# What Are Write Downs?

Published: 2026-01-09
Author: Warren Team
URL: https://www.heywarren.com/blog/write-downs

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When Kraft Heinz announced a $15.4 billion write down in 2019, its stock dropped nearly 28% in a single day — wiping out more shareholder value than most companies are worth in total. That single accounting event reshaped how analysts evaluate consumer brands.

Most investors see the phrase "write downs" and assume it simply means a company is losing money. That is an understandable mistake, but it misses the real story. Write downs are a specific accounting tool that adjusts an asset's value on the balance sheet — and understanding them tells you far more about a company's financial health than a headline number ever could.

By the end of this guide, you will understand exactly what write downs are, how they differ from write-offs, why management teams use them, and what they signal to investors. You will also be able to spot the red flags that often precede a major write down before the market reacts.

The [Federal Reserve](https://www.federalreserve.gov/)'s financial stability reports consistently flag asset valuation adjustments as a leading indicator of broader credit stress. That context makes this topic especially relevant for anyone managing a portfolio today.

## What Are Write Downs?

A write down is an accounting adjustment that reduces the book value of an asset on a company's balance sheet when its fair market value falls below its recorded carrying value. The adjustment flows through the income statement as a loss, reducing net income for that period. Write downs apply to assets that still have some value — just less than originally recorded.

![How a write down moves from asset impairment through to reduced shareholder equity.](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20875%20125%22%20width%3D%22875%22%20height%3D%22125%22%20role%3D%22img%22%3E%3Ctitle%3EFlow%20diagram%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Crect%20x%3D%2230%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22115%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EAsset%20Impaired%3C%2Ftext%3E%3Ctext%20x%3D%22115%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3EFair%20value%20%26lt%3B%20book%20value%3C%2Ftext%3E%3Cline%20x1%3D%22205%22%20y1%3D%2262.5%22%20x2%3D%22237%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22244%2C62.5%20235%2C57.5%20235%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22245%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22330%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EBalance%20Sheet%3C%2Ftext%3E%3Ctext%20x%3D%22330%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3EAsset%20reduced%3C%2Ftext%3E%3Cline%20x1%3D%22420%22%20y1%3D%2262.5%22%20x2%3D%22452%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22459%2C62.5%20450%2C57.5%20450%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22460%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22545%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EIncome%20Statement%3C%2Ftext%3E%3Ctext%20x%3D%22545%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3ELoss%20recorded%3C%2Ftext%3E%3Cline%20x1%3D%22635%22%20y1%3D%2262.5%22%20x2%3D%22667%22%20y2%3D%2262.5%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cpolygon%20points%3D%22674%2C62.5%20665%2C57.5%20665%2C67.5%22%20fill%3D%22%2364748b%22%2F%3E%3Crect%20x%3D%22675%22%20y%3D%2225%22%20width%3D%22170%22%20height%3D%2275%22%20rx%3D%2210%22%20fill%3D%22white%22%20stroke%3D%22%232563eb%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22760%22%20y%3D%2258.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EEquity%20Reduced%3C%2Ftext%3E%3Ctext%20x%3D%22760%22%20y%3D%2278.5%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3ERetained%20earnings%20fall%3C%2Ftext%3E%3C%2Fsvg%3E)

*How a write down moves from asset impairment through to reduced shareholder equity.*

Write downs occur across many asset types: inventory that has become obsolete, goodwill acquired in an overpriced merger, real estate that has declined in value, and [accounts receivable](/blog/accounts-receivable) that appear unlikely to be fully collected. In each case, accounting standards — specifically [GAAP](https://www.fasb.org/) in the United States and [IFRS](https://www.ifrs.org/) internationally — require companies to recognize the impairment as soon as it becomes apparent, not when the asset is eventually sold.

The underlying principle is called the **lower of cost or [net realizable value](/blog/net-realizable-value)** rule. It prevents companies from carrying assets at inflated values that no longer reflect economic reality.

### The Balance Sheet Impact

When a write down occurs, the asset account decreases and a loss is recorded on the income statement. Suppose a retailer paid $10 million for inventory that can now only be sold for $6 million. The company must reduce the inventory balance by $4 million and record a $4 million loss. Equity also shrinks by the same amount because retained earnings absorb the charge.

### The Income Statement Impact

The impairment loss typically appears as a separate line item in operating expenses or below the [operating income](/blog/formula-for-operating-income) line, depending on the asset type. Analysts often strip out one-time write downs when calculating **adjusted EBITDA** because they are non-cash charges — but that does not mean investors should ignore them.

