For the first quarter of 2009, Methanex (TSX: MX)(NASDAQ:
MEOH)(SANTIAGO: Methanex) reported Adjusted EBITDA(1) of $13.1
million and a net loss of $18.4 million ($0.20 per share on a
diluted basis). This compares with Adjusted EBITDA of negative
$13.3 million and a net loss of $3.9 million ($0.04 per share on a
diluted basis) for the fourth quarter of 2008.
Bruce Aitken, President and CEO of Methanex, commented, "Despite
the current environment of weaker demand and lower methanol prices,
we generated positive cash flow from operations during the first
quarter. In addition, our first quarter results would normally have
been higher, however our cost structure had not fully adjusted from
the higher methanol price environment last year and this negatively
impacted our results."
Mr. Aitken added, "Global methanol demand stabilized during the
first quarter, and we have seen some improvement in demand
recently, particularly in China where imports have increased
significantly over the past few months. Entering the second
quarter, our average posted contract price has decreased
marginally, as prices in Europe and North America have trended
downward, while the price in Asia has strengthened."
Mr. Aitken concluded, "With US$313 million of cash on hand at
the end of the quarter, low leverage, no near term refinancing
requirements and a US$250 million undrawn credit facility, we are
in a strong financial position and we are committed to maintaining
financial strength and flexibility to meet our financial
commitments through this period of uncertainty and continue to
invest to grow the Company."
A conference call is scheduled for April 29, 2009 at 11:00 am ET
(8:00 am PT) to review these first quarter results. To access the
call, dial the Telus Conferencing operator ten minutes prior to the
start of the call at (416) 883-7132, or toll free at (888)
205-4499. The passcode for the call is 45654. A playback version of
the conference call will be available for fourteen days at (877)
245-4531. The reservation number for the playback version is
668311. There will be a simultaneous audio-only webcast of the
conference call, which can be accessed from our website at
www.methanex.com. In addition, an audio recording of the conference
call can be downloaded from our website for three weeks after the
call.
Methanex is a Vancouver based, publicly traded company engaged
in the worldwide production, distribution and marketing of
methanol. Methanex shares are listed for trading on the Toronto
Stock Exchange in Canada under the trading symbol "MX", on the
NASDAQ Global Market in the United States under the trading symbol
"MEOH", and on the foreign securities market of the Santiago Stock
Exchange in Chile under the trading symbol "Methanex". Methanex can
be visited online at www.methanex.com.
FORWARD-LOOKING STATEMENTS
Information contained in this press release and the attached
First Quarter 2009 Management's Discussion and Analysis contains
forward-looking statements with respect to us and the chemical
industry. Statements that include the words "believes", "expects",
"may", "will", "should", "seeks", "intends", "plans", "estimates",
"anticipates", or the negative version of those words or other
comparable terminology and similar statements of a future or
forward-looking nature identify forward-looking statements.
We believe that we have a reasonable basis for making such
forward-looking statements. The forward-looking statements in this
document are based on our experience, our perception of trends,
current conditions and expected future developments as well as
other factors. 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.
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,
including the on-time and on-budget completion of our new methanol
joint venture project in Egypt, the ability to successfully carry
out corporate initiatives and strategies, conditions in the
methanol and other industries, fluctuations in supply, demand and
price for methanol and its derivatives, including demand for
methanol for energy uses, the price of oil, the success of natural
gas exploration and development activities in southern Chile and
New Zealand and our ability to obtain any additional gas in those
regions on commercially acceptable terms, actions of competitors
and suppliers, actions of governments and governmental authorities,
changes in laws or regulations, world-wide economic conditions and
other risks described in our 2008 Management's Discussion and
Analysis and the attached First Quarter 2009 Management's
Discussion and Analysis. In addition to the foregoing risk factors,
the current global financial crisis and its impact on global
economies has added additional risks and uncertainties including
changes in capital markets and corresponding effects on the
company's investments, our ability to access existing or future
credit and defaults by customers, suppliers or insurers.
Having in mind these and other factors, investors and other
readers are cautioned not to place undue reliance on
forward-looking statements. They are not a substitute for the
exercise of one's own due diligence and judgment. The outcomes
anticipated in forward-looking statements may not occur and we do
not undertake to update forward-looking statements.
(1) 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 Additional Information - Supplemental Non-GAAP Measures in the
attached First Quarter 2009 Management's Discussion and Analysis
for a description of each supplemental non-GAAP measure and a
reconciliation to the most comparable GAAP measure.
Interim Report
For the Three Months Ended March 31, 2009
At April 28, 2009 the Company had 92,039,492 common shares
issued and outstanding and stock options exercisable for 2,770,375
additional common shares.
Share Information
Methanex Corporation's common shares are listed for trading on
the Toronto Stock Exchange under the symbol MX, on the Nasdaq
Global Market under the symbol MEOH and on the foreign securities
market of the Santiago Stock Exchange in Chile under the trading
symbol Methanex.
Transfer Agents & Registrars
CIBC Mellon Trust Company
320 Bay Street
Toronto, Ontario, Canada M5H 4A6
Toll free in North America: 1-800-387-0825
Investor Information
All financial reports, news releases and corporate information can be
accessed on our website at www.methanex.com.
Contact Information
Methanex Investor Relations
1800 - 200 Burrard Street
Vancouver, BC Canada V6C 3M1
E-mail: invest@methanex.com
Methanex Toll-Free: 1-800-661-8851
FIRST QUARTER MANAGEMENT'S DISCUSSION AND ANALYSIS
Except where otherwise noted, all currency amounts are stated in
United States dollars.
This First Quarter 2009 Management's Discussion and Analysis
dated April 28, 2009 should be read in conjunction with the 2008
Annual Consolidated Financial Statements and the Management's
Discussion and Analysis included in the Methanex 2008 Annual
Report. The Methanex 2008 Annual Report and additional information
relating to Methanex is available on SEDAR at www.sedar.com and on
EDGAR at www.sec.gov.
Three Months Ended
----------------------------
Mar 31 Dec 31 Mar 31
($ millions, except where noted) 2009 2008 2008
--------------------------------------------------------------------------
Sales volumes (thousands of tonnes)
Produced methanol 1,000 829 678
Purchased methanol 270 435 669
Commission sales (1) 131 134 143
--------------------------------------------------------------------------
Total sales volumes 1,401 1,398 1,490
Methanex average non-discounted
posted price ($ per tonne) (2) 216 388 703
Average realized price ($ per tonne) (3) 199 321 545
Adjusted EBITDA (4) 13.1 (13.3) 126.2
Cash flows from operating activities 67.9 49.7 109.1
Cash flows from operating activities before
changes in non-cash working capital (4) 4.8 (34.7) 100.9
Operating income (loss) (4) (15.8) (39.7) 103.1
Net income (loss) (18.4) (3.9) 64.6
Basic net income (loss) per common share (0.20) (0.04) 0.66
Diluted net income (loss) per common share (0.20) (0.04) 0.66
Common share information (millions of shares):
Weighted average number of common shares 92.0 92.6 97.2
Diluted weighted average number of
common shares 92.0 92.7 97.5
Number of common shares outstanding,
end of period 92.0 92.0 95.6
--------------------------------------------------------------------------
1 Commission sales represent volumes marketed on a commission basis.
Commission income is included in revenue when earned.
2 Methanex average non-discounted posted price represents the average of
our non-discounted posted prices in North America, Europe and Asia
Pacific weighted by sales volume. Current and historical pricing
information is available at www.methanex.com.
3 Average realized price is calculated as revenue, net of commissions
earned, divided by the total sales volumes of produced and purchased
methanol.
4 These items are non-GAAP measures that do not have any standardized
meaning prescribed by Canadian generally accepted accounting principles
(GAAP) and therefore are unlikely to be comparable to similar measures
presented by other companies. Refer to Additional Information -
Supplemental Non-GAAP Measures for a description of each non-GAAP
measure and a reconciliation to the most comparable GAAP measure.
