-----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, AkspCO+081myutzlPRaTmcabUwm3U+M+BqL9NWKTbvB7A0haErKb00iPV5xhD1Im d7gqeDtcN8zxJgGYhHkvFw== 0000950136-02-002362.txt : 20020814 0000950136-02-002362.hdr.sgml : 20020814 20020814112437 ACCESSION NUMBER: 0000950136-02-002362 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REVLON CONSUMER PRODUCTS CORP CENTRAL INDEX KEY: 0000890547 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 133662953 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-59650 FILM NUMBER: 02732587 BUSINESS ADDRESS: STREET 1: 625 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2125274000 MAIL ADDRESS: STREET 1: 625 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 file001.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2002 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 33-59650 REVLON CONSUMER PRODUCTS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3662953 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 625 MADISON AVENUE, NEW YORK, NEW YORK 10022 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 212-527-4000 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 --- --- The number of shares outstanding of the registrant's common stock was 1,000 shares as of June 30, 2002, all of which were held by an affiliate, Revlon, Inc., an indirect majority owned subsidiary of Mafco Holdings Inc. Total Pages - 27 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
JUNE 30, DECEMBER 31, ASSETS 2002 2001 -------------- -------------- Current assets: (Unaudited) Cash and cash equivalents .................................................... $ 32.0 $ 103.3 Marketable securities ........................................................ - 2.2 Trade receivables, less allowances of $15.6 and $15.4, respectively .......... 209.2 203.9 Inventories .................................................................. 161.4 157.9 Prepaid expenses and other ................................................... 52.3 50.6 -------------- -------------- Total current assets ................................................... 454.9 517.9 Property, plant and equipment, net ................................................. 131.6 142.8 Other assets ....................................................................... 131.9 132.2 Intangible assets, net ............................................................. 198.1 198.5 -------------- -------------- Total assets ........................................................... $ 916.5 $ 991.4 ============== ============== LIABILITIES AND STOCKHOLDER'S DEFICIENCY Current liabilities: Short-term borrowings - third parties ........................................ $ 22.6 $ 17.5 Accounts payable ............................................................. 88.3 87.0 Accrued expenses and other ................................................... 255.9 281.2 -------------- -------------- Total current liabilities .............................................. 366.8 385.7 Long-term debt - third parties ..................................................... 1,654.7 1,619.5 Long-term debt - affiliates ........................................................ 24.1 24.1 Other long-term liabilities ........................................................ 252.1 250.9 Stockholder's deficiency: Preferred stock, par value $1.00 per share; 1,000 shares authorized, 546 shares of Series A Preferred Stock issued and outstanding .......... 54.6 54.6 Common stock, par value $1.00 per share; 1,000 shares authorized, issued and outstanding ................................................. - - Capital deficiency ........................................................... (214.8) (214.8) Accumulated deficit since June 24, 1992 ...................................... (1,151.0) (1,067.5) Accumulated other comprehensive loss ......................................... (70.0) (61.1) -------------- -------------- Total stockholder's deficiency ......................................... (1,381.2) (1,288.8) -------------- -------------- Total liabilities and stockholder's deficiency ......................... $ 916.5 $ 991.4 ============== ==============
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements. 2 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (DOLLARS IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------------- ---------------------------------- 2002 2001 2002 2001 ---------------- ---------------- --------------- ---------------- Net sales ...................................... $ 308.2 $ 322.1 $ 583.6 $ 635.7 Cost of sales .................................. 119.8 143.0 228.8 274.6 ---------------- ---------------- --------------- ---------------- Gross profit .............................. 188.4 179.1 354.8 361.1 Selling, general and administrative expenses ... 179.0 182.2 345.4 358.8 Restructuring costs ............................ 3.2 7.9 7.2 22.5 ---------------- ---------------- --------------- ---------------- Operating income (loss) ................... 6.2 (11.0) 2.2 (20.2) ---------------- ---------------- --------------- ---------------- Other expenses (income): Interest expense .......................... 39.1 35.5 78.3 70.7 Interest income ........................... (0.7) (0.6) (1.2) (1.5) Amortization of debt issuance costs ....... 1.9 1.2 3.8 3.0 Foreign currency losses (gains), net ...... 2.4 0.2 1.8 (0.2) Loss on sale of assets and brand, net ..... - 7.1 1.0 7.1 Miscellaneous, net ........................ 0.2 - 0.9 0.8 ---------------- ---------------- --------------- ---------------- Other expenses, net .................. 42.9 43.4 84.6 79.9 ---------------- ---------------- --------------- ---------------- Loss before income taxes ....................... (36.7) (54.4) (82.4) (100.1) Provision for income taxes ..................... 1.0 1.3 1.1 1.8 ---------------- ---------------- --------------- ---------------- Net loss ....................................... $ (37.7) $ (55.7) $ (83.5) $ (101.9) ================ ================ =============== ================
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements. 3 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDER'S DEFICIENCY AND COMPREHENSIVE LOSS (DOLLARS IN MILLIONS)
ACCUMULATED OTHER TOTAL PREFERRED CAPITAL ACCUMULATED COMPREHENSIVE STOCKHOLDER'S STOCK DEFICIENCY DEFICIT LOSS (a) DEFICIENCY --------- ------------ ----------- ------------- ------------- Balance, January 1, 2001 ............................. $ 54.6 $ (213.8) $ (915.3) $ (29.8) $ (1,104.3) Net distribution from affiliate ................. (0.9)(b) (0.9) Comprehensive loss: Net loss ................................ (101.9) (101.9) Currency translation adjustment ......... (3.6)(c) (3.6) Revaluation of foreign currency forward exchange contracts ...................... 0.6 0.6 ------------- Total comprehensive loss ........................ (104.9) --------- ------------ ----------- ------------- ------------- Balance, June 30, 2001 ................................ $ 54.6 $ (214.7) $ (1,017.2) $ (32.8) $ (1,210.1) ========= ============ =========== ============= ============= Balance, January 1, 2002 .............................. $ 54.6 $ (214.8) $ (1,067.5) $ (61.1) $ (1,288.8) Comprehensive loss: Net loss ................................. (83.5) (83.5) Currency translation adjustment .......... (8.4) (8.4) Revaluation of foreign currency forward exchange contracts ....................... (0.5) (0.5) ------------- Total comprehensive loss ......................... (92.4) --------- ------------ ----------- ------------- ------------- Balance, June 30, 2002 ................................ $ 54.6 $ (214.8) $ (1,151.0) $ (70.0) $ (1,381.2) ========= ============ =========== ============= =============
- -------------------- (a) Accumulated other comprehensive loss includes unrealized losses (gains) on revaluations of foreign currency forward exchange contracts of $0.5 and $(0.6) as of June 30, 2002 and 2001, respectively, cumulative net translation losses of $23.4 and $29.8 as of June 30, 2002 and 2001, respectively, and adjustments for the minimum pension liability of $46.1 and $3.6 as of June 30, 2002 and 2001, respectively. (b) Represents net distributions in capital from the Charles of the Ritz business. (c) The currency translation adjustment as of June 30, 2001 includes a reclassification adjustment of $7.1 for realized losses on foreign currency adjustments associated primarily with the sale of the Colorama brand in Brazil. See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements. 4 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (DOLLARS IN MILLIONS)
SIX MONTHS ENDED JUNE 30, ------------------------------ 2002 2001 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ........................................................................... $ (83.5) $ (101.9) Adjustments to reconcile net loss to net cash (used for) provided by operating activities: Depreciation and amortization ................................................. 60.1 61.5 Loss on sale of brand and assets, net ......................................... 1.0 7.1 Change in assets and liabilities, net of acquisitions and dispositions: (Increase) decrease in trade receivables ................................. (8.2) 5.8 Increase in inventories .................................................. (4.8) (7.4) Increase in prepaid expenses and other current assets .................... (2.7) (5.3) Increase in accounts payable ............................................. 1.3 20.5 Decrease in accrued expenses and other current liabilities ............... (23.0) (8.2) Purchase of permanent displays ........................................... (34.6) (29.3) Other, net ............................................................... (8.0) (3.2) ------------- ------------- Net cash used for operating activities ............................................. (102.4) (60.4) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ............................................................... (4.8) (9.4) Sale of marketable securities ...................................................... 1.8 - Net proceeds from the sale of brand and certain assets ............................. - 35.2 ------------- ------------- Net cash (used for) provided by investing activities ............................... (3.0) 25.8 ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in short-term borrowings - third parties .............................. 4.8 0.3 Proceeds from the issuance of long-term debt - third parties ....................... 47.1 157.5 Repayment of long-term debt - third parties ........................................ (14.0) (139.1) Net distribution from affiliate .................................................... - (0.9) Payment of debt issuance costs ..................................................... - (2.4) ------------- ------------- Net cash provided by financing activities .......................................... 37.9 15.4 ------------- ------------- Effect of exchange rate changes on cash and cash equivalents ....................... (3.8) (2.7) ------------- ------------- Net decrease in cash and cash equivalents ..................................... (71.3) (21.9) Cash and cash equivalents at beginning of period .............................. 103.3 56.3 ------------- ------------- Cash and cash equivalents at end of period .................................... $ 32.0 $ 34.4 ============= ============= Supplemental schedule of cash flow information: Cash paid during the period for: Interest ................................................................. $ 76.2 $ 68.4 Income taxes, net of refunds ............................................. 2.0 2.2
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements. 5 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS) (1) BASIS OF PRESENTATION Revlon Consumer Products Corporation ("Products Corporation" and, together with its subsidiaries, the "Company") is a direct wholly owned subsidiary of Revlon, Inc., which is an indirect majority owned subsidiary of MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings"), a corporation wholly owned indirectly through Mafco Holdings Inc. ("Mafco Holdings" and, together with MacAndrews Holdings, "MacAndrews & Forbes") by Ronald O. Perelman. The accompanying Consolidated Condensed Financial Statements are unaudited. In management's opinion, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation have been made. The Unaudited Consolidated Condensed Financial Statements include the accounts of the Company after elimination of all material intercompany balances and transactions. The Company has made a number of estimates and assumptions relating to the assets and liabilities, the disclosure of contingent assets and liabilities and the reporting of revenues and expenses to prepare these financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ from those estimates. The Unaudited Consolidated Condensed Financial Statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. The results of operations and financial position, including working capital, for interim periods are not necessarily indicative of those to be expected for a full year. In November 2001, the FASB Emerging Issues Task Force (the "EITF") reached consensus on EITF Issue 01-9 entitled, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products" (the "Guidelines"), which addresses when sales incentives and discounts should be recognized, as well as where the related revenues and expenses should be classified in the financial statements. The Company adopted the earlier portion of these new Guidelines (formerly EITF Issue 00-14) addressing certain sales incentives effective January 1, 2001, and accordingly, all prior period financial statements reflect the implementation of the earlier portion of the Guidelines. The second portion of the Guidelines (formerly EITF Issue 00-25) addresses vendor income statement characterization of consideration to a purchaser of the vendor's products or services, including the classification of slotting fees, cooperative advertising arrangements and buy-downs. Certain promotional payments that were classified in SG&A expenses are now classified as a reduction of net sales. The impact of the adoption of the second portion of the Guidelines on the consolidated financial statements reduced both net sales and SG&A expenses by equal and offsetting amounts. Such adoption did not have any impact on the Company's reported operating loss or net loss. The Company adopted the second portion of the Guidelines effective January 1, 2002, and accordingly, all prior period financial statements reflect the implementation of the second portion of the Guidelines. In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria that must be met in order for intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 requires that intangible assets with finite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for 6 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS) impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company adopted the provisions of Statement 141 in July 2001 and Statement 142 effective January 1, 2002. In connection with the adoption of Statement 142, the Company performed a transitional goodwill impairment test as required and has determined that no goodwill impairment existed at January 1, 2002. The Company has also evaluated the lives of all of its intangible assets. As a result of this evaluation, the Company has determined that none of its intangible assets, other than goodwill, have indefinite lives and that the existing useful lives are appropriate. (See Note 4). In October 2001, the FASB issued Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. Statement 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Statement also extends the reporting requirements to report separately as discontinued operations, components of an entity that have either been disposed of or classified as held for sale. The Company adopted the provisions of Statement 144 effective January 1, 2002 and such adoption had no effect on its financial statements. Certain amounts in the prior year's financial statements have been reclassified to conform to the current year's presentation. (2) INVENTORIES JUNE 30, DECEMBER 31, 2002 2001 ------------ --------------- Raw materials and supplies ..... $ 49.3 $ 44.9 Work-in-process ................ 10.7 10.1 Finished goods ................. 