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International Coal Group Reports Preliminary Fourth Quarter and Full Year 2007 Results

Posted on: Thursday, 7 February 2008, 09:00 CST

SCOTT DEPOT, W.Va., Feb. 7 /PRNewswire-FirstCall/ -- International Coal Group, Inc. today reported its preliminary financial results for the fourth quarter and full year ended December 31, 2007.

The preliminary fourth quarter and full year operating results reported here do not include an anticipated non-cash charge for goodwill impairment at four older facilities -- specifically the Knott County, East Kentucky, Hazard and Eastern operations -- expected to be approximately $170 million, or approximately $110 million after income taxes. The charge, which is not expected to have any effect on 2008 operating results or cash flows, is discussed in more detail below.

-- Revenues were $205.6 million for the fourth quarter of 2007 compared to $226.7 million for the same period a year ago. -- The Company reported a preliminary net loss, prior to any impairment adjustment, of $16.0 million, or $0.11 per share on a fully diluted basis, in the fourth quarter of 2007, compared to a net loss of $97,000, or breakeven on a per share fully diluted basis, for the same period in 2006. "Preliminary net loss" is a non-GAAP measure and, for purposes of this release, means net loss, without giving effect to any impairment adjustment. -- Adjusted EBITDA, or net income or loss before deducting interest expense, income taxes, depreciation, depletion, amortization, impairment charges and minority interest, was $3.5 million for the fourth quarter of 2007, compared to $30.9 million for the fourth quarter of 2006.

"As expected, our preliminary fourth quarter performance reflects the transitional nature of 2007, both in terms of pricing and development of several new mining operations," said Ben Hatfield, President and CEO of ICG. "We experienced some production shortfalls as we began staffing up our new Beckley mining complex and continued expansion of our Sentinel mine. In addition, performance at ICG Illinois was hampered by a boiler explosion at its largest customer that disrupted shipments and restricted production. These issues, coupled with regulatory delays and increased compliance costs, came to bear on a tight quarter without benefit from the recent rebound in coal prices. During the fourth quarter, we initiated a series of operating changes that have recently resulted in performance improvement at several operations -- particularly at our Raven and Buckhannon operations."

Hatfield continued, "Despite a very difficult year, we are nearing the completion of a year-long transition designed to strengthen our operating base and replace brokered coal income with three new strategic mining projects. These new projects represent nearly 4 million annual tons, most of which are higher-margin metallurgical coal.

"ICG's ramp-up in metallurgical production is well-timed, as we have signed several attractively-priced contracts with domestic and international customers over the past few months," Hatfield noted. "At the Beckley Complex, for example, we have sold nearly 1.4 million tons of low-volatile metallurgical coal under terms ranging from one-to-three years with average prices near $90.00 per ton. We also retain a substantial uncommitted metallurgical coal position, both at Beckley and Sentinel, which we believe will enable ICG to capture additional market upside, particularly in 2009."

Hatfield added, "Robust international thermal and metallurgical markets are driving current price momentum. We are also seeing the initial signs of price strength carry into our traditional domestic markets due to the combination of increased exports, higher utility demand and lower U.S. coal production. We expect our overall 2008 operating performance to be much- improved, particularly after the first quarter, as production from our new mining operations reaches planned capacity, several recent cost-savings initiatives yield results, and our higher priced sales contracts come into play. To achieve our desired operating results, we will focus on managing what we view as the most significant execution risks in a rising market: shortages of labor, inflation of wages and commodity prices, and delays in regulatory permits and approvals, all of which can negatively impact both costs and production."

Preliminary 2007 Full-Year Results

Revenues for the year ended December 31, 2007 totaled $849.8 million, compared to $891.6 million for the year ended December 31, 2006. Our preliminary net loss for 2007 was $35.6 million, or $0.23 per share on a fully diluted basis, versus a net loss of $9.3 million, or $0.06 per share on a fully diluted basis, for 2006. The Company reported Adjusted EBITDA of $61.3 million for 2007, compared to $72.0 million for 2006.