--------------------------------------------------------------------------
PRODUCTION SUMMARY
Q1 2009 Q4 2008 Q1 2008
(thousands of tonnes) Capacity(1) Production Production Production
---------------------------------------------------------------------------
Chile I, II, III and IV 960 228 272 309
Titan (Trinidad) 213 223 225 217
Atlas (Trinidad)
(63.1% interest) 268 204 269 293
New Zealand(2) 350 194 200 120
---------------------------------------------------------------------------
1,791 849 966 939
---------------------------------------------------------------------------
1 The production capacities for our Trinidad plants are stated at
original nameplate capacity. These facilities are able to operate above
original nameplate capacity as a result of efficiencies gained through
improvements and experience at these plants. The production capacity
for our facilities in Chile and New Zealand may be higher than original
nameplate capacity as, over time, these figures have been adjusted to
reflect ongoing operating efficiencies at these facilities.
2 In October 2008, we restarted one of our two idled 900,000 tonne per
year facilities at our Motunui site in New Zealand and we idled our
530,000 tonne per year Waitara Valley facility. We have the
flexibility to operate the Motunui plant or the Waitara Valley plant,
both, or neither, depending on methanol supply and demand dynamics and
the availability of natural gas on commercially acceptable terms and
accordingly, we have included both of these facilities in the
production capacity for New Zealand. We have excluded the second
Motunui facility from production capacity in New Zealand as we
currently do not intend to restart this facility.
Chile
Our methanol facilities in Chile produced 228,000 tonnes during
the first quarter of 2009 compared with 272,000 tonnes during the
fourth quarter of 2008. Production from our Chile facilities for
the first quarter of 2009 was lower compared with the fourth
quarter of 2008 primarily due to an unplanned outage in February
which resulted in lost production of approximately 35,000
tonnes.
We are currently operating our methanol facilities in Chile at
approximately 30% of capacity due to curtailments of our natural
gas supply from Argentina - refer to the Management's Discussion
and Analysis included in our 2008 Annual Report for more
information.
Our goal is ultimately to return to operating all four of our
plants in Chile with natural gas from suppliers in Chile. We are
pursuing investment opportunities with the state-owned energy
company Empresa Nacional del Petroleo (ENAP), GeoPark Chile Limited
(GeoPark) and others to help accelerate natural gas exploration and
development in southern Chile. During 2007, we signed an agreement
with GeoPark under which we provided $40 million in financing to
support and accelerate GeoPark's natural gas exploration and
development activities in the Fell block in southern Chile. GeoPark
has agreed to supply us with all natural gas sourced from the Fell
block under a ten-year exclusive supply arrangement. GeoPark has
continued to increase deliveries to our plants in Chile and for the
first quarter of 2009 approximately 30% of total production at our
Chilean facilities was produced with natural gas from the Fell
block. In May 2008, we signed an agreement with ENAP to accelerate
natural gas exploration and development in the Dorado Riquelme
exploration block in southern Chile and to supply natural gas to
our production facilities in Chile. Under the arrangement, we
expect to contribute approximately $100 million in capital over the
next two to three years to fund a 50% participation in the block.
The arrangement is subject to approval by the government of Chile,
which we expect to receive in the first half of 2009. As at March
31, 2009, we had contributed $50 million of the total expected
capital of $100 million for the Dorado Riquelme block.
Approximately $33 million has been placed in escrow until final
approval from the government is received and approximately $17
million has been paid to fund development and exploration
activities. We have been receiving some natural gas deliveries from
the Dorado Riquelme block since May 2008 and we expect natural gas
supply from this block to increase over time.
We continue to pursue other investment opportunities 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 oil and natural gas
exploration areas that lie close to our production facilities and
announced the participation of five international oil and gas
companies. Under the terms of the agreements from the bidding round
there are minimum investment commitments. Planning and exploration
activities have commenced. In July 2008, we announced that under
the international bidding round, the Otway exploration block in
southern Chile was awarded to a consortium that includes
Wintershall, GeoPark, and Methanex. 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
upon receipt of certain government approvals. The minimum
exploration investment committed in the Otway block by the
consortium for the first phase is $11 million over the next three
years.
We cannot provide assurance that ENAP, GeoPark or others will be
successful in the exploration and development of natural gas or
that we will obtain any additional natural gas from suppliers in
Chile on commercially acceptable terms.
Trinidad
Our methanol facilities in Trinidad represent over 2.0 million
tonnes of competitive cost annual capacity. Our methanol facilities
in Trinidad produced a total of 427,000 tonnes during the first
quarter of 2009 compared with 494,000 tonnes during the fourth
quarter of 2008. We completed planned turnaround activities at our
Atlas facility in February and this reduced production by
approximately 75,000 tonnes.
New Zealand
Our New Zealand facilities produced 194,000 tonnes during the
first quarter of 2009 compared with 200,000 tonnes during fourth
quarter of 2008.
In early October 2008, we restarted one of our two idled 900,000
tonne per year facilities at our Motunui site in New Zealand and we
idled our smaller scale 530,000 tonne Waitara Valley facility. We
have the flexibility to operate the Motunui plant or the Waitara
Valley plant or both depending on methanol supply and demand
dynamics and the availability of natural gas on commercially
acceptable terms.
EARNINGS ANALYSIS
Our operations consist of a single operating segment - the
production and sale of methanol. In addition to the methanol that
we produce at our facilities, we also purchase and re-sell methanol
produced by others and we sell methanol on a commission basis. We
analyze the results of all methanol sales together. The key drivers
of changes in our Adjusted EBITDA for methanol sales are average
realized price, sales volume and cash costs.
For a further discussion of the definitions and calculations
used in our Adjusted EBITDA analysis, refer to How We Analyze Our
Business.
For the first quarter of 2009, we recorded Adjusted EBITDA of
$13.1 million and a net loss of $18.4 million ($0.20 per share on a
diluted basis). This compares with Adjusted EBITDA of negative
$13.3 million and a net loss of $3.9 million ($0.04 per share on a
diluted basis) for the fourth quarter of 2008 and Adjusted EBITDA
of $126.2 million and net income of $64.6 million ($0.66 per share
on a diluted basis) for the first quarter of 2008.
During the fourth quarter of 2008, as a result of the major
slowdown in the global economy there was a significant reduction in
global demand for methanol and an increase in global inventories.
This impacted our business through lower sales volumes and lower
methanol pricing during the fourth quarter of 2008 and into early
2009. In addition, these factors resulted in a pre-tax charge to
earnings of $33 million related to a write-down of our inventory
value to estimated net realizable value at December 31, 2008. Our
costs were higher for the first quarter of 2009 than would be
expected at first quarter pricing levels due to the lag impact of
selling opening inventory at costs that are higher than the costs
incurred to produce or purchase methanol in the first quarter of
2009.
Adjusted EBITDA
The increase (decrease) in Adjusted EBITDA resulted from changes
in the following:
Q1 2009 Q1 2009
compared with compared with
($ millions) Q4 2008 Q1 2008
--------------------------------------------------------------------------
Average realized price $ (156) $ (440)
Sales volumes - (8)
Total cash costs 149 335
Inventory write-down charge 33 -
--------------------------------------------------------------------------
$ 26 $ (113)
--------------------------------------------------------------------------
Average realized price
Three Months Ended
----------------------------
Mar 31 Dec 31 Mar 31
($ per tonne, except where noted) 2009 2008 2008
--------------------------------------------------------------------------
Methanex average non-discounted
posted price (1) 216 388 703
Methanex average realized price 199 321 545
Average discount 8% 17% 22%
--------------------------------------------------------------------------
1 Methanex average non-discounted posted price represents the average of
our non-discounted posted prices in North America, Europe and Asia
Pacific weighted by sales volume. Current and historical pricing
information is available at www.methanex.com.
During the fourth quarter of 2008, the global economic slowdown
led to a sudden and significant reduction in global methanol demand
and an increase in global inventories. This resulted in a decrease
in contract methanol pricing during the fourth quarter of 2008 and
into 2009. During the first quarter of 2009 methanol pricing
remained relatively stable. Our average non-discounted posted price
for the first quarter of 2009 was $216 per tonne compared with $388
per tonne for the fourth quarter of 2008 and $703 per tonne for the
first quarter of 2008. Our average realized price for the first
quarter of 2009 was $199 per tonne compared with $321 per tonne for
the fourth quarter of 2008 and $545 per tonne for the first quarter
of 2008. The decrease in our average realized price for the first
quarter of 2009 compared with these periods decreased our Adjusted
EBITDA by $156 million and $440 million, respectively.
