Delaware (State or other jurisdiction of incorporation) | 001-14989 (Commission File Number) | 25-1723342 (IRS Employer Identification No.) | ||
225 West Station Square Drive Suite 700 Pittsburgh, Pennsylvania (Address of principal executive offices) | 15219 (Zip Code) |
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. |
Item 7.01 | Regulation FD Disclosure. |
WESCO International, Inc. | ||
(Registrant) |
October 26, 2017 | By: | /s/ David S. Schulz |
(Date) | David S. Schulz | |
Senior Vice President and Chief Financial Officer |
NEWS RELEASE | |
WESCO International, Inc. / Suite 700, 225 West Station Square Drive / Pittsburgh, PA 15219 |
• | Net sales were $2.00 billion for the third quarter of 2017, compared to $1.86 billion for the third quarter of 2016, an increase of 7.8%. Organic sales for the third quarter of 2017 grew by 8.6% as foreign exchange rates positively impacted net sales by 0.8% and were more than offset by a 1.6% impact from the number of workdays. Sequentially, net sales increased 4.7% and organic sales increased 4.8%. |
• | Cost of goods sold for the third quarter of 2017 was $1.61 billion and gross profit was $385.4 million, compared to cost of goods sold and gross profit of $1.49 billion and $365.0 million for the third quarter of 2016, respectively. As a percentage of net sales, gross profit was 19.3% and 19.7% for the third quarter of 2017 and 2016, respectively. Sequentially, gross profit as a percentage of net sales increased 10 basis points from 19.2% for the second quarter of 2017. |
• | Selling, general and administrative ("SG&A") expenses were $280.0 million, or 14.0% of net sales, for the third quarter of 2017, compared to $255.5 million, or 13.8% of net sales, for the third quarter of 2016. |
• | Operating profit was $89.3 million for the current quarter, compared to $92.6 million for the third quarter of 2016. Operating profit as a percentage of net sales was 4.5% for the third quarter of 2017, compared to 5.0% for the third quarter of 2016. Sequentially, operating profit as a percentage of net sales increased 10 basis points from 4.4% for the second quarter of 2017. |
• | Interest expense, net for the third quarter of 2017 was $17.3 million, compared to $20.8 million for the third quarter of 2016. Non-cash interest expense for the third quarter of 2017 and 2016, which includes amortization of debt discounts and deferred financing fees, and interest related to uncertain tax positions, was $0.8 million and $1.9 million, respectively. |
• | Loss on debt redemption of $123.9 million for the third quarter of 2016 was the result of a non-cash charge from the early redemption of the Company's 6.0% Convertible Senior Debentures due 2029 on September 15, 2016. |
• | The effective tax rate for the current quarter was 25.5%, compared to 40.5% for the prior year third quarter. As adjusted, the effective tax rate for the third quarter of 2016 was 28.0%. The lower effective tax rate in the current quarter as compared to the adjusted effective tax rate for the prior year's comparable quarter is primarily the result of favorable discrete items and the mix of income earned in jurisdictions with lower tax rates. |
• | Net income attributable to WESCO International, Inc. was $53.7 million for the third quarter of 2017, compared to a net loss of $31.6 million for the third quarter of 2016. Adjusted net income attributable to WESCO International, Inc. was $51.1 million for the third quarter of 2016. |
