Methanex Reports Third Quarter Results
VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 10/28/15 -- For the third quarter of 2015, Methanex (TSX: MX)(NASDAQ: MEOH) reported Adjusted EBITDA(1) of $95 million and Adjusted net income(1) of $23 million ($0.26 per share on a diluted basis(1)). This compares with Adjusted EBITDA(1) of $129 million and Adjusted net income(1) of $51 million ($0.56 per share on a diluted basis(1)) for the second quarter of 2015. Net income attributable to Methanex shareholders was $78 million in the third quarter compared to $104 million in the second quarter of 2015.
John Floren, President and CEO of Methanex commented, "Our third quarter Adjusted net income reflects lower average realized methanol pricing compared to the second quarter of 2015. Prices decreased as the affordability for methanol into certain energy applications moved lower relative to the second quarter, in alignment with lower oil and related product prices."
Mr. Floren continued, "We expect to complete our one million tonne Geismar 2 plant with no change to our total cost estimate, and to achieve first methanol by the end of 2015. The plant will be an excellent addition to our asset portfolio and we expect strong, reliable production from that facility for years to come."
"We returned over $50 million to shareholders in the third quarter of 2015 in the form of dividends and share repurchases. With cash on hand, an undrawn credit facility, a robust balance sheet, and strong future cash generation capability, we are well positioned to meet our financial commitments, invest to grow the Company and return excess cash to shareholders."
A conference call is scheduled for October 29, 2015 at 12:00 noon ET (9:00 am PT) to review these third quarter results. To access the call, dial the conferencing operator ten minutes prior to the start of the call at (416) 340-8530, or toll free at (800) 769-8320. A playback version of the conference call will be available until November 19, 2015 at (905) 694-9451, or toll free at (800) 408-3053. The passcode for the playback version is 4600087. Presentation slides summarizing the Q3 2015 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 three weeks following the call.
Methanex is a Vancouver-based, publicly traded company and is the world's largest producer and 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 third quarter 2015 press release contains forward-looking statements with respect to us and the chemical industry. Refer to Forward-Looking Information Warning in the attached third quarter 2015 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 the impact of certain items
associated with specific identified events. Refer to the Additional
Information - Supplemental Non-GAAP Measures section of the attached
Interim Report for the three and nine months ended September 30, 2015
for reconciliations to the most comparable GAAP measures.
Interim Report for the Three and Nine Months Ended September 30, 2015
At October 28, 2015 the Company had 89,656,398 common shares issued and outstanding and stock options exercisable for 1,706,558 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
CST Trust Company 320 Bay Street Toronto, Ontario Canada M5H 4A6 Toll free in North America: 1-800-387-0825
Investor Information
All financial reports, news releases and corporate information can be accessed on our website at www.methanex.com.
Contact Information
Methanex Investor Relations 1800 - 200 Burrard Street Vancouver, BC Canada V6C 3M1 E-mail: [email protected] Methanex Toll-Free: 1-800-661-8851
THIRD 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 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 Nine Months Ended
------------------------ ------------------
($ millions except number of Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
shares and per share amounts) 2015 2015 2014 2015 2014
--------------------------------------------------------- ------------------
--------------------------------------------------------- ------------------
Net income attributable to
Methanex shareholders $ 78 $ 104 $ 52 $ 191 $ 322
Mark-to-market impact of share-
based compensation, net of tax (55) 4 14 (39) 22
Gain related to the termination
of a terminal services
agreement, net of tax - (57) - (57) -
Argentina gas settlement, net
of tax - - - - (27)
--------------------------------------------------------- ------------------
Adjusted net income (1) $ 23 $ 51 $ 66 $ 95 $ 317
--------------------------------------------------------- ------------------
Diluted weighted average shares
outstanding (millions) 91 91 95 92 96
Adjusted net income per common
share (1) $0.26 $0.56 $0.69 $1.04 $3.30
--------------------------------------------------------- ------------------
- We recorded Adjusted EBITDA(1) of $95 million for the third quarter of
2015 compared with $129 million for the second quarter of 2015. The
decrease in Adjusted EBITDA(1) was primarily due to a decrease in our
average realized price to $323 per tonne for the third quarter of 2015
from $350 per tonne for the second quarter of 2015.
- Production for the third quarter of 2015 was 1,259,000 tonnes compared
with 1,281,000 tonnes for the second quarter of 2015. Refer to the
Production Summary section.
- Sales of Methanex-produced methanol were 1,238,000 tonnes in the third
quarter of 2015 compared with 1,203,000 in the second quarter of 2015.
- During the third quarter of 2015, we entered into forward contracts to
hedge natural gas prices for the Geismar 2 facility for a 10 year period.
As of October 28, 2015 we have hedged approximately 40% of the natural gas
requirements of the facility.
- We continue to make excellent progress on the construction of the Geismar
2 facility and we expect to be producing first methanol by the end of
2015.
- During the third quarter of 2015 we paid a $0.275 per share dividend to
shareholders for a total of $25 million.
- During the third quarter of 2015, we repurchased 629,100 common shares for
$27 million. Under the current normal course issuer bid, we are authorized
to purchase up to a further 3.2 million shares by May 5, 2016.
(1) These items are non-GAAP measures that do not have any standardized
meaning prescribed by GAAP and therefore are unlikely to be comparable
to similar measures presented by other companies. Refer to the
Additional Information - Supplemental Non-GAAP Measures section for a
description of each non-GAAP measure and reconciliations to the most
comparable GAAP measures.
This Third Quarter 2015 Management's Discussion and Analysis ("MD&A") dated October 28, 2015 for Methanex Corporation ("the Company") should be read in conjunction with the Company's condensed consolidated interim financial statements for the three and nine month periods ended September 30, 2015 as well as the 2014 Annual Consolidated Financial Statements and MD&A included in the Methanex 2014 Annual Report. Unless otherwise indicated, the financial information presented in this interim report is prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The Methanex 2014 Annual Report and additional information relating to Methanex is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
FINANCIAL AND OPERATIONAL DATA
Nine Months
Three Months Ended Ended
----------------------- ----------------
($ millions except per share amounts Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
and where noted) 2015 2015 2014 2015 2014
----------------------------------------------------------- ----------------
----------------------------------------------------------- ----------------
Production (thousands of tonnes)
(attributable to Methanex
shareholders) 1,259 1,281 1,204 3,804 3,646
Sales volume (thousands of tonnes)
Methanex-produced methanol
(attributable to Methanex
shareholders) 1,238 1,203 1,258 3,678 3,629
Purchased methanol 679 813 694 2,144 1,991
Commission sales 169 109 191 463 693
----------------------------------------------------------- ----------------
Total sales volume (1) 2,086 2,125 2,143 6,285 6,313
Methanex average non-discounted
posted price ($ per tonne) (2) 384 403 444 390 525
Average realized price ($ per tonne)
(3) 323 350 389 337 453
Adjusted revenue (attributable to
Methanex shareholders) (4) 619 696 757 1,940 2,517
Adjusted EBITDA (attributable to
Methanex shareholders) (4) 95 129 137 321 552
Cash flows from operating activities 134 82 171 253 590
Adjusted net income (attributable to
Methanex shareholders) (4) 23 51 66 95 317
Net income attributable to Methanex
shareholders 78 104 52 191 322
Adjusted net income per common share
(attributable to Methanex
shareholders) (4) 0.26 0.56 0.69 1.04 3.30
Basic net income per common share
(attributable to Methanex
shareholders) 0.87 1.15 0.55 2.10 3.36
Diluted net income per common share
(attributable to Methanex
shareholders) 0.54 1.15 0.54 1.90 3.34
Common share information (millions
of shares)
Weighted average number of common
shares 90 91 94 91 96
Diluted weighted average number of
common shares 91 91 95 92 96
Number of common shares
outstanding, end of period 90 90 94 90 94
----------------------------------------------------------- ----------------
(1) Methanex-produced methanol includes volume produced by Chile using
natural gas supplied from Argentina under a tolling arrangement
("Tolling Volume"). For the 3rd quarter of 2015, Tolling Volume was
1,000 tonnes. Commission sales represent volume marketed on a
commission basis related to 36.9% of the Atlas methanol facility and
50% of the Egypt methanol facility.
(2) Methanex average non-discounted posted price represents the average of
our non-discounted posted prices in North America, Europe and Asia
Pacific weighted by sales volume. Current and historical pricing
information is available at www.methanex.com.
(3) Average realized price is calculated as revenue, 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 volume of Methanex-produced (attributable to Methanex
shareholders) and purchased methanol but excluding Tolling Volume.
(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.
