UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
FOR THE MONTH OF JULY 2008
METHANEX CORPORATION
(Registrants name)
SUITE 1800, 200 BURRARD STREET, VANCOUVER, BC V6C 3M1 CANADA
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form
20-F or Form 40-F.
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
If Yes is marked, indicate below the file number assigned to the registrant in connection with
Rule 12g3-2(b): 82
.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on behalf by the undersigned, thereunto duly authorized.
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METHANEX CORPORATION
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Date: July 23, 2008
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By:
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/s/ RANDY MILNER
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Name:
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Randy Milner
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Title:
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Senior Vice President, General Counsel
& Corporate Secretary
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Methanex Corporation
1800 200 Burrard St.
Vancouver, BC Canada V6C 3M1
Investor Relations: (604) 661-2600
http://www.methanex.com
For immediate release
METHANEX ANNOUNCES SECOND QUARTER RESULTS METHANOL PRICES REMAIN STRONG INTO THE THIRD QUARTER
July 22, 2008
For the second quarter of 2008, Methanex reported Adjusted EBITDA
1
of $78.9 million, net
income of $38.9 million and earnings per share of $0.41 (on a diluted basis).
Bruce Aitken, President and CEO of Methanex commented, The strong methanol price environment
resulted in another good quarter of earnings. In the second quarter, we achieved an average
realized price of $412 per tonne on sales volumes which were up about 10% over last quarter.
Entering the third quarter, the pricing environment remains strong. Overall methanol demand is
healthy, despite softness in some derivatives due to general weakness in the economy in some
regions. In China, low operating rates coupled with strong demand, including growth into DME and
gasoline blending supported by high energy prices, have resulted in China significantly increasing
its imports over the quarter. Plant outages across the global industry have also continued, adding
further tightness to the market.
With the shift to our larger plant in New Zealand in Q3, we will be in a better position to
benefit from strong industry conditions. Longer term, we also expect production improvements from
Chile, resulting from the gas exploration activities ongoing in southern Chile, and from our Egypt
project which is on schedule to be producing methanol by early 2010.
Mr. Aitken concluded, Strong cash generation in the second quarter continues to leave us in an
excellent financial position. With US$345 million cash on hand at the end of the quarter, a strong
balance sheet and a US$250 million undrawn credit facility, we are well positioned to meet our
financial commitments related to the Egypt methanol project, 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 Wednesday, July 23, 2008 at 11:00 am EST (8:00 am PST) to review
these second 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 518973. 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.
- more -
FORWARD-LOOKING STATEMENTS
Information contained in this press release and the attached Second Quarter 2008 Managements
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 2007 Managements Discussion & Analysis and the attached Second Quarter 2008
Managements Discussion and Analysis. Undue reliance should not be placed on forward-looking
statements. They are not a substitute for the exercise of ones 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 2007 Managements Discussion & Analysis and the attached Second
Quarter 2008 Managements Discussion and Analysis.
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1
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Adjusted EBITDA is a non-GAAP measure that does not have any standardized meaning
prescribed by Canadian generally accepted accounting principles (GAAP) and therefore is
unlikely to be comparable to similar measures presented by other companies. Refer to
Supplemental Non-GAAP Measures in the attached Second Quarter 2008 Managements Discussion and
Analysis for a description of each Supplemental Non-GAAP Measure and a reconciliation to the
most comparable GAAP measure.
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-end-
For further information, contact:
Jason Chesko
Director, Investor Relations
Tel: 604.661.2600
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2
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Interim Report
For the
Three Months Ended
June 30, 2008
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At July 22, 2008 the Company had
93,962,342 common shares issued
and outstanding and stock
options exercisable for
1,607,893 additional common shares.
Share Information
Methanex Corporations 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
SECOND QUARTER MANAGEMENTS DISCUSSION AND ANALYSIS
Except where otherwise noted, all currency amounts are stated in United States dollars.
This second quarter 2008 Managements Discussion and Analysis should be read in conjunction with
the 2007 Annual Consolidated Financial Statements and the Managements Discussion and Analysis
included in the Methanex 2007 Annual Report. The Methanex 2007 Annual Report and additional
information relating to Methanex is available on SEDAR at
www.sedar.com
and on EDGAR at
www.sec.gov
.
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Three Months Ended
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Six Months Ended
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Jun 30
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Mar 31
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Jun 30
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Jun 30
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Jun 30
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($ millions, except where noted)
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2008
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2008
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2007
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2008
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2007
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Sales volumes (thousands of tonnes)
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Produced methanol
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910
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678
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1,360
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1,588
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2,500
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Purchased methanol
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541
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669
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269
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1,210
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644
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Commission sales
1
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168
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143
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89
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311
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228
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Total sales volumes
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1,619
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1,490
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1,718
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3,109
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3,372
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Methanex average non-discounted
posted price ($ per tonne)
2
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489
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703
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330
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595
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433
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Average realized price ($ per tonne)
3
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412
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545
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286
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476
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362
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Adjusted EBITDA
4
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78.9
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127.1
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76.5
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206.0
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313.4
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Cash flows from operating activities
4 5
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68.5
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102.3
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67.2
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170.8
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246.2
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Operating income
4
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52.5
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104.0
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48.1
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156.4
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261.3
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Net income
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38.9
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65.5
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35.7
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104.4
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180.4
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Basic net income per common share
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0.41
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0.67
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0.35
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1.09
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1.74
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Diluted net income per common share
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0.41
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0.67
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0.35
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1.08
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1.73
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Common share information (millions of shares):
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Weighted average number of common shares
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94.5
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97.2
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102.7
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95.8
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103.9
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Diluted weighted average number of common shares
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95.1
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97.5
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103.0
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96.3
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104.3
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Number of common shares outstanding, end of period
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94.0
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95.6
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101.1
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94.0
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101.1
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1
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Commission sales represent volumes marketed on a commission basis. Commission income is included in revenue when earned.
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2
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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
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3
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Average realized price is calculated as revenue, net of commissions earned, divided by the total sales volumes of produced and purchased methanol.
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4
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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.
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5
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Cash flows from operating activities in the above table represents cash flows from operating activities before changes in non-cash working capital.
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METHANEX CORPORATION 2008 SECOND QUARTER REPORT
MANAGEMENTS DISCUSSION AND ANALYSIS
PAGE 1
PRODUCTION SUMMARY
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Q2 2008
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Q1 2008
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Q2 2007
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YTD Q2 2008
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YTD Q2 2007
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(thousands of tonnes)
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Capacity
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Production
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Production
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Production
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Production
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Production
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Chile I, II, III and IV
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960
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261
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309
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569
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570
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1,320
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Titan
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213
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229
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217
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225
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446
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450
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Atlas (63.1% interest)
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268
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288
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293
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234
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581
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414
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New Zealand
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132
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124
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120
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120
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244
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238
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1,573
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902
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939
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1,148
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1,841
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2,422
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Chile
Our methanol facilities in Chile produced 261,000 tonnes during the second quarter of 2008 compared
with 309,000 tonnes during the first quarter of 2008. We have natural gas supply contracts for
approximately 60% of our natural gas requirements for our production facilities in Chile with
natural gas suppliers in Argentina with the remaining natural gas supply coming from natural gas
suppliers in Chile. Since June 2007, the government of Argentina has curtailed all natural gas
exports to our plants and we do not expect to receive natural gas supply from Argentina. We
currently source natural gas for our methanol facilities in Chile primarily from Empresa Nacional
del Petroleo (ENAP), the Chilean state-owned energy company, and from GeoPark Chile Limited
(GeoPark). Methanol production at our facilities in Chile was lower during the second quarter of
2008 compared with the first quarter of 2008 primarily as a result of lower natural gas supply from
ENAP due to higher demand for natural gas general use in southern Chile during the winter months as
well as some deliverability issues.
To secure natural gas to supply our plants in Chile we continue to invest to accelerate natural gas
development and to purchase more natural gas from suppliers in Chile. On May 5, 2008, we announced
that we signed an agreement with ENAP to accelerate natural gas exploration and development in the
Dorado Riquelme exploration block and supply natural gas to our production facilities in Chile.
Under the arrangement, we expect to contribute approximately $100 million in capital over the next
three years and will have a 50 percent participation in the block. The arrangement is subject to
approval by the Government of Chile. We began receiving some small quantities of natural gas
deliveries from the Dorado Riquelme block in May 2008. Also, in late 2007, we signed a natural gas
prepayment agreement with GeoPark under which we will provide US$40 million in financing to support
and accelerate GeoParks 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 10-year exclusive supply agreement. GeoPark continues increasing its
deliveries of natural gas to our plants from the Fell block to a level that currently represents
approximately 5 percent of our total natural gas requirements to operate at capacity in Chile.
We continue to pursue other opportunities to invest to help accelerate natural gas exploration and
development in areas of southern Chile. In late 2007, the government of Chile completed an
international bidding round to assign natural gas exploration areas that 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 have commenced. On July 16,
2008, we announced that under the international bidding round, the government of Chile awarded the
Otway hydrocarbon exploration block to a consortium that includes Wintershall Holding AG, GeoPark,
and ourselves. Wintershall and GeoPark each own a 42% interest in the consortium and we own a 16%
interest. Exploration work is expected to commence by the end of this year. The minimum exploration
investment committed in the block by the consortium is US$30 million.
We cannot provide assurance that ENAP, GeoPark or others would be successful in the exploration and
development of natural gas or that we would obtain any additional natural gas from suppliers in
Chile on commercially acceptable terms.
Trinidad
Our methanol facilities in Trinidad operated well during the second quarter of 2008 and produced a
total of 517,000 tonnes compared with 510,000 tonnes during the first quarter of 2008.
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
MANAGEMENTS DISCUSSION AND ANALYSIS
PAGE 2
New Zealand
Our Waitara Valley facility in New Zealand produced 124,000 tonnes during the second quarter of
2008 compared with 120,000 tonnes during first quarter of 2008.
In addition to our 530,000 tonne Waitara Valley facility which we have operated over the past few
years, we have up to 1.9 million tonnes of additional flexible annual operating capacity from our
idled Motunui facilities in New Zealand. In May 2008, we agreed to terms on a natural gas supply
arrangement which will allow us to restart one idled 900,000 tonne per year Motunui methanol plant.
We plan to restart this facility during the third quarter of 2008 and operate this plant until at
least the end of 2009. We will continue to operate the Waitara Valley facility until the Motunui
plant restarts. We have become more optimistic about the longer term future of our New Zealand
operations and we believe there is potential to operate our Motunui plant longer and potentially
restart our Waitara Valley plant again. The continued operations of the flexible New Zealand
facilities are dependant upon industry supply and demand and the availability of natural gas on
commercially acceptable terms.
