PROSPECTUS SUPPLEMENT
(To Prospectus dated May 19, 2000)
File Pursuant to Rule 424(b)(3) of the Rules and Regulations Under the
Securities Act of 1933
Registration Statement No. 333-76683
FORMICA CORPORATION
10 7/8% Series B Senior Subordinated Notes Due 2009
-----------------------------------
RECENT DEVELOPMENTS
We have attached to this prospectus supplement, and incorporated by reference
into it, Form 10-Q Quarterly Report of Formica Corporation for the Quarter
Ending September 30, 2000 filed with the SEC on November 14, 2000.
------------------------------------
This prospectus supplement, together with the prospectus, is to be used by
Donaldson, Lufkin & Jenrette Securities Corporation in connection with offers
and sales of the notes in market-making transactions at negotiated prices
related to prevailing market prices at the time of sale.
Donaldson, Lufkin & Jenrette Securities Corporation may act as principal or
agent in such transactions.
November 15, 2000
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 10-Q
quarterly Report Pursuant to Section 13
or 15 (d) of the Securities Act of 1934
For the quarterly period ended September 30, 2000
--------------------------------
Commission File Number: 333-76683
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)
15 Independence Boulevard
Warren, NJ 07059
(908) 647-8700
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
David T. Schneider
Vice President and Chief Financial Officer
15 Independence Boulevard
Warren, NJ 07059
(908) 647-8700
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Indicate by checkmark 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, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ----
Title Shares Outstanding as of September 30, 2000
----- -------------------------------------------
Common Stock, $.01 par value
per share 100 Shares Outstanding
<PAGE>
FORMICA CORPORATION
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
2000 and December 31, 1999 1
Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows for the Nine
months ended September 30, 2000 and 1999 3
Notes to the Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure of Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
FORMICA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
September 30, December 31,
2000 1999
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10.0 $ 7.8
Accounts receivable, net 123.6 84.4
Inventories 152.6 119.7
Prepaid expenses and other current assets 28.9 11.5
Deferred income taxes 16.0 14.7
-------- ----------
Total current assets 331.1 238.1
PROPERTY, PLANT AND EQUIPMENT, net 386.5 307.3
OTHER ASSETS:
Intangible assets, net 160.9 161.1
Other noncurrent assets 10.0 11.3
-------- ----------
Total assets $ 888.5 $ 717.8
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 31.0 $ 28.2
Accounts payable 66.8 37.2
Accrued expenses 80.2 56.8
-------- ----------
Total current liabilities 178.0 122.2
LONG-TERM DEBT 452.1 362.9
DEFERRED INCOME TAXES 132.9 125.4
OTHER LIABILITIES 41.5 30.0
-------- ----------
Total liabilities 804.5 640.5
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - par value $.01 per share -
authorized 1,000 shares, none issued
or outstanding - -
Common stock - par value $.01 per share -
authorized 2,000 shares, issued and
outstanding 100 shares 0.1 0.1
Additional paid-in capital 217.0 137.0
Accumulated deficit (94.9) (54.4)
Accumulated other comprehensive loss ( 38.2) (5.4)
-------- ----------
Total stockholders' equity 84.0 77.3
-------- ----------
Total liabilities and stockholders' equity $ 888.5 $ 717.8
======== ==========
See notes to the condensed consolidated financial statements.
Page 1
<PAGE>
FORMICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2000 1999 2000 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $199.2 $145.1 $ 554.5 $ 439.7
COST OF PRODUCTS SOLD 147.8 103.7 406.0 313.6
INVENTORY MARKDOWN FROM RESTRUCTURING -- -- 1.9 --
------- -------- --------- ---------
Gross profit 51.4 41.4 146.6 126.1
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 46.7 36.5 142.7 115.0
PROVISION FOR RESTRUCTURING 0.4 -- 7.6 --
COST OF TERMINATED ACQUISITIONS -- -- 0.4 --
------- -------- --------- ---------
Operating income (loss) 4.3 4.9 (4.1) 11.1
INTEREST EXPENSE (14.4) (9.5) (36.5) (28.5)
OTHER INCOME 1.6 0.8 3.9 2.4
------- -------- --------- ---------
LOSS BEFORE PROVISION FOR INCOME TAXES (8.5) (3.8) (36.7) (15.0)
INCOME TAX PROVISION (0.9) (0.1) (3.8) (2.0)
------- -------- --------- ---------
Net loss $ (9.4) $ (3.9) $ (40.5) $ (17.0)
======= ========== ========= =========
</TABLE>
See notes to the condensed consolidated financial statements.
Page 2
<PAGE>
FORMICA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Nine Months Ended
September 30,
----------------------
2000 1999
--------- --------
CASH PROVIDED BY (USED IN) OPERATIONS $ 16.0 $ (11.4)
INVESTING ACTIVITIES:
Capital expenditures and investments, net (15.8) (17.0)
Acquisitions, net of cash acquired (175.5) (15.6)
--------- --------
Net cash used in investing activities (191.3) (32.6)
FINANCING ACTIVITIES:
Proceeds from borrowings, net of financing fees 133.2 222.9
Equity contribution 80.0 --
Repayments of debt (38.0) (201.9)
--------- --------
Net cash provided by financing activities 175.2 21.0
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 2.3 (0.3)
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2.2 (23.3)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF PERIOD 7.8 31.6
--------- --------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD $ 10.0 $ 8.3
========= ========
See notes to the condensed consolidated financial statements.
Page 3
<PAGE>
FORMICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, the interim financial statements reflect all
material adjustments of a normal recurring nature considered necessary
for a fair presentation of the financial position, results of operations
and cash flow. In addition, management is required to make estimates and
assumptions that affect the amounts reported and related disclosures.
Estimates, by their nature, are based on judgments and available
information. Operating results reported for the interim periods are not
necessarily indicative of the results that may be expected for the entire
year and any other subsequent interim periods.
Earnings per share data are not presented because the common stock of
Formica Corporation ("Formica" or the "Company") is not publicly traded
and the Company is a wholly-owned subsidiary of FM Holdings, Inc.
("Holdings"). Holdings is a wholly-owned subsidiary of Laminates
Acquisition Co. ("Laminates"), thereby Laminates is the ultimate parent
of Formica.
For further information, refer to the audited consolidated financial
statements and footnotes thereto for the year ended December 31, 1999
included in the Company's Form 10-K filed with the Securities and Exchange
Commission (the "SEC").
