VANCOUVER, BRITISH COLUMBIA (NASDAQ: MEOH)(SANTIAGO: Methanex)
-
For the fourth quarter of 2007, Methanex achieved record
earnings of $1.72 per share (on a diluted basis), net income of
$171.7 million and Adjusted EBITDA(1) of $270.3 million. This
compares to earnings of $0.24 per share (on a diluted basis), net
income of $23.6 million and Adjusted EBITDA of $68.6 million for
the third quarter of 2007. For the year ended December 31, 2007,
Methanex reported Adjusted EBITDA(1) of $652.3 million and net
income of $375.7 million ($3.68 per share on a diluted basis).
Bruce Aitken, President and CEO of Methanex, commented, "We are
delighted to have produced record quarterly earnings per share and
another excellent year for our shareholders. Methanol markets were
tight during the fourth quarter as several planned and unplanned
outages continued to impact global methanol supply. In addition,
despite the high methanol price environment, methanol demand
remained strong in both traditional chemical derivatives and new
energy applications which benefited from record high energy prices.
As a result, methanol prices reached all-time highs and we realized
an average selling price of $514 per tonne in Q4 2007, an increase
of $244 per tonne over our realization of $270 per tonne in Q3
2007."
Mr. Aitken added, "As we enter the first quarter of 2008, we
have seen some downward pressure on methanol prices, however prices
remain at high levels. Global methanol supply has improved
recently, including production in China where there is an incentive
to produce at higher operating rates and export more methanol in
the current high methanol price environment. However, we believe
that industry inventories globally continue to be at low
levels."
Mr. Aitken concluded, "Our excellent cash generation in the
fourth quarter leaves us in a strong financial position. With
US$488 million cash on hand at the end of the year, a strong
balance sheet and a US$250 million undrawn credit facility, we are
well positioned to meet our financial requirements related to our
methanol project in Egypt, pursue opportunities to accelerate
natural gas development in southern Chile, pursue opportunities to
sponsor methanol demand in new energy applications, pursue other
strategic growth initiatives, and continue to deliver on our
commitment to return excess cash to shareholders."
A conference call is scheduled for Thursday, January 24, 2008 at
11:00 am EST (8:00 am PST) to review these fourth quarter results.
To access the call, dial the Telus Conferencing operator ten
minutes prior to the start of the call at (416) 883-0139, or toll
free at (888) 458-1598. The passcode for the call is 45654. A
playback version of the conference call will be available for
fourteen days at (877) 653-0545. The reservation number for the
playback version is 518971. There will be a simultaneous audio-only
webcast of the conference call, which can be accessed from our
website at www.methanex.com. In addition, an audio recording of the
conference call can be downloaded from our website for three weeks
after the call.
Methanex is a Vancouver based, publicly traded company engaged
in the worldwide production, distribution and marketing of
methanol. Methanex shares are listed for trading on the Toronto
Stock Exchange in Canada under the trading symbol "MX", on the
NASDAQ Global Market in the United States under the trading symbol
"MEOH", and on the foreign securities market of the Santiago Stock
Exchange in Chile under the trading symbol "Methanex". Methanex can
be visited online at www.methanex.com.
FORWARD-LOOKING STATEMENTS
Information contained in this press release and the attached
Fourth Quarter 2007 Management's Discussion and Analysis contains
forward-looking statements. Certain material factors or assumptions
were applied in drawing the conclusions or making the forecasts or
projections that are included in these forward-looking statements.
Methanex believes that it has a reasonable basis for making such
forward-looking statements. However, forward-looking statements, by
their nature, involve risks and uncertainties that could cause
actual results to differ materially from those contemplated by the
forward-looking statements. The risks and uncertainties include
those attendant with producing and marketing methanol and
successfully carrying out major capital expenditure projects in
various jurisdictions, the ability to successfully carry out
corporate initiatives and strategies, conditions in the methanol
and other industries including the supply and demand balance for
methanol, the success of natural gas exploration and development
activities in southern Chile and our ability to obtain any
additional gas in that region on commercially acceptable terms,
actions of competitors and suppliers, actions of governments and
governmental authorities, changes in laws or regulations in foreign
jurisdictions, world-wide economic conditions and other risks
described in our 2006 Management's Discussion & Analysis and
the attached Fourth Quarter 2007 Management's Discussion and
Analysis. Undue reliance should not be placed on forward-looking
statements. They are not a substitute for the exercise of one's own
due diligence and judgment. The outcomes anticipated in
forward-looking statements may not occur and we do not undertake to
update forward-looking statements. These materials also contain
certain non-GAAP financial measures. Non-GAAP financial measures do
not have any standardized meaning and therefore are unlikely to be
comparable to similar measures used by other companies. For more
information regarding these non-GAAP measures, please see our 2006
Management's Discussion & Analysis and the attached Fourth
Quarter 2007 Management's Discussion and Analysis.
(1) These items are non-GAAP measures that do not have any
standardized meaning prescribed by Canadian generally accepted
accounting principles (GAAP) and therefore are unlikely to be
comparable to similar measures presented by other companies. Refer
to Supplemental Non-GAAP Measures in the attached Fourth Quarter
2007 Management's Discussion and Analysis for a description of each
Supplemental Non-GAAP Measure and a reconciliation to the most
comparable GAAP measure.
Interim Report For the Year Ended December 31, 2007
At January 23, 2008, the Company had 97,770,254 common shares
issued and outstanding and stock options exercisable for 802,416
additional common shares.
Share Information
Methanex Corporation's common shares are listed for trading on the Toronto
Stock Exchange under the symbol MX, on the Nasdaq Global Market under the
symbol MEOH and on the foreign securities market of the Santiago Stock
Exchange in Chile under the trading symbol Methanex.
Transfer Agents & Registrars
CIBC Mellon Trust Company
320 Bay Street
Toronto, Ontario, Canada M5H 4A6
Toll free in North America:
1-800-387-0825
Investor Information
All financial reports, news releases and corporate information can be
accessed on our website at www.methanex.com.
Contact Information
Methanex Investor Relations
1800 - 200 Burrard Street
Vancouver, BC Canada V6C 3M1
E-mail: invest@methanex.com
Methanex Toll-Free: 1-800-661-8851
FOURTH QUARTER MANAGEMENT'S DISCUSSION AND ANALYSIS
Except where otherwise noted, all currency amounts are stated in
United States dollars.
This fourth quarter 2007 Management's Discussion and Analysis
should be read in conjunction with the 2006 Annual Consolidated
Financial Statements and the Management's Discussion and Analysis
included in the Methanex 2006 Annual Report. The Methanex 2006
Annual Report and additional information relating to Methanex is
available on SEDAR at www.sedar.com and on EDGAR at
www.sec.gov.
Three Months Ended Years Ended
-------------------- -------------
($ millions, Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
except where noted) 2007 2007 2006 2007 2006
------------------------------------------------------------ -------------
Sales volumes (thousands of tonnes)
Company produced
Chile and Trinidad 913 933 1,077 4,082 4,990
New Zealand 84 140 83 487 320
--------------------------------------------------------------------------
997 1,073 1,160 4,569 5,310
Purchased methanol 421 387 288 1,453 1,101
Commission sales(1) 195 168 134 590 584
--------------------------------------------------------------------------
Total sales volumes 1,613 1,628 1,582 6,612 6,995
Methanex average non-discounted
posted price ($ per tonne)(2) 637 303 558 451 396
Average realized price ($ per tonne)(3) 514 270 460 375 328
Adjusted EBITDA(4) 270.3 68.6 279.2 652.3 800.1
Operating income(4) 241.3 37.4 251.5 539.9 693.2
Net income 171.7 23.6 172.4 375.7 482.9
Income before unusual items
(after-tax)(4) 171.7 23.6 172.4 375.7 457.2
Cash flows from
operating activities (4)(5) 187.8 59.9 218.5 493.9 622.9
Basic net income per common share 1.74 0.24 1.62 3.69 4.43
Diluted net income per common share 1.72 0.24 1.61 3.68 4.41
Diluted income before unusual items
(after-tax) per share(4) 1.72 0.24 1.61 3.68 4.18
Common share information
(millions of shares):
Weighted average number
of common shares 98.9 100.2 106.5 101.7 109.1
Diluted weighted average
number of common shares 99.6 100.4 106.9 102.1 109.4
Number of common shares
outstanding, end of period 98.3 99.4 105.8 98.3 105.8
--------------------------------------------------------------------------
(1) Commission sales represent volumes marketed on a commission basis.
Commission income is included in revenue when earned.
(2) Methanex average non-discounted posted price represents the average of
our non-discounted posted prices in North America, Europe and Asia
Pacific weighted by sales volume. Current and historical pricing
information is available at www.methanex.com.
(3) Average realized price is calculated as revenue, net of commissions
earned, divided by the total sales volumes of produced and purchased
methanol.
(4) These items are non-GAAP measures that do not have any standardized
meaning prescribed by Canadian generally accepted accounting principles
(GAAP) and therefore are unlikely to be comparable to similar measures
presented by other companies. Refer to Supplemental Non-GAAP Measures
for a description of each non-GAAP measure and a reconciliation to the
most comparable GAAP measure.
(5) Cash flows from operating activities in the above table represents cash
flows from operating activities before changes in non-cash working
capital.
--------------------------------------------------------------------------
PRODUCTION SUMMARY
Annual 2007 2006 Q4 2007 Q3 2007 Q4 2006
Capa- Produc- Produc- Produc- Produc- Produc-
(thousands of tonnes) city tion tion tion tion tion
----------------------------------------------- --------------------------
Chile I, II, III and IV 3,840 1,841 3,186 288 233 766
Titan 850 861 864 220 191 229
Atlas (63.1% interest) 1,073 982 1,057 278 290 267
New Zealand 530 435 404 75 122 111
----------------------------------------------- --------------------------
6,293 4,119 5,511 861 836 1,373
----------------------------------------------- --------------------------
Our methanol facilities in Chile produced 288,000 tonnes
compared with a quarterly capacity of 960,000 tonnes during the
fourth quarter of 2007. When operating at capacity, we source
approximately 60% of our natural gas requirements for our
production facilities in Chile from natural gas suppliers in
Argentina that are affiliates of international oil and gas
companies. Since June, we have not received any of our natural gas
supply from Argentina and this resulted in approximately 600,000
tonnes of lost production during the fourth quarter of 2007. We
believe that there currently is sufficient natural gas production
capability in the region to meet our full contracted supply from
Argentina and that all pipeline capacity to transport natural gas
from southern Argentina to the more populated areas in northern
Argentina is full. However, natural gas supply has not been
restored.