EARNINGS ANALYSIS
We analyze the results of produced methanol sales separately from purchased methanol sales as the
margin characteristics of each are very different. We discuss changes in average realized price,
sales volumes and total cash costs related to our produced methanol sales whereas we discuss
purchased methanol on a net margin basis.
For a further discussion of the definitions and calculations used in our Adjusted EBITDA analysis,
refer to
How We Analyze Our Business
.
For the second quarter of 2008 we recorded Adjusted EBITDA of $78.9 million and net income of $38.9
million ($0.41 per share on a diluted basis). This compares with Adjusted EBITDA of $127.1 million
and net income of $65.5 million ($0.67 per share on a diluted basis) for the first quarter of 2008
and Adjusted EBITDA of $76.5 million and net income of $35.7 million ($0.35 per share on a diluted
basis) for the second quarter of 2007.
For the six months ended June 30, 2008, we recorded Adjusted EBITDA of $206.0 million and net
income of $104.4 million ($1.08 per share on a diluted basis). This compares with Adjusted EBITDA
of $313.4 million and net income of $180.4 million ($1.73 per share on a diluted basis) during the
same period in 2007.
Adjusted EBITDA
The increase (decrease) in Adjusted EBITDA resulted from changes in the following:
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Q2 2008
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Q2 2008
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YTD Q2 2008
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compared with
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compared with
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compared with
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($ millions)
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Q1 2008
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Q2 2007
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YTD Q2 2007
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Average realized price
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$
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(103
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$
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96
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$
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147
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Sales volumes
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51
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(34
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(140
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Total cash costs
1
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16
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(39
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(59
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)
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Purchased methanol
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(12
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(20
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(55
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)
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$
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(48
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$
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3
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$
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(107
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1
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Includes cash costs related to methanol produced at our Chile, Trinidad and New
Zealand facilities as well as consolidated selling, general and administrative expenses and
fixed storage and handling costs.
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METHANEX CORPORATION 2008 SECOND QUARTER REPORT
MANAGEMENTS DISCUSSION AND ANALYSIS
PAGE 3
Average realized price
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Three Months Ended
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Six Months Ended
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Jun 30
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Mar 31
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Jun 30
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Jun 30
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Jun 30
|
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($ per tonne, except where noted)
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2008
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|
2008
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2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Methanex average non-discounted posted price
1
|
|
|
489
|
|
|
|
703
|
|
|
|
330
|
|
|
|
595
|
|
|
|
433
|
|
Methanex average realized price
2
|
|
|
412
|
|
|
|
545
|
|
|
|
286
|
|
|
|
476
|
|
|
|
362
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Average discount
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16
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%
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22
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%
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13
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%
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20
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%
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16
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%
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1
|
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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
|
|
Methanex average realized price disclosed above is calculated as revenue, net of
commissions earned, divided by the total sales volumes of produced and purchased methanol.
|
We commenced 2008 in a tight methanol market environment as a result of planned and unplanned
supplier outages, including outages at our Chile facilities, which began in the second half of
2007. Our average non-discounted posted price for the second quarter of 2008 was $489 per tonne
compared with $703 per tonne for the first quarter of 2008 and $330 per tonne for the second
quarter of 2007. Our average realized price for the second quarter of 2008 was $412 per tonne
compared with $545 per tonne for the first quarter of 2008 and $286 per tonne for the second
quarter of 2007. The change in our average realized price for produced methanol for the second
quarter of 2008 decreased our Adjusted EBITDA by $103 million compared with the first quarter of
2008 and increased our Adjusted EBITDA by $96 million compared with the second quarter of 2007.
For the second quarter of 2008 our average realized price was approximately 16% lower than our
average non-discounted posted price. This compares with approximately 22% lower for the first
quarter of 2008 and 13% lower for the second quarter of 2007. 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 and accordingly, we expect the discount from our
average non-discounted posted prices to widen during periods of higher methanol pricing. The
discount from our average non-discounted posted price narrowed during the second quarter of 2008
compared with the first quarter of 2008 primarily as a result of lower methanol pricing.
Sales volumes of produced methanol
Sales volumes of produced methanol for the second quarter of 2008 were higher by 232,000 tonnes
compared with the first quarter of 2008. Sales volumes of produced methanol for the first quarter
of 2008 were lower than production volumes primarily as a result of a rebuilding of produced
inventories during the first quarter.
Sales volumes of produced methanol for the second quarter of 2008 and six months ended June 30,
2008 were lower by 450,000 tonnes and 912,000 tonnes, respectively, compared with the same periods
in 2007 primarily as a result of lower production at our Chile facilities during 2008. Lower sales
volumes for these periods decreased Adjusted EBITDA by $34 million and $140 million, respectively.
Total cash costs
Our production facilities are underpinned by natural gas purchase agreements with pricing terms
that include base and variable price components. The variable component is adjusted in relation to
increases in methanol prices above pre-determined prices.
Total cash costs for the second quarter of 2008 were lower than in the first quarter of 2008 by $16
million. Natural gas costs for produced methanol were lower by $19 million during the second
quarter of 2008 compared with the first quarter of 2008 primarily due to the impact of lower
methanol pricing during the second quarter of 2008. Ocean freight costs were higher by $3 million
during the second quarter of 2008
compared with the first quarter of 2008 primarily as a result of changes in our shipping routes and
higher fuel costs.
Total cash costs for the second quarter of 2008 and the six months ended June 30, 2008 were higher
than the same periods in 2007 by $39 million and $59 million, respectively. Natural gas costs for
produced methanol for the second quarter of 2008 and the six months ended June 30, 2008 were higher
compared to the same periods in 2007 by $24 million and $29
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
MANAGEMENTS DISCUSSION AND ANALYSIS
PAGE 4
million, respectively, primarily as a
result of higher methanol pricing in 2008. Ocean freights costs for the second quarter of 2008 and
the six months ended June 30, 2008 were higher compared to the same periods in 2007 by $9 million
and $13 million, respectively, primarily as a result of higher fuel costs and lower backhaul
profits. The remaining increase in cash costs for the second quarter of 2008 and six months ended
June 30, 2008 relates to higher unabsorbed fixed production costs in Chile and higher selling,
general and administrative expenses primarily as a result of changes in foreign exchange rates and
timing of expenditures.
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, as a result of reduced
production rates at our Chile facilities, we increased our purchasing levels to continue to meet
commitments to our customers. As these purchases were made in a period of significantly increasing
methanol pricing, we recorded cash margin on sale of purchased methanol of $35 million during the
fourth quarter of 2007. In 2008, methanol pricing moderated from these high levels and we recorded
negative cash margin of $19 million for the first quarter of 2008 and negative cash margin of $31
million on the resale of purchased methanol for the second quarter of 2008.
Depreciation and Amortization
Depreciation and amortization was $26 million for the second quarter of 2008 compared with $23
million for the first quarter of 2008. The increase in depreciation and amortization for the second
quarter of 2008 compared with the first quarter of 2008 was primarily due to higher sales volume of
produced methanol in the second quarter.
Depreciation and amortization for the second quarter of 2008 and six months ended June 30, 2008 was
$26 million and $50 million, respectively, compared with $28 million and $52 million, respectively,
for the same periods in 2007.
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun 30
|
|
|
Mar 31
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
($ millions)
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Interest expense before capitalized interest
|
|
$
|
13
|
|
|
$
|
14
|
|
|
$
|
11
|
|
|
$
|
26
|
|
|
$
|
22
|
|
Less capitalized interest
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
Interest expense
|
|
$
|
10
|
|
|
$
|
11
|
|
|
$
|
11
|
|
|
$
|
20
|
|
|
$
|
22
|
|
|
|
|
Interest expense before capitalized interest for the second quarter of 2008 was $13 million
compared with $14 million for the first quarter of 2008 and $11 million for the second quarter of
2007. In May 2007, we reached financial close and secured limited recourse debt of $530 million for
our joint venture project to construct a 1.3 million tonne per year methanol facility in Egypt.
Interest costs related to this project have been capitalized since that date.
Interest and Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun 30
|
|
|
Mar 31
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
($ millions)
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Interest and other income (expense)
|
|
$
|
13
|
|
|
$
|
(1
|
)
|
|
$
|
13
|
|
|
$
|
12
|
|
|
$
|
18
|
|
|
|
|
Interest and other income (expense) for the second quarter of 2008 was $13 million compared with an
expense of $1 million for the first quarter of 2008. The increase in income and other income
during the second quarter of 2008 compared with the first quarter of 2008 was primarily due to the
impact of changes in foreign exchange rates as well as a $5 million gain on sale of ammonia
production assets during the second quarter of 2008. The assets sold are located at our Kitimat
site which was permanently closed in 2005.
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
MANAGEMENTS DISCUSSION AND ANALYSIS
PAGE 5
Interest and other income for the second quarter of 2008 and six months ended June 30, 2008
compared to the same periods in 2007 remained the same and decreased by $6 million, respectively.
Interest and other income during 2008 was lower than 2007 due to the impact of lower interest rates
and lower cash balances during 2008 compared with the same periods in 2007. This decrease in
interest and other income during 2008 was offset by the gain of $5 million on sale of ammonia
production assets during the second quarter of 2008.
Income Taxes
The effective tax rate for the second quarter of 2008 was 30% compared with 29% for the first
quarter of 2008 and 28% for the second quarter of 2007. 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 tier tax that is payable when income is earned and a
second tier tax that is due when earnings are distributed from Chile. The second tier 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.
SUPPLY/DEMAND FUNDAMENTALS
We commenced 2008 in a tight methanol market environment as a result of planned and unplanned
supplier outages in the second half of 2007. This resulted in high methanol prices during the first
quarter which are unsustainable in a normal supply and demand environment. As we entered the second
quarter of 2008, methanol prices had moderated and pricing has remained relatively stable during
the quarter. There have been significant planned and unplanned outages across the global industry
recently, including in Trinidad and Tobago, Saudi Arabia, Western Europe and most recently
Equatorial Guinea. Consequently, we have recently seen tightening market conditions and this has
resulted in increasing spot prices. Methanex non-discounted posted prices for July average
approximately $500 per tonne across the major regions.
Methanex Non-Discounted Regional Posted Prices
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
|
|
Jun
|
|
May
|
|
Apr
|
(US $ per tonne)
|
|
2008
|
|
2008
|
|
2008
|
|
2008
|
|
|
|
United States
|
|
|
526
|
|
|
|
526
|
|
|
|
499
|
|
|
|
532
|
|
Europe
2
|
|
|
465
|
|
|
|
465
|
|
|
|
465
|
|
|
|
465
|
|
Asia
|
|
|
500
|
|
|
|
500
|
|
|
|
450
|
|
|
|
450
|
|
|
|
|
|
|
|
1
|
|
Discounts from our posted prices are offered to customers based on various factors.
|
|
2
|
|
295 at July 2008 (Apr 2008
295) converted to United States dollars at the date of settlement.
|
Excluding the 1.7 million tonne per year plant in Saudi Arabia, which commenced operations last
quarter, the next increments of world scale capacity additions outside of China are two 1.7 million
tonne per year plants under construction in Malaysia and Iran, and we expect product from both of
these plants to be available to the market later this year or in the first half of 2009. 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.