----------------------------------------------------------------------------
PRODUCTION SUMMARY
Q3 2015 Q2 2015 Q3 2014
Operating
(thousands of tonnes) Capacity(1) Production Production Production
----------------------------------------------------------------------------
----------------------------------------------------------------------------
New Zealand (2) 608 476 487 595
Atlas (Trinidad) (63.1%
interest) 281 226 236 234
Titan (Trinidad) 218 172 183 185
Geismar 1 and 2 (Louisiana,
USA) (3) 250 259 276 -
Egypt (50% interest) 158 - 8 50
Medicine Hat (Canada) 140 123 51 130
Chile I and IV (4) 100 3 40 10
----------------------------------------------------------------------------
1,755 1,259 1,281 1,204
----------------------------------------------------------------------------
YTD Q3 2015 YTD Q3 2014
(thousands of tonnes) Production Production
----------------------------------------------------------
----------------------------------------------------------
New Zealand (2) 1,444 1,654
Atlas (Trinidad) (63.1%
interest) 671 674
Titan (Trinidad) 541 537
Geismar 1 and 2 (Louisiana,
USA) (3) 715 -
Egypt (50% interest) 16 288
Medicine Hat (Canada) 301 390
Chile I and IV (4) 116 103
----------------------------------------------------------
3,804 3,646
----------------------------------------------------------
(1) Operating capacity includes only those facilities which are currently
capable of operating, assuming access to natural gas feedstock, but
excludes any portion of an asset that is underutilized due to a lack of
natural gas feedstock over a prolonged period of time. Our current
annual operating capacity is 7.0 million tonnes, including 0.4 million
tonnes related to our Chile operations. The operating capacity of our
production facilities may be higher than original nameplate capacity
as, over time, these figures have been adjusted to reflect ongoing
operating efficiencies at these facilities. Actual production for a
facility in any given year may be higher or lower than operating
capacity due to a number of factors, including natural gas composition
or the age of the facility's catalyst.
(2) The operating capacity of New Zealand represents the two Motunui
facilities and the Waitara Valley facility (refer to New Zealand
section below).
(3) We commenced methanol production from Geismar 1 during the first
quarter of 2015. The Geismar 2 facility is currently under construction
and will contribute one million tonnes annually to operating capacity
once complete bringing the total quarterly operating capacity to 0.5
million tonnes.
(4) The production capacity of our Chile I and IV facilities is 1.7 million
tonnes annually (0.4 million tonnes per quarter) assuming access to
natural gas feedstock.
New Zealand
Our New Zealand methanol facilities produced 476,000 tonnes of methanol in the third quarter of 2015 compared with 487,000 tonnes in the second quarter of 2015. Mechanical issues at our Motunui facilities resulted in lost production of approximately 80,000 tonnes during the third quarter of 2015. The Motunui 1 plant was shut down for repairs during the third quarter to address the mechanical issues. The New Zealand facilities are capable of producing up to 2.4 million tonnes annually, depending on natural gas composition.
Trinidad
Production in Trinidad during the quarter was impacted by gas curtailments at both plants. The Titan facility produced 172,000 tonnes in the third quarter of 2015 compared with 183,000 tonnes in the second quarter of 2015. The Atlas facility produced 226,000 tonnes (63.1% interest) in the third quarter of 2015 compared with 236,000 tonnes (63.1% interest) in the second quarter of 2015.
We continue to experience 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 including Atlas and Titan. We are engaged with key stakeholders to find a solution to this issue, but in the meantime expect to continue to experience gas curtailments to the Trinidad site.
Geismar, United States
In late January 2015, the Geismar 1 plant commenced production and since start up has been operating at full rates, producing 259,000 tonnes during the third quarter of 2015 compared to 276,000 tonnes during the second quarter of 2015. We continue to make excellent progress on the construction of Geismar 2 and we expect to be producing first methanol by the end of 2015. Once complete, the Geismar 2 facility will add approximately one million incremental tonnes to our annual operating capacity.
Egypt
The Egypt methanol facility has been idled since June 2015 due to natural gas supply restrictions and has only operated for twelve days during 2015, producing 32,000 tonnes (Methanex share of 16,000 tonnes). Although the restart date and future operating rates are difficult to predict, our current expectation is that we will be able to resume operations in the fourth quarter of 2015 at reduced rates after the peak Egyptian summer electricity consumption period ends.
The Egypt facility has experienced periodic natural gas supply restrictions since mid-2012 and gas restrictions have become more significant since 2014. We cannot predict when the gas supply situation will improve, but are optimistic that recent developments impacting upstream gas supply in Egypt will result in improved gas deliveries in the future.
Medicine Hat, Canada
During the third quarter of 2015, we produced 123,000 tonnes at our Medicine Hat facility compared with 51,000 tonnes during the second quarter of 2015. The Medicine Hat facility underwent a planned major refurbishment during the second quarter of 2015 and returned to normal operation in mid-July. Since restart, the plant has been operating at full rates.
Chile
As a result of insufficient natural gas feedstock from Chile and Argentina during the southern hemisphere winter, we idled our Chile operations in May 2015. On September 27, 2015, we restarted one of our two plants in Chile and produced 3,000 tonnes during the quarter, supported by natural gas supplies both from Chile and from Argentina through a tolling arrangement. We have reached an agreement with Empresa Nacional del Petroleo ("ENAP") for gas supply until April 2016.
The future of our Chile operations is primarily dependent on the level of natural gas 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.
FINANCIAL RESULTS
For the third quarter of 2015, we reported net income attributable to Methanex shareholders of $78 million ($0.54 per share on a diluted basis) compared with net income attributable to Methanex shareholders for the second quarter of 2015 of $104 million ($1.15 income per share on a diluted basis).
For the third quarter of 2015, we recorded Adjusted EBITDA of $95 million and Adjusted net income of $23 million ($0.26 per share on a diluted basis). This compares with Adjusted EBITDA of $129 million and Adjusted net income of $51 million ($0.56 per share on a diluted basis) for the second quarter of 2015.
We calculate Adjusted EBITDA and Adjusted net income by including amounts related to our equity share of the Atlas (63.1% interest) and Egypt (50% interest) facilities and by excluding the mark-to-market impact of share-based compensation as a result of changes in our share price and the impact of certain items associated with specific identified events. Refer to the Additional Information - Supplemental Non-GAAP Measures section for a further discussion on how we calculate these measures. Our analysis of depreciation and amortization, finance costs, finance income and other expenses and income taxes is consistent with the presentation of our consolidated statements of income and excludes amounts related to Atlas.
A reconciliation from net income attributable to Methanex shareholders to Adjusted net income and the calculation of Adjusted net income per common share is as follows:
Three Months Ended Nine Months Ended
------------------------- ------------------
($ millions except number of Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
shares and per share amounts) 2015 2015 2014 2015 2014
--------------------------------------------------------- ------------------
--------------------------------------------------------- ------------------
Net income attributable to
Methanex shareholders $ 78 $ 104 $ 52 $ 191 $ 322
Mark-to-market impact of
share-based compensation, net
of tax (55) 4 14 (39) 22
Gain related to the
termination of a terminal
services agreement, net of
tax - (57) - (57) -
Argentina gas settlement, net
of tax - - - - (27)
--------------------------------------------------------- ------------------
Adjusted net income (1) $ 23 $ 51 $ 66 $ 95 $ 317
--------------------------------------------------------- ------------------
Diluted weighted average shares
outstanding (millions) 91 91 95 92 96
Adjusted net income per common
share (1) $ 0.26 $ 0.56 $ 0.69 $ 1.04 $ 3.30
--------------------------------------------------------- ------------------
(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.
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 Nine Months Ended
--------------------------------------------------
Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
($ millions) 2015 2015 2014 2015 2014
------------------------------------------------------- --------------------
------------------------------------------------------- --------------------
Consolidated statements of
income:
Revenue $ 527 $ 638 $ 730 $ 1,742 $ 2,490
Cost of sales and
operating expenses (394) (526) (597) (1,422) (1,916)
Mark-to-market impact of
share-based
compensation (67) 4 16 (49) 26
Adjusted EBITDA
(attributable to
associate) 38 18 5 78 32
Amounts excluded from
Adjusted EBITDA
attributable to non-
controlling interests (9) (5) (17) (28) (80)
------------------------------------------------------- --------------------
Adjusted EBITDA
(attributable to
Methanex shareholders)
(1) 95 129 137 321 552
Mark-to-market impact of
share-based
compensation 67 (4) (16) 49 (26)
Depreciation and
amortization (51) (47) (39) (145) (107)
Gain related to the
termination of a
terminal services
agreement - 65 - 65 -
Argentina gas settlement - - - - 42
Finance costs (16) (18) (8) (55) (28)
Finance income and other
expenses 1 2 (5) (6) (4)
Income tax expense (10) (20) (19) (25) (117)
Earnings of associate
adjustment (2) (18) (11) (8) (41) (26)
Non-controlling
interests adjustment
(2) 10 8 10 28 36
------------------------------------------------------- --------------------
Net income attributable to
Methanex shareholders $ 78 $ 104 $ 52 $ 191 $ 322
------------------------------------------------------- --------------------
Net income $ 77 $ 101 $ 59 $ 191 $ 366
------------------------------------------------------- --------------------
(1) 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.
(2) These adjustments represent depreciation and amortization, finance
costs, finance income and other expenses and income taxes associated
with our 63.1% interest in the Atlas methanol facility and the non-
controlling interests.