Effective July 25, 2006, the government of Argentina increased
the duty on exports of natural gas from Argentina to Chile, which
have been in place since May 2004, from approximately $0.30 per
mmbtu to approximately $2.25 per mmbtu. This duty is reviewed
quarterly and is adjusted with reference to a basket of
international energy prices. While our natural gas contracts
provide that natural gas suppliers are to pay any duties levied by
the government of Argentina, we were contributing towards the cost
of these duties when we were receiving natural gas from Argentina
during the first half of 2007. We are in continuing discussions
with our Argentinean natural gas suppliers regarding the impact of
the increased export duty.
We cannot provide assurance as to when and to what extent our
natural gas supply from Argentina will be restored or that we will
be able to reach continuing arrangements with our natural gas
suppliers, or that the impact of these issues will not continue to
have an adverse effect on our results of operations and financial
condition.
When operating at capacity, we source approximately 40% of our
natural gas requirements for our production facilities in Chile
from natural gas suppliers in Chile, primarily from Empresa
Nacional del Petroleo (ENAP), the Chilean state-owned energy
company, and from GeoPark Chile Limited (GeoPark). As a result of
our Argentinean natural gas supply issues, all of the methanol
production at our Chile facilities during the fourth quarter of
2007 was produced with natural gas from Chile. We received less
than our full natural gas supply from ENAP as a result of ongoing
deliverability and production issues. However, both ENAP and
GeoPark increased natural gas supply to our Chile facilities during
the fourth quarter of 2007 which allowed us to increase our
methanol production compared with the third quarter of 2007.
We continue to work on sourcing additional natural gas supply
for our Chile facilities from alternative sources in Chile. We are
pursuing investment opportunities with ENAP and GeoPark to help
accelerate the development of natural gas in southern Chile. Both
parties are undertaking gas exploration and development programs in
areas of southern Chile that are relatively close to our production
facilities and their exploration and development efforts continue
to be encouraging. ENAP and GeoPark recently announced discoveries
of commercial gas in this area and as a result, Geopark has
increased deliveries to our plants. On November 26, 2007, we
announced that we signed a natural gas prepayment agreement with
GeoPark Chile Limited under which we will provide US$40 million in
financing to support and accelerate GeoPark's natural gas
exploration and development activities in the Fell Block in
Southern Chile. Under the arrangement, GeoPark will also provide us
with natural gas supply sourced from the Fell Block under a ten
year supply agreement. If these activities are successful we expect
our natural gas supply from GeoPark to increase over time. In
November 2007, the government of Chile completed its first
international bidding round to assign natural gas exploration areas
which lie close to our production facilities and announced the
participation of five international oil and gas companies.
Exploration and development activities in these areas in Southern
Chile are expected to commence during the first half of 2008.
We cannot provide assurance that ENAP, GeoPark or others will be
successful in the exploration and development of natural gas or
that we would obtain any additional natural gas on commercially
acceptable terms.
Our methanol facilities in Trinidad represent over 1.9 million
tonnes of low cost annual capacity. These methanol facilities
continue to operate well and operated above design capacity during
the fourth quarter of 2007. Our Atlas methanol facility produced
278,000 tonnes, or 104% of design capacity, and our Titan facility
produced 220,000 tonnes, or 104% of design capacity.
We are currently operating our 530,000 tonne per year Waitara
Valley facility in New Zealand. We produced 75,000 tonnes, or 57%
of total capacity, at our Waitara Valley facility in New Zealand
during the fourth quarter of 2007. Production was lower than
capacity at this facility as a result of planned maintenance
activities that were completed at the end of November 2007. We have
sufficient contracted natural gas supply to allow us to produce at
this facility until at least mid-2008. We are currently in
discussions to secure natural gas to extend production from this
facility or possibly commence operations at one of our larger
900,000 tonne per year facilities at our Motunui location. The
future of our New Zealand operations continues to be dependent upon
methanol industry supply and demand and the ability to secure
natural gas on commercially acceptable terms.
EARNINGS ANALYSIS
The operating results for our production facilities in Chile,
Trinidad and New Zealand represent a substantial proportion of our
Adjusted EBITDA and, accordingly, we separately discuss changes in
average realized price, sales volumes and total cash costs related
to these facilities. Our core production facilities in Chile and
Trinidad have an annual production capacity of 5.8 million tonnes
and represent over 90% of our current annual production capacity.
Our New Zealand assets represent flexible capacity and we are
currently operating our 530,000 tonne per year Waitara Valley
facility in New Zealand.
For a further discussion of the definitions and calculations
used in our Adjusted EBITDA analysis, refer to How We Analyze Our
Business.
For the fourth quarter of 2007 we recorded Adjusted EBITDA of
$270.3 million and net income of $171.7 million ($1.72 per share on
a diluted basis). This compares with Adjusted EBITDA of $68.6
million and net income of $23.6 million ($0.24 per share on a
diluted basis) for the third quarter of 2007 and Adjusted EBITDA of
$279.2 million, net income of $172.4 million ($1.61 per share on a
diluted basis) for the fourth quarter of 2006.
For the year ended December 31, 2007, we recorded Adjusted
EBITDA of $652.3 million, net income of $375.7 million ($3.68 per
share on a diluted basis) compared with Adjusted EBITDA of $800.1
million, net income of $482.9 million ($4.41 per share on a diluted
basis) and income before unusual items (after-tax) of $457.2
million ($4.18 per share on a diluted basis) during the same period
in 2006.
The following is a reconciliation of net income to income before
unusual items (after-tax):
Three Months Ended Years Ended
-------------------- -------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2007 2007 2006 2007 2006
------------------------------------------------------------ -------------
Net income $ 171.7 $ 23.6 $172.4 $375.7 $482.9
Add/(deduct) unusual items:
Future income taxes related
to a change in tax legislation - - - - (25.7)
------------------------------------------------------------ -------------
Income before unusual items
(after-tax) $ 171.7 $ 23.6 $172.4 $375.7 $457.2
------------------------------------------------------------ -------------
Refer to the Income Taxes section of this Management's
Discussion and Analysis and note 7 to our fourth quarter of 2007
interim consolidated financial statements for further information
regarding future income taxes related to a change in tax
legislation.
ADJUSTED EBITDA
The increase (decrease) in Adjusted EBITDA resulted from changes
in the following:
Q4 2007 Q4 2007 2007
compared with compared with compared with
($ millions) Q3 2007 Q4 2006 2006
--------------------------------------------------------------------------
Average realized price $ 231 $ 48 $ 181
Sales volumes (9) (46) (136)
Total cash costs(1) (56) (33) (212)
Margin on sale of purchased methanol 36 22 19
--------------------------------------------------------------------------
$ 202 $ (9) $ (148)
--------------------------------------------------------------------------
(1) For the definitions and calculations in our Adjusted EBITDA analysis,
refer to HOW WE ANALYZE OUR BUSINESS.
Average realized price
Three Months Ended Years Ended
-------------------- -------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ per tonne, except where noted) 2007 2007 2006 2007 2006
------------------------------------------------------------ -------------
Methanex average non-discounted
posted price(1) 637 303 558 451 396
Methanex average realized price(2) 514 270 460 375 328
Average discount 19% 11% 18% 17% 17%
--------------------------------------------------------------------------
(1) Methanex average non-discounted posted price represents the average of
our non-discounted posted prices in North America, Europe and Asia
Pacific weighted by sales volume. Current and historical pricing
information is available at www.methanex.com.
(2) Average realized price disclosed above is calculated as revenue, net
of commissions earned, divided by the total sales volumes of produced
and purchased methanol. For the purposes of our Adjusted EBITDA
analysis, we compare our average realized price for sales of our
produced methanol. The average realized price for sales of our
produced methanol will differ from the price disclosed above as sales
under long-term contracts, where the prices are either fixed or linked
to our costs plus a margin, are included as sales of produced methanol.
As we entered the fourth quarter of 2007, there was a sharp
increase in contract methanol pricing as a result of tight market
conditions and low global inventories brought on by significant
planned and unplanned production outages across the methanol
industry, including our own facilities in Chile. Our average
non-discounted posted price for the fourth quarter of 2007 was $637
per tonne compared with $303 per tonne for the third quarter of
2007 and $558 per tonne for the fourth quarter of 2006. Our average
realized price for the fourth quarter of 2007 was $514 per tonne
compared with $270 per tonne for the third quarter of 2007 and $460
per tonne for the fourth quarter of 2006. Higher average realized
prices for the fourth quarter of 2007 increased our Adjusted EBITDA
by $231 million compared with the third quarter of 2007 and by $48
million compared with the fourth quarter of 2006. Our average
realized price for the year ended December 31, 2007 was $375 per
tonne compared with $328 per tonne during 2006 and this increased
our Adjusted EBITDA by $181 million.
The methanol industry is highly competitive and prices are
affected by supply/demand fundamentals. We publish non-discounted
prices for each major methanol market and offer discounts to
customers based on various factors. For the fourth quarter of 2007
our average realized price was approximately 19% lower than our
average non-discounted posted price. This compares with
approximately 11% lower for the third quarter of 2007 and 18% lower
for the fourth quarter of 2006. To reduce the impact of cyclical
pricing on our earnings, we have entered into long-term contracts
for a portion of our production volume with certain global
customers where prices are either fixed or linked to our costs plus
a margin. For the year ended December 31, 2007, these sales have
represented 22% of our total sales volumes. The discount from our
average non-discounted posted pricing widened during the fourth
quarter of 2007 compared with the third quarter of 2007 primarily
as a result of the significant increase in methanol prices. We
expect the discount from our non-discounted posted prices will
narrow during periods of lower pricing.
Sales volumes
Sales volumes of produced methanol for the fourth quarter of
2007 were lower by 76,000 tonnes compared with the third quarter of
2007 and lower by 163,000 tonnes compared with the fourth quarter
of 2006 and this decreased Adjusted EBITDA by $9 million and $46
million, respectively. Sales volumes of produced methanol for year
ended December 31, 2007 were lower than 2006 by 741,000 tonnes
primarily as a result of lower Chile production and this decreased
Adjusted EBITDA by $136 million.