Overall, while demand growth for some derivatives, such as formaldehyde and biodiesel, has weakened
in some regions, we believe that global demand remains healthy in both traditional chemical
derivatives and in energy applications as high energy prices continue to drive strong demand for
fuel blending and di-methyl ether (DME) in China. In addition, high energy prices are continuing to
support strong demand for MTBE outside of North America.
We believe methanol demand in China will continue to grow at high rates as a result of strong
traditional demand driven by high industrial production growth rates and strong demand related to
alternative fuel uses 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 for both coal and natural gas based producers in China, the continued
appreciation of the Chinese currency and reduced fiscal incentives for exports of methanol
introduced during 2007. During the first quarter of 2008, China was a net exporter of methanol as a
result of the very high methanol price environment, which gave producers in China the incentive to
export methanol. As we entered the second quarter of 2008, methanol prices had moderated and China
reverted back to a net importer of methanol and we believe this has supported strong methanol
prices in China and other global markets. Due to the high cost position of many of the Chinese
producers, we
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
MANAGEMENTS DISCUSSION AND ANALYSIS
PAGE 6
believe that 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 second
quarter of 2008 were $69 million compared with $67 million for the same period in 2007. The cash
flows from operating activities before non-cash working capital are consistent with the level of
earnings in each period. During the second quarter of 2008, the change in non-cash working capital
decreased our cash flows from operating activities by $34 million. This was primarily due to a
decrease in our trade payables which was partially offset by lower inventory levels. These changes
were primarily as a result of the impact of lower purchased methanol and timing of natural gas
payments during the second quarter of 2008 compared with the first quarter of 2008.
During the second quarter of 2008, we repurchased for cancellation a total of 1.6 million common
shares at an average price of US$26.55 per share, totaling $43 million. During the second quarter
of 2008, we completed the normal course issuer bid that expired at May 16, 2008. Upon completion of
this bid, we had repurchased a total of 8.7 million common shares at an average price of US$26.01
per share, totaling $226 million. On May 6, 2008, a new normal course issuer bid was approved. This
bid commenced May 20, 2008 and expires May 19, 2009 and allows us to repurchase for cancellation up
to 7.9 million common shares.
Also during the second quarter of 2008, our Board of Directors approved an 11% increase in our
regular quarterly dividend to shareholders, from US$0.14 per share to US$0.155 per share. During
the second quarter of 2008 we paid quarterly dividends of approximately $15 million.
We are constructing a 1.3 million tonne per year methanol facility at Damietta on the Mediterranean
Sea in Egypt. We expect commercial operations of the methanol facility to begin in early 2010 and
we will purchase and sell 100% of the methanol from the facility. We own 60% of Egyptian Methanex
Methanol Company S.A.E. (EMethanex) which is the company that is developing the project. We
account for our investment in EMethanex using consolidation accounting. This results in 100% of the
assets and liabilities of EMethanex being included in our financial statements. The other
investors interest in the project is presented as non-controlling interest. During the second
quarter of 2008, total plant and equipment construction costs related to our project in Egypt were
$84 million. EMethanex has limited recourse debt of $530 million. During the second quarter of
2008, a total of $49 million of this limited recourse debt was drawn. The total estimated future
costs to complete the project over the next two years, excluding financing costs and working
capital, are expected to be approximately $505 million. Our 60% share of future equity
contributions, excluding financing costs and working capital, over the next two years is estimated
to be
approximately $145 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 June 30, 2008 was $345
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, including costs to
complete the restart of the Motunui facility, is currently estimated to total approximately $100
million for the period to the end of 2010.
We believe we are well positioned to meet financial requirements related to the methanol project in
Egypt, complete our capital maintenance spending program, complete the restart of the Motunui
facility, pursue new opportunities to enhance our leadership position in the methanol industry,
pursue investment opportunities to accelerate the development of natural gas in southern Chile,
investigate opportunities related to new methanol demand for energy applications, pursue other
strategic initiatives and continue to deliver on our commitment to return excess cash to
shareholders.
The credit ratings for our unsecured notes at June 30, 2008 were as follows:
|
|
|
|
Standard & Poors Rating Services
|
|
BBB- (stable)
|
Moodys Investor Services
|
|
Ba1 (stable)
|
Fitch Ratings
|
|
BBB (negative)
|
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.
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
MANAGEMENTS DISCUSSION AND ANALYSIS
PAGE 7
SHORT-TERM OUTLOOK
Over the next year, we believe that traditional and non-traditional demand growth, along with
closures of high cost capacity, will substantially offset the new supply that is scheduled to start
up over the coming year and that supply/demand fundamentals will be in reasonable balance. We also
believe 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.
CONTROLS AND PROCEDURES
For the three months ended June 30, 2008, no changes were made in our internal control over
financial reporting 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, 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 Companys 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
(expense), and current income taxes.
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
MANAGEMENTS DISCUSSION AND ANALYSIS
PAGE 8
The following table shows a reconciliation of cash flows from operating activities to Adjusted
EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun 30
|
|
|
Mar 31
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
($ thousands)
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Cash flows from operating activities
|
|
$
|
34,220
|
|
|
$
|
110,586
|
|
|
$
|
123,825
|
|
|
$
|
144,807
|
|
|
$
|
314,927
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working capital
|
|
|
34,294
|
|
|
|
(8,267
|
)
|
|
|
(56,601
|
)
|
|
|
26,027
|
|
|
|
(68,710
|
)
|
Other cash payments
|
|
|
1,801
|
|
|
|
320
|
|
|
|
3,547
|
|
|
|
2,121
|
|
|
|
4,287
|
|
Stock-based compensation expense
|
|
|
(5,207
|
)
|
|
|
(4,628
|
)
|
|
|
(6,747
|
)
|
|
|
(9,835
|
)
|
|
|
(10,269
|
)
|
Other non-cash items
|
|
|
1,378
|
|
|
|
(6,427
|
)
|
|
|
(3,540
|
)
|
|
|
(5,049
|
)
|
|
|
(6,187
|
)
|
Interest expense
|
|
|
9,630
|
|
|
|
10,690
|
|
|
|
11,159
|
|
|
|
20,320
|
|
|
|
22,226
|
|
Interest and other income (expense)
|
|
|
(12,671
|
)
|
|
|
837
|
|
|
|
(12,606
|
)
|
|
|
(11,834
|
)
|
|
|
(17,678
|
)
|
Current income taxes
|
|
|
15,441
|
|
|
|
23,960
|
|
|
|
17,478
|
|
|
|
39,401
|
|
|
|
74,804
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
78,886
|
|
|
$
|
127,071
|
|
|
$
|
76,515
|
|
|
$
|
205,958
|
|
|
$
|
313,400
|
|
|
|
|
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
|
|
|
|
Jun 30
|
|
|
Mar 31
|
|
|
Dec 31
|
|
|
Sep 30
|
|
($ thousands, except per share amounts)
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
Revenue
|
|
$
|
600,025
|
|
|
$
|
735,934
|
|
|
$
|
731,057
|
|
|
$
|
395,118
|
|
Net income
|
|
|
38,945
|
|
|
|
65,484
|
|
|
|
171,697
|
|
|
|
23,610
|
|
Basic net income per common share
|
|
|
0.41
|
|
|
|
0.67
|
|
|
|
1.74
|
|
|
|
0.24
|
|
Diluted net income per common share
|
|
|
0.41
|
|
|
|
0.67
|
|
|
|
1.72
|
|
|
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Jun 30
|
|
|
Mar 31
|
|
|
Dec 31
|
|
|
Sep 30
|
|
($ thousands, except per share amounts)
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
Revenue
|
|
$
|
466,414
|
|
|
$
|
673,932
|
|
|
$
|
668,159
|
|
|
$
|
519,586
|
|
Net income
|
|
|
35,654
|
|
|
|
144,706
|
|
|
|
172,445
|
|
|
|
113,230
|
|
Basic net income per common share
|
|
|
0.35
|
|
|
|
1.38
|
|
|
|
1.62
|
|
|
|
1.05
|
|
Diluted net income per common share
|
|
|
0.35
|
|
|
|
1.37
|
|
|
|
1.61
|
|
|
|
1.05
|
|
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
MANAGEMENTS DISCUSSION AND ANALYSIS
PAGE 9
NORMAL COURSE ISSUER BID
On May 6, 2008 the Company filed a Notice of Intention to Make a Normal Course Issuer Bid with
Toronto Stock Exchange (TSX) pursuant to which the Company may repurchase up to 7,909,393 common
shares of the Company, representing 10 percent of the public float of the issued and outstanding
common shares of the Company as at May 2, 2008. This normal course issuer bid repurchase program,
which is carried out through the facilities of the TSX, commenced on May 20, 2008 and will expire
on the earlier of May 19, 2009 and the date upon which the Company has acquired the maximum number
of common shares permitted under the purchase program or otherwise decided not to make further
purchases. The Company has entered into an automatic securities purchase plan with its broker in
connection with purchases to be made under this program. Shareholders may obtain a copy of the
Notice of Intention without charge by contacting the Corporate Secretary at 604-661-2600.
FORWARD-LOOKING STATEMENTS
Information contained in this Second Quarter 2008 Managements 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 2007
Managements Discussion & Analysis and this Second Quarter 2008 Managements Discussion and
Analysis. Undue reliance should not be placed on forward-looking statements. They are not a
substitute for the exercise of ones 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.
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
MANAGEMENTS DISCUSSION AND ANALYSIS
PAGE 10
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.
Methanex-Produced Methanol
Our production facilities generate the substantial portion 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
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 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 consolidated selling, general and
administrative expenses and fixed storage and handling costs are
included in the analysis of produced methanol.
|
|
|
|
VOLUME
|
|
The change in Adjusted EBITDA as a result of changes in sales
volumes is calculated as the difference from period to period in
the sales volumes 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 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.
