What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 88 added, 86 removed, 108 unchanged (62% of the section changed)

12 unchanged sentences

political and economic conditions such as inflation, a prolonged higher interest rate environment and the possibility of an economic recession that could materially impact us, our customers and suppliers and demand for our products and services.

Deteriorations in economic conditions, as a result of inflation, elevated interest rates, economic recession, slowing growth, COVID-19 or outbreaks of other infectious disease, the conflict between Russia and Ukraine or otherwise, could lead to a decline in demand for our products and services and negatively impact our business, and may also impact financial markets and corporate credit markets which could adversely impact our access to financing, or the terms of any financing.

Deteriorations in economic conditions, as a result of inflation, elevated interest rates, economic recession, slowing growth, outbreaks of infectious disease, conflicts such as the war in Ukraine and the evolving events in Israel and Gaza or otherwise, could lead to a decline in demand for our products and services and negatively impact our business, and may also impact financial markets and corporate credit markets which could adversely impact our access to financing, or the terms of any financing.

Other factors which could cause actual results to differ materially from our forward-looking statements include those disclosed in this report and in other reports we have filed with the United States Securities and Exchange Commission (the “SEC”).

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You should review any additional disclosures we make in any subsequent press releases and Forms 10-K, 10-Q and 8-K filed with or furnished to the SEC.

Key results for the second quarter and first half of 2023 included the following:

● Increases in tons sold of 1.9% and 4.5% for the second quarter and six months ended June 30, 2023, respectively.

● Quarterly net sales of $3.88 billion were down 17.1% from the second quarter of 2022, reflecting a 19.0% decrease in average selling price per ton sold.

Net sales of $7.85 billion for the six months ended June 30, 2023 were down 14.4% from the same period in 2022, reflecting a 18.3% decrease in average selling price per ton sold.

● Gross profit margins for the second quarter and six months ended June 30, 2023 of 31.5% and 31.2%, respectively, were slightly lower compared to the prior year periods that benefitted from a rising metals pricing environment.

● Earnings per diluted share of $6.49 and $12.92 for the second quarter and six months ended June 30, 2023, respectively, compared to $9.15 and $17.49 for the respective 2022 periods.

● Cash flow from operations of $679.7 million for the six months ended June 30, 2023 increased slightly from $674.2 million for the same period in 2022, despite lower net income.

● Inventory turnover rate (based on tons) of 4.8x exceeded our Company-wide annual goal of 4.7x and our 4.4x rate in the prior year period.

● Returns to stockholders of $233.4 million, comprised of $120.6 million of cash dividends and $112.8 million of share repurchases for the six months ended June 30, 2023.

Our net sales declined in the second quarter and six months ended June 30, 2023 compared to record levels in the same 2022 periods due to declines in our average selling price per ton sold that were partially offset by moderate increases in our tons sold.

Our average selling price per ton sold peaked at an ultimate record in the second quarter of 2022 and subsequently declined throughout the second half of 2022 and down overall for the first quarter of 2023.

Our second quarter of 2023 average selling price per ton sold was relatively flat as a result of the mix of our products sold as an increase in our carbon selling price per ton sold offset declines in prices for the stainless and common alloy aluminum products we sold.

We believe record metals pricing in 2022 was largely driven by supply chain disruptions caused by the onset of the conflict between Russia and Ukraine, labor supply and microchip shortages, and impacts of the continuing COVID-19 pandemic, including the omicron variant surge and lockdowns in China.

The increases in our tons sold reflected solid demand in the vast majority of our end markets, driven in part by our investments in organic growth, with particular strength in non-residential construction, Reliance’s largest end market, and commercial aerospace.

Our gross profit margins in the second quarter and six months ended June 30, 2023 of 31.5% and 31.2%, respectively, were generally consistent with the comparable 2022 periods and supported by investments in value-added processing capabilities in recent years, stable metals pricing at historically elevated levels and healthy demand in the end markets we serve.

Our SG&A expense for the second quarter and six months ended June 30, 2023 increased 0.3% and 3.3%, respectively;

which increases were of lower magnitude than the increases in our tons sold of 1.9% and 4.5%, respectively.

The main drivers of our moderately increased SG&A expense were incremental variable costs associated with increases in our tons sold and inflationary impacts on wages and transportation costs, partially offset by decreased incentive-based compensation from lower profitability.

