-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KCKsDsSKBFR75hbiJvIoad6yLPjYJ4puLFH0LeXpUEKm6rOLdVlxhfU2z4/FLaqK P925uKUboIhEsEXmCu2jcg== 0000070530-02-000002.txt : 20020413 0000070530-02-000002.hdr.sgml : 20020413 ACCESSION NUMBER: 0000070530-02-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20011125 FILED AS OF DATE: 20020109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL SEMICONDUCTOR CORP CENTRAL INDEX KEY: 0000070530 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 952095071 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06453 FILM NUMBER: 2504786 BUSINESS ADDRESS: STREET 1: 2900 SEMICONDUCTOR DR STREET 2: PO BOX 58090 CITY: SANTA CLARA STATE: CA ZIP: 95052-8090 BUSINESS PHONE: 4087215000 MAIL ADDRESS: STREET 1: 2900 SEMICONDUCTOR DR CITY: SANTA CLARA STATE: CA ZIP: 95052-8090 10-Q 1 form10q_0108.txt 2ND QTR FY2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 25, 2001 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________. Commission File Number: 1-6453 NATIONAL SEMICONDUCTOR CORPORATION ---------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 95-2095071 -------- ---------- (State of incorporation) (I.R.S. Employer Identification Number) 2900 Semiconductor Drive, P.O. Box 58090 Santa Clara, California 95052-8090 ---------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (408) 721-5000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title of Each Class Outstanding at November 25, 2001. ------------------- --------------------------------- Common stock, par value $0.50 per share 177,646,177 NATIONAL SEMICONDUCTOR CORPORATION INDEX Page No. -------- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Operations (Unaudited) for the Three Months and Six Months Ended November 25, 2001 and November 26, 2000 3 Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the Three Months and Six Months Ended November 25, 2001 and November 26, 2000 4 Condensed Consolidated Balance Sheets (Unaudited) as of November 25, 2001 and May 27, 2001 5 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended November 25, 2001 and November 26, 2000 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 Part II. Other Information Item 1. Legal Proceedings 19 Item 4. Submission of Matters To a Vote of Security Holders 19 Item 6. Exhibits and Reports on Form 8-K 19-20 Signature 21 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in millions, except per share amounts)
Three Months Ended Six Months Ended Nov. 25, Nov. 26, Nov. 25, Nov. 26, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net sales $ 366.5 $ 595.0 $ 705.8 $1,235.8 Operating costs and expenses: Cost of sales 237.0 294.3 466.2 595.7 Research and development 110.4 112.1 219.4 215.8 Selling, general and administrative 68.1 78.8 132.3 179.4 Special items - - 1.1 6.4 ------------ ------------ ------------ ------------ Total operating costs and expenses 415.5 485.2 819.0 997.3 ------------ ------------ ------------ ------------ Operating income (loss) (49.0) 109.8 (113.2) 238.5 Interest income, net 5.5 15.2 12.5 29.3 Other income (expense), net (0.6) 8.4 4.5 45.9 ------------ ------------ ------------ ------------ Income (loss) before income taxes (44.1) 133.4 (96.2) 313.7 Income tax expense 2.5 26.7 5.0 62.8 ------------ ------------ ------------ ------------ Net income (loss) $ (46.6) $ 106.7 $ (101.2) $ 250.9 ============ ============ ============ ============ Earnings (loss) per share: Basic $ (0.26) $ 0.60 $ (0.58) $ 1.41 Diluted $ (0.26) $ 0.56 $ (0.58) $ 1.29 Weighted-average shares: Basic 176.8 178.1 175.8 178.1 Diluted 176.8 191.9 175.8 193.9 Income (loss) used in basic and diluted earnings (loss) per share calculation $ (46.6) $ 106.7 $ (101.2) $ 250.9
See accompanying Notes to Condensed Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (in millions)
Three Months Ended Six Months Ended Nov. 25, Nov. 26, Nov. 25, Nov. 26, 2001 2000 2001 2000 ------------ ------------- ------------ ------------- Net income (loss) $ (46.6) $ 106.7 $ (101.2) $ 250.9 Other comprehensive income (loss), net of tax: Reclassification adjustment for net realized (gain) loss included in net income (loss) 0.2 (3.4) (5.4) (42.5) Unrealized gain (loss) on available-for-sale securities 1.4 (10.5) (6.9) 64.1 Derivative instruments: Unrealized gain on cash flow hedges 0.1 - - - ------------ ------------- ------------ ------------- Comprehensive income (loss) $ (44.9) $ 92.8 $ (113.5) $ 272.5 ============ ============= ============ =============
See accompanying Notes to Condensed Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions)
Nov. 25, May 27, 2001 2001 ------------------------ ----------------------- ASSETS Current assets: Cash and cash equivalents $ 708.2 $ 817.8 Short-term marketable investments - 5.0 Receivables, net 104.2 123.4 Inventories 172.4 195.5 Deferred tax assets 97.2 97.2 Other current assets 44.8 36.1 ------------------------ ----------------------- Total current assets 1,126.8 1,275.0 Net property, plant and equipment 778.6 815.7 Long-term marketable debt investments 102.7 46.6 Other assets 266.3 225.0 ------------------------ ----------------------- Total assets $ 2,247.4 $ 2,362.3 ======================== ======================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt $ 13.0 $ 29.4 Accounts payable 106.4 126.4 Accrued expenses 230.1 262.9 Income taxes payable 74.9 53.1 ------------------------ ----------------------- Total current liabilities 424.4 471.8 Long-term debt 23.8 26.2 Other non-current liabilities 101.0 96.4 ------------------------ ----------------------- Total liabilities 549.2 594.4 ------------------------ ----------------------- Commitments and contingencies Shareholders' equity: Common stock 88.8 86.9 Additional paid-in capital 1,349.7 1,280.8 Retained earnings 331.2 432.4 Accumulated other comprehensive loss (44.5) (32.2) ------------------------ ----------------------- Total shareholders' equity 1,725.2 1,767.9 ------------------------ ----------------------- Total liabilities and shareholders' equity $ 2,274.4 $ 2,362.3 ======================== =======================
See accompanying Notes to Condensed Consolidated Financial Statements NATIONAL SEMICONDUCTOR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions)
Six Months Ended Nov. 25, Nov. 26, 2001 2000 ------------------------ ----------------------- Cash flows from operating activities: Net income (loss) $(101.2) $ 250.9 Adjustments to reconcile net income (loss) with net cash provided by operations: Depreciation and amortization 114.8 118.0 Gain on investments (5.4) (38.8) Loss on disposal of equipment 1.6 1.3 Donation of equity securities - 20.5 Noncash special items 1.1 6.4 Other, net 0.2 0.3 Changes in certain assets and liabilities, net: Receivables 20.3 45.2 Inventories 23.1 (8.9) Other current assets (8.7) (2.7) Accounts payable and accrued expenses (52.2) (87.4) Current and deferred income taxes 21.8 6.1 Other liabilities 4.6 4.0 ------------------------ ----------------------- Net cash provided by operating activities 20.0 314.9 ------------------------ ----------------------- Cash flows from investing activities: Purchase of property, plant and equipment (69.7) (121.2) Maturity of available-for-sale securities 24.0 7.0 Purchase of available-for-sale securities (74.6) (28.0) Proceeds from sale of equity investments 6.7 29.9 Business acquisition, net of cash acquired (27.5) (24.9) Purchase of software (15.7) (4.6) Restricted cash (14.4) (2.8) Other, net (4.3) (3.8) ------------------------ ----------------------- Net cash used by investing activities (175.5) (148.4) ------------------------ ----------------------- Cash flows from financing activities: Repayment of debt (8.9) (8.5) Issuance of common stock, net 54.8 35.0 Purchase and retirement of treasury stock - (125.8) ------------------------ ----------------------- Net cash provided by (used by) financing activities 45.9 (99.3) ------------------------ ----------------------- Net change in cash and cash equivalents (109.6) 67.2 Cash and cash equivalents at beginning of period 817.8 778.8 ------------------------ ----------------------- Cash and cash equivalents at end of period $ 708.2 $ 846.0 ======================== =======================
See accompanying Notes to Condensed Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies In the opinion of our management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position and results of operations of National Semiconductor Corporation and our majority-owned subsidiaries. You should not expect interim results of operations to be indicative of the results to be expected for the full year. This report should be read in conjunction with the consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended May 27, 2001. Earnings Per Share: A reconciliation of the shares used in the computation of basic and diluted earnings per share follows (in millions):
Three Months Ended Six Months Ended Nov. 25, Nov. 26, Nov. 25, Nov. 26, 2001 2000 2001 2000 ------------ ----------- ----------- ----------- Net income (loss) used for basic and diluted earnings per share $ (46.6) $ 106.7 $(101.2) $ 250.9 ============ =========== =========== =========== Number of shares: Weighted average common shares outstanding used for basic earnings per share 176.8 178.1 175.8 178.1 Effect of dilutive securities: Stock options - 13.8 - 15.8 ------------ ----------- ----------- ----------- Weighted average common and potential common shares outstanding used for diluted earnings per share 176.8 191.9 175.8 193.9 ============ =========== =========== ===========