Total cash costs
Our production facilities in Chile and Trinidad are underpinned
by natural gas purchase agreements with pricing terms that include
base and variable price components. The variable component is
adjusted at the time of production in relation to changes in
methanol prices above pre-determined prices. As a result of these
pricing terms, our natural gas costs are based on methanol prices
at the time of production which may differ from methanol prices at
the time of sale.
Our total cash costs for the fourth quarter of 2007 compared
with the third quarter of 2007 were higher by $56 million. Our
natural gas costs and other costs related to our Chile and Trinidad
inventory sold during the fourth quarter of 2007 were higher
compared with the third quarter of 2007 by $42 million primarily
due to the impact of higher methanol pricing. Our ocean freight
costs during the fourth quarter of 2007 were higher compared with
the third quarter of 2007 by $9 million as a result of changes to
our supply chain and higher fuel costs. Our selling, general and
administrative costs were also higher by $5 million during the
fourth quarter of 2007 compared with the third quarter of 2007
primarily due to the timing of expenditures.
Total cash costs for the fourth quarter of 2007 compared with
the same period in 2006 were higher by $33 million. Our natural gas
costs and other costs related to our Chile and Trinidad inventory
sold during the fourth quarter of 2007 were higher compared with
the third quarter of 2007 by $18 million primarily due to the
impact of higher methanol pricing. Our ocean freight costs during
the fourth quarter of 2007 were higher compared with the fourth
quarter of 2006 by $8 million primarily as a result of changes to
our supply chain and higher fuel costs. The remaining increase in
our cash costs during the fourth quarter of 2007 compared with the
fourth quarter of 2006 of $7 million primarily relates to higher
unabsorbed fixed costs as a result of lower production rates at our
Chile facilities in 2007.
Total cash costs for the year ended December 31, 2007 compared
with 2006 were higher by $212 million. Cash costs related to
sharing Argentina export duties increased by $53 million to $61
million in 2007 from $8 million in 2006. For the year ended
December 31, 2007 compared with 2006, our natural gas costs and
other costs related to our produced product sold were higher by
$132 million primarily due to impact of higher methanol pricing
during 2007. Our ocean freight costs were higher by $9 million for
the year ended December 31, 2007 compared with 2006 primarily due
to higher fuel costs. Our in-market distribution costs were higher
by $11 million for the year ended December 31, 2007 compared with
2006. These higher in-market distribution costs have been
substantially recovered from customers and this recovery has been
included in revenue. Our selling, general and administrative
expenses were lower by $7 million for the year ended December 31,
2007 compared with 2006 primarily as a result of impact of changes
in our share price on our stock-based compensation expense. The
remaining increase in cash costs of $14 million for the year ended
December 31, 2007 compared with the same period in 2006 is
primarily related to higher unabsorbed fixed costs as a result of
lower production rates at our Chile facilities.
Margin on sale of purchased methanol
We purchase additional methanol produced by others through
long-term and short-term offtake contracts or on the spot market to
meet customer needs and support our marketing efforts.
Consequently, we realize holding gains or losses on the resale of
this product depending on the methanol price at the time of resale.
During the fourth quarter of 2007, we had a positive cash margin of
$35 million on the resale of 0.4 million tonnes of purchased
methanol compared with a negative cash margin of $1 million on the
resale of 0.4 million tonnes for the third quarter of 2007 and a
positive cash margin of $13 million on the resale of 0.3 million
tonnes for the fourth quarter of 2006. There was a sharp increase
in contract methanol pricing as we entered the fourth quarter of
2007 and there were further increases during the quarter. As a
result of this increased pricing, we realized holding gains from
selling methanol that was purchased at lower pricing in the third
quarter and early in the fourth quarter of 2007.
For the year ended December 31, 2007, we had a cash margin of
$39 million on the resale of 1.5 million tonnes compared with a
cash margin of $20 million on the resale of 1.1 million tonnes in
2006.
Depreciation and Amortization
Depreciation and amortization was $29 million for the fourth
quarter of 2007 compared with $31 million for the third quarter of
2007. For the fourth quarter of 2007 and year ended December 31,
2007 depreciation and amortization was $29 million and $112
million, respectively, compared with $28 million and $107 million
for the same periods in 2006. The increase in depreciation and
amortization in 2007 compared with the same periods in 2006 is
primarily as a result of a draw down of our produced inventories in
2007 which includes depreciation charges.
Interest Expense
Three Months Ended Years Ended
-------------------- -------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2007 2007 2006 2007 2006
------------------------------------------------------------ -------------
Interest expense before
capitalized interest $ 13 $ 13 $ 11 $ 48 $ 45
Less capitalized interest (2) (2) - (4) -
------------------------------------------------------------ -------------
Interest expense $ 11 $ 11 $ 11 $ 44 $ 45
--------------------------------------------------------------------------
In May 2007, we reached financial close and secured limited
recourse debt of $530 million for our joint venture project to
construct a 1.3 million tonne per year methanol facility in Egypt.
During the fourth quarter of 2007, interest costs related to this
project were capitalized.
Interest and Other Income
Three Months Ended Years Ended
-------------------- -------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2007 2007 2006 2007 2006
------------------------------------------------------------ -------------
Interest and other income $ 3 $ 7 $ - $ 27 $ 10
--------------------------------------------------------------------------
Interest and other income was $3 million for the fourth quarter
of 2007 compared with $7 million for the third quarter of 2007.
Interest and other income for the fourth quarter of 2007 and the
year ended December 31, 2007 was $3 million and $27 million,
respectively, compared with nil and $10 million for the same
periods in 2006. The increase in interest and other income is
primarily due to higher interest income earned in 2007.
Income Taxes
The effective tax rate for the fourth quarter of 2007 was 26%
compared with 29% for the third quarter of 2007 and 28% for the
fourth quarter of 2006. For the year ended December 31, 2007 was
28%. Excluding the unusual item related to the Trinidad tax
adjustment, the effective tax rate was 31% in 2006. The statutory
tax rate in Chile and Trinidad, where we earn a substantial portion
of our pre-tax earnings, is 35%. Our Atlas facility in Trinidad has
partial relief from corporation income tax until 2014.
In Chile the tax rate consists of a first category tax that is
payable when income is earned and a second category tax that is due
when earnings are distributed from Chile. The second category tax
is initially recorded as future income tax expense and is
subsequently reclassified to current income tax expense when
earnings are distributed. Accordingly, the ratio of current income
tax expense to total income tax expense is highly dependent on the
level of cash distributed from Chile.
During 2005, the Government of Trinidad and Tobago introduced
new tax legislation retroactive to January 1, 2004. As a result,
during 2005 we recorded a $17 million charge to increase future
income tax expense to reflect the retroactive impact for the period
January 1, 2004 to December 31, 2004. In February 2006, the
Government of Trinidad and Tobago passed an amendment to this
legislation that changed the retroactive effective date to January
1, 2005. As a result of this amendment we recorded an adjustment to
decrease future income tax expense by a total of $26 million during
the first quarter of 2006. The adjustment includes a reversal of
the previous charge to 2005 earnings and an additional adjustment
to recognize the benefit of tax deductions that were reinstated as
a result of the change in the retroactive effective date.
SUPPLY/DEMAND FUNDAMENTALS
As we entered the fourth quarter of 2007, market conditions were
tight and global inventories were low as a result of significant
planned and unplanned production outages across the methanol
industry, including our own facilities in Chile. As a result, there
was a sharp increase in spot methanol pricing in September and
contract methanol pricing in October. During the fourth quarter,
global inventories remained low and market conditions remained
tight which resulted in methanol prices increasing further in
November and December and prices remaining at high levels into
2008. Global industry operating rates have increased recently and
this has resulted in a reduction in spot methanol prices
globally.
During 2008, we expect additions of approximately 1.7 million
tonnes of methanol capacity outside of China. The next increment of
world-scale capacity is a 1.7 million tonne per year plant under
construction in Saudi Arabia and we expect product from this plant
should be available to the market in the second half of 2008. We
also believe that global methanol demand growth combined with the
potential shutdown of high cost capacity as a result of high
feedstock prices could offset this new industry supply during
2008.
Methanex Non-Discounted Regional Posted Prices(1)
Jan Dec Nov Oct
(US$ per tonne) 2008 2007 2007 2007
--------------------------------------------------------------------------
United States 832 832 665 565
Europe(2) 772 555 555 555
Asia 720 720 620 520
--------------------------------------------------------------------------
(1) Discounts from our posted prices are offered to customers based on
various factors.
(2) EUR 525 at January 2008 (October 2007 - EUR 390) converted to United
States dollars at the date of settlement.
--------------------------------------------------------------------------
We believe global demand for methanol for traditional uses
remains healthy and is underpinned by high growth rates in China
and high energy prices. We believe that high energy prices are
positive for and are currently supporting healthy demand for energy
related derivatives such as dimethyl ether (DME) and fuel blending,
biodiesel, and MTBE.
We believe methanol demand in China will continue to grow at
high rates as a result of very strong traditional demand driven by
high industrial production growth rates and additional demand
related to non-traditional uses for methanol such as gasoline
blending and DME. We also believe that there is increasing pressure
on the cost structure of the Chinese methanol industry and the cost
to export as a result of escalating feedstock costs in China, the
continued appreciation of the Chinese currency and a decision by
the government of China to reduce tax rebates offered to Chinese
exporters of methanol during 2007. At the beginning of the fourth
quarter of 2007, China was a net importer of methanol. However, in
the current environment of very high methanol prices, we believe
China has the incentive to operate at higher production rates and
export methanol and that towards the end of the fourth quarter, we
believe that imports have been reduced and exports have increased.
We believe in a lower price environment substantially all domestic
methanol production in China will be consumed within the local
market and that imports of methanol into China will grow over
time.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities before changes in non-cash
working capital in the fourth quarter of 2007 were $188 million
compared with $218 million for the same period in 2006. For the
year ended December 31, 2007, our cash flows from operating
activities before changes in non-cash working capital were $494
million compared with $623 million for the same period in 2006.
During the fourth quarter of 2007, our non-cash working capital
increased by $108 million primarily as a result of the impact of
higher methanol pricing on our working capital balances.
