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Item 1. BUSINESS

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Item 1. BUSINESS

The Companies

FE and its subsidiaries are principally involved in the transmission, distribution and generation of electricity. FirstEnergy’s ten utility operating companies comprise one of the nation’s largest investor-owned electric systems, based on serving over 6 million customers in the Midwest and Mid-Atlantic regions. FirstEnergy’s transmission operations include approximately 24,500 miles of lines and two regional transmission operation centers. AGC, JCP&L and MP control 3,790 MWs of total capacity, 210 MWs of which is related to the Yards Creek generating plant that is being sold pursuant to an asset purchase agreement as further discussed below.

FirstEnergy’s revenues are primarily derived from electric service provided by the Utilities and Transmission Companies.

Regulated Utility Operating Subsidiaries

The Utilities’ combined service areas encompass approximately 65,000 square miles in Ohio, Pennsylvania, West Virginia, Maryland, New Jersey and New York. The areas they serve have a combined population of approximately 13.3 million.

OE owns property and does business as an electric public utility in Ohio. OE engages in the distribution and sale of electric energy to communities in a 7,000 square mile area of central and northeastern Ohio. The area it serves has a population of approximately 2.3 million.

OE owns all of Penn’s outstanding common stock. Penn owns property and does business as an electric public utility in Pennsylvania. Penn furnishes electric service to communities in 1,100 square miles of western Pennsylvania. The area it serves has a population of approximately 0.4 million.

CEI does business as an electric public utility in Ohio. CEI engages in the distribution and sale of electric energy in an area of 1,600 square miles in northeastern Ohio. The area it serves has a population of approximately 1.6 million.

TE does business as an electric public utility in Ohio. TE engages in the distribution and sale of electric energy in an area of 2,300 square miles in northwestern Ohio. The area it serves has a population of approximately 0.7 million.

JCP&L owns property and does business as an electric public utility in New Jersey. JCP&L provides transmission and distribution services in 3,200 square miles of northern, western and east central New Jersey. The area it serves has a population of approximately 2.7 million. JCP&L also has a 50% ownership interest (210 MWs) in the Yards Creek hydroelectric generating facility.

ME owns property and does business as an electric public utility in Pennsylvania. ME provides distribution services in 3,300 square miles of eastern and south central Pennsylvania. The area it serves has a population of approximately 1.2 million.

PN owns property and does business as an electric public utility in Pennsylvania. PN provides distribution services in 17,600 square miles of western, northern and south central Pennsylvania. The area PN serves has a population of approximately 1.2 million. Also, PN, as lessee of the property of its subsidiary, the Waverly Electric Light & Power Company, serves approximately 4,000 customers in the Waverly, New York vicinity. On February 10, 2021, PN entered into an agreement to transfer its customers and the related assets in Waverly, New York to Tri-County Rural Electric Cooperative; the completion of such transfer is subject to several closing conditions including regulatory approval.

PE owns property and does business as an electric public utility in Maryland, Virginia, and West Virginia. PE provides transmission and distribution services in portions of Maryland and West Virginia and provides transmission services in Virginia in an area totaling approximately 5,500 square miles. The area it serves has a population of approximately 0.9 million.

MP owns property and does business as an electric public utility in West Virginia. MP provides generation, transmission and distribution services in 13,000 square miles of northern West Virginia. The area it serves has a population of approximately 0.8 million. MP is contractually obligated to provide power to PE to meet its load obligations in West Virginia. MP owns or contractually controls 3,580 MWs of generation capacity that is supplied to its electric utility business, including a 16.25% undivided interest in the Bath County pumped-storage hydroelectric generation facility in Virginia (487 MWs) through its wholly owned subsidiary AGC.

WP owns property and does business as an electric public utility in Pennsylvania. WP provides transmission and distribution services in 10,400 square miles of southwestern, south-central and northern Pennsylvania. The area it serves has a population of approximately 1.5 million.

Regulated Transmission Operating Subsidiaries

ATSI owns high-voltage transmission facilities, which consist of approximately 7,890 circuit miles of transmission lines with nominal voltages of 345 kV, 138 kV and 69 kV in the PJM Region, particularly Ohio and Pennsylvania.

