For the first quarter of 2013, Methanex (TSX:MX)(NASDAQ:MEOH)
reported Adjusted EBITDA(1) of $149 million and Adjusted net
income(1) of $88 million ($0.92 per share on a diluted basis(1)).
This compares with Adjusted EBITDA(1) of $119 million and Adjusted
net income(1) of $61 million ($0.64 per share on a diluted
basis(1)) for the fourth quarter of 2012.
Methanex also announced that its Board of Directors has approved
an 8 percent increase to its quarterly dividend to shareholders,
from $0.185 to $0.20 per share. The increased dividend will apply
commencing with the dividend payable on June 30, 2013 to holders of
common shares on record on June 16, 2013.
John Floren, President and CEO of Methanex commented, "Higher
methanol prices in the first quarter contributed to higher Adjusted
EBITDA compared to last quarter. Entering the second quarter,
methanol demand has continued to be healthy and the pricing
environment remains stable. With strong earnings, a positive
outlook for the methanol industry and the quality of the expansion
plans underway, I am pleased to confirm that our Board of Directors
has approved another increase to our regular dividend. This
represents the ninth increase since we implemented a dividend in
2002."
Mr. Floren added, "We also announced today that we have made the
decision to proceed with the relocation of a second one million
tonne plant from our Chile site to Geismar, Louisiana. Our focus in
the near term remains the successful execution of both plant
relocations and our value-creating growth projects in New Zealand
and Medicine Hat. Combined, these projects represent three million
tonnes of production capacity that are expected to be completed in
increments through early 2016."
Mr. Floren concluded, "With over US$700 million of cash on hand,
an undrawn credit facility, a robust balance sheet, and strong cash
flow generation, we are well positioned to complete our expansion
plans, pursue other strategic growth opportunities and continue to
deliver on our commitment to return excess cash to
shareholders."
A conference call is scheduled for April 25, 2013 at 12:00 noon
ET (9:00 am PT) to review these first quarter results. To access
the call, dial the Conferencing operator ten minutes prior to the
start of the call at (416) 340-8527, or toll free at (877)
240-9772. A playback version of the conference call will be
available until June 24, 2013 (905) 694-9451, or toll free at (800)
408-3053. The passcode for the playback version is 3021008.
Presentation slides summarizing Q1-13 results and a simultaneous
audio-only webcast of the conference call can be accessed from our
website at www.methanex.com. The webcast will be available on the
website for four weeks following the call.
Methanex is a Vancouver-based, publicly traded company and is
the world's largest supplier of methanol to major international
markets. Methanex shares are listed for trading on the Toronto
Stock Exchange in Canada under the trading symbol "MX" and on the
NASDAQ Global Market in the United States under the trading symbol
"MEOH".
FORWARD-LOOKING INFORMATION WARNING
This First Quarter 2013 press release contains forward-looking
statements with respect to us and the chemical industry. Refer to
Forward-Looking Information Warning in the attached First Quarter
2013 Management's Discussion and Analysis for more information.
(1) Adjusted EBITDA, Adjusted net income and Adjusted net income per common
share are non-GAAP measures which do not have any standardized meaning
prescribed by GAAP. These measures represent the amounts that are
attributable to Methanex Corporation shareholders and are calculated by
excluding the mark-to-market impact of share-based compensation as a result
of changes in our share price and items considered by management to be non-
operational, including asset impairment charges. Refer to the Additional
Information - Supplemental Non-GAAP Measures section of the attached Interim
Report for the three months ended March 31, 2013 for reconciliations to the
most comparable GAAP measures.
Interim Report for the Three Months Ended March 31, 2013
At April 24, 2013 the Company had 94,942,159 common shares
issued and outstanding and stock options exercisable for 3,418,808
additional common shares.
Share Information
Methanex Corporation's common shares are listed for trading on
the Toronto Stock Exchange under the symbol MX and on the Nasdaq
Global Market under the symbol MEOH.
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.
FIRST QUARTER MANAGEMENT'S DISCUSSION AND ANALYSIS
Except where otherwise noted, all currency amounts are stated in
United States dollars.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
-- A reconciliation from net income (loss) attributable to Methanex
shareholders to Adjusted net income(1) and the calculation of Adjusted
net income per common share(1) is as follows:
Three Months Ended
----------------------------------------
($ millions except number of shares Mar 31 Dec 31 Mar 31
and per share amounts) 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) attributable to
Methanex shareholders $ 60 $ (140) $ 22
Mark-to-market impact of share-
based compensation, net of tax 28 8 17
Asset impairment charge, net of
tax - 193 -
----------------------------------------------------------------------------
Adjusted net income (1) $ 88 $ 61 $ 39
----------------------------------------------------------------------------
Diluted weighted average shares
outstanding (millions) 96 94 95
Adjusted net income per common share
(1) $ 0.92 $ 0.64 $ 0.41
----------------------------------------------------------------------------
-- We recorded Adjusted EBITDA(1) of $149 million for the first quarter of
2013 compared with $119 million for the fourth quarter of 2012. The
increase in Adjusted EBITDA(1) was primarily due to an increase in
average realized price to $412 per tonne for the first quarter of 2013
from $389 per tonne for the fourth quarter of 2012.
-- Production for the first quarter of 2013 was 1,057,000 tonnes compared
with 1,067,000 tonnes for the fourth quarter of 2012. Refer to the
Production Summary section.
-- Sales of Methanex-produced methanol were 1,024,000 tonnes in the first
quarter of 2013 compared with 1,059,000 in the fourth quarter of 2012.
-- During the first quarter of 2013, we announced our commitment to restart
the Waitara Valley facility and complete a debottlenecking project at
the Motunui site. We expect these initiatives will allow our New Zealand
operations to operate at their full annual production capacity of up to
2.4 million tonnes, depending on natural gas composition.
-- We continue to make good progress with our project to relocate an idle
Chile facility to Geismar, Louisiana. During the first quarter of 2013,
we signed an agreement with Chesapeake Energy to supply the facility's
natural gas requirements for a ten-year period.
-- We announced today that we have reached a final investment decision to
proceed with the relocation of a second Chile facility to the Geismar
site. We expect this project will add a further 1.0 million tonnes of
annual operating capacity and is expected to be operational in early
2016.
-- We also announced today that the Board of Directors has approved an 8
percent increase to our quarterly dividend to shareholders, from $0.185
per share to $0.20 per share, effective with the dividend payable June
30, 2013.
(1) These items are non-GAAP measures that do not have any standardized
meaning prescribed by GAAP and therefore are unlikely to be comparable to
similar measures presented by other companies. Refer to the Additional
Information - Supplemental Non-GAAP Measures section for a description of
each non-GAAP measure and reconciliations to the most comparable GAAP
measures.
This First Quarter 2013 Management's Discussion and Analysis
("MD&A") dated April 24, 2013 for Methanex Corporation ("the
Company") should be read in conjunction with the Company's
condensed consolidated interim financial statements for the period
ended March 31, 2013 as well as the 2012 Annual Consolidated
Financial Statements and MD&A included in the Methanex 2012
Annual Report. Unless otherwise indicated, the financial
information presented in this interim report is prepared in
accordance with International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB).
The Methanex 2012 Annual Report and additional information relating
to Methanex is available on SEDAR at www.sedar.com and on EDGAR at
www.sec.gov.
Effective January 1, 2013, we adopted new IFRS standards related
to consolidation and joint arrangement accounting. Under these new
standards, our 63.1% interest in the Atlas entity, which was
previously proportionately consolidated in our financial
statements, is accounted for using the equity method. This change
has been applied retrospectively. As a result, amounts related to
Atlas are no longer included in individual line items in our
consolidated financial statements and the net assets and net
earnings are presented separately. For purposes of analyzing our
consolidated financial results in this MD&A, the adjusted
EBITDA from our 63.1% interest in the Atlas entity is included in
Adjusted EBITDA.
FINANCIAL AND OPERATIONAL DATA
Three Months Ended
----------------------------
($ millions, except per share amounts and where Mar 31 Dec 31 Mar 31
noted) 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Production (thousands of tonnes) (attributable
to Methanex shareholders) 1,057 1,067 945
Sales volumes (thousands of tonnes):
Methanex-produced methanol (attributable to
Methanex shareholders) 1,024 1,059 926
Purchased methanol 588 664 691
Commission sales (1) 219 176 198
----------------------------------------------------------------------------
Total sales volumes 1,831 1,899 1,815
Methanex average non-discounted posted price ($
per tonne) (2) 474 450 437
Average realized price ($ per tonne) (3) 412 389 382
Adjusted EBITDA (attributable to Methanex
shareholders) (4) 149 119 93
Adjusted cash flows from operating activities
(attributable to Methanex shareholders) (4) 127 101 89
Cash flows from operating activities 118 76 74
Adjusted net income (attributable to Methanex
shareholders) (4) 88 61 39
Net income (loss) attributable to Methanex
shareholders 60 (140) 22
Adjusted net income per common share
(attributable to Methanex shareholders) (4, 5) 0.92 0.64 0.41
Basic net income (loss) per common share
(attributable to Methanex shareholders) 0.64 (1.49) 0.24
Diluted net income (loss) per common share
(attributable to Methanex shareholders) 0.63 (1.49) 0.23
Common share information (millions of shares):
Weighted average number of common shares 95 94 93
Diluted weighted average number of common
shares 96 94 95
Number of common shares outstanding, end of
period 95 94 94
----------------------------------------------------------------------------
(1) Commission sales represent volumes marketed on a commission basis
related to the 36.9% of the Atlas methanol facility and 40% of the Egypt
methanol facility that we do not own.
(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 http://www.methanex.com/.
(3) Average realized price is calculated as revenue, excluding commissions
earned and the Egypt non-controlling interest share of revenue but including
an amount representing our share of Atlas revenue, divided by the total
sales volumes of Methanex-produced (attributable to Methanex shareholders)
and purchased methanol.
(4) These items are non-GAAP measures that do not have any standardized
meaning prescribed by GAAP and therefore are unlikely to be comparable to
similar measures presented by other companies. Refer to the Additional
Information - Supplemental Non-GAAP Measures section for a description of
each non-GAAP measure and reconciliations to the most comparable GAAP
measures.
(5) For the three month period ended December 31, 2012, stock options have
been excluded from the calculation of diluted net loss per common share
(attributable to Methanex shareholders) as their effect would be anti-
dilutive. However, for the calculation of adjusted net income per common
share (attributable to Methanex shareholders) stock options have been
included in the denominator and the diluted weighted average number of
common shares is 95 million.
PRODUCTION SUMMARY
Q1 2013 Q4 2012 Q1 2012
(thousands of tonnes) Capacity(1) Production Production Production
----------------------------------------------------------------------------
----------------------------------------------------------------------------
New Zealand (2) 608 309 378 174
Atlas (Trinidad) (63.1%
interest) 281 248 180 127
Titan (Trinidad) 218 181 189 215
Egypt (60% interest) 190 133 129 202
Medicine Hat (Canada) 118 131 132 114
Chile I and IV 450 55 59 113
Geismar I and II (Louisiana,
USA) (3) 500 - - -
----------------------------------------------------------------------------
2,365 1,057 1,067 945
----------------------------------------------------------------------------
(1) The production capacity of our facilities may be higher than original
nameplate capacity as, over time, these figures have been adjusted to
reflect ongoing operating efficiencies. Actual production for a facility in
any given year may be higher or lower than annual production capacity due to
a number of factors, including natural gas composition or the age of the
facility's catalyst.
