NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements consist of CME Group Inc. (CME Group) and its subsidiaries (collectively, the company), including Chicago Mercantile Exchange Inc. (CME), Board of Trade of the City of Chicago, Inc. (CBOT), New York Mercantile Exchange, Inc. (NYMEX), Commodity Exchange, Inc. (COMEX) and NEX Group Limited (NEX). The clearing house is operated by CME.
The accompanying interim consolidated financial statements have been prepared by CME Group without audit. Certain notes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, the accompanying consolidated financial statements include all normal recurring adjustments considered necessary to present fairly the financial position of the company at June 30, 2020 and December 31, 2019 and the results of operations and cash flows for the periods indicated. Quarterly results are not necessarily indicative of results for any subsequent period.
The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in CME Group’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (SEC) on February 28, 2020.
2. Accounting Policies
Newly Adopted Accounting Policies. The company adopted the following accounting policies during 2020:
Credit Losses. In June 2016, the FASB issued guidance that changes how credit losses are measured for most financial assets measured at amortized cost and certain other instruments. The standard requires an entity to estimate its lifetime expected credit loss and record an allowance, that when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. This forward-looking expected loss model generally will result in the earlier recognition of allowances for losses. The standard also amends the impairment model for available for sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on an available for sale debt security is a credit loss. Severity and duration of the unrealized loss are no longer permissible factors in concluding whether a credit loss exists. Entities will recognize improvements to estimated credit losses on available for sale debt securities immediately in earnings rather than as interest income over time. The company implemented this standard on January 1, 2020 by recognizing an immaterial cumulative-effect adjustment to the beginning balance of retained earnings.
The company has not experienced significant levels of underpayment or nonpayment by customers and does not expect changes to this trend over the payment terms of our receivables. Exposure to losses on receivables for clearing and transaction fees and other amounts owed by clearing and trading firms is dependent on each firm's financial condition. With respect to clearing firms, the company's credit loss exposure is mitigated by the memberships that collateralize fees owed to the company. The allowance for credit losses on accounts receivable is calculated by evaluating the aging of the company's billings by revenue stream: clearing and transaction, market data, and other. This aging assessment, as well as contemplation of current and anticipated economic factors, including the interest rate environment and pricing levels are the primary considerations that most significantly impact the collectibility of accounts receivable. The allowance for accounts receivable is $5.2 million at June 30, 2020.
Income Taxes. In December 2019, the FASB issued an accounting update that is intended to reduce cost and complexity related to accounting for income taxes. The update removes specific exceptions to the general principles for accounting for income taxes. Specifically, it eliminates the need for an entity to analyze whether the following exceptions apply in a given period: incremental approach for intraperiod tax allocation, accounting basis differences when there are ownership changes in foreign investments, and interim period income tax accounting for year-to-date losses that exceed anticipated losses. The update also simplifies the accounting for the following: franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. This update is effective for reporting periods beginning after December 15, 2020. The company has early adopted this standard on January 1, 2020. The impact of adoption of this standard was immaterial to the consolidated financial statements.
Recently Issued Accounting Pronouncements. In August 2018, the FASB issued a standards update that modifies the disclosure requirements for employers that sponsor defined pension or other postretirement plans. The guidance clarifies certain existing disclosures and expands the requirements for others. Disclosures that are not considered cost beneficial are removed by the update. Also, there is a new disclosure requirement to include an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This guidance is effective for reporting periods beginning in 2021. Early adoption is permitted. The company plans to update the disclosures for these changes upon adoption of the guidance in 2021.
3. Revenue Recognition
The company generates revenue from customers from the following sources:
Clearing and transaction fees. Clearing and transaction fees include electronic trading fees and brokerage commissions, surcharges for privately-negotiated transactions, portfolio reconciliation and compression services, risk mitigation and other volume-related charges for trade contracts. Clearing and transaction fees are assessed upfront at the time of trade execution. As such, the company recognizes the majority of the fee revenue upon successful execution of the trade. The minimal remaining portion of the fee revenue related to settlement activities performed after trade execution is recognized over the short-term period that the contract is outstanding, based on management’s estimates of the average contract lifecycle. These estimates are based on various assumptions to approximate the amount of fee revenue to be attributed to services performed through contract settlement, expiration, or termination. For cleared trades, these assumptions include the average number of days that a contract remains in open interest, contract turnover, average revenue per day, and revenue remaining in open interest at the end of each period.
