UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: October 26, 2017
CARPENTER TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
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1-5828 |
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23-0458500 |
(State of or other jurisdiction of |
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(Commission File Number) |
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(IRS Employer I.D. No.) |
1735 Market Street |
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19103 |
(Address of principal executive |
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(Zip Code) |
(610) 208-2000
Registrants telephone number, including area code
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o 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 o
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. o
Item 2.02 - Results of Operations and Financial Condition.
On October 26, 2017, Carpenter Technology Corporation held its first quarter fiscal 2018 earnings call, broadcast live by webcast. A copy of the slides presented during the call are furnished as Exhibit 99.1 to this Form 8-K and shall not be deemed to be filed for any purpose.
Item 9.01 - Financial Statements and Exhibits
(d) |
Exhibits |
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Exhibit No. |
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Description |
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99.1 |
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Slides presented during Carpenter Technology Corporation first quarter fiscal 2018 earnings call |
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 hereunto duly authorized.
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CARPENTER TECHNOLOGY CORPORATION | |
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By |
/s/ Damon J. Audia |
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Damon J. Audia |
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Senior Vice President- Chief Financial Officer |
Date: October 27, 2017
Carpenter Technology Corporation 1st Quarter Fiscal Year 2018 Earnings Call October 26, 2017
Cautionary Statement Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected, anticipated or implied. The most significant of these uncertainties are described in Carpenters filings with the Securities and Exchange Commission, including its report on Form 10-K for the year ended June 30, 2017 and the exhibits attached to those filings. They include but are not limited to: (1) the cyclical nature of the specialty materials business and certain end-use markets, including aerospace, defense, industrial, transportation, consumer, medical, and energy, or other influences on Carpenters business such as new competitors, the consolidation of competitors, customers, and suppliers or the transfer of manufacturing capacity from the United States to foreign countries; (2) the ability of Carpenter to achieve cash generation, growth, earnings, profitability, operating income, cost savings and reductions, qualifications, productivity improvements or process changes; (3) the ability to recoup increases in the cost of energy, raw materials, freight or other factors; (4) domestic and foreign excess manufacturing capacity for certain metals; (5) fluctuations in currency exchange rates; (6) the degree of success of government trade actions; (7) the valuation of the assets and liabilities in Carpenters pension trusts and the accounting for pension plans; (8) possible labor disputes or work stoppages; (9) the potential that our customers may substitute alternate materials or adopt different manufacturing practices that replace or limit the suitability of our products; (10) the ability to successfully acquire and integrate acquisitions; (11) the availability of credit facilities to Carpenter, its customers or other members of the supply chain; (12) the ability to obtain energy or raw materials, especially from suppliers located in countries that may be subject to unstable political or economic conditions; (13) Carpenters manufacturing processes are dependent upon highly specialized equipment located primarily in facilities in Reading and Latrobe, Pennsylvania and Athens, Alabama for which there may be limited alternatives if there are significant equipment failures or a catastrophic event; (14) the ability to hire and retain key personnel, including members of the executive management team, management, metallurgists and other