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:
Q3 2015 Q3 2015 YTD Q3 2015
compared with compared with compared with
($ millions) Q2 2015 Q3 2014 YTD Q3 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average realized price $ (53) $ (127) $ (670)
Sales volume (6) (3) 23
Total cash costs 25 88 416
----------------------------------------------------------------------------
Decrease in Adjusted
EBITDA $ (34) $ (42) $ (231)
----------------------------------------------------------------------------
Average realized price
Three Months Ended Nine Months Ended
------------------------- ------------------
Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
($ per tonne) 2015 2015 2014 2015 2014
--------------------------------------------------------- ------------------
--------------------------------------------------------- ------------------
Methanex average non-discounted
posted price 384 403 444 390 525
Methanex average realized price 323 350 389 337 453
--------------------------------------------------------- ------------------
Methanex's average realized price for the third quarter of 2015 was lower compared to the second quarter of 2015. Non-discounted posted prices moved lower through the quarter in Asia Pacific, the United States, and Europe compared to the second quarter of 2015 (refer to the Supply/Demand Fundamentals section for more information). Our average non-discounted posted price for the third quarter of 2015 was $384 per tonne compared with $403 per tonne for the second quarter of 2015 and $444 per tonne for the third quarter of 2014. Our average realized price for the third quarter of 2015 was $323 per tonne compared with $350 per tonne for the second quarter of 2015 and $389 per tonne for the third quarter of 2014. The change in average realized price for the third quarter of 2015 decreased Adjusted EBITDA by $53 million compared with the second quarter of 2015 and decreased Adjusted EBITDA by $127 million compared with the third quarter of 2014. Our average realized price for the nine months ended September 30, 2015 was $337 compared with $453 for the same period in 2014. The change in average realized price decreased Adjusted EBITDA by $670 million.
Sales volume
Methanol sales volume excluding commission sales volume was lower in the third quarter of 2015 compared with the second quarter of 2015 by 99,000 tonnes and with the third quarter of 2014 by 35,000 tonnes. Lower methanol sales volume excluding commission sales volume for these periods decreased Adjusted EBITDA by $6 million and $3 million, respectively. For the nine month period ended September 30, 2015, compared with the same period in 2014, methanol sales volume excluding commission sales volume was higher by 202,000 tonnes resulting in higher Adjusted EBITDA by $23 million.
Total cash costs
The primary drivers of changes in our total cash costs are changes in the cost of methanol we produce at our facilities (Methanex-produced methanol) and changes in the cost of methanol we purchase from others (purchased methanol). All of our current production facilities except Medicine Hat are underpinned by natural gas purchase agreements with pricing terms that include base and variable price components linked to the price of methanol. We supplement our production with methanol produced by others through methanol offtake contracts and purchases on the spot market to meet customer needs and to support our marketing efforts within the major global markets.
We have adopted the first-in, first-out method of accounting for inventories and it generally takes between 30 and 60 days to sell the methanol we produce or purchase. Accordingly, the changes in Adjusted EBITDA as a result of changes in Methanex-produced and purchased methanol costs primarily depend on changes in methanol pricing and the timing of inventory flows.
In a rising price environment, our margins at a given price are higher than in a stable price environment as a result of timing of methanol purchases and production versus sales. Conversely, the opposite applies when methanol prices are decreasing.
The impact on Adjusted EBITDA from changes in our cash costs are explained below:
Q3 2015 Q3 2015 YTD Q3 2015
compared with compared with compared with
($ millions) Q2 2015 Q3 2014 YTD Q3 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Methanex-produced methanol
costs $ 3 $ 37 $ 147
Proportion of Methanex-
produced methanol sales 15 1 (18)
Purchased methanol costs 4 30 253
Other, net 3 20 34
----------------------------------------------------------------------------
Increase in Adjusted EBITDA $ 25 $ 88 $ 416
----------------------------------------------------------------------------
Methanex-produced methanol costs
We purchase natural gas for the New Zealand, Trinidad, Geismar 1, 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. This reduces 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 third quarter of 2015 compared with the second quarter of 2015, Methanex-produced methanol costs were lower by $3 million. For the three and nine months ended September 30, 2015 compared with the same periods in 2014, Methanex-produced methanol costs were lower by $37 million and $147 million, respectively. Changes in Methanex-produced methanol costs for all periods presented are primarily due to the impact of changes in realized methanol prices on the variable portion of our natural gas costs and changes in the mix of production sold from inventory.
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 third quarter of 2015 compared with the second quarter of 2015 and the third quarter of 2014, a higher proportion of Methanex-produced methanol sales increased Adjusted EBITDA by $15 million and $1 million, respectively. For the nine months ended September 30, 2015 compared with the same period in 2014, a lower proportion of Methanex-produced methanol sales decreased Adjusted EBITDA by $18 million.
Purchased methanol costs
Changes in purchased methanol costs for all periods presented are primarily as a result of changes in methanol pricing.
Other, net
For the three and nine months ended September 30, 2015 compared with the same periods in 2014, changes in other costs are primarily a result of lower logistics costs.
Mark-to-Market Impact of Share-based Compensation
We grant share-based awards as an element of compensation. Share-based awards granted include stock options, share appreciation rights, tandem share appreciation rights, deferred share units, restricted share units and performance share units. For all share-based awards, share-based compensation is recognized over the related vesting period for the proportion of the service that has been rendered at each reporting date. Share-based compensation includes an amount related to the grant-date value and a mark-to-market impact as a result of subsequent changes in the fair value of the share-based awards primarily driven by the Company's share price. The grant-date value amount is included in Adjusted EBITDA and Adjusted net income. The mark-to-market impact of share-based compensation as a result of changes in our share price is excluded from Adjusted EBITDA and Adjusted net income and analyzed separately.
Three Months Ended Nine Months Ended
($ millions except share Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
share price) 2015 2015 2014 2015 2014
------------------------------------------------------ ---------------------
------------------------------------------------------ ---------------------
Methanex Corporation
share price (1) $ 33.16 $ 55.66 $ 66.80 $ 33.16 $ 66.80
Grant-date fair value
expense included in
Adjusted EBITDA and
Adjusted net income 3 6 5 17 19
Mark-to-market impact
due to change in share
price (67) 4 16 (49) 26
------------------------------------------------------ ---------------------
Total share-based
compensation expense
(recovery), before tax $ (64) $ 10 $ 21 $ (32) $ 45
------------------------------------------------------ ---------------------
(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 decreased from US $55.66 per share at June 30, 2015 to US $33.16 per share at September 30, 2015. As a result of this decrease, we recorded a $67 million mark-to-market recovery on share-based compensation in the third quarter of 2015 compared with a $4 million mark-to-market expense in the second quarter of 2015.
Depreciation and Amortization
Depreciation and amortization was $51 million for the third quarter of 2015 compared with $47 million for the second quarter of 2015 and $39 million for the third quarter of 2014. Depreciation and amortization was higher in the third quarter of 2015 compared to the second quarter of 2015 primarily due to higher unabsorbed depreciation recognized for production sites impacted by natural gas restrictions and production outages and higher sales volume of Methanex-produced methanol. Depreciation and amortization was higher in the third quarter of 2015 compared with the third quarter of 2014 primarily due to the commencement of depreciation associated with the start-up of our Geismar 1 facility during the first quarter of 2015 and higher unabsorbed depreciation recognized for production sites impacted by natural gas restrictions and production outages.
Finance Costs
Three Months Ended Nine Months Ended
Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
($ millions) 2015 2015 2014 2015 2014
------------------------------------------------------- --------------------
------------------------------------------------------- --------------------
Finance costs before
capitalized interest $ 21 $ 22 $ 15 $ 70 $ 46
Less capitalized interest (5) (4) (7) (15) (18)
------------------------------------------------------- --------------------
Finance costs $ 16 $ 18 $ 8 $ 55 $ 28
------------------------------------------------------- --------------------
Finance costs before capitalized interest primarily relates to interest expense on the unsecured notes, limited recourse debt facilities, and finance leases. For the three and nine months ended September 30, 2015 compared with the same periods in 2014, finance costs were higher due to higher average debt levels in 2015 compared to 2014 and an increase in finance costs related to leased assets that were put into use on the start up of our Geismar 1 facility.
Capitalized interest relates to interest costs capitalized for the Geismar project. The Geismar 1 facility commenced production during the first quarter of 2015 and accordingly, we ceased capitalizing interest costs related to Geismar 1 from the date that the facility commenced commercial operations.
Finance Income and Other Expenses
Three Months Ended Nine Months Ended
------------------------ ------------------
Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
($ millions) 2015 2015 2014 2015 2014
--------------------------------------------------------- ------------------
--------------------------------------------------------- ------------------
Finance income and other expenses $ 1 $ 2 $ (5) $ (6) $ (4)
--------------------------------------------------------- ------------------
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 third quarter of 2015 compared with the second quarter of 2015 is as follows:
Three Months Ended Three Months Ended
September 30, 2015 June 30, 2015
----------------------- -----------------------
($ millions, except where Adjusted Net Adjusted Net
noted) Net Income Income(1) Net Income Income(1)
---------------------------------------------------- -----------------------
---------------------------------------------------- -----------------------
Amount before income tax $ 87 $ 30 $ 121 $ 66
Income tax expense (10) (7) (20) (15)
---------------------------------------------------- -----------------------
$ 77 $ 23 $ 101 $ 51
---------------------------------------------------- -----------------------
Effective tax rate 12% 23% 16% 23%
---------------------------------------------------- -----------------------
(1) 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.
