<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Judiciary Plaza, 450 Fifth Street N.W.
Washington, D.C. 20549
________________________________________
FORM 10-K
________________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 Commission File No.1-9557
FORMICA CORPORATION
(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)
1680 Route 23 North, Wayne, New Jersey 07474-0980
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (201) 305-9400
Securities registered pursuant to Section 12(g) of the Act:
14% Senior Subordinated Notes, Due October 1, 1999
15 3/4% Subordinated Discount Debentures, Due October 1, 2001
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 March 1, 1994, 100 shares of Common Stock, $.01 par value, were
outstanding. The Common Stock of the Registrant is not publicly traded and
therefore, the aggregate market value is not readily determinable.
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Part I Page
- ------ ----
<S> <C> <C>
Item 1 Business. ................................................. 3
Item 2 Properties................................................. 13
Item 3 Legal Proceedings.......................................... 14
Item 4 Submission of Matters to a Vote of Security Holders........ 14
</TABLE>
<TABLE>
<CAPTION>
Part II
- -------
<S> <C> <C>
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters...................................... 15
Item 6 Selected Financial Data.................................... 16
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 18
Item 8 Financial Statements and Supplementary Data................ 24
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................ 49
</TABLE>
<TABLE>
<CAPTION>
Part III
- --------
<S> <C> <C>
Item 10 Directors and Executive Officers of the Registrant......... 50
Item 11 Executive Compensation..................................... 51
Item 12 Security Ownership of Certain Beneficial Owners, Directors
and Executive Officers................................... 57
Item 13 Certain Relationships and Related Transactions............. 60
</TABLE>
<TABLE>
<CAPTION>
Part IV
- -------
<S> <C> <C>
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K:
Financial Statements and Financial Statement Schedules..... 61
Exhibits................................................... 61
Reports on Form 8-K........................................ 66
Signatures......................................................... 67
Schedule Index..................................................... 68
Exhibit Index...................................................... 74
</TABLE>
2
<PAGE> 3
PART I
ITEM 1 BUSINESS
GENERAL
Formica Corporation and its subsidiaries (the "Company" or "Formica")
designs, manufactures and distributes decorative laminates and other surfacing
products worldwide and is the world's largest producer of high pressure
decorative laminates. The Company's products compete against a wide range of
surfacing materials which include decorative laminates produced by other
manufacturers, as well as wood, veneers, marble, tile, plastics and foils. The
Company distributes its products under the FORMICA(R), COLORCORE(R) and
SURELL(R) brand names and the ANVIL F(R) Logo, among others.
The Company's ten manufacturing facilities are located in the United
States, the United Kingdom, Canada, France, Spain, Germany and Taiwan, and its
products are principally distributed throughout North America, Europe and the
Far East. For information by geographic area, including net sales, operating
income, capital expenditures and identifiable assets, see Note 9 to the
Company's Consolidated Financial Statements as well as "Item 7 - Management's
Discussion and Analysis of Results of Operations and Financial Condition."
PRODUCTS
Decorative laminates are used in a wide range of surfacing
applications where durability, design, construction versatility and ease of
maintenance are factors. The Company's principal products are high pressure
decorative laminates. In a few geographic areas, the Company also offers a
complementary line of low pressure laminates in designs that match or
complement the Company's high pressure laminate products. In addition, the
Company acquired Wildon Industries, Inc. ("Wildon") in 1986 for the purpose of
developing a high quality solid surfacing material, which is marketed under the
SURELL brand name. The Company also manufactures and sells resins and licenses
its FORMICA brand name and proprietary technology and know-how to third
parties.
Commercial applications for the Company's decorative laminates include
countertops, furniture, flooring, doors, window sills, walls and other interior
surfacing uses. Residential applications for the Company's decorative
laminates include cabinetry and countertops for kitchens and bathrooms;
surfacing for living room, dining room, family room, kitchen and bathroom
furniture; and other interior architectural uses throughout the house. The
Company's products are used in homes, retail stores, offices, office lobbies,
hotels, hospitals, restaurants, airports, banks, computer centers, ships, buses
and railroad cars, as well as numerous other uses.
High Pressure Decorative Laminates. High pressure decorative
laminates include standard line decorative products and premium decorative
products which accounted for approximately 77% and 17%, respectively, of the
Company's total net sales for the year ended December 31, 1993.
3
<PAGE> 4
The Company's standard decorative line consists of decorative
laminates such as solid colors, abstract patterns, woodgrain patterns and other
simulations of natural materials. These products are sold in sheet form in a
multitude of sizes and in over 1,000 colors, patterns and textures.
Premium decorative laminates have characteristics that make them
particularly suitable for various specialized applications and generate higher
profit margins than the standard line products. Premium decorative laminates
include the Company's DESIGN CONCEPTS(R) and FORMATIONS(R) collections and
COLORCORE(R) surfacing material, a solid "color-through" laminate, which are
marketed for special end-use applications such as office furniture, store
fixtures, restaurant interiors, airports and custom-built kitchens. Premium
decorative products also include laminates for uses requiring fire-rated
materials such as shipbuilding and office interiors; textured laminates, which
are designed to look and feel like leather or slate; metallic laminates which
are manufactured with a metallic surface for "high style" effects; and
laminates applied to static-free flooring used in computer centers.
Solid Surfacing Products. The Company's solid surfacing products are
manufactured by combining resin with filler and curing the mixture in molds
under heat. These products, distributed under the brand name SURELL, are
available in a selection of colors and granite-like patterns, which run
throughout the entire thickness of the product. The products can be shaped and
molded for use in a variety of residential and commercial applications such as
vanities with dripless edges and integral backsplashes, or produced in sheet
form for work surfaces, countertops and other surface applications.
The Company has devoted substantial resources to the development of
its solid surfacing products as a high quality surfacing material and to the
development of efficient manufacturing methods for the production of these
products in commercial quantities. The current United States market for solid
surfacing material is dominated by E.I. DuPont de Nemours & Co. which sells
its product through a distribution network which includes a limited number of
distributors of other FORMICA brand products. The Company believes that there
are significant opportunities for new entrants in the expanding market for
solid surfacing material and intends to use its brand name and established
channels of distribution to take advantage of these opportunities. The Company
is marketing its solid surfacing products as premium products on a broad scale
through its domestic and international distribution network.
New Product and Design Development. A major portion of the Company's
research efforts is devoted to the development of new applications for high
pressure decorative laminates and solid surfacing products, new products and
process improvements. Design is an important factor in the choice of the
product line manufactured by the Company and in the surfacing industry as a
whole. New laminate designs are introduced periodically by the Company and its
competitors. The Company considers itself the industry leader worldwide in
decorative laminate design and new product development and carries out design
development in North America and Europe. The Company has won numerous design
and product awards. The Company's efforts to refine the designs of its
products have resulted in such products as the DESIGN CONCEPTS and FORMATIONS
collections, COLORCORE, a solid "color-through" laminate, and the STRIPES and
GEOMETRICA(R) collections featuring
4
<PAGE> 5
silk screenprinted pinstripes and bands in a variety of colors. During the
last several years, the Company introduced solid opaque laminates, granite-like
solid surfacing materials, high wear laminates and a number of other premium
products. In addition, the Company has introduced a number of other product
lines including ALULAM(R), a metallic exterior surfacing laminate, and
ALACORE(R), a translucent laminate collection with three-dimensional design
effects.
In addition to new products designed and developed internally, the
Company has acquired worldwide distribution rights to several new products.
The Company recently introduced to the market a new surfacing material called
NUVEL, which was developed by General Electric Company ("GE"). In late 1992,
Formica entered into a worldwide exclusive distribution agreement with GE,
which manufactures this product using its proprietary technology. The product
has the features of traditional solid surfacing materials but can be installed
at a lower cost. In addition to traditional solid surfacing applications such
as countertops, the product has numerous additional applications including
cabinetry, doors, furniture and store fixtures. The product is being marketed
with the GE logo as well as the NUVEL and FORMICA trademarks.
Another new product which the Company has begun marketing through its
worldwide distribution network is called GRANULON, which is a spray-on
surfacing material. The GRANULON product is a densified liquid composite
available in an array of granite and solid colors that can be used for a
variety of traditional and unique surfacing applications including furniture,
cabinetry and molded shapes.
Formica has also recently signed an agreement with a European
manufacturer of specialty wood veneer laminates and will be distributing these
products under the FORMICA LIGNA brand name.
In addition to the new products mentioned above, the Company has
entered into a cooperative enterprise agreement for the distribution of locally
produced laminate products throughout the People's Republic of China. The
products are manufactured using Formica technology.
MARKETING, DISTRIBUTION AND CUSTOMERS
The Company believes its global distribution and dealer network with
its extensive sales force and the FORMICA brand name and ANVIL F Logo are major
marketing strengths and key elements to the Company's success. The Company
believes that none of the Company's competitors has as extensive a worldwide
distribution and dealer network or the brand recognition of the FORMICA brand
name.
The Company's products are sold through distributors of wholesale
building materials and distributors of products for the cabinet industry and
directly to original equipment manufacturers for both residential and
commercial uses. For the year ended December 31, 1993, approximately 60% of
the Company's net sales were made through independent distributors, and the
remaining 40% were made directly to users of the Company's products.
5
<PAGE> 6
The Company's distribution network includes approximately 700
independent distributor locations worldwide. Many distributors have
sub-distributorships and dealer networks. As a result, the Company's products
are represented in thousands of locations worldwide. The effort of the
Company's domestic and international sales and architectural specification
representatives, when combined with the sales force of its distributor network,
provides the Company with sales and marketing coverage in over 100 countries
throughout the world. The Company's sales representatives market the Company's
products directly to end-users and work with distributors by monitoring
distributors' inventories, calling on customers, architects and designers with
the distributors' sales representatives and assisting distributors in the
development of advertising and promotional campaigns and materials and the
introduction of products.
Generally, the Company's distributorship sales are made by
distributors that exclusively carry the Company's brand of high pressure
decorative laminates. The typical distributor of the Company's products also
sells some or all of the following: other surfacing materials, adhesives,
cabinetry, flooring material, particle board, hardware and other related
architectural and building materials. The Company considers its distribution
network to be an important vehicle for the introduction of new products the
Company may develop or distribute in the future.
The Company estimates that of its net sales for the year ended
December 31, 1993, approximately one-half were derived from products used in
commercial applications and one-half from products used in residential
applications. In addition, the Company estimates that approximately two-thirds
of its net sales for such period were derived from products used in remodeling
or renovation projects, while approximately one-third of its net sales for such
periods were derived from product used in new construction.
Sales in the commercial market are heavily influenced by the
specifications of architects and designers. In addition to the Company's
regular sales force, a specialized sales force calls exclusively on architects
and designers in North America, Europe and the Far East.
The Company's backlog is not significant due to the ability of the
Company to respond adequately to customer requests for product shipments.
Generally, the Company's products are manufactured from raw materials in stock
and are delivered to the Company's customers within one to thirty days from
receipt of the order, depending on customer delivery specifications.
Substantially all orders are shipped by the Company by the customer's due date.
The Company has no significant long-term contracts for the
distribution of its products. For the year ended December 31, 1993, no
customer or affiliated group of customers accounted for as much as 5% of the
Company's consolidated net sales.
MANUFACTURING AND RAW MATERIALS
High pressure decorative laminates are produced from a few basic raw
materials which include kraft paper, fine decorative papers and melamine and
phenolic resins. The papers are impregnated with resins and placed between
stainless steel plates in a multi-opening press and cured under pressure and
6
<PAGE> 7
elevated temperature. The number of paper laminations per sheet of laminate
varies with the specific type of product being produced, but all have melamine
resin on the surface to create a hard, durable surface. Surface textures can
range from very high gloss smooth surfaces to deeply textured surfaces and
surfaces with other special design and performance features. In addition to
patents, the Company has proprietary technology and know-how in the design and
manufacture of its products.
Kraft papers are available globally from several major sources and
many smaller producers. Fine papers are supplied by many producers in North
America, Europe and Asia. Melamine, phenol and formaldehyde, the primary raw
materials for resins, are global commodity chemicals available from many
suppliers. The Company currently purchases these raw materials on a global
basis from various suppliers at market prices. The Company believes that it is
the largest purchaser of these raw materials on a worldwide basis in the high
pressure laminate industry. The Company may, from time to time, enter into
one-year or longer-term contracts with suppliers when advantageous to it. The
Company also acquires certain chemicals under exclusive arrangements from
producers in connection with licensing technology from those producers. The
Company has experienced no supply problems of any raw materials in the last 10
years.
The Company manufactures and distributes products on a global basis
with ten manufacturing facilities located in the United States, Canada, the
United Kingdom, France, Spain, Taiwan and a 50% interest in a joint venture
manufacturing plant in Germany which produces specialized metallic surfaced
laminate products. These multiple manufacturing locations around the world
enable the Company to reduce delivery times, freight costs and duties that it
would otherwise encounter. Generally, each facility is shut down from one to
four weeks annually for maintenance, refurbishment and traditional vacation
periods.
In general, each manufacturing facility produces a standard product
line for its geographic market and produces one or more specialty products
which may be sold in its market or exported to other markets. This allocation
of production responsibility is designed to insure prompt delivery to customers
of the Company's standard product lines and economies of scale in the
production of the Company's premium products. In addition, certain of the
Company's specialty products have been developed in response to regional design
preferences.
The Company's manufacturing facilities normally operate 24 hours a day
on a five or seven day week schedule. Periodically, the Company operates on an
overtime basis to satisfy customer requirements during periods of peak demand.
Management believes that its existing manufacturing facilities are satisfactory
for the Company's projected requirements.
The Company has devoted substantial resources to the development of
its plate manufacturing technology and produces its own plates in its
manufacturing facility in LaPlaine, France. As of December 31, 1989, the
Company had substantially completed the installation of such plate technology
in all of its laminate manufacturing facilities.
7
<PAGE> 8
COMPETITION
The Company's products compete around the world with decorative
laminates manufactured by other producers, as well as with wood, veneers,
marble, tile, plastics, foils and other surfacing materials. Competition is
based principally on breadth of product line, product quality, marketing,
technology, price and service. The Company competes in a number of geographic
markets and its success in each of these markets is influenced by the factors
mentioned above. The Company believes it is the single largest producer of
decorative laminates on a worldwide basis. The Company also believes it is the
largest or second largest producer of decorative laminates in various national
markets (including the United States, Canada, the United Kingdom, France,
Spain, and Taiwan) in which it competes on a local basis with many other
producers, some of which are owned by larger enterprises which may have greater
assets or resources than the Company. In many of the other national markets in
which the Company competes, it enjoys a smaller but nonetheless significant
market position. In the North American laminate market, the Company's
principal competitors include Ralph Wilson Plastics Company, Nevamar
Corporation and Arborite Corporation. In Europe, principal competitors include
Perstorp and Polyrey.
INTERNATIONAL OPERATIONS
The Company's net sales from international operations to third parties
accounted for approximately 47% of total net sales of the Company's products
for the year ended December 31, 1993. The Company has manufacturing
subsidiaries located in the United Kingdom, France, Spain, Canada and Taiwan
and has a 50% interest in a German joint venture. The Company's principal
international markets are located in Europe, Canada, Mexico and the Far East.
The Company's international operations are subject to foreign currency
fluctuations, local laws concerning repatriation of profits and other factors
normally associated with multinational operations. See "Item 7 - Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
Note 9 to the Company's Consolidated Financial Statements for information about
the business of the Company by geographic area.
