NON-GAAP FINANCIAL RECONCILIATION SCHEDULE(a)
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Dollars in Millions Three Months Nine Months
Ended September 30, Ended September 30,
----------------------------------------------------------------------
2004 2003 2004 2003
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The DIRECTV Group
Operating profit (loss) $(1,550) $8 $(1,674) $40
Plus: depreciation &
amortization (D&A) 200 194 557 566
--- --- --- ---
Operating profit (loss) before
D&A $(1,350) $202 $(1,117) $606
-------- ---- -------- ----
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(a) For a reconciliation of non-GAAP financial measures for each of
our segments, please see the Notes to the Consolidated Financial
Statements included in The DIRECTV Group's quarterly report on
Form 10-Q for the quarter ended September 30, 2004 to be filed
with SEC in November 2004. Additional DIRECTV U.S. non-GAAP
financial reconciliation is included with the DIRECTV Holdings
LLC's stand-alone financial statements included in this earnings
release. Numbers may not add due to rounding.
THE DIRECTV GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions, Except Per Share Amounts)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
2004 2003 2004 2003
-------------------- --------------------
Revenues $2,861.9 $2,378.7 $7,997.9 $6,617.9
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Operating Costs and Expenses,
Exclusive of Depreciation and
Amortization Expense Shown
Separately Below
Broadcast programming
and other costs of sale 1,218.8 1,109.4 3,464.1 3,108.2
Subscriber service
expenses 213.7 169.7 548.9 487.7
Subscriber acquisition
costs:
Third party
customer
acquisitions 540.0 380.2 1,450.5 1,019.9
Direct customer
acquisitions 183.9 111.9 499.7 249.2
Upgrade and retention
costs 261.3 125.5 668.2 258.1
Broadcast operations
expenses 48.1 43.2 143.9 146.0
General and
administrative
expenses 279.9 236.5 873.8 742.7
Asset impairment
charge 1,466.1 - 1,466.1 -
Depreciation and
amortization expense 199.6 194.3 556.7 566.4
------------------------------------------------------------ ---------
Total Operating Costs
and Expenses 4,411.4 2,370.7 9,671.9 6,578.2
------------------------------------------------------------ ---------
Operating Profit (Loss) (1,549.5) 8.0 (1,674.0) 39.7
Interest income 22.6 8.0 33.0 20.5
Interest expense (26.4) (35.1) (70.3) (123.8)
Reorganization (expense)
income (0.5) (8.2) 42.9 (19.2)
Other, net 0.7 0.6 397.6 (38.0)
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Loss From Continuing
Operations Before Income
Taxes, Minority Interests
and Cumulative Effect of
Accounting Changes (1,553.1) (26.7) (1,270.8) (120.8)
Income tax benefit 624.3 25.7 497.3 54.0
Minority interests in net
(earnings) losses of
subsidiaries 3.2 (0.6) 5.5 (1.2)
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Loss from continuing
operations before cumulative
effect of accounting changes (925.6) (1.6) (768.0) (68.0)
Income (loss) from
discontinued operations,
net of taxes (83.0) 43.2 (582.2) 80.3
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Income (loss) before
cumulative effect of
accounting changes (1,008.6) 41.6 (1,350.2) 12.3
Cumulative effect of
accounting changes, net
of taxes - (64.6) (310.5) (64.6)
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Net Loss $(1,008.6) $(23.0) $(1,660.7) $(52.3)
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Basic and Diluted Earnings
(Loss) Per Common Share:
Loss from continuing
operations before cumulative
effect of accounting changes $(0.67) $- $(0.56) $(0.05)
Income (loss) from
discontinued operations,
net of taxes (0.06) 0.03 (0.42) 0.06
Cumulative effect of
accounting changes, net
of taxes - (0.05) (0.22) (0.05)
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Net Loss $(0.73) $(0.02) $(1.20) $(0.04)
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Weighted average number of
common shares outstanding
(in millions) - Basic and
Diluted 1,385.1 1,382.8 1,384.6 1,382.2
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THE DIRECTV GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
September 30, December 31,
ASSETS 2004 2003
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Current Assets