On November 25, 2001, we had options outstanding to purchase 36.5 million shares of common stock with a weighted-average exercise price of $27.50, which could potentially dilute basic earnings per share in the future. These options are not included in diluted earnings per share because their effect was antidilutive. On November 26, 2000, we had options outstanding to purchase 13.2 million shares of common stock with a weighted-average exercise price of $48.10, which could have potentially diluted basic earnings per share in the future. These options were also not included in diluted earnings per share as their effect was antidilutive. Note 2. Derivative Financial Instruments At the beginning of the first quarter of fiscal 2002, we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. SFAS No. 133, as amended, requires companies to record derivatives on the balance sheet as assets or liabilities measured at fair value. Gains or losses resulting from changes in the values of these derivatives are accounted for based on the use of the derivative and whether it qualifies for hedge accounting. The cumulative effect of adoption of this statement was immaterial to both our financial position and results of operations. As part of our risk management strategy we use derivative financial instruments, including forwards, swaps and purchased options, to hedge certain foreign currency and interest rate exposures. Our intent is to offset gains and losses that occur from our underlying exposures, with gains and losses on the derivative contracts used to hedge them. We do not enter into any speculative positions in derivative instruments. We record all derivatives on the balance sheet at fair value. Foreign Currency Risk We are exposed to foreign currency exchange rate risk that is inherent in orders, sales, cost of sales, expenses, and assets and liabilities denominated in currencies other than the U.S. dollar. We enter into foreign exchange contracts, primarily forwards and purchased options, to hedge against exposure to changes in foreign currency exchange rates. These contracts are designated at inception to the related foreign currency exposures that are being hedged, including sales by subsidiaries, and assets and liabilities denominated in currencies other than the U.S. dollar. Our foreign currency hedges typically mature within one year. We designate derivative instruments that are used to hedge exposures to variability in expected future foreign denominated cash flows as cash flow hedges. We record the effective portion of the gain or loss on the derivative instrument in accumulated other comprehensive income as a separate component of stockholders' equity and reclassify into earnings in the period when the hedged transaction affects earnings. We recognize the ineffective portion of the gain or loss on the derivative in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, in earnings during the period of change. Derivative instruments that we use to hedge exposures to reduce or eliminate changes in the fair value of a foreign currency denominated asset or liability are designated as fair value hedges. We recognize the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk in current earnings. Interest Rate Risk We are also exposed to interest rate risk that is inherent in our debt. We use an interest rate swap to convert the variable interest rate to a fixed interest rate. For interest rate swaps, the critical terms of the interest rate swap and hedged item are designed to match up, enabling us to use the short-cut method of accounting as defined by SFAS No. 133. To the extent that the critical terms of the hedged item and the derivative are not identical, we report hedge ineffectiveness in current earnings immediately. Measurement of Effectiveness of Hedge Relationships For foreign currency forward contracts, we measure hedge effectiveness by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item, both of which are based on forward rates. For purchased options, we measure hedge effectiveness by the change in the option's intrinsic value, which represents the change in the option's strike price compared to the spot price of the underlying hedged transaction. For interest rate swaps, we measure effectiveness by offsetting the change in fair value of the long-term debt with the change in fair value of the interest rate swap. We measure ineffectiveness by the difference in the changes in fair value of the long-term debt and interest rate swap. We report hedge ineffectiveness from foreign currency derivatives for both options and forward contracts in current earnings. We also report ineffectiveness related to interest rate swaps in current earnings. Hedge ineffectiveness was immaterial for the second quarter and first six months of fiscal 2002. The effective portion of all changes in derivatives is reported in the same financial statement line item as the changes in the hedged item. On November 25, 2001, the net fair values of foreign currency-related derivatives designated as cash flow hedges and fair value hedges were $0.1 million in other assets and $0.4 million in other accrued liabilities. On November 25, 2001, unrealized gains or losses on derivative instruments, net of taxes, in accumulated other comprehensive income were immaterial. We had $0.1 million and $0.2 million of net realized losses from derivative instruments for the second quarter and first six month of fiscal 2002, respectively. Note 3. Consolidated Financial Statement Details Balance sheets (in millions):
Nov. 25, May 27, 2001 2001 --------------------------- --------------------------- Inventories: Raw materials $ 6.7 $ 8.1 Work in process 99.9 113.8 Finished goods 65.8 73.6 --------------------------- --------------------------- Total inventories $ 172.4 $ 195.5 =========================== =========================== Accumulated other comprehensive loss: Unrealized gain on available-for-sale securities $ 2.7 $ 15.0 Minimum pension liability (47.2) (47.2) --------------------------- --------------------------- $ (44.5) $ (32.2) =========================== ===========================
Statements of operations (in millions):
Three Months Ended Six Months Ended Nov. 25, Nov. 26, Nov. 25, Nov. 26, 2001 2000 2001 2000 Special items: In-process research and development charge $ - $ - $ 1.1 $ 4.1 Restructuring of operations - - - 2.3 ------------ ----------- ----------- ----------- $ - $ - $ 1.1 $ 6.4 ============ =========== =========== =========== Interest income, net: Interest income $ 6.6 $ 16.4 $ 14.8 $ 31.8 Interest expense (1.1) (2.3) (2.5) (1.2) ------------ ----------- ----------- ----------- Interest income, net $ 5.5 $ 15.2 $ 12.5 $ 29.3 ============ =========== =========== =========== Other income (expense), net: Net intellectual property income $ 0.4 $ 3.1 $ 1.7 $ 4.5 Gain (loss) on investments, net (0.4) 5.3 3.4 41.4 Other (0.6) (0.6) - - ------------ ----------- ----------- ------------ Total other income (expense), net $ (0.6) $ 8.4 $ 4.5 $ 45.9 ============ =========== =========== ============
Included in gain on investments for the first six months of fiscal 2001 is a gain of $20.5 million from the distribution of equity securities that were a part of our investment portfolio. We donated the securities to establish the National Semiconductor Foundation. The expense associated with the donation also totaled $20.5 million and is included in selling, general and administrative expenses for the first six months of fiscal 2001. Note 4. Statement of Cash Flows Information (in millions)
Six Months Ended Nov. 25, Nov. 26, 2001 2000 ---------------------- ----------------------- Supplemental Disclosure of Cash Flows Information: Cash paid (refunded) for: Interest $ 0.8 $ 2.6 Income taxes $ (16.8) $ 56.7 Supplemental Schedule of Non-cash Investing and Financing Activities: Issuance of common stock for employee benefit plans $ 4.3 $ 4.1 Issuance of common stock to directors $ 0.2 $ 0.3 Issuance of restricted common stock $ 1.4 $ 2.4 Issuance of common stock in connection with the settlement of promissory note $ 10.0 $ - Change in unrealized gain on available-for-sale securities $ 12.3 $ 21.6
Note 5. Goodwill and Intangible Assets Beginning in fiscal 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets." As a result, we no longer amortize goodwill. Instead we annually evaluate goodwill for recoverability. We also evaluate goodwill whenever events and changes in circumstance suggest that the carrying amount may not be recoverable from its estimated future cash flows. Upon adoption, we established reporting units based on our current reporting structure. We then assigned all goodwill to the reporting units, as well as other assets and liabilities, to the extent that they relate to the reporting unit. We have completed the first step of the transitional goodwill impairment test and have determined that no potential impairment exists. As a result, we have recognized no transitional impairment loss in fiscal 2002 in connection with the adoption of SFAS No. 142. The changes in the carrying amount of goodwill for fiscal 2002 are as follows (in millions):