The nature of contracts gives rise to several types of variable consideration, including volume-based pricing tiers, customer incentives associated with market maker programs and other fee discounts. The company includes fee discounts and incentives in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee reduction. These estimates are based on historical experience, anticipated performance, and best judgment at the time. Because of the company's certainty in estimating these amounts, they are included in the transaction price of contracts.
Market data and information services. Market data and information services represent revenue from the dissemination of market data to subscribers, distributors, and other third-party licensees of market data. Pricing for market data is primarily based on the number of reportable devices used as well as the number of subscribers enrolled under the arrangement. Fees for these services are generally billed monthly. Market data services are satisfied over time and revenue is recognized on a monthly basis as the customers receive and consume the benefit of the market data services. However, the company also maintains certain annual license arrangements with one-time upfront fees. The fees for annual licenses are initially recorded as a contract liability and recognized as revenue monthly over the term of the annual period.
Other. Other revenues include certain access and communication fees, fees for collateral management and fees for trade order routing through agreements from various strategic relationships. Access and communication fees are charges to customers that utilize various telecommunications networks and communications services. Fees for these services are generally billed monthly and the associated fee revenue is recognized as billed. Collateral management fees are charged to clearing firms that have collateral on deposit with the clearing house to meet their minimum performance bond and guaranty fund obligations on the exchange. These fees are calculated based on daily collateral balances and are billed monthly. This fee revenue is recognized monthly as billed as the customers receive and consume the benefits of the services. Pricing for strategic relationships may be driven by customer levels and activity. There are fee arrangements which provide for monthly as well as quarterly payments in arrears. Revenue is recognized monthly for strategic relationship arrangements as the customers receive and consume the benefits of the services.
The following table represents a disaggregation of revenue from contracts with customers by product line for the quarters and six months ended June 30, 2020 and 2019:
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Quarter Ended
June 30,
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Six Months Ended
June 30,
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(in millions)
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|
2020
|
|
2019
|
|
2020
|
|
2019
|
Interest rates
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|
$
|
221.4
|
|
|
$
|
347.4
|
|
|
$
|
639.7
|
|
|
$
|
650.2
|
|
Equity indexes
|
|
201.3
|
|
|
148.1
|
|
|
449.5
|
|
|
294.0
|
|
Foreign exchange
|
|
35.9
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|
|
39.3
|
|
|
84.1
|
|
|
80.5
|
|
Agricultural commodities
|
|
108.7
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|
|
141.5
|
|
|
226.4
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|
|
246.5
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|
Energy
|
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194.0
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|
|
179.3
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|
|
415.8
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|
344.3
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Metals
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|
49.6
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|
58.1
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|
|
128.4
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|
|
109.1
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Cash markets business
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|
112.4
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|
|
120.7
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|
|
236.8
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|
|
243.6
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Interest rate swap
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|
16.9
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|
|
17.4
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|
|
38.3
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|
|
36.2
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Total clearing and transaction fees
|
|
940.2
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|
|
1,051.8
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|
|
2,219.0
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|
|
2,004.4
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Market data and information services
|
|
134.7
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|
|
128.3
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|
|
266.2
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|
|
258.4
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Other
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|
107.4
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|
|
92.6
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|
|
219.2
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|
|
189.5
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Total revenues
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$
|
1,182.3
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|
|
$
|
1,272.7
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|
$
|
2,704.4
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$
|
2,452.3
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Timing of Revenue Recognition
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Services transferred at a point in time
|
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$
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881.3
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|
|
$
|
988.1
|
|
|
$
|
2,092.5
|
|
|
$
|
1,881.0
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Services transferred over time
|
|
298.8
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|
|
281.9
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|
|
606.3
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|
|
559.6
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One-time charges and miscellaneous revenues
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|
2.2
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|
2.7
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|
|
5.6
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|
|
11.7
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Total revenues
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$
|
1,182.3
|
|
|
$
|
1,272.7
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|
|
$
|
2,704.4
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|
|
$
|
2,452.3
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The timing of revenue recognition, billings and cash collections results in billed accounts receivable, and customer advances and deposits (contract liabilities) on the consolidated balance sheets. Certain fees for transactions, annual licenses, and other revenue arrangements are billed upfront before revenue is recognized, which results in the recognition of contract liabilities. These liabilities are recognized on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period. For annual licenses and upfront fee arrangements, the company generally bills customers upon contract execution. These payments are recognized as revenue over time as the obligations under the contracts are satisfied. Changes in the contract liability balances during the six months ended June 30, 2020 were not materially impacted by any other factors. The balance of contract liabilities was $61.1 million and $42.6 million as of June 30, 2020 and December 31, 2019, respectively.
