Market Overview

Cheniere Reports Second Quarter 2018 Results and Provides Full Year 2018 Guidance Update

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Cheniere Energy, Inc. (NYSE:LNG):

 

Summary of Second Quarter 2018 Results (in millions, except LNG
data)

       
Three Months Ended June 30, Six Months Ended June 30,
2018     2017     % Change 2018     2017   % Change
Revenues $ 1,543 $ 1,241

24

%

$ 3,785 $ 2,452

54

%

Net income (loss)1 $ (18 ) $ (285 ) $ 339 $ (231 )
Consolidated Adjusted EBITDA2 $ 531 $ 371

43

%

$ 1,438 $ 854

68

%

Weighted average number of common shares outstanding—basic 242.8 232.5 239.2 232.4
Weighted average number of common shares outstanding—diluted 242.8 232.5 241.7 232.4
LNG exported:
Number of cargoes 61 48

27

%

128 91

41

%

Volumes (TBtu) 219 170

29

%

463 322

44

%

LNG volumes loaded (TBtu) 222 167

33

%

463 321

44

%

 
 

Summary 2018 Full Year Guidance (in billions)

   
2018
Consolidated Adjusted EBITDA2     $ 2.3   -   $ 2.5
Distributable Cash Flow2 $ 0.40 - $ 0.55

 

Recent Highlights

Strategic

  • In May 2018, we made a positive Final Investment Decision ("FID") with
    respect to Train 3 of the CCL Project (defined below), and issued full
    notice to proceed to Bechtel Oil, Gas and Chemicals, Inc.
  • In June 2018, we filed an application with the Federal Energy
    Regulatory Commission ("FERC") with respect to Corpus Christi Stage 3
    (defined below), consisting of seven midscale liquefaction Trains with
    an expected aggregate nominal production capacity of approximately 9.5
    million tonnes per annum ("mtpa").

Operational

  • As of July 31, 2018, approximately 150 cargoes have been produced,
    loaded, and exported from the SPL Project (defined below) year to
    date. To date, more than 400 cumulative LNG cargoes have been exported
    from the SPL Project, with deliveries to 28 countries and regions
    worldwide.

Financial

  • For the six months ended June 30, 2018, we achieved Consolidated
    Adjusted EBITDA of over $1.4 billion and Distributable Cash Flow of
    over $350 million.
  • In June 2018, the date of first commercial delivery was reached under
    the 20-year LNG Sale and Purchase Agreement with BG Gulf Coast LNG,
    LLC relating to Train 3 of the SPL Project.
  • In June 2018, we reached a definitive agreement with Cheniere Energy
    Partners LP Holdings, LLC ("Cheniere Partners Holdings") (NYSE
    American: CQH) under which we will acquire all of the publicly-held
    shares of Cheniere Partners Holdings not already owned by us in a
    stock for share transaction pursuant to which the Cheniere Partners
    Holdings' shareholders will receive a fixed exchange ratio of 0.4750
    shares of Cheniere common stock for each outstanding publicly-held
    share of Cheniere Partners Holdings. The transaction is expected to
    close by the end of third quarter 2018, subject to customary closing
    conditions. Upon consummation of the transaction, Cheniere Partners
    Holdings will merge with and into a wholly owned subsidiary of
    Cheniere.
  • In June 2018, Cheniere Corpus Christi Holdings, LLC ("Corpus Christi
    Holdings") amended and restated its existing working capital facility
    to increase total commitments to $1.2 billion. The working capital
    facility is intended to be used for loans and the issuance of letters
    of credit for certain working capital requirements related to
    developing and placing into operation the CCL Project.
  • In May 2018, Corpus Christi Holdings amended and restated its existing
    credit facilities to increase total commitments under the credit
    facilities to $6.1 billion. The proceeds will be used to fund a
    portion of the costs of developing, constructing, and placing into
    service the three Trains and the related facilities of the CCL Project
    and the Corpus Christi Pipeline, as well as for related business
    purposes.
 