Our cash flow from operations of $679.7 million for the six months ended June 30, 2023 increased slightly from $674.2 million for the same period in 2022 despite a 29.8% decline in net income.

We were able to grow our operating

cash flow despite a significant decline in net income through effective management of our working capital.

Our significant cash flow generation supported returns to our stockholders and our growth initiatives, which included the acquisition of Southern Steel Supply, LLC (“Southern Steel”) and $233.1 million of capital expenditures.

We believe our liquidity position that includes substantial cash on hand, significant cash flow generation and $1.5 billion of availability under our revolving credit facility will support our continued disciplined use of capital as we maintain a flexible approach focused on growth, both organically and through acquisitions, and stockholder return activities.

On May 1, 2023, we acquired 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.

Tons sold increased 1.1% and 3.4% for the third quarter and nine months ended September 30, 2023 compared to the same periods in 2022, respectively, due to healthy demand in our key end markets, including non-residential construction (our largest end market) and aerospace, as well as contributions from our organic growth activities.

The 3.4% increase in our tons sold for the nine months ended September 30, 2023 outperformed the 1.0% increase in industry shipments as reported by the Metals Service Center Institute (“MSCI”).

Our net sales declined in the third quarter and nine months ended September 30, 2023 compared to the same periods in 2022 due to declines in our average selling price per ton sold that were partially offset by increases in our tons sold.

Our average selling price per ton sold peaked at an ultimate record in the second quarter of 2022 and subsequently declined thereafter, including through the nine months ended September 30, 2023.

We believe record metals pricing in 2022 was largely driven by supply chain disruptions caused by the onset of the conflict between Russia and Ukraine, labor supply and microchip shortages, and impacts of the COVID-19 pandemic, including the omicron variant surge and lockdowns in China.

Gross profit margins for the third quarter and nine months ended September 30, 2023 were 29.7% and 30.7%, respectively, compared to 29.2% and 30.7% for the respective 2022 periods.

Earnings per diluted share were $4.99 and $17.92 for the third quarter and nine months ended September 30, 2023, respectively, compared to $6.45 and $23.98 for the respective 2022 periods.

Lower gross profit, driven by lower metals prices that more than offset increases in tons sold, contributed to decreases in earnings per share.

Cash flow from operations of $1.15 billion for the nine months ended September 30, 2023 decreased from $1.31 billion for the same period in 2022 due to lower profitability partially offset by lower working capital needs.

Organic growth activities were substantially comprised of capital expenditures of $358.6 million for the nine months ended September 30, 2023 compared to $249.7 million for the same period in 2022.

Returns to stockholders for the nine months ended September 30, 2023 totaled $418.5 million, comprised of $179.3 million of cash dividends and $239.2 million of share repurchases.

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 now operates as a subsidiary of Siskin Steel & Supply Company, Inc., a wholly owned subsidiary of Reliance.

The acquisition was funded with cash on hand.

Included in our net sales for the six months ended June 30, 2023 were net sales of $8.9 million from Southern Steel.

Included in our net sales for the nine months ended September 30, 2023 were net sales of $20.2 million from Southern Steel.

Results of Operations

The following sets forth certain income statement data for the second quarter and six months ended June 30, 2023 and 2022 (dollars are shown in millions, except per share amounts, and certain amounts may not calculate due to rounding):

The following sets forth certain income statement data for the third quarter and nine months ended September 30, 2023 and 2022 (dollars are shown in millions, except per share amounts, and certain amounts may not calculate due to rounding):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of sales (exclusive of depreciation and amortization expense shown below) (1)

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Diluted earnings per share attributable to Reliance stockholders

(1) Cost of sales for the six months ended June 30, 2022 included $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments for our 2021 acquisitions.

(1) Cost of sales for the nine months ended September 30, 2022 included $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments for our 2021 acquisitions.

(2) Gross profit, calculated as net sales less cost of sales, and gross profit margin, calculated as gross profit divided by net sales, are non-GAAP financial measures as they exclude depreciation and amortization expense associated with the corresponding sales.

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Gross profit and gross profit margin, as presented, are not necessarily comparable with similarly titled measures for other companies.