101.4 102.9 ------------ --------------- $ 161.4 $ 157.9 ============ =============== (3) OTHER ASSETS The Company capitalizes the cost of permanent display fixtures and amortizes such cost over the estimated useful life of the assets of three to five years. Beginning in the first quarter of 2002, the Company decided to roll-out new permanent display units, replacing existing permanent display fixtures at an accelerated rate. As a result, the useful lives of those permanent display fixtures to be replaced were shortened to their new estimated useful lives, resulting in accelerated amortization of $6.9 and $9.7 during the three months and six months ended June 30, 2002, respectively. (4) INTANGIBLE ASSETS, NET Intangible assets, net of $198.1 and $198.5 at June 30, 2002 and December 31, 2001, respectively, consists of trademarks, net, patents, net and goodwill, net. The amounts outstanding for these intangible assets at June 30, 2002 and December 31, 2001 were as follows: for trademarks, net, $6.8 and $6.8, respectively; for patents, net, $5.4 and $5.8, respectively; and for goodwill, net, $185.9 at both June 30, 2002 and December 31, 2001. Amortization expense for the three-months and six-months ended June 30, 2002 and 2001 was $0.4 and $0.8, respectively, and $2.3 and $4.6, respectively. Amortization of goodwill ceased on January 1, 2002 upon adoption of Statement 142. Excluding amortization expense related to goodwill of $1.9 and $3.8 recognized during the three-months and six-months ended June 30, 2001, respectively, net loss would have been $53.8 and $98.1, respectively. The Company's intangible assets other than goodwill continue to be subject to amortization, which is anticipated to be approximately $1.6 annually through December 31, 2007. 7 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS) (5) RESTRUCTURING AND OTHER COSTS, NET During the third quarter of 2000, the Company initiated a new restructuring program in line with the original restructuring plan developed in late 1998, designed to improve profitability by reducing personnel and consolidating manufacturing facilities. The 2000 restructuring program focused on the Company's plans to close its manufacturing operations in Phoenix, Arizona and Mississauga, Canada and to consolidate its cosmetics production into its plant in Oxford, North Carolina. The 2000 restructuring program also includes the remaining obligation for excess leased real estate in the Company's headquarters, consolidation costs associated with the Company closing its facility in New Zealand, and the elimination of several domestic and international executive and operational positions, each of which were effected to reduce and streamline corporate overhead costs. In the first quarter of 2001, the Company recorded a charge of $14.6 related to previous restructuring programs, as well as the 2000 restructuring program, principally for additional employee severance and other personnel benefits, relocation and to consolidate worldwide operations. In the second quarter of 2001, the Company continued to implement the 2000 restructuring program and recorded a charge of $7.9, principally for additional employee severance and other personnel benefits and other costs related to the consolidation of worldwide operations. During the second quarter of 2002 and the six months ended June 30, 2002, the Company continued to implement the 2000 restructuring program, as well as other restructuring actions, and recorded a charge of $3.2 and $7.2, respectively, principally for additional employee severance and other personnel benefits, primarily resulting from reductions in the Company's worldwide sales force, relocation and other costs related to the consolidation of worldwide operations. In connection with the 2000 restructuring program, termination benefits for 2,436 employees were included in the Company's restructuring charges, substantially all of whom have been terminated as of June 30, 2002. The remaining employees from the 2000 restructuring program are expected to be terminated within one year from the date of their notification. Details of the activity described above during the six-month period ended June 30, 2002 are as follows:
BALANCE UTILIZED, NET BALANCE AS OF ------------------------- AS OF 1/1/02 EXPENSES, NET CASH NONCASH 6/30/02 ----------- ------------- ---------- --------- ----------- Employee severance and other personnel benefits ........... $ 15.1 $ 5.9 $ (11.5) $ - $ 9.5 Relocation ......................... - 0.3 (0.3) - - Leases and equipment write-offs .... 7.4 0.7 (1.5) - 6.6 Other obligations .................. 0.3 0.3 (0.2) - 0.4 ----------- ----------- ---------- --------- ----------- $ 22.8 $ 7.2 $ (13.5) $ - $ 16.5 =========== =========== ========== ========= ===========
In connection with the 2000 restructuring program, in the beginning of the fourth quarter of 2000, the Company decided to consolidate its manufacturing facility in Phoenix, Arizona into its manufacturing facility in Oxford, North Carolina. The plan was to relocate substantially all of the Phoenix equipment to the Oxford facility and commence production there over a period of approximately nine months which would allow the Company to fully staff the Oxford facility and to produce enough inventory through a combination of production in the Phoenix and Oxford facilities to meet supply chain demand as the Phoenix facility production lines were dismantled, moved across the country, and placed into service at the Oxford facility. Substantially all production at the Phoenix facility ceased by June 30, 2001, and the facility was sold. At the time the decision was made the useful lives of the facility and production assets which would not be relocated to the Oxford facility were shortened to the nine-month period in which the Phoenix facility 8 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS) would continue production. The Company began depreciating the net book value of the Phoenix facility and production equipment in excess of their estimated salvage value over the estimated nine-month useful life. This resulted in the recognition of increased depreciation through June 30, 2001 of $6.1, which is included in cost of sales. (6) GEOGRAPHIC INFORMATION The Company manages its business on the basis of one reportable operating segment. The Company is exposed to the risk of changes in social, political and economic conditions inherent in foreign operations and the Company's results of operations and the value of its foreign assets and liabilities are affected by fluctuations in foreign currency exchange rates. During the first quarter of 2002, to reflect the integration of management reporting responsibilities, the Company reclassified Puerto Rico's results from its international operations to its United States operations. The geographic information reflects this change for both the 2002 and 2001 periods.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------ 2002 2001 2002 2001 ------------ ------------ ------------ ------------ GEOGRAPHIC AREAS: Net sales: United States .......................... $ 206.1 $ 205.5 $ 393.1 $ 408.0 Canada ................................. 10.9 10.7 20.3 20.7 ------------ ------------ ------------ ------------ United States and Canada ............... 217.0 216.2 413.4 428.7 International .......................... 91.2 105.9 170.2 207.0 ------------ ------------ ------------ ------------ $ 308.2 $ 322.1 $ 583.6 $ 635.7 ============ ============ ============ ============
JUNE 30, DECEMBER 31, 2002 2001 ------------ ------------ Long-lived assets: United States .......................... $ 388.5 $ 399.4 Canada ................................. 3.0 2.5 ------------ ------------ United States and Canada ............... 391.5 401.9 International .......................... 70.1 71.6 ------------ ------------ $ 461.6 $ 473.5 ============ ============
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------ 2002 2001 2002 2001 ------------ ------------ ------------ ------------ CLASSES OF SIMILAR PRODUCTS: Net sales: Cosmetics, skin care and fragrances .... $ 193.7 $ 197.6 $ 368.9 $ 404.2 Personal care .......................... 114.5 124.5 214.7 231.5 ------------ ------------ ------------ ------------ $ 308.2 $ 322.1 $ 583.6 $ 635.7 ============ ============ ============ ============
(7) DISPOSITION In February 2002, Products Corporation completed the disposition of its subsidiaries that operated its marketing, sales and distribution business in Belgium, the Netherlands and Luxembourg ("Benelux"). As part of this sale, Products Corporation entered into a long-term distribution agreement with the purchaser pursuant to which the purchaser distributes the Company's products in Benelux. The purchase price consisted principally of the assumption of certain liabilities and a deferred purchase price contingent upon future results of up to approximately $4.7, which could be received over approximately a seven-year 9 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS) period. In connection with the disposition, the Company recognized a pre-tax and after-tax loss of $1.0 in the first quarter of 2002. (8) DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments, primarily foreign currency forward exchange contracts, to reduce the exposure of adverse effects of fluctuations in foreign currency exchange rates. These contracts, which have been designated as cash flow hedges, were entered into primarily to hedge anticipated inventory purchases and certain intercompany payments denominated in foreign currencies, which have maturities of less than one year. Any unrecognized income (loss) related to these contracts are recorded in the Statement of Operations when the underlying transactions hedged are realized (e.g., when inventory is sold or intercompany transactions are settled). During 2002, the Company entered into these contracts with a counterparty that is a major financial institution, and accordingly the Company believes that the risk of counterparty nonperformance is remote. The notional amount of the foreign currency forward exchange contracts outstanding at June 30, 2002 was $27.2. The Company recorded an accrued liability of $0.7 in the balance sheet, a foreign exchange loss of $0.2 and a debit of $0.5 in Other Comprehensive Loss, which represents the fair value of the foreign currency forward exchange contracts outstanding at June 30, 2002. (9) GUARANTOR FINANCIAL INFORMATION On June 21, 2002, the 12% Senior Secured Notes due 2005 (the "Original 12% Notes"), which were issued by Products Corporation in November 2001, were exchanged for new 12% Senior Secured Notes due 2005 which have substantially identical terms as the Original 12% Notes (the "12% Notes"), except that the 12% Notes are registered with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), and the transfer restrictions and registration rights applicable to the Original 12% Notes do not apply to the 12% Notes. The 12% Notes are jointly and severally, fully and unconditionally guaranteed by the domestic subsidiaries of Products Corporation that guarantee Products Corporation's 2001 Credit Agreement (as hereinafter defined) (the "Guarantor Subsidiaries") (Subsidiaries of Products Corporation that do not guarantee the 12% Notes are referred to as the "Non-Guarantor Subsidiaries"). The Supplemental Guarantor Condensed Consolidating Financial Data presented below presents the balance sheets, statements of operations and statements of cash flow data (i) for Products Corporation and the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis (which is derived from Products Corporation's historical reported financial information); (ii) for Products Corporation as the "Parent Company", alone (accounting for its Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on an equity basis under which the investments are recorded by each entity owning a portion of another entity at cost, adjusted for the applicable share of the subsidiary's cumulative results of operations, capital contributions and distributions, and other equity changes); (iii) for the Guarantor Subsidiaries alone; and (iv) for the Non-Guarantor Subsidiaries alone. Additionally, Products Corporation's 12% Notes are fully and unconditionally guaranteed by Revlon, Inc. The unaudited and audited consolidating condensed balance sheets, unaudited consolidating condensed statements of operations and unaudited consolidating condensed statements of cash flow for Revlon, Inc. have not been included in the accompanying Supplemental Guarantor Condensed Consolidating Financial Data as such information is not materially different than those of Products Corporation. 10 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS) UNAUDITED CONSOLIDATING CONDENSED BALANCE SHEETS AS OF JUNE 30, 2002 (DOLLARS IN MILLIONS)
NON- PARENT GUARANTOR GUARANTOR ASSETS CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES ------------ ------------ --------- ------------ ------------ Current assets ...................................... $ 454.9 $ - $ 249.1 $ 22.9 $ 182.9 Intercompany receivables ............................ - (1,399.6) 784.9 418.5 196.2 Investment in subsidiaries .......................... - 214.1 (176.7) (86.3) 48.9 Property, plant and equipment, net .................. 131.6 - 119.5 3.1 9.0 Other assets ........................................ 131.9 - 116.6 6.1 9.2 Intangible assets, net .............................. 198.1 - 161.6 3.3 33.2 ------------ ------------ --------- ------------ ------------ Total assets .................................. $ 916.5 $(1,185.5) $ 1,255.0 $ 367.6 $ 479.4 ============ ============ ========= ============ ============ LIABILITIES AND STOCKHOLDER'S DEFICIENCY Current liabilities ................................. $ 366.8 $ - $ 254.3 $ 21.8 $ 90.7 Intercompany payables ............................... - (1,399.6) 467.7 580.2 351.7 Long-term debt ...................................... 1,678.8 - 1,671.3 3.2 4.3 Other long-term liabilities ......................... 252.1 - 242.9 9.2 - ------------ ------------ --------- ------------ ------------ Total liabilities ................................... 2,297.7 (1,399.6) 2,636.2 614.4 446.7 Stockholder's deficiency ............................ (1,381.2) 214.1 (1,381.2) (246.8) 32.7 ------------ ------------ --------- ------------ ------------ Total liabilities and stockholder's deficiency ...... $ 916.5 $(1,185.5) $ 1,255.0 $ 367.6 $ 479.4 ============ ============ ========= ============ ============
CONSOLIDATING CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 2001 (DOLLARS IN MILLIONS)
NON- PARENT GUARANTOR GUARANTOR ASSETS CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES ------------- ------------- ------------- -------------- -------------- Current assets .................................. $ 517.9 $ - $ 294.9 $ 28.2 $ 194.8 Intercompany receivables ........................ - (1,361.4) 726.0 387.1 248.3 Investment in subsidiaries ...................... - 177.5 (150.2) (61.3) 34.0 Property, plant and equipment, net .............. 142.8 - 131.1 3.3 8.4 Other assets .................................... 132.2 - 115.6 6.7 9.9 Intangible assets, net .......................... 198.5 - 161.9 3.4 33.2 ------------- ------------- ------------- -------------- -------------- Total assets .............................. $ 991.4 $ (1,183.9) $ 1,279.3 $ 367.4 $ 528.6 ============= ============= ============= ============== ============== LIABILITIES AND STOCKHOLDER'S DEFICIENCY Current liabilities ............................. $ 385.7 $ - $ 258.6 $ 21.2 $ 105.9 Intercompany payables ........................... - (1,361.4) 425.5 517.6 418.3 Long-term debt .................................. 1,643.6 - 1,642.2 - 1.4 Other long-term liabilities ..................... 250.9 - 241.8 9.1 - ------------- ------------- ------------- -------------- -------------- Total liabilities ............................... 2,280.2 (1,361.4) 2,568.1 547.9 525.6 Stockholder's deficiency ........................ (1,288.8) 177.5 (1,288.8) (180.5) 3.0 ------------- ------------- ------------- -------------- -------------- Total liabilities and stockholder's deficiency .. $ 991.4 $ (1,183.9) $ 1,279.3 $ 367.4 $ 528.6 ============= ============= ============= ============== ============== 11
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS) UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2002 (DOLLARS IN MILLIONS)
NON- PARENT GUARANTOR GUARANTOR CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES -------------- -------------- -------- ------------ ------------ Net sales ....................................... $ 308.2 $ (30.4) $ 201.8 $ 42.5 $ 94.3 Cost of sales ................................... 119.8 (30.4) 72.6 33.3 44.3 -------------- -------------- -------- ------------ ------------ Gross profit .............................. 188.4 - 129.2 9.2 50.0 Selling, general and administrative expenses .... 179.0 - 123.6 9.1 46.3 Restructuring costs ............................. 3.2 - 1.5 0.1 1.6 -------------- -------------- -------- ------------ ------------ Operating income (loss) ................... 6.2 - 4.1 - 2.1 -------------- -------------- -------- ------------ ------------ Other expenses (income): Interest expense, net ..................... 38.4 - 38.6 (0.3) 0.1 Miscellaneous, net ........................ 4.5 - 2.5 1.3 0.7 Equity in earnings of subsidiaries ........ - (21.9) 1.8 20.4 (0.3) -------------- -------------- -------- ------------ ------------ Other expenses, net ................. 42.9 (21.9) 42.9 21.4 0.5 -------------- -------------- -------- ------------ ------------ (Loss) income before income taxes ............... (36.7) 21.9 (38.8) (21.4) 1.6 Provision (benefit) for income taxes ............ 1.0 - (1.1) 0.7 1.4 -------------- -------------- -------- ------------ ------------ Net (loss) income ............................... $ (37.7) $ 21.9 $ (37.7) $(22.1) $ 0.2 ============== ============== ======== ============ ============