(2) The annual production capacity of New Zealand represents the two 0.85
million tonne facilities at Motunui and the 0.53 million tonne facility at
Waitara Valley. The current operating capacity of the Motunui facilities is
1.5 million tonnes due to distillation capacity constraints (refer to New
Zealand section below).
(3) We are relocating two idle Chile facilities to Geismar, Louisiana. The
Geismar I facility is expected to be operational by the end of 2014 and the
Geismar II facility is expected to be operational in early 2016.
New Zealand
Our New Zealand methanol facilities produced 309,000 tonnes of
methanol in the first quarter of 2013 compared with 378,000 tonnes
in the fourth quarter of 2012. During the first quarter of 2013,
the Motunui facilities suffered an equipment failure which resulted
in an unplanned outage and lost production of approximately 60,000
tonnes. The equipment was repaired and the Motunui facilities
returned to operation at the end of March 2013. We are in the
process of refurbishing the Waitara Valley facility and
debottlenecking the Motunui facilities which we expect will allow
us to produce at the site's full annual production capacity of up
to 2.4 million tonnes, depending on natural gas composition, by the
end of 2013.
Trinidad
In Trinidad, we own 100% of the Titan facility with an annual
production capacity of 875,000 tonnes and have a 63.1% interest in
the Atlas facility with an annual production capacity of 1,125,000
tonnes (63.1% interest). The Titan facility produced 181,000 tonnes
in the first quarter of 2013 compared with 189,000 tonnes in the
fourth quarter of 2012. Production in the first quarter of 2013 was
impacted by periodic natural gas curtailments and minor unplanned
outages.
The Atlas facility produced 248,000 tonnes in the first quarter
of 2013 compared with 180,000 tonnes in the fourth quarter of 2012.
The Atlas facility was shut down at the end of September 2012 for
repairs and returned to production at the end of October 2012.
We continue to experience some natural gas curtailments to our
Trinidad facilities due to a mismatch between upstream commitments
to supply the Natural Gas Company of Trinidad and Tobago (NGC) and
downstream demand from NGC's customers, which becomes apparent when
an upstream supplier has a technical issue or planned maintenance
that reduces gas delivery. We are engaged with key stakeholders to
find a solution to this issue, but in the meantime expect to
continue to experience some gas curtailments to the Trinidad
site.
Egypt
The Egypt methanol facility produced 133,000 tonnes (60%
interest) in the first quarter of 2013 compared with 129,000 tonnes
in the fourth quarter of 2012. Production during the first quarter
of 2013 and the fourth quarter of 2012 was impacted by natural gas
supply restrictions.
The Egypt facility has experienced periodic natural gas supply
restrictions since mid-2012 which have resulted in production below
full capacity. This situation may persist in the future and become
more acute during the summer months when electricity demand is at
its peak. Refer to page 25 of our 2012 Annual Report for further
details.
Medicine Hat, Canada
Our 470,000 tonne per year facility in Medicine Hat, Alberta
produced 131,000 tonnes in the first quarter of 2013 compared with
132,000 tonnes during the fourth quarter of 2012. The Medicine Hat
facility is currently able to produce above stated production
capacity due to the age of its catalyst and the composition of the
natural gas feedstock. We are currently debottlenecking the
Medicine Hat facility which we expect will add a further 90,000
tonnes of annual production capacity by the end of the third
quarter of 2013.
Chile
During the first quarter of 2013 we produced 55,000 tonnes in
Chile operating one plant at approximately 20% of production
capacity. In addition, in March 2013, we began receiving natural
gas from Argentina under an arrangement whereby we process the
natural gas received and return the methanol produced to Argentina.
We produced an additional 6,000 tonnes under this arrangement
during the first quarter of 2013 and have continued receiving some
natural gas from Argentina in April 2013.
While investments have been made by us and others to accelerate
the exploration and development of natural gas in southern Chile,
the potential for a significant increase in gas production is more
challenging than we had originally anticipated. As a result of the
short-term outlook for gas supply in Chile and Argentina, we
anticipate idling our Chile operations shortly due to insufficient
natural gas feedstock to keep our plant operating through the
southern hemisphere winter. We are continuing to work with Empresa
Nacional del Petroleo (ENAP) and others to secure sufficient
natural gas to sustain our operations and while the restart of a
Chile plant is possible later in 2013, the restart is dependent on
securing a sustainable natural gas position to operate over the
medium term.
The future of our Chile operations is primarily dependent on the
level of exploration and development in southern Chile and our
ability to secure a sustainable natural gas supply to our
facilities on economic terms from Chile and Argentina.
Geismar, Louisiana
We are in the process of relocating the idle Chile II facility
to Geismar, Louisiana (Geismar I). The 1.0 million tonne Geismar I
facility is expected to be operational by the end of 2014. During
the first quarter of 2013 we spent $43 million on this project and
remaining expenditures at March 31, 2013 are estimated to be $420
million.
We announced today that we have made a final investment decision
to proceed with the relocation of the Chile III facility to the
Geismar site (Geismar II). We expect the 1.0 million tonne Geismar
II plant to be operational in early 2016. Estimated project costs
are $550 million.
FINANCIAL RESULTS
For the first quarter of 2013 we recorded Adjusted EBITDA of
$149 million and Adjusted net income of $88 million ($0.92 per
share on a diluted basis). This compares with Adjusted EBITDA of
$119 million and Adjusted net income of $61 million ($0.64 per
share on a diluted basis) for the fourth quarter of 2012.
For the first quarter of 2013, we reported net income
attributable to Methanex shareholders of $60 million ($0.63 per
share on a diluted basis) compared with a net loss attributable to
Methanex shareholders for the fourth quarter of 2012 of $140
million ($1.49 loss per share on a diluted basis). Our results for
the fourth quarter of 2012 were impacted by a non-cash before-tax
asset impairment charge of $297 million related to the carrying
value of our Chile assets.
Effective January 1, 2013, we adopted new IFRS standards related
to consolidation and joint arrangement accounting. Under these new
standards, our 63.1% interest in the Atlas entity, which was
previously proportionately consolidated in our financial
statements, is accounted for using the equity method. This change
has been applied retrospectively. As a result, amounts related to
Atlas are no longer included in individual line items in our
consolidated financial statements and the net assets and net
earnings are presented separately. For purposes of analyzing our
consolidated financial results in this MD&A, the adjusted
EBITDA from our 63.1% interest in the Atlas entity is included in
Adjusted EBITDA. Our analysis of depreciation and amortization,
finance costs, finance income and other expenses and income taxes
is consistent with the presentation of our consolidated statements
of income and excludes amounts related to Atlas.
We calculate Adjusted EBITDA and Adjusted net income by
including amounts related to our equity share of the Atlas (63.1%
interest) and Egypt (60% interest) facilities and by excluding the
mark-to-market impact of share-based compensation as a result of
changes in our share price and items which are considered by
management to be non-operational. Refer to the Additional
Information - Supplemental Non-GAAP Measures section for a further
discussion on how we calculate these measures.
A reconciliation from net income (loss) attributable to Methanex
shareholders to Adjusted net income and the calculation of Adjusted
net income per common share is as follows:
Three Months Ended
----------------------------------------
($ millions except number of shares Mar 31 Dec 31 Mar 31
and per share amounts) 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) attributable to
Methanex shareholders $ 60 $ (140) $ 22
Mark-to-market impact of share-
based compensation, net of tax 28 8 17
Asset impairment charge, net of
tax - 193 -
----------------------------------------------------------------------------
Adjusted net income (1) $ 88 $ 61 $ 39
----------------------------------------------------------------------------
Diluted weighted average shares
outstanding (millions) 96 94 95
Adjusted net income per common share
(1,2) $ 0.92 $ 0.64 $ 0.41
----------------------------------------------------------------------------
(1) These items are non-GAAP measures that do not have any standardized
meaning prescribed by GAAP and therefore are unlikely to be comparable to
similar measures presented by other companies. Refer to the Additional
Information - Supplemental Non-GAAP Measures section for a description of
each non-GAAP measure and reconciliations to the most comparable GAAP
measures.
(2) For the three months ended December 31, 2012, stock options have been
excluded from the calculation of diluted net loss per common share
(attributable to Methanex shareholders) as their effect would be anti-
dilutive. However, for the calculation of adjusted net income per common
share (attributable to Methanex shareholders) stock options have been
included in the denominator and the diluted weighted average number of
common shares is 95 million.
We review our financial results by analyzing changes in Adjusted
EBITDA, mark-to-market impact of share-based compensation,
depreciation and amortization, finance costs, finance income and
other expenses and income taxes. A summary of our consolidated
statements of income is as follows:
Three Months Ended
--------------------------------
Mar 31 Dec 31 Mar 31
($ millions) 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated statements of income:
Revenue $ 652 $ 668 $ 654
Cost of sales and operating expenses,
excluding mark-to-market impact of share-
based compensation (497) (546) (535)
Adjusted EBITDA of associate (Atlas) (1) 9 10 (3)
----------------------------------------------------------------------------
164 132 116
Comprised of:
Adjusted EBITDA (attributable to Methanex
shareholders) (2) 149 119 93
Attributable to non-controlling interests 15 13 23
----------------------------------------------------------------------------
164 132 116
Mark-to-market impact of share-based
compensation (31) (8) (18)
Depreciation and amortization (30) (35) (36)
Asset impairment charge - (297) -
Earnings of associate, excluding amount
included in Adjusted EBITDA (1) (8) (10) (4)
Finance costs (15) (13) (16)
Finance income and other expenses (2) 3 2
Income tax recovery (expense) (12) 93 (11)
----------------------------------------------------------------------------
Net income (loss) $ 66 $ (135) $ 33
----------------------------------------------------------------------------
Net income (loss) attributable to Methanex
shareholders $ 60 $ (140) $ 22
----------------------------------------------------------------------------
(1) Earnings of associate has been divided into an amount included in
Adjusted EBITDA and an amount excluded from Adjusted EBITDA. The amount
excluded from Adjusted EBITDA represents depreciation and amortization,
finance costs, finance income and other expenses and income tax expense
relating to earnings of associate.
(2) This item is a non-GAAP measure that does not have any standardized
meaning prescribed by GAAP and therefore is unlikely to be comparable to
similar measures presented by other companies. Refer to the Additional
Information - Supplemental Non-GAAP Measures section for a description of
the non-GAAP measure and reconciliations to the most comparable GAAP
measure.
Adjusted EBITDA (Attributable to Methanex Shareholders)
Our operations consist of a single operating segment - the
production and sale of methanol. We review the results of
operations by analyzing changes in the components of Adjusted
EBITDA. For a discussion of the definitions used in our Adjusted
EBITDA analysis, refer to the How We Analyze Our Business
section.
The changes in Adjusted EBITDA resulted from changes in the
following:
Q1 2013 Q1 2013
compared with compared with
($ millions) Q4 2012 Q1 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average realized price $ 36 $ 49
Sales volume (10) (1)
Total cash costs 4 8
----------------------------------------------------------------------------
Increase in Adjusted EBITDA $ 30 $ 56
----------------------------------------------------------------------------
Average realized price
Three Months Ended
------------------------
Mar 31 Dec 31 Mar 31
($ per tonne) 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Methanex average non-discounted posted price 474 450 437
Methanex average realized price 412 389 382
----------------------------------------------------------------------------
Methanol market conditions remained healthy and pricing
increased during the first quarter of 2013 (refer to the
Supply/Demand Fundamentals section for more information). Our
average non-discounted posted price for the first quarter of 2013
was $474 per tonne compared with $450 per tonne for the fourth
quarter of 2012 and $437 per tonne for the first quarter of 2012.