Second Quarter and Six Months Ended June 30, 2023 Compared to Second Quarter and Six Months Ended June 30, 2022

Third Quarter and Nine Months Ended September 30, 2023 Compared to Third Quarter and Nine Months Ended September 30, 2022

September 30,

(dollars in millions)

Net sales (three months ended)

Net sales (six months ended)

Net sales (nine months ended)

September 30,

(tons in thousands)

Tons sold (three months ended)

Tons sold (six months ended)

Tons sold (nine months ended)

September 30,

Average selling price per ton sold (three months ended)

Average selling price per ton sold (six months ended)

Average selling price per ton sold (nine months ended)

Our tons sold and average selling price per ton sold exclude our tons toll processed.

Our average selling price per ton sold includes intercompany transactions that are eliminated from our consolidated net sales.

Our net sales declined from record levels in the comparable 2022 periods due to declines in our average selling price per ton sold that were partially offset by moderate increases in tons sold.

Demand was healthy in the vast majority of our end markets, driven in part by our investments in organic growth, with particular strength in non-residential construction (our largest) and commercial aerospace.

Our net sales declined from record third-quarter levels in the comparable 2022 periods due to declines in our average selling price per ton sold that were partially offset by increases in tons sold.

The increases in our tons sold were due to healthy demand in our key end markets, including non-residential construction (our largest end market) and aerospace, as well as contributions from our organic growth activities.

Our average selling price per ton sold peaked in the second quarter of 2022 and subsequently declined thereafter, including through the nine months ended September 30, 2023.

We believe record metals pricing in 2022 was largely driven by supply chain disruptions caused by the onset of the conflict between Russia and Ukraine, labor supply and microchip shortages, and impacts of the COVID-19 pandemic, including the omicron variant surge and lockdowns in China.

Since we primarily purchase and sell our inventories in the spot market, our average selling prices generally fluctuate similarly with the changes in the costs of the various metals we purchase;

Our average selling price per ton sold peaked in the second quarter of 2022 and subsequently declined throughout the second half of 2022 and down overall for the first quarter of 2023.

The mix of products sold can also have an impact on our overall average selling price per ton sold.

Our second quarter of 2023 average selling price per ton sold was relatively flat with the prior quarter as an increase in our carbon selling price per ton sold offset declines in prices for the stainless and common alloy aluminum products we sold.

As c arbon steel sales represented 52% of our gross sales for the six months ended June 30, 2023, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold.

the mix of products sold can also have an impact on our average selling price per ton sold.

As c arbon steel sales represented 53% of our gross sales for the nine months ended September 30, 2023, changes in carbon steel prices have the most significant impact on changes in our overall average selling price per ton sold.

Y ear-over-year changes in the selling prices of our major commodity products and related mix of our tons sold are presented below:

Three Months Ended

Six Months Ended

Nine Months Ended

Average Selling

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Cost of Sales and Gross Profit

September 30,

(dollars in millions)

Cost of sales (three months ended)

Cost of sales (six months ended)

Cost of sales (nine months ended)

Gross profit (three months ended)

Gross profit (six months ended)

Gross profit (nine months ended)

LIFO (income) expense (three months ended)

LIFO (income) expense (six months ended)

LIFO (income) expense (nine months ended)

* Not meaningful.

Gross profit in the second quarter and six months ended June 30, 2023 decreased from the same periods in 2022 mainly due to lower sales as a result of decreases in average selling price per ton sold that outpaced moderate increases in tons sold.

In addition, we record non-cash adjustments to our LIFO method inventory valuation reserve, which are included in cost of sales and, in effect, reflects cost of sales at current replacement costs.

The inventory caption of our consolidated balance sheet included a LIFO method inventory valuation reserve of $683.8 million at June 30, 2023.

Furthermore, cost of sales for the six months ended June 30, 2022 included $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments related to our 2021 acquisitions that decreased gross profit margin by ten basis points.

Decreases in pricing for certain products we sold during the second quarter and six months ended June 30, 2023 resulted in slightly lower gross profit margins compared to the prior year periods that benefitted from rising metals prices.

Gross profit in the third quarter and nine months ended September 30, 2023 decreased from the same periods in 2022 mainly due to lower sales as a result of decreases in average selling price per ton sold that more than offset increases in tons sold.

In addition, we record in cost of sales non-cash adjustments to our LIFO method inventory valuation reserve that, in effect, reflects cost of sales at current replacement costs.

The inventory caption of our consolidated balance sheet included a LIFO method inventory valuation reserve of $638.8 million at September 30, 2023.