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2001 (DOLLARS IN MILLIONS)
NON- PARENT GUARANTOR GUARANTOR CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES ------------- ------------ -------------- ------------ -------------- Net sales ..................................... $ 322.1 $ (35.2) $ 200.5 $ 36.3 $ 120.5 Cost of sales ................................. 143.0 (35.2) 87.6 27.4 63.2 ------------- ------------ -------------- ------------ -------------- Gross profit ............................ 179.1 - 112.9 8.9 57.3 Selling, general and administrative expenses .. 182.2 - 119.5 11.9 50.8 Restructuring costs ........................... 7.9 - 5.3 0.3 2.3 ------------- ------------ -------------- ------------ -------------- Operating (loss) income ................. (11.0) - (11.9) (3.3) 4.2 ------------- ------------ -------------- ------------ -------------- Other expenses (income): Interest expense, net ................... 34.9 - 38.0 (4.3) 1.2 Loss on sale of assets, net ............. 7.1 - - - 7.1 Miscellaneous, net ...................... 1.4 - (0.2) (10.3) 11.9 Equity in earnings of subsidiaries ...... - (15.9) 5.8 9.7 0.4 ------------- ------------ -------------- ------------ -------------- Other expenses (income), net ...... 43.4 (15.9) 43.6 (4.9) 20.6 ------------- ------------ -------------- ------------ -------------- (Loss) income before income taxes ............. (54.4) 15.9 (55.5) 1.6 (16.4) Provision for income taxes .................... 1.3 - 0.2 0.4 0.7 ------------- ------------ -------------- ------------ -------------- Net (loss) income ............................. $ (55.7) $ 15.9 $ (55.7) $ 1.2 $ (17.1) ============= ============ ============== ============ ============== 12
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS) UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 (DOLLARS IN MILLIONS)
NON- PARENT GUARANTOR GUARANTOR CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES ------------ ------------ ------------- ------------- -------------- Net sales ...................................... $ 583.6 $ (60.5) $ 384.7 $ 83.3 $ 176.1 Cost of sales .................................. 228.8 (60.5) 139.4 66.4 83.5 ------------ ------------ ------------- ------------- -------------- Gross profit ............................. 354.8 - 245.3 16.9 92.6 Selling, general and administrative expenses ... 345.4 - 236.8 17.9 90.7 Restructuring costs ............................ 7.2 - 4.2 0.2 2.8 ------------ ------------ ------------- ------------- -------------- Operating income (loss) .................. 2.2 - 4.3 (1.2) (0.9) ------------ ------------ ------------- ------------- -------------- Other expenses (income): Interest expense, net .................... 77.1 - 76.8 0.1 0.2 Loss on sale of assets, net .............. 1.0 - - - 1.0 Miscellaneous, net ....................... 6.5 - 4.0 (6.5) 9.0 Equity in earnings of subsidiaries ....... - (55.2) 10.5 44.5 0.2 ------------ ------------ ------------- ------------- -------------- Other expenses, net ................ 84.6 (55.2) 91.3 38.1 10.4 ------------ ------------ ------------- ------------- -------------- Loss before income taxes ....................... (82.4) 55.2 (87.0) (39.3) (11.3) Provision (benefit) for income taxes ........... 1.1 - (3.5) 2.9 1.7 ------------ ------------ ------------- ------------- -------------- Net loss ....................................... $ (83.5) $ 55.2 $ (83.5) $ (42.2) $ (13.0) ============ ============ ============= ============= ==============
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 (DOLLARS IN MILLIONS)
NON- PARENT GUARANTOR GUARANTOR CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES ------------ -------------- -------------- ------------ ------------- Net sales ..................................... $ 635.7 $ (68.8) $ 397.6 $ 67.9 $ 239.0 Cost of sales ................................. 274.6 (68.8) 165.3 52.3 125.8 ------------ -------------- -------------- ------------ ------------- Gross profit ............................ 361.1 - 232.3 15.6 113.2 Selling, general and administrative expenses .. 358.8 - 229.7 20.1 109.0 Restructuring costs ........................... 22.5 - 14.0 0.9 7.6 ------------ -------------- -------------- ------------ ------------- Operating loss .......................... (20.2) - (11.4) (5.4) (3.4) ------------ -------------- -------------- ------------ ------------- Other expenses (income): Interest expense, net ................... 69.2 - 66.2 0.6 2.4 Loss on sale of assets, net ............. 7.1 - - - 7.1 Miscellaneous, net ...................... 3.6 - 4.8 (17.7) 16.5 Equity in earnings of subsidiaries ...... - (43.3) 19.7 22.7 0.9 ------------ -------------- -------------- ------------ ------------- Other expenses, net ............... 79.9 (43.3) 90.7 5.6 26.9 ------------ -------------- -------------- ------------ ------------- Loss before income taxes ...................... (100.1) 43.3 (102.1) (11.0) (30.3) Provision (benefit) for income taxes .......... 1.8 - (0.2) 1.1 0.9 ------------ -------------- -------------- ------------ ------------- Net loss ...................................... $ (101.9) $ 43.3 $ (101.9) $ (12.1) $ (31.2) ============ ============== ============== ============ ============= 13
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS) UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 2002 (DOLLARS IN MILLIONS)
NON- PARENT GUARANTOR GUARANTOR CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES ------------ ------------ --------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net cash (used for) provided by operating activities ......... $ (102.4) $ - $ (90.9) $ (12.7) $ 1.2 ------------ ------------ --------- ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ......................................... (4.8) - (3.9) - (0.9) Sale of marketable securities ................................ 1.8 - 1.8 - - ------------ ------------ --------- ------------ ------------ Net cash used for investing activities ....................... (3.0) - (2.1) - (0.9) ------------ ------------ --------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in short-term borrowings - third parties ........ 4.8 - - 3.2 1.6 Proceeds from the issuance of long-term debt - third parties . 47.1 - 39.5 4.1 3.5 Repayment of long-term debt - third parties .................. (14.0) - (11.7) (1.2) (1.1) ------------ ------------ --------- ------------ ------------ Net cash provided by (used for) financing activities ......... 37.9 - 27.8 6.1 4.0 ------------ ------------ --------- ------------ ------------ Effect of exchange rate changes on cash and cash equivalents . (3.8) - (0.1) 0.2 (3.9) ------------ ------------ --------- ------------ ------------ Net (decrease) increase in cash and cash equivalents ... (71.3) - (65.3) (6.4) 0.4 Cash and cash equivalents at beginning of period ....... 103.3 - 55.0 10.1 38.2 ------------ ------------ --------- ------------ ------------ Cash and cash equivalents at end of period ............. $ 32.0 $ - $ (10.3) $ 3.7 $ 38.6 ============ ============ ========= ============ ============
UNAUDITED CONSOLIDATING CONDENSED STATEMENT OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 2001 (DOLLARS IN MILLIONS)
NON- PARENT GUARANTOR GUARANTOR CONSOLIDATED ELIMINATIONS COMPANY SUBSIDIARIES SUBSIDIARIES ------------ ------------ --------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net cash (used for) provided by operating activities ......... $ (60.4) $ - $ (88.3) $ (9.4) $ 37.3 ------------ ------------ --------- ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ......................................... (9.4) - (7.3) (1.2) (0.9) Net proceeds from the sale of brand and certain assets ....... 35.2 - 35.2 - - ------------ ------------ --------- ------------ ------------ Net cash provided by (used for) investing activities ......... 25.8 - 27.9 (1.2) (0.9) ------------ ------------ --------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in short-term borrowings - third parties ........................................ 0.3 - (0.1) - 0.4 Proceeds from the issuance of long-term debt - third parties ........................................ 157.5 - 132.2 18.8 6.5 Repayment of long-term debt - third parties .................. (139.1) - (90.2) (8.9) (40.0) Net distribution from affiliate .............................. (0.9) - - (0.9) - Payment of debt issuance costs ............................... (2.4) - (2.4) - - ------------ ------------ --------- ------------ ------------ Net cash provided by (used for) financing activities ......... 15.4 - 39.5 9.0 (33.1) ------------ ------------ --------- ------------ ------------ Effect of exchange rate changes on cash and cash equivalents . (2.7) - - (0.1) (2.6) ------------ ------------ --------- ------------ ------------ Net (decrease) increase in cash and cash equivalents ... (21.9) - (20.9) (1.7) 0.7 Cash and cash equivalents at beginning of period ....... 56.3 - 10.7 2.9 42.7 ------------ ------------ --------- ------------ ------------ Cash and cash equivalents at end of period ............. $ 34.4 $ - $ (10.2) $ 1.2 $ 43.4 ============ ============ ========= ============ ============ 14
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS) OVERVIEW The Company operates in a single segment and manufactures, markets and sells an extensive array of cosmetics and skin care, fragrances and personal care products. In addition, the Company has a licensing group. On July 16, 2001 Products Corporation completed the disposition of the Colorama brand in Brazil. Accordingly, the Unaudited Consolidated Condensed Financial Statements include the results of operations of the Colorama brand through the date of its disposition. During the first quarter of 2002, to reflect the integration of management reporting responsibilities, the Company reclassified Puerto Rico's results from its international operations to its United States operations. Management's discussion and analysis data reflects this change for both the 2002 and 2001 periods. Discussion of Critical Accounting Policies: In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ significantly from those estimates and assumptions. The Company believes that the following discussion addresses the Company's most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Sales Returns: The Company allows customers to return their unsold products when they meet certain Company-established criteria as outlined in the Company's trade terms. The Company regularly reviews and revises, when deemed necessary, its estimates of sales returns based primarily upon actual returns, planned product discontinuances, and promotional sales, which would permit customers to return items based upon the Company's trade terms. The Company records estimated sales returns as a reduction to sales, cost of sales and accounts receivable and an increase to inventory. Cost of sales includes the cost of refurbishment of returned products. Returned products which are recorded as inventories are valued based upon the amount that the Company expects to realize upon their subsequent disposition. The physical condition and marketability of the returned products are the major factors considered by the Company in estimating realizable value. Actual returns, as well as realized values on returned products, may differ significantly, either favorably or unfavorably, from our estimates if factors such as product discontinuances, customer inventory levels or competitive conditions differ from our estimates and expectations and, in the case of actual returns, if economic conditions differ significantly from our estimates and expectations. Trade Support Costs: In order to support the retail trade, the Company has various performance-based arrangements with retailers to reimburse them for all or a portion of their promotional activities related to the Company's products. The Company regularly reviews and revises, when deemed necessary, estimates of costs to the Company for these promotions based on estimates of what has been incurred by the retailers. Actual costs incurred by the Company may differ significantly if factors such as the level and success of the retailers' programs or other conditions differ from our estimates and expectations. 15 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS) Inventories: Inventories are stated at the lower of cost or market value. Cost is principally determined by the first-in, first-out method. The Company records adjustments to the value of inventory based upon its forecasted plans to sell its inventories. The physical condition (e.g., age and quality) of the inventories is also considered in establishing its valuation. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from the amounts that the Company may ultimately realize upon the disposition of inventories if future economic conditions, customer inventory levels, product discontinuances or competitive conditions differ from our estimates and expectations. Property, Plant and Equipment and Other Assets: Property, plant and equipment is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets. Changes in circumstances such as technological advances, changes to the Company's business model, changes in the planned use of fixtures or software or closing of facilities or changes in the Company's capital strategy can result in the actual useful lives differing from the Company's estimates. Long-lived assets, including fixed assets, permanent display units and intangibles other than goodwill, are reviewed by the Company for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value, the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. The estimate of undiscounted cash flow is based upon, among other things, certain assumptions about expected future operating performance. The Company's estimates of undiscounted cash flow may differ from actual cash flow due to, among other things, technological changes, economic conditions, changes to its business model or changes in its operating performance. In those cases where the Company determines that the useful life of other long-lived assets should be shortened, the Company would depreciate the net book value in excess of the salvage value (after testing for impairment as described above), over the revised remaining useful life of such asset thereby increasing amortization expense. Pension Benefits: The Company sponsors pension and other retirement plans in various forms covering substantially all employees who meet eligibility requirements. Several statistical and other factors which attempt to anticipate future events are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Company, within certain guidelines. In addition, the Company's actuarial consultants also use subjective factors such as withdrawal and mortality rates to estimate these factors. The actuarial assumptions used by the Company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants, among other things. These differences may result in a significant impact to the amount of pension expense recorded by the Company. Due to decreases in interest rates and declines in the income of assets in the plans, it is expected that the pension expense for 2002 will be significantly higher than in recent years. 16 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS) RESULTS OF OPERATIONS In order to provide a comparison of results from its ongoing operations, the Company's discussion includes presentation on an "ongoing operations" basis. The following table sets forth certain summary unaudited data for the Company for the three months and six months ended June 30, 2002 and June 30, 2001, respectively, reconciling the Company's actual "as reported results" to the ongoing operations, after giving effect to the following: (i) the disposition of the Colorama brand, assuming such transaction occurred on January 1, 2001; (ii) the elimination of restructuring costs in the period incurred; and (iii) the elimination of additional costs associated with the closing of the Phoenix and Canada facilities that were included in cost of sales and selling, general and administrative expenses ("SG&A") and executive severance costs that were included in SG&A expenses in the period incurred (after giving effect thereto, the "Ongoing Operations"). The adjustments are based upon available information and certain assumptions that the Company's management believes are reasonable and do not represent pro forma adjustments prepared in accordance with Regulation S-X. The summary unaudited data for the Ongoing Operations does not purport to represent the results of operations or the Company's financial position that actually would have occurred had the foregoing transactions referred to in (i) above been consummated on January 1, 2001.
