Kentucky | 001-37884 | 30-0939371 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. 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)) | |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). |
Emerging growth company | ☐ | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Item 2.02. | Results of Operations and Financial Condition |
Item 7.01. | Regulation FD Disclosure |
Item 9.01. | Financial Statements and Exhibits |
(d) | Exhibits | |
99.1 |
VALVOLINE INC. | ||
Date: May 2, 2018 | By: | /s/ Mary E. Meixelsperger |
Mary E. Meixelsperger | ||
Chief Financial Officer |
NEWS RELEASE |
• | Reported net income of $67 million and earnings per diluted share (EPS) of $0.33 |
• | Adjusted EPS of $0.34 and a 6 percent increase in adjusted EBITDA to $122 million |
• | Lubricant volume growth of 1 percent to 45.5 million gallons |
• | VIOC system-wide SSS growth of 9.6 percent |
• | Repurchased 3.7 million shares for $87 million |
• | Narrows adjusted EBITDA guidance to $480 to $490 million |
• | Lubricant volume was flat at 24.6 million gallons |
• | Branded premium mix increased 320 basis points to 49.7% |
• | Operating income declined 19% to $46 million, EBITDA declined 17% to $50 million |
• | VIOC SSS increased 9.6% overall, 11.2% for company-owned stores and 8.5% for franchised stores |
• | Operating income grew 23% to $38 million and EBITDA grew 28% to $46 million |
• | VIOC ended the quarter with 1,141 total stores, a net increase of 2 during the period and 33 over the prior year |
• | Lubricant volume grew 1% to 15.0 million gallons, 3% including unconsolidated joint ventures |
• | Lubricant volume from unconsolidated joint ventures grew 5%, to 9.6 million gallons |
• | Operating income grew 33% to $24 million, EBITDA grew 37% to $26 million |
• | Total debt of approximately $1.2 billion and net debt of approximately $1.1 billion |
• | Year-to-date cash flow from operations of $108 million and free cash flow of $78 million |
• | Repurchased 3.7 million shares for $87 million in the second quarter |
Updated Outlook | Prior Outlook | |
Operating Segments | ||
Lubricant gallons | no change | 3-4% |
Revenues | no change | 10-12% |
New stores | ||
VIOC company-owned (excluding franchise conversions) | no change | 23-25 |
VIOC franchised (excluding franchise conversions) | no change | 25-35 |
VIOC same-store sales | 6.5-7.5% | 5-7% |
Adjusted EBITDA (excluding pension & OPEB income) | $480-$490 million | $480-$500 million |
Corporate Items | ||
Pension & OPEB income (excluding remeasurements) | no change | $40 million |
Adjusted effective tax rate | no change | 27-28% |
Diluted adjusted EPS (excluding pension & OPEB income) | $1.31-$1.38 | $1.30-$1.38 |
Capital expenditures | $85-$95 million | $80-$90 million |
Free cash flow | $260-$280 million | $260-$290 million |
• | EBITDA, which management defines as net income/loss, plus income tax expense/benefit, net interest and other financing expenses, and depreciation and amortization; |
• | Adjusted EBITDA, which management defines as EBITDA adjusted for certain non-operational items, including net pension and other postretirement plan non-service income and remeasurement adjustments; impairment of equity investment; and other items (which can include costs related to the separation from Ashland, impact of significant acquisitions or divestitures, restructuring costs, or other non-operational income/costs not directly attributable to the underlying business); |
