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May 2009



Arkansas Best Corporation - A Wax Ink Raw Value Report

May 24, 2009 – Comments (0) | RELATED TICKERS: ARCB , YRCW , CNW.DL

How It Got Here

Financial information contained in this report is based on the company's Form 10-K filing for fiscal year ending December 31, 2008, as filed with the Securities and Exchange Commission on February 20, 2009.

The Company

Arkansas Best Corporation (Nasdaq: ABFS), a Delaware corporation, is a holding company engaged through its subsidiaries primarily in motor carrier freight transportation. The company’s principal operations are conducted through ABF Freight System, Inc. and other affiliated subsidiaries of the company.

Headquartered in Fort Smith, Arkansas, ABF is the largest subsidiary of the company, accounting for 96% of the company’s consolidated revenues for 2008. The company is one of North America’s largest LTL motor carriers, providing direct service to more than 98% of U.S. cities having a population of 30,000 or more, as well as interstate and intrastate direct service to more than 41,000 communities through 286 service centers in all 50 states, Canada, Guam, Puerto Rico and the U.S. Virgin Islands.

Through arrangements with trucking companies in Mexico, the company provides motor carrier services to customers in that country as well.


The company was publicly owned from 1966 until 1988, when it was acquired in a leveraged buyout by a corporation organized by Kelso & Company, L.P. In 1992 the company completed a public offering of its common stock, par value $.01. The company also repurchased substantially all of the remaining shares of common stock beneficially owned by Kelso, thus ending Kelso’s investment in the company.

In 1993 the company completed a public offering of 1,495,000 shares of $2.875 Series A Cumulative Convertible Exchangeable Preferred Stock. The company’s Preferred Stock was traded on The Nasdaq National Market under the symbol “ABFSP.” On July 10, 2000, the company purchased 105,000 shares of its Preferred Stock at $37.375 per share, for a total cost of $3.9 million. All of the shares purchased were retired.

On August 13, 2001, the company announced the call for redemption of the 1,390,000 shares of Preferred Stock that remained outstanding. At the end of the extended redemption period on September 14, 2001, 1,382,650 shares of the Preferred Stock were converted to 3,511,439 shares of Common Stock.

The remaining 7,350 shares of Preferred Stock were redeemed at the redemption price of $50.58 per share for a total cost of $0.4 million. The companydelisted its Preferred Stock from trading on The Nasdaq National Market on September 12, 2001.

In 1995, pursuant to a tender offer, a wholly owned subsidiary of the company purchased the outstanding shares of common stock ofWorldWay Corporation, for a total purchase price of approximately $76.0 million. WorldWay was a publicly held company engaged through its subsidiaries in motor carrier freight transportation.

In 1999, the company acquired 2,457,000 shares of Treadco, Inc. common stock for $23.7 million via a cash tender offer pursuant to a definitive merger agreement. As a result of the transaction, Treadco became a wholly owned subsidiary of the company. On September 13, 2000, Treadco entered into a joint venture agreement  with The Goodyear Tire and Rubber Company, Inc. (NYSE: GT) to contribute its business to a new limited liability company called Wingfoot Commercial Tire Systems, LLC. On April 28, 2003, the company sold its 19.0% ownership interest in Wingfoot to Goodyear for $71.3 million.

In 2001, the company sold the stock of G.I. Trucking Company, a wholly owned subsidiary of the company acquired as part of the WorldWay transaction, for $40.5 million to a company formed by the senior executives of G.I. Trucking Company and Estes Express Lines.

In 2003, Clipper Exxpress Company, a wholly owned subsidiary of the company acquired in 1994, sold all customer and vendor lists related to Clipper’s less-than-truckload (LTL) freight business to Hercules Forwarding, Inc. of Vernon, California, for $2.7 million. With this sale, Clipper exited the LTL business.

On June 15, 2006, the company sold Clipper to a division of Wheels Group for $21.5 million. With this sale, the company exited theintermodal transportation business.

The company offers national, inter-regional and regional transportation of general commodities through standard, expedited and guaranteedLTL services. General commodities include all freight except hazardous waste, dangerous explosives, commodities of exceptionally high value and commodities in bulk. The company’s shipments of general commodities differ from shipments of bulk raw materials, which are commonly transported by railroad, truckload tank car, pipeline and water carrier.

