Item 1. Financial Statements
Item 1. Financial Statements
RELIANCE STEEL & ALUMINUM CO .
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in millions, except number of shares which are reflected in thousands and par value)
March 31,
December 31,
2023
2022*
ASSETS
Current assets:
Cash and cash equivalents
$
816.2
$
1,173.4
Accounts receivable, less allowance for credit losses of $ 28.7 at March 31, 2023 and $ 26.1 at December 31, 2022
1,800.3
1,565.7
Inventories
1,981.4
1,995.3
Prepaid expenses and other current assets
114.2
115.6
Income taxes receivable
—
36.6
Total current assets
4,712.1
4,886.6
Property, plant and equipment:
Land
263.3
262.7
Buildings
1,381.0
1,359.3
Machinery and equipment
2,507.9
2,446.9
Accumulated depreciation
( 2,127.4 )
( 2,094.3 )
Property, plant and equipment, net
2,024.8
1,974.6
Operating lease right-of-use assets
217.3
216.4
Goodwill
2,106.1
2,105.9
Intangible assets, net
1,008.0
1,019.6
Cash surrender value of life insurance policies, net
37.6
42.0
Other assets
97.3
84.8
Total assets
$
10,203.2
$
10,329.9
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
545.0
$
412.4
Accrued expenses
113.7
118.8
Accrued compensation and retirement benefits
143.7
240.0
Accrued insurance costs
45.2
43.4
Current maturities of long-term debt and short-term borrowings
8.2
508.2
Current maturities of operating lease liabilities
53.2
52.5
Income taxes payable
66.4
—
Total current liabilities
975.4
1,375.3
Long-term debt
1,140.2
1,139.4
Operating lease liabilities
165.5
165.2
Long-term retirement benefits
29.6
26.1
Other long-term liabilities
61.9
51.4
Deferred income taxes
476.2
476.6
Commitments and contingencies
Equity:
Preferred stock, $ 0.001 par value: 5,000 shares authorized; none issued or outstanding
—
—
Common stock and additional paid-in capital, $ 0.001 par value and 200,000 shares authorized
Issued and outstanding shares— 58,840 at March 31, 2023 and 58,787 at December 31, 2022
0.1
0.1
Retained earnings
7,432.1
7,173.6
Accumulated other comprehensive loss
( 86.5 )
( 86.3 )
Total Reliance stockholders’ equity
7,345.7
7,087.4
Noncontrolling interests
8.7
8.5
Total equity
7,354.4
7,095.9
Total liabilities and equity
$
10,203.2
$
10,329.9
* Amounts derived from audited financial statements.
See accompanying notes to unaudited consolidated financial statements.
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RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except number of shares which are reflected in thousands and per share amounts)
Three Months Ended March 31,
2023
2022
Net sales
$
3,965.3
$
4,485.8
Costs and expenses:
Cost of sales (exclusive of depreciation and amortization shown below)
2,739.3
3,098.7
Warehouse, delivery, selling, general and administrative (“SG&A”)
651.3
611.9
Depreciation and amortization
61.1
59.1
3,451.7
3,769.7
Operating income
513.6
716.1
Other (income) expense:
Interest expense
10.9
15.6
Other (income) expense, net
( 5.8 )
3.3
Income before income taxes
508.5
697.2
Income tax provision
124.1
172.6
Net income
384.4
524.6
Less: net income attributable to noncontrolling interests
1.3
1.3
Net income attributable to Reliance
$
383.1
$
523.3
Earnings per share attributable to Reliance stockholders:
Basic
$
6.51
$
8.46
Diluted
$
6.43
$
8.33
Shares used in computing earnings per share:
Basic
58,832
61,833
Diluted
59,534
62,784
See accompanying notes to unaudited consolidated financial statements.