PATENTS, TRADEMARKS AND LICENSES
The Company owns patents and possesses proprietary information which
relate to its products and processes. The Company believes that the loss of
any of its patents would not have a material adverse effect upon its business.
Trademarks are important to the Company's business and licensing
activities. The Company has a vigorous program of trademark enforcement to
prevent the unauthorized use of its trademarks, to strengthen the value of its
trademarks and to improve its image and customer goodwill. The Company
believes that the FORMICA trademark and the ANVIL F Logo are its most
significant trademarks. In addition to registration in the United States, the
FORMICA trademark and the ANVIL F Logo are registered in over 100 countries.
The COLORCORE trademark is registered in the United States and over 20 other
countries. The SURELL trademark is also registered in the United States and in
several other countries. Formica has used the FORMICA brand name continuously
8
<PAGE> 9
since 1913. Additionally, the Company has numerous other registered
trademarks, trade names and logos, both in the United States and abroad.
The Company believes that numerous opportunities exist to license the
Company's internationally recognized FORMICA trademark and ANVIL F Logo and the
Company's proprietary technology and know-how. The Company has existing
licensing arrangements for its trademarks and, in certain cases, its
proprietary technology with CSR Limited in Australia and New Zealand and with
manufacturers of adhesives and certain other complementary products. In
addition to the above, the Company has non-royalty licenses with a company in
India and with American Cyanamid Company which permits the exclusive use of the
FORMICA trademark primarily in South America.
RESEARCH AND DEVELOPMENT
Technical support to the Company's business is organized on a
worldwide basis. The major part of the Company's research program, which
involves the development of new applications for existing products, new
products and process improvements, is carried out by the Research and
Development departments located in the United States and the United Kingdom.
Technical groups located at each plant also participate in the overall program
and work on smaller projects under the direction of the Company's research
director. Research and development costs charged to operations during the
years ended December 31, 1993, 1992 and 1991 amounted to $3.3 million, $3.5
million, and $3.6 million, respectively. See Note 2 to the Company's
Consolidated Financial Statements for information concerning research and
development costs.
ENVIRONMENTAL MATTERS
The Company (and the industry in which it competes) is subject to
extensive regulation under federal, state, local and foreign environmental laws
and regulations regarding emissions to air, discharges to water and the
generation, handling, storage, transportation, treatment and disposal of waste
and other materials as well as laws and regulations relating to occupational
health and safety. The Company believes that its manufacturing facilities are
being operated in compliance in all material respects with the applicable
environmental, health and safety laws and regulations but cannot predict
whether more burdensome requirements will be imposed by governmental
authorities in the future. Pursuant to the requirements of applicable federal,
state and local statutes and regulations, the Company has received or applied
for all of the environmental permits and approvals material to the operation of
its manufacturing facilities.
In November 1987, the United States Environmental Protection Agency
(the "EPA") identified the Company as a Potentially Responsible Party ("PRP")
pursuant to its authority under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), in connection with the
Pristine, Inc. Superfund Site in Reading, Ohio. The Company's share of waste
contribution to this site is approximately 11.5%. The EPA has completed a
Remedial Investigation/Feasibility Study and has issued a Record of Decision
calling for remedial action at the site which is estimated to cost
approximately $21.7 million. The Company and other generators at the site
signed a Consent Decree
9
<PAGE> 10
with the U.S. Government (EPA) in which a remedial clean-up plan has been
agreed upon. The Consent Decree was approved by the United States District
Court for the Southern District of Ohio and became effective on November 23,
1990. On October 16, 1989, the State of Ohio, in connection with its
involvement at the site, instituted a lawsuit, entitled State of Ohio v.
Pristine, Inc., et al., in the United States District Court for the Southern
District of Ohio which demanded payment of approximately $104,000 in past costs
and sought a declaratory judgment holding the Company and 29 other named
defendants jointly and severally liable for the reimbursement of the State's
future oversight costs. The Company and other named defendants jointly
responded to this action and entered into settlement discussions that
culminated in the negotiation of a Consent Decree in which the State
substantially reduced its damage demands. The Consent Decree was approved by
the Court and became effective on August 16, 1991, resulting in a dismissal of
the State's law suit. In October, 1991, the City of Reading asserted a claim
alleging that its municipal water well field has been contaminated by
groundwater emanating from the Pristine, Inc. Superfund Site as well as a
claim seeking natural resource damages. The City of Reading's claim was
asserted against the owner/operator of the site as well as approximately 115
alleged generators of hazardous waste at the site, including the Company. The
City of Reading and approximately 87 generators of waste at the site, including
the Company, entered into a settlement agreement, dated as of September 1,
1993, whereby the City of Reading's claim was settled for $1.3 million, which
claim has been paid on a pro rata basis by such generators of waste. The
Company believes that it has adequate reserves for its anticipated share of the
current estimate of the costs associated with the clean-up of this site.
In August 1987, the Company received an Information Request Notice
from the EPA advising that, pursuant to its authority under CERCLA, it was
investigating the Bridgeport Rental and Oil Services waste disposal site in
Logan Township, New Jersey. Although the EPA indicated that the Company may
have contributed a small quantity of waste to the site in 1974, the Company has
no records available to verify the EPA's claim and has so responded in its
answers to the Information Request Notice. In late August 1989 the Company
received a letter from the EPA naming it as a PRP at the site and demanding
payment of at least $17.8 million for past cleanup costs. The notice, which
was addressed to 57 other PRPs, also indicated that the EPA was prepared to use
public funds to conduct further remedial action at the site. The Company and
other PRPs are vigorously contesting the amount and nature of the EPA's claim
and are actively pursuing other generators who may have contributed waste to
the site. In connection with the waste storage site in Logan Township, New
Jersey, the Company, on April 3, 1989, received from the New Jersey Department
of Environmental Protection ("DEP") a Directive issued pursuant to the DEP's
alleged authority under the New Jersey Spill Compensation and Control Act. The
Directive demanded that the Company and 112 other alleged dischargers of
hazardous substances pay the State of New Jersey approximately $9.2 million.
That amount represents monies which New Jersey has paid to the EPA as a portion
of its share of the remedial costs to be incurred in connection with the
cleanup of the site. In response to the Directive, the Company, without
admitting liability, contributed a nominal sum toward a good faith settlement
offer which was forwarded to the DEP by a group of approximately 40 Directive
recipients. That group and other recipients have also submitted statements to
the DEP raising numerous defenses to the Directive. To date, communications
with the EPA and DEP have continued, and no proceedings have been
10
<PAGE> 11
instituted in connection with the Directive. However, in a continuing effort
to pursue all potentially responsible site generators, the Company and the
other PRPs discovered evidence which linked numerous governmental departments
to a significant amount of waste which had been deposited at the site. Thus, a
group of PRPs, which did not include the Company, instituted a contribution
action entitled Rollins Environmental Services (NJ), Inc., et al. vs. The
United States of America, et al., Civil Action No. 92-1253 in the United
States District Court for the District of New Jersey. Thereafter, the EPA
instituted a cost recovery action, naming only certain site PRPs, in the same
Court. That case, which is entitled United States of America vs. Allied
Signal Inc., et al., Civil Action No. 92-2726, was then consolidated with the
Rollins contribution suit. Although the Company is not a party to either case,
it has agreed to take part in an informal discovery/settlement process pursuant
to a Case Management Order. The Company believes it has adequate reserves to
cover its anticipated liability in this site.
In March 1990, the Company received an Information Request Notice from
the EPA advising that, pursuant to its authority under CERCLA, it was
continuing its investigation of the New Lyme Landfill Superfund Site in
Ashtabula County, Ohio. Although the EPA indicated that the Company may have
contributed waste to this residential/industrial site prior to the site
shutdown in 1978, the Company, after investigation, was unable to locate
records to determine if it had contributed waste to this site and so advised
the EPA in its response to the Information Request Notice. To date the Company
has received no further communications from the EPA or any other entity
concerning this site.
On or about October 5, 1990, a third party complaint entitled United
States of America v. Norrell F. Dearing et al. v. Formica Corporation et
al., United States District Court for the Northern District of Ohio, Eastern
Division was served upon the Company. The third party complaint seeks
contribution, in an unspecified amount, from the Company and other third party
defendants for response costs incurred and to be incurred by the government of
the United States in connection with the Old Mill Superfund Site in Rock Creek,
Ohio. The original complaint, as amended, entitled United States of America v.
Dearing et al., alleges that the EPA had incurred to date more than $7.7
million in response costs at the Old Mill Superfund Site which included the
essentially complete implementation of the selected remedial action at the
site. The Company has investigated whether or not it or a predecessor company
contributed hazardous waste to this site during the 1977-1979 time period
alleged in the complaint and has been unable to locate records to verify the
allegations. The Company has filed an answer to the third party complaint,
denying liability and raising numerous affirmative defenses and continues to
vigorously defend this action. On February 9, 1993, the Company was served
with a second third party complaint entitled State of Ohio v. Norrell E.
Dearing et al. v. Formica Corporation et al. This third party complaint seeks
contribution, in an unspecified amount, from the Company and other third party
defendants for response costs incurred and to be incurred by the State of Ohio
in connection with this site. The Company has filed an answer to this
complaint denying liability and raising numerous affirmative defenses, and
intends to vigorously defend this action. The Company, as of December 17,
1993, entered into an Indemnification Agreement with American Cyanamid Company
("ACCO") and Cytec Industries Inc. ("Cytec") wherein ACCO and Cytec agreed to
indemnify and hold harmless the Company from and against any
11
<PAGE> 12
liability, including the two above-referenced third party complaints, resulting
from the disposal by the Company of hazardous waste, originating from a
Painesville, Ohio manufacturing facility operated by a predecessor company, at
the Old Mill Superfund Site.
In May 1991, the Company received an Information Request Notice from
the EPA advising that, pursuant to its authority under CERCLA, the EPA was
investigating the Skinner Landfill Superfund Site in West Chester, Ohio.
Although the EPA indicated that the Company might have contributed waste to
this site, the Company has no records available which verify the claim.
However, in August 1991, the EPA issued a General Notice of Liability naming
the Company and various other parties as PRPs at the site. At that time, the
Company also received information which indicated that another site PRP had
allegedly deposited relatively small quantities of the Company's waste at the
site on three occasions in the 1960's and 1970's. In early 1992, a group of
nine companies, including the Company, joined together to vigorously contest
the matter when the EPA announced that it preferred a site incineration remedy
estimated to cost approximately $29 million. Following concerted PRP efforts
and local community negative reaction to the proposed incineration remedy, the
EPA withdrew its preferred remedy and issued a unilateral abatement remedy
Order calling for the expenditure of approximately $200,000 to secure the site
and to provide public water hookups for some site neighbors. That Order was
issued in December 1992 and was directed at 20 recipients, including the
Company. Without admitting liability, the Company and nine other recipients
have worked together to comply with the Order, while the remaining recipients
are contesting the matter. In the meantime, the EPA has issued a Record of
Decision calling for a site remedy estimated to cost $15.5 million. The
Company and the other PRPs are pursuing the matter with the EPA as it prepares
to issue a unilateral order calling for the formulation of a Remedial Design
for the site. Concurrently, the Company and other PRPs are pursuing all other
potentially responsible site generators.
On or about October 20, 1993 the Company was served with a Summons and
Complaint entitled California Sport Fishing Protection Alliance v. Formica
Corp., in the United States District Court, Eastern District of California.
This Complaint, brought as a citizens' suit under the Clean Water Act, alleges
that the Company's Rocklin, California manufacturing plant has violated its
National Pollutant Discharge Elimination System permits ("NPDES") and is
polluting the Sacramento River. The Complaint alleges that the Company is
discharging into a creek waste water which contains a pH level outside of the
range imposed in its NPDES permits. The Complaint seeks: (a) to enjoin the
Company from violating its NPDES permits and the Clean Water Act; (b) an order
directing the Company to adequately test receiving waters for violations of
applicable water quality standards; (c) an order directing the Company to
comply with all reporting requirements contained in its NPDES permits; (d) an
order directing the Company, for a period of one year, to provide the Plaintiff
with copies of all reports and documents submitted to government agencies
relating to its NPDES permits; (e) an order requiring the Company to pay civil
penalties of up to $25,000 per day for each violation of its NPDES permits; (f)
an order directing the Company to make payments to an environmental remediation
project approved by the Court; and (g) an award of Plaintiff's costs of
litigation, including reasonable attorney and expert witness fees. The Company
has filed an Answer to the Complaint
12
<PAGE> 13
denying liability and raising several affirmative defenses and intends to
vigorously defend this action.
EMPLOYEES AND EMPLOYEE RELATIONS
As of December 31, 1993, the Company had approximately 3,300
employees, of whom 1,100 were salaried and 2,200 were hourly workers. In the
United States, approximately 800 of the Company's employees are covered by two
collective bargaining agreements that expire in September 1994 and April 1995.
Of the approximately 1,800 employees of the Company's international operations,
1,200 are represented by a variety of local unions. The Company considers its
employee relations to be generally satisfactory.
Item 2 PROPERTIES
The location and general description of the principal properties owned
or leased by the Company (or by the Company's German joint venture) are set
forth in the table below:
<TABLE>
<CAPTION>
Location Principal Function Square Feet
-------- ------------------ -----------
<S> <C> <C>
Wayne, New Jersey . . . . . . . . . . Corporate Headquarters . . . . . . . . . . . 10,000 Leased
Rocklin, California . . . . . . . . . Manufacturing Plant . . . . . . . . . . . . 350,000 Owned
Indianapolis, Indiana . . . . . . . . Distribution Center . . . . . . . . . . . 194,000 Leased
Indianapolis, Indiana . . . . . . . . Samples Facility . . . . . . . . . . . . . . 54,000 Leased
Piscataway, New Jersey . . . . . . . Distribution Center . . . . . . . . . . . . 75,000 Leased
Evendale, Ohio . . . . . . . . . . . Manufacturing Plant and United States
Operations Headquarters . . . . . . . . 1,000,000 Owned
Orlando, Florida . . . . . . . . . . Distribution Center . . . . . . . . . . . . 50,000 Leased
Mt. Bethel, Pennsylvania . . . . . . Manufacturing Plant . . . . . . . . . . . . 40,000 Owned
Mt. Bethel, Pennsylvania . . . . . . Distribution Center . . . . . . . . . . . . 30,000 Leased
Dallas, Texas . . . . . . . . . . . . Distribution Center . . . . . . . . . . . . 45,000 Leased
St. Jean, Quebec, Canada . . . . . . Manufacturing Plant . . . . . . . . . . . . 360,000 Owned
North Shields, England . . . . . . . Manufacturing Plant and Subsidiary
Headquarters . . . . . . . . . . . . . . . 560,000 Owned
LaPlaine, France . . . . . . . . . . Manufacturing Plant . . . . . . . . . . . . 25,000 Owned
Quillan, France . . . . . . . . . . . Manufacturing Plant . . . . . . . . . . . . 240,000 Owned
Torcy, France . . . . . . . . . . . . Distribution Center and Subsidiary
Headquarters . . . . . . . . . . . . . . . 50,000 Leased
Bilbao, Spain . . . . . . . . . . . . Manufacturing Plant and Subsidiary
Headquarters . . . . . . . . . . . . . . . 360,000 Owned
Herzberg Am Harz, Germany . . . . . . Manufacturing Plant and Joint Venture
Headquarters . . . . . . . . . . . . . . 110,000 Leased
Hsinfeng, Taiwan . . . . . . . . . . Manufacturing Plant . . . . . . . . . . . . 50,000 Owned
</TABLE>
The Company believes that all of its properties are suitable and
adequate for its present needs. The Company also believes that it has
sufficient manufacturing and distribution capacity for its present and
foreseeable needs. Pursuant to the CIBC Credit Documents, all of the principal
properties owned by the Company are subject to liens in favor of the lenders
thereunder as security for the obligations of the Company thereunder, except
that the Mt. Bethel, Pennsylvania facility is subject to a lien related to an
installment sale arrangement for the facility with a local development
authority and the Company's Hsinfeng, Taiwan facility is subject to a lien
pursuant to the Taiwan Credit Agreement.