4. Performance Bonds and Guaranty Fund Contributions
Performance Bonds and Guaranty Fund Contributions. At June 30, 2020, performance bonds and guaranty fund contribution assets on the consolidated balance sheets include cash as well as U.S. Treasury securities and U.S. government agency securities. U.S. Treasury securities and U.S. government agency securities are purchased by CME, at its discretion, using cash collateral. The benefits, including interest earned, and risks of ownership accrue to CME. Interest earned is included in investment income on the consolidated statements of income. These debt securities are classified as available-for-sale. At June 30, 2020, the amortized cost and fair value of the U.S. Treasury securities were both $3.5 billion. At June 30, 2020, the amortized cost and fair value of the U.S. government agency securities were both $0.3 billion.
CME has been designated as a systemically important financial market utility by the Financial Stability Oversight Council and is authorized to establish and maintain a cash account at the Federal Reserve Bank of Chicago. At June 30, 2020, CME maintained $52.9 billion within the cash account at the Federal Reserve Bank of Chicago. The cash deposit at the Federal Reserve Bank of Chicago is included within performance bonds and guaranty fund contributions on the consolidated balance sheets.
Clearing House Contract Settlement. The clearing house marks-to-market open positions for all futures and options contracts twice a day (once a day for CME's cleared-only interest rate swap contracts). Based on values derived from the mark-to-market process, the clearing house requires payments from clearing firms whose positions have lost value and makes payments to clearing firms whose positions have gained value. Under the extremely unlikely scenario of simultaneous default by every clearing firm who has open positions with unrealized losses, the maximum exposure related to positions other than cleared-only interest rate swap contracts would be one half day of changes in fair value of all open positions, before considering the clearing house's ability to access defaulting clearing firms' collateral deposits.
For CME's cleared-only interest rate swap contracts, the maximum exposure related to CME's guarantee would be one full day of changes in fair value of all open positions, before considering CME's ability to access defaulting clearing firms' collateral.
During the first six months of 2020, the clearing house transferred an average of approximately $5.9 billion a day through its clearing systems for settlement from clearing firms whose positions had lost value to clearing firms whose positions had gained value. The clearing house reduces its guarantee exposure through initial and maintenance performance bond requirements and mandatory guaranty fund contributions. The company believes that its guarantee liability is immaterial and therefore has not recorded any liability at June 30, 2020. The company does not have a history of significant losses recognized on performance bond collateral as posted by our clearing members, and management currently does not anticipate any future credit losses on its performance bond assets. Accordingly, the company has not provided an allowance for credit losses on these performance bond deposits, nor have we recorded any liabilities to reflect an allowance for credit losses related to our off-balance sheet credit exposures and guarantees.