During the fourth quarter of 2007, we repurchased 1.4 million
common shares at an average price of US$27.94 per share, totaling
$40 million, under a normal course issuer bid that expires May 16,
2008. At December 31, 2007, we have repurchased a total of 4.3
million common shares of the maximum allowable repurchase under
this bid of 8.7 million common shares. For the year ended December
31, 2007, we repurchased a total of 8.0 million common shares at an
average price of US$25.45 per share, totaling $205 million,
inclusive of 3.7 million common shares repurchased in 2007 under a
normal course issuer bid that expired May 16, 2007.
During the fourth quarter of 2007, we paid a quarterly dividend
of US$0.14 per share, or $14 million. For the year ended December
31, 2007 we paid total dividends of US$0.545 per share, or $55
million.
In May 2007, we reached financial close for our project to
construct a 1.3 million tonne per year methanol facility at
Damietta on the Mediterranean Sea in Egypt. We are developing the
project through a joint venture in which we have a 60% interest.
The joint venture has secured limited recourse debt of $530
million. We expect commercial operations from the methanol facility
to begin in early 2010 and we will purchase and sell 100% of the
methanol from the facility. The total estimated future costs to
complete the project over the next three years, excluding financing
costs and working capital, are expected to be approximately $665
million. Our 60% share of future equity contributions, excluding
financing costs and working capital, over the next three years is
estimated to be approximately $175 million and we expect to fund
these expenditures from cash generated from operations and cash on
hand.
We have excellent financial capacity and flexibility. Our cash
balance at December 31, 2007 was $488 million and we have a strong
balance sheet with an undrawn $250 million credit facility. We
invest our cash only in highly rated instruments that have
maturities of three months or less to ensure preservation of
capital and appropriate liquidity. Our planned capital maintenance
expenditure program directed towards major maintenance, turnarounds
and catalyst changes is currently estimated to total approximately
$95 million for the period to the end of 2010.
We are well positioned to meet our financial requirements
related to the methanol project in Egypt, complete our capital
maintenance spending program, pursue new opportunities to enhance
our leadership position in the methanol industry, pursue
opportunities to invest to accelerate the development of natural
gas in Southern Chile, investigate opportunities related to new
methanol demand for energy applications and continue to deliver on
our commitment to return excess cash to shareholders.
The credit ratings for our unsecured notes at December 31, 2007
were as follows:
--------------------------------------------------------------------------
Standard & Poor's Rating Services BBB- (stable)
Moody's Investor Services Ba1 (stable)
Fitch Ratings BBB (stable)
Credit ratings are not recommendations to purchase, hold or sell
securities and do not comment on market price or suitability for a
particular investor. There is no assurance that any rating will remain in
effect for any given period of time or that any rating will not be revised
or withdrawn entirely by a rating agency in the future.
--------------------------------------------------------------------------
SHORT-TERM OUTLOOK
We are entering 2008 in an environment of strong pricing,
although recently spot prices have declined. We have historically
low inventories, but at higher costs due to the high methanol price
environment. During 2008, we expect to see new non-traditional
demand growth for methanol for energy related uses such as
di-methyl ether (DME) and fuel blending. It is our view that
traditional and non-traditional growth, along with closures of high
cost capacity, will substantially offset the new supply that is
scheduled to start up over the coming year. We believe that
supply/demand fundamentals will be balanced to tight during 2008
and that methanol prices will be underpinned by strong demand in
China and global energy prices.
The methanol price will ultimately depend on industry operating
rates, global energy prices, the rate of industry restructuring and
the strength of global demand. We believe that our excellent
financial position and financial flexibility, outstanding global
supply network and low cost position will provide a sound basis for
Methanex continuing to be the leader in the methanol industry.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
These interim consolidated financial statements are prepared in
accordance with Canadian generally accepted accounting principles
(Canadian GAAP) on a basis consistent with those followed in the
most recent annual consolidated financial statements, except as
described in Note 2 to our interim consolidated financial
statements. Certain of our accounting policies are recognized as
critical because they require management to make subjective or
complex judgments about matters that are inherently uncertain. Our
critical accounting policies and estimates relate to property,
plant and equipment, asset retirement obligations, and income
taxes. For further details, refer to pages 29 to 30 of our 2006
Annual Report.
CHANGES IN ACCOUNTING POLICIES OR ESTIMATES
On January 1, 2007, we adopted, on a prospective basis, the
Canadian Institute of Chartered Accountants ("CICA") Handbook
Section 1530, Comprehensive Income, Section 3251, Equity, Section
3855, Financial Instruments - Recognition and Measurement, Section
3861, Financial Instruments - Disclosure and Presentation, and
Section 3865, Hedges. These standards, and the impact on our
financial statements, are discussed in Note 2 to our interim
consolidated financial statements.
CONTROLS AND PROCEDURES
For the three months ended December 31, 2007, no changes were
made that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
ADDITIONAL INFORMATION - SUPPLEMENTAL NON-GAAP MEASURES
In addition to providing measures prepared in accordance with
Canadian generally accepted accounting principles (Canadian GAAP),
we present certain supplemental non-GAAP measures. These are
Adjusted EBITDA, income before unusual items (after-tax), diluted
income before unusual items (after-tax) per share, operating income
and cash flows from operating activities before changes in non-cash
working capital. These measures do not have any standardized
meaning prescribed by Canadian GAAP and therefore are unlikely to
be comparable to similar measures presented by other companies. We
believe these measures are useful in evaluating the operating
performance and liquidity of the Company's ongoing business. These
measures should be considered in addition to, and not as a
substitute for, net income, cash flows and other measures of
financial performance and liquidity reported in accordance with
Canadian GAAP.
Adjusted EBITDA
This supplemental non-GAAP measure is provided to assist readers
in determining our ability to generate cash from operations. We
believe this measure is useful in assessing performance and
highlighting trends on an overall basis. We also believe Adjusted
EBITDA is frequently used by securities analysts and investors when
comparing our results with those of other companies. Adjusted
EBITDA differs from the most comparable GAAP measure, cash flows
from operating activities, primarily because it does not include
changes in non-cash working capital, other cash payments related to
operating activities, stock-based compensation expense, other
non-cash items, interest expense, interest and other income, and
current income taxes.
The following table shows a reconciliation of cash flows from
operating activities to Adjusted EBITDA:
Three Months Ended Years Ended
------------------------------- ---------------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ thousands) 2007 2007 2006 2007 2006
---------------------------------------------------- ---------------------
Cash flows from
operating
activities $ 79,911 $ 132,497 $ 149,731 $ 527,335 $ 468,837
Add (deduct):
Changes in non-cash
working capital 107,923 (72,609) 68,761 (33,396) 154,083
Other cash payments 11,938 598 15,612 16,824 27,322
Stock-based
compensation
expense (6,755) (5,386) (8,702) (22,410) (31,199)
Other non-cash
items (3,105) (4,282) (2,854) (13,574) (8,422)
Interest expense 10,878 10,807 11,096 43,911 44,586
Interest and
other income (2,583) (6,601) 316 (26,862) (9,598)
Current income
taxes 72,139 13,571 45,252 160,514 154,466
---------------------------------------------------- ---------------------
Adjusted EBITDA $ 270,346 $ 68,595 $ 279,212 $ 652,342 $ 800,075
--------------------------------------------------------------------------
Income before Unusual Items (after-tax) and Diluted Income
before Unusual Items (after-tax) Per Share
These supplemental non-GAAP measures are provided to assist
readers in comparing earnings from one period to another without
the impact of unusual items that management considers to be
non-operational and/or non-recurring. Diluted income before unusual
items (after-tax) per share has been calculated by dividing income
before unusual items (after-tax) by the diluted weighted average
number of common shares outstanding.
The following table shows a reconciliation of net income to
income before unusual items (after-tax) and the calculation of
diluted income before unusual items (after-tax) per share:
($
thousands,
except
number
of shares Three Months Ended Years Ended
and per ------------------------------------- -------------------------
share Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
amounts) 2007 2007 2006 2007 2006
------------------------------------------------ -------------------------
Net income $ 171,697 $ 23,610 $ 172,445 $ 375,667 $ 482,949
Add (deduct)
unusual
items:
Future
income taxes
related to
a change
in tax
legislation - - - - (25,753)
------------------------------------------------ -------------------------
Income
before
unusual
items
(after-
tax) $ 171,697 $ 23,610 $ 172,445 $ 375,667 $ 457,196
Diluted
weighted
average
number
of common
shares 99,616,275 100,417,273 106,890,909 102,129,929 109,441,404
Diluted
income
before
unusual
items
(after-tax)
per share $ 1.72 $ 0.24 $ 1.61 $ 3.68 $ 4.18
--------------------------------------------------------------------------
Operating Income and Cash Flows from Operating Activities before
Non-Cash Working Capital
Operating income and cash flows from operating activities before
changes in non-cash working capital are reconciled to Canadian GAAP
measures in our consolidated statements of income and consolidated
statements of cash flows, respectively.
QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected financial information for the prior eight
quarters is as follows:
Three Months Ended
---------------------------------------
($ thousands, except Dec 31 Sep 30 Jun 30 Mar 31
per share amounts) 2007 2007 2007 2007
--------------------------------------------------------------------------
Revenue $ 731,057 $ 395,118 $ 466,414 $ 673,932
Net income 171,697 23,610 35,654 144,706
Basic net income per
common share 1.74 0.24 0.35 1.38
Diluted net income per
common share 1.72 0.24 0.35 1.37
--------------------------------------------------------------------------
Three Months Ended
---------------------------------------
($ thousands, except Dec 31 Sep 30 Jun 30 Mar 31
per share amounts) 2006 2006 2006 2006
--------------------------------------------------------------------------
Revenue $ 668,159 $ 519,586 $ 460,915 $ 459,590
Net income 172,445 113,230 82,097 115,177
Basic net income per
common share 1.62 1.05 0.75 1.02
Diluted net income per
common share 1.61 1.05 0.75 1.02
--------------------------------------------------------------------------
HOW WE ANALYZE OUR BUSINESS
We review our results of operations by analyzing changes in the
components of our Adjusted EBITDA (refer to Supplemental Non-GAAP
Measures for a reconciliation to the most comparable GAAP measure),
depreciation and amortization, interest expense, interest and other
income, unusual items and income taxes. In addition to the methanol
that we produce at our facilities, we also purchase and re-sell
methanol produced by others. We analyze the results of produced
methanol sales separately from purchased methanol sales as the
margin characteristics of each are very different.