Furthermore, cost of sales for the nine months ended September 30, 2022 included $8.1 million of non-recurring amortization of inventory step-up to fair value adjustments related to our 2021 acquisitions that decreased gross profit margin by ten basis points.

We were able to achieve stable gross profit margins despite the significantly different metals pricing environments, with our average selling price per ton sold declining 17.6% during the nine months ended September 30, 2023 compared to the 30.0% increase in our average selling price per ton sold during the nine months ended September 30, 2022.

We believe that our gross profit margins are supported by our product diversity, small order sizes, investments in value-added processing capabilities and healthy demand in the majority of end markets we serve.

See “Net Sales” above for further discussion on product pricing trends.

September 30,

(dollars in millions)

SG&A expense (three months ended)

SG&A expense (six months ended)

SG&A expense (nine months ended)

Depreciation & amortization expense (three months ended)

Depreciation & amortization expense (six months ended)

The increases in our SG&A expense for the second quarter and six months ended June 30, 2023 compared to the same periods in 2022 were mainly due to higher variable costs associated with increases in our tons sold and inflationary impacts on wages and transportation costs, which were partially offset by lower incentive-based compensation that is primarily tied to first-in, first-out pretax income profitability, which declined 39.9% and 36.5%, respectively.

Our SG&A expense as a percentage of sales for the second quarter and six months ended June 30, 2023 compared to the same periods in 2022 mainly increased due to lower sales levels.

Depreciation & amortization expense (nine months ended)

Our SG&A expense increased for the nine months ended September 30, 2023 compared to the same period in 2022 mainly due to higher variable costs associated with increases in our tons sold, including increased headcount, and inflationary impacts on wages, which were partially offset by lower incentive-based compensation that is primarily tied to first-in, first-out (“FIFO”) pretax income profitability, which declined 35.1% compared to the same period in 2022.

Our SG&A expense as a percentage of sales for the third quarter and nine months ended September 30, 2023 compared to the same periods in 2022 mainly increased due to lower sales levels.

See “Cost of Sales and Gross Profit” above for discussion of our LIFO method inventory valuation reserve.

Operating Income

September 30,

(dollars in millions)

Operating income (three months ended)

Operating income (six months ended)

The decreases in our operating income for the second quarter and six months ended June 30, 2023 as compared to the same periods in 2022 were mainly a result of lower gross profit, driven by lower metals prices, along with moderate increases in SG&A expense attributable to increases in our tons sold and inflationary impacts on wages and transportation costs.

As our gross profit margins were generally consistent with the same periods in 2022, the decreases in our operating income margins for the second quarter and six months ended June 30, 2023 were mainly due to our lower sales levels that decreased operating leverage of our SG&A expenses.

Operating income (nine months ended)

The decreases in our operating income for the third quarter and nine months ended September 30, 2023 as compared to the same periods in 2022 were mainly a result of lower gross profit, driven by lower metals prices that more than offset increases in tons sold, along with moderate changes in SG&A expense attributable to increases in our tons sold and inflationary impacts on wages.

Our gross profit margins were generally consistent with the same periods in 2022 and consequently the decreases in our operating income margins for the third quarter and nine months ended September 30, 2023 were mainly due to our lower sales levels that decreased operating leverage of our SG&A expenses.

Other (Income) Expense, Net

September 30,

(dollars in millions)

Other (income) expense, net (three months ended)

Other (income) expense, net (nine months ended)

* Not meaningful.

The changes in other (income) expense, net in the third quarter and nine months ended September 30, 2023 compared to the same periods in 2022 were mainly due to increases in interest income as a result of higher cash and cash equivalent balances and interest rates earned on bank deposits and cash equivalents.

Income Tax Rate

Our effective income tax rate for each of the second quarter and six months ended June 30, 2023 was 24.4%, compared to 24.7% for the same 2022 periods.

Our effective income tax rates for the third quarter and nine months ended September 30, 2023 were 23.7% and 24.2%, respectively, compared to 24.7% for the same 2022 periods.

The differences between our effective income tax rates and the U.S.

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Operating Activities

Net cash provided by operations of $679.7 million for the six months ended June 30, 2023 increased slightly from $674.2 million for the same period in 2022.

The impact of lower profitability on operating cash flow was offset by lower working capital needs, resulting in relatively consistent levels of operating cash flow in both periods.