We earn the majority of our earnings in New Zealand, Trinidad, the United States, Egypt, Canada and Chile. In Trinidad and Chile, the statutory tax rate is 35%. The statutory rates in Canada and New Zealand are 26.5% and 28%, respectively. The United States statutory tax rate is 36% and the Egypt statutory tax rate is 22.5%. As the Atlas entity is accounted for using the equity method, any income taxes related to Atlas are included in earnings of associate and therefore excluded from total income taxes but included in the calculation of Adjusted net income.
For both the third quarter of 2015 and the second quarter of 2015, the effective tax rate based on Adjusted net income was 23%. Adjusted net income represents the amount that is attributable to Methanex shareholders and excludes the mark-to-market impact of share-based compensation and the impact of certain items associated with specific identified events. The effective tax rate differs from period to period depending on the source of earnings and the impact of foreign exchange fluctuations against the United States dollar on our tax balances.
SUPPLY/DEMAND FUNDAMENTALS
At the end of Q3 2015, we estimate that methanol demand, excluding integrated coal-to-olefins facilities, was approximately 61 million tonnes on an annualized basis.
Our average realized price in the third quarter of 2015 decreased to $323 per tonne from $350 per tonne realized in the second quarter of 2015. Traditional chemical demand for methanol in the third quarter of 2015 was similar to the second quarter of 2015, while energy demand grew modestly. We understand that a number of methanol-to-olefins ("MTO") facilities either undertook maintenance activities or operated at reduced rates during the quarter as a result of lower oil and olefins pricing, which lowered methanol affordability into that application. Leading into the fourth quarter of 2015, MTO related demand is anticipated to pick up with the re-start of capacity under maintenance and we believe that the start-up of two new MTO facilities have the capacity to consume up to 3.6 million tonnes of methanol.
We held our October North America contract price at $366 per tonne, reduced the European quarterly contract price by EUR70 to EUR295 per tonne for the fourth quarter of 2015, and moderately reduced our October Asia Pacific contract price by $10 per tonne to $305 per tonne. We also recently announced that Asia Pacific contract prices for November will remain steady at current levels and that we will decrease our North America contract price for November to $349.
Methanex Non-Discounted Regional Posted Prices (1)
----------------------------------------------------------------------------
(US$ per tonne) Oct 2015 Sep 2015 Aug 2015 Jul 2015
----------------------------------------------------------------------------
North America 366 366 416 442
Europe (2) 330 410 410 410
Asia Pacific 305 315 360 375
----------------------------------------------------------------------------
(1) Discounts from our posted prices are offered to customers based on
various factors.
(2) EUR295 for Q3 2015 (Q2 2015 - EUR365) converted to United States
dollars.
During the quarter, we continued to see stable demand from traditional chemical applications in China and the rest of the world. We estimate that traditional chemical derivatives consume approximately 60% of global methanol and believe that growth is correlated to GDP and industrial production growth rates. On the energy side, there are now eleven completed MTO/methanol-to-propylene ("MTP") plants in China which are dependent on merchant methanol supply, and these have the capacity to consume just over 10 million tonnes of methanol annually. There are two incremental MTO plants with expected start-up during the fourth quarter, increasing total potential demand at capacity for MTO/MTP to almost 14 million tonnes of methanol annually. There are also three other MTO plants at various stages of construction which are anticipated to be completed in 2016. The future operating rates and methanol consumption from these facilities will depend on a number of factors, including pricing for their various final products and the impact of feedstock costs on relative competitiveness. During the third quarter of 2015, we estimate that at least 4 million tonnes of annual methanol demand did not operate as a result of unaffordability, including MTO, MTP, and dimethyl-ether. Demand for direct methanol blending into gasoline in China has remained strong and we believe that future growth in this application is supported by numerous provincial fuel-blending standards. Fuel blending has continued to gain interest outside of China with several countries currently conducting demonstration programs to test the use of methanol-blended fuels.
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. Over the next few years, outside of China, the majority of new capacity additions are expected in North America. We are targeting to be producing first methanol from our one million tonne Geismar 2 facility in Geismar, Louisiana by the end of 2015. In addition, a 1.3 million tonne Fairway Methanol LLC plant has commenced operation in Clear Lake, Texas and OCI N.V. is developing a project for the construction of a 1.8 million tonne plant in Beaumont, Texas. We expect that production from new methanol capacity in China will be consumed in that country.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities in the third quarter of 2015 increased by $52 million to $134 million compared with $82 million for the second quarter of 2015 and decreased by $37 million compared to $171 million for the third quarter of 2014. Cash flows from operating activities for the nine month period ended September 30, 2015 were $253 million compared with $590 million for the same period in 2014. The changes in cash flows from operating activities resulted from changes in the following:
Q3 2015 Q3 2015 YTD Q3 2015
compared with compared with compared with
($ millions) Q2 2015 Q3 2014 YTD Q3 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Change in Adjusted EBITDA
(attributable to Methanex
shareholders) $ (34) $ (42) $ (231)
Exclude change in Adjusted
EBITDA of associate (20) (33) (46)
Dividends received from
associate - 13 32
Cash flows attributable to
non-controlling interests 4 (8) (52)
Non-cash working capital 104 17 (21)
Income taxes paid 3 9 (2)
Argentina gas settlement - - (42)
Share-based payments 1 3 23
Other (6) 4 2
----------------------------------------------------------------------------
Increase (decrease) in cash
flows from operating
activities $ 52 $ (37) $ (337)
----------------------------------------------------------------------------
During the third quarter of 2015 we paid a quarterly dividend of $0.275 per share, or $25 million.
On April 29, 2015, the Board of Directors approved a 5% normal course issuer bid, which allows us to repurchase for cancellation up to 4.6 million shares. Under the current normal course issuer bid, we are authorized to purchase up to a further 3.2 million shares by May 5, 2016. During the quarter we repurchased 629,100 shares for $27 million.
We operate in a highly competitive commodity industry and believe it is appropriate to maintain a conservative balance sheet and financial flexibility. At September 30, 2015, our cash balance was $427 million, including $55 million related to the 50% 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 also have access to a $400 million unsecured and undrawn credit facility and no debt maturities until 2019.
Our planned capital maintenance expenditure program directed towards maintenance, turnarounds and catalyst changes for existing operations, including our 63.1% share of Atlas, is currently estimated to be $105 million to the end of 2016. The estimated remaining capital expenditures related to our Geismar project are approximately $110 million, excluding capitalized interest.
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.
CONTROLS AND PROCEDURES
For the three months ended September 30, 2015, 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, Adjusted revenue and operating income. 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 the mark-to-market impact of share-based compensation, depreciation and amortization, finance costs, finance income and other expenses, income tax expense, the 50% non-controlling interest in the Egypt facility, gain related to the termination of a terminal services agreement and Argentina gas settlement. Adjusted EBITDA includes an amount representing our 63.1% interest in the Atlas facility.
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 attributable to Methanex shareholders to Adjusted EBITDA:
Three Months Ended Nine Months Ended
Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
($ millions) 2015 2015 2014 2015 2014
------------------------------------------------------- --------------------
------------------------------------------------------- --------------------
Net income attributable to
Methanex shareholders $ 78 $ 104 $ 52 $ 191 $ 322
Mark-to-market impact of
share-based compensation (67) 4 16 (49) 26
Depreciation and
amortization 51 47 39 145 107
Gain related to the
termination of a terminal
services agreement - (65) - (65) -
Argentina gas settlement - - - - (42)
Finance costs 16 18 8 55 28
Finance income and other
expenses (1) (2) 5 6 4
Income tax expense 10 20 19 25 117
Earnings of associate
adjustment (1) 18 11 8 41 26
Non-controlling interests
adjustment (1) (10) (8) (10) (28) (36)
------------------------------------------------------- --------------------
Adjusted EBITDA
(attributable to Methanex
shareholders) $ 95 $ 129 $ 137 $ 321 $ 552
------------------------------------------------------- --------------------
(1) These adjustments represent depreciation and amortization, finance
costs, finance income and other expenses and income tax expense
associated with our 63.1% interest in the Atlas methanol facility and
the non-controlling interests.
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 the impact of certain items associated with specific identified events. The following table shows a reconciliation of net income attributable to Methanex shareholders to Adjusted net income and the calculation of Adjusted net income per common share:
Three Months Ended Nine Months Ended
($ millions except number
of shares and per share Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
amounts) 2015 2015 2014 2015 2014
------------------------------------------------------- --------------------
------------------------------------------------------- --------------------
Net income attributable to
Methanex shareholders $ 78 $ 104 $ 52 $ 191 $ 322
Mark-to-market impact of
share-based
compensation, net of tax (55) 4 14 (39) 22
Gain related to the
termination of a
terminal services
agreement, net of tax - (57) - (57) -
Argentina gas settlement,
net of tax - - - - (27)
------------------------------------------------------- --------------------
Adjusted net income $ 23 $ 51 $ 66 $ 95 $ 317
------------------------------------------------------- --------------------
Diluted weighted average
shares outstanding
(millions) 91 91 95 92 96
Adjusted net income per
common share $ 0.26 $ 0.56 $ 0.69 $ 1.04 $ 3.30
------------------------------------------------------- --------------------
Adjusted Revenue (attributable to Methanex shareholders)
A reconciliation from revenue to Adjusted revenue is as follows:
Three Months Ended Nine Months Ended
Sep 30 Jun 30 Sep 30 Sep 30 Sep 30
($ millions) 2015 2015 2014 2015 2014
------------------------------------------------------- --------------------
------------------------------------------------------- --------------------
Revenue $ 527 $ 638 $ 730 $ 1,742 $ 2,490
Methanex share of Atlas
revenue (1) 97 64 46 229 171
Non-controlling interests'
share of revenue (1) - (1) (17) (23) (135)
Other adjustments (5) (5) (2) (8) (9)
------------------------------------------------------- --------------------
Adjusted Revenue
(attributable to Methanex
shareholders) $ 619 $ 696 $ 757 $ 1,940 $ 2,517
------------------------------------------------------- --------------------
(1) Excludes intercompany transactions with the Company.