Our average realized price for the first quarter of 2013 was $412
per tonne compared with $389 per tonne for the fourth quarter of
2012 and $382 per tonne for the first quarter of 2012. The change
in average realized price for the first quarter of 2013 increased
Adjusted EBITDA by $36 million compared with the fourth quarter of
2012 and increased Adjusted EBITDA by $49 million compared with the
first quarter of 2012.
Sales volume
Methanol sales volumes excluding commission sales volumes were
lower in the first quarter of 2013 compared with the fourth quarter
of 2012 by 111,000 tonnes and this resulted in lower Adjusted
EBITDA by $10 million.
Total cash costs
The primary drivers of changes in our total cash costs are
changes in the cost of methanol we produce at our facilities
(Methanex-produced methanol) and changes in the cost of methanol we
purchase from others (purchased methanol). All of our production
facilities except Medicine Hat are underpinned by natural gas
purchase agreements with pricing terms that include base and
variable price components. We supplement our production with
methanol produced by others through methanol offtake contracts and
purchases on the spot market to meet customer needs and support our
marketing efforts within the major global markets.
We have adopted the first-in, first-out method of accounting for
inventories and it generally takes between 30 and 60 days to sell
the methanol we produce or purchase. Accordingly, the changes in
Adjusted EBITDA as a result of changes in Methanex-produced and
purchased methanol costs primarily depend on changes in methanol
pricing and the timing of inventory flows.
The impact on Adjusted EBITDA from changes in our cash costs are
explained below:
Q1 2013 Q1 2013
compared with compared with
($ millions) Q4 2012 Q1 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Methanex-produced methanol costs $ - $ (9)
Insurance recovery (9) (2)
Proportion of Methanex-produced methanol
sales 5 17
Purchased methanol costs (12) (19)
Logistics costs 12 12
Other, net 8 9
----------------------------------------------------------------------------
$ 4 $ 8
----------------------------------------------------------------------------
Methanex-produced methanol costs
We purchase natural gas for the New Zealand, Trinidad, Egypt and
Chile methanol facilities under natural gas purchase agreements
where the unique terms of each contract include a base price and a
variable price component linked to the price of methanol to reduce
our commodity price risk exposure. The variable price component of
each gas contract is adjusted by a formula related to methanol
prices above a certain level. For the first quarter of 2013
compared with the same period in 2012, Methanex-produced methanol
costs were higher by $9 million primarily due to a change in the
mix of production sold from inventory.
Insurance recovery
We experienced an equipment failure at our Atlas facility in
July 2011. Our operations are covered by business interruption
insurance and we finalized our claim and recorded a recovery of $9
million in the fourth quarter of 2012.
Proportion of Methanex-produced methanol sales
The cost of purchased methanol is directly linked to the selling
price for methanol at the time of purchase and the cost of
purchased methanol is generally higher than the cost of
Methanex-produced methanol. Accordingly, an increase in the
proportion of Methanex-produced methanol sales results in a
decrease in our overall cost structure for a given period. For the
first quarter of 2013 compared with the fourth quarter of 2012 and
the first quarter of 2012, Methanex-produced methanol sales made up
a higher proportion of our total sales and this increased Adjusted
EBITDA by $5 million and $17 million, respectively.
Purchased methanol costs
Changes in purchased methanol costs for all periods presented
are primarily as a result of changes in methanol pricing.
Logistics costs
Logistics costs vary from period to period depending on the
levels of production from each of our production facilities and the
resulting impact on our supply chain. Logistics costs were $12
million lower in the first quarter of 2013 compared with each of
the fourth quarter of 2012 and the first quarter of 2012. As a
result of improvements in our asset portfolio over the past year,
we have recently completed several initiatives that have reduced
logistics costs and improved the efficiency of our supply
chain.
Other, net
In October 2012, we completed a restructuring of our Chile
operations which reduced the size of our workforce and resulted in
a $5 million charge in the fourth quarter of 2012. During the first
quarter of 2012, we incurred a one-time $7 million charge to
earnings to terminate a time charter vessel lease contract.
Mark-to-Market Impact of Share-based Compensation
We grant share-based awards as an element of compensation.
Share-based awards granted include stock options, share
appreciation rights, tandem share appreciation rights, deferred
share units, restricted share units and performance share units.
For all the share-based awards, share-based compensation is
recognized over the related vesting period for the proportion of
the service that has been rendered at each reporting date.
Share-based compensation includes an amount related to the
grant-date value and a mark-to-market impact as a result of
subsequent changes in the Company's share price. The grant-date
value amount is included in Adjusted EBITDA and Adjusted net
income. The mark-to-market impact of share-based compensation as a
result of changes in our share price is excluded from Adjusted
EBITDA and Adjusted net income and analyzed separately.
Three Months Ended
---------------------------------
Mar 31 Dec 31 Mar 31
2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Methanex Corporation share price (1) $ 40.63 $ 31.87 $ 32.43
Grant-date fair value expense included in
Adjusted EBITDA and Adjusted net income $ 6 $ 3 $ 7
Mark-to-market impact due to change in
share price 31 8 18
----------------------------------------------------------------------------
Total share-based compensation expense $ 37 $ 11 $ 25
----------------------------------------------------------------------------
(1) US dollar share price of Methanex Corporation as quoted on NASDAQ Global
Market on the last trading day of the respective period.
The Methanex Corporation share price increased from $31.87 per
share at December 31, 2012 to $40.63 per share at March 31, 2013.
As a result of the increase in the share price and the impact on
the fair value of the outstanding units, we recorded a $31 million
mark-to-market expense on share-based compensation in the first
quarter of 2013 compared with an $8 million mark-to-market expense
in the fourth quarter of 2012 and an $18 million expense in the
first quarter of 2012.
Depreciation and Amortization
Depreciation and amortization was $30 million for the first
quarter of 2013 compared with $35 million for the fourth quarter of
2012 and $36 million for the first quarter of 2012. Depreciation
and amortization was lower in the first quarter of 2013 compared
with the fourth quarter of 2012 and the first quarter of 2012
primarily as a result of the lower carrying value of our Chile
assets due to the asset impairment charge recorded in the fourth
quarter of 2012.
Finance Costs
Three Months Ended
-----------------------------------
Mar 31 Dec 31 Mar 31
($ millions) 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance costs before capitalized interest $ 16 $ 14 $ 16
Less capitalized interest (1) (1) -
----------------------------------------------------------------------------
Finance costs $ 15 $ 13 $ 16
----------------------------------------------------------------------------
Finance costs before capitalized interest primarily relate to
interest expense on the unsecured notes and limited recourse debt
facilities. Capitalized interest relates to interest costs
capitalized for the Geismar I project.
Finance Income and Other Expenses
Three Months Ended
----------------------------------
Mar 31 Dec 31 Mar 31
($ millions) 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance income and other expenses $ (2) $ 3 $ 2
----------------------------------------------------------------------------
The change in finance income and other expenses for all periods
presented was primarily due to the impact of changes in foreign
exchange rates.
Income Taxes
A summary of our income taxes for the first quarter of 2013
compared with the fourth quarter of 2012 is as follows:
Three Months Ended Three Months Ended
Mar 31 2013 Dec 31 2012
----------------------------------------------------------------------------
Amounts
excluding
Asset Asset
Impairment Impairment
($ millions) Total Charge Charge Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Profit (loss) before income
tax expense $ 78 $ 69 $ (297) $ (228)
Income tax recovery
(expense) (12) (11) 104 93
----------------------------------------------------------------------------
Net income (loss) $ 66 $ 58 $ (193) $ (135)
----------------------------------------------------------------------------
Effective tax rate 15% 16% 35% 41%
----------------------------------------------------------------------------
For the first quarter of 2013, the effective tax rate was 15%
compared with 16% for the fourth quarter of 2012, excluding the
impact of the asset impairment charge recorded in 2012.
We earn the majority of our pre-tax earnings in Trinidad, Egypt,
Chile, Canada and New Zealand. In Trinidad and Chile, the statutory
tax rate is 35% and in Egypt, the statutory tax rate is 25%. We
have significant loss carryforwards in Canada and New Zealand which
have not been recognized for accounting purposes and this had an
impact on the effective tax rate for the first quarter of 2013 of
approximately 10%.
SUPPLY/DEMAND FUNDAMENTALS
Methanex Non-Discounted Regional Posted Prices (1)
Apr Mar Feb Jan
(US$ per tonne) 2013 2013 2013 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
United States 516 516 482 482
Europe (2) 505 476 476 476
Asia 450 450 435 435
----------------------------------------------------------------------------
(1) Discounts from our posted prices are offered to customers based on
various factors.
(2) EUR390 for Q2 2013 (Q1 2013 - EUR370) converted to United States
dollars.
----------------------------------------------------------------------------
We estimate that methanol demand, excluding methanol demand from
integrated methanol to olefins facilities, is currently
approximately 53 million tonnes on an annualized basis.
The outlook for methanol demand growth continues to be strong.
Traditional chemical derivatives consume about two-thirds of global
methanol demand and growth is correlated to industrial
production.
Energy-related applications consume the remaining one third of
global methanol demand, and the wide disparity between the price of
crude oil and that of natural gas and coal has resulted in an
increased use of methanol in energy-related applications, such as
direct methanol blending into gasoline and DME and biodiesel
production. Growth of direct methanol blending into gasoline in
China has been particularly strong and we believe that future
growth in this application is supported by numerous provincial and
national fuel-blending standards, such as M15 or M85 (15% methanol
and 85% methanol, respectively).
China is also leading the commercialization of methanol's use as
a feedstock to manufacture olefins. The use of methanol to produce
olefins, at current energy prices, is proving to be cost
competitive relative to the traditional production of olefins from
naphtha. There are now five methanol-to-olefins (MTO) plants
operating in China with the capacity to consume approximately seven
million tonnes of methanol annually. While three of these plants
are integrated and purchase methanol only to supplement their
production, two of these plants are dependent on merchant methanol
supply. We believe demand potential into energy-related
applications and olefins production will continue to grow.
During the first quarter of 2013, steady demand and planned and
unplanned industry outages contributed to upward pressure on
pricing in Europe and North America, while pricing in Asia was
relatively stable. Our average non-discounted price in the first
quarter was $474 per tonne. Entering the second quarter, market
conditions remain healthy and prices are stable. Our European
non-discounted price for the second quarter of 2013 increased to
EUR390 per tonne ($505 per tonne).
Over the next few years, there is a modest level of new capacity
expected to come on-stream relative to demand growth expectations.