Liquefaction Projects Update

       
SPL Project   CCL Project
Liquefaction Train     Train 5     Train 6     Train 1     Train 2     Train 3
Project Status Commissioning     Permitted Commissioning     Under Construction     Under Construction
Project Completion Percentage(1) 95.1% Stage 1 - 89.9%

28.7%(2)

Expected Substantial Completion 1H 2019 1H 2019 2H 2019 2H 2021
 

Note: Projects update excludes Trains in operation

(1) Project completion percentages as of June 30, 2018

(2) Engineering 61.4% complete, procurement 47.3% complete, and
construction 2.9% complete as of June 30, 2018

 

Cheniere Energy, Inc. ("Cheniere") (NYSE:LNG) reported a net
loss1 of $18 million, or $0.07 per share (basic and diluted),
for the three months ended June 30, 2018, compared to a net loss of $285
million, or $1.23 per share (basic and diluted), for the comparable 2017
period. The decrease in net loss was primarily due to increased income
from operations as a result of additional Trains in operation at the SPL
Project, increased derivative gain, decreased loss on modification or
extinguishment of debt, and decreased net income attributable to
non-controlling interest, partially offset by increased interest
expense, net of amounts capitalized.

Cheniere reported net income1 of $339 million, or $1.42 per
share (basic) and $1.40 per share (diluted), for the six months ended
June 30, 2018 compared to a net loss of $231 million, or $0.99 per share
(basic and diluted), for the comparable 2017 period. The increase in net
income was primarily due to increased income from operations as a result
of additional Trains in operation at the SPL Project, increased
derivative gain, and decreased loss on modification or extinguishment of
debt, partially offset by increased interest expense, net of amounts
capitalized.

Consolidated Adjusted EBITDA2 for the three and six months
ended June 30, 2018 was $531 million and $1.4 billion, respectively,
compared to $371 million and $854 million for the comparable 2017
periods. The increase in Consolidated Adjusted EBITDA was primarily due
to increased income from operations.

During the three and six months ended June 30, 2018, 61 and 128 LNG
cargoes, respectively, were exported from the SPL Project, none of which
were commissioning cargoes. One cargo exported from the SPL Project and
sold on a delivered basis was in transit as of June 30, 2018.

"Our results for the second quarter of 2018 reflect strong operational
performance and continued robust and durable LNG market pricing," said
Jack Fusco, Cheniere's President and Chief Executive Officer. "The
second quarter was highlighted by the achievement of a positive FID on
Train 3 at the CCL Project, which reinforces our position as the leader
in U.S. LNG. We continue to see significant opportunities in the market
today, and we are leveraging our world-class LNG platform to deliver on
our growth plans."

LNG Volume Summary

The following table summarizes the volumes of operational and
commissioning LNG that were loaded from the SPL Project and for which
the financial impact was recognized on our Consolidated Financial
Statements during the three and six months ended June 30, 2018:

       
Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
(in TBtu) Operational     Commissioning Operational     Commissioning
Volumes loaded during the current period 222 463
Volumes loaded during the prior period but recognized during the
current period
11 43
Less: volumes loaded during the current period and in transit at the
end of the period
(3 ) (3 )
Total volumes recognized in the current period 230   503  
 

In addition, during the three and six months ended June 30, 2018, we
recognized the financial impact of 10 TBtu of LNG and 21 TBtu of LNG,
respectively, on our Consolidated Financial Statements related to LNG
cargoes sourced from third parties.

Summary of Financial Performance

Second Quarter 2018 Results

Our financial results are reported on a consolidated basis. Our
ownership interest in Cheniere Energy Partners, L.P. ("Cheniere
Partners") (NYSE:CQP) as of June 30, 2018 consisted of
100% ownership of the general partner of Cheniere Partners
and 91.9% ownership interest in Cheniere Partners Holdings which owned
a 48.6% limited partner interest in Cheniere Partners as of June 30,
2018.

Total revenues increased $302 million and $1.3 billion during the three
and six months ended June 30, 2018 as compared to the respective 2017
periods. Total operating costs and expenses increased $240 million and
$900 million during the three and six months ended June 30, 2018,
compared to the respective 2017 periods. The increases in revenues and
total operating costs and expenses for the three and six months ended
June 30, 2018, compared to the respective 2017 periods, were primarily
driven by the timing of completion of Trains at the SPL Project and the
length of each Train's operations within the periods being compared.

Selling, general and administrative expense included share-based
compensation expenses of $20 million and $38 million for the three and
six months ended June 30, 2018, respectively, compared to $13 million
and $25 million for the comparable 2017 periods.