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
Sep 30 Jun 30 Mar 31 Dec 31
($ millions, except per share amounts) 2015 2015 2015 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 527 $ 638 $ 577 $ 733
Adjusted EBITDA (1 2) 95 129 97 150
Net income (1) 78 104 9 133
Adjusted net income (1 2) 23 51 21 80
Basic net income per common share (1) 0.87 1.15 0.09 1.43
Diluted net income per common share (1) 0.54 1.15 0.09 1.11
Adjusted net income per share (1 2) 0.26 0.56 0.23 0.85
----------------------------------------------------------------------------
Three Months Ended
Sep 30 Jun 30 Mar 31 Dec 31
($ millions, except per share amounts) 2014 2014 2014 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 730 $ 792 $ 968 $ 881
Adjusted EBITDA (1 2) 137 160 255 245
Net income (1) 52 125 145 128
Adjusted net income (1 2) 66 91 160 167
Basic net income per common share (1) 0.55 1.30 1.51 1.33
Diluted net income per common share (1) 0.54 1.24 1.50 1.32
Adjusted net income per share (1 2) 0.69 0.94 1.65 1.72
----------------------------------------------------------------------------
(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 Third Quarter 2015 Management's Discussion and Analysis ("MD&A") as well as comments made during the Third Quarter 2015 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,
-- anticipated operating 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,
-- availability of committed credit facilities and other financing,
-- our ability to meet covenants or obtain or continue to obtain waivers
associated with our long-term debt obligations, including, without
limitation, the Egypt limited recourse debt facilities that have
conditions associated with the payment of cash or other distributions
and the finalization of certain land title registrations and related
mortgages which require actions by Egyptian governmental entities,
-- expected impact on our results of 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,
-- 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 completion of
the Geismar project,
-- 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, and
-- expected actions of governments, government agencies, gas suppliers,
courts, tribunals or other third parties.
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,
-- our ability to procure natural gas feedstock on commercially acceptable
terms,
-- operating rates of our facilities,
-- 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 project,
-- global and regional economic activity (including industrial production
levels),
-- receipt or issuance of third-party consents or approvals, including,
without limitation, governmental registrations of land title and related
mortgages in Egypt and governmental approvals related to rights to
purchase natural gas,
-- the establishment of new fuel standards,
-- 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, and
-- enforcement of contractual arrangements and ability to perform
contractual obligations by customers, natural gas and other suppliers
and other third parties.
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 and price for methanol and its derivatives,
including demand for methanol for energy uses,
-- the price of natural gas, coal, oil and oil derivatives,
-- our ability to obtain natural gas feedstock on commercially acceptable
terms to underpin current operations and future production growth
opportunities,
-- the ability to 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,
-- our ability to meet timeline and budget targets for our Geismar project,
including cost pressures arising from labour costs,
-- 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, and
-- other risks described in our 2014 Management's Discussion and Analysis
and this Third Quarter 2015 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 implied by 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 volume. The key drivers of changes 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 volume
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 net income per common share include an amount representing our 63.1% equity share in Atlas.
We own 50% of the 1.26 million tonne per year Egypt methanol facility and market the remaining 50% 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 net income per common share exclude the amount associated with the other investors' 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 Nine Months Ended
---------------------------- ----------------------------
Sep 30 Sep 30 Sep 30 Sep 30
2015 2014 2015 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 527,000 $ 730,112 $ 1,741,538 $ 2,489,900
Cost of sales and
operating expenses (394,062) (597,044) (1,421,778) (1,915,966)
Depreciation and
amortization (50,492) (38,767) (144,932) (106,691)
Gain on termination
of terminal
services agreement - - 65,000 -
Argentina gas
settlement - - - 42,000
----------------------------------------------------------------------------
Operating income 82,446 94,301 239,828 509,243
Earnings (loss) of
associate (note 4) 20,313 (3,838) 37,202 6,058
Finance costs (note
6) (16,211) (7,744) (54,978) (28,152)
Finance income and
other expenses 918 (4,851) (5,650) (3,937)
----------------------------------------------------------------------------
Income before
income taxes 87,466 77,868 216,402 483,212
Income tax expense
(recovery):
Current 4,973 (12,559) (3,532) (66,212)
Deferred (15,189) (6,359) (21,281) (51,237)
----------------------------------------------------------------------------
(10,216) (18,918) (24,813) (117,449)
----------------------------------------------------------------------------
Net income $ 77,250 $ 58,950 $ 191,589 $ 365,763
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Attributable to:
Methanex
Corporation
shareholders 78,073 51,580 191,307 321,466
Non-controlling
interests (823) 7,370 282 44,297
----------------------------------------------------------------------------
$ 77,250 $ 58,950 $ 191,589 $ 365,763
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income per share
for the period
attributable to
Methanex
Corporation
shareholders
Basic net income
per common share $ 0.87 $ 0.55 $ 2.10 $ 3.36
Diluted net
income per
common share
(note 7) $ 0.54 $ 0.54 $ 1.90 $ 3.34
Weighted average
number of common
shares outstanding
(note 7) 90,144,422 94,271,170 90,967,926 95,559,242
Diluted weighted
average number of
common shares
outstanding (note
7) 90,692,425 94,795,437 91,755,493 96,140,134
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 Nine Months Ended
--------------------- ----------------------
Sep 30 Sep 30 Sep 30 Sep 30
2015 2014 2015 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income $ 77,250 $ 58,950 $191,589 $365,763
Other comprehensive (loss)
income, net of taxes:
Items that may be
reclassified to income:
Change in fair value of
cash flow hedges (note
10) (18,750) 226 (20,417) 651
Forward element excluded
from hedging relationship
(note 10) (9,691) - (9,691) -
Change in fair value of
interest rate swap
contracts - (60) (12) 418
Realized loss on interest
rate swap contracts
reclassified to finance
costs - 3,423 3,205 9,902
Taxes on above items 9,420 (1,088) 8,992 (3,290)
----------------------------------------------------------------------------
(19,021) 2,501 (17,923) 7,681
----------------------------------------------------------------------------
Comprehensive income $ 58,229 $ 61,451 $173,666 $373,444
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Attributable to:
Methanex Corporation
shareholders 59,052 52,904 172,266 325,025
Non-controlling interests (823) 8,547 1,400 48,419
----------------------------------------------------------------------------
$ 58,229 $ 61,451 $173,666 $373,444
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated interim financial statements.