• | Earnings per diluted share was $1.12 for the third quarter of 2017, based on 47.8 million diluted shares, compared to a loss per diluted share of $0.73 for the third quarter of 2016, based on 43.4 million shares. Adjusted earnings per diluted share for the third quarter of 2016 was $1.05 based on 48.7 million diluted shares. |
• | Operating cash flow for the third quarter of 2017 was $14.3 million, compared to $78.6 million for the third quarter of 2016. The reduction in operating cash flow was primarily driven by an increase in accounts receivable. Free cash flow for the third quarter of 2017 was $8.1 million, or 15% of net income, compared to $72.5 million, or 140% of adjusted net income, for the third quarter of 2016. Additionally, the Company repurchased $50 million of shares in the third quarter of 2017. |
• | Net sales were $5.68 billion for the first nine months of 2017, compared to $5.54 billion for the first nine months of 2016, an increase of 2.5%. Organic sales for the first nine months of 2017 grew by 2.7% as acquisitions had a positive impact on net sales of 0.3% and were more than offset by a 0.5% impact from the number of workdays. |
• | Cost of goods sold for the first nine months of 2017 was $4.58 billion and gross profit was $1.10 billion, compared to cost of goods sold and gross profit of $4.44 billion and $1.10 billion for the first nine months of 2016, respectively. As a percentage of net sales, gross profit was 19.4% and 19.8% for the first nine months of 2017 and 2016, respectively. |
• | Selling, general and administrative ("SG&A") expenses were $814.3 million, or 14.3% of net sales, for the first nine months of 2017, compared to $799.4 million, or 14.4% of net sales, for the first nine months of 2016. |
• | Operating profit was $239.4 million for the first nine months of 2017, compared to $250.0 million for the first nine months of 2016. Operating profit as a percentage of net sales was 4.2% for the first nine months of 2017, compared to 4.5% for the first nine months of 2016. |
• | Interest expense, net for the first nine months of 2017 was $50.8 million, compared to $59.1 million for the first nine months of 2016. Non-cash interest expense for the first nine months of 2017 and 2016, which includes amortization of debt discounts and deferred financing fees, and interest related to uncertain tax positions, was $3.0 million and $6.1 million, respectively. |
• | Loss on debt redemption of $123.9 million for the first nine months of 2016 was the result of a non-cash charge from the early redemption of the Company's 6.0% Convertible Senior Debentures due 2029 on September 15, 2016. |
• | The effective tax rate for the first nine months of 2017 was 25.3%, compared to 20.4% for the first nine months of 2016. As adjusted, the effective tax rate for the first nine months of 2016 was 28.8%. The current year's effective tax rate is lower than the prior year's adjusted effective tax rate primarily due to favorable discrete items, including a benefit from the exercise and vesting of stock-based awards, as well as the mix of income earned in jurisdictions with lower tax rates. |
• | Net income attributable to WESCO International, Inc. was $140.9 million for the first nine months of 2017, compared to $54.2 million for the first nine months of 2016. Adjusted net income attributable to WESCO International, Inc. was $136.9 million for the first nine months of 2016. |
• | Earnings per diluted share for the first nine months of 2017 was $2.90, based on 48.6 million diluted shares, compared to $1.13 for the first nine months of 2016, based on 48.0 million diluted shares. Adjusted earnings per diluted share for 2016 was $2.85. |