Net income attributable to non-controlling interest decreased $138
million and $13 million during the three and six months ended June 30,
2018 as compared to the three and six months ended June 30, 2017,
primarily due to the non-recurrence of non-cash amortization of the
beneficial conversion feature on Cheniere Partners' Class B units that
occurred during the comparable periods in 2017. Net income attributable
to non-controlling interest during the three and six months ended June
30, 2017 included approximately $294 million and $378 million due to
amortization of the beneficial conversion feature on Cheniere Partners'
Class B units. Partially offsetting this decrease was a higher
non-controlling percentage interest due to the conversion of Cheniere
Partners' Class B units to Cheniere Partners' common units in August
2017, and an increase in income recognized by Cheniere Partners and
Cheniere Partners Holdings.

Capital Resources

As of June 30, 2018, we had cash and cash equivalents of $874 million
available to us. In addition, we had current and non-current restricted
cash of $2.4 billion designated for the following purposes: $846 million
for the SPL Project, $678 million for the CCL Project, $675 million for
restricted purposes under the terms of Cheniere Partners' credit
facilities and $198 million for other restricted purposes.

Liquefaction Projects

SPL Project

Through Cheniere Partners, we are developing up to six natural gas
liquefaction Trains at the Sabine Pass LNG terminal adjacent to the
existing regasification facilities (the "SPL Project"). Each Train is
expected to have a nominal production capacity, which is prior to
adjusting for planned maintenance, production reliability, and potential
overdesign, of approximately 4.5 mtpa of LNG and an adjusted nominal
production capacity of approximately 4.3 to 4.6 mtpa of LNG. Trains 1
through 4 are operational, Train 5 is undergoing commissioning, and
Train 6 is being commercialized and has all necessary regulatory
approvals in place.

CCL Project

We are developing three Trains near Corpus Christi, Texas (the "CCL
Project"). Each Train is expected to have a nominal production capacity,
which is prior to adjusting for planned maintenance, production
reliability, and potential overdesign, of approximately 4.5 mtpa of LNG.
Train 1 is undergoing commissioning, and Trains 2 and 3 are under
construction.

Corpus Christi Stage 3

We are developing up to seven midscale liquefaction Trains adjacent to
the CCL Project ("Corpus Christi Stage 3"), each with an expected
nominal production capacity, which is prior to adjusting for planned
maintenance, production reliability, and potential overdesign, of
approximately 1.4 mtpa of LNG. The total expected nominal production
capacity of the seven midscale Trains is approximately 9.5 mtpa of LNG.
In June 2018, we filed an application with FERC to site, construct, and
operate Corpus Christi Stage 3.

Investor Conference Call and Webcast

We will host a conference call to discuss our financial and operating
results for the second quarter of 2018 on Thursday, August 9, 2018, at
10 a.m. Eastern time / 9 a.m. Central time. A listen-only webcast of the
call and an accompanying slide presentation may be accessed through our
website at www.cheniere.com.
Following the call, an archived recording will be made available on our
website.

 

1

Net income (loss) as used herein refers to Net income (loss)
attributable to common stockholders on our Consolidated Statements
of Operations.

2

Non-GAAP financial measure. See "Reconciliation of Non-GAAP
Measures" for further details.
 

About Cheniere

Cheniere Energy, Inc., a Houston-based energy company primarily engaged
in LNG-related businesses, owns and operates the Sabine Pass LNG
terminal in Louisiana. Directly and through its subsidiary, Cheniere
Energy Partners, L.P., Cheniere is developing, constructing, and
operating liquefaction projects near Corpus Christi, Texas and at the
Sabine Pass LNG terminal, respectively. Cheniere is also exploring a
limited number of opportunities directly related to its existing LNG
business.

For additional information, please refer to the Cheniere website at www.cheniere.com
and Quarterly Report on Form 10-Q for the quarter ended June 30, 2018,
filed with the Securities and Exchange Commission.

