<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 1994
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: 0-452
TECUMSEH PRODUCTS COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1093240
(State of Incorporation) (IRS Employer Identification Number)
100 EAST PATTERSON STREET
TECUMSEH, MICHIGAN 49286
(Address of Principal Executive Offices)
Telephone Number: (517) 423-8411
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Stock Outstanding at July 29, 1994
------------------------------------- ----------------------------
Class B Common Stock, $1.00 par value 5,470,146
Class A Common Stock, $1.00 par value 16,410,438
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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - Item 1
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and subject to year end adjustments)
(Dollars in millions)
<TABLE>
<CAPTION>
JUNE 30, December 31,
1994 1993
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $321.1 $313.2
Accounts receivable, trade, less allowance for doubtful
accounts of $5.7 million in 1994 and $5.3 million in 1993 237.7 158.0
Inventories 189.5 174.9
Deferred income taxes 29.6 30.1
Other current assets 6.1 7.3
-------- --------
TOTAL CURRENT ASSETS 784.0 683.5
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation of $367.2 million in 1994
and $333.1 million in 1993 362.4 320.4
EXCESS OF COST OVER ACQUIRED NET ASSETS 57.9 54.5
DEFERRED INCOME TAXES 27.7 29.0
OTHER ASSETS 49.9 45.3
-------- --------
TOTAL ASSETS $1,281.9 $1,132.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $123.9 $88.1
Income taxes payable 7.2 9.9
Short-term borrowings 27.9 14.0
Accrued liabilities 122.2 97.9
-------- --------
TOTAL CURRENT LIABILITIES 281.2 209.9
PRODUCT WARRANTY AND SELF-INSURED RISKS 28.7 26.3
LONG-TERM DEBT 9.9 11.2
PENSION LIABILITIES 12.9 11.8
NON-PENSION POSTRETIREMENT BENEFITS 165.8 161.3
ACCRUAL FOR ENVIRONMENTAL MATTERS 31.0 25.4
-------- --------
TOTAL LIABILITIES 529.5 445.9
-------- --------
STOCKHOLDERS' EQUITY:
Class A common stock, $1 par value; authorized 75,000,000
shares; issued and outstanding 16,410,438 shares 16.4 16.4
Class B common stock, $1 par value; authorized 25,000,000
shares; issued and outstanding 5,470,146 shares 5.5 5.5
Capital in excess of par value 29.9 29.9
Retained earnings 689.3 633.2
Foreign currency translation adjustment 11.3 1.8
-------- --------
TOTAL STOCKHOLDERS' EQUITY 752.4 686.8
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,281.9 $1,132.7
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - Item 1
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited and subject to year end adjustments)
(Dollars in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME:
Net sales $424.8 $368.6 $811.2 $710.2
Interest income 5.4 4.3 11.3 8.3
Other income 2.0 2.2 3.5 2.7
------ ------ ------ ------
432.2 375.1 826.0 721.2
------ ------ ------ ------
EXPENSES:
Cost of sales and operating expenses 351.4 312.4 675.0 607.3
Selling and administrative expenses 22.7 21.2 43.7 41.0
Interest expense 1.7 1.1 2.9 1.9
Other expenses -- 1.3 1.7 2.7
------ ------ ------ ------
375.8 336.0 723.3 652.9
------ ------ ------ ------
INCOME BEFORE TAXES 56.4 39.1 102.7 68.3
Taxes on income 20.5 14.8 37.8 26.1
------ ------ ------ ------
NET INCOME $35.9 $24.3 $64.9 $42.2
====== ====== ====== ======
NET INCOME PER SHARE $1.64 $1.11 $2.96 $1.93
====== ====== ====== ======
CASH DIVIDENDS DECLARED
PER SHARE $0.20 $0.20 $0.40 $0.40
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - Item 1
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and subject to year end adjustments)
(Dollars in millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $64.9 $42.2
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 28.6 27.3
Accounts receivable (75.3) (50.7)
Inventories (12.6) 1.5
Payables and accrued expenses 50.7 29.4
Other 12.4 0.7
------ ------
CASH PROVIDED BY OPERATIONS 68.7 50.4
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (67.7) (25.4)
------ ------
CASH USED IN INVESTING ACTIVITIES (67.7) (25.4)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (8.8) (8.8)
Increase (Decrease) in borrowings, net 10.6 (7.2)
------ ------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1.8 (16.0)
------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 5.1 (1.9)
------ ------
INCREASE IN CASH AND CASH EQUIVALENTS 7.9 7.1
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 313.2 263.6
------ ------
END OF PERIOD $321.1 $270.7
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION - ITEM 1
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements are unaudited and reflect
all adjustments (consisting only of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The
December 31, 1993 condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's Annual
Report for the fiscal year ended December 31, 1993. Due to the seasonal
nature of the Company's business, the results of operations for the interim
period are not necessarily indicative of the results for the entire fiscal
year.