Produced Methanol
Our production facilities generate the substantial proportion of
our Adjusted EBITDA, and accordingly, the key drivers of changes in
our Adjusted EBITDA for produced methanol are analyzed separately.
The key drivers of changes in our Adjusted EBITDA for produced
methanol are average realized price, sales volume and cash costs.
Changes in Adjusted EBITDA related to our produced methanol include
our sales of methanol from our facilities in Chile, Trinidad and
New Zealand.
The price, cash cost and volume variances included in our
Adjusted EBITDA analysis for produced methanol are defined and
calculated as follows:
PRICE The change in our Adjusted EBITDA as a result of changes in
average realized price is calculated as the difference from
period-to-period in the selling price of produced methanol
multiplied by the current period sales volume of produced
methanol. Sales under long-term contracts where the prices are
either fixed or linked to our costs plus a margin are included
as sales of produced methanol. Accordingly, the selling price of
produced methanol will differ from the selling price of
purchased methanol.
COST The change in our Adjusted EBITDA as a result of changes in cash
costs is calculated as the difference from period-to-period in
cash costs per tonne multiplied by the sales volume of produced
methanol in the current period plus the change in unabsorbed
fixed cash costs. The change in selling, general and
administrative expenses and fixed storage and handling costs are
included in the analysis of methanol produced at our Chile,
Trinidad and New Zealand facilities.
VOLUME The change in our Adjusted EBITDA as a result of changes in
sales volume is calculated as the difference from period-to-
period in the sales volume of produced methanol multiplied by
the margin per tonne for the prior period. The margin per tonne
is calculated as the selling price per tonne of produced
methanol less absorbed fixed cash costs per tonne and variable
cash costs per tonne (excluding Argentina natural gas export
duties costs per tonne).
Purchased Methanol
The cost of sales of purchased methanol consists principally of
the cost of the methanol itself, which is directly related to the
price of methanol at the time of purchase. Accordingly, the
analysis of purchased methanol and its impact on our Adjusted
EBITDA is discussed on a net margin basis.
FORWARD-LOOKING STATEMENTS
Information in this press release and the Fourth Quarter 2007
Management's Discussion and Analysis contains forward-looking
statements. Certain material factors or assumptions were applied in
drawing the conclusions or making the forecasts or projections that
are included in these forward-looking statements. Methanex believes
that it has a reasonable basis for making such forward-looking
statements. However, forward-looking statements, by their nature,
involve risks and uncertainties that could cause actual results to
differ materially from those contemplated by the forward-looking
statements. The risks and uncertainties include those attendant
with producing and marketing methanol and successfully carrying out
major capital expenditure projects in various jurisdictions, the
ability to successfully carry out corporate initiatives and
strategies, conditions in the methanol and other industries
including the supply and demand balance for methanol, the success
of natural gas exploration and development activities in southern
Chile and our ability to obtain any additional gas in that region
on commercially acceptable terms, actions of competitors and
suppliers, actions of governments and governmental authorities,
changes in laws or regulations in foreign jurisdictions, world-wide
economic conditions and other risks described in our 2006
Management's Discussion & Analysis and the attached Fourth
Quarter 2007 Management's Discussion and Analysis. Undue reliance
should not be placed on forward-looking statements. They are not a
substitute for the exercise of one's own due diligence and
judgment. The outcomes anticipated in forward-looking statements
may not occur and we do not undertake to update forward-looking
statements. These materials also contain certain non-GAAP financial
measures. Non-GAAP financial measures do not have any standardized
meaning and therefore are unlikely to be comparable to similar
measures used by other companies. For more information regarding
these non-GAAP measures, please see our 2006 Management's
Discussion & Analysis and refer to Additional Information -
Supplemental Non-Gaap Measures included in the Fourth Quarter 2007
Management's Discussion and Analysis.
Methanex Corporation
Consolidated Statements of Income (unaudited)
(thousands of U.S. dollars, except number of common shares and per share
amounts)
Three Months Ended Years Ended
--------------------------- ----------------------------
Dec 31 Dec 31 Dec 31 Dec 31
2007 2006 2007 2006
--------------------------------------------------------------------------
Revenue $ 731,057 $ 668,159 $ 2,266,521 $ 2,108,250
Cost of sales
and operating
expenses 460,711 388,947 1,614,179 1,308,175
Depreciation and
amortization 29,070 27,677 112,428 106,828
--------------------------------------------------------------------------
Operating income
before
undernoted items 241,276 251,535 539,914 693,247
Interest expense
(note 6) (10,878) (11,096) (43,911) (44,586)
Interest and
other income
(expense) 2,583 (316) 26,862 9,598
--------------------------------------------------------------------------
Income before
income taxes 232,981 240,123 522,865 658,259
Income taxes:
Current (72,139) (45,252) (160,514) (154,466)
Future 10,855 (22,426) 13,316 (46,597)
Future income
tax recovery
related to
change in tax
legislation
(note 7) - - - 25,753
--------------------------------------------------------------------------
(61,284) (67,678) (147,198) (175,310)
--------------------------------------------------------------------------
Net income $ 171,697 $ 172,445 $ 375,667 $ 482,949
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net income per
common share:
Basic $ 1.74 $ 1.62 $ 3.69 $ 4.43
Diluted $ 1.72 $ 1.61 $ 3.68 $ 4.41
Weighted average
number of common
shares
outstanding:
Basic 98,935,669 106,486,900 101,717,341 109,110,689
Diluted 99,616,275 106,890,909 102,129,929 109,441,404
Number of common
shares
outstanding at
period end 98,310,254 105,800,942 98,310,254 105,800,942
See accompanying notes to consolidated financial statements.
Methanex Corporation
Consolidated Balance Sheets (unaudited)
(thousands of U.S. dollars)
Dec 31 Dec 31
2007 2006
--------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 488,224 $ 355,054
Receivables 394,843 366,387
Inventories 312,143 244,766
Prepaid expenses 20,889 24,047
--------------------------------------------------------------------------
1,216,099 990,254
Property, plant and equipment (note 3) 1,542,100 1,362,281
Other assets 104,700 100,518
--------------------------------------------------------------------------
$ 2,862,899 $ 2,453,053
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 459,020 $ 309,979
Current maturities on long-term debt (note 5) 15,282 14,032
Current maturities on other long-term
liabilities 16,965 17,022
--------------------------------------------------------------------------
491,267 341,033
Long-term debt (note 5) 581,987 472,884
Other long-term liabilities 74,431 68,818
Future income tax liabilities (note 7) 338,602 351,918
Non-controlling interest 41,258 9,149
Shareholders' equity:
Capital stock 451,640 474,739
Contributed surplus 16,021 10,346
Retained earnings 876,348 724,166
Accumulated other comprehensive income (loss) (8,655) -
--------------------------------------------------------------------------
1,335,354 1,209,251
--------------------------------------------------------------------------
$ 2,862,899 $ 2,453,053
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Methanex Corporation
Consolidated Statements of Shareholders' Equity (unaudited)
(thousands of U.S. dollars, except number of common shares)
Accumu-
lated
Other
Number Comprehen- Total
of Contrib- sive Share-
Common Capital uted Retained Income holders'
Shares Stock Surplus Earnings (Loss) Equity
--------------------------------------------------------------------------
Balance,
December 31,
2005 113,645,292 $502,879 $ 4,143 $442,492 $ - $ 949,514
Net income - - - 482,949 - 482,949
Compensation
expense
recorded
for stock
options - - 8,568 - - 8,568
Issue of
shares on
exercise
of stock
options 680,950 7,519 - - - 7,519
Reclassifi-
cation of
grant date
fair value on
exercise of
stock options - 2,365 (2,365) - - -
Payments for
shares
repurchased (8,525,300) (38,024) - (148,755) - (186,779)
Dividend
payments - - - (52,520) - (52,520)
--------------------------------------------------------------------------
Balance,
December 31,
2006 105,800,942 474,739 10,346 724,166 - 1,209,251
Net income - - - 203,970 - 203,970
Compensation
expense
recorded for
stock options - - 7,111 - - 7,111
Issue of
shares on
exercise of
stock options 254,075 4,163 - - - 4,163
Reclassifi-
cation of
grant date
fair value on
exercise of
stock options - 1,640 (1,640) - - -
Payments for
shares
repurchased (6,612,763) (29,805) - (134,967) - (164,772)
Dividend
payments - - - (41,277) - (41,277)
Other
comprehensive
income (loss) - - - - (2,200) (2,200)
--------------------------------------------------------------------------
Balance,
September 30,
2007 99,442,254 450,737 15,817 751,892 (2,200) 1,216,246
Net income - - - 171,697 - 171,697
Compensation
expense
recorded for
stock options - - 2,232 - - 2,232
Issue of
shares on
exercise of
stock options 298,100 5,357 - - - 5,357
Reclassifi-
cation of
grant date
fair value on
exercise of
stock options - 2,028 (2,028) - - -
Payments for
shares
repurchased (1,430,100) (6,482) - (33,473) - (39,955)
Dividend
payments - - - (13,768) - (13,768)
Other
comprehensive
income (loss) - - - - (6,455) (6,455)
--------------------------------------------------------------------------
Balance,
December 31,
2007 98,310,254 $451,640 $16,021 $876,348 $(8,655) $1,335,354
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income (unaudited)
(thousands of U.S. dollars)
Three months Year
ended ended
--------------------------
Dec 31 Dec 31
2007 2007
--------------------------------------------------------------------------
Net income $ 171,697 $ 375,667
Other comprehensive income (loss):
Change in fair value of forward exchange
contracts, net of tax (note 12) 79 (45)
Change in fair value of interest rate swap
contracts, net of tax (note 12) (6,534) (8,610)
--------------------------------------------------------------------------
(6,455) (8,655)
--------------------------------------------------------------------------
Comprehensive income $ 165,242 $ 367,012
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Methanex Corporation
Consolidated Statements of Cash Flows (unaudited)
(thousands of U.S. dollars)
Three Months Ended Years Ended
--------------------------- ----------------------------
Dec 31 Dec 31 Dec 31 Dec 31
2007 2006 2007 2006
--------------------------------------------------------------------------
CASH FLOWS
FROM OPERATING
ACTIVITIES
Net income $ 171,697 $ 172,445 $ 375,667 $ 482,949
Add (deduct)
non-cash items:
Depreciation and
amortization 29,070 27,677 112,428 106,828
Future income
taxes (10,855) 22,426 (13,316) 20,844
Stock-based
compensation
expense 6,755 8,702 22,410 31,199
Other 3,105 2,854 13,574 8,422
Other cash
payments (11,938) (15,612) (16,824) (27,322)
--------------------------------------------------------------------------
Cash flows from
operating
activities before
undernoted 187,834 218,492 493,939 622,920
Changes in non-cash
working capital
(note 11) (107,923) (68,761) 33,396 (154,083)
--------------------------------------------------------------------------
79,911 149,731 527,335 468,837
--------------------------------------------------------------------------
CASH FLOWS
FROM FINANCING
ACTIVITIES
Payments
for shares
repurchased (39,955) (35,671) (204,727) (186,779)
Dividend payments (13,768) (13,239) (55,045) (52,520)
Proceeds from
limited recourse
debt (note 5) 35,000 - 131,574 -
Financing costs - - (8,725) -
Equity contribution
by non-controlling
interest 11,601 4,419 32,109 9,149
Repayment of
limited recourse
debt (7,328) (7,016) (14,344) (14,032)
Proceeds on issue
of shares on
exercise of
stock options 5,357 1,857 9,520 7,519
Changes in debt
service reserve
accounts 135 - 1,035 (2,301)
Repayment of
other long-term
liabilities (1,384) (1,063) (5,153) (5,897)
--------------------------------------------------------------------------
(10,342) (50,713) (113,756) (244,861)
--------------------------------------------------------------------------
CASH FLOWS
FROM INVESTING
ACTIVITIES
Property, plant
and equipment (24,165) (9,705) (76,239) (42,195)
Plant and
equipment
construction
costs (note 14) (87,804) (4,976) (201,922) (20,796)
Other assets (14,610) 486 (19,788) 355
Changes in
non-cash working
capital
(note 11) 12,027 5,689 17,540 34,959
--------------------------------------------------------------------------
(114,552) (8,506) (280,409) (27,677)
--------------------------------------------------------------------------
Increase
(decrease) in
cash and cash
equivalents (44,983) 90,512 133,170 196,299
Cash and cash
equivalents,
beginning of
period 533,207 264,542 355,054 158,755
--------------------------------------------------------------------------
Cash and cash
equivalents, end
of period $ 488,224 $ 355,054 $ 488,224 $ 355,054
--------------------------------------------------------------------------
--------------------------------------------------------------------------
SUPPLEMENTARY CASH
FLOW INFORMATION
Interest paid $ 5,641 $ 5,938 $ 38,454 $ 38,577
Income taxes paid,
net of amounts
refunded $ 41,176 $ 12,246 $ 144,169 $ 110,275
See accompanying notes to consolidated financial statements.