Forward-Looking Statements

This press release contains certain statements that may include
"forward-looking statements" within the meanings of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. All statements, other than statements of historical or present
facts or conditions, included herein are "forward-looking statements."
Included among "forward-looking statements" are, among other things, (i)
statements regarding Cheniere's business strategy, plans and objectives,
including the development, construction and operation of liquefaction
facilities, (ii) statements regarding expectations regarding regulatory
authorizations and approvals, (iii) statements expressing beliefs and
expectations regarding the development of Cheniere's LNG terminal and
pipeline businesses, including liquefaction facilities, (iv) statements
regarding the business operations and prospects of third parties, (v)
statements regarding potential financing arrangements, (vi) statements
regarding future discussions and entry into contracts, and (vii)
statements regarding the anticipated completion of the proposed
transaction with Cheniere Partners Holdings and the timing thereof.
Although Cheniere believes that the expectations reflected in these
forward-looking statements are reasonable, they do involve assumptions,
risks and uncertainties, and these expectations may prove to be
incorrect. Cheniere's actual results could differ materially from those
anticipated in these forward-looking statements as a result of a variety
of factors, including those discussed in Cheniere's periodic reports
that are filed with and available from the Securities and Exchange
Commission. You should not place undue reliance on these forward-looking
statements, which speak only as of the date of this press release. Other
than as required under the securities laws, Cheniere does not assume a
duty to update these forward-looking statements.

 
Cheniere Energy, Inc.
Consolidated Statements of Operations
(in millions, except per share data)((1))
(unaudited)
       
Three Months Ended Six Months Ended
June 30, June 30,
2018     2017 2018     2017
Revenues
LNG revenues $ 1,442 $ 1,171 $ 3,608 $ 2,314
Regasification revenues 65 65 130 130
Other revenues 33 4 43 7
Other—related party   3     1     4     1  
Total revenues 1,543 1,241 3,785 2,452
 
Operating costs and expenses
Cost of sales (excluding depreciation and amortization expense shown
separately below)
873 692 2,051 1,316
Operating and maintenance expense 147 117 287 195
Development expense 3 1 4 4
Selling, general and administrative expense 73 61 140 115
Depreciation and amortization expense 111 90 220 160
Restructuring expense 6
Impairment expense and loss on disposal of assets       6         6  
Total operating costs and expenses   1,207     967     2,702     1,802  
 
Income from operations 336 274 1,083 650
 
Other income (expense)
Interest expense, net of capitalized interest (216 ) (188 ) (432 ) (353 )
Loss on modification or extinguishment of debt (15 ) (33 ) (15 ) (75 )
Derivative gain (loss), net 32 (36 ) 109 (35 )
Other income   10     5     17     7  
Total other expense   (189 )   (252 )   (321 )   (456 )
 
Income before income taxes and non-controlling interest 147 22 762 194
Income tax benefit (provision)   3     (1 )   (12 )   (1 )
Net income 150 21 750 193
Less: net income attributable to non-controlling interest   168     306     411     424  
Net income (loss) attributable to common stockholders $ (18 ) $ (285 ) $ 339   $ (231 )
 
Net income (loss) per share attributable to common stockholders—basic $ (0.07 ) $ (1.23 ) $ 1.42   $ (0.99 )
Net income (loss) per share attributable to common
stockholders—diluted
  (0.07 )   (1.23 ) $ 1.40   $ (0.99 )
 
Weighted average number of common shares outstanding—basic 242.8 232.5 239.2 232.4
Weighted average number of common shares outstanding—diluted 242.8 232.5 241.7 232.4
 
(1)   Please refer to the Cheniere Energy, Inc. Quarterly Report on Form
10-Q for the quarter ended June 30, 2018, filed with the Securities
and Exchange Commission.
 
 

Cheniere Energy, Inc.
Consolidated Balance Sheets
(in
millions, except share data)
(1)

       
June 30, December 31,
2018 2017
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 874 $ 722
Restricted cash 2,386 1,880
Accounts and other receivables 278 369
Accounts receivable—related party 2 2
Inventory 233 243
Derivative assets 37 57
Other current assets   156     96  

Total current assets

3,966 3,369
 
Non-current restricted cash 11 11
Property, plant and equipment, net 25,760 23,978
Debt issuance costs, net 97 149
Non-current derivative assets 107 34
Goodwill 77 77
Other non-current assets, net   309     288  
Total assets $ 30,327   $ 27,906  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 29 $ 25
Accrued liabilities 1,382 1,078
Current debt 137
Deferred revenue 99 111
Derivative liabilities   81     37  
Total current liabilities 1,728 1,251
 