The financial data required in this Form 10-Q by Rule 10.01 of Regulation
S-X have been reviewed by Moore, Smith & Dale, the Company's independent
certified public accountants, as described in their report contained
elsewhere herein.
2. Inventories consisted of:
<TABLE>
<CAPTION>
(Dollars in Millions) June 30, December 31,
1994 1993
-------- -----------
<S> <C> <C>
Raw material and work in process $113.0 $107.2
Finished goods 64.4 56.2
Supplies 12.1 11.5
------ ------
$189.5 $174.9
====== ======
</TABLE>
3. The Company has been named by the U.S. Environmental Protection Agency (EPA)
as a potentially responsible party in connection with the Sheboygan River
and Harbor Superfund Site in Wisconsin. At June 30, 1994, the Company had
an accrual of $31.9 million ($26.4 million at December 31, 1993) for the
estimated costs associated with the cleanup of certain PCB contamination at
this Superfund Site. The Company has based the estimated cost of cleanup on
ongoing engineering studies, including engineering samples taken in the
Sheboygan River, and assumptions as to the areas that will have to be
remediated along with the nature and extent of the remediation that will be
required. Significant assumptions underlying the estimated costs are that
remediation will involve innovative technologies, including (but not limited
to) bioremediation near the Company's plant site and along the Upper River,
and only natural armoring and bioremediation in the Lower River and Harbor.
The increase in the accrual during 1994 reflects updated cost factors and an
additional provision for recently identified ground water pollution. The
provision for additional costs was substantially offset by insurance
settlements received during the first half of 1994. The Company has
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been informed by the EPA that it expects to issue a record of decision on
the cleanup of the Sheboygan River and Harbor Site by the end of 1994, but
the ultimate resolution of the matter may take much longer. Ultimate costs
to the Company will be dependent upon factors beyond its control such as the
scope and methodology of the remedial action requirements to be established
by the EPA (in consultation with the State of Wisconsin), rapidly changing
technology, and the outcome of any related litigation.
On June 16, 1994, the Wisconsin Supreme Court, in an unrelated case, held
that insurance coverage was not available for environmental cleanup costs to
the extent the cleanup is done to prevent or mitigate future injury. A
motion for reconsideration is pending. The Company, in establishing its
accrual for environmental cleanup costs, has not provided for any potential
recovery of these estimated cleanup costs.
In addition to the Sheboygan River and Harbor Superfund Site, the Company
also is currently participating with the EPA and various state agencies at
certain other sites to determine the nature and extent of any remedial
action which may be necessary with regard to such other sites. Based on
limited preliminary data and other information currently available, the
Company has no reason to believe that the level of expenditures for
potential remedial action necessary at these other sites will have a
material effect on its future financial position.
4. Various lawsuits and claims, including those involving ordinary routine
litigation incidental to its business, to which the Company is a party, are
pending, or have been asserted, against the Company. Although the outcome
of these matters cannot be predicted with certainty, and some may be
disposed of unfavorably to the Company, management has no reason to believe
that their disposition will have a materially adverse effect on the
consolidated financial position of the Company.
5. Certain amounts previously reported have been reclassified to conform with
the current presentation.
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[MOORE, SMITH & DALE LETTERHEAD]
August 10, 1994
INDEPENDENT ACCOUNTANTS' REPORT
Tecumseh Products Company
Tecumseh, Michigan
We have reviewed the consolidated condensed balance sheet of Tecumseh
Products Company and subsidiaries as of June 30, 1994, and the related
consolidated condensed statements of income and cash flows for the three months
and six months ended June 30, 1994 and 1993. These financial statements are the
responsibility of the Company's management.
We have conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated condensed financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31, 1993, and
the related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 17, 1994, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated condensed balance sheet as of December 31, 1993, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/ MOORE, SMITH & DALE
_________________________________
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 8
TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION -- ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Consolidated earnings of $35.9 million, or $1.64 per share, for the second
quarter of 1994 were higher than any quarter in Company history. First half
1994 earnings of $64.9 million, or $2.96 per share, were 54% higher than those
of the prior year period. Consolidated sales of $424.8 million were the
highest second quarter sales in Company history and 15% higher than the same
period in 1993. First half 1994 sales were up 14% compared with the first half
of 1993. The favorable operating results for both the second quarter and first
half of 1994 were due primarily to continued strong sales of the Company's
Engine and Power Train Products.