• | Free cash flow, which management defines as operating cash flows less capital expenditures and certain other adjustments as applicable; |
• | Adjusted net income, which management defines as net income/loss adjusted for certain key items impacting comparability as noted in the definition of Adjusted EBITDA, above, as well as the estimated net impact of the enactment of tax reform; and |
• | Adjusted EPS, which management defines as earnings per diluted share calculated using adjusted net income. |
Valvoline Inc. and Consolidated Subsidiaries | Table 1 | |||||||||||||||
STATEMENTS OF CONSOLIDATED INCOME | ||||||||||||||||
(In millions except per share data - preliminary and unaudited) | ||||||||||||||||
Three months ended | Six months ended | |||||||||||||||
March 31 | March 31 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Sales | $ | 569 | $ | 514 | $ | 1,114 | $ | 1,003 | ||||||||
Cost of sales | 362 | 316 | 712 | 620 | ||||||||||||
GROSS PROFIT | 207 | 198 | 402 | 383 | ||||||||||||
Selling, general and administrative expenses | 111 | 97 | 218 | 192 | ||||||||||||
Legacy and separation-related expenses, net | 8 | 6 | 17 | 12 | ||||||||||||
Equity and other income | (12 | ) | (5 | ) | (21 | ) | (15 | ) | ||||||||
OPERATING INCOME | 100 | 100 | 188 | 194 | ||||||||||||
Net pension and other postretirement plan non-service income and remeasurement adjustments | (10 | ) | (17 | ) | (20 | ) | (43 | ) | ||||||||
Net interest and other financing expenses | 16 | 8 | 30 | 18 | ||||||||||||
INCOME BEFORE INCOME TAXES | 94 | 109 | 178 | 219 | ||||||||||||
Income tax expense | 27 | 38 | 121 | 76 | ||||||||||||
NET INCOME | $ | 67 | $ | 71 | $ | 57 | $ | 143 | ||||||||
NET EARNINGS PER SHARE | ||||||||||||||||
BASIC | $ | 0.33 | $ | 0.35 | $ | 0.28 | $ | 0.70 | ||||||||
DILUTED | $ | 0.33 | $ | 0.35 | $ | 0.28 | $ | 0.70 | ||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||||||
BASIC | 200 | 205 | 201 | 205 | ||||||||||||
DILUTED | 200 | 205 | 202 | 205 | ||||||||||||
Valvoline Inc. and Consolidated Subsidiaries | Table 2 | |||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||
(In millions - preliminary and unaudited) | ||||||||||
March 31 | September 30 | |||||||||
2018 | 2017 | |||||||||
ASSETS | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ | 127 | $ | 201 | ||||||
Accounts receivable, net | 435 | 385 | ||||||||
Inventories, net | 194 | 175 | ||||||||
Other current assets | 39 | 29 | ||||||||
Total current assets | 795 | 790 | ||||||||
Noncurrent assets | ||||||||||
Property, plant and equipment, net | 390 | 391 | ||||||||
Goodwill and intangibles, net | 396 | 335 | ||||||||
Equity method investments | 34 | 30 | ||||||||
Deferred income taxes | 171 | 281 | ||||||||
Other noncurrent assets | 83 | 88 | ||||||||
Total noncurrent assets | 1,074 | 1,125 | ||||||||
Total assets | $ | 1,869 | $ | 1,915 | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||
Current liabilities | ||||||||||
Short-term debt | $ | — | $ | 75 | ||||||
Current portion of long-term debt | 23 | 15 | ||||||||
Trade and other payables | 194 | 192 | ||||||||
Accrued expenses and other liabilities | 198 | 196 | ||||||||