• | Operating cash flow for the first nine months of 2017 was $81.1 million, compared to $217.2 million for the first nine months of 2016. The reduction in operating cash flow was primarily driven by an increase in accounts receivable. Free cash flow for the first nine months of 2017 was $65.1 million, or 46% of net income, compared to $204.0 million, or 150% of adjusted net income, for the first nine months of 2016. Additionally, the Company repurchased $100 million of shares in the first nine months of 2017. |
Three Months Ended | |||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||
Net sales | $ | 2,000.2 | $ | 1,855.2 | |||||||
Cost of goods sold (excluding | 1,614.8 | 80.7 | % | 1,490.2 | 80.3 | % | |||||
depreciation and amortization) | |||||||||||
Selling, general and administrative expenses | 280.0 | 14.0 | % | 255.5 | 13.8 | % | |||||
Depreciation and amortization | 16.1 | 16.9 | |||||||||
Income from operations | 89.3 | 4.5 | % | 92.6 | 5.0 | % | |||||
Interest expense, net | 17.3 | 20.8 | |||||||||
Loss on debt redemption | — | 123.9 | |||||||||
Income (loss) before income taxes | 72.0 | 3.6 | % | (52.1 | ) | (2.8 | )% | ||||
Provision for income taxes | 18.4 | (21.1 | ) | ||||||||
Net income (loss) | 53.6 | 2.7 | % | (31.0 | ) | (1.7 | )% | ||||
Net (loss) income attributable to noncontrolling interests | (0.1 | ) | 0.6 | ||||||||
Net income (loss) attributable to WESCO International, Inc. | $ | 53.7 | 2.7 | % | $ | (31.6 | ) | (1.7 | )% | ||
Diluted earnings (loss) per common share | $ | 1.12 | $ | (0.73 | ) | ||||||
Weighted-average common shares outstanding and common | |||||||||||
share equivalents used in computing diluted earnings (loss) | |||||||||||
per share (in millions) | 47.8 | 43.4 |
Nine Months Ended | |||||||||||
September 30, 2017 | September 30, 2016 | ||||||||||
Net sales | $ | 5,682.4 | $ | 5,542.8 | |||||||
Cost of goods sold (excluding | 4,580.9 | 80.6 | % | 4,443.1 | 80.2 | % | |||||
depreciation and amortization) | |||||||||||
Selling, general and administrative expenses | 814.3 | 14.3 | % | 799.4 | 14.4 | % | |||||
Depreciation and amortization | 47.8 | 50.3 | |||||||||
Income from operations | 239.4 | 4.2 | % | 250.0 | 4.5 | % | |||||
Interest expense, net | 50.8 | 59.1 | |||||||||
Loss on debt redemption | — | 123.9 | |||||||||
Income before income taxes | 188.6 | 3.3 | % | 67.0 | 1.2 | % | |||||
Provision for income taxes | 47.7 | 13.7 | |||||||||
Net income | 140.9 | 2.5 | % | 53.3 | 1.0 | % | |||||
Net loss attributable to noncontrolling interests | — | (0.9 | ) | ||||||||
Net income attributable to WESCO International, Inc. | $ | 140.9 | 2.5 | % | $ | 54.2 | 1.0 | % | |||
Earnings per diluted common share | $ | 2.90 | $ | 1.13 | |||||||
Weighted-average common shares outstanding and common | |||||||||||
share equivalents used in computing earnings per diluted | |||||||||||
share (in millions) | 48.6 | 48.0 |
September 30, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 94.1 | $ | 110.1 | |||
Trade accounts receivable, net | 1,236.6 | 1,034.4 | |||||
Inventories | 925.0 | 821.4 | |||||
Other current assets(1) | 154.4 | 137.1 | |||||
Total current assets | 2,410.1 | 2,103.0 | |||||
Other assets(1) | 2,354.3 | 2,328.8 | |||||
Total assets | $ | 4,764.4 | $ | 4,431.8 | |||
Liabilities and Stockholders' Equity | |||||||
Current Liabilities | |||||||
Accounts payable | $ | 838.4 | $ | 684.7 | |||
Current debt and short-term borrowings | 40.9 | 22.1 | |||||
Other current liabilities(1) | 164.1 | 167.0 | |||||
Total current liabilities | 1,043.4 | 873.8 | |||||
Long-term debt | 1,368.3 | 1,363.1 | |||||
Other noncurrent liabilities(1) | 245.5 | 231.3 | |||||
Total liabilities | 2,657.2 | 2,468.2 | |||||
Stockholders' Equity | |||||||
