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4th QUARTER FY 2013 EARNINGS PRESENTATION May 15, 2013

4th QUARTER FY 2013 EARNINGS › investor_relations › ...4th Quarter FY 2013 Earnings Presentation May 15, 2013 5 CSC Vision, Mission, and Strategy Vision To be the world’s leading

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Page 1: 4th QUARTER FY 2013 EARNINGS › investor_relations › ...4th Quarter FY 2013 Earnings Presentation May 15, 2013 5 CSC Vision, Mission, and Strategy Vision To be the world’s leading

4th QUARTER FY 2013

EARNINGSPRESENTATION

May 15, 2013

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24th Quarter FY 2013 Earnings Presentation May 15, 2013

Forward-Looking Statements

All written or oral statements made by CSC at this meeting or in these presentation materials that do not directly and exclusively relate to historical facts constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent CSC’s expectations and beliefs, and no assurance can be

given that the results described in such statements will be achieved. These statements are subject to risks, uncertainties, and other factors, many outside of CSC’s control, that could cause actual results to differ materially from the results described in such statements. For a

description of these factors, please see CSC’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

All written or oral statements made by CSC at this meeting or in these presentation materials that do not directly and exclusively relate to historical facts constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent CSC’s expectations and beliefs, and no assurance can be

given that the results described in such statements will be achieved. These statements are subject to risks, uncertainties, and other factors, many outside of CSC’s control, that could cause actual results to differ materially from the results described in such statements. For a

description of these factors, please see CSC’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

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34th Quarter FY 2013 Earnings Presentation May 15, 2013

Non-GAAP Reconciliations

This presentation includes certain non-GAAP financial measures, such as operating income, operating margin, free cash flow, and capital expenditures. These non-GAAP financial

measures are not meant to be considered in isolation or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States (GAAP). A reconciliation of non-GAAP financial measures included in this presentation to the most directly comparable financial measure calculated and presented in accordance with GAAP accompanies this presentation and is on our website at www.csc.com. CSC

management believes that these non-GAAP financial measures provide useful information to investors regarding the Company’s financial condition and results of operations as they provide another measure of the Company’s profitability and ability to service its debt, and

are considered important measures by financial analysts covering CSC and its peers.

This presentation includes certain non-GAAP financial measures, such as operating income, operating margin, free cash flow, and capital expenditures. These non-GAAP financial

measures are not meant to be considered in isolation or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States (GAAP). A reconciliation of non-GAAP financial measures included in this presentation to the most directly comparable financial measure calculated and presented in accordance with GAAP accompanies this presentation and is on our website at www.csc.com. CSC

management believes that these non-GAAP financial measures provide useful information to investors regarding the Company’s financial condition and results of operations as they provide another measure of the Company’s profitability and ability to service its debt, and

are considered important measures by financial analysts covering CSC and its peers.

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CSC Proprietary and Confidential 4May 14, 2013 4

4th QUARTER FY 2013 EARNINGS

Mike LawrieChief Executive Officer

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54th Quarter FY 2013 Earnings Presentation May 15, 2013

CSC Vision, Mission, and StrategyVision

To be the world’s leading next-generation technology solutions and

services provider. Our clients achieve superior returns on their technology

investments through our best-in-class industry solutions, passion and

domain expertise of our people, and our global scale

To create superior value for our customers, shareholders, and

employees by being the industry leader in next-generation technology

services and industry-specific solutions through leveraging the world’s best talent and global scale

Mission and Purpose

Fix the foundation

Expand market

coverage and drive demand

Move up the value

chain

Scale next-gen infra-structure offerings

Rationalize and

standardize offerings

Disciplined, transparent,

account-ability-

oriented manage-

ment system

1 2 3 4 5 6Strategy

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64th Quarter FY 2013 Earnings Presentation May 15, 2013

Bookings Impacted by Market ConditionsBookings Impacted by Market Conditions

Good Operating Performance in FY 2013Good Operating Performance in FY 2013

Investments in People, Systems, and PartnershipsInvestments in People, Systems, and Partnerships

Raising FY 2014 EPS* Target to $3.30 – $3.50Raising FY 2014 EPS* Target to $3.30 – $3.50

Key Messages

*EPS from Continuing Operations

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74th Quarter FY 2013 Earnings Presentation May 15, 2013