13
<PAGE> 14
ITEM 3 LEGAL PROCEEDINGS
The Company is a party to various legal proceedings, in addition to
those described under "Item 1 - Environmental Matters", arising in the ordinary
course of business, none of which is expected to have a material adverse effect
on the Company's business or financial condition.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted for a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
14
<PAGE> 15
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Preferred Stock and Common Stock of the Company is not publicly
traded, and therefore, there is no public market for the stock of the Company.
15
<PAGE> 16
ITEM 6 SELECTED FINANCIAL DATA (a) (in thousands)
<TABLE>
<CAPTION>
PRE-
ACQUISITION
BASIS OF
POST-ACQUISITION BASIS OF ACCOUNTING ACCOUNTING
-------------------------------------------------------------------- ----------
For the For the
Period Period
May 4, January
For the Years Ended December 31, 1989 to 1, 1989
---------------------------------------------------- December to May
1993 1992 1991 1990 31, 1989 3, 1989
-------- ---------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales $447,079 $446,217 $421,181 $436,546 $277,347 $131,010
Operating
income (b) 28,433 37,524 39,621 39,901 29,468 10,188
Other income
(expense), net (c) 6,993 14,712 3,872 2,515 3,289 (4,699)
Interest expense 47,352 52,805 53,114 51,429 31,710 3,564
Income (loss) before
income taxes and
accounting change (11,926) (569) (9,621) (9,013) l,047 l,925
Income (loss) before
accounting change (3,362) (1,635) (7,129) (9,729) 258 (3,147)
Accounting change(d) (2,850) - - - - -
Net income (loss) $ (512) $ (1,635) $ (7,129) $ (9,729) $ 258 $ (3,147)
Total assets $541,631 $562,843 $589,779 $635,474 $594,335 $324,070
Long-term debt $255,180 $303,638 $315,996 $334,083 $310,303 $ 59,179
Stockholder's equity $ 80,362 $ 39,333 $ 44,448 $ 50,971 $ 63,323 $163,326
</TABLE>
16
<PAGE> 17
(a) Selected financial information (other than net sales) on a
post-acquisition basis of accounting is not comparable to the information for
the Company on a pre-acquisition basis of accounting, because of changes in the
organizational structure, recorded asset values, cost structure and
capitalization of the Company resulting from the leveraged buy out transaction
in May 1989.
(b) Operating income in 1991 included $3.2 million representing the
settlement of a claim by Formica against a third party. This settlement
primarily represented a reimbursement of costs incurred by Formica and was
recorded as a reduction of cost of sales of $2.8 million and selling, general
and administrative expenses of $0.4 million, and as an increase to other
income, net of $0.2 million.
(c) Other income (expense), 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 (expense), 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.
(d) 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.
17
<PAGE> 18
ITEM 7 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
18
<PAGE> 19
28.9%, when adjusted to exclude $1.7 million of foreign exchange effects.
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.
1992 compared to 1991
Net sales for the twelve months ended December 31, 1992 increased
$25.0 million, or 5.9%, from the comparable 1991 period. When adjusted to
exclude $4.5 million of foreign exchange effects, net sales increased $20.5
million, or 4.9%. The Company's domestic net sales increased by $22.7 million,
or 11.9%, primarily due to an increase in unit volume. International net sales
increased $2.3 million, or 1.0%. When adjusted to exclude foreign exchange
effects, international net sales decreased $2.2 million, or 0.9%. This
decrease in international net sales resulted primarily from general adverse
economic conditions in certain European markets and a shift in the geographic
mix of countries the Company serviced causing a decrease in average net selling
prices, partially offset by an increase in unit volume.
Cost of sales for 1992, compared to 1991, increased $21.2 million, or
7.2%, primarily due to increased unit volume. When adjusted to exclude $2.6
million of foreign exchange effects, cost of sales increased $18.6 million, or
6.3%. Domestic cost of sales increased $20.1 million, or 15.1%, primarily due
to the effects of increased unit volume and the one-time favorable impact of
$2.8 million on third quarter 1991 cost of sales (See Note 10 to the Company's
Consolidated Financial Statements) resulting from the settlement of a third
party claim. International cost of sales increased $1.1 million, or 0.7%, but
when adjusted to exclude foreign exchange effects, international cost of sales
19
<PAGE> 20
decreased $1.5 million, or 1.0%. The decrease in international cost of sales
was attributable to the lower sales levels and reduced manufacturing costs.
Selling, general and administrative expenses for 1992 increased $5.9
million, or 6.7%, compared to 1991. When adjusted to exclude $0.9 million of
foreign exchange effects, selling, general and administrative expenses
increased $5.0 million, or 5.7%. Domestic selling, general and administrative
expenses increased $1.6 million, or 3.4%, primarily due to increased
distribution expenses as a result of higher unit volume, partially offset by
lower administrative expenses. International selling, general and
administrative expenses increased $4.3 million, or 10.7%, compared to 1991.
When adjusted for the impact of foreign exchange, international selling,
general and administrative expenses rose $3.4 million, or 8.5%, primarily due
to higher advertising and selling expenses.
Operating income for 1992 declined $2.1 million compared to 1991,
primarily due to the one-time favorable impact of $3.2 million on third quarter
1991 operating income resulting from the settlement of a third party claim (See
Note 10 to the Company's Consolidated Financial Statements). When adjusted to
reflect $1.0 million of foreign exchange effects, operating income decreased
$3.1 million, or 7.7%. Domestic operating income increased $0.9 million, or
11.6%, primarily due to higher sales volume and the aforementioned one-time
favorable impact of $3.2 million on third quarter 1991 operating income.
International operating income declined $3.0 million, or 9.7%. When adjusted
for the effects of foreign exchange, international operating income declined
$4.0 million, or 12.8%, attributable to decreased sales levels and increased
selling, general and administrative expenses, partially offset by reduced
manufacturing costs.
EBIT for 1992 increased $8.7 million, or 20.1%. When adjusted to
exclude $0.5 million of foreign exchange effects, EBIT increased $8.2 million,
or 18.8%. Domestic EBIT increased $12.2 million, or 71.0%, primarily due to
other income of $9.1 million attributable to a reduction of other long-term
liabilities resulting from changes in certain of the Company's postretirement
medical benefit plans (See Notes 2, 6 and 10 to the Company's Consolidated
Financial Statements), higher sales, $2.0 million of other income relating to
the reversal of other long-term liabilities as a result of the release of
certain warranties and representations made by the Company in connection with
the prior sale of a subsidiary and the receipt of approximately $1.4 million of
interest income associated with a federal income tax refund. These increases
were partially offset by the one-time favorable impact of $3.4 million on third
quarter 1991 EBIT resulting from the settlement of a third party claim as
discussed above. International EBIT decreased $3.5 million or 13.4%. When
adjusted for the effects of foreign exchange, international EBIT decreased $4.0
million, or 15.5%, primarily due to lower sales and higher selling, general and
administrative expenses.
Interest expense decreased in 1992 by $0.3 million, or 0.6%, compared
to 1991, primarily as a result of lower interest rates and lower debt levels
which more than offset the increase in accretion of Formica's Subordinated
Discount Debentures. The income tax provision for 1992 changed $3.6 million
compared to the income tax benefit for 1991 due to the effect of the previously
mentioned nonrecurring items and a change in the mix of subsidiary pre-tax
earnings.
20
<PAGE> 21
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.
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.
21
<PAGE> 22
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 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
22
<PAGE> 23
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."
23
<PAGE> 24
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . . 25
Consolidated Balance Sheets at December 31, 1993 and 1992. . . . . . . . 26
Consolidated Statements of Operations for the years
ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . 27
Consolidated Statement of Stockholder's Equity for
the years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . 28
Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements, December 31, 1993. . . . . . 30
</TABLE>
24
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Formica Corporation:
We have audited the accompanying consolidated balance sheets of Formica
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Formica Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Notes 2, 6 and 8 of the consolidated financial statements
referred to above, effective January 1, 1993, the Company changed its method of
accounting for income taxes and postretirement benefits other than pensions.
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
March 1, 1994
25
<PAGE> 26
FORMICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PAR VALUE OF STOCK)
ASSETS
<TABLE>
<Caption
DECEMBER 31,
------------
1993 1992
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,446 $ 867
Accounts receivable, less allowances of
$10,231 (1993) and $10,431 (1992) 81,350 75,199
Inventories, net 67,678 80,306
Other current assets 18,150 16,238
-------- --------
Total current assets 169,624 172,610
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST 212,120 228,942
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF
$5,050 (1993) AND $3,967 (1992) 38,231 39,314
TRADEMARKS AND PATENTS, NET OF ACCUMULATED
AMORTIZATION OF $17,668 (1993) AND $13,997 (1992) 92,024 96,109
DEFERRED CHARGES AND OTHER ASSETS, NET 29,632 25,868
-------- --------
$541,631 $562,843
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 11,351 $ 14,941
Accounts payable 40,313 35,643
Accrued salaries and benefits 24,678 21,233
Interest payable 3,814 4,647
Other accrued liabilities 10,032 5,643
Income taxes payable 2,367 204
-------- --------
Total current liabilities 92,555 82,311
-------- --------
LONG-TERM DEBT 255,180 303,638
-------- --------
OTHER LONG-TERM LIABILITIES 15,849 26,462
-------- --------
DEFERRED INCOME TAXES 97,685 111,099
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock; $.01 par value; authorized
2,000 shares; 100 shares outstanding -- --
Preferred stock; $.01 par value; authorized
1,000 shares; none outstanding -- --
Capital in excess of par value 116,879 69,379
Accumulated deficit (18,747) (18,235)
Cumulative translation adjustment (17,770) (11,811)
-------- --------
Total stockholder's equity 80,362 39,333
-------- --------
$541,631 $562,843
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
26
<PAGE> 27
FORMICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Net sales $447,079 $446,217 $421,181
Cost of sales 319,873 314,457 293,224
-------- -------- --------
Gross profit 127,206 131,760 127,957
Selling expenses 83,679 79,042 71,493
General and administrative expenses 15,094 15,194 16,843
-------- -------- --------
Operating income 28,433 37,524 39,621
Other income, net 6,993 14,712 3,872
-------- -------- --------
Income before interest expense,
income taxes and accounting change 35,426 52,236 43,493
Interest expense 47,352 52,805 53,114
-------- -------- --------
Loss before income taxes
and accounting change (11,926) (569) (9,621)
Provision (benefit) for income taxes (8,564) 1,066 (2,492)
-------- -------- --------
Loss before accounting change (3,362) (1,635) (7,129)
Accounting change - cumulative
effect to January 1, 1993, of
accounting for income taxes (2,850) -- --
-------- -------- --------
Net loss $ (512) $ (1,635) $ (7,129)
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
27
<PAGE> 28
FORMICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Capital in Cumulative
Common Preferred Excess of Accumulated Translation
-------------- --------------
Shares Amount Shares Amount Par Value Deficit Adjustment
------ ------ ------ ------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1990 100 $ -- -- $ -- $69,379 $ (9,471) $ (8,937)
Net loss for the year -- -- -- -- -- (7,129) --
Translation adjustment -- -- -- -- -- -- 606
--- ----- --- ---- -------- -------- --------
Balance at
December 31, 1991 100 -- -- -- 69,379 (16,600) (8,331)
Net loss for the year -- - -- -- -- (1,635) --
Translation adjustment -- -- -- -- -- -- (3,480)
--- ----- --- ---- -------- -------- --------
Balance at
December 31, 1992 100 -- -- -- 69,379 (18,235) (11,811)
Capital Contribution
from FM Holdings Inc. -- -- -- -- 47,500 -- --
Net loss for the year -- -- -- -- -- (512) --
Translation adjustment -- -- -- -- -- -- (5,959)
--- ----- --- ---- -------- -------- --------
Balance at
December 31, 1992 100 $ -- -- $ -- $116,879 $(18,747) $(17,770)
=== ===== === ==== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
28
<PAGE> 29
FORMICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (512) $ (1,635) $ (7,129)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 24,152 25,253 24,568
Amortization of Subordinated Discount
Debentures and deferred
financing costs 15,972 12,892 11,704
Deferred income taxes (7,078) 10 (4,289)
Change in assets and liabilities:
Accounts receivable, net (10,316) (522) 10,264
Inventories, net 9,888 (9,816) (395)
Other current assets (692) (1,341) (2,243)
Accounts payable 5,989 2,305 (6,091)
Accrued salaries and benefits 4,455 5,589 (992)
Interest payable (757) (638) (1,510)
Other accrued liabilities 4,867 (4,457) (3,312)
Income taxes payable (3,884) (1,117) (6,229)
Other long-term liabilities (9,423) (12,242) 11,804
Other, net (10,567) 862 (1,274)
------- -------- --------
Net cash provided by operating
activities 22,094 15,143 24,876
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution from FM Holdings Inc. 47,500 -- --
Net (payments) borrowings under
short-term borrowings (6,423) 5,749 (2,089)
Net payments under bank credit agreements (52,352) (9,864) (16,366)
Other, net 1,619 (1,122) 921
------- -------- --------
Net cash used in financing activities (9,656) (5,237) (17,534)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant
and equipment (10,916) (10,811) (8,555)
Other, net (1) 127 52
------- -------- --------
Net cash used in investing activities (10,917) (10,684) (8,503)
------- -------- --------
EXCHANGE RATE EFFECT ON CASH 58 288 (531)
------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,579 (490) (1,692)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 867 1,357 3,049
------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,446 $ 867 $ 1,357
======= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
29
<PAGE> 30
FORMICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ACQUISITION BY FM ACQUISITION CORPORATION
In connection with a tender offer which commenced February 10, 1989 (the
"tender offer"), FM Acquisition Corporation (FM Acquisition), a wholly-owned
subsidiary of FM Holdings Inc. (Holdings), acquired approximately 87.3% of the
common stock of Formica Corporation and subsidiaries (the "Company") on May 3,
1989 for $19 per share (the "acquisition"). On September 7, 1989, a merger was
approved by the Company's stockholders and on September 11, 1989 (the "merger
date"), FM Acquisition was merged with and into the Company. The remaining
12.7% of the Company's common stock was converted into rights to receive $19.00
per share in cash. The investment in the Company represents substantially all
of the assets of Holdings.
The acquisition was accounted for by the Company using the purchase method
of accounting. The purchase cost with respect to the shares of the Company
attributed to investors who have a continuing interest in Holdings following
the acquisition consists of such investor's basis in their shares(i.e., the
original cost of their investment in the Company plus their proportionate share
of the earnings and losses of the Company since the date such investment was
acquired). The purchase cost was finalized during the second quarter of 1990.
The total purchase cost of approximately $354 million was allocated first to
the assets and liabilities of the Company based on their estimated fair values
as determined by valuations and other studies, with the remainder,
approximately $43.3 million, allocated to excess of purchase price over net
assets acquired (goodwill).
