Transcript: Monday, February 10, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you in part by —


SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Lovin’ it? Not last month, not in the U.S. But McDonald’s (NYSE:MCD) sales were strong in China, where the world’s largest restaurant chain is working hard to beef up its business in that important market.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The clock is ticking. Time is running short for Congress to raise the nation’s borrowing limit. Tonight, House Republicans are meeting. What’s on the agenda and what could come of it?

HERERA: Financial security. AOL’s CEO dramatically altered the company’s 401(k) plan and then, reversed course. But the move begs the question, how vulnerable are your retirement benefits?

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, February 10th.

Good evening, everybody. I’m Sue Herrera, in this week for Susie Gharib.

MATHISEN: And I’m Tyler Mathisen. Welcome, everybody.

But we begin with news about an iconic American company, the official restaurant, as it happens, of the Sochi Winter Games, McDonald’s (NYSE:MCD). It turns out the new dollar menu isn’t helping Micky D’s, at least not much in the U.S., and that weighed on shares of the Dow component today. But things across the globe are looking better. People are ordering up Big Macs in Europe, including in Sochi, and growth in China is strong — a key market for the company. In all, sales rose more than 5 percent in the Asia Pacific Region where McDonald’s (NYSE:MCD) opened its first restaurant in Vietnam today and where the CEO said he’s investing in Asia for the long haul.


DON THOMPSON: Whether that’d be Vietnam, whether that’s Malaysia, whether that’s Singapore, whether it’s South Korea, we’re investing in these markets for the long term. So, we don’t expect to just see a tremendous return on that investment, year one or year two or three even.


MATHISEN: Eunice Yoon reports now on McDonald’s (NYSE:MCD) strategy in China and why getting it right there is so important.


EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Hamburgers on rice is now on McDonald’s (NYSE:MCD) menu in China to help the fast food giant beef up its business in this country.

JACQUELYN HOWARD, MCDONALD’S CHNA VP OF SUPPLY CHAIN: China is extremely exciting because it’s growing so fast. With 1.3 billion people who want to eat and love McDonald’s (NYSE:MCD), we want to leverage that.

YOON: Back home, McDonald’s (NYSE:MCD) is struggling as more health conscious Americans shun fast food. Yet to many Chinese like Edward Zhang, McDonald’s (NYSE:MCD) means more than just burgers.

EDWARD ZHANG, MCDONALD’S CUSTOMER: It’s kind of learning from Western people, not just technology, not just the economy, but lifestyle. So I think McDonald’s (NYSE:MCD) is kind of modern life for Chinese people, including for me.

YOON: That iconic status has served McDonald’s (NYSE:MCD) well. The U.S. company has nearly 1,900 restaurants here, its fastest growing market. Yet some believe McDonald’s (NYSE:MCD) is leaving food on the table.

Its chief rival KFC has localized its menu and supply chain, and now has twice the number of stores. Upstart Chinese chains are also jumping in.

JAMES SINCLAIR, INTERCHINA CONSULTING MANAGING PARTNER: McDonald’s (NYSE:MCD) is being relatively slow to get to the point where they have been ready to adapt, to localize, to respond. KFC was much quicker from the very early days, they started to think how can we mix up the menu to better meet local consumer needs? If you look at the big Asian competitors, you’ll see that their menus are much more relevant to Chinese consumers.

YOON: So, McDonald’s (NYSE:MCD) is offering items like nuggets made of pork, a favorite meat here and bringing the successful McCafe coffee chain, to China to keep up with young Chinese.

CHRISTINE XU, MCDONALD’S CHINA VP OF MARKETING: They want to invest in the exciting life and they are so keen to hold a cup of coffee and sit behind this glass and then being seen by their friends who say, oh, I’m having a coffee as my afternoon tea break.

YOON: A feeling McDonald’s (NYSE:MCD) hopes will keep them coming back.

For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.


