(NY) 08218/001/10Q/EDGAR/may0901_10q.txt

                       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 March 31, 2001

                        --------------------------------

                       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
incorporation or organization)                              Identification No.)

                           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
                                 ---             ---

                                                   Shares Outstanding as
             Title                                   of March 31, 2001
             -----                                ----------------------
Common Stock, $.01 par value per share            100 Shares Outstanding


<PAGE>

                              FORMICA CORPORATION

                                     Index

Part I.   Financial Information                                            Page

Item 1.   Financial Statements

          Condensed Consolidated Balance Sheets as of March 31, 2001 and
          December 31, 2000                                                  1
          Condensed Consolidated Statements of Operations for the three
          months ended March 31, 2001 and 2000                               2
          Condensed Consolidated Statements of Cash Flows for the three
          months ended March 31, 2001 and 2000                               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            14

Part II.  Other Information
Item 1.   Legal Proceedings                                                 14
Item 6.   Exhibits and Reports on Form 8-K                                  14

Signatures                                                                  15



<PAGE>

Part I. Financial Information
Item 1: Financial Statements

                              FORMICA CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                        (in millions, except share data)

                                                       March 31,    December 31,
                                                          2001         2000
                                                      -----------   -----------
                                     ASSETS           (Unaudited)   (Audited)
                                     ------
CURRENT ASSETS:
   Cash and cash equivalents                           $      4.6   $       3.4
   Accounts receivable, net                                 118.6         112.2
   Inventories                                              164.1         157.2
   Prepaid expenses and other current assets                 20.2          19.1
   Deferred income taxes                                     23.5          24.0
                                                       ----------   -----------
          Total current assets                              331.0         315.9

PROPERTY, PLANT AND EQUIPMENT, net                          357.4         370.3

OTHER ASSETS:
   Intangible assets, net                                   160.2         168.6
   Other non-current assets                                  25.3          24.6
                                                       ----------   -----------
          Total assets                                 $    873.9   $     879.4
                                                       ==========   ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Current maturities of long-term debt                $     34.3   $      29.7
   Accounts payable                                          63.6          68.3
   Accrued expenses and other current liabilities            65.6          79.5
                                                       ----------   ------------
          Total current liabilities                         163.5         177.5

LONG-TERM DEBT                                              477.9         440.9
DEFERRED INCOME TAXES                                       124.1         130.0
OTHER LIABILITIES                                            37.9          39.7
                                                       ----------   ------------
          Total liabilities                                 803.4         788.1

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         217.0
   Accumulated deficit                                      (99.9)        (91.9)
   Accumulated other comprehensive loss                     (46.7)        (33.9)
                                                       -----------  -----------
          Total stockholders' equity                         70.5          91.3
                                                       -----------  -----------
          Total liabilities and stockholders' equity   $    873.9   $     879.4
                                                       ===========  ============

         See notes to the condensed consolidated financial statements.


                                    Page 1

<PAGE>


                              FORMICA CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
                                 (in millions)


                                                           Three Months Ended
                                                              March 31,
                                                        ----------------------
                                                          2001          2000
                                                        --------      --------

NET SALES                                                $194.1        $146.3

COST OF PRODUCTS SOLD                                     147.1         106.7

INVENTORY MARKDOWN FROM RESTRUCTURING                      ---            1.9
                                                        -------        ------

                Gross profit                               47.0          37.7

SELLING, GENERAL AND
 ADMINISTRATIVE EXPENSES                                   46.6          39.7

PROVISION FOR RESTRUCTURING                                 0.2           4.1

COST OF TERMINATED ACQUISITIONS                            ---            0.4
                                                        -------        ------

                Operating income (loss)                     0.2          (6.5)

INTEREST EXPENSE                                          (13.1)        (10.0)

OTHER INCOME                                                2.1           0.6
                                                        -------        ------

LOSS BEFORE PROVISION FOR INCOME TAXES                    (10.8)        (15.9)

INCOME TAX BENEFIT (PROVISION)                              2.8          (0.9)
                                                        --------       -------

                Net loss                                $  (8.0)       $(16.8)
                                                        ========       ======


         See notes to the condensed consolidated financial statements.