TrAIL owns high-voltage transmission facilities in the PJM Region and has several transmission facilities in operation, including a 500 kV transmission line extending approximately 150 miles from southwestern Pennsylvania through West Virginia to a point of interconnection with VEPCO in northern Virginia.

MAIT owns high-voltage transmission facilities, which consist of approximately 4,260 circuit miles of transmission lines with nominal voltages of 500 kV, 345 kV, 230 kV, 138 kV, 115 kV, 69 kV and 46 kV in the PJM Region, particularly Pennsylvania.

Service Company

FESC provides legal, financial and other corporate support services at cost, in accordance with its cost allocation manual, to affiliated FirstEnergy companies. In addition, pursuant to the FES Bankruptcy settlement agreement discussed below, FE extended the availability of certain shared services to the FES Debtors through June 30, 2020. As of June 30, 2020, FirstEnergy had substantially ceased providing post-emergence services to FES Debtors under the terms of the amended and restated shared services agreement. In connection with the FES Debtors emergence from bankruptcy, FirstEnergy entered into an amended separation agreement with the FES Debtors to implement the separation of FES Debtors and their businesses from FirstEnergy.

Legacy CES Subsidiaries

On March 31, 2018, the FES Debtors announced that, in order to facilitate an orderly financial restructuring, they filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court. In September 2018, the Bankruptcy Court approved a FES Bankruptcy settlement agreement by and among FirstEnergy, two groups of key FES creditors (collectively, the FES Key Creditor Groups), the FES Debtors and the UCC. As of March 31, 2018, the FES Debtors were deconsolidated from FirstEnergy’s consolidated financial statements. The FES Debtors effectuated their plan of reorganization on February 27, 2020 and emerged from bankruptcy.

As part of the FES Bankruptcy settlement agreement, discussed below, AE Supply transferred the Pleasants Power Station and related assets to a newly formed subsidiary of FG on January 30, 2020. AE Supply will continue to provide Pleasants Power Station disposal access to the McElroy's Run impoundment facility pursuant to a separate agreement among the parties.

Substantially all of FirstEnergy’s subsidiaries’ operations that previously comprised the CES reportable operating segment, including FES, FENOC, BSPC and a portion of AE Supply (including the Pleasants Power Station), are presented as discontinued operations in FirstEnergy’s consolidated financial statements resulting from the FES Bankruptcy and actions taken as part of the strategic review to exit commodity-exposed generation and become a fully regulated utility.

Operating Segments

FirstEnergy's reportable operating segments are comprised of the Regulated Distribution and Regulated Transmission segments.

The Regulated Distribution segment distributes electricity through FirstEnergy’s ten utility operating companies, serving approximately six million customers within 65,000 square miles of Ohio, Pennsylvania, West Virginia, Maryland, New Jersey and New York, and purchases power for its POLR, SOS, SSO and default service requirements in Ohio, Pennsylvania, New Jersey and Maryland. This segment also controls 3,790 MWs of regulated electric generation capacity located primarily in West Virginia, Virginia and New Jersey, of which, 210 MWs are related to the Yards Creek generating station that is being sold pursuant to an asset purchase agreement as further discussed below. The segment's results reflect the costs of securing and delivering electric generation from transmission facilities to customers, including the deferral and amortization of certain related costs.

As of December 31, 2020, FirstEnergy’s regulated generating portfolio consists of 3,790 MWs of capacity within the Regulated Distribution segment: 210 MWs consist of JCP&L's 50% ownership interest in the Yards Creek hydroelectric facility in New Jersey; and 3,580 MWs consist of MP's facilities, including 487 MWs from AGC's interest in the Bath County pumped-storage hydroelectric facility in Virginia, and 11 MWs of MP's 0.49% entitlement from OVEC's generation output. MP's other generation facilities are located in West Virginia.