There is a 0.8 million tonne plant expected to restart in
Channelview, Texas in 2013 and a 0.7 million tonne plant expected
to start up in Azerbaijan in 2013. We are in the process of
refurbishing the Waitara Valley facility and debottlenecking our
Motunui facilities in New Zealand and these initiatives are
expected to add up to 0.9 million tonnes of additional operating
capacity by the end of 2013. We are relocating two idle Chile
facilities to Geismar, Louisiana with the first 1.0 million tonne
facility expected to start up by the end of 2014 and the second 1.0
million tonne facility expected to start up in early 2016. We
expect that production from new capacity in China will be consumed
in that country and that higher cost production capacity in China
will need to operate in order to satisfy demand growth.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities
Cash flows from operating activities in the first quarter of
2013 were $118 million compared with $76 million for the fourth
quarter of 2012 and $74 million for the first quarter of 2012. The
changes in cash flows from operating activities resulted from
changes in the following:
Q1 2013 Q1 2013
compared with compared with
($ millions) Q4 2012 Q1 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Change in Adjusted EBITDA (attributable to
Methanex shareholders) $ 30 $ 56
Exclude change in Adjusted EBITDA of
associate (Atlas) 1 (12)
Change in cash flows attributable to non-
controlling interests 2 (8)
Changes in non-cash working capital 13 26
Income taxes paid 7 (2)
Other (11) (16)
----------------------------------------------------------------------------
Increase in cash flows from operating
activities $ 42 $ 44
----------------------------------------------------------------------------
Adjusted cash flows from operating activities
Adjusted cash flows from operating activities, which includes an
amount representing the cash flows associated with our 63.1% share
of the Atlas facility and excludes the amount associated with the
40% non-controlling interest in the methanol facility in Egypt and
changes in non-cash working capital, were $127 million in the first
quarter of 2013 compared with $101 million for the fourth quarter
of 2012 and $89 million for the first quarter of 2012. The changes
in Adjusted cash flows from operating activities resulted from
changes in the following:
Q1 2013 Q1 2013
compared with compared with
($ millions) Q4 2012 Q1 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Change in Adjusted EBITDA (attributable to
Methanex shareholders) $ 30 $ 56
Income taxes paid 7 (2)
Other (11) (16)
----------------------------------------------------------------------------
Increase in Adjusted cash flows from
operating activities $ 26 $ 38
----------------------------------------------------------------------------
Refer to the Additional Information - Supplemental Non-GAAP
Measures section for a reconciliation of Adjusted cash flows from
operating activities to the most comparable GAAP measure.
During the first quarter of 2013, we paid a quarterly dividend
of $0.185 per share, or $18 million. Additionally, on April 24,
2013, the Board of Directors approved an 8 percent increase to our
quarterly dividend to shareholders, from $0.185 to $0.20 per share.
The increased dividend will apply commencing with the dividend
payable June 30, 2013 to holders of common shares of record on June
16, 2013.
We operate in a highly competitive commodity industry and
believe it is appropriate to maintain a conservative balance sheet
and retain financial flexibility. At March 31, 2013, our cash
balance was $727 million, including $25 million related to the
non-controlling interest in Egypt. 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.
We have a strong balance sheet and an undrawn $400 million credit
facility provided by highly rated financial institutions that
expires in mid-2016.
Our planned capital maintenance expenditure program directed
towards maintenance, turnarounds and catalyst changes for existing
operations is currently estimated to total approximately $50
million to the end of 2013, excluding the New Zealand operations.
We are making good progress with our project to relocate the Chile
II facility to Geismar, Louisiana with plant start-up expected by
the end of 2014. During the first quarter of 2013, we spent $43
million on the project and the remaining project expenditures are
approximately $420 million. We are also making good progress with
our initiatives to increase production capacity in Medicine Hat and
New Zealand. Remaining capital expenditures for these projects to
the end of 2013 is approximately $230 million. We have also
committed to relocate a second idle Chile facility to the Geismar
site with estimated project costs of $550 million. The second
Geismar facility is expected to commence operations in early 2016.
We believe that we have the financial capacity to fund these growth
initiatives with cash on hand, cash generated from operations and
the undrawn bank facility.
We believe we are well positioned to meet our financial
commitments, invest to grow the Company and continue to deliver on
our commitment to return excess cash to shareholders.
SHORT-TERM OUTLOOK
Entering the second quarter, market conditions remain healthy
and prices are stable.
The methanol price will ultimately depend on the strength of the
global economy, industry operating rates, global energy prices, new
supply additions and the strength of global demand. We believe that
our financial position and financial flexibility, outstanding
global supply network and competitive-cost position will provide a
sound basis for Methanex to continue to be the leader in the
methanol industry and to invest to grow the Company.
CONTROLS AND PROCEDURES
For the three months ended March 31, 2013, 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
International Financial Reporting Standards (IFRS), we present
certain supplemental non-GAAP measures. These are Adjusted EBITDA,
Adjusted net income, Adjusted net income per common share,
operating income and Adjusted cash flows from operating activities.
These measures do not have any standardized meaning prescribed by
generally accepted accounting principles (GAAP) and therefore are
unlikely to be comparable to similar measures presented by other
companies. These supplemental non-GAAP measures are provided to
assist readers in determining our ability to generate cash from
operations and improve the comparability of our results from one
period to another. We believe these measures are useful in
assessing operating performance and liquidity of the Company's
ongoing business 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 (attributable to Methanex shareholders)
Adjusted EBITDA differs from the most comparable GAAP measure,
net income attributable to Methanex shareholders, because it
excludes depreciation and amortization, finance costs, finance
income and other expenses, income tax expense (recovery),
mark-to-market impact of share-based compensation and asset
impairment charges. Adjusted EBITDA includes an amount representing
our 63.1% interest in the Atlas facility and our 60% interest in
the methanol facility in Egypt.
Adjusted EBITDA and Adjusted net income exclude the
mark-to-market impact of share-based compensation related to the
impact of changes in our share price on share appreciation rights,
tandem share appreciation rights, deferred share units, restricted
share units and performance share units. The mark-to-market impact
related to performance share units that is excluded from Adjusted
EBITDA and Adjusted net income is calculated as the difference
between the grant date value determined using a Methanex total
shareholder return factor of 100% and the fair value recorded at
each period end. As share-based awards will be settled in future
periods, the ultimate value of the units is unknown at the date of
grant and therefore the grant date value recognized in Adjusted
EBITDA and Adjusted net income may differ from the total settlement
cost.
The following table shows a reconciliation from net income
(loss) attributable to Methanex shareholders to Adjusted
EBITDA:
Three Months Ended
---------------------------------
Mar 31 Dec 31 Mar 31
($ millions) 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) attributable to Methanex
shareholders $ 60 $ (140) $ 22
Finance costs 15 13 16
Finance income and other expenses 2 (3) (2)
Income tax expense (recovery) 12 (93) 11
Depreciation and amortization 30 35 36
Mark-to-market impact of share-based
compensation 31 8 18
Asset impairment charge - 297 -
Earnings of associate, excluding amount
included in Adjusted EBITDA (1) 8 10 4
Non-controlling interests adjustment (1) (9) (7) (12)
----------------------------------------------------------------------------
Adjusted EBITDA (attributable to Methanex
shareholders) $ 149 $ 119 $ 93
----------------------------------------------------------------------------
(1) These adjustments represent depreciation and amortization, finance
costs, finance income and other expenses and income tax expense associated
with the 40% non-controlling interest in the methanol facility in Egypt and
our 63.1% interest in the Atlas methanol facility which is accounted for
using equity accounting.
Adjusted Net Income and Adjusted Net Income per Common Share
Adjusted net income and Adjusted net income per common share are
non-GAAP measures because they exclude the mark-to-market impact of
share-based compensation and items that are considered by
management to be non-operational, including asset impairment
charges. The following table shows a reconciliation of net income
(loss) attributable to Methanex shareholders to Adjusted net income
and the calculation of Adjusted net income per common share:
Three Months Ended
---------------------------------
($ millions except number of shares and per Mar 31 Dec 31 Mar 31
share amounts) 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) attributable to Methanex
shareholders $ 60 $ (140) $ 22
Mark-to-market impact of share-based
compensation 31 8 18
Asset impairment charge - 297 -
Income tax expense (recovery) related to
above items (3) (104) (1)
----------------------------------------------------------------------------
Adjusted net income $ 88 $ 61 $ 39
----------------------------------------------------------------------------
Diluted weighted average shares outstanding 96 94 95
Adjusted net income per common share (1) $ 0.92 $ 0.64 $ 0.41
----------------------------------------------------------------------------
(1) For the three months ended December 31, 2012, stock options have been
excluded from the calculation of diluted net loss per common share
(attributable to Methanex shareholders) as their effect would be anti-
dilutive. However, for the calculation of adjusted net income per common
share (attributable to Methanex shareholders) stock options have been
included in the denominator and the diluted weighted average number of
common shares is 95 million.
Adjusted Cash Flows from Operating Activities (attributable to
Methanex shareholders)
Adjusted cash flows from operating activities differs from the
most comparable GAAP measure, cash flows from operating activities,
because it includes cash flows associated with our 63.1% equity
share of the Atlas facility and does not include cash flows
associated with the 40% non-controlling interest in the methanol
facility in Egypt or changes in non-cash working capital.
The following table shows a reconciliation of cash flows from
operating activities to adjusted cash flows from operating
activities:
Three Months Ended
------------------------------
Mar 31 Dec 31 Mar 31
($ millions) 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from operating activities $ 118 $ 76 $ 74
Add (deduct):
Cash flows related to associate (Atlas) (1) 9 10 (3)
Cash flows related to non-controlling
interests (2) (15) (13) (23)
Changes in non-cash working capital 15 28 41
----------------------------------------------------------------------------
Adjusted cash flows from operating activities
(attributable to Methanex shareholders) $ 127 $ 101 $ 89
----------------------------------------------------------------------------
(1) Cash flows related to associate represents the amount related to our
63.1% equity share of the Atlas facility that is accounted for using the
equity method.
(2) Cash flows related to non-controlling interests represents the amount
attributable to non-controlling interests that are consolidated in the
financial statements.
Operating Income
Operating income is reconciled directly to a GAAP measure in our
consolidated statements of income.
QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected financial information for the prior eight
quarters is as follows:
Three Months Ended
------------------------------
Mar 31 Dec 31 Sep 30 Jun 30
($ millions, except per share amounts) 2013 2012 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 652 $ 668 $ 608 $ 613
Adjusted EBITDA (1,2) 149 119 104 113
Net income (loss) (1) 60 (140) (3) 52
Adjusted net income (1,2) 88 61 36 44
Basic net income (loss) per common share (1) 0.64 (1.49) (0.03) 0.56
Diluted net income (loss) per common share (1) 0.63 (1.49) (0.03) 0.50
Adjusted net income per share (1,2) 0.92 0.64 0.38 0.47
----------------------------------------------------------------------------
Three Months Ended
----------------------------
Mar 31 Dec 31 Sep 30 Jun 30
($ millions, except per share amounts) 2012 2011 2011 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 654 $ 696 $ 670 $ 623
Adjusted EBITDA (1,2) 93 133 111 102
Net income (1) 22 64 62 41
Adjusted net income (1,2) 39 65 40 39
Basic net income per common share (1) 0.24 0.69 0.67 0.44
Diluted net income per common share (1) 0.23 0.68 0.59 0.43
Adjusted net income per share (1,2) 0.41 0.69 0.43 0.41
----------------------------------------------------------------------------
(1) Attributable to Methanex Corporation shareholders.
(2) These items are non-GAAP measures that do not have any standardized
meaning prescribed by GAAP and therefore are unlikely to be comparable to
similar measures presented by other companies. Refer to the Additional
Information - Supplemental Non-GAAP Measures section for a description of
each non-GAAP measure and reconciliations to the most comparable GAAP
measures.
FORWARD-LOOKING INFORMATION WARNING
This First Quarter 2013 Management's Discussion and Analysis
("MD&A") as well as comments made during the First Quarter 2013
investor conference call contain forward-looking statements with
respect to us and our industry. These statements relate to future
events or our future performance. All statements other than
statements of historical fact are forward-looking statements.
Statements that include the words "believes," "expects," "may,"
"will," "should," "potential," "estimates," "anticipates," "aim,"
"goal" or other comparable terminology and similar statements of a
future or forward-looking nature identify forward-looking
statements.