The following table presents results by business segments:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Dollars in millions) June 30, June 30,
------------------------ -----------------------
1994 1993 1994 1993
===========================================================================================================
<S> <C> <C> <C> <C>
NET SALES:
Compressor Products $ 246.6 $ 237.9 $ 466.0 $ 448.4
Engine and Power Train Products 152.7 108.6 290.4 215.3
Pump Products 25.5 22.1 54.8 46.5
-----------------------------------------------------------------------------------------------------------
$ 424.8 $ 368.6 $ 811.2 $ 710.2
===========================================================================================================
INCOME BEFORE INCOME TAX:
Compressor Products $ 27.7 $ 24.4 $ 49.1 $ 42.7
Engine and Power Train Products 22.4 11.1 41.2 18.3
Pump Products 4.1 3.8 9.2 7.8
Corporate Expenses (2.8) (3.0) (5.4) (5.0)
Non-operating Items 5.0 2.8 8.6 4.5
-----------------------------------------------------------------------------------------------------------
$ 56.4 $ 39.1 $ 102.7 $ 68.3
===========================================================================================================
</TABLE>
Compressor Products
The Company's worldwide Compressor Products sales for the second quarter were
$246.6 million which was 4% higher than the same period in 1993. Sales for the
first half of 1994 were also up 4% compared with the first half of 1993. These
gains were due primarily to stronger sales in North America and were partially
offset by a continued decline in sales in certain Asian markets. Sales of the
Company's compressors in the United States in the second quarter of 1994 were
12% higher than the same quarter in 1993. The near-record heat in much of the
United States had a favorable impact on the Company's sales of rotary
compressors for room air conditioners along with sales of compressors for the
aftermarket. Industry inventory levels of room air conditioners are virtually
depleted and the Company's rotary compressor production schedules should remain
strong into 1995. Tecumseh's 1994 second quarter sales to the commercial
refrigeration market remained well ahead of the prior-year
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quarter, and in July 1994, the Company shipped its one millionth R-134a
compressor that utilizes a non-CFC refrigerant. The above mentioned sales
increases helped replace reductions in Tecumseh's sales to the unitary air
conditioning market, resulting from the industry trend toward the use of scroll
compressors rather than reciprocating compressors. The Company is not
currently producing scroll compressors in commercial quantities, but expansion
of its manufacturing facilities in Tecumseh is proceeding well and the Company
expects to be in limited production by the end of 1994.
Second quarter 1994 sales of the Company's European compressor operations,
L'Unite Hermetique S.A., were down slightly, but its sales within Europe were
higher than the second quarter of 1993. This long awaited rebound helped
L'Unite Hermetique generate a reasonable profit margin in this quarter compared
with a small operating loss in the same period in 1993. The Company's
Brazilian compressor subsidiary, SICOM Ltda., maintained stable sales and
continued strong operating margins for the second quarter of 1994. Brazil
recently introduced a new currency as part of an economic stabilization program
designed to slash the country's inflation, which reached a monthly rate of 50%
in June 1994. Although this program, if diligently pursued, should benefit
Brazil over the long-term, it could temporarily reduce export margins as well
as domestic demand for consumer durable goods.
A union contract covering approximately 750 employees at the Company's
compressor manufacturing facility in Somerset, Kentucky is due to expire on
August 31, 1994. The Company is in the process of negotiating for a renewal of
that contract.
Engine and Power Train Products
Worldwide Engine and Power Train Products sales were $152.7 million in the
second quarter of 1994, a 41% increase over the same period in 1993.
Production of engines for snowthrowers has begun early in 1994 and is the
largest factor in explaining the sales gains for this segment. The favorable
comparison for snowthrower engine sales should continue for the third quarter
as the industry expects a very strong sales year. Double-digit sales increases
for the second quarter were also achieved for Tecumseh engines shipped to
manufacturers of walk-behind mowers, riders, garden tillers, edgers and
generators. These increases reflect a combination of stronger market
conditions for outdoor power equipment, both in North America and Europe, and
an increase in marketshare. Due to the reasons explained above, sales for the
first half of 1994 were 35% higher than sales for the first half of 1993.
Primarily due to the favorable impact of significantly higher sales volume, the
profit margins for this segment improved from 10.2% in the second quarter of
1993 to 14.7% for 1994. The escalating prices of aluminum in 1994 will likely
begin to dissipate the favorable margin comparison during the second half of
1994.
Pump Products
The Company's Pump Products sales for the second quarter of 1994 were 16%
higher than the year earlier quarter. Sales of water gardening pump products
continued to expand while OEM pump sales were also strong during the quarter.
First half 1994 sales exceeded those of the prior year's period by 18%. These
favorable comparisons will not likely continue for the third quarter as 1993
included unusually high sales of sump pumps due to the summer flooding in the
midwestern United States.