5. Intangible Assets
Intangible assets consisted of the following at June 30, 2020 and December 31, 2019:
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|
|
|
|
|
June 30, 2020
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|
|
|
|
December 31, 2019
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(in millions)
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Assigned Value
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|
Accumulated
Amortization
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|
Net Book
Value
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|
Assigned Value
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|
Accumulated
Amortization
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|
Net Book
Value
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Amortizable Intangible Assets:
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|
|
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|
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|
|
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Clearing firm, market data and other customer relationships
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|
$
|
5,766.8
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|
|
$
|
(1,481.3)
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|
|
$
|
4,285.5
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|
|
$
|
5,797.1
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|
|
$
|
(1,346.0)
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|
|
$
|
4,451.1
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|
|
|
|
|
|
|
|
|
|
|
|
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Technology-related intellectual property
|
|
171.4
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|
|
(56.1)
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|
|
115.3
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|
|
174.3
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|
|
(46.6)
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|
|
127.7
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Other
|
|
101.1
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|
|
(20.2)
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|
80.9
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|
|
103.8
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|
|
(14.9)
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|
|
88.9
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|
Total amortizable intangible assets
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|
$
|
6,039.3
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|
|
$
|
(1,557.6)
|
|
|
4,481.7
|
|
|
$
|
6,075.2
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|
|
$
|
(1,407.5)
|
|
|
4,667.7
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-Lived Intangible Assets:
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|
|
|
|
|
|
|
|
|
|
|
|
Trade names
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|
|
|
|
|
450.0
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|
|
|
|
|
|
450.0
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|
Total intangible assets – other, net
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|
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|
|
|
$
|
4,931.7
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|
|
|
|
|
|
$
|
5,117.7
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|
Trading products (1)
|
|
|
|
|
|
$
|
17,175.3
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|
|
|
|
|
|
$
|
17,175.3
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|
(1)Trading products represent futures and options products acquired in our business combinations with CBOT Holdings, Inc., NYMEX Holdings, Inc. and The Board of Trade of Kansas City, Missouri, Inc. Clearing and transaction fees are generated through the trading of these products. These trading products, most of which have traded for decades, require authorization from the Commodity Futures Trading Commission (CFTC). Product authorizations from the CFTC have no term limits.
Total amortization expense for intangible assets was $76.6 million and $76.1 million for the quarters ended June 30, 2020 and 2019, respectively. Total amortization expense for intangible assets was $153.9 million and $156.8 million for the six months ended June 30, 2020 and 2019, respectively.
As of June 30, 2020, the future estimated amortization expense related to amortizable intangible assets is expected to be as follows:
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|
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|
(in millions)
|
Amortization Expense
|
Remainder of 2020
|
$
|
154.9
|
|
2021
|
309.7
|
|
2022
|
309.4
|
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2023
|
308.0
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2024
|
301.3
|
|
2025
|
301.1
|
|
Thereafter
|
2,797.3
|
|
6. Debt
Long-term debt consisted of the following at June 30, 2020 and December 31, 2019:
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|
|
|
|
|
|
|
|
|
|
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|
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(in millions)
|
|
June 30, 2020
|
|
December 31, 2019
|
$750.0 million fixed rate notes due September 2022, stated rate of 3.00% (1)
|
|
$
|
748.1
|
|
|
$
|
747.7
|
|
€15.0 million fixed rate notes due May 2023, stated rate of 4.30%
|
|
16.5
|
|
|
16.4
|
|
$750.0 million fixed rate notes due March 2025, stated rate of 3.00% (2)
|
|
746.7
|
|
|
746.3
|
|
$500.0 million fixed rate notes due June 2028, stated rate of 3.75%
|
|
496.6
|
|
|
496.4
|
|
$750.0 million fixed rate notes due September 2043, stated rate of 5.30% (3)
|
|
742.9
|
|
|
742.8
|
|
$700.0 million fixed rate notes due June 2048, stated rate of 4.15%
|
|
690.1
|
|
|
689.8
|
|
Commercial paper (4)
|
|
—
|
|
|
303.8
|
|
Total long-term debt
|
|
$
|
3,440.9
|
|
|
$
|
3,743.2
|
|
(1)The company maintained a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 3.32%.
(2)The company maintained a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 3.11%.
(3)The company maintained a forward-starting interest rate swap agreement that modified the interest obligation associated with these notes so that the interest payable on the notes effectively became fixed at a rate of 4.73%.
(4)The commercial paper is backed by the five-year multi-currency revolving credit facility.
Commercial paper with an aggregate par value of $1.3 billion and maturities ranging from 1 to 18 days was issued during the first six months of 2020. The weighted average balance of commercial paper outstanding during the first six months of 2020 was $93.4 million.
Long-term debt maturities, at par value (in U.S. dollar equivalent), were as follows at June 30, 2020:
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|
|
|
|
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(in millions)
|
Par Value
|
2021
|
$
|
—
|
|
2022
|
750.0
|
|
2023
|
16.9
|
|
2024
|
—
|
|
2025
|
750.0
|
|
Thereafter
|
1,950.0
|
|
Commercial paper is considered to mature in 2022 because it is backed by the five-year multi-currency revolving credit facility, which expires in 2022.
