California | 000-23993 | 33-0480482 |
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
• | supplementing the financial results and forecasts reported to the Company’s board of directors; |
• | evaluating Broadcom’s operating performance; |
• | managing and benchmarking performance internally across Broadcom’s businesses and externally against peers; |
• | determining a portion of bonus compensation for executive officers and certain other key employees; |
• | establishing internal operating budgets; |
• | calculating return on investment for development programs and growth initiatives; |
• | comparing performance with internal forecasts and targeted business models; and |
• | evaluating and valuing potential acquisition candidates. |
• | Acquisition-related charges. Acquisition-related charges include the amortization of purchased intangible assets and the amortization of acquired inventory valuation step-up (as well as the impairment of goodwill and purchased intangible assets primarily consisting of developed technology and in-process research and development assets). These charges are not factored into management’s evaluation of potential acquisitions, or of the Company’s performance after completion of acquisitions, because they do not affect the Company’s current cash position, are not related to core operating performance and had Broadcom internally developed the technology acquired, the amortization of intangible assets would have been expensed in prior periods. In addition, the frequency and amount of such charges vary significantly based on the timing and magnitude of the Company’s acquisition transactions, the maturities of the businesses being acquired, and depending on the nature of the consideration paid in connection with acquisitions, the then fair market value of Broadcom’s Class A common stock. |
• | Stock-based compensation. Stock-based compensation relates primarily to employee stock options and restricted stock units issued by Broadcom. Stock-based compensation expense is a non-cash expense (not reflected in ongoing operating results) that varies in amount from period to period and is affected by market forces that are difficult to predict and are not within the control of management, such as the price of Broadcom’s Class A common stock. Stock-based compensation is different from cash compensation in that the latter has a fixed and determinable cost. For example, the expense associated with an equity award is most often unrelated to the amount of compensation ultimately received by the employee. Further, the cost to the Company is based on a stock-based compensation valuation methodology and underlying assumptions that may vary over time and that does not reflect any cash expenditures by the Company. Finally, the expense recognized by the Company may be very different than the expense to other companies for awarding comparable equity awards, which makes it difficult to assess the Company’s operating performance relative to its competitors. Accordingly, management excludes this item from its internal operating forecasts and models. Broadcom takes into account the dilutive impact of stock options and shares issued pursuant to its stock-based compensation plans at the aggregate company level, but regularly excludes stock-based compensation expense when analyzing individual line items on the Company’s financial statements or when making decisions that affect Broadcom’s various businesses. |
• | Employer payroll tax expense. Employer payroll tax expense on certain equity awards varies greatly in amount from period-to-period and is significantly impacted by factors that are difficult to predict and are not within the control of management, such as the timing, number and magnitude of employee stock option exercises and the fair market value of Broadcom’s Class A common stock at the time of exercise. |