For the first quarter of 2009 our average realized price was
approximately 8% lower than our average non-discounted posted
price. This compares with approximately 17% lower for the fourth
quarter of 2008 and 22% lower for the first quarter of 2008. 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,
the discount from our average non-discounted posted prices for the
first quarter of 2009 is lower than the comparable periods above as
a result of lower methanol pricing.
Sales volumes
Total methanol sales volumes excluding commission sales volumes
for the first quarter of 2009 were higher by 6,000 tonnes compared
with the fourth quarter of 2008 and lower by 77,000 tonnes compared
with the first quarter of 2008. This resulted in lower Adjusted
EBITDA by $8 million for the first quarter of 2009 compared with
the first quarter of 2008.
Total cash costs
The primary driver of changes in our total cash costs are
changes in the cost of methanol we produce at our facilities and
changes in the cost of methanol we purchase from others. 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
changes in methanol prices above pre-determined prices at the time
of production. We supplement our production with methanol produced
by others through methanol offtake contracts and on the spot market
to meet customer needs and support our marketing efforts within the
major global markets. We have adopted the first-in, first-out
method of accounting for inventories and it generally takes between
30 and 60 days to sell the methanol we produce or purchase.
Accordingly, the changes in Adjusted EBITDA as a result of changes
in natural gas costs and purchased methanol costs will depend on
changes in methanol pricing and the timing of inventory flows.
Total cash costs for the first quarter of 2009 were lower
compared with the fourth quarter of 2008 and the first quarter of
2008 by $149 million and $335 million, respectively. Natural gas
costs on sales of produced methanol were lower during the first
quarter of 2009 compared with the fourth quarter of 2008 and the
first quarter of 2008 by $64 million and $89 million, respectively,
primarily as a result of the impact of lower methanol pricing.
Purchased methanol costs were also lower as a result of the impact
of lower methanol pricing during the first quarter of 2009 compared
with the fourth quarter of 2008 and the first quarter of 2008 and
this resulted in lower cash costs by $52 million and $113 million,
respectively. Purchased methanol represented a lower proportion of
our overall sales volumes during the first quarter of 2009 compared
with the fourth quarter of 2008 and the first quarter of 2008 and
this resulted in lower cash costs by approximately $32 million and
$128 million, respectively. During the first quarter of 2009, we
made the decision to reduce the work force for our Chilean
operations by approximately 15%, or 37 employees. As a result, we
accrued approximately $4 million in severance and termination costs
during the first quarter of 2009. We made a similar decision
related to our Chilean operations during the first quarter of
2008.
For the first quarter of 2009 compared with the fourth quarter
of 2008, other changes in cash costs were lower selling, general
and administrative expenses primarily as a result of lower travel,
consulting and other costs and lower ocean freight costs primarily
as a result of lower fuel costs. For the first quarter of 2009
compared with the first quarter of 2008, other changes in cash
costs were lower selling, general and administrative expenses
primarily as a result of lower stock-based compensation costs due
to the impact of changes in our share price as well as lower
travel, consulting and other costs.
Inventory write-down charge
We record inventory at lower of cost and estimated net
realizable value. The carrying value of our inventory, for both
produced methanol as well as methanol we purchase from others, will
reflect methanol pricing at the time of production or purchase and
this will differ from methanol pricing at period end. Methanol
prices fell sharply in late 2008 and early 2009 and in the fourth
quarter of 2008, we recorded a pre-tax charge to earnings of $33
million to write-down the carrying value of inventory to estimated
net realizable value at December 31, 2008.
Depreciation and Amortization
Depreciation and amortization was $29 million for the first
quarter of 2009 compared with $26 million for the fourth quarter of
2008. The increase in depreciation and amortization for the first
quarter of 2009 compared with the fourth quarter of 2008 is
primarily due to higher sales volumes of produced methanol which
includes depreciation charges.
Interest Expense
Three Months Ended
----------------------------
Mar 31 Dec 31 Mar 31
($ millions) 2009 2008 2008
--------------------------------------------------------------------------
Interest expense before capitalized interest $ 15 $ 14 $ 14
Less capitalized interest (7) (5) (3)
--------------------------------------------------------------------------
Interest expense $ 8 $ 9 $ 11
--------------------------------------------------------------------------
Interest expense before capitalized interest for the first
quarter of 2009 was $15 million compared with $14 million for both
the fourth quarter of 2008 and the first quarter of 2008. We have
limited recourse debt of $530 million for our joint venture project
to construct a 1.3 million tonne per year methanol facility in
Egypt. Interest costs related to this project are capitalized.
Interest and Other Income (Expense)
Three Months Ended
----------------------------
Mar 31 Dec 31 Mar 31
($ millions) 2009 2008 2008
--------------------------------------------------------------------------
Interest and other income (expense) $ (4) $ (2) $ (1)
--------------------------------------------------------------------------
Interest and other income (expense) for the first quarter of
2009 was an expense of $4 million compared with an expense of $2
million for the fourth quarter of 2008. For the first quarter of
2009, our interest and other income (expense) included a foreign
exchange loss of approximately $4 million. The change in interest
and other income (expense) during the first quarter of 2009
compared with the fourth quarter of 2008 and the first quarter of
2008 was primarily due to lower interest income on cash balances as
well as changes in foreign exchange gains and losses.
Income Taxes
The effective tax rate for the first quarter of 2009 was 32%
compared with 29% for the first quarter of 2008.
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.
SUPPLY/DEMAND FUNDAMENTALS
During the fourth quarter of 2008, the global financial crisis
and weak economic environment led to a major reduction in global
demand for most traditional methanol derivatives (which make up
approximately 70% of global methanol demand). While there has been
some softness in methanol demand into DME, overall demand into
energy related derivatives, including MTBE, have remained
relatively stable. Overall, we estimate global methanol demand
declined by about 15% in the fourth quarter of 2008 compared to the
third quarter of 2008. During the first quarter of 2009 global
methanol demand remained at similar levels compared with the fourth
quarter and we estimate total global demand is currently
approximately 36 million tonnes measured on an annualized basis. In
reaction to this decrease in demand, many high cost methanol plants
have been operating at lower rates or have shut down, particularly
in China, where we estimate approximately 6 million tonnes of high
cost methanol production capacity shut down during the fourth
quarter of 2008 and remained shut down during the first quarter of
2009. Net imports into China have increased significantly to
displace some of the domestic production that has been shut down.
In reaction to this decrease in demand, there was a significant
decrease in spot and contract methanol pricing during the fourth
quarter of 2008 and at the beginning of the first quarter of 2009.
During the first quarter, pricing stabilized and our average
non-discounted posted pricing in April was approximately $210 per
tonne. In recent weeks, we have seen a modest improvement in global
demand and spot prices have increased in all major regions.
Methanex Non-Discounted Regional Posted Prices(1)
Apr Mar Feb Jan
(US$ per tonne) 2009 2009 2009 2009
---------------------------------------------------------------------------
United States 200 216 233 233
Europe(2) 193 220 220 220
Asia 230 215 200 200
---------------------------------------------------------------------------
1 Discounts from our posted prices are offered to customers based on
various factors.
2 EUR146.5 for Q2 2009 (Q1 2009 - EUR159) converted to United States
dollars.
---------------------------------------------------------------------------
The next increments of world scale capacity additions outside of
China are two 1.7 million tonne per year plants in Malaysia and
Iran. The Malaysian plant is in the process of starting up and we
expect product from this plant to be available during the first
half of 2009. We expect product from the Iranian plant to be
available to the market in the second half of 2009.