The Regulated Transmission segment provides transmission infrastructure owned and operated by the Transmission Companies and certain of FirstEnergy's utilities (JCP&L, MP, PE and WP) to transmit electricity from generation sources to distribution facilities. The segment's revenues are primarily derived from forward-looking formula rates at the Transmission Companies as well as stated transmission rates at MP, PE and WP; although as explained in Note 14, "Regulatory Matters", effective January 1, 2021, subject to refund, MP's, PE's and WP's existing stated rates became forward-looking formula rates. JCP&L previously had stated transmission rates, however, effective January 1, 2020, JCP&L implemented forward-looking formula rates, subject to refund, pending further hearing and settlement proceedings. Both forward-looking formula and stated

rates recover costs that FERC determines are permitted to be recovered and provide a return on transmission capital investment. Under forward-looking formula rates, the revenue requirement is updated annually based on a projected rate base and projected costs, which is subject to an annual true-up based on actual costs. Revenue requirements under stated rates are calculated annually by multiplying the highest one-hour peak load in each respective transmission zone by the approved, stated rate in that zone. The segment's results also reflect the net transmission expenses related to the delivery of electricity on FirstEnergy's transmission facilities.

Corporate/Other reflects corporate support costs not charged to FE's subsidiaries, including FE's retained Pension and OPEB assets and liabilities of the FES Debtors, interest expense on FE’s holding company debt and other businesses that do not constitute an operating segment. Additionally, reconciling adjustments for the elimination of inter-segment transactions and discontinued operations are included in Corporate/Other. As of December 31, 2020, 67 MWs of electric generating capacity, representing AE Supply's OVEC capacity entitlement, was included in continuing operations of Corporate/Other. As of December 31, 2020, Corporate/Other had approximately $8.2 billion of FE holding company debt.

Utility Regulation

Regulatory Accounting

FirstEnergy accounts for the effects of regulation through the application of regulatory accounting to the Utilities and the Transmission Companies since their rates are established by a third-party regulator with the authority to set rates that bind customers, are cost-based and can be charged to and collected from customers.

The Utilities and the Transmission Companies recognize, as regulatory assets and regulatory liabilities, costs which FERC and the various state utility commissions, as applicable, have authorized for recovery from/return to customers in future periods or for which authorization is probable. Without the probability of such authorization, costs currently recorded as regulatory assets and regulatory liabilities would have been charged/credited to income as incurred. All regulatory assets and liabilities are expected to be recovered from/returned to customers. Based on current ratemaking procedures, the Utilities and the Transmission Companies continue to collect cost-based rates for their transmission and distribution services; accordingly, it is appropriate that the Utilities and the Transmission Companies continue the application of regulatory accounting to those operations. Regulatory accounting is applied only to the parts of the business that meet the above criteria. If a portion of the business applying regulatory accounting no longer meets those requirements, previously recorded regulatory assets and liabilities are removed from the balance sheet in accordance with GAAP.

State Regulation

The following table summarizes the allowed ROE and the aggregate actual ROE of the Utilities by state for the year ended December 31, 2020, as determined for regulatory purposes:

StateAllowed ROEActual ROE**(1)**
Maryland9.65%8.7%
New Jersey9.6%(3)6.5%
Ohio10.5%13.3%
PennsylvaniaSettled(2)9.0%
West VirginiaSettled(2)7.2%

(1) Actual ROE based upon trailing twelve months ended December 31, 2020; assumes actual rate base for distribution assets only (except in West Virginia) and reflects state regulatory adjustments.

(2) Commission-approved settlement agreements did not disclose ROE rates.

(3) On October 28, 2020, the NJBPU approved JCP&L's distribution rate case settlement with an allowed ROE of 9.6%. Rates are effective for customers on November 1, 2021.

See "Outlook - State Regulation" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information and discussion.

Federal Regulation

See "Outlook - FERC Regulatory Matters" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information and discussion.

Nuclear Regulation

See "Outlook - Other Legal Matters - Nuclear Plant Matters" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information and discussion.

Environmental Matters

See "Outlook - Environmental Matters" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information and discussion.

Capital Requirements

FirstEnergy’s business is capital intensive, requiring significant resources to fund operating expenses, construction expenditures, scheduled debt maturities and interest payments, dividend payments, and contributions to its pension plan. See "Capital Resources and Liquidity" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information and discussion.