Analog All Segment Others Total --------------- -------------- -------------- Balances at May 27, 2001 $130.4 $1.7 $132.1 Goodwill acquired during the first quarter of fiscal 2002 27.6 - 27.6 --------------- -------------- -------------- Balances at November 25, 2001 $158.0 $1.7 $159.7 =============== ============== ==============
Other intangible assets, which will continue to be amortized, consist of the following (in millions):
Nov. 25, May 27, 2001 2001 ---------------------- ---------------------- Patents $4.9 $4.9 Less accumulated amortization 1.2 0.8 ---------------------- ---------------------- $3.7 $4.1 ====================== ======================
We expect annual amortization expense to be (in millions):
2002 $1.0 2003 1.0 2004 1.0 2005 1.0 2006 0.2 - ------------------------------------------------- $4.2 ========
Amortization expense was (in millions):
Three Months Ended Six Months Ended Nov. 25, Nov. 26, Nov. 25, Nov. 26, 2001 2000 2001 2000 ------------ ----------- ------------ ----------- Goodwill amortization $ - $ 2.7 $ - $ 4.4 Patent amortization 0.2 0.2 0.4 0.2 ------------ ----------- ------------ ----------- Total amortization $ 0.2 $ 2.9 $ 0.4 $ 4.6 ============ =========== ============ ===========
Pro forma net income (loss) and net income (loss) per share exclusive of amortization expense was (in millions):
Three Months Ended Six Months Ended Nov. 25, Nov. 26, Nov. 25, Nov. 26, 2001 2000 2001 2000 ------------ ----------- ------------ ----------- Net income (loss), as reported $ (46.6) $ 106.7 $ (101.2) $ 250.9 Add back: Goodwill amortization - 2.7 - 4.4 ------------ ----------- ------------ ----------- Net income (loss) - pro forma $ (46.6) $ 109.4 $ (101.2) $ 255.3 ============ =========== ============ =========== Basic earnings (loss) per share, as reported $ (0.26) $ 0.60 $ (0.58) $ 1.41 Add back: Goodwill amortization - 0.01 - 0.02 ------------ ----------- ------------ ----------- Basic earnings (loss) per share - pro forma $ (0.26) $ 0.61 $ (0.58) $ 1.43 ============ =========== ============ =========== Diluted earnings (loss) per share, as reported $ (0.26) $ 0.56 $ (0.58) $ 1.29 Add back: Goodwill amortization - 0.01 - 0.03 ------------ ----------- ------------ ----------- Diluted earnings (loss) per share - pro forma $ (0.26) $ 0.57 $ (0.58) $ 1.32 ============ =========== ============ ===========
Note 6. Restructuring of Operations and Cost Reduction Programs During the second quarter and first six months of fiscal 2002, we paid severance of $0.8 million and $12.8 million, respectively, to a total of 469 employees as part of the cost-reduction program we announced in May 2001. We also paid $1.5 million and $3.0 million for other exit-related costs during the second quarter and first six months of fiscal 2002, respectively. Those costs were primarily associated with restructuring actions we originally announced in fiscal 1999. Included in accrued liabilities at November 25, 2001, is $14.5 million related to actions that were not yet completed. Of this amount, $7.4 million represents costs related to the May 2001 cost reduction program. The remaining amount represents facility dismantling costs for the closure of the Greenock 4-inch facility and lease obligations associated with other restructuring actions. Note 7. Acquisition In June 2001, we acquired Wireless Solutions Sweden AB, a leading developer of wireless solutions ranging from telemetry to mobile phones to wireless networking, including Bluetooth and 802.11 technologies. We expect this acquisition to enable us to deliver complete wireless reference designs, including silicon chipsets, hardware and software. The acquisition was accounted for using the purchase method, with a purchase price of $27.7 million. In connection with the acquisition, we recorded a $1.1 million in-process research and development charge, which is included as a component of special items in the condensed consolidated statement of operations. The amount allocated to the in-process research and development charge was determined through an established valuation technique used in the high technology industry and expensed upon acquisition, because technological feasibility had not been established and no alternative uses exist. Research and development costs to bring the products to technological feasibility are not expected to have a material impact on future operating results. The remainder of the purchase price was allocated to net liabilities of $1.0 million and intangible assets of $27.6 million, primarily representing goodwill. Note 8. Segment Information The following tables present information related to our reportable segments (in millions):
Information Analog Appliance All Total Segment Segment Others Eliminations Consolidated -------------- --------------- --------------- ---------------- ----------------- Three months ended November 25, 2001: Sales to unaffiliated customers $ 275.9 $ 52.9 $ 37.7 $ - $ 366.5 ============== =============== =============== ================ ================= Segment loss before income taxes $ (13.0) $ (19.2) $ (11.9) $ - $ (44.1) ============== =============== =============== ================ ================= Three months ended November 26, 2000: Sales to unaffiliated customers $ 416.4 $ 65.4 $ 113.2 $ - $ 595.0 ============== =============== =============== ================ ================= Segment income (loss) before income taxes $ 125.4 $ (19.6) $ 27.6 $ - $ 133.4 ============== =============== =============== ================ ================= Information Analog Appliance All Total Segment Segment Others Eliminations Consolidated -------------- --------------- --------------- ---------------- ----------------- Six months ended November 25, 2001: Sales to unaffiliated Customers $ 527.9 $ 96.6 $ 81.3 $ - $ 705.8 -------------- --------------- --------------- ---------------- ----------------- Segment loss before income taxes $ (35.8) $ (49.0) $ (11.4) $ - $ (96.2) ============== =============== =============== ================ ================= Six months ended November 26, 2000: Sales to unaffiliated customers $ 877.6 $ 131.1 $ 227.1 $ - $ 1,235.8 Inter-segment sales - 0.1 - (0.1) - -------------- --------------- --------------- ---------------- ----------------- Net sales $ 877.6 $ 131.2 $ 227.1 $ (0.1) $ 1,235.8 ============== =============== =============== ================ ================= Segment income (loss) before income taxes and extraordinary item $ 284.0 $ (38.1) $ 67.8 $ - $ 313.7 ============== =============== =============== ================ =================
Item 2. MANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in the outlook section and within certain sections of management's discussion and analysis are forward-looking based on current expectations and management's estimates. Actual results may differ materially from those set forth in these forward-looking statements. The forward-looking statements discussed or incorporated by reference in this section involve a number of risks and uncertainties. Other risks and uncertainties include, but are not limited to, the general economy, regulatory and international conditions, the changing environment of the semiconductor industry, competitive products and pricing, growth in the wireless, PC and communications infrastructure industries, the effects of legal and administrative cases and proceedings, and such other risks and uncertainties as may be detailed from time to time in our reports and filings with the SEC. Overview We recorded net sales of $366.5 million and $705.8 million for the second quarter and first six months of fiscal 2002, respectively. This represented a 38 percent and 43 percent decline, respectively, from sales of $595.0 million and $1,235.8 million for the comparable periods of fiscal 2001. The decline in sales came from lower demand seen broadly across semiconductor markets. For the second quarter and first six months of fiscal 2002, we had a net loss of $46.6 million and $101.2 million, respectively. This compares to net income of $106.7 million and $250.9 million, respectively, for the second quarter and first six months of fiscal 2001. Operating results for fiscal 2002 were primarily affected by lower sales as a result of slower demand. The net loss for the first six months of fiscal 2002 included a special item of $1.1 million for an in-process R&D charge related to the acquisition in the first quarter of Wireless Solutions Sweden AB. In comparison, net income for the first six months of fiscal 2001 included special items from the first quarter of $6.4 million. Those special items included a $4.1 million in-process R&D charge related to the acquisition of the Vivid Semiconductor business and a $2.3 million charge for restructuring of operations. Sales The following discussion is based on our operating segments described in Note 12 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended May 27, 2001. Our sales for the second quarter and first six months of fiscal 2002 declined significantly as market conditions for the semiconductor industry remained weak compared to the prior year. The sales decline was primarily due to decreased volume of