• | Other charges and gains. Other charges and gains consist of impairment of other long-lived assets, settlement costs (gains), restructuring costs (reversals), charitable contributions, and gains (losses) on strategic investments, all of which occur on a sporadic basis and vary greatly in amount. Management excludes these items when evaluating the Company’s operating performance because these amounts do not affect core operations and because the frequency and variability in the nature of the charges can vary significantly from period to period. Excluding this data provides investors with a basis to compare the Company’s performance against the performance of other companies without this variability. |
• | Income tax expense (benefit). Represents the reversal of a portion of our valuation allowance that was directly related to the establishment of a deferred tax liability associated with the step-up of acquired identifiable intangible assets allocated to jurisdictions in which the statutory tax rate is above zero, as well as tax benefits resulting from the reduction of certain foreign deferred tax liabilities due to the impairment of long-lived assets. |
• | Although amortization and impairment of purchased intangible assets do not directly affect the Company’s current cash position, such expense represents the declining value of the technology and other intangible assets that were acquired. These assets are amortized over their respective expected economic lives or impaired, when appropriate. The expense associated with this decline in value is excluded from these non-GAAP financial measures, and therefore these non-GAAP financial measures do not reflect the costs of acquired intangible assets that supplement the Company’s research and development efforts. |
• | Non-GAAP financial measures do not include stock-based compensation expense related to equity awards granted to the Company’s workforce. Broadcom’s stock incentive plans are important components of its employee incentive compensation arrangements and are reflected as expenses in Broadcom’s GAAP results. While the Company includes the dilutive impact of such equity awards in weighted average shares outstanding, the expense associated with stock-based awards is excluded from these non-GAAP financial measures. |
• | Broadcom periodically acquires and assimilates other companies or businesses, and expects to continue to experience acquisition-related charges in the future. Broadcom also periodically enters into settlement agreements in connection with various litigation matters. These costs can directly impact the amount of available funds or could be dilutive to shareholders in the future. |
(d) | Exhibits. |
BROADCOM CORPORATION, | ||
a California corporation | ||
July 23, 2013 | By: | /s/ Eric K. Brandt |
Eric K. Brandt | ||
Executive Vice President and | ||
Chief Financial Officer |
Second Quarter 2013 Results | GAAP | Non-GAAP | ||
Total net revenue | $2.09 billion | |||
Net income (loss) per share | $(.43) | $.70 | ||
(including $.87 of acquisition-related impairment charge) | ($.02 better than First Call consensus) |
• | Our quarterly operating results may fluctuate significantly. |
• | We depend on a few significant customers for a substantial portion of our revenue. |
• | We face intense competition. |
• | We manufacture and sell complex products and may be unable to successfully develop and introduce new products. |
• | Our operating results may be adversely impacted by worldwide economic uncertainties and specific conditions in the markets we address. |
• | We may fail to adjust our operations in response to changes in demand. |
• | We face risks associated with our acquisition strategy. |
• | We may be required to defend against alleged infringement of intellectual property rights of others and/or may be unable to adequately protect or enforce our own intellectual property rights. |
• | Our business is subject to potential tax liabilities. |
• | We are subject to order and shipment uncertainties. |
• | We depend on third parties to fabricate, assemble and test our products. |
• | Our stock price is highly volatile. |
