-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CIYKcFz8Ja/lgIGSexaZU0VHH7Ey+zhEwM8HJaP8FXd5XTgIjxprx26rLs0TWvHA VucfCDKPNUCvWDe6A6EO5g== 0000770944-96-000002.txt : 19960703 0000770944-96-000002.hdr.sgml : 19960703 ACCESSION NUMBER: 0000770944-96-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BALLY TOTAL FITNESS HOLDING CORP CENTRAL INDEX KEY: 0000770944 STANDARD INDUSTRIAL CLASSIFICATION: 7997 IRS NUMBER: 362762953 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27478 FILM NUMBER: 96567681 BUSINESS ADDRESS: STREET 1: 2029 CENTURY PARK EAST, SUITE 2810 CITY: CENTURY CITY STATE: CA ZIP: 60631 BUSINESS PHONE: 3123991300 FORMER COMPANY: FORMER CONFORMED NAME: BALLYS HEALTH & TENNIS CORP DATE OF NAME CHANGE: 19940526 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the period ended March 31, 1996 or [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 Commission file number 33-99844 BALLY TOTAL FITNESS HOLDING CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-3228107 (State or other jurisdiction of (IRS Employer of incorporation) Identification No.) 8700 West Bryn Mawr Avenue Chicago, IL 60631 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (312) 380-3000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of April 30, 1996, 12,495,161 shares of the registrant's common stock were outstanding. BALLY TOTAL FITNESS HOLDING CORPORATION INDEX PART I. FINANCIAL INFORMATION Item 1. Financial statements: Condensed consolidated balance sheet (unaudited) March 31, 1996 and December 31, 1995 Consolidated statement of operations (unaudited) Three months ended March 31, 1996 and 1995 Consolidated statement of stockholders' equity (unaudited) Three months ended March 31, 1996 Consolidated statement of cash flows (unaudited) Three months ended March 31, 1996 and 1995 Notes to condensed consolidated financial statements (unaudited) Item 2. Management's discussion and analysis of financial condition and results of operations PART II. OTHER INFORMATION Item 1. Legal proceedings Item 6. Exhibits and reports on Form 8-K SIGNATURE PAGE BALLY TOTAL FITNESS HOLDING CORPORATION Condensed Consolidated Balance Sheet (In thousands) (Unaudited) March 31, December 31, 1996 1995 ---------- ----------- ASSETS Current assets: Cash and equivalents $ 9,746 $ 21,263 Installment contracts receivable, net 156,398 155,504 Other current assets 21,021 20,216 ---------- ---------- Total current assets 187,165 196,983 Long-term installment contracts receivable, net 157,711 147,856 Property and equipment, less accumulated depreciation and amortization of $294,390 and $293,698 344,449 348,468 Intangible assets, less accumulated amortization of $46,244 and $45,117 109,100 110,227 Other assets 38,906 42,760 ---------- ---------- $ 837,331 $ 846,294 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 35,700 $ 43,740 Income taxes payable 1,811 2,241 Deferred income taxes 2,948 11,112 Deferred revenues 61,293 61,881 Accrued liabilities 60,388 64,978 Current maturities of long-term debt 17,581 1,481 ---------- ---------- Total current liabilities 179,721 185,433 Long-term debt, less current maturities 363,817 368,032 Tax obligation to Bally Entertainment Corporation 15,200 15,200 Other liabilities and deferred credits 40,617 37,282 Stockholders' equity 237,976 240,347 ---------- ---------- $ 837,331 $ 846,294 ========== ========== See accompanying notes. BALLY TOTAL FITNESS HOLDING CORPORATION Consolidated Statement of Operations (In thousands, except per share data) (Unaudited) Three months ended March 31, ------------------------- 1996 1995 ---------- ---------- Net revenues: Membership revenues - New $ 112,804 $ 117,206 Dues 45,388 45,144 Finance charges earned 9,595 8,919 Fees and other 3,294 5,226 ---------- ---------- 171,081 176,495 Operating costs and expenses: Fitness center operations 94,905 100,996 Member processing and collection centers 12,212 12,791 Advertising 12,611 10,969 General and administrative 7,183 6,503 Provision for doubtful receivables 20,902 20,625 Depreciation and amortization 13,676 14,395 ---------- ---------- 161,489 166,279 ---------- ---------- Operating income 9,592 10,216 Interest expense 11,849 10,049 ---------- ---------- Income (loss) before income taxes (2,257) 167 Income tax provision 200 50 ---------- ---------- Net income (loss) $ (2,457) $ 117 ========== ========== Per common share: Net income (loss) - proforma for 1995 $ (.20) $ .01 ========== ========== See accompanying notes. BALLY TOTAL FITNESS HOLDING CORPORATION Consolidated Statement of Stockholders' Equity (In thousands, except share data) (Unaudited) Common Stock Unearned Total ------------------- compensation stock- Number Stated Contributed Accumulated -restricted holders' of shares value capital deficit stock equity ---------- ------- --------- ------------ ---------- --------- Balance at December 31, 1995 11,845,161 $ 118 $ 293,062 $ (52,833) $ $ 240,347 Net loss (2,457) (2,457) Stock awards under