shipments. To a lesser extent, lower average selling prices were also a factor. The Analog segment, which represents 75 percent of our total sales, experienced declines in sales of 34 percent for the second quarter and 40 percent for the first six months of fiscal 2002 compared to the corresponding periods of fiscal 2001. The declines were mostly due to a large drop in unit volume together with some decreases in average selling prices. Within the Analog segment, sales of application-specific wireless products, including radio frequency building blocks, declined by 43 percent and 46 percent for the second quarter and first six months of fiscal 2002, respectively, over sales for the corresponding periods of fiscal 2001. Sales of display products increased by 2 percent for the second quarter of fiscal 2002 over sales for the same quarter of fiscal 2001, as a large increase in unit volume more than offset decreases in average selling prices. For the comparative six-month period, sales of display products in fiscal 2002 declined by 19 percent from sales in fiscal 2001. In the broad-based analog markets, sales of power management and amplifier products were down for the second quarter of fiscal 2002 by 38 percent and 42 percent, respectively, from the same period last year. For the first six months, sales of these products in fiscal 2002 were down by 47 percent and 46 percent, respectively, from sales in fiscal 2001. Sales for the second quarter and first six months of fiscal 2002 for the Information Appliance segment declined 19 percent and 26 percent, respectively, from sales for the comparable periods of fiscal 2001. The decline was primarily driven by lower unit volume as average selling prices remained fairly steady. Since a large part of our portfolio of information appliance products is still consumed in the PC marketplace, the year-to-year slowdown in demand for personal computers and PC-related products contributed to the decline in sales for the Information Appliance segment. In addition, the market adoption of emerging information appliances that are not PCs has been slower than expected. Gross Margin Gross margin as a percentage of sales decreased to 35 percent and 34 percent for the second quarter and first six months of fiscal 2002, respectively, from gross margin of 51 percent and 52 percent for the same periods of fiscal 2001. The erosion in gross margin was primarily driven by lower factory utilization. Wafer fabrication capacity utilization during the first half of fiscal 2002 ran at 48 percent, as production activity was reduced considerably by the weakened business conditions in the semiconductor industry. This compares with wafer fabrication capacity utilization during the first half of fiscal 2001 of 88 percent, when business conditions in the semiconductor industry were very strong. Research and Development Our research and development expenses for the second quarter of fiscal 2002 decreased 2 percent from R&D expenses for the second quarter of fiscal 2001, mainly reflecting reduced spending for new product development. For the first six months of fiscal 2002, our R&D expenses increased 2 percent over R&D expenses for the first six months of fiscal 2001. The fiscal 2002 and 2001 amounts for the first six months exclude $1.1 million and $4.1 million, respectively, for in-process R&D charges related to acquisitions. The in-process R&D charges are included as a component of special items in the condensed consolidated statements of operations. Higher R&D expenses for the first six months of fiscal 2002 result mainly from a license agreement with Taiwan Semiconductor Manufacturing Company. This agreement, which began in fiscal 2001, allows us to gain access to a variety of TSMC's advanced sub-micron processes for use in our Maine facility as desired, if and when those processes are developed by TSMC. These advanced process technologies are expected to accelerate the development of high performance digital and mixed-signal products in the markets for wireless handsets, displays, information appliances and information infrastructure. Through the first six months of fiscal 2002, we devoted approximately 74 percent of our R&D effort towards new product development and 26 percent towards the development of process and support technology. Compared to the first six months of fiscal 2001, this represents a 7 percent decrease in spending for new product development and a 27 percent increase in spending for process and support technology. While spending for new product development declined slightly, we continue to focus our R&D investment on our key strategic programs. We continue to invest in the development of new analog and mixed-signal technology-based products for applications in the wireless handsets, displays, information appliances and information infrastructure markets. We also continue to devote resources towards developing new cores and integrating those cores with other technological capabilities to create system-on-a-chip solutions. Selling, General and Administrative Our selling, general and administrative expenses for the second quarter and first six months of fiscal 2002 declined 14 percent and 26 percent, respectively, from SG&A expenses for the comparable periods of fiscal 2001. The fiscal 2001 SG&A expenses for the first six months included a $20.5 million expense associated with the charitable donation of equity securities that were part of our investment portfolio. We donated the securities to establish the National Semiconductor Foundation. Excluding this expense, SG&A expenses for the first six months of fiscal 2002 declined 17 percent from SG&A expenses for the comparable fiscal 2001 period. Overall, the decline in fiscal 2002 expenses reflect actions that we implemented in the second half of fiscal 2001 to reduce spending in response to weakened business conditions. Interest Income and Interest Expense For the second quarter and first six months of fiscal 2002, we earned net interest income of $5.5 million and $12.5 million, respectively, compared to $15.2 million and $29.3 million for the comparable periods of fiscal 2001. The decrease in net interest income was primarily due to lower average interest rates on lower average cash balances during fiscal 2002 compared to fiscal 2001. Offsetting interest expense was slightly lower for fiscal 2002 as we continued to reduce our outstanding debt balances. Other Income (Expense), Net Other income (expense), net was $(0.6) million and $4.5 million for the second quarter and first six months of fiscal 2002, respectively, compared to $8.4 million and $45.9 million for the comparable periods of fiscal 2001. The components of other expense, net for the second quarter of fiscal 2002 included a $1.0 million net loss, which was partially offset by $0.4 million of net intellectual property income. The net loss included a $0.2 million loss from equity investments, $0.2 million of non-operating losses associated with an investment partnership and $0.6 million of other miscellaneous losses. For the first six months of fiscal 2002, other income, net included $1.7 million of net intellectual property income and a $5.4 million net gain from equity investments. This was offset by $2.0 million of non-operating losses associated with an investment partnership and $0.6 million from other miscellaneous losses. Other income, net for the second quarter of fiscal 2001, included $3.1 million of net intellectual property income, a net gain of $2.7 million from equity investments and $2.6 million of non-operating income associated with an investment partnership. For the first six months of fiscal 2001, other income, net included an additional net gain of $36.1 million from equity investments and an additional $1.4 million of net intellectual property income. The net gain from equity investments for the first six months of fiscal 2001 included a gain of $20.5 million from the distribution of equity securities that were part of our investment portfolio, which we donated to establish the National Semiconductor Foundation. An expense for the same amount associated with the donation was included in SG&A expenses for the first quarter of fiscal 2001. Income Tax Expense We recorded income tax expense of $2.5 million and $5.0 million for the second quarter and first six months of fiscal 2002, respectively. This compares to income tax expense of $26.7 million and $62.8 million for the corresponding periods of fiscal 2001. The fiscal 2002 tax expense represents taxes due on international income, while we have not recognized a tax benefit on operating losses in the U.S. The fiscal 2001 tax expense is based on a 20 percent effective rate on both our U.S. and international operations. Financial Condition During the first six months of fiscal 2002, cash and cash equivalents decreased $109.6 million compared to an increase of $67.2 million for the first six months of fiscal 2001. The primary factors contributing to these changes are described below. We generated cash from operating activities of $20.0 million for the first six months of fiscal 2002, compared to $314.9 million for the first six months of fiscal 2001. The net loss for the first six months of fiscal 2002 significantly reduced cash from operating activities, while a net