The weak economic environment poses significant uncertainty for
our business and the future demand for methanol. Methanol demand
into traditional derivatives is correlated to industrial production
and we believe that methanol demand into traditional derivatives
should improve when the macro economic environment improves. Over
the past two years, high energy prices have driven demand for
methanol into emerging energy applications such as gasoline
blending and DME, primarily in China. While demand into these
derivatives in China has remained steady during the recent lower
energy price environment, we believe demand potential into these
emerging energy derivatives will be stronger in a higher energy
price environment.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities in the first quarter of
2009 were $68 million compared with $109 million for the same
period in 2008. The change in cash flows for the first quarter of
2009 compared with the first quarter of 2008 is primarily a result
of lower earnings and the changes in net working capital position.
For the first quarter of 2009 we had a net working capital inflow
of $63 million compared with a net working capital inflow of $8
million for the first quarter of 2008. The changes in non-cash
working capital are primarily driven by the impact of changes in
methanol pricing on our non-cash working capital balances, changes
in inventory levels and timing of cash payments and
collections.
During the first quarter of 2009, we paid a quarterly dividend
of US$0.155 per share, or $14 million.
We are constructing a 1.3 million tonne per year methanol
facility in Egypt. We expect the methanol facility to begin
operations in early 2010. We own 60% of Egyptian Methanex Methanol
Company S.A.E. ("EMethanex") which is the company that is
developing the project and we will sell 100% of the methanol from
the facility. 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 first quarter
of 2009, total plant and equipment construction costs related to
our project in Egypt were $86 million. EMethanex has limited
recourse debt of $530 million. As at March 31, 2009, a total of
$366 million of this limited recourse debt has been drawn with $45
million being drawn during the first quarter of 2009. The total
estimated future costs to complete the project, including
capitalized interest related to the project financing and excluding
working capital, are expected to be approximately $260 million. Our
60% share of future equity contributions, including capitalized
interest related to the project financing and excluding working
capital, is estimated to be approximately $60 million and we expect
to fund these expenditures from cash generated from operations and
cash on hand.
As previously mentioned, we have an agreement with ENAP to
accelerate natural gas exploration and development in the Dorado
Riquelme hydrocarbon exploration block in southern Chile. Under the
arrangement, we expect to contribute approximately $100 million in
capital, including the $50 million we have invested to date, over
the next two to three years and will have a 50% participation in
the block. The arrangement is subject to approval by the government
of Chile which is expected during the first half of 2009.
We operate in a highly competitive commodity industry and
believe it is appropriate to maintain a conservative balance sheet
and to retain financial flexibility. This is particularly important
in the current uncertain economic environment and the current
difficult credit markets. Our cash balance at March 31, 2009 was
$313 million and we have low leverage, no near term re-financing
requirements, and an undrawn $250 million credit facility provided
by highly rated financial institutions that expires in mid-2010. 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 for current operations, is currently estimated
to total approximately $90 million for the period to the end of
2011.
We believe we are in a strong financial position and we are
committed to maintaining financial strength and flexibility to meet
our financial commitments through this period of uncertainty and
continue to invest to grow the Company.
The credit ratings for our unsecured notes at March 31, 2009 were as
follows:
--------------------------------------------------------------------
Standard & Poor's Rating Services BBB- (stable)
Moody's 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.
--------------------------------------------------------------------
SHORT-TERM OUTLOOK
In the short term there is significant uncertainty caused by the
global economic slowdown and its impact on our business. The
significant slowdown in the global economy that began in the fourth
quarter of 2008 has persisted into 2009 and it is uncertain how
long the current weak economic environment will last or how severe
it may become. These global economic conditions materially affect
both the supply and demand for methanol and the price at which
methanol is sold. The degree to which our business is impacted is
dependent upon the duration and severity of these economic
conditions.
In April 2009, our average non-discounted price across all of
the major regions is approximately $210 per tonne. We currently
believe that methanol prices should remain relatively stable during
the second quarter. However, 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 and investing to grow the
Company.
CONTROLS AND PROCEDURES
For the three months ended March 31, 2009, 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.
CHANGES IN ACCOUNTING POLICIES
On January 1, 2009, we adopted the CICA issued Handbook Section
3064, Goodwill and Intangible Assets. This new accounting standard,
replaces Section 3062, Goodwill and Other Intangible Assets.
Section 3064 expands on the standards for recognition, measurement
and disclosure of intangible assets. The impact of the retroactive
adoption of this standard on our consolidated financial statements
at January 1, 2009 is approximately $13 million recorded as a
reduction to opening retained earnings and property, plant and
equipment. The amount relates to certain pre-operating expenditures
that have been capitalized to property, plant and equipment at
December 31, 2008 that would have been required to be expensed
under this new standard. The impact for the three months ended
March 31, 2009 was an increase to selling, general and
administrative expenses of approximately $1.2 million (2008 - $0.9
million).
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
(IFRS)
In February 2008, the Canadian Accounting Standards Board
confirmed January 1, 2011 as the changeover date for Canadian
publicly accountable enterprises to start using International
Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB). IFRS uses a conceptual framework
similar to Canadian GAAP, but there are significant differences in
recognition, measurement and disclosures.
As a result of the IFRS transition, changes in accounting
policies are likely and may materially impact our consolidated
financial statements. The IASB will also continue to issue new
accounting standards during the conversion period, and as a result,
the final impact of IFRS on our consolidated financial statements
will only be measured once all the IFRS applicable at the
conversion date are known.
We have established a working team to manage the transition to
IFRS. Additionally, we have established an IFRS steering committee
to monitor progress and review and approve recommendations from the
working team for the transition to IFRS. The working team provides
regular updates to the IFRS steering committee and to the Audit,
Finance & Risk Committee of the Board.
We have developed a plan to convert our consolidated financial
statements to IFRS at the changeover date of January 1, 2011 with
comparative financial results for 2010. The IFRS transition plan
addresses the impact of IFRS on accounting policies and
implementation decisions, infrastructure, business activities, and
control activities.
We have commenced the accounting policy selection phase and are
addressing, on a priority basis, those areas which we believe may
cause the most significant impact to our consolidated financial
statements. In conjunction with the accounting policy selection
phase, we are identifying the impact of IFRS on infrastructure
(including financial reporting expertise and information technology
and data systems), business activities (including financial
covenants and compensation arrangements), and control activities
(including internal control over financial reporting and disclosure
controls and procedures).
We will continue to provide updates on the status of key
activities for this convergence project in our quarterly and annual
Management's Discussion and Analysis throughout the convergence
period to January 1, 2011.
ADDITIONAL INFORMATION - SUPPLEMENTAL NON-GAAP MEASURES
In addition to providing measures prepared in accordance with
Canadian generally accepted accounting principles (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
Company's ongoing business. These measures should be considered in
addition to, and not as a substitute for, net income, cash flows
and other measures of financial performance and liquidity reported
in accordance with Canadian GAAP.
Adjusted EBITDA
This supplemental non-GAAP measure is provided to assist readers
in determining our ability to generate cash from operations. We
believe this measure is useful in assessing performance and
highlighting trends on an overall basis. We also believe Adjusted
EBITDA is frequently used by securities analysts and investors when
comparing our results with those of other companies. Adjusted
EBITDA differs from the most comparable GAAP measure, cash flows
from operating activities, primarily because it does not include
changes in non-cash working capital, other cash payments related to
operating activities, stock-based compensation expense, other
non-cash items, interest expense, interest and other income, and
current income taxes.
The following table shows a reconciliation of cash flows from
operating activities to Adjusted EBITDA:
Three Months Ended
------------------------------
Mar 31 Dec 31 Mar 31
($ thousands) 2009 2008 2008
--------------------------------------------------------------------------
Cash flows from operating activities $ 67,853 $ 49,693 $ 109,132
Add (deduct):
Changes in non-cash working capital (63,036) (84,377) (8,267)
Other cash payments 1,290 545 320
Stock-based compensation recovery (expense) (1,874) 1,155 (4,628)
Other non-cash items (2,149) 3,505 (5,859)
Interest expense 7,559 8,675 10,690
Interest and other (income) expense 3,581 1,823 837
Current income taxes (95) 5,697 23,960
--------------------------------------------------------------------------
Adjusted EBITDA $ 13,129 $(13,284) $ 126,185
--------------------------------------------------------------------------
Operating Income and Cash Flows from Operating Activities before
Non-Cash Working Capital
Operating income and cash flows from operating activities before
changes in non-cash working capital are reconciled to Canadian GAAP
measures in our consolidated statements of income and consolidated
statements of cash flows, respectively.
QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected financial information for the prior eight
quarters is as follows:
Three Months Ended
-----------------------------------------------
($ thousands, except per Mar 31 Dec 31 Sep 30 Jun 30
share amounts) 2009 2008 2008 2008
---------------------------------------------------------------------------
Revenue $ 254,007 $ 408,384 $ 569,876 $ 600,025
Net income (loss) (18,406) (3,949) 70,045 38,059
Basic net income (loss)
per common share (0.20) (0.04) 0.75 0.40
Diluted net income (loss)
per common share (0.20) (0.04) 0.74 0.40
---------------------------------------------------------------------------
Three Months Ended
-----------------------------------------------
($ thousands, except per Mar 31 Dec 31 Sep 30 Jun 30
share amounts) 2008 2007 2007 2007
---------------------------------------------------------------------------
Revenue $ 735,934 $ 731,057 $ 395,118 $ 466,414
Net income 64,598 171,697 23,610 35,654
Basic net income per
common share 0.66 1.74 0.24 0.35
Diluted net income per
common share 0.66 1.72 0.24 0.35
---------------------------------------------------------------------------
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% 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. For the first quarter of 2009, the
Company did not purchase any common shares under this program. 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
This First Quarter 2009 Management's Discussion and Analysis
contains forward-looking statements with respect to us and the
chemical industry. Statements that include the words "believes",
"expects", "may", "will," "should", "seeks", "intends", "plans",
"estimates", "anticipates", or the negative version of those words
or other comparable terminology and similar statements of a future
or forward-looking nature identify forward-looking statements.
We believe that we have a reasonable basis for making such
forward-looking statements. The forward-looking statements in this
document are based on our experience, our perception of trends,
current conditions and expected future developments as well as
other factors. 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.
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,
including the on-time and on-budget completion of our new methanol
joint venture project in Egypt, the ability to successfully carry
out corporate initiatives and strategies, conditions in the
methanol and other industries, fluctuations in supply, demand and
price for methanol and its derivatives, including demand for
methanol for energy uses, the price of oil, the success of natural
gas exploration and development activities in southern Chile and
New Zealand and our ability to obtain any additional gas in those
regions on commercially acceptable terms, actions of competitors
and suppliers, actions of governments and governmental authorities,
changes in laws or regulations, world-wide economic conditions and
other risks described in our 2008 Management's Discussion and
Analysis and this First Quarter 2009 Management's Discussion and
Analysis. In addition to the foregoing risk factors, the current
global financial crisis and its impact on global economies has
added additional risks and uncertainties including changes in
capital markets and corresponding effects on the company's
investments, our ability to access existing or future credit and
defaults by customers, suppliers or insurers.
Having in mind these and other factors, investors and other
readers are cautioned not to place undue reliance on
forward-looking statements. They are not a substitute for the
exercise of one's own due diligence and judgment. The outcomes
anticipated in forward-looking statements may not occur and we do
not undertake to update forward-looking statements.
HOW WE ANALYZE OUR BUSINESS
Our operations consist of a single operating segment - the
production and sale of methanol. 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, and
income taxes. In addition to the methanol that we produce at our
facilities, we also purchase and re-sell methanol produced by
others and we sell methanol on a commission basis. We analyze the
results of all methanol sales together. The key drivers of changes
in our Adjusted EBITDA for methanol sales are average realized
price, sales volume and cash costs. The price, cash cost and volume
variances included in our Adjusted EBITDA analysis 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 methanol multiplied by the current
period total methanol sales volume excluding commission sales
volume plus the difference from period to period in commission
revenue.
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 total methanol sales volume excluding
commission sales volume in the current period plus the change in
unabsorbed fixed cash costs, the change in consolidated selling,
general and administrative expenses and the change in fixed storage
and handling costs.
VOLUME
The change in Adjusted EBITDA as a result of changes in sales
volumes is calculated as the difference from period to period in
total methanol sales volume excluding commission sales volume
multiplied by the margin per tonne for the prior period. The margin
per tonne is calculated as the selling price per tonne of methanol
less absorbed fixed cash costs per tonne and variable cash costs
per tonne.
Methanex Corporation
Consolidated Statements of Income (Loss) (unaudited)
(thousands of U.S. dollars, except number of common shares and per
share amounts)
Three Months Ended
--------------------------
Mar 31 Mar 31
2009 2008
-------------------------------------------------------------------------
(As adjusted -
note 2)
Revenue $ 254,007 $ 735,934
Cost of sales and operating expenses 240,878 609,749
Depreciation and amortization 28,921 23,113
-------------------------------------------------------------------------
Operating income (loss) before undernoted items (15,792) 103,072
Interest expense (note 7) (7,559) (10,690)
Interest and other income (expense) (3,581) (837)
-------------------------------------------------------------------------
Income (loss) before income taxes (26,932) 91,545
Income tax recovery (expense):
Current 95 (23,960)
Future 8,431 (2,987)
-------------------------------------------------------------------------
8,526 (26,947)
-------------------------------------------------------------------------
Net income (loss) $ (18,406) $ 64,598
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income (loss) per common share:
Basic $ (0.20) $ 0.66
Diluted $ (0.20) $ 0.66
Weighted average number of common
shares outstanding:
Basic 92,034,025 97,155,124
Diluted 92,034,025 97,534,095
Number of common shares outstanding
at period end 92,039,492 95,588,767
See accompanying notes to consolidated financial statements.