                                    Page 2

<PAGE>



                              FORMICA CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                 (in millions)

                                                          Three Months Ended
                                                                March 31,
                                                        ------------------------
                                                          2001            2000
                                                        --------        --------

CASH USED IN OPERATIONS                                 $ (36.3)        $  (3.6)

INVESTING ACTIVITIES:
   Capital expenditures and investments, net               (6.4)           (2.8)
                                                        -------         --------
       Net cash used in investing activities               (6.4)           (2.8)

FINANCING ACTIVITIES:
   Net borrowings under lines of credit                    47.4             8.4
   Repayments of debt                                      (3.2)           (1.7)
                                                        -------         --------
       Net cash provided by financing activities           44.2             6.7

EFFECTS OF EXCHANGE RATE CHANGES ON CASH                   (0.3)           (0.8)
                                                        -------         --------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS            1.2            (0.5)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD        3.4             7.8
                                                        -------         --------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD          $   4.6         $   7.3
                                                        =======         ========



         See notes to the condensed consolidated financial statements.


                                    Page 3


<PAGE>


                              FORMICA CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


(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.

      Certain reclassifications have been made to prior period amounts to
      conform with the current period presentation. For further information,
      refer to the audited consolidated financial statements and footnotes
      thereto for the year ended December 31, 2000 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") from Perstorp AB (Sweden) for
      approximately $177.5 million (including approximately $2 million of
      transaction costs). DSH was a wholly-owned subsidiary of Holdings (the
      parent company of Formica) whose sole asset was its investment in PSM. On
      May 26, 2000, Holdings contributed all of the stock of DSH to Formica.
      The acquisition was accounted for on an as-if pooling basis because it
      was a combination of entities under common control. Accordingly,
      Formica's results of operations reflect the acquisition and related
      purchase accounting by DSH on March 31, 2000 for all periods beginning
      April 1, 2000 and thereafter.

      The following unaudited pro forma consolidated results of operations for
      the three months ended March 31, 2001 and 2000 assume the acquisition had
      occurred at the beginning of 2000 (in millions):

                                    Three months ended
                                March 31,        March 31,
                                  2001             2000
                               ------------    ------------
             Net sales          $ 194.1         $ 201.4
             Net loss              (8.0)          (19.9)


      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 2000,
      or of future results.

 (3)  INVENTORIES:

      Major classes of inventories are as follows:

                                March 31,      December 31,
                                   2001            2000
                                ---------      ------------
                                       (in millions)

             Finished goods     $  89.7           $  88.2
             Work-in-process       16.1              14.4
             Raw materials         58.3              54.6
                                -------           -------
             Total                164.1            157.2
                                =======           =======



                                    Page 4


<PAGE>


(4)   LONG-TERM DEBT:

      As of March 31, 2001, Formica had $512.2 million of indebtedness
      outstanding compared to $470.6 million as of December 31, 2000. The
      increase of $41.6 million was primarily the result of additional
      borrowings under the Company's revolving credit facility during the three
      months ended March 31, 2001. The Company's credit facility contains
      financial covenants requiring the Company to maintain minimum EBITDA,
      minimum coverage of interest expense and fixed charges and a maximum
      leverage ratio. The Company was in compliance with the financial
      covenants as of March 31, 2001. The Company's continued compliance with
      debt covenants is dependent upon future economic performance which may be
      affected by economic, financial, competitive, legislative, regulatory and
      other factors beyond the Company's control.

(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. The remaining
      balance of this restructuring provision related to severance payments at
      March 31, 2001 is $0.2 million and will be substantially completed in
      2001.

      On March 1, 2000, the Company's management committed to a formal plan to
      restructure certain operating activities in North America and provided
      for a restructuring provision of $6.0 million of which approximately $0.6
      million was remaining at December 31, 2000, consisting of $0.3 million of
      facility closing costs and $0.3 million of severance and severance
      related items. The Company's management evaluated the restructuring
      reserve balance at March 31, 2001 and determined that approximately $0.2
      million was necessary for the remaining facility closing costs in North
      America. Therefore, approximately $0.3 million of the reserve balance was
      reversed and included in income as an offset to the original provision
      for restructuring during the three months ended March 31, 2001. The
      change in estimate was attributable to lower than anticipated
      severance-related costs. During the three months ended March 31, 2001,
      the Company utilized $0.1 million of its restructuring reserve for
      facility closing costs. In addition, the Company incurred an additional
      $0.2 million of restructuring-related expenses for the North America
      operations during the three months ended March 31, 2001. Under the
      current timetable, the Company projects the restructuring plan will be
      completed by mid-year 2001.