long- term incentive plan 650,000 7 4,389 (4,396) - Amortization of unearned compensation 86 86 --------- ------ --------- --------- -------- ---------- Balance at March 31, 1996 12,495,161 $ 125 $ 297,451 $ (55,290) $ (4,310) $ 237,976 ========== ====== ========= ========= ========= ========== See accompanying notes. BALLY TOTAL FITNESS HOLDING CORPORATION Consolidated Statement of Cash Flows (In thousands) (Unaudited) Three months ended March 31, ----------------------- 1996 1995 --------- --------- OPERATING: Net income (loss) $ (2,457) $ 117 Adjustments to reconcile to cash used - Depreciation and amortization, including amortization included in interest expense 14,552 14,985 Provision for doubtful receivables 20,902 20,625 Deferred income taxes (450) 4,648 Change in operating assets and liabilities (47,685) (42,314) --------- --------- Cash used in operating activities (15,138) (1,939) INVESTING: Purchases of property and equipment (7,172) (6,412) Other, net 747 (459) --------- --------- Cash used in investing activities (6,425) (6,871) FINANCING: Net borrowings under revolving credit agreement 9,000 4,875 Net borrowings (repayments) of other long-term debt 1,190 (786) Debt issuance costs (144) (137) --------- --------- Cash provided by financing activities 10,046 3,952 --------- --------- Decrease in cash and equivalents (11,517) (4,858) Cash and equivalents, beginning of period 21,263 12,804 --------- --------- Cash and equivalents, end of period $ 9,746 $ 7,946 ========= ========= See accompanying notes. BALLY TOTAL FITNESS HOLDING CORPORATION Consolidated Statement of Cash Flows-(Continued) (In thousands) (Unaudited) Three months ended March 31, ------------------------ 1996 1995 ---------- ---------- SUPPLEMENTAL CASH FLOWS INFORMATION: Changes in operating assets and liabilities were as follows - Increase in installment contracts receivable $ (31,601) $ (29,770) Increase in other current and other assets (747) (3,437) Increase (decrease) in accounts payable (8,344) 2,372 Increase in due to Bally Entertainment Corporation 45 Decrease in income taxes payable (430) (298) Decrease in accrued and other liabilities (4,753) (6,776) Decrease in deferred revenues (1,810) (4,450) ---------- ---------- $ (47,685) $ (42,314) ========== ========== Cash payments for interest and income taxes were as follows- Interest paid $ 17,352 $ 16,490 Interest capitalized (55) (56) Income taxes paid (refunded), net 1,080 (4,300) Investing and financing activities exclude the following non-cash transaction - Acquisition of equipment through capital leases $ 1,999 $ See accompanying notes. BALLY TOTAL FITNESS HOLDING CORPORATION Notes to Condensed Consolidated Financial Statements (All dollar amounts in thousands, except share data) (Unaudited) Basis of presentation The accompanying condensed consolidated financial statements include the accounts of Bally Total Fitness Holding Corporation (_the Company_) and the subsidiaries which it controls. The Company, through its subsidiaries, is a nationwide commercial operator of fitness centers with 323 facilities concentrated in 27 states and Canada. The Company operates in one industry segment, and all significant revenues arise from the commercial operation of fitness centers, primarily in major metropolitan markets in the United States. Unless otherwise specified in the text, references to the Company include the Company and its subsidiaries. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. The Company was a wholly owned subsidiary of Bally Entertainment Corporation (_Bally_) until the consummation of Bally's spin-off (the _Spin-off_) of the Company on January 9, 1996. On that date, 11,845,161 shares of Company common stock were distributed to holders of record of Bally's common stock as of November 15, 1995. For financial accounting purposes, the Company has reflected the effect of the Spin-off as of December 31, 1995. All adjustments have been recorded which are, in the opinion of management, necessary for a fair presentation of the condensed consolidated balance sheet of the Company at March 31, 1996, its consolidated statements of operations and cash flows for the three months ended March 31, 1996 and 1995, and its consolidated statement of stockholders' equity for the three months ended March 31, 1996. All such adjustments were of a normal recurring nature. The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles which require the Company's management to make estimates and assumptions that affect the amounts reported therein. Actual results could vary from such estimates. In addition, certain reclassifications have been made to prior period financial statements to conform with the 1996 presentation. Seasonal factors The Company's operations are subject to seasonal factors and, therefore, the results of operations for the three months ended March 31, 1996 and 1995 are not necessarily indicative of the results of operations for the full year. Installment contracts receivable March 31, December 31, 1996 1995 ---------- ----------- Current: Installment contracts $ 246,794 $ 244,522 Less -- Unearned finance charges 28,505 27,128 Allowance for doubtful receivables and cancellations 61,891 61,890 ---------- ----------- $ 156,398 $ 155,504 ========== =========== Long-term: Installment contracts $ 222,651 $ 211,549 Less -- Unearned finance charges 14,301 13,055 Allowance for doubtful receivables and cancellations 50,639 50,638 ---------- ----------- $ 157,711 $ 147,856 ========== =========== Long-term debt The Company is restricted from paying cash dividends by the terms of its 13% Senior Subordinated Notes due 2003 and its revolving credit agreement. The covenants also limit the amounts available for capital expenditures and additional borrowings, and require maintenance of certain financial ratios. The Company's revolving credit agreement provides for a $15,000 line of credit, which is reduced by the amount of any outstanding letters of credit in excess of $15,000 (which excess may not exceed $5,000). The maximum amount available under this revolving credit agreement, including letters of credit, is $30,000. At March 31, 1996, outstanding letters of credit totaled approximately $17,300 and approximately $3,700 of the line of credit remained unused. Income taxes Taxable income or loss of the Company is included in the consolidated federal income tax return of Bally through January 9, 1996. The Company is required to file its own separate consolidated federal income tax return for periods after January 9, 1996. The income tax provision for the first quarter of 1996 reflects state income taxes only, as no federal benefit has been provided due to the uncertainty of its realization. Earnings (loss) per common share Loss per common share for the three months ended March 31, 1996 was computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period, which totalled 12,170,161 shares. 325,000 shares of restricted stock were issued subject to forfeiture unless certain conditions are met. These contingent shares are considered common stock equivalents and are excluded from the loss per share computation because their effect would be anti-dilutive. Proforma earnings per common share for the three months ended March 31, 1995 was $.01 per share, and gives effect to (i) adjustments made to reflect the income tax provision as if the Company had filed its own separate consolidated income tax returns for the period and (ii) a distribution of 11,845,161 shares of Company common stock to Bally shareholders, as if such distribution had taken place as of the beginning of the period. Impact of recently issued accounting standards In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (_SFAS_) No. 121, _Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of_ which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. SFAS No. 121 requires assets to be evaluated for impairment by disaggregation and grouping at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, which is a different calculation than the Company currently uses to evaluate the recoverability of consolidated goodwill. The Company applied the standards of SFAS No. 121 in the first quarter of 1996 and the adoption had no effect on results of operation. BALLY TOTAL FITNESS HOLDING CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations Comparison of the three months ended March 31, 1996 and 1995 Net revenues for the first quarter of 1996 were $171.1 million compared to $176.5 million in 1995. New membership revenue decreased $4.4 million (4%) primarily due to a 17% decline in the number of contracts sold offset, in part, by a 16% increase in the average selling price. Results for January and February 1996 reflected a 6% year-to-year improvement in new member sales. However, March results more than offset the improvement. Net revenues for the same fitness centers selling memberships throughout both periods decreased $4.3 million (3%) as a result of the aforementioned decline in the number of contracts sold offset, in part, by the increase in the average selling price. The number of fitness centers decreased from 333 at March 31, 1995 to 323 at March 31, 1996, representing the closure of thirteen older, typically smaller facilities and the sale of the Vertical Club in New York City to Bally offset, in part, by the opening of four new, larger facilities. Dues revenue increased $.2 million over 1995. Finance charges earned increased $.7 million (8%) in the 1996 period compared to 1995 reflecting a larger receivable portfolio. Fees and other revenues decreased $1.9 million (37%) primarily due to non-recurring income in the first quarter of 1995 pertaining to insurance recoveries and a reduction of personal trainer income in the 1996 period as a result of outsourcing the service. Operating income for the first quarter of 1996 was $9.6 million compared to $10.2 million in 1995. The decrease of $.6 million (6%) is primarily due to the aforementioned decrease in revenues offset, in part, by a $4.8 million (3%) decrease in operating costs and expenses. Excluding the provision for doubtful receivables, operating costs and expenses decreased $5.1 million (3%) in the first quarter of 1996 compared to 1995. The decrease was primarily due to reductions in salaries and other variable costs (including consolidations of member service operations and reductions in personal trainer salaries) and, to a lesser extent, commissions as a result of the aforementioned decline in new membership sales. Fitness center operating expenses for the first quarter of 1996 decreased $6.1 million (6%) from 1995 primarily due to a reduction in payroll and related costs ($4.1 million) and other variable costs as a result of the continuing cost reduction program. As a percentage of net revenues, fitness center operating expenses decreased from 57% in the 1995 period to 55% in 1996. Member processing and collection center expenses decreased $.6 million (5%) primarily due to the completion in late 1995 of the consolidation of three regional service centers (_RSCs_) into two and the completion of a computer conversion project. With the addition of new hardware and software, the Company is able to streamline its processing procedures and develop efficiencies that will enable the RSCs to better service membership accounts while reducing costs in the future. Member processing and collection center expenses as a percentage of net revenues was 7% for both periods. Advertising costs for the first quarter of 1996 increased $1.6 million (15%) over 1995 primarily due to increased media and production costs. This is consistent with the Company's belief that strong marketing support is critical to attracting new members both at existing and new fitness centers. Advertising expenses as a percentage of net revenues increased from 6% in the 1995 period to 7% in 1996. General and administrative expenses increased $.7 million (10%) primarily due to increased legal costs and, as a percentage of net revenues, were 4% for each period. The provision for doubtful receivables for the first quarter of 1996 was $20.9 million compared to $20.6 million for 1995, an increase of $.3 million (1%). The provision for doubtful receivables as a percentage of net financed sales was 25% in both periods. Depreciation and amortization expenses decreased $.7 million (5%) from 1995 and, as a percentage of net revenues, was 8% in both periods. Interest expense, net of capitalized interest, was $11.8 million for the first quarter of 1996 compared to $10.0 million in 1995, an increase of $1.8 million (18%) principally reflecting a higher average level of debt offset, in part, by lower average interest rates. For periods commencing after the Spin-off, the Company is required to file its own separate consolidated federal income tax return. The income tax provision for the first quarter of 1996 reflects state income taxes only, as no federal benefit has been provided due to the uncertainty of its realization. Liquidity and capital resources The Company has no scheduled principal payments under its subordinated indebtedness until 2003, no scheduled principal payments under its securitization facility until January 1997 and its scheduled principal payments under other indebtedness outstanding at March 31, 1996 are not significant. The Company's debt service payments for the next twelve months, principally for interest, are expected to be approximately $44.6 million. Additionally, approximately $15.6 million principal amount of the $150.0 million securitization facility will be amortized unless the financing is renewed or replaced. The Company plans to offer a new series of securitization certificates to replace the current issue during the last quarter of 1996. However, there can be no assurance that such a replacement series will be sold or that the terms of such series will be as favorable as the existing series. The Company's recent losses and the terms of its revolving credit agreement limit the Company's ability to borrow significant amounts of additional funds. Consequently, the Company is dependent on its operations and availability under its revolving credit agreement for its cash needs. At March 31, 1996, approximately $9.0 million was outstanding on the borrowing portion of the line of credit. The Company has managed in recent years and expects to continue to manage near-term liquidity requirements utilizing, in addition to the occasional sale of non-strategic assets, a variety of techniques to increase the cash sales and down payments and to accelerate collections and dues payments to increase available cash reserves. For example, during late 1995 the Company initiated a program which allowed members to transfer the balance of their installment contracts to a credit card sponsored by a third party bank which results in the payment of the