Methanex Corporation
Consolidated Balance Sheets (unaudited)
(thousands of U.S. dollars)
Mar 31 Dec 31
2009 2008
-------------------------------------------------------------------------
(As adjusted -
note 2)
ASSETS
Current assets:
Cash and cash equivalents $ 312,894 $ 328,430
Receivables 150,754 213,419
Inventories 126,783 177,637
Prepaid expenses 20,466 16,840
-------------------------------------------------------------------------
610,897 736,326
Property, plant and equipment (note 4) 1,978,665 1,899,059
Other assets 169,463 168,988
-------------------------------------------------------------------------
$ 2,759,025 $ 2,804,373
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 174,784 $ 235,369
Current maturities on long-term debt (note 6) 15,282 15,282
Current maturities on other
long-term liabilities 6,916 8,048
-------------------------------------------------------------------------
196,982 258,699
Long-term debt (note 6) 817,021 772,021
Other long-term liabilities 90,541 97,441
Future income tax liabilities 290,761 299,192
Non-controlling interest 104,592 88,604
Shareholders' equity:
Capital stock 427,345 427,265
Contributed surplus 24,862 22,669
Retained earnings 829,834 862,507
Accumulated other comprehensive loss (22,913) (24,025)
-------------------------------------------------------------------------
1,259,128 1,288,416
-------------------------------------------------------------------------
$ 2,759,025 $ 2,804,373
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Methanex Corporation
Consolidated Statements of Shareholders' Equity (unaudited)
(thousands of U.S. dollars, except number of common shares)
Accumu-
lated
Other Total
Number of Contri- Compre- Share-
Common Capital buted Retained hensive holders'
Shares Stock Surplus Earnings Loss Equity
---------------------- -------------------------------------- ----------
Balance,
December
31,
2007
as
previously
reported 98,310,254 $ 451,640 $ 16,021 $ 876,348 $ (8,655) $1,335,354
Adjustments
for
retroactive
adoption
of new
accounting
policies:
Goodwill and
intangibles
3064 (note 2) - - - (7,790) - (7,790)
Non-controlling
interest
proportionate
share
(note 2) - - - 1,858 3,462 5,320
---------------------- -------------------------------------- ----------
Balance,
December
31,
2007
as
adjusted 98,310,254 451,640 16,021 870,416 (5,193) 1,332,884
Net income
and other
comprehensive
loss, as
previously
reported - - - 172,298 (31,363) 140,935
Adjustments
for retroactive
adoption of new
accounting
policies:
Goodwill and
intangibles
3064 (note 2) - - - (5,818) - (5,818)
Non-controlling
interest
proportionate
share (note 2) - - - 2,273 12,531 14,804
--------- -------- ---------
Net income
and other
comprehensive
loss, as
adjusted 168,753 (18,832) 149,921
Compensation
expense
recorded
for stock
options - - 8,225 - - 8,225
Issue of
shares on
exercise
of stock
options 224,016 4,075 - - - 4,075
Reclassifi-
cation
of grant
date fair
value on
exercise
of stock
options - 1,577 (1,577) - - -
Payments
for shares
repurch-
ased (6,502,878) (30,027) - (119,829) - (149,856)
Dividend
payments - - - (56,833) - (56,833)
---------------------- -------------------------------------- ----------
Balance,
December
31,
2008 92,031,392 427,265 22,669 862,507 (24,025) 1,288,416
Net loss - - - (18,406) - (18,406)
Compensation
expense
recorded
for stock
options - - 2,235 - - 2,235
Issue of
shares on
exercise
of stock
options 8,100 38 - - - 38
Reclassifi-
cation
of grant
date fair
value on
exercise
of stock
options - 42 (42) - - -
Dividend
payments - - - (14,267) - (14,267)
Other
comprehensive
income - - - - 1,112 1,112
---------------------- -------------------------------------- ----------
Balance,
March 31,
2009 92,039,492 $ 427,345 $ 24,862 $ 829,834 $(22,913) $1,259,128
---------------------- -------------------------------------- ----------
---------------------- -------------------------------------- ----------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
(thousands of U.S. dollars)
Three months ended
---------------------------
Mar 31 Mar 31
2009 2008
--------------------------------------------------------------------------
Net income (loss) $ (18,406) $ 64,598
Other comprehensive income (loss), net of tax:
Change in fair value of forward exchange
contracts (note 12) 42 (265)
Change in fair value of interest rate
swap contracts (note 12) 1,070 (7,138)
--------------------------------------------------------------------------
1,112 (7,403)
--------------------------------------------------------------------------
Comprehensive income (loss) $ (17,294) $ 57,195
--------------------------------------------------------------------------
--------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Methanex Corporation
Consolidated Statements of Cash Flows (unaudited)
(thousands of U.S. dollars)
Three Months Ended
--------------------------
Mar 31 Mar 31
2009 2008
-------------------------------------------------------------------------
(As adjusted -
note 2)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (18,406) $ 64,598
Add (deduct) non-cash items:
Depreciation and amortization 28,921 23,113
Future income taxes (8,431) 2,987
Stock-based compensation expense 1,874 4,628
Other 2,149 5,859
Other cash payments, including
stock-based compensation (1,290) (320)
-------------------------------------------------------------------------
Cash flows from operating activities
before undernoted 4,817 100,865
Changes in non-cash working capital (note 11) 63,036 8,267
-------------------------------------------------------------------------
67,853 109,132
-------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments for shares repurchased - (74,076)
Dividend payments (14,267) (13,464)
Proceeds from limited recourse debt (note 6) 45,000 39,000
Equity contribution by non-controlling interest 16,060 13,600
Repayment of limited recourse debt (313) (312)
Proceeds on issue of shares on exercise
of stock options 38 2,392
Repayment of other long-term liabilities (7,641) (4,998)
-------------------------------------------------------------------------
38,877 (37,858)
-------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment (16,899) (8,151)
Egypt plant under construction (86,352) (94,757)
Dorado Riquelme investment (note 13) (8,089) -
GeoPark financing - (11,390)
Changes in reserve accounts 7,600 -
Other assets (2,411) 306
Changes in non-cash working capital (note 11) (16,115) 19,658
-------------------------------------------------------------------------
(122,266) (94,334)
-------------------------------------------------------------------------
Decrease in cash and cash equivalents (15,536) (23,060)
Cash and cash equivalents, beginning of period 328,430 488,224
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 312,894 $ 465,164
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid $ 20,358 $ 16,989
Income taxes paid, net of amounts refunded $ 5,765 $ 28,148
See accompanying notes to consolidated financial statements.
Methanex Corporation
Notes to Consolidated Financial Statements (unaudited)
Except where otherwise noted, tabular dollar amounts are stated
in thousands of U.S. dollars.
1. Basis of presentation:
These interim consolidated financial statements are prepared in
accordance with generally accepted accounting principles in Canada
on a basis consistent with those followed in the most recent annual
consolidated financial statements, except as described in Note 2
below. These accounting principles are different in some respects
from those generally accepted in the United States and the
significant differences are described and reconciled in Note 14.
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 2008 Annual Report.
Certain prior period comparatives have been reclassified to conform
with the current year presentation.
2. Changes to Canadian generally accepted accounting principles
and reclassifications:
On January 1, 2009, the Company adopted the CICA issued Handbook
Section 3064, Goodwill and Intangible Assets. This new accounting
standard, replaces Section 3062, Goodwill and Other Intangible
Assets. Section 3064 expands on the standards for recognition,
measurement and disclosure of intangible assets. The impact of the
retroactive adoption of this standard on the Company's consolidated
balance sheet at January 1, 2009 is approximately $13 million
recorded as a reduction to opening retained earnings and property
plant and equipment. The amount relates to certain pre-operating
expenditures that have been capitalized to property, plant and
equipment at December 31, 2008 that would have been required to be
expensed under this new standard. The impact for the three months
ended March 31, 2009 was an increase to selling, general and
administrative expenses of approximately $1.2 million (2008 - $0.9
million).
As a portion of these pre-operating expenditures were incurred
in a non-wholly-owned subsidiary, the Company has also adjusted the
opening non-controlling interest (NCI) and retained earnings
balances at December 31, 2008 for the NCI's proportionate share of
approximately $4 million. In addition, the Company has
retrospectively reclassified approximately $16 million from
accumulated other comprehensive loss to NCI, representing the NCI's
share of accumulated other comprehensive loss to December 31,
2008.
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 months
ended March 31, 2009 was $231 million (2008 - $573 million).
4. Property, plant and equipment:
Accumulated Net Book
Cost Depreciation Value
------------------------------------------------------------- ------------
March 31, 2009
Plant and equipment $ 2,557,059 $ 1,316,928 $ 1,240,131
Egypt plant under construction 676,937 - 676,937
Other 128,033 66,436 61,597
------------------------------------------------------------- ------------
$ 3,362,029 $ 1,383,364 $ 1,978,665
------------------------------------------------------------- ------------
December 31, 2008
Plant and equipment $ 2,544,163 $ 1,299,296 $ 1,244,867
Egypt plant under construction 590,585 - 590,585
Other 127,731 64,124 63,607
------------------------------------------------------------- ------------
$ 3,262,479 $ 1,363,420 $ 1,899,059
------------------------------------------------------------- ------------
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
Company's proportionate interest in Atlas:
Mar 31 Dec 31
Consolidated Balance Sheets 2009 2008
---------------------------------------------------------------------------
Cash and cash equivalents $ 52,138 $ 35,749
Other current assets 52,105 57,374
Property, plant and equipment 253,869 249,609
Other assets 10,549 18,149
Accounts payable and accrued liabilities 27,757 19,927
Long-term debt, including current maturities (note 6) 106,750 106,592
Future income tax liabilities 15,288 17,942
---------------------------------------------------------------------------
Three Months Ended
---------------------
Mar 31 Mar 31
Consolidated Statements of Income 2009 2008
---------------------------------------------------------------------------
Revenue $ 37,861 $ 82,077
Expenses (34,675) 74,634
---------------------------------------------------------------------------
Income before income taxes 3,186 7,443
Income tax expense (742) (1,902)
---------------------------------------------------------------------------
Net income $ 2,444 $ 5,541
---------------------------------------------------------------------------
Three Months Ended
---------------------
Mar 31 Mar 31
Consolidated Statements of Cash Flows 2009 2008
---------------------------------------------------------------------------
Cash inflows from operating activities $ 17,322 $ 24,554
Cash outflows from investing activities (933) (166)
---------------------------------------------------------------------------
6. Long-term debt:
Mar 31 Dec 31
2009 2008
---------------------------------------------------------------------------
Unsecured notes
8.75% due August 15, 2012 $ 198,290 $ 198,182
6.00% due August 15, 2015 148,564 148,518
---------------------------------------------------------------------------
346,854 346,700
Atlas limited recourse debt facilities 106,750 106,592
Egypt limited recourse debt facilities 365,574 320,574
Other limited recourse debt facilities 13,125 13,437
---------------------------------------------------------------------------
832,303 787,303
Less current maturities (15,282) (15,282)
---------------------------------------------------------------------------
$ 817,021 $ 772,021
---------------------------------------------------------------------------
7. Interest expense:
Three Months Ended
---------------------
Mar 31 Mar 31
2009 2008
---------------------------------------------------------------------------
Interest expense before capitalized interest $ 15,049 $ 13,855
Less: capitalized interest related to Egypt project (7,490) (3,165)
---------------------------------------------------------------------------
Interest expense $ 7,559 $ 10,690
---------------------------------------------------------------------------
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 months ended March 31, 2009, interest costs related
to this project of $7.5 million were capitalized (2008 - $3.2
million).