General commodities transported by the company include, among other things, food, textiles, apparel, furniture, appliances, chemicals,non-bulk petroleum products, rubber, plastics, metal and metal products, wood, glass, automotive parts, machinery and miscellaneous manufactured products.

During the year ended December 31, 2008, no single customer accounted for more than 3.0% of company revenues, while the ten largest customers accounted for 7.2% of company revenues.

LTL Motor Carrier Operations

The company’s LTL (Less-Than-Truckload) motor carrier operations are conducted through ABF; ABF Freight System (B.C.), Ltd.; ABF Freight System Canada, Ltd.; ABF Cartage, Inc.; and Land-Marine Cargo, Inc.

LTL carriers service shipping customers by transporting a wide variety of large and small shipments to geographically dispersed destinations. Typically, shipments are picked up at customers’ places of business and consolidated at a local terminal. Shipments are consolidated by destination for transportation by intercity units to their destination cities or to distribution centers. At distribution centers, shipments from various terminals can be reconsolidated for other distribution centers or, more typically, local terminals.

Once delivered to a local terminal, a shipment is delivered to the customer by local trucks operating from the terminal. In some cases, when one large shipment or a sufficient number of different shipments at one origin terminal are going to a common destination, they can be combined to make a full trailer load. A trailer is then dispatched to that destination without rehandling.

In addition to the traditional long-haul model, the company has implemented a regional network to facilitate its customers’ next-day and second-day delivery needs.

Development and expansion of the regional network required added labor flexibility, strategically positioned freight exchange points and increased door capacity at a number of key locations.

Through a multi-phased program, ABF’s regional network now covers the eastern two-thirds of the United States. Marketing of the regional initiative was initiated in August 2006 in the East Coast states and in January 2007 in the South and Central regions. Further operational changes, which were implemented in August 2008 and marketed beginning in September 2008, reduced transit times in the regional network and in certain of ABF’s long-haul lanes.

The expansion of the regional network to the Western region of the United States may be implemented in 2009.

Competition, Pricing and Industry Factors

The trucking industry is highly competitive. The company’s LTL motor carrier subsidiaries actively compete for freight business with other national, regional and local motor carriers and, to a lesser extent, with private carriage, freight forwarders, railroads and airlines. Competition is based primarily on personal relationships, price and service.

Competition for freight revenue, however, has resulted in discounting which effectively reduces prices paid by shippers. In an effort to maintain and improve its market share, the company’s LTL motor carrier subsidiaries offer and negotiate various discounts.

The company charges a fuel surcharge based upon changes in diesel fuel prices compared to a national index. Throughout 2008, the fuel surcharge mechanism continued to have strong market acceptance among their customers, although certain nonstandard arrangements with some of the company’s customers have limited the amount of fuel surcharge recovered.

The trucking industry, including the company’s LTL motor carrier subsidiaries, is directly affected by the state of the residential and commercial construction, manufacturing and retail sectors of the North American economy. The trucking industry faces rising costs including government regulations on safety, equipment design and maintenance, driver utilization and fuel economy. The trucking industry is dependent upon the availability of adequate fuel supplies.

The company has not experienced a lack of available fuel but could be adversely impacted if a fuel shortage were to develop. In addition, seasonal fluctuations also affect tonnage to be transported. Freight shipments, operating costs and earnings also are affected adversely by inclement weather conditions.

The company competes with nonunion and union LTL carriers. Competitors include YRC Worldwide, Inc. (Nasdaq: YRCW), FedEx Corporation (NYSE: FDX), United Parcel Service, Inc. (NYSE: UPS), Con-Way, Inc. (NYSE; CNW), Old Dominion Freight Line, Inc. (Nasdaq: ODFl), SAIA, Inc. (Nasdaq: SAIA), and a Canadian company, Vitran Corporation, Inc. (Nasdaq: VTNC).

The final hours of service rules regulating driving time for commercial truck drivers, announced by the U.S. Department of Transportation (“DOT”) in April 2003, became effective in January 2009. The rules, which were implemented by the company in January 2004, allow a driver to drive up to 11 hours within a 14-hour nonextendable window from the start of the workday, following at least 10 consecutive hours off duty. The hours of service rules have been challenged in federal court, and future modifications to the rules, if any, may impact the company’s operating practices.