Long-term debt, net 26,782 25,336
Non-current deferred revenue 1
Non-current derivative liabilities 24 19
Other non-current liabilities 59 59
 
Commitments and contingencies
 
Stockholders' equity
Preferred stock, $0.0001 par value, 5.0 million shares authorized,
none issued
Common stock, $0.003 par value
Authorized: 480.0 million shares at June 30, 2018 and December 31,
2017
Issued: 260.7 million shares and 250.1 million shares at June 30,
2018 and December 31, 2017, respectively
Outstanding: 248.1 million shares and 237.6 million shares at June
30, 2018 and December 31, 2017, respectively
1 1
Treasury stock: 12.6 million shares and 12.5 million shares at June
30, 2018 and December 31, 2017, respectively, at cost
(394 ) (386 )
Additional paid-in-capital 3,664 3,248
Accumulated deficit   (4,288 )   (4,627 )
Total stockholders' deficit (1,017 ) (1,764 )
Non-controlling interest   2,751     3,004  
Total equity   1,734     1,240  
Total liabilities and equity $ 30,327   $ 27,906  
 
(1)   Please refer to the Cheniere Energy, Inc. Quarterly Report on Form
10-Q for the quarter ended June 30, 2018, filed with the Securities
and Exchange Commission.
 

Reconciliation of Non-GAAP Measures

Regulation G Reconciliations

In addition to disclosing financial results in accordance with U.S.
GAAP, the accompanying news release contains non-GAAP financial
measures. Consolidated Adjusted EBITDA and Distributable Cash Flow are
non-GAAP financial measures that we use to facilitate comparisons of
operating performance across periods. These non-GAAP measures should be
viewed as a supplement to and not a substitute for our U.S. GAAP
measures of performance and the financial results calculated in
accordance with U.S. GAAP and reconciliations from these results should
be carefully evaluated.

Consolidated Adjusted EBITDA represents net income (loss) attributable
to Cheniere before net income attributable to the non-controlling
interest, interest, taxes, depreciation and amortization, adjusted for
certain non-cash items, other non-operating income or expense items, and
other items not otherwise predictive or indicative of ongoing operating
performance, as detailed in the following reconciliation. Consolidated
Adjusted EBITDA is not intended to represent cash flows from operations
or net income (loss) as defined by U.S. GAAP and is not necessarily
comparable to similarly titled measures reported by other companies.

We believe Consolidated Adjusted EBITDA provides relevant and useful
information to management, investors and other users of our financial
information in evaluating the effectiveness of our operating performance
in a manner that is consistent with management's evaluation of business
performance. We believe Consolidated Adjusted EBITDA is widely used by
investors to measure a company's operating performance without regard to
items such as interest expense, taxes, depreciation and amortization
which vary substantially from company to company depending on capital
structure, the method by which assets were acquired and depreciation
policies. Further, the exclusion of certain non-cash items, other
non-operating income or expense items, and items not otherwise
predictive or indicative of ongoing operating performance enables
comparability to prior period performance and trend analysis.

Consolidated Adjusted EBITDA is calculated by taking net income (loss)
attributable to common stockholders before net income attributable to
non-controlling interest, interest expense, net of capitalized interest,
changes in the fair value and settlement of our interest rate
derivatives, taxes, depreciation and amortization, and adjusting for the
effects of certain non-cash items, other non-operating income or expense
items, and other items not otherwise predictive or indicative of ongoing
operating performance, including the effects of modification or
extinguishment of debt, impairment expense and loss on disposal of
assets, changes in the fair value of our commodity and foreign currency
exchange ("FX") derivatives and non-cash compensation expense. We
believe the exclusion of these items enables investors and other users
of our financial information to assess our sequential and year-over-year
performance and operating trends on a more comparable basis and is
consistent with management's own evaluation of performance.

Distributable Cash Flow is defined as cash received, or expected to be
received, from Cheniere's ownership and interests in CQP, CQH and Corpus
Christi Holdings, cash received (used) by Cheniere's integrated
marketing function (other than cash for capital expenditures) less
interest, taxes and maintenance capital expenditures associated with
Cheniere and not the underlying entities. Management uses this measure
and believes it provides users of our financial statements a useful
measure reflective of our business's ability to generate cash earnings
to supplement the comparable GAAP measure.