8. Net income (loss) per common share:
A reconciliation of the weighted average number of common shares
outstanding is as follows:
Three Months Ended
---------------------
Mar 31 Mar 31
2009 2008
---------------------------------------------------------------------------
Denominator for basic net income
(loss) per common share 92,034,025 97,155,124
Effect of dilutive stock options - 378,971
---------------------------------------------------------------------------
Denominator for diluted net income
(loss) per common share 92,034,025 97,534,095
---------------------------------------------------------------------------
9. Stock-based compensation:
a) Stock options:
(i) Incentive stock options:
Common shares reserved for outstanding incentive stock options
at March 31, 2009:
Options Options
Denominated in CAD Denominated in USD
--------------------- ---------------------
Weighted Weighted
Number of Average Number of Average
Stock Exercise Stock Exercise
Options Price Options Price
-------------------------------------------------- ---------------------
Outstanding at
December 31, 2008 76,450 $ 6.95 3,743,117 $ 23.27
Granted - - 1,361,130 6.33
Exercised (8,100) 5.85 - -
Cancelled (1,000) 5.85 (5,325) 25.27
---------------------------------------------------------------------------
Outstanding at
March 31, 2009 67,350 $ 7.09 5,098,922 $ 18.75
---------------------------------------------------------------------------
Information regarding the incentive stock options outstanding at
March 31, 2009 is as follows:
Options Options
Outstanding at Exercisable at
March 31, 2009 March 31, 2009
---------------------------------- --------------------
Weighted
Average
Remaining Number of Weighted Number of Weighted
Contractual Stock Average Stock Average
Range of Life Options Exercise Options Exercise
Exercise Prices (Years) Outstanding Price Exercisable Price
------------------------------------------------------ --------------------
Options denominated
in CAD
$3.29 to 9.56 1.5 67,350 $ 7.09 67,350 $ 7.09
---------------------------------------------------------------------------
Options denominated
in USD
$6.33 to 11.56 6.5 1,548,680 $ 6.60 187,550 $ 8.57
$17.85 to 22.52 3.7 1,466,150 20.26 1,459,483 20.25
$23.92 to 28.43 5.4 2,084,092 26.71 1,023,657 26.14
---------------------------------------------------------------------------
5.3 5,098,922 $ 18.75 2,670,690 $ 21.69
---------------------------------------------------------------------------
(ii) Performance stock options:
As at March 31, 2009, there were 35,000 shares (December 31,
2008 - 35,000 shares) reserved for performance stock options with
an exercise price of CAD $4.47. All outstanding performance stock
options have vested and are exercisable.
(iii) Compensation expense related to stock options:
For the three months ended March 31, 2009, compensation expense
related to stock options included in cost of sales and operating
expenses was $2.2 million (2008 - $2.9 million). For the three
months ended March 31, 2009, 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:
2009
---------------------------------------------------------------------------
Risk-free interest rate 1.8%
Dividend yield 2%
Expected life 5 years
Volatility 44%
Forfeiture rate 5%
Weighted average fair value of options granted (USD per share) $ 2.06
---------------------------------------------------------------------------
b) Deferred, restricted and performance share units:
Deferred, restricted and performance share units outstanding at
March 31, 2009 are as follows:
Number of Number of Number of
Deferred Restricted Performance
Share Units Share Units Share Units
----------------------------------------------- ------------- ------------
Outstanding at
December 31, 2008 411,395 12,523 1,057,648
Granted 112,131 15,200 396,470
Granted in-lieu of dividends 10,187 606 22,913
Redeemed - - (395,420)
Cancelled - - (11,039)
--------------------------------------------------------------------------
Outstanding at March 31, 2009 533,713 28,329 1,070,572
--------------------------------------------------------------------------
Compensation expense for deferred, restricted and performance
share units is initially measured at fair value based on the market
value of the Company's common shares and is recognized over the
related service period. Changes in fair value are recognized in
earnings for the proportion of the service that has been rendered
at each reporting date. The fair value of deferred, restricted and
performance share units at March 31, 2009 was $16.7 million
compared with the recorded liability of $14.7 million. The
difference between the fair value and the recorded liability of
$2.0 million will be recognized over the weighted average remaining
service period of approximately 2.1 years.
For the three months ended March 31, 2009, compensation expense
related to deferred, restricted and performance share units
included was a net recovery of $0.4 million (2008 - expense of $1.7
million), recorded in cost of sales and operating expenses, after a
recovery of $3.0 million (2008 - recovery of $1.7 million), related
to the effect of the change in the Company's share price.
10. Retirement plans:
Total net pension expense for the Company's defined benefit and
defined contribution pension plans during the three months ended
March 31, 2009 was $3.5 million (2008 - $2.9 million).
11. Changes in non-cash working capital:
The change in cash flows related to changes in non-cash working
capital for the three months ended March 31, 2009 were as
follows:
Three Months Ended
---------------------
Mar 31 Mar 31
2009 2008
---------------------------------------------------------------------------
Decrease (increase) in non-cash working capital:
Receivables $ 62,665 $ 102,331
Inventories 50,854 (36,189)
Prepaid expenses (3,626) (16,617)
Accounts payable and accrued liabilities (60,585) (27,383)
---------------------------------------------------------------------------
49,308 22,142
Adjustments for items not having a cash effect (2,387) 5,783
---------------------------------------------------------------------------
Changes in non-cash working capital
having a cash effect $ 46,921 $ 27,925
---------------------------------------------------------------------------
These changes relate to the following activities:
Operating $ 63,036 $ 8,267
Investing (16,115) 19,658
---------------------------------------------------------------------------
Changes in non-cash working capital $ 46,921 $ 27,925
---------------------------------------------------------------------------
12. Financial instruments:
The following table provides the carrying value of each category
of financial assets and liabilities and the related balance sheet
item:
Mar 31 Dec 31
2009 2008
---------------------------------------------------------------------------
Financial assets:
Held for trading financial assets:
Cash and cash equivalents $ 312,894 $ 328,430
Reserve accounts included in other assets 10,549 18,149
Loans and receivables:
Receivables (excluding current portion of
GeoPark financing) 144,772 207,419
Dorado Riquelme investment included in
other assets (note 13) 50,311 42,123
GeoPark financing, including current portion 34,726 36,616
---------------------------------------------------------------------------
$ 553,252 $ 632,737
---------------------------------------------------------------------------
Financial liabilities:
Other financial liabilities:
Accounts payable and accrued liabilities $ 174,784 $ 235,369
Long-term debt, including current portion 832,303 787,303
Capital lease obligation included in other
long-term liabilities, including current portion 19,606 20,742
Held for trading financial liabilities:
Derivative instruments designated as
cash flow hedges 34,979 38,100
Derivative instruments 637 1,771
---------------------------------------------------------------------------
$1,062,309 $1,083,285
---------------------------------------------------------------------------
At March 31, 2009, all of the Company's financial instruments
are recorded on the balance sheet at amortized cost with the
exception of cash and cash equivalents, derivative financial
instruments and 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
average aggregated fixed rate of 4.8% plus a spread on
approximately 75% of the Egypt limited recourse debt facilities for
the period September 28, 2007 to March 31, 2015.