Methanex Corporation
Notes to Consolidated Financial Statements (unaudited)
Except where otherwise noted, tabular dollar amounts are stated
in thousands of U.S. dollars.
1. Basis of presentation
These interim consolidated financial statements are prepared in
accordance with generally accepted accounting principles in Canada
on a basis consistent with those followed in the most recent annual
consolidated financial statements, except as described in note 2
below. These accounting principles are different in some respects
from those generally accepted in the United States and the
significant differences are described and reconciled in note 15.
These interim consolidated financial statements do not include all
note disclosures required by Canadian generally accepted accounting
principles for annual financial statements, and therefore should be
read in conjunction with the annual consolidated financial
statements included in the Methanex Corporation 2006 Annual
Report.
2. Changes in accounting policies
On January 1, 2007, the Company adopted the Canadian Institute
of Chartered Accountants ("CICA") Handbook Section 1530,
Comprehensive Income, Section 3251, Equity, Section 3855, Financial
Instruments - Recognition and Measurement, Section 3861, Financial
Instruments - Disclosure and Presentation, and Section 3865,
Hedges. These new accounting standards, which apply to fiscal years
beginning on or after October 1, 2006, provide comprehensive
requirements for the recognition and measurement of financial
instruments, as well as standards on when and how hedge accounting
may be applied. Section 1530 establishes standards for reporting
and presenting comprehensive income, which is defined as the change
in equity from transactions and other events from non-owner
sources. Other comprehensive income refers to items recognized in
comprehensive income that are excluded from net income calculated
in accordance with generally accepted accounting principles.
Under these new standards, financial instruments must be
classified into one of five categories and, depending on the
category, will either be measured at amortized cost or fair value.
Held-to-maturity, loans and receivables and other financial
liabilities are measured at amortized cost. Held for trading and
available-for-sale financial assets are measured on the balance
sheet at fair value. Changes in fair value of held-for-trading
financial assets are recognized in earnings while changes in fair
value of available-for-sale financial instruments are recorded in
other comprehensive income until the investment is derecognized or
impaired at which time the amounts would be recorded in earnings.
Under adoption of these new standards, the Company classified its
cash as held-for-trading, which is measured at fair value. Accounts
receivable are classified as loans and receivables, which are
measured at amortized cost. Accounts payable and accrued
liabilities, long-term debt, net of debt issuance costs, and other
long-term liabilities are classified as other financial
liabilities, which are also measured at amortized cost.
Under these new standards, derivative financial instruments,
including embedded derivatives, are classified as held for trading
and are recorded on the balance sheet at fair value unless exempted
as a normal purchase and sale arrangement. The Company records all
changes in fair value of derivative financial instruments in
earnings unless the instruments are designated as cash flow hedges.
The Company enters into and designates as cash flow hedges certain
forward exchange sales contracts to hedge foreign exchange exposure
on anticipated sales. The Company also enters into and designates
as cash flow hedges certain interest rate swap contracts to hedge
variable interest rate exposure on its limited recourse debt. The
effective portion of changes in fair value of these forward
exchange sales contracts and interest rate swap contracts is
recognized in other comprehensive income. Any gain or loss in fair
value relating to the ineffective portion is recognized immediately
in earnings.
These standards have been adopted on a prospective basis
beginning January 1, 2007. For additional information, see note
12.
3. Property, plant and equipment
Accumulated Net Book
Cost Depreciation Value
---------------------------------------------------------------------------
December 31, 2007
Plant and equipment $ 2,774,392 $ 1,530,947 $ 1,243,445
Plant and equipment under construction 227,783 - 227,783
Other 124,779 53,907 70,872
---------------------------------------------------------------------------
$ 3,126,954 $ 1,584,854 $ 1,542,100
---------------------------------------------------------------------------
December 31, 2006
Plant and equipment $ 2,728,837 $ 1,451,162 $ 1,277,675
Plant and equipment under construction 25,861 - 25,861
Other 102,597 43,852 58,745
---------------------------------------------------------------------------
$ 2,857,295 $ 1,495,014 $ 1,362,281
---------------------------------------------------------------------------
4. Interest in Atlas joint venture
The Company has a 63.1% joint venture interest in Atlas Methanol
Company (Atlas). Atlas owns a 1.7 million tonne per year methanol
production facility in Trinidad. Included in the consolidated
financial statements are the following amounts representing the
Company's proportionate interest in Atlas:
Dec 31 Dec 31
Consolidated Balance Sheets 2007 2006
--------------------------------------------------------------------------
Cash and cash equivalents $ 20,128 $ 19,268
Other current assets 88,524 62,420
Property, plant and equipment 263,942 264,292
Other assets 16,329 22,471
Accounts payable and accrued liabilities 37,026 28,644
Long-term debt, including current
maturities (note 5) 119,891 136,916
Future income tax liabilities (note 7) 16,099 10,866
--------------------------------------------------------------------------
Three Months Ended Years Ended
---------------------- ----------------------
Consolidated Statements Dec 31 Dec 31 Dec 31 Dec 31
of Income 2007 2006 2007 2006
-------------------------------------------------- ----------------------
Revenue $ 114,324 $ 60,307 $ 258,418 $ 219,879
Expenses 80,242 57,068 214,981 182,656
--------------------------------------------------------------------------
Income before income taxes 34,082 3,239 43,437 37,223
Income taxes (note 7) (5,902) (687) (9,458) 9,997
--------------------------------------------------------------------------
Net income $ 28,180 $ 2,552 $ 33,979 $ 47,220
--------------------------------------------------------------------------
Three Months Ended Years Ended
---------------------- ----------------------
Consolidated Statements Dec 31 Dec 31 Dec 31 Dec 31
of Cash Flows 2007 2006 2007 2006
-------------------------------------------------- ----------------------
Cash inflows (outflows)
from operating activities $ (818) $ (15,782) $ 40,317 $ 23,465
Cash outflows from
financing activities (6,881) (7,016) (12,997) (14,032)
Cash outflows from
investing activities (2,521) (353) (16,380) (3,137)
--------------------------------------------------------------------------
5. Long-term debt:
Dec 31 Dec 31
2007 2006
--------------------------------------------------------------------------
Unsecured notes
8.75% due August 15, 2012 $ 197,776 $ 200,000
6.00% due August 15, 2015 148,340 150,000
--------------------------------------------------------------------------
346,116 350,000
Atlas limited recourse debt facilities 119,891 136,916
Egypt limited recourse debt facilities 116,574 -
Other limited recourse debt 14,688 -
--------------------------------------------------------------------------
597,269 486,916
Less current maturities (15,282) (14,032)
--------------------------------------------------------------------------
$ 581,987 $ 472,884
--------------------------------------------------------------------------
During the second quarter of 2007, the Company achieved
financial close to construct a methanol plant in Egypt (as
described in note 14). The debt facilities are for an aggregate
maximum of $530 million with interest payable semi-annually based
on rates of LIBOR plus approximately 1.1% to 1.2% during
construction and increasing to approximately 1.4% to 1.6% by the
end of the loan term. The LIBOR-based interest payments on
approximately half of the projected outstanding debt balance have
been fixed at 5.1% through interest rate swap agreements for the
period September 28, 2007 to March 31, 2015 as described in note
12(c). Principal is paid in 24 semi-annual payments which will
commence in September 2010. Under the terms of the Egypt limited
recourse debt facilities, the Egypt entity can make cash or other
distributions after fulfilling certain conditions.
The limited recourse debt facilities of Egypt and Atlas are
described as limited recourse as they are secured only by the
assets of the Egypt entity and the Atlas joint venture,
respectively.
Other limited recourse debt is payable over 12 years in equal
quarterly principal payments beginning October 2007. Interest on
this debt is payable quarterly at LIBOR plus 0.75%.