Net cash provided by operations of $1.15 billion for the nine months ended September 30, 2023 decreased slightly from $1.31 billion for the same period in 2022.

The impact of lower profitability on operating cash flow was offset by

lower working capital needs, resulting in relatively consistent levels of operating cash flow in both periods.

To manage our working capital, we focus on our days sales outstanding and inventory turnover rate as receivables and inventory are the two most significant elements of our working capital.

As of June 30, 2023 and 2022, our days sales outstanding rates were 40.2 days and 39.2 days, respectively.

Our inventory turnover rate (based on tons) during the six months ended June 30, 2023 was 4.8 times (or 2.5 months on hand), compared to 4.4 times (or 2.7 months on hand) for the same period in 2022.

Income taxes paid were $191.0 million in the six months ended June 30, 2023 compared to $427.2 million in the same period in 2022.

The decrease in our taxes paid was mainly due to lower estimated tax payments in the six months ended June 30, 2023 compared to the same period in 2022 as a result of decreased pretax income and to a lesser extent income tax extension payments made during the six months ended June 30, 2022.

As of September 30, 2023 and 2022, our days sales outstanding rates were 40.3 days and 39.6 days, respectively.

Our inventory turnover rate (based on tons) during the nine months ended September 30, 2023 was 4.7 times (or 2.6 months on hand), compared to 4.3 times (or 2.8 months on hand) for the same period in 2022.

Income taxes paid were $305.2 million in the nine months ended September 30, 2023 compared to $596.8 million in the same period in 2022.

The decrease in our taxes paid was mainly due to lower estimated tax payments in the nine months ended September 30, 2023 compared to the same period in 2022 as a result of decreased pretax income.

Investing Activities

Net cash used in investing activities was $255.0 million for the six months ended June 30, 2023 compared to $149.4 million for the same period in 2022 and was substantially comprised of capital expenditures and the purchase price for our acquisition of Southern Steel on May 1, 2023.

The majority of our capital expenditures in the six months ended June 30, 2023 and 2022 were related to growth initiatives.

Net cash used in investing activities was $367.8 million for the nine months ended September 30, 2023 compared to $244.4 million for the same period in 2022 and was substantially comprised of capital expenditures and the purchase price for our acquisition of Southern Steel on May 1, 2023.

The majority of our capital expenditures in the nine months ended September 30, 2023 and 2022 were related to growth initiatives.

Financing Activities

Net cash used in financing activities was $780.4 million for the six months ended June 30, 2023 compared to $316.5 million for the same period in 2022, mainly due to the redemption of $500.0 million aggregate outstanding principal amount of senior notes in January 2023 .

In the six months ended June 30, 2023, we spent $112.8 million to repurchase

shares of our common stock compared to $211.0 million in the same period in 2022.

Our other stockholder return activities included an increase in our quarterly dividend rate with total dividend payments of $120.6 million in the six months ended June 30, 2023 compared to $110.6 million in the same period in 2022.

We also spent $37.3 million on taxes relating to net share settlement of restricted stock units in the six months ended June 30, 2023 compared to $17.1 million in the same period in 2022.

On July 25, 2023, our Board of Directors declared the 2023 third quarter cash dividend of $1.00 per share.

Net cash used in financing activities was $970.7 million for the nine months ended September 30, 2023 compared to $711.1 million for the same period in 2022, mainly due to the redemption of $500.0 million aggregate outstanding principal amount of senior notes in January 2023 offset by decreased share repurchases .

In the nine months ended September 30, 2023, we spent $239.2 million to repurchase shares of our common stock compared to $547.7 million in the same period in 2022.

Our other stockholder returns included an increase in our quarterly dividend rate with total dividend payments of $179.3 million in the nine months ended September 30, 2023 compared to $163.5 million in the same period in 2022.

We also spent $41.3 million on taxes relating to net share settlement of restricted stock units in the nine months ended September 30, 2023 compared to $21.6 million in the same period in 2022.

On October 24, 2023, our Board of Directors declared the 2023 fourth quarter cash dividend of $1.00 per share.

We have increased our quarterly dividend 30 times since our IPO in 1994, with the most recent increase of 14.3% from $0.875 per share to $1.00 per share effective in the first quarter of 2023.

We have paid quarterly cash dividends on our common stock for 64 consecutive years and have never reduced or suspended our regular quarterly dividend.