The operational impact of these rules on the company's over-the-road line haul relay network has been to provide modest opportunity to increase driver and equipment utilization and improve transit times. The rules also have allowed LTL carriers, such as ABF, to adjust their over-the-road line haul relay network to take advantage of the 11 hours of drive time during a tour of duty.

Impacts on the truckload industry have included a decline in driver utilization and flexibility and, as a result, truckload carriers have increased charges for stop-off and detention services, making LTL carriers somewhat more competitive on many larger shipments.

Insurance, Safety and Security

Generally, claims exposure in the motor carrier industry consists of cargo loss and damage, third-party casualty and workers’ compensation. The company’s motor carrier subsidiaries are effectively self-insured for the first $1.0 million of each cargo loss, $1.0 million of each workers’ compensation loss and generally $1.0 million of each third-party casualty loss. The company maintains insurance which it believes is adequate to cover losses in excess of such self-insured amounts.
However, the company has experienced situations where excess insurance carriers have become insolvent. The company pays assessments and fees to state guaranty funds in states where it has workers’ compensation self-insurance authority. In some of these states, depending on each state’s rules, the guaranty funds may pay excess claims if the insurer cannot due to insolvency.

There can be no certainty of the solvency of individual state guaranty funds. The company has been able to obtain what it believes to be adequate coverage for 2009 and is not aware of problems in the foreseeable future which would significantly impair its ability to obtain adequate coverage at market rates for its motor carrier operations.

Since 2001, the company has been subject to cargo security and transportation regulations issued by the Transportation Security Administration. Since 2002, the company has been subject to regulations issued by the Department of Homeland Security. The company is not able to accurately predict how past or future events

will affect government regulations and/or the transportation industry, and believes that any additional security measures that may be required by future regulations could result in additional costs; however, other carriers would be similarly affected.


As of December 31, 2008, athe company had a total of 10,512 active employees. Employee compensation and related costs are the largest components of the company’s operating expenses. In 2008, such costs amounted to approximately 60% of company revenues. Approximately 75% of the company’s employees are covered under a collective bargaining agreement with the International Brotherhood of Teamsters.

The company’s current five-year agreement with the International Brotherhood of Teamsters expires on March 31, 2013, with the current agreement providing for compounded annual contractual wage and benefit increases of approximately 4%, subject to wage rate cost-of-living adjustments, which includes company contributions to various multi-employer plans maintained for the benefit of employees who are members of the International Brotherhood of Teamsters.

Amendments to the Employee Retirement Income Security Act of 1974 (“ERISA”), pursuant to the Multi-employer Pension Plan Amendments Act of 1980 (the “MPPA Act”), substantially expanded the potential liabilities of employers who participate in such plans. Under ERISA, as amended by the MPPA Act, an employer who contributes to a multi-employer pension plan and the members of such employer’s controlled group are jointly and severally liable for their share of the plan’s unfunded vested liabilities in the event the employer ceases to have an obligation to contribute to the plan or substantially reduces its contributions to the plan, in the event of plan termination or withdrawal by the company from the multi-employer plans for example.

Three of the largest LTL carriers are unionized and generally pay comparable amounts for wages and benefits. However, certain unionized competitors of the company were recently granted wage concessions which could effectively lower their cost structures beginning in 2009 and as a result may potentially increase pricing competition in the LTL market.

Union companies typically have similar wage costs and significantly higher fringe benefit costs compared to nonunion companies. The Company believes that union companies also experience lower employee turnover, higher productivity, lower loss and damage claims and lower accident rates compared to some non-union firms.

Due to its national reputation, its working conditions and its wages and benefits, the company has not historically experienced any significant long-term difficulty in attracting or retaining qualified employees, although short-term difficulties have been encountered in certain situations.

Investment Thoughts

The stock is on the Wax Ink watch list, with a Reasonable Value Estimate of $102, a Buy Target of $51, a First Sell Target of $99, and a Close Target of $107. Going forward, we are projecting an approximate 60% decline in our  Reasonable Value Estimate for 2009 based on a projected decline in Net Operating Profits.

With a recent close of $26.57, the stock is currently carrying a PE of 5.89 based on the $4.51 per share in earnings the company generated in 2008.