(2) ACQUISITION:
On March 31, 2000, Decorative Surfaces Holding AB ("DSH") acquired
Perstorp Surface Materials AB ("PSM"), a worldwide producer of decorative
and industrial laminates, finished foils, printed paper and other
surfacing materials from Perstorp AB (Sweden) for approximately $177.5
million (including approximately $2.0 million of transaction costs),
subject to any post-closing obligations. The consideration paid to
Perstorp AB was determined through arms-length negotiations between DSH
and Perstorp AB.
The PSM acquisition and related fees and expenses were financed with
$110.0 million of term loan proceeds under a new senior credit facility
and the issuance of approximately $80.0 million of warrants, common stock
and preferred stock of Laminates and Holdings to 1) DLJ Merchant Banking
Partners II, L.P. and related funds, 2) CVC Capital Partners Limited and
3) management. The $110.0 million in term loans was provided by PSM
Funding, Inc., an affiliate of DLJ Merchant Banking Partners II, one of
the principal shareholders of Laminates.
Holdings had previously announced its intention to contribute the stock of
DSH, together with unused proceeds raised through the debt and equity
issued in connection with the PSM acquisition, to Formica once certain
conditions were satisfied. Formica was not required to pay any
consideration for that contribution, but was to assume the $110.0 million
in debt incurred to finance the acquisition. (See Note 4)
On May 26, 2000, Holdings contributed all of the stock of DSH to Formica.
DSH was a wholly-owned subsidiary of Holdings (the parent company of
Formica) whose sole asset was its investment in PSM. The acquisition was
accounted for on an as-if pooling basis because it is a combination of
entities under common control. Accordingly, Formica's historical financial
statements include PSM's financial position, results of operations and
cash flows after reflecting the acquisition and related purchase
accounting by DSH on March 31, 2000 for all periods beginning April 1,
2000. Formica has allocated the total cost of the acquisition of PSM as
follows (in millions):
Acquisition Consideration..................................... $175.5
Estimated Fees and Expenses................................... 2.0
------
Total Consideration........................................... $177.5
======
Payment of Debt............................................... $ 76.1
Net Tangible Assets........................................... 85.7
Goodwill and Other Intangible Assets.......................... 15.7
------
$177.5
======
The allocation of the consideration paid by DSH for the assets and
liabilities of PSM is based on preliminary estimates of the fair value of
such assets and liabilities. Due to the capital intensive nature of the
PSM business, the excess of the purchase price over the book value of net
assets acquired has been primarily allocated to property, plant and
equipment. A formal appraisal of the assets and liabilities is underway.
Accordingly, the actual allocation of such consideration may differ from
the preliminary estimates after the completion of the independent
valuation and other procedures to be performed. As a result of the
acquisition, Formica has been reviewing all operations within PSM (see
Note 5). The Company recorded a charge of approximately $2.2 million in
the second quarter to reflect the estimated impact following this review,
primarily related to an increase in doubtful accounts and inventory
write-offs.
Page 4
<PAGE>
The following unaudited pro forma consolidated results of operations for
the three and nine months ended September 30, 2000 and 1999 assume the
acquisition had occurred at the beginning of 1999 (in millions):
<TABLE>
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 199.2 $ 198.8 $ 607.7 $ 611.1
Net loss (9.4) (4.3) (43.2) (17.0)
</TABLE>
In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have
occurred had the acquisition been consummated at the beginning of 1999,
or of future results.
(3) INVENTORIES:
Major classes of inventories are as follows:
September 30, December 31,
2000 1999
------------- ------------
(in millions)
Finished goods $ 94.0 $ 84.5
Work-in-process 17.5 11.6
Raw materials 63.3 45.1
------ -------
Total 174.8 141.2
Less, reserves 22.2 21.5
------ -------
$152.6 $ 119.7
====== =======
(4) LONG-TERM DEBT:
In connection with the acquisition of PSM (See Note 2), PSM Funding, Inc.
syndicated and increased the term loan facility to $140.0 million at the
time of the contribution of DSH to Formica. The additional $30.0 million
was used to reduce outstanding borrowings under Formica's existing credit
facility at the time of the contribution and to make any payments in
connection with the closing. Formica's existing credit facility was
amended and restated to include, as a separate tranche of term
borrowings, the $140.0 million term loan. The new tranche will mature in
2006 and will require 1% annual amortization (payable quarterly) until
March 31, 2005, with all remaining amounts payable in increments of $27.6
million quarterly thereafter until maturity. Interest on the new term
loan will be, at Formica's option, either 2.25% over the Base Rate or
3.5% over LIBOR. Interest rates on the other tranches of the credit
facility were also increased by 0.5% in connection with this transaction.
The Company's Credit Facility contains financial covenants requiring the
Company to maintain minimum earnings before interest, taxes, depreciation
and amortization; minimum coverage of interest expense and fixed charges;
and a maximum leverage ratio. The Company is in compliance with all
financial covenants as of September 30, 2000.
(5) RESTRUCTURING:
Prior to May 1, 1998, the management of the Company formulated a plan to
restructure certain operations and provided a restructuring provision of
$6.6 million included as part of its purchase accounting, with
approximately $2.7 million of the restructuring provision remaining at
December 31, 1999. During the three and nine months ended September 30,
2000, the Company spent $0.8 million and $1.8 million, respectively, of
the restructuring provision primarily relating to severance payments. In
the third quarter, the Company reversed the remaining $0.5 million
restructuring liability against the initial purchase accounting. The
remaining balance of this restructuring provision of $0.4 million at
September 30, 2000 is related to severance payments and will be
substantially completed by the end of 2000.
On March 1, 2000, the Company's management committed to a formal plan to
restructure certain operating activities in North America, which will
reduce total headcount by over 200 employees. As part of this
restructuring, the Mt. Bethel, Pennsylvania manufacturing facility was
closed and its operations were subsequently transferred to the Company's
Odenton, Maryland manufacturing facility. The Company provided a
restructuring provision of $6.0 million during the first quarter of 2000.
The restructuring provision can be broken down as follows: assets held
for disposal, facility closure and lease terminations ($3.1 million),
markdown of inventory resulting from the elimination of product lines
($1.9 million) and severance and severance-related items ($1.0 million).