## How Write Downs Differ from Write-Offs

A write-off eliminates the full value of an asset from the balance sheet, bringing its recorded value to zero. A write down reduces the carrying value partially, leaving some residual amount on the books. The distinction matters because write-offs signal total loss, while write downs signal impairment — a more nuanced situation.

![A write down reduces asset value partially while a write-off eliminates it entirely.](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20800%20210%22%20width%3D%22800%22%20height%3D%22210%22%20role%3D%22img%22%3E%3Ctitle%3EComparison%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Ctext%20x%3D%22230%22%20y%3D%2257.5%22%20text-anchor%3D%22end%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EWrite%20Down%3C%2Ftext%3E%3Crect%20x%3D%22240%22%20y%3D%2225%22%20width%3D%22450%22%20height%3D%2255%22%20rx%3D%226%22%20fill%3D%22%232563eb%22%2F%3E%3Ctext%20x%3D%22702%22%20y%3D%2257.5%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22700%22%20fill%3D%22%232563eb%22%3E%2430K%3C%2Ftext%3E%3Ctext%20x%3D%22230%22%20y%3D%22152.5%22%20text-anchor%3D%22end%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22600%22%20fill%3D%22%230f172a%22%3EWrite-Off%3C%2Ftext%3E%3Crect%20x%3D%22240%22%20y%3D%22120%22%20width%3D%226%22%20height%3D%2255%22%20rx%3D%226%22%20fill%3D%22%237c3aed%22%2F%3E%3Ctext%20x%3D%22258%22%20y%3D%22152.5%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2214%22%20font-weight%3D%22700%22%20fill%3D%22%237c3aed%22%3E%240%3C%2Ftext%3E%3C%2Fsvg%3E)

*A write down reduces asset value partially while a write-off eliminates it entirely.*

Think of it this way: if a customer owes you $50,000 and declares bankruptcy, you write off the entire receivable. If the same customer has cash flow problems but is still operating, you might record a write down of $20,000, reflecting that you expect to collect only $30,000.

**Key differences at a glance:**

- **Write down**: Partial reduction in asset value; some value remains; company still owns the asset
- **Write-off**: Complete elimination of asset value; balance goes to zero; asset may be disposed of
- **Trigger**: Write downs require evidence that fair value is below book value; write-offs require evidence of total unrecoverability
- **Reversibility**: Under IFRS, some write downs can be reversed if value recovers; under US GAAP, most impairments cannot be reversed

The confusion between these two terms costs investors clarity. When a pharmaceutical company "writes down" a failed drug candidate, it still expects partial recovery — perhaps through licensing. When it "writes off" the asset entirely, the project is dead.

## Real-World Write Down Examples

High-profile asset write downs appear regularly in financial headlines, often revealing strategic mistakes years in the making. These cases illustrate how write downs expose the gap between what management believed an acquisition was worth and what the market ultimately proved.

### Kraft Heinz and Goodwill Impairment

In February 2019, Kraft Heinz recorded a $15.4 billion goodwill impairment — one of the largest in corporate history. The charge reflected the declining value of brands like Oscar Mayer and Kraft, which had lost ground to private-label competitors and healthier alternatives. Goodwill, which arises when one company pays more than book value to acquire another, must be tested annually for impairment under GAAP. When the testing revealed that the brands could no longer support their recorded values, the write down was mandatory.

### AOL Time Warner's $54 Billion Write Down

In 2002, AOL Time Warner recorded a $54 billion goodwill write down following its disastrous merger in 2000 — the single largest write down in history at the time. The charge acknowledged what the market had already priced in: the deal destroyed rather than created value. The write down did not directly drain cash, but it signaled a catastrophic failure of strategic judgment.

### Inventory Write Downs in Retail

Retailers regularly write down inventory when fashion trends shift or when they overstocked ahead of a demand slowdown. During the 2022 inventory glut, companies like Target and Walmart took hundreds of millions in inventory write downs as post-pandemic consumer preferences normalized. These write downs directly compressed gross margins and served as an early warning of earnings pressure.

## How Asset Write Downs Affect Your Investments

Write downs reduce reported earnings and book value, but their impact on a company's intrinsic value depends on context. A one-time write down on an overpriced acquisition may actually be good news — it clears the decks and aligns management expectations with reality. Recurring write downs, however, signal a deeper problem with capital allocation or competitive positioning.