The funds required for the merger and related transactions were obtained
pursuant to several credit agreements, from the issuance of subordinated bridge
notes totalling $125 million and from equity financing of approximately $87
million from Holdings. Subsequent to the merger date, certain of the funds
received from the issuance of Senior Subordinated Notes ($100 million) and
Subordinated Discount Debentures ($45 million) were used to repay the
subordinated bridge notes. See Note 4 - Long-term debt for a further
discussion of these obligations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries. 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
traded and since the Company is a wholly-owned subsidiary of Holdings.
30
<PAGE> 31
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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" (SFAS
109). SFAS 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, SFAS 109
generally considers all expected future events other than enactments of changes
in the tax law or rates. Previously, the Company used the SFAS 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 SFAS 109, the Company recognizes to a greater degree the future tax
benefits of expenses which have been recognized in the financial statements.
International operations
Assets and liabilities of international operations are translated at
the rate of exchange in effect at the balance sheet date. Revenues and
expenses are translated at the weighted average exchange rate for the period.
The resulting translation adjustments are reflected as a separate component of
stockholders' equity. Substantially all foreign subsidiaries are consolidated
on the basis of fiscal years ending on November 30 to facilitate year end
closing. Net assets of foreign subsidiaries totalled $13,540,000 and
$14,257,000 at December 31, 1993 and 1992, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for substantially all
inventories in the United States ($33,431,000 at December 31, 1993 and
$38,269,000 at December 31, 1992) and the first-in, first-out (FIFO) method for
all other inventories. Had the FIFO method of determining cost been utilized
for all inventories, inventory values would have been approximately $1,634,000
and $682,000 higher at December 31, 1993 and 1992, respectively. The tax basis
of the LIFO inventories at December 31, 1993 was approximately $16,006,000.
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1992
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies $26,665 $32,371
Work in process 9,627 10,282
Finished goods 31,386 37,653
------- -------
Inventories, net $67,678 $80,306
======= =======
</TABLE>
31
<PAGE> 32
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment
Property, plant and equipment at December 31, 1993 and 1992 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1992
---- ----
<S> <C> <C>
Land and improvements $ 15,355 $ 15,180
Buildings and improvements 46,439 48,096
Machinery and equipment 228,403 227,901
-------- --------
290,197 291,177
Less--Accumulated depreciation (78,077) (62,235)
-------- --------
Total property, plant and equipment $212,120 $228,942
======== ========
</TABLE>
Depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets; generally 25 years for buildings and 12
years for major machinery and equipment. Expenditures for maintenance and
repairs are charged to operations as incurred. Improvements that significantly
extend the useful economic lives of assets are capitalized as well as interest
costs incurred in connection with major capital expenditures. Capitalized
interest is amortized over the lives of the related assets. Gains or losses on
dispositions are included in the consolidated statements of operations.
Depreciation expense for the years ended December 31, 1993, 1992 and 1991 was
$18,573,000, $19,729,000, and $19,172,000, respectively. Net interest costs of
$561,000, $763,000, and $542,000 were capitalized during 1993, 1992 and 1991,
respectively.
Goodwill
Goodwill (the excess of the purchase price over net assets acquired)
is being amortized on a straight-line basis over 40 years. The Company
continually evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life of the goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable. The
Company uses estimates of the results of operations of Formica over the
remaining life of the goodwill in measuring whether the goodwill is
recoverable.
Trademarks and patents
As a result of the transaction described in Note 1, trademarks and
patents were adjusted to their fair values as of May 4, 1989. Trademarks
($90,000,000) are being amortized on a straight-line basis over 40 years.
Patents ($20,400,000) are being amortized on a straight-line basis over periods
ranging between 9 and 15 years. The Company continually evaluates the
remaining useful lives and the recoverability of trademarks and patents as
described above for goodwill.
32
<PAGE> 33
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred charges and other assets
Deferred charges and other assets consist principally of deferred
financing costs incurred in connection with the merger. These assets are being
amortized using the interest method over periods ranging from 8 to 12 years.
Accumulated amortization of deferred financing costs was $12,800,000 and
$8,900,000 at December 31, 1993 and 1992, respectively.
Research and development
Research and development costs are charged to operations as they are
incurred. Such costs amounted to $3,291,000, $3,488,000 and $3,604,000, for
the years ended December 31, 1993, 1992 and 1991, respectively.
Other income, net
Other income, net generally consists primarily of royalty income,
interest income and gains and losses on foreign currency transactions. In
1993, other income, net includes $1.9 million relating to the reversal of other
long-term liabilities associated with reserves which management believe are no
longer needed. In 1992, other income, net consists primarily of $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 6
and 10) 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 the Company in connection with the prior sale of a
subsidiary.
Statements of cash flows
For purposes of the statements of cash flows, the Company generally
considers all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents. During the years ended December 31,
1993, 1992 and 1991, the Company paid interest of $32,880,000, $41,726,000 and
$43,290,000, and income taxes of $1,026,000, $602,000, and $1,111,000,
respectively.
33
<PAGE> 34
(3) SHORT-TERM BORROWINGS
Short-term borrowings of Formica consisted of various bank borrowings,
overdraft facilities, international discounted receivables and commercial
loans. The following information relates to short-term borrowings:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Balance outstanding at end of the year $11,351 $14,941 $ 9,766
Average amount outstanding during the year(a) 14,937 14,852 15,998
Maximum amount outstanding during the year(a) 25,715 23,494 28,048
Weighted average interest rate at end of year 8.9% 12.3% 11.3%
Weighted average interest rate during the year(b) 10.5% 12.4% 12.0%
</TABLE>
(a) Based on month-end balances.
(b) Calculated by relating appropriate interest expense to monthly average
borrowings.
(4) LONG-TERM DEBT
Long-term debt of Formica at December 31, 1993 and 1992 consisted of
the following:
<TABLE>
<CAPTION>
1993 1992
---- ----
(IN THOUSANDS)
<S> <C> <C>
Bank Credit Agreements--
U.S. borrowings $ 13,200 $ 19,300
U.K. borrowings 31,116 36,913
French borrowings 3,389 17,504
Spanish borrowings 3,213 35,514
Canadian borrowings 13,220 14,550
Taiwan borrowings 1,404 1,187
-------- --------
Total Bank Credit Agreements 65,542 124,968
-------- --------
Senior Subordinated Notes 100,000 100,000
Subordinated Discount Debentures 85,681 73,647
Other long-term debt, net of current maturities 3,957 5,023
-------- --------
$255,180 $303,638
======== ========
</TABLE>
34
<PAGE> 35
(4) LONG-TERM DEBT (CONTINUED)
Bank Credit Agreements
In September 1989, Formica executed revolving credit agreements with
Canadian Imperial Bank of Commerce (CIBC), as agent, and certain other banks
for borrowings in the U.S. and by Formica's Canadian, French, Spanish and U.K.
subsidiaries, which agreements have since been amended from time to time (the
"CIBC Bank Credit Agreement"). Additionally, Formica's Taiwan subsidiary
entered into a revolving credit facility with a local bank to repay existing
debt and provide for working capital requirements.
The U.S. borrowings were made under a credit agreement (the "U.S.
Credit Agreement") with CIBC, as agent, and certain other banks. The U.S.
Credit Agreement comprises a revolving credit facility of $26.6 million, a
working capital facility of $15.0 million to be used for domestic and
international working capital purposes and a letter of credit facility for a
U.S. dollar equivalent of approximately $34.8 million. The letter of credit
facility covers letters of credit denominated in Spanish pesetas (up to Pts
2,893,792,500) and Canadian dollars (up to C$18,670,322) to support,
respectively, the Spanish and Canadian subsidiaries' principal borrowings and a
portion of the interest imputed thereon.
The obligations of Formica under the U.S. Credit Agreement are
guaranteed by Holdings and certain of the subsidiaries of Formica and are
secured by first priority mortgages on real property, liens on other
significant assets (including inventory, receivables, machinery and equipment,
contract rights and intangibles) and pledges of the capital stock of Formica
and a portion of the capital stock of certain of its subsidiaries. Formica's
assets are available first and foremost to satisfy the claims of its own
creditors.
The U.S. Credit Agreement expires September 1997 with mandatory
commitment reductions under the revolving credit facility which began in 1991.
The working capital facility matures in September 1994. The letters of credit
issued under the letter of credit facility have stated expiration dates of no
more than one year, and are renewable (as long as no default exists) for
additional one-year periods with a final expiration in September 1997.
The U.K. and French borrowings are made under credit facilities with
local affiliates of CIBC, as agents, and certain other banks. These credit
facilities provide for aggregate borrowings of Pounds Sterling 26,030,000
(approximately $38.8 million) and French Francs 154,500,000 (approximately
$26.2 million), respectively, subject to currency exchange provisions. The
final maturity of such borrowings is September 1997 with mandatory commitment
reductions which began in 1991.
The obligations under the U.K. and French credit facilities are
guaranteed by Formica and certain of its subsidiaries. In addition, such
obligations are secured by certain security agreements covering significant
assets of the U.K. and French subsidiaries (including real property, machinery
and equipment, inventory, receivables and intangibles) and, with respect to the
U.K. subsidiary, by the pledge of the capital stock of its subsidiaries.
35
<PAGE> 36
(4) LONG-TERM DEBT (CONTINUED)
The Canadian and Spanish borrowings are made under revolving credit
arrangements with local banks. Such borrowings are supported by the letter of
credit facility referred to above covering up to C$17,500,000 (approximately
$13.2 million) and Pts 2,700,000,000 (approximately $19.3 million) in
principal, respectively. The final maturity of such borrowings is September
1997 with mandatory commitment reductions which began in 1991.
The U.S. Credit Agreement contains 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 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 agreement.
Agreements covering the U.K., French, Spanish and Canadian loan
facilities provide for events of default consistent with the events of default
as defined in the U.S. Credit Agreement. The CIBC Bank Credit Agreement carry
cross default language should an event of default occur under any of the CIBC
Bank Credit Agreement.
Under the terms of the CIBC Bank Credit Agreement, the commitments
have been reduced commencing with the second anniversary of the merger date.
Further reductions are as follows (expressed in U.S. dollars using December 31,
1993 exchange rates): 1994-- $18.3 million; 1995--$13.4 million; 1996--$19.4
million; 1997--remainder. Additionally, the Working Capital Facility of $15.0
million, which is part of the CIBC Credit Agreement, matures in September 1994.
Borrowings under the CIBC Bank Credit Agreement would have to be repaid only to
the extent that outstanding local borrowings exceed the commitment level in
effect after the aforementioned reductions.
In November 1989, Formica's Taiwan subsidiary entered into a loan
agreement with a local bank which permits local currency borrowings of up to
NT$150,000,000 (approximately $5.6 million) at variable interest rates quoted
by the bank. This loan agreement was renewed as of November 30, 1993 and now
includes a separate short-term line of credit facility. At December 31, 1993,
such borrowings bore interest at 6.7%. The loan agreement has a maturity of
one year and may be extended for successive twelve-month periods at the option
of the bank. Formica expects to renew this facility on an annual basis as of
November 30, of each succeeding year. The loan is collateralized by a first
priority mortgage on all of the borrower's real property. The borrower also
undertakes not to encumber any of its other assets unless the benefit of such
security is also extended to the bank. If Formica fails to maintain beneficial
ownership in its Taiwan subsidiary, the bank will be entitled to terminate the
commitment and accelerate
36
<PAGE> 37
(4) LONG-TERM DEBT (CONTINUED)
the maturity of any outstanding borrowings. This loan agreement is unrelated
to the CIBC Bank Credit Agreement.
The CIBC Bank Credit Agreement bear interest, at the option of
Formica, at one of several variable rates. Borrowings under the CIBC Bank
Credit Agreement and the Taiwan revolving credit facility bear interest at
floating rates which in 1993 averaged approximately 11.8%. 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 CIBC Bank Credit
Agreement and the Taiwan revolving credit facility for 1993, after taking into
consideration the adverse impact of the interest rate swap agreements,
approximated 12.7%. The estimated cost to cancel the interest rate swap
agreements at December 31, 1993 was $1.2 million, taking into account current
interest rates.
As of December 31, 1993, utilizing foreign currency exchange rates in
effect at that time, Formica 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 both the CIBC Bank Credit Agreement and the Taiwan revolving credit
facility. Commitment fees of 1/2% are paid on the unused lines of credit
under the CIBC Bank Credit Agreement. Considering Formica's right to repay the
loans under the CIBC Bank Credit Agreement and the Taiwan revolving credit
facility without penalty and the floating interest rates, Formica believes the
carrying amounts approximate fair value at December 31, 1993.
Senior Subordinated Notes
In October 1989, Formica sold $100 million principal amount of Senior
Subordinated Notes pursuant to an Indenture dated September 15, 1989 (the
"Notes"). Such Notes bear interest at 14% per annum, payable semi-annually,
and mature on October 1, 1999. A sinking fund payment of $40 million is
required to be made on October 1, 1998. The Notes are not redeemable prior to
October 1, 1994, except under limited circumstances. However, in the event of
a change of control, as defined in the Indenture, holders of the Notes will
have the right to require Formica to repurchase the Notes at 101% of their
principal amount. The estimated fair value of the Notes at December 31, 1993
was $107.0 million based on quoted market prices. This estimated fair value
does not represent Formica's actual obligation to the holders of the Notes as
of December 31, 1993.
Subordinated Discount Debentures
In October 1989, Formica issued $95.9 million principal amount of
Subordinated Discount Debentures pursuant to an Indenture dated September 15,
1989 (the "Discount Debentures"). The Discount Debentures were issued at
46.918% ($45 million) of their principal amount and bear interest at 15 3/4%
per annum. No interest is payable until October 1, 1994 and thereafter
interest is payable semi-annually. The Discount Debentures mature on October
1, 2001, however, a sinking fund payment of $38.4 million is required to be
made on October 1, 2000.
37
<PAGE> 38
(4) LONG-TERM DEBT (CONTINUED)
The Discount Debentures may be redeemed under certain circumstances, but only
after the Notes have been redeemed in full. In the event of a change of
control, as defined in the Indenture, holders of the Discount Debentures will
have the right to require Formica to repurchase the Discount Debentures at 101%
of their accreted value. The accreted value of the Discount Debentures at
December 31, 1993 was $85.7 million. The estimated fair value of the Discount
Debentures was $94.0 million at December 31, 1993 based on quoted market
prices. The estimated fair value does not represent Formica's actual
obligation to the holders of the Discount Debentures as of December 31, 1993.
The Notes and Discount Debentures are subordinated in right of payment
to all debt outstanding under the CIBC Bank Credit Agreement, (including, in
the case of the Discount Debentures, the Notes) as defined in the respective
Indentures. The Indentures for the Notes and Discount Debentures contain
covenants which, among other things, limit the incurrence of additional
indebtedness, restrict the payment of dividends and the making of other
distributions and of certain loans and investments by Formica and its
subsidiaries, limit asset sales, limit the ability of Formica and its
subsidiaries to create liens, limit the ability of Formica to enter into
certain transactions with affiliates and limit the ability of Formica to merge
or consolidate or to transfer substantially all of its assets.
Other long-term debt
Other long-term debt consists principally of certain international
subsidiaries' direct borrowings. Interest on these borrowings is calculated at
adjusted local market rates ranging from 7.0% to 11.0%. Other long-term debt
matures in the next five years as follows (in thousands): 1995--$954;
1996--$771; 1997--$636; 1998--$583; and thereafter--$1,013.
(5) STOCKHOLDERS' EQUITY
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 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.
38
<PAGE> 39
(6) BENEFIT PLANS
Formica has established pension plans covering substantially all
United States and Canadian employees and certain employees in other countries.