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
MANAGEMENTS DISCUSSION AND ANALYSIS
PAGE 11
Methanex Corporation
Consolidated Statements of Income
(unaudited)
(thousands of U.S. dollars, except number of common shares and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
600,025
|
|
|
$
|
466,414
|
|
|
$
|
1,335,960
|
|
|
$
|
1,140,346
|
|
Cost of sales and operating expenses
|
|
|
521,139
|
|
|
|
389,899
|
|
|
|
1,130,002
|
|
|
|
826,946
|
|
Depreciation and amortization
|
|
|
26,396
|
|
|
|
28,373
|
|
|
|
49,509
|
|
|
|
52,112
|
|
|
Operating income before undernoted items
|
|
|
52,490
|
|
|
|
48,142
|
|
|
|
156,449
|
|
|
|
261,288
|
|
Interest expense (note 7)
|
|
|
(9,630
|
)
|
|
|
(11,159
|
)
|
|
|
(20,320
|
)
|
|
|
(22,226
|
)
|
Interest and other income
|
|
|
12,671
|
|
|
|
12,606
|
|
|
|
11,834
|
|
|
|
17,678
|
|
|
Income before income taxes
|
|
|
55,531
|
|
|
|
49,589
|
|
|
|
147,963
|
|
|
|
256,740
|
|
Income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(15,441
|
)
|
|
|
(17,478
|
)
|
|
|
(39,401
|
)
|
|
|
(74,804
|
)
|
Future
|
|
|
(1,145
|
)
|
|
|
3,543
|
|
|
|
(4,133
|
)
|
|
|
(1,576
|
)
|
|
|
|
|
(16,586
|
)
|
|
|
(13,935
|
)
|
|
|
(43,534
|
)
|
|
|
(76,380
|
)
|
|
Net income
|
|
$
|
38,945
|
|
|
$
|
35,654
|
|
|
$
|
104,429
|
|
|
$
|
180,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.41
|
|
|
$
|
0.35
|
|
|
$
|
1.09
|
|
|
$
|
1.74
|
|
Diluted
|
|
$
|
0.41
|
|
|
$
|
0.35
|
|
|
$
|
1.08
|
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
94,520,011
|
|
|
|
102,697,808
|
|
|
|
95,837,568
|
|
|
|
103,894,611
|
|
Diluted
|
|
|
95,149,888
|
|
|
|
102,973,271
|
|
|
|
96,341,992
|
|
|
|
104,278,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of common shares outstanding at period end
|
|
|
94,037,242
|
|
|
|
101,120,704
|
|
|
|
94,037,242
|
|
|
|
101,120,704
|
|
See accompanying notes to consolidated financial statements.
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Page 12
Methanex Corporation
Consolidated Balance Sheets
(unaudited)
(thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
Jun 30
|
|
|
Dec 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
344,525
|
|
|
$
|
488,224
|
|
Receivables
|
|
|
302,545
|
|
|
|
401,843
|
|
Inventories
|
|
|
246,767
|
|
|
|
312,143
|
|
Prepaid expenses
|
|
|
35,358
|
|
|
|
20,889
|
|
|
|
|
|
929,195
|
|
|
|
1,223,099
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment (note 4)
|
|
|
1,710,287
|
|
|
|
1,542,100
|
|
Other assets
|
|
|
145,615
|
|
|
|
104,700
|
|
|
|
|
$
|
2,785,097
|
|
|
$
|
2,869,899
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
295,072
|
|
|
$
|
466,020
|
|
Current maturities on long-term debt (note 6)
|
|
|
15,282
|
|
|
|
15,282
|
|
Current maturities on other long-term liabilities
|
|
|
19,436
|
|
|
|
16,965
|
|
|
|
|
|
329,790
|
|
|
|
498,267
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (note 6)
|
|
|
663,015
|
|
|
|
581,987
|
|
Other long-term liabilities
|
|
|
75,997
|
|
|
|
74,431
|
|
Future income tax liabilities
|
|
|
342,735
|
|
|
|
338,602
|
|
Non-controlling interest
|
|
|
70,755
|
|
|
|
41,258
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Capital stock
|
|
|
436,289
|
|
|
|
451,640
|
|
Contributed surplus
|
|
|
19,221
|
|
|
|
16,021
|
|
Retained earnings
|
|
|
855,814
|
|
|
|
876,348
|
|
Accumulated other comprehensive loss
|
|
|
(8,519
|
)
|
|
|
(8,655
|
)
|
|
|
|
|
1,302,805
|
|
|
|
1,335,354
|
|
|
|
|
$
|
2,785,097
|
|
|
$
|
2,869,899
|
|
|
See accompanying notes to consolidated financial statements.
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Page 13
Methanex Corporation
Consolidated Statements of Shareholders Equity
(unaudited)
(thousands of U.S. dollars, except number of common shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
|
|
|
Capital
|
|
|
Contributed
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders'
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Surplus
|
|
|
Earnings
|
|
|
Loss
|
|
|
Equity
|
|
|
Balance, December 31, 2006
|
|
|
105,800,942
|
|
|
$
|
474,739
|
|
|
$
|
10,346
|
|
|
$
|
724,166
|
|
|
$
|
|
|
|
$
|
1,209,251
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
375,667
|
|
|
|
|
|
|
|
375,667
|
|
Compensation expense recorded
for stock options
|
|
|
|
|
|
|
|
|
|
|
9,343
|
|
|
|
|
|
|
|
|
|
|
|
9,343
|
|
Issue of shares on exercise of
stock options
|
|
|
552,175
|
|
|
|
9,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,520
|
|
Reclassification of grant date
fair value on exercise of
stock options
|
|
|
|
|
|
|
3,668
|
|
|
|
(3,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for shares repurchased
|
|
|
(8,042,863
|
)
|
|
|
(36,287
|
)
|
|
|
|
|
|
|
(168,440
|
)
|
|
|
|
|
|
|
(204,727
|
)
|
Dividend payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,045
|
)
|
|
|
|
|
|
|
(55,045
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,655
|
)
|
|
|
(8,655
|
)
|
|
Balance, December 31, 2007
|
|
|
98,310,254
|
|
|
|
451,640
|
|
|
|
16,021
|
|
|
|
876,348
|
|
|
|
(8,655
|
)
|
|
|
1,335,354
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,484
|
|
|
|
|
|
|
|
65,484
|
|
Compensation expense recorded
for stock options
|
|
|
|
|
|
|
|
|
|
|
2,893
|
|
|
|
|
|
|
|
|
|
|
|
2,893
|
|
Issue of shares on exercise of
stock options
|
|
|
128,513
|
|
|
|
2,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,392
|
|
Reclassification of grant date
fair value on exercise of
stock options
|
|
|
|
|
|
|
776
|
|
|
|
(776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for shares repurchased
|
|
|
(2,850,000
|
)
|
|
|
(13,081
|
)
|
|
|
|
|
|
|
(60,995
|
)
|
|
|
|
|
|
|
(74,076
|
)
|
Dividend payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,464
|
)
|
|
|
|
|
|
|
(13,464
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,161
|
)
|
|
|
(12,161
|
)
|
|
Balance, March 31, 2008
|
|
|
95,588,767
|
|
|
|
441,727
|
|
|
|
18,138
|
|
|
|
867,373
|
|
|
|
(20,816
|
)
|
|
|
1,306,422
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,945
|
|
|
|
|
|
|
|
38,945
|
|
Compensation expense recorded
for stock options
|
|
|
|
|
|
|
|
|
|
|
1,705
|
|
|
|
|
|
|
|
|
|
|
|
1,705
|
|
Issue of shares on exercise of
stock options
|
|
|
86,353
|
|
|
|
1,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,508
|
|
Reclassification of grant date
fair value on exercise of
stock options
|
|
|
|
|
|
|
622
|
|
|
|
(622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for shares repurchased
|
|
|
(1,637,878
|
)
|
|
|
(7,568
|
)
|
|
|
|
|
|
|
(35,921
|
)
|
|
|
|
|
|
|
(43,489
|
)
|
Dividend payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,583
|
)
|
|
|
|
|
|
|
(14,583
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,297
|
|
|
|
12,297
|
|
|
Balance, June 30, 2008
|
|
|
94,037,242
|
|
|
$
|
436,289
|
|
|
$
|
19,221
|
|
|
$
|
855,814
|
|
|
$
|
(8,519
|
)
|
|
$
|
1,302,805
|
|
|
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income
(unaudited)
(thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net income
|
|
$
|
38,945
|
|
|
$
|
35,654
|
|
|
$
|
104,429
|
|
|
$
|
180,360
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of forward exchange contracts (note 13)
|
|
|
325
|
|
|
|
227
|
|
|
|
60
|
|
|
|
(153
|
)
|
Change in fair value of interest rate swap contracts (note 13)
|
|
|
11,972
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
12,297
|
|
|
|
227
|
|
|
|
136
|
|
|
|
(153
|
)
|
|
Comprehensive income
|
|
$
|
51,242
|
|
|
$
|
35,881
|
|
|
$
|
104,565
|
|
|
$
|
180,207
|
|
|
See accompanying notes to consolidated financial statements.