See Note 8—“Equity” to our consolidated financial statements in Part I, Item 1 “Financial Statements” for further information on our stock repurchases.

On July 26, 2022, our Board of Directors amended our share repurchase program to increase the repurchase authorization to $1.0 billion.

At June 30, 2023, $567.9 million of our common stock remained authorized for repurchase.

See Note 8—“Equity” to our consolidated financial statements in Part I, Item 1 “Financial Statements” for further information on our 2023 share repurchases.

On October 24, 2023, our Board of Directors amended our share repurchase program to increase the repurchase authorization to $1.5 billion effective October 30, 2023.

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.

Since 2018, we have repurchased approximately 16.4 million shares at an average cost of $117.98 per share, for a total of $1.94 billion, resulting in a 22.6% reduction in our common shares outstanding.

We have a $1.5 billion unsecured revolving credit facility with no outstanding borrowings at June 30, 2023 under our Amended and Restated Credit Agreement (as amended, the “Credit Agreement”).

We also had an aggregate of $1.15 billion principal amount of senior unsecured note obligations with various maturities through 2036 issued under indentures as of June 30, 2023.

From 2018 through September 30, 2023, we have repurchased approximately 16.9 million shares at an average cost of $122.20 per share, for a total of $2.07 billion, resulting in a 23.3% reduction in our common shares outstanding.

We have a $1.5 billion unsecured revolving credit facility with no outstanding borrowings at September 30, 2023 under our Amended and Restated Credit Agreement (as amended, the “Credit Agreement”).

We also had an aggregate of $1.15 billion principal amount of senior unsecured note obligations with various maturities through 2036 issued under indentures as of September 30, 2023.

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.

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We believe our primary sources of liquidity, including funds generated from operations, cash and cash equivalents and our Credit Agreement, will be sufficient to satisfy our cash requirements and stockholder return activities over the next 12 months and beyond.

As of June 30, 2023, we had $816.3 million in cash and cash equivalents and our net debt-to-total capital ratio (net debt-to-total capital is calculated as carrying amount of debt, net of cash, divided by total Reliance stockholders’ equity plus carrying amount of debt, net of cash) was 4.1%, down from 6.3% as of December 31, 2022.

As of June 30, 2023, we had $400.6 million of debt obligations coming due before our Credit Agreement matures on September 3, 2025.

As of September 30, 2023, we had $976.9 million in cash and cash equivalents and our net debt-to-total capital ratio (net debt-to-total capital is calculated as carrying amount of debt, net of cash, divided by total Reliance stockholders’ equity plus carrying amount of debt, net of cash) was 2.1%, down from 6.3% as of December 31, 2022.

As of September 30, 2023, we had $400.6 million of debt obligations coming due before our Credit Agreement matures on September 3, 2025.

We believe that we will continue to have sufficient liquidity to fund our future operating needs and to repay our debt obligations as they become due .

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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 June 30, 2023.

We were in compliance with all financial maintenance covenants in our Credit Agreement at September 30, 2023.

Some of our customers are in seasonal businesses, especially customers in the construction industry and related businesses.

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Goodwill and Other Intangible Assets

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.11 billion at June 30, 2023, or approximately 20% of total assets and 28% of total equity.

Additionally, other intangible assets, net amounted to $1.00 billion at June 30, 2023, or approximately 10% of total assets and 13% of total equity.

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $2.11 billion at September 30, 2023, or approximately 20% of total assets and 27% of total equity.

Additionally, other intangible assets, net amounted to $990.1 million at September 30, 2023, or approximately 9% of total assets and 13% of total equity.

Goodwill and other intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests and further evaluation when certain events occur.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our Unaudited Consolidated Financial Statements, which have been prepared in accordance with U.S.

When we prepare these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

When we prepare these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of

assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Some of our accounting policies require that we make subjective judgments, including estimates that involve matters that are inherently uncertain.

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Our actual results may differ from these estimates under different assumptions or conditions.

During the quarter ended June 30, 2023, there were no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

During the third quarter ended September 30, 2023, there were no material changes to our critical accounting estimates as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

Website Disclosure

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Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at www.rsac.com , and our investors relations website, investor.rsac.com .

In addition, you may automatically receive email

alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” section at investor.rsac.com .

In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” section at investor.rsac.com .

The website is for informational purposes only and is not intended for use as a hyperlink.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis