FAIRLAWN, OH -- OMNOVA Solutions Inc. today announced income from continuing operations of $1.2 million, or $0.02 per diluted share, for the fourth quarter ended November 30, 2012. Net income for the fourth quarter was $0.7 million, or $0.01 per diluted share. Adjusted Income from Continuing Operations for the fourth quarter of 2012 was $3.2 million, or $0.07 per diluted share, as compared to $5.9 million, or $0.13 per diluted share last year (See Tables B and C). Results in the quarter were negatively impacted by LIFO expense of $1.8 million (net of tax), or $0.04 per diluted share, primarily related to the inventory build for the transition of coated fabrics manufacturing to other, more efficient OMNOVA plants due to the wind-down of manufacturing operations in Columbus, Mississippi.

"The fourth quarter results were negatively impacted by weakness in global demand, particularly in Europe and in the North American paper industry, as well as several one-time unusual items. During the year, we made structural improvements in our business portfolio, and took many other positive actions that drove continued improvement in our full-year profitability, and generated significant cash flow which allowed us to reduce our net leverage to 2.75 times," said Kevin McMullen, OMNOVA Solutions' chairman and CEO.

"As we look forward to 2013, we are encouraged by a number of actions and market developments that are expected to gain traction starting in the second quarter and, as a result, we believe the Company will continue to improve earnings in fiscal 2013. Among those actions are several recent new business wins, including one which was driven by the conversion of U.S.-based styrene butadiene latex capacity to a new high styrene chemistry application. Engineered Surfaces expects further profit improvement beginning in the second quarter after the wind-down of the Columbus, Mississippi manufacturing operations and the transition of coated fabrics manufacturing to more efficient OMNOVA facilities. Later in the year, we will have increased our Performance Chemicals capabilities in China with expanded specialty chemistry offerings to our customers as we commission the new capacity addition at our Caojing site. Finally, the Company continues to make progress on productivity and cost reduction actions with over $8 million of non-raw material improvements expected in 2013.

"In addition, we are encouraged by a number of market developments including the continuing momentum of the U.S. housing recovery, rapid growth in oil and gas exploration and production, a strong outlook for automotive and transportation segments in North America and Asia, and growing demand, particularly in developing regions of the world, for personal hygiene products. OMNOVA has a strong pipeline of new products and is well positioned to serve these markets," said McMullen.

Consolidated Results for the Fourth Quarter Ending Nov. 30, 2012

Net sales decreased $47.5 million, or 15.8%, to $253.9 million for the fourth quarter of 2012, compared to $301.4 million for the fourth quarter of 2011. The sales decrease was driven by price reductions of $28.0 million, or 9.3%, reduced volumes of $16.4 million, or 5.5%, and unfavorable foreign currency translation effects of $3.1 million, or 1.0%.

Gross profit in the fourth quarter of 2012 decreased to $48.5 million, compared to $55.8 million in the fourth quarter of 2011, driven primarily by lower sales volume. Raw material costs decreased $31.7 million in the fourth quarter versus the same period last year. Gross profit margins in the fourth quarter of 2012 improved to 19.1%, compared to margins of 18.5% in the fourth quarter of 2011.

Selling, general and administrative expense in the fourth quarter of 2012 was $29.1 million, compared to $26.0 million in the fourth quarter of 2011. The increase was due to higher employment-related, research and development and information technology costs.

Interest expense in the fourth quarter of 2012 was $8.7 million, a decrease of $0.8 million from the fourth quarter of 2011, due primarily to the completed amortization of an interest rate swap agreement in the second quarter of 2012.

Income tax expense was $1.4 million, or a 53.8% effective income tax rate for the fourth quarter of 2012, compared to income tax expense of $4.5 million, or a 41.7% effective tax rate in the fourth quarter of 2011. The higher tax rate in the fourth quarter of 2012 was due primarily to the lower level of income and non-recurring permanent tax expense items.