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Page 14
Methanex Corporation
Consolidated Statements of Cash Flows
(unaudited)
(thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
38,945
|
|
|
$
|
35,654
|
|
|
$
|
104,429
|
|
|
$
|
180,360
|
|
Add (deduct) non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
26,396
|
|
|
|
28,373
|
|
|
|
49,509
|
|
|
|
52,112
|
|
Future income taxes
|
|
|
1,145
|
|
|
|
(3,543
|
)
|
|
|
4,133
|
|
|
|
1,576
|
|
Stock-based compensation expense
|
|
|
5,207
|
|
|
|
6,747
|
|
|
|
9,835
|
|
|
|
10,269
|
|
Other
|
|
|
(1,378
|
)
|
|
|
3,540
|
|
|
|
5,049
|
|
|
|
6,187
|
|
Other cash payments
|
|
|
(1,801
|
)
|
|
|
(3,547
|
)
|
|
|
(2,121
|
)
|
|
|
(4,287
|
)
|
|
Cash flows from operating activities before undernoted
|
|
|
68,514
|
|
|
|
67,224
|
|
|
|
170,834
|
|
|
|
246,217
|
|
Changes in non-cash working capital (note 11)
|
|
|
(34,294
|
)
|
|
|
56,601
|
|
|
|
(26,027
|
)
|
|
|
68,710
|
|
|
|
|
|
34,220
|
|
|
|
123,825
|
|
|
|
144,807
|
|
|
|
314,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for shares repurchased
|
|
|
(43,489
|
)
|
|
|
(78,614
|
)
|
|
|
(117,565
|
)
|
|
|
(123,886
|
)
|
Dividend payments
|
|
|
(14,583
|
)
|
|
|
(14,230
|
)
|
|
|
(28,047
|
)
|
|
|
(27,302
|
)
|
Proceeds from limited recourse debt (note 6)
|
|
|
49,000
|
|
|
|
35,574
|
|
|
|
88,000
|
|
|
|
35,574
|
|
Financing costs
|
|
|
|
|
|
|
(8,725
|
)
|
|
|
|
|
|
|
(8,725
|
)
|
Equity contribution by non-controlling interest
|
|
|
15,897
|
|
|
|
7,445
|
|
|
|
29,497
|
|
|
|
18,295
|
|
Repayment of limited recourse debt
|
|
|
(7,328
|
)
|
|
|
(7,016
|
)
|
|
|
(7,640
|
)
|
|
|
(7,016
|
)
|
Proceeds on issue of shares on exercise of stock options
|
|
|
1,508
|
|
|
|
1,674
|
|
|
|
3,900
|
|
|
|
3,813
|
|
Changes in debt service reserve accounts
|
|
|
(1,995
|
)
|
|
|
(1,560
|
)
|
|
|
(1,995
|
)
|
|
|
916
|
|
Repayment of other long-term liabilities
|
|
|
(1,089
|
)
|
|
|
(1,539
|
)
|
|
|
(6,087
|
)
|
|
|
(2,549
|
)
|
|
|
|
|
(2,079
|
)
|
|
|
(66,991
|
)
|
|
|
(39,937
|
)
|
|
|
(110,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(30,103
|
)
|
|
|
(12,091
|
)
|
|
|
(38,254
|
)
|
|
|
(25,767
|
)
|
Egypt plant construction costs
|
|
|
(84,140
|
)
|
|
|
(37,550
|
)
|
|
|
(180,351
|
)
|
|
|
(46,136
|
)
|
Dorado Riquelme investment (note 15)
|
|
|
(32,850
|
)
|
|
|
|
|
|
|
(32,850
|
)
|
|
|
|
|
GeoPark financing
|
|
|
|
|
|
|
|
|
|
|
(11,390
|
)
|
|
|
|
|
Other assets
|
|
|
(163
|
)
|
|
|
48
|
|
|
|
142
|
|
|
|
93
|
|
Changes in non-cash working capital (note 11)
|
|
|
(5,524
|
)
|
|
|
(3,471
|
)
|
|
|
14,134
|
|
|
|
(3,124
|
)
|
|
|
|
|
(152,780
|
)
|
|
|
(53,064
|
)
|
|
|
(248,569
|
)
|
|
|
(74,934
|
)
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(120,639
|
)
|
|
|
3,770
|
|
|
|
(143,699
|
)
|
|
|
129,113
|
|
Cash and cash equivalents, beginning of period
|
|
|
465,164
|
|
|
|
480,397
|
|
|
|
488,224
|
|
|
|
355,054
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
344,525
|
|
|
$
|
484,167
|
|
|
$
|
344,525
|
|
|
$
|
484,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
6,913
|
|
|
$
|
5,638
|
|
|
$
|
23,902
|
|
|
$
|
19,061
|
|
Income taxes paid, net of amounts refunded
|
|
$
|
31,969
|
|
|
$
|
52,985
|
|
|
$
|
63,083
|
|
|
$
|
82,105
|
|
See accompanying notes to consolidated financial statements.
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Page 15
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 16. 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 2007 Annual Report.
|
|
2.
|
|
Changes in accounting policies:
|
|
|
|
On January 1, 2008, the Company adopted the Canadian Institute of Chartered Accountants (CICA)
Handbook Section 3031
Inventories
, Section 1535
Capital Disclosures
, Section 3862
Financial
Instruments Disclosure
and Section 3863
Financial Instruments Presentation
. Section 3031
provides more extensive guidance on the measurement and disclosure of inventory. The adoption of
this standard has had no impact on the Companys measurement of inventory. Section 1535
establishes standards for disclosing information about an entitys capital and how it is
managed. Sections 3862 and 3863 revise and enhance disclosure and presentation of financial
instruments and place increased emphasis on disclosures about the nature and extent of risks
arising from financial instruments and how those risks are managed.
|
|
3.
|
|
Inventories:
|
|
|
|
Inventories are valued at the lower of cost, determined on a first-in first-out basis, and
estimated net realizable value. The amount of inventories included in cost of sales and
operating expense and depreciation and amortization during the three and six month periods ended
June 30, 2008 was $491 million (2007 $372 million) and $1,067 million (2007 $780 million),
respectively.
|
|
4.
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Value
|
|
|
June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
$
|
2,487,228
|
|
|
$
|
1,251,836
|
|
|
$
|
1,235,392
|
|
Egypt plant under construction
|
|
|
408,134
|
|
|
|
|
|
|
|
408,134
|
|
Other
|
|
|
125,918
|
|
|
|
59,157
|
|
|
|
66,761
|
|
|
|
|
$
|
3,021,280
|
|
|
$
|
1,310,993
|
|
|
$
|
1,710,287
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
$
|
2,450,175
|
|
|
$
|
1,206,730
|
|
|
$
|
1,243,445
|
|
Egypt plant under construction
|
|
|
227,783
|
|
|
|
|
|
|
|
227,783
|
|
Other
|
|
|
124,779
|
|
|
|
53,907
|
|
|
|
70,872
|
|
|
|
|
$
|
2,802,737
|
|
|
$
|
1,260,637
|
|
|
$
|
1,542,100
|
|
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 16
5.
|
|
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 Companys
proportionate interest in Atlas:
|
|
|
|
|
|
|
|
|
|
|
|
Jun 30
|
|
|
Dec 31
|
|
Consolidated Balance Sheets
|
|
2008
|
|
|
2007
|
|
|
Cash and cash equivalents
|
|
$
|
14,158
|
|
|
$
|
20,128
|
|
Other current assets
|
|
|
99,770
|
|
|
|
107,993
|
|
Property, plant and equipment
|
|
|
256,319
|
|
|
|
263,942
|
|
Other assets
|
|
|
18,323
|
|
|
|
16,329
|
|
Accounts payable and accrued liabilities
|
|
|
43,912
|
|
|
|
56,495
|
|
Long-term debt, including current maturities (note 6)
|
|
|
113,258
|
|
|
|
119,891
|
|
Future income tax liabilities
|
|
|
17,086
|
|
|
|
16,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
Consolidated Statements of Income
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Revenue
|
|
$
|
76,455
|
|
|
$
|
22,436
|
|
|
$
|
158,532
|
|
|
$
|
88,770
|
|
Expenses
|
|
|
(72,101
|
)
|
|
|
(31,607
|
)
|
|
|
(146,735
|
)
|
|
|
(89,896
|
)
|
|
|
|
Income before income taxes
|
|
|
4,354
|
|
|
|
(9,171
|
)
|
|
|
11,797
|
|
|
|
(1,126
|
)
|
Income tax (expense) recovery
|
|
|
(1,049
|
)
|
|
|
1,419
|
|
|
|
(2,951
|
)
|
|
|
(254
|
)
|
|
|
|
Net income
|
|
$
|
3,305
|
|
|
$
|
(7,752
|
)
|
|
$
|
8,846
|
|
|
$
|
(1,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
Consolidated Statements of Cash Flows
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Cash inflows (outflows) from operating activities
|
|
$
|
(10,466
|
)
|
|
$
|
10,306
|
|
|
$
|
14,088
|
|
|
$
|
37,344
|
|
Cash outflows from financing activities
|
|
|
(9,010
|
)
|
|
|
(8,576
|
)
|
|
|
(9,010
|
)
|
|
|
(6,100
|
)
|
Cash outflows from investing activities
|
|
|
(444
|
)
|
|
|
(3,730
|
)
|
|
|
(610
|
)
|
|
|
(13,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun 30
|
|
|
Dec 31
|
|
|
|
2008
|
|
|
2007
|
|
|
Unsecured notes
|
|
|
|
|
|
|
|
|
8.75% due August 15, 2012
|
|
$
|
197,974
|
|
|
$
|
197,776
|
|
6.00% due August 15, 2015
|
|
|
148,428
|
|
|
|
148,340
|
|
|
|
|
|
346,402
|
|
|
|
346,116
|
|
Atlas limited recourse debt facilities
|
|
|
113,258
|
|
|
|
119,891
|
|
Egypt limited recourse debt facilities
|
|
|
204,574
|
|
|
|
116,574
|
|
Other limited recourse debt facilities
|
|
|
14,063
|
|
|
|
14,688
|
|
|
|
|
|
678,297
|
|
|
|
597,269
|
|
Less current maturities
|
|
|
(15,282
|
)
|
|
|
(15,282
|
)
|
|
|
|
$
|
663,015
|
|
|
$
|
581,987
|
|
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Interest expense before capitalized interest
|
|
$
|
12,447
|
|
|
$
|
11,159
|
|
|
$
|
26,302
|
|
|
$
|
22,226
|
|
Less: capitalized interest related to Egypt project
|
|
|
(2,817
|
)
|
|
|
|
|
|
|
(5,982
|
)
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
9,630
|
|
|
$
|
11,159
|
|
|
$
|
20,320
|
|
|
$
|
22,226
|
|
|
|
|
|
|
In 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 and six month periods ended June 30, 2008, interest costs related to this
project of $2.8 million and $6.0 million were capitalized, respectively.
|
|
8.
|
|
Net income per common share:
|
|
|
|
A reconciliation of the weighted average number of common shares outstanding is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Denominator for basic net income per common share
|
|
|
94,520,011
|
|
|
|
102,697,808
|
|
|
|
95,837,568
|
|
|
|
103,894,611
|
|
Effect of dilutive stock options
|
|
|
629,877
|
|
|
|
275,463
|
|
|
|
504,424
|
|
|
|
383,498
|
|
|
|
|
Denominator for diluted net income per common share
|
|
|
95,149,888
|
|
|
|
102,973,271
|
|
|
|
96,341,992
|
|
|
|
104,278,109
|
|
|
|
|
9.
|
|
Stock-based compensation:
|
|
(i)
|
|
Incentive stock options:
|
|
|
|
|
Common shares reserved for outstanding incentive stock options at June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Denominated in CAD
|
|
|
Options Denominated in USD
|
|
|
|
Number of Stock
|
|
|
Weighted Average
|
|
|
Number of Stock
|
|
|
Weighted Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
104,450
|
|
|
$
|
7.79
|
|
|
|
2,920,981
|
|
|
$
|
21.17
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
1,078,068
|
|
|
|
28.43
|
|
Exercised
|
|
|
(19,750
|
)
|
|
|
9.99
|
|
|
|
(103,763
|
)
|
|
|
19.95
|
|
Cancelled
|
|
|
(7,000
|
)
|
|
|
11.60
|
|
|
|
(3,666
|
)
|
|
|
23.36
|
|
|
|
|
Outstanding at March 31, 2008
|
|
|
77,700
|
|
|
$
|
6.89
|
|
|
|
3,891,620
|
|
|
$
|
23.21
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,250
|
)
|
|
|
3.29
|
|
|
|
(75,103
|
)
|
|
|
19.43
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
(33,450
|
)
|
|
|
24.24
|
|
|
|
|
Outstanding at June 30, 2008
|
|
|
76,450
|
|
|
$
|
6.95
|
|
|
|
3,783,067
|
|
|
$
|
23.28
|
|
|
|
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 18
9.