Expected Impairment of Goodwill

The preliminary fourth quarter and full year operating results do not include the above-discussed anticipated material non-cash charge to earnings for impairment of goodwill. The Company will include the final amount of that charge in its Form 10-K to be filed with the Securities and Exchange Commission.

Generally accepted accounting principles (GAAP) require, at a minimum, annual impairment testing of goodwill. Additionally, GAAP requires that this impairment testing be performed at the operating complex level, not on a company-wide basis. Under the Company's accounting policies, this impairment testing has been performed for each mining complex using cash flow projections prepared as of October 31st. As a result, the Company's cash flow projections being used in its impairment testing do not reflect the benefit of substantial increases in coal prices that have occurred since October 31, 2007.

Sales, Production and Reserves

ICG sold 4.4 million tons of coal during the fourth quarter of 2007, compared to 4.8 million tons in the same 2006 period. Production totaled 3.9 million tons in the fourth quarter of 2007 versus 4.2 million tons in the fourth quarter of 2006.

For 2007, ICG sold 18.3 million tons of coal, compared to 19.4 million tons in 2006. Coal production for 2007 totaled 16.4 million tons versus 16.5 million tons in 2006.

As of December 31, 2007, ICG controlled approximately 965 million tons of coal reserves located primarily in Illinois, Kentucky, West Virginia, Maryland and Virginia. Additionally, the Company controls approximately 533 million tons of non-reserve coal deposits, which may be classified as reserves in the future as additional drilling and geotechnical work is completed.

Market Outlook and Committed Sales

Increased world demand for coal and reduced domestic production continue to reshape U.S. coal markets, resulting in strong price growth for both steam and metallurgical coal. Continued supply problems in Australia and South Africa, coupled with a severe winter in China, have created supply shortages in the international market and new opportunities for U.S. suppliers. As of January 31, 2008, prompt month Central Appalachian spot rail prices had risen by more than $30 per ton since the end of the third quarter 2007, a 65% increase.

Energy Information Administration production data for 2007 indicates that Central Appalachian regional coal production is down nearly 13 million tons, compared to the same period a year ago. At the same time, electricity generation is up nearly 3% year-over-year for the same period, according to the Edison Electric Institute. Additionally, U.S. coal exports were up 15% through November 2007, while coal imports were essentially flat, compared to the prior year. ICG expects coal exports to increase further during 2008, continuing the trend of export growth after the 10 million ton increase for 2007.

"We believe that continued strong international demand, declining domestic production driven by regulatory constraints, and increased electricity demand will result in continued price growth," said Hatfield.

The Company has a strong committed sales level for 2008 and 2009, yet maintains appropriate uncommitted positions that are expected to allow the Company to benefit from further market improvement.

-- Committed and priced sales for 2008 are approximately 18.2 million tons or 89% of planned shipments. For 2009, approximately 11.4 million tons or 55% of planned shipments is committed and priced. For 2010, priced sales represent only 29% of planned shipments. -- The 2008 priced volume averages $44.80 per ton, excluding freight and handling expenses. -- Approximately 42% of 2008 unpriced tonnage is metallurgical coal. Operational Update -- The new Beckley complex in Raleigh County, West Virginia, is progressing toward full production of 1.4 million annual tons of high quality, low-volatile metallurgical coal by mid-2008. Growing demand for the Beckley product has led to improved pricing expectations. The Company estimates that the Pocahontas No. 3 seam currently being mined contains in excess of 30 million tons of recoverable coal reserves. The Beckley complex began operation of its newly constructed, state-of- the-art coal preparation and rail loading facility in the fourth quarter of 2007. -- The Sentinel complex in Barbour County, West Virginia, is also progressing toward full production of 1.5 million annual tons of high- volatile metallurgical and premium utility coal in the second quarter of 2008. The third and final production section came on line in January 2008. -- Site construction at ICG's Tygart #1 complex in Taylor County, West Virginia, is expected to get underway in mid-2008, with production expected to begin in late 2009. At full output, Tygart is expected to produce 3.5 million tons annually of high-volatile metallurgical or premium utility coal. -- ICG Illinois' Viper Mine complex is planning construction of a new portal facility to provide more direct access to the mine's remaining reserves, while eliminating the cost burden of maintaining miles of previously mined area. The project is expected to be completed in 2010. Reserves at the mine total 32.9 million tons. Favorable market demand is expected to result in a production increase of 15% in 2008 versus 2007. Other Recent Developments -- ICG Eastern received the state of West Virginia's highest honor for environmental excellence in coal mining. The Greenlands Award was presented to ICG Eastern for overall outstanding environmental stewardship in its ongoing mining and reclamation efforts in 2007 by the West Virginia Department of Environmental Protection (WVDEP). The WVDEP also honored Wolf Run Mining Company and Patriot Mining Company with awards for exemplary environmental performance. The awards represent ICG's commitment to complying with environmental regulations at all of its operations. Liquidity and Debt