In addition to keeping Debt low at $0.66 per share and Cash at a reasonable level of $3.99 per share, management was able to generate a Return On Invested Capital of more than 23%, increase Free Cash Flow to $5.22 per share, and maintain Sharehold Equity at close to $25 per share, while keeping Tangible Book Value at just above $22.

In our opinion, these are outstanding achievements for which management should be commended, especially when considering that the economy during the last four months of 2008 went straight into the proverbial crapper.

While be believe that a reasonable entry point for this stock is at or about $39, we are also aware that the general economy is still near collapse. We do not believe for one second, what the Federal Reserve and the Treasury Secretary are saying, that the economy is "on the mend".

Instead, we believe that the economy will not start to improve until sometime in mid to late 2011.

Admittedly, there will be bull runs amid the current bear market, but we are anticipating that over the coming months, new lows will be tested in the general markets and as such, it is our feeling that a more reasonable entry point for this stock is between $19 and $21.


Arkansas Best Corporation Worksheet 1208   [more]



Adams Golf, Inc. - A Wax Ink Raw Value Report

May 23, 2009 – Comments (3) | RELATED TICKERS: ELY , NKE , FO.DL2

"At Adams Golf our most significant profitability measure is EBITDA..."

How it Got Here

Financial information contained in this report is based on the company's latest Form 10-K filing for fiscal year ending December 31, 2008, as filed with the SEC on March 11, 2009.

Executive compensation information contained in this report is based on the company's latest Form DEF 14A filing as filed with the SEC on April 15, 2009.

In addition, according to a Confidential Treatment Order certain information contained in the 10-K filing was approved for public exclusion until April 15, 2009.

The Company

Adams Golf, Inc. (Nasdaq: ADGF) incorporated in 1987, designs, assembles, markets and distributes golf clubs for all skill levels, including Speedline drivers and hybrid fairway woods, Idea Tech a4 and a4 OS I-woods and irons, Idea a3 and a3 OS I-woods and irons, Idea Pro Gold I-woods and irons and Insight Tech a4 and a4 OS drivers and hybrid-fairway woods, RPM family drivers and fairway woods and irons, the Ovation family of drivers, fairway woods and irons, and Tom Watson signature wedges. In addition, under Women's Golf Unlimited the company distributes the Lady Fairway and Square 2 brands.


In September 2008, the company launched the Idea Tech a4 and a4OS hybrid irons sets and hybrid irons and integrated sets. The a4 irons feature six forged cavity back irons integrated with two graphite-shafted hybrids. The Tech a4 OS irons are offered in three different eight piece configurations—one for men, one for women, and one for seniors. All sets have seven hybrid irons integrated into the set. The company also offers the Tech a4 OS Women’s 13 piece designer set with a bag by Keri Golf. During the year ended December 31, 2008, the Irons segment accounted for 62.5% of the company's net sales.


The company offers different driver models based on the shape, size and material used in the club head. Adams Golf's driver heads are made of titanium, alloy and/or carbon fiber, depending on the model. The shafts of the company's drivers are generally graphite. During the first quarter of 2009, the company launched the Speedline driver line. In February 2008, it introduced its new Insight XTD series of drivers. In 2008, the Drivers segment accounted for 12.3% of the company's net sales.

Fairway Woods

During the first quarter of 2009, the Company launched the Speedline hybrid fairway woods line. The Speedline hybrid-fairway woods feature the playability of a hybrid and the distance of a fairway wood. The Speedline hybrid-fairway woods are offered in standard and draw variations with a variety of lofts and shaft flexes.

In February 2008 it introduced the Insight XTD hybrid-fairway woods. The Company offers a variety of individual hybrids in the recently introduced Idea Tech a4, a4 OS, Idea a3, a3 OS, and Idea Pro Gold lines. During 2008, the Fairway Woods segment accounted for 24.4% of the company's net sales.

Wedges and Other

As a complement to the Idea irons, the company offers the Tom Watson signature wedges with a classic profile and the Puglielli wedges. Adams Golf also offers a line of putters, golf bags, hats and other accessories. In 2008, the Wedges and Other segment accounted for 0.8% of the company's net sales.


The company competes with Callaway Golf Company, Inc. (NYSE: ELY) Adidas-Salomon AG, Nike, Inc. (NYSE: NKE), Fortune Brands, Inc. (NYSE: FO), and Karsten Assembly Company (PING).

