-----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, BLg/LkcRhGNDUCeJ+RVjtC055p+H3cPBlLqy7FEbV5X5bdtVSlaVsyo5l6WBt75q 50Ph+swES4IuBUIfJ/Oy+w== /in/edgar/work/20000814/0001007594-00-000004/0001007594-00-000004.txt : 20000921 0001007594-00-000004.hdr.sgml : 20000921 ACCESSION NUMBER: 0001007594-00-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000701 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PCD INC CENTRAL INDEX KEY: 0001007594 STANDARD INDUSTRIAL CLASSIFICATION: [3678 ] IRS NUMBER: 042604950 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27744 FILM NUMBER: 697435 BUSINESS ADDRESS: STREET 1: TWO TECHNOLOGY DR STREET 2: CENTENNIAL PARK CITY: PEABODY STATE: MA ZIP: 01960 BUSINESS PHONE: 5085328800 MAIL ADDRESS: STREET 1: 2 TECHNOLOGY DRIVE CITY: PEABODY STATE: MA ZIP: 01960 10-Q 1 0001.txt AUDIT LETTER SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 July 1, 2000 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 0-27744 PCD Inc. (Exact name of registrant as specified in its charter) Massachusetts 04-2604950 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2 Technology Drive, Centennial Park, Peabody, Massachusetts (Address of principal executive offices) 01960-7977 (Zip Code) Registrant's telephone number, including area code: 978-532-8800 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 ----- ----- Number of shares of common stock, $0.01 par value, outstanding at August 14, 2000: 8,607,601 PCD Inc. FORM 10-Q FOR THE QUARTER ENDED JULY 1, 2000 FORWARD LOOKING INFORMATION Statements in this quarterly report concerning the future revenues, expenses, profitability, financial resources, product mix, market demand, product development and other statements in this report concerning the future results of operations, financial condition and business of PCD Inc. are "forward-looking" statements as defined in the Securities Act of 1933 and Securities Exchange Act of 1934. Investors are cautioned that the Company's actual results in the future may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company's operations and business environment, including the Company's dependence on the integrated circuit package interconnect and semiconductor industries, the availability of certain critical basic materials, the Company's ability to meet its debt covenants, fluctuations in demand for the Company's products, the Company's dependence on its principal customers and independent distributors, acquisitions and indebtedness, international sales and operations, rapid technological evolution in the electronics industry and the like. The Company's most recent filings with the Securities and Exchange Commission, including Form 10-K, contain additional information concerning such risk factors, and copies of these filings are available from the Company upon request and without charge. 2 PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS PCD INC. Consolidated Balance Sheets as of July 1, 2000 and December 31, 1999. Consolidated Statements of Income for the three and six fiscal months ended July 1, 2000 and July 3, 1999. Consolidated Statements of Cash Flows for the six fiscal months ended July 1, 2000 and July 3, 1999. Notes to Condensed Consolidated Financial Statements. 3 PCD Inc. CONSOLIDATED BALANCE SHEETS (Condensed and unaudited) (In thousands) 7/1/00 12/31/99 ------- -------- ASSETS Current assets: Cash and cash equivalents.......................... $ 883 $ 652 Accounts receivable, net........................... 6,916 6,831 Inventory.......................................... 5,420 5,479 Income tax refund receivable....................... - 1,416 Prepaid expenses and other current assets.......... 533 674 -------- -------- Total current assets........................ 13,752 15,052 Equipment and improvements Equipment and improvements......................... 30,378 29,089 Accumulated depreciation........................... 13,949 11,547 -------- -------- Equipment and improvements, net....................... 16,429 17,542 Deferred tax asset.................................... 11,624 12,258 Goodwill.............................................. 53,965 55,506 Intangible assets..................................... 10,899 11,418 Debt financing fees................................... 1,566 1,276 Other assets.......................................... 1,614 1,734 -------- -------- Total assets................................ $109,849 $114,786 ======== ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt.................................... $ 10,300 $ 12,000 Current portion of long-term debt.................. 9,000 8,800 Accounts payable................................... 3,931 3,972 Accrued liabilities................................ 