positive change in working capital components had minimal impact. The positive effects from decreases in receivables and inventories were mostly offset by the net decrease in accounts payable, accrued liabilities and income taxes payable. For fiscal 2001, operating cash was primarily generated from net income, which was partially offset by a negative impact from changes in working capital components. The negative impact from changes in working capital components were from decreases in accounts payable and accrued liabilities and this was partially offset by a decrease in receivables. Our investing activities used cash of $175.5 million for the first six months of fiscal 2002, compared to $148.4 million used for the first six months of fiscal 2001. Major uses of cash in fiscal 2002 included investment in property, plant and equipment of $69.7 million, net purchases of available-for-sale securities of $50.6 million and the acquisition of Wireless Solutions Sweden AB for $27.5 million. Major uses of cash in fiscal 2001 included investment in property, plant and equipment of $121.2 million, net purchases of available-for-sale securities of $21.0 million and the acquisition of the Vivid Semiconductor business for $24.9 million. Our financing activities generated cash of $45.9 million for the first six months of fiscal 2002, while they used cash of $99.3 million for the first six months of fiscal 2001. The primary source of cash was from the issuance of common stock under employee benefits plans in the amount of $54.8 million in fiscal 2002, which was offset by repayment of $8.9 million of our outstanding debt balances. The primary use of cash in fiscal 2001 was for our repurchase of 5.3 million shares of our common stock on the open market for $125.8 million. All of the shares of treasury stock were retired during the same fiscal 2001 period. Management foresees substantial cash outlays for plant and equipment throughout the remainder of fiscal 2002, with primary focus on new capabilities that support our target growth markets, as well as improvements to provide better manufacturing efficiency and productivity. However, we will continue to manage that activity relative to business conditions. Based on current economic conditions, the fiscal 2002 capital expenditure level is expected to be slightly lower than the fiscal 2001 level. We expect existing cash and investment balances, together with existing lines of credit, to be sufficient to finance planned fiscal 2002 capital investments. Recently Issued Accounting Standards At the beginning of the first quarter of fiscal 2002, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The adoption of this statement did not have a material impact on our financial statements as described in Note 2 to the condensed consolidated financial statements. We also adopted SFAS No. 142, "Goodwill and Other Intangible Assets" at the beginning of the first quarter of fiscal 2002. The impact of adoption of this statement is described in Note 5 to the condensed consolidated financial statements. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and eliminates the use of the pooling-of-interests method. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We are currently analyzing this statement and have not yet determined its impact on our consolidated financial statements. This Statement will be effective for our fiscal year 2003. In October 2001, The Financial Accounting Standards Board also issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Though SFAS No. 144 retains the basic requirements of SFAS No. 121 regarding when and how to measure an impairment loss, it provides additional implementation guidance. SFAS No. 144 also supersedes the provisions of APB Opinion No. 30, "Reporting Results of Operations," pertaining to discontinued operations. Separate reporting of a discontinued operation is still required, but SFAS No. 144 expands the presentation to include a component of an entity, rather than strictly a business segment as defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." We are currently analyzing this statement and have not yet determined its impact on our consolidated financial statements. This statement will be effective for our fiscal year 2003. Outlook Although semiconductor market conditions in the first half of our fiscal year 2002 continued to be weak compared to fiscal year 2001, we experienced sequential growth in revenues for the second quarter from the first quarter. The sequential improvement was driven by new orders coming from wireless handset makers, PC suppliers and display manufacturers. For the second consecutive quarter we saw improvement over the preceding quarter in fill orders, which are orders received and shippable in the same quarter. While we expect the relatively strong trend in fill orders to continue into our third quarter, opening backlog for the current quarter was lower than what we had at the beginning of the second quarter. We also face post-Christmas seasonal slowdowns that have historically occurred in some of the end markets we serve as well as some of the regions in Asia that are affected by international holidays. Given these opposing factors, we anticipate that sales for the third quarter of fiscal 2002 will be at a similar level as sales for the second quarter we just completed, ranging from $350-$370 million. The actual level of sales we achieve in the third quarter of fiscal 2002 will depend upon the amount of fill orders we receive. If the level and pattern of fill orders that we experienced in the first half of fiscal 2002 are not sustained, the expected level of sales for the third quarter of fiscal 2002 may not be achieved. We also expect our gross margin percentage for the third quarter of fiscal 2002 to be similar to that of the recently completed second quarter, as wafer fabrication capacity utilization is expected to remain around 50 percent. Until we see more accelerated improvement in new orders, we plan to continue to control the level of production activity in our manufacturing facilities. For the third quarter of fiscal 2002, we currently anticipate operating results to be comparable to the results we had for the second quarter of fiscal 2002. The September terrorist attacks on the U.S. and subsequent associated events have created additional uncertainty on the state of the U.S. economy overall. Although we did not experience any immediate direct adverse effect on our operations from the terrorist attacks, the longer-term and indirect consequences from this catastrophic event are not yet known. There can be no assurance that the economic and political climate will improve in the near future. If the slow business conditions in the global economy continue or become more severe, our future sales and operating results could be negatively impacted. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended May 27, 2001 and to the subheading "Financial Market Risks" under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 21 of our Annual Report on Form 10-K for the year ended May 27, 2001 and in Note 1, "Summary of Significant Accounting Policies," and Note 2, "Financial Instruments," in the Notes to the Consolidated Financial Statements included in Item 8 of our 2001 Form 10-K. There have been no material changes from the information reported in these sections. PART II. OTHER INFORMATION Item 1. Legal Proceedings Environmental Matters In March 2001, the U.S. Environmental Protection Agency served us with an administrative complaint, compliance order and notice of opportunity for hearing. The complaint alleged that the EPA found certain violations of the Resource Conservation and Recovery Act in an inspection conducted in August 1997 at our Maine facility. In October 2001, we entered into a Consent Agreement and Final Order with the EPA settling this matter. We have agreed to pay a penalty of $42,120 and undertake certain environmental projects at the Maine plant costing at least $156,296. We will also submit reports about the environmental projects to the EPA. The matter is now concluded. Item 4. Submission of Matters to a Vote of Security Holders (a) National Semiconductor Corporation's Annual Meeting was held on September 21, 2001. (b) The following directors were elected at the meeting: DIRECTOR FOR AUTHORITY WITHHELD - -------- --- ------------------ Brian L. Halla 154,241,686 2,230,783 Gary P. Arnold 154,364,891 2,107,578 Richard J. Danzig 154,354,589 2,117,880 Robert J. Frankenberg 154,390,520 2,081,949 E. Floyd Kvamme 149,644,317 6,828,152 Modesto A. Maidique 154,322,833 2,149,636 Edward R. McCracken 154,355,959 2,116,510 (c) The following matter was also voted on at the meeting: Proposal to approve KPMG as auditors of the Company: For: 155,227,971 Against: 552,649 Abstain: 691,849 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1 Second Restated Certificate of Incorporation of the Company as amended (incorporated by reference from the Exhibits to our Registration Statement on Form S-3 Registration No. 33-52775, which became effective March 22, 1994); Certificate of Amendment of Certificate of Incorporation dated September 30, 1994 (incorporated by reference from the Exhibits to our Registration Statement on Form S-8 Registration No. 333-09957, which became effective August 12, 1996); Certificate of Amendment of Certificate of Incorporation dated September 22, 2000 (incorporated by reference from the Exhibits to our Registration Statement on Form S-8 Registration No. 333-48424, which became effective October 23, 2000). 