Backing Up

On February 4, 2008, the company's stockholders approved a 1-4 reverse stock split effective February 15, 2008. In addition, the stockholders approved moving the company's stock listing from the OTC Bulletin Board to the NASDAQ.

Related Party Transactions

According to company SEC filings, the company does not have a specific set of policies and procedures with respect to the approval of related party transactions, relying instead on their Code of Conduct, found in their Employee Information Guide, which governs the company's decision-making with respect to related party transactions.

The company stated that in general, related party transactions were infrequent in nature and are always disclosed to the Board,and that if a related party transaction affects a specific Board member, that Board member will be recused from voting with respect to the approval of the related party transaction. In fiscal 2008, there were no related party transactions that were reviewed for approval.

It was disclosed that Ms. Cindy Adams-Herington, the daughter of Chairman Barney Adams, owns 40% of Plano Paper and Supply and her husband, Mr. Tom Herington owns 60% of Plano Paper and Supply, and that Chairman Barney Adams, is a lender to Plano Paper and Supply.

Additionally, in June 2005, Adams Golf, in an open bid process, selected Plano Paper and Supply as a supplier of shipping boxes for their products, and during fiscal 2008, made total purchases of $359,751 from Plano Paper and Supply. This supply arrangement is subject to change at any time based on then current market conditions and an ongoing competitive bidding process.

The dollars spent with Plano Paper and Supply during fiscal 2008, was 359.75% of EBITDA.


Two adult children of Chairman Barney Adams are employees of Adams Golf. Mr. Edwin Adams serves as General Counsel, and for fiscal 2008 received an annual base salary of $134,000 and a performance bonus of $14,500 related to second half 2007 fiscal year performance.

In addition, Ms. Cindy Adams-Herington holds the position of Vice President, Advertising and Marketing and received an annual base salary in fiscal 2008 of $168,826 and a performance bonus of $40,977 related to second half 2007 fiscal year performance.

Neither Edwin Adams nor Cindy Herington has employment contracts or change of control arrangements with the company.

The dollars spent for Mr. Adams' children during fiscal 2008 was 302.83% of EBITDA.

Executive and Director Compensation

There really isn't much reason to delve into the Directors and Named Executive Officers specific compensation and/or stock options, since there is no effective way to change it. However, what can be highlighted are the dollars spent to compensate Senior Executives and Directors over and above their standard compensation. Additional compensation that appears to have kept the company on the path to mediocrity.

Included in the 2008 compensation package for Mr. Brewer, the CEO was $24,586 for automobile expenses; $1,436 for Group Term Life insurance premiums; $21,833 for health and welfare benefits; $2,430 of non-reimbursed business expenses; $18,446 for country club memberships and $9,200 of 401k matching contributions. The dollars spent for Mr. Brewer's "additional" compensation for fiscal 2008 was 77.93% of EBITDA.

Included in the 2008 compensation package for Mr. Eric Logan, Senior VP and CFO was $455 for Group Term Life insurance premiums; $24,013 for health and welfare benefits; and $10,379 of 401k matching contributions. The dollars spent for Mr. Logan's "additional" compensation for fiscal 2008 was 34.85% of EBITDA.

Included in the 2008 compensation for Mr. Adams, Chairman of the Board of Directors, was $21,630 in automobile expenses, $6,995 in group term life insurance premiums, $18,167 for health and welfare benefits, $426 of non-reimbursed business expenses and $7,356 of 401k company matching contributions. The dollars spent for Mr. Adams' additional compensation for fiscal 2008 was 54.57% of EBITDA.

It is noted that for fiscal 2009, the company's non-employee directors, agreed to a reduction in their annual cash retainer, reducing it from $40,000 to $20,000.

In addition, CEO Brewer agreed to a fiscal 2009 salary reduction from $425,000 to $360,000, and CFO Logan agreed to a 2009 salary reduction from $215,000 to $200,000. There was no notice that Mr. Adams would reduce his $254,000 2008 salary for fiscal 2009.

Reasonable Value

Adams Golf is on the Wax Ink Watch List with a Reasonable Value Estimate of $3.99, a Buy Target of $2.00, a First Sell Target of $3.89, and a Close Target of $4.21. Based on a review of the previously referenced company SEC filings, the Buy Target has been reduced from $2.00, to $0.77.