THREE MONTHS ENDED JUNE 30, 2002: - --------------------------------------- BRANDS AND RESTRUCTURING AS FACILITIES COSTS AND ONGOING REPORTED SOLD OTHER, NET OPERATIONS ---------------- ---------------- ----------------- ---------------- Net sales ....................................... $ 308.2 $ - $ - $ 308.2 Gross profit .................................... 188.4 - 0.3 188.7 SG&A expenses ................................... 179.0 - - 179.0 Restructuring costs and other, net .............. 3.2 - (3.2) -
SIX MONTHS ENDED JUNE 30, 2002: - --------------------------------------- BRANDS AND RESTRUCTURING AS FACILITIES COSTS AND ONGOING REPORTED SOLD OTHER, NET OPERATIONS ---------------- ---------------- ----------------- ---------------- Net sales ....................................... $ 583.6 $ - $ - $ 583.6 Gross profit .................................... 354.8 - 1.0 355.8 SG&A expenses ................................... 345.4 - (6.6) 338.8 Restructuring costs and other, net .............. 7.2 - (7.2) -
THREE MONTHS ENDED JUNE 30, 2001: - --------------------------------------- BRANDS AND RESTRUCTURING AS FACILITIES COSTS AND ONGOING REPORTED SOLD OTHER, NET OPERATIONS ---------------- ---------------- ----------------- ---------------- Net sales ....................................... $ 322.1 $ (6.3) $ - $ 315.8 Gross profit .................................... 179.1 (2.8) 18.4 194.7 SG&A expenses ................................... 182.2 (3.3) (4.0) 174.9 Restructuring costs and other, net .............. 7.9 - (7.9) - 17
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS)
SIX MONTHS ENDED JUNE 30, 2001: - -------------------------------------- BRANDS AND RESTRUCTURING AS FACILITIES COSTS AND ONGOING REPORTED SOLD OTHER, NET OPERATIONS ---------------- ---------------- ----------------- ---------------- Net sales ....................................... $ 635.7 $ (16.1) $ - $ 619.6 Gross profit .................................... 361.1 (7.0) 24.8 378.9 SG&A expenses ................................... 358.8 (6.8) (5.7) 346.3 Restructuring costs and other, net .............. 22.5 - (22.5) -
Net sales Net sales were $308.2 and $322.1 for the second quarters of 2002 and 2001, respectively, a decrease of $13.9, or 4.3% on a reported basis (a decrease of 2.1% on a constant U.S. dollar basis), and were $583.6 and $635.7 for the first half of 2002 and 2001, respectively, a decrease of $52.1, or 8.2% on a reported basis (a decrease of 5.5% on a constant U.S. dollar basis). Net sales from Ongoing Operations were $308.2 and $315.8 for the second quarters of 2002 and 2001, respectively, a decrease of $7.6, or 2.4% on a reported basis (a decrease of 0.2% on a constant U.S. dollar basis), and were $583.6 and $619.6 for the first half of 2002 and 2001, respectively, a decrease of $36.0, or 5.8% on a reported basis (a decrease of 3.2% on a constant U.S. dollar basis). United States and Canada. Net sales in the United States and Canada on both an as reported and Ongoing Operations basis were $217.0 for the second quarter of 2002 compared with $216.2 for the second quarter of 2001, an increase of $0.8, or 0.4%, and were $413.4 and $428.7 for the first half of 2002 and 2001, respectively, a decrease of $15.3, or 3.6%. The decrease for the first half of 2002 of 3.6% was driven primarily by lower shipments to our retail customers as a result of the decision by two major U.S. retailers to shift the timing of plan-o-gram resets for certain 2002 new products (this resulted in shipments of approximately $14.0 of 2002 new products in the fourth quarter of 2001) and to a lesser extent increased sales returns and allowances, higher promotional activity and increased competitive activity. International. Net sales in the Company's international operations were $91.2 for the second quarter of 2002, compared with $105.9 for the second quarter of 2001, a decrease of $14.7, or 13.9% on a reported basis (a decrease of 7.6% on a constant U.S. dollar basis) and were $170.2 and $207.0 for the first half of 2002 and 2001, respectively, a decrease of $36.8, or 17.8% on a reported basis (a decrease of 10.1% on a constant U.S. dollar basis). Net sales in the Company's international Ongoing Operations ("Ongoing International Operations") were $91.2 and $99.6 for the second quarters of 2002 and 2001, respectively, a decrease of $8.4, or 8.4%, on a reported basis (a decrease of 1.5% on a constant U.S. dollar basis) and were $170.2 and $190.9 for the first half of 2002 and 2001, respectively, a decrease of $20.7, or 10.8% on a reported basis (a decrease of 2.5% on a constant U.S. dollar basis). Ongoing International Operations sales are divided by the Company into three geographic regions. In Europe and Africa, which is comprised of Europe, the Middle East and Africa, net sales decreased by $3.5, or 8.8% on a reported basis to $36.2 for the second quarter of 2002, as compared with the second quarter of 2001 (a decrease of 5.7% on a constant U.S. dollar basis), and decreased by $9.5, or 12.2% on a reported basis to $68.2 for the first half of 2002, as compared with the first half of 2001 (a decrease of 5.8% on a constant U.S. dollar basis). In Latin America, which is comprised of Mexico, Central America and South America, net sales decreased by $7.4, or 22.3% on a reported basis to $25.8 for the second quarter of 18 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS) 2002, as compared with the second quarter of 2001 (a decrease of 3.1% on a constant U.S. dollar basis) and decreased by $13.5, or 21.7% on a reported basis to $48.6 for the first half of 2002, as compared with the first half of 2001 (a decrease of 4.3% on a constant U.S. dollar basis). In the Far East, net sales increased by $2.5, or 9.4% on a reported basis to $29.2 for the second quarter of 2002, as compared with the second quarter of 2001 (an increase of 6.1% on a constant U.S. dollar basis) and increased by $2.3, or 4.5% on a reported basis to $53.4 for the first half of 2002, as compared with the first half of 2001 (an increase of 4.0% on a constant U.S. dollar basis). Net sales in the Company's international operations may be adversely affected by weak economic conditions, political uncertainties, adverse currency fluctuations, and competitive activities. The Company is experiencing production difficulties with its principal third party manufacturer for Europe and certain other international markets which operates the Maesteg facility. As a result, the Company is engaged in discussions with the manufacturer to, among other things, revise the Supply Agreement between them. In the interim, the Company intends to source products for Europe and certain other international markets from its Oxford facility and other available sources. The Company anticipates that these production difficulties will be resolved during the first half of 2003. The decrease in net sales for the second quarter, as compared to the comparable 2001 period, for Ongoing International Operations on a comparable currency basis, was primarily due to political and economic difficulties in Argentina and Venezuela (which factor the Company estimates contributed to an approximately 3.7% reduction in net sales on a constant dollar basis), increased competitive activity in Mexico and Italy (which factor the Company estimates contributed to an approximately 2.8% reduction in net sales on a constant dollar basis), conversion of the Company's Benelux business to a distributor (which factor the Company estimates contributed to an approximately 2.6% reduction in net sales on a constant dollar basis), and disruption in production at the Company's third party manufacturer in Maesteg, Wales, which the Company estimates contributed to an approximately 1.4% reduction in net sales, partially offset by increased new product sales and distribution in the U.K., South Africa, China, Hong Kong and Taiwan (which factor the Company estimates contributed to an approximately 5.7% increase in net sales on a constant dollar basis), and sales tax increases in Brazil (which factor the Company estimates contributed to an approximately 3.6% increase in net sales on a constant dollar basis). The decrease in net sales for the first half of 2002, as compared to the comparable 2001 period, for Ongoing International Operations on a comparable currency basis, was primarily due to political and economic difficulties in Argentina and Venezuela (which factor the Company estimates contributed to an approximately 3.3% reduction in net sales on a constant dollar basis), increased competitive activity in Mexico, Italy, Australia, New Zealand and Japan (which factor the Company estimates contributed to an approximately 2.6% reduction in net sales on a constant dollar basis), conversion of the Company's Benelux and Israel businesses to a distributor (which factor the Company estimates contributed to an approximately 3.3% reduction in net sales on a constant dollar basis), and disruption in production at the Company's third party manufacturer in Maesteg, Wales, which the Company estimates contributed to an approximately 0.7% reduction in net sales, partially offset by increased new product sales and distribution in the U.K., South Africa, China, Hong Kong and Taiwan (which factor the Company estimates contributed to an approximately 5.5% increase in net sales on a constant dollar basis), and sales tax increases in Brazil (which factor the Company estimates contributed to an approximately 2.6% increase in net sales on a constant dollar basis). Gross profit Gross profit was $188.4 for the second quarter of 2002, compared with $179.1 for the second quarter of 2001 and was $354.8 for the first half of 2002, compared to $361.1 for the first half of 2001. As a percentage of net sales, gross profit margins were 61.1% for the second quarter of 2002, compared with 55.6% for the second quarter of 2001 and was 60.8% for the first half of 2002, compared with 56.8% for the first half of 2001. Gross profit and gross profit margin for Ongoing Operations were $188.7 and 61.2%, 19 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS) respectively, in the second quarter of 2002, compared with gross profit and gross profit margin of $194.7 and 61.7% in the second quarter of 2001 and were $355.8 and 61.0%, respectively, in the first half of 2002, compared with gross profit and gross profit margin of $378.9 and 61.2% in the first half of 2001. The decline in gross profit margin on an ongoing basis in the second quarter and first half of 2002 compared to the comparable 2001 periods is due to higher promotional activity, returns and allowances, as well as higher costs for certain products produced in Europe and unfavorable product mix, partially offset by reduced overhead costs primarily as a result of the shutdown of the Phoenix and Canada facilities in 2001. Gross profit from Ongoing Operations for the first half of 2001 excludes $24.8 ($6.1 of which represents increased depreciation recorded for the Phoenix facility - See Note 5) of additional consolidation costs associated with the shutdown of the Phoenix and Canada facilities in 2001 and $7.0 of gross profit from the Colorama brand in Brazil. SG&A expenses SG&A expenses were $179.0 for the second quarter of 2002, compared with $182.2 for the second quarter of 2001 and $345.4 for the first half of 2002 compared with $358.8 for the first half of 2001. SG&A expenses for Ongoing Operations were $179.0 for the second quarter of 2002, compared with $174.9 for the second quarter of 2001, which excludes $4.0 of additional consolidation costs associated with the shutdown of the Phoenix and Canada facilities in 2001 and $3.3 of SG&A expenses of the Colorama brand in Brazil in 2001. SG&A expenses for Ongoing Operations were $338.8 for the first half of 2002, which excludes $6.5 of executive separation costs, compared with $346.3 for the first half of 2001, which excludes $5.7 of additional consolidation costs associated with the shutdown of the Phoenix and Canada facilities in 2001 and $6.8 of SG&A expenses of the Colorama brand in Brazil in 2001. The increase in SG&A expenses for Ongoing Operations for the second quarter of 2002, as compared to the second quarter of 2001, is due primarily to higher permanent display amortization of $6.9 associated with the roll-out of the Company's new permanent display units (See Financial Condition, Liquidity and Capital Resources) and accelerated amortization charges of $1.4 and a write-off of $2.2 for certain information systems related to the Company's decision to upgrade its information systems (See Financial Condition, Liquidity and Capital Resources) and higher departmental and other general and administrative expenses of $9.3 primarily related to compensation and professional fees. These increases were partially offset by a reduction of $11.2 for certain brand support expenses, the elimination of goodwill amortization of $1.9, as well as lower distribution costs of $1.5. The decrease in SG&A expenses for Ongoing Operations for the first half of 2002, as compared to the first half of 2001 is primarily due to a reduction of $10.7 for certain brand support expenses, the elimination of goodwill amortization of $3.8, as well as lower distribution costs of $3.9, partially offset by higher permanent display amortization of $9.7 associated with the roll-out of the Company's new permanent display units, accelerated amortization charges of $1.4 and a write-off of $2.2 in connection with the Company's decision to upgrade certain of its information systems. Restructuring costs During the third quarter of 2000, the Company initiated a new restructuring program in line with the original restructuring plan developed in late 1998, designed to improve profitability by reducing personnel and consolidating manufacturing facilities. The 2000 restructuring program focused on the Company's plans to close its manufacturing operations in Phoenix, Arizona and Mississauga, Canada and to consolidate its cosmetics production into its plant in Oxford, North Carolina. The 2000 restructuring program also includes the remaining obligation for excess leased real estate in the Company's headquarters, consolidation costs associated with the Company closing its facility in New Zealand, and the elimination of several domestic and international executive and operational positions, each of which were effected to reduce and streamline corporate overhead costs. In the first quarter of 2001, the Company recorded a 20 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS) charge of $14.6 related to previous restructuring programs, as well as the 2000 restructuring program, principally for additional employee severance and other personnel benefits, relocation and to consolidate worldwide operations. In the second quarter of 2001, the Company continued to implement the 2000 restructuring program and recorded a charge of $7.9, principally for additional employee severance and other personnel benefits and other costs related to the consolidation of worldwide operations. During the second quarter of 2002 and the six months ended June 30, 2002, the Company continued to implement the 2000 restructuring program, as well as other restructuring actions, and recorded a charge of $3.2 and $7.2, respectively, principally for additional employee severance and other personnel benefits, primarily resulting from reductions in the Company's worldwide sales force, relocation and other costs related to the consolidation of worldwide operations. The Company anticipates annualized savings of approximately $8 to $10 relating to the restructuring charges recorded during the first half of 2002. Other expenses (income) Interest expense was $39.1 for the second quarter of 2002 compared with $35.5 for the second quarter of 2001, and $78.3 for the first half of 2002, compared to $70.7 for the first half of 2001. The increase in interest expense for the second quarter and first half of 2002, as compared to the second quarter and first half of 2001, is primarily due to the interest on the 12% Notes (which were issued in late November 2001), partially offset by lower average outstanding borrowings and lower interest rates under the Credit Agreement. Sale of assets and brand, net In February 2002, Products Corporation completed the disposition of its Benelux business. As part of this sale, Products Corporation entered into a long-term distribution agreement with the purchaser pursuant to which the purchaser distributes the Company's products in Benelux. The purchase price consisted principally of the assumption of certain liabilities and a deferred purchase price contingent upon future results of up to approximately $4.7, which could be received over approximately a seven-year period. In connection with the disposition, the Company recognized a pre-tax and after-tax loss of $1.0 in the first quarter of 2002. In July 2001, Products Corporation completed the disposition of the Colorama brand in Brazil. In connection with the disposition the Company recognized a pre-tax and after-tax loss of $6.5, $6.3 of which was recorded in the second quarter of 2001. Additionally, the Company recognized a pre-tax and after-tax loss on the disposition of land in Minami Aoyama near Tokyo, Japan (the "Aoyama Property") and related rights for the construction of a building on such land of $0.8 during the second quarter of 2001. Provision for income taxes The provision for income taxes was $1.0 for the second quarter of 2002, compared with $1.3 for the second quarter of 2001, and $1.1 for the first half of 2002, compared to $1.8 for the first half of 2001. The decrease in the provision for income taxes for the first half of 2002, as compared to the first half of 2001, was primarily attributable to the recognition of tax benefits of approximately $0.9 relating to the carryback of alternative minimum tax losses resulting from new tax legislation enacted in the first quarter of 2002. 