3,275 3,190 -------- -------- Total current liabilities................... 26,506 27,962 Long-term debt, net of current portion................ 23,939 28,800 Accumulated other comprehensive (loss)................ (61) (27) Stockholders' equity.................................. 59,465 58,051 -------- -------- Total liabilities and stockholders' equity.. $109,849 $114,786 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. 4 PCD Inc. CONSOLIDATED STATEMENTS OF INCOME (Condensed and unaudited) (In thousands, except per share data) Quarter Ended Six Months Ended ---------------- ---------------- 7/1/00 7/3/99 7/1/00 7/3/99 ------- ------- ------- ------- Net sales............................... $14,330 $13,210 $28,235 $25,843 Cost of sales........................... 7,573 6,617 15,295 12,996 ------- ------- ------- ------- Gross profit............................ 6,757 6,593 12,940 12,847 Operating expenses...................... 3,281 3,613 6,661 7,136 Amortization............................ 1,047 1,047 2,095 2,095 ------- ------- ------- ------- Income from operations.................. 2,429 1,933 4,184 3,616 Interest expense /(other income), net... 1,202 1,131 2,420 2,228 ------- ------- ------- ------- Income before income taxes.............. 1,227 802 1,764 1,388 Provision for income taxes.............. 492 278 707 499 ------- ------- ------- ------- Net income.............................. $ 735 $ 524 $ 1,057 $ 889 ======= ======= ======= ======= Net income per share: Basic.............................. $ 0.09 $ 0.06 $ 0.12 $ 0.10 ======= ======= ======= ======= Diluted............................ $ 0.08 $ 0.06 $ 0.12 $ 0.10 ======= ======= ======= ======= Weighted average number of shares outstanding Basic.............................. 8,599 8,513 8,588 8,482 ===== ===== ===== ===== Diluted............................ 8,984 9,043 9,000 9,048 ===== ===== ===== ===== The accompanying notes are an integral part of the consolidated financial statements. 5 PCD Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed and unaudited) (In thousands) Six Months Ended ---------------- 7/1/00 7/3/99 ------ ------ Cash flows from operating activities: Net income........................................... $ 1,057 $ 889 Adjustments to reconcile net income to net cash provided by operating activities Depreciation...................................... 2,389 2,141 Amortization of intangible assets................. 2,095 2,060 Amortization of debt financing costs.............. 244 77 Tax benefit from stock options exercised.......... - 50 Tax Refund........................................ 1,320 - Deferred taxes.................................... 625 495 Changes in operating assets and liabilities: Accounts receivable............................. (232) (287) Inventory....................................... 30 (578) Prepaid expenses and other current assets....... 223 101 Other assets.................................... (354) 29 Accounts payable................................ 40 98 Accrued liabilities............................. 130 (159) ------- ------- Net cash provided by operating activities..... 7,567 4,916 Cash flows from investing activities: Capital expenditures................................. (1,290) (1,954) ------- ------- Net cash used in investing activities......... (1,290) (1,954) Cash flows from financing activities: Borrowings (repayments) of short-term debt, net...... (1,700) 900 Payments of long-term debt........................... (4,400) (4,200) Proceeds from employee stock purchase plan........... 21 - Exercise of common stock options..................... 47 137 ------- ------- Net cash provided by (used in) financing activities............... (6,032) (3,163) ------- ------- Net (decrease) increase in cash........................ 245 (201) Effect of exchange rate on cash........................ (14) (50) Cash and cash equivalents at beginning of period....... 652 852 ------- ------- Cash and cash equivalents at end of period............. $ 883 $ 601 ======= ======= The accompanying notes are an integral part of the consolidated financial statements. 6 PCD Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (July 1, 2000 Unaudited) Note 1. INTERIM FINANCIAL STATEMENTS The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation. This financial data should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1999. Note 2. NET INCOME PER SHARE In accordance with FAS No. 128, the following tables reconcile net income and weighted average shares outstanding to the amounts used to calculate basic and diluted earnings per share for each of the periods ended July 1, 2000 and July 3, 1999: Net Income Per Share (Loss) Shares Amount ---------- --------- --------- For the quarter ended July 1, 2000 Basic earnings.............................. $ 735,000 8,598,559 $ 0.09 Assumed exercise of options (treasury method) - 385,932 - ---------- --------- ------ Diluted earnings............................ $ 735,000 8,984,491 $ 0.08 ========== ========= ====== For the quarter ended July 3, 1999 Basic earnings.............................. $ 524,000 8,512,867 $ 0.06 Assumed exercise of options (treasury method) - 530,039 - ---------- --------- ------ Diluted earnings............................ $ 524,000 9,042,906 $ 0.06 ========== ========= ====== For the six month period ended July 1, 2000 Basic earnings.............................. $1,057,000 8,588,364 $ 0.12 Assumed exercise of options (treasury method) - 411,777 - ---------- --------- ------ Diluted earnings............................ $1,057,000 9,000,141 $ 0.12 ========== ========= ====== For the six month period ended July 3, 1999 Basic earnings.............................. $ 889,000 8,481,577 $ 0.10 Assumed exercise of options (treasury method) - 566,787 - ---------- --------- ------ Diluted earnings............................ $ 889,000 9,048,364 $ 0.10 ========== ========= ====== 7 For the quarters ended July 1, 2000 and July 3, 1999, anti-dilutive shares of 182,248 and 130,324 and for the six month periods anti-dilutive shares of 213,093 and 121,281, respectively, have been excluded from the calculation of EPS. Note 3. INVENTORY 7/1/00 12/31/99 ------ -------- (In Thousands) Inventory: Raw materials and finished subassemblies.......... $4,289 $3,803 Work in process................................... 111 308 Finished goods.................................... 1,020 1,368 ------ ------ Total........................................... $5,420 $5,479 ====== ====== Note 4. COMPREHENSIVE INCOME The Company's only other comprehensive income is foreign currency translation adjustments. For the three and six month periods ended July 1, 2000 and July 3, 1999 the Company's total comprehensive income (in thousands) was as follows: Three Months Ended Six Months Ended ------------------ ---------------- 7/1/00 7/3/99 7/1/00 7/3/99 ------ ------ ------ ------ Net earnings....................... $ 735 $ 524 $1,057 $ 889 Other comprehensive loss, net...... (6) (14) (20) (46) ------ ------ ------ ------ Total comprehensive earnings.... $ 729 $ 510 $1,037 $ 843 ====== ====== ====== ====== Note 5. NEW ACCOUNTING STANDARDS In 1998, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("FAS 133"), which initially would have been effective for all fiscal quarters beginning after June 15, 1999. In June 1999, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 137, Accounting for Derivative Instruments and Hedging Activities - - Deferral of Effective Date of FAS 133 ("FAS 137"). FAS 137 deferred the effective date of FAS 133 until June 15, 2000. FAS 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. The Company believes FAS 133 will not have any material impact on its financial position, results of operations and cash flows. 8 In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes the staff's view in applying generally accepted accounting principles to selected revenue recognition issues. The application of the guidance in SAB 101 will be required in the Company's first quarter of the fiscal year 2001. The effects of applying this guidance will be reported as a cumulative effect adjustment resulting from a change in accounting principle. The Company does not expect the application to have a material effect on their financial statements. However, the final evaluation of SAB 101 is not yet complete. In March 2000, the Financial Accounting Standard Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on the Company's financial position or results of operations. Note 6. WARRANTS On March 6, 2000, the Company issued warrants to its lenders for 203,949 shares of Common Stock at an exercise price of $4.90 per share. The $288,000 value of the warrants was recorded as a discount on long-term debt and an increase in stockholders' equity. The discount is being amortized as interest expense through December 2003 (the remaining term of the debt). Note 7. LITIGATION The Company and its subsidiaries are subject to legal proceedings arising in the ordinary course of business. On the basis of information presently available and advice received from legal counsel, it is the opinion of management that the disposition or ultimate determination of such legal proceedings will not have a material adverse effect on the Company's consolidated financial position, its consolidated results of operations or its consolidated cash flows. 9 Note 8. SEGMENT INFORMATION: THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ------------------ 7/1/00 7/3/99 7/1/00 7/3/99 -------- -------- -------- -------- (In thousands) SALES: Industrial/Avionics........ $ 4,673 $ 4,551 $ 9,516 $ 9,492 IC Package interconnect.... 9,657 8,659 18,719 16,351 -------- -------- -------- -------- Total sales.............. $ 14,330 $ 13,210 $ 28,235 $ 25,843 ======== ======== ======== ======== NET INCOME (loss): Industrial/Avionics........ $ 471 $ 590 $ 1,044 $ 1,347 IC Package interconnect.... 268 (73) 23 (500) Corporate activities....... (4) 7 (10) 42 -------- -------- -------- -------- Total net income......... $ 735 $ 524 $ 1,057 $ 889 ======== ======== ======== ======== 7/1/00 12/31/99 -------- -------- (In thousands) ASSETS: Industrial/Avionics............................. $ 8,469 $ 9,269 IC Package interconnect......................... 87,784 90,004 Corporate activities............................ 13,596 15,513 -------- -------- Total assets.................................. $109,849 $114,786 ======== ======== 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS QUARTER ENDED JULY 1, 2000 COMPARED TO THE QUARTER ENDED JULY 3, 1999 NET SALES. Net sales of $14.3 million for the quarter ended July 1, 2000 increased by $1.1 million or 8.4% from net sales of $13.2 million during the prior year quarter. For the six months ended July 1, 2000 net sales of $28.2 million were up 9.3% from net sales of $25.8 million last year. The increases in net sales for both reporting periods were due primarily to higher sales in the I/C package interconnect business resulting in part from the recovery in thesemiconductor industry that began in 1999. GROSS PROFIT. Gross profit was $6.8 million for the quarter ended July 1, 2000 as compared with $6.6 million during the prior year quarter. As a percentage of revenue, gross profit was 47.2% during the quarter as compared with 49.9% during the prior year quarter. The decline in gross profit percentage from the comparable quarter last year was due primarily to a product mix shift within the Industrial/Avionics business. For the six months ended July 1, 2000 gross profit was $12.9 million or 45.8% of net sales in 2000 as compared with $12.8 million or 49.7% of net sales during 1999. The decline in gross profit percentage during the six month period in 2000 was due to first quarter 2000 price pressure and product mix shift within certain segments of the I/C package interconnect business together with the Industrial/Avionics product mix shift noted above The price pressure in the I/C package interconnect business abated somewhat during the second quarter of this year. OPERATING EXPENSES. Operating expenses include selling, general and administrative expenses and costs of product development. Operating expenses decreased to $3.3 million during the quarter ended July 1, 2000 from $3.6 million during the prior year quarter and decreased to $6.7 million from $7.1 million during the prior year six month period. The decreases were due primarily to specific cost reductions at the Wells-CTI division implemented during 1999. INTEREST EXPENSE AND OTHER INCOME, NET. Interest expense and other income, net during the quarter ended July 1, 2000 was $1.2 million as compared with $1.1 million during the prior year quarter and was $2.4 million for the six months ended July 1, 2000 as compared with $2.2 million during 1999. Interest expense in 2000 approximated prior year amounts during each reporting period as lower debt balances served to offset higher borrowing costs in 2000. Other income during the prior year quarter and the six month period was $93,000 and $104,000, respectively as compared with net expense of $24,000 and $63,000 for the comparable 2000 periods. PROVISION FOR INCOME TAXES. The provision for income taxes for the six months ended July 1, 2000 was 40% as compared with a provision of 36% during the prior year. The increase in 2000 is due to a projected profitable Japanese subsidiary in 2000, which bears a higher tax rate than the Company's U.S subsidiaries. 11 LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities during the six months ended July 1, 2000 was $7.6 million compared to $4.9 million during the six months ended July 3, 1999. During the six months ended July 1, 2000, the Company reduced net debt by $6.1 million to $43.5 million from $49.6 million at December 31, 1999. The balance at July 1, 2000 consists of $10.3 million outstanding under the revolving line of credit and a term loan balance of $33.2 million (before giving effect to the valuation of warrants issued to the Company's lenders during 2000 - - see note 6.) Capital expenditures during the six months ended July 1, 2000 were $1.3 million and are projected to be approximately $4.0 million for the year. Capital expenditures consist primarily