      On June 1, 2000, the Company's management committed to a formal plan to
      restructure certain of its operations within Europe and provided for a
      restructuring provision of $1.5 million of which approximately $1.0
      million was remaining at December 31, 2000, consisting of $0.6 million of
      severance and severance- related items and $0.4 million of facility
      closure costs. During the three months ended March 31, 2001, the Company
      utilized $0.4 million of its restructuring reserve including translation
      effects for severance and severance related items and facility closure
      costs. The remaining reserve balance at March 31, 2001 was $0.6 million
      consisting primarily of severance-related items and facility closure
      costs. In addition, the Company incurred an additional $0.3 million of
      restructuring-related expenses for the European distribution operations
      as a result of the integration of the PSM operations during the three
      months March 31, 2001. Under the current timetable, the Company projects
      that the restructuring plan will be substantially completed by mid-year
      2001.

      As a result of the PSM acquisition, management committed to a formal plan
      to restructure certain operating activities primarily in Europe with the
      purpose of formulating a structure for the combined organization. Balance
      sheet reserves of $12.7 million for organizational restructuring were
      established as part of purchase accounting of which approximately $7.8
      million was remaining at December 31, 2000, consisting primarily of
      severance related items. During the three months ended March 31, 2001,
      the Company utilized $1.2 million of the reserve including translation
      effects primarily on severance-related items. The remaining balance of
      the restructuring provision was $6.6 million at March 31, 2001 consisting
      primarily of severance-related items. The restructuring plan is expected
      to be substantially completed by the end of 2001.

(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

                                    Page 5

<PAGE>

      Company has been named as a potentially responsible party at several
      Superfund sites and has reserved approximately $3.8 million at March 31,
      2001 and December 31, 2000, 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
      connection with the investigation. On May 1, 2001, the Company was
      informed by the Staff of the Antitrust Division of the U.S. Department of
      Justice that the investigation had been closed.

      Manufacturers of high-pressure laminate ("HPL"), including Formica
      Corporation, 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 HPL manufacturers in the
      United States 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 remain in their early
      stages. Formica Corporation intends to defend vigorously against the
      allegations of the complaints. The Company is unable to determine at this
      time if this matter will have any effect on its financial position,
      results of operations or cash flows.

      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 LOSS:

      Total comprehensive loss was $20.8 million and $18.8 million for the
      three months ended March 31, 2001 and 2000, respectively. The difference
      between comprehensive 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. These
      arrangements are short-term in nature and generally bear no interest. At
      March 31, 2001 and December 31, 2000, there was approximately $0.9
      million outstanding under these arrangements.

      DLJ Capital Funding, Inc., an affiliate of DLJ Merchant Banking Partners
      II L.P. and its affiliates (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.

      Formica and its subsidiaries may from time to time enter into financial
      advisory or other investment banking relationships with Credit Suisse
      First Boston Corporation (an affiliate of DLJ Merchant Banking) or one of
      its affiliates whereby Credit Suisse First Boston 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 Credit Suisse First Boston Corporation against
      a variety of liabilities, including liabilities under the federal
      securities laws.


                                    Page 6

<PAGE>


(9)   CHANGES IN ACCOUNTING ESTIMATES:

      Effective January 1, 2001, the Company made certain changes in accounting
      estimates relating to its depreciable asset lives which resulted in an
      increase in depreciation expense charges totaling approximately $0.5
      million for the three-month period ended March 31, 2001. The annual
      impact of this change for 2001 is expected to result in increased
      depreciation expenses of approximately $1.8 million. The change in
      accounting estimates resulted from a review by management of certain
      assets' depreciable lives.

(10)  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.
      The Company's market presence in Europe, the Americas and Asia was
      increased as a result of the PSM acquisition. The Company measures
      segment results as operating income (loss), which is defined as income
      (loss) before interest expense, other income (expense) and income taxes.
      Depreciation and amortization expense is included in the measure of
      segment results. Segment revenues are defined as net sales to external
      customers of each segment. All intercompany sales and expenses have been
      eliminated in determining segment revenues and segment profit (loss).