• | We are exposed to risks associated with our international operations. |
• | Our systems are subject to security breaches and other cybersecurity incidents. |
• | There can be no assurance that we will continue to declare cash dividends. |
• | We may be unable to attract, retain or motivate key personnel. |
• | Government regulation may adversely affect our business. |
• | Our articles of incorporation and bylaws contain anti-takeover provisions. |
• | Our co-founders and their affiliates may strongly influence the outcome of matters that require the approval of our shareholders. |
BROADCOM CORPORATION | |||||||||||||||||||
Unaudited GAAP Condensed Consolidated Statements of Operations | |||||||||||||||||||
(In millions, except per share amounts) | |||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | ||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||
Net revenue: | |||||||||||||||||||
Product revenue | $ | 2,035 | $ | 1,954 | $ | 1,917 | $ | 3,989 | $ | 3,687 | |||||||||
Income from Qualcomm Agreement | 43 | 43 | 48 | 86 | 100 | ||||||||||||||
Licensing revenue | 12 | 8 | 6 | 20 | 11 | ||||||||||||||
Total net revenue | 2,090 | 2,005 | 1,971 | 4,095 | 3,798 | ||||||||||||||
Costs and expenses: | |||||||||||||||||||
Cost of product revenue | 1,030 | 988 | 1,021 | 2,018 | 1,939 | ||||||||||||||
Research and development | 619 | 615 | 582 | 1,234 | 1,128 | ||||||||||||||
Selling, general and administrative | 174 | 179 | 171 | 353 | 350 | ||||||||||||||
Amortization of purchased intangible assets | 14 | 15 | 33 | 29 | 50 | ||||||||||||||
Impairments of long-lived assets | 501 | 10 | 9 | 511 | 37 | ||||||||||||||
Restructuring costs, net | — | — | 1 | — | 4 | ||||||||||||||
Settlement costs | — | — | 2 | — | 88 | ||||||||||||||
Total operating costs and expenses | 2,338 | 1,807 | 1,819 | 4,145 | 3,596 | ||||||||||||||
Income (loss) from operations | (248 | ) | 198 | 152 | (50 | ) | 202 | ||||||||||||
Interest expense, net | (9 | ) | (8 | ) | (7 | ) | (17 | ) | (13 | ) | |||||||||
Other income, net | 3 | 3 | 7 | 6 | 6 | ||||||||||||||
Income (loss) before income taxes | (254 | ) | 193 | 152 | (61 | ) | 195 | ||||||||||||
Provision for (benefit of) income taxes | (3 | ) | 2 | (8 | ) | (1 | ) | (53 | ) | ||||||||||
Net income (loss) | $ | (251 | ) | $ | 191 | $ | 160 | $ | (60 | ) | $ | 248 | |||||||
Net income (loss) per share (basic) | $ | (0.43 | ) | $ | 0.34 | $ | 0.29 | $ | (0.10 | ) | $ | 0.45 | |||||||
Net income (loss) per share (diluted) | $ | (0.43 | ) | $ | 0.33 | $ | 0.28 | $ | (0.10 | ) | $ | 0.43 | |||||||
Weighted average shares (basic) | 578 | 570 | 555 | 574 | 551 | ||||||||||||||
Weighted average shares (diluted) | 578 | 585 | 575 | 574 | 572 | ||||||||||||||
Dividends per share | $ | 0.11 | $ | 0.11 | $ | 0.10 | $ | 0.22 | $ | 0.20 |
Three Months Ended | Six Months Ended | ||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | ||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||
Cost of product revenue | $ | 6 | $ | 7 | $ | 6 | $ | 13 | $ | 15 | |||||||||
Research and development | 95 | 99 | 95 | 194 | 189 | ||||||||||||||
Selling, general and administrative | 35 | 34 | 36 | 69 | 83 |
BROADCOM CORPORATION | |||||||||||||||
Unaudited Condensed Consolidated Statements of Cash Flows | |||||||||||||||
(In millions) | |||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Operating activities | |||||||||||||||
Net income (loss) | $ | (251 | ) | $ | 160 | $ | (60 | ) | $ | 248 | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 39 | 29 | 78 | 57 | |||||||||||
Stock-based compensation expense | 136 | 137 | 276 | 287 | |||||||||||
Acquisition-related items: | |||||||||||||||
Amortization of purchased intangible assets | 58 | 89 | 116 | 143 | |||||||||||
Impairments of long-lived assets | 501 | 9 | 511 | 37 | |||||||||||
Gain on strategic investments and other | (1 | ) | (3 | ) | (1 | ) | (3 | ) | |||||||
Changes in operating assets and liabilities, net of acquisitions: | |||||||||||||||
Accounts receivable | (10 | ) | (47 | ) | (21 | ) | (98 | ) | |||||||