Total current liabilities | 415 | 478 | ||||||||
Noncurrent liabilities | ||||||||||
Long-term debt | 1,183 | 1,034 | ||||||||
Employee benefit obligations | 316 | 342 | ||||||||
Other noncurrent liabilities | 181 | 178 | ||||||||
Total noncurrent liabilities | 1,680 | 1,554 | ||||||||
Stockholders’ deficit | (226 | ) | (117 | ) | ||||||
Total liabilities and stockholders' deficit | $ | 1,869 | $ | 1,915 |
Valvoline Inc. and Consolidated Subsidiaries | Table 3 | ||||||||
STATEMENTS OF CONSOLIDATED CASH FLOWS | |||||||||
(In millions - preliminary and unaudited) | |||||||||
Six months ended | |||||||||
March 31 | |||||||||
2018 | 2017 | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||
Net income | $ | 57 | $ | 143 | |||||
Adjustments to reconcile net income to cash flows from operating activities | |||||||||
Depreciation and amortization | 25 | 18 | |||||||
Debt issuance cost and discount amortization | 1 | 2 | |||||||
Deferred income taxes | 65 | — | |||||||
Equity income from affiliates | (9 | ) | (7 | ) | |||||
Distributions from equity affiliates | 5 | 3 | |||||||
Pension contributions | (9 | ) | (10 | ) | |||||
Gain on pension and other postretirement plan remeasurements | — | (8 | ) | ||||||
Gain on sale of assets | (4 | ) | — | ||||||
Foreign currency exchange loss | 1 | — | |||||||
Stock-based compensation expense | 7 | 3 | |||||||
Change in operating assets and liabilities (a) | (31 | ) | (74 | ) | |||||
Total cash provided by operating activities | 108 | 70 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
Additions to property, plant and equipment | (30 | ) | (27 | ) | |||||
Acquisitions, net of cash acquired | (67 | ) | (48 | ) | |||||
Proceeds from sale of operations | 5 | — | |||||||
Other investing activities, net | 1 | (1 | ) | ||||||
Total cash used in investing activities | (91 | ) | (76 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
Net transfers to Ashland | — | (2 | ) | ||||||
Proceeds from borrowings, net of issuance costs | 95 | 75 | |||||||
Repayments on borrowings | (15 | ) | (83 | ) | |||||
Repurchases of common stock | (123 | ) | — | ||||||
Purchase of additional ownership in subsidiary | (15 | ) | — | ||||||
Cash dividends paid | (30 | ) | (20 | ) | |||||
Other financing activities | (5 | ) | — | ||||||
Total cash used in financing activities | (93 | ) | (30 | ) | |||||
Effect of currency exchange rate changes on cash and cash equivalents | 2 | (1 | ) | ||||||
DECREASE IN CASH AND CASH EQUIVALENTS | (74 | ) | (37 | ) | |||||
Cash and cash equivalents - beginning of period | 201 | 172 | |||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 127 | $ | 135 | |||||
(a) | Excludes changes resulting from operations acquired or sold. |
Valvoline Inc. and Consolidated Subsidiaries | Table 4 | ||||||||||||||||||||||||||||||
FINANCIAL INFORMATION BY OPERATING SEGMENT | |||||||||||||||||||||||||||||||
(In millions - preliminary and unaudited) | |||||||||||||||||||||||||||||||
Three months ended | |||||||||||||||||||||||||||||||
March 31 | |||||||||||||||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||||||||||
Sales | Operating income (loss) | Depreciation and amortization | EBITDA | Sales | Operating income (loss) | Depreciation and amortization | EBITDA | ||||||||||||||||||||||||
Core North America | $ | 258 | $ | 46 | $ | 4 | $ | 50 | $ | 253 | $ | 57 | $ | 3 | $ | 60 | |||||||||||||||