                                                      Three Months Ended
                                                          March 31,
                                               ------------------------------
                                                  2001                 2000
                                               ---------            ---------
                                                      (in millions)
        Segment revenues:
          United States                        $    78.5            $    82.8
          Americas - Other                          22.2                 11.7
          Europe                                    73.3                 35.0
          Asia                                      20.1                 16.8
                                               ---------            ---------
                 Total                         $   194.1            $   146.3
                                               =========            =========

        Segment profit (loss):
          Americas                              $   (4.0)           $   (11.1)
          Europe                                     1.8                  2.7
          Asia                                       2.4                  1.9
                                               ---------            ---------
                 Total                         $     0.2            $    (6.5)
                                               =========            =========

        Depreciation and amortization
          included in segment profit (loss):
          Americas                             $     9.6            $     8.9
          Europe                                     4.9                  2.2
          Asia                                       1.2                  1.0
                                               ---------            ---------
                 Total                         $    15.7            $    12.1
                                               =========            =========

        A reconciliation of total segment
          profit (loss) to loss before
          provision for income taxes is as follows:
          Segment profit (loss)                $     0.2            $    (6.5)
          Interest expense                         (13.1)               (10.0)
          Other income                               2.1                  0.6
                                               ---------            ----------
                 Loss before provision for
                   income taxes                $   (10.8)           $   (15.9)
                                               =========            =========


                                    Page 7

<PAGE>


        (10)  SEGMENT INFORMATION continued:

                                               March 31,          December 31,
                                                 2001                2000
                                               ---------          ------------
        Total assets:
          United States                        $   419.6            $   418.7
          Americas - Other                          74.8                 76.6
          Europe                                   296.0                301.3
          Asia                                      83.5                 82.8
                                               ---------            ---------
                 Total                         $   873.9            $   879.4
                                               =========            =========


                                    Page 8

<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         Overview

         The Company 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 & Company. 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.

         On March 31, 2000, Decorative Surfaces Holding AB ("DSH") acquired
         Perstorp Surface Materials AB ("PSM") from Perstorp AB (Sweden). DSH
         was a wholly-owned subsidiary of Holdings (the parent company of
         Formica) whose sole asset was its investment in PSM. On May 26, 2000,
         Holdings contributed all of the stock of DSH to Formica. Accordingly,
         Formica's results of operations reflect the acquisition and related
         purchase accounting by DSH on March 31, 2000 for all periods beginning
         April 1, 2000 and thereafter.

         Results of Operations

         The Company's net loss for the three months ended March 31, 2001 was
         $8.0 million compared to a net loss of $16.8 million for the three
         months ended March 31, 2000. Earnings before interest expense (not
         net of interest income), income tax expense, and depreciation and
         amortization expenses (EBITDA) for 2001 was $18.0 million compared to
         $6.2 million for 2000, an increase of $11.8 million. Excluding the
         2001 charges of $0.2 million for the costs of restructuring and $0.3
         million for acquisition related expenses as well as the 2000 charges
         of $6.0 million for the costs of restructuring and $0.4 million for
         the cost of a terminated acquisition, Adjusted EBITDA therefore was
         $18.5 million in 2001 compared to $12.6 million in 2000, an increase
         of $5.9 million or 46.8%.

         First Quarter of 2001 Compared to First Quarter of 2000

                  Net Sales. Net sales for 2001 were $194.1 million, compared
         to net sales of $146.3 million for 2000, an increase of $47.8 million,
         or 32.7%. This increase is primarily due to the inclusion of PSM sales
         in 2001 partially offset by lower volumes and the impact of unfavorable
         foreign exchange translation. Net sales in the Americas increased to
         $100.7 million in 2001 from $94.5 million in 2000, an increase of $6.2
         million, or 6.6%. This increase is primarily due to the inclusion of
         PSM sales and higher selling prices offset by lower HPL and flooring
         volumes from the slowdown in the economy and customer destocking
         activity. Net sales in Europe increased $38.3 million to $73.3 million
         in 2001 from $35.0 million in 2000, primarily due to the inclusion of
         PSM offset by lower HPL volumes and the effects of foreign exchange
         translations. Net sales in Asia increased to $20.1 million in 2001
         from $16.8 million in 2000, an increase of $3.3 million, or 19.6%,
         resulting primarily from the inclusion of PSM sales offset by the
         impact of unfavorable foreign exchange translation.

                  Gross Profit. Gross profit for 2001 was $47.0 million,
         compared to gross profit of $37.7 million for 2000, an increase of
         $9.3 million, or 24.7%. Gross profit as a percentage of net sales in
         2001 decreased to 24.2% from 25.8% in 2000. Excluding the $1.9 million
         charge in the 2000 period related to the markdown in inventory from
         the restructuring of the North America operations, gross profit
         increased $7.4 million or 18.7%.