During the three and nine
Page 5
<PAGE>
FORMICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
months ended September 30, 2000, the Company spent $2.4 million and $3.3
million, respectively, of this restructuring provision. In addition, the
Company wrote-off $2.0 million of the restructuring provision liability
against property plant and equipment relating to the Mt. Bethel assets
held for disposal. The remaining balance of the restructuring provision at
September 30, 2000 was $0.7 million consisting of $0.5 million of facility
closure and lease terminations and $0.2 million of severance and
severance-related items. The restructuring plan will be substantially
completed in 2000. The Company has identified an additional $3.0 million
of charges, indirectly related to the restructuring of the North America
operations, of which $0.2 million and $1.6 million was incurred in the
three and nine months ended September 30, 2000, respectively. The balance
is expected to be incurred up to and through the first quarter of 2001.
As of the consummation date of the PSM acquisition, management began a
process to assess the organization as well as the facilities acquired
with the purpose of formulating a structure for the combined
organization. This plan is under review and a complete cost assessment
will not be finalized until the end of 2000. Reserves for organizational
restructuring in the amount of $14.5 million were established as part of
purchase accounting in the second quarter. During the three and nine
months ended September 30, 2000, the Company has spent $1.2 million and
$1.5 million, respectively, of this provision. The remaining balance of
the restructuring provision was $13.0 million at September 30, 2000. The
preliminary organizational restructuring plan, which primarily relates to
the European operations, includes the closing of offices and a select
curtailment of operations, the optimization of the utilization of assets
and a reduction of headcount in excess of 300 employees. This
restructuring is expected to be completed in 2001. Once the approved
formal plan is implemented and underway, this could potentially result in
a change in the estimated range for the reserves established. In
addition, the Company incurred approximately $0.1 million and $0.3
million of restructuring-related expenses associated with the acquisition
of PSM during the three and nine months ended September 30, 2000,
respectively.
On June 1, 2000, the Company's management committed to a formal plan to
restructure certain of its operations within Europe and provided a
restructuring provision of $1.5 million in the second quarter of 2000.
These actions are being taken in conjunction with the integration of the
PSM operations. The plan will result in a reduction in headcount of 25
employees. The restructuring plan includes the closure of a Company
warehouse in Europe with subsequent relocation of operations to elsewhere
in Europe. The restructuring provision consists of the following:
facility closure costs ($0.5 million) and severance and severance-related
items ($1.0 million). During the three and nine months ended September
30, 2000 the Company has spent $0.2 million of this provision. The
remaining balance of the restructuring provision at September 30, 2000
was $1.3 million consisting of $0.5 million of facility closure costs and
$0.8 million of severance and severance-related items. Under the current
timetable, the Company projects that the restructuring plan will be fully
completed by mid-year 2001. The Company has also identified an estimated
additional $0.1 million in charges which was spent in the third quarter
and $0.2 million in capital spending of which $0.1 million was spent in
the third quarter, indirectly related to the restructuring of the
European distribution operations. The Company anticipates the additional
spending will occur mostly during the fourth quarter of 2000.
Depending on the amount and timing of the Company's restructuring
activities, cash flows and results of operations could be materially
affected in a particular quarter.
(6) CONTINGENT MATTERS:
The Company is involved in various proceedings relating to environmental
matters. It is the Company's policy to accrue liabilities for remedial
investigations and clean-up activities when it is probable that such
liabilities have been incurred and when they can be reasonably estimated.
In the ordinary course of business, the Company has been or is the
subject of or party to various pending litigation and claims. Currently,
the Company has been named as a potentially responsible party at several
Superfund sites and has reserved approximately $3.6 million and $3.9
million at September 30, 2000 and December 31, 1999, respectively, for
these matters to recognize a reasonable estimate of the probable
liability. While it is not possible to predict with certainty the outcome
of any potential litigation or claims, the Company believes any known
contingencies, individually or in the aggregate, will not have a material
adverse impact on its financial position or results of operations.
However, depending on the amount and timing of an unfavorable resolution
of this contingency, it is possible that the Company's future cash flows
could be materially affected in a particular quarter.
Formica's operations are subject to federal, state, local and foreign
environmental laws and regulations governing both the environment and the
work place. The Company believes that it is currently in substantial
compliance with such laws and the regulations promulgated thereunder.
On April 5, 1999, the Company received a subpoena covering the period
from January 1, 1994 until April 1, 1999 from a federal grand jury in
connection with an investigation into possible antitrust violations in
the United States market for high-pressure laminate. The Company has
produced documents and provided other information in response to the
subpoena, and a number of present or former Formica employees have
appeared for testimony before the grand jury or have been interviewed by
the Staff of the Antitrust Division of the U.S. Department of Justice in
Page 6
<PAGE>
FORMICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT
connection with the investigation. The Company intends to continue its
cooperation with the investigation. The Company is unable to determine at
this time the effect, if any, that this matter may have on its financial
position, results of operations or cash flows.
Formica Corporation and other manufacturers of high-pressure laminate
("HPL") have been named as defendants in purported class action
complaints filed in federal and certain state courts. The complaints,
which all make similar allegations, allege that Formica and other HPL
manufacturers in the United States have engaged in a contract,
combination or conspiracy in restraint of trade in violation of state and
federal antitrust laws and seek damages of an unspecified amount. The
actions are in their earliest stages. Formica Corporation intends to
defend vigorously against the allegations of the complaints.
Formica is involved in pending litigation in the usual course of
business. In the opinion of management, such litigation will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows. Formica continually evaluates its estimated
legal liabilities as a matter of policy. The Company's estimated range of
liability is based on known claims. There can be no assurances that
Formica will not become involved in future proceedings, litigation or
investigations, that such liabilities will not be material or that
indemnification pursuant to certain indemnification rights will be
available.
(7) COMPREHENSIVE INCOME (LOSS):
Total comprehensive (loss) income was ($26.3) million and ($73.3) million
for the three and nine months ended September 30, 2000, respectively and
$3.1 million and ($21.8) million for the three and nine months ended
September 30, 1999, respectively. The difference between comprehensive
income (loss) and net loss results from foreign currency translation
adjustments.
(8) RELATED PARTY TRANSACTIONS
In order to fund normal working capital requirements, the Company has
entered into certain borrowing arrangements with Laminates Acquisition
Co., the parent of FM Holdings, Inc. These arrangements are short-term in
nature and generally bear no interest. At September 30, 2000 and December
31, 1999, there was approximately $1.0 million outstanding under these
arrangements.