Methanex Corporation
Consolidated Statements of Financial Position (unaudited)
(thousands of U.S. dollars)
Sep 30 Dec 31
AS AT 2015 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 426,708 $ 951,600
Trade and other receivables 465,010 404,363
Inventories (note 2) 269,086 306,802
Prepaid expenses 20,668 23,137
----------------------------------------------------------------------------
1,181,472 1,685,902
Non-current assets:
Property, plant and equipment (note 3) 3,087,377 2,778,078
Investment in associate (note 4) 197,119 216,235
Other assets 81,429 95,125
----------------------------------------------------------------------------
3,365,925 3,089,438
----------------------------------------------------------------------------
$ 4,547,397 $ 4,775,340
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities:
Trade, other payables and accrued liabilities $ 553,270 $ 566,881
Current maturities on long-term debt (note 5) 46,647 193,831
Current maturities on other long-term
liabilities 14,470 59,118
----------------------------------------------------------------------------
614,387 819,830
Non-current liabilities:
Long-term debt (note 5) 1,484,836 1,528,207
Other long-term liabilities 201,848 140,861
Deferred income tax liabilities 242,480 233,225
----------------------------------------------------------------------------
1,929,164 1,902,293
Equity:
Capital stock 510,338 521,022
Contributed surplus 2,360 2,803
Retained earnings 1,259,092 1,262,961
Accumulated other comprehensive loss (19,454) (413)
----------------------------------------------------------------------------
Shareholders' equity 1,752,336 1,786,373
Non-controlling interests 251,510 266,844
----------------------------------------------------------------------------
Total equity 2,003,846 2,053,217
----------------------------------------------------------------------------
$ 4,547,397 $ 4,775,340
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 Accumulated
of Other
Common Capital Contributed Retained Comprehensive
Shares Stock Surplus Earnings Income (Loss)
----------------------------------------------------------------------------
Balance, December
31, 2013 96,100,969 $ 531,573 $ 4,994 $1,126,700 $ (5,544)
Net income - - - 321,466 -
Other
comprehensive
income - - - - 3,559
Compensation
expense
recorded for
stock options - - 621 - -
Issue of shares
on exercise of
stock options 502,074 9,662 - - -
Reclassification
of grant date
fair value on
exercise of
stock options - 2,712 (2,712) - -
Payment for
shares
repurchased (2,701,399) (15,149) - (154,015) -
Dividend
payments to
Methanex
Corporation
shareholders - - - (66,719) -
Distributions
made and
accrued to non-
controlling
interests - - - - -
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Balance,
September 30,
2014 93,901,644 $ 528,798 $ 2,903 $1,227,432 $ (1,985)
Net income - - - 133,144 -
Other
comprehensive
income - - - 32 1,572
Compensation
expense
recorded for
stock options - - 156 - -
Issue of shares
on exercise of
stock options 34,650 995 - - -
Reclassification
of grant date
fair value on
exercise of
stock options - 256 (256) - -
Payment for
shares
repurchased (1,609,807) (9,027) - (74,453) -
Dividend
payments to
Methanex
Corporation
shareholders - - - (23,194) -
Distributions
made and
accrued to non-
controlling
interests - - - - -
Equity
contributions
by non-
controlling
interests - - - - -
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Balance, December
31, 2014 92,326,487 $ 521,022 $ 2,803 $1,262,961 $ (413)
Net income - - - 191,307 -
Other
comprehensive
(loss) income - - - - (19,041)
Compensation
expense
recorded for
stock options - - 598 - -
Issue of shares
on exercise of
stock options 253,002 3,695 - - -
Reclassification
of grant date
fair value on
exercise of
stock options - 1,041 (1,041) - -
Payment for
shares
repurchased (2,736,091) (15,420) - (122,607) -
Dividend
payments to
Methanex
Corporation
shareholders - - - (72,569) -
Distributions
made and
accrued to non-
controlling
interests - - - - -
Equity
contributions
by non-
controlling
interests - - - - -
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Balance,
September 30,
2015 89,843,398 $ 510,338 $ 2,360 $1,259,092 $ (19,454)
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Non-
Shareholders' Controlling Total
Equity Interests Equity
--------------------------------------------------------------------------
Balance, December
31, 2013 $ 1,657,723 $ 247,610 $ 1,905,333
Net income 321,466 44,297 365,763
Other
comprehensive
income 3,559 4,122 7,681
Compensation
expense
recorded for
stock options 621 - 621
Issue of shares
on exercise of
stock options 9,662 - 9,662
Reclassification
of grant date
fair value on
exercise of
stock options - - -
Payment for
shares
repurchased (169,164) - (169,164)
Dividend
payments to
Methanex
Corporation
shareholders (66,719) - (66,719)
Distributions
made and
accrued to non-
controlling
interests - (42,725) (42,725)
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Balance,
September 30,
2014 $ 1,757,148 $ 253,304 $ 2,010,452
Net income 133,144 7,401 140,545
Other
comprehensive
income 1,604 1,145 2,749
Compensation
expense
recorded for
stock options 156 - 156
Issue of shares
on exercise of
stock options 995 - 995
Reclassification
of grant date
fair value on
exercise of
stock options - - -
Payment for
shares
repurchased (83,480) - (83,480)
Dividend
payments to
Methanex
Corporation
shareholders (23,194) - (23,194)
Distributions
made and
accrued to non-
controlling
interests - (4,613) (4,613)
Equity
contributions
by non-
controlling
interests - 9,607 9,607
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Balance, December
31, 2014 $ 1,786,373 $ 266,844 $ 2,053,217
Net income 191,307 282 191,589
Other
comprehensive
(loss) income (19,041) 1,118 (17,923)
Compensation
expense
recorded for
stock options 598 - 598
Issue of shares
on exercise of
stock options 3,695 - 3,695
Reclassification
of grant date
fair value on
exercise of
stock options - - -
Payment for
shares
repurchased (138,027) - (138,027)
Dividend
payments to
Methanex
Corporation
shareholders (72,569) - (72,569)
Distributions
made and
accrued to non-
controlling
interests - (17,234) (17,234)
Equity
contributions
by non-
controlling
interests - 500 500
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Balance,
September 30,
2015 $ 1,752,336 $ 251,510 $ 2,003,846
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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 Nine Months Ended
------------------------ ------------------------
Sep 30 Sep 30 Sep 30 Sep 30
2015 2014 2015 2014
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CASH FLOWS FROM / (USED IN)
OPERATING ACTIVITIES
Net income $ 77,250 $ 58,950 $ 191,589 $ 365,763
Deduct (earnings) loss of
associate (20,313) 3,838 (37,202) (6,058)
Dividends received from
associate 12,620 - 56,790 25,240
Add (deduct) non-cash
items:
Depreciation and
amortization 50,492 38,767 144,932 106,691
Income tax expense 10,216 18,918 24,813 117,449
Share-based
compensation
(recovery) expense (64,440) 20,632 (32,488) 44,757
Finance costs 16,211 7,744 54,978 28,152
Other (146) (593) 186 (169)
Income taxes paid (4,978) (13,768) (39,112) (37,194)
Other cash payments,
including share-based
compensation (880) (4,481) (15,051) (44,817)
----------------------------------------------------------------------------
Cash flows from operating
activities before
undernoted 76,032 130,007 349,435 599,814
Changes in non-cash
working capital (note 9) 57,749 40,879 (96,443) (9,685)
----------------------------------------------------------------------------
133,781 170,886 252,992 590,129
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CASH FLOWS FROM / (USED IN)
FINANCING ACTIVITIES
Payments for repurchase
of shares (27,042) (86,892) (138,027) (169,164)
Dividend payments to
Methanex Corporation
shareholders (24,750) (23,491) (72,569) (66,719)
Interest paid, including
interest rate swap
settlements (10,554) (19,994) (58,495) (46,805)
Repayment of long-term
debt and limited
recourse debt (21,430) (20,158) (193,083) (40,591)
Cash distributions to
non-controlling
interests (1,660) (1,660) (2,570) (34,158)
Proceeds on issue of
shares on exercise of
stock options 79 1,961 3,695 9,662
Other (572) (1,052) (2,830) (3,101)
Changes in non-cash
working capital related
to financing activities
(note 9) (5,835) (7,151) (13,670) (6,515)
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(91,764) (158,437) (477,549) (357,391)
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CASH FLOWS FROM / (USED IN)
INVESTING ACTIVITIES
Property, plant and
equipment (24,620) (19,269) (87,231) (51,033)
Geismar plants under
construction (72,778) (193,177) (243,669) (419,544)
Termination of terminal
services agreement - - 65,000 -
Other assets - (2,446) 1,996 (11,365)
Changes in non-cash
working capital related
to investing activities
(note 9) (2,622) 30,262 (36,431) (8,231)
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(100,020) (184,630) (300,335) (490,173)
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Decrease in cash and cash
equivalents (58,003) (172,181) (524,892) (257,435)
Cash and cash
equivalents, beginning
of period 484,711 647,482 951,600 732,736
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Cash and cash
equivalents, end of
period $ 426,708 $ 475,301 $ 426,708 $ 475,301
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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 producer and supplier of methanol to the major international markets of Asia Pacific, North America, Europe and South 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, with the exception of the early adoption of IFRS 9 "Financial Instruments" as described in the Company's annual consolidated financial statements.
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 October 28, 2015.
These condensed consolidated interim financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 2014.
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 and nine month periods ended September 30, 2015 is $459 million (2014 - $542 million) and $1,421 million (2014 - $1,778 million), respectively.
3. Property, plant and equipment:
Buildings,
Plant Plants
Installations Under Finance
& Machinery Construction Leases Other Total
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cost at September
30, 2015 $ 3,920,931 $ 506,235 $137,660 $195,933 $4,760,759
Accumulated
depreciation at
September 30,
2015 1,502,680 - 36,480 134,222 1,673,382
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Net book value at
September 30,
2015 $ 2,418,251 $ 506,235 $101,180 $ 61,711 $3,087,377
----------------------------------------------------------------------------
Cost at December
31, 2014 $ 3,097,200 $ 996,015 $ 32,230 $194,430 $4,319,875
Accumulated
depreciation at
December 31, 2014 1,384,100 - 30,488 127,209 1,541,797
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Net book value at
December 31, 2014 $ 1,713,100 $ 996,015 $ 1,742 $ 67,221 $2,778,078
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4. Interest in Atlas joint venture:
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. The Company accounts for its interest
in Atlas using the equity method. Summarized financial information of
Atlas (100% basis) is as follows:
Consolidated statements of financial position as Sep 30 Dec 31
at 2015 2014
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Cash and cash equivalents $ 11,529 $ 24,834
Other current assets 90,983 70,594
Non-current assets 320,536 352,616
Current liabilities (44,131) (29,442)
Other long-term liabilities, including current
maturities (136,694) (145,336)
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Net assets at 100% $ 242,223 $ 273,266
----------------------------------------------------------------------------
Net assets at 63.1% $ 152,843 $ 172,431
Long-term receivable from Atlas 44,276 43,804
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Investment in associate $ 197,119 $ 216,235
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Three Months Ended Nine Months Ended
------------------------ ------------------------
Consolidated statements of Sep 30 Sep 30 Sep 30 Sep 30
income 2015 2014 2015 2014
--------------------------------------------------- ------------------------
--------------------------------------------------- ------------------------
Revenue $ 95,285 $ 76,578 $ 277,919 $ 271,373
Cost of sales and
depreciation and
amortization (42,463) (78,711) (178,747) (248,929)
--------------------------------------------------- ------------------------
Operating income 52,822 (2,133) 99,172 22,444
Finance costs, finance
income and other expenses (2,273) (2,673) (6,967) (8,179)
Income tax expense (18,358) (1,277) (33,248) (4,664)
--------------------------------------------------- ------------------------
Net earnings (loss) at 100% $ 32,191 $ (6,083) $ 58,957 $ 9,601
--------------------------------------------------- ------------------------
Earnings (loss) of
associate at 63.1% $ 20,313 $ (3,838) $ 37,202 $ 6,058
--------------------------------------------------- ------------------------
--------------------------------------------------- ------------------------
Dividends received from
associate $ 12,620 $ - $ 56,790 $ 25,240
--------------------------------------------------- ------------------------
On December 31, 2014, the Company reclassified the presentation related to purchases of inventory from associate. The reclassification has been reflected in the comparative figures. For the three month and nine month periods ended September 30, 2014 the reclassification resulted in an increase to earnings of associate by $4.8 million and $4.0 million, respectively. These amounts have been reclassified to cost of sales and inventory with the associated tax impacts reflected in deferred taxes.