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Income Taxes
The effective income tax rate was 36% and 37% for the second quarter and first
half of 1994, respectively, compared with 38% for both of these periods in
1993. The improved profitability of the Company's Italian subsidiary in 1994
has allowed it to take greater advantage of net operating loss carryforwards to
offset taxable earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to maintain a strong and liquid financial position.
Working capital of $502.8 million at June 30, 1994 was up from $473.6 million
at December 31, 1993, and the ratio of current assets to current liabilities
approximated 2.8. The increase in the Company's short-term borrowings during
1994 was due to the utilization of export financing incentives available in
Brazil. Tecumseh's capital spending for the first half of 1994 has
significantly outpaced the spending during the prior year period and, for the
entire year of 1994, will likely be over three times greater than the 1993
level as the Company funds a scroll compressor manufacturing facility along
with the purchase and retooling of rotary compressor equipment. Working
capital requirements and planned capital expenditures for the remainder of 1994
and 1995 are expected to be financed through internally available funds,
although the Company may utilize long-term financing arrangements in connection
with state investment incentives. In addition, the Company obtained a $100
million revolving credit facility in July 1994 which has a three year term and
is available for general corporate purposes.
The accrual for environmental matters related to the Sheboygan River and Harbor
Superfund Site in Wisconsin increased from $25.9 million at March 31, 1994 to
$31.9 million at June 30, 1994. The increase reflects updated cost factors and
an additional provision for recently identified ground water pollution.
Assumptions regarding the scope and methodology of remediation of the Sheboygan
River and Harbor have not been altered. The provision for additional costs was
substantially offset by the insurance settlements received during the quarter.
For further information, see Note 3 in Notes to Consolidated Condensed
Financial Statements contained in Part I, Item 1 found elsewhere herein.
On May 4, 1994, the Environmental Protection Agency (EPA) announced the first
phase of proposed federal standards designed to reduce the emission of
hydrocarbons and oxides of nitrogen from utility engines which include some of
the two-and four-cycle engine products manufactured by the Company. The notice
for proposed rulemaking for EPA Phase I regulations has been issued and initial
public hearings have been held; the period for comment ended in early August
1994. The rule is expected to be finalized in the first quarter of 1995 with
nationwide implementation effective August 1, 1996. The Company believes the
proposed regulations will be similar to California emission standards which are
scheduled to go into effect January 1, 1995. The Company's engine products, as
presently designed and manufactured, do not meet the 1995 California standards;
however, engineering efforts have resulted in select engine certification to
California requirements, and an adequate, but limited, cross section of the
Company's current four-cycle products will be modified to meet the California
standards. The Company believes the nationwide implementation date of August
1, 1996 is aggressive, but continuing design and other efforts will be expended
to meet these proposed 1996 emission standards. Based on the information
currently available, the Company believes that it will be prepared to meet the
1996 federal standards as proposed with competitively priced product.
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TECUMSEH PRODUCTS COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Tecumseh Products Company was held on
April 27, 1994. The shareholders considered and voted on the election of the
board of directors and an amendment to the Company's Articles of Incorporation
to increase the authorized shares of the Company's Class A Common Stock, $1.00
par value, from 25,000,000 shares to 75,000,000 shares. Proxies for the meeting
were solicited pursuant to section 14(a) of the Securities Exchange Act of 1934
and there was no solicitation in opposition to management's solicitations.
Each of the nominees for directors as listed in the proxy statement were
elected. A separate tabulation with respect to each nominee is as follows:
<TABLE>
<CAPTION>
Director Votes For Votes Withheld
-------- --------- --------------
<S> <C> <C>
Kenneth G. Herrick 4,939,549 101,729
Todd W. Herrick 4,940,389 100,889
John H. Foss 4,940,239 101,039
Peter M. Banks 4,940,029 101,249
J. Russell Fowler 4,939,699 101,579
John W. Gelder 4,940,389 100,889
Stephen L. Hickman 4,940,389 100,889
Edward C. Levy, Jr. 4,940,389 100,889
Dean E. Richardson 4,939,989 101,289
Jon E. Barfield 4,939,979 101,299
</TABLE>
The amendment to the Company's Articles of Incorporation to increase the
authorized shares of the Class A Common Stock was approved. The results of the
voting were as follows:
<TABLE>
<CAPTION>
Stock Class Votes For Votes Against Abstain
----------- --------- ------------- -------
<S> <C> <C> <C>
Class A 12,824,502 1,585,037 44,095
Class B 4,458,481 577,702 5,095
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) The Company did not file any reports on Form 8-K during the three
months ended June 30, 1994.
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SIGNATURE
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:
TECUMSEH PRODUCTS COMPANY
(Registrant)
Dated August 12, 1994 By /s/ JOHN H. FOSS
__________________________
John H. Foss
Vice President, Treasurer and
Chief Financial Officer
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