21 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS) FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Net cash used for operating activities was $102.4 and $60.4 for the first half of 2002 and 2001, respectively. The increase in net cash used for operating activities is due to a net use of working capital and increased purchases of permanent displays, which was partially offset by a lower net loss. Net cash (used for) provided by investing activities was $(3.0) and $25.8 for the first half of 2002 and 2001, respectively. Net cash used for investing activities for the first half of 2002 consisted of capital expenditures, partially offset by the sale of marketable securities. Net cash provided by investing activities for the first half of 2001 consisted of proceeds from the sale of the Company's Aoyama Property and Phoenix facility, partially offset by capital expenditures. The reduction in capital expenditures for the first half of 2002, as compared to the first half of 2001, is due to the timing of such expenditures. Net cash provided by financing activities was $37.9 and $15.4 for the first half of 2002 and 2001, respectively. Net cash provided by financing activities for the first half of 2002 included cash drawn under the 2001 Credit Agreement, partially offset by the repayment of borrowings under the 2001 Credit Agreement. Net cash provided by financing activities for the first half of 2001 included borrowings under the 1997 Credit Agreement, partially offset by repayments of borrowings under the 1997 Credit Agreement and payment of debt issuance costs. On November 26, 2001, Products Corporation issued and sold $363 in aggregate principal amount of Original 12% Notes in a private placement, receiving gross proceeds of $350.5. Products Corporation used the proceeds from the Original 12% Notes and borrowings under the 2001 Credit Agreement to repay outstanding indebtedness under Products Corporation's 1997 Credit Agreement and to pay fees and expenses incurred in connection with entering into the 2001 Credit Agreement and the issuance of the Original 12% Notes, and the balance was available for general corporate purposes. On June 21, 2002, the Original 12% Notes were exchanged for the 12% Notes which have substantially identical terms as the Original 12% Notes, except that the 12% Notes are registered with the Commission under the Securities Act and the transfer restrictions and registration rights applicable to the Original 12% Notes do not apply to the 12% Notes. On November 30, 2001, Products Corporation entered into the 2001 Credit Agreement with a syndicate of lenders, whose individual members change from time to time, which agreement amended and restated the credit agreement entered into by Products Corporation in May 1997 (as amended, the "1997 Credit Agreement"; the 2001 Credit Agreement and the 1997 Credit Agreement are sometimes referred to as the "Credit Agreement"), and which matures on May 30, 2005. As of June 30, 2002, the 2001 Credit Agreement provided up to $250.0, which is comprised of a $117.9 term loan facility (the "Term Loan Facility") and a $132.1 multi-currency revolving credit facility (the "Multi-Currency Facility"). At June 30, 2002, the Term Loan Facility was fully drawn and $70.4 was available under the Multi-Currency Facility, including the letters of credit. The Company's principal sources of funds are expected to be cash flow generated from operations, cash on hand and available borrowings under the Multi-Currency Facility of the Credit Agreement. The Credit Agreement, Products Corporation's 12% Notes, Products Corporation's 8 5/8% Notes due 2008 (the "8 5/8% Notes"), Products Corporation's 8 1/8% Notes due 2006 (the "8 1/8% Notes") and Products Corporation's 9% Notes due 2006 (the "9% Notes") contain certain provisions that by their terms limit Products Corporation's and/or its subsidiaries' ability to, among other things, incur additional debt. The Company's principal uses of funds are expected to be the payment of operating expenses, working capital, purchases of permanent displays and capital expenditure requirements, including the ERP System (as 22 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS) hereinafter defined), expenses in connection with the Company's restructuring programs referred to above and debt service payments. The Company estimates that cash payments related to the restructuring programs referred to in Note 5 to the Unaudited Consolidated Condensed Financial Statements and executive separation costs will be $28 to $32 in 2002. Pursuant to a tax sharing agreement, Products Corporation may be required to make tax sharing payments to Revlon, Inc. (which in turn may be required to make tax sharing payments to Mafco Holdings) as if Products Corporation were filing separate income tax returns, except that no payments are required by Products Corporation (or Revlon, Inc.) if and to the extent that Products Corporation is prohibited under the Credit Agreement from making tax sharing payments to Revlon, Inc. The Credit Agreement prohibits Products Corporation from making any tax sharing payments other than in respect of state and local income taxes. Products Corporation currently anticipates that, as a result of net operating tax losses and prohibitions under the Credit Agreement, no cash federal tax payments or cash payments in lieu of federal taxes pursuant to the tax sharing agreement will be required for 2002. Products Corporation enters into foreign currency forward exchange contracts and option contracts from time to time to hedge certain cash flows denominated in foreign currencies. There were foreign currency forward exchange contracts with a notional amount of $27.2 and a fair value of $(0.7) outstanding at June 30, 2002. There were no option contracts outstanding at June 30, 2002. The Company expects that cash flows from operations, cash on hand and available borrowings under the Multi-Currency Facility of the Credit Agreement will be sufficient to enable the Company to meet its anticipated cash requirements during 2002 on a consolidated basis, including the payment of operating expenses, working capital, purchases of permanent displays and capital expenditure requirements, including for the ERP System, expenses in connection with the Company's restructuring programs referred to above and debt service payments. However, there can be no assurance that the combination of cash flow from operations, cash on hand and available borrowings under the Multi-Currency Facility of the Credit Agreement will be sufficient to meet the Company's cash requirements on a consolidated basis. Additionally, in the event of a decrease in demand for its products or reduced sales, such development, if significant, could reduce the Company's cash flow from operations and could adversely affect the Company's ability to achieve certain financial covenants under the Credit Agreement, including the minimum EBITDA covenant, and in such event the Company could be required to take measures, including reducing discretionary spending. If the Company is unable to satisfy such cash requirements from these sources, the Company could be required to adopt one or more alternatives, such as reducing or delaying purchases of permanent displays, reducing or delaying capital expenditures, including with respect to the ERP System, delaying or revising restructuring programs, restructuring indebtedness, selling assets or operations, or seeking capital contributions or loans from Revlon, Inc. or other affiliates of the Company. Products Corporation has received a commitment from an affiliate that is prepared to provide, if necessary, additional financial support to Products Corporation of up to $40 on appropriate terms through December 31, 2003. There can be no assurance that any of such actions could be effected, that they would enable the Company to continue to satisfy its capital requirements or that they would be permitted under the terms of the Company's various debt instruments then in effect. The terms of the Credit Agreement, the 12% Notes, the 8 5/8% Notes, the 8 1/8% Notes and the 9% Notes generally restrict Products Corporation from paying dividends or making distributions, except that Products Corporation is permitted to pay dividends and make distributions to Revlon, Inc., among other things, to enable Revlon, Inc. to pay expenses incidental to being a public holding company, including, among other things, professional fees such as legal and accounting, regulatory fees such as Commission filing fees and other miscellaneous expenses related to being a public holding company and, subject to certain limitations, to pay dividends or make distributions in certain circumstances to finance the purchase by Revlon, Inc. of its Class A Common Stock in connection with the delivery of such Class A Common Stock to grantees under the Revlon, Inc. Amended and Restated 1996 Stock Plan. 23 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS) The Company has developed a new design for its permanent display units and has begun installing them at certain customers' retail stores during 2002. Accordingly, the Company has accelerated the amortization of its existing display units. The Company estimates the installation of these new displays will result in accelerated amortization in 2002 through 2003. The accelerated amortization will range from $12 to $15 during 2002, of which $9.7 has been recorded during the first half of 2002. The Company estimates that purchases of permanent displays for 2002 will be approximately $60 to $65. Additionally, the Company has evaluated its management information systems and determined to upgrade to an Enterprise Resource Planning ("ERP") System, which is intended to provide benefits to the Company in excess of the related purchase and implementation costs. As a result of this decision, certain existing information systems are being amortized on an accelerated basis. The Company will begin to develop the ERP System in the latter portion of 2002, and expects to complete installation by 2005. Based upon the estimated time required to implement an ERP System, the Company currently estimates that it would record additional amortization charges of its current information system in 2002 through 2005. The additional amortization will range from $4 to $5 during 2002, of which $1.4 has been recorded during the first half of 2002. The Company estimates that capital expenditures for 2002 will be approximately $15 to $20. Disclosures about Contractual Obligations and Commercial Commitments The SEC has encouraged all public companies to aggregate all contractual commitments and commercial obligations that affect financial condition and liquidity. To respond to this, the Company has included a table in the Company's Annual Report of Form 10-K for the year ended December 31, 2001. There have been no material changes to the total contractual cash obligations in the table setting forth the Company's contractual commitments and commercial obligations that affect financial condition and liquidity which was set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. However, the Company is experiencing production difficulties with its principal third party manufacturer for Europe and certain other international markets which operates the Maesteg facility. As a result, the Company is engaged in discussions with the manufacturer to, among other things, revise the Supply Agreement between them. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has exposure to market risk both as a result of changing interest rates and movements in foreign currency exchange rates. The Company's policy is to manage market risk through a combination of fixed and floating rate debt, the use of derivative financial instruments and foreign exchange forward and option contracts. The Company does not hold or issue financial instruments for trading purposes. The qualitative and quantitative information presented in Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 2001 describes significant aspects of the Company's financial instrument programs that have material market risk as of December 31, 2001. The following table presents the information required by Item 7A as of June 30, 2002. 24 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS)
EXPECTED MATURITY DATE FOR THE YEAR ENDED JUNE 30, ---------------------------------------------------------- FAIR VALUE JUNE 30, 2002 2003 2004 2005 2006 THEREAFTER TOTAL 2002 --------- ------ ------ -------- --------- ------------ ----------- ---------- DEBT - --------------- Short-term variable rate (various currencies) ....................... $ 22.6 $ 22.6 $ 22.6 Average interest rate (a) ......... 6.1% Long-term fixed rate ($US) .............. $352.1 $499.5 $ 649.9 1,501.5 1,029.9 Average interest rate ............. 12.0% 8.6% 8.6% Long-term variable rate ($US) ........... 145.7 * 145.7 145.7 Average interest rate (a) ......... 9.0% Long-term variable rate (various currencies) ....................... 7.5* 7.5 7.5 Average interest rate (a) ......... 9.9% --------- ----- ------ --------- -------- ---------- ----------- ----------- Total debt .............................. $ 22.6 $ - $ - $505.3 $499.5 $ 649.9 $ 1,677.3 $1,205.7 ========= ===== ====== ========= ======== ========== =========== =========== AVERAGE ORIGINAL CONTRACT CONTRACTUAL US DOLLAR VALUE FAIR VALUE RATE NOTIONAL JUNE 30, JUNE 30, FORWARD CONTRACTS $/FC AMOUNT 2002 2002 - ----------------- --------- ---------- ----------- ----------- Buy Euros/Sell USD ...................... 0.8718 $ 3.7 $ 4.2 $ 0.5 Sell British Pounds/Buy USD ............. 1.4108 1.5 1.4 (0.1) Sell Australian Dollars/Buy USD ......... 0.5185 3.7 3.4 (0.3) Sell Canadian Dollars/Buy USD ........... 0.6258 9.2 8.7 (0.5) Sell South African Rand/Buy USD ......... 0.0835 1.7 1.5 (0.2) Buy South African Rand/Sell USD ......... 0.0969 1.6 1.6 - Buy Australian Dollars/Sell New Zealand Dollars ....................... 1.2212 1.3 1.2 (0.1) Buy British Pounds/Sell Euros ........... 0.6147 2.2 2.2 - Sell British Pounds/Buy Euros ........... 0.6181 2.3 2.3 - ---------- ----------- ----------- Total forward contracts ................. $ 27.2 $ 26.5 $ (0.7) ========== =========== ===========
- -------------------- (a) Weighted average variable rates are based upon implied forward rates from the yield curves at June 30, 2002. * Represents Products Corporation's Credit Agreement which matures in May 2005. EFFECT OF NEW ACCOUNTING STANDARD In August 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations. Statement 143 requires recording the fair market value of an asset retirement obligation as a liability in the period in which a legal obligation associated with the retirement of tangible long-lived assets is incurred. The Statement also requires recording the contra asset to the initial obligation as an increase to the carrying amount of the related long-lived asset and depreciation of that cost over the life of the asset. The liability is then increased at the end of each period to reflect the passage of time and changes in the initial fair value measurement. The Company is required to adopt the provisions of Statement 143 effective January 1, 2003 and has not yet determined the extent of its impact, if any. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, as well as other public documents and statements of the Company, contain forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from those discussed in such forward-looking statements. Such statements include, without limitation, the Company's expectations and estimates (whether qualitative or quantitative) as to: the introduction of new products; the Company's plans to update its retail presence and install new display walls (and the Company's estimates of the costs of such new displays, the effects of such plans on the accelerated amortization of existing displays and the estimated amount of such amortization); its future financial performance; the effect on sales of political and/or economic conditions, adverse currency fluctuations and competitive activities; the possible implementation of a new ERP System, the timing, costs and benefits of such system and the effects of the adoption of such system on the accelerated amortization of existing information systems if the Company proceeds with such 25 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS) system; restructuring activities, restructuring costs, the timing of such payments and annual savings and other benefits from such activities; the effects of the Company's trade terms for its U.S. customers; cash flow from operations, cash on hand and availability of borrowings under the 2001 Credit Agreement, the sufficiency of such funds to satisfy the Company's cash requirements in 2002, and the availability of funds from capital contributions or loans from Revlon, Inc. or other affiliates of the Company; uses of funds, including for the purchases of permanent displays, capital expenditures (and the Company's estimates of the amounts of such expenses), including for the ERP System, and restructuring costs (and the Company's estimates of the amounts of such costs); the availability of raw materials and components and, with respect to Europe, products; the Company's plan to revise the Supply Agreement with its principal European supplier and its expectation that production difficulties will be resolved during the first half of 2003; matters concerning market-risk sensitive instruments; the effects of the assumptions and estimates underlying the Company's critical accounting policies; the effects of the adoption of certain accounting principles; and the receipt, amount and timing of the payment of contingent deferred purchase price in connection with the sale of certain assets. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as "believes," "expects," "estimates," "projects," "forecast," "may," "will," "should," "seeks," "plans," "scheduled to," "anticipates" or "intends" or the negative of those terms, or other variations of those terms or comparable language, or by discussions of strategy or intentions. Forward-looking statements speak only as of the date they are made, and except for the Company's ongoing obligations under the U.S. federal securities laws, the Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Investors are advised, however, to consult any additional disclosures the Company makes in its Quarterly Reports on Form 10-Q, Annual Report on Form 10-K and Current Reports on Form 8-K to the Commission (which, among other places, can be found on the Commission's website at http://www.sec.gov), as well as on the Company's website at www.revloninc.com. The information available from time to time on such website shall not be deemed incorporated by reference into this Quarterly Report on Form 10-Q. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. In addition to factors that may be described in the Company's filings with the Commission, including this filing, the following factors, among others, could cause the Company's actual results to differ materially from those expressed in any forward-looking statements made by the Company: (i) difficulties or delays in developing and introducing new products or failure of customers to accept new product offerings; (ii) difficulties or delays or unanticipated costs associated with the Company's implementation of new display walls; (iii) changes in consumer preferences, including reduced consumer demand for the Company's color cosmetics and other current products; (iv) effects of and changes in political and/or economic conditions, including inflation and monetary conditions, and in trade, monetary, fiscal and tax policies in international markets; (v) actions by competitors, including business combinations, technological breakthroughs, new product offerings, promotional spending and marketing and promotional successes, including increases in market share; (vi) unanticipated costs or difficulties or delays in completing projects associated with the Company's strategic plan, including in connection with the implementation of a new ERP System; (vii) difficulties, delays or unanticipated costs or less than expected savings and other benefits resulting from the Company's restructuring activities; (viii) difficulties or delays in achieving the intended results of the Company's trade terms, including, without limitation, the possible effect of the trade terms on sales; (ix) lower than expected cash flow from operations, the inability to secure capital contributions or loans from Revlon, Inc. or other affiliates of the Company or the unavailability of funds under the 2001 Credit Agreement; (x) higher than expected operating expenses, working capital expenses, permanent display costs, capital expenditures, including for the ERP System, restructuring costs or debt service payments; (xi) difficulties, delays or unexpected costs in sourcing raw materials or components, and with respect to Europe, products; (xii) difficulties, delays or unanticipated costs or effects arising from the Company's plan to revise the Supply Agreement with its principal European supplier and resolving the production difficulties; (xiii) interest rate or foreign exchange rate changes affecting the Company and its market sensitive financial instruments; (xiv) 26 REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (DOLLARS IN MILLIONS) unanticipated effects of the assumptions and estimates underlying the Company's critical accounting policies; (xv) unanticipated effects of the Company's adoption of certain new accounting standards; (xvi) combinations among significant customers or the loss, insolvency or failure to pay debts by a significant customer or customers; and (xvii) difficulties or delays in receiving payment of certain contingent deferred purchase price in connection with the sale of certain assets. Factors other than those listed above could cause the Company's results to differ materially from expected results. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None --------------------------------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) EXHIBITS - 3.3 Amended and Restated By-Laws of Revlon Consumer Products Corporation dated June 5, 2002. 10.18 First Amendment dated as of May 31, 2002 to the Second Amended and Restated Credit Agreement dated as of November 30, 2001, among Products Corporation, the subsidiaries of Products Corporation parties thereto, the lenders parties thereto, the Co-Agents parties thereto, Citibank, N.A., as documentation agent, Lehman Commercial Paper Inc., as syndication agent, J.P. Morgan Securities Inc., as sole arranger and bookrunner, and JPMorgan Chase Bank, as administrative agent. (Incorporated by reference to Exhibit 10.18 to the Revlon, Inc. June 30, 2002 Form 10-Q). (b) REPORTS ON FORM 8-K - Form 8-K filed on May 13, 2002 to report Revlon, Inc.'s announcement of its results for the first quarter of 2002. S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REVLON CONSUMER PRODUCTS CORPORATION ------------------------------------ Registrant By: /s/ Douglas H. Greeff By:/s/ Laurence Winoker - ------------------------------------- --------------------------------------- Douglas H. Greeff Laurence Winoker Executive Vice President Senior Vice President, Corporate and Chief Financial Officer Controller and Treasurer Dated: August 14, 2002 27 EX-3.3 3 file002.txt AMENDED AND RESTATED BY-LAWS OF REVLON CONSUMER Exhibit 3.3 AMENDED AND RESTATED BY-LAWS OF REVLON CONSUMER PRODUCTS CORPORATION June 5, 2002 TABLE OF CONTENTS
ARTICLE I OFFICES Section 1. Registered Office..............................................................1 Section 2. Other Offices..................................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings..............................................................1 Section 2. Annual Meetings................................................................1 Section 3. Special Meetings...............................................................2 Section 4. Quorum.........................................................................2 Section 5. Proxies........................................................................3 Section 6. Voting.........................................................................3 Section 7. Organization and Order of Business.............................................3 Section 8. Consent of Stockholders in Lieu of Meeting.....................................4 Section 9. List of Stockholders Entitled to Vote..........................................4 Section 10. Stock Ledger...................................................................5 Section 11. Record Date....................................................................5 Section 12. Inspectors of Election.........................................................6 ARTICLE III DIRECTORS Section 1. Number and Election of Directors...............................................7 Section 2. Vacancies......................................................................7 Section 3. Duties and Powers..............................................................7 Section 4. Organization...................................................................8 Section 5. Resignations and Removals of Directors.........................................8 Section 6. Meetings.......................................................................9 Section 7. First Yearly Meeting...........................................................9 Section 8. Quorum and Manner of Acting....................................................9 Section 9. Action by Written Consent......................................................9 Section 10. Meetings by Means of Conference Telephone.....................................10 Section 11. Compensation..................................................................10 Section 12. Interested Directors..........................................................10 ARTICLE IV COMMITTEES Section 1. How Constituted and Powers....................................................11 Section 2. Executive Committee...........................................................12
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Section 3. Organization..................................................................12 Section 4. Meetings......................................................................12 Section 5. Quorum and Manner of Acting...................................................12 Section 6. General.......................................................................12 ARTICLE V OFFICERS Section 1. Officers......................................................................13 Section 2. Term of Office and Qualifications.............................................13 Section 3. Subordinate Officers..........................................................13 Section 4. Removal.......................................................................13 Section 5. Resignations..................................................................14 Section 6. Vacancies.....................................................................14 Section 7. Compensation..................................................................15 Section 8. Chairman of the Board of Directors............................................15 Section 9. Vice Chairman of the Board of Directors.......................................15 Section 10. President.....................................................................15 Section 11. Vice Presidents...............................................................16 Section 12. Treasurer.....................................................................17 Section 13. Controller....................................................................18 Section 14. Secretary.....................................................................19 Section 15. Duties of Assistant Treasurers, Assistant Secretaries and Other Subordinate Officers..........................................................20 Section 16. Appointed Officers............................................................20 ARTICLE VI CONTRACTS, VOTING OF STOCK HELD, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. Section 1. Execution of Contracts........................................................21 Section 2. Loans and Loan Guarantees.....................................................21 Section 3. Voting of Stock Held..........................................................22 Section 4. Checks, Drafts, etc...........................................................22 Section 5. Deposits......................................................................23 ARTICLE VII STOCK AND DIVIDENDS Section 1. Form of Certificates..........................................................23 Section 2. Signatures....................................................................24 Section 3. Lost, Destroyed, Stolen or Mutilated Certificates.............................24 Section 4. Transfers.....................................................................24 Section 5. Transfer and Registry Agents..................................................25 Section 6. Beneficial Owners.............................................................25 Section 7. Dividends.....................................................................25
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Section 8. Limitations on Transfer.......................................................26 ARTICLE VIII NOTICES Section 1. Notices.......................................................................26 Section 2. Waivers of Notice.............................................................27 ARTICLE IX BOOKS Section 1. Books.........................................................................27 Section 2. Form of Books.................................................................28 ARTICLE X INDEMNIFICATION Section 1. Power to Indemnify in Actions, Suits or Proceedings other Than Those by or in the Right of the Corporation...............................................28 Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation...............................................................29 Section 3. Authorization of Indemnification..............................................29 Section 4. Good Faith Defined............................................................30 Section 5. Indemnification by a Court....................................................31 Section 6. Expenses Payable in Advance...................................................31 Section 7. Nonexclusivity of Indemnification and Advancement of Expenses.................31 Section 8. Insurance.....................................................................32 Section 9. Certain Definitions...........................................................32 Section 10. Survival of Indemnification and Advancement of Expenses.......................33 Section 11. Limitation on Indemnification.................................................33 Section 12. Indemnification of Appointed Officers, Employees and Agents...................34 ARTICLE XI AMENDMENT OF BY-LAWS Section 1. Amendment of By-Laws..........................................................34 Section 2. Entire Board of Directors.....................................................34 ARTICLE XII GENERAL PROVISIONS Section 1. Seal..........................................................................34 Section 2. Fiscal Year...................................................................35
iii BY-LAWS (as restated and amended) OF REVLON CONSUMER PRODUCTS CORPORATION (hereinafter called the "Corporation") ARTICLE I OFFICES ------- Section 1. Registered Office. The registered office of the Corporation 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. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ Section 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at any place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meetings. The Annual Meetings of Stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders shall elect a Board of Directors, and transact such other business as may properly be brought before the meeting. Written notice of the Annual Meeting of Stockholders stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 3. Special Meetings. Unless otherwise prescribed by law or by the Certificate of Incorporation, Special Meetings of Stockholders, for any purpose or purposes, may be called by either (i) the Board of Directors, (ii) the Chairman of the Board of Directors, (iii) the Chairman of the Executive Committee of the Board of Directors, (iv) the Vice Chairman of the Board of Directors, or (v) the President. Such request shall state the purpose or purposes of the proposed meeting. Written notice of a Special Meeting of Stockholders stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. Section 4. Quorum. Except as otherwise required by law or by the Certificate of Incorporation, the holders of a majority in total number of votes of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the Chairman of the meeting or the holders of a majority in number of votes of the capital stock entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might -2- have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a written notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting not less than ten nor more than sixty days before the date of the meeting. Section 5. Proxies. Any stockholder entitled to vote may do so in person or by his proxy appointed by an instrument in writing subscribed by such stockholder or by his attorney thereunto authorized, delivered to the Secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three years from its date, unless said proxy provides for a longer period. All proxies must be filed with the Secretary of the Corporation at the beginning of the meeting in order to be counted in any vote at the meeting. Section 6. Voting. At all meetings of the stockholders at which a quorum is present, except as otherwise required by law, the Certificate of Incorporation or these By-Laws, any question brought before any meeting of stockholders shall be decided by the affirmative vote of the holders of a majority of the total number of votes of the capital stock present in person or represented by proxy, and entitled to vote thereat voting as a single class. At the Annual Meeting of Stockholders, or any Special Meeting of Stockholders at which directors are to be elected, the directors shall be elected by a plurality vote. Section 7. Organization and Order of Business. At every meeting of stockholders, the Chairman of the Board of Directors or, in such person's absence, the Chairman of the Executive Committee of the Board of Directors or, in such person's absence, the Vice Chairman of the Board of Directors, or, in such person's absence, the President, or in the absence of the four of them, such person as shall have been designated by the Board of Directors or, if none, by the Chairman of the Board of Directors, or, if none, by the Chairman of the Executive Committee of the Board of Directors or, if none, by the Vice Chairman of the Board of Directors, or, if none, by -3- the President, shall act as Chairman of the meeting. The Secretary or, in such person's absence, an Assistant Secretary, shall act as Secretary of the meeting. The Chairman of the meeting shall have the sole authority to prescribe the agenda and rules of order for the conduct of any Annual or Special Meeting of Stockholders and to determine all questions arising thereat relating to the order of business and the conduct of the meeting, except as otherwise required by law. Unless otherwise directed by the Chairman of the meeting, the vote at any meeting of the stockholders need not be by written ballot. In case none of the officers above designated to act as Secretary of the meeting shall be present, the Chairman of the meeting or Secretary of the meeting shall be appointed by vote of a majority of the total number of votes of the capital stock present in person or represented by proxy and entitled to vote thereat. Section 8. Consent of Stockholders in Lieu of Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required or permitted to be taken at any Annual or Special Meeting of Stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. In the event that the action which is consented to is such as would have required the filing of a certificate under the General Corporation Law of the State of Delaware ("DGCL") if such action had been voted on by stockholders at a meeting thereof, the certificate filed shall state, in lieu of any statement concerning any vote of stockholders, that written consent and written notice has been given as provided in this Section 8. Section 9. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare -4- and make, at least ten days before every meeting of stockholders, 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 the examination of 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 of the Corporation who is present. Section 10. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 9 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 11. 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 entitled 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 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 record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall not be more than sixty nor less than ten days before the date of such meeting; (2) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days after -5- the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action of the Board of Directors is required by 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 in accordance with applicable law, or if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. 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 12. Inspectors of Election. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of elections to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate 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. Unless otherwise required by law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict -6- impartiality and according to the best of his ability. The inspector shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law. ARTICLE III DIRECTORS --------- Section 1. Number and Election of Directors. The Board of Directors shall consist of not less than three members, the exact number of which shall from time to time be determined by resolution of the Board of Directors. Except as provided in Section 2 of this Article, directors shall be elected by the stockholders at the Annual Meetings of Stockholders, and each director so elected shall hold office until his successor is duly elected and qualified, or until his death, or until his earlier resignation, or removal. Directors need not be stockholders. Section 2. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, except that any vacancy resulting from the death, resignation, removal or disqualification of a director elected by the holders of any class or classes of the stock of the Corporation voting as a class, or from an increase in the number of directors which such holders are entitled to elect, may be filled by the affirmative vote of a majority of the directors elected by such class or classes, or by a sole remaining director so elected, and each director so chosen shall hold office until his successor is duly elected and qualified or until his death, or until his earlier resignation or removal, or disqualification. Section 3. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as -7- are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders. Section 4. Organization. At each meeting of the Board of Directors, the Chairman of the Board of Directors, the Chairman of the Executive Committee of the Board of Directors or the Vice Chairman of the Board of Directors, or, in the absence of the three of them, a director chosen by a majority of the directors present, shall act as Chairman. The Secretary of the Corporation shall act as Secretary at each meeting of the Board of Directors. In case the Secretary shall be absent from any meeting of the Board of Directors, an Assistant Secretary shall perform the duties of Secretary at such meeting; and in the absence from any such meeting of the Secretary and all the Assistant Secretaries, the Chairman of the meeting may appoint any person to act as Secretary of the meeting. Section 5. Resignations and Removals of Directors. Any director of the Corporation may resign at any time, by giving written notice to the Chairman of the Board of Directors, the Chairman of the Executive Committee of the Board of Directors, the Vice Chairman of the Board of Directors, the President or the Secretary of the Corporation. Such resignation shall take effect at the time therein specified or, if no time is specified, immediately; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective. Except as otherwise required by law, any director or the entire Board of Directors may be removed, with or without cause, by the affirmative vote or written consent of a majority in total voting power of the issued and outstanding capital stock of the Corporation represented and entitled to vote in the election of directors. Section 6. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held at such time and at such place as may from time to time be determined by the Board of Directors and, unless required by resolution of the Board of Directors, without notice. Special -8- meetings of the Board of Directors may be called by the Chairman of the Board of Directors, the Chairman of the Executive Committee of the Board of Directors, the Vice Chairman of the Board of Directors, or a majority of directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight hours before the date of the meeting; by telephone, telecopy or telegram on twenty-four hours notice; or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Section 7. First Yearly Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each Annual Meeting of Stockholders, and no notice of such meeting to the existing or newly elected directors shall be necessary in order to legally constitute the meeting, provided a quorum is present. Such first meeting may be held at any other time or place specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or in a waiver of notice thereof. Section 8. Quorum and Manner of Acting. Except as otherwise required by law, the Certificate of Incorporation or these By-Laws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business 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, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, of the time and place of the adjourned meeting, until a quorum shall be present. Section 9. Action by Written Consent. Unless otherwise required by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may -9- be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 10. Meetings by Means of Conference Telephone. Unless otherwise required by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 10 shall constitute presence in person at such meeting. Section 11. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary, or such other emoluments, as the Board of Directors shall from time to time determine. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Each director who shall serve as a member or Chairman of a special or standing committee may be allowed like compensation for attending committee meetings. Section 12. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers, are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed -10- or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV COMMITTEES ---------- Section 1. How Constituted and Powers. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation, except as otherwise provided in these By-Laws. The Board of Directors may designate one or more directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another member of the Board of Directors to act in the place of any absent or disqualified member. Each committee, to the extent permitted by law, shall have and may exercise all the powers and authority of the -11- Board of Directors in the management of the business and affairs of the Corporation as provided in the resolution establishing such committee. Section 2. Executive Committee. The Board of Directors may designate an Executive Committee, to consist of not less than three members of the Board of Directors, which shall have and may exercise, to the extent permitted by law, all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, including, unless otherwise specified by a resolution or resolutions of the Board of Directors, the power and authority to declare dividends, to authorize the issuance of stock and to adopt a certificate of ownership and merger pursuant to Section 253 of the DGCL. Section 3. Organization. The Board of Directors or each such committee may choose its Chairman and Secretary, and shall keep and record all its acts and proceedings and report the same from time to time to the Board of Directors. Section 4. Meetings. Regular meetings of any such committee, of which no notice shall be necessary, shall be held at such times and in such places as shall be fixed by the committee or by the Board of Directors. Special meetings of any such committee shall be held at the request of any member of the committee. Section 5. Quorum and Manner of Acting. A majority of the members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of the committee. Section 6. General. The Board of Directors shall have the power at any time to change the members of, fill vacancies in, and discharge or disband any such committee, either with or without cause. -12- ARTICLE V OFFICERS -------- Section 1. Officers. The Board of Directors shall elect a Chairman of the Board of Directors, a Vice Chairman of the Board of Directors, a President, one or more Vice Presidents, a Treasurer, a Controller and a Secretary. The Board of Directors may designate one or more Vice Presidents as Senior Executive Vice Presidents, Executive Vice Presidents or Senior Vice Presidents, and may use such other descriptive words as it may determine to designate the seniority or areas of special competence or responsibility of the officers. Any two or more offices may be held by the same person. Section 2. Term of Office and Qualifications. Each such officer shall hold office until such officer's successor shall have been duly chosen and shall qualify, or until such officer's death, resignation or removal in the manner hereinafter provided. The Chairman of the Board of Directors and the Vice Chairman of the Board of Directors shall be chosen from among the directors, but no other officers need be a director. Each officer shall have such functions or duties as are provided in these By-Laws, or as the Board of Directors may from time to time determine. Section 3. Subordinate Officers. The Board of Directors may from time to time elect such other officers or assistant officers as it may deem necessary, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these By-Laws, or as the Board of Directors may from time to time determine. Section 4. Removal. Any officer may be removed, either with or without cause, by the Board of Directors, and any officer also may be removed in such other manner as may be specified by the Board of Directors in the resolution or resolutions electing such officer. Any officer may be suspended by the Chairman of the Board of Directors, or by the Vice Chairman of -13- the Board of Directors, either with or without cause. Section 5. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, or the Secretary of the Corporation. Any such resignation shall take effect at the time therein specified or if no time is specified, immediately; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective. Section 6. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these By-Laws for the regular election to that office. Section 7. Compensation. Salaries or other compensation of the officers may be fixed from time to time by the Board of Directors or any duly authorized committee of directors and shall be so fixed by the Board of Directors or such committee as to any officer serving the Corporation as a director. No officer shall be prevented from receiving proper compensation for such officer's services by reason of the fact that such officer is also a director of the Corporation. Section 8. Chairman of the Board of Directors. The Chairman of the Board of Directors, if present, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors may, with the Treasurer or the Secretary or an Assistant Treasurer or an Assistant Secretary, sign certificates for stock of the Corporation. The Chairman of the Board of Directors may enter into and execute in the name of the Corporation deeds, mortgages, bonds, guarantees, contracts and other instruments, except in cases where the making and execution thereof shall be expressly restricted or delegated by the Board of Directors or by a duly authorized committee of directors or by these By-Laws to some other officer or agent of the Corporation, or shall be required by law otherwise to be made or executed. In general, the Chairman of the Board of Directors shall have all authority -14- incident to the office of Chairman of the Board of Directors and shall have such other authority and perform such other duties as may from time to time be assigned by the Board of Directors or by any duly authorized committee of directors. Section 9. Vice Chairman of the Board of Directors. The Vice Chairman of the Board of Directors shall, subject to the direction of the Board of Directors or any duly authorized committee of directors, and at the request or in the absence or disability of the Chairman of the Board of Directors, perform the duties and exercise the powers of the Chairman of the Board of Directors. The Vice Chairman of the Board of Directors may enter into and execute in the name of the Corporation deeds, mortgages, bonds, guarantees, contracts and other instruments, except in cases where the making and execution thereof shall be expressly restricted or delegated by the Board of Directors, by a duly authorized committee of directors or by these By-Laws to some other officer or agent of the Corporation, or shall be required by law otherwise to be made or executed. In general, the Vice Chairman of the Board of Directors shall have all authority incident to the office of Vice Chairman of the Board of Directors and shall have such other authority and perform such other duties as may from time to time be assigned by the Board of Directors, by any duly authorized committee of directors or by the Chairman of the Board of Directors. Section 10. President. The President shall be the chief executive officer of the Corporation and shall have general supervision of the business, affairs and property of the Corporation and over its several officers, subject, however, to the control of the Board of Directors. The President also shall be the chief operating officer of the Corporation and, subject to the direction of the Board of Directors, any duly authorized committee of directors, shall have general supervision of the operations of the Corporation. The President may, with the Treasurer or the Secretary or an Assistant Treasurer or an Assistant Secretary, sign certificates for stock of the Corporation. The President may enter into and execute in the name of the Corporation deeds, mortgages, bonds, guarantees, contracts and other instruments, except in cases -15- where the making and execution thereof shall be expressly restricted or delegated by the Board of Directors or by a duly authorized committee of directors, or by these By-Laws to some other officer or agent of the Corporation, or shall be required by law otherwise to be made or executed. The President shall have the power to fix the compensation of elected officers whose compensation is not fixed by the Board of Directors or a committee thereof in accordance with Section 7 of this Article V, and also to engage, discharge, determine the duties and fix the compensation of all employees and agents of the Corporation necessary or proper for the transaction of the business of the Corporation. In general, the President shall have all authority incident to the office of President and chief executive officer and chief operating officer and shall have such other authority and perform such other duties as may from time to time be assigned by the Board of Directors or by any duly authorized committee of directors or by the Chairman of the Board of Directors or by the Vice Chairman of the Board of Directors. The President shall, at the request or in the absence or disability of the Chairman of the Board of Directors or the Vice Chairman of the Board of Directors, perform the duties and exercise the powers of such officer. Section 11. Vice Presidents. The Vice Presidents shall have supervision over the operations of the Corporation within their respective areas of special competence or responsibility and in accordance with policies, procedures and practices in effect from time to time, subject, however, to the control of the Board of Directors, any duly authorized committee of directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President and any other officer to whom they report. They shall, within such areas (in the order of their designation, or in the absence of such designation, in the order of their seniority based on title or, in the case of officers of equal title, in order of their tenure), at the request or in the absence or disability of the Chairman of the Board of Directors, perform the duties and -16- exercise the powers of such officer and at the request or in the absence or disability of the Vice Chairman of the Board of Directors, perform the duties and exercise the powers of such officer and at the request or in the absence or disability of the President, perform the duties and exercise the powers of such officer and at the request or in the absence or disability of the President, perform the duties and exercise the power of such officer. They may, with the Treasurer or the Secretary or an Assistant Treasurer or an Assistant Secretary, sign certificates for stock of the Corporation. They may enter into and execute in the name of the Corporation deeds, mortgages, guarantees, bonds, contracts and other instruments, except in cases where the making and execution thereof shall be expressly restricted or otherwise delegated by these By-Laws or by the Board of Directors, a duly authorized committee of directors, the Chairman of the Board of Directors, the Vice Chairman or the Board of Directors, the President or any other officer to whom they report, or shall be required by law otherwise to be made or executed. In general, they shall have all authority incident to their respective offices and shall have such other authority and perform such other duties as may from time to time be assigned to them by the Board of Directors, any duly authorized committee of directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any other officer to whom they report. Section 12. Treasurer. The Treasurer shall, if required by the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any other officer to whom the Treasurer reports, give a bond for the faithful discharge of duties, in such sum and with such sureties as may be so required. The Treasurer shall have custody of, and be responsible for, all funds and securities of the Corporation; receive and give receipts for money due and payable to the Corporation from any source whatsoever; deposit all such money in the name of the Corporation in such banks, trust companies, or other depositories as shall be selected in accordance with the provisions of Section 5 of Article VI of these By-Laws; against proper vouchers, cause such funds to be disbursed by check or draft on the authorized depositories of the Corporation signed in such manner as shall be determined in -17- accordance with the provisions of Section 4 of Article VI of these By-Laws and be responsible for the accuracy of the amounts of all funds so disbursed; regularly enter or cause to be entered in books to be kept by the Treasurer or under the Treasurer's direction, full and adequate accounts of all money received and paid by the Treasurer for the account of the Corporation; have the right to require, from time to time, reports or statements giving such information as the Treasurer may determine to be necessary or desirable with respect to any and all financial transactions of the Corporation from the officers and agents transacting the same; render to the Board of Directors, any duly authorized committee of directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any officer to whom the Treasurer reports, whenever they or any of them, respectively, shall require the Treasurer so to do, an account of the financial condition of the Corporation and of all transactions of the Treasurer; exhibit at all reasonable times the books of accounts and other records provided for herein to any of the directors of the Corporation; and, in general, have all authority incident to the office of Treasurer and such other authority and perform such other duties as from time to time may be assigned by the Board of Directors, any duly authorized committee of directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any other officer to whom the Treasurer reports, and may sign with the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any Vice President, certificates for stock of the Corporation. Section 13. Controller. The Controller shall be responsible for preparing and maintaining reasonable and adequate books of account and other accounting records of the assets, liabilities and transactions of the Corporation in accordance with generally accepted accounting principles and procedures, shall see that reasonable and adequate audits thereof are regularly made and that reasonable and adequate systems of financial control are maintained, shall examine and certify the financial accounts of the Corporation, shall prepare and render such budgets and -18- other financial reports as the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any other officer to whom the Controller reports may require, and shall, in general, have all authority incident to the office of Controller and such other authority and perform such other duties as from time to time may be assigned by the Board of Directors, any duly authorized committee of directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any other officer to whom the Controller reports. Section 14. Secretary. The Secretary shall