Benefits payable under the plans are reduced by any amounts received by the
participants from Formica's former parent corporation.
The aggregate amount of net periodic pension cost for the principal
defined benefit retirement plans is presented below:
<TABLE>
<CAPTION>
NET PERIODIC PENSION COST
-------------------------
U.S. FOREIGN TOTAL
---- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1993
- -----------------
Service cost $ 769 $ 1,252 $ 2,021
Interest cost 1,748 3,224 4,972
Actual return on assets (1,600) (8,542) (10,142)
Net amortization and deferral (518) 4,525 4,007
------- ------- -------
Total $ 399 $ 459 $ 858
======= ======= =======
FOR THE YEAR ENDED
DECEMBER 31, 1992
- -----------------
Service cost $ 779 $ 1,691 $ 2,470
Interest cost 1,575 3,611 5,186
Actual return on assets (1,932) (7,225) (9,157)
Net amortization and deferral (31) 2,328 2,297
------- ------- -------
Total $ 391 $ 405 $ 796
======= ======= =======
FOR THE YEAR ENDED
DECEMBER 31, 1991
- -----------------
Service cost $ 790 $ 1,861 $ 2,651
Interest cost 1,548 3,481 5,029
Actual return on assets (2,947) (5,440) (8,387)
Net amortization and deferral 1,601 1,003 2,604
------- ------- -------
Total $ 992 $ 905 $ 1,897
======= ======= =======
</TABLE>
39
<PAGE> 40
(6) BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status and amounts reflected
in the accompanying balance sheets for the benefit plans:
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------- ------ -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Benefit obligations:
Accumulated benefit
obligation
Vested $(22,402) $(21,932) $(34,313) $ (501)
Nonvested (401) (10,396) (2,759) (4,768)
-------- ------- -------- -------
Total $(22,803) $(32,328) $(37,072) $(5,269)
======== ======== ======== =======
Projected benefit obligation $(30,101) $(38,734) $(45,321) $(8,965)
Market value of plan assets 43,459 18,874 54,488 --
-------- -------- -------- -------
Overfunded (underfunded)
projected benefit
obligation 13,358 (19,860) 9,167 (8,965)
Unrecognized (gain) loss (2,147) 5,263 (3,369) (463)
Unrecognized net transition
liability (10) -- (12) --
Unrecognized prior service
cost (1,635) (303) (2,226) --
-------- -------- -------- -------
Pension asset (liability) $ 9,566 $(14,900) $ 3,560 $(9,428)
======== ======== ======== =======
</TABLE>
The pension asset is included in deferred charges and other assets and
the pension liability is included in other long-term liabilities and accrued
salaries and benefits in the consolidated balance sheets.
The projected benefit obligations at December 31, 1993 and 1992 were
determined using an average assumed discount rate of approximately 7.8% and
9.4%, respectively, and an assumed average rate of increase in future
compensation levels of approximately 4.8% and 5.8%, respectively. The average
expected long-term rate of return on assets for 1993 and 1992 was approximately
9.6% and 10.1%, respectively.
In addition to pension benefits, Formica provides certain health care
benefits to its domestic retirees on a shared-cost basis. Eligible employees
receive postretirement benefits comparable to those received while working for
Formica. Formica may terminate, amend or change the plan periodically.
Substantially all of the current domestic retirees receive coverage from
Formica's former parent corporation's health care benefit plan.
40
<PAGE> 41
(6) BENEFIT PLANS (CONTINUED)
As a result of changes to certain of Formica's postretirement medical
benefit plans, Formica's estimated accumulated postretirement benefit
obligation decreased by $9.1 million at December 31, 1992. This adjustment of
Formica's estimated obligation was recorded as other income in the Company's
Consolidated Statement of Operations for the year ended December 31, 1992. The
income tax provision associated with the increase in other income was $3.5
million and the resulting decrease in the net loss was $5.6 million.
In the first quarter of 1993, Formica adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 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 1993 financial statements as a result of adopting SFAS 106. In
accordance with the provisions of this statement, postretirement benefit
information for prior years has not been restated. Such expense was immaterial
in each year.
The Net Periodic Postretirement Benefit Cost (NPPBC) is the amount to
be expensed for any given year. The NPPBC for 1993 was approximately $269,000.
The pro-forma effect of this change on years prior to 1993 was not
determinable. Prior to 1993, Formica recognized expense in the year the
benefits were paid.
Included in other long-term liabilities in the December 31, 1993 and
1992 consolidated balance sheet are approximately $2.2 million and $1.9
million, respectively, representing the accumulated postretirement benefit
obligation ("APBO") related to these other postretirement health care benefits.
The NPPBC for the year ended December 31, 1993 includes the following
components (in thousands):
<TABLE>
<S> <C>
Service cost--benefits attributed to employee
service during the year $ 108
Interest cost on APBO 161
-----
NPPBC $ 269
=====
</TABLE>
The discount rate used in determining the APBO and the assumed average
rate of increase in future compensation levels was 7.0% and 5.0%, respectively,
at December 31, 1993. The assumed trend rate used in projecting health care
costs was 15% in 1993, declining by 1% per year to an ultimate level of 6% per
year in 2002. However, the impact of these projected health care costs on the
APBO was limited by the current plans' provisions. Accordingly, a 1% increase
in the health care cost trend rate assumptions would have no impact on the APBO
at December 31, 1993 or the service cost and interest cost components of the
NPPBC for 1993.
41
<PAGE> 42
(7) COMMITMENTS AND CONTINGENCIES
Formica rents office and warehouse space, transportation equipment and
certain other items under noncancellable operating leases. Certain of these
leases include additional charges based on inflation and increases in real
estate taxes. Rent expense for the years ended December 31, 1993, 1992 and
1991 was $8,568,000, $7,617,000 and $8,819,000, respectively. Minimum
commitments under these leases are $6,296,000 in 1994; $4,314,000 in 1995;
$2,805,000 in 1996; $2,125,000 in 1997; $1,085,000 in 1998 and $548,000
thereafter. The Company also leases certain plant and equipment pursuant to
agreements accounted for as capital leases. Minimum rental commitments and
amounts capitalized under these agreements are not significant.
In the ordinary course of business, Formica is the subject of or party
to various pending or threatened litigation and claims. Formica is also
involved in various environmental matters in which the Environmental Protection
Agency or other third parties have claimed that Formica may be partially
responsible for certain costs related to the clean up of waste disposal sites.
While it is not possible to predict with certainty the outcome of any of these
matters, management believes that the ultimate result of such actions or claims
individually or in the aggregate, will not have a material adverse effect on
the consolidated financial statements of the Company.
(8) INCOME TAXES
The (benefit) provision for income taxes consists of the following
components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
United States $(420) $ -- $(1,399)
Foreign (790) 1,003 2,806
State (276) 53 390
------- ------ -------
(1,486) 1,056 1,797
------- ------ -------
Deferred:
United States (6,155) (603) 527
Foreign (923) 613 (4,816)
------- ------ -------
(7,078) 10 (4,289)
------- ------ -------
$(8,564) $1,066 $(2,492)
======= ====== =======
</TABLE>
42
<PAGE> 43
(8) INCOME TAXES (CONTINUED)
United States and foreign operations contributed to loss before income
taxes as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
United States $(11,244) $(1,737) $(13,340)
Foreign (682) 1,168 3,719
-------- ------- --------
Loss before income taxes $(11,926) $ (569) $ (9,621)
======== ======= ========
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at December
31, 1993:
<TABLE>
<S> <C>
Differences in the tax basis and the book
basis of -
Property, plant and equipment $ 56,005
Trademarks and patents 35,453
Inventories 5,631
Undistributed earnings of subsidiaries 4,030
Other (no item exceeds 5% of net deferred
tax liability) 19,479
--------
Gross deferred tax liabilities 120,598
--------
Loss carryforwards and carrybacks (9,904)
Tax credit carryforwards (6,542)
Other (no item exceeds 5% of net deferred
tax liability) (15,903)
--------
Gross deferred tax assets (32,349)
--------
Deferred tax assets valuation allowance 7,519
--------
Net deferred tax liability $ 95,768
========
</TABLE>
43
<PAGE> 44
(8) INCOME TAXES (CONTINUED)
The principal items giving rise to deferred taxes in 1992 and 1991 are
as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1992 1991
---- ----
(IN THOUSANDS)
<S> <C> <C>
Book in excess of tax depreciation $(1,641) $(2,599)
Provisions for inventory reserves (1,467) 763
Amortization of trademarks and patents (1,100) (1,321)
Differences between book and tax deductions for
accruals 4,004 (590)
Impact of enacted changes in foreign tax rates (75) (520)
Other, net 289 (22)
------- -------
$ 10 $(4,289)
======= =======
</TABLE>
The difference between the U.S. statutory tax rate and the Company's
effective tax rate was due to the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
PERCENT PERCENT PERCENT
------- ------- -------
<S> <C> <C> <C>
U.S. statutory tax rate (35)% (34)% (34)%
State tax, net of Federal tax -- 9 3
Expenses not deductible for tax purposes 5 98 5
Impact of foreign deemed dividends 19 299 22
Impact of foreign tax rates and
foreign tax audits (13) (185) (30)
Impact of enacted changes in tax rates 13 (13) (5)
Impact of operating loss carryback (10) -- --
Reversal of deferred taxes
no longer needed (41) -- --
Alternative minimum tax adjustment -- -- 2
Other, net (10) 13 11
---- ---- ----
Effective tax rate (72)% 187% (26)%
==== ==== ====
</TABLE>
The net change in the valuation allowance for deferred tax assets was
an increase of $2,839,000 which is exclusive of foreign exchange effects. The
Company increased its U.S. Federal deferred income tax liability in 1993 by
approximately $1,566,000 as a result of legislation enacted during 1993,
increasing the corporate income tax rate from 34% to 35% commencing January 1,
1993.
44
<PAGE> 45
(8) INCOME TAXES (CONTINUED)
The Company has provided foreign withholding and U.S. Federal income
taxes on the cumulative unremitted earnings of certain consolidated
international subsidiaries and joint ventures. The Company has not provided
for certain income taxes on the undistributed earnings of one of its
international subsidiaries, as it is the Company's intention to permanently
reinvest such earnings, which amount to $22,303,000 at December 31, 1993. At
December 31, 1993, the Company had foreign tax credit carryforwards available
of $6,377,360 which expire in 1994 ($4,192,646); 1997 ($1,184,714); and 1998
($1,000,000). At December 31, 1993, the Company had for Federal income tax
purposes net operating loss carryforwards available of $12,008,956 expiring as
follows: 2006-- $10,809,725 and 2008--$1,199,231.
In February 1992, the Financial Accounting Standards Board issued a
Statement of Financial Accounting Standards No. 109 ("SFAS 109") on accounting
for income taxes. This statement supersedes SFAS 96, Accounting for Income
Taxes. The Company adopted the accounting and disclosure rules prescribed by
SFAS 109 as of January 1, 1993. The adjustments to the January 1, 1993 balance
sheet to adopt SFAS 109 netted to $2,850,000. This amount is reflected in the
1993 net loss as the cumulative effect of a change in accounting principle.
45
<PAGE> 46
(9) SEGMENT AND GEOGRAPHIC DATA
Formica is engaged in one line of business--the design, manufacture
and distribution of decorative laminates and other surfacing products.
Information about the business of Formica by geographic area is presented in
the table below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
United States $252,455 $233,793 $203,589
International 248,003 274,123 260,165
Eliminations (53,379) (61,699) (42,573)
-------- -------- --------
$447,079 $446,217 $421,181
======== ======== ========
Operating income(a)
United States(b) $10,525 $ 9,177 $ 8,219
International 17,908 28,347 31,402
-------- -------- --------
$ 28,433 $ 37,524 $ 39,621
======== ======== ========
Capital expenditures
United States $7,837 $ 4,302 $ 4,054
International 3,079 6,509 4,501
-------- -------- --------
$ 10,916 $ 10,811 $ 8,555
======== ======== ========
Depreciation and amortization(a)
United States $15,313 $ 14,859 $ 14,639
International 8,839 10,394 9,929
-------- -------- --------
$ 24,152 $ 25,253 $ 24,568
======== ======== ========
Assets (at period end)
United States $317,141 $324,491 $330,745
International 224,490 238,352 259,034
-------- -------- --------
$541,631 $562,843 $589,779
======== ======== ========
</TABLE>
(a) Includes additional depreciation and amortization expense of
$8,248,000, $8,665,000 and $8,667,000 for the years ended December 31,
1993, 1992 and 1991, respectively, relating to the revaluation of
certain assets in connection with the acquisition.
(b) Includes unallocated corporate and research expenses of $6,693,000, in
1993, $6,101,000 in 1992, and $6,503,000 in 1991.
46
<PAGE> 47
(9) SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
Geographic data concerning international operations are as follows:
<TABLE>
<CAPTION>
PACIFIC
EUROPE BASIN OTHER
------ ----- -----
<S> <C> <C> <C>
Revenues:
1993 65% 19% 16%
1992 71 15 14
1991 74 11 15
Operating Income:
1993 58% 35% 7%
1992 75 19 6
1991 81 13 6
Identifiable Assets:
1993 73% 13% 14%
1992 76 10 14
1991 78 8 14
</TABLE>
Export sales are not a significant part of the Company's domestic
operations. Transfers between areas are valued at cost plus markup, which
approximates fair market value.
(10) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
1993
THREE MONTHS ENDED
MARCH 31(A) JUNE 30 SEPT. 30(B) DEC. 31(C)
----------- ------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $103,183 $112,490 $109,499 $121,907
Gross profit 29,432 32,820 29,510 35,444
Net income (loss) 117 (2,035) (3,392) 4,798
</TABLE>
<TABLE>
<CAPTION>
1992
THREE MONTHS ENDED
MARCH 31(D) JUNE 30(E) SEPT. 30 DEC. 31
----------- ---------- -------- -------
<S> <C> <C> <C> <C>
Net sales $104,214 $114,621 $111,699 $115,683
Gross profit 28,894 33,505 31,870 37,491
Net income (loss) (3,335) 3,199 (1,885) 386
</TABLE>
(a) The results of operations for the three months ended March 31, 1993
included $2.85 million reflected as the cumulative effect of a change
in accounting principle, relating to the adoption of SFAS 109.
(b) The results of operations for the three months ended September 30,
1993 included $1.9 million relating to the reversal of other long-term
liabilities associated with reserves which management believed were no
longer needed.
47
<PAGE> 48
(10) QUARTERLY FINANCIAL INFORMATION (CONTINUED)
(c) The results of operations for the three months ended December 31, 1993
included $2.9 million income tax benefit related to the reversal of
certain deferred taxes which the Company believes are no longer
needed.
(d) The results of operations for the three months ended March 31, 1992
included $2.8 million relating to a reduction of other long-term
liabilities attributable to changes in certain of the Company's
postretirement medical benefit plans.
(e) The results of operations for the three-month period ended June 30,
1992 included $6.3 million relating to a reduction of other long-term
liabilities attributable to changes in certain of the Company's
postretirement medical benefit plans 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.
48
<PAGE> 49
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There were no reports on Form 8-K reporting a change of accountants or
disagreement on any matter of financial statement disclosure filed within the
twenty-four months prior to the date of the most recent financial statements.
49
<PAGE> 50
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides certain information about each of the
current directors and executive officers of Formica. All directors hold office
until the next annual meeting of stockholders of Formica, and until their
successors are duly elected and qualified. All executive officers are elected
by and serve at the discretion of the Boards of Directors of Formica. None of
the executive officers of Formica is related by blood, marriage or adoption to
any other executive officer or director of Formica.