6. Interest expense:
Three Months Ended Years Ended
---------------------- ----------------------
Dec 31 Dec 31 Dec 31 Dec 31
2007 2006 2007 2006
-------------------------------------------------- ----------------------
Interest expense before
capitalized interest $ 13,242 $ 11,096 $ 48,104 $ 44,586
Less: capitalized interest
related to Egypt project (2,364) - (4,193) -
--------------------------------------------------------------------------
Interest expense $ 10,878 $ 11,096 $ 43,911 $ 44,586
--------------------------------------------------------------------------
In May 2007, the Company reached financial close and secured
limited recourse debt of $530 million for its joint venture project
to construct a 1.3 million tonne per year methanol facility in
Egypt. For the three months and year ended December 31, 2007,
interest costs related to this project of $2 million and $4
million, respectively, were capitalized.
7. Future income taxes related to change in tax legislation:
During 2005, the Government of Trinidad and Tobago introduced
new tax legislation retroactive to January 1, 2004. As a result,
during 2005 we recorded a $16.9 million charge to increase future
income tax expense to reflect the retroactive impact for the period
January 1, 2004 to December 31, 2004. In February 2006, the
Government of Trinidad and Tobago passed an amendment to this
legislation that changed the retroactive date to January 1, 2005.
As a result of the amendment we recorded an adjustment to decrease
future income taxes by a total of $25.8 million. The adjustment is
made up of the reversal of the previous charge to 2005 earnings of
$16.9 million and an additional adjustment of $8.9 million to
recognize the benefit of tax deductions that were reinstated as a
result of the change in the implementation date.
8. Net income per common share:
A reconciliation of the weighted average number of common shares
outstanding is as follows:
Three Months Ended Years Ended
---------------------- ----------------------
Dec 31 Dec 31 Dec 31 Dec 31
2007 2006 2007 2006
-------------------------------------------------- ----------------------
Denominator for basic net
income per common share 98,935,669 106,486,900 101,717,341 109,110,689
Effect of dilutive stock
options 680,606 404,009 412,588 330,715
--------------------------------------------------------------------------
Denominator for diluted net
income per common share 99,616,275 106,890,909 102,129,929 109,441,404
--------------------------------------------------------------------------
9. Stock-based compensation:
a) Stock options:
(i) Incentive stock options:
Common shares reserved for outstanding incentive stock options
at December 31, 2007:
Options Denominated Options Denominated
in CAD $ in US $
----------------------- -----------------------
Weighted Weighted
Number of Average Number of Average
Stock Exercise Stock Exercise
Options Price Options Price
------------------------------------------------ -----------------------
Outstanding at
December 31, 2006 162,250 $ 8.40 2,404,925 $ 18.76
Granted - - 1,109,491 24.96
Exercised (16,300) 9.69 (237,775) 16.90
Cancelled (15,500) 11.28 (63,100) 19.79
---------------------------------------------------------------------------
Outstanding at
September 30, 2007 130,450 $ 7.90 3,213,541 $ 21.01
Granted - - - -
Exercised (26,000) 8.36 (272,100) 19.23
Cancelled - - (20,460) 21.98
---------------------------------------------------------------------------
Outstanding at
December 31, 2007 104,450 $ 7.79 2,920,981 $ 21.17
---------------------------------------------------------------------------
Information regarding the incentive stock options outstanding at
December 31, 2007 is as follows:
Options Outstanding at Options Exercisable at
December 31, 2007 December 31, 2007
---------------------------------- ----------------------
Weighted
Average Number Number
Remaining of Weighted of Weighted
Contractual Stock Average Stock Average
Range of Life Options Exercise Options Exercise
Exercise Prices (Years) Outstanding Price Exercisable Price
---------------------------------------------------- ---------------------
Options denominated
in CAD
$3.29 to 11.60 2.1 104,450 $ 7.79 104,450 $ 7.79
--------------------------------------------------------------------------
Options denominated
in USD
$6.45 to 9.23 4.9 185,200 $ 8.34 185,200 $ 8.34
$11.56 to 25.21 5.5 2,735,781 22.04 462,766 19.61
--------------------------------------------------------------------------
5.4 2,920,981 $ 21.17 647,966 $ 16.39
--------------------------------------------------------------------------
(ii) Performance stock options:
As at December 31, 2007, there were 50,000 shares reserved for
performance stock options with an exercise price of CAD $4.47. All
outstanding performance stock options have vested and are
exercisable.
(iii) Compensation expense related to stock options:
For the three months and year ended December 31, 2007,
compensation expense related to stock options included in cost of
sales and operating expenses was $2.2 million (2006 - $2.7 million)
and $9.3 million (2006 - $8.6 million), respectively. The fair
value of each stock option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions:
2007 2006
--------------------------------------------------------------------------
Risk-free interest rate 4.5% 4.9%
Expected dividend yield 2% 2%
Expected life 5 years 5 years
Expected volatility 31% 40%
Expected forfeitures 5% 5%
Weighted average fair value of options
granted (US$ per share) $ 7.06 $ 8.82
--------------------------------------------------------------------------
b) Deferred, restricted and performance share units:
Deferred, restricted and performance share units outstanding at
December 31, 2007 are as follows:
Number of Number of Number of
Deferred Restricted Performance
Share Units Share Units Share Units
--------------------------------------------------------------------------
Outstanding at December 31, 2006 318,746 518,757 406,082
Granted 34,925 6,000 325,779
Granted in-lieu of dividends 4,927 8,733 12,183
Redeemed (92,696) (7,109) -
Cancelled - (5,978) (18,774)
--------------------------------------------------------------------------
Outstanding at September 30, 2007 265,902 520,403 725,270
Granted 92,434 - -
Granted in-lieu of dividends 1,348 70 3,489
Redeemed - (494,852) -
Cancelled - (11,139) (3,497)
--------------------------------------------------------------------------
Outstanding at December 31, 2007 359,684 14,482 725,262
--------------------------------------------------------------------------
Compensation expense for deferred, restricted and performance
share units is initially measured at fair value based on the market
value of the Company's common shares and is recognized over the
related service period. Changes in fair value are recognized in
earnings for the proportion of the service that has been rendered
at each reporting date. The fair value of deferred, restricted and
performance share units at December 31, 2007 was $29.8 million
compared with the recorded liability of $21.7 million. The
difference between the fair value and the recorded liability of
$8.1 million will be recognized over the weighted average remaining
service period of approximately 1.4 years.
For the three months and year ended December 31, 2007,
compensation expense related to deferred, restricted and
performance share units included in cost of sales and operating
expenses was $4.5 million (2006 - $6.0 million) and $13.1 million
(2006 - $22.6 million), respectively. For the three months and year
ended December 31, 2007, the compensation expense included $2.5
million (2006 - $3.7 million) and $3.5 million (2006 - $12.2
million), respectively, related to the effect of the increase in
the Company's share price. As at December 31, 2007, the Company's
share price was US$27.60 per share.
10. Retirement plans:
Total net pension expense for the Company's defined benefit and
defined contribution pension plans during the three months and year
ended December 31, 2007 was $1.6 million (2006 - $1.9 million) and
$6.9 million (2006 - $7.6 million), respectively.
11. Changes in non-cash working capital:
The change in cash flows related to changes in non-cash working
capital for the three months and year ended December 31, 2007 were
as follows:
Three Months Ended Years Ended
---------------------- ----------------------
Dec 31 Dec 31 Dec 31 Dec 31
2007 2006 2007 2006
-------------------------------------------------- ----------------------
Decrease (increase) in
non-cash working capital:
Receivables $ (183,066) $ (47,654) $ (28,456) $ (69,865)
Inventories (163,339) (81,123) (67,377) (104,662)
Prepaid expenses 3,333 (4,426) 3,158 (10,492)
Accounts payable and
accrued liabilities 248,472 67,654 149,041 74,079
-------------------------------------------------- ----------------------
(94,600) (65,549) 56,366 (110,940)
Adjustments for items
not having a cash effect (1,296) 2,477 (5,430) (8,184)
-------------------------------------------------- ----------------------
Changes in non-cash
working capital having a
cash effect $ (95,896) $ (63,072) $ 50,936 $ (119,124)
-------------------------------------------------- ----------------------
These changes relate to
the following activities:
Operating $ (107,923) $ (68,761) $ 33,396 $ (154,083)
Investing 12,027 5,689 17,540 34,959
-------------------------------------------------- ----------------------
Changes in non-cash
working capital $ (95,896) $ (63,072) $ 50,936 $ (119,124)
-------------------------------------------------- ----------------------
12. Derivative financial instruments:
a) Forward exchange contracts:
As at December 31, 2007, the Company had forward exchange
contracts to sell 4.0 million Euro in exchange for US dollars at an
average exchange rate of 1.4236 maturing in 2008. The fair value of
the forward exchange sales contracts was negative $0.1 million. The
effective portion of changes in fair value of these forward
exchange sales contracts is recognized in other comprehensive
income.
b) Interest rate swap contract:
The Company has an interest rate swap contract recorded at its
fair value of negative $1.0 million in other long-term liabilities.
Changes in fair value of this interest rate swap contract are
recognized in earnings.
c) Egypt debt interest rate swap contracts:
On August 29, 2007, the Company entered interest rate swap
contracts to hedge the variability in LIBOR-based interest payments
on its Egypt limited recourse debt facilities described in note 5.
The interest rate swap contracts are effective from September 28,
2007 to March 31, 2015. These contracts swap the LIBOR-based
interest payments to a fixed rate of 5.1% on approximately half of
the projected outstanding debt for the period September 28, 2007 to
March 31, 2015. The interest rate swap contracts are recorded at
their fair value of negative $8.6 million in other long-term
liabilities with the effective portion of the change in fair value
recorded in other comprehensive income.
13. Argentina export duty costs:
Effective July 25, 2006, the government of Argentina increased
the duty on exports of natural gas from Argentina to Chile, which
have been in place since May 2004, from approximately $0.30 per
mmbtu to approximately $2.25 per mmbtu. This duty is reviewed
quarterly and is adjusted with reference to a basket of
international energy prices. While the Company's natural gas
contracts provide that natural gas suppliers are to pay any duties
levied by the government of Argentina, the Company was contributing
towards the cost of these duties when it was receiving natural gas
from Argentina during the first half of 2007. The Company is in
continuing discussions with its Argentinean natural gas suppliers
regarding the impact of the increased export duty. During the
fourth quarter, the Company did not produce any methanol from
natural gas from Argentina and there was no amount charged to
earnings related to the cost of sharing export duties.