As of December 31, 2007, the Company had $107.2 million in cash on hand. Total debt as of December 31, 2007 was $412.3 million, consisting primarily of $175.0 million of 10.25% Senior Notes and $225.0 million of 9% Convertible Senior Notes. At year end, the Company had $30.0 million in available borrowing capacity under its credit agreement. ICG's capital requirements for the balance of 2008 relate largely to investment in new lower-cost operations, principally the completion of the Beckley project and the initial development phase of the Tygart Valley project.

Outlook The Company is providing the following guidance: -- For 2008, the Company expects to sell approximately 19.5 million to 20.5 million tons of coal. The average selling price is projected to be $47.00 to $48.00 per ton, with average cost per ton sold expected to be $40.00 to $41.25 excluding selling, general and administrative expenses. Coal production is expected to total 18.5 million to 19.5 million tons, of which 1.9 million tons is projected to be sold as metallurgical quality. -- For 2009, the Company expects to sell approximately 20.0 million to 21.0 million tons of coal. The Company currently anticipates that its prices on average will be between $51.00 and $53.00 based on recent price indications. Coal production is expected to total 19.0 to 20.0 million tons, of which 2.2 million tons is projected to be sold as metallurgical quality. -- The Company's outlook for expected coal pricing by region for 2008 and 2009 is as follows: 2007 Region Actual 2008 Forecast 2009 Forecast CAPP $46.09 $51.00 - $52.00 $56.00 - $59.00 NAPP $36.87 $44.50 - $45.50 $47.00 - $49.00 ILB $29.81 $30.25 - $30.50 $31.20 - $31.75 Total $42.54 $47.00 - $48.00 $51.00 - $53.00 -- Coal exports in 2008 are projected to total approximately 3.0 million tons, including approximately 1.5 million tons of metallurgical coal and approximately 1.5 million tons of steam coal. The Company also expects strong opportunities for 2009 export market participation. -- Capital expenditures are expected to total approximately $157 million in 2008 and $192 million in 2009. General Information

ICG is a leading producer of coal in Northern and Central Appalachia and the Illinois Basin. The Company has 12 active mining complexes, of which 11 are located in Northern and Central Appalachia and one in Central Illinois. ICG's mining operations and reserves are strategically located to serve utility, metallurgical and industrial customers throughout the Eastern United States.