DLJ Capital Funding, an affiliate of DLJ Merchant Banking, has and will
receive customary fees and reimbursement of expenses in connection with
the arrangement and syndication of the Credit Facility and as a lender
thereunder. Laminates Funding, Inc., an affiliate of DLJ Merchant
Banking, was a purchaser of a portion of the bridge notes and received
customary fees and expenses in connection therewith. Donaldson, Lufkin &
Jenrette Securities Corporation, also an affiliate of DLJ Merchant
Banking, acted as the initial purchaser of the Senior Subordinated Notes.
Formica and its subsidiaries may from time to time enter into financial
advisory or other investment banking relationships with Donaldson, Lufkin
& Jenrette Securities Corporation or one of its affiliates whereby
Donaldson, Lufkin & Jenrette Securities Corporation or its affiliates
will receive customary fees and will be entitled to reimbursement for all
related reasonable disbursements and out-of-pocket expenses. Formica
expects that any arrangement will include provisions for the
indemnification of Donaldson, Lufkin & Jenrette Securities Corporation
against a variety of liabilities, including liabilities under the federal
securities laws.
(9) SEGMENT INFORMATION:
The Company is principally engaged in a single line of business: the
design, manufacture and distribution of decorative surfacing products.
Substantially all revenues result from the sale of decorative surfaces
and related products through domestic and international distributors and
direct accounts. The Company's operations are managed on a geographic
basis and, therefore, reportable segments are based on geographic areas.
In the second quarter of 2000, the Company's market presence in Europe,
the Americas and Asia was increased as a result of the PSM acquisition.
Segment revenues are defined as net sales to external customers of each
segment less freight expense and sales allowances. All significant
intercompany sales and expenses have been eliminated in determining
segment revenues and segment profit (loss).
Page 7
<PAGE>
FORMICA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Segment revenues:
United States $ 79.3 $ 82.3 $ 241.8 $ 247.5
Americas - Other 27.0 11.3 65.9 34.7
Europe 68.2 32.7 182.2 106.9
Asia 24.7 18.8 64.6 50.6
-------- -------- -------- --------
Total $ 199.2 $ 145.1 $ 554.5 $ 439.7
======== ======== ======== ========
Segment profit (loss):
Americas $ (2.7) $ (1.5) $ (19.2) $ (6.9)
Europe 3.7 3.5 7.2 10.7
Asia 3.3 2.9 7.9 7.3
-------- -------- -------- --------
Total $ 4.3 $ 4.9 $ (4.1) $ 11.1
======== ======== ======== ========
Depreciation and amortization (included in segment
Americas $ 10.2 $ 8.4 $ 28.9 $ 24.7
Europe 4.1 2.0 11.1 6.5
Asia 1.0 0.9 3.4 2.6
-------- -------- -------- --------
Total $ 15.3 $ 11.3 $ 43.4 $ 33.8
======== ======== ======== ========
A reconciliation of total segment profit (loss) to
Segment (loss) profit $ 4.3 $ 4.9 $ (4.1) $ 11.1
Interest expense (14.4) (9.5) (36.5) (28.5)
Other income 1.6 0.8 3.9 2.4
-------- -------- -------- --------
Loss before provision for income taxes $ (8.5) $ (3.8) $ (36.7) $ (15.0)
======== ======== ======== ========
September 30, December 31,
2000 1999
------------- ------------
(in millions)
Total assets:
United States $ 419.1 $ 451.0
Americas - Other 85.3 37.3
Europe 293.5 152.4
Asia 90.6 77.1
-------- --------
Total $ 888.5 $ 717.8
======== ========
</TABLE>
Page 8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Formica is engaged in the design, manufacture and distribution of
decorative surfacing products. Formica was founded in 1913 and created the
world's first decorative laminate in 1927. In May 1985, a group led by
management and Shearson Lehman purchased Formica from American Cyanamid
Company. In 1989, Formica was sold to FM Acquisition Corporation in a
buyout led by Dillon, Read & Co. Inc. In January 1995, BTR Nylex Ltd., an
Australian company and a subsidiary of BTR plc, acquired Formica. In May
1998, Laminates Acquisition Co. ("Laminates") acquired Formica (the
"Acquisition").
Recent Developments
Perstorp Surface Materials Acquisition: (See Note 2 to the Condensed
Consolidated Financial Statements for further detail) On March 31, 2000,
Decorative Surfaces Holding AB ("DSH") acquired Perstorp Surface
Materials AB ("PSM"), a worldwide producer of decorative and industrial
laminates, finished foils, printed paper and other surfacing materials
from Perstorp AB (Sweden) for approximately $177.5 million (including
approximately $2.0 million of transaction costs), subject to any
post-closing obligations. The consideration paid to Perstorp AB was
determined through arms-length negotiations between DSH and Perstorp AB.
Restructuring Charges: (See Note 5 to the Condensed Consolidated Financial
Statements for further detail ) On March 1, 2000, the Company's management
committed to a formal plan to restructure certain operating activities in
North America, which will reduce total headcount by over 200 employees. As
part of this restructuring, the Mt. Bethel, Pennsylvania manufacturing
facility was closed and its operations were subsequently transferred to
the Company's Odenton, Maryland manufacturing facility. The Company
provided a restructuring provision of $6.0 million during the first
quarter of 2000.
As of the consummation date of the PSM acquisition, management began a
process to assess the organization as well as the facilities acquired
with the purpose of formulating a structure for the combined
organization. This plan is under review and a complete cost assessment
will not be finalized until the end of 2000. Reserves for organizational
restructuring in the amount of $14.5 million were established as part of
purchase accounting in the second quarter.
On June 1, 2000, the Company's management committed to a formal plan to
restructure certain of its operations within Europe and provided a
restructuring provision of $1.5 million in the second quarter of 2000.
These actions are being taken in conjunction with the integration of the
PSM operations. The plan will result in a reduction in headcount of 25
employees.
Depending on the amount and timing of the Company's restructuring
activities, cash flows and results of operations could be materially
affected in a particular quarter.
Litigation: (See Note 6 to the Condensed Consolidated Financial
Statements) Formica Corporation and other manufacturers of high-pressure
laminate ("HPL") have been named as defendants in purported class action
complaints filed in both federal and certain state courts. The
complaints, which all make similar allegations, allege that Formica and
other HPL manufacturers in the United States have engaged in a contract,
combination or conspiracy in restraint of trade in violation of state and
federal antitrust laws and seek damages of an unspecified amount. The
actions are in their earliest stages. Formica Corporation intends to
defend vigorously against the allegations of the complaints.