Quick Lubes | 158 | 38 | 8 | 46 | 128 | 31 | 5 | 36 | |||||||||||||||||||||||
International | 153 | 24 | 2 | 26 | 133 | 18 | 1 | 19 | |||||||||||||||||||||||
Total operating segments | 569 | 108 | 14 | 122 | 514 | 106 | 9 | 115 | |||||||||||||||||||||||
Unallocated and other (a) | (8 | ) | 2 | (6 | ) | 11 | |||||||||||||||||||||||||
Total results | 569 | 100 | 14 | 124 | 514 | 100 | 9 | 126 | |||||||||||||||||||||||
Key items: | |||||||||||||||||||||||||||||||
Pension and other postretirement plan non-service income | — | (10 | ) | — | (17 | ) | |||||||||||||||||||||||||
Legacy and separation-related expenses, net | 8 | 8 | 6 | 6 | |||||||||||||||||||||||||||
Adjusted results | $ | 569 | $ | 108 | $ | 14 | $ | 122 | $ | 514 | $ | 106 | $ | 9 | $ | 115 | |||||||||||||||
Six months ended | |||||||||||||||||||||||||||||||
March 31 | |||||||||||||||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||||||||||
Sales | Operating income (loss) | Depreciation and amortization | EBITDA | Sales | Operating income (loss) | Depreciation and amortization | EBITDA | ||||||||||||||||||||||||
Core North America | $ | 509 | $ | 89 | $ | 8 | $ | 97 | $ | 490 | $ | 108 | $ | 6 | $ | 114 | |||||||||||||||
Quick Lubes | 312 | 73 | 14 | 87 | 255 | 60 | 10 | 70 | |||||||||||||||||||||||
International | 293 | 43 | 3 | 46 | 258 | 38 | 2 | 40 | |||||||||||||||||||||||
Total operating segments | 1,114 | 205 | 25 | 230 | 1,003 | 206 | 18 | 224 | |||||||||||||||||||||||
Unallocated and other (a) | (17 | ) | 3 | (12 | ) | 31 | |||||||||||||||||||||||||
Total results | 1,114 | 188 | 25 | 233 | 1,003 | 194 | 18 | 255 | |||||||||||||||||||||||
Key items: | |||||||||||||||||||||||||||||||
Pension and other postretirement plan non-service income | — | (20 | ) | — | (35 | ) | |||||||||||||||||||||||||
Legacy and separation-related expenses, net | 17 | 17 | 12 | 12 | |||||||||||||||||||||||||||
Gain on pension and other postretirement plan remeasurements | — | — | — | (8 | ) | ||||||||||||||||||||||||||
Adjusted results | $ | 1,114 | $ | 205 | $ | 25 | $ | 230 | $ | 1,003 | $ | 206 | $ | 18 | $ | 224 | |||||||||||||||
(a) Unallocated and other includes pension and other postretirement plan non-service income and remeasurement adjustments, separation costs and certain other corporate and non-operational costs. | |||||||||||||||||||||||||||||||
Valvoline Inc. and Consolidated Subsidiaries | Table 5 | ||||||||||||
INFORMATION BY OPERATING SEGMENT | |||||||||||||
(In millions - preliminary and unaudited) | |||||||||||||
Three months ended | Six months ended | ||||||||||||
March 31 | March 31 | ||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||
CORE NORTH AMERICA | |||||||||||||
Lubricant sales (gallons) | 24.6 | 24.6 | 48.4 | 48.7 | |||||||||
Premium lubricants (percent of U.S. branded volumes) | 49.7 | % | 46.5 | % | 48.8 | % | 45.2 | % | |||||
Gross profit as a percent of sales (a) | 37.6 | % | 42.2 | % | 37.7 | % | 41.6 | % | |||||
QUICK LUBES | |||||||||||||
Lubricant sales (gallons) | 5.9 | 5.5 | 11.6 | 10.8 | |||||||||
Premium lubricants (percent of U.S. branded volumes) | 62.2 | % | 59.5 | % | 61.8 | % | 59.1 | % | |||||
Gross profit as a percent of sales (a) | 40.1 | % | 39.7 | % | 40.3 | % | 39.9 | % | |||||
Valvoline operated same-store sales | 11.2 | % | 2.1 | % | 9.6 | % | 5.7 | % | |||||