HERERA: A third positive close in a row on Wall Street, if barely for the Dow. Investors spent the day digesting recent market gains and looking ahead to new Federal Reserve Chairwoman Janet Yellen’s first testimony on Tuesday on Capitol Hill. The Dow rose 8 points, the S&P gained nearly 3, and NASDAQ was up 22.

MATHISEN: And one stock, Sue, helping the NASDAQ today was Apple (NASDAQ:AAPL). Shares of that company rose almost 2 percent after the activist investor Carl Icahn said he saw no reason to keep demanding the company increase its stock buyback plans.

In a letter to shareholders, Icahn said he was dropping his bid to get Apple (NASDAQ:AAPL) to buyback, $50 billion of stock this year, quote, “especially when the company is so close to fulfilling our requested repurchase target.”

Well, the move came after influential advisory firm Institutional Shareholders Services recommended a vote against Icahn’s proposal. Shares finished the day today at $528.99.

And another delay to the Affordable Care Act. The White House says it will now exempt companies employing between 50 and 100 full time workers from having to provide health insurance to employees and they’re going to do that until 2016. Companies that have 100 or more full time workers will have to begin offering coverage next year, or face financial penalties.

The administration says the additional time will help businesses adapt to that new requirement.

HERERA: Ty, House Republican leaders are meeting tonight to consider what they want in return for increasing the government’s borrowing cap. Time is running out however for lawmakers to raise the debt ceiling. The Treasury Department says that by February 27th, it will exhaust its about to borrow billions of dollars to pay its bills.

John Harwood is in Washington for us tonight.

And, John, what can we expect to emerge from the meeting this evening?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, we expect, Sue, is that House Republican leaders and their members are going to agree on a strategy of what they’re going to put on the floor to raise the debt limit. It is expected they will raise the debt limit this week — meaning, they will be well ahead of the deadline and the Senate would follow suit. The question is, what goes along with it to sweeten the pot?

MATTHEWS: What would the condition be, and do you expect it’s going to be a condition that Democrats will go along with, most especially in the Senate and down Pennsylvania Avenue, at the White House?

HARWOOD: Well, this is what is different about this episode, Tyler, from previous ones. They’re not looking for a companion provision that Democrats hate. They are doing something that Democrats might be able to say yes to.

One of them is to restore $6 billion in cuts to veterans pensions that were made in that bipartisan budget deal, Patty Murray and Paul Ryan a few weeks ago. The other is some increases in the reimbursement rates for doctors under Medicare. That may fall out of the deal. It may simply be the veterans’ benefits and they would have to find other cuts to pay for that change.

HERERA: John, it sounds like from what they are saying, that they are not going to take this right down to the wire, because that’s what Wall Street is worried about. That once again, it’s going to be this midnight deadline and everybody is on pins and needles.

HARWOOD: That’s the affirmative sign I think that Wall Street can take. It is not likely to go up against it. That’s why they are having this meeting tonight. They are off for next week because it’s the Presidents Day week. And they’ll be back in their districts.

So, it’s important for them to do it this week, or very early, the week that they come back. But that’s getting close to the headline. House Republican leaders are trying to get it done this week.

HERERA: John Harwood in Washington for us — John, thank you very much. Ty?

HARWOOD: You bet.

MATHISEN: Well, as investors wait for Congress to act on that debt ceiling, some homeowners are also waiting for lawmakers to step in. Billions of dollars in mortgage debt has been forgiven over the past six years and that has helped millions avoid foreclosure. But now, that help may be in jeopardy and foreclosures may once again be on the rise.

Diana Olick has this story.


DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Since 2007, 2.8 million foreclosures averted because banks let borrowers sell their homes for less than they owed. Millions more borrowers saw the amount of their loans lowered, thanks to legal settlements with the federal government and state attorney’s general. All that debt wiped away tax free.

SEAN NELSON, FITCH RATING;S RMBS DIRECTOR: Normally, you would have to pay taxes on that amount that’s forgiven. It’s considered income, and it’s taxable.

OLICK: But in 2007, Congress passed the Mortgage Debt Tax Relief Act. It expired six weeks ago. And while there are bills in Congress to extend it, they are not moving.