|
|
Stock-based compensation (continued):
|
Information regarding the incentive stock options outstanding at June 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at
|
|
Options Exercisable at
|
|
|
June 30, 2008
|
|
June 30, 2008
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Number of Stock
|
|
Weighted
|
|
Number of
|
|
Weighted
|
|
|
Contractual Life
|
|
Options
|
|
Average Exercise
|
|
Stock Options
|
|
Average
|
Range of Exercise Prices
|
|
(Years)
|
|
Outstanding
|
|
Price
|
|
Exercisable
|
|
Exercise Price
|
|
|
|
Options denominated in CAD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.29 to 9.56
|
|
|
2.1
|
|
|
|
76,450
|
|
|
$
|
6.95
|
|
|
|
76,450
|
|
|
$
|
6.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options denominated in USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$6.45 to 11.56
|
|
|
4.5
|
|
|
|
188,550
|
|
|
$
|
8.58
|
|
|
|
188,550
|
|
|
$
|
8.58
|
|
$17.85 to 22.52
|
|
|
4.5
|
|
|
|
1,484,900
|
|
|
|
20.26
|
|
|
|
997,433
|
|
|
|
20.01
|
|
$23.92 to 28.43
|
|
|
6.2
|
|
|
|
2,109,617
|
|
|
|
26.72
|
|
|
|
329,460
|
|
|
|
24.95
|
|
|
|
|
|
|
|
5.4
|
|
|
|
3,783,067
|
|
|
$
|
23.28
|
|
|
|
1,515,443
|
|
|
$
|
19.66
|
|
|
|
|
|
(ii)
|
|
Performance stock options:
|
|
|
|
|
As at June 30, 2008, there were 35,000 shares (December 31, 2007 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 and six month periods ended June 30, 2008, compensation expense related to
stock options included in cost of sales and operating expenses was
$1.7 million (2007 $2.3 million) and $4.6 million (2007 $4.9 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:
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Risk-free interest rate
|
|
|
2.5
|
%
|
|
|
4.5
|
%
|
Expected dividend yield
|
|
|
2
|
%
|
|
|
2
|
%
|
Expected life
|
|
5 years
|
|
5 years
|
Expected volatility
|
|
|
32
|
%
|
|
|
31
|
%
|
Expected forfeitures
|
|
|
5
|
%
|
|
|
5
|
%
|
Weighted average fair value of options granted (USD per share)
|
|
$
|
7.52
|
|
|
$
|
7.06
|
|
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 19
9.
|
|
Stock-based compensation (continued):
|
|
b)
|
|
Deferred, restricted and performance share units:
|
|
|
|
|
Deferred, restricted and performance share units outstanding at June 30, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Number of
|
|
|
|
Deferred Share
|
|
|
Restricted Share
|
|
|
Performance
|
|
|
|
Units
|
|
|
Units
|
|
|
Share Units
|
|
|
Outstanding at December 31, 2007
|
|
|
359,684
|
|
|
|
14,482
|
|
|
|
725,262
|
|
Granted
|
|
|
28,942
|
|
|
|
6,000
|
|
|
|
330,993
|
|
Granted in-lieu of dividends
|
|
|
2,462
|
|
|
|
106
|
|
|
|
5,481
|
|
Redeemed
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
(8,908
|
)
|
|
Outstanding at March 31, 2008
|
|
|
391,088
|
|
|
|
20,588
|
|
|
|
1,052,828
|
|
Granted
|
|
|
2,456
|
|
|
|
|
|
|
|
|
|
Granted in-lieu of dividends
|
|
|
2,126
|
|
|
|
109
|
|
|
|
5,493
|
|
Redeemed
|
|
|
(3,083
|
)
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
(10,575
|
)
|
|
Outstanding at June 30, 2008
|
|
|
392,587
|
|
|
|
20,697
|
|
|
|
1,047,746
|
|
|
|
|
|
Compensation expense for deferred, restricted and performance share units is initially
measured at fair value based on the market value of the Companys 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 June 30, 2008 was $35.0 million
compared with the recorded liability of $26.8 million. The difference between the fair value
and the recorded liability of $8.2 million will be recognized over the weighted average
remaining service period of approximately 1.6 years.
|
|
|
|
|
For the three and six month periods ended June 30, 2008, compensation expense related to
deferred, restricted and performance share units included in cost of sales and operating
expenses was $3.5 million (2007 $4.4 million) and $5.2 million (2007 $5.2 million),
respectively. This included an expense of $0.9 million (2007 $2.1 million) and a recovery
of $0.8 million (2007 expense of $0.3 million), respectively, related to the effect of
the change in the Companys share price. As at June 30, 2008, the Companys share price was
US$28.02 per share.
|
10.
|
|
Retirement plans:
|
|
|
|
Total net pension expense for the Companys defined benefit and defined contribution pension
plans during the three and six month periods ended June 30, 2008 was $2.0 million (2007 $1.6
million) and $3.9 million (2007 $3.5 million), respectively.
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 20
11.
|
|
Changes in non-cash working capital:
|
|
|
|
The change in cash flows related to changes in non-cash working capital for the three and six
month periods ended June 30, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Decrease (increase) in non-cash working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
$
|
(3,033
|
)
|
|
$
|
65,037
|
|
|
$
|
99,298
|
|
|
$
|
108,315
|
|
Inventories
|
|
|
101,565
|
|
|
|
95,892
|
|
|
|
65,376
|
|
|
|
65,237
|
|
Prepaid expenses
|
|
|
2,148
|
|
|
|
(8,644
|
)
|
|
|
(14,469
|
)
|
|
|
(5,712
|
)
|
Accounts payable and accrued liabilities
|
|
|
(143,565
|
)
|
|
|
(97,363
|
)
|
|
|
(170,948
|
)
|
|
|
(102,997
|
)
|
|
|
|
|
|
|
(42,885
|
)
|
|
|
54,922
|
|
|
|
(20,743
|
)
|
|
|
64,843
|
|
Adjustments for items not having a cash effect
|
|
|
3,067
|
|
|
|
(1,792
|
)
|
|
|
8,850
|
|
|
|
743
|
|
|
|
|
Changes in non-cash working capital having a cash effect
|
|
$
|
(39,818
|
)
|
|
$
|
53,130
|
|
|
$
|
(11,893
|
)
|
|
$
|
65,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These changes relate to the following activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
$
|
(34,294
|
)
|
|
$
|
56,601
|
|
|
$
|
(26,027
|
)
|
|
$
|
68,710
|
|
Investing
|
|
|
(5,524
|
)
|
|
|
(3,471
|
)
|
|
|
14,134
|
|
|
|
(3,124
|
)
|
|
|
|
Changes in non-cash working capital
|
|
$
|
(39,818
|
)
|
|
$
|
53,130
|
|
|
$
|
(11,893
|
)
|
|
$
|
65,586
|
|
|
|
|
12.
|
|
Capital Disclosures:
|
|
|
|
The Companys objectives in managing its liquidity and capital are to safeguard the Companys
ability to continue as a going concern, to provide financial capacity and flexibility to meet
its strategic objectives, to provide an adequate return to shareholders commensurate with the
level of risk, and to return excess cash through a combination of dividends and share
repurchases.
|
|
|
|
|
|
|
|
|
|
|
|
Jun 30
|
|
|
Dec 31
|
|
|
|
2008
|
|
|
2007
|
|
|
Liquidity:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
344,525
|
|
|
$
|
488,224
|
|
Undrawn Egypt limited recourse debt facilities
|
|
|
325,426
|
|
|
|
413,426
|
|
Undrawn credit facilities
|
|
|
250,000
|
|
|
|
250,000
|
|
|
Total Liquidity
|
|
$
|
919,951
|
|
|
$
|
1,151,650
|
|
Capitalization:
|
|
|
|
|
|
|
|
|
Unsecured notes
|
|
$
|
346,402
|
|
|
$
|
346,116
|
|
Limited recourse debt facilities, including current portion
|
|
|
331,895
|
|
|
|
251,153
|
|
|
Total debt
|
|
|
678,297
|
|
|
|
597,269
|
|
Non-controlling interest
|
|
|
70,755
|
|
|
|
41,258
|
|
Shareholders equity
|
|
|
1,302,805
|
|
|
|
1,335,354
|
|
|
Total capitalization
|
|
$
|
2,051,857
|
|
|
$
|
1,973,881
|
|
Total debt to capitalization
1
|
|
|
33
|
%
|
|
|
30
|
%
|
Net debt to capitalization
2
|
|
|
20
|
%
|
|
|
7
|
%
|
|
|
|
|
1
|
|
Total debt divided by total capitalization.
|
|
2
|
|
Total debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents.
|
|
|
The Company manages its liquidity and capital structure and makes adjustments to it in light of
changes to economic conditions, the underlying risks inherent in its operations and capital
requirements to maintain and grow its operations. The strategies employed by the Company include
the issue or repayment of general corporate debt, the issue of project debt, the payment of
dividends and the repurchase of shares.
|
|
|
|
The Company is not subject to any statutory capital requirements and has no commitments to sell
or otherwise issue common shares.
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 21
12.
|
|
Capital Disclosures (continued):
|
|
|
|
The undrawn credit facility in the amount of $250 million is subject to certain financial
covenants including a debt to capitalization ratio as defined.
|
|
|
|
The credit ratings for our unsecured notes are as follows:
|
|
|
|
|
|
Standard & Poors Rating Services
|
|
BBB-
|
|
(stable)
|
Moodys Investor Services
|
|
Ba1
|
|
(stable)
|
Fitch Ratings
|
|
BBB
|
|
(negative)
|
13.
|
|
Financial Instruments:
|
|
|
|
Under CICA Section 3862
Financial Instruments Disclosures
, the Company is required to provide
disclosures regarding its financial instruments. Financial instruments are either measured at
amortized cost or fair value. Held-to-maturity investments, loans and receivables and other
financial liabilities are measured at amortized cost. Held for trading financial assets and
liabilities and available-for-sale financial assets are measured on the balance sheet at fair
value. Derivative financial instruments 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.