More particularly and without limitation, any statements
regarding the following are forward-looking statements:
-- expected demand for methanol and its derivatives,
-- expected new methanol supply or restart of idled capacity and timing for
start-up of the same,
-- expected shutdowns (either temporary or permanent) or restarts of
existing methanol supply (including our own facilities), including,
without limitation, the timing and length of planned maintenance
outages,
-- expected methanol and energy prices,
-- expected levels of methanol purchases from traders or other third
parties,
-- expected levels, timing and availability of economically priced natural
gas supply to each of our plants,
-- capital committed by third parties towards future natural gas
exploration and development in the vicinity of our plants,
-- our expected capital expenditures, including, without limitation, those
to support natural gas exploration and development for our plants and
the restart of our idled methanol facilities,
-- anticipated production rates of our plants,
-- expected operating costs, including natural gas feedstock costs and
logistics costs,
-- expected tax rates or resolutions to tax disputes,
-- expected cash flows, earnings capability and share price,
-- ability to meet covenants or obtain waivers associated with our long-
term debt obligations, including, without limitation, the Egypt limited
recourse debt facilities that have conditions associated with
finalization of certain land title registration and related mortgages
that require action by Egyptian governmental entities,
-- availability of committed credit facilities and other financing,
-- our shareholder distribution strategy and anticipated distributions to
shareholders,
-- commercial viability and timing of, or our ability to execute, future
projects, plant restarts, capacity expansions, plant relocations, or
other business initiatives or opportunities, including the planned
relocation of idle Chile methanol plants to Geismar, Louisiana
("Geismar") and certain initiatives in New Zealand and Canada,
-- our financial strength and ability to meet future financial commitments,
-- expected global or regional economic activity (including industrial
production levels),
-- expected outcomes of litigation or other disputes, claims and
assessments,
-- expected actions of governments, government agencies, gas suppliers,
courts, tribunals or other third parties, and
-- expected impact on our operations in Egypt or our financial condition as
a consequence of civil unrest or actions taken or inaction by the
Government of Egypt and its agencies.
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, including,
without limitation, future expectations and assumptions concerning
the following:
-- the supply of, demand for, and price of methanol, methanol derivatives,
natural gas, coal, oil and oil derivatives,
-- the success of our natural gas exploration and development in Chile and
New Zealand and our ability to procure economically priced natural gas
in Chile, New Zealand, Trinidad, Canada and the United States,
-- receipt of governmental approvals related to natural gas exploration
rights,
-- the establishment of new fuel standards,
-- operating costs including natural gas feedstock and logistics costs,
capital costs, tax rates, cash flows, foreign exchange rates and
interest rates,
-- the availability of committed credit facilities and other financing,
-- timing of completion and cost of our Geismar projects and our
initiatives to increase production in New Zealand and Canada,
-- production rates of our facilities,
-- receipt of remaining required permits in connection with our Geismar
projects,
-- receipt or issuance of third-party consents or approvals, including,
without limitation, governmental registrations of land title and related
mortgages in Egypt, governmental approvals related to natural gas
exploration rights or rights to purchase natural gas,
-- global and regional economic activity (including industrial production
levels),
-- absence of a material negative impact from major natural disasters,
-- absence of a material negative impact from changes in laws or
regulations,
-- absence of a material negative impact from political instability in the
countries in which we operate,
-- enforcement of contractual arrangements and ability to perform
contractual obligations by customers, natural gas and other suppliers
and other third parties, and
-- satisfaction of conditions precedent contained in the Geismar I natural
gas supply agreement.
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 primarily include those
attendant with producing and marketing methanol and successfully
carrying out major capital expenditure projects in various
jurisdictions, including, without limitation:
-- conditions in the methanol and other industries including fluctuations
in the supply, demand for and price of methanol and its derivatives,
including demand for methanol for energy uses,
-- the price of natural gas, coal, oil and oil derivatives,
-- the success of natural gas exploration and development activities in
southern Chile and New Zealand and our ability to obtain any additional
gas in Chile and New Zealand on commercially acceptable terms,
-- the ability to successfully carry out corporate initiatives and
strategies,
-- actions of competitors, suppliers and financial institutions,
-- conditions within the natural gas delivery systems that may prevent
delivery of our natural gas supply requirements,
-- competing demand for natural gas, especially with respect to domestic
needs for gas and electricity in Chile and Egypt,
-- actions of governments and governmental authorities, including, without
limitation, the implementation of policies or other measures that could
impact the supply of or demand for methanol or its derivatives,
-- changes in laws or regulations,
-- import or export restrictions, anti-dumping measures, increases in
duties, taxes and government royalties, and other actions by governments
that may adversely affect our operations or existing contractual
arrangements,
-- world-wide economic conditions,
-- satisfaction of conditions precedent contained in the Geismar I natural
gas supply agreement, and
-- other risks described in our 2012 Management's Discussion and Analysis
and this First Quarter 2013 Management's Discussion and Analysis.
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 except as
required by applicable securities laws.
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 Adjusted
EBITDA (refer to the Additional Information - Supplemental Non-GAAP
Measures section for a description of each non-GAAP measure and
reconciliations to the most comparable GAAP measures).
In addition to the methanol that we produce at our facilities
("Methanex-produced methanol"), we also purchase and re-sell
methanol produced by others ("purchased methanol") and we sell
methanol on a commission basis. We analyze the results of all
methanol sales together, excluding commission sales volumes. The
key drivers of change in Adjusted EBITDA are average realized
price, cash costs and sales volume which 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.
CASH COST
The change in 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 current period total methanol
sales volume excluding commission sales volume in the current
period. The cash costs per tonne is the weighted average of the
cash cost per tonne of Methanex-produced methanol and the cash cost
per tonne of purchased methanol. The cash cost per tonne of
Methanex-produced methanol includes absorbed fixed cash costs per
tonne and variable cash costs per tonne. The cash cost per tonne of
purchased methanol consists principally of the cost of methanol
itself. In addition, the change in Adjusted EBITDA as a result of
changes in cash costs includes the changes from period to period in
unabsorbed fixed production costs, consolidated selling, general
and administrative expenses and fixed storage and handling
costs.
VOLUME
The change in Adjusted EBITDA as a result of changes in sales
volume is calculated as the difference from period to period in
total methanol sales volume excluding commission sales volumes
multiplied by the margin per tonne for the prior period. The margin
per tonne for the prior period is the weighted average margin per
tonne of Methanex-produced methanol and margin per tonne of
purchased methanol. The margin per tonne for Methanex-produced
methanol is calculated as the selling price per tonne of methanol
less absorbed fixed cash costs per tonne and variable cash costs
per tonne. The margin per tonne for purchased methanol is
calculated as the selling price per tonne of methanol less the cost
of purchased methanol per tonne.
We own 63.1% of the Atlas methanol facility and market the
remaining 36.9% of its production through a commission offtake
agreement. A contractual agreement between us and our partners
establishes joint control over Atlas. As a result, we account for
this investment using the equity method of accounting, which
results in 63.1% of the net assets and net earnings of Atlas being
presented separately in the consolidated statements of financial
position and consolidated statements of income, respectively. For
purposes of analyzing our business, Adjusted EBITDA, Adjusted net
income and Adjusted cash flows from operating activities include an
amount representing our 63.1% equity share in Atlas.
We own 60% of the 1.26 million tonne per year Egypt methanol
facility and market the remaining 40% of its production through a
commission offtake agreement. We account for this investment using
consolidation accounting, which results in 100% of the revenues and
expenses being included in our financial statements with the other
investors' interests in the methanol facility being presented as
"non-controlling interests". For purposes of analyzing our
business, Adjusted EBITDA, Adjusted net income and Adjusted cash
flows from operating activities exclude the amount associated with
the other investors' 40% non-controlling interests.
Methanex Corporation
Consolidated Statements of Income (unaudited)
(thousands of U.S. dollars, except number of common shares and per share
amounts)
Three Months Ended
------------------------------
Mar 31 Mar 31
2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(As adjusted
- note 11)
Revenue $ 651,899 $ 653,538
Cost of sales and operating expenses (527,995) (552,964)
Depreciation and amortization (29,817) (35,401)
----------------------------------------------------------------------------
Operating income 94,087 65,173
Earnings (loss) of associate (note 4) 1,286 (7,328)
Finance costs (note 6) (15,451) (16,033)
Finance income and other expenses (1,627) 1,838
----------------------------------------------------------------------------
Income before income tax expense 78,295 43,650
Income tax expense:
Current (4,391) (5,297)
Deferred (7,671) (5,542)
----------------------------------------------------------------------------
(12,062) (10,839)
----------------------------------------------------------------------------
Net income $ 66,233 $ 32,811
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Attributable to:
Methanex Corporation shareholders 60,267 22,081
Non-controlling interests 5,966 10,730
----------------------------------------------------------------------------
$ 66,233 $ 32,811
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income for the period attributable to Methanex
Corporation shareholders
Basic net income per common share $ 0.64 $ 0.24
Diluted net income per common share $ 0.63 $ 0.23
Weighted average number of common shares
outstanding (note 7) 94,514,188 93,407,866
Diluted weighted average number of common
shares outstanding (note 7) 95,717,869 94,714,364
See accompanying notes to condensed consolidated interim financial
statements.
Methanex Corporation
Consolidated Statements of Comprehensive Income (unaudited)
(thousands of U.S. dollars)
Three Months Ended
----------------------
Mar 31 Mar 31
2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income $ 66,233 $ 32,811
Other comprehensive income, net of taxes:
Items that may be reclassified to income:
Change in fair value of forward exchange contracts (184) (305)
Change in fair value of interest rate swap
contracts (296) (2,613)
Realized loss on interest rate swap contracts
reclassified to interest expense 2,591 2,936
----------------------------------------------------------------------------
2,111 18
----------------------------------------------------------------------------
Comprehensive income $ 68,344 $ 32,829
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Attributable to:
Methanex Corporation shareholders 61,460 21,970
Non-controlling interests 6,884 10,859
----------------------------------------------------------------------------
$ 68,344 $ 32,829
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated interim financial
statements.
Methanex Corporation
Consolidated Statements of Financial Position (unaudited)
(thousands of U.S. dollars)
Mar 31 Dec 31 Jan 1
AS AT 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(As (As
adjusted - adjusted -
note 11) note 11)
ASSETS
Current assets:
Cash and cash equivalents $ 726,851 $ 727,385 $ 341,445
Trade and other receivables 441,584 417,156 374,287
Inventories (note 2) 289,467 256,340 274,276
Prepaid expenses 21,697 25,588 22,614
----------------------------------------------------------------------------
1,479,599 1,426,469 1,012,622
Non-current assets:
Property, plant and equipment (note
3) 1,813,520 1,762,873 1,976,693
Investment in associate (note 4) 185,990 184,665 171,707
Other assets 71,813 68,554 122,627
----------------------------------------------------------------------------
2,071,323 2,016,092 2,271,027
----------------------------------------------------------------------------
$ 3,550,922 $ 3,442,561 $ 3,283,649
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities:
Trade, other payables and accrued
liabilities $ 437,807 $ 377,666 $ 360,712
Current maturities on long-term
debt (note 5) 40,444 38,290 236,063
Current maturities on other long-
term liabilities 40,517 30,322 21,441
----------------------------------------------------------------------------
518,768 446,278 618,216
Non-current liabilities:
Long-term debt (note 5) 1,146,443 1,156,081 601,293
Other long-term liabilities 177,495 200,212 188,149
Deferred income tax liabilities 170,623 162,253 274,028
----------------------------------------------------------------------------
1,494,561 1,518,546 1,063,470
Equity:
Capital stock 498,999 481,779 455,434
Contributed surplus 11,572 15,481 22,281
Retained earnings 848,394 805,661 942,978
Accumulated other comprehensive
loss (11,852) (13,045) (15,968)
----------------------------------------------------------------------------
Shareholders' equity 1,347,113 1,289,876 1,404,725
Non-controlling interests 190,480 187,861 197,238
----------------------------------------------------------------------------
Total equity 1,537,593 1,477,737 1,601,963
----------------------------------------------------------------------------
$ 3,550,922 $ 3,442,561 $ 3,283,649
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated interim financial
statements.