Results of Operations:
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999
Net Sales. Net sales for 2000 were $554.5 million, compared to net sales
of $439.7 million for 1999, an increase of $114.8 million, or 26.1%. The
acquisition of PSM accounted for $126.2 million of the increase, which was
offset by the impact of unfavorable foreign exchange. Sales in the
Americas increased to $307.7 million from $282.2 million in 1999. This
increase is the result of the acquisition of PSM, which accounted for
$31.7 million. Net sales in Asia increased to $64.6 million in 2000 from
$50.6 million in 1999, an increase of $14.0 million, or 27.7%, resulting
primarily from the addition of the PSM business, which accounted for $6.3
million of the increase, as well as increased volume. Net sales in Europe
increased $75.3 million to $182.2 million in 2000 from $106.9 million in
1999. The acquisition of PSM accounted for $88.2 million of the increase.
Gross Profit. Gross profit for 2000 was $146.6 million, compared to gross
profit of $126.1 million for 1999, an increase of $20.5 million, or 16.3%.
Gross profit as a percentage of net sales in 2000 decreased to 26.4% from
28.7% in 1999. The 2000 period includes $1.9 million related to the
markdown in inventory from the restructuring of the North America
operations. Excluding the restructuring charge, gross profit increased
$22.4 million in 2000, or as a percentage of sales to 26.8 %.
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Gross Profit in the Americas decreased to $76.7 million in 2000 from
$77.5 million in 1999. The $0.8 million decrease primarily resulted from
the $5.4 million contribution from PSM, offset by the $1.9 million
markdown in inventory from the restructuring of the North America
operations, and increased raw material prices. Gross profit as a
percentage of net sales for the Americas decreased to 24.9% in 2000 from
27.5% in 1999, principally as a result of the markdown in inventory from
the restructuring of the North America operations and increased raw
material prices. Gross profit in Europe and Asia increased $21.3 million
to $69.9 million in 2000 from $48.6 million in 1999, or 43.8%, of which
PSM contributed $24.5 million. The effects of foreign exchange
translation, competitive pricing pressures and higher raw material costs
negatively impacted gross profit margins compared to last year. As a
percentage of net sales, gross profit in Europe and Asia decreased to
28.3% in 2000 from 30.9% in 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2000 were $142.7 million compared to $115.0
million for 1999, an increase of $27.7 million. Selling, general and
administrative expenses excluding PSM were $118.0 million for 2000
compared to $115.0 million in 1999. Selling, general and administrative
expenses, as a percent of net sales, were 25.7% in the 2000 period
compared to 26.2% in the 1999 period. Excluding the expenses related to
the acquisition of PSM of approximately $2.8 million, selling, general
and administrative expenses were $115.2 million in the 2000 period
compared to $115.0 million in 1999.
Restructuring Charges (See Note 5 to the Condensed Consolidated Financial
Statements). On March 1, 2000, the Company's management committed to a
formal plan to restructure certain operating activities in North America.
The Company provided a restructuring provision of $6.0 million during the
first quarter of 2000. During the nine months ended September 30, 2000,
the Company spent $3.3 million of the restructuring provision. In
addition, the Company wrote-off $2.0 million of the restructuring
provision liability against property plant and equipment relating to the
Mt. Bethel assets held for disposal. The remaining balance of the
restructuring provision at September 30, 2000 was $0.7 million consisting
of $0.5 million of facility closure and lease terminations and $0.2
million of severance and severance-related items. The restructuring plan
will be substantially completed in 2000. The Company has identified an
additional $3.0 million of charges, indirectly related to the
restructuring of the North America operations, of which $1.6 million was
incurred in the nine months ended September 30, 2000. The balance is
expected to be incurred up to and through the first quarter of 2001.
As of the consummation date of the PSM acquisition, management began a
process to assess the organization as well as the facilities acquired
with the purpose of formulating a structure for the combined
organization. Reserves for organizational restructuring in the amount of
$14.5 million were established as part of purchase accounting in the
second quarter. During the nine months ended September 30, 2000, the
Company has spent $1.5 million of this provision. The remaining balance
of the restructuring provision was $13.0 million at September 30, 2000.
The preliminary organizational restructuring plan, which primarily
relates to the European operations, includes the closing of offices and a
select curtailment of operations, the optimization of the utilization of
assets and a reduction of headcount in excess of 300 employees. This
restructuring is expected to be completed in 2001. In addition, the
Company incurred approximately $0.3 million of restructuring-related
expenses associated with the acquisition of PSM during the nine months
ended September 30, 2000.
On June 1, 2000, the Company's management committed to a formal plan to
restructure certain of its operations within Europe and provided a
restructuring provision of $1.5 million in the second quarter of 2000.
During the nine months ended September 30, 2000 the Company has spent
$0.2 million of this provision. The remaining balance of the
restructuring provision at September 30, 2000 was $1.3 million consisting
of $0.5 million of facility closure costs and $0.8 million of severance
and severance-related items. The Company has also identified an estimated
additional $0.1 million in charges which was spent in the third quarter
and $0.2 million in capital spending of which $0.1 million was spent in
the third quarter, indirectly related to the restructuring of the
European distribution operations. The Company anticipates the additional
spending will occur mostly during the fourth quarter of 2000.
Cost of Terminated Acquisitions. During the nine month period ended
September 30, 2000, the Company incurred a $0.4 million charge relating
to expenses from the cost of a terminated acquisition, primarily for
legal and other professional fees.
Operating Income (Loss). The operating loss for 2000 was $4.1 million
compared to an operating income of $11.1 million for 1999. The 2000
period includes restructuring charges of $9.5 million, acquisition costs
of $2.8 million and a cost of terminated acquisitions of $0.4 million.
After taking into account the 2000 charges, the operating income was $8.6
million in 2000 compared to operating income of $11.1 million in 1999,
for the reasons stated above.
EBITDA. EBITDA decreased to $43.2 million in 2000 compared to $47.3
million in 1999. After taking into account the 2000 period restructuring
costs, acquisition costs and cost of terminated acquisitions (described
above), EBITDA, as adjusted, was $55.9 million in 2000 compared to $47.3
million in 1999.