Changes in fair value of derivative financial instruments are recorded in earnings unless the
instruments are designated as cash flow hedges.
|
|
|
|
The following table provides the carrying value of each category of financial assets and
liabilities and the related balance sheet item:
|
|
|
|
|
|
|
|
|
|
|
|
Jun 30
|
|
|
Dec 31
|
|
|
|
2008
|
|
|
2007
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Held for trading financial assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
344,525
|
|
|
$
|
488,224
|
|
Derivative instruments designated as cash flow hedges
|
|
|
1,859
|
|
|
|
|
|
Derivative instruments
|
|
|
136
|
|
|
|
|
|
Debt service reserve accounts included in other assets
|
|
|
18,323
|
|
|
|
16,329
|
|
Loans and receivables:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
302,545
|
|
|
|
401,843
|
|
Dorado Riquelme investment included in other assets (note 15)
|
|
|
32,850
|
|
|
|
|
|
GeoPark financing included in other assets
|
|
|
21,417
|
|
|
|
13,738
|
|
|
|
|
$
|
721,655
|
|
|
$
|
920,134
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Other financial liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
295,072
|
|
|
$
|
466,020
|
|
Long-term debt, including current portion
|
|
|
678,297
|
|
|
|
597,269
|
|
Capital lease obligation included in other long-term liabilities
|
|
|
23,053
|
|
|
|
24,676
|
|
|
|
|
|
|
|
|
|
|
Held for trading financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative instruments designated as cash flow hedges
|
|
|
10,362
|
|
|
|
8,749
|
|
Derivative instruments
|
|
|
834
|
|
|
|
955
|
|
|
|
|
$
|
1,007,618
|
|
|
$
|
1,097,669
|
|
|
|
|
At June 30, 2008, all of the Companys financial instruments are recorded on the balance sheet
at amortized cost with the exception of cash and cash equivalents, derivative financial
instruments and debt service reserve accounts included in other assets which are recorded at
fair value.
|
|
|
|
The Egypt limited recourse debt facilities bear interest at LIBOR plus a spread. The Company has
entered into interest rate swap contracts to swap the LIBOR-based interest payments for an
aggregated fixed rate of 4.8% on approximately 75% of the Egypt limited recourse debt facilities
for the period September 28, 2007 to March 31, 2015.
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 22
13.
|
|
Financial Instruments (continued):
|
|
|
|
These interest rate swaps had outstanding notional amounts of $150 million as at June 30, 2008.
Under the interest rate swap contracts the maximum notional amount during the term is $367
million. The notional amount increases over the period of expected draw-downs on the Egypt
limited recourse debt and decreases over the expected repayment period. At June 30, 2008, these
interest rate swap contracts had a net negative fair value of $8.5 million (December 31, 2007 -
negative $8.6 million), of which $10.4 million is recorded in other long-term liabilities and
$1.9 million is recorded in other assets. The mark to market value of these interest rate swap
contracts will fluctuate until maturity. The Company also designates as cash flow hedges forward
exchange contracts to sell euro at a fixed USD exchange rate. At June 30, 2008, the Company had
outstanding forward exchange contracts designated as cash flow hedges to sell euro at a fixed
USD exchange rate with a fair value of nil (December 31, 2007 $0.1 million) recorded in
accounts payable and accrued liabilities. For the three months ended June 30, 2008, the total
unrealized amount of the change in fair value of these derivative financial instruments with a
hedging relationship was positive $12.0 million. Additionally, the Company reclassified $0.3
million from other comprehensive loss to net income related to the fair value of forward
exchange contracts designated as cash flow hedges at March 31, 2008 which settled during the
three months ended June 30, 2008.
|
|
|
|
At June 30, 2008, the Companys derivative financial instruments that have not been designated
as cash flow hedges included forward exchange contracts to purchase $21.4 million New Zealand
dollars at an exchange rate of $0.7409 with a positive fair value of $0.1 million (December 31,
2007 nil) which is recorded in receivables and a floating-for-fixed interest rate swap
contract with a negative fair value of $0.8 million (December 31, 2007 $1.0 million) recorded
in other long-term liabilities. For the three months ended June 30, 2008, the total change in
fair value of these derivative financial instruments was nil.
|
|
14.
|
|
Financial Risk Management:
|
|
a)
|
|
Market risks
|
|
|
|
|
The Companys operations consist of the production and sale of methanol. Market fluctuations
may result in significant cash flow and profit volatility risk for the Company. Its
worldwide operating business as well as its investment and financing activities are affected
by changes in methanol and natural gas prices and interest and foreign exchange rates. The
Company seeks to manage and control these risks primarily through its regular operating and
financing activities and uses derivative instruments to hedge these risks when deemed
appropriate. This is not an exhaustive list of all risks, nor will the risk management
strategies eliminate these risks.
|
|
|
|
Methanol price risk
|
|
|
|
|
The methanol industry is a highly competitive commodity industry and methanol prices
fluctuate based on supply and demand fundamentals and other factors. Accordingly it is
important to maintain financial flexibility and we have adopted a prudent approach to
financial management by maintaining a strong balance sheet including back-up liquidity.
We have also entered into long-term contracts with certain customers where prices are
either fixed or linked to our costs plus a margin.
|
|
|
|
|
Natural gas price risk
|
|
|
|
|
Natural gas is the primary feedstock for the production of methanol and the Company has
entered into long-term natural gas supply contracts for its production facilities in
Chile, Trinidad and Egypt and shorter term natural gas supply contracts for its New
Zealand operations. These natural gas supply contracts include base and variable price
components to reduce the commodity price risk exposure. The variable price component is
adjusted by formulas related to methanol prices above a certain level.
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 23
14.
|
|
Financial Risk Management (continued):
|
|
|
|
Interest rate risk
|
|
|
|
|
Interest rate risk is the risk that the Company suffers financial loss due to changes in
the value of an asset or liability or in the value of future cash flows due to movements
in interest rates.
|
|
|
|
|
The Companys interest rate risk exposure is mainly related to long term debt
obligations. Approximately two thirds of its debt obligations are subject to interest at
fixed rates. We also seek to limit this risk through the use of interest rate swaps
which allows us to hedge cash flow changes by swapping variable rates of interest into
fixed rates of interest.
|
|
|
|
|
|
|
|
Jun 30
|
|
Long-Term Debt
|
|
2008
|
|
|
Fixed interest rate debt:
|
|
|
|
|
Unsecured notes
|
|
$
|
346,402
|
|
Atlas limited recourse debt facilities (63.1% proportionate share)
|
|
|
76,318
|
|
|
|
|
$
|
422,720
|
|
|
Variable interest rate debt:
|
|
|
|
|
Atlas limited recourse debt facilities (63.1% proportionate share)
|
|
$
|
36,940
|
|
Egypt limited recourse debt facilities
|
|
|
204,574
|
|
Other limited recourse debt facilities
|
|
|
14,063
|
|
|
|
|
$
|
255,577
|
|
|
|
|
|
The Company has entered into interest rate swap contracts to hedge the variability in
LIBOR-based interest payments on its Egypt limited recourse debt facilities described in
note 13. The notional amount increases over the period of expected drawdowns on the
Egypt limited recourse debt and decreases over the expected repayment period. The
aggregate impact of these contracts is to swap the LIBOR-based interest payments for a
fixed rate of 4.8% on approximately 75% of the Egypt limited recourse debt facilities
for the period September 28, 2007 to March 31, 2015. The net fair value of cash flow
interest rate swaps was negative $8.5 million as at June 30, 2008. The change in fair
value of the interest rate swaps assuming a 1% decrease in the interest rates along the
yield curve would be negative $20.6 million as of June 30, 2008.
|
|
|
|
|
For fixed interest rate debt, a 1% decrease in interest rates would result in negative
fair value of the debt of $19.3 million. For the variable interest rate debt that is
unhedged, a 1% increase in interest rates would result in an increase in annual interest
payments of $1.1 million.
|
|
|
|
|
Foreign currency exchange rate risk
|
|
|
|
|
The Companys international operations expose the Company to foreign currency exchange
risks in the ordinary course of business. Accordingly, the Company has established a
policy which provides a framework for foreign currency management, hedging strategies
and defines the approved hedging instruments. The Company reviews all significant
exposures to foreign currencies arising from operating and investing activities and
hedges exposures if deemed appropriate.
|
|
|
|
|
The dominant currency in which we conduct business is the United States dollar, which is
also our reporting currency.
|
|
|
|
|
Methanol is a global commodity chemical which is priced in United States dollars. In
certain jurisdictions, however, the transaction price is set either quarterly or monthly
in local currency. Accordingly, a portion of our revenue is transacted in Canadian
dollars, euros and to a lesser extent other currencies. For the period from when the
price is set in local currency to when the amount due is collected, we are exposed to
declines in the value of these currencies compared to the United States dollar, which
could have the effect of decreasing the United States dollar equivalent of our revenue.
We also purchase varying quantities of methanol for which the transaction currency is
the euro and to a lesser extent other currencies. In addition, some of our underlying
operating costs and capital expenditures are incurred in other currencies. We are
exposed to increases in the value of these currencies that could have the effect of
increasing the United States dollar equivalent of cost of sales and operating expenses
and capital expenditures.
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 24
14.
|
|
Financial Risk Management (continued):
|
|
|
|
We have elected not to actively manage these exposures at this time except for our net
exposure to euro revenues which we hedge through forward exchange contracts each quarter
when the euro price for methanol is established.
|
|
|
|
|
As of June 30, 2008, we had a net working capital asset of $12.0 million in non-US
dollar currencies. Each 1% strengthening (weakening) of the US dollar against these
currencies would decrease (increase) the value of net working capital and pre-tax cash
flow by $0.1 million.
|
|
b)
|
|
Liquidity risk
|
|
|
|
|
Liquidity risk is the risk that the Company will not have sufficient funds to meet its
liabilities such as the settlement of financial debt and lease obligations and payment to
its suppliers. The Company maintains liquidity and makes adjustments to it in light of
changes to economic conditions, underlying risks inherent in its operations and capital
requirements to maintain and grow its operations. At June 30, 2008 the Company holds $344.5
million of cash and cash equivalents. In addition, the Company has an undrawn $250 million
credit facility that expires in 2010 provided by highly rated financial institutions.
|
|
|
|
|
In addition to the above mentioned sources of liquidity, the Company constantly monitors
funding options available in the capital markets, as well as trends in the availability and
costs of such funding, with a view to maintaining financial flexibility and limiting
refinancing risks.
|
|
|
c)
|
|
Credit risk
|
|
|
|
|
Counterparty credit risk is the risk that the financial benefits of contracts with a
specific counterparty will be lost if a counterparty defaults on its obligations under the
contract. This includes any cash amounts owed to the Company by those counterparties, less
any amounts owed to the counterparty by the Company where a legal right of set-off exists
and also includes the fair values of contracts with individual counterparties which are
recorded in the financial statements.
|
|
|
|
Trade credit risk
|
|
|
|
|
Trade credit risk is defined as an unexpected loss in cash and earnings if the customer
is unable to pay its obligations in due time or if the value of security provided
declines. The Company has implemented a credit policy which includes approvals for new
customers, annual credit evaluations of all customers and specific approval for any
exposures beyond approved limits. We employ a variety of risk mitigation alternatives
including certain contractual rights in the event of deterioration in customer credit
quality and various forms of bank and parent company guarantees and letters of credit to
upgrade the credit risk to a credit rating equivalent better than the stand-alone rating
of the counterparty. Historically trade credit losses have been minimal.