Methanex Corporation
Consolidated Statements of Changes in Equity (unaudited)
(thousands of U.S. dollars, except number of common shares)
Number of
Common Capital Contributed Retained
Shares Stock Surplus Earnings
----------------------------------------------------------------------------
Balance, December
31, 2011 93,247,755 $ 455,434 $ 22,281 $ 942,978
Net income - - - 22,081
Other
comprehensive
income (loss) - - - -
Compensation
expense recorded
for stock options - - 227 -
Issue of shares on
exercise of stock
options 458,920 8,068 - -
Reclassification
of grant date
fair value on
exercise of stock
options - 3,083 (3,083) -
Dividend payments
to Methanex
Corporation
shareholders - - - (15,908)
Distributions to
non-controlling
interests - - - -
Equity
contributions by
non-controlling
interests - - - -
----------------------------------------------------------------------------
Balance, March 31,
2012 93,706,675 466,585 19,425 949,151
Net income (loss) (90,186)
Other
comprehensive
income (loss) (1,135)
Compensation
expense recorded
for stock options - - 499 -
Issue of shares on
exercise of stock
options 603,295 10,751 - -
Reclassification
of grant date
fair value on
exercise of stock
options - 4,443 (4,443) -
Dividend payments
to Methanex
Corporation
shareholders - - - (52,169)
Distributions to
non-controlling
interests - - - -
Equity
contributions by
non-controlling
interests - - - -
----------------------------------------------------------------------------
Balance, December
31, 2012 94,309,970 481,779 15,481 805,661
Net income - - - 60,267
Other
comprehensive
income - - - -
Compensation
expense recorded
for stock options - - 223 -
Issue of shares on
exercise of stock
options 587,689 13,088 - -
Reclassification
of grant date
fair value on
exercise of stock
options - 4,132 (4,132) -
Dividend payments
to Methanex
Corporation
shareholders - - - (17,534)
Distributions to
non-controlling
interests - - - -
Equity
contributions by
non-controlling
interests - - - -
----------------------------------------------------------------------------
Balance, March 31,
2013 94,897,659 $ 498,999 $ 11,572 $ 848,394
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated interim financial
statements.
Methanex Corporation
Consolidated Statements of Changes in Equity (unaudited)
(thousands of U.S. dollars, except number of common shares)
Accumulated
Other Non-
Comprehensive Shareholders' Controlling Total
Loss Equity Interests Equity
----------------------------------------------------------------------------
Balance, December
31, 2011 $ (15,968) $ 1,404,725 $ 197,238 $ 1,601,963
Net income - 22,081 10,730 32,811
Other
comprehensive
income (loss) (111) (111) 129 18
Compensation
expense recorded
for stock options - 227 - 227
Issue of shares on
exercise of stock
options - 8,068 - 8,068
Reclassification
of grant date
fair value on
exercise of stock
options - - - -
Dividend payments
to Methanex
Corporation
shareholders - (15,908) - (15,908)
Distributions to
non-controlling
interests - - (9,405) (9,405)
Equity
contributions by
non-controlling
interests - - 1,000 1,000
----------------------------------------------------------------------------
Balance, March 31,
2012 (16,079) 1,419,082 199,692 1,618,774
Net income (loss) - (90,186) 22,800 (67,386)
Other
comprehensive
income (loss) 3,034 1,899 2,032 3,931
Compensation
expense recorded
for stock options - 499 - 499
Issue of shares on
exercise of stock
options - 10,751 - 10,751
Reclassification
of grant date
fair value on
exercise of stock
options - - - -
Dividend payments
to Methanex
Corporation
shareholders - (52,169) - (52,169)
Distributions to
non-controlling
interests - - (36,663) (36,663)
Equity
contributions by
non-controlling
interests - - - -
----------------------------------------------------------------------------
Balance, December
31, 2012 (13,045) 1,289,876 187,861 1,477,737
Net income - 60,267 5,966 66,233
Other
comprehensive
income 1,193 1,193 918 2,111
Compensation
expense recorded
for stock options - 223 - 223
Issue of shares on
exercise of stock
options - 13,088 - 13,088
Reclassification
of grant date
fair value on
exercise of stock
options - - - -
Dividend payments
to Methanex
Corporation
shareholders - (17,534) - (17,534)
Distributions to
non-controlling
interests - - (5,265) (5,265)
Equity
contributions by
non-controlling
interests - - 1,000 1,000
----------------------------------------------------------------------------
Balance, March 31,
2013 $ (11,852) $ 1,347,113 $ 190,480 $ 1,537,593
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated interim financial
statements.
Methanex Corporation
Consolidated Statements of Cash Flows (unaudited)
(thousands of U.S. dollars)
Three Months Ended
------------------------
Mar 31 Mar 31
2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(As adjusted -
note 11)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 66,233 $ 32,811
Add (deduct) loss (earnings) of associate (1,286) 7,328
Add non-cash items:
Depreciation and amortization 29,817 35,401
Income tax expense 12,062 10,839
Share based compensation expense 36,313 25,058
Finance costs 15,451 16,033
Other 464 5,786
Income taxes paid (8,783) (7,074)
Other cash payments, including share-based
compensation (17,555) (12,030)
----------------------------------------------------------------------------
Cash flows from operating activities before
undernoted 132,716 114,152
Changes in non-cash working capital (note 9) (15,037) (40,194)
----------------------------------------------------------------------------
117,679 73,958
----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend payments to Methanex Corporation
shareholders (17,534) (15,908)
Interest paid, including interest rate swap
settlements (21,211) (24,249)
Net proceeds on issue of long-term debt - 246,548
Repayment of long-term debt and limited recourse
debt (18,267) (17,154)
Equity contributions by non-controlling interests 1,000 1,000
Cash distributions to non-controlling interests (5,265) (12,745)
Proceeds from limited recourse debt 10,000 -
Proceeds on issue of shares on exercise of stock
options 13,088 8,068
Other (919) (13,450)
----------------------------------------------------------------------------
(39,108) 172,110
----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment (33,619) (42,551)
Louisiana project expenditures (43,398) -
Oil and gas assets (7,656) (6,801)
GeoPark repayments 6,864 6,630
Changes in non-cash working capital related to
investing activities (note 9) (1,296) 12,832
----------------------------------------------------------------------------
(79,105) (29,890)
----------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (534) 216,178
Cash and cash equivalents, beginning of period 727,385 341,445
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 726,851 $ 557,623
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated interim financial
statements.
Methanex Corporation
Notes to Condensed Consolidated Interim Financial Statements
(unaudited)
Except where otherwise noted, tabular dollar amounts are stated
in thousands of U.S. dollars.
1. Basis of presentation:
Methanex Corporation (the Company) is an incorporated entity
with corporate offices in Vancouver, Canada. The Company's
operations consist of the production and sale of methanol, a
commodity chemical. The Company is the world's largest supplier of
methanol to major international markets in Asia Pacific, North
America, Europe and Latin America.
These condensed consolidated interim financial statements are
prepared in accordance with International Accounting Standards
(IAS) 34, Interim Financial Reporting, as issued by the
International Accounting Standards Board (IASB) on a basis
consistent with those followed in the most recent annual
consolidated financial statements, except as described in note 11
below. As described in note 11, the Company has adopted new IFRS
standards effective January 1, 2013 with retrospective application
and as a result the comparative periods have been restated.
These condensed consolidated interim financial statements do not
include all of the information required for full annual financial
statements and were approved and authorized for issue by the Audit,
Finance & Risk Committee of the Board of Directors on April 24,
2013.
2. 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
expenses and depreciation and amortization for the three months
ended March 31, 2013 is $469 million (2012 - $495 million).
3. Property, plant and equipment:
Buildings,
Plant
Installations Plants Under Oil & Gas
& Machinery Construction Properties Other Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cost at March 31,
2013 $ 2,887,814 $ 120,104 $ 82,436 $ 80,379 $ 3,170,733
Accumulated
depreciation at
March 31, 2013 1,251,572 - 75,448 30,193 1,357,213
----------------------------------------------------------------------------
Net book value at
March 31, 2013 $ 1,636,242 $ 120,104 $ 6,988 $ 50,186 $ 1,813,520
----------------------------------------------------------------------------
Cost at December
31, 2012 $ 2,866,013 $ 75,238 $ 80,368 $ 68,906 $ 3,090,525
Accumulated
depreciation at
December 31, 2012 1,225,202 - 74,151 28,299 1,327,652
----------------------------------------------------------------------------
Net book value at
December 31, 2012 $ 1,640,811 $ 75,238 $ 6,217 $ 40,607 $ 1,762,873
----------------------------------------------------------------------------
Cost at January 1,
2012 $ 2,816,808 $ 1,326 $ 77,486 $ 88,642 $ 2,984,262
Accumulated
depreciation at
January 1, 2012 933,808 - 32,990 40,771 1,007,569
----------------------------------------------------------------------------
Net book value at
January 1, 2012 $ 1,883,000 $ 1,326 $ 44,496 $ 47,871 $ 1,976,693
----------------------------------------------------------------------------
The Company is in the process of relocating an idle Chile
facility to Geismar, Louisiana. During the three months ended March
31, 2013, the Company incurred $43 million in relation to this
project under construction, excluding capitalized interest.
Remaining capital costs to complete the project are estimated to be
$420 million, excluding capitalized interest.
In April 2013, the Company made a final investment decision to
relocate a second idle Chile facility to Geismar, Louisiana. The
Company estimates total project costs, excluding capitalized
interest, of $550 million with plant start-up expected in early
2016.
4. Investment in Atlas methanol facility:
a) The Company has a 63.1% equity interest in Atlas Methanol
Company Unlimited (Atlas). Atlas owns a 1.8 million tonne per year
methanol production facility in Trinidad. Effective January 1,
2013, the Company accounts for its interest in Atlas using the
equity method (refer to note 11). Summarized financial information
of Atlas (100% basis) is as follows:
Mar 31 Dec 31 Jan 1
Summarized Financial Information as at 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents 10,781 28,883 14,685
Other current assets 134,630 104,933 102,872
Non-current assets 398,494 407,362 411,465
Current liabilities (58,218) (65,005) (29,473)
Non-current liabilities, including
current maturities (212,054) (204,395) (227,430)
----------------------------------------------------------------------------
Net assets at 100% $ 273,633 $ 271,778 $ 272,119
----------------------------------------------------------------------------
Net assests at 63.1% $ 172,662 $ 171,492 $ 171,707
Long-term receivable from Atlas 13,328 13,173 -
----------------------------------------------------------------------------
Investment in associate $ 185,990 $ 184,665 $ 171,707
----------------------------------------------------------------------------
Three Months Ended
------------------------
Mar 31 Mar 31
Summarized Financial Information 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 85,366 $ 26,884
Cost of sales and depreciation and amortization (79,298) (36,122)
----------------------------------------------------------------------------
Operating income (loss) 6,068 (9,238)
Finance costs, finance income and other expenses (3,421) (4,214)
Income tax (expense) recovery (609) 1,839
----------------------------------------------------------------------------
Net earnings (loss) at 100% $ 2,038 $ (11,613)
----------------------------------------------------------------------------
Earnings (loss) of associate at 63.1% $ 1,286 $ (7,328)
----------------------------------------------------------------------------
b) Contingent liability:
The Board of Inland Revenue of Trinidad and Tobago has issued
assessments against Atlas in respect of the 2005 and 2006 financial
years. All subsequent tax years remain open to assessment. The
assessments relate to the pricing arrangements of certain long-term
fixed price sales contracts that extend to 2014 and 2019 related to
methanol produced by Atlas. The impact of the amounts in dispute
for the 2005 and 2006 financial years is not significant. Atlas has
partial relief from corporation income tax until 2014.