7. Contingencies
Legal and Regulatory Matters. In 2013, the CFTC filed suit against NYMEX and two former employees (the "NYMEX Defendants") alleging disclosure of confidential customer information in violation of the Commodity Exchange Act. On June 3, 2020, the parties informed the Court that the CFTC's Division of Enforcement and the NYMEX Defendants had reached an agreement in principle to resolve the matter, subject to final approval by the CFTC. On July 31, 2020, the parties informed the Court that the CFTC had approved the agreed-upon settlement and further requested that the court enter an order implementing the agreed-upon resolution. The company expects the court to enter the order shortly, which will not be material to the company.
In 2003, the U.S. Futures Exchange, L.L.C. (Eurex U.S.) and U.S. Exchange Holdings, Inc. filed suit in federal court alleging that CBOT and CME violated the antitrust laws and tortuously interfered with the business relationship and contract between Eurex U.S. and The Clearing Corporation. On October 31, 2018, the district court granted CBOT's and CME's motion for summary judgment and dismissed the case in its entirety. On March 23, 2020, the Seventh Circuit affirmed the decision of the district court.
In the normal course of business, the company discusses matters with its regulators raised during regulatory examinations or otherwise subject to their inquiry and oversight. These matters could result in censures, fines, penalties or other sanctions. Management believes the outcome of any resulting actions will not have a material impact on its consolidated financial position or results of operations. However, the company is unable to predict the outcome or the timing of the ultimate resolution of these matters, or the potential fines, penalties or injunctive or other equitable relief, if any, that may result from these matters.
In addition, the company is a defendant in, and has potential for, various other legal proceedings arising from its regular business activities. While the ultimate results of such proceedings against the company cannot be predicted with certainty, the company believes that the resolution of any of these matters on an individual or aggregate basis will not have a material impact on its consolidated financial position or results of operations.
As of June 30, 2020, an accrual of $4.0 million was recognized for probable and estimable legal and regulatory issues. No accrual was required as of December 31, 2019.
Intellectual Property Indemnifications. Certain agreements with customers and other third parties related to accessing the CME Group platforms, utilizing market data services and licensing CME SPAN software may contain indemnifications from intellectual property claims that may be made against them as a result of their use of the applicable products and/or services. The potential future claims relating to these indemnifications cannot be estimated and therefore no liability has been recorded.
8. Leases
The company has operating leases for datacenters, corporate offices, and certain information technology equipment. The operating leases have remaining lease terms of up to 18 years, some of which include options to extend or renew the leases for up to an additional five years, and some of which include options to early terminate the leases in less than 12 months. Management evaluates the exercisability of these options at least quarterly in order to determine whether the contract term must be reassessed. For a small number of the leases, primarily the international locations, management's approach is to enter into short-term leases for a lease term of 12 months or less in order to provide for greater flexibility in the local environment. For certain office spaces, the company has entered into arrangements to sublease excess space to third parties, while the original lease contract remains in effect with the landlord.
The company also has one finance lease, which is related to the sale of our datacenter in March 2016. In connection with the sale, the company leased back a portion of the property. The sale leaseback transaction was recognized under the financing method and not as a sale leaseback arrangement.
The right-of-use lease asset is recorded within other assets, and the present value of the lease liability is recorded within other liabilities (segregated between short term and long term) on the consolidated balance sheets. The discount rate applied to the lease payments represents the company's incremental borrowing rate.