MARKI LEMONS, CHICAGO REALTOR: And the client did not qualify on their income alone.

OLICK: Real estate agent Marki Lemons is watching Washington from Chicago, where she counsels realtors on foreclosure alternatives, alternatives which are suddenly shrinking.

LEMONS: All it’s going to do is prolong recovery. We know these people can’t afford these houses. They have to prove financial hardship. And so, if they don’t have the money to keep a roof over their head, how are they going to be able to pay the IRS?

OLICK: That’s a question Tony Janega is asking. After three years of negotiations, his bank finally approved a short sale on his condo for $125,000 less than he owes. But it was a few weeks too late for the tax break. He could now owe the IRS as much as $30,000, which he does not have.

TONY JANEGA, COMPLETED SHORT SALE IN 2013: Now with this debt relief act not being extended as of yet, I’m really nervous now. So I’m staying up late at night trying to — just can’t sleep at night. It’s causing a lot of stress.

OLICK: While the foreclosure crisis has eased, there are 3.24 million delinquent loans out there, plus, 1.24 million in the foreclosure process, added up — 4.48 million loans that could be helped by either a short sale or principle reduction.

(on camera): While there is broad support in Congress and among state attorney’s general for the tax relief. The bigger push to overall the entire tax code could leave smaller bills like this one its wake.

If so, short sales would not longer be an option for many borrowers, and foreclosures, which had been on the decline, could begin to rise yet again.

For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Washington.


HERERA: Still ahead, it started with a change to AOL’s 401(k) plan. Then, the CEO put his foot in his mouth and reinstated the old policy. But the move begs the question, how vulnerable are your retirement benefits?


HERERA: Wall Street investors were cautious today as they looked at the first public comments from Janet Yellen since she became the head of the Federal Reserve. She’s scheduled to testify before Congress on Tuesday and Thursday. Lawmakers want to know how committed Ms. Yellen is to winding down the Fed’s support for the economy.

MATHISEN: And ahead of Janet Yellen’s testimony tomorrow, bond yields on the 10-year note traded in a narrow range today as investors wait to hear what she’ll say about the job market and the economy. Despite today’s small move, however, yields have fallen dramatically from the beginning of the year. Back then, the 10-year note yielded around 3 percent.

Sara Eisen is here with a look at what the bond market is telling us.

What is it saying, Janet — I mean, Janet, I’ve already promoted you to become the second female head of the Federal Reserve.

Sara, what is the bond saying? And this decline at the beginning of the year, people were saying, stay away from bonds. Rates are going up.


SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: We were all worried about higher mortgage rates and car loans, just the opposite happened. People piled into bonds and so the yields — the interest rates actually came down.

A few reasons behind it. Number one, when everybody is on one side of the trade, it’s bound to snap and surprise everyone the other way. And that’s partially what happened.

The other thing is, the global economy didn’t exactly get off to a good start in 2014. Emerging markets became a huge concern. I did a number of pieces for this program about how investors were selling currencies. They were worried about their economies, so you go to the safety of U.S. treasuries to hide out.

And a third reason is, it hasn’t been a straight shot up for the U.S. economy in 2014. We’ve had two disappointing jobs numbers, December and January. Some of the economic data, whether it’s weather related or not, hasn’t actually been a vibrant picture. And therefore, you’ve seen this demand for bonds.

Bill Gross of PIMCO, who’s the co-CEO, the bond guru, he says it’s a global economy is just stuck, so you want to own treasuries you view to keep some in your portfolio and then the Federal Reserve isn’t going to raise interest rates any time soon, so you’re protected there.

HERERA: Right. What about Ms. Yellen’s testimony tomorrow? What can we expect? Because that’s the type of testimony that could really move the bond market.

EISEN: Absolutely. And everybody is going to glued to what he says about the economy, and that’s going to be really interesting, how she characterizes this weakness, whether it’s the jobs report and what we’ve seen, the turmoil in the markets, because now, the Fed is in shift mode. It started to taper. It started to scale back its quantitative easing. And everything Wall Street wants to know has to do with that, the size of the taper, whether it’s going to continue on the pace that we’ve seen or whether it’s going to pause.