Cash and cash equivalents $3,308.7 $1,720.1
Accounts and notes receivable, net of
allowances of $126.5 and $112.7 948.1 896.3
Contracts in process 60.5 69.7
Inventories 255.2 270.3
Prepaid expenses and other 458.2 1,018.2
Assets of businesses held for sale - 6,381.6
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Total Current Assets 5,030.7 10,356.2
Satellites, net 1,553.3 2,408.2
Property, net 1,335.2 1,791.6
Goodwill, net 3,034.1 3,034.1
Intangible Assets, net 2,326.6 568.5
Investments and Other Assets 1,047.8 819.4
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Total Assets $14,327.7 $18,978.0
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities
Accounts payable $1,069.5 $1,366.3
Unearned subscriber revenue and deferred
credits 340.5 170.3
Short-term borrowings and current portion
of long-term debt 24.2 226.2
Accrued liabilities and other 1,112.6 937.5
Liabilities of businesses held for sale - 3,139.6
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Total Current Liabilities 2,546.8 5,839.9
Long-Term Debt 2,408.5 2,434.8
Other Liabilities and Deferred Credits 1,539.1 1,049.4
Commitments and Contingencies
Minority Interests 64.7 22.8
Stockholders' Equity 7,768.6 9,631.1
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Total Liabilities and Stockholders' Equity $14,327.7 $18,978.0
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THE DIRECTV GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30,
----------------------
2004 2003
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Cash Flows from Operating Activities
Loss from continuing operations before
cumulative effect of accounting changes $(768.0) $(68.0)
Adjustments to reconcile loss from continuing
operations before cumulative effect of
accounting changes to net cash provided
by operating activities
Depreciation and amortization 556.7 566.4
Equity losses from unconsolidated
affiliates - 78.5
Asset impairment charge 1,466.1 -
Net gain from sale of investments (396.5) (6.4)
Net unrealized gain on investments - (38.5)
Loss on disposal of assets 9.2 14.7
Stock-based compensation expense 52.2 6.5
Deferred income taxes and other (459.9) (82.1)
Change in other operating assets and
liabilities
Accounts and notes receivable (83.1) 109.2
Inventories 1.6 (60.4)
Prepaid expenses and other (106.9) 12.0
Accounts payable (347.2) (8.9)
Accrued liabilities (65.5) 122.9
Other 233.4 (71.3)
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Net Cash Provided by Operating Activities 92.1 574.6
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Cash Flows from Investing Activities
Investment in companies (0.4) (11.4)
Purchase (sale) of short-term investments 1.7 (91.1)
Expenditures for property (323.3) (264.6)
Expenditures for satellites (440.4) (123.6)
Proceeds from sale of investments 510.5 22.8
Proceeds from sale of businesses 2,918.4 -
Cash paid for acquired assets (976.5) -
Other 5.1 32.2
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Net Cash Provided by (Used in) Investing
Activities 1,695.1 (435.7)
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Cash Flows from Financing Activities
Net increase (decrease) in short-term borrowings 0.8 (478.0)
Long-term debt borrowings 0.8 2,626.5
Repayment of long-term debt (214.1) (18.4)
Debt issuance costs (2.4) (68.4)
Stock options exercised 16.3 11.0
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Net Cash Provided by (Used in) Financing
Activities (198.6) 2,072.7
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Net Cash Provided by Continuing Operations 1,588.6 2,211.6
Net Cash Used in Discontinued Operations - (428.1)
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Net increase in cash and cash equivalents 1,588.6 1,783.5
Cash and cash equivalents at beginning of the
period 1,720.1 324.4
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Cash and cash equivalents at the end of the
period $3,308.7 $2,107.9
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Supplemental Cash Flow Information
Interest paid $103.3 $165.0
Income taxes paid (received) 33.5 (32.6)
THE DIRECTV GROUP, INC.
SELECTED SEGMENT DATA
(Dollars in Millions)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2004 2003 2004 2003
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DIRECTV U.S.
Total Revenues $ 2,506.5 $1,932.2 $ 6,804.2 $5,440.5
Operating Profit Before
Depreciation and
Amortization (1) 145.0 234.8 465.2 790.0
Operating Profit Before
Depreciation and
Amortization Margin (1) 5.8% 12.2% 6.8% 14.5%
Operating Profit $ 2.5 $ 112.2 $ 87.2 $ 418.9
Operating Profit Margin 0.1% 5.8% 1.3% 7.7%
Depreciation and
Amortization $ 142.5 $ 122.6 $ 378.0 $ 371.1
Capital Expenditures 229.4 65.9 508.6 176.0
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DIRECTV LATIN AMERICA
Total Revenues $ 163.4 $ 155.4 $ 493.2 $ 438.7
Operating Profit (Loss)
Before Depreciation and
Amortization (1) 25.5 (16.6) 71.1 (67.8)
Operating Profit Before
Depreciation and
Amortization Margin (1) 15.6% N/A 14.4% N/A
Operating Loss $ (18.6) $ (73.7) $ (65.6) $ (218.9)
Depreciation and
Amortization 44.1 57.1 136.7 151.1
Capital Expenditures 22.8 13.7 60.0 42.4
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NETWORK SYSTEMS
Total Revenues $ 194.8 $ 338.8 $ 875.8 $ 864.8
Operating Loss Before
Depreciation and
Amortization (1) (1,480.9) (0.1) (1,498.8) (47.1)
Operating Loss (1,495.3) (17.6) (1,546.8) (100.4)
Depreciation and
Amortization 14.4 17.5 48.0 53.3
Capital Expenditures 19.7 (19.5) 82.6 87.6
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ELIMINATIONS and OTHER
Total Revenues $ (2.8) $ (47.7) $ (175.3) $ (126.1)
Operating Loss Before
Depreciation and
Amortization (1) (39.5) (15.8) (154.8) (69.0)
Operating Loss (38.1) (12.9) (148.8) (59.9)
Depreciation and
Amortization (1.4) (2.9) (6.0) (9.1)
Capital Expenditures 54.4 25.8 112.5 82.2
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TOTAL
Total Revenues $ 2,861.9 $2,378.7 $ 7,997.9 $6,617.9
Operating Profit (Loss)
Before Depreciation and
Amortization (1) (1,349.9) 202.3 (1,117.3) 606.1
Operating Profit Before
Depreciation and
Amortization Margin (1) N/A 8.5% N/A 9.2%
Operating Profit (Loss) $(1,549.5) $ 8.0 $(1,674.0) $ 39.7
Operating Profit Margin N/A 0.3% N/A 0.6%
Depreciation and
Amortization $ 199.6 $ 194.3 $ 556.7 $ 566.4
Capital Expenditures 326.3 85.9 763.7 388.2
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(1) See footnote 1 on page 6.
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The Following Pages Reflect DIRECTV U.S.' Financial Statements and
Other Data as a Stand Alone Entity
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DIRECTV HOLDINGS LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Revenues $2,506.5 $1,932.2 $6,804.2 $5,440.5
Operating Costs and Expenses,
exclusive of depreciation and
amortization expense shown
separately below
Programming and other costs 985.6 773.3 2,690.2 2,178.0
Subscriber service expenses 208.0 159.3 520.0 466.5
Subscriber acquisition
costs:
Third party customer
acquisitions 529.5 366.4 1,411.4 985.6
Direct customer
acquisitions 182.1 111.9 495.5 249.1
Upgrade and retention costs 260.2 123.2 661.2 253.3
Broadcast operations
expenses 33.2 26.8 98.4 98.9
General and administrative
expenses 162.9 136.5 462.3 419.1
Depreciation and amortization
expense 142.5 122.6 378.0 371.1
--------- --------- --------- ---------
Total Operating Costs
and Expenses 2,504.0 1,820.0 6,717.0 5,021.6
--------- --------- --------- ---------
Operating Profit 2.5 112.2 87.2 418.9
Interest expense, net (43.1) (54.6) (136.5) (141.1)
Other expense -- -- -- (4.0)
--------- --------- --------- ---------
Income (Loss) Before Income
Taxes and Cumulative Effect
of Accounting Change (40.6) 57.6 (49.3) 273.8
Income tax benefit (expense) 14.5 (21.6) 17.9 (102.7)
--------- --------- --------- ---------
Income (Loss) Before Cumulative
Effect of Accounting Change (26.1) 36.0 (31.4) 171.1
Cumulative effect of accounting
change, net of taxes -- -- (311.5) --
--------- --------- --------- ---------