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
In order to manage credit and liquidity risk we invest only in highly rated investment
grade instruments that have maturities of three months or less. Limits are also
established based on the type of investment, the counterparty and the credit rating.
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
In order to manage credit risk, we only enter into derivative financial instruments with
highly rated investment grade counterparties.
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 25
15.
|
|
Dorado Riquelme Investment:
|
|
|
|
On May 5, 2008, the Company signed an agreement with Empresa Nacional del Petroleo (ENAP), the
Chilean state-owned oil and gas company to accelerate gas exploration and development in the
Dorado Riquelme exploration block and supply new Chilean-sourced natural gas to the Companys
production facilities in Chile. Under the arrangement, the Company expects to contribute
approximately $100 million in capital over the next three years and will have a 50%
participation in the block. As of June 30, 2008, the amount contributed under the agreement was
approximately $32.9 million, which has been recorded in other assets. The arrangement is subject
to approval by the government of Chile and $31.2 million of the amount contributed has been
placed in escrow until final approval is received.
|
|
16.
|
|
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 Companys
consolidated statements of income for the three and six month periods ended June 30, 2008 and
2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
Jun 30
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Net income in accordance with Canadian GAAP
|
|
$
|
38,945
|
|
|
$
|
35,654
|
|
|
$
|
104,429
|
|
|
$
|
180,360
|
|
Add (deduct) adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
a
|
|
|
(478
|
)
|
|
|
(478
|
)
|
|
|
(956
|
)
|
|
|
(956
|
)
|
Stock-based compensation
b
|
|
|
(41
|
)
|
|
|
(14
|
)
|
|
|
(28
|
)
|
|
|
151
|
|
Uncertainty in income taxes
c
|
|
|
1,046
|
|
|
|
(1,020
|
)
|
|
|
631
|
|
|
|
(2,809
|
)
|
Income tax effect of above adjustments
d
|
|
|
167
|
|
|
|
167
|
|
|
|
334
|
|
|
|
335
|
|
|
|
|
Net income in accordance with U.S. GAAP
|
|
$
|
39,639
|
|
|
$
|
34,309
|
|
|
$
|
104,410
|
|
|
$
|
177,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share information in accordance with U.S. GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.42
|
|
|
$
|
0.33
|
|
|
$
|
1.09
|
|
|
$
|
1.70
|
|
Diluted net income per share
|
|
$
|
0.42
|
|
|
$
|
0.33
|
|
|
$
|
1.08
|
|
|
$
|
1.70
|
|
|
|
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 26
16.
|
|
United States Generally Accepted Accounting Principles (continued):
|
|
|
|
The significant differences between Canadian GAAP and U.S. GAAP with respect to the Companys
consolidated statements of comprehensive income for the three and six month periods ended June
30, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
Canadian GAAP
|
|
|
Adjustments
|
|
|
U.S. GAAP
|
|
|
U.S. GAAP
|
|
|
|
|
Net income
|
|
$
|
38,945
|
|
|
$
|
694
|
|
|
$
|
39,639
|
|
|
$
|
34,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of forward exchange contracts, net of tax
|
|
|
325
|
|
|
|
|
|
|
|
325
|
|
|
|
227
|
|
Change in fair value of interest rate swap, net of tax
|
|
|
11,972
|
|
|
|
|
|
|
|
11,972
|
|
|
|
|
|
Change related to pension, net of tax
e
|
|
|
|
|
|
|
236
|
|
|
|
236
|
|
|
|
224
|
|
|
|
|
Comprehensive income
|
|
$
|
51,242
|
|
|
$
|
930
|
|
|
$
|
52,172
|
|
|
$
|
34,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
Canadian GAAP
|
|
|
Adjustments
|
|
|
U.S. GAAP
|
|
|
U.S. GAAP
|
|
|
|
|
Net income
|
|
$
|
104,429
|
|
|
$
|
(19
|
)
|
|
$
|
104,410
|
|
|
$
|
177,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of forward exchange contracts, net of tax
|
|
|
60
|
|
|
|
|
|
|
|
60
|
|
|
|
(153
|
)
|
Change in fair value of interest rate swap, net of tax
|
|
|
76
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
Change related to pension, net of tax
e
|
|
|
|
|
|
|
477
|
|
|
|
477
|
|
|
|
449
|
|
|
|
|
Comprehensive income
|
|
$
|
104,565
|
|
|
$
|
458
|
|
|
$
|
105,023
|
|
|
$
|
177,377
|
|
|
|
|
|
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. In accordance with U.S. GAAP, an increase to depreciation expense by $0.5 million
(2007 $0.5 million) and $1.0 million (2007 $1.0 million) was recorded for the three and
six month periods ended June 30, 2008, respectively.
|
|
|
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 Companys 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. In accordance with U.S. GAAP, no adjustment to
operating expense was recorded for the three and six month periods ended June 30, 2008 and
an adjustment of nil and $0.2 million was recorded for the same periods ended June 30, 2007,
respectively.
|
|
|
c)
|
|
Accounting for uncertainty in income taxes:
|
|
|
|
|
Effective 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 (FIN48).
FIN 48 clarifies the accounting for income taxes recognized
in a Companys 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. In accordance with FIN 48, a recovery to income tax
expense of $1.0 million (2007 expense of $1.0 million) and $0.6 million (2007 expense
of $2.8 million) was recorded for the three and six month periods ended June 30, 2008,
respectively.
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 27
16.
|
|
United States Generally Accepted Accounting Principles (continued):
|
|
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. In accordance with U.S. GAAP, an
increase to net income of $0.2 million (2007 $0.2 million) and $0.3 million (2007 $0.3
million) was recorded for the three and six month periods ended June 30, 2008, respectively.
|
|
|
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. In accordance with U.S. GAAP, an increase to other comprehensive
income of $0.2 million (2007 $0.2 million) and $0.5 million (2007 $0.4 million) was
recorded for the three and six month periods ended June 30, 2008, respectively.
|
|
|
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 2008 SECOND QUARTER REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE 28
Methanex Corporation
Quarterly History
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
Q2
|
|
|
Q1
|
|
|
2007
|
|
|
|
Q4
|
|
|
Q3
|
|
|
Q2
|
|
|
Q1
|
|
|
2006
|
|
|
|
Q4
|
|
|
Q3
|
|
|
Q2
|
|
|
Q1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
METHANOL SALES VOLUMES
(thousands of tonnes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company produced
|
|
|
1,588
|
|
|
|
|
910
|
|
|
|
678
|
|
|
|
4,569
|
|
|
|
|
997
|
|
|
|
1,073
|
|
|
|
1,360
|
|
|
|
1,139
|
|
|
|
5,310
|
|
|
|
|
1,160
|
|
|
|
1,478
|
|
|
|
1,351
|
|
|
|
1,321
|
|
Purchased methanol
|
|
|
1,210
|
|
|
|
|
541
|
|
|
|
669
|
|
|
|
1,453
|
|
|
|
|
421
|
|
|
|
387
|
|
|
|
269
|
|
|
|
376
|
|
|
|
1,101
|
|
|
|
|
288
|
|
|
|
222
|
|
|
|
294
|
|
|
|
297
|
|
Commission sales
1
|
|
|
311
|
|
|
|
|
168
|
|
|
|
143
|
|
|
|
590
|
|
|
|
|
195
|
|
|
|
168
|
|
|
|
89
|
|
|
|
138
|
|
|
|
584
|
|
|
|
|
134
|
|
|
|
176
|
|
|
|
133
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,109
|
|
|
|
|
1,619
|
|
|
|
1,490
|
|
|
|
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
|
|
|
570
|
|
|
|
|
261
|
|
|
|
309
|
|
|
|
1,841
|
|
|
|
|
288
|
|
|
|
233
|
|
|
|
569
|
|
|
|
751
|
|
|
|
3,186
|
|
|
|
|
766
|
|
|
|
666
|
|
|
|
872
|
|
|
|
882
|
|
Titan, Trinidad
|
|
|
446
|
|
|
|
|
229
|
|
|
|
217
|
|
|
|
861
|
|
|
|
|
220
|
|
|
|
191
|
|
|
|
225
|
|
|
|
225
|
|
|
|
864
|
|
|
|
|
229
|
|
|
|
206
|
|
|
|
214
|
|
|
|
215
|
|
Atlas, Trinidad (63.1%)
|
|
|
581
|
|
|
|
|
288
|
|
|
|
293
|
|
|
|
982
|
|
|
|
|
278
|
|
|
|
290
|
|
|
|
234
|
|
|
|
180
|
|
|
|
1,057
|
|
|
|
|
267
|
|
|
|
264
|
|
|
|
273
|
|
|
|
253
|
|
New Zealand
|
|
|
244
|
|
|
|
|
124
|
|
|
|
120
|
|
|
|
435
|
|
|
|
|
75
|
|
|
|
122
|
|
|
|
120
|
|
|
|
118
|
|
|
|
404
|
|
|
|
|
111
|
|
|
|
71
|
|
|
|
118
|
|
|
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,841
|
|
|
|
|
902
|
|
|
|
939
|
|
|
|
4,119
|
|
|
|
|
861
|
|
|
|
836
|
|
|
|
1,148
|
|
|
|
1,274
|
|
|
|
5,511
|
|
|
|
|
1,373
|
|
|
|
1,207
|
|
|
|
1,477
|
|
|
|
1,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE REALIZED METHANOL PRICE
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($/tonne)
|
|
|
476
|
|
|
|
|
412
|
|
|
|
545
|
|
|
|
375
|
|
|
|
|
514
|
|
|
|
270
|
|
|
|
286
|
|
|
|
444
|
|
|
|
328
|
|
|
|
|
460
|
|
|
|
305
|
|
|
|
279
|
|
|
|
283
|
|
($/gallon)
|
|
|
1.43
|
|
|
|
|
1.24
|
|
|
|
1.64
|
|
|
|
1.13
|
|
|
|
|
1.55
|
|
|
|
0.81
|
|
|
|
0.86
|
|
|
|
1.34
|
|
|
|
0.99
|
|
|
|
|
1.38
|
|
|
|
0.92
|
|
|
|
0.84
|
|
|
|
0.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE INFORMATION ($ per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income
|
|
$
|
1.09
|
|
|
|
|
0.41
|
|
|
|
0.71
|
|
|
|
3.69
|
|
|
|
|
1.74
|
|
|
|
0.24
|
|
|
|
0.35
|
|
|
|
1.38
|
|
|
|
4.43
|
|
|
|
|
1.62
|
|
|
|
1.05
|
|
|
|
0.75
|
|
|
|
1.02
|
|
Diluted net income
|
|
$
|
1.08
|
|
|
|
|
0.41
|
|
|
|
0.70
|
|
|
|
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.
|
METHANEX CORPORATION 2008 SECOND QUARTER REPORT
QUARTERLY HISTORY
Page 29
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