Making Significant Reinvestments

7

5 Real Estate Consolidation

6 Sales Coverage and Training

7 Go-to-Market Partnerships

8 Incubators — Cyber, Cloud,and Big Data

1 CSC Talent

2 Enterprise Systems for Finance, HR, and Procurement

3 Shared Services

4 Workforce Optimization

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84th Quarter FY 2013 Earnings Presentation May 15, 2013

Priorities for FY 2014

8

5 Realign the Business Portfolio

6 Return Cash to Shareholders

7 Drive Innovation for Our Clients

1 Continue to Focus on Cost Takeout

2 Reinvest in People, Systems, and Partnerships

3 Expand Market Coverage —Sales Excellence

4 Drive Delivery Excellence

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CSC Proprietary and Confidential 9May 14, 2013 9

4th QUARTER FY 2013 EARNINGS

Paul SalehChief Financial Officer

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104th Quarter FY 2013 Earnings Presentation May 15, 2013

4th Quarter and FY 2013 Results

FY13 FY12 FY13 FY12

Revenue ($M) $ 3,697 $ 3,986 $ 14,993 $ 15,364

Constant Currency -7.0% -1.1%

Operating Margin 5.7% (2.5%) 6.0% (8.8%)

Operating Margin excl. Restructuring 9.9% 7.8%

EPS from Continuing Operations* $ 1.57 $ (1.20) $ 3.20 $ (28.31)

Non-GAAP EPS excl. Certain Items* $ 1.27 $ 2.90

Fourth Quarter Full Year

*Computation of Diluted EPS requires adjustment for non-controlling interests

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114th Quarter FY 2013 Earnings Presentation May 15, 2013

Certain Items

Roadmap for GAAP EPS to Non-GAAP EPS Q4 FY 2013

GAAP Gain on Sale of Business* Tax Benefit Shareholder

Settlement Q4 Restructuring Non-GAAP excl. Certain Items

Revenue $3,697 $3,697

Operating Income 212 153 365

Corporate G&A (107) 53 (54)

Interest Expense, Net (28) (28)

Other Income, Net 33 (38) 3 (2)

Income from Continuing Operations Before Taxes 110 (38) 53 156 281

Tax 139 (158) (15) (44) (78)

Income from Continuing Operations 249 (38) (158) 38 112 203

Diluted EPS from Continuing Operations** $1.57 (0.24) (1.02) 0.24 0.72 $1.27

*Australia IT staffing business**Computation of Diluted EPS requires adjustment for non-controlling interests

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124th Quarter FY 2013 Earnings Presentation May 15, 2013

Financial Highlights

• Successful tax planning

• Favorable mix of global income

• Impact of valuation allowances

Q4 FY 2013 FY 2013

Total Taxes (Net Benefit) $M ($139) ($35)

Effective Tax Rate (126%) (7%)

Lower Tax Rate

• Reduction of management layers

• Broader spans of control

• Greater use of offshore resources

• Facilities consolidation

Charges ($M) Q4 FY 2013 FY 2013NPS $10 $13

MSS $122 $190

BSS $7 $39

Corporate $14 $22

Total $153 $264

Restructuring

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134th Quarter FY 2013 Earnings Presentation May 15, 2013

Financial Highlights (Cont’d)

Q4 FY 2013 ($M) FY 2013 ($M)

Benefit of cost takeout

Greater Capex efficiencies

Improved working capital

Free Cash Flow*

*Excludes $500M discretionary pension contribution

$307

$764

• Smoother maturities

• Investment grade profile

• Reduced effective interest rate

• Ample access to liquidity

Q4 FY 2013 FY 2013• $59M subsidiary

preferred stock • $62M subsidiary debt

• Redeemed $1B notes• New debt:

– $349M of 10-yr notes– $350M of 3-yr notes– $250M 4-yr bank term loan

• Avg. interest rate of ~5.3%

Capital Structure

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144th Quarter FY 2013 Earnings Presentation May 15, 2013

Financial Highlights (Cont’d)

• Reinvest in our business

• Pursue bolt-on strategic acquisitions

• Strengthen our financial position

• Return more cash to shareholders

($M) Q4 FY 2013 FY 2013

Acquisition -- $35

Pension ContributionsMandatory $38 $248Discretionary $500 $500

Share Buybacks$228 $305

4.7M shares 6.7M shares

Dividends $30 $123

Capital Allocation

Divestiture of Non-Core Businesses Annual Rev. ($M) Gross Proceeds

($M)Credit Services ~$230 $1,001

Australian IT Staffing ~$340 $79

Asian Hardware/Software Reseller ~$200 $104

Italian Consulting ~$90 ($35)

Total ~$860 $1,149

Asset PortfolioRebalancing

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154th Quarter FY 2013 Earnings Presentation May 15, 2013

North American Public Sector (NPS)North American Public Sector (NPS)

$5,703 $5,391

FY12 FY13

2.3%

9.6%

FY12 FY13

OI Margin %Revenue ($M)

Q4 FY13 Q4 FY12

Revenue ($M) $ 1,308 $ 1,404

YoY Growth – GAAP (6.8%)Operating Income ($M)– As reported 131 81 – Adjusted for restructuring 141 Operating Margin % – As reported 10.0% 5.8%– Adjusted for restructuring 10.8%

Bookings ($B) $ 0.8 $ 1.2

DoD 68%

Civil 28%

Other 4%

NPS 35%

MSS44%

BSS21%

$6.0

$3.5

FY12 FY13

Bookings ($B)Fiscal Year

Decline of 5.5%

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164th Quarter FY 2013 Earnings Presentation May 15, 2013

$6,602 $6,457

FY12 FY13

Decline of 0.3% in cc

$9.5$6.9

FY12 FY13

Managed Services Sector (MSS)Managed Services Sector (MSS)

0.3%

5.6%

FY12 FY13

Currency impact

NPS 35%

MSS44%

BSS21%

Q4 FY13 Q4 FY12

Revenue ($M) $ 1,632 $ 1,705 YoY Growth – GAAP (4.3%) – cc (4.0%)

Operating Income ($M)– As reported 55 (144)– Adjusted for restructuring 177 Operating Margin % – As reported 3.4% -8.4%– Adjusted for restructuring 10.8%

Bookings ($B) $ 1.1 $ 4.0

OI Margin %Revenue ($M) Bookings ($B)Fiscal Year

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174th Quarter FY 2013 Earnings Presentation May 15, 2013

$3,180 $3,272

FY12 FY13

NPS 35%

MSS44%

BSS21%

Business Solutions & Services (BSS)Business Solutions & Services (BSS)

4.2%

FY12 FY13

Loss

Growth in cc 5.5%

Currency impact

$3.3 $3.4

FY12 FY13

OI Margin %Revenue ($M) Bookings ($B)Fiscal Year

Q4 FY13 Q4 FY12

Revenue ($M) $ 796 $ 908 YoY Growth – GAAP (12.3%) – cc (11.8%)

cc growth adj. for divestiture of Australian IT staffing business (5.5%)

Operating Income ($M)– As reported 79 (17)– Adjusted for restructuring 86 Operating Margin % – As reported 9.9% -1.9%– Adjusted for restructuring 10.8%Bookings ($B) $ 1.0 $ 0.9

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184th Quarter FY 2013 Earnings Presentation May 15, 2013

COST TAKEOUTFY 2013 ~$900MCOST TAKEOUTFY 2013 ~$900M

REINVESTMENTS FY 2013 ~$400M

REINVESTMENTS FY 2013 ~$400M

COST TAKEOUT• Contract management• Supply chain and procurement• Workforce optimization• Enterprise overhead reduction

REINVESTMENTS• Customer-committed savings• Business transformation

– Enterprise finance and HR systems– Sales and go-to-market initiatives

• Restructuring

FY 2014E ~$400M FY 2014E ~$400M FY 2014E ~$300M FY 2014E ~$300M

Cost Takeout Update

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194th Quarter FY 2013 Earnings Presentation May 15, 2013

Revenue

EPS from Continuing Operations $3.30 – $3.50

Reinvestments

Cost Takeout ~$400 million

Free Cash Flow ~$500 million

Flat to slightly down• NPS – mid-single digit decline• Commercial – relatively flat to slightly up

~$300 million

FY 2014 Targets

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CSC Proprietary and Confidential 20May 14, 2013 20

Supplemental Information

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214th Quarter FY 2013 Earnings Presentation May 15, 2013

*Segment and Total Revenue have been recast to reflect impact of the following divestitures: U.S. credit services business, Italian consulting and systems integration business, and enterprise system integration business in Malaysia and Singapore

$M Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 FY12NPS $ 1,484 $ 1,436 $ 1,379 $ 1,404 $ 5,703 MSS 1,618 1,614 1,665 1,705 6,602BSS 820 825 627 908 3,180Corporate and Elim. (31) (34) (25) (31) (121)

Total $ 3,891 $ 3,841 $ 3,646 $ 3,986 $ 15,364

$M Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 FY13NPS $ 1,368 $ 1,375 $ 1,340 $ 1,308 $ 5,391 MSS 1,630 1,581 1,614 1,632 6,457BSS 862 800 814 796 3,272Corporate and Elim. (31) (25) (32) (39) (127)

Total $ 3,829 $ 3,731 $ 3,736 $ 3,697 $ 14,993

FY 2012 and FY 2013 Revenue by Lines of BusinessAdjusted for Discontinued Operations*

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224th Quarter FY 2013 Earnings Presentation May 15, 2013

*Segment and Total Operating Income have been recast to reflect impact of the following divestitures: U.S. credit services business, Italian consulting and systems integration business, and enterprise system integration business in Malaysia and Singapore

$M Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 FY12NPS $ 118 $ (132) $ 65 $ 81 $ 132 MSS 9 45 107 (144) 17BSS 33 3 (1,462) (17) (1,443)Corporate and Elim. (4) (22) (21) (18) (65)

Total $ 156 $ (106) $ (1,311) $ (98) $ (1,359)

$M Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 FY13NPS $ 101 $ 150 $ 137 $ 131 $ 519 MSS 95 87 124 55 361BSS (11) 35 33 79 136Corporate and Elim. (29) (4) (30) (53) (116)

Total $ 156 $ 268 $ 264 $ 212 $ 900

FY 2012 and FY 2013 Operating Income by Lines of Business Adjusted for Discontinued Operations*

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234th Quarter FY 2013 Earnings Presentation May 15, 2013

**Includes the following certain items: 1) a tax planning benefit of $1.02 per share, 2) a gain on the sale of an Australian IT staffing business of $0.24 per share, 3) settlement of a shareholder securities class action lawsuit of ($0.24) per share, and 4) fourth-quarter restructuring charges of ($0.72) per share

Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 FY12DilutedContinuing Operations $ 0.54 $ (18.46) $ (9.19) $ (1.20) $ (28.31)Discontinued Operations $ 0.63 $ (0.10) $ 0.23 $ 0.18 $ 0.94 Total EPS $ 1.17 $ (18.56) $ (8.96) $ (1.02) $ (27.37)

Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 FY13DilutedContinuing Operations $ 0.15 $ 0.72 $ 0.75 $ 1.57 $ 3.20 Discontinued Operations $ 0.11 $ 0.11 $ 2.52 $ 0.24 $ 2.98 Total EPS $ 0.26 $ 0.83 $ 3.27 $ 1.81 $ 6.18

FY 2012 and FY 2013 EPS*

*EPS from Continuing Operations excludes impact of the following divestitures: U.S. credit services business, Italian consulting and systems integration business, and enterprise system integration business in Malaysia and Singapore

** **

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244th Quarter FY 2013 Earnings Presentation May 15, 2013

$BFY12 FY13

North American Public SectorNPSBusiness Solutions and ServicesBSS Managed Services SectorMSS

*New Business Bookings TCV has been recast to reflect impact of the following divestitures: U.S. credit services business, Italian consulting and systems integration business, and enterprise system integration business in Malaysia and Singapore

New Business Bookings*

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254th Quarter FY 2013 Earnings Presentation May 15, 2013

FY 2013 Selected Cash Flow Items

$MNet Income/(Loss) $ 979 $ (4,225) Specified Contract Charge - 1,485 Claims Settlement - 269 Goodwill Impairment - 2,745 Adjusted Net Income 979 274 Depreciation, Amortization, and Other 1,134 1,212 Change in Working Capital (293) (428) (Gain)/Loss on Dispositions (797) 30 Other 96 88 Operating Cash Flow 1,119 1,176

Capital Expenditures (640) (964) Business Dispositions 1,108 2 Acquisitions (34) (374) Other 22 28 Investing Cash Flow 456 (1,308)

Capital Leases and Other Financing (237) (177) Business Dispositions (1,108) (2) Acquisitions 34 374 Other - (4) Free Cash Flow $ 264 $ 59 Free Cash Flow – Excl. $500M Discretionary Pension Contribution $ 764

FY13 FY12

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264th Quarter FY 2013 Earnings Presentation May 15, 2013