These interest rate swaps had outstanding notional amounts of
$316 million as at March 31, 2009. Under the interest rate swap
contracts the maximum notional amount during the term is $368
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 March 31, 2009, these interest
rate swap contracts had a negative fair value of $35.0 million
(December 31, 2008 - negative $38.1 million) recorded in other
long-term liabilities. The fair 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 March 31, 2009, the Company
had outstanding forward exchange contracts designated as cash flow
hedges to sell a notional amount of 12.7 million euro in exchange
for US dollars and these euro contracts had a positive fair value
of $0.2 million (December 31, 2008 - fair value of nil). Changes in
fair value of derivative financial instruments designated as cash
flow hedges have been recorded in other comprehensive income.
At March 31, 2009, the Company's derivative financial
instruments that have not been designated as cash flow hedges
include a floating-for-fixed interest rate swap contract with a
negative fair value of $0.6 million (December 31, 2008 - $0.6
million) recorded in other long-term liabilities. For the three
months ended March 31, 2009, the total change in fair value of
these derivative financial instruments was nil (2008 - negative
$0.3 million).
13. 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 Company's production facilities in Chile. Under the
arrangement, the Company expects to contribute approximately $100
million in capital over the next two or three years and will have a
50% participation in the block. As of March 31, 2009, the Company
had contributed $50.3 million (December 31, 2008 - $42.1 million)
of the total expected capital of $100 million for the Dorado
Riquelme block and this amount has been recorded in other assets.
The arrangement is subject to approval by the government of Chile
and $33.6 million (December 31, 2008 - $33.5 million) of the amount
contributed has been placed in escrow until final approval is
received. Additionally, the Company invested $16.7 million
(December 31, 2008 - $8.6 million) related to developmental and
exploratory wells in the Dorado Riquelme block, which has been
recorded in other assets.
14. United States generally accepted accounting principles:
The Company follows generally accepted accounting principles in
Canada ("Canadian GAAP") which are different in some respects from
those applicable in the United States and from practices prescribed
by the United States Securities and Exchange Commission ("U.S.
GAAP").
The significant differences between Canadian GAAP and U.S. GAAP
with respect to the Company's consolidated statements of income
(loss) for the three months ended March 31, 2009 and 2008 are as
follows:
Three Months Ended
----------------------
Mar 31 Mar 31
2009 2008
---------------------------------------------------------------------------
Net income (loss) in accordance with Canadian GAAP $ (18,406) $ 64,598
Add (deduct) adjustments for:
Depreciation and amortization (a) (478) (478)
Stock-based compensation (b) 55 13
Uncertainty in income taxes (c) (414) (415)
Income tax effect of above adjustments (d) 168 168
---------------------------------------------------------------------------
Net income (loss) in accordance with U.S. GAAP $ (19,075) $ 63,886
---------------------------------------------------------------------------
Per share information in accordance with U.S. GAAP:
Basic net income (loss) per share $ (0.21) $ 0.66
Diluted net income (loss) per share $ (0.21) $ 0.66
---------------------------------------------------------------------------
The significant differences between Canadian GAAP and U.S. GAAP
with respect to the Company's consolidated statements of
comprehensive income (loss) for the three months ended March 31,
2009 and 2008 are as follows:
Three Months Ended
-------------------------------------------------------
Mar 31, 2009 Mar 31, 2008
--------------------------------------- ------------
Canadian GAAP Adjustments U.S. GAAP U.S. GAAP
---------------------------------------------------------- ------------
Net income (loss) $ (18,406) $ (669) $ (19,075) $ 63,886
Change in fair
value of forward
exchange contracts,
net of tax 42 - 42 (265)
Change in fair
value of interest
rate swap, net of
tax 1,070 - 1,070 (7,138)
Change related to
pension, net of
tax (e) - 354 354 241
---------------------------------------------------------- ------------
Comprehensive
income (loss) $ (17,294) $ (315) $ (17,609) $ 56,724
---------------------------------------------------------- ------------
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 (2008 - $0.5
million) was recorded for the three months ended March 31,
2009.
b) Stock-based compensation:
The Company has 22,350 stock options that are accounted for as
variable plan options under U.S. GAAP because the exercise price of
the stock options is denominated in a currency other than the
Company's functional currency or the currency in which the optionee
is normally compensated. For Canadian GAAP purposes, no
compensation expense has been recorded as these options were
granted in 2001 which is prior to the effective implementation date
for fair value accounting under Canadian GAAP.
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 (FIN 48). FIN 48 clarifies the accounting for
income taxes recognized in a Company's financial statements in
accordance with FASB Statement No. 109, Accounting for Income Taxes
(SFAS 109). FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return. In accordance with FIN 48, an income tax expense of
$0.4 million (2008 - $0.4 million) was recorded for the three
months ended March 31, 2009.
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 (2008 - $0.2 million) was recorded for the three
months ended March 31, 2009.
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 $0.4 million (2008 - $0.2 million)
was recorded for the three months ended March 31, 2009.
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.
g) Non-controlling Interests:
Effective January 1, 2009, the FASB issued FAS No. 160,
Non-controlling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51. FAS No. 160 requires the ownership
interests in subsidiaries held by parties other than the parent be
clearly identified, labelled, and presented in the consolidated
statement of financial position within equity, but separate from
the parent's equity. Under this standard, the Company would be
required to reclassify non-controlling interest on the consolidated
balance sheet into shareholders' equity.
Methanex Corporation
Quarterly History (unaudited)
Q1
2009 2008 Q4 Q3 Q2 Q1 2007 Q4 Q3 Q2 Q1
---------------------------------------------------------------------------
METHANOL
SALES
VOLUMES
(thousands
of tonnes)
Company
produced 1,000 3,363 829 946 910 678 4,569 997 1,073 1,360 1,139
Purchased
methanol 270 2,074 435 429 541 669 1,453 421 387 269 376
Commission
sales (1) 131 617 134 172 168 143 590 195 168 89 138
---------------------------------------------------------------------------
1,401 6,054 1,398 1,547 1,619 1,490 6,612 1,613 1,628 1,718 1,653
---------------------------------------------------------------------------
METHANOL
PRODUCTION
(thousands
of tonnes)
Chile 228 1,088 272 246 261 309 1,841 288 233 569 751
Titan,
Trinidad 223 871 225 200 229 217 861 220 191 225 225
Atlas,
Trinidad
(63.1%) 204 1,134 269 284 288 293 982 278 290 234 180
New Zealand 194 570 200 126 124 120 435 75 122 120 118
---------------------------------------------------------------------------
849 3,663 966 856 902 939 4,119 861 836 1,148 1,274
---------------------------------------------------------------------------
AVERAGE
REALIZED
METHANOL
PRICE (2)
($/tonne) 199 424 321 413 412 545 375 514 270 286 444
($/gallon) 0.60 1.28 0.97 1.24 1.24 1.64 1.13 1.55 0.81 0.86 1.34
PER SHARE
INFORMATION
($ per share)
Basic net
income
(loss) $(0.20) 1.79 (0.04) 0.75 0.40 0.66 3.69 1.74 0.24 0.35 1.38
Diluted
net income
(loss) $(0.20) 1.78 (0.04) 0.74 0.40 0.66 3.68 1.72 0.24 0.35 1.37
1 Commission sales represent volumes marketed on a commission basis.
Commission income is included in revenue when earned.
2 Average realized price is calculated as revenue, net of commissions
earned, divided by the total sales volumes of produced and purchased
methanol.
Contacts: Jason Chesko Director, Investor Relations Methanex
Corporation 604 661 2600 or Toll Free: 1 800 661 8851
www.methanex.com
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