Interest Expense. Interest expense increased $8.0 million to $36.5
million in 2000 from $28.5 million for 1999. The increase in interest
expense is due to the additional debt incurred in 2000 for the
acquisition of PSM and additional debt incurred in the latter part of
1999, partially offset by a write-off in the 1999 period of deferred
financing fees related to the refinancing of the bridge notes.
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Income Taxes. Income tax expense increased to $3.8 million in 2000
compared to $2.0 million in 1999. The increase in income tax expense is
primarily the result of an increase in the taxable income in certain
foreign countries.
Net Loss. Net loss was $40.5 million in 2000 compared to a net loss of
$17.0 million in 1999, due to the reasons described above.
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999
Net Sales. Net sales for 2000 were $199.2 million, compared to net
sales of $145.1 million for 1999, an increase of $54.1 million, or 37.3%.
The acquisition of PSM accounted for $58.0 million of the increase, which
was offset by the impact of unfavorable foreign exchange. Net sales in
the Americas increased $12.7 million to $106.3 million in 2000 from $93.6
million in 1999, primarily due to the acquisition of PSM, which accounted
for $15.5 million, and improved laminate pricing in the U.S., partially
offset by lower volume. Net sales in Asia increased to $24.7 million in
2000 from $18.8 million in 1999, an increase of $5.9 million, or 31.4%,
resulting primarily from the addition of the PSM business, which
accounted for $2.7 million of the increase, as well as increased volume.
Net sales in Europe increased $35.5 million to $68.2 million in 2000 from
$32.7 million in 1999. The acquisition of PSM accounted for $39.8 million
of the increase.
Gross Profit. Gross profit for 2000 was $51.4 million, compared to gross
profit of $41.4 million for 1999, an increase of $10.0 million, or 24.2%,
of which PSM contributed $12.5 million. Gross profit as a percentage of
net sales in 2000 decreased to 25.8% from 28.5% in 1999, primarily due to
the addition of the PSM business.
Gross Profit in the Americas increased to $25.2 million in 2000 from $24.8
million in 1999, of which PSM contributed $2.5 million. Gross profit as a
percentage of net sales for the Americas decreased to 23.7% in 2000 from
26.5% in 1999, principally as a result of increased raw material costs and
the decrease in volume partially offset by improved pricing levels. Gross
profit in Europe and Asia increased to $26.2 million in 2000 from $16.6
million in 1999, of which PSM contributed $10.0 million. The effects of
foreign exchange translations negatively impacted gross profit margins
compared to last year. As a percentage of net sales, gross profit in
Europe and Asia collectively decreased to 28.2% in 2000 from 32.2 % in
1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2000 were $46.7 million compared to $36.5
million for 1999, an increase of $10.2 million. As a percent of net sales,
selling, general and administrative expenses decreased to 23.4% in the
2000 period compared to 25.2% in the 1999 period. Excluding the effects of
PSM, selling, general and administrative expenses were $35.9 million for
2000 compared to $36.5 million in 1999. Excluding the expenses related to
the acquisition of PSM of approximately $0.3 million, selling, general and
administrative expenses were $35.6 million in the 2000 period compared to
$36.5 million in 1999.
Restructuring Charges (See Note 5 to the Condensed Consolidated Financial
Statements). During the third quarter of 2000, the Company spent $2.4
million of the North America restructuring provision, as well as incurring
an additional $0.2 million of indirectly related restructuring charges for
the North America operations.
During the third quarter of 2000, the Company spent $1.2 million of the
PSM organizational restructuring reserve, as well as incurring an
additional $0.1 million of restructuring-related expenses.
During the third quarter of 2000, the Company spent $0.2 million of the
European restructuring provision, as well as incurring an additional $0.1
million of indirectly related restructuring charges for the European
operations.
Operating Income (Loss). The operating income for 2000 was $4.3 million
compared to an operating income of $4.9 million for 1999. The 2000 period
includes restructuring charges of $0.4 million and acquisition costs of
$0.3 million. After taking into account the 2000 charges, the operating
income was $5.0 million in 2000 compared to operating income of $4.9
million in 1999, for the reasons stated above.
EBITDA. EBITDA increased to $21.2 million in 2000 compared to $17.0
million in 1999. After taking into account the 2000 period restructuring
and acquisition charges (described above), EBITDA, as adjusted, was $21.9
million in 2000 compared to $17.0 million in 1999.
Interest Expense. Interest expense increased to $14.4 million in 2000 from
$9.5 million for 1999. The increase in interest expense is due to the
additional debt incurred in 2000 for the acquisition of PSM and additional
debt incurred in the latter part of 1999.
Income Taxes. Income tax expense increased to $0.9 million in 2000
compared to $0.1 million in 1999. The increase in income tax expense is
primarily the result of an increase in the taxable income in certain
foreign countries.
Net Loss. Net loss was $9.4 million in 2000 compared to a net loss of $3.9
million in 1999, due to the reasons described above.
Liquidity and Capital Resources
Formica's principal sources of liquidity are cash flows from operations,
borrowings under the Credit Facility and local credit facilities obtained
by some of Formica's foreign subsidiaries. Formica's principal uses of
cash will be
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debt service requirements to service the acquisition-related debt
described below, capital expenditures and future acquisitions.
As of September 30, 2000, Formica had approximately $483.1 million of
indebtedness outstanding compared to $391.1 million as of December 31,
1999. Formica's significant debt service obligations could, under certain
circumstances, have material consequences to security holders.
Working capital was $153.1 million at September 30, 2000 compared to
$115.9 million at December 31, 1999. The increase was primarily the
result of the acquisition of PSM that increased working capital by
approximately $51.5 million. Management believes that Formica will
continue to require working capital levels consistent with past
experience and that current levels of working capital, together with
borrowing capacity available under the Credit Facility and the continued
effort by management to manage working capital, will be sufficient to
meet expected liquidity needs in the near term.
In connection with the Acquisition in 1998, Formica's parent raised
approximately $137.1 million through the issuance of common and preferred
stock to the DLJMB Funds, the institutional investors and Messrs. Langone
and Schneider. The Laminates 8% Preferred Stock has an 8% cumulative
dividend that is paid in cash when, as and if declared by the Laminates
board. The Holdings 15% Senior Exchangeable Preferred Stock due 2008 has a
15% cumulative dividend which is not payable in cash until May 2003 and is
exchangeable at Holdings' option for 15% subordinated debentures of
Holdings. Dividends from Formica, which are restricted by the provisions
of the Credit Facility and the indenture governing the Notes described
below, are the primary source of funding for payments with respect to
Holdings and Laminates securities. In addition, Formica sold $200.0
million of senior subordinated unsecured increasing rate bridge notes (the
"Bridge Notes") and, together with its subsidiaries, borrowed $80.0
million of term loans under the Credit Facility. The Bridge Notes were
refinanced in February 1999 as noted below.