Franchised same-store sales | 8.5 | % | 4.7 | % | 8.3 | % | 6.7 | % | |||||
INTERNATIONAL | |||||||||||||
Lubricant sales (gallons) (b) | 15.0 | 14.9 | 29.3 | 28.6 | |||||||||
Lubricant sales (gallons), including unconsolidated joint ventures | 24.6 | 24.0 | 49.7 | 47.0 | |||||||||
Premium lubricants (percent of lubricant volumes) | 26.3 | % | 26.6 | % | 27.0 | % | 27.0 | % | |||||
Gross profit as a percent of sales (a) | 29.6 | % | 30.5 | % | 28.9 | % | 30.6 | % | |||||
(a) | Gross profit as a percent of sales is defined as sales, less cost of sales, divided by sales. | ||||||||||||
(b) | Excludes volumes from unconsolidated joint ventures. |
Valvoline Inc. and Consolidated Subsidiaries | Table 6 | |||||||||||||||
QUICK LUBES STORE INFORMATION | ||||||||||||||||
(Preliminary and unaudited) | ||||||||||||||||
Company-owned | ||||||||||||||||
Second Quarter 2018 | First Quarter 2018 | Fourth Quarter 2017 | Third Quarter 2017 | Second Quarter 2017 | ||||||||||||
Beginning of period | 442 | 384 | 383 | 374 | 347 | |||||||||||
Opened | — | 2 | 2 | 1 | — | |||||||||||
Acquired | 2 | — | 1 | — | 28 | |||||||||||
Net conversions between company-owned and franchise | 1 | 56 | — | 9 | — | |||||||||||
Closed | — | — | (2 | ) | (1 | ) | (1 | ) | ||||||||
End of period | 445 | 442 | 384 | 383 | 374 | |||||||||||
Franchise | ||||||||||||||||
Second Quarter 2018 | First Quarter 2018 | Fourth Quarter 2017 | Third Quarter 2017 | Second Quarter 2017 | ||||||||||||
Beginning of period | 697 | 743 | 730 | 734 | 729 | |||||||||||
Opened | 2 | 11 | 15 | 6 | 7 | |||||||||||
Acquired | — | — | — | — | — | |||||||||||
Net conversions between company-owned and franchise | (1 | ) | (56 | ) | — | (9 | ) | — | ||||||||
Closed | (2 | ) | (1 | ) | (2 | ) | (1 | ) | (2 | ) | ||||||
End of period | 696 | 697 | 743 | 730 | 734 | |||||||||||
Total VIOC Stores | 1,141 | 1,139 | 1,127 | 1,113 | 1,108 | |||||||||||
Express Care | ||||||||||||||||
Second Quarter 2018 | First Quarter 2018 | Fourth Quarter 2017 | Third Quarter 2017 | Second Quarter 2017 | ||||||||||||
Number of locations at end of period | 323 | 320 | 316 | 316 | 313 | |||||||||||
Valvoline Inc. and Consolidated Subsidiaries | Table 7 | ||||||||||||||||
RECONCILIATION OF NON-GAAP DATA - NET INCOME AND DILUTED EARNINGS PER SHARE | |||||||||||||||||
(In millions, except per share data - preliminary and unaudited) | |||||||||||||||||
Three months ended | Six months ended | ||||||||||||||||
March 31 | March 31 | ||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||
Reported net income | $ | 67 | $ | 71 | $ | 57 | $ | 143 | |||||||||
Adjustments: | |||||||||||||||||
Pension and other postretirement plan non-service income | (10 | ) | (17 | ) | (20 | ) | (35 | ) | |||||||||
Legacy and separation-related expenses, net | 8 | 6 | 17 | 12 | |||||||||||||
Gain on pension and other postretirement plan remeasurements | — | — | — | (8 | ) | ||||||||||||
Total adjustments, pre-tax | (2 | ) | (11 | ) | (3 | ) | (31 | ) | |||||||||
Income tax expense of adjustments | 1 | 5 | — | 13 | |||||||||||||
U.S. tax reform legislation | 2 | — | 73 | — | |||||||||||||
Total adjustments, after tax | 1 | (6 | ) | 70 | (18 | ) | |||||||||||
Adjusted net income | $ | 68 | $ | 65 | $ | 127 | $ | 125 | |||||||||
