at December
31, 1993 on approximately $18.6 million of these borrowings at an average
interest rate of approximately 11.9%. The average interest rate of borrowings
under the Credit Documents for 1993, after taking into consideration the
adverse impact of the interest rate swap agreements, approximated 12.7%.
The Company's percentage of long-term debt to total capital (long-term debt
and stockholders' equity) changed from 88.5% at December 31, 1992 to 76.1% at
December 31, 1993. 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 CIBC Credit Agreement
and the Foreign Credit Documents.
Indebtedness of the Company under the CIBC Credit Agreement and the Foreign
Credit Documents is due in full in September 1997, the 14% Senior Subordinated
Notes are due in 1999 and require a sinking fund payment on October 1, 1998 to
redeem $40.0 million of the aggregate principal amount of such notes and the 15
3/4% Subordinated Discount Debentures are due in 2001 and require a sinking
fund payment on October 1, 2000 to redeem $38.4 million of the aggregate
principal amount of such debentures. See Note 4 to the Company's Consolidated
Financial Statements for additional information with respect to bank revolving
credit facilities and other long-term debt.
For a discussion of the risks associated with the Company's environmental
matters, see "Business -- Environmental Matters."
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