Net Income (Loss) $(26.1) $36.0 $(342.9) $171.1
--------- --------- --------- ---------
DIRECTV HOLDINGS LLC
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions)
(Unaudited)
September 30, December 31,
2004 2003
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $78.1 $415.7
Accounts receivable, net of allowances
of $77.1 and $51.1 704.9 679.7
Inventories, net 136.4 100.0
Prepaid expenses and other 288.5 555.6
------------ ------------
Total Current Assets 1,207.9 1,751.0
Satellites, net 1,263.5 1,081.5
Property, net 667.0 732.3
Goodwill, net 2,891.1 2,891.1
Intangible Assets, net 2,317.7 549.7
Other Assets 107.4 109.5
------------ ------------
Total Assets $8,454.6 $7,115.1
------------ ------------
LIABILITIES AND OWNER'S EQUITY
Current Liabilities
Accounts payable and accrued liabilities $1,617.7 $1,495.2
Unearned subscriber revenue and deferred
credits 334.8 164.1
Current portion of long-term debt 10.2 213.1
------------ ------------
Total Current Liabilities 1,962.7 1,872.4
Long-Term Debt 3,276.6 2,411.9
Other Liabilities and Deferred Credits 1,029.9 417.1
Deferred Income Taxes 166.8 274.2
Commitments and Contingencies
Owner's Equity
Capital stock and additional paid-in
capital 3,020.9 2,798.9
Accumulated deficit (1,002.3) (659.4)
------------ ------------
Total Owner's Equity 2,018.6 2,139.5
------------ ------------
Total Liabilities and Owner's Equity $8,454.6 $7,115.1
------------ ------------
DIRECTV HOLDINGS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
Nine Months Ended
September 30,
-------------------
2004 2003
--------- ---------
Cash Flows from Operating Activities
Income (Loss) Before Cumulative Effect of
Accounting Change $(31.4) $171.1
Adjustments to reconcile income (loss) before
cumulative effect of accounting change to net cash
provided by operating activities, net of assets
acquired
Depreciation and amortization expense 378.0 371.1
Loss on sale or disposal of property 8.4 1.8
Cost of employee benefits 22.0 14.7
Amortization of debt issuance costs 6.7 4.9
Deferred income taxes and other (25.1) 102.7
Change in other operating assets and
liabilities
Accounts receivable, net (157.4) 55.8
Inventories (36.4) (66.4)
Prepaid expenses and other (125.9) (20.9)
Other assets (34.3) (21.0)
Accounts payable and accrued liabilities 58.6 11.2
Unearned subscriber revenue and deferred
credits 142.5 58.3
Other liabilities and deferred credits 78.7 (123.3)
--------- ---------
Net Cash Provided by Operating
Activities 284.4 560.0
--------- ---------
Cash Flows from Investing Activities
Expenditures for property and equipment (173.1) (137.7)
Expenditures for satellites (335.5) (38.3)
Cash paid for acquired assets (976.5) --
Proceeds from sale of property 3.7 --
--------- ---------
Net Cash Used in Investing Activities (1,481.4) (176.0)
--------- ---------
Cash Flows from Financing Activities
Repayment of debt (213.2) --
Net cash contribution from Parent 200.0 4.9
Borrowing from Parent 875.0 --
Cash proceeds from financing transactions -- 2,625.0
Distribution to Parent -- (2,558.5)
Debt issuance costs (2.4) (68.4)
--------- ---------
Net Cash Provided by Financing
Activities 859.4 3.0
--------- ---------
Net increase (decrease) in cash and cash
equivalents (337.6) 387.0
Cash and cash equivalents at beginning of the
period 415.7 14.8
--------- ---------
Cash and cash equivalents at end of the period $78.1 $401.8
--------- ---------
Supplemental Cash Flow Information
Interest paid $181.8 $131.3
Income taxes paid 0.5 63.0
DIRECTV HOLDINGS LLC
Non-GAAP Financial Reconciliation and Other Data
(Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2004 2003 2004 2003
---------- ------- --------- ---------
(Dollars in Millions)
Operating Profit $2.5 $112.2 $87.2 $418.9