Fuel Supply

MP currently has coal contracts with various terms to acquire approximately 5.5 million tons of coal for the year 2021, which is approximately 90% of its forecasted 2021 coal requirements. This contracted coal is produced primarily from mines located in Pennsylvania and West Virginia. The contracts expire at various times through 2025. See "Outlook - Environmental Matters" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information pertaining to the impact of increased environmental regulations on coal supply.

System Demand

The maximum hourly demand for each of the Utilities was:

System Demand202020192018
(in MWs)
OE5,5985,4945,604
Penn889946950
CEI4,2534,1884,301
TE2,2652,7872,367
JCP&L5,9026,0565,977
ME2,9762,9743,026
PN2,9083,0202,993
MP2,1142,1212,089
PE2,9053,6093,498
WP3,8274,0123,879

Supply Plan

Certain of the Utilities have default service obligations to provide power to non-shopping customers who have elected to continue to receive service under regulated retail tariffs. The volume of these sales can vary depending on the level of shopping that occurs. Supply plans vary by state and by service territory. JCP&L’s default service, or BGS supply, is secured through a statewide competitive procurement process approved by the NJBPU. Default service for the Ohio Companies, Pennsylvania Companies and PE's Maryland jurisdiction are provided through a competitive procurement process approved by the PUCO (under ESP IV), PPUC (under the DSP) and MDPSC (under the SOS), respectively. If any supplier fails to deliver power to any one of those Utilities’ service areas, the Utility serving that area may need to procure the required power in the market in their role as the default LSE. West Virginia electric generation continues to be regulated by the WVPSC.

Regional Reliability

All of FirstEnergy's facilities are located within the PJM Region and operate under the reliability oversight of a regional entity known as RFC. This regional entity operates under the oversight of NERC in accordance with a delegation agreement approved by FERC.

Competition

Within FirstEnergy’s Regulated Distribution segment, generally there is no competition for electric distribution service in the Utilities’ respective service territories in Ohio, Pennsylvania, West Virginia, Maryland, New Jersey and New York. Additionally, there has traditionally been no competition for transmission service in PJM. However, pursuant to FERC’s Order No. 1000 and subject to state and local siting and permitting approvals, non-incumbent developers now can compete for certain PJM transmission projects in the service territories of FirstEnergy’s Regulated Transmission segment. This could result in additional competition to build transmission facilities in the Regulated Transmission segment’s service territories while also allowing the Regulated Transmission segment the opportunity to seek to build facilities in non-incumbent service territories.

Seasonality

The sale of electric power is generally a seasonal business, and weather patterns can have a material impact on FirstEnergy’s operating results. Demand for electricity in our service territories historically peaks during the summer and winter months. Accordingly, FirstEnergy’s annual results of operations and liquidity position may depend disproportionately on its operating performance during the summer and winter. Mild weather conditions may result in lower power sales and consequently lower earnings.

Human Capital

FirstEnergy focuses on a number of human capital resources, measures, and objectives in managing its business, including: safety, diversity and inclusion, employee development, and compensation and benefits. Collectively, these focus areas may be material to understanding its business under certain circumstances.

Employees and Collective Bargaining Agreements

As of December 31, 2020, FirstEnergy had 12,153 employees located in the United States as follows:

Total EmployeesBargaining Unit Employees
FESC4,419630
OE1,135754
CEI902603
TE373277
Penn188131
JCP&L1,3301,027
ME644466
PN752485
MP1,131753
PE534333
WP745477
Total12,1535,936

As of December 31, 2020, the IBEW, the UWUA and the OPEIU unions collectively represented approximately half of FirstEnergy’s employees. There are 15 CBAs between FirstEnergy’s subsidiaries and its unions, which have three, four- or five-year terms. In 2020, FirstEnergy’s subsidiaries reached new agreements with 3 UWUA locals, covering 550 employees, and 1 OPEIU local, covering 77 employees.

Safety

Safety is a core value of FirstEnergy. FirstEnergy employees have the power and responsibility to keep each other safe and eliminate life-changing events, which are injuries that have life-changing impacts or fatal results. Safety metrics, such as injuries that result in days away or restricted time and life-changing events, are regularly monitored, internally reported, and are included in our annual incentive compensation program to reinforce that a safe work environment is crucial to FirstEnergy’s success.