b) Contingent liability:
The Board of Inland Revenue of Trinidad and Tobago has issued assessments against Atlas in respect of the 2005, 2006, 2007 and 2008 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 from 2005 to 2019 related to methanol produced by Atlas. Atlas had partial relief from corporation income tax until late July 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:
Sep 30 Dec 31
As at 2015 2014
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Unsecured notes
$150 million at 6.00% due August 15, 2015 $ - $ 149,835
$350 million at 3.25% due December 15, 2019 346,062 345,387
$250 million at 5.25% due March 1, 2022 247,266 246,991
$300 million at 4.25% due December 1, 2024 296,134 296,073
$300 million at 5.65% due December 1, 2044 295,011 294,936
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1,184,473 1,333,222
Egypt limited recourse debt facilities 329,610 368,678
Other limited recourse debt facilities 17,400 20,138
----------------------------------------------------------------------------
Total long-term debt (1) 1,531,483 1,722,038
Less current maturities (46,647) (193,831)
----------------------------------------------------------------------------
$ 1,484,836 $ 1,528,207
----------------------------------------------------------------------------
(1) Long-term debt is presented net of deferred financing fees.
During the three months ended September 30, 2015, the Company made repayments on its other limited recourse debt facilities of $0.9 million and $20.5 million on its Egypt limited recourse debt facilities.
At September 30, 2015, management believes the Company was in compliance with all significant terms and default provisions related to long-term debt obligations.
6. Finance costs:
Three Months Ended Nine Months Ended
Sep 30 Sep 30 Sep 30 Sep 30
2015 2014 2015 2014
----------------------------------------------------- ----------------------
----------------------------------------------------- ----------------------
Finance costs $ 21,283 $ 15,316 $ 69,891 $ 46,364
Less capitalized interest
related to Geismar plants under
construction (5,072) (7,572) (14,913) (18,212)
----------------------------------------------------- ----------------------
$ 16,211 $ 7,744 $ 54,978 $ 28,152
----------------------------------------------------- ----------------------
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 of the Geismar plants is capitalized until the plants are substantially complete and ready for productive use.
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 as compared to the cash-settled method.
A reconciliation of the numerator used for the purpose of calculating diluted net income per common share is as follows:
Three Months Ended Nine Months Ended
----------------------- -----------------------
Sep 30 Sep 30 Sep 30 Sep 30
2015 2014 2015 2014
---------------------------------------------------- -----------------------
---------------------------------------------------- -----------------------
Numerator for basic net
income per common share $ 78,073 $ 51,580 $ 191,307 $ 321,466
Adjustment for the effect of
TSARs:
Cash-settled recovery
included in net income (28,772) - (12,507) -
Equity-settled expense (700) - (4,612) -
---------------------------------------------------- -----------------------
Numerator for diluted net
income per common share $ 48,601 $ 51,580 $ 174,188 $ 321,466
---------------------------------------------------- -----------------------
Stock options and, if calculated using the equity-settled method, TSARs 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 denominator used for the purposes of calculating basic and diluted net income per common share is as follows:
Three Months Ended Nine Months Ended
------------------------ ------------------------
Sep 30 Sep 30 Sep 30 Sep 30
2015 2014 2015 2014
--------------------------------------------------- ------------------------
--------------------------------------------------- ------------------------
Denominator for basic net
income per common share 90,144,422 94,271,170 90,967,926 95,559,242
Effect of dilutive stock
options 211,859 524,267 306,365 580,892
Effect of dilutive TSARs 336,144 - 481,202 -
--------------------------------------------------- ------------------------
Denominator for diluted net
income per common share 90,692,425 94,795,437 91,755,493 96,140,134
--------------------------------------------------- ------------------------
8. Share-based compensation:
a) Share appreciation rights ("SARs"), TSARs and stock options:
(i) Outstanding units:
Information regarding units outstanding at September 30, 2015 is as follows:
SARs TSARs
------------------------- -------------------------
Weighted Weighted
Average Average
(per share amounts in Number Exercise Number Exercise
USD) of Units Price of Units Price
-------------------------------------------------- -------------------------
-------------------------------------------------- -------------------------
Outstanding at December
31, 2014 1,085,247 $ 40.78 1,732,185 $ 39.59
Granted 279,273 55.66 416,605 55.39
Exercised (93,587) 32.24 (17,300) 31.89
Cancelled (2,900) 52.68 (6,850) 64.98
-------------------------------------------------- -------------------------
Outstanding at June 30,
2015 1,268,033 $ 44.66 2,124,640 $ 42.67
-------------------------------------------------- -------------------------
Granted 5,000 40.72 - -
Exercised (450) 26.78 - -
Cancelled (10,075) 59.12 (2,675) 50.45
-------------------------------------------------- -------------------------
Outstanding at September
30, 2015 1,262,508 $ 44.53 2,121,965 $ 42.66
-------------------------------------------------- -------------------------
Stock Options
------------------------------
Weighted
Average
Number Exercise
(per share amounts in USD) of Units Price
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding at December 31, 2014 699,261 $ 21.90
Granted 55,917 55.66
Exercised (236,681) 15.28
Cancelled (3,600) 61.50
Expired (12,690) 28.43
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Outstanding at June 30, 2015 502,207 $ 28.33
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Exercised (12,300) 6.33
Cancelled (3,600) 61.50
----------------------------------------------------------------------------
Outstanding at September 30, 2015 486,307 $ 28.64
----------------------------------------------------------------------------
Units Outstanding at Units Exercisable at
September 30, 2015 September 30, 2015
------------------------------------ -----------------------
Weighted
Range of Average Weighted Weighted
Exercise Prices Remaining Number Average Number Average
(per share Contractual of Units Exercise of Units Exercise
amounts in USD) Life (Years) Outstanding Price Exercisable Price
---------------------------------------------------- -----------------------
---------------------------------------------------- -----------------------
SARs:
$23.36 to
$40.72 3.37 765,920 $ 32.70 646,286 $ 31.71
$46.42 to
$73.13 5.98 496,588 62.78 69,734 72.46
---------------------------------------------------- -----------------------
4.39 1,262,508 $ 44.53 716,020 $ 35.68
---------------------------------------------------- -----------------------
TSARs:
$23.36 to
$40.72 3.26 1,400,535 $ 32.41 1,227,235 $ 31.58
$46.42 to
$73.13 6.00 721,430 62.57 99,533 72.65
---------------------------------------------------- -----------------------
4.20 2,121,965 $ 42.66 1,326,768 $ 34.66
---------------------------------------------------- -----------------------
Stock options:
$6.33 to
$25.22 0.65 224,590 $ 10.51 224,590 $ 10.51
$28.43 to
$73.13 4.45 261,717 44.20 158,200 36.12
---------------------------------------------------- -----------------------
2.70 486,307 $ 28.64 382,790 $ 21.10
---------------------------------------------------- -----------------------
(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 September 30, 2015 was $12.3 million compared with the recorded liability of $11.6 million. The difference between the fair value and the recorded liability of $0.7 million will be recognized over the weighted average remaining vesting period of approximately 1.72 years. The weighted average fair value was estimated at September 30, 2015 using the Black-Scholes option pricing model.
For the three and nine month periods ended September 30, 2015, compensation expense related to SARs and TSARs included a recovery in cost of sales and operating expenses of $44.6 million (2014 - expense of $13.3 million) and a recovery of $19.6 million (2014 - expense of $28.8 million), respectively. This included a recovery of $45.3 million (2014 - expense of $11.7 million) and a recovery of $26.8 million (2014 - expense of $20.3 million), respectively, related to the effect of the change in the Company's share price for the three and nine month periods ended September 30, 2015.
(iii) Compensation expense related to stock options:
For the three and nine month periods ended September 30, 2015, compensation expense related to stock options included in cost of sales and operating expenses was $0.2 million (2014 - $0.2 million) and $0.6 million (2014 - $0.6 million), respectively. The fair value of each stock option grant was estimated on the grant date using the Black-Scholes option pricing model.