Investment Thoughts

Management prattles on about the company's most "significant profitability measure" being EBITDA. Yet for fiscal 2008 EBITDA was 0.11% of Sales, a decrease from fiscal 2007 of just over 5.5%. So instead of reigning in a portion of Executive/Director compensation, which would have added almost $168,000 to the company's EBITDA, management kept their collective hands in the till and got what they and the company had agreed upon.

Certainly, these things were agreed to well in advance, and there was nothing noted in the company filings that mentioned employee or employee benefit reductions. Yet for a company with a market cap of $20 million, whose main asset is $6 million in cash, $5.3 million less than at the end of fiscal 2007, it just seems that management would be doing all it could to hold on to the company's most important asset. Especially in light of the current economy difficulties the world is experiencing.

Additionally, considering that the game of golf is not exactly an inexpensive game, with a set of golf clubs selling for more than $1500, not to mention golf shoes, a bag for the clubs, green fees and cart rentals, it just seems reasonable the management would be considering the future.

But, nowhere did management provide any discussion about how the consumer, strapped for cash and carrying far too much debt, was going to afford the products the company makes. It is almost as if management's plan is to simply stick its head in the sand and hope for the best.

While this is troubling, it really isn't surprising considering the management seemingly had no idea where the overall economy was going, nor apparently, did management have any plan in place, should the overall economic enter a slowing period.

We believe that an investment in Adams Golf, Inc. would be extremely ill advised, with the probability of investment loss high, and the probability that management would have a clue, even higher.

Indeed Tom Watson plays with them, and so do Aaron Baddeley, Brittany Lang, and Brittany Lincicome. Which is quite a contrast considering the only thing management seems able to play with is themselves.


Adams Golf Worksheet 1208   [more]



Barrett Business Services, Inc. - Worksheet Update

May 18, 2009 – Comments (2) | RELATED TICKERS: BBSI

I apologize profusely for not getting to this sooner, especially since I've had a number of requests for the final version.


Barrett Business Services, Inc. Worksheet - 2008




Investing in Later - Thoughts on Fishing

May 17, 2009 – Comments (6) | RELATED TICKERS: SBUX , ATVI , AMZN

The Hype
Over the past several months, I continue to read article after article about why now is the best time to put money to work in the markets.

While I happen to agree that the over the longer term, the best place for your hard won investment dollars is in the markets, I also don't believe that the information gleaned from investing television shows like Fast Money and Mad Money  will ever make the average investor a penny.

How many good investing ideas have you gotten from Neil Cavuto, Maria Bartiromo, Erin Burnett, or Larry Kudlow? Granted they all have a great screen presence, but collectively they seem to know less about investing than a hog knows about the hereafter!

The Need
For example, over the past couple of weeks, I have been keeping an extremely informal track of stocks that have been recommended by the financial press, as "today" or "now" or "immediate" or "must have", investment stocks.

But what intrigued me was not one investment television show or investment website that recommended buying these stocks "at once", explained the need for urgency.

Not only did they not explain the need for urgency, none of them even attempted to hazard a guess as to what they thought a fair value for any of the stocks might be.

In other words, all of these places say buy this stock now because their wizards said so. The next thing that happens is all of the wizards head for the can, leaving the average investor standing there with his hand in his pants and his mind in Arkansas.  [more]



Net Flix, Inc. - A Wax Ink Raw Value Update

May 09, 2009 – Comments (0) | RELATED TICKERS: NFLX , WMT

Company Thoughts  [more]



Buffalo Wild Wings - A Raw Value Update

May 07, 2009 – Comments (4) | RELATED TICKERS: BWLD

Back in February, Wax Ink did a small piece on Buffalo Wild Wings, Inc. (Nasdaq: BWLD). The post contained a bit of information about the company, and my worksheet. Now that the company has filed its SEC Form 10-K for fiscal 2008, I thought it would be a good time to update my worksheet.  [more]



The Companies of Moly B

May 03, 2009 – Comments (2) | RELATED TICKERS: FCX , HMY , TCPTF

It covers 11 companies, contains 41 pages, and took me more than 150 hours to research, type, edit, compile, and post. It has misspelled words, run on sentences, and words that take practice to pronounce.   [more]

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