Total stockholders' equity(1) | 2,107.2 | 1,963.6 | |||||
Total liabilities and stockholders' equity | $ | 4,764.4 | $ | 4,431.8 |
(1) | In the third quarter of 2017, management determined that the Company's income taxes receivable and payable and other tax account balances were overstated as of December 31, 2016 by a cumulative net amount of $46.4 million, which related to multiple prior periods. The Company also identified a $10.2 million understatement related to deferred income taxes and goodwill. These misstatements are considered immaterial to the Company's previously issued annual and interim financial statements. The Condensed Consolidated Balance Sheet at December 31, 2016 has been revised, and there was an immaterial effect on the Condensed Consolidated Statements of Income (Loss) for the three and nine months ended September 30, 2016 and no effect on the Condensed Consolidated Statements of Cash Flows for the respective periods presented herein. Periods not presented herein will be revised, as applicable, in future filings. |
Nine Months Ended | |||||||
September 30, 2017 | September 30, 2016 | ||||||
Operating Activities: | |||||||
Net income | $ | 140.9 | $ | 53.3 | |||
Add back (deduct): | |||||||
Depreciation and amortization | 47.8 | 50.3 | |||||
Deferred income taxes | 8.4 | (21.8 | ) | ||||
Change in trade receivables, net | (174.7 | ) | (3.1 | ) | |||
Change in inventories | (86.7 | ) | (7.7 | ) | |||
Change in accounts payable | 138.3 | (30.3 | ) | ||||
Other(1) | 7.1 | 176.5 | |||||
Net cash provided by operating activities | 81.1 | 217.2 | |||||
Investing Activities: | |||||||
Capital expenditures | (16.0 | ) | (13.2 | ) | |||
Acquisition payments | — | (50.7 | ) | ||||
Other | 3.5 | (3.9 | ) | ||||
Net cash used in investing activities | (12.5 | ) | (67.8 | ) | |||
Financing Activities: | |||||||
Debt borrowings (repayments), net | 17.8 | (191.5 | ) | ||||
Equity activity, net | (106.7 | ) | (2.2 | ) | |||
Other | (3.2 | ) | (4.4 | ) | |||
Net cash used in financing activities | (92.1 | ) | (198.1 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | 7.5 | 1.2 | |||||
Net change in cash and cash equivalents | (16.0 | ) | (47.5 | ) | |||
Cash and cash equivalents at the beginning of the period | 110.1 | 160.3 | |||||
Cash and cash equivalents at the end of the period | $ | 94.1 | $ | 112.8 |
(1) | Other operating cash flow activities for the nine months ended September 30, 2016 includes a $123.9 million loss on redemption of the Company's 6.0% Convertible Senior Debentures due 2029. |
Three Months Ended | Nine Months Ended | ||||
Organic Sales Growth: | September 30, 2017 | September 30, 2017 | |||
Change in net sales | 7.8 | % | 2.5 | % | |
Impact from acquisitions | — | % | 0.3 | % | |
Impact from foreign exchange rates | 0.8 | % | — | % | |
Impact from number of workdays | (1.6 | )% | (0.5 | )% | |
Organic sales growth | 8.6 | % | 2.7 | % |
Three Months Ended | ||
Organic Sales Growth - Sequential: | September 30, 2017 | |
Change in net sales | 4.7 | % |
Impact from acquisitions | — | % |
Impact from foreign exchange rates | 1.5 | % |
Impact from number of workdays | (1.6 | )% |
Organic sales growth | 4.8 | % |
Three Months Ended | Nine Months Ended | ||||||||||||||
Gross Profit: | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Net sales | $ | 2,000.2 | $ | 1,855.2 | $ | 5,682.4 | $ | 5,542.8 | |||||||
Cost of goods sold (excluding depreciation | |||||||||||||||
and amortization) | 1,614.8 | 1,490.2 | 4,580.9 | 4,443.1 | |||||||||||
Gross profit | $ | 385.4 | $ | 365.0 | $ | 1,101.5 | $ | 1,099.7 | |||||||
Gross margin | 19.3 | % | 19.7 | % | 19.4 | % | 19.8 | % |