Inventory | (87 | ) | (45 | ) | (83 | ) | (7 | ) | |||||||
Prepaid expenses and other assets | 7 | 1 | (27 | ) | (10 | ) | |||||||||
Accounts payable | (17 | ) | 99 | 92 | 151 | ||||||||||
Deferred revenue and income | (7 | ) | (5 | ) | (9 | ) | (14 | ) | |||||||
Accrued settlement costs | (38 | ) | (36 | ) | (41 | ) | 51 | ||||||||
Other accrued and long-term liabilities | 4 | (39 | ) | (109 | ) | (125 | ) | ||||||||
Net cash provided by operating activities | 334 | 349 | 722 | 717 | |||||||||||
Investing activities | |||||||||||||||
Net purchases of property and equipment | (67 | ) | (50 | ) | (108 | ) | (124 | ) | |||||||
Net cash paid for acquired companies | — | (179 | ) | — | (3,572 | ) | |||||||||
Sales of strategic investments | — | 3 | — | 3 | |||||||||||
Purchases of marketable securities | (917 | ) | (380 | ) | (1,536 | ) | (714 | ) | |||||||
Proceeds from sales and maturities of marketable securities | 566 | 299 | 1,105 | 1,005 | |||||||||||
Net cash used in investing activities | (418 | ) | (307 | ) | (539 | ) | (3,402 | ) | |||||||
Financing activities | |||||||||||||||
Repurchases of Class A common stock | (110 | ) | — | (217 | ) | — | |||||||||
Dividends paid | (64 | ) | (56 | ) | (127 | ) | (111 | ) | |||||||
Payment of assumed contingent consideration | — | — | — | (53 | ) | ||||||||||
Proceeds from issuance of common stock | 199 | 94 | 267 | 156 | |||||||||||
Minimum tax withholding paid on behalf of employees for restricted stock units | (38 | ) | (43 | ) | (78 | ) | (91 | ) | |||||||
Net cash used in financing activities | (13 | ) | (5 | ) | (155 | ) | (99 | ) | |||||||
Increase (decrease) in cash and cash equivalents | (97 | ) | 37 | 28 | (2,784 | ) | |||||||||
Cash and cash equivalents at beginning of period | 1,742 | 1,325 | 1,617 | 4,146 | |||||||||||
Cash and cash equivalents at end of period | $ | 1,645 | $ | 1,362 | $ | 1,645 | $ | 1,362 |
BROADCOM CORPORATION | |||||||
Unaudited Condensed Consolidated Balance Sheets | |||||||
(In millions) | |||||||
June 30, 2013 | December 31, 2012 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,645 | $ | 1,617 | |||
Short-term marketable securities | 836 | 757 | |||||
Accounts receivable, net | 761 | 740 | |||||
Inventory | 610 | 527 | |||||
Prepaid expenses and other current assets | 143 | 140 | |||||
Total current assets | 3,995 | 3,781 | |||||
Property and equipment, net | 517 | 485 | |||||
Long-term marketable securities | 1,696 | 1,348 | |||||
Goodwill | 3,731 | 3,726 | |||||
Purchased intangible assets, net | 1,164 | 1,786 | |||||
Other assets | 105 | 82 | |||||
Total assets | $ | 11,208 | $ | 11,208 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Current portion of long-term debt | $ | 300 | $ | 300 | |||
Accounts payable | 638 | 549 | |||||
Wages and related benefits | 166 | 241 | |||||
Deferred revenue and income | 20 | 22 | |||||
Accrued liabilities | 538 | 570 | |||||
Total current liabilities | 1,662 | 1,682 | |||||
Long-term debt | 1,394 | 1,393 | |||||
Other long-term liabilities | 256 | 294 | |||||
Commitments and contingencies | |||||||
Shareholders' equity | 7,896 | 7,839 | |||||
Total liabilities and shareholders’ equity | $ | 11,208 | $ | 11,208 |
UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION | |||||||||||
(In millions) | |||||||||||
June 30, 2013 | March 31, 2013 | December 31, 2012 | |||||||||
Cash and cash equivalents | $ | 1,645 | $ | 1,742 | $ | 1,617 | |||||
Short-term marketable securities | 836 | 727 | 757 | ||||||||
Long-term marketable securities | 1,696 | 1,457 | 1,348 | ||||||||
Total cash, cash equivalents and marketable securities | $ | 4,177 | $ | 3,926 | $ | 3,722 | |||||
Increase from prior period end | $ | 251 | |||||||||
Increase from prior year end | $ | 455 |
BROADCOM CORPORATION | |||||||||||||||||||
Unaudited Schedule of Selected GAAP to Non-GAAP Adjustments | |||||||||||||||||||
(In millions) | |||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | ||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||