The Company has lodged objections to the assessments. Based on
the merits of the cases and legal interpretation, management
believes its position should be sustained.
5. Long-term debt:
Mar 31 Dec 31 Jan 1
As at 2013 2012 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Unsecured notes
$350 million at 3.25% due December
15, 2019 $ 343,909 $ 343,828 $ -
$250 million at 5.25% due March 1,
2022 246,408 246,326 -
$150 million at 6.00% due August 15,
2015 149,399 149,344 149,119
$200 million at 8.75% due August 15,
2012 - - 199,643
----------------------------------------------------------------------------
739,716 739,498 348,762
Egypt limited recourse debt facilities 421,479 438,631 470,208
Other limited recourse debt facilities 25,692 16,242 18,386
----------------------------------------------------------------------------
1,186,887 1,194,371 837,356
Less current maturities (40,444) (38,290) (236,063)
----------------------------------------------------------------------------
$1,146,443 $1,156,081 $ 601,293
----------------------------------------------------------------------------
During the three months ended March 31, 2013, the Company made
repayments on its Egypt limited recourse debt facilities of $18.3
million. During the three months ended March 31, 2013, the Company
issued $10.0 million of other limited recourse debt.
The Egypt limited recourse debt facilities are described as
limited recourse as they are secured only by the assets of the
Egypt entity. Accordingly, the lenders to the limited recourse debt
facilities have no recourse to the Company or its other
subsidiaries. The Egypt limited recourse debt facilities have
customary covenants and default provisions that apply only to the
Egypt entity, including restrictions on the incurrence of
additional indebtedness, a requirement to fulfill certain
conditions before the payment of cash or other distributions and a
restriction on these distributions if there is a default
subsisting. The Egypt limited recourse debt facilities also contain
a covenant to complete certain land title registrations and related
mortgages that require action by Egyptian government entities.
Under the terms of a waiver received from the lenders in March
2013, the Company is required to complete the covenant by March 31,
2014. The Company does not believe that the finalization of these
items is material to the security provided to the lenders.
At March 31, 2013, management believes the Company was in
compliance with all of the covenants and default provisions related
to long-term debt obligations.
6. Finance costs:
Three Months Ended
-----------------------
Mar 31 Mar 31
2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Finance costs $ 16,518 $ 16,033
Less capitalized interest related to Louisiana plant
under construction (1,067) -
----------------------------------------------------------------------------
$ 15,451 $ 16,033
----------------------------------------------------------------------------
Finance costs are primarily comprised of interest on borrowings
and finance lease obligations, the effective portion of interest
rate swaps designated as cash flow hedges, amortization of deferred
financing fees, and accretion expense associated with site
restoration costs. Interest during construction is capitalized
until the plant is substantially completed and ready for productive
use.
The Company has interest rate swap contracts on its Egypt
limited recourse debt facilities 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 to March 31, 2015.
7. Net income per common share:
Diluted net income per common share is calculated by considering
the potential dilution that would occur if outstanding stock
options and, under certain circumstances, tandem share appreciation
rights (TSARs) were exercised or converted to common shares.
Outstanding TSARs may be settled in cash or common shares at the
holder's option and for purposes of calculating diluted net income
per common share, the more dilutive of the cash-settled and
equity-settled method is used, regardless of how the plan is
accounted for. Accordingly, TSARs that are accounted for using the
cash-settled method will require adjustments to the numerator and
denominator if the equity-settled method is determined to have a
dilutive effect on diluted net income per common share.
Stock options and TSARs, if calculated using the equity-settled
method, are considered dilutive when the average market price of
the Company's common shares during the period disclosed exceeds the
exercise price of the stock option or TSAR. A reconciliation of the
number of common shares used for the purposes of calculating basic
and diluted net income per common share is as follows:
Three Months Ended
------------------------
Mar 31 Mar 31
2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Denominator for basic net income per common share 94,514,188 93,407,866
Effect of dilutive stock options 1,203,681 1,306,498
----------------------------------------------------------------------------
Denominator for diluted net income per common share 95,717,869 94,714,364
----------------------------------------------------------------------------
8. Share-based compensation:
a) Share appreciation rights (SARs), tandem share appreciation
rights (TSARs) and stock options:
(i) Outstanding units:
Information regarding units outstanding at March 31, 2013 is as
follows:
SARs TSARs
-------------------------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Units Price Units Price
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding at January 1, 2012 623,547 $ 26.72 1,219,735 $ 26.65
Granted 353,890 31.64 652,000 31.69
Exercised (55,331) 26.07 (15,800) 25.93
Cancelled (24,581) 29.10 (40,400) 27.61
----------------------------------------------------------------------------
Outstanding at December 31, 2012 897,525 $ 28.63 1,815,535 $ 28.45
----------------------------------------------------------------------------
Granted 360,900 38.24 544,200 38.24
Exercised (67,781) 27.43 (23,400) 27.41
Cancelled (5,500) 30.86 - -
----------------------------------------------------------------------------
Outstanding at March 31, 2013 1,185,144 $ 31.62 2,336,335 $ 30.74
----------------------------------------------------------------------------
Stock Options
-----------------------
Weighted
Average
Number of Exercise
Units Price
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding at January 1, 2012 4,004,204 $ 19.19
Granted 84,000 31.73
Exercised (1,062,215) 18.03
Cancelled (43,042) 18.13
----------------------------------------------------------------------------
Outstanding at December 31, 2012 2,982,947 $ 19.97
----------------------------------------------------------------------------
Granted 75,600 38.24
Exercised (587,689) 22.13
Cancelled (48,128) 16.13
----------------------------------------------------------------------------
Outstanding at March 31, 2013 2,422,730 $ 20.09
----------------------------------------------------------------------------
Units Outstanding at Units Exercisable at
March 31, 2013 March 31, 2013
---------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Number of Average Number of Average
Range of Exercise Life Units Exercise Units Exercise
Prices (Years) Outstanding Price Exercisable Price
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SARs:
$23.36 to 29.18 4.4 503,444 $ 26.80 406,800 $ 26.39
$31.73 to 38.24 6.5 681,700 35.18 97,740 31.73
----------------------------------------------------------------------------
5.6 1,185,144 $ 31.62 504,540 $ 27.42
----------------------------------------------------------------------------
TSARs:
$23.36 to 29.18 4.4 1,156,245 $ 26.66 985,898 $ 26.31
$31.73 to 38.24 6.4 1,180,090 34.73 208,230 31.73
----------------------------------------------------------------------------
5.4 2,336,335 $ 30.74 1,194,128 $ 27.26
----------------------------------------------------------------------------
Stock options:
$6.33 to 11.56 2.9 875,490 $ 6.39 875,490 $ 6.39
$20.76 to 38.24 2.2 1,547,240 27.84 1,394,590 27.11
----------------------------------------------------------------------------
2.5 2,422,730 $ 20.09 2,270,080 $ 19.12
----------------------------------------------------------------------------
(ii) Compensation expense related to SARs and TSARs:
Compensation expense for SARs and TSARs is measured based on
their fair value and is recognized over the vesting period. Changes
in fair value each period are recognized in net income for the
proportion of the service that has been rendered at each reporting
date. The fair value at March 31, 2013 was $43.0 million compared
with the recorded liability of $32.0 million. The difference
between the fair value and the recorded liability of $11.0 million
will be recognized over the weighted average remaining vesting
period of approximately 2.0 years. The weighted average fair value
of the vested SARs and TSARs was estimated at March 31, 2013 using
the Black-Scholes option pricing model.
For the three months ended March 31, 2013, compensation expense
related to SARs and TSARs included an expense in cost of sales and
operating expenses of $17.0 million (2012 - $10.7 million). This
included an expense of $15.0 million (2012 - expense of $7.8
million) related to the effect of the change in the Company's share
price for the three months ended March 31, 2013.
(iii) Compensation expense related to stock options:
For the three months ended March 31, 2013, compensation expense
related to stock options included in cost of sales and operating
expenses was $0.2 million (2012 - $0.2 million). The fair value of
each stock option grant was estimated on the date of grant using
the Black-Scholes option pricing model.
b) Deferred, restricted and performance share units:
Deferred, restricted and performance share units outstanding at
March 31, 2013 are as follows:
Number of Number of Number of
Deferred Restricted Performance
Share Units Share Units Share Units
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding at January 1, 2012 597,911 48,588 1,103,049
Granted 21,649 20,400 358,330
Granted in-lieu of dividends 13,821 1,502 25,339
Redeemed (66,531) (31,607) (413,138)
Cancelled - - (19,711)
----------------------------------------------------------------------------
Outstanding at December 31, 2012 566,850 38,883 1,053,869
----------------------------------------------------------------------------
Granted 9,725 22,500 304,600
Granted in-lieu of dividends 2,391 280 4,305
Redeemed (49,432) - (410,177)
Cancelled - - (5,810)
----------------------------------------------------------------------------
Outstanding at March 31, 2013 529,534 61,663 946,787
----------------------------------------------------------------------------
Compensation expense for deferred, restricted and performance
share units is measured at fair value based on the market value of
the Company's common shares and is recognized over the vesting
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, 2013 was $65.4 million compared with the
recorded liability of $48.5 million. The difference between the
fair value and the recorded liability of $16.9 million will be
recognized over the weighted average remaining vesting period of
approximately 2.1 years.
For the three months ended March 31, 2013, compensation expense
related to deferred, restricted and performance share units
included in cost of sales and operating expenses was an expense of
$19.1 million (2012 -$14.1 million). This included an expense of
$15.7 million (2012 - expense of $10.3 million) related to the
effect of the change in the Company's share price for the three
months ended March 31, 2013.
9. Changes in non-cash working capital:
Changes in non-cash working capital for the three months ended
March 31, 2013 were as follows:
Three Months Ended
----------------------
Mar 31 Mar 31
2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Decrease (increase) in non-cash working capital:
Trade and other receivables $ (24,428) $ (941)
Inventories (33,127) 13,364
Prepaid expenses 3,891 921
Trade, other payables and accrued liabilities,
including long-term payables included in other
long-term liabilities 37,708 (56,777)
----------------------------------------------------------------------------
(15,956) (43,433)
Adjustments for items not having a cash effect and
working capital changes relating to taxes and
interest paid (377) 16,071
----------------------------------------------------------------------------
Changes in non-cash working capital having a cash
effect $ (16,333) $ (27,362)
----------------------------------------------------------------------------
These changes relate to the following activities:
Operating $ (15,037) $ (40,194)
Investing (1,296) 12,832
----------------------------------------------------------------------------
Changes in non-cash working capital $ (16,333) $ (27,362)
----------------------------------------------------------------------------
10. 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
Consolidated Statement of Financial Position at fair value.