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RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Three Months Ended March 31,
2023
2022
Net income
$
384.4
$
524.6
Other comprehensive income (loss):
Foreign currency translation gain
0.6
0.7
Postretirement benefit plan adjustments, net of tax
( 0.8 )
( 0.1 )
Total other comprehensive (loss) income
( 0.2 )
0.6
Comprehensive income
384.2
525.2
Less: comprehensive income attributable to noncontrolling interests
1.3
1.3
Comprehensive income attributable to Reliance
$
382.9
$
523.9
See accompanying notes to unaudited consolidated financial statements.
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RELIANCE STEEL & ALUMI NUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY
(in millions, except per share amounts)
Three Months Ended March 31,
2023
2022
Total equity, beginning balances
$
7,095.9
$
6,093.7
Common stock and additional paid-in capital:
Beginning balances
0.1
0.1
Stock-based compensation
13.5
11.8
Taxes paid related to net share settlement of restricted stock units
( 37.2 )
( 17.1 )
Repurchase of common shares
23.7
5.3
Ending balances
0.1
0.1
Retained earnings:
Beginning balances
7,173.6
6,155.3
Net income attributable to Reliance
383.1
523.3
Cash dividends and dividend equivalents
( 62.0 )
( 56.7 )
Repurchase of common shares
( 62.6 )
( 22.4 )
Ending balances
7,432.1
6,599.5
Accumulated other comprehensive loss:
Beginning balances
( 86.3 )
( 68.9 )
Other comprehensive (loss) income
( 0.2 )
0.6
Ending balances
( 86.5 )
( 68.3 )
Total Reliance stockholders' equity, ending balances
7,345.7
6,531.3
Noncontrolling interests:
Beginning balances
8.5
7.2
Comprehensive income
1.3
1.3
Dividends paid
( 1.1 )
( 1.1 )
Ending balances
8.7
7.4
Total equity, ending balances
$
7,354.4
$
6,538.7
Cash dividends declared per common share
$
1.00
$
0.875
See accompanying notes to unaudited consolidated financial statements.
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RELIANCE STEEL & ALUMINUM CO.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Three Months Ended March 31,
2023
2022
Operating activities:
Net income
$
384.4
$
524.6
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense
61.1
59.1
Stock-based compensation expense
13.5
11.8
Other
( 0.1 )
8.0
Changes in operating assets and liabilities (excluding effect of businesses acquired):
Accounts receivable
( 237.1 )
( 399.6 )
Inventories
13.5
54.0
Prepaid expenses and other assets
50.0
19.5
Accounts payable and other liabilities
99.3
126.6
Net cash provided by operating activities
384.6
404.0
Investing activities:
Purchases of property, plant and equipment
( 102.9 )
( 66.7 )
Proceeds from sales of property, plant and equipment
8.3
8.2
Deferred compensation plan contributions, net
( 7.4 )
( 7.5 )
Other
( 0.6 )
2.7
Net cash used in investing activities
( 102.6 )
( 63.3 )
Financing activities:
Principal payment on long-term debt
( 500.0 )
—
Cash dividends and dividend equivalents
( 62.0 )
( 56.7 )
Share repurchases
( 38.9 )
( 17.1 )
Taxes paid related to net share settlement of restricted stock units
( 37.2 )
( 17.1 )
Other
( 1.1 )
( 1.1 )
Net cash used in financing activities
( 639.2 )
( 92.0 )
Effect of exchange rate changes on cash and cash equivalents
—
( 1.2 )
(Decrease) increase in cash and cash equivalents
( 357.2 )
247.5
Cash and cash equivalents at beginning of year
1,173.4
300.5
Cash and cash equivalents at end of the period
$
816.2
$
548.0
Supplemental cash flow information:
Interest paid during the period
$
14.4
$
9.6
Income taxes paid during the period, net
$
21.2
$
89.8
See accompanying notes to unaudited consolidated financial statements.