The components of lease costs were as follows:
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|
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|
|
Quarter Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
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|
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Operating lease expense:
|
|
|
|
|
|
|
|
Operating lease cost
|
$
|
16.4
|
|
|
$
|
18.9
|
|
|
$
|
31.3
|
|
|
$
|
37.3
|
|
Short-term lease cost
|
0.5
|
|
|
1.5
|
|
|
0.7
|
|
|
4.9
|
|
Total operating lease expense included in other expense
|
$
|
16.9
|
|
|
$
|
20.4
|
|
|
$
|
32.0
|
|
|
$
|
42.2
|
|
|
|
|
|
|
|
|
|
Finance lease expense:
|
|
|
|
|
|
|
|
Interest expense
|
$
|
0.8
|
|
|
$
|
0.9
|
|
|
$
|
1.7
|
|
|
$
|
1.8
|
|
Depreciation expense
|
2.1
|
|
|
2.4
|
|
|
4.3
|
|
|
4.6
|
|
Total finance lease expense
|
$
|
2.9
|
|
|
$
|
3.3
|
|
|
$
|
6.0
|
|
|
$
|
6.4
|
|
|
|
|
|
|
|
|
|
Sublease revenue included in other revenue
|
$
|
3.1
|
|
|
$
|
1.7
|
|
|
$
|
6.7
|
|
|
$
|
5.3
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
(in millions)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Cash outflows for operating leases
|
$
|
15.7
|
|
|
$
|
16.9
|
|
|
$
|
31.6
|
|
|
$
|
32.1
|
|
Cash outflows for finance leases
|
4.2
|
|
|
4.8
|
|
|
8.4
|
|
|
9.0
|
|
Supplemental balance sheet information related to leases was as follows:
Operating leases
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
June 30, 2020
|
|
December 31, 2019
|
Operating lease right-of-use assets
|
$
|
396.7
|
|
|
$
|
417.1
|
|
|
|
|
|
Operating lease liabilities:
|
|
|
|
Other current liabilities
|
$
|
40.5
|
|
|
$
|
42.3
|
|
Other liabilities
|
486.8
|
|
|
514.8
|
|
Total operating lease liabilities
|
$
|
527.3
|
|
|
$
|
557.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term (in months)
|
143
|
|
146
|
Weighted average discount rate
|
4.0
|
%
|
|
4.0
|
%
|
Finance leases
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
June 30, 2020
|
|
December 31, 2019
|
Finance lease right-of-use assets
|
$
|
93.2
|
|
|
$
|
97.5
|
|
|
|
|
|
Finance lease liabilities:
|
|
|
|
Other current liabilities
|
$
|
7.5
|
|
|
$
|
7.4
|
|
Other liabilities
|
87.7
|
|
|
91.5
|
|
Total finance lease liabilities
|
$
|
95.2
|
|
|
$
|
98.9
|
|
|
|
|
|
Weighted average remaining lease term (in months)
|
129
|
|
135
|
Weighted average discount rate
|
3.5
|
%
|
|
3.5
|
%
|
Future minimum lease payments were as follows as of June 30, 2020 for operating and finance leases:
|
|
|
|
|
|
|
(in millions)
|
|
Operating Leases
|
Remainder of 2020
|
|
$
|
32.1
|
|
2021
|
|
61.4
|
|
2022
|
|
64.4
|
|
2023
|
|
61.3
|
|
2024
|
|
55.7
|
|
2025
|
|
53.8
|
|
Thereafter
|
|
343.4
|
|
Total lease payments
|
|
672.1
|
|
Less: imputed interest
|
|
(144.8)
|
|
Present value of lease liability
|
|
$
|
527.3
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Finance Leases
|
Remainder of 2020
|
|
$
|
8.5
|
|
2021
|
|
17.0
|
|
2022
|
|
17.1
|
|
2023
|
|
17.2
|
|
2024
|
|
17.4
|
|
2025
|
|
17.5
|
|
Thereafter
|
|
94.2
|
|
Total lease payments
|
|
188.9
|
|
Less: imputed interest
|
|
(93.7)
|
|
Present value of lease liability
|
|
$
|
95.2
|
|
9. Guarantees
Mutual Offset Agreement. CME and Singapore Exchange Limited (SGX) maintain a mutual offset agreement with a current term through May 2023. This agreement enables market participants to open a futures position on one exchange and liquidate it on the other. The term of the agreement will automatically renew for a one-year period after May 2023 unless either party provides advance notice of their intent to terminate. CME can maintain collateral in the form of irrevocable, standby letters of credit. At June 30, 2020, CME was contingently liable to SGX on letters of credit totaling $310.0 million. CME also maintains a $350.0 million line of credit to meet its obligations under this agreement. Regardless of the collateral, CME guarantees all cleared transactions submitted through SGX and would initiate procedures designed to satisfy these financial obligations in the event of a default, such as the use of performance bonds and guaranty fund contributions of the defaulting clearing firm. The company believes that its guarantee liability is immaterial and therefore has not recorded any liability at June 30, 2020.