skilled personnel; and (15) fluctuations in oil and gas prices and production. Any of these factors could have an adverse and/or fluctuating effect on Carpenters results of operations. The forward-looking statements in this document are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended. Carpenter undertakes no obligation to update or revise any forward-looking statements. Non-GAAP Financial Measures Some of the information included in this presentation is derived from Carpenters consolidated financial information but is not presented in Carpenters financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Certain of these data are considered non-GAAP financial measures under SEC rules. These non-GAAP financial measures supplement our GAAP disclosures and should not be considered an alternative to the GAAP measure. Reconciliations to the most directly comparable GAAP financial measures and managements rationale for the use of the non-GAAP financial measures can be found in the Appendix to this presentation. © 2017 CRS Holdings, Inc. All rights reserved 2
1st Quarter Fiscal Year 2018 Summary Tony Thene President and Chief Executive Officer
Safety is Our Highest Priority 3.7 3.3 © 2017 CRS Holdings, Inc. All rights reserved 4 Total Case Incident Rate (TCIR) 4.8 3.93.9 3.5 2.12.22.0 1.2 FY09FY10FY11FY12FY13FY14FY15FY16FY17FY18 Q1
1st Quarter Summary platform and sub-market diversity for first time in almost three years incremental capacity © 2017 CRS Holdings, Inc. All rights reserved 5 High level of execution drove strong operational results; EPS of $0.49 marks best first quarter since fiscal year 2014 Growth in Aerospace and Defense end-use market driven by new engine Oil & gas sub-market in early stage of recovery; remain cautiously optimistic Strong quarter by Specialty Alloys Operations (SAO) highlighted by best first quarter margin performance since fiscal year 2014 Performance Engineered Products (PEP) generated solid results despite impact of hurricanes in key markets; Amega West achieves profitability Carpenter Operating Model delivering lower costs and unlocking Solutions-focused approach fueling further backlog growth Athens utilization on track with new business wins and recent completion of oil & gas certifications Maintained solid financial position with no major near-term obligations Performance Driven by Solutions-Focused Approach, Commercial and Manufacturing Execution and Improving Market Conditions
Q1-18 End-Use Market Highlights vs. Q1-17 vs. Q4-17 Q1-18 Net Sales ex. Surcharge ($M)* Comments Sequential results reflect strength across multiple end-use applications 53% Oil & gas sub-market sales up 64% YOY; down sequentially primarily 7% 7% 8% share gains across key growth applications 17% *Excludes sales through Carpenters Distribution businesses © 2017 CRS Holdings, Inc. All rights reserved 6 Sales ex-surcharge up 21% year-over-year and down 7% sequentially due to seasonality +24% -7% Strong year over year (YOY) performance in all major sub-markets including engines, muted by seasonality Mixed demand for fastener materials with uncertain outlook Strong structural/defense sub-market demand driven by specific programs +12% -17% Oil & gas demand maintaining pace with slow market expansion due to sale of oil & gas distribution business Service providers creating ongoing rental opportunities Power generation sub-market down sequentially and YOY due to delays in Industrial Gas Turbine replacement cycle 0% -5% Light vehicle demand stabilizing from FY17 downturn with growth driven from international opportunities Share gains and growing market demand in heavy truck category Sequentially down due to normal OEM summer shutdowns +45% -7% Up YOY in orthopedic and cardiology sub-markets through share gains, order timing and low customer inventory levels Sequential growth in cardiology offset by lower seasonal demand for orthopedic and general surgery products +21% -5% YOY industrial demand growth from downstream oil & gas activity and Consumer sub-market results reflect continued softness in sporting goods offset by increased demand for electronics applications Aerospace and Defense 215.6 Energy 28.8 Transportation 30.6 Medical 33.4 Industrial and Consumer 71.7
1st Quarter Financial Overview & Business Update Damon Audia Senior Vice President and Chief Financial Officer