FirstEnergy continues to shift its focus from achieving low OSHA rates to proactively identifying and mitigating life-changing event exposure. This shift in focus strengthens FirstEnergy’s safety-first culture by aligning our leadership around the same goal and driving safer decisions from an engaged workforce who puts safety first. To support that shift, FirstEnergy is transitioning from leader and employee training and exposure control concepts to a safety management system that cultivates job site exposure identification and mitigation to prevent life-changing events. Further, FirstEnergy continues to expand its “Leading with Safety” experiences with its employees to achieve excellence in personal, contractor and public safety.

Additionally, FirstEnergy’s employees’ well-being is essential to its core value of safety. FirstEnergy is taking a well-informed, decisive and measured response to the COVID-19 pandemic, as recommended by medical experts, to protect the health and safety of our employees and the public, while also continuing to serve our customers. FirstEnergy continues to provide flexibility for approximately 7,000 of its 12,000 employees to work from home. Pandemic safety and cleaning protocols were implemented for those workers who have continued to report to a FirstEnergy work location during this public health emergency, ensuring FirstEnergy employees can report directly to job sites and work with the same small group of employees every day. FirstEnergy developed a COVID-19 medical screening process under which a medical staff consisting of nurses, doctors and non-medical intake teams were assembled to manage COVID-19 related exposures, illnesses and quarantines; perform contact tracing; and ultimately safely return employees to work. FirstEnergy continues to implement state health directives as they emerge and adjusts its procedures as needed to continue to keep its employees safe.

Diversity and Inclusion

FirstEnergy seeks to expand the diversity of its team and create an inclusive workplace where employees feel valued, motivated and empowered to drive FirstEnergy’s success. Diversity and inclusion metrics are included in FirstEnergy’s annual incentive compensation program to emphasize that a diverse and inclusive work environment at FirstEnergy drives better service for customers, strong operational performance, innovation and a rewarding work experience for its employees.

Affirmative steps taken at FirstEnergy to promote the core value of diversity and inclusion includes:

  • FirstEnergy sponsors an executive diversity and inclusion council consisting of senior management and other leaders across the company.

  • A cross-functional working group oversees the development and implementation of diversity and inclusion action plans company-wide.

  • Additional teams of employees are embedded throughout FirstEnergy to implement local actions supporting diversity and inclusion.

  • FirstEnergy’s employees have established multiple employee business resource groups, known as "EBRGs," to further support diversity and inclusion objectives through networking, mentoring, coaching, recruiting, development and community outreach.

  • Employees are provided ongoing training and education on a variety of diversity and inclusion topics.

  • FirstEnergy has enhanced the recruiting processes to increase the number of diverse candidates considered for open positions and expand the diversity of teams interviewing those candidates.

Employee Development

FirstEnergy’s employees are empowered to take ownership of their careers with increased openness into FirstEnergy’s internal and external hiring process and greater availability of tools and processes that support career management, talent reviews, succession planning and leadership selection. FirstEnergy is committed to preparing its high-performing workforce for the future and helping employees reach their full potential. That means developing employee skills and competencies and preparing emerging and experienced leaders for future management responsibilities.

Understanding FirstEnergy’s rapidly changing industry and strategy is key to employees’ ability to support FirstEnergy’s mission and meet its customers’ evolving needs. In 2020, FirstEnergy launched FE University as an initiative to brand and create synergies among FirstEnergy’s many employee development and training initiatives. Key FirstEnergy development programs include:

  • a mentoring program,

  • Discover FE, which is designed to broaden and deepen knowledge of FirstEnergy and the electric utility industry generally,

  • new supervisor and manager program,

  • experienced leader program, and

  • Power Systems Institute, an award-winning program for recruiting and developing the next generation of highly trained, dedicated and motivated line and substation workers.