Net income for the fourth quarter of 2012 was $0.7 million, or $0.01 per diluted share, compared to a loss of $10.4 million, or $0.23 per diluted share, for the fourth quarter of 2011. Included in the fourth quarter of 2012 are losses from discontinued operations of $0.5 million, or $0.01 per diluted share, compared to a loss from discontinued operations of $16.7 million, or $0.37 per diluted share, in the fourth quarter of 2011, primarily related to the decision to exit the global wallcovering businesses and the related write-down of manufacturing assets in Columbus, Mississippi. Income from continuing operations for the fourth quarter of 2012 was $1.2 million, or $0.02 per diluted share, compared to $6.3 million, or $0.14 per diluted share, for the fourth quarter of 2011. Adjusted Income From Continuing Operations (which excludes certain non-recurring expense items detailed in Tables B and C) was $3.2 million, or $0.07 per diluted share, for the fourth quarter of 2012, compared to $5.9 million, or $0.13 per diluted share, in the fourth quarter of 2011. Results in the quarter were negatively impacted by LIFO expense of $1.8 million (net of tax), or $0.04 per diluted share, primarily related to the inventory build for the transition of coated fabrics manufacturing to other, more efficient OMNOVA plants due to the wind-down of manufacturing operations in Columbus, Mississippi.

Consolidated Results for the Year Ending Nov. 30, 2012

Net sales decreased $75.6 million, or 6.3%, to $1,125.5 million for 2012, compared to $1,201.1 million for 2011. The sales decrease was driven by reduced volumes of $60.4 million, or 5.0%, which was partially offset by price increases of $0.8 million, or 0.1%. Currency translation effects were $16.0 million unfavorable, or 1.4% of sales.

Gross profit in 2012 increased to $227.2 million, compared to $218.6 million in 2011, driven primarily by a change in sales mix and lower raw material costs. Raw material costs decreased $23.0 million in 2012 versus fiscal 2011. Gross profit margins in 2012 improved to 20.2%, compared to margins of 18.2% in fiscal 2011.

Selling, general and administrative expense in 2012 was $121.2 million, compared to $108.6 million in 2011. The increase was due to higher employment-related, research and development and information technology costs.

Interest expense in 2012 was $36.5 million, a decrease of $1.5 million from 2011, due primarily to the completed amortization of an interest rate swap agreement in the second quarter of 2012 and slightly lower pricing for the term loan.

Income tax expense was $11.2 million, or a 30.3% effective income tax rate for 2012, compared to income tax expense of $13.4 million, or a 44.5% effective tax rate in 2011. The higher tax rate in 2011 was due primarily to non-recurring permanent tax expense items related to the ELIOKEM acquisition. Cash tax payments in the U.S. over the next few years are expected to be minimal as the Company has $116.8 million of U.S. federal net operating loss carryforwards and $90.0 million of state and local tax net operating loss carryforwards with expiration dates between 2022 and 2032.

Net Income for 2012 was $27.6 million, or $0.60 per diluted share, compared to a loss of $2.8 million, or $0.06 per diluted share, for 2011. Included in 2012 net income is income from discontinued operations of $1.9 million, or $0.04 per diluted share, compared to a loss from discontinued operations of $19.5 million, or $0.43 per diluted share, in 2011 primarily related to the decision to exit the global wallcovering businesses and a related write-down of manufacturing assets. Income from continuing operations for 2012 was $25.7 million, or $0.56 per diluted share, compared to $16.7 million, or $0.37 per diluted share, for 2011. Adjusted Income From Continuing Operations (which excludes certain non-recurring expense items detailed in Tables B and C) was $28.5 million, or $0.63 per diluted share, for 2012, compared to Adjusted Income From Continuing Operations of $24.8 million, or $0.55 per diluted share, in fiscal 2011.

As of Nov. 30, 2012, the Company's debt of $453.6 million was comprised of $250.0 million of 7.875% Senior Notes maturing in 2018, a term loan of $196.0 million maturing in 2017 and $7.6 million of foreign operations borrowings. The Company continued its strong liquidity position as consolidated cash closed at $148.5 million, or an improvement of $45.4 million in 2012. On November 30, 2012, there were no outstanding borrowings under the Company's U.S. revolving asset-based credit facility, and the available borrowing capacity was $74.0 million.

Net Debt declined $49.2 million during fiscal 2012 to $307.3 million. The Net Leverage Ratio (Net Debt / Adjusted EBITDA), as calculated in the Company's Credit Agreement, improved to 2.75x at November 30, 2012, compared to 3.12x on November 30, 2011 (see Table D).

Discontinued Operations

As part of the Company's strategy to focus on businesses with greater global growth and profit potential, the Company divested its North American and U.K- based commercial wallcovering businesses in 2012.

These businesses were classified as discontinued operations at the end of 2011. The Columbus, Mississippi manufacturing facility produced both wallcovering and coated fabric products for the North American market. During 2012, the Company was transitioning the manufacturing of coated fabric products from Columbus to other, more efficient OMNOVA manufacturing sites. The Company plans to cease manufacturing activities at the Columbus site in February 2013.

Performance Chemicals Fourth Quarter 2012 Results

Net sales during the fourth quarter of 2012 decreased $51.9 million, or 21.5%, to $189.5 million, compared to $241.4 million in the fourth quarter of 2011. Sales decreased due to reduced pricing of $27.8 million, or 11.5%, volume declines of $21.1 million, or 8.8%, and unfavorable foreign currency translation effects of $3.0 million, or 1.2%. In the fourth quarter of 2012, Performance Chemicals generated Adjusted Segment Operating Profit of $18.5 million, compared to Adjusted Segment Operating Profit of $22.5 million in the fourth quarter of 2011 (see Table A). Included in the fourth quarter of 2012 was LIFO income of $0.6 million. Adjusted Segment Operating Profit declined due to the lower volumes. The Adjusted Segment Operating Profit margin was 9.8% for the fourth quarter of 2012, compared to an Adjusted Segment Operating Profit margin of 9.3% in the fourth quarter of 2011.

Specialty Chemicals sales were $114.7 million for the fourth quarter of 2012 as compared to $132.6 million for the fourth quarter of 2011. Volumes in Specialty Chemicals were down 2.7% and pricing declined 8.5%, both of which were partially offset by increased global sales in oilfield drilling, personal hygiene products, floor care, and tapes and adhesives. During the quarter, there were several new product introductions in oil and gas drilling chemicals that were being trialed by customers, and the Company won new customers in construction chemicals. At OMNOVA's newest plant in Caojing, China, shipments of tire cord adhesive product increased significantly over the last few months. This site also continued working on a major plant expansion which is focused on growing other specialty chemical product offerings, with an expected completion in the third quarter of 2013. This investment will focus on local supply into the fast-growing Asian personal hygiene market and other specialty segments.

Paper and Carpet Chemicals sales were $74.8 million for the fourth quarter of 2012 as compared to $108.8 million for the fourth quarter of 2011. As compared to last year, fourth quarter volumes in Paper and Carpet Chemicals were down 16.1% due to weak market conditions and market share loss. Pricing declined 15.2% due to index pricing formulas and competitive activity. During the first quarter of 2013, Performance Chemicals won several new business awards with sales expected to ramp up in the second quarter of 2013. Actions continue to be focused on more cost effective as well as higher performance product solutions including bio-based co-polymer hybrids and other emulsion chemistries to deliver greater customer value. In addition, the Company is currently finalizing manufacturing capabilities to begin its own internal production of hollow plastic pigment products for coated paper, packaging, and other applications, replacing what had been externally produced on a contract basis. This technology, which provides opacity and gloss and reduces the need for other ingredients such as titanium dioxide, was acquired from Dow Chemical in 2010. The capability to produce these specialty, high-performing emulsion products was converted from previously existing styrene butadiene latex manufacturing capacity as part of OMNOVA's continuing strategy to repurpose manufacturing assets to meet changing market demands.

On a full-year basis, Performance Chemicals sales were $864.5 million in 2012 as compared to $951.9 million in 2011. Sales decreased due to lower pricing of $4.4 million, or 0.5%, volume declines of $66.1 million, or 6.9%, and unfavorable foreign currency translation effects of $16.9 million, or 1.8%. Adjusted Segment Operating Profit was $89.6 million as compared to $91.2 million for the same period in 2011 and operating profit margins were 10.4% in 2012, versus 9.6% in 2011.

Engineered Surfaces Fourth Quarter 2012 Results

The Company recently changed the name of its Decorative Products segment to Engineered Surfaces to better reflect the improved portfolio and the importance of innovation and functional performance that are valued by customers in the served markets.

Net sales were $64.4 million during the fourth quarter of 2012, an increase of $4.4 million, or 7.3%, compared to the fourth quarter of 2011. The sales increase was driven primarily by higher volumes in the laminates product line. The Adjusted Segment Operating Loss was $1.0 million in the fourth quarter of 2012, compared to Adjusted Segment Operating Profit for the fourth quarter of 2011 of $2.2 million. (see Table A). Negatively impacting the fourth quarter of 2012 was LIFO expense of $3.2 million, primarily related to the inventory build for the transition of coated fabrics manufacturing from Columbus, Mississippi to other OMNOVA plants. Excluding this item, Adjusted Segment Operating Profit for the fourth quarter of 2012 would have been $2.2 million.

Coated Fabrics sales were $27.3 million, a decrease of $1.2 million, or 4.2%, driven by a decline in domestic transportation, low-margin furniture in China, and European contract sales. During the quarter, the Company was awarded business from a large Chinese automotive manufacturer which is expected to ramp up in 2013.

Laminates and Performance Films sales were $37.1 million, an increase of $5.6 million, or 17.8%, as compared to the previous year. Laminate sales grew across most market segments led by flooring, appliances, kitchen and bath, store fixtures and recreational vehicles.

On a full-year basis, sales were $261.0 million in 2012 as compared to $249.2 million in 2011 led by price increases of $5.2 million and improved volumes of $5.7 million. Adjusted Segment Operating Profit was $9.3 million as compared to $3.1 million for the same period in 2011. During 2012, Engineered Surfaces incurred $3.0 million of non-recurring expense as it transitioned the manufacturing of coated fabrics products from Columbus, Mississippi to other, more efficient OMNOVA manufacturing sites.

Non-GAAP and Other Financial Measures

Reconciliation of Reported Segment Sales and Operating Profit (Loss) to Net Sales and Net Income (Loss)

Non-GAAP and Other Financial Measures

Reconciliation of Reported Segment Sales and Operating Profit (Loss) to Net Sales and Net Income (Loss)

 

Three Months Ended

November 30,

Year Ended

November 30,

(Dollars in millions)

2012

2011

2012

2011

Performance Chemicals

Paper and Carpet Chemicals

$

74.8

$

108.8

$

343.2

$

399.3

Specialty Chemicals

114.7

132.6

521.3

552.6

Total Performance Chemicals

$

189.5

$

241.4

$

864.5

$

951.9

Engineered Surfaces

Coated Fabrics

$

27.3

$

28.5

$

117.0

$

114.3

Laminates and Performance Films

37.1

31.5

144.0

134.9

Total Engineered Surfaces

64.4

60.0

261.0

249.2

Total Net Sales

$

253.9

$

301.4

$

1,125.5

$

1,201.1

Segment Operating Profit (Loss)

Performance Chemicals

$

18.5

$

24.1

$

89.6

$

86.5

Engineered Surfaces

(3.0)

.7

3.8

(1.3)

Interest expense

(8.7)

(9.5)

(36.5)

(38.0)

Corporate expense

(4.2)

(4.5)

(20.0)

(13.8)

Acquisition and integration related expense

(2.3)

Deferred financing fees write-off

(1.0)

Income From Continuing Operations Before

Income Taxes

2.6

10.8

36.9

30.1

Income tax expense

(1.4)

(4.5)

(11.2)

(13.4)

Income from continuing operations

1.2

6.3

25.7

16.7

(Loss) Income from discontinued operations, net of tax

(.5)

(16.7)

1.9

(19.5)

Net Income (Loss)

$

.7

$

(10.4)

$

27.6

$

(2.8)

Depreciation and amortization

$

8.1

$

8.8

$

32.0

$

33.5

Capital expenditures

$

13.3

$

8.6

$

32.8

$

24.1

 

Non-GAAP and Other Financial Measures (Continued)

 

Reconciliation Tables for: (A) Adjusted Segment Operating Profit, (B) Adjusted Income From Continuing Operations, © Adjusted Diluted Earnings Per Share From Continuing Operations and (D) Net Leverage Ratio Calculation

TABLE A

Adjusted Segment Operating Profit Reconciliation

Three Months Ended

Year Ended

November 30,

November 30,

(Dollars in millions)

2012

2011

2012

2011

Performance Chemicals Segment Operating Profit

$

18.5

$

24.1

$

89.6

$

86.5

Restructuring and severance

.1

1.1

Customer trade receivable write-off

(1.7)

.9

Fair value write-up of ELIOKEM inventory acquired

2.7

Total adjustments to Performance Chemicals' segment

operating profit

(1.6)

4.7

Performance Chemicals' Adjusted Segment Operating Profit

$

18.5

$

22.5

$

89.6

$

91.2

Engineered Surfaces Segment Operating (Loss) Profit

$

(3.0)

$

.7

$

3.8

$

(1.3)

Restructuring and severance and other

.4

.2

1.5

.7

Asset impairment and facility closure costs

.8

1.3

1.0

3.7

Coated Fabrics manufacturing transition costs

.8

3.0

Total adjustments to Engineered Surfaces' segment

operating profit

2.0

1.5

5.5

4.4

Engineered Surfaces' Adjusted Segment Operating (Loss) Profit

$

(1.0)

$

2.2

$

9.3

$

3.1

Total Adjusted Segment Operating Profit

$

17.5

$

24.7

$

98.9

$

94.3

 

TABLE B

Adjusted Income From Continuing Operations Reconciliation

Three Months Ended

Year Ended

November 30,

November 30,

(Dollars in millions)

2012

2011

2012

2011

Income From Continuing Operations

$

1.2

$

6.3

$

25.7

$

16.7

Performance Chemicals segment operating profit adjustments

per Table A

(1.6)

4.7

Engineered Surfaces segment operating profit adjustments

per Table A

2.0

1.5

5.5

4.4

Corporate restructuring and other

.2

Acquisition and integration related expense

2.3

Deferred financing fees write-off

1.0

Income tax expense adjustment(1)

(.3)

(1.7)

(5.6)

Tax expense for liquidation of foreign subsidiary

1.1

Tax benefit from foreign tax election

(1.0)

Adjusted Income From Continuing Operations

$

3.2

$

5.9

$

28.5

$

24.8

(1)The income tax adjustment is the additional tax benefit (expense) required to apply the Company's YTD effective tax rate to Income from Continuing Operations and the excluded items.


TABLE C

Adjusted Diluted Earnings Per Share From Continuing

Operations Reconciliation

Three Months Ended

Year Ended

November 30,

November 30,

(Dollars)

2012

2011

2012

2011

Diluted Earnings Per Share From Continuing Operations

$

.02

$

.14

$

.56

$

.37

Performance Chemicals segment operating profit adjustments

per Table A

(.04)

.11

Engineered Surfaces segment operating profit adjustments

per Table A

.05

.04

.13

.10

Acquisition and integration related expense

.05

Deferred financing fees write-off

.02

Income tax expense adjustment

(.01)

(.04)

(.12)

Tax expense for liquidation of foreign subsidiary

.02

Tax benefit from foreign tax election

(.02)

Total Earnings Per Share Impact of Adjusted Items

.05

(.01)

.07

.18

Adjusted Diluted Earnings Per Share From Continuing

Operations

$

.07

$

.13

$

.63

$

.55

Non-GAAP and Other Financial Measures (Continued)

TABLE D

Net Leverage Ratio Calculation

Year Ended

(Dollars in millions)

2012

2011

Income from continuing operations

$

25.7

$

16.7

Interest expense

33.8

35.3

Amortization of deferred financing costs

2.7

2.7

Income tax

11.2

13.4

Depreciation and amortization

32.0

33.5

EBITDA

$

105.4

$

101.6

Restructuring and severance

1.0

2.2

Asset impairments

1.0

3.1

Non-cash stock compensation

4.5

3.6

Other

3.7

Adjusted EBITDA

$

111.9

$

114.2

Year Ended

Net Debt Reconciliation

2012

2011

Total debt as defined by Term Loan B agreement

$

455.8

$

459.6

Less cash

(148.5)

(103.1)

Net Debt

$

307.3

$

356.5

Adjusted EBITDA

$

111.9

$

114.2

Net Debt/Adjusted EBITDA

2.75x

3.12x

 

 

OMNOVA SOLUTIONS INC.

 

Consolidated Statements of Operations
(Dollars in Millions, Except Per Share Data)
(Unaudited)

 

Three Months Ended
November 30,

Year Ended
November 30,

2012

2011

2012

2011

Net Sales

$

253.9

$

301.4

$

1,125.5

$

1,201.1

Cost of goods sold

205.4

245.6

898.3

982.5

Gross Profit

48.5

55.8

227.2

218.6

Selling, general and administrative

29.1

26.0

121.2

108.6

Depreciation and amortization

8.1

8.8

32.0

33.5

Asset impairment

.8

.7

1.0

3.1

Restructuring and severance

.2

1.0

1.6

Interest expense

8.7

9.5

36.5

38.0

Deferred financing fees write-off

1.0

Acquisition and integration related expense

2.3

Other (income) expense, net

(.8)

(.2)

(1.4)

.4

45.9

45.0

190.3

188.5

Income From Continuing Operations

Before Income Taxes

2.6

10.8

36.9

30.1

Income tax expense

1.4

4.5

11.2

13.4

Income From Continuing Operations

1.2

6.3

25.7

16.7

Discontinued Operations

Loss from discontinued operations (net of tax)

(.5)

(16.7)

(4.1)

(19.5)

Gain on sale of discontinued operations (net of tax)

6.0

Total discontinued operations

(.5)

(16.7)

1.9

(19.5)

Net Income (Loss)

$

.7

$

(10.4)

$

27.6

$

(2.8)

Income (Loss) Per Share

Basic

Basic income from continuing operations per share

$

.02

$

.14

$

.56

$

.37

Basic income (loss) from discontinued operations per share

(.01)

(.37)

.05

(.43)

Basic Net Income (Loss) Per Share

$

.01

$

(.23)

$

.61

$

(.06)

Diluted

Diluted income from continuing operations per share

$

.02

$

.14

$

.56

$

.37

Diluted income (loss) from discontinued operations per share

(.01)

(.37)

.04

(.43)

Diluted Net Income (Loss) Per Share

$

.01

$

(.23)

$

.60

$

(.06)

Weighted-average shares outstanding – basic

46.1

45.2

45.6

44.8

Weighted-average shares outstanding – diluted

46.4

45.6

46.0

45.2

 

 

 

OMNOVA SOLUTIONS INC.

 

Consolidated Balance Sheets

(Dollars in Millions, except per share amounts)

 

November 30,

November 30,

2012

2011

(Unaudited)

ASSETS:

Current Assets

Cash and cash equivalents

$

143.0

$

98.9

Restricted cash

5.5

4.2

Accounts receivable, net

137.3

163.2

Inventories

96.2

84.5

Prepaid expenses and other

7.6

3.9

Deferred income taxes - current

10.7

6.5

Assets held for sale - current

16.6

Total Current Assets

400.3

377.8

Property, plant and equipment, net

222.8

220.8

Trademarks and other intangible assets, net

79.6

87.5

Goodwill

86.7

88.0

Deferred income taxes - non-current

65.7

69.1

Deferred financing fees

11.3

13.6

Other assets

7.3

8.3

Total Assets

$

873.7

$

865.1

LIABILITIES AND SHAREHOLDERS' EQUITY:

Current Liabilities

Amounts due banks

$

9.6

$

11.3

Accounts payable

106.9

108.5

Accrued payroll and personal property taxes

17.7

16.8

Employee benefit obligations

2.1

2.2

Deferred income taxes - current

.1

Accrued interest

1.8

1.8

Other current liabilities

7.4

7.3

Liabilities held for sale - current

8.5

Total Current Liabilities

145.5

156.5

Senior notes

250.0

250.0

Long-term debt - other

192.6

194.3

Post-retirement benefits other than pensions

7.7

7.8

Pension liabilities

111.4

91.5

Deferred income taxes - non-current

23.9

28.3

Other liabilities

12.4

15.0

Total Liabilities

743.5

743.4

Shareholders' Equity

Preference stock - $1.00 par value; 15 million shares authorized;

none outstanding

Common stock - $0.10 par value; 135 million shares authorized;

47.5 million and 46.1 million shares issued at November 30, 2012

and November 30, 2011, respectively

4.7

4.6

Additional contributed capital

331.8

324.9

Retained deficit

(87.2)

(114.8)

Treasury stock at cost; .6 million shares at November 30, 2012

and .4 million shares at November 30, 2011

(4.4)

(2.7)

Accumulated other comprehensive loss

(114.7)

(90.3)

Total Shareholders' Equity

130.2

121.7

Total Liabilities and Shareholders' Equity

$

873.7

$

865.1

 

Source: OMNOVA Solutions Inc.

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