So, if she sounds a little worried, perhaps there will be a trade on that. The taper might not be baked in, and that could be a reason to buy stocks. If she doesn’t sound worried and says the taper is set to go on or suggest that, that could be a reason to sell.

MATHISEN: Sara Eisen, here in the role of Janet Yellen.

EISEN: Yes. Thank you. I got really pumped up.

MATHISEN: Yes. Nice promotion.


MATHISEN: Sara, great to see you.

HERERA: All right. Yahoo (NASDAQ:YHOO) is reportedly teaming up with Yelp to step up its search engine and that’s where we begin tonight’s “Market Focus”.

At an employee meeting Friday, Yahoo (NASDAQ:YHOO) CEO Marissa Mayer reportedly unveiled plans to incorporate Yelp’s reviews of local business into Yahoo’s search results. Shares of Yelp rose almost 2 percent to $91.11 per share. Shares of Yahoo (NASDAQ:YHOO) were also up about 1.5 percent to $37.76.

And toy maker Hasbro (NYSE:HAS) reported a weak holiday quarter as its boys category dragged down sales. But investors shrugged that off since the boys unit should turn around this year with movies coming out like Spiderman and Transformers. The company also upped its dividend. Shares jumped up 4.5 percent to $52.36 — Ty.

MATHISEN: Sue, Green Mountain Coffee reached a deal with Krispy Kreme. The Keurig maker is teaming up with the donut compute, to launch a K-cup coffee line by the end of the year. This comes less than a week after news that Coca-Cola (NYSE:KO) bought a 10 percent stake in Green Mountain and the two companies are making a cold drink machine together.

Shares of Green Mountain rose 3 percent to $110.92, Krispy Kreme also up 3 percent. It finished at $17.96.

And shares of Caesars Entertainment took a hit today on reports it’s working on a financial restructuring plan. The casino operator is apparently dealing with a hefty debt load, declining revenue and low liquidity. Caesars has struggled to recover since the recession and has not posted a profit since 2009. The stock fell more than 3 1/2 percent today to $21.81.

HERERA: AOL’s chief executive had better days, perhaps. Tim Armstrong found himself apologizing for singling out medical issues suffered by two employees’ children. He also reversed course on an unpopular change to the company’s 401(k) plan. And this isn’t the first time he’s been the center of controversy.

Julia Boorstin looks at the man at the top and whether the company’s reputation has been damaged.


JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): After a controversy filled few days, AOL (NYSE:AOL) CEO Tim Armstrong reversed the company’s decision to change 401(k) benefits from a per pay period contribution to a yearly lump sum contribution. Armstrong reversed the policy over the weekend after listening to an outpouring of employee feedback about the 401(k) changes, as well as comments he made about two AOL (NYSE:AOL) employees having, quote, “distressed babies”, costing AOL (NYSE:AOL) over $2 billion.

In the memo to staff this weekend, Armstrong apologized and said he made a mistake.

JEFF SONNENFELD, YALE SCHOOL OF MANAGEMENT SR. ASSCO. DEAN: So, a very good idea for leaders when they know they are wrong to admit it. You never look weaker by an apology. In pact, you can look stronger.

BOORSTIN: The mother of one of those children mentioned by Armstrong during the town hall says he apologized personally.

She spoke to “NBC Nightly News” over the weekend.

DEANNA FEI (NASDAQ:FEIC), WIFE OF AOL (NYSE:AOL) EMPLOYEE: I think what he was trying to do was explain his justification for cutting employee benefits with this rational that we’re spending this much on health care, it has to come from somewhere. And I think this was the wrong way to go about that.

BOORSTIN (on camera): This all started this past Thursday when Armstrong said on CNBC that the changes were needed in part because of $7 million in additional costs from Obamacare.

(voice-over): AOL (NYSE:AOL) says the decision to change 401(k) payments to a yearly lump sum was made in August and communicated in October, based on the assumption employees would prefer it to higher health care costs.