Compensation and Benefits

FirstEnergy’s total rewards program is designed to attract, motivate, retain and reward employees for their role in the success of FirstEnergy. The base pay program is designed to provide individual base pay levels that balance an employee’s value to FirstEnergy with comparable jobs at peer companies. FirstEnergy is committed to ensuring that our internal policies and processes support pay equity. The annual incentive compensation program is designed to reward the achievement of near-term

corporate and business unit objectives. Additionally, FirstEnergy’s long-term incentive compensation program is designed to reward eligible employees for FirstEnergy’s achievement of longer-term goals intended to drive shareholder value and growth. In addition to base pay and incentive compensation plans, FirstEnergy offers a comprehensive benefits program, including a 401(k) Savings Plan and a defined benefit Pension Plan.

Information About Our Executive Officers (as of February 18, 2021)

NameAgePositions Held During Past Five YearsDates
S. E. Strah57President and Acting Chief Executive Officer (A) (B)2020-Present
Senior Vice President and Chief Financial Officer (A) (B) (C) (E)2018-2020
President (D)2017-2018
President (E)2016-2018
Senior Vice President & President, FirstEnergy Utilities (B)*-2018
President (C)*-2018
H. Park59Senior Vice President and Chief Legal Officer (A)2021-Present
LimNexus, Partner and General Counsel2019-2021
Latham & Watkins, Of Counsel2017-2019
PG&E Corporation, Senior Vice President and Special Counsel to Chairman2017
Senior Vice President and General Counsel*-2017
K. Jon Taylor47Senior Vice President and Chief Financial Officer (A) (B) (C) (E)2020-Present
Vice President, Utility Operations (B)2019-2020
President (D)2019-2020
President, Ohio Operations (B)2018-2019
Vice President (C)2018-2019
Vice President and Controller (E)2016-2018
Vice President and Controller (C)*-2018
Vice President, Controller and Chief Accounting Officer (A) (B)*-2018
Vice President and Controller (D) (G)*-2017
Vice President and Controller (F)*-2016
C. L. Walker55Senior Vice President and Chief Human Resources Officer (B)2019-present
Vice President, Human Resources (B)2018-2019
Executive Director, Talent Management (B)2016-2018
G. D. Benz61Senior Vice President, Strategy (B)*-present
J. J. Lisowski39Vice President, Controller and Chief Accounting Officer (A) (B)2018-present
Vice President and Controller (C) (E)2018-present
Controller and Treasurer (G)2017-2018
Controller and Treasurer (F)2016-2018
Assistant Controller (E)2016-2017
Assistant Controller (A) (B) (C) (D) (F) (G)*-2017
S. L. Belcher52Senior Vice President and President, FirstEnergy Utilities (B)2018-present
President (C) (E)2018-present
President and Chief Nuclear Officer (G)*-2018
President, FirstEnergy Nuclear Operating Company (B)*-2017
* Indicates position held at least since January 1, 2016
(A) Denotes position held at FE
(B) Denotes position held at FESC
(C) Denotes position held at the Ohio Companies, the Pennsylvania Companies, MP, PE, FET, KATCo, TrAIL and ATSI
(D) Denotes position held at AGC
(E) Denotes position held at MAIT
(F) Denotes position held at FES and FG
(G) Denotes position held at FENOC

FirstEnergy Website and Other Social Media Sites and Applications

FirstEnergy's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports, and all other documents filed with or furnished to the SEC pursuant to Section 13(a) of the Securities Exchange Act of 1934 are made available free of charge on or through the "Investors" page of FirstEnergy’s website at www.firstenergycorp.com. These documents are also available to the public from commercial document retrieval services and the website maintained by the SEC at www.sec.gov.

These SEC filings are posted on the website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Additionally, FirstEnergy routinely posts additional important information, including press releases, investor presentations, investor factbooks and notices of upcoming events under the "Investors" section of FirstEnergy’s website and recognizes FirstEnergy’s website as a channel of distribution to reach public investors and as a means of disclosing material non-public information for complying with disclosure obligations under Regulation FD. Investors may be notified of postings to the website by signing up for email alerts and RSS feeds on the "Investors" page of FirstEnergy's website. FirstEnergy also uses Twitter® and Facebook® as additional channels of distribution to reach public investors and as a supplemental means of disclosing material non-public information for complying with its disclosure obligations under Regulation FD. Information contained on FirstEnergy’s website, Twitter® handle or Facebook® page, and any corresponding applications of those sites, shall not be deemed incorporated into, or to be part of, this report.

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