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RELIANCE STEEL & ALUMINUM CO.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of Reliance Steel & Aluminum Co. and its subsidiaries (collectively “Reliance”, the “Company”, “we”, “our” or “us”). These financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the consolidated financial statements reflect all material adjustments, which are of a normal recurring nature, necessary for presentation of financial statements for interim periods in accordance with U.S. GAAP. Interim results are not necessarily indicative of the results for a full year. All significant intercompany accounts and transactions have been eliminated. The ownership of the other interest holders of consolidated subsidiaries is reflected as noncontrolling interests. Investments in unconsolidated subsidiaries are recorded under the equity method of accounting. These consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and accompanying notes included in Reliance’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Inventories
The majority of our inventory is valued using the last-in, first-out (“LIFO”) method, which is not in excess of market. Under this method, older costs are included in inventory, which may be higher or lower than current costs. We estimate the effect of LIFO on interim periods by allocating the projected year-end LIFO calculation to interim periods on a pro rata basis.
Note 2. Revenues
The following table presents our net sales disaggregated by product and service:
Three Months Ended March 31,
2023
2022
(in millions)
Carbon steel
$
2,128.5
$
2,547.5
Aluminum
670.2
692.8
Stainless steel
657.3
764.9
Alloy
191.4
183.7
Toll processing and logistics
155.4
135.1
Copper and brass
82.0
86.6
Other and eliminations
80.5
75.2
Total
$
3,965.3
$
4,485.8
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Note 3. Goodwill
The change in the carrying amount of goodwill is as follows:
(in millions)
Balance at January 1, 2023
$
2,105.9
Effect of foreign currency translation
0.2
Balance at March 31, 2023
$
2,106.1
We had no accumulated impairment losses related to goodwill at March 31, 2023 and December 31, 2022.
Note 4. Intangible Assets, net
Intangible assets, net consisted of the following:
March 31, 2023
December 31, 2022
Weighted Average
Gross
Gross
Amortizable
Carrying
Accumulated
Carrying
Accumulated
Life in Years
Amount
Amortization
Amount
Amortization
(in millions)
Intangible assets subject to amortization:
Customer lists/relationships
14.2
$
713.8
$
( 490.5 )
$
713.6
$
( 479.3 )
Backlog of orders
7.9
22.3
( 3.8 )
22.3
( 3.1 )
Other
9.2
9.9
( 9.5 )
9.9
( 9.5 )
746.0
( 503.8 )
745.8
( 491.9 )
Intangible assets not subject to amortization:
Trade names
765.8
—
765.7
—
$
1,511.8
$
( 503.8 )
$
1,511.5
$
( 491.9 )
Amortization expense for intangible assets was $ 11.8 million and $ 12.2 million for the first quarters of 2023 and 2022, respectively. Foreign currency translation gains related to intangible assets, net were $ 0.2 million and $ 0.4 million for the first quarters of 2023 and 2022, respectively.
The following is a summary of estimated future amortization expense:
(in millions)
2023 (remaining nine months)
$
31.8
2024
40.1
2025
35.9
2026
26.4
2027
25.8
Thereafter
82.2
$
242.2
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Note 5. Debt
Debt consisted of the following:
March 31,
December 31,
2023
2022
(in millions)
Unsecured revolving credit facility maturing September 3, 2025
$
—
$
—
Senior unsecured notes, interest payable semi-annually at 4.50 %, effective rate of 4.63 %, redeemed on January 15, 2023
—
500.0
Senior unsecured notes, interest payable semi-annually at 1.30 %, effective rate of 1.53 %, maturing August 15, 2025
400.0
400.0
Senior unsecured notes, interest payable semi-annually at 2.15 %, effective rate of 2.27 %, maturing August 15, 2030
500.0
500.0
Senior unsecured notes, interest payable semi-annually at 6.85 %, effective rate of 6.91 %, maturing November 15, 2036
250.0
250.0
Other notes and revolving credit facilities
9.6
9.6
Total
1,159.6
1,659.6
Less: unamortized discount and debt issuance costs
( 11.2 )
( 12.0 )
Less: amounts due within one year and short-term borrowings
( 8.2 )
( 508.2 )
Total long-term debt
$
1,140.2
$
1,139.4
The weighted average interest rate on the Company’s outstanding borrowings as of March 31, 2023 and December 31, 2022 was 2.89 % and 3.37 %, respectively.