3.2 By Laws of the Company, as amended effective October 30, 2001. 4.1 Form of Common Stock Certificate (incorporated by reference from the Exhibits to our Registration Statement on Form S-3 Registration No. 33-48935, which became effective October 5, 1992). 4.2 Rights Agreement (incorporated by reference from the Exhibits to our Registration Statement on Form 8-A filed August 10, 1988); First Amendment to the Rights Agreement dated as of October 31, 1995 (incorporated by reference from the Exhibits to our Amendment No. 1 to the Registration Statement on Form 8-A filed December 11, 1995); Second Amendment to the Rights Agreement dated as of December 17, 1996 (incorporated by reference from the Exhibits to our Amendment No. 2 to the Registration Statement on Form 8-A filed January 17, 1997). 4.3 Indenture dated as of May 28, 1996 between Cyrix Corporation ("Cyrix") and Bank of Montreal Trust Company as Trustee (incorporated by reference from the Exhibits to Cyrix's Registration Statement on Form S-3 Registration No. 333-10669, which became effective August 22, 1996). 4.4 Registration Rights Agreements dated as of May 28, 1996 between Cyrix and Goldman, Sachs & Co. (incorporated by reference from the Exhibits to Cyrix's Registration Statement on Form S-3 Registration No. 333-10669, which became effective August 22, 1996). (b) Reports on Form 8-K No reports on form 8-K were filed for the quarter ending November 25, 2001. SIGNATURE --------- 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. NATIONAL SEMICONDUCTOR CORPORATION Date: January 8, 2001 \s\Robert E. DeBarr Robert E. DeBarr Controller Signing on behalf of the registrant and as principal accounting officer EX-3.(II) 3 form10q_0108exh.txt BY-LAWS OF NATIONAL SEMICONDUCTOR Exhibit 3.2 BY-LAWS OF NATIONAL SEMICONDUCTOR CORPORATION AMENDED AS OF JANUARY 24,2001 ARTICLE I. OFFICES Section 1. REGISTERED OFFICE. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. OTHER OFFICES. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II. STOCKHOLDERS Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at such place either within or without the State of Delaware as may be designated by the board of directors. Section 2. ANNUAL MEETING. An annual meeting of stockholders shall be held on the fourth Friday in September of each year, at 10:30 A.M., or at such other date and time as shall be designated by the board of directors. At the annual meeting the stockholders shall elect a board of directors and transact such other business as may be properly brought before the meeting. Section 3. SPECIAL MEETINGS. Subject to the rights of the holders of any series of stock having a preference over the Common Stock of the corporation as to dividends or upon liquidation ("Preferred Stock") with respect to such series of Preferred Stock, special meetings of the stockholders may be called only by the chairman of the board or by the board of directors pursuant to a resolution adopted by a majority of the total number of directors which the corporation would have if there were no vacancies (the "Whole Board"). Section 4. NOTICE OF MEETINGS. The secretary or such other officer of the corporation as is designated by the board of directors shall serve personally or send through the mails or by telegraph a written notice of annual or special meetings of stockholders, addressed to each stockholder of record entitled to vote at his address as it appears on the stock transfer books of the corporation, stating the time and place of the meeting and the purpose or purposes for which the meeting is called, not less than ten nor more than sixty days before the date of the meeting. If mailed, notice shall be deemed to have been given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. Notice given by telegraph shall be deemed to have been given upon delivery of the message to the telegraph company. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Any previously scheduled meeting of the stockholders may be postponed, and (unless the Certificate of Incorporation otherwise provides) any special meeting of the stockholders may be cancelled, by resolution of the board of directors upon public notice given prior to the date previously scheduled for such meeting of stockholders. Section 5. WAIVER OF NOTICE. Notice of a meeting need not be given to any stockholder who signs a waiver of notice, in person or by proxy, whether before or after a meeting. The attendance of any stockholder at a meeting, in person or by proxy, without protesting either prior thereto or at its commencement the lack of notice of such meeting, shall constitute a waiver of notice by him. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. Section 6. STOCKHOLDER'S LIST. The officer who has charge of the stock transfer book of the corporation shall prepare and make, at least ten days before every meeting of the stockholders at which directors are to be elected, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to examination by any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 7. QUORUM AND ADJOURNMENT. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the outstanding shares of the corporation entitled to vote generally in the election of directors (the "Voting Stock"), present in person or represented by proxy, shall constitute a quorum at all meetings of stockholders for the transaction of business, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum of such class or series for the transaction of such business. The chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is such a quorum. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote. Section 8. PROXIES. At all meetings of stockholders, each stockholder entitled to vote shall have one vote, to be exercised in person or by proxy, for each share of capital stock having voting power, held by such stockholder. All proxies shall be in writing, shall relate only to a specific meeting (including continuations and adjournments of the same), and shall be filed with the secretary at or before the time of the meeting. Each proxy must be signed by the shareholder or his attorney-in-fact. The person or persons named in a proxy for a specific meeting may vote at any adjournment of the meeting for which the proxy was given. If more than one person is named as proxy, a majority of such persons so named present at the meeting, or if only one shall be present, then that one, shall have and exercise all the powers conferred upon all of the persons unless the proxy shall provide otherwise. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged prior to or at its exercise and the burden of proving invalidity shall rest on the challenger. Section 9. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS. a. Annual Meetings of Stockholders. ------------------------------------- (1) Nominations of persons for election to the board of directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the corporation's notice of meeting, (b) by or at the direction of the board of directors or (c) by any stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in this By-Law, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this By-Law. (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (a)(1) of this By-Law, the stockholder must have given timely notice thereof in writing to the secretary of the corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the corporation not later than the close of business on the 120th day nor earlier than the close of business on the 150th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 120 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 150th day prior to such annual meeting and not later than the close of business on the later of the 120th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner and (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this By-Law to the contrary, in the event that the number of directors to be elected to the board of directors of the corporation is increased and there is no public announcement by the corporation naming all of the nominees for director or specifying the size of the increased board of directors at least 130 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. b. Special Meetings of Stockholders. ---------------------------------------- Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the board of directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the board of directors or (b) provided that the board of directors has determined that directors shall be elected at such meeting, by any stockholder of the corporation who is a stockholder of record at the time of giving of notice provided for in this By-Law, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this By-Law. In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the board of directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation's notice of meeting, if the stockholder's notice required by paragraph (a)(2) of this By-Law shall be delivered to the secretary at the principal executive offices of the corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. c. General. ------------- (1) Only such persons who are nominated in accordance with the procedures set forth in this By-Law shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this By-Law. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this By-Law and, if any proposed nomination or business is not in compliance with this By-Law, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this By-Law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances. Section 10. VOTING. When a quorum is present at any meeting, the affirmative vote of the holders of a majority of the capital stock having voting power present in person or represented by proxy and entitled to vote on the matter shall decide any question brought before such meeting, except (i) in respect of elections of directors which shall be decided, subject to the rights of the holders of any series of Preferred Stock, by a plurality of the votes cast, and (ii) when the question is one which by express provision of statute or Certificate of Incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. No vote need be taken by ballot unless required by statute. Section 11. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The board of directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by law. The chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting. Section 12. RECORD DATE FOR ACTION BY WRITTEN CONSENT. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the board of directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the secretary, request the board of directors to fix a record date. The board of directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date (unless a record date has previously been fixed by the board of directors pursuant to the first sentence of this Section). If no record date has been fixed by the board of directors pursuant to the first sentence of this Section or otherwise within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or to any officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the board of directors adopts the resolution taking such prior action. Section 13. INSPECTORS OF WRITTEN CONSENT. In the event of the delivery, in the manner provided by Section 12 of this Article to the corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the corporation shall engage independent inspectors of elections for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the corporation that the consents delivered to the corporation in accordance with Section 12 of this Article represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this Section shall in any way be construed to suggest or imply that the board of directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution, or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). Section 14. EFFECTIVENESS OF WRITTEN CONSENT. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated written consent received in accordance with Section 12 of this Article, a written consent or consents signed by a sufficient number of holders to take such action are delivered to the corporation in the manner prescribed in Section 12 of this Article. ARTICLE III. THE BOARD OF DIRECTORS Section 1. COMPOSITION. The board of directors shall consist of seven directors subject to such automatic increase as may be required by the corporation's Restated Articles of Incorporation. The board may enlarge or reduce the size of the board in a vote of the majority of the directors in office. No director need be a stockholder. Section 2. ELECTION AND TERM. Except as provided in Section 3 of this Article, the directors shall be elected by a plurality vote at the annual meeting of the stockholders. Each director shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Section 3. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Any vacancy on the board of directors, or any newly created directorships, however occurring, may be filled by a majority of the directors then in office, though less than a quorum or by a sole remaining director. Any vacancy in the board of directors may also be filled by a plurality vote of the stockholders unless such vacancy shall have been previously filled by the board of directors. Section 4. POWERS. The business of the corporation shall be managed by its board of directors which shall have and may exercise all such powers of the corporation, including the power to make, alter or repeal the bylaws of the corporation, and do all such lawful acts and things as are not by statute directed or required to be exercised or done by the stockholders. Section 5. PLACE OF MEETINGS. The board of directors of the corporation may hold meetings both regular and special, either within or without the State of Delaware. Members of the board of directors or any committee designated by the board, may participate in a meeting of such board or committee by means of a conference telephone by means of which all persons participating in the meeting can hear each other, and participation shall constitute presence in person at such meeting. Section 6. REGULAR MEETINGS. Regular meetings of the board of directors may be held without call or notice immediately following the annual meeting of the stockholders and at such time and at such place as shall from time to time be selected by the board of directors, PROVIDED that in respect of any director who is absent when such selection is made, the notice, waiver and attendance provisions of Section 7 of this Article shall apply to such regular meetings. Section 7. SPECIAL MEETINGS AND NOTICE. Special meetings of the board of directors may be called by the chairman of the board of directors, a majority of the directors or the president on notice given to each director, either personally (including by telephone) or by hand delivery, first-class mail, overnight mail, courier service, telegram or facsimile transmission sent to his business or home address, stating the place, date and hour of the meeting. If mailed by first-class mail, such notice shall be deemed to have been adequately given when deposited in the United States mail, postage prepaid, directed to the director at his business or home address, at least five (5) days before such meeting. Notice given by telegraph, overnight mail or courier service shall be deemed adequately given upon delivery of the message to the telegraph company or to the overnight mail or courier service company at least two days before such meeting. Notice given by facsimile transmission shall be deemed adequately given upon transmission of the message at least twelve (12) hours before such meeting. Notice given by hand delivery or personally shall be deemed adequately given when delivered at least twelve (12) hours before such meeting. Notice of a meeting need not be given to any director who signs a waiver of notice, whether before or after the meeting. The attendance of any director at a meeting, without protesting either prior thereto or at its commencement the lack of notice of such meeting, shall constitute a waiver of notice by him. Any notice or waiver of notice of a meeting of the board of directors need not specify the purposes of the meeting. Section 8. QUORUM AND VOTING. At all meetings of the board of directors a majority less one of the total number of directors then in office shall constitute a quorum for the transaction of business, except that in no case shall less than two directors be deemed to constitute a quorum, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, a majority of less than a quorum may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the board of directors may be taken without a meeting, if all members of the board of directors, then in office, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board of directors. Section 10. RESIGNATION. Any director may resign at any time upon written notice delivered to the corporation at its principal office. The resignation shall take effect at the time specified therein, and if no time be specified, at the time of its dispatch to the corporation. Section 11. REMOVAL. A director may be removed for cause by the vote of a majority of the stockholders at a special or annual meeting after the director has been given reasonable notice and opportunity to be heard before the stockholders. Section 12. COMMITTEES. The board of directors may, by resolution passed by a majority of the whole board of directors, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which committee, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. ARTICLE IV. OFFICERS Section 1. DESIGNATION. The officers of the corporation shall consist of a president, a treasurer, a secretary, and such other officers including a chairman of the board of directors, one or more group presidents, vice presidents (including group executive vice presidents, corporate vice presidents and senior vice presidents), assistant treasurers and assistant secretaries, as the board of directors or the stockholders may deem warranted. With the exception of the chairman of the board of directors who must be a director, no officer need be a director or a stockholder. Any number of offices may be held by the same person. Section 2. ELECTION AND TERM. Except for officers to fill vacancies