of purchased tooling and equipment to support the Company's business. The amount of capital expenditures will frequently change based on future changes in business plans, conditions of the Company and changes in economic conditions. The Company has experienced difficulty meeting all of the covenants under its Senior Credit Facility. On March 6, 2000, the Company obtained from its lenders a waiver of compliance with certain covenants for the fourth quarter of 1999. At the same time, certain covenants were amended by agreement between the Company and its lenders through June 30, 2000. In conjunction with the March 6, 2000 agreement, the Company issued warrants to its lenders covering a total of 203,949 shares of Common Stock at an exercise price of $4.90 per share. The warrants were to be exercisable on June 30, 2000 only if the Company did not raise $10 million of subordinated debt or other capital infusions ("Junior Capital") junior to loans under the Senior Credit Facility by June 30, 2000, or by June 30, 2000 had not entered into definitive agreements permitting repayment of amounts outstanding under the Senior Credit Facility by December 31, 2000. In addition, if the Company did not obtain the Junior Capital by April 30, 2000, the Company on May 1, 2000 would pay the lenders a fee of 0.25% of the sum of the total outstanding principal balance under the Term Loan plus the Revolving Credit Loan Commitment. The fee would be payable each quarter thereafter until the Junior Capital was obtained. During the second quarter of 2000, the Company's management and board of directors, in conjunction with its outside financial advisors, concluded that the cost of Junior Capital would be prohibitively expensive under current market conditions. Accordingly, the Company ceased efforts to raise Junior Capital. The warrants for 203,949 shares of Common Stock became exercisable on June 30, 2000 and the lenders' 0.25% quarterly fee began on May 1, 2000. At July 1, 2000, the Company was in compliance with its debt covenants. There can be no assurance, however, that the Company will be able to maintain compliance with its debt covenants in the future, and failure to meet such covenants would result in an event of default under the Senior Credit Facility. To avoid an event of default, the Company would attempt to obtain waivers from its lenders, restructure the Senior Credit Facility or secure alternative financing. Under these scenarios, there can be no assurance that the terms and conditions would be satisfactory to the Company or not disadvantageous to the Company's stockholders. Subject to the foregoing, the Company believes its existing working capital and borrowing capacity, coupled with the funds generated from the Company's operations, will be sufficient to fund its anticipated working capital, capital expenditure and debt payment requirements through 2000. Because the Company's capital requirements cannot be predicted with certainty, there can be no assurance that any additional financing will be available on terms satisfactory to the Company or not disadvantageous to the Company's stockholders. 12 PART II OTHER INFORMATION Item 1. Legal Proceeding See Note 7 to the Company's Condensed Consolidated Financial Statements (above). Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of stockholders of the Company held on April 28, 2000, the following vote was taken: One director was elected to hold office for a three year term expiring in the year 2003. Shares Voted Shares -------------------- not Director For Withheld Voted ---------------------- --------- -------- ------- Harold F. Faught 7,700,334 102,185 779,816 The following directors will continue in office until the years specified: Term Expires ------------ John E. Stuart 2001 John L. Dwight, Jr. 2002 Theodore C. York 2002 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule. (b) Reports on Form 8-K NONE 13 S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PCD INC. (Registrant) Dated: August 14, 2000 /s/ John L. Dwight, Jr. --------------- ------------------------------ John L. Dwight, Jr. Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) Dated: August 14, 2000 /s/ John J. Sheehan III --------------- ------------------------------ John J. Sheehan III Vice President, Finance and Administration, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 14 EX-27 2 0002.txt
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY TO REFERENCE TO SUCH FINANCIAL INFORMATION 1000 6-MOS DEC-31-2000 JUL-01-2000 883 0 7,274 358 5,420 13,752 30,378 13,949 109,849 26,506 23,939 0 0 86 59,318 109,849 28,235 28,235 15,295 15,295 8,756 0 2,420 1,764 707 1,057 0 0 0 1,057 0.12 0.12
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