Unsecured Credit Facility
On September 3, 2020, we entered into a $ 1.5 billion unsecured five-year Amended and Restated Credit Agreement that amended and restated our then-existing $ 1.5 billion unsecured revolving credit facility. On January 12, 2023, the agreement was further amended to change the reference rate from LIBOR to SOFR (as amended, the “Credit Agreement”). As of March 31, 2023, borrowings under the Credit Agreement were available at variable rates based on SOFR plus 1.10 % or the bank prime rate and we currently pay a commitment fee at an annual rate of 0.175 % on the unused portion of the revolving credit facility. The applicable margins over SOFR and base rate borrowings, along with commitment fees, are subject to adjustment every quarter based on our leverage ratio, as defined in the Credit Agreement. All borrowings under the Credit Agreement may be prepaid without penalty .
As of March 31, 2023 and December 31, 2022, we had no outstanding borrowings on the revolving credit facility. As of March 31, 2023 and December 31, 2022, we had $ 7.7 million of letters of credit outstanding under the revolving credit facility.
Senior Unsecured Notes
On January 15, 2023, we redeemed in full the $ 500.0 million aggregate outstanding principal amount of our 4.50 % senior notes due April 15, 2023 using cash on hand.
Under the indentures for each series of our senior notes (the “indentures”), the notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. If we experience a change in control accompanied by a downgrade in our credit rating, we will be required to make an offer to repurchase each series of the notes at a price equal to 101 % of their principal amount plus accrued and unpaid interes t.
Other Notes, Revolving Credit and Letter of Credit/Letters of Guarantee Facilities
A revolving credit facility with a credit limit of $ 7.9 million is in place for an operation in Asia with an outstanding balance of $ 2.2 million as of March 31, 2023 and December 31, 2022.
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Various industrial revenue bonds had combined outstanding balances of $ 7.4 million as of March 31, 2023 and December 31, 2022 and have maturities through 2027.
A standby letters of credit/letters of guarantee agreement with one of the lenders under our Credit Agreement provides letters of credit and/or letters of guarantee in an amount not to exceed $ 50.0 million in the aggregate. As of March 31, 2023, a total of $ 19.5 million of letters of credit/guarantee were outstanding under this facility.
Covenants
The Credit Agreement and the indentures include customary representations, warranties, covenants and events of default provisions. The covenants under the Credit Agreement include, among other things, two financial maintenance covenants that require us to comply with a minimum interest coverage ratio and a maximum leverage ratio. We were in compliance with all financial maintenance covenants in our Credit Agreement at March 31, 2023.
Note 6. Leases
Our metals service center leases are comprised of processing and distribution facilities, equipment, trucks and trailers, ground leases and other leased spaces, such as depots, sales offices, storage and data centers. We also lease various office spaces. Our leases of facilities and other spaces expire at various times through 2045 and our ground leases expire at various times through 2068. Nearly all of our leases are operating leases; we have recognized finance right-of-use assets and obligations of less than $ 1.0 million.