Reported diluted earnings per share | $ | 0.33 | $ | 0.35 | $ | 0.28 | $ | 0.70 | |||||||||
Adjusted diluted earnings per share | $ | 0.34 | $ | 0.32 | $ | 0.63 | $ | 0.61 | |||||||||
Weighted average diluted common shares outstanding | 200 | 205 | 202 | 205 | |||||||||||||
Valvoline Inc. and Consolidated Subsidiaries | Table 8 | ||||||||||||||||
RECONCILIATION OF NON-GAAP DATA - ADJUSTED EBITDA | |||||||||||||||||
(In millions - preliminary and unaudited) | |||||||||||||||||
Three months ended | Six months ended | ||||||||||||||||
March 31 | March 31 | ||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||
Adjusted EBITDA - Valvoline | |||||||||||||||||
Net income | $ | 67 | $ | 71 | $ | 57 | $ | 143 | |||||||||
Add: | |||||||||||||||||
Income tax expense | 27 | 38 | 121 | 76 | |||||||||||||
Net interest and other financing expenses | 16 | 8 | 30 | 18 | |||||||||||||
Depreciation and amortization | 14 | 9 | 25 | 18 | |||||||||||||
EBITDA | 124 | 126 | 233 | 255 | |||||||||||||
Key items: (a) | |||||||||||||||||
Pension and other postretirement plan non-service income | (10 | ) | (17 | ) | (20 | ) | (35 | ) | |||||||||
Legacy and separation-related expenses, net | 8 | 6 | 17 | 12 | |||||||||||||
Gain on pension and other postretirement plan remeasurements | — | — | — | (8 | ) | ||||||||||||
Adjusted EBITDA | $ | 122 | $ | 115 | $ | 230 | $ | 224 | |||||||||
Adjusted EBITDA - Unallocated and Other | |||||||||||||||||
Operating loss | $ | (8 | ) | $ | (6 | ) | $ | (17 | ) | $ | (12 | ) | |||||
Add: | |||||||||||||||||
Depreciation and amortization | — | — | — | — | |||||||||||||
Pension and other postretirement plan non-service income | 10 | 17 | 20 | 35 | |||||||||||||
Gain on pension and other postretirement plan remeasurements | — | — | — | 8 | |||||||||||||
EBITDA | 2 | 11 | 3 | 31 | |||||||||||||
Pension and other postretirement plan non-service income | (10 | ) | (17 | ) | (20 | ) | (35 | ) | |||||||||
Legacy and separation-related expenses, net | 8 | 6 | 17 | 12 | |||||||||||||
Gain on pension and other postretirement plan remeasurements | — | — | — | (8 | ) | ||||||||||||
Adjusted EBITDA | $ | — | $ | — | $ | — | $ | — | |||||||||
(a) All key items were recorded in Unallocated and Other. The table above reconciles Unallocated and Other operating loss and relevant other items below operating loss, as applicable, to EBITDA and Adjusted EBITDA. |
Valvoline Inc. and Consolidated Subsidiaries | Table 9 | ||||||||
RECONCILIATION OF NON-GAAP DATA - FREE CASH FLOW | |||||||||
(In millions - preliminary and unaudited) | |||||||||
Six months ended | |||||||||
March 31 | |||||||||
Free cash flow (a) | 2018 | 2017 | |||||||
Total cash flows provided by operating activities | $ | 108 | $ | 70 | |||||
Adjustments: | |||||||||
Additions to property, plant and equipment | (30 | ) | (27 | ) | |||||
Free cash flow | $ | 78 | $ | 43 | |||||
Fiscal year | |||||||||
Free cash flow (a) | 2018 Outlook | ||||||||
Total cash flows provided by operating activities | $345 - $375 | ||||||||
Adjustments: | |||||||||
Additions to property, plant and equipment | (85 - 95) | ||||||||
Free cash flow | $260 - $280 | ||||||||
(a) | Free cash flow is defined as cash flows from operating activities less capital expenditures and certain other adjustments as applicable. |
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