<TABLE>
<CAPTION>
Present Principal Occupation
or Employment, Five Year
Employment History and
Name Age Other Directorships
<S> <C> <C>
Vincent P. Langone . . . . . 51 Chairman of the Board, President and Chief Executive Officer of Formica since September
1989. From February 1988 to September 1989, President and Chief Executive Officer of
Formica. From May 1985 to February 1988, President and Chief Operating Officer of Formica.
Director of United Jersey Bank.
Charles P. Durkin, Jr. . . . 55 Director of Formica since May 1989. Managing Director of Dillon, Read & Co. Inc. ("Dillon
Read") since December 1974. Director of HiLo Automotive, Inc. and Viking Office Products,
Inc.
Ilan Kaufthal . . . . . . . . 46 Director of Formica since September 1985. Managing Director of Wertheim Schroder & Co.
Incorporated since February 1987. Director of Cambrex Corporation, Image Business Systems,
Inc., United Retail Group, Inc. and Rexene Corporation.
Wayne B. Lyon . . . . . . . 61 Director of Formica since May 1989. President and Chief Operating Officer since June 1985
and Director since May 1988 of Masco Corporation. Director of Payless Cashways, Inc. and
Comerica Inc.
Peter J. Pirsch . . . . . . 57 Director of Formica since May 1989. Group President of Masco Corporation since July 1985.
Bret E. Russell . . . . . . 39 Director of Formica since May 1989. Senior Vice President of Dillon Read since January
1990. Prior thereto, Vice President of Dillon Read.
David Schneider . . . . . . . 44 Vice President and Chief Financial Officer of Formica since May 1989. Controller of
Formica from March 1987 to May 1989.
Charles A. Brooks . . . . . 46 General Counsel and Secretary of Formica since October 1985.
Robert G. Kraus . . . . . . 51 Treasurer of Formica since December 1986.
Peter Marshall . . . . . . . 58 Vice President of Operations Europe of Formica since December 1992. From November 1990 to
December 1992, Vice President North America Operations of Formica. Prior thereto from
February 1988, Vice President U.S. Operations of Formica.
Dennis Mahony . . . . . . . . 53 Vice President of Operations North America of Formica since December 1992. Prior thereto,
Mr. Mahony held a number of positions with Formica, including Vice President U.S.
Operations, Director of Operations, General Manager and Materials Director.
</TABLE>
50
<PAGE> 51
ITEM 11 EXECUTIVE COMPENSATION
The following table discloses compensation received by the Chief
Executive Officer and the four remaining most highly paid executive officers of
Formica for the three fiscal years ended December 31, 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------- Other -------------------
Annual Restricted All Other
Name and Bonus Compen- Stock Payouts Compensation
Principal Position Year Salary($) ($)(1) sation($)(2) Award(s)($) Options ($) ($)(3)(4)
- ------------------ ---- --------- ------ ------------ ----------- ------- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vincent P. Langone . . 1993 342,000 230,000 10,921 -- -- -- 14,866
Chairman of the Board, 1992 328,000 260,000 13,730 -- -- -- 15,009
President and Chief 1991 316,000 220,000 * -- -- -- *
Executive Officer of
Formica
David Schneider . . . . 1993 175,000 100,000 -- -- -- -- 5,834
Vice President and 1992 160,000 115,000 -- -- -- -- 5,572
Chief Financial 1991 153,333 95,000 * -- -- -- *
Officer of Formica
Peter Marshall . . . . 1993 175,000 55,000 17,217 -- -- -- 1,573
Vice President of 1992 166,500 60,000 2,200 -- -- -- 327,692
Operations Europe 1991 164,528 40,000 * -- -- -- *
of Formica
Dennis Mahony(5) . . . 1993 140,000 40,000 -- -- -- 6,361
Vice President 1992 -- -- -- -- -- -- --
of Operations 1991 -- -- -- -- -- -- --
North America
of Formica
Charles A. Brooks . . 1993 131,600 35,000 -- -- -- -- 4,793
General Counsel and 1992 126,500 40,000 -- -- -- -- 4,612
Secretary of Formica 1991 122,167 36,000 * -- -- -- *
- ---------------
</TABLE>
(1) Bonus amounts were accrued for the year indicated and paid in
the subsequent year.
(2) The amounts shown in this column reflect payments of $6,771
and $8,045 covering the personal use of a Company vehicle for
fiscal years 1993 and 1992, respectively, and $4,150 and
$5,685 for certain legal and tax preparation fees for fiscal
years 1993 and 1992, respectively, for Mr. Langone. The
amounts shown in this column reflect payment of $15,017
covering the personal use of a Company vehicle for the fiscal
year 1993, and $2,200 for fiscal years 1993 and 1992 for tax
preparation fees for Mr. Marshall.
(3) The amounts shown in this column include the following:
(a) Payment by the Company of a premium of $1,576 for
fiscal year 1993 and $1,368 for fiscal year 1992 for
term life insurance; Company paid split dollar life
insurance consisting of $1,378 for fiscal year 1993
and $1,325 for fiscal year 1992 for term life and an
estimated benefit to the executive of $5,160 for
fiscal year 1993 and $5,339 for fiscal year 1992;
$3,214 for fiscal year 1993 and $3,544 for fiscal
year 1992 as the Company's matching contribution to
the Employee Savings Plan; and $3,538 for fiscal year
1993 and $3,433 for fiscal year 1992 as the Company's
contribution to the Profit Sharing account for Mr.
Langone.
51
<PAGE> 52
(b) Company paid split dollar life insurance consisting
of $135 for fiscal year 1993 and $176 for fiscal year
1992 for term life and an estimated benefit to the
executive of $509 for fiscal year 1993 and $596 for
fiscal year 1992; $2,565 for fiscal year 1993 and
$2,400 for fiscal year 1992 as the Company's matching
contribution to the Employee Savings Plan; and $2,625
for fiscal year 1993 and $2,400 for fiscal year 1992
as the Company's contribution to the Profit Sharing
account for Mr. Schneider.
(c) Company paid split dollar life insurance consisting
of $431 for fiscal year 1993 and $445 for fiscal year
1992 for term life and an estimated benefit to the
executive of $1,142 for fiscal year 1993 and $1,173
for fiscal year 1992; and $326,074 of compensation
for fiscal year 1992 realized by the exercise of
stock options in Holdings for Mr. Marshall. Mr.
Marshall realized compensation as disclosed for 1992
by the exercise of his stock options when Holdings
elected to repurchase his stock under the terms of
the Holdings Subscription and Stockholders Agreement.
(d) Company paid split dollar life insurance consisting
of $280 for fiscal year 1993 for term life and an
estimated benefit to the executive of $1,881 for
fiscal year 1993; $2,100 for fiscal year 1993 as the
Company's matching contribution to the Employee
Savings Plan; and $2,100 for fiscal year 1993 as the
Company's contribution to the Profit Sharing account
for Mr. Mahony.
(e) Company paid split dollar life insurance consisting
of $99 for fiscal year 1993 and $141 for fiscal year
1992 for term life and an estimated benefit to the
executive of $746 for fiscal year 1993 and $677 for
fiscal year 1992; $1,974 for fiscal year 1993 and
$1,897 for fiscal year 1992 as the Company's matching
contribution to the Employee Savings Plan; and $1,974
for fiscal year 1993 and $1,897 for fiscal year 1992
as the Company's contribution to the Profit Sharing
account for Mr. Brooks.
(4) Amounts shown in this column include payments made under the
Formica Employee Savings Plan and Profit Sharing Plan in which
all U.S. salaried employees participate.
(5) Mr. Mahony was not part of the highly compensated executive
officer group for years 1992 and 1991, and accordingly, no
disclosure is required for these years.
* Under the Securities and Exchange Commission's transition rules, no
disclosure is required.
The following table provides information concerning options granted to
the named executive officers pursuant to the 1990 Holdings Stock Option Plan.
OPTION GRANTS IN FISCAL YEAR 1993(1)
<TABLE>
<CAPTION>
Percentage of
Total Options Grant
Number of Granted to Exercise or Date
Options Employees in Base Price Expiration Present
Names Granted Fiscal Year Per Share Date Value$(2)
------- ----------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
Vincent P. Langone 31,352 54.0 $0.10 3/10/03 --
David Schneider 2,940 5.1 $0.10 3/10/03 --
Peter Marshall 418 0.1 $0.10 3/10/03 --
Dennis Mahony 4,000 6.9 $0.10 3/10/03 --
Charles A. Brooks 1,304 2.2 $0.10 3/10/03 --
</TABLE>
52
<PAGE> 53
(1) The options reflected in this table represent shares of Series A
Common Stock of Holdings. All of the outstanding shares of the
capital stock of Formica are owned by Holdings.
(2) The capital stock of Holdings is not publicly traded, and accordingly,
the fair market value of Holdings' Series A Common Stock cannot be
readily determined. Under the terms of the 1990 Holdings Stock Option
Plan and the Subscription and Stockholders Agreement entered into by
each of the named executives, if the named executive's employment with
the Company is terminated for any reason, Holdings, at its sole
option, may purchase the stock issuable upon the exercise of the
option at an agreed upon formula. Assuming each of the named
executive's employment with the Company was terminated at 1993 year
end and further assuming Holdings elected to purchase the Series A
Common Stock issuable upon the exercise of such executive's stock
options in accordance with the provisions of the Subscription and
Stockholders Agreement, the present value of each executive's stock
options would have been equal to his exercise price as follows: Mr.
Langone, $3,135; Mr. Schneider, $294; Mr. Marshall, $42; Mr. Mahony,
$400; and Mr. Brooks, $130.
The following table provides information on option exercises in fiscal
year 1993 by the named executive officers and the value of such officers'
unexercised options at December 31, 1993.
<TABLE>
<CAPTION>
Aggregate Option Exercises in 1993 Fiscal Year Value of
and 1993 Fiscal Year End Option Values (1) Unexercised
------------------------------------------ In-the-Money
Number of Number of Unexercised Options at
Shares Acquired Value Options at FY-End FY-End ($)
Name on Exercise Realized ($) Exercisable Exercisable (2)
----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Vincent P. Langone . . -- -- 31,352 Series A Common --
David Schneider(3) . . 15,610 Series A Common -- 20,140 Series A Preferred --
4,028 Series B Common
Peter Marshall . . . . -- -- 5,000 Series A Preferred --
1,000 Series B Common
2,578 Series A Common
Dennis Mahony . . . . . -- -- 9,360 Series A Preferred --
1,872 Series B Common
8,042 Series A Common
Charles A. Brooks . . -- -- 15,595 Series A Preferred --
3,119 Series B Common
8,040 Series A Common
</TABLE>
_______________
53
<PAGE> 54
(1) The options reflected in this table represent shares in
Holdings. All of the outstanding shares of the capital stock
of Formica are owned by Holdings.
(2) The capital stock of Holdings is not publicly traded, and
accordingly, the fair market value of Holdings' stock cannot
be readily determined. Each of the named executives who held
options to purchase Holdings stock at year end have entered
into a Subscription and Stockholders Agreement, which among
other things, contains a formula for the purchase by Holdings
of the stock, at the sole option of Holdings, in the event the
executive's employment with the Company is terminated for any
reason. Assuming each of the named executive's employment
with the Company was terminated at 1993 year end and further
assuming Holdings elected to purchase the stock issuable upon
the exercise of such executive's stock options in accordance
with the provisions of the Subscription and Stockholders
Agreement, the value of each executive's stock options would
have been as follows: Mr. Langone, $3,135; Mr. Schneider,
$305,318; Mr. Marshall, $73,842; Mr. Mahony, $138,554; and
Mr. Brooks, $230,314.
(3) The capital stock of Holdings is not publicly traded, and
accordingly, the present value of Holdings' Series A Common
Stock cannot be readily determined. Under the terms of the
1990 Holdings Stock Option Plan and the Subscription and
Stockholders Agreement entered into by each of the named
executives, if Mr. Schneider's employment with the Company is
terminated for any reason, Holdings, at its sole option, may
purchase the stock issuable upon the exercise of the options
at an agreed upon formula. Assuming Mr. Schneider's
employment with the Company was terminated at 1993 year end
and further assuming Holdings elected to purchase the Series A
Common Stock issued upon the exercise of such executive's
stock options in accordance with the provisions of the
Subscription and Stockholders Agreement, the present value of
the 15,610 shares of Series A Common Stock acquired by Mr.
Schneider would have been $1,561.
PENSION PLAN
The Company maintains the Formica Corporation Employee Retirement Plan
(the "Retirement Plan"), a non-contributory defined benefit plan for United
States employees. The Retirement Plan was amended and restated as of January
1, 1990, to bring it into compliance with legislation which took effect on
January 1, 1989 and amended again in May 1990 and June 1992. Pension benefits
are determined based upon a career average pay formula. The annual pension
benefit to which a salaried employee is entitled, under the Retirement Plan, at
the normal retirement date (age 65 and five years of service) is an amount
equal to the sum of:
(A) (i) 1.5 percent of earnings for each year of service, plus
(ii) 1.5 percent of earnings to date of termination (if termination is
effective other than at year end); plus
(B) the accrued benefit as of June 30, 1992 determined as
being the greater of (i) the benefit accrued under the Retirement Plan
then in effect or (ii) 1.5 percent of the five year average annual
earnings multiplied by years of service as of June 30, 1992.
The Retirement Plan formula calculates annual pension amounts on a
single life annuity basis.
54
<PAGE> 55
The Internal Revenue Code of 1986, as amended (the "Code"), limits the
annual amount payable to an individual under a tax qualified pension plan to
$90,000 (as adjusted for cost of living increases) and places limitations upon
amounts payable to certain individuals. The $90,000 limit on the annual amount
payable to an individual imposed by the Code was adjusted in 1993 to $115,641
and in 1994 to $118,800 to account for cost of living increases. The Code also
limits the amount of annual compensation that may be taken into account by a
plan to $200,000 (as adjusted for cost of living increases). The $200,000
compensation limit was adjusted in 1993 to $235,840 and adjusted downward,
effective January 1, 1994, to $150,000.
Estimated annual benefits payable upon retirement under the Company's
Retirement Plan to Messrs. Langone, Schneider, Marshall, Mahony and Brooks are
$118,800, $72,018, $0, $76,937 and $64,869, respectively, assuming current Code
limitations, no change in present salary and continued service to normal
retirement at age 65. Mr. Langone and Mr. Mahony were previously employed by
American Cyanamid (Formica's former parent) and, therefore, their benefits
would be reduced by any amounts payable under the American Cyanamid retirement
plan. Mr. Marshall was previously employed by the Company's United Kingdom
subsidiary and is entitled to retirement benefits under that company's
retirement plan.
EMPLOYMENT MATTERS
Messrs. Langone, Schneider, Marshall and Brooks entered into
employment agreements with Formica (the "Employment Agreements") in May 1989
and in September 1989 which took effect on September 11, 1989. The Employment
Agreements contain customary employment terms, have a duration of five years
from their effectiveness, subject to annual automatic renewal unless earlier
terminated, and provide for initial annual base salaries, subject to
adjustments, of $290,000, $130,000, $150,000 and $115,000, respectively, for
Messrs. Langone, Schneider, Marshall and Brooks plus additional compensation
or incentive plans adopted by Formica to the extent such participation is
determined by the Board of Directors of Formica.