The following is a summary of our lease cost:
Three Months Ended March 31,
2023
2022
(in millions)
Operating lease cost
$
23.6
$
23.0
Supplemental cash flow and balance sheet information is presented below:
Three Months Ended March 31,
2023
2022
(in millions)
Supplemental cash flow information:
Cash payments for operating leases
$
23.5
$
21.8
Right-of-use assets obtained in exchange for operating lease obligations
$
15.6
$
7.1
March 31,
December 31,
2023
2022
Other lease information:
Weighted average remaining lease term—operating leases
6.5 years
6.6 years
Weighted average discount rate—operating leases
3.9 %
3.8 %
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Maturities of operating lease liabilities as of March 31, 2023 are as follows:
(in millions)
2023 (remaining nine months)
$
46.3
2024
52.7
2025
39.9
2026
27.6
2027
19.6
Thereafter
68.5
Total operating lease payments
254.6
Less: imputed interest
( 35.9 )
Total operating lease liabilities
$
218.7
Note 7. Income Taxes
Our effective income tax rates for the first quarters of 2023 and 2022 were 24.4 % and 24.8 %, respectively. The differences between our effective income tax rates and the U.S. federal statutory rate of 21.0 % were mainly due to state income taxes and higher foreign income tax rates, partially offset by the effects of company-owned life insurance policies.
Note 8. Equity
Dividends
On April 25, 2023, our Board of Directors declared the 2023 second quarter cash dividend of $ 1.00 per share of common stock, payable on June 9, 2023 to stockholders of record as of May 26, 2023.
During the first quarters of 2023 and 2022, we declared and paid quarterly dividends of $ 1.00 and $ 0.875 per share, or $ 59.0 million and $ 54.2 million in total, respectively. In addition, we paid $ 3.0 million and $ 2.5 million in dividend equivalents with respect to vested restricted stock units during the first quarters of 2023 and 2022, respectively.
Stock-Based Compensation
We make annual grants of long-term incentive awards to officers and key employees under our Second Amended and Restated 2015 Incentive Award Plan in the forms of service-based restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) that each have approximately 3 -year vesting periods. The PSUs include the right to receive a maximum payout of two shares of our common stock based on performance goals tied to achieving a 3 -year return on assets result and include service criteria. We also grant the non-management members of our Board of Directors fully vested stock awards under our Directors Equity Plan . The fair values of the RSUs, PSUs and stock awards are determined based on the closing stock price of our common stock on the grant date.
In the first quarters of 2023 and 2022, we made payments of $ 37.2 million and $ 17.1 million, respectively, to tax authorities on our employees’ behalf for shares withheld related to net share settlement of vested restricted stock units.
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The following is a summary of changes in our unvested RSUs and PSUs during the first quarter of 2023:
Weighted
Average
RSU and PSU
Grant Date
Aggregate Units
Fair Value
Unvested at January 1, 2023
582,012
$
164.60
Granted (1)
193,812
247.90
Vested
( 870 )
152.93
Cancelled or forfeited
( 2,002 )
170.84
Unvested at March 31, 2023
772,952
$
185.48
Shares reserved for future grants (all plans)
1,457,448
(1) Comprised of 109,683 RSUs and 84,129 PSUs granted in February 2023. The service-based RSUs cliff vest on December 1, 2025 and the performance-based RSUs are subject to a 3 -year performance period ending December 31, 2025.
As of March 31, 2023, there was $ 123.9 million of total unrecognized compensation cost related to unvested RSUs and PSUs in an aggregate amount of 772,952 units that are expected to be settled through the issuance of 993,124 shares of our common stock. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.0 years.