Income Statement Summary *Detailed schedule included in Non-GAAP Schedules in Appendix © 2017 CRS Holdings, Inc. All rights reserved 8 Improving markets and solid execution drove strongest Q1 operating performance since Q1-14 $ Millions , except pounds and per-s hare am ounts Q1-17 Q4-17 Q1-18 Sequential Change Pounds ('000) Net Sales Sales ex. Surcharge * Gross Profit Selling, General and Administrative Expenses Special Items * Operating Income Operating Income ex. Pension EID and Special Items * % of Sales ex. Surcharge Effective Tax Rate Net (Loss) Income Diluted (Loss) Earnings per Share Adjusted Diluted (Loss) Earnings per Share * 54,180 65,610 63,346 479.8 409.8 85.6 43.9 0.0 41.7 42.2 10.3% 33.5% 23.4 $0.49 $0.49 (2,264) (27.9) (29.1) (7.1) (1.0) (3.2) (2.9) (11.2) -1.9 pts +0.4 pts (2.1) ($0.05) 389.0 339.8 46.0 44.6 0.5 1.4 9.0 2.6% (17.0%) (6.2) ($0.13) ($0.08) 507.7 438.9 92.7 44.9 3.2 44.6 53.4 12.2% 33.1% 25.5 $0.54 $0.58 ($0.09)
Free Cash Flow Summary The clerical accuracy of certain amounts may be impacted due to rounding. *Detailed schedule included in Non-GAAP Schedules in Appendix **Credit facility refinanced in Q3-17 at $400 million with 2022 maturity © 2017 CRS Holdings, Inc. All rights reserved 9 Traditional first quarter working capital build to support second half sales Cash Available Borrowing Under Credit Facility** 51 494 66 394 25 391 Total Liquidity 545 460 416 $ MillionsQ1-17 Q4-17 Q1-18 Net Income + Non-cash Items Inventory Working Capital / Other Total Net Working Capital / Other Pension Plan Contributions Net Cash Provided From (Used For) Operating Activities Purchases of property, equipment and software Divestiture of business Dividends paid Other 80 (33) (43) 74 14 6 61 (46) (18) (76) 0 20 0 (64) (4) 4 (27) 0 (8) 0 94 (35) 12 (9) 2 (7) (29) 0 (9) 0 Free Cash Flow * (31) 64 (45)
SAO Segment Summary © 2017 CRS Holdings, Inc. All rights reserved 10 Q2-18 Outlook Positive trends in most end-use markets Operating income expected to increase up to 5% sequentially; best second quarter performance in four years Q1 Business Results Strong year-over-year sales growth across most end-use markets Favorable mix on year-over-year basis Highest Q1 quarterly operating margin percentage since Q1-14 Carpenter Operating Model delivered year-over-year variable operating cost improvement Q1 Operating Results Q1-17Q4-17 Q1-18 vs Q1-17 vs Q4-17 Pounds ('000)52,36063,062 Net Sales ($M)315.1414.6 Sales ex. Surcharge ($M)266.0345.3 Operating Income ($M)25.059.7 61,190 396.8 325.6 50.5 8,830(1,872) 81.7(17.8) 59.6(19.7) 25.5(9.2) % of Net Sales7.9%14.4% % of Sales ex. Surcharge9.4%17.3% 12.7% 15.5% +4.8 pts-1.7 pts +6.1 pts-1.8 pts
PEP Segment Summary * Pounds related to manufactured tons for Dynamet and Carpenter Powder Products only © 2017 CRS Holdings, Inc. All rights reserved 11 Q2-18 Outlook Relatively consistent rig count levels expected to moderate oil & gas activity Continued strong demand for titanium products Operating income expected to increase 20%-25% sequentially Q1 Business Results Fourth consecutive profitable quarter Operating income negatively impacted by recent natural disasters; short-term disruption with no lasting impact Amega West achieved first profitable quarter since Q2-15 Q1 Operating Results Q1-17Q4-17 Q1-18 vs Q1-17 vs Q4-17 Pounds* ('000)2,4143,298 Net Sales ($M)78.5106.2 Sales ex. Surcharge ($M)78.3105.9 Operating (Loss) Income ($M)(2.8)5.8 3,526 100.7 100.5 5.3 1,112228 22.2(5.5) 22.2(5.4) 8.1(0.5) % of Net Sales(3.6%)5.5% % of Sales ex. Surcharge(3.6%)5.5% 5.3% 5.3% +8.9 pts-0.2 pts +8.9 pts-0.2 pts
1st Quarter Fiscal Year 2018 Closing Comments Tony Thene President and Chief Executive Officer
Additive Manufacturing (AM) Our Value Proposition Disruptive technology with significant growth potential 42% compound annual growth rate (CAGR) market with > $1.6B in materials and services opportunities by 20201 Project 32% CAGR for metal powders through 20212 Value to End-Users Weight savings complexity for free Serial production of high-performance parts Mass customization Increase buy to fly ratio 128+ years in specialty materials Expertise in mission critical applications Engineer unique AM grade powders and wires Supplier of choice for critical 3D printed applications Establishing AM Technology Center and business team Powder-to-part solutions with strategic alliances Jet engine fuel nozzles Rocket thrust chambers Orthopedic implants Solving industrys biggest challenges Powder flowability Final part properties Process reliability / control Densification shape change Next generation alloy development 1 Ernst & Young 3D printing report 2016 © 2017 CRS Holdings, Inc. All rights reserved 2 SmarTech Publishing report 2017 13 Core player in AM today; history and expertise to be irreplaceable solutions provider tomorrow