Family Farmer and Rancher Protection Fund. In 2012, the company established the Family Farmer and Rancher Protection Fund (the Fund). The Fund is designed to provide payments, up to certain maximum levels, to family farmers, ranchers and other agricultural industry participants who use the company's agricultural commodity products and who suffer losses to their segregated account balances due to their CME clearing member becoming insolvent. Under the terms of the Fund, farmers and ranchers are eligible for up to $25,000 per participant. Farming and ranching cooperatives are eligible for up to $100,000 per cooperative. The Fund was established with a maximum of $100.0 million available for distribution to participants. Since its establishment, the Fund has made payments of approximately $2.0 million, which leaves $98.0 million available for future claims. If, at any time, payments due to participants were to exceed the amount remaining in the fund, payments would be pro-rated. Clearing members and customers must register with the company in advance and provide certain documentation in order to substantiate their eligibility. The company believes that its guarantee liability is immaterial and therefore has not recorded any liability at June 30, 2020.
10. Accumulated Other Comprehensive Income (Loss)
The following tables present changes in the accumulated balances for each component of other comprehensive income (loss), including current period other comprehensive income (loss) and reclassifications out of accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Investment Securities
|
|
Defined Benefit Plans
|
|
Derivative Investments
|
|
Foreign Currency Translation
|
|
Total
|
Balance at December 31, 2019
|
$
|
0.8
|
|
|
$
|
(55.1)
|
|
|
$
|
69.0
|
|
|
$
|
(11.3)
|
|
|
$
|
3.4
|
|
Other comprehensive income (loss) before reclassifications and income tax benefit (expense)
|
0.8
|
|
|
(2.0)
|
|
|
—
|
|
|
(16.2)
|
|
|
(17.4)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
2.3
|
|
|
(2.1)
|
|
|
0.6
|
|
|
0.8
|
|
Income tax benefit (expense)
|
(0.2)
|
|
|
(0.1)
|
|
|
0.4
|
|
|
—
|
|
|
0.1
|
|
Net current period other comprehensive income (loss)
|
0.6
|
|
|
0.2
|
|
|
(1.7)
|
|
|
(15.6)
|
|
|
(16.5)
|
|
Balance at June 30, 2020
|
$
|
1.4
|
|
|
$
|
(54.9)
|
|
|
$
|
67.3
|
|
|
$
|
(26.9)
|
|
|
$
|
(13.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Investment Securities
|
|
Defined Benefit Plans
|
|
Derivative Investments
|
|
Foreign Currency Translation
|
|
Total
|
Balance at December 31, 2018
|
$
|
0.1
|
|
|
$
|
(53.8)
|
|
|
$
|
69.7
|
|
|
$
|
(10.7)
|
|
|
$
|
5.3
|
|
Other comprehensive income (loss) before reclassifications and income tax benefit (expense)
|
1.7
|
|
|
(2.7)
|
|
|
(0.2)
|
|
|
(3.0)
|
|
|
(4.2)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
(0.1)
|
|
|
2.4
|
|
|
(0.6)
|
|
|
—
|
|
|
1.7
|
|
Income tax benefit (expense)
|
(0.4)
|
|
|
0.1
|
|
|
0.1
|
|
|
3.0
|
|
|
2.8
|
|
Net current period other comprehensive income (loss)
|
1.2
|
|
|
(0.2)
|
|
|
(0.7)
|
|
|
—
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
$
|
1.3
|
|
|
$
|
(54.0)
|
|
|
$
|
69.0
|
|
|
$
|
(10.7)
|
|
|
$
|
5.6
|
|
11. Fair Value Measurements
The company uses a three-level classification hierarchy of fair value measurements for disclosure purposes:
•Level 1 inputs, which are considered the most reliable evidence of fair value, consist of quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2 inputs consist of observable market data, such as quoted prices for similar assets and liabilities in active markets, or inputs other than quoted prices that are directly observable.
•Level 3 inputs consist of unobservable inputs which are derived and cannot be corroborated by market data or other entity-specific inputs.
Level 1 assets generally include investments in publicly traded mutual funds, equity securities, corporate debt securities and U.S. government securities with quoted market prices. In general, the company uses quoted prices in active markets for identical assets to determine the fair value of marketable securities.
Level 2 assets and liabilities generally consist of asset-backed securities and long-term debt notes. Asset-backed securities were measured at fair value based on matrix pricing using prices of similar securities with similar inputs such as maturity dates, interest rates and credit ratings. The fair values of the long-term debt notes were based on quoted market prices in an inactive market.
Level 3 assets include certain fixed assets, intangible assets and investments that were impaired or written up in fair value.