Management expert Jeffrey Sonnenfeld says Armstrong needs to be more thoughtful.

SONNENFELD: We took a little too long to respond, and even so in responding, he’s not showing that he understands why people are upset and also letting us know how he’s not going to do this again. He has a pattern of doing this. So it’s better that he did this than nothing.

BOORSTIN: As for that $7 million increase from Obamacare, we’ve asked AOL (NYSE:AOL) for an accounting, they say they can’t give a specific break down.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.


MATHISEN: Well, AOL’s back peddle on its 401(k) match is leaving many folks to wonder just how secure are retirement benefits. Might corporate cost-cutting ultimately collide with your 401(k).

For answers, we turn to David Blanchett. And he is the head of research — of retirement research at Morningstar (NASDAQ:MORN) Investment Management.

David, welcome. Good to see you.

So, this does raise the question of whether such things as the 401(k) match are now in the crosshairs as companies have to deal with more expensive medical costs among other things. Do people, employees need to be worried and on the lookout for this?

DAVID BLANCHETT, MORNINGSTAR INVESTMENT MANAGEMENT: Well, I mean, yes and no. I think one thing to be aware of is that the 401(k) match is a benefit like health care. And so, in this case, AOL (NYSE:AOL) was with trying to justify changing the match schedule to — based upon the fact health care costs were increasing.

So, each company has a choice. They can choose to potentially change the match and make the employee pay more for health care or do the reverse. So, I think it’s going to be a company by company decision.

HERERA: You know, David, the move to give you a lump sum for your 401(k) at the end of the year, as long as you’re with the company on December 31st, that may be the way some companies choose to do it. But then you’re basically losing out on 11 months worth of investment income, hopefully investment income and you could — you end up market timing rather than investing on a regular basis on a monthly basis.

BLANCHETT: You know, I don’t see it as that big of a deal. Obviously, it’s a problem for investors or participants who leave the 401(k) plan during the year. But losing potentially 8 percent on the match isn’t going to really affect someone that much. I think that there’s things the company could do to potentially make employees even more mad about changing the match schedule to kind of increase contribution or something.

MATHISEN: But to Sue’s point, it defeats the idea of dollar cost averaging in, which I know is something you believe in at Morningstar (NASDAQ:MORN) because as Sue points out, if you get it all in a lump at the end of the year, you’re going to put it to work at what may later turn out to be exactly the wrong moment.

So, it does — it does pose that problem, doesn’t it, David?

BLANCHETT: It does. I mean, it’s obviously risky to put all your money in the market at one time. But for most employees, the employer match is only going to be a half or 1/3rd or 1/4th of all their contributions. So, they are still going to be dollar cost averaging their employee contributions readily throughout the year.

MATHISEN: What about the market itself, David? I mean, that’s another factor, if you have gotten your 401(k) lump sum at the end of last year, it would have been the end of a tremendously positive year for Wall Street, and we know by now that this New Year is not shaping up quite as nicely for Wall Street. The pitfalls of market timing I think are something that most investors worry about anyway and if you’re using your 401(k) that way, I think it could be difficult for people, I would think.

BLANCHETT: Definitely. I think that, you know, the fact that employee deferrals are invested maybe twice a month or once a month is a really good way to do the dollar cost average. And if more plans do move to this arrangement, where the employer matches end of the year, and markets do the wrong direction, obviously, a lot of people I think will be very upset.

MATHISEN: You know, one of the paradoxes of employee matches is that the more people do what they are supposed to do, i.e., save, the more it costs the employer, correct?


MATHISEN: Go ahead.

BLANCHETT: Go ahead.


BLANCHETT: I was going to say, that’s one of the dangers I think of employer matches. There’s been a big push in the 401(k) industry recently to improve participants savings, having participants and employees save more in 401(k) plans. Well, that can have significant cost implications for employer itself because if they are matching 3 percent of employer pay and participation jumps by 50 percent, that could be a huge initial cost for the employer.