Share Repurchases
Our share repurchase activity during the first quarters of 2023 and 2022 was as follows:
2023
2022
Average Cost
Average Cost
Shares
Per Share
Amount
Shares
Per Share
Amount
(in millions)
(in millions)
First quarter
160,224
$
242.86
$
38.9
113,529
$
150.97
$
17.1
On July 26, 2022, our Board of Directors amended our share repurchase program to increase the repurchase authorization to $ 1.0 billion. The share repurchase program does not obligate us to repurchase any specific number of shares, does not have a specific expiration date and may be suspended or discontinued at any time. Repurchased and subsequently retired shares are restored to the status of authorized but unissued shares. As of March 31, 2023, we had remaining authorization under the program to repurchase $ 641.8 million of our common stock . We repurchase shares through open market purchases and transactions structured through investment banking institutions under plans relying on Rule 10b5-1 and/or Rule 10b-18 under the Exchange Act.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss included the following:
Pension and
Foreign Currency
Postretirement Benefit
Accumulated Other
Translation
Plan Adjustments,
Comprehensive
(Loss) Gain
Net of Tax
Loss
(in millions)
Balance as of January 1, 2023
$
( 84.0 )
$
( 2.3 )
$
( 86.3 )
Current-period change
0.6
( 0.8 )
( 0.2 )
Balance as of March 31, 2023
$
( 83.4 )
$
( 3.1 )
$
( 86.5 )
Foreign currency translation adjustments have not been adjusted for income taxes. Pension and postretirement benefit plan adjustments are amortized over service periods and reflected in the amortization of net loss component of our net
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periodic benefit cost or are otherwise recognized as a loss as a result of plan settlements. Pension and postretirement benefit plan adjustments are net of taxes of $ 1.3 million as of March 31, 2023 and December 31, 2022. The income tax effects are released from accumulated other comprehensive loss and included in our income tax provision as obligations under our pension and postretirement plans are settled .
Note 9. Commitments and Contingencies
Environmental Contingencies
We are currently involved with an environmental remediation project related to activities at former manufacturing operations of Earle M. Jorgensen Company (“EMJ”), our wholly owned subsidiary, that were sold many years prior to our acquisition of EMJ in 2006. Although the potential cleanup costs could be significant, EMJ maintained insurance policies during the time it owned the manufacturing operations that have covered costs incurred to date and are expected to continue to cover the majority of the related costs. We do not expect that this obligation will have a material adverse impact on our consolidated financial position, results of operations or cash flows.
Legal Matters
From time to time, we are named as a defendant in legal actions. These actions generally arise in the ordinary course of business. We are not currently a party to any pending legal proceedings other than routine litigation incidental to the business. We expect that these matters will be resolved without having a material adverse impact on our consolidated financial position, results of operations or cash flows. We maintain general liability insurance against risks arising in the ordinary course of business.
Risks and Uncertainties
We continue to monitor the impact of the COVID-19 pandemic, and government actions and measures taken to prevent its spread, and the potential to affect our operations. In addition to COVID-19, the conflict between Russia and Ukraine and macroeconomic disruptions such as inflation and the potential for an economic recession or slowdown could also significantly impact the demand for our products and services, as well as those of our customers and suppliers, and our estimates and judgments may be subject to greater volatility than in the past. Refer to Part I, Item 1A “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2022 for further discussion of risks that could adversely affect our estimates and judgments.
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Note 10. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended March 31,
2023
2022
(in millions, except number of shares which are reflected in thousands and per share amounts)
Numerator:
Net income attributable to Reliance
$
383.1
$
523.3
Denominator:
Weighted average shares outstanding
58,832
61,833
Dilutive effect of stock-based awards
702
951
Weighted average diluted shares outstanding
59,534
62,784
Earnings per share attributable to Reliance stockholders:
Basic
$
6.51
$
8.46
Diluted
$
6.43
$
8.33
The computations of earnings per share for the first quarters of 2023 and 2022 do not include 194,304 and 314,042 weighted average shares, respectively, in respect of outstanding RSUs and PSUs, because their inclusion would have been anti-dilutive.
Note 11. Subsequent Event
On May 1, 2023, we acquired Southern Steel Supply, LLC (“Southern Steel”), a metals service center that offers merchant and structural steel, pipe and tube, steel plate, ornamental products and laser cut and fabricated parts. Located in Memphis, Tennessee, Southern Steel will operate as a subsidiary of Siskin Steel & Supply Company, Inc., a wholly owned subsidiary of Reliance. The acquisition was funded with cash on hand. For the twelve months ended December 31, 2022, annual net sales for Southern Steel were $ 62.9 million.
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RELIANCE STEEL & ALUMINUM CO.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.