Recurring Fair Value Measurements. Financial assets and liabilities recorded at fair value on the consolidated balance sheet as of June 30, 2020 were classified in their entirety based on the lowest level of input that was significant to each asset and liability's fair value measurement. The following table presents financial instruments measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
|
(in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets at Fair Value:
|
|
|
|
|
|
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
18.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18.5
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
69.2
|
|
|
—
|
|
|
—
|
|
|
69.2
|
|
Equity securities
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Asset-backed securities
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
Total Marketable Securities
|
|
87.8
|
|
|
0.3
|
|
|
—
|
|
|
88.1
|
|
Performance bonds and guaranty fund contributions (1):
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
3,539.3
|
|
|
—
|
|
|
—
|
|
|
3,539.3
|
|
U.S. government agency securities
|
|
299.9
|
|
|
—
|
|
|
—
|
|
|
299.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets at Fair Value
|
|
$
|
3,927.0
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
3,927.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Performance bonds and guaranty fund contributions on the consolidated balance sheet at June 30, 2020 include U.S. Treasury securities and U.S. government agency securities purchased with cash collateral.
Non-Recurring Fair Value Measurements. During the first six months of 2020, the company recognized impairment charges of $30.0 million related to certain intangible assets and fixed assets. The combined fair values of the assets were estimated to be zero at June 30, 2020. The company also recognized net unrealized gains on certain investments of $1.3 million. The combined fair value of these investments were estimated to be $18.1 million at June 30, 2020. These assessments were based on quantitative and qualitative indicators of fair value. The fair value measurements of the intangible assets, fixed assets and investments are considered level 3 and non-recurring.
Fair Values of Long-Term Debt Notes. The following presents the estimated fair values of long-term debt notes, which are carried at amortized cost on the consolidated balance sheets. The fair values below are classified as level 2 under the fair value hierarchy and were estimated using quoted market prices in inactive markets.
At June 30, 2020, the fair values (in U.S. dollar equivalent) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Fair Value
|
|
Level
|
|
|
|
|
$750.0 million fixed rate notes due September 2022
|
$
|
791.9
|
|
|
Level 2
|
€15.0 million fixed rate notes due May 2023
|
18.4
|
|
|
Level 2
|
$750.0 million fixed rate notes due March 2025
|
828.8
|
|
|
Level 2
|
$500.0 million fixed rate notes due June 2028
|
602.7
|
|
|
Level 2
|
$750.0 million fixed rate notes due September 2043
|
1,100.9
|
|
|
Level 2
|
$700.0 million fixed rate notes due June 2048
|
941.4
|
|
|
Level 2
|
|
|
|
|
12. Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of shares of all classes of CME Group common stock outstanding for each reporting period. Diluted earnings per share reflects the increase in shares using the treasury stock method to reflect the impact of an equivalent number of shares of common stock if stock options were exercised and restricted stock awards were converted into common stock. Anti-dilutive stock awards were as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
(in thousands)
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Stock awards
|
75
|
|
|
55
|
|
|
76
|
|
|
55
|
|
Total
|
75
|
|
|
55
|
|
|
76
|
|
|
55
|
|
The following table presents the earnings per share calculation for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net Income Attributable to CME Group (in millions)
|
|
$
|
503.3
|
|
|
$
|
513.8
|
|
|
$
|
1,269.5
|
|
|
$
|
1,010.7
|
|
Weighted Average Number of Common Shares (in thousands):
|
|
|
|
|
|
|
|
|
Basic
|
|
357,691
|
|
|
357,060
|
|
|
357,607
|
|
|
356,973
|
|
Effect of stock options, restricted stock and performance shares
|
|
766
|
|
|
1,095
|
|
|
846
|
|
|
1,130
|
|
Diluted
|
|
358,457
|
|
|
358,155
|
|
|
358,453
|
|
|
358,103
|
|
Earnings per Common Share Attributable to CME Group:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.41
|
|
|
$
|
1.44
|
|
|
$
|
3.55
|
|
|
$
|
2.83
|
|
Diluted
|
|
1.40
|
|
|
1.43
|
|
|
3.54
|
|
|
2.82
|
|
13. Subsequent Events
The company has evaluated subsequent events through the date the financial statements were issued. The company has determined that there were no subsequent events.