Forward-Looking Statements

This press release contains certain statements that are forward-looking statements within the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements are subject to various risks and uncertainties, actual results may differ materially from those implied in the forward-looking statements. The following factors are among those that may cause actual results to differ materially from the forward-looking statements: market demand for coal, electricity and steel; availability of qualified workers; future economic or capital market conditions; weather conditions or catastrophic weather-related damage; ICG's production capabilities; the consummation of financing, acquisition or disposition transactions and the effect thereof on ICG's business; ICG's plans and objectives for future operations and expansion or consolidation; ICG's relationships with, and other conditions affecting, ICG's customers; the availability and cost of key supplies or commodities, such as diesel fuel, steel, explosives or tires; prices of fuels which compete with or impact coal usage, such as oil or natural gas; timing of reductions or increases in customer coal inventories; long-term coal supply arrangements; risks in coal mining; unexpected maintenance and equipment failure; environmental, safety and other laws and regulations, including those directly affecting ICG's coal mining and production, and those affecting ICG's customers' coal usage; competition; railroad, barge, trucking and other transportation availability, performance and costs; employee benefits costs and labor relations issues; replacement of ICG's reserves; ICG's assumptions concerning economically recoverable coal reserve estimates; availability and costs of credit, surety bonds and letters of credit; title defects or loss of leasehold interests in ICG's properties which could result in unanticipated costs or inability to mine these properties; future legislation and changes in regulations or governmental policies or changes in interpretations thereof, including with respect to safety enhancements; the impairment of the value of goodwill and long-lived assets; the ongoing effect of the Sago mine accident; ICG's liquidity, results of operations and financial condition; the adequacy and sufficiency of ICG's internal controls; and legal and administrative proceedings, settlements, investigations and claims. Forward-looking statements made by ICG in this press release or elsewhere speak only as of the date on which the statements were made. See also the "Risk Factors" of our 2006 Annual Report on Form 10-K/A and in our subsequent filings on Form 10- Q/A, all of which are currently available on our website at http://www.intlcoal.com/. New risks and uncertainties arise from time-to-time, and it is impossible for ICG to predict these events or how they may affect ICG or its anticipated results. ICG has no duty to, and does not intend to, update or revise the forward-looking statements in this news release after the date of issue, except as may be required by law.