The Employment Agreements provide that certain benefits are to be
continued for a stated period following termination of employment. The amount
of payments to be made to each individual would vary depending upon such
individual's level of compensation and benefits at the time of termination and
whether such employment was terminated prior to the end of their term by
Formica for "Cause" or by the employee for "Good Reason" (except in the latter
case for Mr. Marshall) (as such terms are defined in the Employment Agreements)
or otherwise during the term of the agreements. In addition, the Employment
Agreements include noncompetition and confidentiality provisions.
55
<PAGE> 56
On February 5, 1989, the Board of Directors of Formica approved
termination agreements with Messrs. Langone, Schneider, Marshall and Brooks
that, in general, would provide that immediately upon the occurrence of a
"change of control event", as defined, involving Formica, an executive whose
employment terminates for any reason other than death, permanent disability,
retirement, for cause, or without good reason, all terms as defined, at any
time after a change of control event (except in the case of Mr. Langone) will
be entitled to (a) 299 percent of his latest salary and bonus earned and (b)
continued coverage under certain employee welfare and pension benefit plans for
certain specified periods after termination and certain other benefits.
Mr. John Boanas resigned as a member of the Board of Directors and as
an executive officer of Holdings and Formica effective January 31, 1993. Mr.
Boanas will be entitled to an annual pension payment from Formica of $37,072
upon attaining the age of 65. In connection with his resignation, Mr. Boanas
entered into noncompetition agreements with the Company which restrict Mr.
Boanas for a period of four years from becoming associated with any company
which competes with the Company in consideration of the Company paying $125,000
per year to Mr. Boanas during the four-year term of the agreements. In
addition, the Company agreed to repurchase from a trust established by Mr.
Boanas the stock he owned in Holdings at a purchase price of $620,750 payable
in installments with interest at 6 percent per annum between January 31, 1993
and January 31, 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Non-employee Directors Ilan Kaufthal, Charles P. Durkin, Jr. and
Wayne B. Lyon serve on the Compensation Committee of Formica's Board of
Directors. Mr. Durkin is a Managing Director of Dillon Read who manages the
investments of the Saratoga Investors (as herein defined), an owner of more
than 5 percent of the stock of Holdings (see "Item 12 Security Ownership of
Certain Beneficial Owners, Directors and Executive Officers"). The Company may
from time to time enter into advisory or other investment banking relationships
with Dillon Read or one of its affiliates pursuant to which Dillon Read will
receive customary fees. For general financial advisory services rendered in
1993, Dillon Read received a fee of $100,000 from the Company. In addition,
Dillon Read, acting as the initial purchaser in connection with the private
placement of $50 million of accrual debentures by Holdings, received a discount
on its purchase of the accrual debentures in the amount of $1.75 million. Mr.
Lyon is President and Chief Operating Officer of Masco Corporation, an owner of
more than 5 percent of the stock of Holdings. The Company and Masco may from
time to time purchase products from each other in regular commercial
transactions.
DIRECTORS' COMPENSATION
Each member of the Board of Directors of Formica who is not an
executive officer of Formica, except Messrs. Durkin and Russell who have
elected not to receive fees, receives a fee of $12,000 per year for serving as
a Director and a fee of $1,000 and $500 for attending each Board of Directors
meeting or committee meeting, respectively.
56
<PAGE> 57
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
EXECUTIVE OFFICERS
The authorized capital stock of Holdings is divided into 10,020,000
shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of
which 9,000,000 shares are Series A Preferred Stock (the "Series A Preferred
Stock") and 1,020,000 shares are Convertible Preferred Stock (the "Convertible
Preferred Stock"), and 2,680,000 shares of Common Stock, par value $.01 per
share (the "Common Stock"), of which 1,200,000 shares are Series A Common Stock
(the "Series A Common Stock") and 1,480,000 shares are Series B Common Stock
(the "Series B Common Stock"). As of December 31, 1993, there were issued and
outstanding 8,513,585 shares of Series A Preferred Stock, 394,135 shares of
Series A Common Stock, 1,002,717 shares of Series B Common Stock and no shares
of Convertible Preferred Stock. An additional 127,045 shares of Series A
Preferred Stock, 116,368 shares of Series A Common Stock and 445,409 shares of
Series B Common Stock are subject to options granted by Holdings. The holders
of Series A Preferred Stock, Series A Common Stock and Series B Common Stock
are entitled to one vote per share on all matters to be voted on by
stockholders of Holdings and will vote together as a single class. The
Convertible Preferred Stock does not possess the right to vote on any matters
to be voted upon by stockholders of Holdings, except as required by law. In
February 1990, the Board of Directors of Holdings adopted the 1990 Holdings
Stock Option Plan (the "Holdings Plan"). The Holdings Plan authorizes the
grant of stock options to acquire Series A Common Stock to employees of
Holdings' subsidiaries. A total of 34,116 shares (subsequently adjusted in
1993 to 95,300) of Series A Common Stock were reserved for grants of options
under the Holdings Plan. In addition, as of March 1, 1994, options to acquire
80,524 shares have been granted under the Holdings Plan and remain outstanding.
Additionally, options to acquire 4,190 shares were granted and have been
exercised under the Holdings Plan and remain outstanding.
The table below sets forth the beneficial ownership of the outstanding
shares of Holdings' capital stock, as of March 1, 1994, by (i) each person who
owns beneficially more than 5% of any class of capital stock of Holdings, (ii)
each director of Formica, (iii) the Chief Executive Officer and certain other
of the highly compensated executive officers of the Company and (iv) all
directors and executive officers of Formica as a group.
57
<PAGE> 58
<TABLE>
<CAPTION>
Number of Shares and Percentages of Class
and Total Voting Interest(1)
----------------------------
Series A Series A Series B Percentage of
Name and Address Preferred Percentage Common Percentage Common Percentage Total Voting
of Beneficial Owner Stock of Class Stock of Class Stock of Class Interest (1)
- ------------------- ----- -------- ----- -------- ----- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Saratoga Investors(2) . . 4,700,000 55.2% -- -- 940,000 93.7% 57.0%
535 Madison Avenue
New York, New York 10022
Masco Corporation(3) . . 3,500,000 41.1% -- -- 420,000 29.5% 38.0%
21001 Van Born Road
Taylor, Michigan 48180
Vincent P. Langone(4) . . 260,300 3.1% 172,903 41.9% 52,060 5.2% 4.9%
1680 Route 23 North
Wayne, New Jersey 07474
David Schneider(5) . . . 31,065 0.4% 16,088 4.2% 6,213 0.6% 0.5%
1680 Route 23 North
Wayne, New Jersey 07474
Ilan Kaufthal . . . . . . 15,010 0.2% -- -- 3,002 0.3% 0.3%
Equitable Center
787 Seventh Avenue
New York, New York 10019
Bret E. Russell(6) . . . -- -- -- -- -- -- --
535 Madison Avenue
New York, New York 10022
Charles P. Durkin, Jr.(7) -- -- -- -- -- -- --
535 Madison Avenue
New York, New York 10022
Wayne B. Lyon(8) . . . . -- -- -- -- -- -- --
21001 Van Born Road
Taylor, Michigan 48180
Peter J. Pirsch(9) . . . -- -- -- -- -- -- --
21001 Van Born Road
Taylor, Michigan 48180
Charles A. Brooks(10) . . 15,595 0.2% 8,040 2.1% 3,119 0.3% 0.3%
1680 Route 23 North
Wayne, New Jersey 07474
Peter Marshall(10) . . . 5,000 0.1% 2,578 0.7% 1,000 0.1% 0.1%
Royal Albert House
Sheet Street
Windsor
Berks SL4 IB4
England
Dennis Mahony(10) . . . . 9,360 0.1% 8,042 2.1% 1,872 0.2% 0.2%
10155 Reading Road
Cincinnati, OH 45202
Directors and . . . . . . 345,690 4.0% 212,493 48.7% 69,138 6.8% 6.3%
executive officers
as a group
(10 persons)(11)
</TABLE>
_______________
(1) The amount of any series of stock is calculated in accordance
with Rule 13d-3(d)(1) of the Exchange Act which provides that
a person shall be deemed to be a beneficial owner of a
58
<PAGE> 59
security if that person has the right to acquire beneficial
ownership of such security within sixty days. In addition,
Rule 13d-3(d)(1) provides that any securities not outstanding
which are subject to such right shall be deemed to be
outstanding for the purpose of computing beneficial ownership
of the outstanding securities of the class owned by such
person and percentage of voting interest but shall not be
deemed to be outstanding for the purpose of computing the
percentage of the class owned by any other person.
(2) The "Saratoga Investors" are Saratoga, Saratoga Partners II,
C.V., Lexington Partners II, L.P., Concord Partners II, L.P.,
Concord Partners, Concord Partners Japan, Limited, Cord
Capital, N.V., and Dillon, Read Inc. ("DRI") and Dillon Read,
as nominees. All of the Saratoga Investors, other than DRI
and Dillon Read, are corporations or limited partnerships
formed to invest in transactions originated by Dillon Read and
are managed by Dillon Read. DRI and Dillon Read, as nominees
for certain managing directors and officers of Dillon Read,
together have sole voting and investment power pursuant to
powers of attorney with respect to the shares of Holdings
capital stock beneficially owned by them. Accordingly, Dillon
Read, alone or with DRI, has the sole power to vote or dispose
of the shares of Holdings capital stock owned by the Saratoga
Investors. DRI is Dillon Read's parent company and may also
be deemed to beneficially own the 9,680 shares of Series A
Common Stock (or 0.1% of the voting interest) owned by DR
Interfunding, which shares are excluded from the table. With
the exception of Saratoga, none of the Saratoga Investors owns
more than 5% of the outstanding shares of Holdings capital
stock. Dillon Read is the Initial Purchaser of the Debentures
and was the underwriter for the public offering of the Senior
Subordinated Notes and acted as placement agent in connection
with the private placement of the Subordinated Discount
Debentures. See Notes 6 and 7 above.
(3) Includes 420,000 shares of Series B Common Stock beneficially
owned by Masco, which are subject to a presently exercisable
option granted by Holdings.
(4) Includes 31,352 shares of Series A Common Stock subject to
presently exercisable options.
(5) Includes 20,140 shares of Series A Preferred Stock and 4,028
shares of Series B Common Stock, all of which are subject to
presently exercisable options.
(6) Bret E. Russell is an employee of Dillon Read and he has
invested funds through DRI and Dillon Read, as nominees, and
Lexington Partners II, L.P., which in aggregate constitute
less than 1% of the funds invested by the Saratoga Investors.
(7) Charles P. Durkin, Jr., is an employee of Dillon Read and he
has invested funds through DRI and Dillon Read, as nominees,
and Lexington Partners II, L.P., which in aggregate constitute
less than 1% of the funds invested by the Saratoga Investors.
(8) Wayne B. Lyon is an employee of Masco.
(9) Peter J. Pirsch is an employee of Masco.
(10) All shares are subject to presently exercisable options.
(11) Includes 59,455 shares of Series A Preferred Stock, 54,854
shares of Series A Common Stock and 11,891 shares of Series B
Common Stock, all of which are subject to presently
exercisable options.
59
<PAGE> 60
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company may from time to time enter into financial advisory or
other investment banking relationships with Dillon Read or one of its
affiliates pursuant to which Dillon Read or its affiliate will receive
customary fees and will be entitled to reimbursement for all reasonable
disbursements and out-of-pocket expenses incurred in connection therewith. The
Company expects that any such arrangement will include provisions for the
indemnification of Dillon Read against certain liabilities, including
liabilities under the Federal securities laws. During 1993, Dillon Read
received a fee of $100,000 from the Company for financial advisory services.
In addition, in September, 1993, Dillon Read, acting as the initial purchaser
in connection with the private placement of $50 million of Accrual Debentures
by Holdings received a discount on its purchase of the Accrual Debentures in
the amount of $1.75 million. The Company and Masco Corporation may from time
to time purchase products from each other in regular commercial transactions.
60
<PAGE> 61
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 2. Financial Statement Schedules
The following financial statement schedules are included in
this report:
Report of Independent Public Accountants on Schedules
Schedule V - Property, Plant and Equipment
Schedule VI - Accumulated Depreciation of Property,
Plant and Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule X - Supplementary Income Statement Information
All other schedules are omitted because they are not
applicable, not required, or the required information is included in
the consolidated financial statements or notes thereto.
(a) 3. Exhibits
Exhibit No. Description
1(m) Purchase Agreement dated September 17, 1993 between FM Holdings
Inc. and Dillon, Read & Co. Inc.
2.1(a) Merger Agreement dated February 6, 1989, as amended, by and
among FM Holdings Inc., FM Acquisition Corporation and Formica
Corporation
3.1(m) Articles of Incorporation of the Registrant
3.2(m) By-laws of the Registrant
4.1(a) Form of Senior Subordinated Note due 1999 (included in Exhibit
4.3)
4.2(b) Form of Subordinated Discount Debenture due 2001 (included in
Exhibit 4.4)
4.3(a) Form of Indenture of Formica Corporation for Senior Subordinated
Notes due 1999
4.4(b) Form of Indenture of Formica Corporation for Subordinated
Discount Debentures due 2001
4.5(a) Form of Credit Agreement dated as of September 7, 1989 by and
among Formica Corporation (certain subsidiaries of Formica
Corporation), the financial institutions then or thereafter
parties thereto and Canadian Imperial Bank of Commerce, New
York Agency, as agent
61
<PAGE> 62
4.6(a) Form of Credit Agreement dated as of September 7, 1989
by and among Formica Limited, the financial institutions then
or thereafter parties thereto and Canadian Imperial Bank of
Commerce, London Branch, as agent
4.7(a) Form of Loan Agreement dated as of September 7, 1989 by
and among Formica France S.A., the financial parties then or
thereafter parties thereto and Canadian Imperial Bank of
Commerce (International), S.A., as agent
4.8(a) Form of Credit Agreement dated as of September 7, 1989 between
Canadian Imperial Bank of Commerce and Formica Canada Inc.
4.9(a) Form of Loan Agreement dated as of September 7, 1989 between
Formica Espanola, S.A. and Banco Bilbao Vizcaya, S.A.