Product revenue | $ | 2,035 | $ | 1,954 | $ | 1,917 | $ | 3,989 | $ | 3,687 | |||||||||
GAAP cost of product revenue | 1,030 | 988 | 1,021 | 2,018 | 1,939 | ||||||||||||||
GAAP product gross profit | $ | 1,005 | $ | 966 | $ | 896 | $ | 1,971 | $ | 1,748 | |||||||||
GAAP product gross margin | 49.4 | % | 49.4 | % | 46.7 | % | 49.4 | % | 47.4 | % | |||||||||
GAAP cost of product revenue | $ | 1,030 | $ | 988 | $ | 1,021 | $ | 2,018 | $ | 1,939 | |||||||||
Adjustments: | |||||||||||||||||||
Stock-based compensation and related payroll taxes | (6 | ) | (7 | ) | (6 | ) | (13 | ) | (15 | ) | |||||||||
Amortization of purchased intangible assets and step-up of acquired inventory | (44 | ) | (44 | ) | (99 | ) | (88 | ) | (158 | ) | |||||||||
Non-GAAP cost of product revenue | $ | 980 | $ | 937 | $ | 916 | $ | 1,917 | $ | 1,766 | |||||||||
Product revenue | $ | 2,035 | $ | 1,954 | $ | 1,917 | $ | 3,989 | $ | 3,687 | |||||||||
Non-GAAP cost of product revenue | 980 | 937 | 916 | 1,917 | 1,766 | ||||||||||||||
Non-GAAP product gross profit | $ | 1,055 | $ | 1,017 | $ | 1,001 | $ | 2,072 | $ | 1,921 | |||||||||
Non-GAAP product gross margin | 51.8 | % | 52.0 | % | 52.2 | % | 51.9 | % | 52.1 | % | |||||||||
GAAP research and development and selling, general and administrative expense | $ | 793 | $ | 794 | $ | 753 | $ | 1,587 | $ | 1,478 | |||||||||
Adjustments: | |||||||||||||||||||
Stock-based compensation and related payroll taxes | (131 | ) | (135 | ) | (133 | ) | (266 | ) | (276 | ) | |||||||||
Non-GAAP research and development and selling, general and administrative expense | $ | 662 | $ | 659 | $ | 620 | $ | 1,321 | $ | 1,202 |
BROADCOM CORPORATION | |||||||||||||||||||
Unaudited Schedule of Selected GAAP to Non-GAAP Adjustments | |||||||||||||||||||
(In millions) | |||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||
June 30, | March 31, | June 30, | June 30, | ||||||||||||||||
2013 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||
GAAP net income (loss) | $ | (251 | ) | $ | 191 | $ | 160 | $ | (60 | ) | $ | 248 | |||||||
Adjustments: | |||||||||||||||||||
Stock-based compensation and related payroll taxes | 137 | 142 | 139 | 279 | 291 | ||||||||||||||
Amortization of purchased intangible assets and step-up of acquired inventory | 58 | 59 | 132 | 117 | 208 | ||||||||||||||
Impairment of long-lived assets | 501 | 10 | 9 | 511 | 37 | ||||||||||||||
Settlement costs | — | — | 2 | — | 88 | ||||||||||||||
Restructuring costs, net | — | — | 1 | — | 4 | ||||||||||||||
Other income, net | (1 | ) | — | (3 | ) | (1 | ) | (3 | ) | ||||||||||
Certain income tax expense (benefit) | (8 | ) | (2 | ) | (5 | ) | (10 | ) | (51 | ) | |||||||||
Total GAAP to Non-GAAP adjustments | 687 | 209 | 275 | 896 | 574 | ||||||||||||||
Non-GAAP net income | $ | 436 | $ | 400 | $ | 435 | $ | 836 | $ | 822 | |||||||||
Shares used in calculation - diluted (GAAP) | 578 | 585 | 575 | 574 | 572 | ||||||||||||||
Non-GAAP adjustment * | 44 | 29 | 29 | 44 | 27 | ||||||||||||||
Shares used in calculation - diluted (Non-GAAP) | 622 | 614 | 604 | 618 | 599 | ||||||||||||||
GAAP diluted net income (loss) per share | $ | (0.43 | ) | $ | 0.33 | $ | 0.28 | $ | (0.10 | ) | $ | 0.43 | |||||||
Non-GAAP diluted net income per share | $ | 0.70 | $ | 0.65 | $ | 0.72 | $ | 1.35 | $ | 1.37 |
Three Months Ending | |
September 30, 2013 | |
Total net revenue | ~$2.05 to ~$2.20 billion |
Product gross margin (GAAP and Non-GAAP) | Up roughly a half point from Q2'13 |
Research & development and selling, general, and administrative expenses (GAAP) | Down ~$5 million to up ~$15 million from Q2’13 |
Research & development and selling, general, and administrative expenses (Non-GAAP) | Flat to up ~$20 million from Q2’13 |
Broadcom Business Press Contact | Broadcom Investor Relations Contact |
Karen Kahn | Chris Zegarelli |
Vice President, Corporate Communications | Senior Director, Investor Relations |
415-297-5035 | 949-926-7567 |
kkahn@broadcom.com | czegarel@broadcom.com |
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