Derivative financial instruments are classified as held-for-trading
and are recorded on the Consolidated Statement of Financial
Position at fair value unless exempted. Changes in fair value of
held-for-trading derivative financial instruments are recorded in
earnings unless the instruments are designated as cash flow
hedges.
The euro hedges and the Egypt interest rate swaps designated as
cash flow hedges are measured at fair value based on
industry-accepted valuation models and inputs obtained from active
markets.
The Egypt limited recourse debt facilities bear interest at
LIBOR plus a spread. The Company has 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 to March 31, 2015.
The Company has designated these interest rate swaps as cash flow
hedges. These interest rate swaps had an outstanding notional
amount of $329 million as at March 31, 2013. The notional amount
decreases over the expected repayment period. At March 31, 2013,
these interest rate swap contracts had a negative fair value of
$25.9 million (2012 - $32.7 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,
2013, the Company had outstanding forward exchange contracts
designated as cash flow hedges to sell a notional amount of EUR17.2
million in exchange for US dollars and these euro contracts had a
positive fair value of $0.8 million (2012 - negative fair value of
$0.2 million) recorded in other assets. Changes in fair value of
derivative financial instruments designated as cash flow hedges
have been recorded in other comprehensive income.
The carrying values of the Company's financial instruments
approximate their fair values, except as follows:
March 31, 2013
--------------------------
Carrying
As at Value Fair Value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term debt $ 1,186,887 $ 1,240,180
----------------------------------------------------------------------------
There is no publicly traded market for the limited recourse debt
facilities, the fair value of which is estimated by reference to
current market prices for debt securities with similar terms and
characteristics. The fair value of the unsecured notes was
calculated by reference to a limited number of small transactions
in March 2013. The fair value of the Company's unsecured notes will
fluctuate until maturity.
11. Adoption of New Accounting Standards:
a) Effective January 1, 2013, the Company has adopted the
following new IASB accounting standards related to consolidation
and joint arrangements: IFRS 10, Consolidated Financial Statements;
IFRS 11, Joint Arrangements; and IFRS 12, Disclosure of Interests
in Other Entities.
As a result of the adoption of these new standards, the
Company's 63.1% interest in the Atlas entity is accounted for using
the equity method. The Company has restated its Consolidated
Statement of Financial Position as at January 1, 2012 and December
31, 2012 and its Consolidated Statement of Income and Comprehensive
Income for the three months ended March 31, 2012. Reconciliations
of the restatements of the Consolidated Statement of Financial
Position as at December 31, 2012 and Consolidated Statement of
Income and Comprehensive Income for the three months ended March
31, 2012 are as follows:
Consolidated Statement of Financial Position
As at December 31, 2012
As Restatement
Previously of Atlas to
Stated Equity Method As Adjusted
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 745,610 $ (18,225) $ 727,385
Trade and other receivables 429,203 (12,047) 417,156
Inventories 253,023 3,317 256,340
Prepaid expenses 28,314 (2,726) 25,588
----------------------------------------------------------------------------
1,456,150 (29,681) 1,426,469
Non-current assets:
Property, plant and equipment 2,014,748 (251,875) 1,762,873
Investment in associate - 184,665 184,665
Other assets 73,724 (5,170) 68,554
----------------------------------------------------------------------------
2,088,472 (72,380) 2,016,092
----------------------------------------------------------------------------
$3,544,622 $ (102,061) $3,442,561
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities:
Trade, other payables and accrued
liabilities $ 353,744 $ 23,922 $ 377,666
Current maturities on long-term debt 53,334 (15,044) 38,290
Current maturities on other long-
term liabilities 33,903 (3,581) 30,322
----------------------------------------------------------------------------
440,981 5,297 446,278
Non-current liabilities:
Long-term debt 1,191,891 (35,810) 1,156,081
Other long-term liabilities 242,435 (42,223) 200,212
Deferred income tax liabilities 191,578 (29,325) 162,253
----------------------------------------------------------------------------
1,625,904 (107,358) 1,518,546
Equity:
Capital stock 481,779 - 481,779
Contributed surplus 15,481 - 15,481
Retained earnings 805,661 - 805,661
Accumulated other comprehensive loss (13,045) - (13,045)
----------------------------------------------------------------------------
Shareholders' equity 1,289,876 - 1,289,876
Non-controlling interests 187,861 - 187,861
----------------------------------------------------------------------------
Total equity 1,477,737 - 1,477,737
----------------------------------------------------------------------------
$3,544,622 $ (102,061) $3,442,561
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statement of Income
Three months ended March 31, 2012
As Restatement
Previously of Atlas to
Stated Equity Method As Adjusted
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 665,867 $ (12,329) $ 653,538
Cost of sales and operating expenses (568,557) 15,593 (552,964)
Depreciation and amortization (37,967) 2,566 (35,401)
----------------------------------------------------------------------------
Operating income 59,343 5,830 65,173
Earnings of associate - (7,328) (7,328)
Finance costs (18,533) 2,500 (16,033)
Finance income and other expenses 1,679 159 1,838
----------------------------------------------------------------------------
Profit before income tax expense 42,489 1,161 43,650
Income tax expense:
Current (4,568) (729) (5,297)
Deferred (5,110) (432) (5,542)
----------------------------------------------------------------------------
(9,678) (1,161) (10,839)
----------------------------------------------------------------------------
Net income $ 32,811 $ - $ 32,811
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Change in fair value of forward
exchange contracts, net of tax (305) - (305)
Change in fair value of interest rate
swap contracts, net of tax (2,613) - (2,613)
Realized loss on interest rate swap
reclassified to interest expense, net
of tax 2,936 - 2,936
----------------------------------------------------------------------------
Comprehensive income $ 32,829 $ - $ 32,829
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Attributable to: - - -
Methanex Corporation shareholders 21,970 - 21,970
Non-controlling interests 10,859 - 10,859
----------------------------------------------------------------------------
$ 32,829 $ - $ 32,829
----------------------------------------------------------------------------
b) Effective January 1, 2013, the Company adopted IFRS 13, Fair
Value Measurements. As a result of this new standard, incremental
disclosures have been provided in note 10 to these condensed
consolidated interim financial statements.
c) Effective January 1, 2013, the Company adopted the revised
IFRS 19, Employee Benefits. The adoption of this standard has not
had a significant impact on the Company.
d) Effective January 1, 2013, the Company adopted the revised
IAS, Presentation of Financial Statements. The adoption of this
standard has resulted is a change to the presentation of the
Company's Consolidated Statements of Comprehensive Income.
12. Subsequent Event:
In a prior period, the Company made a commitment to fund 50% of
the cost of certain exploratory hydrocarbon wells in New Zealand.
As at March 31, 2013, the Company had incurred approximately $15
million of costs related to this arrangement which were recorded on
the Consolidated Statement of Financial Position as oil and gas
properties in Other Assets. The Company has no future commitments
under these arrangements. In April 2013 the operator of the
drilling program announced their intention to abandon one of the
wells. At the date of this report the Company has not had the
opportunity to analyze the operator's data from the drilling
program. During the second quarter of 2013, the Company will
evaluate whether an event has occurred which would require a
re-assessment of the carrying value of the investment.
Methanex Corporation
Quarterly History (unaudited)
Q1 2013
----------------------------------------------
METHANOL SALES VOLUMES
(thousands of tonnes)
Methanex-produced 1,024
Purchased methanol 588
Commission sales (1) 219
----------------------------------------------
1,831
----------------------------------------------
METHANOL PRODUCTION
(thousands of tonnes)
Chile 55
New Zealand 309
Atlas, Trinidad (63.1%) 248
Titan, Trinidad 181
Egypt (60%) 133
Medicine Hat 131
----------------------------------------------
1,057
----------------------------------------------
AVERAGE REALIZED METHANOL
PRICE (2)
($/tonne) 412
($/gallon) 1.24
PER SHARE INFORMATION ($
per share) (3)
Basic net income (loss) 0.64
Diluted net income (loss) 0.63
Adjusted diluted net
income (4) 0.92
Methanex Corporation
Quarterly History (unaudited)
2012 Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
METHANOL SALES VOLUMES
(thousands of tonnes)
Methanex-produced 4,039 1,059 1,053 1,001 926
Purchased methanol 2,565 664 641 569 691
Commission sales (1) 855 176 205 276 198
----------------------------------------------------------------------------
7,459 1,899 1,899 1,846 1,815
----------------------------------------------------------------------------
METHANOL PRODUCTION
(thousands of tonnes)
Chile 313 59 59 82 113
New Zealand 1,108 378 346 210 174
Atlas, Trinidad (63.1%) 826 180 255 264 127
Titan, Trinidad 786 189 186 196 215
Egypt (60%) 557 129 62 164 202
Medicine Hat 481 132 117 118 114
----------------------------------------------------------------------------
4,071 1,067 1,025 1,034 945
----------------------------------------------------------------------------
AVERAGE REALIZED METHANOL
PRICE (2)
($/tonne) 382 389 373 384 382
($/gallon) 1.15 1.17 1.12 1.15 1.15
PER SHARE INFORMATION ($
per share) (3)
Basic net income (loss) (0.73) (1.49) (0.03) 0.56 0.24
Diluted net income (loss) (0.73) (1.49) (0.03) 0.50 0.23
Adjusted diluted net
income (4) 1.90 0.64 0.38 0.47 0.41
Methanex Corporation
Quarterly History (unaudited)
2011 Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
METHANOL SALES VOLUMES
(thousands of tonnes)
Methanex-produced 3,853 1,052 983 970 848
Purchased methanol 2,815 644 672 664 835
Commission sales (1) 846 208 235 231 172
----------------------------------------------------------------------------
7,514 1,904 1,890 1,865 1,855
----------------------------------------------------------------------------
METHANOL PRODUCTION
(thousands of tonnes)
Chile 554 113 116 142 183
New Zealand 830 211 209 207 203
Atlas, Trinidad (63.1%) 891 195 170 263 263
Titan, Trinidad 711 180 224 186 121
Egypt (60%) 532 132 191 178 31
Medicine Hat 329 130 125 74 -
----------------------------------------------------------------------------
3,847 961 1,035 1,050 801
----------------------------------------------------------------------------
AVERAGE REALIZED METHANOL
PRICE (2)
($/tonne) 374 388 377 363 367
($/gallon) 1.12 1.17 1.13 1.09 1.10
PER SHARE INFORMATION ($
per share) (3)
Basic net income (loss) 2.16 0.69 0.67 0.44 0.37
Diluted net income (loss) 2.06 0.68 0.59 0.43 0.37
Adjusted diluted net
income (4) 1.93 0.69 0.43 0.41 0.39
(1) Commission sales represent volumes marketed on a commission basis
related to the 36.9% of the Atlas methanol facility and 40% of the Egypt
methanol facility that we do not own.
(2) Average realized price is calculated as revenue, excluding commissions
earned and the Egypt non-controlling interest share of revenue but including
an amount representing our share of Atlas revenue, divided by the total
sales volumes of Methanex-produced (attributable to Methanex shareholders)
and purchased methanol.
(3) Per share information calculated using amounts attributable to Methanex
shareholders.
(4) This item is a non-GAAP measure that does not have any standardized
meaning prescribed by GAAP and therefore is unlikely to be comparable to
similar measures presented by other companies. Refer to the Additional
Information - Supplemental Non-GAAP Measures section for a description of
the non-GAAP measure and reconciliation to the most comparable GAAP measure.
Contacts: Sandra Daycock Director, Investor Relations Methanex
Corporation 604 661 2600 or Toll-Free: 1 800 661
8851invest@methanex.com www.methanex.com
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