4.10(d) Loan Agreement dated November 30, 1990 between Credit Lyonnais,
Taipei Branch and Formica Taiwan Corporation
4.11.A(d) Schedules I, II and III to the Loan Agreement dated November 30,
1990 between Credit Lyonnais, Taipei Branch and Formica Taiwan
Corporation
4.11(e) Amendment No. 1 dated as of January 15, 1990 to Loan Agreement
dated as of September 7, 1989 by and among Formica Limited, the
financial institutions then or thereafter parties thereto and
Canadian Imperial Bank of Commerce, London Branch, as agent
4.12(g) Amendment No. 1 dated as of September 20, 1990 to the Credit
Agreement dated as of September 7, 1989 by and among Formica
Corporation, certain subsidiaries of Formica Corporation, the
financial institutions then and thereafter parties thereto and
Canadian Imperial Bank of Commerce, New York Agency, as agent,
and Consent and Waiver, dated as of September 20, 1990, and
Initial Participant Consent related thereto
4.13(f) Amendment No. 2 dated as of August 8, 1991 to the Credit
Agreement dated as of September 7, 1989 by and among Formica
Corporation, the financial institutions then and thereafter
parties thereto and Canadian Imperial Bank of Commerce, New York
Agency, as agent
4.14(c) Recognition and Assumption Agreement dated as of
December 20, 1991 among Formica Corporation, Formica Technology
Inc., Texas, Formica Technology Inc., Delaware and Canadian
Imperial Bank of Commerce, New York Agency and Pledge Agreement
Supplement dated as of December 20, 1991 between Formica
Corporation and Canadian Imperial Bank of Commerce, New York
Agency related thereto
4.15(i) Amendment No. 1 dated as of February 17, 1992 to the
Loan Agreement dated November 30, 1990 between Credit Lyonnais,
Taipei Branch and Formica Taiwan Corporation
62
<PAGE> 63
4.16(k) Consent to Release of Pledged Shares dated as of July 6,
1992 to the Credit Agreement dated as of September 7, 1989, as
amended, by and among Formica Corporation, certain subsidiaries
of Formica Corporation, the financial institutions then and
thereafter parties thereto and Canadian Imperial Bank of
Commerce, New York Agency, as agent
4.17(l) Amendment No. 3 dated as of March 9, 1993 to the Credit
Agreement dated as of September 7, 1989 by and among Formica
Corporation, certain subsidiaries of Formica Corporation, the
financial institutions then and thereafter parties thereto and
Canadian Imperial Bank of Commerce, New York Agency, as agent,
and Consent related thereto
4.18(j) Amendment dated as of July 20, 1993 to the Loan
Agreement dated November 30, 1990 between Credit Lyonnais,
Taipei Branch and Formica Taiwan Corporation
4.19(j) Short-Term Line of Credit Facility dated as of July 20,
1993 between Credit Lyonnais, Taipei Branch and Formica Taiwan
Corporation
4.20(m) Amendment No. 4 dated as of August 20, 1993 to the
Credit Agreement dated as of September 7, 1989 by and among
Formica Corporation, certain subsidiaries of Formica
Corporation, the financial institutions then and thereafter
parties thereto and Canadian Imperial Bank of Commerce, New York
Agency, as agent, and Consent related thereto
4.21(m) Form of 13 1/8% Accrual Debenture due 2005, Series A
(included in Exhibit 4.23)
4.22(m) Form of 13 1/8% Accrual Debenture due 2005, Series B
(included in Exhibit 4.23)
4.23(m) Indenture between FM Holdings Inc. and United Jersey
Bank, as trustee, relating to the Accrual Debentures due 2005,
Series A and the Accrual Debentures due 2005, Series B
4.24(m) Registration Rights Agreement dated September 27, 1993
between FM Holdings Inc. and Dillon, Read & Co. Inc.
4.25(m) Debenture Pledge Agreement dated September 27, 1993
between FM Holdings Inc. and United Jersey Bank, as trustee
4.26(m) Collateral Subordination and Intercreditor Agreement
dated September 27, 1993 between Canadian Imperial Bank of
Commerce, as collateral agent, and United Jersey Bank, as
trustee
4.27(m) Amended and Restated Pledge Agreement dated as of
September 27, 1993 made by FM Holdings Inc. in favor of
Canadian Imperial Bank of Commerce, as collateral agent
63
<PAGE> 64
4.28(m) Amendment No. 1 to U.S. Pledge Agreement dated as of
September 27, 1993 made by Formica Corporation and the other
pledgors named therein in favor of Canadian Imperial Bank of
Commerce, as collateral agent
5(m) Opinion of Simpson Thacher & Bartlett regarding the
legality of the New Debentures being registered
8(m) Opinion of Simpson Thacher & Bartlett regarding tax matters
10.1(a) Employment Agreement between Vincent P. Langone and Formica
Corporation
10.2(a) Employment Agreements between John Boanas and Formica
Corporation
10.3(a) Employment Agreement between David Schneider and Formica
Corporation
10.4(a) Formica Corporation Employee Savings Plan for employees
not covered by a collective bargaining agreement
10.5(a) Formica Corporation Employee Savings Plan for employees
covered by a collective bargaining agreement
10.6(e) Formica Corporation Employee Retirement Plan, as Amended
and Restated as of January 1, 1990
10.7(a) Form of Indemnity Agreement dated as of June 27, 1987
between Formica Corporation and its directors and officers
10.8(a) Form of Executive Officer Termination Agreement dated
February 5, 1989 between Formica Corporation and each of Messrs.
Brook, Kraus, Schneider and Marshall
10.9(a) Form of Executive Officer Termination Agreement between
Formica Corporation and Vincent P. Langone
10.10(a) Form of Executive Officer Termination Agreement between
Formica Corporation and John Boanas
10.11(a) Form of Employment Agreement between Peter Marshall and
Formica Corporation
10.12(a) Form of Employment Agreement between Charles Brooks and
Formica Corporation
10.13(a) Form of Employment Agreement between Robert Kraus and
Formica Corporation
12(m) Historical deficiency of earnings available to cover
fixed charges and ratio of earnings to fixed charges
21 List of subsidiaries of the Registrant
64
<PAGE> 65
23.1(m) Consent of Arthur Andersen & Co.
23.2 Consent of Simpson Thacher & Bartlett with respect to
the Accrual Debentures due 2005, Series B (included in their
opinion filed as Exhibit 5)
24(m) Powers of Attorney
25(m) Statement of eligibility of the Trustee on Form T-1
(separately bound)
29.1(m) Form of Letter of Transmittal
29.2(m) Form of Notice of Guaranteed Delivery
29.3(m) Form of Exchange Agent Agreement to be entered into
between FM Holdings Inc. and United Jersey Bank, as exchange
agent
_______________
(a) Previously filed as an Exhibit to Registration Statement No. 33-30012,
filed by Formica Corporation, as the Exhibit No. indicated and hereby
incorporated by reference.
(b) Previously filed as an Exhibit to Registration Statement No. 33-31900,
filed by Formica Corporation, as the Exhibit No. indicated and hereby
incorporated by reference.
(c) Previously filed as an Exhibit to Formica Corporation's Form 10-K for
the year ended December 31, 1991 as the Exhibit No. indicated and
hereby incorporated by reference.
(d) Previously filed as an Exhibit to Formica Corporation's Form 10-K for
the year ended December 31, 1990 as the Exhibit No. indicated and
hereby incorporated herein by reference.
(e) Previously filed as an Exhibit to Formica Corporation's Form 10-K for
the year ended December 31, 1989 as the Exhibit No. indicated and
hereby incorporated herein by reference.
(f) Previously filed as an Exhibit to Formica Corporation's Form 10-Q for
the quarter ended June 30, 1991 as the Exhibit No. indicated and
hereby incorporated by reference.
(g) Previously filed as an Exhibit to Formica Corporation's Form 10-Q for
the quarter ended September 30, 1990 as the Exhibit No. indicated and
hereby incorporated herein by reference.
(h) Previously filed as an Exhibit to Post-Effective Amendment No. 5 to
Registration Statement No. 33-30012 and Post-Effective Amendment No. 4
to Registration Statement No. 33-31900, each filed by Formica
Corporation, as the Exhibit No. indicated and hereby incorporated by
reference.
65
<PAGE> 66
(i) Previously filed as an Exhibit to Formica Corporation's Form 10-Q for
the quarter ended March 31, 1992 as the Exhibit No. indicated and
hereby incorporated by reference.
(j) Previously filed as an Exhibit to Formica Corporation's Form 10-Q for
the quarter ended June 30, 1993 as the Exhibit No. indicated and
hereby incorporated by reference.
(k) Previously filed as an Exhibit to Formica Corporation's Form 10-Q for
the quarter ended September 30, 1992 as the Exhibit No. indicated and
hereby incorporated by reference.
(l) Previously filed as an Exhibit to Formica Corporation's Form 10-K for
the year ended December 31, 1992 as the Exhibit No. indicated and
hereby incorporated by reference.
(m) Previously filed as an Exhibit to FM Holdings Inc.'s S-4 Registration
Statement No. 33-70196 as the Exhibit No. indicated and hereby
incorporated by reference.
___________________
(b) Reports Filed on Form 8-K
No reports were required to be filed on Form 8-K during the
last quarter for the period for which this report is filed.
66
<PAGE> 67
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) 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
/S/ Vincent P. Langone Dated as of
March 29, 1994 Vincent P. Langone
Chairman of the Board, President and
Chief Executive Officer
/S/ David Schneider David Schneider
Vice President and Chief
Financial Officer and Chief
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ Charles P. Durkin, Jr. Director March 29, 1994
Charles P. Durkin, Jr.
/S/ Ilan Kaufthal Director March 29, 1994
Ilan Kaufthal
/S/ Wayne B. Lyon Director March 29, 1994
Wayne B. Lyon
/S/ Peter J. Pirsch Director March 29, 1994
Peter J. Pirsch
/S/ Bret E. Russell Director March 29, 1994
Bret E. Russell
67
<PAGE> 68
SCHEDULE INDEX
<TABLE>
<CAPTION>
Financial Statement Schedules Page
<S> <C>
Report of Independent Public Accountants on Schedules.......... 69
Schedule V - Property, Plant and Equipment................. 70
Schedule VI - Accumulated Depreciation of Property, Plant
and Equipment............................... 71
Schedule VIII - Valuation and Qualifying Accounts............. 72
Schedule X - Supplementary Income Statement Information.... 73
</TABLE>
68
<PAGE> 69
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Formica Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Formica Corporation and subsidiaries
included in Item 8 of this Form 10-K and have issued our report thereon dated
March 1, 1994. Our audits were made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole. The schedules
listed in Item 14(a)2 of this Form 10-K are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic consolidated
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
March 1, 1994
69
<PAGE> 70
<TABLE>
<CAPTION>
SCHEDULE V
FORMICA CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
Balance at Balance at
Beginning Additions Other Translation End of
Classification of Year at Cost Retirements Changes(1) Adjustment Year
-------------- ---------- --------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
For the year ended
December 31, 1991:
Land and improvements $ 16,247 $ 33 $ - $ (1) $ (510) $ 15,769
Buildings and improvements 50,843 176 - 121 (1,412) 49,728
Machinery and equipment 231,402 8,346 (460) (394) (8,290) 230,604
-------- ------- ------- ----- -------- --------
$298,492 $ 8,555 $ (460) $(274) $(10,212) $296,101
======== ======= ======= ===== ======== ========
For the year ended
December 31, 1992:
Land and improvements $ 15,769 $ 15 $ - $ - $ (604) $ 15,180
Buildings and improvements 49,728 379 - - (2,011) 48,096
Machinery and equipment 230,604 10,417 (2,348) (361) (10,411) 227,901
-------- ------- ------- ----- -------- --------
$296,101 $10,811 $(2,348) $(361) $(13,026) $291,177
======== ======= ======= ===== ======== ========
For the year ended
December 31, 1993:
Land and improvements $ 15,180 $ 750 $ - $ 48 $ (623) $ 15,355
Buildings and improvements 48,096 496 (125) 53 (2,081) 46,439
Machinery and equipment 227,901 9,670 (403) (129) (8,636) 228,403
-------- ------- ------- ----- -------- --------
$291,177 $10,916 $ (528) $ (28) $(11,340) $290,197
======== ======= ======= ===== ======== ========
</TABLE>
(1) Other changes include reclassifications and activity relating to
nonrecurring items.
70
<PAGE> 71
<TABLE>
<CAPTION>
SCHEDULE VI
FORMICA CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED BALANCE AT
BEGINNING TO COST AND OTHER TRANSLATION END OF
CLASSIFICATION OF YEAR EXPENSES RETIREMENTS CHANGES(1) ADJUSTMENT YEAR
-------------- --------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
For the year ended
December 31, 1991:
Land and improvements $ 371 $ (25) $ - $ - $ (1) $ 345
Building and improvements 2,870 1,932 - - 39 4,841
Machinery and equipment 25,851 17,265 (408) (1) (774) 41,933
------- ------- ------- ----- ------- -------
$29,092 $19,172 $ (408) $ (1) $ (736) $47,119
======= ======= ======= ===== ======= =======
For the year ended
December 31, 1992:
Land and improvements $ 345 $ 171 $ - $ - $ 1 $ 517
Building and improvements 4,841 1,817 - (35) (179) 6,444
Machinery and equipment 41,933 17,741 (2,221) (346) (1,833) 55,274
------- ------- ------- ------ -------- -------
$47,119 $19,729 $(2,221) $ (381) $ (2,011) $62,235
======= ======= ======= ====== ======== =======
For the year ended
December 31, 1993:
Land and improvements $ 517 $ 142 $ - $ - $ (1) $ 658
Building and improvements 6,444 1,731 (123) 5 (219) 7,838
Machinery and equipment 55,274 16,700 (268) (36) (2,089) 69,581
------- ------- ------- ----- ------- -------
$62,235 $18,573 $ (391) $ (31) $(2,309) $78,077
======= ======= ======= ===== ======= =======
</TABLE>
(1) Other changes include reclassifications and activity relating to
nonrecurring items.
71
<PAGE> 72
<TABLE>
<CAPTION>
SCHEDULE VIII
FORMICA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER DEDUCTIONS FROM TRANSLATION END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS RESERVES ADJUSTMENT YEAR
----------- --------- --------- -------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS AND SALES
RETURNS AND ALLOWANCES:
For the year ended
December 31, 1991 $ 7,729 $2,922 $402 $(1,189) $ (55) $ 9,809
For the year ended
December 31, 1992 $ 9,809 $1,698 $ 2 $ (820) $(258) $10,431
For the year ended
December 31, 1993 $10,431 $ 519 $184 $ (815) $ (88) $10,231
RESERVE FOR AMORTIZATION
OF INTANGIBLE ASSETS:
For the year ended
December 31, 1991 $ 8,735 $5,396 $ - $ - $ (67) $14,064
For the year ended
December 31, 1992 $14,064 $5,524 $ - $ - $(270) $19,318
For the year ended
December 31, 1993 $19,318 $5,579 $ - $ - $(269) $24,628
DEFERRED TAX ASSETS
VALUATION ALLOWANCE:
For the year ended
December 31, 1993 $4,720 $2,839 $ - $ - $ (40) $ 7,519
</TABLE>
72
<PAGE> 73
SCHEDULE X
FORMICA CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Maintenance and repairs $10,134 $10,851 $ 9,743
Advertising $ 9,770 $ 7,512 $ 6,062
</TABLE>
73
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Page
<S> <C> <C>
21 Subsidiaries of the Registrant..................................... 75
</TABLE>
74
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of
Subsidiary Incorporation
---------- ---------------
<S> <C>
Formica Canada, Inc. Canada
Formica Espanola, S.A. Spain
Formica Holdings Limited United Kingdom
Formica Italia S.r.1. Italy
Formica Limited United Kingdom
Formica Nederland B.V. Netherlands
Formica S.A. France
Formica Schweiz AG Switzerland
Formica Asia Ltd. Hong Kong
Consort Laminates Ltd. United Kingdom
Formica Taiwan Corporation Republic of China
Formica Vertriebs GmbH Germany
Formica Singapore Pty. Ltd. Singapore
Gravure et Polissage de Surfaces Metalliques France
Homapal Plattenwerk GmbH & Co. KG Germany
Homapal Plattenwerk Beteilgungsgesellschaft Germany
Design Communications International, Inc. New York
The Diller Corporation Illinois
Thor Turn Key Ltd. Jersey, Channel Islands
Tile International B.V. Netherlands
Formica International Corporation New Jersey
Formica Technology Inc. Delaware
Wildon Corporation Pennsylvania
Wildon Industries, Inc. Pennsylvania
House of Formica SDN BHD Malaysia
Tenedoro Formica de Mexico S.A. de C.V. Mexico
Servicios Formica de Mexico S.A. de C.V. Mexico
Formica de Mexico S.A. de C.V. Mexico
Formica Korea Corporation Korea
</TABLE>
75