In February 1999, Formica issued $215.0 million of 10 7/8% Senior
Subordinated Notes due March 1, 2009 (the "Notes") and repaid the Bridge
Notes. The Notes mature in 2009. Interest on the Notes is payable
semiannually in cash. The Notes and related indenture place certain
restrictions on Formica and its subsidiaries, including the ability to pay
dividends, issue preferred stock, repurchase capital stock, incur and pay
indebtedness, sell assets and make certain restricted investments.
The Credit Facility includes a $120.0 million revolving credit facility,
an $85 million term loan and a $140.0 million term loan. The $120.0
million revolving credit facility may be increased by up to $25.0 million
at the request of Formica, with the consent of the banks providing the
increased commitments, and will terminate on May 1, 2004. The $85 million
and $140.0 million term loans will mature in 2004 and 2006 respectively.
At September 30, 2000, $57.7 million was outstanding against the revolving
credit facility. The term loans under the Credit Facility totaled $215.1
million at September 30, 2000 and amortize over the life of the Credit
Facility.
Borrowings under the Credit Facility generally bear interest based on a
margin over the base rate or, at Formica's option, the reserve-adjusted
LIBOR rate. The applicable margin varies based upon Formica's ratio of
consolidated debt to EBITDA. Formica's obligations under the Credit
Facility are guaranteed by Laminates, Holdings and all existing or future
domestic subsidiaries of Formica (the "subsidiary guarantors") and are
secured by substantially all of the assets of Formica and the subsidiary
guarantors, including a pledge of capital stock of all existing and
future subsidiaries of Formica (provided that, with a single exception,
no more than 65% of the voting stock of any foreign subsidiary shall be
pledged) and a pledge by FM Holdings, Inc. of the stock of Formica and by
Laminates Acquisition Co. of the stock of FM Holdings, Inc. The Credit
Facility contains customary covenants and events of default. The Company
is in compliance with the financial covenants as of September 30, 2000.
In conjunction with the contribution of PSM to Formica by Holdings, the
Company assumed $110.0 million in debt. PSM Funding, Inc. syndicated and
increased the term loan facility to $140.0 million at the time of the
contribution. The additional $30.0 million was used to reduce outstanding
borrowings under Formica's existing credit facility at the time of the
contribution and to make any payments in connection with the closing.
Formica's existing credit facility was amended and restated to include
the $140.0 million term loan as a separate tranche that will mature in
2006 and will require 1% annual amortization (payable quarterly) until
March 31, 2005, with all remaining amounts payable in increments of $27.6
million quarterly thereafter until maturity. Interest on the new term
loan will be, at Formica's option, either 2.25% over the Base Rate or
3.5% over LIBOR. Interest rates on the other tranches of the credit
facility were also increased by 0.5% in connection with this transaction.
Formica maintains various local credit facilities in foreign countries
(primarily in Asia) that provide for borrowings in local currencies.
Formica may replace the availability of these facilities (in local
currencies) under the Credit Facility and will maintain some of these
credit facilities to provide financing for its subsidiaries in these
countries. Formica expects that these facilities, together with the
Credit Facility and operating cash flow in these countries, will be
sufficient to fund expected liquidity needs in these countries.
As of September 30, 2000 and December 31, 1999, Formica had outstanding
approximately $29.9 million and $28.4 million, respectively, in letters
of credit under the Credit Facility to provide credit enhancement and
support for certain of its credit facilities.
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In the last several years, Formica has implemented a major capital
investment program that management believes will increase capacity, yield
manufacturing savings and improve competitiveness. Formica has spent
approximately $15.8 million on capital expenditures during 2000, and
anticipates that it will spend an additional $5.0-$7.0 million during the
remainder of the year. The Credit Facility contains restrictions on its
ability to make capital expenditures. Based on present estimates, Formica
believes that the amount of capital expenditures permitted under the
Credit Facility will be adequate to complete its investment program and
maintain the properties and businesses of its current operations.
Formica continues to evaluate acquisitions that will complement or expand
its decorative surfaces businesses or that will enable it to expand into
new markets. In connection with any future acquisitions, Formica may
require additional funding which may be provided in the form of additional
debt, equity financing or a combination thereof. There can be no
assurance, however, that any such additional financing will be available
on acceptable terms.
Formica anticipates that its operating cash flow, together with
borrowings under the Credit Facility, will be sufficient to meet its
anticipated future operating expenses, capital expenditures and debt
service obligations as they become due. However, Formica's ability to
make scheduled payments of principal of, to pay interest on or to
refinance the indebtedness and to satisfy its other debt obligations will
depend upon its future operating performance, which will be affected by
general economic, financial, competitive, legislative, regulatory,
business and other factors beyond its control.
Formica will continue from time to time to explore additional auxiliary
financing methods and other means to lower its cost of capital, which
could include stock issuance or debt financing and the application of the
proceeds therefrom to the payment of bank debt or other indebtedness.
Cash flows from operations and funds available under the Company's bank
credit agreements continue to provide the Company with liquidity and
capital resources for working capital, capital expenditures and debt
service requirements.
Cash provided by operations was $16.0 million for the nine months ended
September 30, 2000, compared to cash used in operations of $11.4 million
for the nine months ended September 30, 1999. The increase in cash
provided by operations is the result of a decrease in accounts receivable
and inventory and an increase in accounts payable. The decrease in
accounts receivable and inventories results from an effort to improve the
management of working capital. Net cash used in investing activities was
$191.3 million for the nine months ended September 30, 2000 and $32.6
million for the nine months ended September 30, 1999. The 2000 period
includes $175.5 million due to the acquisition of PSM. Net cash provided
by financing activities was $175.2 million for the nine months ended
September 30, 2000, which included additional financing resulting from
the acquisition of PSM, and $21.0 million for the nine months ended
September 30, 1999.
Effect of Inflation; Seasonality
Formica does not believe that inflation has had a material impact on its
financial position or results of operations. Formica's operations are
modestly influenced by seasonal fluctuations.