MATHISEN: But the bottom line here, David, if I’ve got it right, is a 401(k) match is a company benefit and company benefits can get cut, right?

BLANCHETT: Correct, and so your money is always safe. The money that you’ve deferred out of your paycheck is always safe, but future employer contributions can always change. I think that a lot of companies made changes back in ’08, ’09 because of the market and went down. So, it can always change.

But for the most part, most companies are usually pretty consistent at a time when it comes to matching employer contributions.

MATHISEN: Have to leave it there. David Blanchett, head of retirement research at Morningstar (NASDAQ:MORN) Investment Management.

And coming up, massive cost overruns holding the expansion of the Panama Canal and it’s disrupting commerce across the country. Which ports are feeling the pain and which might see a big gain?


MATHISEN: General Motors (NYSE:GM) has announced the pay package for its new CEO, Mary Barra. It’s more than $14 million a year, 60 percent higher than her predecessor Dan Akerson, whom she replaced last month.

HERERA: And from cars to ships, the Panama Canal expansion project has been suspended because of massive cost overruns, and that’s having an impact on the way that ports across the country are doing business.

Jane Wells has the story.


JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Webcam pictures from the Panama Canal show the $5 billion expansion project dead in the water, an endeavor to allow bigger trips to travel between Asia and the East Coast of the United States has been sidelined by more than a billion and a half dollars in cost overruns. That is bad news for places like the port of Savannah.

CURTIS FOLTZ, GA PORTS AUTHORITY EXEC. DIR.: Any delay in the canal’s expansion just limits our competitiveness not just here in the state of Georgia, but really in the United States East Coast. You know, it’s about bringing better economies to scale and commerce overrule.

WELLS: This port, like those from Miami to New York, has been spending big dollars preparing for big ships bringing goods directly to them. The delay also hurts gulf ports preparing to expert liquefied natural gas to Asia.

FOLTZ: We’ve been spending about a billion dollars and will spent $1.4 billion over the next 10 years to more efficiently handle commerce.

WELLS (on camera): But the delay isn’t seen as bad news for everyone. Hear at the port of Los Angeles, the big ships can still come in and dock and unload, and cargo can go by rail or truck to the Midwest or the East. But they see this delay as only temporary reprieve.

GARY LEE MOORE, PORT OF LOS ANGELES INTERIM EXEC. DIR.: You know, the Panama Canal is going to finish whether it’s today, tomorrow, next week or next year.

WELLS: So, the port is spending over a billion dollars to improve facilities to prevent a noticeable drop in business. Burlington Northern owned by Berkshire Hathaway (NYSE:BRK.A) is spending a half billion to improve rail facilities at the L.A. port, though it is being sued over traffic and pollution concerns, and more warehouses are going up along interstate routes out of California for trucks.

Los Angeles and Long Beach make up the largest port complex in the country, but competition isn’t expected just from the canal, but every port from Mexico to Seattle.

MOORE: You’ve got to be out there in front of it. That’s what we’ve done. We saw it coming. We’re investing over $1.2 billion in infrastructure improvements. It’s working with our customers on their logistics. How can they get it to market as soon as possible?

WELLS: This week’s talk between contractors and canal authority will resume, to try to determine who will cover the extra costs. An arbitrator says a stoppage could delay the expanded opening of the canal to 2020.

The Panamanian authorities vow they will open next year even if they have to finish the job themselves. No one may be watching more closely than ports in the U.S. from sea to shining sea.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.


MATHISEN: Now, this is something to like, Mark Zuckerberg gave the most of any American to charity last year. “The Chronicle of Philanthropy” says the Facebook (NASDAQ:FB) founder gave away close to a billion dollars in stock to a Silicon Valley nonprofit. Zuckerberg said the gift would go toward a children’s program.

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herrera. Thanks for joining us.

MATHISEN: And I’m Tyler Mathisen. Thanks for me as well. Have a great evening, everybody. We’ll hope to see you right back here tomorrow night.


Nightly Business Report transcripts and video are available on-line post broadcast at The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2014 CNBC, Inc.

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