full principal amount of the installment contract without the need for a discount to the member. For the three months ended March 31, 1996, approximately $8 million of such payment accelerations were generated. A similar program tested during the last six months of 1994 and the first three months of 1995 generated $9 million of payment accelerations. Management plans to make capital expenditures of approximately $5.0 million to $10.0 million over the next twelve months to maintain, and in many cases upgrade, its existing facilities as funds are available. In recent years, the Company has also spent $10.0 million to $15.0 million annually, as funds were available, to build new or replacement facilities. The Company expects to continue those expenditures if operations generate sufficient cash flows. The Company believes it will be able to satisfy its cash needs over the next twelve months. Cash Earnings Before Interest, Taxes, Depreciation And Amortization (_Cash EBITDA_) The indenture governing the Company's 13% Senior Subordinated Notes due 2003 (the _13% Notes_) requires the disclosure of information with respect to Cash EBITDA (as calculated using accounting principles in effect at the time the 13% Notes were issued) in the Company's quarterly report. Cash EBITDA should not be considered as an alternative to any measure of performance or liquidity as promulgated under generally accepted accounting principles (such as net income (loss) or cash provided by (used in) operating, investing and financing activities) nor should it be considered as an indicator of the Company's overall financial performance. Cash EBITDA is calculated as follows (in millions): Three months ended March 31, ------------------------ 1996 1995 ---------- --------- Income (loss) before income taxes $ (2.3) $ .2 Adjustments to reconcile to Cash EBITDA: Interest expense (excluding $3.6 million of interest on the securitization certificates in 1996) 8.3 10.1 Depreciation and amortization 13.7 14.4 Provision for doubtful receivables 20.9 20.6 Increase in installment contracts receivable (31.6) (29.8) Decrease in deferred revenues (1.8) (4.4) --------- --------- Cash EBITDA $ 7.2 $ 11.1 ========= ========= Cash EBITDA was $7.2 million for the first quarter of 1996 compared to $11.1 million for 1995, a decrease of $3.9 million (35%), primarily attributable to interest expense on the securitization certificates. Accounting principles in January 1993 treated this type of financing as a sale, and therefore a reduction in receivables, rather than as indebtedness with related interest expense. Excluding the related interest expense of $3.6 million, Cash EBITDA decreased by $.3 million. This decrease was principally due to a $3.9 million (3%) decrease in cash revenue (primarily cash sales) offset, in part, by a $3.6 million (3%) decrease in cash expenses. The decline in cash sales reflects management's strategy to reduce the Company's reliance on highly discounted cash sales as a short-term source of cash flows and, as a result, to build greater long-term and more consistent cash flows from financed memberships and dues. The decrease in cash expenses (primarily payroll and commissions) was principally due to the aforementioned cost reduction program. BALLY TOTAL FITNESS HOLDING CORPORATION PART II. OTHER INFORMATION Item 1. Legal Proceedings (a) A suit entitled 25 Broadway Realty Co. v. Health & Tennis Corporation of New York, Health & Tennis Corporation of America and Bally's Health & Tennis Corporation has been settled. The Company signed a modified lease agreement for that location with the landlord/plaintiff which it believes to be at least as favorable to the Company as the disputed lease. Item 6. Exhibits and reports on Form 8-K (a) Exhibits: 27 Financial Data Schedule (filed electronically only). (b) Reports on Form 8-K: None. SIGNATURE PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BALLY TOTAL FITNESS HOLDING CORPORATION --------------------------------------- Registrant /s/ Julie Adams ----------------------------- Julie Adams Vice President and Controller (Principal Accounting Officer) Dated: May 15, 1996 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996, THE CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 MAR-31-1996 9,746 0 469,445 112,530 0 187,165 638,839 294,390 837,331 179,721 0 0 0 125 237,851 837,331 0 171,081 0 107,516 12,212 20,902 11,849 (2,257) 200 (2,457) 0 0 0 (2,457) (.20) 0 THESE AMOUNTS REFLECT SHORT-TERM AND LONG-TERM BALANCES AS DISCLOSED IN THE NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. THIS AMOUNT IS INCLUDED IN THE FITNESS CENTER OPERATIONS LINE AND THE ADVERTISING LINE IN THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDEDED MARCH 31, 1996. THIS AMOUNT IS INCLUDED IN THE MEMBER PROCESSING AND COLLECTION CENTERS LINE ON THE CONSOLIDATED STATEMENT OF OPERATION FOR THE THREE MONTHS ENDED MARCH 31, 1996.
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