act as Secretary of all meetings of the stockholders and of the Board of Directors of the Corporation; shall keep the minutes thereof in the proper book or books to be provided for that purpose; shall see that all notices required to be given by the Corporation in connection with meetings of stockholders and of the Board of Directors are duly given; may, with the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any Vice President, sign certificates for stock of the Corporation; shall be the custodian of the seal of the Corporation and shall affix the seal or cause it or a facsimile thereof to be affixed to all certificates for stock of the Corporation and to all documents or instruments requiring the same, the execution of which on behalf of the Corporation is duly authorized in accordance with the provisions of these By-Laws; shall have charge of the stock records and also of the other books, records and papers of the Corporation relating to its organization and acts as a corporation, and shall see that the reports, statements and other documents related thereto required by law are properly kept and filed; and shall, in general, have all authority incident to the office of Secretary and such other authority and perform such other duties as from time to time may be assigned by the Board of Directors, any duly authorized committee of directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any other officer to whom the Secretary reports. -19- Section 15. Duties of Assistant Treasurers, Assistant Secretaries and Other Subordinate Officers. The Assistant Treasurers shall, respectively, if required by the Board of Directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any other officer to whom they report, give bonds for the faithful discharge of their duties in such sums and with such sureties as may be so required. Assistant Treasurers and Assistant Secretaries may, with the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or any Vice President, sign certificates for stock of the Corporation. Subordinate officers shall have all authority incident to their respective offices and such other authority and perform such other duties as shall be assigned to them by the Board of Directors, any duly authorized committee of directors, the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or the officers to whom they report. Section 16. Appointed Officers. The Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, and the President may appoint or cause to be appointed, in accordance with the policies and procedures established by them, such Presidents, Vice Presidents and other officers of the Divisions, Groups and Staffs of the Corporation (each an "Appointed Officer") as each of them shall determine to be necessary or desirable in furtherance of the business and affairs of such Divisions, Groups and Staffs, may designate such Vice Presidents as Senior Executive Vice Presidents, Executive Vice Presidents or Senior Vice Presidents, and may use such other descriptive words as each of them may determine to designate the seniority or areas of special competence or responsibility of the Appointed Officers appointed in accordance with this Section 16. Appointed Officers appointed in accordance with this Section 16 shall not be deemed to be officers as elsewhere referred to in this Article V or in Article X hereof, but as between themselves and the Corporation shall have such authority and perform such duties in the management and operations of the Divisions, Groups and Staffs of the -20- Corporation of which they are appointed officers as the officer appointing them and the persons to whom they report may from time to time determine. Such Appointed Officers shall have the authority as between themselves and third parties to bind the Corporation solely to the extent of their apparent authority based upon their titles and solely in relation to the business affairs of the Divisions, Groups and Staffs of which they are appointed officers. ARTICLE VI CONTRACTS, VOTING OF STOCK HELD, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. ----------------------------------- Section 1. Execution of Contracts. The Board of Directors or any duly authorized committee of directors, except as by these By-Laws otherwise require, may authorize any officer other than or in addition to the officers authorized by Article V of these By-Laws, including Appointed Officers, and any employee or agent or agents, in the name and on behalf of the Corporation, to enter into and execute any deed, mortgage, bond, guarantee, contract or other instrument, and any such authority may be general or may be confined to specific instances or otherwise limited. Section 2. Loans and Loan Guarantees. Any officer, employee or agent of the Corporation thereunder authorized by the Board of Directors or by any duly authorized committee of directors may effect in the name and on behalf of the Corporation, loans or advances from, or guarantees of loans or advances to, any bank, trust company or other institution or any firm, corporation or individual, and for such loans and advances or guarantees may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness or guaranty of the Corporation, and may pledge or hypothecate or transfer any securities or other property of the Corporation as security for any such loans, advances or guarantees. Such authority conferred by the Board of Directors or any duly authorized committee -21- of directors may be general or may be confined to specific instances or otherwise limited. Section 3. Voting of Stock Held. The Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, and the President and, unless otherwise provided by resolution of the Board of Directors or directed by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, or the President, the Secretary may from time to time personally or by an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, cast the votes which the Corporation may be entitled to cast as a stockholder or otherwise in any other corporation, any of the stock or securities of which may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporations, or consent in writing to any action by any such other corporation, and may instruct any person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, consents, waivers or other instruments as the Secretary may deem necessary or proper in the premises; or may attend any meeting of the holders of stock or other securities of any such other corporation and thereat vote or exercise any or all other powers of the Corporation as the holder of such stock or other securities of such other corporation. Section 4. Checks, Drafts, etc. All checks, drafts and other orders for payment of money out of the funds of the Corporation and all notes and other evidences of indebtedness of the Corporation shall be signed on behalf of the Corporation by the Treasurer or an Assistant Treasurer or by any other officer, employee or agent of the Corporation to whom such power may from time to time be delegated by the Board of Directors or any duly authorized committee of directors or by any officer, employee or agent of the Corporation to whom the power of -22- delegation may from time to time be granted by the Board of Directors or any duly authorized committee of directors. Section 5. Deposits. The funds of the Corporation not otherwise employed shall be deposited from time to time to the order of the Corporation in such banks, trust companies or other depositories as the Board of Directors or any duly authorized committee of directors may from time to time select, or as may be selected by any officer, employee or agent of the Corporation to whom such power may from time to time be delegated by these By-Laws, the Board of Directors or any duly authorized committee of directors. ARTICLE VII STOCK AND DIVIDENDS ------------------- Section 1. Form of Certificates. (a) Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or one of the Vice Presidents and (ii) by 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. (b) If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise required by Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who -23- so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Signatures. Any or all signatures on the certificate may be a facsimile. In case an 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, unless otherwise ordered by the Board of Directors, 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 3. Lost, Destroyed, Stolen or Mutilated Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit or such other proof satisfactory to the Board of Directors 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, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as the Board of Directors 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 and its transfer agents and registrars with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate. Section 4. Transfers. Except as otherwise prescribed by law or the Certificate of Incorporation, stock of the Corporation shall be transferable in the manner prescribed in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's duly authorized attorney appointed by a power of attorney duly executed and filed with the Secretary of the Corporation or a transfer agent of the Corporation, and upon surrender -24- of the certificate or certificates for such stock properly endorsed for transfer and payment of all necessary transfer taxes; provided, however, that such surrender and endorsement or payment of taxes shall not be required in any case in which the officers of the Corporation shall determine to waive such requirement. Every certificate exchanged, returned or surrendered to the Corporation shall be marked "Canceled," with the date of cancellation, by the Secretary or an Assistant Secretary of the Corporation or the transfer agent thereof. No transfer of stock shall be valid as against the Corporation, its stockholders or creditors for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred. Section 5. Transfer and Registry Agents. The Corporation may from time to time maintain one or more transfer offices or agencies and registry offices or agencies at such place or places as may be determined from time to time by the Board of Directors. Section 6. Beneficial Owners. 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 required by law. Section 7. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the Corporation's 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 Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for -25- purchasing any of the shares of capital stock, warrants, rights, options, bonds, debentures, notes, scrip or other securities or evidences of indebtedness of the Corporation, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 8. Limitations on Transfer. A written restriction on the transfer or registration of transfer of a security of the Corporation, if permitted by Section 202 of the DGCL and noted conspicuously on the certificate representing the security or, in the case of uncertificated shares, contained in the notice sent pursuant to Section 151(f) of the DGCL, may be enforced against the holder of the restricted security or any successor or transferee of the holder including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder. Unless noted conspicuously on the certificate representing the security or, in the case of uncertificated shares, contained in the notice sent pursuant to Section 151(f) of the DGCL, a restriction, even though permitted by Section 202 of the DGCL, is ineffective except against a person with actual knowledge of the restriction. A restriction on the transfer or registration of transfer of securities of the Corporation may be imposed either by the Certificate of Incorporation or by these By-Laws or by an agreement among any number of security holders or among such holders and the Corporation. No restriction so imposed shall be binding with respect to securities issued prior to the adoption of the restriction unless the holders of the securities are parties to an agreement or voted in favor of the restriction. ARTICLE VIII NOTICES ------- Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws to be given to any director, member -26- of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person's address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by courier service, facsimile transmission, telegram, telex or cable. Section 2. Waivers of Notice. (a) Whenever any notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting, present by person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. (b) Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice unless so required by law, the Certificate of Incorporation or these By-Laws. ARTICLE IX BOOKS ----- Section 1. Books. The Corporation shall keep in accordance with applicable law correct and adequate books and records of account and minutes of proceedings of the stockholders, the Board of Directors and any committees of the Board of Directors. The Corporation shall keep in accordance with applicable law at the office designated in the Certificate of Incorporation or at the office of the transfer agent or registrar of the Corporation, a record containing the names and addresses of -27- all stockholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof. Section 2. Form of Books. Any books maintained by the Corporation, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, electronic data storage, computer discs, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible written form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. ARTICLE X INDEMNIFICATION --------------- Section 1. Power to Indemnify in Actions, Suits or Proceedings other Than Those by or in the Right of the Corporation. Subject to Section 3 of this Article X, 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 such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other entity or enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person 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 such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, -28- conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that such person did not act in good faith and in a manner which such person 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 reasonable cause to believe that such person's conduct was unlawful. Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article X, 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 such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other entity or enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; 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. Authorization of Indemnification. Any indemnification under this Article X (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 or officer is proper in the circumstances because such -29- person has met the applicable standard of conduct set forth in Section 1 or Section 2, and in each case Section 11, of this Article X, as the case may be. Such determination shall be made (i) by a majority vote of the directors who were not parties to such action, suit or proceeding, even though less than a quorum, or (ii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case. Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article X, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person's conduct was unlawful, if such person's action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other entity or enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person -30- may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2, and in each case Section 11, of this Article X, as the case may be. Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article X, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2, and in each case Section 11, of this Article X. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Sections 1 or 2, and in each case Section 11, of this Article X, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article X nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application. Section 6. Expenses Payable in Advance. Expenses (including attorneys' fees) incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall 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 such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article X. Section 7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or -31- granted pursuant to this Article X shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article X shall be made to the fullest extent permitted by law. The provisions of this Article X shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this Article X but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise. Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other entity or enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article X. Section 9. Certain Definitions. For purposes of this Article X, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, -32- partnership, joint venture, trust, employee benefit plan or other entity or enterprise, shall stand in the same position under the provisions of this Article X with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article X, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article X. For purposes of this Article X, the term "officers" shall not include "Appointed Officers" as defined in Section 15 of Article V. Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article X shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 11. Limitation on Indemnification. Notwithstanding anything contained in this Article X to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation. -33- Section 12. Indemnification of Appointed Officers, Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to Appointed Officers, employees and agents of the Corporation similar to those conferred in this Article X to directors and officers of the Corporation. ARTICLE XI AMENDMENT OF BY-LAWS -------------------- Section 1. Amendment of By-Laws. These By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted by the stockholders or by the Board of Directors; provided, however, that notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such meeting of stockholders or Board of Directors as the case may be. All such amendments must be approved by either the affirmative vote of the holders of a majority in total number of votes of the outstanding capital stock entitled to vote thereon or by a majority of the directors then in office. Section 2. Entire Board of Directors. As used in these By-Laws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. ARTICLE XII GENERAL PROVISIONS ------------------ Section 1. Seal. The Board of Directors shall approve a corporate seal which shall be in the form of a circle and shall bear the name of the Corporation, the year of its incorporation and the word "Delaware." The Seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. -34- Section 2. Fiscal Year. The fiscal year of the Corporation shall be determined and may be changed by resolution of the Board of Directors, and unless and until otherwise so determined, shall be the calendar year. -35- -----END PRIVACY-ENHANCED MESSAGE-----