INTERNATIONAL COAL GROUP, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2007 AND 2006 (in thousands, except share and per share amounts) Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 Revenues: Coal sales revenues $188,207 $205,531 $780,288 $833,998 Freight and handling revenues 5,324 4,733 19,969 18,890 Other revenues 12,111 16,453 49,578 38,706 Total revenues 205,642 226,717 849,835 891,594 Costs and expenses: Cost of coal sales 180,276 174,494 738,063 739,914 Freight and handling costs 5,324 4,733 19,969 18,890 Cost of other revenues 8,921 8,898 36,060 29,418 Depreciation, depletion and amortization 20,898 22,037 86,885 72,218 Selling, general and administrative 7,483 8,809 33,351 34,578 Gain on sale of assets, net (858) (239) (38,656) (1,125) Total costs and expenses 222,044 218,732 875,672 893,893 Income (loss) from operations (16,402) 7,985 (25,837) (2,299) Interest and other income (expense): Interest expense, net (9,197) (5,130) (35,832) (18,091) Other, net (1,000) 886 301 2,113 Total interest and other expense, net (10,197) (4,244) (35,531) (15,978) Income (loss) before income taxes and minority interest (26,599) 3,741 (61,368) (18,277) Income tax benefit (expense) 10,731 (3,921) 25,403 9,015 Minority interest (163) 83 349 (58) Net loss $(16,031)(1) $(97) $(35,616)(1) $(9,320) Other Data: Adjusted EBITDA (a) $3,496 $30,908 $61,349 $72,032 Net loss per share: Basic and diluted $(0.11) $(0.00) $(0.23) $(0.06) Weighted average shares - basic 152,428,001 152,118,947 152,304,461 152,028,165 Weighted average shares - diluted 152,428,001 152,118,947 152,304,461 152,028,165 (1) Preliminary - Prior to impairment charge. (a) This press release includes a non-GAAP financial measure within the meaning of applicable SEC rules and regulations. Adjusted EBITDA is a non-GAAP financial measure used by management to gauge operating performance. We define Adjusted EBITDA as net income or loss before deducting net interest expense, income taxes, depreciation, depletion and amortization, impairment charges and minority interest. Adjusted EBITDA is not, and should not, be used as a substitute for operating income, net income and cash flow as determined in accordance with GAAP. We present Adjusted EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, substantially all of which present EBITDA or Adjusted EBITDA when reporting their results. We also use Adjusted EBITDA for the following purposes: Our executive compensation plan bases incentive compensation payments on our Adjusted EBITDA performance measured against budgets and a peer group. Our credit facility uses Adjusted EBITDA (with additional adjustments) to measure our compliance with covenants, such as interest coverage and leverage. EBITDA or Adjusted EBITDA is also widely used by us and others in our industry to evaluate and price potential acquisition candidates. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; changes in, or cash requirements for, our working capital needs; interest expense, or the cash requirements necessary to service interest or principal payments, on our debts. Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future. Adjusted EBITDA does not reflect any cash requirements for such replacements. Other companies in our industry may calculate EBITDA or Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. A reconciliation of Adjusted EBITDA to GAAP net income or loss appears at the end of this press release. INTERNATIONAL COAL GROUP, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006 (in thousands) December 31, December 31, 2007 2006 Assets Current assets: Cash and cash equivalents $107,150 $18,742 Accounts receivable, net 83,765 71,093 Inventories, net 40,679 40,587 Deferred income taxes 5,087 5,950 Prepaid expenses and other 28,551 31,710 Total current assets 265,232 168,082 Property, plant, equipment and mine development, net 972,902 920,094 Debt issuance costs, net 13,523 12,472 Advanced royalties, net 14,661 12,634 Goodwill 200,640 196,757 Other non-current assets 5,263 6,852 Total assets $1,472,221 $1,316,891 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $69,326 $56,391 Short-term debt - 19,815 Current portion of long-term debt and capital leases 4,234 1,749 Current portion of reclamation and mine closure costs 7,333 4,198 Current portion of employee benefits 2,925 2,555 Accrued expenses and other 63,192 50,968 Total current liabilities 147,010 135,676 Long-term debt and capital leases 408,096 178,286 Reclamation and mine closure costs 75,825 88,472 Employee benefits 55,132 45,390 Deferred income taxes 112,604 141,553 Below-market coal supply agreements 39,668 58,882 Other non-current liabilities 8,062 9,186 Total liabilities 846,397 657,445 Minority interest 35 1,096 Stockholders' equity: Common stock 1,530 1,529 Additional paid-in capital 639,160 633,937 Accumulated other comprehensive income (5,903) (3,846) Retained earnings (8,998) 26,730 Total stockholders' equity 625,789 658,350 Total liabilities and stockholders' equity $1,472,221 $1,316,891 INTERNATIONAL COAL GROUP, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (in thousands) Year Ended December 31, 2007 2006 Cash flows from operating activities: Net loss $(35,616)(1) $(9,320) Adjustments to reconcile net loss to net cash from operating activities: Depreciation, depletion and amortization 86,885 72,218 Write-off and amortization of deferred finance costs 8,291 3,418 Amortization of accumulated post-retirement benefit obligation 283 - Minority interest (349) 58 Compensation expense related to restricted stock and stock options 5,224 5,668 Gain on sale of assets, net (38,656) (1,125) Provision for doubtful accounts 614 - Deferred income taxes (25,403) 3,239 Changes in assets and liabilities: Accounts receivable (13,717) (5,885) Inventories (92) (20,958) Prepaid expenses and other 1,747 (10,201) Other non-current assets (427) (2,553) Accounts payable 11,872 (1,832) Accrued expenses and other 12,105 12,268 Reclamation and mine closure costs 4,191 5,014 Other liabilities 5,200 5,582 Net cash from operating activities 22,152 55,591 Cash flows from investing activities: Proceeds from the sale of assets 46,524 3,782 Net proceeds from sale-leaseback - 5,413 Additions to property, plant, equipment and mine development (160,431) (165,658) Cash paid related to acquisitions and net assets acquired (12,717) (4,721) Withdrawals of restricted cash 193 415 Distribution to joint venture (100) - Net cash from investing activities (126,531) (160,769) Cash flows from financing activities: Proceeds from short-term debt 26,082 10,375 Repayments on short-term debt (45,368) (20,400) Proceeds long-term debt 65,000 71,543 Repayments on long-term debt and capital leases (68,585) (112,418) Proceeds from senior notes offering - 175,000 Proceeds from convertible senior notes offering 225,000 - Debt issuance costs (9,342) (9,367) Net cash from financing activities 192,787 114,733 Net change in cash and cash equivalents 88,408 9,555 Cash and cash equivalents, beginning of year 18,742 9,187 Cash and cash equivalents, end of year $107,150 $18,742 (1) Preliminary - Prior to impairment charge. INTERNATIONAL COAL GROUP, INC. AND SUBSIDIARIES RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006 (Unaudited) (in thousands, except share and per share amounts) Three Months Ended Year Ended December 31, December 31, 2007 2006 2007 2006 Net loss $(16,031)(1) $(97) $(35,616)(1) $(9,320) Depreciation, depletion and amortization 20,898 22,037 86,885 72,218 Interest expense, net 9,197 5,130 35,832 18,091 Income tax benefit (10,731) 3,921 (25,403) (9,015) Minority interest 163 (83) (349) 58 Adjusted EBITDA $3,496 $30,908 $61,349 $72,032 (1) Does not reflect impairment charge. INTERNATIONAL COAL GROUP, INC. AND SUBSIDIARIES OPERATING STATISTICS