### Earnings Per Share and Valuation Multiples

Because write downs reduce net income, they lower **[earnings per share (EPS)](/blog/calculate-eps)** in the period recorded. If you are comparing companies using a price-to-earnings ratio, you need to decide whether to use GAAP EPS (which includes the write down) or adjusted EPS (which strips it out). Neither answer is automatically right. A company that repeatedly posts write downs has a structural problem that adjusted EPS conceals.

### Book Value and Price-to-Book Ratio

The **price-to-book (P/B) ratio** divides market capitalization by book value of equity. Write downs reduce book value, which raises P/B ratios — making a company appear more expensive relative to its assets. For value investors who rely heavily on book value, a string of write downs can scramble their screening models.

### Cash Flow Is Unaffected

Here is the key nuance: write downs are non-cash charges. They do not reduce the company's bank balance or its ability to generate [free cash flow](/blog/cashflow-free). This is why analysts at firms like Goldman Sachs and JPMorgan typically add back impairment charges when building **discounted cash flow (DCF)** models. The cash the company originally spent on the asset is already gone — the write down simply acknowledges that the investment did not work out.

## Common Mistakes Investors Make When Evaluating Write Downs

Misreading write downs is one of the most common errors in fundamental analysis. These mistakes cut in both directions — some investors panic when they should not, and others dismiss warning signs that deserve serious attention.

**Mistake 1: Treating all write downs as catastrophic**
A single, isolated goodwill write down following an overpriced acquisition often clears uncertainty rather than creating it. Once the impairment is recognized, the balance sheet reflects reality, and future comparisons become cleaner. The stock often recovers within 12 months if underlying operations remain strong.

**Mistake 2: Ignoring recurring write downs**
If a company takes write downs in multiple consecutive periods, the pattern suggests a systemic issue — poor underwriting standards, deteriorating competitive position, or management teams consistently overpaying for acquisitions. This is a red flag, not a routine adjustment.

**Mistake 3: Confusing the write down with the underlying cash loss**
The cash loss happened when the asset was purchased at an inflated price. The write down is simply the accounting recognition of that mistake. Conflating the two leads investors to misread cash flow statements.

**Mistake 4: Overlooking disclosure details**
Companies must disclose the assumptions used in impairment testing, including **discount rates** and **projected cash flows**. Aggressive assumptions that barely justify avoiding a write down are a warning sign worth investigating in the footnotes of annual reports.

## What Write Downs Signal About Management Quality

Experienced investors treat write downs as a window into management decision-making, not just an accounting artifact. A company that consistently avoids write downs through realistic budgeting and disciplined acquisitions demonstrates strong capital allocation. One that regularly overpays and then writes down assets is burning shareholder money.