                  Gross Profit in the Americas increased to $24.3 million in
         2001 from $23.3 million in 2000, or 4.3%. Excluding the $1.9 million
         inventory markdown in 2000, gross profit in the Americas decreased
         $0.9 million. Gross profit as a percentage of net sales for the
         Americas decreased to 24.1% in 2001 from 26.7% in 2000, principally as
         a result of higher costs for raw materials and labor and increased
         transportation and energy costs partially offset by higher selling
         prices. Gross profit in Europe and Asia increased $8.3 million to
         $22.7 million in 2001 from $14.4 million in 2000, primarily due to the
         inclusion of the PSM business. As a percentage of net sales, gross
         profit in Europe and Asia decreased to 24.3% in 2001 from 27.8% in
         2000, principally as a result of higher raw material, transportation
         and energy costs and the effects of foreign exchange translation.

                 Selling, General and Administrative Expenses. Selling, general
         and administrative expenses for 2001 were $46.6 million compared to
         $39.7 million for 2000, an increase of $6.9 million. Selling, general
         and administrative expenses as a percentage of net sales decreased to
         24.0% in 2001 from 27.1% in 2000. Excluding the $0.3 million of
         acquisition related costs, selling, general and administrative
         expenses were $46.3 million in the 2001 period compared to $39.7
         million in 2000. The increase was primarily related to the inclusion
         of PSM in 2001.

                                    Page 9

<PAGE>


                 Restructuring Charge. (See Note 5 to the Condensed Consolidated
         Financial Statements) The provision for restructuring for 2001
         totaled $0.2 million compared to $4.1 million in 2000. During the
         quarter ended March 31, 2001, the Company incurred $0.2 million of
         restructuring-related expenses for the North America operations
         offset by approximately $0.3 million relating to the reversal of the
         North America restructuring reserve balance accruals due to lower
         than anticipated costs. In addition, the Company incurred in 2001 an
         additional $0.3 million of restructuring-related expenses for the
         European distribution operations. In 2000, the Company provided for a
         restructuring provision of $6.0 million, which included $1.9 million
         for the markdown of inventory discussed above for the North America
         operations.

                  Cost of Terminated Acquisition. During the quarter ended
         March 31, 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 income for 2001 was
         $0.2 million compared to an operating loss of $6.5 million for 2000.
         Included in the 2001 period are restructuring charges of $0.2 million
         and $0.3 million of acquisition related costs. The 2000 period
         includes a restructuring charge of $6.0 million and the cost of a
         terminated acquisition of $0.4 million. After taking into account the
         2001 and 2000 charges, operating income was $0.7 million in 2001
         compared to an operating loss of $0.1 million in 2000, for the reasons
         stated above.

                  EBITDA. EBITDA increased to $18.0 million in 2001 compared to
         $6.2 million in 2000. After taking into account the 2001 period
         restructuring and acquisition related charges and the 2000 period
         restructuring and the cost of a terminated acquisition (described
         above), EBITDA, as adjusted, was $18.5 million in 2001 compared to
         $12.6 million in 2000.

                  Interest Expense. Interest expense increased $3.1 million to
         $13.1 million in 2001 from $10.0 million for 2000. The increase in
         interest expense is primarily due to the additional debt incurred in
         the second quarter of 2000 for the acquisition of PSM.

                  Income Taxes. In the 2001 period, the Company recognized an
         income tax benefit of $2.8 million compared to an income tax expense
         of $0.9 million in 2000. The increased income tax benefit is the
         result of the Company no longer providing for a valuation allowance
         against its net operating losses.

                  Net Loss. Net loss was $8.0 million in 2001 compared to a net
         loss of $16.8 million in 2000, 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 (Second Amended and
         Restated Credit Agreement dated May 26, 2000) and local credit
         facilities obtained by some of Formica's foreign subsidiaries.
         Formica's principal uses of cash will be debt service requirements,
         capital expenditures and any future acquisitions.

         As of March 31, 2001, Formica had $512.2 million of indebtedness
         outstanding compared to $470.6 million as of December 31, 2000.
         Formica's significant debt service obligations could, under certain
         circumstances, have material consequences to security holders.

         In connection with our acquisition by Laminates 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.

         Notes

         In February 1999, Formica issued $215 million of 10 7/8% Senior
         Subordinated Notes which 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.