FOR THE THREE MONTHS AND YEARS ENDED DECEMBER 31, 2007 and 2006 (Unaudited)

Central Northern Illinois Purchased Appalachia Appalachia Basin Coal Total For the three months ended December 31, 2007: Tons sold 2,778 869 462 289 4,398 Coal sales revenues $128,299 $33,613 $13,641 $12,654 $188,207 Cost of coal sales $121,231 $36,097 $9,961 $12,987 $180,276 Coal sales revenue per ton $46.18 $38.68 $29.53 $43.79 $42.79 Cost of coal sales per ton $43.64 $41.54 $21.56 $44.94 $40.99 For the three months ended December 31, 2006: Tons sold 2,849 788 534 599 4,770 Coal sales revenues $137,687 $26,629 $13,286 $27,929 $205,531 Cost of coal sales $108,314 $32,992 $11,798 $21,390 $174,494 Coal sales revenue per ton $48.33 $33.79 $24.88 $46.63 $43.09 Cost of coal sales per ton $38.02 $41.87 $22.09 $35.71 $36.58 For the year ended December 31, 2007: Tons sold 11,323 3,291 2,025 1,704 18,343 Coal sales revenues $521,826 $121,345 $60,368 $76,749 $780,288 Cost of coal sales $475,381 $148,039 $46,717 $67,926 $738,063 Coal sales revenue per ton $46.09 $36.87 $29.81 $45.04 $42.54 Cost of coal sales per ton $41.98 $44.98 $23.07 $39.86 $40.24 For the year ended December 31, 2006: Tons sold 10,905 3,281 2,019 3,166 19,371 Coal sales revenues $534,429 $109,184 $49,842 $140,543 $833,998 Cost of coal sales $427,370 $150,649 $46,546 $115,349 $739,914 Coal sales revenue per ton $49.01 $33.28 $24.69 $44.39 $43.05 Cost of coal sales per ton $39.19 $45.92 $23.05 $36.43 $38.20

(a) "Coal sales revenue per ton" and "Cost of coal sales per ton" are calculated as Coal sales revenues or Cost of coal sales, respectively, divided by Tons sold. Although Coal sales revenue per ton and Cost of coal sales per ton are not measures of performance calculated in accordance with GAAP, management believes that they are useful to an investor in evaluating performance because they are widely used in the coal industry as a measure to evaluate a company's sales performance or control over its costs. Coals sales revenue per ton and Cost of coal sales per ton should not be considered in isolation or as substitutes for measures of performance in accordance with GAAP. In addition, because Coal sales revenue and Cost of coal sales per ton are not calculated identically by all companies, ICG's presentation may not be comparable to other similarly titled measures of other companies.

International Coal Group, Inc.

CONTACT: Ira Gamm, vice president - investor and public relations ofInternational Coal Group, Inc., +1-304-760-2619

Web site: http://www.intlcoal.com/

Source: PRNewswire-FirstCall

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