and newly created offices provided for in Section 6 of this Article, the officers shall be elected by the board of directors at the first meeting of the board of directors after the annual meeting of the stockholders. All officers shall hold office at the pleasure of the board of directors. Section 3. DUTIES OF OFFICERS. In addition to those duties that may from time to time be delegated to them by the board of directors, the officers of the corporation shall have the following duties: (a) CHAIRMAN OF THE BOARD. The chairman of the board shall preside at all meetings of the stockholders and of the board of directors at which he is present, shall be ex-officio a member of all committees formed by the board of directors and shall have such other duties and powers as the board of directors may prescribe. (b) PRESIDENT. The president shall be the chief executive officer of the corporation, shall have general and active management of the business of the corporation, shall see that all orders and resolutions of the board of directors are carried into effect, and, in the absence or nonelection of the chairman of the board of directors, shall preside at all meetings of the stockholders and the board of directors at which he is present if he is also a director. The president also shall execute bonds, mortgages, and other contracts requiring a seal under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be delegated expressly by the board of directors to some other officer or agent of the corporation and shall have such other powers and duties as the board of directors may prescribe. (c) GROUP PRESIDENT. The group president or group presidents, if any, shall have general and active management of the group for which they are designated as president by the board of directors and shall have such other duties and powers as vice-presidents or as the board of directors or the president may prescribe. (d) VICE-PRESIDENT. The vice-president or vice-presidents, if any, shall have such duties and powers as the board of directors or the president may prescribe. In the absence of the president or in the event of his inability or refusal to act, the group president or vice president, if any, or if there be more than one, the group presidents or vice-presidents, in the order designated by the board of directors, or, in the absence of such designation, then in the order of their election, shall perform the duties and exercise the powers of the president. (e) SECRETARIES AND ASSISTANT SECRETARIES. The secretary shall record the proceedings of all meetings of the stockholders and all meetings of the board of directors in books to be kept for that purpose, shall perform like duties for the standing committees when required, and shall give, or cause to be given, call and/or notices of all meetings of the stockholders and meetings of the board of directors in accordance with these by-laws. The secretary also shall have custody of the corporate seal of the corporation, affix the seal to any instrument requiring it and attest thereto when authorized by the board of directors or the president, and shall have such other duties and powers as the board of directors may prescribe. The assistant secretary, if any, or if there be more than one, the assistant secretaries, in the order designated by the board of directors, or, if there be no such designation, then in order of their election, shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall have such other duties and powers as the board of directors may prescribe. In the absence of the secretary or an assistant secretary at a meeting of the stockholders or the board of directors, an acting secretary shall be chosen by the stockholders or directors, as the case may be, to exercise the duties of the secretary at such meeting. In the absence of the secretary or an assistant secretary or in the event of the inability or refusal of the secretary or an assistant secretary to give, or cause to be given, any call and/or notice required by law or these by-laws, any such call and/or notice may be given by any person so directed by the board of directors, the president or stockholders, upon whose requisition the meeting is called in accordance with these by-laws. (f) TREASURER AND ASSISTANT TREASURER. The treasurer shall have the custody of the corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. The treasurer shall also disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, shall render to the board of directors, when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation, and shall have such other duties and powers as the board of directors may prescribe. If required by the board of directors, the treasurer shall give the corporation a bond, which shall be renewed every six years, in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. The assistant treasurer, if any, or if there be more than one, the assistant treasurers in the order designated by the board of directors, or, in the absence of such designation, then in the order of their election, shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall have such other duties and powers as the board of directors may prescribe. (g) OTHER OFFICERS. Any other officer shall have such powers and duties as the board of directors may prescribe. Section 4. Resignation. Any officer may resign at any time upon written notice delivered to the corporation at its principal office. The resignation shall take effect at the time specified therein, and if no time be specified, at the time of its dispatch to the corporation. Section 5. REMOVAL. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Section 6. VACANCIES AND NEWLY CREATED OFFICES. A vacancy in office, however occurring, and newly created offices, shall be filled by the board of directors. ARTICLE V. CAPITAL STOCK Section 1. STOCK CERTIFICATES. Each holder of stock in the corporation shall be entitled to have a certificate signed in an officer's official capacity or in the name of the corporation by the chairman of the board of directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Where a certificate is countersigned (a) by a transfer agent other than the corporation or its employee, or, (b) by a registrar other than the corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 2. LOST, STOLEN OR DESTROYED CERTIFICATES. The board of directors, or at their direction any officer of the company, may direct a new certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors, or at their direction any officer of the company, may, in its (his) discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. TRANSFER. Upon surrender to the secretary or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and upon compliance with any provisions respecting restrictions on transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. ISSUE OF STOCK. From time to time, the board of directors may, by vote of a majority of the directors, issue any of the authorized capital stock of the corporation for cash, property, services rendered or expenses, or as a stock dividend and on any terms permitted by law. Section 5. FIXING RECORD DATE. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 6. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VI. GENERAL PROVISIONS Section 1. DIVIDENDS. Dividends upon the capital stock of the corporation may be declared by the board of directors in any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of capital stock. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 2. CHECKS. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. Section 3. FISCAL YEAR. The fiscal year of the corporation shall be fixed by a resolution of the board of directors. Section 4. SEAL. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VII. AMENDMENTS Section 1. AMENDMENTS. These by-laws may be amended at any proper meeting of the stockholders or of the board of directors. ARTICLE VIII. INDEMNIFICATION Section 1. NON-DERIVATIVE PROCEEDINGS. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contenders or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, had reasonable cause to believe that his conduct was unlawful. Section 2. DERIVATIVE PROCEEDINGS. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 3. AMOUNT OF INDEMNIFICATION. To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 or 2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 4. DETERMINATION TO INDEMNIFY. Any indemnification under Sections 1 or 2 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 1 and 2. Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in written opinion, or (3) by the stockholders. Section 5. ADVANCE PAYMENT. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of a director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this section or otherwise pursuant to the law of Delaware. Section 6. NON-EXCLUSIVENESS OF BY-LAW. The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. Section 7. CONTINUATION OF INDEMNIFICATION. The indemnification and advancement of expenses provided by, or granted pursuant to this Article VIII, or permitted by statute or otherwise, shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 8. INDEMNIFICATION INSURANCE. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this section. -----END PRIVACY-ENHANCED MESSAGE-----