                                    Page 10

<PAGE>


         Credit Facility

         The Credit Facility includes a $120 million revolving credit
         facility, an $85 million term loan and a $140 million term loan. The
         $120 million revolving credit facility may be increased by up to $25
         million at the request of Formica, with the consent of the banks
         providing the increased commitments, and will terminate on May 1,
         2004. At March 31, 2001, $66.3 million was outstanding against the
         revolving credit facility. In addition, as of March 31, 2001, Formica
         had outstanding approximately $25 million in letters of credit under
         the Credit Facility to provide credit enhancement and support for
         certain of its credit facilities. The $85 million and $140 million
         term loans will mature in 2004 and 2006, respectively. The term loans
         outstanding under the Credit Facility totaled $207.5 million at March
         31, 2001 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 LIBO 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 financial covenants requiring the Company
         to maintain minimum EBITDA, minimum coverage of interest expense and
         fixed charges and a maximum leverage ratio. The Company was in
         compliance with the financial covenants as of March 31, 2001. The
         Company's continued compliance with debt covenants is dependent upon
         future economic performance which may be affected by economic,
         financial, competitive, legislative, regulatory and other factors
         beyond the Company's control.

         Local Credit Facilities

         Formica maintains various local credit facilities in foreign countries
         (primarily in Asia) that provide for borrowings in local currencies of
         which approximately $23.4 million was outstanding as of March 31,
         2001. 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.

         Working Capital

         Working capital was $167.5 million at March 31, 2001 compared to
         $138.4 million at December 31, 1999. The increase was primarily the
         result of higher accounts receivable and inventory levels and lower
         accrued expenses and other current liabilities at March 31, 2001.
         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.

         Capital Expenditures

         Formica has spent approximately $6.4 million on capital expenditures
         during the three months ended March 31, 2001, and anticipates that it
         will spend approximately an additional $11.6 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.

         Source of Funds

         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.

                                    Page 11

<PAGE>


         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 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 used by operations was $36.3 million for the three months ended
         March 31, 2001, compared to $3.6 million for the three months ended
         March 31, 2000. The increase in cash used by operations is due to an
         increase in accounts receivable and inventories and a decrease in
         accrued expenses and other liabilities. Net cash used in investing
         activities was $6.4 million and $2.8 million for the three months
         ended March 31, 2001 and 2000, respectively, primarily from increased
         capital expenditures. Net cash provided by financing activities was
         $44.2 million and $6.7 million for the three months ended March 31,
         2001 and 2000, respectively, which included additional net borrowings
         under our credit facility discussed above.

         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 after 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

         Interest Rate Risk

         The Company utilizes both fixed and variable rate debt obligations to
         finance its operations. At March 31, 2001, approximately 58% of the
         Company's total debt was at variable interest rates. A one-half
         percentage point increase in interest would increase the annual amount
         of interest paid by approximately $1.5 million. Although the Company
         will continue to monitor its exposure to interest rate fluctuations,
         the Company cannot assure that interest rate fluctuations will not
         harm its business in the future.

         Foreign Currency Exchange Rate Risk

         The Company is exposed to market risk from changes in foreign currency
         exchange rates, including fluctuations in the functional currency of
         foreign operations. The functional currency of operations outside the
         United States is the respective local currency. Foreign currency
         translation effects are included in accumulated other comprehensive
         loss in stockholders' equity. Our operating results are thus subject
         to significant fluctuations based upon changes in the exchange rates
         of other currencies in relation to the U.S. dollar. Although the
         Company will continue to monitor its exposure to currency
         fluctuations, the Company cannot assure that exchange rate
         fluctuations will not harm its 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

                                    Page 12


<PAGE>


         statements are subject to risks and 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 acquisitions
                    of Fountainhead, STEL and Perstorp Surface Materials and
                    our related restructurings and capital investment program
                    and

               o    our belief that we have sufficient cash flows to support
                    working capital needs, capital expenditures and debt
                    service requirements and

                  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, the Company claims 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 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 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.

         Recent Accounting Pronouncements

         Statement of Financial Accounting Standard (SFAS) No.133

         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


                                    Page 13


<PAGE>


         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. The Company
         adopted SFAS No. 133, and the corresponding amendments of SFAS No.
         138 on January 1, 2001, and such adoption did not have a material
         impact on the Company's consolidated financial position, results of
         operations or cash flows.

         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 6. Exhibits and Reports on Form 8-K

         o    Formica did not file any reports on Form 8-K during the three
              months ended March 31, 2001.

The following exhibit is included herein:

         (12) Computation of Ratio of Earnings to Fixed Charges        Page E-1


                                    Page 14


<PAGE>

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                                    Formica Corporation
                                               -----------------------------
                                                       (Registrant)


                                                  /s/ David T. Schneider
                                               -----------------------------
                                                   (David T. Schneider -
                                                 Chief Financial Officer)

                                                       May 9, 2001
                                               -----------------------------
                                                          (Date)




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