14. Commitments:
a) Egypt methanol project:
During the second quarter of 2007, the Company reached financial
close for its project to construct a 1.3 million tonne per year
methanol facility at Damietta on the Mediterranean Sea in Egypt.
The Company owns 60% of Egyptian Methanex Methanol Company S.A.E.
("EMethanex"), which is the company that is developing the project.
EMethanex has secured limited recourse debt of $530 million. The
Company expects commercial operations from the methanol facility to
begin in early 2010 and the Company will purchase and sell 100% of
the methanol from the facility. The total estimated future costs to
complete the project over the next three years, excluding financing
costs and working capital, are expected to be approximately $665
million. Our 60% share of future equity contributions, excluding
financing costs and working capital, over the next three years is
estimated to be approximately $175 million and the Company expects
to fund these expenditures from cash generated from operations and
cash on hand.
The Company's investment in EMethanex is accounted for using
consolidation accounting. This results in 100% of the assets and
liabilities of the Egypt entity being included in our balance
sheet. The partners' interest is presented as "non-controlling
interest" on our balance sheet. Certain comparative figures related
to this investment have been adjusted to conform with the
accounting treatment in the current period.
b) Natural gas prepayment agreement:
During the fourth quarter of 2007, the Company entered into a
natural gas prepayment agreement with GeoPark Holdings Limited
(GeoPark) under which the Company will provide up to US$40 million
in financing over the period to December 31, 2008 to support and
accelerate GeoPark's natural gas exploration and development
activities in the Fell Block in Southern Chile. As at December 31,
2007, the amount outstanding under the prepayment agreement is $14
million which has been recorded in other assets.
15. United States Generally Accepted Accounting Principles:
The Company follows generally accepted accounting principles in
Canada ("Canadian GAAP") which are different in some respects from
those applicable in the United States and from practices prescribed
by the United States Securities and Exchange Commission ("U.S.
GAAP").
The significant differences between Canadian GAAP and U.S. GAAP
with respect to the Company's consolidated statements of income for
the three months and year ended December 31, 2007 and 2006 are as
follows:
Three Months Ended Years Ended
---------------------- ----------------------
Dec 31 Dec 31 Dec 31 Dec 31
2007 2006 2007 2006
-------------------------------------------------- ----------------------
Net income in accordance
with Canadian GAAP $ 171,697 $ 172,445 $ 375,667 $ 482,949
Add (deduct) adjustments for:
Depreciation and
amortization (a) (478) (478) (1,911) (1,911)
Stock-based compensation (b) (44) (113) 277 (482)
Uncertainty in income
taxes (c) (1,648) - (5,455) -
Income tax effect of above
adjustments(d) 167 167 669 669
-------------------------------------------------- ----------------------
Net income in accordance
with U.S. GAAP $ 169,694 $ 172,021 $ 369,247 $ 481,225
-------------------------------------------------- ----------------------
Per share information in
accordance with U.S. GAAP:
Basic net income per share $ 1.72 $ 1.62 $ 3.63 $ 4.41
Diluted net income per
share $ 1.70 $ 1.61 $ 3.62 $ 4.40
-------------------------------------------------- ----------------------
The significant differences between Canadian GAAP and U.S. GAAP
with respect to the Company's consolidated statements of
comprehensive income for the three months and year ended December
31, 2007 and 2006 are as follows:
Three Months Ended
-------------------------------------------------------
December 31, 2007 December 31, 2006
------------------------------------ -----------------
Cdn GAAP Adjustments U.S. GAAP U.S. GAAP(1)
------------------------------------------------------- -----------------
Net income $ 171,697 $ (2,003) $ 169,694 $ 172,021
Change in fair
value of
forward exchange
contracts,
net of tax 79 - 79 -
Change in fair
value of interest
rate swap, net
of tax (6,534) - (6,534) -
Change related
to pension,
net of tax (e) - (1,018) (1,018) -
------------------------------------------------------- -----------------
Comprehensive
income $ 165,242 $ (3,021) $ 162,221 $ 172,021
------------------------------------------------------- -----------------
Years Ended
-------------------------------------------------------
December 31, 2007 December 31, 2006
------------------------------------ -----------------
Cdn GAAP Adjustments U.S. GAAP U.S. GAAP(1)
------------------------------------------------------- -----------------
Net income $ 375,667 $ (6,420) $ 369,247 $ 481,225
Change in fair
value of
forward exchange
contracts,
net of tax (45) - (45) -
Change in fair
value of interest
rate swap, net
of tax (8,610) - (8,610) -
Change related
to pension,
net of tax (e) - (346) (346) -
------------------------------------------------------- -----------------
Comprehensive
income $ 367,012 $ (6,766) $ 360,246 $ 481,225
------------------------------------------------------- -----------------
(1) A Consolidated Statement of Comprehensive Income was introduced under
Canadian GAAP upon the adoption of Section 1530 on January 1, 2007.
Accordingly, there is no reconciliation of Canadian GAAP to U.S. GAAP
for the prior periods.
(a) Business combination:
Effective January 1, 1993, the Company combined its business
with a methanol business located in New Zealand and Chile. Under
Canadian GAAP, the business combination was accounted for using the
pooling-of-interest method. Under U.S. GAAP, the business
combination would have been accounted for as a purchase with the
Company identified as the acquirer. For the three months and year
ended December 31, 2007, an increase to depreciation expense of
$0.5 million (2006 - $0.5 million) and $1.9 million (2006 - $1.9
million) respectively, was recorded in accordance with U.S.
GAAP.
(b) Stock-based compensation:
The Company has 22,350 stock options that are accounted for as
variable plan options under U.S. GAAP because the exercise price of
the stock options is denominated in a currency other than the
Company's functional currency or the currency in which the optionee
is normally compensated. For Canadian GAAP purposes, no
compensation expense has been recorded as these options were
granted in 2001 which is prior to the effective implementation date
for fair value accounting under Canadian GAAP. During the three
months and year ended December 31, 2007, an increase to operating
expense of nil (2006 - an increase of $0.1 million) and a decrease
to operating expense of $0.3 million (2006 - increase of $0.5
million), respectively, was recorded in accordance with U.S.
GAAP.
(c) Accounting for uncertainty in income taxes:
On January 1, 2007, the Company adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement
No. 109 (FIN 48). FIN 48 clarifies the accounting for income taxes
recognized in a Company's financial statements in accordance with
FASB Statement No. 109, Accounting for Income Taxes (SFAS 109). FIN
48 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This
interpretation also provides guidance on derecognition,
classification, interest and penalties, and transition. In
accordance with the interpretation, the Company has recorded the
cumulative effect adjustment as a $4.8 million increase to opening
retained earnings, with no restatement of prior periods. During the
three months and year ended December 31, 2007, adjustments to
increase income tax expense by $1.6 million and $5.5 million,
respectively, were recorded in accordance with U.S. GAAP.
(d) Income tax accounting:
The income tax differences include the income tax effect of the
adjustments related to accounting differences between Canadian and
U.S. GAAP.
(e) Defined benefit pension plans:
Effective January 1, 2006, U.S. GAAP requires the Company to
measure the funded status of a defined benefit pension plan at its
balance sheet reporting date and recognize the unrecorded
overfunded or underfunded status as an asset or liability with the
change in that unrecorded funded status recorded to other
comprehensive income. Under U.S. GAAP, all deferred pension amounts
from Canadian GAAP are reclassified to accumulated other
comprehensive income. For the three months and year ending December
31, 2007, the amortization of these deferred pension amounts was
reclassified from comprehensive income to earnings.
(f) Interest in Atlas joint venture:
U.S. GAAP requires interests in joint ventures to be accounted
for using the equity method. Canadian GAAP requires proportionate
consolidation of interests in joint ventures. The Company has not
made an adjustment in this reconciliation for this difference in
accounting principles because the impact of applying the equity
method of accounting does not result in any change to net income or
shareholders' equity. This departure from U.S. GAAP is acceptable
for foreign private issuers under the practices prescribed by the
United States Securities and Exchange Commission.
Methanex Corporation
Quarterly History (unaudited)
2007 Q4 Q3 Q2 Q1 2006 Q4 Q3 Q2 Q1
---------------------------------------------------------------------------
METHANOL
SALES
VOLUMES
(thousands
of tonnes)
Company
produced 4,569 997 1,073 1,360 1,139 5,310 1,160 1,478 1,351 1,321
Purchased
methanol 1,453 421 387 269 376 1,101 288 222 294 297
Commission
sales(1) 590 195 168 89 138 584 134 176 133 141
---------------------------------------------------------------------------
6,612 1,613 1,628 1,718 1,653 6,995 1,582 1,876 1,778 1,759
---------------------------------------------------------------------------
METHANOL
PRODUCTION
(thousands
of tonnes)
Chile 1,841 288 233 569 751 3,186 766 666 872 882
Titan,
Trinidad 861 220 191 225 225 864 229 206 214 215
Atlas,
Trinidad
(63.1%) 982 278 290 234 180 1,057 267 264 273 253
New Zealand 435 75 122 120 118 404 111 71 118 104
4,119 861 836 1,148 1,274 5,511 1,373 1,207 1,477 1,454
---------------------------------------------------------------------------
AVERAGE
REALIZED
METHANOL
PRICE(2)
($/tonne) 375 514 270 286 444 328 460 305 279 283
($/gallon) 1.13 1.55 0.81 0.86 1.34 0.99 1.38 0.92 0.84 0.85
PER SHARE
INFORMATION
($ per share)
Basic net
income
(loss) $ 3.69 1.74 0.24 0.35 1.38 4.43 1.62 1.05 0.75 1.02
Diluted net
income
(loss) $ 3.68 1.72 0.24 0.35 1.37 4.41 1.61 1.05 0.75 1.02
(1) Commission sales represent volumes marketed on a commission basis.
Commission income is included in revenue when earned.
(2) Average realized price is calculated as revenue, net of commissions
earned, divided by the total sales volumes of produced and purchased
methanol.
Contacts: Jason Chesko Director, Investor Relations Methanex
Corporation 604 661 2600 or Toll Free: 1 800 661 8851 Website:
www.methanex.com
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