Common European Currency
The Treaty on European Economic and Monetary Union provides for the
introduction of a single European currency, the Euro, in substitution for
the national currencies of the member states of the European Union that
adopt the Euro. In May 1998 the European Council determined: (i) the 11
member states that met the requirement for the Monetary Union, and (ii)
the currency exchange rates amongst the currencies for the member states
joining the Monetary Union.
The transitory period for the Monetary Union started on January 1, 1999.
According to Council Resolution of July 7, 1997, the introduction of the
Euro will be made in three steps: (i) a transitory period from January 1,
1999 to December 31, 2001, in which current accounts may be opened and
financial statements may be drawn in Euros, and local currencies and
Euros will coexist; (ii) from January 1, 2002 to June 30, 2002, in which
local currencies will be exchanged for Euros; and (iii) from July 1, 2002
in which local currencies will disappear.
Formica cannot give assurance as to the effect of the adoption of the
Euro on its payment obligations under loan agreements for borrowings in
currencies to be replaced by the Euro or on its commercial agreements in
those currencies. However, the Company has not experienced nor does it
anticipate any problems resulting from the adoption of the Euro.
Market Risk
We use financial instruments, including fixed and variable rate debt, to
finance operations. We occasionally utilize forward contracts to hedge
certain foreign currency exposures. Forward contracts are entered into
for periods consistent with underlying exposures and do not constitute
positions independent of those exposures. We do not enter into contracts
for speculative purposes and are not a party to any leverage instruments.
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Foreign Currency Exchange Rate Risk
Our operating results are subject to significant fluctuations based upon
changes in the exchange rates of other currencies in relation to the U.S.
dollar. Although we will continue to monitor our exposure to currency
fluctuations and, when appropriate, use financial hedging techniques in
the future to minimize the effect of these fluctuations, we cannot assure
you that exchange rate fluctuations will not harm our business in the
future.
Forward-Looking Information
This report (as well as other public filings, press releases and
discussions with Company management) contains and incorporates by
reference certain forward-looking statements. These statements are
subject to risks, uncertainties and other factors, which could cause
actual results to differ from those anticipated. Forward-looking
statements include the information concerning:
o our future operating performance, including sales growth and cost
savings and synergies following our acquisition by Laminates, and our
acquisitions of Fountainhead, STEL and Perstorp Surface Materials
o our belief that we have sufficient cash flows to support working
capital needs, capital expenditures and debt service requirements and
o our belief that our reduction in selling, general and administrative
expenses, as a percentage of sales, will not affect our net sales
In addition, statements that include the words "believes," "expects,"
"anticipates," intends," "estimates," "will," "should," "may," or other
similar expressions are forward-looking statements. For those statements,
we claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
What Factors Could Affect the Outcome of Our Forward-Looking Statements?
You should understand that the following important factors, in addition
to those discussed elsewhere in this Form 10-Q, and in Formica's Form
10-K could affect the future results of Formica and could cause those
results or other outcomes to differ materially from those expressed in
our forward-looking statements.
Industry and Market Factors
o changes in economic conditions generally or in the markets served by
the Company
o fluctuations in raw material and energy prices
o product specifier preferences and spending patterns and
o competition from other decorative surfaces producers
Operating Factors
o our ability to combine our recently acquired businesses while
maintaining current operating performance levels during the
integration period(s) and the challenges inherent in diverting our
management's focus and resources from other strategic opportunities
and from operational matters
o our ability to implement our cost savings plans without adversely
impacting our net sales and
o our ability to attract, hire and retain suitable personnel
Relating to our Debt and the Notes
We have substantial debt, which could limit our cash available for other
uses and harm our competitive position. In connection with our
acquisitions, we have incurred significant indebtedness. The level of our
indebtedness could have important consequences to us, including:
o limiting our ability to obtain additional debt financing in the future
for working capital, capital expenditures or acquisitions
o limiting cash flow available for general corporate purposes, including
acquisitions, because a substantial portion of our cash flow from
operations must be dedicated to debt service
o limiting our flexibility in reacting to competitive and other changes
in the industry and economic conditions generally and
o exposing us to risks inherent in interest rate fluctuations because
some of our borrowings may be at variable rates of interest, which
could result in higher interest expense in the event of increases in
interest rates
You should read the section called "Risk Factors" in the Registration
Statements on Form S-1 (file no. 333-76683) that we filed with the SEC,
for additional information about risks that may cause our actual results
and experience to differ materially from those contained in
forward-looking statements.
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Recent Accounting Pronouncements
In June 1998, SFAS No. 133-"Accounting for Derivative Instruments and
Hedging Activities" was issued ("SFAS No. 133"). In June 1999, SFAS No.
137-"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133" was issued which
deferred the effective date of SFAS No. 133 to all fiscal quarters of
fiscal years beginning after June 15, 2000. In June 2000, SFAS No. 138 was
issued, which amended SFAS No. 133. These SFAS's require all derivatives
to be measured at fair value and recognized as assets or liabilities on
the balance sheet. Changes in the fair value of derivatives should be
recognized in either net income or other comprehensive income, depending
on the designated purpose of the derivative. SFAS No. 133, as amended by
SFAS No. 138, is not expected to have a material impact on the Company's
financial position or results of operations.
Contingent Matters
Refer to Note 6 of the Notes to Condensed Consolidated Financial
Statements for a discussion of legal contingencies.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
The information called for by this item is provided under Item
2--Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Part II. Other Information
Item 1. Legal Proceedings
o See Note 6 of the Notes to Condensed Consolidated Financial Statements
for a discussion of legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
o In September 2000, R.E. Cartledge was elected to the Formica
Corporation Board of Directors.
Item 6. Exhibits and Reports on Form 8-K
o On July 12, 2000, Formica filed a Form 8-K describing being named as
a defendant in class action lawsuits.
o On August 1, 2000, Formica filed a Form 8-K/A, the first amendment to
the May 31, 2000 Form 8-K relating to the acquisition of Decorative
Surfaces Holding AB.
The following exhibit is included herein:
(12) Computation of Ratio of Earnings to Fixed Charges Page E-1
(27) Financial Data Schedule (for electronic submission only) Page E-2
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Formica Corporation
---------------------------
Registrant)
/s/ David T. Schneider
---------------------------
(David T. Schneider -
Chief Financial Officer)
November 13, 2000
---------------------------
(Date)
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