![How frequency and cause of write downs together indicate management quality and investment risk.](data:image/svg+xml,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20viewBox%3D%220%200%20720%20480%22%20width%3D%22720%22%20height%3D%22480%22%20role%3D%22img%22%3E%3Ctitle%3EQuadrant%20matrix%3C%2Ftitle%3E%3Crect%20width%3D%22100%25%22%20height%3D%22100%25%22%20fill%3D%22%23f8fafc%22%2F%3E%3Crect%20x%3D%2290%22%20y%3D%2225%22%20width%3D%22300%22%20height%3D%22190%22%20fill%3D%22%23dbeafe%22%2F%3E%3Crect%20x%3D%22390%22%20y%3D%2225%22%20width%3D%22300%22%20height%3D%22190%22%20fill%3D%22%23d1fae5%22%2F%3E%3Crect%20x%3D%2290%22%20y%3D%22215%22%20width%3D%22300%22%20height%3D%22190%22%20fill%3D%22%23ffedd5%22%2F%3E%3Crect%20x%3D%22390%22%20y%3D%22215%22%20width%3D%22300%22%20height%3D%22190%22%20fill%3D%22%23ede9fe%22%2F%3E%3Cline%20x1%3D%2290%22%20y1%3D%22215%22%20x2%3D%22690%22%20y2%3D%22215%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Cline%20x1%3D%22390%22%20y1%3D%2225%22%20x2%3D%22390%22%20y2%3D%22405%22%20stroke%3D%22%2364748b%22%20stroke-width%3D%222%22%2F%3E%3Ctext%20x%3D%22240%22%20y%3D%22100%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22700%22%20fill%3D%22%230f172a%22%3ECaution%3C%2Ftext%3E%3Ctext%20x%3D%22240%22%20y%3D%22120%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3E%E2%80%A2%20Poor%20capital%20allocation%3C%2Ftext%3E%3Ctext%20x%3D%22240%22%20y%3D%22136%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3E%E2%80%A2%20Repeated%20overpaying%3C%2Ftext%3E%3Ctext%20x%3D%22540%22%20y%3D%22100%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22700%22%20fill%3D%22%230f172a%22%3EMonitor%3C%2Ftext%3E%3Ctext%20x%3D%22540%22%20y%3D%22120%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3E%E2%80%A2%20Macro-driven%3C%2Ftext%3E%3Ctext%20x%3D%22540%22%20y%3D%22136%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3E%E2%80%A2%20Watch%20for%20recurrence%3C%2Ftext%3E%3Ctext%20x%3D%22240%22%20y%3D%22290%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22700%22%20fill%3D%22%230f172a%22%3ERed%20Flag%3C%2Ftext%3E%3Ctext%20x%3D%22240%22%20y%3D%22310%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3E%E2%80%A2%20Systemic%20issues%3C%2Ftext%3E%3Ctext%20x%3D%22240%22%20y%3D%22326%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3E%E2%80%A2%20Consider%20exit%3C%2Ftext%3E%3Ctext%20x%3D%22540%22%20y%3D%22290%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2213%22%20font-weight%3D%22700%22%20fill%3D%22%230f172a%22%3ELikely%20Fine%3C%2Ftext%3E%3Ctext%20x%3D%22540%22%20y%3D%22310%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3E%E2%80%A2%20Clearing%20event%3C%2Ftext%3E%3Ctext%20x%3D%22540%22%20y%3D%22326%22%20text-anchor%3D%22middle%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2210%22%20fill%3D%22%2364748b%22%3E%E2%80%A2%20Review%20assumptions%3C%2Ftext%3E%3Ctext%20x%3D%2290%22%20y%3D%22425%22%20text-anchor%3D%22start%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3EInternal%20Failure%3C%2Ftext%3E%3Ctext%20x%3D%22690%22%20y%3D%22425%22%20text-anchor%3D%22end%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3EExternal%20Shock%3C%2Ftext%3E%3Ctext%20x%3D%2280%22%20y%3D%2237%22%20text-anchor%3D%22end%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3EOne-Time%3C%2Ftext%3E%3Ctext%20x%3D%2280%22%20y%3D%22405%22%20text-anchor%3D%22end%22%20font-family%3D%22system-ui%2C-apple-system%2Csans-serif%22%20font-size%3D%2211%22%20fill%3D%22%2364748b%22%3ERecurring%3C%2Ftext%3E%3C%2Fsvg%3E)

*How frequency and cause of write downs together indicate management quality and investment risk.*

Warren Buffett has written extensively in Berkshire Hathaway's annual letters about the danger of goodwill impairment. He prefers businesses that generate high returns on tangible assets, precisely because those businesses face lower risk of large-scale write downs. When you see a company carrying billions in goodwill relative to its tangible book value, ask whether management can realistically justify those values over a full economic cycle.

**Questions to ask before investing in a company with recent write downs:**

1. Is this a one-time event, or does the company have a history of impairments?
2. Did the write down result from an external shock (pandemic, commodity price collapse) or an internal failure (overpaying, poor integration)?
3. Has management acknowledged the strategic mistake, or are they attributing it entirely to macro factors?
4. What assumptions underlie the remaining goodwill or intangible asset balances?
5. Has the CFO or auditor changed recently — and did the write down follow shortly after?

These questions separate investors who react to headlines from those who understand what balance sheet changes actually mean.

## Authoritative Sources

For deeper background and primary-source data on this topic, the following authoritative sources are useful starting points:

- [IRS](https://www.irs.gov/)
- [SEC](https://www.sec.gov/)
- [Consumer Financial Protection Bureau](https://www.consumerfinance.gov/)

## Conclusion

Write downs are one of the most misunderstood tools in financial reporting. Here are the key takeaways to carry forward:

- **Write downs reduce an asset's book value partially** when fair market value drops below carrying value — they are not the same as write-offs, which eliminate the full value.
- **They are non-cash charges**, meaning they do not directly affect liquidity or free cash flow, even though they reduce reported net income.
- **Context is everything**: a single goodwill write down after an acquisition can be a clearing event; recurring write downs signal deeper problems.
- **Management quality shows up in write down history** — disciplined acquirers pay realistic prices and avoid the impairment cycle.
- **Always read the footnotes**: the assumptions behind impairment testing tell you more than the headline number.

Understanding write downs gives you a genuine analytical edge. Most market participants react to the income statement hit without asking whether the underlying business has changed. When you can separate the accounting event from the economic reality, you make better decisions.

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