We believe Distributable Cash Flow is a useful performance measure for
management, investors and other users of our financial information to
evaluate our performance and to measure and estimate the ability of our
assets to generate cash earnings after servicing our debt, paying cash
taxes and expending sustaining capital, that could be used for
discretionary purposes such as common stock dividends, stock
repurchases, retirement of debt, or expansion capital expenditures.
Management uses this measure and believes it provides users of our
financial statements a useful measure reflective of our business's
ability to generate cash earnings to supplement the comparable GAAP
measure. Distributable Cash Flow is not intended to represent cash flows
from operations or net income (loss) as defined by U.S. GAAP and is not
necessarily comparable to similarly titled measures reported by other
companies.

Non-GAAP measures have limitations as an analytical tool and should not
be considered in isolation or in lieu of an analysis of our results as
reported under GAAP, and should be evaluated only on a supplementary
basis.

Consolidated Adjusted EBITDA

The following table reconciles our Consolidated Adjusted EBITDA to U.S.
GAAP results for the three and six months ended June 30, 2018 and 2017
(in millions):

       
Three Months Ended Six Months Ended
June 30, June 30,
2018     2017 2018     2017
Net income (loss) attributable to common stockholders $ (18 ) $ (285 ) $ 339 $ (231 )
Net income attributable to non-controlling interest 168 306 411 424
Income tax provision (benefit) (3 ) 1 12 1
Interest expense, net of capitalized interest 216 188 432 353
Loss on modification or extinguishment of debt 15 33 15 75
Derivative loss (gain), net (32 ) 36 (109 ) 35
Other income   (10 )   (5 )   (17 )   (7 )
Income from operations $ 336   $ 274   $ 1,083   $ 650  
Adjustments to reconcile income from operations to Consolidated
Adjusted EBITDA:
Depreciation and amortization expense 111 90 220 160
Loss (gain) from changes in fair value of commodity and FX
derivatives, net
65 (5 ) 102 28
Total non-cash compensation expense 19 7 33 11
Impairment expense and loss on disposal of assets       5         5  
Consolidated Adjusted EBITDA $ 531   $ 371   $ 1,438   $ 854  
 

Consolidated Adjusted EBITDA and Distributable Cash Flow

The following table reconciles our actual Consolidated Adjusted EBITDA
and Distributable Cash Flow to Net income (loss) attributable to common
stockholders for the three and six months ended June 30, 2018 and
forecast amounts for full year 2018 (in billions):

                 
Three Months Six Months
Ended Ended
June 30, 2018 June 30, 2018 Full Year 2018
Net income (loss) attributable to common stockholders $ (0.02 ) $ 0.34 $ 0.2 - 0.4
Net income attributable to non-controlling interest 0.17 0.41 0.7 - 0.7
Income tax provision (benefit) (0.00 ) 0.01 0.0
Interest expense, net of capitalized interest 0.22 0.43 0.9
Loss on modification or extinguishment of debt 0.02 0.02 0.0
Derivative loss (gain), net (0.03 ) (0.11 ) 0.0
Other expense (income)   (0.01 )   (0.02 )       (0.0 )
Income from operations $ 0.34   $ 1.08   $ 1.8  

-

$ 2.0  
Adjustments to reconcile income from operations to Consolidated
Adjusted EBITDA:
Depreciation and amortization expense 0.11 0.22 0.5
Loss from changes in fair value of commodity and FX derivatives, net 0.07 0.10 0.0
Total non-cash compensation expense   0.02     0.03         0.0  
Consolidated Adjusted EBITDA $ 0.53   $ 1.44   $ 2.3  

-

$ 2.5  
Distributions/dividends to CQP/CQH non-controlling interest (0.15 ) (0.29 ) (0.60 )
SPL and CQP cash retained and interest expense (0.31 ) (0.77 ) (1.30 )
Cheniere interest expense and income tax   0.00     (0.01 )       (0.05 )
Cheniere Distributable Cash Flow $ 0.08   $ 0.36   $ 0.40   - $ 0.55  
 

Note: Totals may not sum due to rounding.

 

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