Twelve Months Ended | |||||||
Financial Leverage: | September 30, 2017 | December 31, 2016 | |||||
Income from operations | $ | 321.5 | $ | 332.0 | |||
Depreciation and amortization | 64.3 | 66.9 | |||||
EBITDA | $ | 385.8 | $ | 398.9 | |||
September 30, 2017 | December 31, 2016 | ||||||
Current debt and short-term borrowings | $ | 40.9 | $ | 22.1 | |||
Long-term debt | 1,368.3 | 1,363.1 | |||||
Debt discount and deferred financing fees(1) | 14.3 | 17.3 | |||||
Total debt | $ | 1,423.5 | $ | 1,402.5 | |||
Financial leverage ratio | 3.7 | 3.5 |
(1) | Long-term debt is presented in the condensed consolidated balance sheets net of deferred financing fees and debt discount. |
Three Months Ended | Nine Months Ended | ||||||||||||||
Free Cash Flow: | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Cash flow provided by operations | $ | 14.3 | $ | 78.6 | $ | 81.1 | $ | 217.2 | |||||||
Less: Capital expenditures | (6.2 | ) | (6.1 | ) | (16.0 | ) | (13.2 | ) | |||||||
Free cash flow | $ | 8.1 | $ | 72.5 | $ | 65.1 | $ | 204.0 | |||||||
Percentage of adjusted net income(1) | 15 | % | 140 | % | 46 | % | 150 | % |
(1) | See the following page for a reconciliation of adjusted net income. |
Three Months Ended | Nine Months Ended | ||||||||||||||
Adjusted Income Before Income Taxes: | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Income (loss) before income taxes | $ | 72.0 | $ | (52.1 | ) | $ | 188.6 | $ | 67.0 | ||||||
Loss on debt redemption | — | 123.9 | — | 123.9 | |||||||||||
Adjusted income before income taxes | $ | 72.0 | $ | 71.8 | $ | 188.6 | $ | 190.9 |
Three Months Ended | Nine Months Ended | ||||||||||||||
Adjusted Tax Provision: | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Provision for income taxes | $ | 18.4 | $ | (21.1 | ) | $ | 47.7 | $ | 13.7 | ||||||
Income tax benefit from loss on debt redemption | — | 41.2 | — | 41.2 | |||||||||||
Adjusted provision for income taxes | $ | 18.4 | $ | 20.1 | $ | 47.7 | $ | 54.9 |
Three Months Ended | Nine Months Ended | ||||||||||||||
Adjusted Net Income Attributable to WESCO International, Inc.: | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Adjusted income before income taxes | $ | 72.0 | $ | 71.8 | $ | 188.6 | $ | 190.9 | |||||||
Adjusted provision for income taxes | 18.4 | 20.1 | 47.7 | 54.9 | |||||||||||
Adjusted net income | 53.6 | 51.7 | 140.9 | 136.0 | |||||||||||
Net (loss) income attributable to noncontrolling interests | (0.1 | ) | 0.6 | — | (0.9 | ) | |||||||||
Adjusted net income attributable to WESCO | |||||||||||||||
International, Inc. | $ | 53.7 | $ | 51.1 | $ | 140.9 | $ | 136.9 | |||||||
Adjusted Earnings Per Diluted Share: | |||||||||||||||
Diluted shares | 47.8 | 48.7 | 48.6 | 48.0 | |||||||||||
Adjusted earnings per diluted share | $ | 1.12 | $ | 1.05 | $ | 2.90 | $ | 2.85 |
Three Months Ended | |||
Adjusted Earnings Per Diluted Share: | September 30, 2016 | ||
Diluted loss per common share(1) | $ | (0.73 | ) |
Loss on debt redemption | 2.54 | ||
Tax effect of loss on debt redemption | (0.84 | ) | |
Impact of dilutive shares(2) | 0.08 | ||
Adjusted diluted earnings per common share | $ | 1.05 |
(1) | As a result of the net loss attributable to WESCO International, Inc. for the three months ended September 30, 2016, dilutive shares were not included in the calculation of diluted loss per common share because their effect was antidilutive. |
(2) | Represents the antidilutive impact of dilutive shares not included in the calculation of diluted loss per common share for the three months ended September 30, 2016. |
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