(b) Deferred, restricted and performance share units:
Deferred, restricted and performance share units outstanding at September 30, 2015 are as follows:
Number of Number of Number of
Deferred Restricted Performances
Share Units Share Units Share Units
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Outstanding at December 31, 2014 302,158 30,365 798,944
Granted 5,790 6,400 169,990
Granted performance factor (1) - - 71,100
Granted in-lieu of dividends 2,946 361 5,916
Redeemed (1,500) - (426,598)
Cancelled - - (14,247)
----------------------------------------------------------------------------
Outstanding at June 30, 2015 309,394 37,126 605,105
----------------------------------------------------------------------------
Granted 671 - -
Granted in-lieu of dividends 2,575 287 4,655
Redeemed - - -
Cancelled - - (3,483)
----------------------------------------------------------------------------
Outstanding at September 30, 2015 312,640 37,413 606,277
----------------------------------------------------------------------------
(1) Performance share units have a feature where the ultimate number of
units that vest are adjusted by a performance factor of the original
grant as determined by the Company's total shareholder return in
relation to a predetermined target over the period to vesting. These
units relate to performance share units redeemed in the quarter ended
March 31, 2015.
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 net income 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 September 30, 2015 was $21.6 million compared with the recorded liability of $20.3 million. The difference between the fair value and the recorded liability of $1.3 million will be recognized over the weighted average remaining vesting period of approximately 1.5 years.
For the three and nine month periods ended September 30, 2015, compensation expense related to deferred, restricted and performance share units included in cost of sales and operating expenses was a recovery of $19.9 million (2014 - expense of $7.1 million) and an recovery of $13.5 million (2014 - expense of $15.4 million), respectively. This included a recovery of $21.7 million (2014 - expense of $5.1 million) and a recovery of $22.0 million (2014 - expense of $6.1 million) related to the effect of the change in the Company's share price for the three and nine month periods ended September 30, 2015.
9. Changes in non-cash working capital:
Changes in non-cash working capital for the three and six month periods ended September 30, 2015 and 2014 were as follows:
Three Months Ended Nine Months Ended
------------------------------------------------
Sep 30 Sep 30 Sep 30 Sep 30
2015 2014 2015 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Changes in non-cash working
capital:
Trade and other
receivables $ 81,523 $ 30,770 $ (60,647) $ 77,109
Inventories 46,983 15,714 37,716 49,231
Prepaid expenses (6,361) 7,078 2,469 (1,132)
Trade, other payables and
accrued liabilities,
including long-term
payables included in
other long-term
liabilities (67,191) 15,387 (66,879) (104,619)
----------------------------------------------------------------------------
54,954 68,949 (87,341) 20,589
Adjustments for items not
having a cash effect and
working capital changes
relating to taxes and
interest paid (5,662) (4,959) (59,203) (45,020)
----------------------------------------------------------------------------
Changes in non-cash working
capital having a cash
effect $ 49,292 $ 63,990 $(146,544) $ (24,431)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
These changes relate to the
following activities:
Operating $ 57,749 $ 40,879 $ (96,443) $ (9,685)
Financing (5,835) (7,151) (13,670) (6,515)
Investing (2,622) 30,262 (36,431) (8,231)
----------------------------------------------------------------------------
Changes in non-cash working
capital $ 49,292 $ 63,990 $(146,544) $ (24,431)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10. Financial instruments:
Financial instruments are either measured at amortized cost or fair value.
In the normal course of business, the Company's assets, liabilities and forecasted transactions, as reported in U.S. dollars, are impacted by various market risks including, but not limited to, natural gas prices and currency exchange rates. The time frame and manner in which the Company manages those risks varies for each item based on the Company's assessment of the risk and the available alternatives for mitigating risks.
The Company uses derivatives as part of its risk management program to mitigate variability associated with changing market values. Changes in fair value of derivative financial instruments are recorded in earnings unless the instruments are designated as cash flow hedges. The Company designates as cash flow hedges derivative financial instruments to hedge its risk exposure to fluctuations in the euro compared to the U.S. dollar and derivative financial instruments to hedge its risk exposure to fluctuations in natural gas prices.
The fair value of derivative instruments is determined based on industry-accepted valuation models using market observable inputs and are classified within Level 2 of the fair value hierarchy. The fair value of all of the Company's derivative contracts includes an adjustment for credit risk. The effective portion of the changes in fair value of derivative financial instruments designated as cash flow hedges is recorded in other comprehensive income. The spot element of forward contracts in the hedging relationships is recorded in other comprehensive income as the change in fair value of cash flow hedges. The change in the fair value of the forward element of forward contracts is recorded separately in other comprehensive income as the forward element excluded from hedging relationship.
Natural gas forward contracts
The Company has elected to manage its exposure to changes in natural gas prices for the Geismar 2 facility by executing a number of forward contracts which it has designated as cash flow hedges for its highly probable forecast natural gas purchases in North America. During the three months ended September 30, 2015, the Company entered into 10 year forward contracts to hedge approximately 40% of gas supply to the Geismar 2 facility once operational.
Euro forward exchange contracts
The Company manages its foreign currency exposure to the euro that results due to sales denominated in euros by executing a number of forward contracts which it has designated as cash flow hedges for its highly probable forecast euro collections.
The following tables provide additional information on the Company's derivative financial instruments designated as cash flow hedges outstanding as at September 30, 2015:
Notional amount by term to maturity
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1 year 1-3 3-5 More than
or less years years 5 years Total
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Natural gas forward contracts 19,358 82,038 87,095 266,920 $ 455,411
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Euro forward exchange
contracts 72,742 - - - $ 72,742
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Consolidated Fair Value at
balance September 30,
sheet classification 2015
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Other long-term
Natural gas forward contracts liabilities $ 28,927
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Other long-term
Euro forward exchange contracts liabilities $ 76
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The carrying values of the Company's financial instruments approximate their fair values, except as follows:
September 30, 2015
----------------------------------
As at Carrying Value Fair Value
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Long-term debt excluding deferred
financing fees $ 1,547,140 $ 1,516,917
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Long-term debt consists of limited recourse debt facilities and unsecured notes. There is no publicly traded market for the limited recourse debt facilities. The fair value disclosed on a recurring basis and categorized as Level 2 within the fair value hierarchy is estimated by reference to current market prices for debt securities with similar terms and characteristics. The fair value of the unsecured notes disclosed on a recurring basis and also categorized as Level 2 within the fair value hierarchy was estimated by reference to a limited number of small transactions in September 2015. The fair value of the Company's unsecured notes will fluctuate until maturity.
Methanex Corporation
Quarterly History (unaudited)
2015 Q3 Q2 Q1 2014 Q4 Q3 Q2 Q1
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METHANOL SALES
VOLUME
(thousands of
tonnes)
Methanex-
produced (1) 3,678 1,238 1,203 1,237 4,878 1,249 1,258 1,143 1,228
Purchased
methanol 2,144 679 813 652 2,685 694 694 643 654
Commission
sales (1) 463 169 109 185 941 248 191 206 296
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6,285 2,086 2,125 2,074 8,504 2,191 2,143 1,992 2,178
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METHANOL
PRODUCTION
(thousands of
tonnes)
New Zealand 1,444 476 487 481 2,196 542 595 559 500
Atlas
(Trinidad)
(63.1%
interest) 671 226 236 209 907 233 234 191 249
Titan
(Trinidad) 541 172 183 186 664 127 185 203 149
Geismar 1 and
2 (Louisiana,
USA) (2) 715 259 276 180 - - - - -
Egypt (50%
interest) 16 - 8 8 416 128 50 99 139
Medicine Hat
(Canada) 301 123 51 127 505 115 130 138 122
Chile I and IV 116 3 40 73 165 62 10 26 67
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3,804 1,259 1,281 1,264 4,853 1,207 1,204 1,216 1,226
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AVERAGE
REALIZED
METHANOL
PRICE(3)
($/tonne) 337 323 350 337 437 390 389 450 524
($/gallon) 1.01 0.97 1.05 1.01 1.31 1.17 1.17 1.35 1.58
PER SHARE
INFORMATION
($ per
share)(4)
Adjusted net
income (5) 1.04 0.26 0.56 0.23 4.12 0.85 0.69 0.94 1.65
Basic net
income 2.10 0.87 1.15 0.09 4.79 1.43 0.55 1.30 1.51
Diluted net
income 1.90 0.54 1.15 0.09 4.55 1.11 0.54 1.24 1.50
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(1) Methanex-produced methanol includes volume produced by Chile using
natural gas supplied from Argentina under a tolling arrangement.
Commission sales represent volume marketed on a commission basis
related to the 36.9% of the Atlas methanol facility and the portion of
the Egypt methanol facility that we do not own.
(2) We commenced methanol production from Geismar 1 in January 2015.
(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 volume of Methanex-produced (attributable to Methanex
shareholders) and purchased methanol but excluding volume produced by
Chile using natural gas supplied from Argentina under a tolling
agreement.
(4) Per share information calculated using amounts attributable to Methanex
shareholders.
(5) 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
Source: Methanex Corporation