Closing Comments conditions delivering backlog growth and expanding market attractive sub-markets on positioning the business for the future both SAO and PEP, reducing costs and unlocking capacity manufacturing © 2017 CRS Holdings, Inc. All rights reserved 14 Solid start to fiscal year 2018 and highlights ongoing progress in implementation of strategic plan Solutions-focused commercial approach and improved market opportunities Well positioned in Aerospace and Defense end-use market given participation on new engine platforms and solutions portfolio across Oil & gas sub-market remains uncertain in near-term; remain focused Carpenter Operating Model continues to capture efficiencies across Placing strategic emphasis on core growth areas such as additive Continuing to build foundation for long-term sustainable growth Balance sheet provides flexibility to invest in solutions and teams Strong Start to Fiscal Year 2018; Results Driven by Improving Market Conditions and Ongoing Execution of Commercial and Manufacturing Strategies
Appendix of Non-GAAP Schedules
Non-GAAP Schedules (Unaudited) Adjusted Diluted Earnings per Share Management believes that earnings per share adjusted to exclude the impact of special items is helpful in analyzing the operating performance of the Company, as these items are not indicative of ongoing operating performance. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company's board of directors and others. * Discrete income tax charge recorded in Q1-17 as a result of decision to make a voluntary pension contribution paid in October 2016. © 2017 CRS Holdings, Inc. All rights reserved 16 $ Millions except per share amountsQ1-17Q4-17 Q1-18 Net (Loss) Income Diluted Earnings per Share Loss on sale of business Pension curtailment charge Income tax item * Special Items (6.2) $ (0.13) 25.5 $0.54 23.4 $0.49 - 0.4 2.1 2.1 - - - - - 2.5 2.1 - Net (Loss) Income excluding Special Items Adjusted Diluted (Loss) Earnings per Share (3.7) $ (0.08) 27.6 $0.58 23.4 $0.49
Non-GAAP Schedules (Unaudited) Operating Margin Excluding Surcharge Revenue, Pension Earnings, Interest and Deferrals (Pension EID) and Special Items Management believes that removing the impacts of raw material surcharge from operating margin provides a more consistent basis for comparing results of operations from period to period, thereby permitting management to evaluate performance and investors to make decisions based on the ongoing operations of the Company. In addition, management believes that excluding the impact of pension EID, which may be volatile due to changes in the financial markets, is helpful in analyzing the true operating performance of the Company. Management believes that removing the impact of special items is helpful in analyzing the operating performance of the Company, as these items are not indicative of ongoing operating performance. Management uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company's board of directors and others. © 2017 CRS Holdings, Inc. All rights reserved 17 $ Millions Q1-17Q4-17 Q1-18 Net sales Less: surcharge revenue Consolidated Net Sales Excluding Surcharge Operating income Pension EID Operating Income Excluding Pension EID 389.0 49.2 507.7 68.8 479.8 70.0 339.8 1.4 7.1 438.9 44.6 5.6 409.8 41.7 0.5 8.5 50.2 42.2 Loss on sale of business Pension curtailment charge Special Items Operating Income Excluding Surcharge, Pension EID and Special Items - 0.5 3.2 - - - 0.5 9.0 3.2 53.4 - 42.2 Operating Margin 0.4% 8.8% 8.7% Operating Margin Excluding Surcharge, Pension EID and Special Items 2.6% 12.2% 10.3%
Non-GAAP Free Cash Flow Schedules (Unaudited) Management believes that the free cash flow measure provides useful information to investors regarding our financial condition because it is a measure of cash generated which management evaluates for alternative uses. © 2017 CRS Holdings, Inc. All rights reserved 18 $ MillionsQ1-17Q4-17 Q1-18 Net cash provided from (used for) operating activities Purchases of property, equipment and software Proceeds from sale of business Proceeds from disposals of property and equipment and assets held for sale Dividends paid 4.1 (26.6) - - (8.5) 94.0 (35.4) 12.0 2.5 (8.5) (7.4) (28.9) - - (8.6) Free Cash Flow (31.0) 64.6 (44.9)
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