Adjusted Operating Income Reconciliation

$M Operating Income

Restructuring Costs*

Adjusted Operating

Income

Adjusted Operating

MarginNorth American Public Sector $ 131 $ 10 $ 141 10.8%Managed Services Sector 55 122 177 10.8%Business Solutions & Services 79 7 86 10.8%Corporate & Eliminations (53) 14 (39)Total $ 212 $ 153 $ 365 9.9%

$M Operating Income

Restructuring Costs*

Adjusted Operating

Income

Adjusted Operating

MarginNorth American Public Sector $ 519 13 532 9.9%Managed Services Sector 361 190 551 8.5%Business Solutions & Services 136 39 175 5.3%Corporate & Eliminations (116) 20 (96)Total $ 900 $ 262 $ 1,162 7.8%

Q4 FY13

FY13

*Total restructuring expense was $264M, of which $262M was included in operating expenses and $2M in Corporate G&A

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274th Quarter FY 2013 Earnings Presentation May 15, 2013

*Capital lease payments, repayments of obligations related to assets acquired under long-term financing arrangements, and proceeds from the sale of P&E (included in investing activities) are included in the calculation of Free Cash Flow

Operating Income $M Q4 FY13 Q4 FY12 FY13 FY12Operating Income/(Loss) $ 212 $ (98) $ 900 $ (1,359)Corporate G&A (107) (53) (293) (219)Interest Expense (36) (46) (183) (175)Interest Income 8 6 22 38 Other Income, Net 33 7 34 6 Goodwill Impairment - - - (2,745)Income/(Loss) Before Taxes $ 110 $ (184) $ 480 $ (4,454)

Non-GAAP Reconciliation

Free Cash Flow $M* Q4 FY13 Q4 FY12 FY13 FY12Free Cash Flow excluding Discretionary Pension Contribution $ 307 $ - $ 764 $ -

Free Cash Flow - as reported (193) 231 264 59 Net Cash Used in/(Provided by) Investing Activities 18 220 (456) 1,308

Acquisitions, Net of Cash Acquired - (6) (34) (374)Dispositions 150 2 1,108 2 Short-Term Investing - 1 - 4 Payment on Capital Leases and Other Long-Term Asset Financing 66 48 237 177

Net Cash Provided by Operating Activities $ 41 $ 496 $ 1,119 $ 1,176

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284th Quarter FY 2013 Earnings Presentation May 15, 2013

$M Q4 FY13 Q4 FY12 FY13 FY12Cost of Services (excluding restructuring costs and specified contract charge) $ 2,836 $ 3,425 $ 11,851 $ 13,019

Percentage of Revenue 76.7% 86.0% 78.9% 84.7%Cost of Services – Specified Contract Charge (excludes amount charged to revenue of $204) - - - 1,281

Percentage of Revenue 8.3%Costs of services - settlement charge (excludes amount charged to revenue of $42) - - - 227

Percentage of Revenue 1.5%SG&A (excluding Corp. G&A) 224 238 902 909 Percentage of Revenue 6.1% 6.0% 6.0% 5.9%Depreciation and Amortization 272 281 1,076 1,147 Percentage of Revenue 7.4% 7.0% 7.2% 7.5%Restructuring Costs 153 140 264 140 Percentage of Revenue 4.1% 3.5% 1.8% 0.9%Operating Costs 3,485 4,084 14,093 16,723 Percentage of Revenue 94.3% 102.5% 93.9% 108.8%Corporate G&A 107 53 293 219 Percentage of Revenue 2.9% 1.3% 2.0% 1.4%

Components of Operating Costs

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294th Quarter FY 2013 Earnings Presentation May 15, 2013

• Operating Cost: Equal to the sum of (1) cost of services, (2) business unit SG&A, (3) depreciation and amortization, and (4) restructuring costs excluding costs in Corporate G&A

• Operating Income: Revenue minus Operating Cost before Corporate G&A expenses• Operating Income Margin: Operating Income as a percentage of Revenue• Free Cash Flow: Equal to the sum of (1) operating cash flows, (2) investing cash flows,

excluding business acquisitions and dispositions, and investments (including short-term investments and purchase or sale of available-for-sale securities), and (3) payments on capital leases and other long-term asset financings

• Capital Expenditures: Equal to sum of net purchases of property, plant, and equipment, outsourcing contracts, and software

Non-GAAP and Other Definitions

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Thank You