Add back: Subscriber acquisition
costs:
Third party customer
acquisitions 529.5 366.4 1,411.4 985.6
Direct customer
acquisitions 182.1 111.9 495.5 249.1
Depreciation and amortization
expense 142.5 122.6 378.0 371.1
---------- ------- --------- ---------
Subtotal 854.1 600.9 2,284.9 1,605.8
---------- ------- --------- ---------
Pre-SAC margin (1) $856.6 $713.1 $2,372.1 $2,024.7
---------- ------- --------- ---------
Pre-SAC margin as a percentage
of revenue (1) 34.2% 36.9% 34.9% 37.2%
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Other Data
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Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2004 2003 2004 2003
---------- ------- --------- ---------
Average monthly revenue per
subscriber (ARPU) (2) $66.46 $63.69 $65.02 $61.24
Average monthly churn % (2) 1.67% 1.60% 1.50% 1.54%
Average subscriber acquisition
costs-per subscriber (SAC) (3) $617 $590 $634 $575
Total number of subscribers-
platform (000's) 13,496 11,852 13,496 11,852
Total owned and operated
subscribers (000's) (4) 12,079 10,275 12,079 10,275
Capital expenditures (millions) $229.4 $65.9 $508.6 $176.0
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(1) Pre-SAC Margin, which is a financial measure that is not
determined in accordance with accounting principles generally
accepted in the United States of America, or GAAP, is calculated
by adding amounts under the captions "Subscriber acquisition
costs" and "Depreciation and amortization expense" to "Operating
Profit." This financial measure should be used in conjunction with
other GAAP financial measures and is not presented as an
alternative measure of operating results, as determined in
accordance with GAAP. The DIRECTV Group and DIRECTV U.S.
management use Pre-SAC Margin to evaluate the profitability of
DIRECTV U.S.' current subscriber base for the purpose of
allocating resources to discretionary activities such as adding
new subscribers, retaining and upgrading existing subscribers and
for capital expenditures. To compensate for the exclusion of
"Subscriber acquisition costs," management also uses operating
profit and operating profit before depreciation and amortization
expense to measure profitability.
The DIRECTV Group and DIRECTV U.S. believe this measure is useful
to investors, along with other GAAP measures (such as revenues,
operating profit and net income), to compare DIRECTV U.S.'
operating performance to other communications, entertainment and
media companies. The DIRECTV Group and DIRECTV U.S. believe that
investors also use current and projected Pre-SAC Margin to
determine the ability of DIRECTV U.S.' current and projected
subscriber base to fund discretionary spending and to determine
the financial returns for subscriber additions.
(2) Average subscribers used in calculating ARPU include total owned
and operated subscribers, plus the subscribers in NRTC/Pegasus
territories acquired by DIRECTV in the third quarter of 2004
calculated on a daily weighted average basis. Churn is computed on
a consistent basis with prior periods and therefore excludes
subscribers in NRTC/Pegasus territories.
(3) Gross subscriber additions used in computing SAC for the three and
nine months of 2004 is equal to the gross owned and operated
subscriber additions during the period plus the 76,000 subscribers
that DIRECTV acquired in NRTC/Pegasus territories during the third
quarter of 2004.
(4) Total owned and operated subscribers excludes subscribers acquired
in the third quarter of 2004 by DIRECTV from the NRTC and Pegasus,
and also excludes subscribers acquired in NRTC/Pegasus territories
by DIRECTV during the third quarter of 2004.
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